[LOGO] STATE STREET RESEARCH [PHOTO]
Government Income Fund
- --------------------------------------------------------------------------------
Annual Report to Shareholders
October 31, 1999
- -----------------------
In this Report
- -----------------------
Why Bonds
Have Stumbled
[PHOTO]
plus
America's Cycle of
Prosperity Continues
Bond Basics
Fund Portfolio and Financials
<PAGE>
Contents
2 12 Month Review
A look at the fund and its market environment over the past 12 months
6 Performance in Perspective
The most recent performance in the context of the fund's track record
8 The Fund in Detail
Portfolio holdings, financials and notes
- --------------------------------------------------------------------------------
From the Chairman
75 Years Ago
State Street Research introduced one of the nation's first mutual funds and
pioneered management and research methods that have become industry standard
today. We were also one of the first firms to provide candid commentary on fund
performance. And in recent years, we have been recognized for our prospectus
simplification and plain English communications.
[PHOTO]
Ralph F. Verni
Our newly designed shareholder reports come out of that same tradition. We think
the educational format, lively graphics and plain English style will make it
easier for you to understand how your fund performed -- and why. We hope you
agree.
We're proud to celebrate 75 years of excellence. But as we get ready to turn the
calendar to the year 2000, our focus is on the future. We thank you for your
confidence, and we look forward to continuing to help you work toward your
financial goals in the years ahead.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman, State Street Research
October 31, 1999
[GRAPHIC]
- --------
12 Month Review Management's Discussion of Fund Performance Part 1
- --------
How State Street Research
Government Income Fund Performed
In a year that was difficult for most segments of the bond market, the fund
returned -0.84.(1) And while negative performance is always disappointing, that
was higher than the return of the Merrill Lynch Government Master Index(2),
which lost -1.20%. The fund also outperformed its peer group, the Lipper
Government Fund Average(3), which returned -1.75% for the year.
Reasons for the Fund's Performance
The Federal Reserve Board raised short-term interest rates by 1/2 % (50 basis
points) in two, quick 1/4% hits during the summer. That hurt bonds across the
board. However, the fund escaped some of the fallout by shifting assets from the
U.S. Treasury and agency markets to agency mortgage pass-throughs (mortgages
that "pass" income "through" from debtors to investors after deduction of a
service fee) which managed to deliver modest single-digit returns during the
year compared to a loss for U.S. Treasury bonds. Relatively low inflation
favored long-term bonds, which fared better than intermediate-term bonds during
the period.
Outlook
Although we expect the U.S. economy to continue to grow, we believe the Federal
Reserve Board will continue to monitor employment costs and their tie to
inflation with an eye to further interest rate hikes in the period ahead. That's
why we have shortened the duration of the bonds held within the fund. We are
positioned to withstand higher interest rates. However, if rates come down, all
segments of the bond market should benefit.
More Management's Discussion of Fund Performance on pages 6 and 7. |_|
Class A Shares(1)
[GRAPHIC]
-0.84%
We are positioned to withstand higher interest rates.
[PHOTO]
Jack Kallis
Portfolio Manager,
State Street Research
Government Income Fund
Merrill Lynch
Government
Master Index(2)
[GRAPHIC]
-1.20%
Because financial markets and mutual fund strategies are constantly evolving,
it's possible that the fund's holdings, market stance, outlook for various
industries or securities and other matters discussed in this report have changed
since this information was prepared. Portfolio changes should not be considered
recommendations for action by individual investors.
2 State Street Research Government Income Fund
<PAGE>
------------------------------------------------------------------------
[PHOTO] The Fund at a Glance as of 10/31/99
------------------------------------------------------------------------
State Street Research Government Income Fund is a bond fund focusing on
U.S. government securities.
Mortgage bonds
We raised the fund's investment in agency mortgage bonds from 38% to 53% of
total assets. That helped as mortgage bonds outperformed Treasuries by
approximately 4% for the year.
[GRAPHIC]
Hits
&
Misses
[GRAPHIC]
Duration call
At the beginning of the year, the fund's duration was 129% of the Lehman
Brothers Aggregate Bond Index(2). That hurt performance in the first part of the
period.
Total Net Assets: $656 million
- --------------------------------------------------------------------------------
[The following was represented as a pie chart in the printed material]
Asset Allocation
U.S. Agency Mortgages 53%
U.S. Treasury 30%
Other Mortgage 7%
Foreign Government 4%
Trust Certificates/Other 3%
Cash 3%
- ---------------------------------
Total Net Assets 100%
See page 11 for more detail.
Performance: Class A
Year ended 10/31/99: -0.84%(1)
Fund average annual total return(4)
1 Year 5 Years 10 Years
- ----------------------------------------
-5.31% 6.46% 7.09%
Fund average annual total return 9/30/99(4)
1 Year 5 Years 10 Years
- ----------------------------------------
-6.03% 6.38% 7.30%
See pages 6 and 7 for data on other share classes.
Merrill Lynch Government Master Index(2)
1 Year 5 Years 10 Years
- ----------------------------------------
-1.20% 7.70% 7.70%
- --------------------------------------------------------------------------------
Bond Yields
October 31, 1998 to October 31, 1999
[The following table was represented as a line chart in the printed material.]
50-day 30-year 30-year
U.S. Treasury U.S. Treasury Mortgage
Securities Securities Securities
---------- ---------- ----------
10/98 4.3 5.2 6.3
11/98 4.5 5.2 6.3
12/98 4.5 5.1 6.3
1/99 4.5 5.1 6.3
2/99 4.7 5.6 6.7
3/99 4.7 5.2 5.6
4/99 4.5 5.3 5.7
5/99 4.6 5.6 5.8
6/99 4.8 5.8 6.0
7/99 4.7 5.9 6.1
8/99 5.0 6.0 6.1
9/99 4.8 5.0 6.1
10/99 5.1 6.2 7.4
Source: Bloomberg, 1999
- --------------------------------------------------------------------------------
Ticker Symbols
State Street Research Government Income Fund
Class A: SSGIX Class B(1): SGIPX* Class B: SSGBX Class C: SGIDX
Class S: SGICX*
- ----------
(1) Does not reflect sales charge.
(2) Merrill Lynch Government and Mortgage Master Indices are commonly used
measures of bond market performance. The Lehman Brothers Aggregate Bond
Index is a market-value weighted index of fixed-rate debt issues,
including U.S. treasury, agency, and corporate bond issues, and
mortgage-backed securities. The indices are unmanaged and do not take
sales charges into consideration. It is not possible to invest directly in
the indices.
(3) Lipper Government Fund Average shows the performance of a category of
mutual funds with similar goals. The Lipper average shows you how well the
fund has done compared with competing funds.
(4) At maximum applicable sales charge.
(5) The S&P 500 (officially the "Standard & Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the
index.
* Proposed.
3
<PAGE>
[GRAPHIC] The Way We Think
Why Bonds
Have Stumbled
[GRAPHIC]
If the U.S. economy is as good as it gets; if inflation is low and the American
consumer is happy; if stocks are poised to finish the decade with yet another up
year, why did bonds fail to find a place at the party over the past year? The
reasons are linked to the very environment that has perpetuated our nation's
prosperity.
Strong, and Wrong for Bonds
Consider the back-drop: Companies have increased their profits at a healthy pace
in 1999 because consumers are spending. Autos and houses have been selling
strongly because consumers are confident. And so far, this favorable environment
has been accompanied by relatively low inflation because technology improvements
have driven growth without raising prices or pushing personal income up too far,
too fast.
In this fertile environment of growth, the demand for credit has also risen. (It
makes sense: companies that are flush feel comfortable with borrowing.) Plus,
Y2K fears added to rising credit demand. That's because corporations moved into
the credit markets early in the year to line up financing and avoid any
potential turn-of-the-calendar glitches rather than spread their demand for
credit over the year in a more normal fashion.
And because the bond market is driven by supply and demand, when demand rises,
interest rates rise too. A higher rate is the "more" investors have to pay to
get into the market. It's the "more" that corporations or the government have to
offer to make their bonds attractive to investors. And when interest rates go
up, the supply of existing bonds gets repriced down-
[GRAPHIC]
America's Cycle of Prosperity Continues
An unexpected burst of strength that kicked off the fourth quarter of 1998
turned out to be the sign of things to come for the U.S. economy. Although the
pace has slowed somewhat, America's gross domestic product is expected to grow
at an annualized rate of 4.0% or higher in 1999, well above the level that the
Federal Reserve considers comfortable to control inflation. As a result, the
Federal Reserve Board raised short-term interest rates twice during the period
from November 1998 through October 1999 and put the country on notice that its
general disposition was to raise rates again, if necessary.
Inflationary Pressure Mounts Indeed, pressures on both costs and prices have
begun to mount. Soaring energy prices have pushed the inflation rate, as
measured by the Consumer Price Index, up to 2.6%, compared to 1.6% not quite one
year ago. Households continue to spend more than they earn as home, auto, and
retail sales remained robust. Auto sales have slowed from their highest annual
rate in more than a decade, but the pace is still strong. And despite Y2K
concerns, there are no signs that businesses have backed off their recent
pattern of heavy spending on technology.
Higher Rates Hurt Bonds Higher interest rates have hurt bonds more than stocks.
Most bonds lost ground as the yield on the 30-year U.S. Treasury benchmark rose
above 6.0% in June and edged above 6.2% by the end of the period. The S&P 5005,
a broad measure of common stock performance, rose 25.66% during the year.
However, a disproportionate share of the market's gains again belonged to
large-company growth stocks. Outside the top 50 stocks, returns have been flat
to down for the period. That means the average investor is looking at a
portfolio that is out of step with the indexes.
[The following table was represented as a bar chart in the printed material.]
Inflationary Pressure
Has Started to Build
Jan 99 Apr 99 Jul 99 Oct 99
- ------ ------ ------ ------
1.6% 2.0% 2.1% 2.6%
Consumer Price Index
Source: Bureau of Economic Analysis.
4 State Street Research Government Income Fund
<PAGE>
ward to reflect the higher rates [see sidebar] -- which is the scenario that has
played itself out in the U.S. bond market for most of the past year.
Signs of Change
But keep in mind that the bond market is forward looking. It shudders when it
anticipates inflation. It's easily jarred by an anomaly such as Y2K. But it also
has been quick to react now that the demand for credit has shown some initial
signs of slowing. In the last month of the period, housing and auto sales came
down off their enormous highs. Construction contracts slowed. Capital goods
sales are slowing now that spending on computer equipment and software for Y2K
is history for most corporations. As the factors that drove the economy early in
the year have begun to unwind, interest rates have come back down closer to the
6.0% mark, where they started the year.
A Better Environment Ahead?
Can it last? Are declining interest rates -- and rising bond prices -- a
sustainable trend? That depends, says Jack Kallis, portfolio manager of State
Street Research Government Income Fund, on whether we can slow the economy down
fast enough so that there's no reason to raise rates again. U.S. interest rates
are also linked to the global economy. "If other countries pick up their
industrial production and raise their interest rates, it would attract capital
away from the U.S. bond market. With lower demand from foreign investors, U.S.
interest rates might come down."
In fact, history shows that bonds are bargain priced in many segments of the
market. Investor sentiment toward bonds is negative, and that, too, is a
positive sign. Add a federal budget surplus into the mix, which has the
government paying down its debt, thus reducing the supply of bonds on the
market, and you have three good reasons to start thinking about bonds for the
period ahead. Says Kallis, that's three more than we had before.
[The following table was represented as a line chart in the printed material.]
Mortgage Bonds Look Like Bargins
The yield spread between a
30-year FNMA* bond and a 5-year U.S. treasury
The higher the spread, the more attractive the bond.
The long-term historical average yield spread is 120.
Basis Points
------------
-206.1
-190.1
-191.0
-171.6
11/27/1998 -177.9
-192.6
-192.2
-193.0
-179.1
01/01/1999 -182.2
-166.0
-177.9
-178.5
-172.4
02/05/1999 -155.9
-153.9
-150.0
-147.1
-150.9
03/12/1999 -151.6
-150.0
-154.6
-152.7
-151.6
04/16/1999 -147.0
-145.6
-143.9
-139.8
-136.4
05/21/1999 -148.6
-142.2
-144.9
-144.8
-148.4
06/25/1999 -152.0
-155.8
-157.1
-166.3
-177.2
07/30/1999 -175.1
-185.9
-178.2
-176.1
-174.5
09/03/1999 -179.3
-170.7
-164.3
-165.3
-168.0
10/08/1999 -155.5
-165.6
-159.4
-152.6
Source: Bloomberg, 1999.
* Federal National Mortgage Association
A Closer Look [GRAPHIC]
Bond Basics
[GRAPHIC]
Unlike stocks, which are priced higher (or lower) depending on how investors
judge a company's earnings prospects, bonds start with a face value that doesn't
change. Yet, a bond can trade at a price that's higher or lower and the reason
is typically a change in interest rates. Here's why:
If you buy a 6% $1000 bond, and interest rates rise to 7%, the $60 annual income
your bond receives (0.06 x $1000) won't be attractive to a buyer if you ask full
price for your bond. You'll need to mark it down to a price that would make its
$60 annual income payment work out to a 7% yield - in this example, $857 ($60 /
0.07 = $857).
Keep in mind that this example has been simplified to explain the concept. A 1%
rise in interest rates is rare. The Federal Reserve Board typically raises or
lowers short-term rates in much smaller increments -- Recent changes have been
1/4% to 1/2%. And, other factors, such as credit risk, can also affect the price
of some bonds. However, interest rates are the key determinant of the value of
most government bonds before maturity.
5
<PAGE>
[GRAPHIC]
Performance in Perspective Management's Discussion of Fund Performance Part 2
Performance Figures as of October 31, 1999
These two pages focus on the fund's long-term track record. While a mutual
fund's past performance is never a guarantee of future results, long-term
returns can serve as an important context for evaluating recent
performance.Three ways of measuring long-term performance are cumulative
returns, average annual returns and the change in dollar value over time of a
given investment. Information about these measures follows, while the share
class boxes contain the results of these measures for each share class.
Cumulative Total Return
This represents the total percentage you would have earned or lost if you had
invested a lump sum in the fund and left it there until the end of the period
indicated. Performance would be lower if sales charges were reflected.
Average Annual Total Return
Average annual total return percentage is the rate you would have had to earn
during each year of a given time period -- say, five years -- in order to end up
with the fund's actual cumulative return for those five years. In reality, of
course, fund performance varies from year to year. Because of this, a fund's
actual performance for a given year may be higher or lower than an average
annual performance figure.
$10,000 Over Ten Years
This example is similar to cumulative total return, but uses dollars rather than
percentages, and assumes that the lump sum you invested was $10,000. It also
compares fund performance to the performance of a market index.
- --------------------------------------------------------------------------------
Class A Front Load
- -------
o Initial sales charge of 4.50% or less, with lower sales charges for larger
investments (see a prospectus for details)
o Lower annual expenses than Class B(1) or Class C shares because of lower
service (12b-1) fee of 0.25%
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/23/87)
(does not reflect --------------------------------------------
sales charge) -0.84% 43.20% 107.74% 146.27%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/23/87)
(at maximum applicable --------------------------------------------
sales charge) -5.31% 6.46% 7.09% 7.01%
[The following table was represented as a line chart in the printed material.]
Merrill Lynch Merrill Lynch
Class A Mortgage Master Index Government Master Index
------- --------------------- -----------------------
"89" 9550 10000 10000
"90" 10079 10855 10594
"91" 11717 12674 12145
"92" 12872 13781 13401
"93" 14369 14894 15144
"94" 13854 14698 14489
"95" 15942 16894 16721
"96" 16783 18050 17565
"97" 18214 19690 19089
"98" 20008 21147 21253
"99" 19839 21764 20998
$10,000 Over Ten Years
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B(1) Back Load for accounts opened after 1/1/99
- ----------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/23/87)
(does not reflect -------------------------------------------
sales charge) -1.81% 37.55% 97.16% 133.73%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/23/87)
(at maximum applicable -------------------------------------------
sales charge) -6.47% 6.27% 7.02% 6.96%
[The following table was represented as a line chart in the printed material.]
Merrill Lynch Merrill Lynch
Class B1 Mortgage Master Index Government Master Index
-------- --------------------- -----------------------
"89" 10000 10000 10000
"90" 10554 10855 10594
"91" 12269 12674 12145
"92" 13478 13781 13401
"93" 14990 14894 15144
"94" 14333 14698 14489
"95" 16362 16894 16721
"96" 17100 18050 17565
"97" 18410 19690 19089
"98" 20080 21147 21253
"99" 19716 21764 20998
$10,000 Over Ten Years
- --------------------------------------------------------------------------------
6 State Street Research Government Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Class B Back Load for accounts opened before 1/1/99
- -------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within five years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/23/87)
(does not reflect -------------------------------------------
sales charge) -1.58% 37.88% 97.62% 134.28%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/23/87)
(at maximum applicable -------------------------------------------
sales charge) -6.25% 6.32% 7.05% 6.98%
[The following table was represented as a line chart in the printed material.]
Merrill Lynch Merrill Lynch
Class B Mortgage Master Index Government Master Index
------- --------------------- -----------------------
"89" 10000 10000 10000
"90" 10554 10855 10594
"91" 12269 12674 12145
"92" 13478 13781 13401
"93" 14990 14894 15144
"94" 14333 14698 14489
"95" 16362 16894 16721
"96" 17100 18050 17565
"97" 18410 19690 19089
"98" 20080 21147 21253
"99" 19762 21764 20998
$10,000 Over Ten Years
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Level Load
- -------
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/23/87)
(does not reflect -------------------------------------------
sales charge) -1.58% 37.96% 97.74% 134.41%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/23/87)
(at maximum applicable -------------------------------------------
sales charge) -2.51% 6.65% 7.06% 6.98%
[The following table was represented as a line chart in the printed material.]
Merrill Lynch Merrill Lynch
Class C Mortgage Master Index Government Master Index
------- --------------------- -----------------------
"89" 10000 10000 10000
"90" 10554 10855 10594
"91" 12269 12674 12145
"92" 13478 13781 13401
"93" 14989 14894 15144
"94" 14333 14698 14489
"95" 16374 16894 16721
"96" 17112 18050 17565
"97" 18421 19690 19089
"98" 20091 21147 21253
"99" 19774 21764 20998
$10,000 Over Ten Years
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class S Special Programs
- -------
o Available through certain retirement accounts, advisory accounts of the
investment manager and other programs that usually involve special
conditions and separate fees (see a prospectus for details)
o No sales charges of any kind
o No distribution/service (12b-1) fees; annual expenses are lower than for
other share classes
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/23/87)
(does not reflect -------------------------------------------
sales charge) -0.60% 45.04% 110.98% 150.11%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/23/87)
(at maximum applicable -------------------------------------------
sales charge) -0.60% 7.72% 7.75% 7.53%
[The following table was represented as a line chart in the printed material.]
Merrill Lynch Merrill Lynch
Class S Mortgage Master Index Government Master Index
------- --------------------- -----------------------
"89" 10000 10000 10000
"90" 10554 10855 10594
"91" 12269 12674 12145
"92" 13478 13781 13401
"93" 15062 14894 15144
"94" 14568 14698 14489
"95" 16781 16894 16721
"96" 17712 18050 17565
"97" 19271 19690 19089
"98" 21224 21147 21253
"99" 21098 21764 20998
$10,000 Over Ten Years
- --------------------------------------------------------------------------------
A Closer Look [GRAPHIC]
12b-1 fees
12b-1 fees are named after the SEC rule that permits them.
The fund pays 12b-1 fees to cover service and distribution costs. The fees cover
personal services and the maintenance of shareholder accounts. The fees also
cover selling and marketing expenditures for the sale of fund shares.
The fund pays 12b-1 fees out of its assets, so shareholders see them as an
indirect charge rather than a direct charge.
All of the performance figures on these pages assume reinvestment of dividends
and distributions.
The average annual total returns for the fund also include the effects of any
fees and sales charges that would apply for each share class.
Merrill Lynch Government and Mortgage Master Indices -- Commonly used measures
of bond market performance. The indices are unmanaged and do not take sales
charges into consideration. It is not possible to invest directly in the
indices.
Keep in mind that past performance is no guarantee of future results. The fund's
share price and return will fluctuate and you may have a gain or loss when you
sell your shares.
Class B(1) was introduced January 1, 1999.
7
<PAGE>
[GRAPHIC]
- ------------------
The Fund in Detail
- --------
The following pages describe the fund in detail as of the date of this report.
They provide a "snapshot" of the fund's holdings at one moment in time (the
report date), describe the financial dimensions of its operations for the past
fiscal year and give a summary of operations on a per share basis for the past
five fiscal years. There's also an overview of the fund and its business
structure, as well as information on the accounting policies the fund uses in
arriving at the figures it presents here.
[PHOTO]
Together, the words and numbers in this section offer a comprehensive picture of
the fund and its recent activities. In fact, the text and notes on pages 9 to 22
are an integral part of the financial statements, which wouldn't be complete
without them.
For more information about the fund's strategies, risks and expenses, check the
fund's prospectus; you'll need to read it before making any investments. The
prospectus also has more details on the fund's share classes and its policies
for shareholder accounts. To get a copy of any State Street Research prospectus,
see the back cover of this report.
Keep in mind that in annual reports, the portfolio holdings and financial
statements are audited, while in semiannual reports they are unaudited.
8 State Street Research Government Income Fund
<PAGE>
About the Fund
- --------------------------------------------------------------------------------
Business structure
State Street Research Government Income Fund is a mutual fund. A mutual fund
allows shareholders to pool their assets for investment in a portfolio of
securities. This fund is a series of State Street Research Financial Trust, a
Massachusetts business trust and is an open-end management investment company.
Four entities administer the fund's main business functions:
o The board of trustees oversee the fund with its shareholders' interests in
mind and have ultimate responsibility for the fund's activities.
o The investment manager, State Street Research & Management Company, is
responsible for the fund's investment and business activities and receives
the management fee as compensation.
o The distributor, State Street Research Investment Services, Inc., sells
shares of the fund, handles investor inquiries and transaction orders and
provides other shareholder services.
o The custodian, State Street Bank and Trust Company, holds fund securities,
provides data on their market value and handles related services.
The investment manager and the distributor are subsidiaries of Metropolitan Life
Insurance Company, better known as MetLife. State Street Bank and Trust Company
is not affiliated with MetLife (the similarity between its name and the names of
the investment manager and distributor is coincidental). A majority of the
trustees consists of people who are not affiliated with MetLife or any of its
subsidiaries. The distributor pays a portion of its fees to MetLife for services
it provides, including maintaining the accounts of some investors who hold
shares through their firm's employee benefit plans and other sponsored
arrangements.
Goal and strategy
The fund seeks to provide high current income. Under normal market conditions,
the fund invests at least 65% of total assets in U.S. government securities.
Share classes
The fund generally offers four share classes, each with its own sales charge and
expense structure. The fund also offers an additional class of shares (Class B)
but only to current Class B shareholders through reinvestment of dividends and
distributions or through exchanges from existing Class B accounts of other State
Street Research funds.
The text and notes are an integral part of the financial statements.
9
<PAGE>
The Fund's Accounting Policies
- --------------------------------------------------------------------------------
In keeping with accounting principles generally accepted in the United States,
the fund has used the following policies in preparing the portfolio holdings and
financial statements in this report:
The fund values all portfolio securities as of the date of this report (or, if
that day wasn't a business day, then the most recent business day). The fund
uses the following methods for determining the values of various types of
securities:
o Fixed income securities -- The fund uses a pricing service that the
fund's trustees have approved.
o Securities maturing within sixty days -- The fund adjusts the value
of these securities daily, moving them closer to the amount due on
maturity as the maturity date approaches.
The fund accounts for each purchase and sale of portfolio securities on the
trade date. In calculating realized gains or losses, the fund takes as its cost
basis the identified cost of securities sold.
The fund records investment income from portfolio securities as follows:
o Interest -- The fund accrues interest daily as it earns it.
The fund may use forward foreign currency exchange contracts and futures
contracts for hedging purposes, attempting to offset a potential loss in one
position by establishing an interest in an opposite position. The fund accounts
for forward contracts by recording their total principal in it's accounts and
then marking them to market. The fund accounts for futures contracts by
recording the variation margin, which is the daily change in the value of the
contract.
The fund may seek additional income by lending portfolio securities to qualified
institutions. The fund will receive cash or securities as collateral in the
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the fund could realize additional gains or losses. If the
borrower fails to return the securities and the collateral has declined in
value, the fund could lose money. The fund accounts for income from the lending
of its securities by including it in interest income. The fund distributes its
net earnings to its shareholders. The fund calculates these distributions using
federal income tax regulations. As a result, they may be different than if the
fund used generally accepted accounting principles. The fund distributes its
earnings on the following schedule:
o Dividends from net investment income -- The fund declares dividends
daily and pays them monthly.
o Net realized capital gains -- The fund distributes these annually,
if any.
If the fund has no earnings to distribute, it won't make a distribution.
The fund does not intend to pay federal income tax. This is because it intends
to be exempt from taxes under Subchapter M of the Internal Revenue Code, in part
because it makes distributions as described above.
The Fund pays expenses as follows:
o Expenses attributed to the fund -- The fund pays these directly.
Examples of these expenses include the management fee, transfer
agent fee, custodian fee and distribution and service fees.
o Expenses attributed to the trust of which the fund is a series --
These expenses are divided up among all funds in the trust. Each
fund pays a proportional share. Examples of these expenses include
the legal fees and trustees fees.
The fund has used certain estimates and assumptions in preparing this report.
Although they are necessary in order to follow generally accepted accounting
principles, these estimates and assumptions affect several key areas, including
the reported amounts of assets and liabilities and income and expenses. Actual
results could differ from those estimates.
The fund's securities and investment practices carry certain risks.
The text and notes are an integral part of the financial statements.
10 State Street Research Government Income Fund
<PAGE>
Portfolio Holdings October 31, 1999
- --------------------------------------------------------------------------------
The listings that begin on this page detail the fund's investment holdings as of
the report date. We have grouped the holdings by asset class and by smaller
sub-groups as well.
- --------------------------------------------------------------------------------
Notes about specific elements of the financials are called out in boxes such as
this.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key to symbols
* Denotes a 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Coupon Maturity Amount Market
Issuer Rate Date of Principal Value
================================================================================
U.S. Government Securities 83.1% of net assets
U.S. Treasury 30.0%
- --------------------------------------------------------------------------------
U.S. Treasury Bond 10.75% 5/15/2003 $22,000,000 $25,231,140
- --------------------------------------------------------------------------------
U.S. Treasury Bond 13.75% 8/15/2004 11,225,000 14,701,270
- --------------------------------------------------------------------------------
U.S. Treasury Bond 11.63% 11/15/2004 39,400,000 48,609,750
- --------------------------------------------------------------------------------
U.S. Treasury Bond 10.75% 8/15/2005 9,500,000 11,576,605
- --------------------------------------------------------------------------------
U.S. Treasury Bond 12.00% 8/15/2013 8,600,000 11,790,084
- --------------------------------------------------------------------------------
U.S. Treasury Bond 9.88% 11/15/2015 8,500,000 11,331,520
- --------------------------------------------------------------------------------
U.S. Treasury Bond 9.25% 2/15/2016 11,500,000 14,642,720
- --------------------------------------------------------------------------------
U.S. Treasury Bond 8.13% 5/15/2021 10,050,000 11,921,812
- --------------------------------------------------------------------------------
U.S. Treasury Bond 8.13% 8/15/2021 25,600,000 30,392,064
- --------------------------------------------------------------------------------
U.S. Treasury Bond 6.13% 8/15/2029 6,425,000 6,396,859
- --------------------------------------------------------------------------------
U.S. Treasury Note 5.63% 5/15/2008 2,125,000 2,050,285
- --------------------------------------------------------------------------------
U.S. Treasury STRIPS 0.00% 11/15/2001 9,375,000 8,310,469
-----------
196,954,578
-----------
The text and notes are an integral part of the financial statements.
11
<PAGE>
Portfolio Holdings October 31, 1999 continued
<TABLE>
<CAPTION>
Coupon Maturity Amount Market
Issuer Rate Date of Principal Value
========================================================================================================
<S> <C> <C> <C> <C>
U.S. Agency Mortgage 53.1%
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 9.00% 12/01/2009 $3,049,859 $3,153,493
- --------------------------------------------------------------------------------------------------------
Federal Housing Administration Charles River Project 9.63% 12/01/2033 9,383,898 9,889,748
- --------------------------------------------------------------------------------------------------------
Federal Housing Administration Court Yard Project 10.75% 8/01/2032 6,440,632 6,866,318
- --------------------------------------------------------------------------------------------------------
Federal Housing Administration East Bay Manor Project 10.00% 3/01/2033 6,704,874 7,088,309
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 8.50% 2/01/2005 10,000,000 10,051,600
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 8.00% 4/01/2008 2,544,905 2,626,265
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 6.00% 5/15/2008 5,475,000 5,218,332
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 8.00% 6/01/2008 3,618,545 3,712,736
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 5.25% 1/15/2009 17,125,000 15,409,760
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 8.50% 2/01/2009 4,629,411 4,831,577
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 9.00% 5/01/2009 4,203,348 4,378,754
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 6.38% 6/15/2009 5,975,000 5,828,433
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 5.50% 3/01/2014 11,580,318 10,896,269
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 9.00% 4/01/2016 1,030,257 1,093,855
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 6.50% 9/01/2028 13,311,076 12,753,608
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 6.50% 11/01/2028 33,217,022 31,825,893
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 6.50% 12/01/2028 13,437,685 12,874,915
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 6.00% 12/01/2028 10,293,872 9,595,741
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 6.00% 2/01/2029 13,575,451 12,654,764
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 7.50% 7/01/2029 12,277,336 12,304,100
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 6.50% 7/01/2029 7,232,084 6,929,205
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association* 7.00% 11/15/2029 53,350,000 52,383,298
- --------------------------------------------------------------------------------------------------------
Federal National Mortgage Association* 7.50% 1/19/2030 15,725,000 15,715,251
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Association 9.50% 9/15/2009 1,540,201 1,631,982
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Association 9.50% 10/15/2009 2,775,595 2,944,353
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Association 9.50% 11/15/2009 1,199,956 1,273,178
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Association 9.50% 11/15/2017 271,203 288,034
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Association 9.50% 9/15/2019 53,193 56,481
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Association 7.00% 11/15/2028 23,588,529 23,153,557
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Association 6.50% 11/15/2028 11,311,134 10,823,285
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Association* 8.00% 1/25/2030 19,375,000 19,710,963
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Association* 7.00% 1/25/2030 23,850,000 23,305,922
- --------------------------------------------------------------------------------------------------------
U.S. Department of Veterans Affairs REMIC 1998-3C 6.50% 6/15/2021 7,500,000 7,185,900
- --------------------------------------------------------------------------------------------------------
348,455,879
-----------
Total U.S. Government Securities 545,410,457
-----------
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $559,003,168 for these securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
12 State Street Research Government Income Fund
<PAGE>
<TABLE>
<CAPTION>
Coupon Maturity Amount Market
Issuer Rate Date of Principal Value
==================================================================================================================
<S> <C> <C> <C> <C>
Other Investments 13.7% of net assets
Trust Certificates 2.5%
- ------------------------------------------------------------------------------------------------------------------
Government Backed Trust Class T-3 9.63% 5/15/2002 $ 4,056,627 $ 4,169,360
- ------------------------------------------------------------------------------------------------------------------
Government Trust Certificates Class 2-E 9.40% 5/15/2002 11,807,460 12,132,283
-----------
- ------------------------------------------------------------------------------------------------------------------
16,301,643
-----------
Foreign Government 4.3%
- ------------------------------------------------------------------------------------------------------------------
Government of New Zealand 10.00% 3/15/2002 4,800,000 NZD 2,626,305
- ------------------------------------------------------------------------------------------------------------------
Government of New Zealand 8.00% 4/15/2004 7,525,000 NZD 3,981,543
- ------------------------------------------------------------------------------------------------------------------
Government of New Zealand 8.00% 11/15/2006 16,400,000 NZD 8,773,192
- ------------------------------------------------------------------------------------------------------------------
Republic of Greece 8.80% 6/19/2007 3,637,500,000 GRD 12,648,090
-----------
- ------------------------------------------------------------------------------------------------------------------
28,029,130
-----------
Finance/Mortgage 6.9%
- ------------------------------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp.
1996-2 Cl. A2 6.90% 9/19/2006 $ 4,675,000 4,603,414
- ------------------------------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp.
1997-1 Cl. A1 7.27% 7/19/2004 4,063,907 4,093,116
- ------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston 97-C2 Cl. A2 6.52% 7/17/2007 4,730,000 4,548,188
- ------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Security Inc. 1999-CI A 6.18% 5/15/2033 4,550,000 4,192,939
- ------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Security Inc. 1997-C2 A 6.55% 4/15/2029 6,700,000 6,413,156
- ------------------------------------------------------------------------------------------------------------------
LB Commercial Conduit Mortgage Trust 97-LL1-A1 6.79% 6/12/2004 6,316,101 6,298,337
- ------------------------------------------------------------------------------------------------------------------
LB Commercial Conduit Mortgage Trust 98C1-A1 6.33% 11/18/2004 5,773,079 5,655,814
- ------------------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investments Inc. Series
1997-C2 Cl. A1 6.46% 12/10/2029 2,951,474 2,906,280
- ------------------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investments Inc. Series
1998-C2 Cl. A1 6.22% 2/15/2030 4,381,133 4,270,235
- ------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital Inc. 98-A1 6.19% 1/15/2007 2,520,448 2,447,198
-----------
- ------------------------------------------------------------------------------------------------------------------
45,428,677
-----------
- ------------------------------------------------------------------------------------------------------------------
Total Other Investments 89,759,450
-----------
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $93,689,619 for these securities.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Commercial Paper 17.0% of net assets
- ------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank 5.10% 11/10/1999 20,000,000 19,974,550
- ------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 5.20% 11/05/1999 7,655,000 7,650,577
- ------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 5.18% 11/08/1999 20,000,000 19,979,856
- ------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 5.16% 11/01/1999 29,800,000 29,800,000
- ------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 5.06% 11/05/1999 15,000,000 14,991,583
- ------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association 5.11% 11/22/1999 19,000,000 18,943,586
-----------
- ------------------------------------------------------------------------------------------------------------------
Total Commercial Paper 111,340,152
-----------
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $111,340,152 for these securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
% of Market
Net Assets Value
==================================================================================================
<S> <C> <C>
Summary of Portfolio Assets
- --------------------------------------------------------------------------------------------------
Investments 113.8% $746,510,059
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $764,032,939 for these securities.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Cash and Other Assets, Less Liabilities (13.8%) (90,523,506)
----- ------------
- --------------------------------------------------------------------------------------------------
Net Assets 100.0% $655,986,553
===== ============
</TABLE>
The text and notes are an integral part of the financial statements.
14 State Street Research Government Income Fund
<PAGE>
Futures contracts open at October 31,1999 are as follows:
<TABLE>
<CAPTION>
Notional Expiration Unrealized
Type Amount Month Appreciation
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5 year U.S. Treasury Notes $8,000,000 December, 1999 $36,940
</TABLE>
Forward currency exchange contracts that were outstanding at October 31, 1999:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Transaction Total Value Price (Depreciation) Date
====================================================================================================================================
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Buy Euro, Sell U.S. dollars 3,824,900 EUR 1.07290 EUR $(73,469) 11/23/99
- ------------------------------------------------------------------------------------------------------------------------------------
Buy Euro, Sell U.S. dollars 1,597,000 EUR 1.05466 EUR (1,546) 11/23/99
- ------------------------------------------------------------------------------------------------------------------------------------
Sell Euro, Buy U.S. dollars 8,142,000 EUR 1.05205 EUR (13,369) 11/23/99
- ------------------------------------------------------------------------------------------------------------------------------------
Sell Euro, Buy U.S. dollars 744,000 EUR 1.04756 EUR (5,532) 12/09/99
- ------------------------------------------------------------------------------------------------------------------------------------
Sell Euro, Buy U.S. dollars 822,400 EUR 1.08600 EUR 22,474 1/24/00
- ------------------------------------------------------------------------------------------------------------------------------------
Sell Greek drachma, Buy U.S. dollars 827,269,000 GRD 0.00324 GRD 50,575 11/23/99
- ------------------------------------------------------------------------------------------------------------------------------------
Sell Greek drachma, Buy U.S. dollars 619,700,000 GRD 0.00324 GRD 54,734 1/24/00
- ------------------------------------------------------------------------------------------------------------------------------------
Sell Greek drachma, Buy U.S. dollars 174,300,000 GRD 0.00324 GRD 15,029 1/24/00
- ------------------------------------------------------------------------------------------------------------------------------------
Buy New Zealand dollars, Sell U.S. dollars 14,000 NZD 0.51815 NZD (153) 11/23/99
- ------------------------------------------------------------------------------------------------------------------------------------
Buy New Zealand dollars, Sell U.S. dollars 908,000 NZD 0.51665 NZD (8,588) 11/23/99
- ------------------------------------------------------------------------------------------------------------------------------------
Buy New Zealand dollars, Sell U.S. dollars 4,250,000 NZD 0.51408 NZD (27,860) 12/09/99
- ------------------------------------------------------------------------------------------------------------------------------------
Sell New Zealand dollars, Buy U.S. dollars 2,840,000 NZD 0.51580 NZD 24,448 11/23/99
- ------------------------------------------------------------------------------------------------------------------------------------
Sell New Zealand dollars, Buy U.S. dollars 11,910,000 NZD 0.52370 NZD 192,646 12/09/99
- ------------------------------------------------------------------------------------------------------------------------------------
Sell New Zealand dollars, Buy U.S. dollars 10,700,000 NZD 0.51540 NZD 77,606 1/25/00
- ------------------------------------------------------------------------------------------------------------------------------------
Sell New Zealand dollars, Buy U.S. dollars 10,310,000 NZD 0.51543 NZD 75,035 1/25/00
--------
- ------------------------------------------------------------------------------------------------------------------------------------
$382,030
========
</TABLE>
Federal Income Tax Information
At October 31, 1999, the net unrealized depreciation of investments
based on cost for Federal income tax purposes of $764,266,345
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $ 4,739,385
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (22,495,671)
------------
$(17,756,286)
============
At October 31, 1999, the fund had a capital loss carryforward of $26,451,304, of
which $17,196,293, $4,139,815 and $5,115,196 expire on October 31, 2002, 2004
and 2007, respectively. Also, the fund has acquired in a merger a capital loss
carryforward of $5,100,777, of which $3,074,207 and $2,026,570 expire on October
31, 2001 and 2002.
The text and notes are an integral part of the financial statements.
15
<PAGE>
Statement of
Assets and Liabilities October 31, 1999
- --------------------------------------------------------------------------------
This is the fund's balance sheet as of the report date. It shows the fund's
assets, its liabilities and, by subtraction, its net assets. It also shows the
share price for each share class as of the report date.
Assets
Investments, at market value $ 746,510,059
- --------------------------------------------------------------------------------
The fund paid a total of $764,032,939 for these securities.
- --------------------------------------------------------------------------------
Cash 14,537
Receivable for securities sold 51,930,920
Interest receivable 9,677,684
Receivable for fund shares sold 1,452,233
Receivable for open forward contracts 512,547
Other assets 61,026
-------------
810,159,006
Liabilities
Payable for securities purchased 150,116,206
Dividends payable 1,690,184
Payable for fund shares redeemed 1,143,445
Accrued management fee 327,454
Accrued transfer agent and shareholder services 278,082
Accrued distribution and service fees 235,575
Payable for open forward contracts 130,517
Payable for variation margin 40,000
Accrued trustees' fees 6,577
Other accrued expenses 204,413
-------------
154,172,453
-------------
Net Assets $ 655,986,553
=============
Net Assets consist of:
Undistributed net investment income $ 2,234,804
Unrealized depreciation of investments (17,522,880)
Unrealized appreciation of forward contracts
and foreign currency 364,903
Unrealized appreciation of futures contracts 36,940
Accumulated net realized loss (26,721,650)
Paid-in capital 697,594,436
-------------
$ 655,986,553
=============
- --------------------------------------------------------------------------------
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Net Assets / Number of Shares = NAV
A $480,643,137 39,365,531 $12.21*
B(1) $ 24,250,496 1,998,104 $12.14**
B $106,901,593 8,784,645 $12.17**
C $ 25,817,842 2,120,471 $12.18**
S $ 18,373,485 1,506,582 $12.20
* Maximum offering price per share $12.79 ($12.21 / .955)
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
16 State Street Research Government Income Fund
<PAGE>
Statement of
Operations For the year ended October 31, 1999
- --------------------------------------------------------------------------------
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
- --------------------------------------------------------------------------------
The fund paid foreign taxes of $69,680.
- --------------------------------------------------------------------------------
Interest, net of foreign taxes $ 47,447,813
- --------------------------------------------------------------------------------
Includes $10,959 in income from the lending of portfolio securities. As of the
report date,there were no loaned securities.
- --------------------------------------------------------------------------------
Expenses
Management fee 4,029,916
- --------------------------------------------------------------------------------
The management fee is 0.60% of the first $500 million of fund assets, annually,
0.55% of the next $500 million, and 0.50% of any amount over $1 billion.
- --------------------------------------------------------------------------------
Service fee-Class A 1,263,984
Distribution and service fees-Class B(1) 114,985
Distribution and service fees-Class B 1,200,341
Distribution and service fees-Class C 294,687
- --------------------------------------------------------------------------------
Payments made to the distributor under the fund's 12b-1 plans. The fees cover
personal services and the maintenance of shareholder accounts. The fees also
cover distribution and marketing expenditures for the sale of fund shares.
- --------------------------------------------------------------------------------
Transfer agent and shareholder services 1,019,741
- --------------------------------------------------------------------------------
Includes a total of $627,339 paid to the distributor for the services it
provided and to MetLife for similar services it provided, including maintaining
the accounts of some investors who hold shares through that firm's employee
benefit plans and other sponsored arrangements.
- --------------------------------------------------------------------------------
Custodian fee 230,800
Reports to shareholders 76,735
Audit fee 51,691
Registration fees 25,578
Legal fees 9,018
Miscellaneous 27,480
------------
8,344,956
Fees paid indirectly (26,413)
------------
- --------------------------------------------------------------------------------
Represents transfer agent credits earned from uninvested cash balances.
- --------------------------------------------------------------------------------
8,318,543
------------
Net investment income 39,129,270
------------
Realized and Unrealized Gain (Loss)
on Investments, Forward Contracts, Foreign
Currency and Futures Contracts
Net realized loss on investments (7,164,542)
- --------------------------------------------------------------------------------
To earn this, the fund sold $1,452,961,924 of securities. During this same
period, the fund also bought $1,440,032,242 worth of securities. These figures
don't include short-term obligations.
- --------------------------------------------------------------------------------
Net realized gain on forward contracts
and foreign currency 1,360,859
Net realized loss on futures contracts (81,939)
------------
Total net realized loss (5,885,622)
------------
Net unrealized depreciation of investments (42,321,640)
Net unrealized appreciation of forward
contracts and foreign currency 1,319,953
Net unrealized appreciation of futures contracts 36,940
------------
Total net unrealized depreciation (40,964,747)
------------
Net loss on investments, forward contracts,
foreign currency and futures contracts (46,850,369)
------------
Net decrease in net assets resulting
from operations $ (7,721,099)
============
The text and notes are an integral part of the financial statements.
17
<PAGE>
Statement of
Changes in Net Assets
- --------------------------------------------------------------------------------
This shows how the fund's size changed over the report period, including changes
that resulted from investment performance as well as those that resulted from
shareholders buying and selling fund shares.
<TABLE>
<CAPTION>
Years ended October 31
- ----------------------------------------------------------------------------------------
1998 1999
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 39,866,401 $ 39,129,270
Net realized gain (loss) on investments,
forward contracts,foreign currency
and futures contracts 17,302,180 (5,885,622)
Net unrealized appreciation (depreciation)
of investments, forward contracts,
foreign currency and futures contracts 4,812,247 (40,964,747)
---------------------------------
Net increase (decrease)
resulting from operations 61,980,828 (7,721,099)
---------------------------------
Dividends from net investment income:
Class A (31,530,438) (30,163,284)
Class B(1) -- (584,095)
Class B (5,721,251) (6,293,781)
Class C (998,658) (1,534,694)
Class S (1,982,171) (1,279,031)
---------------------------------
(40,232,518) (39,854,885)
---------------------------------
Net increase (decrease) from
fund share transactions 15,773,634 (4,192,129)
---------------------------------
Total increase (decrease)
in net assets 37,521,944 (51,768,113)
---------------------------------
Net Assets
Beginning of year 670,232,722 707,754,666
---------------------------------
End of year $ 707,754,666 $ 655,986,553
=================================
</TABLE>
- --------------------------------------------------------------------------------
Includes undistributed net investment income of $3,653,715 and $2,234,804,
respectively.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
18 State Street Research Government Income Fund
<PAGE>
- --------------------------------------------------------------------------------
These transactions break down by share class as follows:
<TABLE>
<CAPTION>
Years ended September 30
----------------------------------------------------------------
1998 1999
----------------------------------------------------------------
Class A Shares Amount Shares Amount
==============================================================================================================
<S> <C> <C> <C> <C>
Shares sold 3,586,515 $ 46,086,161 18,496,573 $233,070,669*
Issued upon reinvestment of dividends 1,385,176 17,717,475 1,452,763 18,264,542
Shares redeemed (6,762,852) (86,341,586) (20,253,359) (254,382,165)
----------------------------------------------------------------
Net decrease (1,791,161) ($ 22,537,950) (304,023) ($ 3,046,954)
----------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B(1)(a) Shares Amount Shares Amount
==============================================================================================================
<S> <C> <C> <C> <C>
Shares sold -- -- 2,235,815 $ 27,939,669**
Issued upon reinvestment of dividends -- -- 40,538 497,196
Shares redeemed -- -- (278,249) (3,442,549)***
----------------------------------------------------------------
Net increase -- -- 1,998,104 $ 24,994,316
----------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B Shares Amount Shares Amount
==============================================================================================================
<S> <C> <C> <C> <C>
Shares sold 4,159,555 $ 53,455,262 1,837,925 $ 23,525,800**
Issued upon reinvestment of dividends 301,432 3,848,414 356,123 4,468,410
Shares redeemed (2,197,432) (28,041,070) (3,382,645) (42,650,050)***
----------------------------------------------------------------
Net increase (decrease) 2,263,555 $ 29,262,606 (1,188,597) ($ 14,655,840)
----------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Class C Shares Amount Shares Amount
==============================================================================================================
<S> <C> <C> <C> <C>
Shares sold 1,161,428 $ 14,905,734 1,426,771 $ 17,998,565
Issued upon reinvestment of dividends 51,157 654,285 81,440 1,019,668
Shares redeemed (382,734) (4,857,752) (1,508,907) (18,757,082)****
----------------------------------------------------------------
Net increase (decrease) 829,851 $ 10,702,267 (696) $ 261,151
----------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Class S Shares Amount Shares Amount
==============================================================================================================
<S> <C> <C> <C> <C>
Shares sold 570,184 $ 7,285,127 691,706 $ 8,684,219
Issued upon reinvestment of dividends 53,615 686,273 68,557 859,445
Shares redeemed (755,120) (9,624,689) (1,662,738) (21,288,466)
----------------------------------------------------------------
Net decrease (131,321) ($ 1,653,289) (902,475) ($ 11,744,802)
----------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The trustees have the authority to issue an unlimited number of fund
shares, with a $.001 par value per share.
* Sales charges of $170,378 and $760,969 were collected by the distributor
and MetLife on sales of these shares.
** Like all broker-dealers, MetLife received commissions that were calculated
as a percentage of these sales but the commissions of $31,229 and
$1,312,040 for Class B(1) and Class B, were paid by the distributor, not
the fund.
*** Includes $45,012 and $216,576 in deferred sales charges collected by the
distributor for Class B(1) and Class B.
**** Includes $8,266 in deferred sales charges collected by the distributor.
(a) January 1, 1999 (commencement of share class) to October 31, 1999.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
19
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
These provide a summary of each share class's financial performance for the past
five fiscal years.
<TABLE>
<CAPTION>
Class A
==============================================================================
Years ended October 31
------------------------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.68 12.58 12.43 12.65 13.07
------ ----- ------ ------ ------
Net investment income ($) 0.83 0.81 0.80 0.78 0.74
Net realized and unrealized gain (loss)
on investments, options, forward contracts,
foreign currency and futures contracts ($) 0.88 (0.17) 0.22 0.43 (0.85)
------ ----- ------ ------ ------
Total from investment operations ($) 1.71 0.64 1.02 1.21 (0.11)
------ ----- ------ ------ ------
Dividends from net investment income ($) (0.81) (0.79) (0.80) (0.79) (0.75)
------ ----- ------ ------ ------
Total distributions ($) (0.81) (0.79) (0.80) (0.79) (0.75)
------ ----- ------ ------ ------
Net asset value, end of year ($) 12.58 12.43 12.65 13.07 12.21
====== ===== ====== ====== ======
Total return (%)(b) 15.07 5.28 8.52 9.85 (0.84)
Ratios/Supplemental Data
====================================================================================================================================
Net assets at end of year ($ thousands) 655,045 584,313 524,565 518,651 480,643
Expense ratio (%) 1.10 1.09 1.08 1.09 1.05
Expense ratio after expense reductions (%) 1.10 1.09 1.08 1.09 1.04
Ratio of net investment income to
average net assets (%) 6.83 6.50 6.44 6.11 5.86
Portfolio turnover rate (%) 105.57 88.79 124.95 160.89 213.70
</TABLE>
Class B(1)
=======================
Period ended October 31
-----------------------
Per Share Data 1999 (a)(c)
================================================================================
Net asset value, beginning of period ($) 12.97
------
Net investment income ($) 0.52
Net realized and unrealized loss on investments,
options, forward contracts, foreign currency
and futures contracts ($) (0.82)
------
Total from investment operations ($) (0.30)
------
Dividend from net investment income ($) (0.53)
------
Total distributions ($) (0.53)
------
Net asset value, end of period ($) 12.14
======
Total return (%)(b) (2.31)(d)
Ratios/Supplemental Data
================================================================================
Net assets at end of period ($ thousands) 24,250
Expense ratio (%) 1.80(e)
Expense ratio after expense reductions (%) 1.79(e)
Ratio of net investment income to
average net assets (%) 5.01(e)
Portfolio turnover rate (%) 213.70
The text and notes are an integral part of the financial statements.
20 State Street Research Government Income Fund
<PAGE>
<TABLE>
<CAPTION>
Class B
=========================================================================
Years ended October 31
-------------------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.66 12.55 12.40 12.61 13.03
------ ------ ------ ------- -------
Net investment income ($) 0.73 0.71 0.70 0.68 0.64
Net realized and unrealized gain (loss)
on investments, options, forward contracts,
foreign currency and futures contracts ($) 0.87 (0.16) 0.22 0.43 (0.84)
------ ------ ------ ------- -------
Total from investment operations ($) 1.60 0.55 0.92 1.11 (0.20)
------ ------ ------ ------- -------
Dividends from net investment income ($) (0.71) (0.70) (0.71) (0.69) (0.66)
------ ------ ------ ------- -------
Total distributions ($) (0.71) (0.70) (0.71) (0.69) (0.66)
------ ------ ------ ------- -------
Net asset value, end of year ($) 12.55 12.40 12.61 13.03 12.17
====== ====== ====== ======= =======
Total return (%)(b) 14.15 4.51 7.66 9.07 (1.58)
Ratios/Supplemental Data
================================================================================================================================
Net assets at end of year ($ thousands) 87,908 95,218 97,253 129,976 106,902
Expense ratio (%) 1.85 1.84 1.83 1.84 1.80
Expense ratio after expense reductions (%) 1.85 1.84 1.83 1.84 1.79
Ratio of net investment income to
average net assets (%) 6.01 5.75 5.68 5.33 5.12
Portfolio turnover rate (%) 105.57 88.79 124.95 160.89 213.70
<CAPTION>
Class C
=========================================================================
Years ended October 31
-------------------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.66 12.56 12.41 12.62 13.04
------ ------ ------ ------- -------
Net investment income ($) 0.74 0.71 0.70 0.67 0.64
Net realized and unrealized gain (loss)
on investments, options, forward contracts,
foreign currency and futures contracts ($) 0.87 (0.16) 0.22 0.44 (0.84)
------ ------ ------ ------- -------
Total from investment operations ($) 1.61 0.55 0.92 1.11 (0.20)
------ ------ ------ ------- -------
Dividends from net investment income ($) (0.71) (0.70) (0.71) (0.69) (0.66)
------ ------ ------ ------- -------
Total distributions ($) (0.71) (0.70) (0.71) (0.69) (0.66)
------ ------ ------ ------- -------
Net asset value, end of year ($) 12.56 12.41 12.62 13.04 12.18
====== ====== ====== ======= =======
Total return (%)(b) 14.24 4.51 7.65 9.06 (1.58)
Ratios/Supplemental Data
================================================================================================================================
Net assets at end of year ($ thousands) 13,033 14,473 16,301 27,659 25,818
Expense ratio (%) 1.85 1.84 1.83 1.84 1.80
Expense ratio after expense reductions (%) 1.85 1.84 1.83 1.84 1.79
Ratio of net investment income to
average net assets (%) 6.08 5.76 5.68 5.28 5.11
Portfolio turnover rate (%) 105.57 88.79 124.95 160.89 213.70
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) January 1, 1999 (commencement of share class) to October 31, 1999.
(d) Not annualized.
(e) Annualized.
The text and notes are an integral part of the financial statements.
21
<PAGE>
Financial Highlights CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class S
=========================================================================
Years ended October 31
-------------------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.67 12.57 12.42 12.64 13.06
------ ------ ------ ------- -------
Net investment income ($) 0.90 0.84 0.80 0.81 0.75
Net realized and unrealized gain (loss)
on investments, options, forward contracts,
foreign currency and futures contracts ($) 0.84 (0.17) 0.25 0.43 (0.83)
------ ------ ------ ------- -------
Total from investment operations ($) 1.74 0.67 1.05 1.24 (0.08)
------ ------ ------ ------- -------
Dividends from net investment income ($) (0.84) (0.82) (0.83) (0.82) (0.78)
------ ------ ------ ------- -------
Total distributions ($) (0.84) (0.82) (0.83) (0.82) (0.78)
------ ------ ------ ------- -------
Net asset value, end of year ($) 12.57 12.42 12.64 13.06 12.20
====== ====== ====== ======= =======
Total return (%)(b) 15.37 5.55 8.80 10.13 (0.60)
Ratios/Supplemental Data
================================================================================================================================
Net assets at end of year ($ thousands) 5,036 7,767 32,115 31,468 18,373
Expense ratio (%) 0.85 0.84 0.82 0.84 0.80
Expense ratio after expense reductions (%) 0.85 0.84 0.82 0.84 0.79
Ratio of net investment income to
average net assets (%) 6.79 6.78 6.66 6.38 5.94
Portfolio turnover rate (%) 105.57 88.79 124.95 160.89 213.70
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
The text and notes are an integral part of the financial statements.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Financial Trust and the Shareholders of
State Street Research Government Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio holdings, and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of State Street Research Government Income Fund
(a series of State Street Research Financial Trust, hereafter referred to as the
"Trust") at October 31, 1999, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1999
22 State Street Research Government Income Fund
<PAGE>
Board of Trustees
Ralph F. Verni
Chairman of the Board, President,
Chief Executive Officer and Director,
State Street Research & Management Company
Bruce R. Bond
Former Chairman of the Board,
Chief Executive Officer and President,
PictureTel Corporation
Steve A. Garban
Former 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.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public Management,
George Washington University; former Member of
the Board of Governors of the Federal Reserve
System and Chairman and Commissioner of the
Commodity Futures Trading Commission
Toby Rosenblatt
President, Founders Investments Ltd.
President, The Glen Ellen Company
Michael S. Scott Morton
Jay W. Forrester Professor of Management,
Sloan School of Management,
Massachusetts Institute of Technology
23
<PAGE>
[LOGO] STATE STREET RESEARCH ----------------
One Financial Center o Boston, MA 02111 Bulk Rate
U.S. Postage
PAID
Canton, MA
Permit #313
----------------
Contact Information for
Investor Services
- --------------------------------------------------------------------------------
New accounts
[GRAPHIC] contact your financial
professional for assistance
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
Mutual fund purchases, exchanges, and
account information
[GRAPHIC] internet
www.ssrfunds.com
[GRAPHIC] e-mail
[email protected]
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] fax
1-617-737-9722
(request confirmation number
first from Service Center:
1-800-562-0032)
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
For 24-hour
Automated Access
to Your Account
[GRAPHIC] www.ssrfunds.com
[GRAPHIC] 1-800-562-0032
OverView
- --------------------------------------------------------------------------------
For more information on the products and services mentioned in OverView, our
shareholder newsletter, visit our Web site at www.ssrfunds.com
State Street Research
Spectrum of Funds
- --------------------------------------------------------------------------------
Aggressive
Growth Funds
Global Resources Fund
Emerging Growth Fund
Capital Fund
Aurora Fund
International Equity Fund
Growth Fund
Galileo Fund
Legacy Fund
Growth & Income Funds
Argo Fund
Investment Trust
Alpha Fund
Strategic Growth & Income Fund
Strategic Income Plus Fund
Income Funds
High Income Fund
Strategic Income Fund
Tax-Exempt Fund
New York Tax-Free Fund
Government Income Fund
Money Market Fund
Conservative
State Street Research
- --------------------------------------------------------------------------------
FYI
o State Street Research has completed Y2K compliance testing. Visit our Web
site at www.ssrfunds.com to learn more.
o Did you know that you can give a State Street Research mutual fund as a
gift? Call a service center representative at 1-800-562-0032 to learn
more.
---------------------------------------------
[GRAPHIC]
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1998
---------------------------------------------
for Excellence in Shareholder Service
All tax information
available at
- -------------------
ssrfunds.com
- -------------------
just one-click away
----
TAX
INFO
----
- --------------------------------------------------------------------------------
This report must be accompanied or preceded by a current State Street Research
Government Income Fund prospectus.a d a Quarterly Performance Update.
To obtain a prospectus on any State Street Research Fund call 1-800-562-0032.
The prospectus contains more complete information, including sales charges and
expenses. Please read the prospectus carefully before investing or sending
money.
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:(exp1200)SSR-LD GI-484G-1299
<PAGE>
[LOGO] STATE STREET RESEARCH [PHOTO]
International Equity Fund
- --------------------------------------------------------------------------------
Annual Report to Shareholders
October 31, 1999
- ------------------------
In this Report
- ------------------------
Japan on the
Comeback -
Why Now? Where Next?
[PHOTO]
plus
Prosperity Emerges Around the World
How Currency Affects Returns on
Foreign Funds
Fund Portfolio and Financials
<PAGE>
Contents
2 12 Month Review
A look at the fund and its market
environment over the past 12 months
6 Performance in Perspective
The most recent performance in the
context of the fund's track record
8 The Fund in Detail
Portfolio holdings, financials and notes
- --------------------------------------------------------------------------------
From the Chairman
75 Years Ago
State Street Research introduced one of the nation's first mutual funds and
pioneered management and research methods that have become industry standard
today. We were also one of the first firms to provide candid commentary on fund
performance. And in recent years, we have been recognized for our prospectus
simplification and plain English communications.
[PHOTO]
Ralph F. Verni
Our newly designed shareholder reports come out of that same tradition. We think
the educational format, lively graphics and plain English style will make it
easier for you to understand how your fund performed -- and why. We hope you
agree.
We're proud to celebrate 75 years of excellence. But as we get ready to turn the
calendar to the year 2000, our focus is on the future. We thank you for your
confidence, and we look forward to continuing to help you work toward your
financial goals in the years ahead.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman, State Street Research
October 31, 1999
[GRAPHIC]
- --------
12 Month Review Management's Discussion of Fund Performance Part 1
- --------
How State Street Research
International Equity Fund Performed
For the year ended October 31, 1999, International Equity Fund returned
27.02.(1) It outperformed the Morgan Stanley Capital International EAFE
Index,(2) which gained 23.03% and the Lipper International Funds Average, which
gained 25.53% over the same period.
Reasons for the Fund's Performance
Three major factors contributed to the fund's superior performance.
o First, we increased the fund's exposure to Japanese stocks at a very
auspicious time. Japanese business sentiment has turned modestly positive
and that optimism was reflected by the Japanese stock market, which
delivered strong returns.
o Second, we reduced the number of stocks in the portfolio by about half and
concentrated our investments in the fund's top ten positions, which
account for approximately 35% of the portfolio.
o Third, we avoided the emerging markets which declined in the second
quarter.
Class A Shares(1)
[GRAPHIC]
27.02%
We increased the
fund's exposure to
Japan at a very
auspicious time.
[PHOTO]
Tom Moore
Portfolio Manager,
State Street Research
International Equity
Fund
Disappointments in Europe
The fund's investments in Europe were laggards. However, European economies have
picked up and there are signs of renewed strength for the period ahead.
Outlook
We continue to search for companies that have demonstrated strong earnings
growth, regardless of whether such gains are the result of attractive industry
conditions or cost-cutting or restructuring, which has become a major theme in
both Japan and in Europe. We are optimistic about the potential for markets
outside the U.S. in the year ahead, especially in Asia where we believe the
turnaround is still in its early stages.
Morgan Stanley Capital International
EAFE Index(1)
[GRAPHIC]
23.03%
More Management's Discussion of Fund Performance on pages 6 and 7. |_|
Because financial markets and mutual fund strategies are constantly evolving,
it's possible that the fund's holdings, market stance, outlook for various
industries or securities and other matters discussed in this report have changed
since this information was prepared. Portfolio changes should not be considered
recommendations for action by individual investors.
2 State Street Research International Equity Fund
<PAGE>
------------------------------------------------------------------------
[PHOTO] The Fund at a Glance as of 10/31/99
------------------------------------------------------------------------
State Street Research International Equity Fund is an aggressive growth
fund investing in stocks of foreign companies.
Takara Shuzo
This Japanese beverage manufacturer, with a significant interest in
biotechnology, was one of the fund's top performers. We believe it continues to
have potential for future earnings gains from biotechnology business, which
could translate into a higher stock price.
[GRAPHIC]
Hits
&
Misses
[GRAPHIC]
Diageo PLC
Higher production costs, weak profits in Latin America and tough year-over-year
comparisons resulted in disappointing performance for Diageo PLC, parent company
of Burger King. However, we believe Diageo is a quality company and continue to
own its shares.
Total net assets: $61 million
- --------------------------------------------------------------------------------
Top 10 Holdings
Issuer/Security % of fund assets
1 Fujisawa Pharmaceutical 6.1%
2 Hikari Tsushin 5.8%
3 Takara Shuzo 5.7%
4 Mannesmann 3.4%
5 Clariant 2.9%
6 Ricoh 2.7%
7 Kyocera 2.7%
8 Nikon 2.4%
9 Stora Enso 2.3%
10 L.M. Ericsson Telephone 2.2%
Total 36.2%
See page 11 for more detail.
Performance: Class A
Year ended 10/31/99: 27.02%(1)
Fund average annual total return as of 10/31/99(3)(4)
Life of Fund
1 Year 3 Years 5 Years (1/22/92)
- ----------------------------------------------
19.72% 10.21% 3.44% 8.50%
MSCI EAFE Index as of 10/31/99(2)
Life of Fund
1 Year 3 Years 5 Years (1/31/92)
- ----------------------------------------------
23.03% 12.17% 9.21% 9.91%
Fund average annual total return as of 9/30/99(3)(4)
Life of Fund
1 Year 3 Years 5 Years (1/22/92)
- ----------------------------------------------
21.94% 7.63% 2.71% 7.87%
See pages 6 and 7 for data on other share classes.
MSCI EAFE Index as of 9/30/99(2)
Life of Fund
1 Year 3 Years 5 Years (1/31/92)
- ----------------------------------------------
30.95% 10.43% 9.12% 9.50%
- --------------------------------------------------------------------------------
5 Largest Country Positions
by % of fund assets
[The following was represented as a pie chart in the printed material]
1998
United Kingdom 23.9%
France 12.5%
Germany 11.2%
Switzerland 9.0%
Japan 8.9%
1999
Japan 35.8%
United Kingdom 12.0%
France 7.3%
Netherlands 6.0%
Sweden 5.2%
- --------------------------------------------------------------------------------
Ticker Symbols
State Street Research International Equity Fund
Class A: SSIEX Class B(1): SSNPX* Class B: SSNBX
Class C: SSNDX Class S: SSNCX
- --------------------------------------------------------------------------------
(1) Does not reflect sales charge.
(2) The Morgan Stanley Capital International EAFE Index (MSCI EAFE Index) is
comprised of stocks from Europe, Australasia, and the Far East. The index
is unmanaged and does not take sales charges into consideration. It is not
possible to invest directly in the index.
(3) At maximum applicable sales charge.
(4) Performance results for the fund are increased by the voluntary reduction
of fund fees and expenses; without subsidization, performance would have
been lower.
* Proposed
3
<PAGE>
[GRAPHIC] The Way We Think
Japan on the
Comeback --
Why Now? Where Next?
[GRAPHIC]
It's happened before. Ever since the Japanese stock market peaked in 1989, then
lost more than half of its value, there have been signs of a comeback every few
years. The Japanese government would announce reforms and initiatives to
stimulate the economy. Economic conditions would get a little better. Investors
would become hopeful, only to have their hopes dashed when the momentum proved
unsustainable.
Now, in the aftermath of one of the worst economic crises for Asian markets,
Japan has emerged as one of the region's strongest performers. Last year the
Nikkei 225 Index(5), a common measure of Japanese stock market performance,
delivered its third consecutive year of losses. This year, the Nikkei has risen
29.62% through October 31, 1999. What's different this time -- and where can the
Japanese stock market go from here?
The Government Steps In
Faced with an economy that was shrinking at a rate of 5% in 1997-1998 compared
to a growth rate of 7% at its peak in the late 1980s, last year the Japanese
government took steps to stimulate the economy by lowering taxes and opening up
credit for small companies. "It's not the first time the government has stepped
in," says Tom Moore, portfolio manager of State Street Research International
Equity Fund. However, this time its commitment appears to be stronger.
Restructuring Is the Key
In addition to the government's measures to stimulate the economy, many
[GRAPHIC]
Prosperity Emerges Around the World
Economic growth has been vibrant in key areas around the world, including
Europe, China and certain Asian markets. In Japan, a major government stimulus
package lifted business prospects and the stock market. The International
Monetary Fund has projected economic growth of a modest 1% for Japan, an
improvement over the contraction that was forecast earlier in the year. In 2000,
growth could rise to 1.5% if consumer confidence strengthens and translates into
higher spending. In Latin America, economic stability is returning slowly to
Mexico and Argentina. Brazil has suffered through a recession, but there are
signs of a better year to come. The outlook for Russia has improved, following a
year of economic turmoil.
Inflation Not a Problem
Despite improving economic conditions, inflation remains under control in most
foreign markets. A strong rebound in the Asian markets of Korea, Taiwan and
Thailand has not led to an increase in inflation, thanks to excess manufacturing
capacity in the area. In Japan, 1999 has been a year of deflation. Prices are
expected to remain flat in the year ahead. In Europe, the new European Central
Bank has kept the lid on inflation although it has raised interest rates.
The Euro's Mixed Returns
Although the new euro (common currency to 11 European nations) has slumped to
near parity with the dollar and returns have been disappointing, one
unanticipated result has been an explosion of euro-denominated bonds. In just
ten months, the volume of European bonds has nearly tripled. And while that
factor alone has not been able to offset the impact of rising interest rates, it
is an encouraging sign for bond investors in the years ahead.
Faster Global Growth
Projected for 1999, 2000
Estimated Economic
Region Growth in %
- -----------------------------------
1999 2000
- -----------------------------------
China 6.6 6.0
South Korea 6.5 5.5
U.S. 3.7 2.6
European Union 2.1 2.8
Japan 1.0 1.5
Brazil -1.0 4.0
World 3.0 3.5
- -----------------------------------
Source: International Monetary Fund, revised forecasts, September, 1999.
4 State Street Research International Equity Fund
<PAGE>
Japanese companies have started to cut costs, sell off foreign assets, and
initiate steps aimed at improving their balance sheets. This wave of
restructuring, which is virtually unprecedented in Japan, has arisen primarily
among local companies. "The Sonys and the Toshibas have been sheltered from the
economic downturn because they began moving manufacturing operations outside
Japan years ago, and their markets are multinational," says Moore. But many
local companies had stopped growing. They were desperate to turn things around.
Restructuring has helped rescue them.
Waiting for the Consumer
So far, an improvement in sentiment has been confined to the Japanese business
sector. In order to sustain the momentum of the economy, and confirm the faith
of the financial markets, the Japanese consumer will have to start spending.
Consumers account for approximately 60% of Japanese economic activity. When
economic conditions worsened, they tightened their belts and saved rather than
spent. (The Japanese national savings rate is 20% or more compared to -1.5% in
the U.S.) "Now that optimism is running high among Japanese businesses and
corporate earnings have shown signs of improvement, we hope the consumer will
join in," says Moore.
An Eye on the Yen
Even with the consumer on board, Moore cautions that there's one more ingredient
to sustained economic health in Japan: the yen. It has strengthened against the
dollar over the past year. And while that's good in the short term for American
investors [see sidebar], over the long-term a strong yen would hurt Japanese
exporters. And since Japan is primarily an export market, a too-strong yen could
derail the current turnaround.
That said, Moore remains optimistic about Japan's prospects. "The government
could take steps to bring the yen down into a more acceptable range. The banking
sector, which has taken the biggest beating over the last decade, finally looks
like it is on the mend. Technology and internet-related businesses have been
strong -- use of the internet in Japan is one-fifth that of the U.S. All of
those are positive signs of Japan's commitment to give this upturn some staying
power.
[GRAPHIC]
[The following was represented as a bar chart in the printed material]
Japan's Stock Market Has Soared
Total Return, Nikkei 225 Index
(in U.S. dollars)
ytd
10/31/99
1995 1996 1997 1998 1999
- ------ ------- ------- ------- -------
0.74% -2.55% -21.19% -9.28% 29.62%
5 The Nikkei 225 Index is comprised of 225 leading stocks traded on the
Tokyo stock exchange. The index is unmanaged and does not take sales
charges into consideration. It is not possible to invest directly in the
index.
A Closer Look [GRAPHIC]
How currency affects returns on foreign funds
[GRAPHIC]
When a mutual fund invests in foreign stocks, it takes on risk above and beyond
those associated with the fortunes of the individual company and its earnings
power. The single biggest additional risk is that the fund is exposed to a shift
in exchange rates. For example, when the yen rises against the dollar, it's good
for Americans with investments in Japan, because it raises the return in
dollars. However, a rising yen also raises the prices of the goods and services
which Japan exports. Over time that can make these Japanese companies less
competitive, and eventually, less profitable.
What every country wants is a relatively stable exchange rate. In Japan, the
current wisdom is that a range between 105 and 120 yen per dollar would be
stable. Lower than 105, and the yen would be considered overvalued; anything
higher than 120 and the dollar would be considered overvalued, exposing U.S.
markets to the same competitive risks in terms of goods it sells into Japan. The
difference, however, is that Japan relies far more on the U.S. as an export
market than the U.S. relies on Japan. As a result, a rising dollar would
probably hurt the U.S. less than a rising yen would hurt Japan.
5
<PAGE>
[GRAPHIC]
- -----------
Performance in Perspective Management's Discussion of Fund Performance Part 2
- -----------
Performance Figures as of October 31, 1999
These two pages focus on the fund's long-term track record. While a mutual
fund's past performance is never a guarantee of future results, long-term
returns can serve as an important context for evaluating recent performance.
Three ways of measuring long-term performance are cumulative returns, average
annual returns and the change in dollar value over time of a given investment.
Information about these measures follows, while the share class boxes contain
the results of these measures for each share class.
Cumulative Total Return
This represents the total percentage you would have earned or lost if you had
invested a lump sum in the fund and left it there until the end of the period
indicated. Performance would be lower if sales charges were reflected.
Average Annual Total Return
Average annual total return percentage is the rate you would have had to earn
during each year of a given time period -- say, five years -- in order to end up
with the fund's actual cumulative return for those five years. In reality, of
course, fund performance varies from year to year. Because of this, a fund's
actual performance for a given year may be higher or lower than an average
annual performance figure.
$10,000 Over Life of Fund
This example is similar to cumulative total return, but uses dollars rather than
percentages, and assumes that the lump sum you invested was $10,000. It also
compares fund performance to the performance of a market index.
- --------------------------------------------------------------------------------
Class A Front Load
- -------
o Initial sales charge of 5.75% or less, with lower sales charges for larger
investments (see a prospectus for details)
o Lower annual expenses than Class B(1) or Class C shares because of lower
service (12b-1) fee of 0.25%
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (1/22/92)
(does not reflect -----------------------------------------------
sales charge) 27.02% 42.04% 25.67% 100.19%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (1/22/92)
(at maximum applicable -----------------------------------------------
sales charge) 19.72% 10.21% 3.44% 8.50%
[The following was represented as a line chart in the printed material]
Class A MSCI EAFE Index
------- ---------------
"92" 8279 8845
"93" 12267 12158
"94" 15014 13385
"95" 13456 13335
"96" 13283 14734
"97" 13572 15414
"98" 14854 16900
"99" 18868 20793
$10,000 Over Life of Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B(1) Back Load for accounts opened after 1/1/99
- ----------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (1/22/92)
(does not reflect -----------------------------------------------
sales charge) 26.30% 39.01% 21.18% 92.16%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (1/22/92)
(at maximum applicable -----------------------------------------------
sales charge) 21.30% 10.80% 3.57% 8.76%
[The following was represented as a line chart in the printed material]
Class B1 MSCI EAFE Index
-------- ---------------
"92" 8784 8845
"93" 13015 12158
"94" 15858 13385
"95" 14098 13335
"96" 13823 14734
"97" 14007 15414
"98" 15215 16900
"99" 19216 20793
$10,000 Over Life of Fund
- --------------------------------------------------------------------------------
6 State Street Research International Equity Fund
<PAGE>
- --------------------------------------------------------------------------------
Class B Back Load for accounts opened before 1/1/99
- -------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within five years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (1/22/92)
(does not reflect -----------------------------------------------
sales charge) 26.30% 39.01% 21.18% 92.16%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (1/22/92)
(at maximum applicable -----------------------------------------------
sales charge) 21.30% 10.80% 3.57% 8.76%
[The following was represented as a line chart in the printed material]
Class B MSCI EAFE Index
------- ---------------
"92" 8784 8845
"93" 13015 12158
"94" 15858 13385
"95" 14098 13335
"96" 13823 14734
"97" 14007 15414
"98" 15215 16900
"99" 19216 20793
$10,000 Over Life of Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Level Load
- -------
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (1/22/92)
(does not reflect -----------------------------------------------
sales charge) 26.17% 39.03% 21.06% 91.97%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (1/22/92)
(at maximum applicable -----------------------------------------------
sales charge) 25.17% 11.61% 3.90% 8.74%
[The following was represented as a line chart in the printed material]
Class C MSCI EAFE Index
------- ---------------
"92" 8784 8845
"93" 13015 12158
"94" 15858 13385
"95" 14098 13335
"96" 13808 14734
"97" 14007 15414
"98" 15215 16900
"99" 19197 20793
$10,000 Over Life of Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class S Special Programs
- -------
o Available through certain retirement accounts, advisory accounts of the
investment manager and other programs that usually involve special
conditions and separate fees (see a prospectus for details)
o No sales charges of any kind
o No distribution/service (12b-1) fees; annual expenses are lower than for
other share classes
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (1/22/92)
(does not reflect -----------------------------------------------
sales charge) 27.48% 43.26% 27.34% 103.40%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (1/22/92)
(at maximum applicable -----------------------------------------------
sales charge) 27.48% 12.73% 4.95% 9.55%
[The following was represented as a line chart in the printed material]
Class S MSCI EAFE Index
------- ---------------
"92" 8784 8845
"93" 13015 12158
"94" 15974 13385
"95" 14351 13335
"96" 14198 14734
"97" 14534 15414
"98" 15955 16900
"99" 20340 20793
$10,000 Over Life of Fund
- --------------------------------------------------------------------------------
A Closer Look [GRAPHIC]
12b-1 fees
12b-1 fees are named after the SEC rule that permits them.
The fund pays 12b-1 fees to cover service and distribution costs. The fees cover
personal services and the maintenance of shareholder accounts.
The fees also cover selling and marketing expenditures for the sale of fund
shares.
The fund pays 12b-1 fees out of its assets, so shareholders see them as an
indirect charge rather than a direct charge.
All of the performance figures on these pages assume reinvestment of dividends
and distributions.
The average annual total returns for the fund also include the effects of any
fees and sales charges that would apply for each share class.
The MSCI EAFE Index is an unmanaged index and is comprised of stocks from
Europe, Australasia, and the Far East. The index does not take transaction
charges into consideration. It is not possible to invest directly in the index.
Keep in mind that past performance is no guarantee of future results. The fund's
share price and return will fluctuate and you may have a gain or loss when you
sell your shares.
Class B(1) was introduced January 1, 1999.
7
<PAGE>
[GRAPHIC]
- -------------------
The Fund in Detail
- --------
The following pages describe the fund in detail as of the date of this report.
They provide a "snapshot" of the fund's holdings at one moment in time (the
report date), describe the financial dimensions of its operations for the past
fiscal year and give a summary of operations on a per share basis for the past
five fiscal years. There's also an overview of the fund and its business
structure, as well as information on the accounting policies the fund uses in
arriving at the figures it presents here.
[PHOTO]
Together, the words and numbers in this section offer a comprehensive picture of
the fund and its recent activities. In fact, the text and notes on pages 9 to 20
are an integral part of the financial statements, which wouldn't be complete
without them.
For more information about the fund's strategies, risks and expenses, check the
fund's prospectus; you'll need to read it before making any investments. The
prospectus also has more details on the fund's share classes and its policies
for shareholder accounts. To get a copy of any State Street Research prospectus,
see the back cover of this report.
Keep in mind that in annual reports, the portfolio holdings and financial
statements are audited, while in semiannual reports they are unaudited.
8 State Street Research International Equity Fund
<PAGE>
About the Fund
- --------------------------------------------------------------------------------
Business structure
State Street Research International Equity Fund is a mutual fund. A mutual fund
allows shareholders to pool their assets for investment in a portfolio of
securities. This fund is a series of State Street Research Financial Trust, a
Massachusetts business trust and is an open-end management investment company.
The fund is a successor to a series of State Street Research Portfolios, Inc., a
Maryland Corporation.
Four entities administer the fund's main business functions:
o The board of trustees oversee the fund with its shareholders' interests in
mind and have ultimate responsibility for the fund's activities.
o The investment manager, State Street Research & Management Company, is
responsible for the fund's investment and business activities and receives
the management fee as compensation.
o The distributor, State Street Research Investment Services, Inc., sells
shares of the fund, handles investor inquiries and transaction orders and
provides other shareholder services.
o The custodian, State Street Bank and Trust Company, holds fund securities,
provides data on their market value and handles related services.
The investment manager and the distributor are subsidiaries of Metropolitan Life
Insurance Company, better known as MetLife. State Street Bank and Trust Company
is not affiliated with MetLife (the similarity between its name and the names of
the investment manager and distributor is coincidental). A majority of the
trustees consists of people who are not affiliated with MetLife or any of its
subsidiaries. The distributor pays a portion of its fees to MetLife for services
it provides, including maintaining the accounts of some investors who hold
shares through their firm's employee benefit plans and other sponsored
arrangements.
Goal and strategy
The fund seeks to provide long-term growth of capital by investing primarily in
common stocks and equity-related securities of non-U.S. companies.
Share classes
The fund generally offers four share classes, each with its own sales charge and
expense structure. The fund also offers an additional class of shares (Class B)
but only to current Class B shareholders through reinvestment of dividends and
distributions or through exchanges from existing Class B accounts of other State
Street Research funds.
The text and notes are an integral part of the financial statements.
9
<PAGE>
The Fund's Accounting Policies
- --------------------------------------------------------------------------------
In keeping with accounting principles generally accepted in the United States,
the fund has used the following policies in preparing the portfolio holdings and
financial statements in this report:
The fund values all portfolio securities as of the date of this report (or, if
that day wasn't a business day, then the most recent business day). The fund
uses the following methods for determining the values of various types of
securities:
o Listed securities -- The fund uses the price of the last sale on a
national securities exchange that was quoted before the close of the
New York Stock Exchange.
o Over-the-counter securities -- The fund uses the closing prices
quoted on the Nasdaq system. If a security hasn't traded that day,
or if it is not quoted on the Nasdaq system, the value is set at
halfway between the closing bid and asked quotations.
o Securities maturing within sixty days -- The fund adjusts the value
of these securities daily, moving them closer to the amount due on
maturity as the maturity date approaches.
o Other securities -- The fund prices these securities at fair value
under procedures established and supervised by the trustees.
The fund accounts for each purchase and sale of portfolio securities on the
trade date. In calculating realized gains or losses, the fund takes as its cost
basis the identified cost of securities sold.
The fund records investment income from portfolio securities as follows:
o Interest -- The fund accrues interest daily as it earns it.
o Cash dividends -- The fund accrues these on the ex-dividend date.
The fund may use forward foreign currency exchange contracts for hedging
purposes, attempting to offset a potential loss in one position by establishing
an interest in an opposite position. The fund accounts for forward contracts by
recording their total principal in its accounts and then marking them to market.
The fund may seek additional income by lending portfolio securities to qualified
institutions. The fund will receive cash or securities as collateral in the
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral in receives
in theses transactions, the fund could realize additional gains or losses. If
the borrower fails to return the securities and the value of the collateral has
declined during the term of the loan, the fund will bear a loss. The fund
accounts for income from the lending of its securities by including it in
interest income.
The fund distributes its net earnings to its shareholders. The fund calculates
these distributions using federal income tax regulations. As a result, they may
be different than if the fund used accounting principles generally accepted in
the United States. The fund distributes its earnings on the following schedule:
o Dividends from net investment income -- The fund ordinarily declares
and pays these annually, if any.
o Net realized capital gains -- The fund distributes these annually,
if any.
If the fund has no earnings to distribute, it won't make a distribution.
The fund does not intend to pay federal income tax. This is because it intends
to be exempt from taxes under Subchapter M of the Internal Revenue Code, in part
because it makes distributions as described above.
The fund pays expenses as follows:
o Expenses attributed to the fund -- The fund pays these directly.
Examples of these expenses include the management fee, transfer
agent fee, custodian fee and distribution and service fees.
o Expenses attributed to the trust of which the fund is a series --
These expenses are divided up among all funds in the trust. Each
fund pays a proportional share. Examples of these expenses include
the legal fees and trustees fees.
The fund has used certain estimates and assumptions in preparing this report.
Although they are necessary in order to follow generally accepted accounting
principles, these estimates and assumptions affect several key areas, including
the reported amounts of assets and liabilities and income and expenses. Actual
results could differ from those estimates.
The fund's securities and investment practices carry certain risks.
The text and notes are an integral part of the financial statements.
10 State Street Research International Equity Fund
<PAGE>
Portfolio Holdings October 31, 1999
- --------------------------------------------------------------------------------
The listings that begin on this page detail the fund's investment holdings as of
the report date. We have grouped the holdings by asset class and by smaller
sub-groups as well. For example, we have grouped this fund's stocks by country
of incorporation.
The solid colored circles (1) show the fund's ten largest holdings, with the
number in the circle showing where the holding ranks in the top ten.
- --------------------------------------------------------------------------------
Notes about specific elements of the financials are called out in boxes such as
this.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key to symbols
* Denotes a security which has not paid a dividend during the last year.
+ Denotes an American Depositary Receipt or a Global Depositary Receipt, a
form of ownership of foreign securities that is traded in the United
States and denominated in U.S. dollars.
- --------------------------------------------------------------------------------
Market
Issuer Shares Value
===========================================================================
Common Stocks 93.7% of net assets
Australia 0.7%
---------------------------------------------------------------------------
National Australia Bank 12,400 $191,361
---------------------------------------------------------------------------
Rio Tinto Ltd. 12,950 208,165
---------------------------------------------------------------------------
399,526
---------
Belgium 1.7%
---------------------------------------------------------------------------
Delhaize-Le Lion SA 5,580 392,364
---------------------------------------------------------------------------
GPE Bruxelles 1,880 325,493
---------------------------------------------------------------------------
Kredietbank 5,700 293,782
---------------------------------------------------------------------------
1,011,639
---------
Canada 0.3%
---------------------------------------------------------------------------
AMR Technologies Inc. 133,000 180,719
---------------------------------------------------------------------------
Kemgas Ltd.* 187,000 27,950
---------------------------------------------------------------------------
208,669
---------
Denmark 1.5%
---------------------------------------------------------------------------
Damgaard A/S 13,000 689,899
---------------------------------------------------------------------------
ISS International Service
Systems SA Cl. B 4,000 214,541
---------------------------------------------------------------------------
904,440
---------
Finland 4.2%
---------------------------------------------------------------------------
(9) Stora Enso Oy 103,000 1,371,413
---------------------------------------------------------------------------
Nokia AB Oy 10,600 1,213,189
---------------------------------------------------------------------------
2,584,602
---------
France 7.3%
---------------------------------------------------------------------------
Alcatel Alsthom 2,475 386,594
---------------------------------------------------------------------------
Cie de St. Gobain 2,100 364,466
---------------------------------------------------------------------------
Elf Aquitaine SA 9 1,325
---------------------------------------------------------------------------
France Telecom SA 3,792 366,354
---------------------------------------------------------------------------
Lafarge SA 3,887 374,102
---------------------------------------------------------------------------
Sanofi Synthelabo SA 13,340 588,629
---------------------------------------------------------------------------
Societe Generale de France SA 6,000 1,306,398
---------------------------------------------------------------------------
Total SA Cl. B 7,893 1,066,839
---------------------------------------------------------------------------
4,454,707
---------
Germany 4.7%
---------------------------------------------------------------------------
Celanese AG 585 9,230
---------------------------------------------------------------------------
Hoechst AG 5,850 257,516
---------------------------------------------------------------------------
(4) Mannesmann AG 13,300 2,091,446
---------------------------------------------------------------------------
Siemens AG 5,300 475,810
---------------------------------------------------------------------------
2,834,002
---------
Hong Kong 1.8%
---------------------------------------------------------------------------
China Telecom Ltd.* 126,000 430,624
---------------------------------------------------------------------------
Giordano International Ltd. 630,000 669,048
---------------------------------------------------------------------------
1,099,672
---------
The text and notes are an integral part of the financial statements.
11
<PAGE>
Portfolio Holdings October 31, 1999 continued
Market
Issuer Shares Value
===========================================================================
Ireland 0.2%
---------------------------------------------------------------------------
Eircom PLC 34,400 $ 142,925
----------
Italy 2.2%
---------------------------------------------------------------------------
Assicuraziono Generali SPA 13,650 437,911
---------------------------------------------------------------------------
ENI SPA + 64,000 374,290
---------------------------------------------------------------------------
La Rinascente SPA 34,000 236,035
---------------------------------------------------------------------------
Montedison SPA 146,380 260,979
---------------------------------------------------------------------------
1,309,215
----------
Japan 35.8%
---------------------------------------------------------------------------
Amada Co. Ltd. 94,900 728,110
---------------------------------------------------------------------------
(1) Fujisawa Pharmaceutical Co.Ltd 148,000 3,704,613
---------------------------------------------------------------------------
(2) Hikari Tsushin Inc. 4,400 3,540,424
---------------------------------------------------------------------------
Hoya Corp. 14,000 1,007,001
---------------------------------------------------------------------------
Ito-Yokado Co., Ltd. 14,000 1,119,785
---------------------------------------------------------------------------
Kirin Brewery Co. Ltd. 39,000 446,590
---------------------------------------------------------------------------
(7) Kyocera Corp. 16,800 1,611,202
---------------------------------------------------------------------------
Mikuni Coca-Cola Bottling Co. 12,600 265,848
---------------------------------------------------------------------------
(8) Nikon Corp. 61,000 1,450,849
---------------------------------------------------------------------------
(6) Ricoh Co. Ltd. 99,000 1,615,028
---------------------------------------------------------------------------
Shionogi & Co. Ltd. 54,000 496,653
---------------------------------------------------------------------------
(3) Takara Shuzo Co. Ltd. 249,000 3,457,869
---------------------------------------------------------------------------
Takeda Chemical Industries Ltd. 14,000 804,258
---------------------------------------------------------------------------
Terumo Corp. * 23,000 699,242
---------------------------------------------------------------------------
Toshiba Corp. 139,000 874,499
---------------------------------------------------------------------------
21,821,971
----------
Korea 0.4%
---------------------------------------------------------------------------
Samsung Electronics Ltd. + 1,339 223,260
----------
Malaysia 1.7%
---------------------------------------------------------------------------
Malayan Banking BHD 215,000 729,868
---------------------------------------------------------------------------
Telekom Malaysia BHD 105,000 323,290
---------------------------------------------------------------------------
1,053,158
----------
Netherlands 6.0%
---------------------------------------------------------------------------
Akzo Nobel NV 6,272 270,089
---------------------------------------------------------------------------
Benckiser NV Cl. B 6,300 372,418
---------------------------------------------------------------------------
Heineken NV 10,800 550,845
---------------------------------------------------------------------------
ING Groep NV 11,358 669,983
---------------------------------------------------------------------------
Philips Electronics NV 11,408 1,169,952
---------------------------------------------------------------------------
Royal Dutch Petroleum Co. 10,000 597,766
---------------------------------------------------------------------------
3,631,053
----------
Norway 1.4%
---------------------------------------------------------------------------
Norsk Hydro AS 22,000 877,365
----------
Singapore 1.2%
---------------------------------------------------------------------------
City Development Ltd. 68,000 351,590
---------------------------------------------------------------------------
DBS Bank Ltd. 33,610 379,888
---------------------------------------------------------------------------
731,478
----------
Spain 0.8%
---------------------------------------------------------------------------
Repsol SA 22,000 453,558
----------
Sweden 5.2%
---------------------------------------------------------------------------
Autoliv AB + 9,480 302,014
---------------------------------------------------------------------------
Electrolux AB 20,000 398,833
---------------------------------------------------------------------------
(10) L.M. Ericsson Telephone Co. Cl. B 32,900 1,368,166
---------------------------------------------------------------------------
Skandia Foersaekrings AB 23,550 524,033
---------------------------------------------------------------------------
Skanska AB Cl. B 15,600 570,963
---------------------------------------------------------------------------
3,164,009
----------
Switzerland 4.6%
---------------------------------------------------------------------------
(5) Clariant AG 4,000 1,750,312
---------------------------------------------------------------------------
CS Holding AG 1,424 273,721
---------------------------------------------------------------------------
Schweiz Ruckversicher AG 124 257,062
---------------------------------------------------------------------------
UBS AG 1,831 532,735
---------------------------------------------------------------------------
2,813,830
----------
United Kingdom 12.0%
---------------------------------------------------------------------------
Abbey National PLC 18,300 357,238
---------------------------------------------------------------------------
Barclays PLC 15,800 484,721
---------------------------------------------------------------------------
British Telecom PLC 59,650 1,082,106
---------------------------------------------------------------------------
Diageo PLC 70,500 717,084
---------------------------------------------------------------------------
HSBC Holdings PLC 61,650 758,254
---------------------------------------------------------------------------
Orange PLC 35,000 869,581
---------------------------------------------------------------------------
RTZ Corp. 52,600 898,031
---------------------------------------------------------------------------
SmithKline Beecham PLC 53,400 688,813
---------------------------------------------------------------------------
Vodafone Airtouch Group PLC 165,000 768,647
---------------------------------------------------------------------------
W.H. Smith Group PLC 33,330 243,443
---------------------------------------------------------------------------
Zeneca Group PLC 10,080 455,826
---------------------------------------------------------------------------
7,323,744
---------------------------------------------------------------------------
Total Common Stocks 57,042,823
----------
- --------------------------------------------------------------------------------
The fund paid a total of $40,374,292 for these securities.
- --------------------------------------------------------------------------------
Equity-Related Securities 2.1% of net assets
---------------------------------------------------------------------------
Prosieben Media AG Pfd. 4,750 194,855
---------------------------------------------------------------------------
Samsung Electronics Ltd. Pfd. 9,500 1,108,796
---------------------------------------------------------------------------
Total Equity-Related Securities 1,303,651
----------
- --------------------------------------------------------------------------------
The fund paid a total of $350,992 for these securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
12 State Street Research International Equity Fund
<PAGE>
<TABLE>
<CAPTION>
Coupon Maturity Amount of Market
Rate Date Principal Value
===============================================================================================
<S> <C> <C> <C> <C>
Short-Term Obligations 7.3% of net assets
- -----------------------------------------------------------------------------------------------
American Express Credit Corp. 5.28% 11/01/1999 $2,987,000 $2,987,000
- -----------------------------------------------------------------------------------------------
Ford Motor Credit Co. 5.28% 11/03/1999 1,440,000 1,440,000
----------
- -----------------------------------------------------------------------------------------------
Total Short-Term Obligations 4,427,000
----------
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $4,427,000 for these securities.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of
Net Assets
===============================================================================================
<S> <C> <C>
Summary of Portfolio Assets
- -----------------------------------------------------------------------------------------------
Total Investments 103.1% $62,773,474
- -----------------------------------------------------------------------------------------------
Cash and Other Assets, Less Liabilities (3.1%) (1,874,423)
----- -----------
- -----------------------------------------------------------------------------------------------
Net Assets 100.0% $60,899,051
===== ===========
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $45,152,284 for these securities.
- --------------------------------------------------------------------------------
Forward currency exchange contracts that were outstanding at October 31, 1999:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Transaction Total Value Price (Depreciation) Date
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Sell Japanese yen, Buy U.S. dollars 622,325,000 JPY 0.00884 JPY $ (532,263) 12/30/99
- ---------------------------------------------------------------------------------------------------
Sell Japanese yen, Buy U.S. dollars 452,120,000 JPY 0.00885 JPY (382,448) 12/30/99
- ---------------------------------------------------------------------------------------------------
Sell Japanese yen, Buy U.S. dollars 472,592,381 JPY 0.00899 JPY (394,650) 3/31/00
- ---------------------------------------------------------------------------------------------------
Buy Japanese yen, Sell U.S. dollars 1,074,445,000 JPY 0.00965 JPY 45,622 12/30/99
-----------
- ---------------------------------------------------------------------------------------------------
$(1,263,739)
===========
</TABLE>
Federal Income Tax Information
At October 31, 1999, the net unrealized appreciation of investments based on
cost for Federal income tax purposes of $45,194,989 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $18,852,697
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (1,274,212)
-----------
$17,578,485
===========
The text and notes are an integral part of the financial statements.
13
<PAGE>
Statement of
Assets and Liabilities October 31, 1999
- --------------------------------------------------------------------------------
This is the fund's balance sheet as of the report date. It shows the fund's
assets, its liabilities and, by subtraction, its net assets. It also shows the
share price for each share class as of the report date.
Assets
Investments, at market value $62,773,474
- --------------------------------------------------------------------------------
The fund paid a total of $45,152,284 for these securities.
- --------------------------------------------------------------------------------
Cash 56
Receivable for fund shares sold 186,999
Foreign tax receivable 63,801
Dividends and interest receivable 56,564
Receivable for open forward contracts 45,622
Other assets 22,637
-----------
63,149,153
Liabilities
Payable for open forward contracts 1,309,361
Payable for fund shares redeemed 385,872
Accrued transfer agent and shareholder services 51,622
Accrued trustees' fees 51,482
Accrued management fee 45,033
Accrued distribution and service fees 23,520
Other accrued expenses 383,212
-----------
2,250,102
-----------
Net Assets $60,899,051
===========
Net Assets consist of:
Unrealized appreciation of investments $17,621,190
Unrealized depreciation of forward contracts
and foreign currency (1,263,488)
Accumulated net realized gain 2,109,470
Paid-in capital 42,431,879
-----------
$60,899,051
===========
- --------------------------------------------------------------------------------
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Net Assets / Number of Shares = NAV
A $22,666,805 1,763,392 $12.85*
B(1) $2,432,644 195,930 $12.42**
B $19,865,307 1,599,791 $12.42**
C $2,338,938 187,989 $12.44**
S $13,595,357 1,043,309 $13.03
* Maximum offering price per share $13.63 ($12.85/.9425)
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
14 State Street Research International Equity Fund
<PAGE>
Statement of
Operations For the year ended October 31, 1999
- --------------------------------------------------------------------------------
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
Dividends $ 632,930
- --------------------------------------------------------------------------------
The fund paid foreign taxes of $98,882.
- --------------------------------------------------------------------------------
Interest 92,224
-----------
725,154
Expenses
Management fee 505,018
- --------------------------------------------------------------------------------
The management fee is 0.95% of fund net assets, annually.
- --------------------------------------------------------------------------------
Transfer agent and shareholder services 219,209
- --------------------------------------------------------------------------------
Includes a total of $111,799 paid to the distributor for the services it
provided and to MetLife for similar services it provided, including maintaining
the accounts of some investors who hold shares through that firm's employee
benefit plans and other sponsored arrangements.
- --------------------------------------------------------------------------------
Custodian fee 161,633
Legal fees 83,604
Registration fees 65,308
Audit fee 29,496
Reports to shareholders 21,536
Service fee-Class A 45,172
Distribution and service fees - Class B(1) 10,907
Distribution and service fees - Class B 193,839
Distribution and service fees - Class C 17,030
- --------------------------------------------------------------------------------
Payments made to the distributor under the fund's 12b-1 plans. The fees cover
personal services and the maintenance of shareholder accounts. The fees also
cover distribution and marketing expenditures for the sale of fund shares.
- --------------------------------------------------------------------------------
Trustees' fees 6,902
- --------------------------------------------------------------------------------
Paid only to trustees who aren't currently affiliated with the adviser (the fund
doesn't pay trustees fees to affiliated trustees).
- --------------------------------------------------------------------------------
Miscellaneous 19,816
-----------
1,379,470
Expenses borne by the Distributor (224,693)
- --------------------------------------------------------------------------------
Represents the share of expenses that the fund's distributor and its affiliates
paid voluntarily.
- --------------------------------------------------------------------------------
Fees paid indirectly (10,692)
-----------
- --------------------------------------------------------------------------------
Represents transfer agent credits earned from uninvested cash balances.
- --------------------------------------------------------------------------------
1,144,085
-----------
Net investment loss (418,931)
-----------
Realized and Unrealized Gain (Loss)
on Investments, Foreign Currency and
Forward Contracts
Net realized gain on investments 4,877,730
- --------------------------------------------------------------------------------
To earn this, the fund sold $48,818,672 of securities. During this same period,
the fund also bought $41,128,065 worth of securities. These figures don't
include short-term obligations or U.S. government securities.
- --------------------------------------------------------------------------------
Net realized loss on foreign currency
and forward contracts (28,736)
-----------
Total net realized gain 4,848,994
-----------
Net unrealized appreciation of investments 10,342,200
Net unrealized depreciation of foreign
currency and forward contracts (1,271,411)
-----------
Total net unrealized appreciation 9,070,789
-----------
Net gain on investments and
foreign currency 13,919,783
-----------
Net increase in net assets resulting
from operations $13,500,852
===========
The text and notes are an integral part of the financial statements.
15
<PAGE>
Statement of
Changes in Net Assets
- --------------------------------------------------------------------------------
This shows how the fund's size changed over the report period, including changes
that resulted from investment performance as well as those that resulted from
shareholders buying and selling fund shares.
Years ended October 31
- --------------------------------------------------------------------------------
1998 1999
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $ (230,253) $ (418,931)
Net realized gain (loss) on investments,
foreign currency and forward contracts (102,640) 4,848,994
Net unrealized appreciation of investments,
foreign currency and forward contracts 5,397,538 9,070,789
---------------------------
Net increase resulting
from operations 5,064,645 13,500,852
---------------------------
Dividend from net investment income:
Class A -- (292,925)
Class B -- (244,476)
Class C -- (15,769)
Class S -- (276,150)
---------------------------
-- (829,320)
---------------------------
Net decrease from fund
share transactions (15,481,066) (3,314,527)
---------------------------
Total increase (decrease) in net assets (10,416,421) 9,357,005
---------------------------
Net Assets
Beginning of year 61,958,467 51,542,046
---------------------------
End of year $51,542,046 $60,899,051
===========================
- --------------------------------------------------------------------------------
Includes undistributed net investment income of $191,399 and $0, respectively.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
16 State Street Research International Equity Fund
<PAGE>
- --------------------------------------------------------------------------------
These transactions break down by share class as follows:
<TABLE>
<CAPTION>
Years ended October 31
---------------------------------------------------------------------
1998 1999
---------------------------------------------------------------------
Class A Shares Amount Shares Amount
================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 616,996 $ 6,446,526 12,204,470 $ 136,019,145*
Issued upon reinvestment of dividend -- -- 27,110 290,733
Shares redeemed (887,211) (9,176,281) (11,933,749) (133,507,842)
---------------------------------------------------------------------
Net increase (decrease) (270,215) ($ 2,729,755) 297,831 $ 2,802,036
---------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B(1)(a) Shares Amount Shares Amount
================================================================================================================
<S> <C> <C> <C> <C>
Shares sold -- -- 200,533 $ 2,219,325**
Shares redeemed -- -- (4,603) (49,182)***
---------------------------------------------------------------------
Net increase -- -- 195,930 $ 2,170,143
---------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B Shares Amount Shares Amount
================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 775,911 $ 7,733,355 196,958 $ 2,142,564**
Issued upon reinvestment of dividend -- -- 22,009 229,109
Shares redeemed (1,046,783) (10,123,972) (740,587) (7,898,039)***
---------------------------------------------------------------------
Net decrease (270,872) ($ 2,390,617) (521,620) ($ 5,526,366)
---------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class C Shares Amount Shares Amount
================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 104,094 $ 1,078,738 918,627 $ 10,353,880
Issued upon reinvestment of dividend -- -- 908 9,484
Shares redeemed (202,224) (1,979,014) (903,008) (10,171,596)****
---------------------------------------------------------------------
Net increase (decrease) (98,130) ($ 900,276) 16,527 $ 191,768
---------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class S Shares Amount Shares Amount
================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 870,178 $ 8,986,352 227,729 $ 2,532,707
Issued upon reinvestment of dividend -- -- 24,820 269,057
Shares redeemed (1,797,863) (18,446,770) (513,083) (5,753,872)
---------------------------------------------------------------------
Net decrease (927,685) ($ 9,460,418) (260,534) ($ 2,952,108)
---------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The trustees have the authority to issue an unlimited number of fund
shares, with a $.001 par value per share.
* Sales charges of $5,862 and $34,239 were collected by the distributor and
MetLife on sales of these shares.
** Like all broker-dealers, MetLife received commissions that were calculated
as a percentage of these sales but the commissions of $10,839 and $16,714
for Class B(1) and Class B, were paid by the distributor, not the fund.
*** Includes $1,619 and $47,332 in deferred sales charges collected by the
distributor for Class B(1) and Class B.
**** Includes $29 in deferred sales charges collected by the distributor.
(a) January 1, 1999 (commencement of share class) to October 31, 1999.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
17
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
These provide a summary of each share class's financial performance for the past
five fiscal years.
<TABLE>
<CAPTION>
Class A
================================================================
Years ended October 31
----------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.98 9.34 9.22 9.42 10.31
------ ------ ------ ------ ------
Net investment loss ($)* (0.08) (0.04) (0.02) (0.01) (0.06)
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) (1.04) (0.08) 0.22 0.90 2.81
------ ------ ------ ------ ------
Total from investment operations ($) (1.12) (0.12) 0.20 0.89 2.75
------ ------ ------ ------ ------
Dividend from net investment income ($) -- -- -- -- (0.21)
Distribution from capital gains ($) (0.52) -- -- -- --
------ ------ ------ ------ ------
Total distributions ($) (0.52) -- -- -- (0.21)
------ ------ ------ ------ ------
Net asset value, end of year ($) 9.34 9.22 9.42 10.31 12.85
====== ====== ====== ====== ======
Total return (%)(b) (10.38) (1.28) 2.17 9.45 27.02
Ratios/Supplemental Data
==============================================================================================================================
Net assets at end of year ($ thousands) 22,497 21,116 16,346 15,104 22,667
Expense ratio (%)* 1.90 1.90 1.90 1.90 1.92
Expense ratio after expense reductions (%)* 1.90 1.90 1.90 1.90 1.90
Ratio of net investment loss to
average net assets (%)* (0.82) (0.37) (0.18) (0.20) (0.54)
Portfolio turnover rate (%) 100.68 132.36 174.69 116.28 78.04
* Reflects voluntary reduction of
expenses per share of these amounts ($) 0.06 0.05 0.04 0.04 0.05
</TABLE>
Class B(1)
-----------------------
Period ended October 31
-----------------------
Per Share Data 1999 (a)(c)
================================================================================
Net asset value, beginning of period ($) 10.63
-----
Net investment loss ($)* (0.11)
Net realized and unrealized gain on investments,
foreign currency and forward contracts ($) 1.90
-----
Total from investment operations ($) 1.79
-----
Net asset value, end of period ($) 12.42
-----
Total return (%)(b) 16.84(d)
Ratios/Supplemental Data
================================================================================
Net assets at end of period ($ thousands) 2,433
Expense ratio (%)* 2.67(e)
Expense ratio after expense reductions (%)* 2.65(e)
Ratio of net investment loss to
average net assets (%)* (1.29)(e)
Portfolio turnover rate (%) 78.04
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.01
The text and notes are an integral part of the financial statements.
18 State Street Research International Equity Fund
<PAGE>
<TABLE>
<CAPTION>
Class B
================================================================
Years ended October 31
----------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.93 9.22 9.04 9.16 9.95
------ ------ ------ ------ ------
Net investment loss ($)* (0.15) (0.11) (0.09) (0.05) (0.14)
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) (1.04) (0.07) 0.21 0.84 2.73
------ ------ ------ ------ ------
Total from investment operations ($) (1.19) (0.18) 0.12 0.79 2.59
------ ------ ------ ------ ------
Dividend from net investment income ($) -- -- -- -- (0.12)
Distribution from capital gains ($) (0.52) -- -- -- --
------ ------ ------ ------ ------
Total distributions ($) (0.52) -- -- -- (0.12)
------ ------ ------ ------ ------
Net asset value, end of year ($) 9.22 9.04 9.16 9.95 12.42
====== ====== ====== ====== ======
Total return (%)(b) (11.09) (1.95) 1.33 8.62 26.30
Ratios/Supplemental Data
==============================================================================================================================
Net assets at end of year ($ thousands) 27,614 28,971 21,914 21,117 19,865
Expense ratio (%)* 2.65 2.65 2.65 2.65 2.67
Expense ratio after expense reductions (%)* 2.65 2.65 2.65 2.65 2.65
Ratio of net investment loss to
average net assets (%)* (1.54) (1.13) (0.94) (0.88) (1.28)
Portfolio turnover rate (%) 100.68 132.36 174.69 116.28 78.04
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.06 0.05 0.04 0.04 0.05
</TABLE>
<TABLE>
<CAPTION>
Class C
================================================================
Years ended October 31
----------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.93 9.22 9.03 9.16 9.95
------ ------ ------ ------ ------
Net investment loss ($)* (0.15) (0.11) (0.09) (0.05) (0.14)
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) (1.04) (0.08) 0.22 0.84 2.73
------ ------ ------ ------ ------
Total from investment operations ($) (1.19) (0.19) 0.13 0.79 2.59
------ ------ ------ ------ ------
Dividend from net investment income ($) -- -- -- -- (0.10)
Distribution from capital gains ($) (0.52) -- -- -- --
------ ------ ------ ------ ------
Total distributions ($) (0.52) -- -- -- (0.10)
------ ------ ------ ------ ------
Net asset value, end of year ($) 9.22 9.03 9.16 9.95 12.44
====== ====== ====== ====== ======
Total return (%)(b) (11.09) (2.06) 1.44 8.62 26.17
Ratios/Supplemental Data
==============================================================================================================================
Net assets at end of year ($ thousands) 5,674 5,324 2,469 1,706 2,339
Expense ratio (%)* 2.65 2.65 2.65 2.65 2.67
Expense ratio after expense reductions (%)* 2.65 2.65 2.65 2.65 2.65
Ratio of net investment loss to
average net assets (%)* (1.55) (1.10) (0.97) (0.90) (1.29)
Portfolio turnover rate (%) 100.68 132.36 174.69 116.28 78.04
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.06 0.05 0.04 0.04 0.04
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) January 1, 1999 (commencement of share class) to October 31, 1999.
(d) Not annualized.
(e) Annualized.
The text and notes are an integral part of the financial statements.
19
<PAGE>
Financial Highlights CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class S
==============================================================
Years ended October 31
--------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.01 9.39 9.29 9.51 10.44
------ ------ ------ ------ -----
Net investment income (loss) ($)* (0.05) (0.02) 0.01 0.00 (0.03)
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) (1.05) (0.08) 0.21 0.93 2.85
------ ------ ------ ------ -----
Total from investment operations ($) (1.10) (0.10) 0.22 0.93 2.82
------ ------ ------ ------ -----
Dividend from net investment income ($) -- -- -- -- (0.23)
Distribution from capital gains ($) (0.52) -- -- -- --
------ ------ ------ ------ -----
Total distributions ($) (0.52) -- -- -- (0.23)
------ ------ ------ ------ -----
Net asset value, end of year ($) 9.39 9.29 9.51 10.44 13.03
====== ====== ====== ====== =====
Total return (%)(b) (10.16) (1.06) 2.37 9.78 27.48
Ratios/Supplemental Data
=============================================================================================================================
Net assets at end of year ($ thousands) 33,883 26,649 21,230 13,615 13,595
Expense ratio (%)* 1.65 1.65 1.65 1.65 1.67
Expense ratio after expense reductions (%)* 1.65 1.65 1.65 1.65 1.65
Ratio of net investment income (loss) to
average net assets (%)* (0.51) (0.16) 0.06 0.06 (0.28)
Portfolio turnover rate (%) 100.68 132.36 174.69 116.28 78.04
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.06 0.05 0.04 0.04 0.05
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
The text and notes are an integral part of the financial statements.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Financial Trust and the Shareholders of
State Street Research International Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio holdings, and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of State Street Research International Equity
Fund (the "Fund", a series of State Street Research Financial Trust, hereafter
referred to as the "Trust", formerly a series of State Street Research
Portfolios, Inc.) at October 31, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the period then
ended, in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Trust's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at October 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
financial statements of the Fund for the periods through October 31, 1998 were
audited by other independent accountants whose report dated December 4, 1998
expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1999
20 State Street Research International Equity Fund
<PAGE>
Board of Trustees
Ralph F. Verni
Chairman of the Board, President,
Chief Executive Officer and Director,
State Street Research & Management Company
Bruce R. Bond
Former Chairman of the Board,
Chief Executive Officer and President,
PictureTel Corporation
Steve A. Garban
Former 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.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public Management,
George Washington University; former Member of
the Board of Governors of the Federal Reserve
System and Chairman and Commissioner of the
Commodity Futures Trading Commission
Toby Rosenblatt
President, Founders Investments Ltd.
President, The Glen Ellen Company
Michael S. Scott Morton
Jay W. Forrester Professor of Management,
Sloan School of Management,
Massachusetts Institute of Technology
State Street Research International Equity Fund
- --------------------------------------------------------------------------------
Report on Special Meeting of Shareholders
A Special Meeting of Shareholders of the State Street Research International
Equity Fund, a series of State Street Research Portfolios, Inc. ("Predecessor
Fund") was convened on May 14, 1999 ("Meeting"), and continued thereafter. At
the Meeting, the Predecessor Fund was reorganized into the current fund, State
Street Research International Equity Fund, a series of State Street Research
Financial Trust. The results of the Meeting are set forth below.
Votes (millions of shares)
Action on Proposal For Against Abstain
- --------------------------------------------------------------------------------
For All Classes
1. The Agreement and Plan of
Reorganization and Liquidation
was approved 2.4 0.1 0.3
2. The policy regarding investments
in options was reclassified from
fundamental to nonfundamental 2.2 0.1 0.2
3. The fundamental policy regarding
investments in commodities and
commodity contracts was amended 2.2 0.2 0.2
4. The fundamental policy relating
to securities lending was amended 2.2 0.2 0.2
5. The fundamental policy regarding
industry concentration was amended 2.2 0.1 0.2
For Class S Shares Only
6. The Rule 12b-1 Plan of Distribution
was amended to include Class S shares 0.6 0.02 0.05
21
<PAGE>
Glossary
12b-1 fees -- Fees paid from mutual fund assets for personal services and
for the maintenance of shareholder accounts and distribution and marketing
expenses. The fees are named after the SEC rule that permits them.
average shares method -- The practice of basing a fund's calculations for
a given period on the average number of shares that were outstanding
during that period.
Nasdaq -- The stock price quotation system operated by the National
Association of Securities Dealers. The Nasdaq system operates as a
clearing house for transaction data about stocks that are traded "over the
counter" around the U.S.
New York Stock Exchange -- The largest stock exchange in the United
States, and the place where many of the largest company stocks are listed.
Unlike the Nasdaq system, the NYSE is a physical exchange, with all
trading occurring on the exchange's trading floor on Wall Street.
Principal Amount -- With bonds and certain other debt securities, the
amount of the underlying principal of the security. When the security
matures, the issuer is obligated to repay this amount to the holder of the
security. Also called "face value" or "par value".
22 State Street Research International Equity Fund
<PAGE>
[LOGO] STATE STREET RESEARCH ----------------
One Financial Center o Boston, MA 02111 Bulk Rate
U.S. Postage
PAID
Canton, MA
Permit #313
----------------
Contact Information for
Investor Services
- --------------------------------------------------------------------------------
New accounts
[GRAPHIC] contact your financial
professional for assistance
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
Mutual fund purchases, exchanges, and
account information
[GRAPHIC] internet
www.ssrfunds.com
[GRAPHIC] e-mail
[email protected]
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] fax
1-617-737-9722
(request confirmation number
first from Service Center:
1-800-562-0032)
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
For 24-hour
Automated Access
to Your Account
[GRAPHIC] www.ssrfunds.com
[GRAPHIC] 1-800-562-0032
OverView
- --------------------------------------------------------------------------------
For more information on the products and services mentioned in OverView, our
shareholder newsletter, visit our Web site at www.ssrfunds.com
State Street Research
Spectrum of Funds
- --------------------------------------------------------------------------------
Aggressive
Growth Funds
Global Resources Fund
Emerging Growth Fund
Capital Fund
Aurora Fund
International Equity Fund
Growth Fund
Galileo Fund
Legacy Fund
Growth & Income Funds
Argo Fund
[GRAPHIC] Investment Trust
Alpha Fund
Strategic Growth & Income Fund
Strategic Income Plus Fund
Income Funds
High Income Fund
Strategic Income Fund
Tax-Exempt Fund
New York Tax-Free Fund
Government Income Fund
Money Market Fund
Conservative
State Street Research
- --------------------------------------------------------------------------------
FYI
o Tom Moore assumed responsibility as sole Portfolio Manager of the State
Street Research International Equity Fund. He had been co-managing the
fund with Peter Bennett since October 1998.
o Did you know that you can give a State Street Research mutual fund as a
gift? Call a service center representative at 1-800-562-0032 to learn
more.
--------------------------------------------
[GRAPHIC]
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1998
--------------------------------------------
for Excellence in Shareholder Service
- --------------------------------------------------------------------------------
This report must be accompanied or preceded by a current State Street Research
International Equity Fund prospectus and a current Quarterly Performance Update.
To obtain a prospectus on any State Street Research Fund call 1-800-562-0032.
The prospectus contains more complete information, including sales charges and
expenses. Please read the prospectus carefully before investing or sending
money.
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:(exp1200)SSR-LD IE-483G-1299
<PAGE>
- ---------------------
STATE STREET RESEARCH
- ---------------------
- --------------------------------
STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------
ANNUAL REPORT
October 31, 1999
- -------------
WHAT'S INSIDE
- -------------
FROM THE CHAIRMAN
America benefited from
a healthy economy
PORTFOLIO MANAGER'S REVIEW
A good year with
positive signs ahead
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
[DALBAR logo]
For Excellence
in
Shareholder Service
[logo] STATE STREET RESEARCH
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
Another good year for the U.S. economy has extended America's cycle of
prosperity to eight consecutive years. Gross domestic product, a measure of
goods and services produced in the U.S. rose at an annual rate of more than
4.0%. Personal income has risen and consumer spending has been strong. Inflation
remained relatively low as productivity gains have offset wage gains. However,
the Consumer Price Index has moved up one full percentage point during the year.
The Federal Reserve Board responded to these indicators of strength by raising
short-term interest rates by 1/2% in two quick 1/4% steps late in the summer.
STOCKS
The U.S. stock market delivered another year of double-digit gains. The S&P 500
rose 25.66% during the 12-month period ended October 31, 1999.(1) However, a
disproportionate share of the market's gains belonged to a handful of technology
stocks. The technology-heavy Nasdaq gained 67.98% during the period. Outside the
top 50 stocks, returns were flat to down for the year.
BONDS
The bond market was hurt by the Federal Reserve's interest-rate cuts and by
factors associated with Y2K. Many issuers went to the market with their debt
issues early in the year. That drove demand and interest rates up and bond
prices down. In this environment, mortgage bonds held up better than government
and corporate bonds. High yield bonds finished the year with strong results.
INTERNATIONAL
Economic growth around the globe was better than expected. In Asia and certain
emerging markets -- notably South Korea and Russia -- economies have rebounded
from last year's currency woes faster than anticipated. Japan has shown the
first signs of real progress in revitalizing its economy in nearly a decade.
That was reflected in strong stock market performance for the year, especially
among small Japanese companies. Europe delivered mixed results as did the
emerging markets of Latin America.
OUTLOOK AND OPPORTUNITIES
As we enter the year 2000, many markets are poised for growth. However, there
are also areas, such as the technology sector in the U.S., where extraordinarily
high valuations suggest caution in the months ahead. Now is a good time to
consult your financial professional about the strategies that make sense for
your personal portfolio. And, as always, we thank you for your confidence in
State Street Research funds.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
October 31, 1999
(1) The S&P 500 (officially the "Standard and Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the
index.
(2) The Lehman Brothers Aggregate Bond Index is a commonly used index of bond
market performance. The index does not take transaction charges into
consideration. It is not possible to invest directly in the index.
(3) Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a gain
or loss when you sell your shares. All returns assume reinvestment of
capital gain distributions and income dividends at net asset value.
(4) Class S shares, offered without a sales charge, are available through
certain employee benefit plans and special programs.
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 October 31, 1999, except where
noted)
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(3)(4)
FOR PERIODS ENDED 9/30/99
- -------------------------------------------------------------
LIFE OF FUND
(since 5/16/94) 5 YEARS 1 YEAR
- -------------------------------------------------------------
Class S 13.44% 14.02% 13.80%
- -------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(3)(4)
- -------------------------------------------------------------
LIFE OF FUND
(since 5/16/94) 5 YEARS 1 YEAR
- -------------------------------------------------------------
Class S 13.69% 14.49% 13.89%
- --------------------------------------------------------------
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Strategic Portfolios: Aggressive: A good year, with positive signs ahead
[Photo of Peter Bennett]
Peter Bennett
Portfolio Manager
Peter Bennett, portfolio manager and team leader of State Street Research
Strategic Portfolios: Aggressive, comments on the year ended October 31, 1999
and the Fund's strategy for the year ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: The Fund had a reasonably good year. Class S shares gained 13.89% for the 12
months ended October 31, 1999. The Fund slightly outperformed its peer group,
which rose 13.54%, according to the Lipper Flexible Portfolio Funds Average.
Q: WHAT ARE THE MAJOR FACTORS THAT IMPACTED PERFORMANCE?
A: Our holdings performed worse than the S&P 500, while international stocks
provided the highest returns overall. Our decision to underweight stocks
somewhat hurt performance, but the fact that both the high yield and
international bonds outperformed the Lehman Brothers Aggregate Bond Index helped
offset this underweighting.(2) The biggest drag on performance in the stock
portion of the portfolio was the underperformance of mid-cap value stocks which
continued to be hurt by the slow recovery in the industrial sector.
Q: HAVE YOU ALTERED THE FUND'S ASSET ALLOCATION AS A RESULT OF LAST YEAR'S
PERFORMANCE?
A: We made only modest adjustments to asset allocation. We continued to be
somewhat underweighted in equities and overweighted in bonds reflecting the high
valuations on stocks, the slowdown in money flows into U.S. markets, and what
were increasingly attractive real returns of bonds. International stocks were
modestly overweighted, reflecting the recovery outside of the U.S., as are
mid-cap value stocks where the valuations appeared very attractive.
International bonds are underweighted due to the fact that spreads are so
narrow.
Q: WHAT IS THE OUTLOOK FOR THE PERIOD AHEAD?
A: We are reasonably positive about the outlook for world markets, given the
fact we are now in a fairly broad global recovery. Asia is up sharply off the
bottom, Europe is showing steady improvement, and even Japan is now showing
signs of stabilizing and beginning to recover. We have one risk to consider. If
the growth in the U.S. fails to slow as the rest of the world recovers, then
that would put upward pressure on inflation and interest rates.
The stock market has broadened in recent months, which has been good for a
diversified portfolio such as this one, and we expect this process to continue.
October 31, 1999
- ------------------------------------------------------------------------------
ASSET ALLOCATION
(by percentage of net assets)
Equities 73%
Bonds 26%
Cash 1%
TOP 5 EQUITY HOLDINGS
(by percentage of net assets)
SOFTBANK 1.4%
VALASSIS COMMUNICATIONS 1.3%
CISCO SYSTEMS 1.2%
TAKARA SHUZO 1.1%
MCI WORLDCOM 1.1%
Total: 6.1%
TOP 5 EQUITY INDUSTRIES
(by percentage of net assets)
COMPUTER TECHNOLOGY 4.7%
COMMERCIAL SERVICES 4.1%
COMMUNICAITONS TECHNOLOGY 3.4%
BANKS & SAVINGS & LOANS 2.9%
UTILITIES: ELECTRICAL 2.9%
Total: 18.0%
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
October 31, 1999
VALUE
SHARES (NOTE 1)
- ----------------------------------------------------------------------------
EQUITY SECURITIES 73.0%
AUTOMOBILES & TRANSPORTATION 0.5%
AIR TRANSPORT 0.2%
Comair Holdings Inc. .......................... 3,600 $ 83,081
Mesa Air Group, Inc.* ......................... 7,100 39,938
-----------
123,019
-----------
AUTOMOTIVE PARTS 0.2%
Delphi Automotive Systems Corp. ............... 6,100 100,269
Gentex Corp.* ................................. 1,400 24,062
-----------
124,331
-----------
TRUCKERS 0.1%
US Freightways Corp. .......................... 1,000 45,313
-----------
Total Automobiles & Transportation ............ 292,663
-----------
CONSUMER DISCRETIONARY 14.5%
ADVERTISING AGENCIES 2.4%
Lamar Advertising Co. Cl. A* .................. 2,300 124,200
Omnicom Group Inc. ............................ 3,300 290,400
Valassis Communications Inc.* ................. 17,950 771,850
Young & Rubicam Inc.* ......................... 4,000 183,000
-----------
1,369,450
-----------
CASINOS/GAMBLING, HOTEL/MOTEL 1.6%
GTECH Holdings Corp.* ......................... 6,500 130,813
Harrah's Entertainment Inc.* .................. 19,500 564,281
International Game Technology Inc.* ........... 11,600 216,050
Motels of America Inc.*+ ...................... 175 44
-----------
911,188
-----------
COMMERCIAL SERVICES 4.1%
A.C. Nielson Corp.* ........................... 23,700 521,400
Abacus Direct Corp.* .......................... 1,400 205,100
Allied Waste Industries Inc.* ................. 4,600 48,300
America Online Inc.* .......................... 2,500 324,219
Cendant Corp.* ................................ 10,000 165,000
Cheap Tickets Inc.* ........................... 1,900 30,400
Copart Inc.* .................................. 4,300 98,900
Innotrac Corp.* ............................... 3,500 38,062
Maximus Inc.* ................................. 3,900 90,431
ProBusiness Services Inc.* .................... 2,800 70,350
QRS Corp.* .................................... 1,400 77,875
Safety Kleen Corp.* ........................... 19,700 225,319
StarMedia Network, Inc.* ...................... 2,300 66,125
Steiner Leisure Ltd.* ......................... 6,150 116,466
USWeb Corp.* .................................. 2,100 81,375
VerticalNet Inc.* ............................. 2,000 112,000
Waste Connections Inc.* ....................... 3,000 46,312
Ziff-Davis Inc.* .............................. 4,000 80,250
-----------
2,397,884
-----------
COMMUNICATIONS, MEDIA & ENTERTAINMENT 1.8%
AMFM Inc.* .................................... 3,000 210,000
CBS Corp.* .................................... 8,300 405,144
Cinar Films Inc. Cl. B* ....................... 5,200 90,350
Citadel Communications Corp.* ................. 2,300 111,119
Hearst Argyle Television Inc.* ................ 2,100 42,656
Sinclair Broadcast Group Inc.* ................ 5,000 50,000
Spanish Broadcasting Systems Inc.* ............ 1,700 45,262
TiVo Inc.* .................................... 300 12,863
World Wrestling Federation Entertainment Inc.* 2,100 50,662
-----------
1,018,056
-----------
CONSUMER ELECTRONICS 0.1%
Yahoo!, Inc.* ................................. 270 48,347
-----------
CONSUMER PRODUCTS 0.0%
Yankee Candle Company, Inc.* .................. 2,200 33,550
-----------
CONSUMER SERVICES 0.3%
Apollo Group Inc. Cl. A* ...................... 1,700 44,731
Bright Horizons Family Solutions Corp.* ....... 2,800 41,125
DeVry Inc.* ................................... 5,100 107,419
-----------
193,275
-----------
PRINTING & PUBLISHING 0.8%
Hollinger International, Inc. Cl. A ........... 43,700 453,388
-----------
RESTAURANTS 0.6%
McDonald's Corp.* ............................. 9,000 371,250
-----------
RETAIL 2.8%
Aviation Sales Co.* ........................... 1,600 27,800
Circuit City Stores Inc. ...................... 6,000 256,125
CSK Auto Corp.* ............................... 3,600 64,350
David's Bridal Inc.* .......................... 4,900 48,694
EMusic.com Inc.* .............................. 5,700 78,019
Federated Department Stores Inc.* ............. 4,200 179,287
Global Imaging Systems, Inc.* ................. 5,000 69,062
Home Depot Inc.* .............................. 2,600 196,300
Jones Apparel Group Inc.* ..................... 3,600 113,850
Linens 'n Things Inc.* ........................ 1,500 59,625
Men's Wearhouse, Inc.* ........................ 1,700 37,294
Sharper Image Corp.* .......................... 4,000 43,750
Staples Inc.* ................................. 6,400 142,000
Ticketmaster Online City Search, Inc. Cl. B* .. 3,000 67,500
Wal-Mart Stores, Inc.* ........................ 3,700 209,744
-----------
1,593,400
-----------
Total Consumer Discretionary .................. 8,389,788
-----------
CONSUMER STAPLES 2.4%
BEVERAGES 0.6%
Anheuser-Busch Companies, Inc.* ............... 4,800 344,700
-----------
DRUG & GROCERY STORE CHAINS 0.7%
Duane Reade Inc.* ............................. 3,000 80,625
Hannaford Brothers Co.* ....................... 4,585 321,237
-----------
401,862
-----------
FOODS 0.1%
Nabisco Group Holdings Corp. .................. 2,500 32,031
-----------
HOUSEHOLD PRODUCTS 0.8%
Colgate-Palmolive Co. ......................... 5,700 344,850
Dial Corp.* ................................... 4,620 107,992
-----------
452,842
-----------
TOBACCO 0.2%
R.J. Reynolds Tobacco Holdings Inc. ........... 2,533 54,935
UST Inc.* ..................................... 3,100 85,831
-----------
140,766
-----------
Total Consumer Staples ........................ 1,372,201
-----------
FINANCIAL SERVICES 9.2%
BANKS & SAVINGS & LOAN 2.9%
BankNorth Group Inc. .......................... 1,300 43,916
Charter One Financial Inc. .................... 1,786 43,870
Chase Manhattan Corp.* ........................ 5,200 454,350
City National Corp.* .......................... 1,200 46,500
Commercial Federal Corp. ...................... 2,500 49,062
Golden State Bancorp Inc.* .................... 2,900 60,537
Golden West Financial Corp.* .................. 1,300 145,275
Hudson City Bancorp Inc. ...................... 7,500 99,844
Mercantile Bankshares Corp.* .................. 4,300 154,800
One Valley Bancorp, Inc. ...................... 900 32,850
Peoples Heritage Financial Group* ............. 15,900 302,100
SouthTrust Corp.* ............................. 3,100 124,000
TCF Financial Corp.* .......................... 1,400 41,300
Telebanc Financial Corp.* ..................... 3,200 76,800
-----------
1,675,204
-----------
FINANCIAL DATA PROCESSING SERVICES &
SYSTEMS 0.8
Bisys Group Inc.* ............................. 900 45,900
NextCard Inc.* ................................ 5,400 168,413
Nova Corp.* ................................... 5,300 137,800
Profit Recovery Group International Inc.* ..... 2,850 117,384
-----------
469,497
-----------
INSURANCE 2.0%
Ace Ltd.* ..................................... 14,400 279,900
American International Group Inc.* ............ 2,587 266,299
Mutual Risk Management Ltd.* .................. 1,832 27,709
Saint Paul Companies, Inc.* ................... 5,300 169,600
Terra Nova Holdings Ltd. Cl. A* ............... 2,500 78,906
XL Capital Ltd. Cl. A* ........................ 6,250 335,547
-----------
1,157,961
-----------
MISCELLANEOUS FINANCIAL 2.8%
AMBAC Inc.* ................................... 9,300 555,675
Citigroup, Inc.* .............................. 7,850 424,882
Heller Financial Inc. Cl. A* .................. 3,100 73,625
Metris Companies Inc. ......................... 2,200 75,763
Morgan Stanley Dean Witter & Co. .............. 2,100 231,656
Prism Financial Corp. ......................... 4,900 62,781
Radian Group Inc. ............................. 1,700 89,781
Security First Technologies Corp. ............. 2,400 96,450
-----------
1,610,613
-----------
REAL ESTATE INVESTMENT TRUSTS 0.2%
First Industrial Realty Trust Inc.* ........... 2,100 51,844
IndyMac Mortgage Holdings Inc.* ............... 3,500 48,781
Reckson Associates Reality Corp. .............. 1,600 29,600
-----------
130,225
-----------
RENTAL & LEASING SERVICES: COMMERCIAL 0.1%
United Rentals Inc.* .......................... 2,100 39,113
-----------
SECURITIES BROKERAGE & SERVICES 0.4%
Bear Stearns Company Inc.* .................... 3,465 147,695
Knight/Trimark Group, Inc. Cl. A* ............. 3,500 91,219
-----------
238,914
-----------
Total Financial Services ...................... 5,321,527
-----------
HEALTH CARE 3.2%
DRUGS & BIOTECHNOLOGY 2.4%
Amgen Inc.* ................................... 2,600 207,350
Axogen Ltd.* .................................. 2,100 67,463
Biovail Corp.* ................................ 5,000 275,937
Biovail Corp. Wts. ............................ 10,600 280,900
Bristol-Myers Squibb Co. ...................... 2,700 207,394
Genetech Inc. ................................. 200 29,150
Intelligent Polymers Ltd. ..................... 10,600 323,962
Spiros Development Corp.* ..................... 600 3,413
-----------
1,395,569
-----------
HEALTH CARE FACILITIES 0.1%
Total Renal Care Holdings Inc.* ............... 10,533 77,022
-----------
HEALTH CARE SERVICES 0.4%
Healtheon Corp.* .............................. 1,100 36,300
Quorum Health Group Inc.* ..................... 20,800 166,400
-----------
202,700
-----------
HOSPITAL SUPPLY 0.3%
CONMED Corp.* ................................. 1,600 39,900
Wesley Jessen VisionCare Inc.* ................ 3,800 102,125
-----------
142,025
-----------
Total Health Care ............................. 1,817,316
-----------
INTEGRATED OILS 1.1%
INTEGRATED DOMESTIC 0.3%
Unocal Corp. .................................. 5,500 189,750
-----------
INTEGRATED INTERNATIONAL 0.8%
BP Amoco PLC ADR .............................. 4,000 231,000
Suncor Energy Inc ............................. 2,600 99,979
Total Fina SA ADR ............................. 2,100 140,044
-----------
471,023
-----------
Total Integrated Oils ......................... 660,773
-----------
MATERIALS & PROCESSING 3.5%
BUILDING & CONSTRUCTION 0.1%
SLI Inc.* ..................................... 3,346 35,970
-----------
CHEMICALS 0.9%
Cabot Corp. ................................... 9,100 169,487
Cambrex Corp. ................................. 2,000 60,500
Dow Chemical Co. .............................. 1,800 212,850
Omnova Solutions Inc.* ........................ 10,200 71,400
-----------
514,237
-----------
CONTAINERS & PACKAGING 0.7%
American Material Can Group Inc. .............. 24,100 301,250
Smurfit Stone Container Corp.* ................ 6,000 129,750
-----------
431,000
-----------
DIVERSIFIED MANUFACTURING 1.0%
Ball Corp. .................................... 14,200 572,437
-----------
FERTILIZERS 0.3%
Agrium Inc. ................................... 17,200 145,125
-----------
FOREST PRODUCTS 0.1%
Champion International Corp. .................. 1,500 86,719
-----------
STEEL 0.4%
Alaska Steel Holding Corp. .................... 5,443 94,232
Harsco Corp. .................................. 5,600 164,850
-----------
259,082
-----------
Total Materials & Processing .................. 2,044,570
-----------
OTHER 2.4%
MULTI-SECTOR 2.4%
AlliedSignal Inc. ............................. 4,900 278,994
Gencorp Inc. .................................. 10,200 116,025
General Electric Co. .......................... 3,000 406,687
Ogden Corp. ................................... 16,600 150,437
Teleflex Inc. ................................. 1,400 47,688
Tyco International Ltd. ....................... 9,200 367,425
-----------
Total Other ................................... 1,367,256
-----------
OTHER ENERGY 3.8%
GAS PIPELINES 0.9%
Columbia Energy Group ......................... 700 45,500
Williams Companies Inc. ....................... 12,947 485,513
-----------
531,013
-----------
OFFSHORE DRILLING 0.2%
Atwood Oceanics Inc.* ......................... 1,400 40,688
Transocean Offshore Inc. ...................... 3,400 92,437
-----------
133,125
-----------
OIL & GAS PRODUCERS 1.4%
Abacan Resource Corp.* ........................ 30,200 4,247
Louis Dreyfus Natural Gas Corp.* .............. 2,300 46,000
Maxx Petroleum Ltd.* .......................... 11,500 38,094
Ocean Energy Inc.* ............................ 26,324 241,852
Plains Resources Inc.* ........................ 2,700 46,406
St. Mary Land & Exploration Co.* .............. 1,900 48,450
Talisman Energy Inc.* ......................... 9,090 239,495
Union Pacific Resources Group Inc. ............ 8,600 124,700
-----------
789,244
-----------
OIL WELL EQUIPMENT & SERVICES 1.3%
Baker Hughes Inc. ............................. 3,800 106,163
Calpine Corp.* ................................ 2,600 149,825
Halliburton Co.* .............................. 5,000 188,437
Precision Drilling Corp ....................... 10,000 234,051
Valero Refining & Marketing Corp. ............. 3,400 62,475
-----------
740,951
-----------
Total Other Energy ............................ 2,194,333
-----------
PRODUCER DURABLES 3.1%
AEROSPACE 0.1%
Heico Corp. Cl. A ............................. 3,400 51,638
-----------
ELECTRICAL EQUIPMENT & COMPONENTS 0.8%
Mark IV Industries Inc. ....................... 24,500 471,625
-----------
ELECTRONICS: INDUSTRIAL 0.1%
Mettler Toledo International Inc.* ............ 2,700 80,494
-----------
MACHINERY 0.7%
Helix Technology Corp. ........................ 1,800 72,562
Howmet International Inc.* .................... 20,400 300,900
-----------
373,462
-----------
MISCELLANEOUS EQUIPMENT 0.4%
Danaher Corp. ................................. 4,600 222,237
-----------
PRODUCTION TECHNOLOGY EQUIPMENT 0.8%
Cymer Inc.* ................................... 2,400 88,650
Dupont Photomasks Inc.* ....................... 900 44,550
Teradyne Inc.* ................................ 8,600 331,100
-----------
464,300
-----------
TELECOMMUNICATIONS EQUIPMENT 0.2%
American Tower Corp. Cl. A* ................... 3,100 59,094
L-3 Communications Holding Corp.* ............. 1,600 67,500
-----------
126,594
-----------
Total Producer Durables ....................... 1,790,350
-----------
TECHNOLOGY 11.4%
COMMUNICATIONS TECHNOLOGY 3.4%
Akamai Technologies Inc.* ..................... 100 14,519
Ask Jeeves Inc.* .............................. 1,300 100,425
Covad Communications Group Inc.* .............. 2,350 112,800
CSG Systems International Inc.* ............... 2,000 68,625
Digital Microwave Corp.* ...................... 6,220 92,523
Extreme Networks Inc.* ........................ 900 72,281
Foundry Networks, Inc.* ....................... 400 75,800
Go2Net, Inc.* ................................. 1,000 70,375
Intervu Inc.* ................................. 1,200 65,850
Lernout & Hauspie Speech Products NV ADR* ..... 5,400 181,575
Liberate Technologies, Inc.* .................. 2,600 177,125
Lucent Technologies Inc.* ..................... 3,800 244,150
Mapquest.com Inc.* ............................ 2,900 44,950
Mpath Interactive, Inc.* ...................... 4,400 49,500
NCR Corp.* .................................... 3,400 112,625
Network Solutions Inc. Cl. A* ................. 1,500 177,750
NorthPoint Communications Group Inc.* ......... 2,100 56,306
Packeteer Inc.* ............................... 2,000 68,000
Remec Inc.* ................................... 7,150 74,628
Sycamore Networks Inc.* ....................... 210 45,150
Tibco Software Inc.* .......................... 1,600 62,400
-----------
1,967,357
-----------
COMPUTER SOFTWARE 1.3%
Answerthink Consulting Group, Inc.* ........... 2,200 36,300
Breakaway Solutions Inc.* ..................... 500 26,594
Ceridian Corp.* ............................... 4,600 100,912
Microsoft Corp.* .............................. 5,900 546,119
Transaction Systems Architects Inc. Cl. A* .... 1,300 39,975
-----------
749,900
-----------
COMPUTER TECHNOLOGY 4.7%
Cisco Systems Inc.* ........................... 9,150 677,100
Electronic Data Systems Corp.* ................ 5,100 298,350
EMC Corp.* .................................... 5,000 365,000
Gadzoox Networks Inc.* ........................ 200 9,525
International Business Machines Corp.* ........ 3,000 295,125
JNI Corp.* .................................... 200 10,688
Radiant Systems Inc.* ......................... 5,000 78,750
Silicon Graphics Inc.* ........................ 22,600 175,150
Sun Microsystems Inc.* ........................ 4,900 518,481
Unisys Corp.* ................................. 1,800 43,650
Verio Inc.* ................................... 4,800 179,100
Zebra Technologies Corp. Cl. A* ............... 1,500 81,562
-----------
2,732,481
-----------
ELECTRONICS 1.0%
Aeroflex Inc.* ................................ 9,400 52,287
Nokia Corp. ADR ............................... 2,300 265,794
Solectron Corp.* .............................. 3,600 270,900
-----------
588,981
-----------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS 1.0%
Analog Devices Inc.* .......................... 1,800 95,625
Benchmark Electronics Inc.* ................... 2,800 44,800
Cypress Semiconductor Corp.* .................. 6,150 157,210
Texas Instruments Inc. ........................ 2,700 242,325
-----------
539,960
-----------
Total Technology .............................. 6,578,679
-----------
UTILITIES 6.2%
CABLE TELEVISION & RADIO 0.2%
MediaOne Group Inc.* .......................... 1,800 127,913
-----------
ELECTRICAL 2.9%
CMP Group Inc. ................................ 5,500 146,437
DQE, Inc. ..................................... 4,500 179,719
Energy East Corp. ............................. 3,400 85,425
Illinova Corp. ................................ 16,200 515,362
Niagara Mohawk Holdings Inc.* ................. 5,300 84,138
OGE Energy Corp. .............................. 8,900 201,919
Pinnacle West Capital Corp. ................... 12,100 446,187
-----------
1,659,187
-----------
GAS DISTRIBUTION 0.3%
National Fuel Gas Co. ......................... 1,200 58,650
Nicor Inc. .................................... 1,800 69,750
Questar Corp. ................................. 2,200 39,600
-----------
168,000
-----------
TELECOMMUNICATIONS 2.8%
AirGate PCS, Inc.* ............................ 1,200 60,000
Alltel Corp. .................................. 2,600 216,450
Bellsouth Corp. ............................... 2,700 121,500
MCI WorldCom Inc.* ............................ 7,300 626,431
Metromedia Fiber Network Inc. Cl. A* .......... 1,292 42,717
Qwest Communications International Inc.* ...... 7,000 252,000
RCN Corp.* .................................... 2,300 110,112
RSL Communications Ltd. Cl. A* ................ 4,800 105,000
Time Warner Telecom Inc. ...................... 1,700 42,819
Triton PCS Holdings Inc. ...................... 900 31,725
-----------
1,608,754
-----------
Total Utilities ............................... 3,563,854
-----------
NON-US EQUITIES 11.7%
Banco Di Roma ................................. 117,800 158,602
BHF Bank AG ................................... 3,800 155,085
Clariant AG ................................... 400 175,031
Clearnet Communications Inc. Wts.* ............ 990 5,445
Continental AG ................................ 10,800 234,584
Corus Entertainment Inc* ...................... 2,600 40,628
Eircom PLC* ................................... 4,400 18,281
Gulfstream Resources Ltd. ..................... 11,500 14,454
Hikari Tsushin Inc* ........................... 500 402,321
IXOS Software AG* ............................. 1,100 147,522
L.M. Ericsson Telephone Co. Cl. B ............. 8,200 341,002
Nokia AB Oy ................................... 3,600 412,026
Norsk Hydro AS ................................ 7,000 279,162
Pharmacia & Upjohn PLC ........................ 700 37,834
Post Energy Corp.* ............................ 10,700 50,887
Prosieben Media AG ............................ 6,200 254,337
PTT Exploration & Production Public Co. Ltd.* . 16,100 117,607
Renaissance Energy Ltd.* ...................... 10,000 120,932
Sema Group PLC ................................ 21,000 274,332
Shaw Communications Inc. Cl. B ................ 7,800 234,000
Snow Brand Milk Co. ........................... 54,500 262,909
Societe Generale de France SA ................. 1,200 261,280
Softbank Corp. ................................ 1,900 789,009
Takara Shuzo Co. .............................. 46,000 638,803
Telecom Italia SPA ............................ 40,500 349,745
Tieto Corp.* .................................. 7,400 256,862
Viatel Inc. ................................... 393 13,116
WM Data AB Cl. B .............................. 6,600 277,274
Wolters Kluwer ................................ 6,800 227,237
York-Benimaru Co. ............................. 5,600 230,939
-----------
Total Non-US Equities ......................... 6,781,246
-----------
Total Equity Securities (Cost $33,712,135) .... 42,174,556
-----------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 25.9%
U.S. TREASURY 1.4%
U.S. Treasury Bond, 8.125% ...................... $ 150,000 5/15/2021 177,938
U.S. Treasury Bond, 8.125% ...................... 85,000 8/15/2021 100,911
U.S. Treasury Bond, 6.625% ...................... 100,000 2/15/2027 102,828
U.S. Treasury Bond, 6.125% ...................... 50,000 11/15/2027 48,336
U.S. Treasury Note, 5.875% ...................... 100,000 9/30/2002 99,984
U.S. Treasury Note, 5.625% ...................... 10,000 5/15/2008 9,648
U.S. Treasury STRIPS, 0.00% ..................... 225,000 5/15/2003 182,284
U.S. Treasury STRIPS, 0.00% ..................... 25,000 5/15/2018 7,475
U.S. Treasury TIPS, 3.875% ...................... 76,135 4/15/2029 72,899
------------
802,303
------------
U.S. AGENCY MORTGAGE 6.8%
Federal Home Loan Mortgage Corp., 6.50% ......... 134,079 7/01/2029 128,548
Federal National Mortgage Association, 5.50% .... 144,810 3/01/2014 136,256
Federal National Mortgage Association, 6.50% .... 93,085 9/01/2028 89,187
Federal National Mortgage Association, 6.50% .... 238,521 11/01/2028 228,531
Federal National Mortgage Association, 6.50% .... 268,754 12/01/2028 257,498
Federal National Mortgage Association, 6.50% .... 97,416 3/01/2029 93,336
Federal National Mortgage Association, 7.50% .... 160,040 7/01/2029 160,389
Federal National Mortgage Association TBA, 7.50% 525,000 1/19/2030 524,675
Federal National Mortgage Association TBA, 7.00% 850,000 11/15/2029 834,598
Government National Mortgage Association, 6.50% . 25,997 2/15/2009 25,656
Government National Mortgage Association, 6.50% . 62,952 7/15/2009 62,202
Government National Mortgage Association, 6.50% . 82,914 11/15/2010 81,704
Government National Mortgage Association, 7.50% . 59,430 12/15/2010 60,414
Government National Mortgage Association, 7.00% . 16,657 1/15/2025 16,448
Government National Mortgage Association, 7.00% . 258,665 5/15/2028 253,732
Government National Mortgage Association, 6.50% . 140,221 11/15/2028 134,173
Government National Mortgage Association, 7.00% . 155,893 11/15/2028 153,019
Government National Mortgage Association, 7.00% . 66,509 11/15/2028 65,283
Government National Mortgage Association
TBA, 7.00% .................................... 375,000 1/25/2030 366,508
Government National Mortgage Association
TBA, 8.00% .................................... 250,000 1/25/2030 254,335
------------
3,926,492
------------
CANADIAN-YANKEE 0.3%
British Sky Broadcasting Group PLC Note, 6.875% . 75,000 2/23/2009 66,746
Province of Quebec Deb., 5.75% .................. 25,000 2/15/2009 22,766
Province of Quebec Deb., 7.50% .................. 50,000 9/15/2029 50,240
Woodside Finance Ltd. Note, 6.60%+ .............. 50,000 4/15/2008 46,397
------------
186,149
------------
FOREIGN GOVERNMENT 3.2%
Greek Drachma
Republic of Greece, 8.80% ....................... 188,800,000 6/19/2007 656,483
New Zealand Dollar
Government of New Zealand, 10.00% ............... 275,000 3/15/2002 150,465
Government of New Zealand, 8.00% ................ 475,000 4/15/2004 251,327
Government of New Zealand, 8.00% ................ 1,425,000 11/15/2006 762,305
------------
1,820,580
------------
FINANCE/ MORTGAGE 4.4%
A T & T Capital Corp. Note, 7.50% ............... $ 50,000 11/15/2000 50,447
A T & T Capital Corp. Note, 6.75% ............... 100,000 2/04/2002 99,672
American Express Credit Account Series 1999-A,
5.95% ......................................... 75,000 12/15/2006 72,750
Arcadia Automobile Trust 97-C A5, 6.55% ......... 50,000 6/15/2005 50,120
Capital One Bank Note, 6.15% .................... 75,000 6/01/2001 73,838
Capital One Bank Note, 7.08% .................... 75,000 10/30/2001 74,751
Capital One Bank Note, 6.62% .................... 100,000 8/04/2003 97,069
Chase Credit Card Owner Trust Note, 6.66% ....... 25,000 1/15/2007 24,901
Citibank Credit Card Master Trust Series 1998 Cl.
A, 5.30% ...................................... 50,000 1/09/2006 47,297
Citibank Credit Card Master Trust Series 1999 Cl.
A, 5.875% ..................................... 25,000 3/10/2011 22,945
Countrywide Funding Corp. Note,
6.58% ......................................... 75,000 9/21/2001 74,734
Discover Card Master Trust Series 1998-7A, 5.60% 75,000 5/16/2006 71,976
DLJ Commercial Mortgage Corp. 99-C1, 6.46% ...... 250,000 1/10/2009 236,523
ERAC USA Finance Co. Note,
6.625%+ ....................................... 100,000 5/15/2006 93,911
Finova Capital Corp. Note, 6.375% ............... 50,000 5/15/2005 47,821
Ford Motor Credit Co. Note, 5.75% ............... 100,000 2/23/2004 95,780
Ford Motor Credit Co. Note, 7.375% .............. 150,000 10/28/2009 150,990
General Motors Acceptance Corp. Note, 6.384% .... 100,000 10/07/2002 100,060
GMAC Commercial Mortgage Security Inc. Series 99-
C1 A2, 6.175% ................................. 75,000 5/15/2033 69,114
Household Finance Corp. Note,
6.00% ......................................... 50,000 5/01/2004 47,920
Household Finance Corp. Sr. Note, 6.125% ........ 50,000 7/15/2012 49,076
LB Commercial Conduit Mortgage Trust 97-LL1-A1,
6.79% ......................................... 95,337 6/12/2004 95,069
LB Commercial Conduit Mortgage Trust Series 98C1-
A1, 6.33% ..................................... 86,165 11/18/2004 84,415
MBNA Corp. Sr. Note, 6.12% ...................... 100,000 8/13/2001 98,908
MBNA Corp. Sr. Note, 6.875% ..................... 100,000 11/15/2002 99,385
MBNA Master Credit Card Trust Note, 6.35% ....... 100,000 12/15/2006 98,468
MBNA Master Credit Card Trust Series 99-B, 5.90% 50,000 8/15/2011 45,771
MBNA Master Credit Card Trust Series 99-J, 7.00% 100,000 2/15/2012 99,375
Morgan Stanley Capital Inc. 98-A1, 6.22% ........ 46,317 5/03/2005 44,841
Morgan Stanley Capital Inc. 98-A1, 6.19% ........ 28,457 1/15/2007 27,630
Prime Credit Card Master Trust Series 1995-1A,
6.75% ......................................... 50,000 11/15/2005 50,078
Prime Credit Card Master Trust Series 1996-1A,
6.70% ......................................... 50,000 7/15/2004 50,078
Sears Credit Account Master Trust Series 1998-2A,
5.25% ......................................... 100,000 10/16/2008 94,375
Textron Finance Corp. Note, 6.125%+ ............. 25,000 3/15/2001 24,843
------------
2,564,931
------------
CORPORATE 9.8%
Advanstar Communications Inc. Sr. Sub.
Note, 9.25% ................................... 40,000 5/01/2008 37,400
Airgate PCS Inc. Sr. Sub. Note, 0.00% to
9/30/2004, 13.50% from 10/1/2004 to maturity .. 80,000 10/01/2009 48,600
Alaska Steel Corp. Sr. Note, 9.125% ............. 100,000 12/15/2006 99,000
Albertsons Inc. Sr. Deb., 7.45% ................. 100,000 8/01/2029 98,647
Allied Waste North America Inc. Sr. Note, 7.625%+ 25,000 1/01/2006 21,844
Allied Waste North America Inc. Sr. Note, 7.875% 10,000 1/01/2009 8,512
Archibald Candy Corp. Sr. Sec. Note, 10.25% ..... 50,000 7/01/2004 48,500
Arizona Public Service Co. Note, 6.25% .......... 75,000 1/15/2005 71,095
Atlantic Richfield Co. Note, 5.90% .............. 100,000 4/15/2009 92,889
Aurora Foods Inc. Sr. Sub. Note, 9.875% ......... 175,000 2/15/2007 178,937
Buckeye Technologies Inc. Sr. Sub. Note, 8.00% .. 200,000 10/15/2010 184,000
California Infrastructure Development Series
1997-A7, 6.42% ................................ 150,000 9/25/2008 146,561
Calpine Corp. Sr. Note, 7.75% ................... 20,000 4/15/2009 18,774
Charter Communication Holding LLC Sr.
Note, 8.625%+ ................................. 80,000 4/01/2009 75,800
Coca-Cola Enterprises Inc. Deb.,
6.95% ......................................... 25,000 11/15/2026 23,177
Coca-Cola Enterprises Inc. Deb.,
6.75% ......................................... 100,000 9/15/2028 90,003
Columbia/HCA Healthcare Corp. Note, 8.12% ....... 100,000 8/04/2003 97,539
Columbia/HCA Healthcare Corp. Note, 7.69% ....... 50,000 6/15/2025 39,500
Columbia/HCA Healthcare Corp. Note, 7.75% ....... 50,000 7/15/2036 38,503
Dover Corp. Deb., 6.65% ......................... 100,000 6/01/2028 85,257
El Paso Energy Corp. Sr. Note, 6.625%+ .......... 100,000 7/15/2001 99,530
El Paso Energy Corp. Sr. Note, 6.75% ............ 50,000 5/15/2009 47,705
Empire Gas Corp. Sr. Sec. Note, 12.875% ......... 250,000 7/15/2004 168,125
Envirosource Inc. Note, 9.75% ................... 500,000 6/15/2003 295,000
First Wave Marine Inc. Sr. Note, 11.00% ......... 100,000 2/01/2008 75,500
Fisher Scientific International Inc. Sr. Sub.
Note, 9.00% ................................... 50,000 2/01/2008 47,000
Fort James Corp. Note, 6.234% ................... 50,000 3/15/2001 49,477
Gentek Inc. Sr. Sub. Note, 11.00%+ .............. 75,000 8/01/2009 75,375
Harrah's Operating Inc. Sr. Sub. Note, 7.875% ... 90,000 12/15/2005 85,725
HealthSouth Corp. Sr. Note, 6.875% .............. 50,000 6/15/2005 42,726
Hollywood Casino Corp. Note, 13.00%+ ............ 50,000 8/01/2006 52,000
Hyperion Telecommunication Inc. Sr. Sub. Note,
12.00%+ ....................................... 110,000 11/01/2007 113,300
Iasis Healthcare Corp. Sr. Sub. Note, 13.00% .... 80,000 10/15/2009 80,600
Insight Midwest LP Sr. Note, 9.75% .............. 10,000 10/01/2009 10,175
International Business Machines Deb., 7.00% ..... 25,000 10/30/2025 24,467
International Game Technology Corp. Sr. Note,
8.375% ........................................ 30,000 5/15/2009 28,650
International Shipholding Corp. Sr. Note Series
B, 7.75% ...................................... 100,000 10/15/2007 90,500
J.B. Poindexter Inc. Sr. Note, 12.50% ........... 100,000 5/15/2004 94,500
Lear Corp. Note, 8.11%+ ......................... 40,000 5/15/2009 38,418
Lucent Technologies Inc. Deb., 6.45% ............ 100,000 3/15/2029 89,587
Lyondell Chemical Co. Sr. Sec. Note, 9.875% ..... 100,000 5/01/2007 99,750
Mohegan Tribal Gaming Authority Sr. Note, 8.125% 120,000 1/01/2006 115,800
New Jersey Economic Development Authority Series
A, 7.425% ..................................... 50,000 2/15/2029 49,433
News America Inc. Sr. Deb., 7.125% .............. 50,000 4/08/2028 43,784
News America Inc. Sr. Note, 6.625% .............. 75,000 1/09/2008 70,282
Ocean Energy Inc. Series B Sr. Note, 7.625% ..... 50,000 7/01/2005 47,750
Owens-Illinois Inc. Sr. Deb., 7.50% ............. 40,000 5/15/2010 36,165
Packaging Resources Inc. Sr. Sec. Note, 11.625% . 250,000 5/01/2003 251,250
Peco Energy Transport Trust Series 99-A Cl. A7,
6.13% ......................................... 100,000 3/01/2009 93,593
Pepsi Bottling Holdings Inc. Note, 5.625%+ ...... 100,000 2/17/2009 89,991
Pioneer Americans Acquisition Corp. Sr. Sec. Note
Series B, 9.25% ............................... 100,000 6/15/2007 77,000
Pool Energy Services Co. Sr. Sub. Note, 8.625% .. 150,000 4/01/2008 154,125
Prime Succession Inc. Sr. Sub. Note, 10.75% ..... 150,000 8/15/2004 66,000
PSINet Inc. Sr. Note, 11.00%+ ................... 50,000 8/01/2009 51,000
Rose Hills Co. Sr. Sub. Note, 9.50% ............. 250,000 11/15/2004 200,000
RSL Communications Ltd. Sr. Note, 12.25% ........ 250,000 11/15/2006 248,750
S.C.G. Holding Corp. Sr. Note, 12.00%+ 40,000 8/01/2009 41,000
Sbarro Inc. Sr. Note, 11.00% .................... 100,000 9/15/2009 98,750
Sealed Air Corp. Sr. Note, 6.95%+ ............... 50,000 5/15/2009 47,240
Sheffield Steel Corp. Note Series B, 11.50% ..... 20,000 12/01/2005 16,400
Simonds Industries Inc. Sr. Sub. Note, 10.25% ... 25,000 7/01/2008 19,000
Spanish Broadcasting Systems Inc. Sr. Sub. Note,
9.625% ........................................ 15,000 11/01/2009 15,094
Stater Brothers Holdings Inc. Sr. Note, 10.75%+ . 125,000 8/15/2006 128,125
Tyco International Group SA, 6.25% .............. 75,000 6/15/2003 72,250
Unilab Corp. Sr. Sub. Note, 12.75% .............. 50,000 10/01/2009 50,250
US Unwired Inc. Sr. Sub. Note, 0.00% to
10/31/2004, 13.375% from 11/1/2004
to maturity ................................... 90,000 11/01/2009 47,700
USA Waste Services Inc. Sr. Note, 7.00% ......... 50,000 10/01/2004 42,658
Viatel Inc. Sr. Note, 11.25% .................... 50,000 4/15/2008 47,250
Vintage Petroleum Inc. Sr. Sub. Note, 9.75% ..... 20,000 6/30/2009 20,300
Westpoint Stevens Inc. Sr. Note, 7.875% ......... 20,000 6/15/2008 17,850
Williams Communications Group Sr. Note, 10.875% . 20,000 10/01/2009 20,450
Winstar Communications Inc. Sr. Exch.
Note, 14.50% .................................. 110,000 10/15/2005 147,400
------------
5,639,288
------------
Total Fixed Income Securities (Cost $15,838,246) ........................................ 14,939,743
------------
COMMERCIAL PAPER 6.3%
Ford Motor Credit Co., 5.18% .................... 211,000 11/02/1999 211,000
Ford Motor Credit Co., 5.28% .................... 1,870,000 11/03/1999 1,870,000
General Electric Capital Corp., 5.22% ........... 795,000 11/03/1999 795,000
Goldman Sachs Group LP, 6.09% ................... 775,000 1/19/2000 764,796
------------
Total Commercial Paper (Cost $3,640,796) ................................................ 3,640,796
------------
- -------------------------------------------------------------------------------------------------------------
SHARES
- -------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 13.5%
State Street Navigator Securities Lending Prime Portfolio .......... 7,785,200 7,785,200
------------
Total Short-Term Investments (Cost $7,785,200) .......................................... 7,785,200
------------
Total Investments (Cost $60,976,377) - 118.7% ........................................... 68,540,295
Cash and Other Assets, Less Liabilities - (18.7%) ....................................... (10,813,145)
------------
Net Assets - 100.0% ..................................................................... $ 57,727,150
============
</TABLE>
Federal Income Tax Information:
At October 31, 1999, the net unrealized appreciation of
investments based on cost for Federal income tax purposes of
$61,313,393 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost ............. $11,461,748
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ............. (4,234,846)
-----------
$ 7,226,902
===========
ADR Stands for American Depositary Receipt, representing ownership of foreign
securities.
* Non-income-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.
+ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securit ies among certain
qualified buyers. The total cost and market value of Rule 144A securities
owned at October 31, 1999 were $1,029,268 an d $998,818 (1.73% of net
assets), respectively.
Futures contracts open at October 31, 1999, are as follows:
EXPIRATION UNREALIZED
TYPE NOTIONAL AMOUNT MONTH APPRECIATION
- -------------------------------------------------------------------------------
5 year U.S. Treasury Notes $100,000 December, 1999 $462
Forward currency exchange contracts outstanding at October 31, 1999, are as
follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
CONTRACT (DEPRECIATIO DELIVERY
TOTAL VALUE PRICE N) DATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy Euro, Sell U.S. dollars 198,500 EUR 1.07290 EUR $ (3,813) 11/23/99
Buy Euro, Sell U.S. dollars 83,000 EUR 1.05608 EUR (90) 12/09/99
Sell Euro, Buy U.S. dollars 262,080 EUR 1.05205 EUR (430) 11/23/99
Sell Euro, Buy U.S. dollars 94,400 EUR 1.04756 EUR (702) 12/09/99
Sell Euro, Buy U.S. dollars 149,600 EUR 1.08600 EUR 4,088 1/24/00
Sell Greek drachma, Buy U.S. dollars 42,938,000 GRD .00324 GRD 2,625 11/23/99
Sell Greek drachma, Buy U.S. dollars 32,000,000 GRD .00324 GRD 2,826 1/24/00
Sell Greek drachma, Buy U.S. dollars 9,000,000 GRD .00324 GRD 776 1/24/00
Sell Japanese yen, Buy U.S. dollars 79,205,000 JPY .00884 JPY (67,743) 12/30/99
Sell Japanese yen, Buy U.S. dollars 56,515,000 JPY .00885 JPY (47,806) 12/30/99
Buy Japanese yen, Sell U.S. dollars 135,720,000 JPY .00965 JPY 5,763 12/30/99
Sell Japanese yen, Buy U.S. dollars 59,624,945 JPY .00899 JPY (49,791) 3/31/00
Sell New Zealand dollars, Buy U.S. dollars 1,150,000 NZD .51580 NZD 9,900 11/23/99
Sell New Zealand dollars, Buy U.S. dollars 198,000 NZD .51815 NZD 2,170 11/23/99
Sell New Zealand dollars, Buy U.S. dollars 1,335,000 NZD .51540 NZD 9,683 1/25/00
Buy New Zealand dollars, Sell U.S. dollars 100,000 NZD .51665 NZD (946) 11/23/99
Buy New Zealand dollars, Sell U.S. dollars 270,000 NZD .51520 NZD (2,163) 11/23/99
----------
$(135,653)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
October 31, 1999
ASSETS
Investments, at value (Cost $60,976,377) (Note 1) .............. $68,540,295
Cash ........................................................... 36,438
Receivable for securities sold ................................. 1,615,186
Interest and dividends receivable .............................. 309,939
Receivable for open forward contracts .......................... 37,831
Receivable for fund shares sold ................................ 17,592
Receivable from Distributor (Note 3) ........................... 1,293
Other assets ................................................... 45,137
-----------
70,603,711
LIABILITIES
Payable for collateral received on securities loaned ........... 7,785,200
Payable for securities purchased ............................... 3,051,498
Payable for fund shares redeemed ............................... 1,674,754
Payable for open forward contracts ............................. 173,484
Accrued management fee (Note 2) ................................ 36,982
Accrued transfer agent and shareholder services
(Note 2) ..................................................... 31,084
Accrued trustees' fees (Note 2) ................................ 15,167
Payable for variation margin ................................... 500
Other accrued expenses ......................................... 107,892
-----------
12,876,561
-----------
NET ASSETS $57,727,150
===========
Net Assets consist of:
Undistributed net investment income .......................... $ 564,286
Unrealized appreciation of investments ....................... 7,563,918
Unrealized depreciation of forward contracts and
foreign currency ........................................... (136,910)
Unrealized appreciation of futures contracts ................. 462
Accumulated net realized gain ................................ 1,288,284
Paid-in capital .............................................. 48,447,110
-----------
$57,727,150
===========
Net Asset Value, offering price and redemption
price per share of Class S shares
($57,727,150 / 5,215,290 shares) ............................. $11.07
======
<PAGE>
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------
For the year ended October 31, 1999
INVESTMENT INCOME
Interest, net of foreign taxes of $4,118 (Note 1) ................ $1,337,256
Dividends, net of foreign taxes of $12,000 ....................... 388,012
----------
1,725,268
EXPENSES
Management fee (Note 2) .......................................... 442,704
Custodian fee .................................................... 146,052
Transfer agent and shareholder services (Note 2) ................. 76,911
Audit fee ........................................................ 25,447
Legal fees ....................................................... 24,234
Registration fees ................................................ 17,983
Trustees' fees (Note 2) .......................................... 15,167
Reports to shareholders .......................................... 13,686
Amortization of organization costs (Note 1) ...................... 4,387
Miscellaneous .................................................... 12,518
----------
779,089
Expenses borne by the Distributor (Note 3) ....................... (126,663)
----------
652,426
----------
Net investment income ............................................ 1,072,842
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, FORWARD CONTRACTS AND FUTURES CONTRACTS
Net realized gain on investments (Notes 1 and 4) ................. 1,312,666
Net realized loss on foreign currency and
forward contracts (Note 1) ..................................... (205,663)
Net realized loss on futures contracts (Note 1) .................. (1,207)
----------
Total net realized gain ........................................ 1,105,796
----------
Net unrealized appreciation of investments ....................... 5,213,554
Net unrealized appreciation of foreign currency and
forward contracts .............................................. 197,574
Net unrealized appreciation of futures contracts ................. 462
----------
Total net unrealized appreciation .............................. 5,411,590
----------
Net gain on investments, foreign currency, forward
contracts and futures contracts ................................ 6,517,386
----------
Net increase in net assets resulting from operations ............. $7,590,228
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31
---------------------------------
1998 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ......................................... $ 1,165,743 $ 1,072,842
Net realized gain on investments, foreign currency, forward
contracts and futures contracts ............................. 8,199,201 1,105,796
Net unrealized appreciation (depreciation) of investments,
foreign currency, forward contracts and futures contracts ... (7,077,127) 5,411,590
------------ -----------
Net increase resulting from operations ........................ 2,287,817 7,590,228
------------ -----------
Dividends from net investment income -- Class S ............... (1,317,557) (765,775)
------------ -----------
Distributions from net realized gains -- Class S .............. (11,099,159) (8,002,009)
------------ -----------
Class S share transactions:
Proceeds from sale of shares ................................ 9,214,900 5,716,393
Net asset value of shares issued in payment of:
Dividends from net investment income ...................... 449,769 298,971
Distributions from net realized gains ..................... 11,099,149 8,001,998
Cost of shares repurchased .................................. (32,540,040) (10,960,555)
------------ -----------
Net increase (decrease) from fund share transactions .......... (11,776,222) 3,056,807
------------ -----------
Total increase (decrease) in net assets........................ (21,905,121) 1,879,251
NET ASSETS
Beginning of year ............................................. 77,753,020 55,847,899
------------ -----------
End of year (including undistributed net investment income
of $583,345 and $564,286, respectively) ..................... $55,847,899 $57,727,150
=========== ===========
Number of Class S shares:
Sold ........................................................ 770,407 517,034
Issued upon reinvestment of:
Dividends from net investment income ...................... 39,840 27,969
Distributions from net realized gains ..................... 1,012,696 779,162
Repurchased ................................................. (2,843,995) (988,554)
------------ -----------
Net increase (decrease) in fund shares ...................... (1,021,052) 335,611
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 Trust consists presently of five separate funds: State
Street Research Strategic Portfolios: Aggressive, State Street Research
Government Income Fund, State Street Research Strategic Income Plus Fund, State
Street Research IntelliQuant Portfolios: Small-Cap Value and State Street
Research International Equity Fund.
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 S shares are
presently available for purchase. Class A, Class B and Class C shares are not
being offered at this time. Class A shares are subject to an initial sales
charge of up to 5.75% and an annual service fee of 0.25% of average daily net
assets. Class B shares are subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase and pay annual
distribution and service fees of 1.00%. Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight years
after the issuance of the Class B shares. Class C shares are subject to a
contingent deferred sales charge of 1.00% on any shares redeemed within one year
of their purchase. Class C shares also pay annual distribution and service fees
of 1.00%. Class S shares are only offered through certain retirement accounts,
advisory accounts of State Street Research & Management Company (the "Adviser"),
an indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), and special programs. No sales charge is imposed at the time
of purchase or redemption of Class S shares. Class S shares do not pay any
distribution or service fees. The Fund's expenses are borne pro-rata by each
class, except that each class bears expenses, and has exclusive voting rights
with respect to provisions of the plans 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.
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. For the year ended October 31, 1999, the Fund has designated as
long-term $6,326,418 of distributions from net realized gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. 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 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 exchange 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.
I. SECURITIES LENDING
The Fund may seek additional income by lending portfolio securities to qualified
institutions. The Fund will receive cash or securities as collateral in an
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the Fund could realize additional gains and losses. If
the borrower fails to return the securities and the value of the collateral has
declined during the term of the loan, the Fund will bear the loss. At October
31, 1999, the value of the securities loaned and the value of collateral were
$7,597,753 and $7,785,200, respectively. During the year ended October 31, 1999,
income from securities lending amounted to $48,985 and is included in interest
income.
J. FUTURES CONTRACTS
The Fund may enter into futures contracts as a hedge against unfavorable market
conditions and to enhance income. The Fund will limit its risks by entering into
a futures position only if it appears to be a liquid investment.
Upon entering into a futures contract, the Fund deposits with the selling broker
sufficient cash or U.S. Government securities to meet the minimum "initial
margin" requirements. Thereafter, the Fund receives from or pays to the broker
cash or U.S. Government securities equal to the daily fluctuation in value of
the contract ("variation margin"), which is recorded as unrealized gain or loss.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
NOTE 2
The Trust and the Adviser have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses of
management. During the year ended October 31, 1999, the fees pursuant to such
agreement amounted to $442,704.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the year ended October
31, 1999, the amount of such expenses was $73,003.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$15,167 during the year ended October 31, 1999.
NOTE 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund. During
the year ended October 31, 1999, the amount of such expenses assumed by the
Distributor and its affiliates was $126,663.
NOTE 4
For the year ended October 31, 1999, purchases and sales of securities,
exclusive of short-term obligations, aggregated $61,592,080 and $63,198,431
(including $23,033,675 and $24,236,115 of U.S. Government obligations),
respectively.
NOTE 5
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Under the plans, 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 C
shares. In addition, the Fund will pay annual distribution fees of 0.75% of
average daily net assets for Class B and Class C shares. The Distributor uses
such payments for personal service and/or the maintenance or servicing of
shareholder accounts, to compensate or reimburse securities dealers for
distribution and marketing services, to furnish ongoing assistance to
investors and to defray a portion of its distribution and marketing expenses.
NOTE 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At October 31, 1999,
Metropolitan owned 3,329,462 Class S shares of the Fund.
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEARS ENDED OCTOBER 31
------------------------------- NOVEMBER 1, 1996
1995(a) 1996(a) TO MARCH 27, 1997(a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 9.74 10.93 12.45
----- ----- -----
Net investment income ($)* 0.20 0.14 0.10
Net realized and unrealized gain
on investments, foreign currency
and forward contracts ($) 1.19 1.79 0.41
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.39 1.93 0.51
----- ----- -----
Dividends from net investment
income ($) (0.20) (0.17) (0.13)
Distributions from net realized
gains ($) -- (0.24) (1.48)
----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.20) (0.41) (1.61)
----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 10.93 12.45 11.35
===== ===== =====
Total return(b) (%) 14.49 18.05 4.18(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 39,555 623 --
Ratio of operating expenses to
average net assets (%)* 1.35 1.35 1.35(d)
Ratio of net investment income to
average net assets (%)* 1.98 1.43 1.69(d)
Portfolio turnover rate (%) 127.44 145.59 136.48
*Reflects voluntary reduction of
expenses per share of these
amounts (Note 3) ($) 0.02 0.01 0.02
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS S
------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31
------------------------------------------------------------------------------------------
1995(a) 1996(a) 1997(a) 1998(a) 1999(a)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 9.74 10.94 12.43 13.18 11.44
----- ----- ----- ----- -----
Net investment income ($)* 0.22 0.22 0.22 0.21 0.20
Net realized and unrealized gain
on investments, foreign
currency, forward contracts and
futures contracts ($) 1.20 1.74 2.27 0.17 1.25
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.42 1.96 2.49 0.38 1.45
----- ----- ----- ----- -----
Dividends from net investment
income ($) (0.22) (0.23) (0.26) (0.24) (0.15)
Distributions from capital gains ($) -- (0.24) (1.48) (1.88) (1.67)
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.22) (0.47) (1.74) (2.12) (1.82)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 10.94 12.43 13.18 11.44 11.07
===== ===== ===== ===== =====
Total return(b) (%) 14.85 18.37 22.54 3.69 13.89
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
($ thousands) 20,809 63,272 77,753 55,848 57,727
Ratio of operating expenses to
average net assets (%)* 1.10 1.10 1.10 1.10 1.10
Ratio of net investment income to
average net assets (%)* 2.13 1.78 1.79 1.81 1.82
Portfolio turnover rate (%) 127.44 145.59 136.48 124.15 108.44
* Reflects voluntary reduction of
expenses per share of these
amounts (Note 3) ($) 0.02 0.03 0.02 0.02 0.02
- --------------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) Not annualized.
(d) Annualized.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF STATE STREET RESEARCH FINANCIAL TRUST
AND THE SHAREHOLDERS OF STATE STREET RESEARCH
STRATEGIC PORTFOLIOS: AGGRESSIVE
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of State Street Research Strategic
Portfolios: Aggressive (a series of State Street Research Financial Trust,
hereafter referred to as the "Trust") at October 31, 1999, and the results of
its operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at October
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1999
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
MANAGEMENT's DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
For the year ended October 31, 1999, Class S shares of State Street Research
Strategic Portfolios: Aggressive gained 13.89%. That was slightly better than
its peer group, the Lipper flexible portfolio fund average, which rose 13.54%.
It was well below the S&P 500, which gained 25.66%. That's not surprising since
the S&P 500 is a measure of common stock performance, and the Fund had more than
25% of its assets invested in bonds and cash.
Strategic Portfolios: Aggressive seeks high total return primarily through
capital appreciation by investing in common stocks and bonds. The manager's
strategy is to adjust the asset allocation based on changing market conditions.
The Fund was somewhat underweighted in equities, 73%, reflecting the high
valuations of stocks. This underweighting coupled with mid-cap value stocks
dragging contributed to the Fund returning 13.89% for the 12 months ended
October 31, 1999.
The stock market has broadened in recent months, which has been good for this
diversified portfolio. Going into 2000, we are concerned about growth rates. If
the U.S. growth rate fails to slow as the rest of the world rises, than that
would put pressure on inflation and interest rates.
International stocks and mid-cap value stocks appear to be at good valuations
going into the new year. However, we remain cautious about the prospects for the
markets and the economy in the U.S.
October 31, 1999
Keep in mind that past performance is no guarantee of future results. The Fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Class S shares, offered
without a sales charge, are available only through certain employee benefit
plans and special programs. The S&P 500 (officially the "Standard and Poor's 500
Composite Stock Price Index") is an unmanaged index of 500 U.S. stocks. The
Lehman Brothers Government/Corporate Bond Index is a market-value weighted index
of U.S. government treasury and agency securities, corporate and yankee bonds.
The indices are unmanaged and do not take sales charges into consideration.
Direct investment in the indices is not possible; results are for illustrative
purposes only.
CHANGE IN VALUE OF $10,000 BASED ON THE
S&P 500 AND THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX COMPARED
TO CHANGE IN VALUE OF $10,000 INVESTED IN
STRATEGIC PORTFOLIOS: AGGRESSIVE
CLASS S SHARES
Average Annual Total Return
--------------------------------
1 Year 5 Years Life of Fund
--------------------------------
13.89% 14.49% 13.69%
--------------------------------
Lehman
Strategic Brothers
Portfolios: Gov't/Corp
Aggressive Bond Index S&P 500
- --------------------------------------------------------------------------------
10/31/94 $10,250 $10,006 $10,549
10/31/95 11,772 11,622 13,334
10/31/96 13,935 12,250 16,546
10/31/97 17,076 13,329 21,856
10/31/98 17,706 14,698 26,667
10/31/99 20,165 14,600 33,512
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH FINANCIAL TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND INFORMATION OFFICERS TRUSTEES
<S> <C> <C>
STATE STREET RESEARCH RALPH F. VERNI RALPH F. VERNI
STRATEGIC PORTFOLIOS: AGGRESSIVE Chairman of the Board, Chairman of the Board,
One Financial Center President and President, Chief Executive
Boston, MA 02111 Chief Executive Officer Officer and Director,
State Street Research &
INVESTMENT ADVISER PETER C. BENNETT Management Company
State Street Research & Vice President
Management Company
One Financial Center JOHN H. KALLIS BRUCE R. BOND
Boston, MA 02111 Vice President Former Chairman of the Board
Chief Executive Officer and
DISTRIBUTOR THOMAS P. MOORE, JR. President, PictureTel Corporation
State Street Research Vice President
Investment Services, Inc.
One Financial Center E.K. EASTON RAGSDALE, JR. STEVE A. GARBAN
Boston, MA 02111 Vice President Former Senior Vice President
for Finance and Operations and
SHAREHOLDER SERVICES THOMAS A. SHIVELY Treasurer, The Pennsylvania
State Street Research Vice President State University
Service Center
P.O. Box 8408 JAMES M. WEISS
Boston, MA 02266-8408 Vice President MALCOLM T. HOPKINS
1-800-562-0032 Former Vice Chairman of the
GERARD P. MAUS Board and Chief Financial
CUSTODIAN Treasurer Officer, St. Regis Corp.
State Street Bank and
Trust Company JOSEPH W. CANAVAN
225 Franklin Street Assistant Treasurer DEAN O. MORTON
Boston, MA 02110 Former Executive Vice President,
DOUGLAS A. ROMICH Chief Operating Officer and
LEGAL COUNSEL Assistant Treasurer Director, Hewlett-Packard
Goodwin, Procter & Hoar LLP Company
Exchange Place FRANCIS J. MCNAMARA, III
Boston, MA 02109 Secretary and General Counsel
SUSAN M. PHILLIPS
INDEPENDENT ACCOUNTANTS DARMAN A. WING Dean, School of Business and
PricewaterhouseCoopers LLP Assistant Secretary and Public Management, George
160 Federal Street Assistant General Counsel Washington University; former
Boston, MA 02110 Member of the Board of Governors
AMY L. SIMMONS of the Federal Reserve System and
Assistant Secretary Chairman and Commissioner of
the Commodity Futures Trading
Commission
TOBY ROSENBLATT
President,
Founders Investments Ltd.
President,
The Glen Ellen Company
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
</TABLE>
<PAGE>
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE ------------
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Canton, MA
Permit #313
------------
STATE STREET RESEARCH
[logo]
LASTING VALUES
--------------
LEADING IDEAS
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032 or
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
[logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
This publication must be preceded or accompanied by a current State Street
Research Strategic Portfolios: Aggressive prospectus.
When used after March 31, 2000, this report must be accompanied by a current
Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: (exp1200)SSR-LD SP-505G-1299
<PAGE>
STATE STREET RESEARCH
- ---------------------
- --------------------------
STRATEGIC INCOME PLUS FUND
- --------------------------
ANNUAL REPORT
October 31, 1999
-------------
WHAT'S INSIDE
-------------
FROM THE CHAIRMAN
America benefited from a healthy economy
PORTFOLIO MANAGER'S REVIEW
Steady returns; conservative outlook
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS AND
FINANCIAL STATEMENTS
[DALBAR logo]
For
Excellence
in
Shareholder Service
[logo] STATE STREET RESEARCH
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
Another good year for the U.S. economy has extended America's cycle of
prosperity to eight consecutive years. Gross domestic product, a measure of
goods and services produced in the U.S. rose at an annual rate of more than
4.0%. Personal income has risen and consumer spending has been strong.
Inflation remained relatively low as productivity gains have offset wage
gains. However, the Consumer Price Index has moved up one full percentage
point during the year. The Federal Reserve Board responded to these
indicators of strength by raising short-term interest rates by 1/2% in two
quick 1/4% steps late in the summer.
STOCKS
The U.S. stock market delivered another year of double-digit gains. The S&P
500(1) rose 25.66% during the 12-month period ended October 31, 1999.
However, a disproportionate share of the market's gains belonged to a
handful of technology stocks. The technology-heavy Nasdaq gained 67.98%
during the period. Outside the top 50 stocks, returns were flat to down for
the year.
BONDS
The bond market was hurt by the Federal Reserve's interest-rate cuts and by
factors associated with Y2K. Many issuers went to the market with their
debt issues early in the year. That drove demand and interest rates up and
bond prices down. In this environment, mortgage bonds held up better than
government and corporate bonds. High yield bonds finished the year with
strong results.
INTERNATIONAL
Economic growth around the globe was better than expected. In Asia and
certain emerging markets -- notably South Korea and Russia -- economies
have rebounded from last year's currency woes faster than anticipated.
Japan has shown the first signs of real progress in revitalizing its
economy in nearly a decade. That was reflected in strong stock market
performance for the year, especially among small Japanese companies. Europe
delivered mixed results as
did the emerging markets of Latin America.
OUTLOOK AND OPPORTUNITIES
As we enter the year 2000, many markets are poised for growth. However,
there are also areas, such as the technology sector in the U.S., where
extraordinarily high valuations suggest caution in the months ahead. Now is
a good time to consult your financial professional about the strategies
that make sense for your personal portfolio. And, as always, we thank you
for your confidence in State Street Research funds.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
October 31, 1999
(1) The S&P 500 (officially the "Standard and Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the
index.
(2) 2.60% for Class A shares; 1.80% for Class B(1) shares; 1.80% for Class B
shares; 1.80% for Class C shares.
(3) Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a
gain or loss when you sell your shares. All returns assume reinvestment of
capital gain distributions and income dividends at net asset value.
(4) Performance reflects a maximum 5.75% Class A share front-end sales charge,
or 5% Class B(1) or Class B share or 1% Class C share contingent deferred
sales charge, where applicable. The Fund's returns include performance
before the creation of share classes. If this performance reflected the
share classes' current 12b-1 fees, the Fund's returns may have been lower.
(5) Class S shares, offered without a sales charge, are available through
certain employee benefit plans and special programs.
(6) Performance for the period May 16, 1994 to March 27, 1997 reflects actual
performance of the fund prior to the liquidation of outstanding Class A
shares in 1997. Returns shown for all other periods, including periods
prior to the reintroduction of Class A shares in 1999, reflect performance
of Class S shares. Returns shown are for periods prior to the creation of
the class in 1999. They reflect performance of Class S shares, adjusted for
shareholder and annual fund operating expenses.
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 October 31, 1999, except
where noted)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIOD ENDED 9/30/99
(at maximum applicable sales charge)(3)(4)(5)(6)
- -------------------------------------------------------------------
LIFE OF FUND
(since 5/16/94) 5 YEARS 1 YEAR
- -------------------------------------------------------------------
Class A 8.33% 8.76% -3.07%
- -------------------------------------------------------------------
Class B(1) 8.58% 8.95% -2.61%
- -------------------------------------------------------------------
Class B 8.71% 8.95% -2.61%
- -------------------------------------------------------------------
Class C 8.71% 9.24% 1.14%
- -------------------------------------------------------------------
Class S 9.80% 10.33% 3.10%
- -------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(at maximum applicable sales charge)(3)(4)(5)(6)
- --------------------------------------------------------------
LIFE OF FUND
(Since 5/16/94) 5 YEARS 1 YEAR
- --------------------------------------------------------------
Class A 8.27% 8.83% -3.29%
- --------------------------------------------------------------
Class B(1) 8.50% 9.01% -2.87%
- --------------------------------------------------------------
Class B 8.63% 9.01% -2.87%
- --------------------------------------------------------------
Class C 8.63% 9.30% 0.87%
- --------------------------------------------------------------
Class S 9.72% 10.40% 2.84%
- --------------------------------------------------------------
Performance results for the Fund are increased by the voluntary reduction of
Fund fees and expenses; without subsidization, performance would have been
lower.
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Strategic Income Plus Fund: Steady returns: conservative outlook
[Photo of Peter Bennett]
Peter Bennett
Portfolio Manager
Peter Bennett, portfolio manager and team leader of State Street Research
Strategic Income Plus Fund, comments on the year ended October 31, 1999 and the
Fund's strategy for the year ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: The fund had another positive year relative to its peer group. Class S shares
gained 2.84% for the 12 months ended October 31, 1999(2). The Fund significantly
outperformed the average flexible income fund, which was actually down 2.40%
according to Lipper Analytical Services.
Q: WHAT ACCOUNTED FOR THE FUND'S STRONG PERFORMANCE?
A: Our investment in large-cap growth stocks, while below our normal targets,
was a major contributor. Also, our investment in international stocks showed a
return in excess of 30%. The Fund's investment in international bonds also made
a meaningful contribution, outperforming high-grade bonds by a significant
margin. However, the largest contributor relative to the competition was the
fact that stocks accounted for at least 25% of the portfolio throughout the
period.
Q: WERE THERE AREAS OF DISAPPOINTMENT?
A: Yes. The Fund's investment in value stocks was a drag on performance. These
stocks are a good value in today's market and should begin to perform better.
Bonds had disappointing results, too. The poor performance was a reflection of
the slow recovery in the industrial sector.
Q: DID YOU MAKE ANY SIGNIFICANT CHANGES IN THE FUND'S ASSET ALLOCATION DURING
THE PERIOD?
A: We made only modest adjustments to the Fund's asset allocation. We increased
the Fund's exposure somewhat to the bond market with most of the incremental
funds going into high-grade bonds. We are somewhat underweighted in stocks due
to high valuations and the increasingly attractive real returns on long-term
bonds. The stock position is underweighted relative to our normal target,
however we are comfortable with this position. Our biggest overweights are in
international stocks and high-grade bonds.
Q: WHAT IS YOUR OUTLOOK FOR THE PERIOD AHEAD?
A: We are reasonably positive on the outlook for world markets, given the fact
we are now in what is becoming a fairly broad global recovery. Asia is up
sharply off the bottom, Europe is showing steady improvement and even Japan is
now showing signs of stabilizing and beginning to recover. We have one risk to
consider. If the growth in the U.S. fails to slow as the rest of the world
recovers, then that would put upward pressure on inflation and interest rates.
October 31, 1999
<PAGE>
- --------------------------------------------------------------------------------
ASSET ALLOCATION
(by percentage of net assets)
Bonds 75%
Equities 25%
TOP 5 BOND SECTORS
(by percentage of net assets)
U.S. AGENCY MORTGAGE 28.3%
FINANCE/MORTGAGE 24.7%
CORPORATE 10.0%
U.S. TREASURY 6.1% `
FOREIGN GOVERNMENT 4.0%
Total: 73.1%
TOP 5 EQUITY INDUSTRIES
(by percentage of net assets)
UTILITIES: ELECTRICAL 1.4%
COMPUTER TECHNOLOGY 1.4%
MISCELLANEOUS FINANCIAL 1.1%
COMMERCIAL SERVICES 1.0%
MULTI-SECTOR 1.0%
Total: 5.9%
- --------------------------------------------------------------------------------
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
October 31, 1999
VALUE
SHARES (NOTE 1)
- -------------------------------------------------------------------------
EQUITY SECURITIES 25.5%
AUTOMOBILES & TRANSPORTATION 0.2%
AIR TRANSPORT 0.1%
Comair Holdings Inc. ......................... 1,100 $ 25,403
----------
AUTOMOTIVE PARTS 0.1%
Delphi Automotive Systems Corp. .............. 2,200 36,163
----------
Total Automobiles & Transportation ........... 61,566
----------
CONSUMER DISCRETIONARY 4.1%
ADVERTISING AGENCIES 0.8%
Omnicom Group Inc. ........................... 900 79,200
Valassis Communications Inc.* ................ 4,400 189,200
----------
268,400
----------
CASINOS/GAMBLING, HOTEL/MOTEL 0.8%
GTech Holdings Corp.* ........................ 2,000 40,250
Harrah's Entertainment Inc.* ................. 6,000 173,625
International Game Technology Inc.* .......... 2,200 40,975
----------
254,850
----------
COMMERCIAL SERVICES 1.0%
A.C. Nielson Corp.* .......................... 6,500 143,000
America Online Inc.* ......................... 700 90,781
Cendant Corp.* ............................... 2,700 44,550
Safety Kleen Corp.* .......................... 6,000 68,625
----------
346,956
----------
COMMUNICATIONS, MEDIA & ENTERTAINMENT 0.2%
CBS Corp.* ................................... 1,600 78,100
----------
PRINTING & PUBLISHING 0.4%
Hollinger International, Inc. Cl. A .......... 12,200 126,575
----------
RESTAURANTS 0.2%
McDonald's Corp. ............................. 1,800 74,250
----------
RETAIL 0.7%
Circuit City Stores Inc. ..................... 1,600 68,300
Federated Department Stores Inc.* ............ 1,300 55,494
Home Depot Inc. .............................. 700 52,850
Wal-Mart Stores, Inc. ........................ 1,000 56,687
----------
233,331
----------
Total Consumer Discretionary ................. 1,382,462
----------
CONSUMER STAPLES 1.0%
BEVERAGES 0.2%
Anheuser-Busch Companies, Inc. ............... 800 57,450
----------
DRUG & GROCERY STORE CHAINS 0.3%
Hannaford Brothers Co. ....................... 1,460 102,291
----------
FOODS 0.0%
Nabisco Group Holdings Corp. ................. 800 10,250
----------
HOUSEHOLD PRODUCTS 0.4%
Colgate-Palmolive Co. ........................ 1,500 90,750
Dial Corp. ................................... 1,465 34,244
----------
124,994
----------
TOBACCO 0.1%
R.J. Reynolds Tobacco Holdings Inc. .......... 800 17,350
UST Inc. ..................................... 900 24,919
----------
42,269
----------
Total Consumer Staples ....................... 337,254
----------
FINANCIAL SERVICES 2.7%
BANKS & SAVINGS & LOAN 0.8%
BankNorth Group Inc. ......................... 500 16,890
Golden West Financial Corp. .................. 400 44,700
Hudson City Bancorp Inc. ..................... 2,300 30,619
Mercantile Bankshares Corp. .................. 1,300 46,800
Peoples Heritage Financial Group* ............ 4,800 91,200
SouthTrust Corp. ............................. 900 36,000
----------
266,209
----------
INSURANCE 0.7%
Ace Ltd. ..................................... 4,400 85,525
Saint Paul Companies, Inc. ................... 1,600 51,200
XL Capital Ltd. Cl. A ........................ 1,953 104,852
----------
241,577
----------
MISCELLANEOUS FINANCIAL 1.1%
AMBAC Inc. ................................... 2,900 173,275
Citigroup, Inc. .............................. 2,100 113,662
Morgan Stanley Dean Witter & Co. ............. 600 66,188
----------
353,125
----------
SECURITIES BROKERAGE & SERVICES 0.1%
Bear Stearns Company Inc. .................... 1,060 45,182
----------
Total Financial Services ..................... 906,093
----------
HEALTH CARE 0.5%
DRUGS & BIOTECHNOLOGY 0.4%
Amgen Inc.* .................................. 700 55,825
Bristol-Myers Squibb Co. ..................... 700 53,769
Genetech Inc.* ............................... 100 14,575
----------
124,169
----------
HEALTH CARE SERVICES 0.1%
Quorum Health Group Inc.* .................... 6,400 51,200
----------
Total Health Care ............................ 175,369
----------
INTEGRATED OILS 0.6%
INTEGRATED DOMESTIC 0.2%
Unocal Corp. ................................. 1,700 58,650
----------
INTEGRATED INTERNATIONAL 0.4%
BP Amoco PLC ADR ............................. 1,000 57,750
Suncor Energy Inc ............................ 1,000 38,454
Total Fina SA ADR ............................ 600 40,012
----------
136,216
----------
Total Integrated Oils ........................ 194,866
----------
MATERIALS & PROCESSING 1.8%
CHEMICALS 0.4%
Cabot Corp. .................................. 2,600 48,425
Dow Chemical Co. ............................. 500 59,125
Omnova Solutions Inc. ........................ 3,100 21,700
----------
129,250
----------
CONTAINERS & PACKAGING 0.4%
American Material Can Group Inc. ............. 7,200 90,000
Smurfit Stone Container Corp.* ............... 1,900 41,087
----------
131,087
----------
DIVERSIFIED MANUFACTURING 0.5%
Ball Corp. ................................... 4,300 173,344
----------
FERTILIZERS 0.1%
Agrium Inc. .................................. 5,300 44,719
----------
FOREST PRODUCTS 0.1%
Champion International Corp. ................. 500 28,906
----------
STEEL 0.3%
Alaska Steel Holding Corp. ................... 1,616 27,977
Harsco Corp. ................................. 1,800 52,988
----------
80,965
----------
Total Materials & Processing ................. 588,271
----------
OTHER 1.0%
MULTI-SECTOR 1.0%
Allied-Signal Inc. ........................... 1,300 74,019
Gencorp Inc.* ................................ 3,100 35,262
General Electric Co. ......................... 800 108,450
Ogden Corp. .................................. 5,100 46,219
Tyco International Ltd. ...................... 1,600 63,900
----------
Total Other .................................. 327,850
----------
OTHER ENERGY 1.5%
GAS PIPELINES 0.5%
Columbia Energy Group ........................ 300 19,500
Williams Companies Inc. ...................... 3,927 147,262
----------
166,762
----------
OFFSHORE DRILLING 0.1%
Transocean Offshore Inc. ..................... 1,000 27,188
----------
OIL & GAS PRODUCERS 0.6%
Ocean Energy Inc.* ........................... 6,600 60,637
Talisman Energy Inc* ......................... 3,500 92,381
Union Pacific Resources Group Inc. ........... 2,500 36,250
----------
189,268
----------
OIL WELL EQUIPMENT & SERVICES 0.3%
Baker Hughes Inc. ............................ 1,200 33,525
Halliburton Co. .............................. 1,400 52,763
Valero Refining & Marketing Corp. ............ 1,000 18,375
----------
104,663
----------
Total Other Energy ........................... 487,881
----------
PRODUCER DURABLES 1.1%
ELECTRICAL EQUIPMENT & COMPONENTS 0.7%
Mark IV Industries Inc. ...................... 7,600 146,300
Nortel Networks Corp ......................... 1,200 74,325
----------
220,625
----------
MACHINERY 0.3%
Howmet International Inc.* ................... 6,300 92,925
----------
PRODUCTION TECHNOLOGY EQUIPMENT 0.1%
Teradyne Inc.* ............................... 1,400 53,900
----------
Total Producer Durables ...................... 367,450
----------
TECHNOLOGY 2.8%
COMMUNICATIONS TECHNOLOGY 0.3%
Lernout & Hauspie Speech Products NV ADR* .... 1,900 63,888
NCR Corp. .................................... 1,000 33,125
Sycamore Networks Inc. ....................... 30 6,450
----------
103,463
----------
COMPUTER SOFTWARE 0.4%
Microsoft Corp.* ............................. 1,300 120,331
----------
COMPUTER TECHNOLOGY 1.4%
Cisco Systems Inc.* .......................... 1,600 118,400
Electronic Data Systems Corp. ................ 800 46,800
EMC Corp.* ................................... 650 47,450
International Business Machines Corp. ........ 500 49,188
Silicon Graphics Inc.* ....................... 7,000 54,250
Sun Microsystems Inc.* ....................... 1,300 137,556
Unisys Corp.* ................................ 500 12,125
----------
465,769
----------
ELECTRONICS 0.4%
Nokia Corp. ADR .............................. 600 69,337
Solectron Corp.* ............................. 600 45,150
----------
114,487
----------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS 0.3%
Analog Devices Inc.* ......................... 500 26,562
Cypress Semiconductor Corp.* ................. 945 24,157
Texas Instruments Inc. ....................... 700 62,825
----------
113,544
----------
Total Technology ............................. 917,594
----------
UTILITIES 2.4%
CABLE TELEVISION & RADIO 0.1%
MediaOne Group Inc.* ......................... 500 35,531
----------
ELECTRICAL 1.4%
CMP Group Inc. ............................... 1,700 45,263
DQE, Inc. .................................... 1,400 55,913
Energy East Corp. ............................ 1,000 25,125
Illinova Corp. ............................... 4,200 133,612
Niagara Mohawk Holdings Inc.* ................ 1,600 25,400
OGE Energy Corp. ............................. 2,700 61,256
Pinnacle West Capital Corp. .................. 3,700 136,437
----------
483,006
----------
GAS DISTRIBUTION 0.2%
National Fuel Gas Co. ........................ 300 14,663
Nicor Inc. ................................... 600 23,250
Questar Corp. ................................ 700 12,600
----------
50,513
----------
TELECOMMUNICATIONS 0.7%
Alltel Corp. ................................. 700 58,275
MCI WorldCom Inc.* ........................... 1,100 94,394
Qwest Communications International Inc.* ..... 1,800 64,800
RSL Communications Ltd. Cl. A* ............... 1,400 30,625
----------
248,094
----------
Total Utilities .............................. 817,144
----------
NON-US EQUITIES 5.8%
Amway Japan Ltd .............................. 4,000 40,664
Banco Di Roma ................................ 20,100 27,062
BHF Bank AG .................................. 700 28,568
BP Amoco PLC ................................. 4,200 40,788
Clariant AG .................................. 200 87,516
Continental AG ............................... 2,400 52,130
Corus Entertainment Inc* ..................... 466 7,282
Eircom PLC* .................................. 1,200 4,986
Fletcher Challenge Ltd.* ..................... 6,600 15,222
Giordano International Ltd. .................. 62,000 65,843
Hirose Electric Co. Ltd. ..................... 900 157,006
IXOS Software AG* ............................ 300 40,233
Joshin Denki Co. Ltd. ........................ 13,000 40,270
L.M. Ericsson Telephone Co. Cl. B* ........... 1,836 76,351
Metro AG ..................................... 1,000 53,750
Nokia AB Oy .................................. 800 91,561
Prosieben Media AG* .......................... 1,000 41,022
PTT Exploration & Production Public Co. Ltd.* 2,100 15,340
QP Corp. ..................................... 7,100 53,725
Renaissance Energy Ltd.* ..................... 6,000 72,559
RTZ Corp.* ................................... 3,921 66,943
Sema Group PLC* .............................. 4,100 53,560
Shaw Communications Inc. Cl. B ............... 1,400 42,000
Snow Brand Milk Co. .......................... 9,300 44,863
Societe Generale de France SA ................ 100 21,773
Softbank Corp. ............................... 500 207,634
Takara Shuzo Co. ............................. 12,000 166,644
Telecom Italia SPA* .......................... 5,300 45,769
Tieto Corp.* ................................. 1,400 48,595
Toshiba Corp.* ............................... 10,000 62,914
WM Data AB Cl. B* ............................ 1,100 46,212
Wolters Kluwer ............................... 1,200 40,101
York Benimaru Co. ............................ 1,400 57,735
----------
Total Non-US Equities ........................ 1,916,621
----------
Total Equity Securities (Cost $6,782,747) .... 8,480,421
----------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY VALUE
AMOUNT DATE NOTE 1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 75.2%
U.S. TREASURY 6.1%
U.S. Treasury Bond, 12.00% ....................... $ 200,000 8/15/2013 274,188
U.S. Treasury Bond, 8.125% ....................... 525,000 5/15/2021 622,781
U.S. Treasury Bond, 8.125% ....................... 575,000 8/15/2021 682,634
U.S. Treasury Bond, 6.875% ....................... 145,000 8/15/2025 153,179
U.S. Treasury Bond, 6.625% ....................... 25,000 2/15/2027 25,707
U.S. Treasury Bond, 6.125% ....................... 75,000 8/15/2029 74,672
U.S. Treasury STRIPS, 0.00% ...................... 25,000 5/15/2003 20,254
U.S. Treasury TIPS, 3.875% ....................... 177,840 4/15/2029 170,282
-----------
2,023,697
-----------
U.S. AGENCY MORTGAGE 28.3%
Federal Home Loan Mortgage Corp., 6.50% .......... 294,010 7/01/2029 281,882
Federal National Mortgage Association, 5.50% ..... 96,137 2/01/2014 90,518
Federal National Mortgage Association, 6.50% ..... 255,982 9/01/2028 245,261
Federal National Mortgage Association, 6.50% ..... 698,726 11/01/2028 669,464
Federal National Mortgage Association, 6.50% ..... 671,884 12/01/2028 643,746
Federal National Mortgage Association, 6.00% ..... 504,574 2/01/2029 470,354
Federal National Mortgage Association, 6.50% ..... 292,249 3/01/2029 280,010
Federal National Mortgage Association, 7.50% ..... 434,394 7/01/2029 435,340
Federal National Mortgage Association TBA, 7.00% . 2,350,000 11/15/2029 2,307,418
Federal National Mortgage Association TBA, 7.50% . 300,000 1/19/2030 299,814
Government National Mortgage Association, 6.50% .. 176,265 7/15/2009 174,164
Government National Mortgage Association, 7.50% .. 178,291 12/15/2010 181,244
Government National Mortgage Association, 7.00% .. 211,078 1/15/2025 208,439
Government National Mortgage Association, 7.00% .. 62,899 10/15/2025 61,897
Government National Mortgage Association, 6.50% .. 841,324 11/15/2028 805,038
Government National Mortgage Association, 7.00% .. 155,188 11/15/2028 152,326
Government National Mortgage Association, 7.00% .. 249,175 6/15/2029 244,423
Government National Mortgage Association TBA,
7.00% .......................................... 1,175,000 1/25/2030 1,148,476
Government National Mortgage Association TBA,
8.00% .......................................... 725,000 1/25/2030 737,571
-----------
9,437,385
-----------
CANADIAN-YANKEE 2.1%
British Sky Broadcasting Group Inc. Note, 6.875% . 125,000 2/23/2009 111,244
Province of Quebec Deb., 7.00% ................... 275,000 1/30/2007 274,378
Province of Quebec Deb., 5.75% ................... 75,000 2/15/2009 68,296
Province of Quebec Deb., 7.50% ................... 125,000 9/15/2029 125,600
Woodside Finance Ltd. Note, 6.60%+ ............... 125,000 4/15/2008 115,993
-----------
695,511
-----------
FOREIGN GOVERNMENT 4.0%
Greek Drachma
Republic of Greece, 8.80% ........................ 217,500,000 6/19/2007 756,277
New Zealand Dollar
Government of New Zealand, 10.00% ................ 275,000 3/15/2002 150,465
Government of New Zealand, 8.00% ................. 275,000 4/15/2004 145,505
Government of New Zealand, 8.00% ................. 500,000 11/15/2006 267,476
-----------
1,319,723
-----------
FINANCE/MORTGAGE 24.7%
A T & T Capital Corp. Note, 7.50% ................ 250,000 11/15/2000 252,235
A T & T Capital Corp. Note, 6.75% ................ 225,000 2/04/2002 224,262
American Express Credit Account Series 1999-A,
5.95% .......................................... 100,000 12/15/2006 97,000
Arcadia Automobile Trust 97-B A5, 6.70% .......... 125,000 2/15/2005 125,799
Arcadia Automobile Trust 97-C A5, 6.55% .......... 125,000 6/15/2005 125,301
Capital One Bank Note, 6.57% ..................... 100,000 1/27/2003 97,424
Capital One Bank Note, 6.28% ..................... 250,000 2/20/2001 248,720
FINANCE/MORTGAGE (CONT'D)
Capital One Bank Note, 6.15% ..................... 125,000 6/01/2001 123,064
Capital One Bank Note, 6.62% ..................... 250,000 8/04/2003 242,672
Chase Commercial Mortgage Securities Corp. 1997-1
Cl. A1, 7.27% .................................. 125,622 7/19/2004 126,525
Chase Credit Card Owner Trust Series 1999-A, 6.66%
................................................ 600,000 1/15/2007 597,633
CIT Group Holdings Inc. Sr. Note,
6.80% .......................................... 250,000 4/17/2000 250,800
Citibank Credit Card Master Trust, 5.30% ......... 400,000 1/09/2006 378,372
Citibank Credit Card Master Trust Series 1999-A,
5.875% ......................................... 100,000 3/10/2011 91,781
Commercial Credit Group Inc. Note, 6.45% ......... 250,000 7/01/2002 248,587
Commercial Credit Group Inc. Sr. Note, 5.55% ..... 250,000 2/15/2001 247,220
Countrywide Funding Corp. Note,
6.58% .......................................... 200,000 9/21/2001 199,290
Countrywide Funding Corp. Note,
6.28% .......................................... 200,000 1/15/2003 196,088
Discover Card Master Trust, 5.60% ................ 175,000 5/16/2006 167,944
DLJ Commercial Mortgage Corp. 98-C2, 6.24% ....... 75,000 11/12/2031 70,242
DLJ Commercial Mortgage Corp. 99-C1, 6.46% ....... 250,000 1/10/2009 236,523
Florida Windstorm Underwriting Sr. Sec. Note,
7.125%+ ........................................ 125,000 2/25/2019 116,108
Ford Motor Credit Co., 6.45% ..................... 250,000 1/18/2000 251,342
Ford Motor Credit Co., 7.375% .................... 475,000 10/28/2009 478,135
Ford Motor Credit Co. Note, 5.75% ................ 250,000 2/23/2004 239,450
GE Global Insurance Holding Corp. Note, 7.00% .... 275,000 2/15/2026 257,345
General Motors Acceptance Corp., 6.38% ........... 250,000 10/07/2002 250,150
GMAC Commercial Mortgage Security Inc. 97-C2- A,
6.45% .......................................... 114,046 12/15/2004 111,445
GMAC Commercial Mortgage Security Inc. 98-C1 A1,
6.41% .......................................... 151,459 11/15/2007 147,105
GMAC Commercial Mortgage Security Inc. 99-C1 A2,
6.175% ......................................... 150,000 5/15/2033 138,229
Heller Financial Inc. Note, 6.44% ................ 75,000 10/06/2002 74,030
Household Finance Co. Note, 6.75% ................ 125,000 6/01/2000 125,331
Household Finance Corp. Note, 6.00% .............. 175,000 5/01/2004 167,718
LB Commercial Conduit Mortgage Trust 97-LL1-A1,
6.79% .......................................... 238,343 6/12/2004 237,673
LB Commercial Conduit Mortgage Trust 98-C1 A1,
6.33% .......................................... 107,707 11/18/2004 105,519
LB Commercial Conduit Mortgage Trust 98-C4 Cl. A1,
5.87% .......................................... 118,720 8/15/2006 113,340
LB Commercial Conduit Mortgage Trust 98-C4 Cl. A1,
6.21% .......................................... 60,000 10/15/2008 55,613
MBNA Master Credit Card Trust Series 1999-G-A,
6.35% .......................................... 250,000 12/15/2006 246,170
MBNA Master Credit Card Trust Series 1999-J-A,
7.00% .......................................... 225,000 2/15/2012 223,594
MBNA Master Credit Card Trust Series 99-B, 5.90% . 125,000 8/15/2011 114,428
Morgan Stanley Capital Inc. 98- A1, 6.19% ........ 52,848 1/15/2007 51,312
Prime Credit Card Master Trust Series 1995-1A,
6.75% .......................................... 125,000 11/15/2005 125,195
Sears Credit Account Master Trust Series 1998-2A,
5.25% .......................................... 250,000 10/16/2008 235,937
-----------
8,212,651
-----------
CORPORATE 10.0%
Albertsons Inc. Sr. Deb., 7.45% .................. 250,000 8/01/2029 246,617
Arizona Public Service Co. Note,
6.25% .......................................... 250,000 1/15/2005 236,985
Atlantic Richfield Co. Note, 5.90% ............... 175,000 4/15/2009 162,556
California Infrastructure Development Series 1997-
A7, 6.42% ...................................... 125,000 9/25/2008 122,134
Columbia/HCA Healthcare Corp. Note, 6.87% ........ 150,000 9/15/2003 139,223
Columbia/HCA Healthcare Corp. Note, 8.12% ........ 125,000 8/04/2003 121,924
Columbia/HCA Healthcare Corp. Note, 7.69% ........ 125,000 6/15/2025 98,750
Columbia/HCA Healthcare Corp. Note, 7.75% ........ 125,000 7/15/2036 96,257
Dynergy Inc. Sr. Note, 6.875% .................... 250,000 7/15/2002 247,960
Edison Mission Energy Funding Corp. Series A Note,
6.77%+ ......................................... 113,580 9/15/2003 110,582
El Paso Energy Corp. Sr. Note,
6.625%+ ........................................ 250,000 7/15/2001 248,825
El Paso Energy Corp. Sr. Note, 6.75% ............. 125,000 5/15/2009 119,262
GTE Corp. Deb., 6.94% ............................ 125,000 4/15/2028 117,579
HealthSouth Corp. Sr. Note, 6.875% ............... 75,000 6/15/2005 64,089
Lucent Technologies Inc. Deb., 6.45% ............. 225,000 3/15/2029 201,571
New Jersey Economic Development Authority, 7.425% 200,000 2/15/2029 197,730
News America Inc. Sr. Deb., 7.125% ............... 125,000 4/08/2028 109,460
News America Inc. Sr. Note, 6.625% ............... 250,000 1/09/2008 234,272
Peco Energy Transport Trust, 6.13% ............... 250,000 3/01/2009 233,983
Pepsi Bottling Holdings Inc. Note, 5.625%+ ....... 250,000 2/17/2009 224,978
-----------
3,334,737
-----------
Total Fixed Income Securities (Cost $25,726,712) ......................................... 25,023,704
-----------
COMMERCIAL PAPER 13.2%
Associates First Capital Corp., 5.98% ............ 1,067,000 1/19/2000 1,067,000
Bell Atlantic Network Funding Inc., 5.26% ........ 1,428,000 11/03/1999 1,427,583
Ford Motor Credit Co., 5.21% ..................... 163,000 11/03/1999 163,000
Ford Motor Credit Co., 5.30% ..................... 500,000 11/15/1999 500,000
General Electric Capital Corp., 5.22% ............ 658,000 11/08/1999 658,000
Merrill Lynch & Company Inc., 5.28% .............. 588,000 11/15/1999 586,793
-----------
Total Commercial Paper (Cost $4,402,376) ................................................. 4,402,376
-----------
</TABLE>
- ------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 8.1%
State Street Navigator Securities
Lending Prime Portfolio .......................... 2,714,516 2,714,516
-----------
Total Short-Term Investments (Cost $2,714,516) ................. 2,714,516
-----------
Total Investments (Cost $39,626,351) - 122.0% .................. 40,621,017
Cash and Other Assets, Less Liabilities - (22.0%) .............. (7,333,507)
-----------
Net Assets - 100.0% ............................................ $33,287,510
===========
Federal Income Tax Information:
At October 31, 1999, the net unrealized appreciation
of investments based on cost for Federal income
tax purposes of $39,769,839 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ................................................ $ 2,120,935
Aggregate gross unrealized depreciation for all
investments in which there is an excess
of tax cost over value ....................................... (1,269,757)
------------
$ 851,178
============
- -------------------------------------------------------------------------------
* 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 October 31, 1999 were $861,339 and $816,486 (2.45% of net assets),
respectively.
ADR Stands for American Depositary Receipt, representing ownership of foreign
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.
Forward currency exchange contracts outstanding at October 31, 1999, are as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT APPRECIATION DELIVERY
TOTAL VALUE PRICE (DEPRECIATION) DATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy Euro, Sell U.S. dollars 228,700 EUR 1.07290 EUR $(4,393) 11/23/99
Buy Euro, Sell U.S. dollars 96,000 EUR 1.05466 EUR (93) 11/23/99
Sell Euro, Buy U.S. dollars 499,200 EUR 1.05205 EUR (820) 11/23/99
Sell Euro, Buy U.S. dollars 80,800 EUR 1.04756 EUR (601) 12/9/99
Sell Greek drachma, Buy U.S. dollars 49,466,000 GRD .00324 GRD 3,024 11/23/99
Sell Greek drachma, Buy U.S. dollars 36,700,000 GRD .00324 GRD 3,242 1/24/00
Sell Greek drachma, Buy U.S. dollars 10,300,000 GRD .00324 GRD 888 1/24/00
Sell Japanese yen, Buy U.S. dollars 22,630,000 JPY .00884 JPY (19,355) 12/30/99
Buy Japanese yen, Sell U.S. dollars 39,584,500 JPY .00965 JPY 1,681 12/30/99
Sell Japanese yen, Buy U.S. dollars 34,685,825 JPY .00899 JPY (28,965) 3/31/00
Sell Japanese yen, Buy U.S. dollars 16,954,500 JPY .00885 JPY (14,342) 12/30/99
Sell New Zealand dollars, Buy U.S. dollars 550,000 NZD .51580 NZD 4,735 11/23/99
Sell New Zealand dollars, Buy U.S. dollars 590,000 NZD .51540 NZD 4,279 1/25/00
Sell New Zealand dollars, Buy U.S. dollars 50,000 NZD .51543 NZD 364 1/25/00
Buy New Zealand dollars, Sell U.S. dollars 56,000 NZD .51665 NZD (530) 11/23/99
Buy New Zealand dollars, Sell U.S. dollars 190,000 NZD .51520 NZD (1,522) 11/23/99
Sell New Zealand dollars, Buy U.S. dollars 169,000 NZD .51815 NZD 1,852 11/23/99
--------
$(50,556)
========
Futures contracts open at October 31, 1999, are as follows:
<CAPTION>
EXPIRATION UNREALIZED
TYPE NOTIONAL AMOUNT MONTH APPRECIATION
- ---------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
5 year U.S. Treasury Notes $300,000 December, 1999 $1,338
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
October 31, 1999
ASSETS
Investments, at value (Cost $39,626,351) (Note 1) .............. $40,621,017
Cash ........................................................... 46,697
Receivable for securities sold ................................. 1,967,081
Interest and dividends receivable .............................. 280,623
Receivable for open forward contracts .......................... 20,065
Receivable from Distributor (Note 3) ........................... 3,048
Receivable for fund shares sold ................................ 1,721
Other assets ................................................... 24,404
-----------
42,964,656
LIABILITIES
Payable for securities purchased ............................... 6,070,591
Payable for collateral received on securities loaned ........... 2,714,516
Payable for fund shares redeemed ............................... 671,261
Payable for open forward contracts ............................. 70,621
Accrued transfer agent and shareholder services
(Note 2) ..................................................... 19,299
Accrued trustees' fees (Note 2) ................................ 18,615
Accrued management fee (Note 2) ................................ 17,329
Payable for variation margin (Note 1) .......................... 1,500
Accrued distribution and service fees (Note 5) ................. 1,419
Other accrued expenses ......................................... 91,995
-----------
9,677,146
-----------
NET ASSETS $33,287,510
===========
Net Assets consist of:
Undistributed net investment income .......................... $ 443,408
Unrealized appreciation of investments ....................... 994,666
Unrealized appreciation of futures contracts ................. 1,338
Unrealized depreciation of forward contracts and
foreign currency ........................................... (51,113)
Accumulated net realized loss ................................ (69,888)
Paid-in capital .............................................. 31,969,099
-----------
$33,287,510
===========
Net Asset Value and redemption price per share of Class A
shares ($499,457 / 49,422 shares) ............................ $10.11
======
Maximum Offering Price per share of Class A shares
($10.11 / .9425) .............................................. $10.73
======
Net Asset Value and offering price per share of Class B(1) shares
($499,136 / 49,422 shares)* .................................. $10.10
======
Net Asset Value and offering price per share of Class B shares
($499,136 / 49,422 shares)* .................................. $10.10
======
Net Asset Value and offering price per share of Class C shares
($499,136 / 49,422 shares)* .................................. $10.10
======
Net Asset Value, offering price and redemption price per share
of Class S shares ($31,290,645 / 3,094,682 shares) ........... $10.11
======
- -----------------------------------------------------------------------------
*Redemption price per share for Class B(1), Class B and Class C is equal to
net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the year ended October 31, 1999
INVESTMENT INCOME
Interest, net of foreign taxes of $3,237 (Note 1) ................ $1,672,445
Dividends, net of foreign taxes of $2,992 ........................ 116,396
----------
1,788,841
EXPENSES
Management fee (Note 2) .......................................... 215,818
Custodian fee .................................................... 101,742
Transfer agent and shareholder services (Note 2) ................. 49,775
Audit fee ........................................................ 25,814
Trustees' fees (Note 2) .......................................... 18,615
Registration fees ................................................ 15,127
Legal fees ....................................................... 13,077
Amortization of organization costs (Note 1) ...................... 4,008
Reports to shareholders .......................................... 276
Service fee - Class A (Note 5) ................................... 109
Distribution and service fees - Class B(1) (Note 5) .............. 437
Distribution and service fees - Class B (Note 5) ................. 437
Distribution and service fees - Class C (Note 5) ................. 437
Miscellaneous .................................................... 11,601
----------
457,273
Expenses borne by the Distributor (Note 3) ....................... (132,124)
----------
325,149
----------
Net investment income ............................................ 1,463,692
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, FORWARD CONTRACTS AND FUTURES
CONTRACTS
Net realized loss on investments (Notes 1 and 4) ................. (118,184)
Net realized loss on futures contracts (Note 1) .................. (9,540)
Net realized loss on forward contracts and foreign
currency (Note 1) .............................................. (15,309)
----------
Total net realized loss ........................................ (143,033)
----------
Net unrealized depreciation of investments ....................... (376,475)
Net unrealized depreciation of futures contracts ................. (4,037)
Net unrealized appreciation of forward contracts
and foreign currency ........................................... 83,392
----------
Total net unrealized depreciation .............................. (297,120)
----------
Net loss on investments, foreign currency and forward
contracts and futures contracts ................................ (440,153)
----------
Net increase in net assets resulting from operations ............. $1,023,539
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31
----------------------------------
1998 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ......................................... $ 1,620,490 $ 1,463,692
Net realized gain (loss) on investments, foreign currency,
forward contracts and futures contracts ..................... 2,442,165 (143,033)
Net unrealized depreciation of investments, foreign currency,
forward contracts and futures contracts ..................... (956,166) (297,120)
----------- -----------
Net increase resulting from operations ........................ 3,106,489 1,023,539
----------- -----------
Dividends from net investment income:
Class A ..................................................... -- (4,941)
Class B(1) .................................................. -- (4,941)
Class B ..................................................... -- (4,941)
Class C ..................................................... -- (4,941)
Class S ..................................................... (1,703,599) (1,428,809)
----------- -----------
(1,703,599) (1,448,573)
----------- -----------
Distributions from net realized gains - Class S ............... (2,735,915) (2,273,855)
----------- -----------
Net decrease from fund share transactions (Note 6) ............ (931,584) (249,691)
----------- -----------
Total decrease in net assets .................................. (2,264,609) (2,948,580)
NET ASSETS
Beginning of year ............................................. 38,500,699 36,236,090
----------- -----------
End of year (including undistributed net investment income of
$502,509 and $443,408, respectively) ........................ $36,236,090 $33,287,510
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
October 31, 1999
NOTE 1
State Street Research Strategic Income Plus Fund, formerly 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 Trust
consists presently of five separate funds: State Street Research Strategic
Income Plus Fund, State Street Research Government Income Fund, State Street
Research Strategic Portfolios: Aggressive, State Street Research IntelliQuant
Portfolios: Small-Cap Value and State Street Research International Equity Fund.
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 offers five classes of shares. On September 30, 1999, the Fund began
offering Class A, Class B(1), Class B and Class C shares. Class A shares are
subject to an initial sales charge of up to 5.75% and an annual service fee of
0.25% of average daily net assets. Class B shares are being offered only to
current shareholders through reinvestment of dividends and distributions or
through exchanges from existing Class B accounts of State Street Research funds.
Class B(1) and Class B pay annual distribution and service fees of 1.00% and
both classes automatically convert into Class A shares (which pay lower ongoing
expenses) at the end of eight years. Class B(1) shares are subject to a
contingent deferred sales charge on certain redemptions made within six years of
purchase. Class B shares are subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase. Class C shares are
subject to a contingent deferred sales charge of 1.00% on any shares redeemed
within one year of their purchase. Class C shares also pay annual distribution
and service fees of 1.00%. Class S shares are only offered through certain
retirement accounts, advisory accounts of State Street Research & Management
Company (the "Adviser"), an indirect wholly owned subsidiary of Metropolitan
Life Insurance Company ("Metropolitan"), and special programs. No sales charge
is imposed at the time of purchase or redemption of Class S shares. Class S
shares do not pay any distribution or service fees. The Fund's expenses are
borne pro-rata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the plans 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.
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. For the year ended October 31, 1999, the Fund has designated as
long-term $1,359,100 of distributions from net realized gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. 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 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 exchange 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.
I. SECURITIES LENDING
The Fund may seek additional income by lending portfolio securities to qualified
institutions. The Fund will receive cash or securities as collateral in an
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the Fund could realize additional gains and losses. If
the borrower fails to return the securities and the value of the collateral has
declined during the term of the loan, the Fund will bear the loss. At October
31, 1999, the value of the securities loaned and the value of collateral were
$2,683,193 and $2,714,516, respectively. During the year ended October 31, 1999,
income from securities lending amounted to $17,701 and is included in interest
income.
J. FUTURES CONTRACTS
The Fund may enter into futures contracts as a hedge against unfavorable market
conditions and to enhance income. The Fund will limit its risks by entering into
a futures position only if it appears to be a liquid investment.
Upon entering into a futures contract, the Fund deposits with the selling broker
sufficient cash or U.S. Government securities to meet the minimum "initial
margin" requirements. Thereafter, the Fund receives from or pays to the broker
cash or U.S. Government securities equal to the daily fluctuation in value of
the contract ("variation margin"), which is recorded as unrealized gain or loss.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
NOTE 2
The Trust and the Adviser have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.60% 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 year ended October 31, 1999, the fees pursuant to such
agreement amounted to $215,818.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the year ended October
31, 1999, the amount of such expenses was $41,505.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$18,615 during the year ended October 31, 1999.
NOTE 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund. During
the year ended October 31, 1999, the amount of such expenses assumed by the
Distributor and its affiliates was $132,124.
NOTE 4
For the year ended October 31, 1999, purchases and sales of securities,
exclusive of short-term obligations, aggregated $73,347,826 and $74,506,949
(including $53,190,843 and $55,319,067 of U.S. Government obligations),
respectively.
NOTE 5
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Under the plans, 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(1), Class B and Class C shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B(1), Class B and Class C shares. The Distributor uses such payments for
personal service and/or the maintenance or servicing of shareholder accounts, to
compensate or reimburse securities dealers for distribution and marketing
services, to furnish ongoing assistance to investors and to defray a portion of
its distribution and marketing expenses. For the period September 30, 1999
(commencement of share class) to October 31, 1999, fees pursuant to such plans
amounted to $109, $437, $437 and $437 for Class A, Class B(1), Class B and Class
C, respectively.
NOTE 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At October 31, 1999,
Metropolitan owned 49,407 shares of each of Class A, Class B(1), Class B and
Class C and 2,354,952 Class S shares of the Fund.
These transactions break down by share class as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31
---------------------------------------------------------------
1998 1999
------------------------------- ------------------------------
CLASS A* SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold ......................... -- -- 49,422 $ 500,141
-------- ----------- --------- -----------
Net increase ........................ -- -- 49,422 $ 500,141
======== =========== ========= ===========
CLASS B(1)* SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
Shares sold ......................... -- -- 49,422 $ 500,150
-------- ----------- --------- -----------
Net increase ........................ -- -- 49,422 $ 500,150
======== =========== ========= ===========
CLASS B* SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
Shares sold ......................... -- -- 49,422 $ 500,150
-------- ----------- --------- -----------
Net increase......................... -- -- 49,422 $ 500,150
======== =========== ========= ===========
CLASS C* SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
Shares sold ......................... -- -- 49,422 $ 500,150
-------- ----------- --------- -----------
Net increase......................... -- -- 49,422 $ 500,150
======== =========== ========= ===========
CLASS S SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
Shares sold ......................... 372,648 $ 4,079,645 203,903 $ 2,109,092
Issued upon reinvestment of:
Dividends from net investment
income .............................. 50,718 541,724 30,849 315,412
Distributions from net realized
gains ............................... 262,816 2,735,915 213,806 2,197,784
Shares redeemed ..................... (768,832) (8,288,868) (672,928) (6,872,570)
-------- ----------- --------- -----------
Net decrease ........................ (82,650) $ (931,584) (224,370) $(2,250,282)
======== =========== ========= ===========
- ------------------------------------------------------------------------------------------------------
*September 30, 1999 (commencement of share class) to October 31, 1999.
</TABLE>
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a share outstanding throughout each year:
CLASS A
---------------------------------------------------------------------
YEARS ENDED OCTOBER 31 NOVEMBER 1, 1996 PERIOD ENDED
---------------------- TO MARCH 27, OCTOBER 31,
1995(a) 1996(a) 1997(a) 1999(a)(e)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD($) 9.56 10.56 11.03 10.12
--------- --------- --------- ---------
Net investment income ($)* 0.47 0.42 0.21 0.04
Net realized and unrealized gain on
investments, foreign currency, forward
contracts and futures contracts ($) 1.00 0.66 0.08 0.05
--------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS($) 1.47 1.08 0.29 0.09
--------- --------- --------- ---------
Dividends from net investment income($) (0.47) (0.36) (0.19) (0.10)
Distributions from net realized gains($) -- (0.25) (0.55) --
--------- --------- --------- ---------
TOTAL DISTRIBUTIONS($) (0.47) (0.61) (0.74) (0.10)
--------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD($) 10.56 11.03 10.58 10.11
========= ========= ========= =========
Total return(b)(%) 15.84 10.55 2.67(c) 0.89(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 27,637 552 -- 499
Ratio of operating expenses to average net assets(%)* 1.15 1.15 1.15(d) 1.15(d)
Ratio of net investment income to average net assets (%)* 4.74 4.35 4.18(d) 4.01(d)
Portfolio turnover rate (%) 132.50 126.41 117.66 209.77
*Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) 0.05 0.07 0.03 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS B(1) CLASS B CLASS C
---------------------- ---------------------- ----------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
OCTOBER 31, 1999(a)(e) OCTOBER 31, 1999(a)(e) OCTOBER 31, 1999(a)(e)
- ----------------------------------------------------------------------------------- ---------------------- ---------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD($) 10.12 10.12 10.12
------ ------ ------
Net investment income ($)* 0.03 0.03 0.03
Net realized and unrealized gain on investments,
foreign currency, forward contracts and
futures contracts($) 0.05 0.05 0.05
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS($) 0.08 0.08 0.08
------ ------ ------
Dividends from net investment income($) (0.10) (0.10) (0.10)
------ ------ ------
TOTAL DISTRIBUTIONS($) (0.10) (0.10) (0.10)
------ ------ ------
NET ASSET VALUE, END OF PERIOD($) 10.10 10.10 10.10
====== ====== ======
Total return (b)(%) 0.79(c) 0.79(c) 0.79(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 499 499 499
Ratio of operating expenses to average net assets(%)* 1.90(d) 1.90(d) 1.90(d)
Ratio of net investment income to average net assets (%)* 3.26(d) 3.26(d) 3.26(d)
Portfolio turnover rate(%) 209.77 209.77 209.77
* Reflects voluntary reduction of expenses
per share of these amounts (Note 3)($) 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
(c) Not annualized.
(d) Annualized.
(e) September 30, 1999 (commencement of share class) to October 31, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS S
------------------------------------------------------------
YEARS ENDED OCTOBER 31
------------------------------------------------------------
1995(a) 1996(a) 1997(a) 1998(a) 1999(a)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR($) 9.56 10.56 10.93 11.32 10.92
--------- --------- --------- --------- ---------
Net investment income($)* 0.52 0.50 0.49 0.47 0.43
Net realized and unrealized gain (loss) on
investments, foreign currency, forward
contracts and futures contracts ($) 0.97 0.60 0.95 0.42 (0.12)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS($) 1.49 1.10 1.44 0.89 0.31
--------- --------- --------- --------- ---------
Dividends from net investment income($) (0.49) (0.48) (0.50) (0.50) (0.43)
Distributions from net realized gains($) -- (0.25) (0.55) (0.79) (0.69)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS($) (0.49) (0.73) (1.05) (1.29) (1.12)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR($) 10.56 10.93 11.32 10.92 10.11
========= ========= ========= ========= =========
Total return(b)(%) 16.11 10.82 14.11 8.60 2.84
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 1,433 33,236 38,501 36,236 31,291
Ratio of operating expenses to average net assets (%)* 0.90 0.90 0.90 0.90 0.90
Ratio of net investment income to average net assets (%)* 4.91 4.50 4.47 4.35 4.07
Portfolio turnover rate(%) 132.50 126.41 117.66 186.03 209.77
* Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) 0.05 0.06 0.05 0.04 0.04
- ------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) 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.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF STATE STREET RESEARCH FINANCIAL TRUST AND THE SHAREHOLDERS
OF STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of State Street Research Strategic
Income Plus Fund (formerly State Street Research Strategic Portfolios:
Conservative) (a series of State Street Research Financial Trust, hereafter
referred to as the "Trust") at October 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1999
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
For the year ended October 31, 1999, Class S shares of State Street Research
Strategic Income Plus Fund gained 2.84%. That was significantly higher than its
peer group, the Lipper flexible income fund average, which fell 2.40%.
Strategic Income Plus Fund seeks high total return with an emphasis on capital
preservation by investing in a mix of bonds and stocks. The manager's strategy
is to adjust the asset allocation based on changing market conditions.
We held a smaller than usual position of stocks, 25%, in the Fund. The
international stocks helped performance while value stocks hurt. Our
investment into the international bond sector improved performance because the
high grade bonds failed to show significant returns.
Going into 2000, we are concerned about growth rates. We are hopeful that the
global economic environment will continue to recover. If the U.S. growth rate
fails to slow as the rest of the world rises, then that would put pressure on
inflation and interest rates. The Strategic Income Plus Fund will continue to be
cautious and conservative with these factors in mind as we move ahead.
October 31, 1999
Keep in mind that past performance is no guarantee of future results. The Fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Class S shares, offered
without a sales charge, are available only through certain employee benefit
plans and special programs. The S&P 500 (officially the "Standard and Poor's 500
Composite Stock Price Index") is an unmanaged index of 500 U.S. stocks. The
Lehman Brothers Government/Corporate Bond Index is a market-value weighted index
of U.S. government treasury and agency securities, corporate and yankee bonds.
The indices are unmanaged and do not take sales charges into consideration.
Direct investment in the indices is not possible; results are for illustrative
purposes only. Performance results for the Fund are increased by the voluntary
reduction of Fund fees and expenses; without subsidization, performance would be
lower.
CHANGE IN VALUE OF $10,000 BASED ON THE
S&P 500 AND THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX COMPARED
TO CHANGE IN VALUE OF $10,000 INVESTED IN
STRATEGIC INCOME PLUS FUND
Strategic Lehman Brothers
Income Plus Gov't/Corp
- Class A Bond S&P 500
- --------------------------------------------------------------------------------
- --------------------------------
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------
1 Year 5 Years Life of Fund
- --------------------------------
- -3.29% 8.83% 8.27%
- --------------------------------
10/31/94 $ 9,532 $10,006 $10,549
10/31/95 11,039 11,622 13,334
10/31/96 12,203 12,250 16,546
10/31/97 13,890 13,329 21,856
10/31/98 15,046 14,698 26,667
10/31/99 15,438 14,600 33,512
Strategic Lehman Brothers
Income Plus Gov't/Corp
- Class B(1) Bond S&P 500
- --------------------------------------------------------------------------------
- --------------------------------
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------
1 Year 5 Years Life of Fund
- --------------------------------
- -2.87% 9.01% 8.50%
- --------------------------------
10/31/94 $10,125 $10,006 $10,549
10/31/95 11,755 11,622 13,334
10/31/96 13,027 12,250 16,546
10/31/97 14,865 13,329 21,856
10/31/98 16,143 14,698 26,667
10/31/99 16,602 14,600 33,512
Strategic Lehman Brothers
Income Plus Gov't/Corp
- Class B Bond S&P 500
- --------------------------------------------------------------------------------
- --------------------------------
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------
1 Year 5 Years Life of Fund
- --------------------------------
- -2.87% 9.01% 8.63%
- --------------------------------
10/31/94 10,078 $10,006 $10,549
10/31/95 11,585 11,622 13,334
10/31/96 12,711 12,250 16,546
10/31/97 14,360 13,329 21,856
10/31/98 15,440 14,698 26,667
10/31/99 15,718 14,600 33,512
Strategic Lehman Brothers
Income Plus Gov't/Corp
- Class C Bond S&P 500
- --------------------------------------------------------------------------------
- --------------------------------
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------
1 Year 5 Years Life of Fund
- --------------------------------
- -0.87% 9.30% 8.63%
- --------------------------------
10/31/94 10,078 $10,006 $10,549
10/31/95 11,585 11,622 13,334
10/31/96 12,711 12,250 16,546
10/31/97 14,360 13,329 21,856
10/31/98 15,440 14,698 26,667
10/31/99 15,718 14,600 33,512
Strategic Lehman Brothers
Income Plus Gov't/Corp
- Class S Bond S&P 500
- --------------------------------------------------------------------------------
- --------------------------------
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------
1 Year 5 Years Life of Fund
- --------------------------------
- -2.84% 10.40% 9.72%
- --------------------------------
10/31/94 10,078 $10,006 $10,549
10/31/95 11,585 11,622 13,334
10/31/96 12,711 12,250 16,546
10/31/97 14,360 13,329 21,856
10/31/98 15,440 14,698 26,667
10/31/99 15,618 14,600 33,512
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH FINANCIAL TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND INFORMATION OFFICERS TRUSTEES
<S> <C> <C>
STATE STREET RESEARCH RALPH F. VERNI RALPH F. VERNI
STRATEGIC INCOME PLUS FUND Chairman of the Board, Chairman of the Board,
One Financial Center President and President, Chief Executive
Boston, MA 02111 Chief Executive Officer Officer and Director,
State Street Research &
INVESTMENT ADVISER PETER C. BENNETT Management Company
State Street Research & Vice President
Management Company
One Financial Center JOHN H. KALLIS BRUCE R. BOND
Boston, MA 02111 Vice President Former Chairman of the Board,
Chief Executive Officer and
DISTRIBUTOR THOMAS P. MOORE, JR. President, PictureTel Corporation
State Street Research Vice President
Investment Services, Inc.
One Financial Center E.K. EASTON RAGSDALE, JR. STEVE A. GARBAN
Boston, MA 02111 Vice President Former Senior Vice President
for Finance and Operations and
SHAREHOLDER SERVICES THOMAS A. SHIVELY Treasurer, The Pennsylvania
State Street Research Vice President State University
Service Center
P.O. Box 8408 JAMES M. WEISS
Boston, MA 02266-8408 Vice President MALCOLM T. HOPKINS
1-800-562-0032 Former Vice Chairman of the
GERARD P. MAUS Board and Chief Financial
CUSTODIAN Treasurer Officer, St. Regis Corp.
State Street Bank and
Trust Company JOSEPH W. CANAVAN
225 Franklin Street Assistant Treasurer DEAN O. MORTON
Boston, MA 02110 Former Executive Vice President,
DOUGLAS A. ROMICH Chief Operating Officer and
LEGAL COUNSEL Assistant Treasurer Director, Hewlett-Packard
Goodwin, Procter & Hoar LLP Company
Exchange Place FRANCIS J. MCNAMARA, III
Boston, MA 02109 Secretary and General Counsel
SUSAN M. PHILLIPS
INDEPENDENT ACCOUNTANTS DARMAN A. WING Dean, School of Business and
PricewaterhouseCoopers LLP Assistant Secretary and Public Management, George
160 Federal Street Assistant General Counsel Washington University; former
Boston, MA 02110 Member of the Board of Governors
AMY L. SIMMONS of the Federal Reserve System and
Assistant Secretary Chairman and Commissioner of
the Commodity Futures Trading
Commission
TOBY ROSENBLATT
President,
Founders Investments Ltd.
President,
The Glen Ellen Company
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
</TABLE>
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME PLUS FUND ------------
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Canton, MA
Permit #313
------------
STATE STREET RESEARCH
- ----------------------
75 YEARS
- ----------------------
LASTING VALUES
- ----------------------
LEADING IDEAS
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032 or
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
[logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
This publication must be preceded or accompanied by a current State Street
Research Strategic Income Plus Fund prospectus.
When used after March 31, 2000, this report must be accompanied by a current
Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: (exp1200)SSR-LD STP-504G-1299
