<PAGE>
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STATE STREET RESEARCH
- -------------------------------------------------------------------------------
INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
----------------------------------------
ANNUAL REPORT
February 29, 2000
--------------------
WHAT'S INSIDE
--------------------
FROM THE CHAIRMAN
America's cycle of
prosperity continues
PORTFOLIO MANAGER'S REVIEW
Fund's style focus out of favor
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
-------------------
[DALBAR LOGO]
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For Excellence
in
Service
[LOGO] STATE STREET RESEARCH
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
America's cycle of economic prosperity extended to a record-breaking nine
consecutive years in February. Gross domestic product, a measure of goods and
services produced in the U.S., rose at an estimated annual rate of 4.4% in
calendar year 1999, with a pick-up of growth in the second half. So far, there
are few signs of a significant slowdown in 2000, despite the efforts of the
Federal Reserve Board to cool down the economy by raising interest rates. The
Federal Reserve Board raised a key short-term interest rate by 1% in four
consecutive 1/4% steps in the second half of the reporting period.
STOCKS
The U.S. stock market delivered double-digit gains for the 12 months ended
February 29, 2000, despite weakness at the end of the period. Although the S&P
500 rose 11.73%(1), the index's technology stocks accounted for a
disproportionate share of those gains. And the technology-heavy Nasdaq gained a
stunning 105.81% for the same period.
BONDS
The bond market has been hurt by rising interest rates and by factors associated
with Y2K. Fears that issuers would go to the market with their debt issues early
in the year drove yields up and bond prices down in 1999. However, those fears
were not realized, and the market began to close the yield gap in the second
half of the year. In this environment, mortgage bonds held up better than
government and corporate bonds, but both delivered modest single-digit returns.
High yield bonds, which were relatively strong in 1999, finished the fund
reporting year behind other bond sectors.
INTERNATIONAL
Economic growth around the globe was better than expected. In Asia and the
emerging markets of Latin America, economies rebounded from currency and
economic woes faster than anticipated. Japan began to show signs of
progress in revitalizing its economy after a decade of stagnation and
decline. This was reflected in strong stock market performance in 1999,
especially among the country's small companies. However, Japanese stocks
lagged early in 2000 as recession fears returned. Although European stock
markets delivered mixed results, European technology and telecommunications
sectors have soared along with the U.S. market.
OUTLOOK AND OPPORTUNITIES
As we enter the second quarter of 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 and increasing volatility
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
February 29, 2000
(1) The S&P 500 (officially the "Standard and Poor's 500 Index") is an unmanaged
index of 500 U.S. stocks. The Russell 2000 Value Index contains only those
stocks within the complete Russell 2000 Index (a small company index) that
show below average growth. The indices do not take transaction charges into
consideration. It is not possible to invest directly in the indices.
(2) 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 you shares. All returns assume reinvestment of capital
gains distributions and income dividends at net asset value.
(3) Performance reflects maximum 5.75% Class A share front-end sales charge.
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 February 29, 2000, except
where noted)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(at maximum applicable sales charge)(2)(3)
- --------------------------------------------------------------------
LIFE OF FUND
(since 11/30/98) 1 YEAR
- --------------------------------------------------------------------
Class A - 7.26% - 4.13%
- --------------------------------------------------------------------
Performance results for the fund are increased by the voluntary reduction of
fund fees and expenses; without subsidization, performance would have been
lower.
AVERAGE ANNUAL TOTAL RETURN
for period ended March 31, 2000
(at maximum applicable sales charge)(2)(3)
- ------------------------------------------------------------
LIFE OF FUND
(since 11/30/98) 1 YEAR
- ------------------------------------------------------------
Class A -3.44% 1.45%
- ------------------------------------------------------------
<PAGE>
PORTFOLIO MANAGER'S REVIEW
[Photo of Easton Ragsdale]
Easton Ragsdale
Portfolio Manager
We spoke with Easton Ragsdale, portfolio manager of State Street Research
IntelliQuant Portfolios: Small-Cap Value, about the fund's performance for the
year ended February 29, 2000 and his views on the period ahead.
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR?
A: It was a disappointing year for the fund. Class A shares returned 1.72% for
the twelve months ended February 29, 2000 [does not reflect sales charge].(2)
That was significantly lower than the Lipper Small-Cap Value Funds Average,
which was up 17.27%. The fund also underperformed the Russell 2000 Value Index
which returned 11.80% for the same period.(1)
Q: WHAT HURT THE FUND'S PERFORMANCE?
A: The fund follows a strict style discipline that focuses on small-company
value stocks. Unfortunately, these companies were out of favor with investors
during the period. On an absolute basis, it was difficult to compete in an
environment that was so heavily dominated by large, brand name growth companies.
A modest comeback in value stocks early in the period was short lived. And
because we stuck very close to our style mandate, we were hurt worse than others
in our peer group. According to our analysis, some of these funds benefited from
exposure to stocks outside the small-cap value universe.
On the brighter side, we are confident that our investment process is on
target for the long term based on our thorough and rigorous examination. And
while we did not match the performance of the Russell 2000 Value Index or Lipper
peer group, our models identified the biggest winners among the most attractive
stocks in their respective sectors.
Q: HOW DID YOU REACT TO THE UNFAVORABLE ENVIRONMENT?
A: With patience. We are confident that both our investment style and the
companies we have invested in have long-term potential. Styles go in and out of
favor. Therefore, it's a mistake to try to change an investment strategy in an
attempt to second guess the market. The fund owns approximately 300 stocks and
is neutrally- weighted in its sector representation versus the Russell 2000
Value Index. By holding a fairly large number of stocks, we gain diversification
and can help hold transaction costs down in this less liquid area of the market.
Q: WHAT ARE SOME OF THE COMPANIES THAT HAVE CONTINUED
TO EARN YOUR CONFIDENCE? A: Among the fund's strongest holdings were Safeguard
Scientifics, which provides venture capital funding to technology start-ups;
Fisher Scientific, which distributes scientific and lab products; and EMC, which
designs enterprise storage systems. We obtained EMC shares from our investment
in Data General, which EMC acquired. All three benefited from investor interest
in technology, including biotechnology.
Q: WHERE WERE YOUR DISAPPOINTMENTS?
A: Our biggest disappointment was the market's fixation on fast-growing
companies, many of which have no current earnings. Investors largely ignored
good companies with very low valuations. The divergence between growth and value
reached a historical extreme last year, nearly double the next largest
difference reported in a single year. More specifically, our biggest
disappointment was in the insurance sector, where companies were hurt by rising
interest rates more severely than anticipated.
Q: WHAT IS YOUR OUTLOOK?
A: If the U.S. economic growth rate slows as the result of higher interest rates
and higher commodity prices, yet inflation remains relatively low, the
environment for value stocks would improve. With valuations of small-cap value
stocks at extremely depressed levels relative to other areas of the market, we
believe the portfolio is well positioned to benefit from a shift away from
investor's attention to growth stocks. With the divergence between growth and
value at an historical extreme, any shift to value could affect the market.
February 29, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP 10 STOCK POSITIONS
(by percentage of net assets)
1 CREDENCE SYSTEMS Electronic measurement instruments 1.7%
2 VALERO ENERGY Oil refining & marketing 1.7%
3 TEKTRONIX Electronic measurement instruments 1.6%
4 FISHER SCIENTIFIC Scientific instruments 1.6%
5 CEPHALON Medical -- drugs 1.5%
6 PERKINELMER Scientific instruments 1.5%
7 SYBASE Enterprise software/service 1.3%
8 HOSPITALITY PROPERTIES TRUST REIT -- hotel/restaurants 1.1%
9 HEALTH CARE PROPERTY INVESTORS REIT -- health care 1.1%
10 SENSORMATIC ELECTRONICS Electronic security devices 1.1%
These securities represent an aggregate of 14.2% of the portfolio. Because of
active management, there is no guarantee that the fund currently invests, or
will continue to invest, in the securities listed in this table or in the text
above.
TOP 5 INDUSTRIES
(by percentage of net assets)
REAL ESTATE INVESTMENT TRUSTS 10.9%
BANKS & S&Ls 7.4%
INSURANCE 7.1%
CHEMICALS 4.7%
RETAIL 4.3%
Total: 34.4%
BEST AND WORST CONTRIBUTORS TO PERFORMANCE (February 28, 1999 through February
29, 2000)
BEST /\
- --------------------------------------------------------------------------------
PERKINELMER
Very high earnings growth in the biotechnology sector.
SENSORMATIC ELECTRONICS
The company's products include monitoring systems and electronic security.
SYBASE
Accelerated earnings growth in the software and services industry.
WORST \/
- --------------------------------------------------------------------------------
RELIANCE GROUP
Internal legal problems hurt performance as the market moved away from insurance
investments.
ELOT
eLOT didn't meet expectations as a web based product.
AMES
The market shifted from discount retail and consumer staples.
<PAGE>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
<TABLE>
- -----------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------
February 29, 2000
<CAPTION>
- -----------------------------------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 98.7%
AUTOMOBILES & TRANSPORTATION 4.5%
AIR TRANSPORT 1.9%
Airborne Freight Corp. ............................................. 2,600 $ 48,100
America West Holdings Corp. Cl. B* ................................. 1,500 20,062
Amtran Inc.* ....................................................... 400 6,750
Mesa Air Group, Inc.* .............................................. 1,500 8,906
Transport World Airlines, Inc.* .................................... 2,200 5,363
----------
89,181
----------
AUTOMOTIVE PARTS 1.2%
A.O. Smith Corp. ................................................... 800 13,800
Arvin Industries Inc. .............................................. 1,200 22,050
Exide Corp. ........................................................ 1,000 10,125
Sauer, Inc. ........................................................ 800 6,400
Standard Motor Products, Inc. Cl. A ................................ 400 5,425
----------
57,800
----------
RECREATIONAL VEHICLES & BOATS 0.3%
Thor Industries, Inc. .............................................. 300 7,669
Winnebago Industries, Inc. ......................................... 400 8,550
----------
16,219
----------
TRUCKERS 1.1%
Consolidated Freightways Corp.* .................................... 900 5,963
Landstar Systems Inc.* ............................................. 400 22,475
Roadway Express Inc. ............................................... 400 8,250
Yellow Corp.* ...................................................... 900 14,400
----------
51,088
----------
Total Automobiles & Transportation ................................. 214,288
----------
CONSUMER DISCRETIONARY 12.2%
ADVERTISING AGENCIES 0.6%
ADVO Inc.* ......................................................... 900 24,975
e4L Inc.* .......................................................... 2,100 4,725
----------
29,700
----------
CASINOS/GAMBLING, HOTEL/MOTEL 0.3%
eLOT, Inc.* ........................................................ 2,400 14,400
----------
COMMERCIAL SERVICES 1.4%
Bell & Howell Co.* ................................................. 500 16,375
Burns International Services Corp.* ................................ 800 8,750
CDI Corp.* ......................................................... 300 5,475
Heidrick & Struggles International, Inc.* .......................... 500 20,500
Mapquest.com Inc.* ................................................. 400 7,250
Midas, Inc. ........................................................ 400 9,600
----------
67,950
----------
COMMUNICATIONS, MEDIA & ENTERTAINMENT 0.2%
GC Companies, Inc.* ................................................ 300 10,181
----------
CONSUMER ELECTRONICS 0.9%
Harman International Industries, Inc. .............................. 600 37,163
Navarre Corp.* ..................................................... 1,400 7,306
----------
44,469
----------
CONSUMER PRODUCTS 1.0%
Block Drug Co. Inc. Cl. A .......................................... 515 16,931
Fedders Corp. ...................................................... 1,400 7,350
L.S. Starrett Co. Cl. A ............................................ 300 6,900
Toro Co. ........................................................... 500 16,562
----------
47,743
----------
CONSUMER SERVICES 0.2%
Amerco* ............................................................ 400 6,850
----------
HOUSEHOLD FURNISHINGS 0.8%
Bassett Furniture Industries Inc. .................................. 400 5,400
Enesco Group Inc. .................................................. 800 5,800
Mikasa, Inc. ....................................................... 900 8,212
Springs Industries, Inc. ........................................... 500 17,719
----------
37,131
----------
LEISURE TIME 0.6%
Bally Total Fitness Holding Corp.* ................................. 900 24,188
Musicland Stores Inc.* ............................................. 900 6,131
----------
30,319
----------
PHOTOGRAPHY 0.2%
CPI Corp. .......................................................... 400 9,850
----------
RESTAURANTS 0.4%
Advantica Restaurant Group Inc.* ................................... 2,800 4,813
Luby's, Inc. ....................................................... 700 7,306
Ryan's Family Steak Houses, Inc.* .................................. 900 8,606
----------
20,725
----------
RETAIL 4.3%
Ames Department Stores Inc.* ....................................... 1,100 15,538
Brown Shoe Co. Inc. ................................................ 700 7,350
Cato Corp. Cl. A ................................................... 600 6,000
Charming Shoppes, Inc.* ............................................ 3,400 20,400
Fisher Scientific International Inc.* .............................. 1,700 73,950
Footstar Inc.* ..................................................... 700 17,281
Handleman Co.* ..................................................... 800 8,300
Hanover Direct Inc.* ............................................... 3,600 9,900
Homebase Inc.* ..................................................... 2,200 5,638
InterTAN, Inc.* .................................................... 900 8,044
Shopko Stores, Inc.* ............................................... 1,300 21,612
Spiegel, Inc. Cl. A* ............................................... 1,200 8,625
----------
202,638
----------
TEXTILE APPAREL MANUFACTURERS 1.3%
Donna Karan International Inc.* .................................... 1,100 7,906
Guess Inc.* ........................................................ 400 8,525
Kellwood Co. ....................................................... 900 15,187
Oxford Industries, Inc. ............................................ 400 6,650
Phillips-Van Heusen Corp. .......................................... 1,000 6,938
Russell Corp. ...................................................... 1,200 16,575
----------
61,781
----------
Total Consumer Discretionary ....................................... 583,737
----------
CONSUMER STAPLES 2.7%
DRUG & GROCERY STORE CHAINS 0.7%
7-Eleven Inc.* ..................................................... 4,200 10,894
Grand Union Co.* ................................................... 800 4,000
Great Atlantic & Pacific Tea Inc. .................................. 600 14,062
Ingles Markets Inc. Cl. A .......................................... 600 6,563
----------
35,519
----------
FOODS 1.4%
Fleming Companies, Inc. ............................................ 1,900 29,331
International Multifoods Corp. ..................................... 600 6,562
Riviana Foods, Inc. ................................................ 400 6,650
Smithfield Foods Inc.* ............................................. 1,500 23,250
----------
65,793
----------
TOBACCO 0.6%
Dimon Inc. ......................................................... 2,100 5,119
Universal Corp. .................................................... 1,400 22,925
----------
28,044
----------
Total Consumer Staples ............................................. 129,356
----------
FINANCIAL SERVICES 28.7%
BANKS & SAVINGS & LOAN 7.4%
Andover Bancorp Inc. ............................................... 300 8,025
Bancwest Corp. ..................................................... 3,000 45,562
Brenton Banks Inc. ................................................. 860 8,278
Chemical Financial Corp. ........................................... 603 15,979
Chittenden Corp. ................................................... 1,000 25,437
Community Trust Bancorp, Inc. ...................................... 340 6,418
CORUS Bankshares, Inc. ............................................. 300 7,388
CPB Inc. ........................................................... 400 9,000
Farmers Capital Bank Corp. ......................................... 200 6,100
First Bancorp ...................................................... 900 15,300
First Citizens Bancshares Inc. Cl. A ............................... 200 12,900
First Commerce Bancshares, Inc. Cl. B .............................. 400 13,900
First Indiana Corp. ................................................ 400 8,100
Firstfed Financial Corp.* .......................................... 600 7,650
Hancock Holding Co. ................................................ 500 18,625
Local Financial Corp.* ............................................. 900 7,200
Michigan Finance Corp. ............................................. 215 4,952
MidAmerica Bancorp ................................................. 309 7,377
National Penn Bancshares, Inc. ..................................... 800 17,400
NBT Bancorp Inc. ................................................... 525 6,825
Omega Financial Corp. .............................................. 300 7,313
Peoples Holding Co. ................................................ 200 5,250
Riggs National Corp. ............................................... 700 6,978
The Trust Co. of New Jersey ........................................ 800 15,350
Trustco Bank Corp. ................................................. 2,400 26,625
UMB Financial Corp. ................................................ 770 25,891
USBancorp, Inc. .................................................... 600 5,888
Westcorp ........................................................... 500 6,406
----------
352,117
----------
FINANCIAL DATA PROCESSING SERVICES & SYSTEMS 0.4%
CompuCredit Corp.* ................................................. 400 13,200
Hypercom Corp.* .................................................... 500 8,656
----------
21,856
----------
INSURANCE 7.1%
Acceptance Insurance Cos. Inc.* .................................... 1,300 5,363
AmerUs Life Holdings Inc. .......................................... 400 8,125
Argonaut Group Inc. ................................................ 400 7,600
Chicago Title Corp. ................................................ 400 18,600
Commerce Group Inc. ................................................ 1,300 38,837
Crawford & Co. Cl. B ............................................... 1,200 15,900
Foremost Corp. ..................................................... 700 20,344
Harleysville Group Inc. ............................................ 500 6,531
Hilb, Rogal & Hamilton Co. ......................................... 500 14,219
HSB Group, Inc. .................................................... 900 22,275
Kansas City Life Insurance Co. ..................................... 200 6,400
Liberty Corp. ...................................................... 700 23,537
Midland Co. ........................................................ 400 9,000
National Western Life Insurance Co. Cl. A* ......................... 100 6,950
Ohio Casualty Corp. ................................................ 2,400 29,700
PMA Capital Corp. Cl. A ............................................ 800 14,800
Reliance Group Holdings, Inc. ...................................... 2,100 9,319
Selective Insurance Group Inc. ..................................... 900 13,894
State Auto Financial Corp. ......................................... 800 6,300
The MONY Group Inc. ................................................ 1,300 37,212
Trenwick Group Inc. ................................................ 400 5,275
United Fire Casualty Co. ........................................... 400 8,000
Zenith National Insurance Corp. .................................... 400 8,450
----------
336,631
----------
MISCELLANEOUS FINANCIAL 1.4%
Advest Group Inc. .................................................. 400 6,650
Arcadia Financial Limited* ......................................... 1,800 8,663
Imperial Credit Industries, Inc.* .................................. 1,300 7,475
Leucadia National Corp.* ........................................... 1,300 27,787
Liberty Financial Companies, Inc. .................................. 400 7,725
The Student Loan Corp. ............................................. 200 7,775
----------
66,075
----------
REAL ESTATE INVESTMENT TRUSTS 10.9%
Amli Residential Properties Trust .................................. 400 8,175
Bradley Real Estate, Inc. .......................................... 900 15,694
Capital Automotive REIT ............................................ 700 8,750
CBL & Associates Properties, Inc. .................................. 700 15,663
Commercial Net Lease Realty Inc. ................................... 800 8,150
Entertainment Properties Trust ..................................... 600 8,325
Gables Residential Trust ........................................... 700 15,400
Health Care Property Investors, Inc. ............................... 2,102 52,287
Health Care REIT, Inc. ............................................. 900 14,006
Healthcare Realty Trust, Inc. ...................................... 1,800 29,250
Hospitality Properties Trust ....................................... 2,700 52,312
Imperial Credit Commercial Mortgage Investment Corp. ............... 800 9,150
IndyMac Mortgage Holdings Inc.* .................................... 2,500 31,719
IRT Property Co. ................................................... 900 7,088
JDN Realty Corp. ................................................... 1,000 10,750
Koger Equity Inc. .................................................. 1,000 17,687
LaSalle Hotel Properties Trust ..................................... 600 7,500
LTC Properties, Inc. ............................................... 1,000 5,875
Manufactured Home Communities, Inc. ................................ 700 16,012
MeriStar Hospitality Corp. ......................................... 1,700 27,094
MGI Properties, Inc. ............................................... 1,600 8,300
National Health Investors, Inc. .................................... 1,000 13,313
Omega Healthcare Investors, Inc. ................................... 800 4,800
Pacific Gulf Properties, Inc. ...................................... 800 16,150
Parkway Properties, Inc. ........................................... 300 8,888
Pennsylvania REIT .................................................. 500 8,281
Prentiss Properties Trust .......................................... 1,300 26,731
Prime Group Realty Trust ........................................... 500 6,906
Storage USA, Inc. .................................................. 1,100 34,581
Summit Properties Inc. ............................................. 900 17,100
Thornburg Mortgage Asset Corp. ..................................... 900 7,256
Ventas, Inc.* ...................................................... 1,700 5,738
----------
518,931
----------
RENTAL & LEASING SERVICES: COMMERCIAL 0.7%
Avis Rent A Car, Inc.* ............................................. 800 11,650
UniCapital Corp.* .................................................. 2,400 6,000
Xtra Corp.* ........................................................ 400 15,925
----------
33,575
----------
SECURITIES BROKERAGE & SERVICES 0.8%
Advanta Corp. Cl. A ................................................ 500 9,313
Dain Rauscher Corp. ................................................ 400 22,550
Freedom Securities Corp. ........................................... 600 8,325
----------
40,188
----------
Total Financial Services .......................................... 1,369,373
----------
HEALTH CARE 6.0%
DRUGS & BIOTECHNOLOGY 2.7%
Amerisource Health Corp. Cl. A* .................................... 1,500 21,844
Bindley Western Industries Inc. .................................... 1,300 22,344
Cephalon Inc.* ..................................................... 1,100 73,115
Schein Pharmaceutical, Inc.* ....................................... 700 8,969
----------
126,272
----------
HEALTH CARE FACILITIES 1.3%
Laboratory Corp. of America Holdings* .............................. 3,200 12,800
Quest Diagnostics, Inc.* ........................................... 1,400 48,037
----------
60,837
----------
HEALTH CARE SERVICES 1.1%
Apria Healthcare Group Inc.* ....................................... 1,500 21,375
Magellan Health Services Inc.* ..................................... 1,400 8,225
Mid Atlantic Medical Services, Inc.* ............................... 2,000 16,375
Per-Se Technologies, Inc.* ......................................... 1,100 8,663
----------
54,638
----------
HOSPITAL SUPPLY 0.9%
Bio Rad Laboratories, Inc. Cl. A* .................................. 300 9,863
Owens & Minor Inc. ................................................. 1,000 11,000
Sunrise Medical, Inc.* ............................................. 1,300 5,606
West Pharmaceutical Services Inc. .................................. 600 17,662
----------
44,131
----------
Total Health Care ................................................. 285,878
----------
INTEGRATED OILS 0.3%
INTEGRATED DOMESTIC 0.2%
Pennzoil-Quaker State Co. .......................................... 1,000 8,750
----------
INTEGRATED INTERNATIONAL 0.1%
Tesoro Petroleum Corp.* ............................................ 400 3,700
----------
Total Integrated Oils .............................................. 12,450
----------
MATERIALS & PROCESSING 11.5%
AGRICULTURE 0.2%
Agribrands International, Inc.* .................................... 300 10,969
----------
BUILDING & CONSTRUCTION 0.1%
Butler Manufacturing Co. ........................................... 300 7,594
----------
CHEMICALS 4.7%
A. Schulman, Inc. .................................................. 1,000 13,250
Albemarle Corp. .................................................... 900 13,556
Arch Chemicals, Inc. ............................................... 1,000 19,063
C.K. Witco Corp. ................................................... 3,755 39,897
Chemed Corp. ....................................................... 300 8,831
ChemFirst, Inc. .................................................... 700 13,650
Ethyl Corp. ........................................................ 1,800 5,738
Ferro Corp. ........................................................ 1,400 26,425
Geon Co. ........................................................... 800 16,700
H.B. Fuller Co. .................................................... 500 30,687
M.A. Hanna Co. ..................................................... 1,600 18,300
NCH Corp. .......................................................... 200 7,925
Stepan Chemical Co. ................................................ 400 8,200
----------
222,222
----------
CONTAINERS & PACKAGING 0.5%
Apogee Enterprises, Inc. ........................................... 1,500 6,937
Gaylord Container Corp. Cl. A* ..................................... 2,400 12,900
U.S. Can Corp.* .................................................... 400 5,100
----------
24,937
----------
DIVERSIFIED MANUFACTURING 0.3%
Barnes Group Inc. .................................................. 600 8,513
Maxxam Inc.* ....................................................... 200 5,875
----------
14,388
----------
FOREST PRODUCTS 0.9%
Potlatch Corp. ..................................................... 1,100 41,800
----------
MISCELLANEOUS MATERIALS & PROCESSING 1.5%
Commercial Metals Co. .............................................. 500 13,813
General Cable Corp. ................................................ 1,100 11,000
Maverick Tube Corp.* ............................................... 600 13,500
Quanex Corp. ....................................................... 700 14,919
Ryerson Tull, Inc. ................................................. 400 5,300
USEC Inc. .......................................................... 4,200 14,962
----------
73,494
----------
NON-FERROUS METALS 0.7%
A.M. Castle & Co. .................................................. 700 8,925
Brush Wellman, Inc. ................................................ 600 10,050
Kaiser Aluminum Corp.* ............................................. 1,100 6,256
Metals USA, Inc. ................................................... 800 6,200
----------
31,431
----------
PAPER & FOREST PRODUCTS 0.5%
Chesapeake Corp. ................................................... 1,000 22,187
----------
REAL ESTATE & CONSTRUCTION 0.2%
Webb Corp.* ........................................................ 700 10,500
----------
STEEL 1.2%
Bethlehem Steel Corp.* ............................................. 5,500 31,281
National Steel Corp. Cl. B ......................................... 1,100 7,700
Pitt-Des Moines, Inc. .............................................. 400 8,900
Rouge Industries, Inc. Cl. A ....................................... 1,000 7,688
----------
55,569
----------
TEXTILE & PRODUCTS 0.7%
Burlington Industries Inc.* ........................................ 1,600 4,500
Wellman, Inc. ...................................................... 1,500 27,937
----------
32,437
----------
Total Materials & Processing ...................................... 547,528
----------
OTHER 1.8%
MULTI-SECTOR 1.8%
Eastern Enterprises ................................................ 739 42,770
Foster Wheeler Corp. ............................................... 1,500 8,437
Gencorp Inc. ....................................................... 1,100 8,594
Justin Industries Inc. ............................................. 600 10,837
Ogden Corp. ........................................................ 1,200 13,650
----------
Total Other ........................................................ 84,288
----------
OTHER ENERGY 5.2%
MISCELLANEOUS ENERGY 0.2%
CONSOL Energy Inc. ................................................. 900 10,463
----------
OIL & GAS PRODUCERS 2.1%
Chesapeake Energy Corp.* ........................................... 2,300 6,756
Forest Oil Corp.* .................................................. 1,600 13,100
Mitchell Energy & Development Corp. Cl. A .......................... 800 17,300
Nuevo Energy Co.* .................................................. 500 8,875
Plains Resources Inc.* ............................................. 800 11,100
Pogo Producing Co. ................................................. 1,700 39,313
----------
96,444
----------
OIL WELL EQUIPMENT & SERVICES 2.9%
Oceaneering International, Inc.* ................................... 700 13,300
RPC, Inc. .......................................................... 1,500 11,437
Trigen Energy Corp. ................................................ 400 9,325
Valero Energy Corp. ................................................ 3,100 79,050
Veritas DGC Inc.* .................................................. 1,300 26,000
----------
139,112
----------
Total Other Energy ................................................ 246,019
----------
PRODUCER DURABLES 9.4%
AEROSPACE 1.3%
Alliant Technology Systems, Inc.* .................................. 400 21,650
Newport News Shipbuilding, Inc. .................................... 1,100 31,143
Primex Technologies, Inc. .......................................... 400 8,400
----------
61,193
----------
ELECTRICAL EQUIPMENT & COMPONENTS 1.2%
Ametek Aerospace Products Inc. ..................................... 1,300 22,019
Genlyte Group Inc.* ................................................ 400 8,000
Mark IV Industries Inc. ............................................ 1,500 30,000
----------
60,019
----------
ELECTRONICS: INDUSTRIAL 1.6%
Tektronix, Inc. .................................................... 1,300 75,400
----------
HOMEBUILDING 1.1%
M.D.C. Holdings Inc. ............................................... 900 13,669
Pulte Corp. ........................................................ 1,300 21,856
Ryland Group, Inc. ................................................. 500 8,875
Skyline Corp. ...................................................... 300 6,450
----------
50,850
----------
INDUSTRIAL PRODUCTS 0.2%
Mine Safety Appliances Co. ......................................... 100 6,350
Standex International Corp. ........................................ 300 4,744
----------
11,094
----------
MACHINERY 1.7%
AGCO Corp. ......................................................... 2,000 22,000
Applied Industrial Technologies, Inc. .............................. 500 9,062
Detroit Diesel Corp. ............................................... 400 6,700
FSI International, Inc.* ........................................... 700 13,694
Milacron Inc. ...................................................... 1,000 13,875
Nacco Industries, Inc. Cl. A ....................................... 200 8,687
Stewart & Stevenson Services, Inc. ................................. 700 6,869
----------
80,887
----------
OFFICE FURNITURE & BUSINESS EQUIPMENT 0.6%
Anacomp Inc.* ...................................................... 500 8,812
Kimball International Inc. Cl. B ................................... 900 13,669
Virco Manufacturing Corp. .......................................... 500 6,313
----------
28,794
----------
PRODUCTION TECHNOLOGY EQUIPMENT 1.7%
Credence Systems Corp.* ............................................ 600 79,950
----------
Total Producer Durables ............................................ 448,187
----------
TECHNOLOGY 8.1%
COMMUNICATIONS TECHNOLOGY 0.3%
Anixter International, Inc.* ....................................... 700 13,081
----------
COMPUTER SOFTWARE 1.3%
Sybase Inc.* ....................................................... 2,400 60,150
----------
COMPUTER TECHNOLOGY 2.8%
Imation Corp.* ..................................................... 1,300 40,219
Intergraph Corp.* .................................................. 1,400 8,400
Komag Inc.* ........................................................ 2,600 5,769
Merisel Inc.* ...................................................... 4,700 10,428
Micron Electronics, Inc.* .......................................... 1,600 17,200
S3 Inc.* ........................................................... 2,300 36,656
Western Digital Corp.* ............................................. 3,700 16,650
----------
135,322
----------
ELECTRONICS 1.6%
Cubic Corp. ........................................................ 300 7,612
Gerber Scientific, Inc. ............................................ 700 11,725
Read-Rite Corp.* ................................................... 1,500 5,672
Sensormatic Electronics Corp.* ..................................... 2,700 51,300
----------
76,309
----------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS 2.1%
MEMC Electronic Materials, Inc.* ................................... 1,600 27,900
PerkinElmer, Inc. .................................................. 1,100 71,088
----------
98,988
----------
Total Technology .................................................. 383,850
----------
UTILITIES 8.3%
ELECTRICAL 4.2%
CH Energy Group, Inc.* ............................................. 400 11,425
CMP Group Inc. ..................................................... 1,000 28,250
Eastern Utilities Associates ....................................... 800 24,850
Energy East Corp. .................................................. 62 1,297
Hawaiian Electric Industries, Inc. ................................. 1,400 40,337
Madison Gas & Electric Co. ......................................... 300 5,213
RGS Energy Group Inc.* ............................................. 1,300 25,594
TNP Enterprises, Inc. .............................................. 500 21,594
UniSource Energy Corp. ............................................. 1,400 18,900
United Illuminating Co. ............................................ 600 24,375
----------
201,835
----------
GAS DISTRIBUTION 4.1%
AGL Resources Inc. ................................................. 2,600 44,362
CTG Resources Inc. ................................................. 300 11,100
Indiana Energy Inc. ................................................ 900 14,681
Laclede Gas Co. .................................................... 700 14,000
SEMCO Energy, Inc. ................................................. 700 8,400
South Jersey Industries, Inc. ...................................... 400 11,700
UGI Corp. .......................................................... 1,300 24,375
Western Gas Resources Inc. ......................................... 500 6,875
WICOR, Inc. ........................................................ 1,400 42,088
Yankee Energy Systems, Inc. ........................................ 400 17,600
----------
195,181
----------
Total Utilities ................................................... 397,016
----------
Total Common Stocks (Cost $5,043,247) ............................. 4,701,970
----------
- ------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY
AMOUNT DATE
- ------------------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS 2.3%
Household Finance Corp., 5.73% ....................... $111,000 3/2/2000 111,000
----------
Total Short-Term Obligations (Cost $111,000) ........................................ 111,000
----------
Total Investments (Cost $5,154,247) - 101.0% ........................................ 4,812,970
Other Assets, Less Liabilities - (1.0%) ............................................. (46,778)
----------
Net Assets - 100.0% ................................................................. $4,766,192
==========
Federal Income Tax Information:
At February 29, 2000, the net unrealized depreciation of investments based on
cost for Federal income tax purposes of $5,154,247 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost ..................................................... $ 526,475
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value ..................................................... (867,752)
----------
$ (341,277)
==========
- ------------------------------------------------------------------------------------------------------
* Nonincome-producing securities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
February 29, 2000
ASSETS
Investments, at value (Cost $5,154,247) (Note 1) ............... $4,812,970
Receivable for securities sold ................................. 42,950
Dividends and interest receivable .............................. 9,031
Receivable from Distributor (Note 3) ........................... 2,368
----------
4,867,319
LIABILITIES
Accrued transfer agent and shareholder services (Note 2) ....... 14,169
Accrued trustees' fees (Note 2) ................................ 8,993
Accrued management fee (Note 2) ................................ 3,183
Accrued distribution and service fees (Note 5) ................. 1,009
Payable to custodian ........................................... 1,055
Other accrued expenses ......................................... 72,718
----------
101,127
----------
NET ASSETS $4,766,192
==========
Net Assets consist of:
Undistributed net investment income .......................... $ 5,100
Unrealized depreciation of investments ....................... (341,277)
Accumulated net realized gain ................................ 25,742
Paid-in capital .............................................. 5,076,627
----------
$4,766,192
==========
Net Asset Value and redemption price per share of Class A shares
($4,766,192 / 539,512 shares) ................................ $8.83
=====
Maximum Offering Price per share of Class A shares ($8.83 / .9425) $9.37
=====
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended February 29, 2000
INVESTMENT INCOME
Dividends ...................................................... $ 152,972
Interest ....................................................... 4,587
----------
157,559
EXPENSES
Custodian fee .................................................. 119,280
Management fee (Note 2) ........................................ 40,515
Legal fees ..................................................... 37,409
Reports to shareholders ........................................ 27,438
Audit fee ...................................................... 26,186
Trustees' fees (Note 2) ........................................ 20,065
Transfer agent and shareholder services (Note 2) ............... 14,169
Service fee - Class A (Note 5) ................................. 3,097
Distribution and service fees - Class B(1) (Note 5) ............ 4,219
Distribution and service fees - Class B (Note 5) ............... 4,219
Distribution and service fees - Class C (Note 5) ............... 4,219
Miscellaneous .................................................. 7,633
----------
308,449
Fees paid indirectly (Note 2) .................................. (31)
Expenses borne by the Distributor (Note 3) ..................... (234,424)
----------
73,994
----------
Net investment income .......................................... 83,565
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments (Notes 1 and 4) ............... 63,457
Net unrealized depreciation of investments ..................... (61,462)
----------
Net gain on investments ........................................ 1,995
----------
Net increase in net assets resulting from operations ........... $ 85,560
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
- ---------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------
NOVEMBER 30, 1998
(COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED
FEBRUARY 28, 1999 FEBRUARY 29, 2000
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ........................................... $ 21,418 $ 83,565
Net realized gain on investments ................................ 87 63,457
Net unrealized depreciation of investments ...................... (279,815) (61,462)
---------- ----------
Net increase (decrease) resulting from operations ............... (258,310) 85,560
---------- ----------
Dividend from net investment income:
Class A ....................................................... -- (11,220)
Class B(1) .................................................... -- (6,291)
Class B ....................................................... -- (6,291)
Class C ....................................................... -- (6,291)
Class S ....................................................... -- (70,467)
---------- ----------
-- (100,560)
---------- ----------
Distribution from net realized gains:
Class A ....................................................... -- (4,466)
Class B(1) .................................................... -- (4,135)
Class B ....................................................... -- (4,135)
Class C ....................................................... -- (4,135)
Class S ....................................................... -- (24,802)
---------- ----------
-- (41,673)
---------- ----------
Net increase from fund share
transactions (Note 6) ......................................... 5,030,775 50,400
---------- ----------
Total increase (decrease) in net assets ......................... 4,772,465 (6,273)
NET ASSETS
Beginning of year ............................................... -- 4,772,465
---------- ----------
End of year (including undistributed net investment income of
$23,322 and $5,100, respectively) ............................. $4,772,465 $4,766,192
========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
February 29, 2000
NOTE 1
State Street Research IntelliQuant Portfolios: Small-Cap Value (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 six
separate funds: State Street Research IntelliQuant Portfolios: Small-Cap
Value, State Street Research Health Sciences Fund, State Street Research
Government Income Fund, State Street Research Strategic Income Plus Fund,
State Street Research Strategic Portfolios: Aggressive and State Street
Research International Equity Fund.
The investment objective of the Fund is to provide high total return,
consisting principally of capital appreciation. Under normal market
conditions, the fund invests primarily in small company value stocks. These
may include common and preferred stocks, convertible securities and warrants.
In managing the Fund's portfolio, the investment manager uses a disciplined
quantitative investment strategy.
The Fund offers five classes of shares. Effective December 29, 1999, the Fund
discontinued offering Class B(1), Class B, Class C and Class S shares. Only
Class A shares are presently available for purchase. Class A shares are
subject to an initial sales charge of up to 5.75% and an annual service fee
equal to 0.25% of average daily net assets. Class B(1) and Class B shares pay
annual distribution and service fees of 1.00% and 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 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 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 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 the closing price supplied
through such system. In the absence of recorded sales and for those over-the-
counter securities not quoted on the NASDAQ system, valuations are at the mean
of the closing bid and asked quotations. Short-term securities maturing within
sixty days are valued at amortized cost. Other securities, if any, are valued
at their fair value as determined in accordance with established methods
consistently applied.
B. SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. NET INVESTMENT INCOME
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to
it, while indirect expenses are allocated among all funds in the Trust.
D. DIVIDENDS
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. FEDERAL INCOME TAXES
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a twelve-
month period ending October 31. In this connection, the Fund is permitted to
defer into its next fiscal year any net capital losses incurred between each
November 1 and the end of its fiscal year. From November 1, 1999 through
February 29, 2000, the Fund incurred net capital losses of approximately
$49,000 and it intends to defer and treat such losses as arising in the fiscal
year ended February 28, 2001.
F. ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
G. SECURITIES LENDING
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. 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. During the year ended February 29, 2000, there were no loaned
securities.
NOTE 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.80% 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 February 29, 2000, the fees
pursuant to such agreement amounted to $40,515.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended February 29, 2000, the amount of
such expenses was $9,371.
The Fund has entered into an arrangement with its transfer agent whereby
credits realized as a result of uninvested cash balances were used to reduce a
portion of the Fund's expense. During the year ended February 29, 2000 the
Fund's transfer agent fees were reduced by $31 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$20,065 during the year ended February 29, 2000.
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 February 29, 2000, the amount of such expenses
assumed by the Distributor and its affiliates was $234,424.
NOTE 4
For the year ended February 29, 2000, purchases and sales of securities,
exclusive of short-term obligations, aggregated $4,809,268 and $4,740,999,
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 services 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 year ended February 29,
2000, fees pursuant to such plans amounted to $3,097 for Class A. For the
period March 1, 1999 to December 29, 1999, fees pursuant to such plans
amounted to $4,219, $4,219 and $4,219 for Class B(1), Class B and Class C
shares, respectively.
NOTE 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At February 29, 2000,
Metropolitan owned 535,120 shares of Class A of the Fund.
NOVEMBER 30, 1998
(COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED
FEBRUARY 28, 1999 FEBRUARY 29, 2000
------------------- -----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold .................... 56,370 $ 530,175 482,991 $ 4,548,236
Issued upon reinvestment of:
Dividend from net investment
income ..................... -- -- 147 1,319
Distribution from net realized
gains ...................... -- -- 510 4,466
Shares redeemed ................ -- -- (506) (4,857)
------- ---------- ------- -----------
Net increase ................... 56,370 $ 530,175 483,142 $ 4,549,164
======= ========== ======= ===========
CLASS B(1) SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold .................... 53,038 $ 500,150 -- $ --
Issued upon reinvestment of
distribution from net realized
gains ........................ -- -- 472 4,135
Shares redeemed ................ -- -- (53,510) (504,081)
------- ---------- ------- -----------
Net increase (decrease) ........ 53,038 $ 500,150 (53,038) $ (499,946)
======= ========== ======= ===========
CLASS B SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold .................... 53,038 $ 500,150 -- $ --
Issued upon reinvestment of
distribution from net realized
gains ........................ -- -- 472 4,135
Shares redeemed ................ -- -- (53,510) (504,081)
------- ---------- ------- -----------
Net increase (decrease) ........ 53,038 $ 500,150 (53,038) $ (499,946)
======= ========== ======= ===========
CLASS C SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold .................... 53,038 $ 500,150 -- $ --
Issued upon reinvestment of
distribution from net realized
gains ........................ -- -- 472 4,135
Shares redeemed ................ -- -- (53,510) (504,081)
------- ---------- ------- -----------
Net increase (decrease) ........ 53,038 $ 500,150 (53,038) $ (499,946)
======= ========== ======= ===========
CLASS S SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Shares sold .................... 318,149 $3,000,150 -- $ --
Issued upon reinvestment of
distribution from net realized
gains ........................ -- -- 2,832 24,802
Shares redeemed ................ -- -- (320,981) (3,023,728)
------- ---------- ------- -----------
Net increase (decrease) ........ 318,149 $3,000,150 (318,149) $(2,998,926)
======= ========== ======= ===========
<PAGE>
<TABLE>
<CAPTION>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period:
CLASS A CLASS B(1)
------------------------------------------------ ---------------------------------------------
NOVEMBER 30, 1998 NOVEMBER 30, 1998
(COMMENCEMENT OF (COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED OPERATIONS) TO MARCH 1, 1999 TO
FEBRUARY 28, 1999(a) FEBRUARY 29, 2000(a) FEBRUARY 28, 1999(a) DECEMBER 29, 1999(a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ($) 9.43 8.95 9.43 8.93
----- ----- ----- -----
Net investment income ($)* 0.04 0.12 0.02 0.08
Net realized and unrealized
gain (loss) on investments ($) (0.52) 0.04 (0.52) 0.17
----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) (0.48) 0.16 (0.50) 0.25
----- ----- ----- -----
Dividend from net investment
income ($) -- (0.20) -- (0.12)
Distribution from net realized
gains ($) -- (0.08) -- (0.08)
----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) -- (0.28) -- (0.20)
----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD ($) 8.95 8.83 8.93 8.98
===== ===== ===== =====
Total return(b) (%) (5.09)(c) 1.72 (5.30)(c) 2.80(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($
thousands) 504 4,766 474 480
Ratio of operating expenses to
average net assets (%)* 1.40(d) 1.40 2.15(d) 2.15(d)
Ratio of operating expenses to
average net assets after
expense reductions (%)* 1.40(d) 1.40 2.15(d) 2.15(d)
Ratio of net investment income
to average net assets (%)* 1.83(d) 1.56 1.09(d) 1.01(d)
Portfolio turnover rate (%) 0.66 95.91 0.66 95.91
*Reflects voluntary reduction of
expenses per share of these
amounts (Note 3) ($) 0.19 0.16 0.19 0.43
<CAPTION>
CLASS B CLASS C
---------------------------------------------- ----------------------------------------------
NOVEMBER 30, 1998 NOVEMBER 30, 1998
(COMMENCEMENT OF (COMMENCEMENT OF
OPERATIONS) TO MARCH 1, 1999 TO OPERATIONS) TO MARCH 1, 1999 TO
FEBRUARY 28, 1999(a) DECEMBER 29, 1999(a) FEBRUARY 28, 1999(a) DECEMBER 29, 1999(a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD ($) 9.43 8.93 9.43 8.93
----- ----- ----- -----
Net investment income ($)* 0.02 0.08 0.02 0.08
Net realized and unrealized
gain (loss) on investments ($) (0.52) 0.17 (0.52) 0.17
----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS ($) (0.50) 0.25 (0.50) 0.25
----- ----- ----- -----
Dividend from net investment
income ($) -- (0.12) -- (0.12)
Distribution from net realized
gains ($) -- (0.08) -- (0.08)
----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) -- (0.20) -- (0.20)
----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD ($) 8.93 8.98 8.93 8.98
===== ===== ===== =====
Total return(b) (%) (5.30)(c) 2.80(c) (5.30)(c) 2.80(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period
($ thousands) 474 480 474 480
Ratio of operating expenses to
average net assets (%)* 2.15(d) 2.15(d) 2.15(d) 2.15(d)
Ratio of operating expenses to
average net assets
after expense reductions (%)* 2.15(d) 2.15(d) 2.15(d) 2.15(d)
Ratio of net investment income
to average net assets (%)* 1.09(d) 1.01(d) 1.09(d) 1.01(d)
Portfolio turnover rate (%) 0.66 95.91 0.66 95.91
*Reflects voluntary reduction of
expenses per share of these
amounts (Note 3) ($) 0.19 0.43 0.19 0.44
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Per share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
(c) Not annualized
(d) Annualized
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
- ----------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
- ----------------------------------------------------------------------------------------------
CLASS S
----------------------------------------------
NOVEMBER 30, 1998
(COMMENCEMENT OF
OPERATIONS) TO MARCH 1, 1999 TO
FEBRUARY 28, 1999(a) DECEMBER 29, 1999(a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 9.43 8.95
---- ----
Net investment income ($)* 0.05 0.16
Net realized and unrealized gain
(loss) on investments ($) (0.53) 0.17
---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) (0.48) 0.33
---- ----
Dividend from net investment income ($) -- (0.22)
Distribution from net realized gains ($) -- (0.08)
---- ----
TOTAL DISTRIBUTIONS ($) -- (0.30)
---- ----
NET ASSET VALUE, END OF PERIOD ($) 8.95 8.98
==== ====
Total return(b) (%) (5.09)(c) 3.62(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 2,848 2,880
Ratio of operating expenses to average net
assets (%)* 1.15(d) 1.15(d)
Ratio of operating expenses to average net
assets after expense reductions (%)* 1.15(d) 1.15(d)
Ratio of net investment income to average net
assets (%)* 2.09(d) 2.01(d)
Portfolio turnover rate (%) 0.66 95.91
*Reflects voluntary reduction of expenses per
share of these amounts (Note 3) ($) 0.19 0.44
- ------------------------------------------------------------------------------
(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
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF STATE STREET RESEARCH FINANCIAL TRUST
AND THE SHAREHOLDERS OF STATE STREET RESEARCH
INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
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
IntelliQuant Portfolios: Small-Cap Value (a series of State Street Research
Financial Trust, hereafter referred to as the "Trust") at February 29, 2000,
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 February 29, 2000 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 7, 2000
<PAGE>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research IntelliQuant Portfolios: Small-Cap Value
had a disappointing year. The total return for the fund's Class A shares was
1.72% for the 12 months ended February 29, 2000 (does not reflect sales
charge). The fund underperformed the average small-cap value fund tracked by
Lipper, which rose 17.27% and the Russell 2000 Value Index, which returned
11.80% for the same period.
Technology stocks were among the fund's strongest performers. Insurance stocks
hindered performance as the impact of rising interest rates brought share
prices down. Overall, the fund was hurt by the market's preference for large-
cap growth stocks during most of the period. Small-cap value stocks remained
out of favor. We did not change our investment strategy, and the portfolio's
emphasis on value stocks put the fund in a good position to benefit if the
market continues to broaden in the period ahead.
February 29, 2000
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
gains distributions and income dividends at net asst value. Performance
reflects a maximum 5.75% Class A share front-end sales charge. The Russell
2000 Value Index is an unmanaged index of 2000 U.S. stocks. The index does not
take transaction charges into consideration. It is not possible to invest
directly in the index.
CHANGE IN VALUE OF $10,000
BASED ON THE RUSSELL 2000 VALUE INDEX
COMPARED TO CHANGE IN VALUE OF $10,000
INVESTED IN INTELLIQUANT PORTFOLIOS:
SMALL-CAP VALUE FUND
Intelliquant
Portfolios: Russell 2000 S&P 500
Small-Cap Value Value Index Index
- --------------------------------------------------------------------------------
11/98 $ 9,425 $10,000 $10,000
2/99 8,945 9,391 10,676
2/00 9,099 10,499 11,927
A Special Meeting of Shareholders of State Street Research IntelliQuant
Portfolios: Small-Cap Value ("Fund"), a series of State Street Research
Financial Trust, was convened on February 25, 2000 ("Meeting"). The results of
the Meeting are set forth below.
<TABLE>
<CAPTION>
VOTES (THOUSANDS OF SHARES)
------------------------------------------
ACTION ON PROPOSAL FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES
The Fund's current Rule 12b-1 Distribution Plan was amended to increase the amount that
may be expended for the distribution of Class A shares .............................. 56.9 0 0
CLASS B SHARES
The Fund's current Rule 12b-1 Distribution Plan was amended to increase the amount that
may be expended for the distribution of Class A shares .............................. 53.0 0 0
CLASS B(1) SHARES
The Fund's current Rule 12b-1 Distribution Plan was amended to increase the amount that
may be expended for the distribution of Class A shares .............................. 53.0 0 0
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
- -------------------------------------------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH EXCHANGE TRUST
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FUND INFORMATION OFFICERS TRUSTEES
STATE STREET RESEARCH RALPH F. VERNI RALPH F. VERNI
INTELLIQUANT PORTFOLIOS: Chairman of the Board, Chairman of the Board,
SMALL-CAP VALUE President and President, Chief Executive
One Financial Center Chief Executive Officer Officer and Director,
Boston, MA 02111 State Street Research &
PETER C. BENNETT Management Company
INVESTMENT ADVISER Vice President
State Street Research & BRUCE R. BOND
Management Company JOHN R. BORZILLERI, M.D. Former Chairman of the Board
One Financial Center Vice President Chief Executive Officer and
Boston, MA 02111 President, PictureTel Corporation
JOHN H. KALLIS
DISTRIBUTOR Vice President STEVE A. GARBAN
State Street Research Former Senior Vice President
Investment Services, Inc. THOMAS P. MOORE, JR. for Finance and Operations and
One Financial Center Vice President Treasurer, The Pennsylvania
Boston, MA 02111 State University
E.K. EASTON RAGSDALE, JR.
SHAREHOLDER SERVICES Vice President DEAN O. MORTON
State Street Research Former Executive Vice President
Service Center THOMAS A. SHIVELY Chief Operating Officer
P.O. Box 8408 Vice President and Director, Hewlett-Packard
Boston, MA 02266-8408 Company
1-800-562-0032 JAMES M. WEISS
Vice President SUSAN M. PHILLIPS
CUSTODIAN Dean, School of Business and
State Street Bank and KENNARD WOODWORTH, JR. Public Management, George
Trust Company Vice President Washington University; former
225 Franklin Street Member of the Board of Governors
Boston, MA 02110 GERARD P. MAUS of the Federal Reserve System and
Treasurer Chairman and Commissioner of
LEGAL COUNSEL the Commodity Futures Trading
Goodwin, Procter & Hoar LLP JOSEPH W. CANAVAN Commission
Exchange Place Assistant Treasurer
Boston, MA 02109 TOBY ROSENBLATT
DOUGLAS A. ROMICH President,
INDEPENDENT ACCOUNTANTS Assistant Treasurer Founders Investments Ltd.
PricewaterhouseCoopers LLP President,
160 Federal Street FRANCIS J. MCNAMARA, III The Glen Ellen Company
Boston, MA 02110 Secretary and General Counsel
MICHAEL S. SCOTT MORTON
DARMAN A. WING Jay W. Forrester Professor of
Assistant Secretary and Management, Sloan School of
Assistant General Counsel Management, Massachusetts
Institute of Technology
AMY L. SIMMONS
Assistant Secretary
</TABLE>
<PAGE>
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL-CAP VALUE
One Financial Center
Boston, MA 02111
STATE STREET RESEARCH
[75 YEARS logo]
LASTING VALUE
- -------------
LEADING IDEAS
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
[logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
This report must be accompanied or preceded by a current State Street Research
Intelliquant Portfolios: Small-Cap Value prospectus. When used after June 30,
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: (exp0401)SSR-LD IQ-1537-0400
<PAGE>
- -------------------------------------------------------------------------------
STATE STREET RESEARCH
- -------------------------------------------------------------------------------
HEALTH SCIENCES FUND
--------------------
ANNUAL REPORT
February 29, 2000
--------------------
WHAT'S INSIDE
--------------------
INVESTMENT UPDATE
About the fund,
economy and markets
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
-------------------
[DALBAR LOGO]
-------------------
For Excellence
in
Service
[LOGO] STATE STREET RESEARCH
<PAGE>
INVESTMENT ENVIRONMENT
THE ECONOMY
o The U.S. economy grew at a robust rate of 4.4% in 1999, and showed no signs of
slowing down during the first quarter of 2000.
o Energy prices boosted inflation from 1.6% one year ago to 3.2% by the end of
the period. However, inflation ex-energy actually fell as productivity gains
offset wage increases.
o The Federal Reserve Board raised short-term interest rates by another 1/4% in
February, bringing the federal funds rate to 5.75%.
THE MARKETS
o The S&P 500, a broad measure of common stock performance, fell -1.34% for the
three-month period ended February 29, 2000.(1) Most of the gains belonged to a
narrow band of technology stocks, which were especially volatile near the end
of the period.
o The bond market was hurt by growing concerns about inflation, which translated
into higher interest rates and lower bond prices. However, most bonds earned
modest gains. Municipal and high-yield bonds were among the best performers.
THE FUND
SINCE THE FUND'S INCEPTION
o Health Sciences Fund returned 33.30% from inception on December 21, 1999
through February 29, 2000 (does not reflect sales charge). The fund underper-
formed the Lipper Health/Biotechnology Funds Average, which returned 35.81%.
o The fund was helped by a surge in biotechnology stocks, especially small-cap
biotech companies and those associated with genomics.
o The fund's investments in large-cap pharmaceutical and health care services
companies hindered performance.
CURRENT STRATEGY
o The fund is positioned to benefit from advances in biotechnology as well as a
rebound in large-cap pharmaceutical companies. The manager has diversified the
fund's investments across the health care industries, with an emphasis on
large-cap pharmaceutical and health care services.
February 29, 2000
(1) The S&P 500 (officially the "Standard and Poor's 500 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) 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 gains distributions and income dividends at net asset value.
(3) Performance reflects a maximum 5.75% Class A share front-end sales charge.
(4) Aggregate total return; not annualized.
PLEASE NOTE THAT THE DISCUSSION THROUGHOUT THIS SHAREHOLDER REPORT IS DATED AS
INDICATED AND, BECAUSE OF POSSIBLE CHANGES IN VIEWPOINT, DATA AND TRANSACTIONS
SHOULD NOT BE RELIED UPON AS BEING CURRENT THEREAFTER.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended February 29, 2000 except as
otherwise noted)
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN(2),(3),(4)
(at maximum applicable sales charge)
- --------------------------------------------------------------------
LIFE OF FUND
(since 12/21/99)
- --------------------------------------------------------------------
Class A 25.63%
- --------------------------------------------------------------------
AGGREGATE TOTAL RETURN(2),(3),(4)
for period ended 3/31/2000
(at maximum applicable sales charge)
- ---------------------------------------------------------------------
Class A 12.44%
- ---------------------------------------------------------------------
Performance results for the fund are increased by the voluntary reduction of
fund fees and expenses; without subsidization, performance would have been
lower.
TOP 10 STOCK POSITIONS
(by percentage of net assets)
1 MEDAREX Therapeutics 5.9%
2 MONSANTO Agricultural biotechnology 5.2%
3 PHARMACIA & UPJOHN Medical-drugs 4.3%
4 GENZYME Medical instruments 4.2%
5 WATERS Scientific instruments 4.2%
6 AMGEN Medical biomedical/gene 4.1%
7 LYNX THERAPEUTICS Medical biomedical/gene 4.1%
8 ALZA Drug delivery systems 4.0%
9 ARADIGM Drug delivery systems 4.0%
10 BIOMARIN PHARMACEUTICAL Therapeutics 4.0%
These securities represent an aggregate of 44.0% of the portfolio. Because of
active management, there is no guarantee that the fund currently invests, or
will continue to invest, in the securities listed in this table or in the text
above.
TOP 5 INDUSTRIES
(by percentage of net assets)
DRUGS & BIOTECHNOLOGY 73.5%
HOSPITAL SUPPLY 8.6%
MULTI-SECTOR 5.2%
INDUSTRIAL PRODUCTS 4.1%
HEALTH CARE SERVICES 2.6%
Total: 94.0%
<PAGE>
<TABLE>
STATE STREET RESEARCH HEALTH SCIENCES FUND
- ------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------
February 29, 2000
<CAPTION>
- ------------------------------------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 95.8%
FINANCIAL SERVICES 1.8%
INSURANCE 1.8%
Cigna Corp. ........................................................ 400 $ 29,525
----------
Total Financial Services .......................................... 29,525
----------
HEALTH CARE 84.7%
DRUGS & BIOTECHNOLOGY 73.5%
Abbott Laboratories Inc. ........................................... 1,300 42,575
Allergan Inc. ...................................................... 400 20,125
Alza Corp.* ........................................................ 1,800 66,037
Amgen Inc.* ........................................................ 1,000 68,187
Andrx Corp.* ....................................................... 200 19,213
ArQule, Inc.* ...................................................... 500 17,750
AstraZeneca Group PLC ADR .......................................... 800 26,500
Baxter International Inc. .......................................... 700 38,150
BioMarin Pharmaceutical Inc.* ...................................... 2,100 65,625
Creative BioMolecules, Inc.* ....................................... 900 17,325
Diversa Corp.* ..................................................... 100 13,350
Genzyme Corp.* ..................................................... 1,200 68,925
Gilead Sciences, Inc.* ............................................. 300 22,950
ICN Pharmaceuticals Inc. ........................................... 1,600 31,800
IDEC Pharmaceuticals Corp.* ........................................ 300 42,263
ILEX Oncology Inc.* ................................................ 500 24,188
Lynx Therapeutics, Inc.* ........................................... 700 67,200
Maxim Pharmaceuticals Inc.* ........................................ 200 15,050
Medarex, Inc.* ..................................................... 600 97,500
Pfizer Inc. ........................................................ 1,600 51,400
Pharmacia & Upjohn Inc. ............................................ 1,500 71,437
Priority Healthcare Corp. Cl. B* ................................... 400 19,200
QLT PhotoTherapeutics Inc.* ........................................ 400 28,550
Sangstat Medical Corp.* ............................................ 1,100 47,575
Schering-Plough Corp. .............................................. 1,400 48,825
Sequenom Inc.* ..................................................... 100 11,763
Teva Pharmaceutical Industries Ltd. ADR ............................ 800 34,500
Triangle Pharmaceuticals Inc.* ..................................... 600 13,725
Urogen Corp.* ...................................................... 3,800 56,762
Warner-Lambert Co. ................................................. 600 51,337
Watson Pharmaceuticals Inc.* ....................................... 400 16,000
----------
1,215,787
----------
HEALTH CARE SERVICES 2.6%
Accredo Health Inc.* ............................................... 400 11,800
Express Scripts Inc. Cl. A* ........................................ 400 18,425
Wellpoint Health Networks Inc. Cl. A* .............................. 200 13,500
----------
43,725
----------
HOSPITAL SUPPLY 8.6%
Aradigm Corp.* ..................................................... 2,000 66,000
Aspect Medical Systems Inc. ........................................ 100 6,588
Bausch & Lomb Inc. ................................................. 300 15,825
Genzyme Surgical Products Corp.* ................................... 1,000 12,625
Guidant Corp.* ..................................................... 500 33,687
Novoste Corp.* ..................................................... 200 7,300
----------
142,025
----------
Total Health Care ................................................. 1,401,537
----------
OTHER 5.2%
MULTI-SECTOR 5.2%
Monsanto Co. ....................................................... 2,200 85,388
----------
Total Other ....................................................... 85,388
----------
PRODUCER DURABLES 4.1%
INDUSTRIAL PRODUCTS 4.1%
Waters Corp.* ...................................................... 700 68,644
----------
Total Producer Durables ........................................... 68,644
----------
Total Common Stocks and Investments
(Cost $1,251,036) - 95.8% ....................................... 1,585,094
Cash and Other Assets, Less Liabilities - 4.2% .................... 68,962
----------
Net Assets - 100.0% ............................................... $1,654,056
==========
Federal Income Tax Information:
At February 29, 2000, the net unrealized appreciation of investments based on cost
for Federal income tax purposes of $1,256,359 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost ................................................... $ 358,098
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value .................................................... (29,363)
----------
$ 328,735
==========
- ------------------------------------------------------------------------------------------------------
* Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of foreign securities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
February 29, 2000
ASSETS
Investments, at value (Cost $1,251,036) (Note 1) ............... $1,585,094
Cash ........................................................... 134,516
Receivable for securities sold ................................. 57,301
Dividends and interest receivable .............................. 538
Other assets ................................................... 20,271
----------
1,797,720
LIABILITIES
Payable for securities purchased ............................... 129,106
Accrued management fee (Note 2) ................................ 1,105
Accrued trustees' fees (Note 2) ................................ 500
Accrued service fee (Note 5) ................................... 368
Accrued transfer agent and shareholder services (Note 2) ....... 144
Other accrued expenses ......................................... 12,441
----------
143,664
----------
NET ASSETS ..................................................... $1,654,056
==========
Net Assets consist of:
Undistributed net investment income .......................... $ 273
Unrealized appreciation of investments ....................... 334,058
Accumulated net realized gain ................................ 37,931
Paid-in capital .............................................. 1,281,794
----------
$1,654,056
==========
Net Asset Value and redemption price per share of Class A shares
($1,654,056 / 124,073 shares) ................................ $13.33
======
Maximum Offering Price per share of Class A shares ($13.33 / .9425) $14.14
======
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period December 21, 1999
(commencement of operations) to February 29, 2000
INVESTMENT INCOME
Dividends ...................................................... $ 1,387
Interest ....................................................... 1,850
----------
3,237
EXPENSES
Audit fee ...................................................... 12,816
Management fee (Note 2) ........................................ 1,778
Custodian fee .................................................. 6,240
Reports to shareholders ........................................ 1,056
Service fee-Class A (Note 5) ................................... 593
Trustees' fees (Note 2) ........................................ 500
Transfer agent and shareholder services (Note 2) ............... 144
Miscellaneous .................................................. 700
----------
23,827
Expenses borne by the Distributor (Note 3) ..................... (20,270)
----------
3,557
----------
Net investment loss ............................................ (320)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments (Notes 1 and 4) ............... 37,931
Net unrealized appreciation of investments ..................... 334,058
----------
Net gain on investments ........................................ 371,989
----------
Net increase in net assets resulting from operations ........... $ 371,669
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period December 21, 1999
(commencement of operations) to February 29, 2000
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss ............................................ $ (320)
Net realized gain on investments ............................... 37,931
Net unrealized appreciation of investments ..................... 334,058
----------
Net increase resulting from operations ......................... 371,669
----------
Share transactions (Note 7):
Proceeds from sale of shares ................................... 1,282,387
----------
Net increase from fund share transactions ...................... 1,282,387
----------
Total increase in net assets ................................... 1,654,056
NET ASSETS
Beginning of period ............................................ --
----------
End of period (including undistributed net investment income
of $273) ..................................................... $1,654,056
==========
Number of shares:
Sold ........................................................... 124,073
----------
Net increase in fund shares .................................... 124,073
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1
State Street Research Health Sciences Fund (the "Fund"), is a series of State
Street Research Financial Trust (the "Trust"), which was organized as a
Massachusetts business trust in November, 1986 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Trust consists presently of six separate funds: State
Street Research Health Sciences Fund, State Street Research IntelliQuant
Portfolios: Small-Cap Value, State Street Research Government Income Fund,
State Street Research Strategic Income Plus Fund, State Street Research
Strategic Portfolios: Aggressive and State Street Research International
Equity Fund.
The investment objective of the Fund is to provide long-term growth of
capital. Under normal market conditions, the Fund invests at least 65% of
total assets in securities of companies in health sciences and related
industries. These may include common and preferred stocks, convertible
securities, warrants and depositary receipts.
The Fund offers five classes of shares. Only Class A shares are presently
available for purchase. Class B(1), Class B, Class C, and Class S 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 equal to 0.25% of average
daily net assets. Class B(1) and Class B shares pay annual distribution and
service fees of 1.00% and 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 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 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 ("MetLife"), 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 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 the closing price supplied
through such system. In the absence of recorded sales and for those over-the-
counter securities not quoted on the NASDAQ system, valuations are at the mean
of the closing bid and asked quotations. Short-term securities maturing within
sixty days are valued at amortized cost. Other securities, if any, are valued
at their fair value as determined in accordance with established methods
consistently applied.
B. SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. NET INVESTMENT INCOME
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to
it, while indirect expenses are allocated among all funds in the Trust.
D. DIVIDENDS
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gains distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. FEDERAL INCOME TAXES
No provision for Federal income taxes is necessary because the Fund 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. ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
G. SECURITIES LENDING
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. 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. During the period December 21, 1999 (commencement of operations) to
February 29, 2000, there were no loaned securities.
NOTE 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.75% 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 period December 21, 1999 (commencement of
operations) to February 29, 2000, the fees pursuant to such agreement amounted
to $1,778.
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 MetLife, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the period December 21, 1999 (commencement of
operations) to February 29, 2000, the amount of such expenses was $56.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$500 during the period December 21, 1999 (commencement of operations) to
February 29, 2000.
NOTE 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the period December 21, 1999 (commencement of operations) to
February 29, 2000, the amount of such expenses assumed by the Distributor and
its affiliates was $20,270.
The Fund has adopted a plan to limit the Fund's expenses to certain annual
limits. Under the plan, the overall expenses for the Fund will not fall below
the percentage limitation until the Distributor has been fully reimbursed for
fees and expenses paid by the Distributor. The Fund will reimburse the
Distributor in subsequent years when operating expenses (before reimbursement)
are less than the applicable percentage limitations.
NOTE 4
For the period December 21, 1999 (commencement of operations) to February 29,
2000, purchases and sales of securities, exclusive of short-term obligations,
aggregated $1,772,149 and $559,044, 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 services 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 December 21, 1999 (commencement of operations) to February 29,
2000, fees pursuant to such plans amounted to $593 for Class A shares.
NOTE 6
Under normal market conditions the Fund invests not less than 65% of its total
assets in equity securities of domestic and foreign companies in the health
sciences and related industries. Also, the Fund may invest up to 35% of its
total assets in the securities of issuers in industries that are not related
to the health sciences. Accordingly, the Fund's investments will fluctuate in
response to a variety of economic, political and other factors peculiar to the
health sciences and may fluctuate more widely than a portfolio that invests in
a broader range of industries.
NOTE 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At February 29, 2000, the
Adviser owned one Class A share and MetLife owned 100,000 Class A shares of
the Fund.
STATE STREET RESEARCH HEALTH SCIENCES FUND
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
For a share outstanding from December 21, 1999 (commencment of operations) to
February 29, 2000(a)
CLASS A
- -------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00
-- -----
Net investment loss ($)* (0.00)
Net realized and unrealized gain on investments ($) 3.33
-- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 3.33
-- -----
NET ASSET VALUE, END OF PERIOD ($) 13.33
=====
Total return(b) (%) 33.30(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 1,654
Ratio of operating expenses to average net assets (%)* 1.50(d)
Ratio of net investment loss to average net assets (%)* (0.13)(d)
Portfolio turnover rate (%) 44.48
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.18
- -------------------------------------------------------------------------------
(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
<PAGE>
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REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
TO THE TRUSTEES OF STATE STREET RESEARCH FINANCIAL TRUST
AND THE SHAREHOLDERS OF STATE STREET RESEARCH
HEALTH SCIENCES 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 Health
Sciences Fund (a series of State Street Research Financial Trust, hereafter
referred to as the "Trust") at February 29, 2000, and the results of its
operations, the changes in its net assets and the financial highlights for the
period from December 21, 1999 (commencement of operations) to February 29, 2000,
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 February 29, 2000 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 7, 2000
<PAGE>
<TABLE>
STATE STREET RESEARCH HEALTH SCIENCES FUND
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FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH EXCHANGE TRUST
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FUND INFORMATION OFFICERS TRUSTEES
STATE STREET RESEARCH RALPH F. VERNI RALPH F. VERNI
HEALTH SCIENCES 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 BRUCE R. BOND
One Financial Center JOHN R. BORZILLERI, M.D. Former Chairman of the Board
Boston, MA 02111 Vice President Chief Executive Officer and
President, PictureTel Corporation
DISTRIBUTOR JOHN H. KALLIS
State Street Research Vice President STEVE A. GARBAN
Investment Services, Inc. Former Senior Vice President
One Financial Center THOMAS P. MOORE, JR. for Finance and Operations and
Boston, MA 02111 Vice President Treasurer, The Pennsylvania
State University
SHAREHOLDER SERVICES E.K. EASTON RAGSDALE, JR.
State Street Research Vice President DEAN O. MORTON
Service Center Former Executive Vice President
P.O. Box 8408 THOMAS A. SHIVELY Chief Operating Officer
Boston, MA 02266-8408 Vice President and Director, Hewlett-Packard
1-800-562-0032 Company
JAMES M. WEISS
CUSTODIAN Vice President SUSAN M. PHILLIPS
State Street Bank and Dean, School of Business and
Trust Company KENNARD WOODWORTH, JR. Public Management, George
225 Franklin Street Vice President Washington University; former
Boston, MA 02110 Member of the Board of Governors
GERARD P. MAUS of the Federal Reserve System and
LEGAL COUNSEL Treasurer Chairman and Commissioner of
Goodwin, Procter & Hoar LLP the Commodity Futures Trading
Exchange Place JOSEPH W. CANAVAN Commission
Boston, MA 02109 Assistant Treasurer
TOBY ROSENBLATT
INDEPENDENT ACCOUNTANTS DOUGLAS A. ROMICH President,
PricewaterhouseCoopers LLP Assistant Treasurer Founders Investments Ltd.
160 Federal Street President,
Boston, MA 02110 FRANCIS J. MCNAMARA, III The Glen Ellen Company
Secretary and General Counsel
MICHAEL S. SCOTT MORTON
DARMAN A. WING Jay W. Forrester Professor of
Assistant Secretary and Management, Sloan School of
Assistant General Counsel Management, Massachusetts
Institute of Technology
AMY L. SIMMONS
Assistant Secretary
</TABLE>
<PAGE>
STATE STREET RESEARCH HEALTH SCIENCES FUND
One Financial Center
Boston, MA 02111
STATE STREET RESEARCH
[75 YEARS logo]
LASTING VALUE
- -------------
LEADING IDEAS
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
[logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
This report must be accompanied or preceded by a current State Street Research
Health sciences Fund prospectus. When used after June 30, 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: (exp0401)SSR-LD HS-1588-0400
