State Street Research
INTERNATIONAL EQUITY FUND
ANNUAL REPORT
October 31, 1998
WHAT'S INSIDE
From the Chairman
From good news
to modest results
Portfolio Manager's Review
Europe drives international
stock markets higher
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar Logo]
HONORS COMMITMENT TO:
INVESTORS
1997
For Excellence
in
Shareholder Service
State Street Research Funds
<PAGE>
FROM THE CHAIRMAN
[PHOTO]
[Ralph F. Verni]
Dear Shareholder:
After nearly four years of uninterrupted good news, 1998 has produced more
modest results for investors. On the economic front, most indicators remain
positive: inflation is low; personal income has risen; and unemployment is
steady at about 4.5%. Consumer confidence has fallen slightly. Investors wavered
about the economy at home, while markets abroad sent stock prices down sharply
in the late summer. By the end of October, however, most major market indices
had rebounded, resulting in positive but single-digit returns for the year to
date.
Stocks
Earlier, the corporate profit picture was pessimistic. Financial stocks were
among the hardest hit, as announcements were made that big U.S. financial
institutions expected losses from loans to foreign markets. Technology
companies also lost ground on lower demand from Asia. Now both the S&P 500 and
the Nasdaq Composite have recovered and moved ahead. Small-company stocks
remained depressed.
Bonds
Bonds have benefited from the Federal Reserve Board's two successive, one-
quarter percent cuts in the federal funds rate. The yield on the bellwether
long-term Treasury bond fell below 5.0%. Although the yield has risen since,
high quality bonds have delivered attractive returns.
International
Indications that economic growth has slowed around the world, plus specific
concerns over Asia's woes, continued to bring returns down on most major
foreign exchanges. Even Europe, which had delivered strong gains, felt the
effects of Russia's currency problems and Japan's recession. As interest rates
converge in anticipation of the euro, Europe's new common currency in 1999,
Spain and Italy appear to be in the best position to grow. Germany and France
are the most likely to suffer.
Outlook and Opportunities
As investors, you may be asking where opportunities lie ahead. My answer is in
diversification--and in some of the markets that have been beaten down. But
every investor is different. Now is a good time to seek advice from your
financial professional. And as always, thank you for your confidence in State
Street Research funds.
Sincerely,
/s/ Ralph F. Verni
- ------------------
Ralph Verni
Chairman
October 31, 1998
(1)The S&P 500 (officially the "Standard and Poor's 500 Composite Stock Price
Index") is an unmanaged index of 500 U.S. stocks. The Morgan Stanley EAFE
(Europe, Australia, Far East) Index is a commonly used measure of international
stock market performance. The indices do not take transaction charges into
consideration. It is not possible to invest directly in the indices.
(2)8.62% for Class B shares; 8.62% for Class C shares; 9.78% for Class S shares.
(3)Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable.
(4)Class S shares, offered without a sales charge, are available through certain
employee benefit plans and special programs.
(5)The fund's returns include performance before the creation of share classes.
If this performance reflected the share classes' current 12b-1 fees, the fund's
returns may have been lower.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended October 31, 1998, except where
noted)
- --------------------------------------------------------------------------------
Total value of $10,000 invested on January 22, 1992(3)
(Class A shares, at maximum applicable sales charge)
[Mountain Chart Data]
<TABLE>
<S> <C>
01/92 9550
10/92 8389
10/93 12430
10/94 15213
10/95 13635
10/96 13460
10/97 13752
10/98 15051
</TABLE>
Average Annual Total Return for periods ended 9/30/98
(at maximum applicable sales charge)(3,4,5)
<TABLE>
<CAPTION>
- ---------------------------------------------------
Life of Fund
(since 1/22/92) 5 Years 1 Year
- ---------------------------------------------------
<S> <C> <C> <C>
Class A 5.19% 2.46% -10.20%
- ---------------------------------------------------
Class B 5.37% 2.33% -11.40%
- ---------------------------------------------------
Class C 5.37% 2.69% -7.67%
- ---------------------------------------------------
Class S 6.10% 3.66% -5.81%
- ---------------------------------------------------
</TABLE>
Average Annual Total Return
(at maximum applicable sales charge)(3,4,5)
<TABLE>
<CAPTION>
- ---------------------------------------------------
Life of Fund
(since 1/22/92) 5 Years 1 Year
- ---------------------------------------------------
<S> <C> <C> <C>
Class A 6.22% 2.95% 4.52%
- ---------------------------------------------------
Class B 6.38% 2.82% 3.62%
- ---------------------------------------------------
Class C 6.38% 3.17% 7.62%
- ---------------------------------------------------
Class S 7.13% 4.16% 9.78%
- ---------------------------------------------------
</TABLE>
Performance results for the Fund are increased by the voluntary reduction of
fees and expenses. Without subsidization, performance would have been lower.
<PAGE>
PORTFOLIO MANAGER'S REVIEW
International Equity Fund: Europe drives international stock markets higher
[PHOTO]
Tom Moore
Co-Portfolio Manager
We spoke with Tom Moore, co-portfolio manager of State Street Research
International Equity Fund, about performance for the year ended October 31,
1998, and his views on the period ahead.
Q: How did the Fund perform for the year?
A: It was a good year for the Fund. Class A shares returned 9.45% for the 12
months ended October 31, 1998 [does not reflect sales charge]2. That was
significantly higher than the Lipper average international fund, which returned
4.07%. The Fund performed in line with the Morgan Stanley Capital International
EAFE Index, which gained 9.65% for the same period.1
Q: What factors helped the Fund's performance?
A: European markets, where the Fund had its heaviest concentration during the
year, were strong performers during the first half of the year. And although
they weakened in the second half, these markets kept the Fund's returns near
the double-digit mark.
The Fund also benefited from an emphasis on pharmaceutical stocks. Four of the
portfolio's top 10 stocks were pharmaceutical companies. New products and more
effective products accounted for higher profits at companies such as Glaxo
Wellcome, Novartis, and Roche Holdings.
Our decision to underweight investments in Japan also helped the Fund. The
economic situation in Japan has gone from bad to worse, and Japan's stock
market has reflected the nation's recessionary climate.
Q: Were there any disappointments during the year?
A: The European Banking industry delivered attractive returns during the first
half of the year, then waned as the result of exposure to Russia. However, we
have maintained our investments in these equities because we expect the
weakness to be short-lived. BHF Bank in Germany, Banco Centrale and BBV Bank in
Spain are examples of the stocks above.
Q: Have there been any significant changes in the country allocation of the
portfolio?
A: Not in the past six months. The Fund's largest concentration is in the
United Kingdom. Although Japan is the second largest weighting, it's below the
weighting in the Fund's benchmark, the Morgan Stanley EAFE Index.
Q: Have you made any structural changes to the portfolio since you took over as
manager in October?
A: The portfolio was in very good shape when I took over. Any changes will be
evolutionary rather than revolutionary. We may reduce the number of stocks in
the portfolio over the next year. However, it will be a gradual process.
Q: How do you think the euro, Europe's new currency, will affect the business
prospects of European companies beginning in 1999?
A: I think the euro is already a very positive factor for European companies.
With a common currency, there will be pricing transparency across European
borders for the very first time and fewer restrictions on cross border
manufacturing and selling. That should allow companies to cut costs quite
dramatically.
Q: What is your outlook for the international equity markets?
A: I'm actually quite optimistic. I think that the concerns we had about Russia
and Eastern Europe, in terms of financial exposure, have been mitigated by the
concerted effort of the financial community to help them out of their malaise.
There are still uncertainties about the speed of recovery. But I have just
returned from a trip through China, Japan, Singapore, and Thailand, and we
believe that these nations are on the road to recovery. I think that proposed
reforms in Japan have the potential to help that economy after a 7-year
downturn. And finally, I expect modest growth in China next year. China's
currency appears to have stabilized. These factors, plus Europe's potential to
benefit from the euro, are all good signs for the world's equity markets.
October 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Comparison to EAFE Index
(by percentage of net assets)
<TABLE>
<CAPTION>
- ----------------------------------------------
International
Equity Fund EAFE
- ----------------------------------------------
<S> <C> <C>
Continental Europe 61% 50%
- ----------------------------------------------
UK 24% 22%
- ----------------------------------------------
Japan 9% 22%
- ----------------------------------------------
Other Far East 4% 6%
- ----------------------------------------------
Cash 1% 0%
- ----------------------------------------------
Non-EAFE 1% 0%
- ----------------------------------------------
</TABLE>
5 Largest Country Positions
(by percentage of net assets)
<TABLE>
<S> <C>
United
Kingdom 23.9%
France 12.5%
Germany 11.2%
Switzerland 9.0%
Japan 8.9%
Total: 65.5%
</TABLE>
Top 10 Portfolio Holdings
(by percentage of net assets)
<TABLE>
<S> <C>
1 Banca di Roma Italy 2.1%
2 Galxo Wellcome United Kingdom 2.1%
3 British Petroleum United Kingdom 1.9%
4 Roche Holdings Switzerland 1.9%
5 Novartis Switzerland 1.9%
6 Allianz Holdings Germany 1.8%
7 British Telecom United Kingdom 1.5%
8 Nestle Switzerland 1.4%
9 SmithKline Beecham United Kingdom 1.3%
10 Lloyds TSB Group United Kingdom 1.3%
</TABLE>
These securities represent an aggregate of 17.2% 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.
2
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
October 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.1%
Australia 1.2%
AMP Bank Ltd.* ................................ 12,400 $ 147,612
Broken Hill Proprietary Co. Ltd. .............. 18,200 154,812
National Australia Bank ....................... 12,400 164,418
Rio Tinto Ltd. ................................ 12,950 162,129
----------
628,971
----------
Austria 0.9%
Bank of Austria AG ............................ 4,570 248,649
EVN Energie-Versorgung AG ..................... 1,560 222,235
----------
470,884
----------
Bermuda 0.0%
Isleinvest Ltd.*+ ............................. 95,821 0
----------
Belgium 2.1%
Delhaize-Le Lion SA ........................... 3,730 318,561
GPE Bruxelles ................................. 1,880 348,617
Kredietbank ................................... 5,700 397,616
----------
1,064,794
----------
Canada 0.9%
AMR Technologies Inc .......................... 133,000 258,587
Ashurst Technology Ltd.+* ..................... 250,000 17,823
Kemgas Ltd.* .................................. 200,000 162,022
----------
438,432
----------
Denmark 0.8%
Danisco AS .................................... 2,930 161,899
ISS International Service Systems SA Cl. B 4,000 269,927
----------
431,826
----------
Finland 1.3%
Huhtamaki Oy .................................. 3,250 109,022
Nokia AB Oy ................................... 5,300 482,344
Sampo ......................................... 3,300 102,838
----------
694,204
----------
France 12.5%
Accor ......................................... 1,700 357,080
Alcatel Alsthom ............................... 2,475 275,747
AXA ........................................... 3,000 339,099
Cap Gemini .................................... 4,050 608,677
Casino Guich Perrachon ........................ 3,000 298,601
Cie de St. Gobain ............................. 2,100 310,697
Danone ........................................ 900 237,963
Eaux Cie Generale ............................. 2,790 637,252
Elf Aquitaine SA .............................. 2,830 327,524
France Telecom SA ............................. 3,700 258,059
Groupe GTM .................................... 1,720 186,368
Lafarge SA .................................... 3,887 397,382
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------
<S> <C> <C>
Rhone-Poulenc SA Cl. A ........................ 5,945 $ 271,789
Sanofi SA ..................................... 3,335 522,229
Schneider SA .................................. 5,480 325,294
Societe Generale de France SA ................. 1,130 149,490
Strafor Facom ................................. 2,050 146,484
Total SA Cl. B ................................ 3,770 434,956
Valeo SA ...................................... 3,830 331,581
----------
6,416,272
----------
Germany 8.8%
Allianz Holdings AG ........................... 2,632 902,491
Bayer Hypo Vereins AG ......................... 4,750 377,075
BHF Bank AG ................................... 7,700 296,333
Deutsche Bank AG .............................. 4,950 307,787
Deutsche Telekom AG ........................... 18,000 490,287
Hoechst AG .................................... 5,850 244,383
Lufthansa AG .................................. 11,920 259,052
MAN AG ........................................ 730 237,972
Mannesmann AG ................................. 3,300 324,721
Metro AG ...................................... 4,850 298,642
RWE AG ........................................ 6,980 378,390
Siemens AG .................................... 5,300 318,672
Tarkett-Sommer AG ............................. 6,600 109,568
----------
4,545,373
----------
Hong Kong 0.9%
China Telecom Ltd.* ........................... 126,000 236,708
Ng Fung Hong Ltd. ............................. 248,000 219,341
----------
456,049
----------
Italy 6.7%
Arnoldo Mondadori Editore ..................... 34,500 381,919
Assicuraziono Generali SPA .................... 13,650 488,704
Banca di Roma SPA* ............................ 625,000 1,090,238
ENI SPA ADR ................................... 64,000 380,592
La Rinascente SPA ............................. 37,160 358,103
Montedison SPA ................................ 281,500 278,315
Telecom Italia SPA ............................ 63,450 458,591
----------
3,436,462
----------
Japan 8.9%
Amada Co. Ltd. ................................ 94,900 567,381
Izumiya Co. Ltd. .............................. 21,000 207,154
Kyocera Corp. ................................. 5,800 256,219
Matsushita Electric Industrial Co. Ltd. ....... 11,000 161,443
Mikuni Coca Cola Bottling Co. ................. 12,600 203,191
Mitsubishi Paper Mills Ltd. ................... 64,000 139,441
Nikon Corp .................................... 26,000 237,742
Nintendo Co. Ltd. ............................. 6,500 549,751
Nissan Fire & Marine Insurance ................ 63,000 174,550
Ricoh Co Ltd. ................................. 24,000 202,779
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Japan (cont'd)
Secom Co. .................................. 8,000 $ 593,584
Shionogi & Co. Ltd. ........................ 54,000 397,890
Tokyo Gas Co Ltd. .......................... 188,100 482,432
Tokyo Steel Manufacturing .................. 35,100 159,573
Tokyo Style Co ............................. 15,000 149,768
Toyo Ink Manufacturing Co. ................. 62,000 126,042
----------
4,608,940
----------
Korea 0.6%
Lg Electronics Inc GDR ..................... 68,070 165,081
Samsung Electronic Ltd. GDR ................ 9,500 119,515
----------
284,596
----------
Malaysia 0.9%
Malayan Banking BHD ........................ 215,000 260,263
Telekom Malaysia BHD ....................... 105,000 186,513
----------
446,776
----------
Netherlands 5.5%
Akzo Nobel NV .............................. 6,272 243,703
Benckiser NV Cl. B ......................... 6,300 357,071
Buhrmann NV ................................ 7,020 125,864
Heineken NV ................................ 6,600 351,468
ING Groep NV ............................... 7,858 380,188
Koninklijke KNP BT NV ...................... 5,700 221,478
Laurus NV .................................. 2,660 66,911
Philips Electronics NV ..................... 2,900 154,278
Royal Dutch Petroleum Co. .................. 10,000 482,753
TNT Post Groep NV* ......................... 6,500 173,941
Vedior ..................................... 6,500 165,592
Vendex International NV .................... 3,800 96,604
----------
2,819,851
----------
New Zealand 0.2%
Brierley Investment Ltd.* .................. 383,000 87,212
----------
Portugal 1.5%
Banco Commercial Portugues SA .............. 10,450 327,126
Brisa Auto-Estrada SA ...................... 3,600 174,369
Portugal Telecom SA ........................ 3,360 159,185
Seguros Imperio SA ......................... 14,500 126,128
----------
786,808
----------
Singapore 0.8%
City Development Ltd. ...................... 68,000 246,513
Development Bank of Singapore Ltd. ......... 28,900 181,124
----------
427,637
----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Spain 5.4%
ACS Actividades SA ......................... 7,500 $ 239,333
Azucarera Ebro AG .......................... 7,350 160,452
Banco Bilbao Vizcaya SA .................... 17,700 238,748
Banco Central Hispano Americano SA ......... 27,000 298,062
Corporacion Financiera Reunida SA* ......... 25,400 304,742
Endesa SA .................................. 11,560 291,339
Superdiplo SA .............................. 9,500 245,829
Telefonica de Espagna ...................... 12,580 568,002
Uralita SA ................................. 12,600 129,703
Vallehermoso SA ............................ 15,600 192,702
Viscofan Envoltura SA ...................... 4,400 130,726
----------
2,799,638
----------
Sweden 3.6%
Autoliv AB ADR ............................. 9,480 315,757
Drott AB ................................... 3,850 29,593
Electrolux AB .............................. 20,000 301,050
L.M. Ericsson Telephone Co. Cl. B .......... 11,800 266,052
Skandia Foersaekrings AB ................... 23,550 300,183
Skanska AB Cl. B ........................... 3,850 126,755
Svenska Handelsbanken AB Cl. A ............. 7,180 302,156
Volvo AB Cl. B ............................. 10,400 224,494
----------
1,866,040
----------
Switzerland 9.0%
Adecco SA .................................. 410 163,358
Barry Callebaut AG* ........................ 825 184,442
CS Holding AG .............................. 1,424 218,806
Gretagmacbeth Holding AG ................... 1,600 145,208
Holderbank Financiere Glarus AG ............ 197 219,341
Nestle SA .................................. 350 743,747
Novartis AG ................................ 533 959,581
Roche Holdings AG .......................... 83 967,609
Schweiz Ruckversicher AG ................... 124 275,942
UBS AG ..................................... 1,831 501,894
Zurich Allied AG ........................... 423 256,865
----------
4,636,793
----------
United Kingdom 23.6%
Abbey National PLC ......................... 18,300 355,905
Allied Zurich PLC .......................... 16,900 200,827
Barclays PLC ............................... 15,800 340,340
Bass PLC ................................... 9,600 116,650
BG PLC ..................................... 39,500 258,825
Boots Co. PLC .............................. 7,100 106,593
British Aerospace PLC ...................... 29,800 220,453
British American Tobacco PLC ............... 16,900 151,822
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
United Kingdom (cont'd)
British Petroleum Co. PLC ..................... 67,500 $ 990,788
British Telecom PLC ........................... 59,650 770,735
Cable & Wireless Communication PLC ............ 21,780 244,236
Cadbury Schweppes PLC ......................... 14,200 217,464
Commercial Union PLC .......................... 11,800 186,930
Compass Group PLC ............................. 18,500 187,329
Diageo PLC .................................... 45,100 486,871
General Electric PLC .......................... 33,900 270,926
Glaxo Wellcome PLC ............................ 34,700 1,077,916
Halifax PLC ................................... 19,700 261,137
HSBC Holdings PLC ............................. 20,550 481,523
J. Sainsbury PLC .............................. 22,700 200,603
Kingfisher PLC ................................ 27,200 238,777
Legal & General Group PLC ..................... 13,600 161,157
Lloyds TSB Group PLC .......................... 52,950 653,590
Logica PLC .................................... 8,000 270,135
National Power PLC ............................ 21,700 188,497
Pearson PLC ................................... 11,425 199,251
Prudential Corp. PLC .......................... 18,150 236,034
Railtrack Group PLC* .......................... 8,000 214,903
Royal Sun Alliance PLC ........................ 13,600 124,510
SmithKline Beecham PLC ........................ 53,400 667,635
Tesco PLC ..................................... 69,800 196,849
Unilever PLC .................................. 36,700 368,549
United Utilities PLC .......................... 26,700 390,571
Vodafone Group PLC ............................ 33,000 441,857
W.H. Smith Group PLC .......................... 33,330 306,256
Zeneca Group PLC .............................. 10,080 387,018
-----------
12,173,462
-----------
Total Common Stocks (Cost $42,304,690)................ 49,521,020
-----------
EQUITY-RELATED SECURITIES 2.7%
GEA AG Pfd. ................................... 6,100 155,768
Henkel AG Pfd. ................................ 2,650 226,366
Prosieben Media AG Pfd. ....................... 4,750 243,737
SAP AG Pfd. ................................... 930 453,070
Upton & Southern Holdings PLC Cv. Pfd.* ....... 115,207 151,365
Wella AG Pfd. ................................. 240 172,411
-----------
Total Equity-Related Securities (Cost $1,340,057)..... 1,402,717
-----------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS 1.9%
State Street Bank and Trust
Co., dated 10/30/98,
repurchase proceeds
$994,402, collateralized by
$905,000 U.S. Treasury Note,
7.5%, due 5/15/2002, market
value $1,028,306 ........................................ $994,000 11/02/1998 $ 994,000
-----------
Total Repurchase Agreements (Cost $994,000)......................................... 994,000
-----------
Total Investments (Cost $44,638,747) -- 100.7% ..................................... 51,917,737
Cash and Other Assets, Less Liabilities -- (0.7%) .................................. (375,691)
-----------
Net Assets -- 100.0% ............................................................... $51,542,046
===========
Federal Income Tax Information:
At October 31, 1998, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $45,424,999 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ............................... $ 9,754,834
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ............................... (3,262,096)
-----------
$ 6,492,738
===========
</TABLE>
- --------------------------------------------------------------------------------
* Nonincome-producing securities.
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
+ Security determined to be illiquid by the Directors.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
October 31, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $44,638,747) (Note 1) .................... $51,917,737
Cash ................................................................. 47
Dividends and interest receivable .................................... 81,481
Foreign tax receivable ............................................... 74,605
Receivable from Distributor (Note 3) ................................. 43,199
Receivable for fund shares sold ...................................... 17,114
Other assets ......................................................... 13,322
-----------
52,147,505
Liabilities
Accrued transfer agent and shareholder services
(Note 2) ........................................................... 146,608
Accrued directors' fees (Note 2) ..................................... 53,430
Accrued management fee (Note 2) ...................................... 40,442
Payable for fund shares redeemed ..................................... 25,129
Accrued distribution and service fees (Note 5) ....................... 21,856
Other accrued expenses ............................................... 317,994
-----------
605,459
-----------
Net Assets $51,542,046
===========
Net Assets consist of:
Undistributed net investment income ................................ $ 191,399
Unrealized appreciation of investments and foreign
currency ......................................................... 7,286,913
Accumulated net realized loss on investments and
foreign currency ................................................. (2,462,170)
Paid-in capital .................................................... 46,525,904
-----------
$51,542,046
===========
Net Asset Value and redemption price per share of
Class A shares ($15,104,415 [divided by] 1,465,561 shares) ......... $10.31
======
Maximum Offering Price per share of Class A shares
($10.31 [divided by] .955) ......................................... $10.80
======
Net Asset Value and offering price per share of Class
B shares ($21,117,413 [divided by] 2,121,411 shares)* .............. $ 9.95
======
Net Asset Value and offering price per share of Class
C shares ($1,705,616 [divided by] 171,462 shares)* ................. $ 9.95
======
Net Asset Value, offering price and redemption
price per share of Class S shares
($13,614,602 [divided by] 1,303,843 shares) ........................ $10.44
======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended October 31, 1998
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $142,767................... $ 987,167
Interest (Note 1) ............................................ 15,483
----------
1,002,650
Expenses
Management fee (Note 2) ...................................... 549,360
Custodian fee ................................................ 324,637
Transfer agent and shareholder services (Note 2) ............. 296,353
Reports to shareholders ...................................... 101,818
Audit fee .................................................... 53,253
Registration fees ............................................ 30,357
Service fee-Class A (Note 5) ................................. 39,090
Distribution and service fees-Class B (Note 5) ............... 217,098
Distribution and service fees-Class C (Note 5) ............... 22,040
Legal fees ................................................... 18,855
Directors' fees (Note 2) ..................................... 8,698
Miscellaneous ................................................ 4,612
----------
1,666,171
Expenses borne by the Distributor (Note 3) ................... (433,268)
----------
1,232,903
----------
Net investment loss .......................................... (230,253)
----------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Net realized loss on investments (Notes 1 and 4) ............. (40,073)
Net realized loss on foreign currency (Note 1) ............... (62,567)
----------
Total net realized loss .................................... (102,640)
----------
Net unrealized appreciation of investments ................... 5,409,216
Net unrealized depreciation of foreign currency .............. (11,678)
----------
Total net unrealized appreciation .......................... 5,397,538
----------
Net gain on investments and foreign currency ................. 5,294,898
----------
Net increase in net assets resulting from operations ......... $5,064,645
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended October 31
-----------------------------------
1997 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss .................. $ (307,109) $ (230,253)
Net realized gain (loss) on
investments and foreign
currency ........................... 245,752 (102,640)
Net unrealized appreciation of
investments and foreign
currency ........................... 2,106,279 5,397,538
----------- -----------
Net increase resulting from
operations.......................... 2,044,922 5,064,645
----------- -----------
Net decrease from fund share
transactions (Note 6) .............. (22,146,754) (15,481,066)
----------- -----------
Total decrease in net assets ......... (20,101,832) (10,416,421)
Net Assets
Beginning of year .................... 82,060,299 61,958,467
----------- -----------
End of year (including
undistributed net
investment income of $0
and $191,399, respectively) $61,958,467 $51,542,046
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
October 31, 1998
Note 1
State Street Research International Equity Fund (the "Fund"), is a diversified
series of State Street Research Portfolios, Inc. ("Portfolios"), which was
organized as a Maryland corporation in April, 1991 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund commenced operations in January, 1992. The Fund is presently
the only active series of Portfolios, although the Directors have the authority
to create an unlimited number of series.
The investment objective of the Fund is to achieve long-term growth of capital
by investing primarily in common stocks and equity-related securities of
non-U.S. companies. Non-U.S. companies for these purposes are companies
domiciled outside the United States.
The Fund offers four classes of shares. Class A shares are subject to an initial
sales charge of up to 4.50% and an annual service fee of 0.25% of average daily
net assets. Class B shares are subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase and pay annual
distribution and service fees of 1.00%. Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight years
after the issuance of the Class B shares. Class C shares are subject to a
contingent deferred sales charge of 1.00% on any shares redeemed within one year
of their purchase. Class C shares also pay annual distribution and service fees
of 1.00%. Class S shares are only offered through certain retirement accounts,
advisory accounts of State Street Research & Management Company (the "Investment
Manager"), an indirect wholly owned subsidiary of Metropolitan Life Insurance
Company ("Metropolitan"), and special programs. No sales charge is imposed at
the time of purchase or redemption of Class S shares. Class S shares do not pay
any distribution or service fees. The Fund's expenses are borne pro-rata by each
class, except that each class bears expenses, and has exclusive voting rights
with respect to provisions of the Plan of Distribution, related specifically to
that class. The Directors declare separate dividends on each class of shares.
The following significant policies are consistently followed by the Fund in
preparing its financial statements, and such policies are in conformity with
generally accepted accounting principles for investment companies.
A. Investment Valuation
Securities traded on domestic stock exchanges are valued at the last sale price
as of the close of business on the day the securities are being valued, or,
lacking any sales, at the mean between closing bid and asked prices. Securities
traded on the National Association of Securities Dealers Automated Quotation
("NASDAQ") system are valued at the last reported sales price. Each security
traded primarily on non-domestic securities exchanges is generally valued at the
preceding closing value of such security on the exchange where it is primarily
traded. A security that is listed or traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market for such
security by the Board of Directors or
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
its delegates. If no closing price is available, then such security is valued at
the mean between the last current bid and asked prices or by using the last
available closing price. Domestic securities traded in the over-the-counter
market are valued at the mean between the bid and asked prices or yield
equivalent as obtained from two or more dealers that make markets in the
securities. All non-U.S. securities traded in the over-the-counter market are
valued at the last sale quote or the last closing bid price, if there is no
active trading in a particular security for a given day. Portfolio securities
traded both in the over-the-counter market and on a securities exchange are
valued according to the broadest and most representative market. Securities for
which market quotations are not readily available are valued as determined in
good faith by or under the authority of the Directors. Short-term securities
maturing within sixty days are valued at amortized cost. Securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date.
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. The difference is primarily due to differing treatments
for foreign currency transactions.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods. At October 31, 1998, the Fund had a capital
loss carryforward of $2,313,147 available, to the extent provided in
regulations, to offset future capital gains, if any, of which $1,280,650 and
$1,032,497 expires on October 31, 2004 and 2006, respectively.
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 October 31, 1998, income from securities lending amounted to $4,767
and is included in interest income.
Note 2
The Fund and the Investment Manager have entered into an agreement under which
the Investment Manager receives monthly fees at an annual rate of 0.95% of the
Fund's average daily net assets. In consideration of these fees, the Adviser
furnishes the Fund with management, investment advisory, statistical and
research facilities and services. The Adviser also pays all salaries, rent and
certain other expenses of management. During the year ended October 31, 1998,
the Fund paid the Investment Manager $549,360 in management fees.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Fund's principal underwriter (the "Distributor"),
an indirect wholly owned subsidiary of Metropolitan, provides certain
shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the year ended October
31, 1998, the amount of such expenses was $134,377. The fees of the Directors
not currently affiliated with the Investment Manager amounted to $8,698 during
the year ended October 31, 1998.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund. During
the year ended October 31, 1998, the amount of such expenses assumed by the
Distributor and its affiliates was $433,268.
Note 4
For the year ended October 31, 1998, purchases and sales of securities,
exclusive of short-term obligations, aggregated $65,889,992 and $78,396,458,
respectively.
8
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
Note 5
Portfolios has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class C shares. In addition,
the Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class C shares. The Distributor uses such payments for personal
services and/or the maintenance or servicing of shareholder accounts, to
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 October 31, 1998,
fees pursuant to such plan amounted to $39,090, $217,098 and $22,040 for Class
A, Class B and Class C shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $4,692 and $27,414, respectively, on sales of Class A shares of the
Fund during the year ended October 31, 1998, and that MetLife Securities, Inc.
earned commissions aggregating $60,332 on sales of Class B shares, and that the
Distributor collected contingent deferred sales charges of $63,293 and $206 on
redemptions of Class B and Class C shares, respectively, during the same period.
Note 6
The authorized capital stock of the Fund currently consists of 100,000,000
shares, $.01 par value per share. The Fund reserves the right to issue
additional classes of shares.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years ended October 31
-------------------------------------------------------------------
1997 1998
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Class A Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold ................ 394,891 $ 3,901,312 616,996 $ 6,446,526
Shares repurchased ......... (948,477) (9,228,795) (887,211) (9,176,281)
---------- ------------ ---------- ------------
Net decrease ............... (553,586) $ (5,327,483) (270,215) $ (2,729,755)
========== ============ ========== ============
Class B Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold ................ 618,239 $ 5,987,370 775,911 $ 7,733,355
Shares repurchased ......... (1,431,021) (13,575,005) (1,046,783) (10,123,972)
---------- ------------ ---------- ------------
Net decrease ............... (812,782) $ (7,587,635) (270,872) $ (2,390,617)
========== ============ ========== ============
Class C Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold ................ 105,782 $ 1,002,139 104,094 $ 1,078,738
Shares repurchased ......... (425,536) (4,046,600) (202,224) (1,979,014)
---------- ------------ ---------- ------------
Net decrease ............... (319,754) $ (3,044,461) (98,130) $ (900,276)
========== ============ ========== ============
Class S Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold ................ 858,029 $ 8,508,109 870,178 $ 8,986,352
Shares repurchased ......... (1,493,530) (14,695,284) (1,797,863) (18,446,770)
---------- ------------ ---------- ------------
Net decrease ............... (635,501) $ (6,187,175) (927,685) $ (9,460,418)
========== ============ ========== ============
</TABLE>
9
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------
Years ended October 31
-------------------------------------------------------------
1994(2) 1995(1) 1996(1) 1997(1) 1998(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ($) 10.54 10.98 9.34 9.22 9.42
----- ----- ----- ----- ------
Net investment loss ($)* (0.04) (0.08) (0.04) (0.02) (0.01)
Net realized and
unrealized gain (loss)
on investments and
foreign currency ($) 0.48 (1.04) (0.08) 0.22 0.90
----- ----- ----- ----- ------
Total from investment
operations ($) 0.44 (1.12) (0.12) 0.20 0.89
----- ----- ----- ----- ------
Distribution from net
realized gains ($) -- (0.52) -- -- --
----- ----- ----- ----- ------
Total distributions ($) -- (0.52) -- -- --
----- ----- ----- ----- ------
Net asset value, end of
year ($) 10.98 9.34 9.22 9.42 10.31
===== ===== ===== ===== ======
Total return(3) (%) 4.17(4) (10.38) (1.28) 2.17 9.45
Ratios/supplemental data:
Net assets at end of year
($ thousands) 22,579 22,497 21,116 16,346 15,104
Ratio of operating expenses
to average net assets (%)* 1.90(5) 1.90 1.90 1.90 1.90
Ratio of net investment loss
to average net assets (%)* (0.87)(5) (0.82) (0.37) (0.18) (0.20)
Portfolio turnover rate (%) 80.60 100.68 132.36 174.69 116.28
*Reflects voluntary
reduction of expenses per
share of these amounts
(Note 3) ($) 0.03 0.06 0.05 0.04 0.04
<CAPTION>
Class B
-------------------------------------------------------------
Years ended October 31
-------------------------------------------------------------
1994(2) 1995(1) 1996(1) 1997(1) 1998(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ($) 10.54 10.93 9.22 9.04 9.16
----- ----- ----- ----- ------
Net investment loss ($)* (0.06) (0.15) (0.11) (0.09) (0.05)
Net realized and
unrealized gain (loss)
on investments and
foreign currency ($) 0.45 (1.04) (0.07) 0.21 0.84
----- ----- ----- ----- ------
Total from investment
operations ($) 0.39 (1.19) (0.18) 0.12 0.79
----- ----- ----- ----- ------
Distribution from net
realized gains ($) -- (0.52) -- -- --
----- ----- ----- ----- ------
Total distributions ($) -- (0.52) -- -- --
----- ----- ----- ----- ------
Net asset value, end of
year ($) 10.93 9.22 9.04 9.16 9.95
===== ===== ===== ===== ======
Total return(3) (%) 3.70(4) (11.09) (1.95) 1.33 8.62
Ratios/supplemental data:
Net assets at end of year
($ thousands) 18,904 27,614 28,971 21,914 21,117
Ratio of operating expenses
to average net assets (%)* 2.65(5) 2.65 2.65 2.65 2.65
Ratio of net investment loss
to average net assets (%)* (1.61)(5) (1.54) (1.13) (0.94) (0.88)
Portfolio turnover rate (%) 80.60 100.68 132.36 174.69 116.28
*Reflects voluntary
reduction of expenses per
share of these amounts
(Note 3) ($) 0.03 0.06 0.05 0.04 0.04
</TABLE>
- --------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) March 1, 1994 (commencement of share class designations) to October 31,
1994.
(3) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily reduced a portion of the Fund's expenses.
(4) Not annualized.
(5) Annualized.
10
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------
Years ended October 31
----------------------------------------------------------
1994(2) 1995(1) 1996(1) 1997(1) 1998(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ($) 10.54 10.93 9.22 9.03 9.16
----- ----- ----- ----- ------
Net investment income
(loss) ($)* (0.07) (0.15) (0.11) (0.09) (0.05)
Net realized and
unrealized gain (loss)
on investments and
foreign currency ($) 0.46 (1.04) (0.08) 0.22 0.84
----- ----- ----- ----- ------
Total from investment
operations ($) 0.39 (1.19) (0.19) 0.13 0.79
----- ----- ----- ----- ------
Dividend from net
investment income ($) -- -- -- -- --
Distributions from net
realized gains ($) -- (0.52) -- -- --
----- ----- ----- ----- ------
Total distributions ($) -- (0.52) -- -- --
----- ----- ----- ----- ------
Net asset value, end of
year ($) 10.93 9.22 9.03 9.16 9.95
===== ===== ===== ===== ======
Total return(3) (%) 3.70(4) (11.09) (2.06) 1.44 8.62
Ratios/supplemental data:
Net assets at end of year
($ thousands) 2,134 5,674 5,324 2,469 1,706
Ratio of operating expenses
to average net assets (%)* 2.65(5) 2.65 2.65 2.65 2.65
Ratio of net investment
income (loss) to average
net assets (%)* (1.62)(5) (1.55) (1.10) (0.97) (0.90)
Portfolio turnover rate (%) 80.60 100.68 132.36 174.69 116.28
*Reflects voluntary
reduction of expenses per
share of these amounts
(Note 3) ($) 0.03 0.06 0.05 0.04 0.04
<CAPTION>
Class S
----------------------------------------------------------
Years ended October 31
----------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ($) 9.56 11.01 9.39 9.29 9.51
----- ----- ----- ----- ------
Net investment income
(loss) ($)* (0.07) (0.05) (0.02) 0.01 0.00
Net realized and
unrealized gain (loss)
on investments and
foreign currency ($) 2.09 (1.05) (0.08) 0.21 0.93
----- ----- ----- ----- ------
Total from investment
operations ($) 2.02 (1.10) (0.10) 0.22 0.93
----- ----- ----- ----- ------
Dividend from net
investment income ($) (0.05) -- -- -- --
Distributions from net
realized gains ($) (0.52) (0.52) -- -- --
----- ----- ----- ----- ------
Total distributions ($) (0.57) (0.52) -- -- --
----- ----- ----- ----- ------
Net asset value, end of
year ($) 11.01 9.39 9.29 9.51 10.44
===== ===== ===== ===== ======
Total return(3) (%) 22.73 (10.16) (1.06) 2.37 9.78
Ratios/supplemental data:
Net assets at end of year
($ thousands) 54,631 33,883 26,649 21,230 13,615
Ratio of operating expenses
to average net assets (%)* 1.65 1.65 1.65 1.65 1.65
Ratio of net investment
income (loss) to average
net assets (%)* (0.75) (0.51) (0.16) 0.06 0.06
Portfolio turnover rate (%) 80.60 100.68 132.36 174.69 116.28
*Reflects voluntary
reduction of expenses per
share of these amounts
(Note 3) ($) 0.05 0.06 0.05 0.04 0.04
</TABLE>
- --------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) March 1, 1994 (commencement of share class designations) to October 31,
1994.
(3) 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 reduced a portion of the Fund's expenses.
(4) Not annualized.
(5) Annualized.
11
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors of State Street Research Portfolios, Inc. and the
Shareholders of State Street Research International Equity Fund
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of State Street Research International Equity Fund (a
series of State Street Research Portfolios, Inc.) as of October 31, 1998, and
the related statement of operations for the year then ended, the statement of
changes in net assets for the two years then ended and the financial highlights
for each of the years in the five year period ended October 31, 1998. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on the financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1998, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of State Street
Research International Equity Fund (a series of State Street Research
Portfolios, Inc.) at October 31, 1998, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
December 4, 1998
12
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research International Equity Fund had a good year. The Fund's
Class A shares returned 9.45% for the 12 months ended October 31, 1998 [does not
reflect sales charge]. The Fund outperformed the Lipper average international
fund, which returned 4.07%. The Fund performed in line with the Morgan Stanley
Capital International EAFE Index, which gained 9.65% for the same period.
During the period, the Fund was helped by strong performance in Europe early in
the period and by the fund's emphasis on pharmaceutical stocks, which benefited
from higher profits from new products. The Fund's underweighting in Japanese
stocks also helped performance.
The Fund expects no major changes in the portfolio's strategic positioning.
However, management may reduce the Fund's investments gradually over the next
year.
Going forward, the manager is optimistic about the global equity markets.
Although uncertainties remain, there are signs of recovery in Asia, Russia and
Eastern Europe. Western Europe's new single currency, the euro, has the
potential to be a positive force for business and investors in the period ahead.
October 31, 1998
Keep in mind that past performance is no guarantee of future results. The Fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable. The fund's
returns include performance from before the creation of share classes. If this
performance reflected the share classes' current 12b-1 fees, the fund's returns
may have been lower. Class S shares, offered without a sales charge, are
available only through certain employee benefit plans and special programs. The
Morgan Stanley EAFE (Europe, Australia, Far East) Index is a commonly-used
measure of international stock market performance. The index does not take
transaction charges into consideration. It is not possible to invest directly in
the index. Performance results for the Fund are increased by the investment
manager's voluntary reduction of fees and expenses; without subsidization,
performance would have been lower.
Change in Value of $10,000
Based on the Morgan Stanley EAFE Index Compared
to Change in Value of $10,000 Invested in
International Equity Fund
[Line Chart Data]
Class A Shares
<TABLE>
<CAPTION>
- -----------------------------------
Average Annual Total Return
- -----------------------------------
1 Year 5 Years Life of Fund
- -----------------------------------
<S> <C> <C>
4.52% 2.95% 6.22%
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Morgan
International Stanley
Equity EAFE
Fund Index
<S> <C>
9550 10000
8389 8845
12430 12158
15213 13385
13635 13335
13460 14732
13752 15414
15051 16900
</TABLE>
Class B Shares
<TABLE>
<CAPTION>
- -----------------------------------
Average Annual Total Return
- -----------------------------------
1 Year 5 Years Life of Fund
- -----------------------------------
<S> <C> <C>
3.62% 2.82% 6.38%
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Morgan
International Stanley
Equity EAFE
Fund Index
<S> <C>
10000 10000
8784 8845
13015 12158
15858 13385
14098 13335
13623 14732
14007 15414
15215 16900
</TABLE>
Class C Shares
<TABLE>
<CAPTION>
- -----------------------------------
Average Annual Total Return
- -----------------------------------
1 Year 5 Years Life of Fund
- -----------------------------------
<S> <C> <C>
7.62% 3.17% 6.38%
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Morgan
International Stanley
Equity EAFE
Fund Index
<S> <C>
10000 10000
8784 8845
13015 12158
15858 13385
14098 13335
13808 14732
14007 15414
15215 16900
</TABLE>
Class S Shares
<TABLE>
<CAPTION>
- -----------------------------------
Average Annual Total Return
- -----------------------------------
1 Year 5 Years Life of Fund
- -----------------------------------
<S> <C> <C>
9.78% 4.16% 7.13%
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Morgan
International Stanley
Equity EAFE
Fund Index
<S> <C>
10000 10000
8784 8845
13015 12158
15974 13385
14351 13335
14198 14732
14534 15414
15955 16900
</TABLE>
13
<PAGE>
STATE STREET RESEARCH INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND DIRECTORS OF STATE STREET RESEARCH PORTFOLIOS,
INC.
- --------------------------------------------------------------------------------
Fund Information
State Street Research
International Equity Fund
One Financial Center
Boston, MA 02111
Investment Manager
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Independent Accountants
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Thomas P. Moore, Jr.
Vice President
James M. Weiss
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Christopher P. Nicholas
Assistant Secretary
Amy L. Simmons
Assistant Secretary
Directors
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Steve A. Garban
Former Senior Vice President
for Finance and Operations
and Treasurer, The Pennsylvania
State University
Malcolm T. Hopkins
Former Vice Chairman of the Board and Chief Financial
Officer, St. Regis Corp.
Edward M. Lamont
Formerly in banking
(with an affiliate of
J.P. Morgan & Co. in New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Former Partner, Saltonstall & Co.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer
and Director, Hewlett-Packard
Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts Institute of Technology
14
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State Street Research International Equity Fund
One Financial Center
Boston, MA 02111
-------------
Bulk Rate
U.S. Postage
PAID
Permit #20
Holliston, MA
01746
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Questions? Comments?
Call us at 1-800-562-0032
[hearing-impaired 1-800-676-7876]
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[State Street Research Logo]
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied by a current State Street Research International Equity Fund
prospectus. When used after December 31, 1998, this report must be accompanied
by a current Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: (exp1299)SSR-LD IE-905D-1298
