[STATE STREET RESEARCH LOGO]
STATE STREET RESEARCH
INTERMEDIATE BOND FUND
SEMIANNUAL REPORT
October 31, 1996
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
Shareholder Service
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STATE STREET RESEARCH INTERMEDIATE BOND FUND
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INVESTMENT UPDATE
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INVESTMENT ENVIRONMENT
The Economy
(bullet) After a stronger than expected second quarter in 1996, economic
growth slowed somewhat in the third quarter and the month of
October.
(bullet) Indicators were mixed. Wages rose during the six-month period ended
October 31, 1996, and unemployment remains low. Consumer prices and
inflation were contained, however.
(bullet) The Federal Reserve met several times since April, leaving interest
rates unchanged.
The Markets
(bullet) From April 30 to October 31, 1996, stocks and bonds brought in
positive performance overall, peppered with short-term corrections.
(bullet) The stock market continued its rise, with the Dow Jones Industrial
Average passing the 6000 point marker. The S&P 500 was up +9.08% for
the six month period ended October 31, 1996.(1)
(bullet) After a slow start, bond performance gained momentum, with the
Lehman Brothers Aggregate Bond Index gaining +5.29% and the Lehman
Brothers Government/Corporate Intermediate Bond Index gaining +4.59%
for the same time period.(1)
THE FUND
Over the past six months
(bullet) For the six months ended October 31, 1996, Intermediate Bond Fund's
Class A shares provided a total return of +4.14% (does not reflect
sales charge).(2) The Fund underperformed the +4.85% average total
return for 187 funds in Lipper Analytical Services' Intermediate
Investment Grade Debt category (does not reflect sales charge).
(bullet) We were somewhat overweighted in mortgage securities versus the
competition, which helped boost fund performance at the beginning of
the period.
(bullet) The Fund's conservative positioning and duration helped its
performance when interest rates were rising in the beginning of the
period, but contributed to its underperformance when rates declined
toward the end.
Current strategy
(bullet) Treasuries, which perform better when interest rates are moving
downward, currently make up 44% of the portfolio.
(bullet) We've lightened our position in mortgage securities, focusing on
lower-coupon mortgages and those that can't be refinanced to reduce
the negative impact that falling interest rates can have on this
sector of the portfolio.
(bullet) We've continued to pare back our position in corporate bonds, as we
don't believe they currently offer as good a value as Treasuries.
(bullet) We've been taking some profits in the foreign bonds areas, which
continue to perform well.
October 31, 1996
(1)The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The Lehman Brothers Aggregate and Government/Corporate
Intermediate Bond Indexes are commonly used measures of bond market
performance. The indices are unmanaged and do not take sales charges into
consideration. Direct investment in the indices is not possible; results are
for illustrative purposes only.
(2)+4.32% for Class C shares.
(3)All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends.
(4)Performance reflects maximum 4.5% "A" share front-end sales charge. "C"
shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions.
(5)Cumulative total returns are not annualized and do not reflect sales
charges, which, if reflected, would reduce performance.
Please note that the discussion throughout this shareholder report is dated
as indicated and because of possible changes in viewpoint, data, and
transactions, should not be relied upon as being current thereafter.
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Fund Information (all data are for periods ended October 31, 1996, except
where otherwise noted)
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SEC Average Annual Compound
Rates of Return for periods ended 9/30/96
(at maximum applicable sales charge)(3,4)
Life of Fund
(since 5/16/94) 1 Year
- ---------------------------------------------
Class A +4.59%/+3.67% -0.06%/-0.87%
- ---------------------------------------------
Class C +6.86%/+5.93% +4.83%/+3.98%
Average Annual Compound Rates of Return
(at maximum applicable sales charge)(3,4)
Life of Fund
(since 5/16/94) 1 Year
- ---------------------------------------------
Class A +5.04%/+4.12% +0.27%/-0.54%
- ---------------------------------------------
Class C +7.29%/+6.36% +5.31%/+4.45%
Cumulative Total Returns
(do not reflect sales charge)(3,5)
Life of Fund
(since 5/16/94) 1 Year
- ---------------------------------------------
Class A +18.22%/+15.66% +5.00%/+4.15%
- ---------------------------------------------
Class C +18.94%/+16.42% +5.31%/+4.45%
SEC Yield
Class A 5.50%/5.34%
- ----------------------------
Class C 6.06%/5.90%
SEC yield is based on the net investment income produced for the 30 days
ended October 31, 1996.
Asset Allocation
(by percentage of net assets)
[DESCRIPTION OF PIE CHART]
Mortgage securities 11%
U.S. Treasury securities 44%
Corporate bonds 29%
Foreign government bonds 2%
Cash 14%
Performance results for the Fund are increased by the voluntary reduction of
fund fees and expenses related to the Fund. The first figure reflects expense
reduction; the second shows what results would have been without
subsidization.
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STATE STREET RESEARCH INTERMEDIATE BOND FUND
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INVESTMENT PORTFOLIO
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October 31, 1996 (Unaudited)
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Principal Maturity Value
Amount Date (Note 1)
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FIXED INCOME SECURITIES 86.2%
U.S. Treasury 44.3%
U.S. Treasury Note, 8.50% $1,250,000 5/15/1997 $1,270,113
U.S. Treasury Note, 6.75% 300,000 5/31/1999 306,282
U.S. Treasury Note, 7.125% 1,650,000 9/30/1999 1,702,849
U.S. Treasury Note, 6.875% 1,175,000 3/31/2000 1,207,125
U.S. Treasury Note, 6.625% 500,000 7/31/2001 510,545
U.S. Treasury Note, 7.50% 200,000 11/15/2001 211,812
U.S. Treasury Note, 5.75% 1,275,000 8/15/2003 1,241,735
U.S. Treasury Note, 7.875% 1,000,000 11/15/2004 1,097,500
--------------
7,547,961
--------------
U.S. Agency 2.7%
Federal Home Loan Mortgage
Corp. Note, 7.24% 150,000 5/15/2002 151,288
Guaranteed Export Trust
Notes, 96-A, 6.55% 23,529 6/15/2004 23,719
Guaranteed Export Trust
Notes, Series 95-B, 6.13% 282,353 6/15/2004 280,952
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455,959
--------------
U.S. Agency Mortgage 8.7%
Federal National Mortgage
Association REMIC Series
93-52-C, 5.00% 70,569 2/25/2001 70,216
Federal National Mortgage
Association, 8.00% 216,381 4/01/2008 225,314
Federal National Mortgage
Association, 8.00% 217,137 6/01/2008 225,835
Government National Mortgage
Association, 8.00% 252,286 5/15/2008 264,270
Government National Mortgage
Association, 6.50% 68,967 2/15/2009 68,320
Government National Mortgage
Association, 6.50% 92,839 5/15/2009 91,983
Government National Mortgage
Association, 9.00% 79,730 11/15/2016 85,485
Government National Mortgage
Association REMIC Series
96-6-B, 6.50% 250,000 10/16/2017 248,984
Government National Mortgage
Association, 8.00% 189,795 6/15/2022 194,775
--------------
1,475,182
--------------
Canadian-Yankee 4.8%
Hydro Quebec Deb., 13.25% 250,000 12/15/2013 292,163
Province of Manitoba Note,
6.75% 75,000 3/01/2003 75,831
Province of Ontario Deb.,
11.50% 175,000 3/10/2013 193,870
Canadian-Yankee (cont'd)
Province of Quebec Deb.,
8.80% $ 100,000 4/15/2003 $ 110,779
Talisman Energy Inc. Deb.,
7.125% 150,000 6/01/2007 149,556
--------------
822,199
--------------
Finance/Mortgage 17.4%
Associates Corp. of North
America Note, 6.375% 150,000 10/15/2002 148,320
CIT Group Holdings Inc. Note,
6.75% 100,000 5/14/2001 101,432
Capital One Bank Sr. Note,
7.08% 150,000 10/30/2001 151,241
Community Program Loan Trust
1987 A-3, 4.50% 9,206 4/01/2002 9,226
Countrywide Funding Corp.
Master Trust Note, 6.28% 175,000 1/15/2003 169,430
Countrywide Mortgage Inc.
Series 1994-2 Class A-7,
6.50% 150,000 4/25/2008 150,281
Discover Credit Card Trust
Series 1993 A, 6.25% 150,000 8/16/2000 150,327
Finova Capital Corp. Note,
6.375% 100,000 10/15/2000 99,593
First Chicago Credit Trust
Series 91-D, 8.40% 37,500 6/15/1998 37,488
Ford Credit Auto Loan Master
Trust Series 95-1, 6.50% 425,000 8/15/2000 425,000
General Motors Acceptance
Corp. Master Trust Note,
7.85% 275,000 11/17/1997 280,588
Household Affinity Credit
Card Master Trust Series
1994-1A, 5.57% 150,000 5/15/2001 150,139
Household Finance Corp. Note,
6.875% 75,000 3/01/2003 75,731
Los Angeles County,
California Pension Series
94-D, 6.65% 100,000 6/30/2003 99,829
NationsBank Master Trust
Series 1995-1, 6.45% 150,000 4/15/2003 150,843
Prudential Home Mortgage
Securities Co. Series 93-29
A-6 PAC, 6.75% 96,790 8/25/2008 97,364
Prudential Home Mortgage
Series 19 A-5, 7.00% 136,709 6/25/2023 137,008
Sears Credit Account Master
Trust Series 1995-2, 8.10% 125,000 6/15/2004 131,250
The accompanying notes are an integral part of the financial statements.
2
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STATE STREET RESEARCH INTERMEDIATE BOND FUND
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INVESTMENT PORTFOLIO
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Principal Maturity Value
Amount Date (Note 1)
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Finance/Mortgage (cont'd)
Sears Roebuck Acceptance
Corp. Note, 6.86% $175,000 8/06/2001 $ 177,030
Structured Assets Security
Corp. Series 1996-CFL A-1C,
5.94% 225,000 2/25/2028 221,906
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2,964,026
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Foreign Government 2.1%
Australian Dollar
Government of Australia,
7.50% 100,000 7/15/2005 80,184
Canadian Dollar
Government of Canada, 7.50% 100,000 12/01/2003 80,545
Danish Krone
Kingdom of Denmark, 8.00% 250,000 11/15/2001 47,098
Kingdom of Denmark, 8.00% 425,000 3/15/2006 78,693
European Currency Unit
Government of France, 8.00% 50,000 4/25/2003 70,496
--------------
357,016
--------------
Corporate 5.4%
Case Credit Corp. Note,
6.125% $100,000 2/15/2003 96,679
Chevron Corp. Note, 8.11% 125,000 12/01/2004 133,633
Columbia/HCA Healthcare Corp.
Master Trust Note, 6.87% 125,000 9/15/2003 126,584
Darden Restaurants Inc.,
6.375% 175,000 2/01/2006 162,718
Electronic Data Systems Corp.
Note, 6.85%+ 250,000 5/15/2000 254,105
Southern California Edison
Co. Deb., 5.875% 150,000 1/15/2001 146,703
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920,422
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Trust Certificates 0.8%
Rural Electric Cooperative
Grantor Trust Certificates,
10.11% $125,000 12/15/2017 $ 136,127
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Total Fixed Income Securities
(Cost $14,680,861) 14,678,892
--------------
SHORT-TERM OBLIGATIONS 12.2%
American Express Credit
Corp., 5.20% 681,000 11/01/1996 681,000
Beneficial Corp., 5.20% 650,000 11/05/1996 650,000
General Electric Capital
Corp., 5.25% 758,000 11/08/1996 758,000
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Total Short-Term Obligations
(Cost $2,089,000) 2,089,000
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Total Investments (Cost
$16,769,861)--98.4% 16,767,892
Cash and Other Assets, Less
Liabilities--1.6% 264,895
--------------
Net Assets--100.0% $17,032,787
==============
Federal Income Tax Information:
At October 31, 1996, the net unrealized depreciation of
investments based on cost for Federal income tax
purposes of $16,782,328 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $ 126,559
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value (140,995)
--------------
$ (14,436)
==============
+ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securities among certain
qualified buyers. The cost and market value of the Rule 144A security owned
at October 31, 1996 was $249,803 and $254,105 (1.49% of net assets),
respectively.
Forward currency exchange contracts outstanding at October 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Unrealized Delivery
Total Value Contract Price Appreciation (Depreciation) Date
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy Australian dollars, Sell U.S.
dollars 15,000 AUD .79148 AUD $ 11 11/14/96
Buy Australian dollars, Sell U.S.
dollars 29,000 AUD .79004 AUD 15 1/24/97
Sell Australian dollars, Buy U.S.
dollars 15,000 AUD .77425 AUD (269) 11/14/96
Sell Australian dollars, Buy U.S.
dollars 124,000 AUD .79360 AUD 375 1/24/97
Sell Canadian dollars, Buy U.S.
dollars 90,000 CAD .73099 CAD (1,420) 11/14/96
Sell Danish krone, Buy U.S. dollars 669,000 DKK .17584 DKK 2,459 11/14/96
Sell Danish krone, Buy U.S. dollars 15,700 DKK .17110 DKK (27) 1/24/97
Sell European currency unit, Buy
U.S. dollars 50,000 ECU 1.27480 ECU 381 11/14/96
-------
$ 1,525
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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STATE STREET RESEARCH INTERMEDIATE BOND FUND
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STATEMENT OF ASSETS AND LIABILITIES
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October 31, 1996 (Unaudited)
Assets
Investments, at value (Cost $16,769,861) (Note 1) $16,767,892
Cash 9,299
Receivable for securities sold 394,656
Interest receivable 250,596
Receivable from Distributor (Note 3) 23,924
Receivable for open forward contracts 3,241
Receivable for fund shares sold 2,414
Deferred organization costs and other assets (Note 1) 53,140
--------------
17,505,162
Liabilities
Payable for securities purchased 394,656
Accrued transfer agent and shareholder services (Note 2) 23,722
Accrued management fee (Note 2) 7,895
Accrued trustees' fees (Note 2) 3,982
Payable for open forward contracts 1,716
Accrued service fee (Note 5) 127
Other accrued expenses 40,277
--------------
472,375
--------------
Net Assets $17,032,787
==============
Net Assets consist of:
Undistributed net investment income $ 182,450
Unrealized depreciation of investments (1,969)
Unrealized appreciation of forward contracts and foreign
currency 1,597
Accumulated net realized loss (23,928)
Shares of beneficial interest 16,874,637
--------------
$17,032,787
==============
Net Asset Value and redemption price per share of Class
A shares ($601,670 / 61,397 shares of beneficial
interest) $ 9.80
==============
Maximum Offering Price per share of Class A shares
($9.80 / .955) $10.26
==============
Net Asset Value, offering price and redemption price per
share of Class C shares ($16,431,117 / 1,689,499
shares of beneficial interest) $ 9.73
==============
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STATEMENT OF OPERATIONS
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For the six months ended October 31, 1996 (Unaudited)
Investment Income
Interest, net of foreign taxes of $2,379 $ 577,277
Expenses
Management fee (Note 2) 46,420
Custodian fee 39,759
Transfer agent and shareholder services (Note 2) 31,730
Reports to shareholders 13,787
Registration fees 9,556
Audit fee 9,492
Amortization of organization costs (Note 1) 8,885
Trustees' fees (Note 2) 7,082
Legal fees 5,652
Service fee--Class A (Note 5) 748
Miscellaneous 3,719
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176,830
Expenses borne by the Distributor (Note 3) (112,782)
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64,048
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Net investment income 513,229
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Realized and Unrealized Gain (Loss)
on Investments, Forward Contracts
and Foreign Currency
Net realized loss on investments (Notes 1 and 4) (15,379)
Net realized gain on forward contracts and foreign
currency (Note 1) 2,939
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Total net realized loss (12,440)
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Net unrealized appreciation of investments 202,058
Net unrealized depreciation of forward contracts and
foreign currency (6,033)
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Total net unrealized appreciation 196,025
--------------
Net gain on investments, foreign currency and forward
contracts 183,585
--------------
Net increase in net assets resulting from operations $ 696,814
==============
The accompanying notes are an integral part of the financial statements.
4
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STATE STREET RESEARCH INTERMEDIATE BOND FUND
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STATEMENT OF CHANGES IN NET ASSETS
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Six months ended
October 31, 1996 Year ended
(Unaudited) April 30, 1996
- ----------------------------------- ---------------- ---------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 513,229 $ 983,058
Net realized gain (loss) on
investments, forward contracts
and foreign currency* (12,440) 426,304
Net unrealized appreciation
(depreciation) of investments,
forward contracts and foreign
currency 196,025 (341,461)
---------------- ---------------
Net increase resulting from
operations 696,814 1,067,901
---------------- ---------------
Dividends from net investment
income:
Class A (16,318) (499,811)
Class C (470,615) (491,281)
---------------- ---------------
(486,933) (991,092)
---------------- ---------------
Distributions from net realized
gains:
Class A (4,744) (85,667)
Class C (129,421) (52,497)
---------------- ---------------
(134,165) (138,164)
---------------- ---------------
Net increase from fund share
transactions (Note 6) 289,154 2,769,590
---------------- ---------------
Total increase in net assets 364,870 2,708,235
Net Assets
Beginning of period 16,667,917 13,959,682
---------------- ---------------
End of period (including
undistributed net investment
income of $182,450 and $156,154,
respectively) $17,032,787 $16,667,917
================ ===============
*Net realized gain (loss) for
Federal income tax purposes (Note
1) $ (15,379) $ 310,547
================ ===============
The accompanying notes are an integral part of the financial statements.
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
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October 31, 1996
Note 1
State Street Research Intermediate Bond Fund (the "Fund"), is a series of
State Street Research Securities Trust (the "Trust"), which was organized as
a Massachusetts business trust in January, 1994 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund commenced operations in May, 1994. The Trust
presently consists of two separate funds: State Street Research Intermediate
Bond Fund and State Street Research Strategic Income Fund.
The investment objective of the Fund is to provide total return, consisting
primarily of current income and secondarily of capital appreciation,
commensurate with reasonable investment risk. In seeking to achieve this
investment objective, the Fund invests primarily in a diversified portfolio
of debt securities considered investment grade by one or more nationally
recognized rating agencies or of comparable quality by the Fund's investment
manager.
The Fund is authorized to issue four classes of shares. Only Class A and Class C
shares are presently available for purchase. Class B and Class D shares are not
being offered at this time. Class A shares are subject to an initial sales
charge of up to 4.50% and an annual service fee of 0.25% of average daily net
assets. Class B shares are subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase and pay annual
distribution and service fees of 1.00%. Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight years
after the issuance of the Class B shares. Class C shares are only offered to
certain employee benefit plans and large institutions. No sales charge is
imposed at the time of purchase or redemption of Class C shares. Class C shares
do not pay any distribution or service fees. Class D shares are subject to a
contingent deferred sales charge of 1.00% on any shares redeemed within one year
of their purchase. Class D shares also pay annual distribution and service fees
of 1.00%. The Fund's expenses are borne pro-rata by each class, except that each
class bears expenses, and has exclusive voting rights with respect to provisions
of the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. 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.
5
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STATE STREET RESEARCH INTERMEDIATE BOND FUND
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B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
C. Net Investment Income
Net investment income is determined daily and consists of interest accrued
and discount earned, less the estimated daily expenses of the Fund. Interest
income is accrued daily as earned. Discount on debt obligations is amortized
under the effective yield method. The Fund is charged for expenses directly
attributable to it, while indirect expenses are allocated between both funds
in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing
treatments for foreign currency transactions.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
G. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are
marked-to-market at the applicable transaction rates resulting in unrealized
gains or losses. The Fund records realized gains or losses at the time the
forward contracts are extinguished by entry into a closing contract or by
delivery of the currency. Neither spot transactions nor forward currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
price of these securities should decline.
H. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.55% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the six months ended October 31, 1996, the fees
pursuant to such agreement amounted to $46,420.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the six months ended October 31, 1996, the amount
of such expenses was $4,126.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $7,082 during the six months ended October 31, 1996.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the six months ended October 31, 1996, the amount of such
expenses assumed by the Distributor and its affiliates was $112,782.
6
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STATE STREET RESEARCH INTERMEDIATE BOND FUND
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NOTES (cont'd)
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Note 4
For the six months ended October 31, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $3,766,635 and $3,591,858
(including $2,949,814 and $2,143,749 of U.S. Government securities),
respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
will pay annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund will pay annual distribution fees of 0.75% of average daily net assets
for Class B and Class D shares. The Distributor uses such payments for
personal service and/or the maintenance or servicing of shareholder accounts,
to reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the six months ended October 31,
1996, fees pursuant to such plan amounted to $748 for Class A.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At October 31, 1996,
Metropolitan owned 50,402 Class A shares and 1,406,327 Class C shares of the
Fund and the Adviser owned 10,551 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Six months ended
October 31, 1996 Year ended
(Unaudited) April 30, 1996
----------------------- ------------------------------
Class A Shares Amount Shares Amount
----------------------------------------------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 138 $ 1,347 270 $ 2,653
Issued upon reinvestment of:
Dividend from net investment income 6 55 -- --
Distributions from net realized gains 489 4,744 8,595 84,835
Shares repurchased -- -- (1,005,714) (10,003,474)
----------- ------------ -------------- ---------------
Net increase (decrease) 633 $ 6,146 (996,849) $ (9,915,986)
=========== ============ ============== ===============
Class C Shares Amount Shares Amount
----------------------------------------------------- ------------ -------------- ---------------
Shares sold 23,977 $ 230,246 1,290,402 $ 12,860,137
Issued upon reinvestment of:
Dividends from net investment income 8,029 76,837 12,035 118,427
Distributions from net realized gains 13,453 129,421 5,319 52,496
Shares repurchased (15,894) (153,496) (34,534) (345,484)
----------- ------------ -------------- ---------------
Net increase 29,565 $ 283,008 1,273,222 $ 12,685,576
=========== ============ ============== ===============
</TABLE>
7
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
-----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class A
----------------------------------------------------
May 16, 1994
(Commencement
Six months ended of Operations)
October 31, 1996 Year ended to
(Unaudited)** April 30, 1996** April 30, 1995
-------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.75 $ 9.66 $ 9.55
Net investment income* 0.29 0.59 0.54
Net realized and unrealized gain on
investments, foreign currency and forward
contracts 0.11 0.10 0.01
Dividends from net investment income (0.27) (0.52) (0.44)
Distributions from net realized gains (0.08) (0.08) --
---------------- ----------------- ----------------
Net asset value, end of period $ 9.80 $ 9.75 $ 9.66
================ ================= ================
Total return 4.14%+++ 7.13%+ 5.96%+++
Net assets at end of period (000s) $ 602 $ 593 $10,222
Ratio of operating expenses to average net
assets* 1.00%++ 1.00% 1.00%++
Ratio of net investment income to average
net assets* 6.37%++ 5.91% 5.92%++
Portfolio turnover rate 25.42% 117.28% 157.75%
*Reflects voluntary assumption of fees or
expenses per share in each period
(Note 3). $ 0.06 $ 0.09 $ 0.11
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------
May 16, 1994
(Commencement
Six months ended of Operations)
October 31, 1996 Year ended to
(Unaudited)** April 30, 1996** April 30, 1995
-------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.68 $ 9.67 $ 9.55
Net investment income* 0.30 0.61 0.56
Net realized and unrealized gain on
investments, foreign currency and forward
contracts 0.11 0.09 0.02
Dividends from net investment income (0.28) (0.61) (0.46)
Distributions from net realized gains (0.08) (0.08) --
---------------- ----------------- ----------------
Net asset value, end of period $ 9.73 $ 9.68 $ 9.67
================ ================= ================
Total return 4.32%+++ 7.25%+ 6.30%+++
Net assets at end of period (000s) $16,431 $16,075 $ 3,738
Ratio of operating expenses to average net
assets* 0.75%++ 0.75% 0.75%++
Ratio of net investment income to average
net assets* 6.64%++ 6.16% 6.17%++
Portfolio turnover rate 25.42% 117.28% 157.75%
*Reflects voluntary assumption of fees or
expenses per share in each period
(Note 3). $ 0.06 $ 0.11 $ 0.10
</TABLE>
++ Annualized
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
** Per share figures have been calculated using the average shares method.
8
<PAGE>
STATE STREET RESEARCH INTERMEDIATE BOND FUND
FUND INFORMATION, OFFICERS AND TRUSTEES
OF STATE STREET RESEARCH SECURITIES TRUST
Fund Information
State Street Research
Intermediate Bond Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Bartlett R. Geer
Vice President
John H. Kallis
Vice President
Kim M. Peters
Vice President
Thomas A. Shively
Vice President
Elizabeth McCombs Westvold
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of the
Board and Chief Executive Officer,
Raytheon Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School
of Management, Massachusetts
Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel,
Choate, Hall & Stewart
9
<PAGE>
State Street Research Intermediate Bond Fund
One Financial Center
Boston, MA 02111
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[STATE STREET RESEARCH LOGO]
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was
not industry-wide.
CONTROL NUMBER: 3548-961219(0198)SSR-LD Cover Illustration by Dorothy Cullinan
IB-110E-1296
<PAGE>
[STATE STREET RESEARCH LOGO]
STATE STREET RESEARCH
STRATEGIC INCOME FUND
SEMIANNUAL REPORT
October 31, 1996
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
Shareholder Service
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
INVESTMENT UPDATE
INVESTMENT ENVIRONMENT
The Economy
(bullet) After a stronger than expected second quarter in 1996, economic
growth slowed in the third quarter and the month of October.
(bullet) Indicators were mixed. Wages rose somewhat, and unemployment
remained low. Consumer prices and inflation remained contained,
however.
(bullet) The Federal Reserve met several times since April, leaving interest
rates unchanged.
The Markets
(bullet) From April 30 to October 31, 1996, stocks and bonds performed well
overall, peppered with short-term corrections.
(bullet) After a slow start, U.S. bond performance gained momentum, with the
Lehman Brothers Aggregate Bond Index gaining +5.29% and the Merrill
Lynch High Yield Index gaining +6.43%.(1) International bonds saw
comparable results, with the Salomon Brothers World Bond Index
providing a total return of +5.64%.
(bullet) The stock market continued its rise, with the Dow Jones Industrial
Average passing the 6000 point marker. The S&P 500 was up +9.08% for
the six month period ended October 31, 1996.(1)
THE FUND
Since The Fund's Inception
(bullet) Since the Fund's inception on August 30, 1996, Strategic Income Fund
has successfully met its investment objective--providing high
current income consistent with overall total return.
(bullet) The SEC yield for Class A shares of Strategic Income Fund was 6.87%
as of October 31, 1996.
(bullet) Class A shares of the Fund provided a total return of +3.19%.(2) The
net asset value (or price per share) for the Fund's Class A shares
climbed from $7.00 to $7.17.
(bullet) The average credit quality of the bonds in the Fund's portfolio was
BBB (investment grade) on October 31, 1996.
Current Strategy
(bullet) To provide maximum diversification benefits, the Fund spreads its
assets among three bond sectors. As of October 31, 1996, Strategic
Income Fund's assets were invested as follows: 48% in the high-yield
bond sector, 30% in the U.S. government bond sector, 15% in the
international bond sector, and 7% in cash.
(bullet) The high-yield bond sector provides a high level of income for the
Fund, as well as total return potential and diversification
benefits.
(bullet) The U.S. government sector, at 30% of assets, is fairly evenly split
between U.S. agency mortgage securities and U.S. Treasuries.
(bullet) The international bond sector is invested in government bonds issued
by Canada, Denmark, France, Italy, Spain, Australia and Sweden.
(1)The Lehman Brothers Aggregate Bond Index is a commonly used measure of
bond market performance. The Merrill Lynch High Yield Index is a commonly
used index of high-yield bond performance. The Salomon Brothers World Bond
Index is a commonly used index of international bond performance. The
Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely traded
common stocks and is a commonly used indicator of U.S. stock market
performance. The indices are unmanaged and do not take sales charges into
account. Direct investment in the indices is not possible; results are for
illustrative purposes only.
(2)+2.94% for Class B shares; +3.22% for Class C shares; 2.94% for Class D
shares. Returns do not reflect sales charges.
(3)All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends.
(4)Performance reflects maximum 4.5% "A" share front-end sales charge or 5%
"B" share or 1% "D" share contingent deferred sales charges, where
applicable. Aggregate total returns are not annualized.
(5)Performance does not reflect sales charges, which, if reflected, would
reduce performance. Aggregate total returns are 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 October 31, 1996)
Aggregate Total Returns (8/30/96-10/31/96)
(at maximum applicable sales charge)(3,4)
Life of Fund
(since 8/30/96)
- ---------- ----------------
Class A -1.46%
- ---------- ----------------
Class B -2.06%
- ---------- ----------------
Class C +3.22%
- ---------- ----------------
Class D +1.94%
Aggregate Total Returns (8/30/96-10/31/96)
(not including sales charge)(3,5)
Life of Fund
(since 8/30/96)
- ---------- ----------------
Class A +3.19%
- ---------- ----------------
Class B +2.94%
- ---------- ----------------
Class C +3.22%
- ---------- ----------------
Class D +2.94%
SEC Yield
Class A 6.87%
- ---------- --------
Class B 6.44%
- ---------- --------
Class C 7.45%
- ---------- --------
Class D 6.42%
SEC yield is based on the net investment income produced for the 30 days
ended October 31, 1996.
How The Fund Is Invested
(by percentage of net assets)
[pie chart]
High-Yield Corporate Bond Sector 48%
U.S. Government Bond Sector 30%
International Bond Sector 15%
Cash 7%
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
INVESTMENT PORTFOLIO
October 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
------------------------------ ---------------------------------- --------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 91.3%
U.S. Treasury 15.8%
U.S. Treasury Bond, 8.125% $ 1,875,000 8/15/2021 $2,181,150
U.S. Treasury Note, 8.50% 2,075,000 5/15/1997 2,108,387
U.S. Treasury Note, 6.125% 525,000 5/15/1998 528,486
U.S. Treasury Note, 6.25% 475,000 8/31/2000 478,638
U.S. Treasury Note, 6.625% 1,800,000 7/31/2001 1,837,962
U.S. Treasury Note, 7.50% 250,000 11/15/2001 264,765
--------------
7,399,388
--------------
U.S. Agency Mortgage 14.4%
Federal Home Loan Mortgage
Corp., 7.00% 899,748 9/01/2025 884,560
Federal Home Loan Mortgage
Corp., 7.50% 882,813 7/01/2026 885,841
Federal National Mortgage
Association, 9.00% 1,006,859 5/01/2009 1,066,637
Federal National Mortgage
Association, 8.00% 500,008 5/01/2016 518,203
Federal National Mortgage
Association REMIC, 6.50% 500,000 10/25/2018 487,500
Government National Mortgage
Association, 6.50% 409,964 5/15/2009 406,184
Government National Mortgage
Association, 6.50% 543,876 1/15/2024 519,908
Government National Mortgage
Association, 7.00% 671,040 4/15/2026 658,035
Government National Mortgage
Association, 7.50% 568,904 5/15/2026 570,678
Government National Mortgage
Association, 8.00% 722,841 9/15/2026 739,105
--------------
6,736,651
--------------
Foreign Government 15.4%
Australian Dollar
Commonwealth of Australia,
7.50% 1,700,000 7/15/2005 1,363,126
Canadian Dollar
Government of Canada,
7.50% 1,100,000 12/01/2003 886,000
Danish Krone
Kingdom of Denmark,
8.00% 7,600,000 3/15/2006 1,407,209
European Currency
Unit
Government of France,
8.00% 475,000 4/25/2003 669,708
Italian Lira
Republic of Italy,
8.50% 1,835,000,000 4/01/1999 1,248,453
Spanish Peseta
Government of Spain,
7.40% 100,000,000 7/30/1999 797,602
Government of Spain,
8.40% 40,000,000 4/30/2001 329,856
Swedish Krona
Kingdom of Sweden,
13.00% 2,500,000 6/15/2001 $ 477,535
--------------
7,179,489
--------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Corporate 45.7%
Bayou Steel Corp. First Mortgage
Note, 10.25% $ 200,000 3/01/2001 192,000
Benedek Communications Co. Sr. Sub.
Disc. Note, 0.00% to 5/14/2001,
13.25% from 5/15/2001 to maturity+ 1,500,000 5/15/2006 825,000
Casino Magic Corp. Sr. Sec. Note,
13.00%+ 1,000,000 8/15/2003 1,015,000
CHC Helicopter Corp. Sr. Sub. Note,
11.50% 1,000,000 7/15/2002 997,500
Empire Gas Corp. Sr. Sec. Note, to
7/14/99, 12.875% from 7/15/99 to
maturity 750,000 7/15/2004 658,125
Envirosource Inc. Note, 9.75% 1,000,000 6/15/2003 935,000
Euramax International PLC Sr. Sub.
Note, 11.25%+ 250,000 10/01/2006 255,000
Geotek Communications Inc. Sr. Disc.
Note, 0.00% to 7/14/2000, 15.00%
from 7/15/2000 to maturity 250,000 7/15/2005 160,000
Grand Union Co. Sr. Sub. Note,
12.00% 1,000,000 9/01/2004 1,010,000
Haynes International Inc. Sr. Note,
11.625% 1,000,000 9/01/2004 1,040,000
Insight Communications Co. L.P. Sr.
Sub. Disc. Note, 11.25% 1,000,000 3/01/2000 1,010,000
Intertek Financial Corp. Sr. Sub.
Note, 10.25%+ 500,000 11/01/2006 500,000
Ionica PLC Units, 13.50%+ 1,000,000 8/15/2006 1,010,625
La Petite Holdings Corp. Sr. Sec.
Notes, 9.625% 750,000 8/01/2001 697,500
Muzak L.P. Sr. Note, 10.00% 250,000 10/01/2003 251,250
NL Industries, Inc. Sr. Sec. Note,
11.75% 500,000 10/15/2003 515,625
Outdoor Systems Inc. Sr. Sub. Note,
9.375% 750,000 10/15/2006 744,375
Pagemart Inc. Sr. Disc. Exch. Note,
0.00% to 10/31/98, 12.25% from
11/1/98 to maturity 750,000 11/01/2003 588,750
Park Newspapers Inc. Sr. Note,
11.875%+ 750,000 5/15/2004 864,375
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
INVESTMENT PORTFOLIO (cont'd)
Principal Maturity Value
Amount Date (Note 1)
--------------------------------- ------------ ------------- --------------
Plastic Specialties & Technology,
Inc. Sr. Note, 11.25% $ 500,000 12/01/2003 $ 510,000
PriCellular Wireless Corp. Sr.
Note, 10.75%+ 500,000 11/01/2004 503,750
Sheffield Steel Corp. First
Mortgage Note, 12.00% 1,000,000 11/01/2001 925,000
Spanish Broadcasting Systems Inc.
Sr. Note, 7.50% 1,000,000 6/15/2002 1,045,000
Spinnaker Industries, Inc. Sr.
Sec. Note, 10.75%+ 250,000 10/15/2006 253,750
Star Markets Co. Sr. Sub. Note,
13.00% 500,000 11/01/2004 545,000
Talley Manufacturing & Technology
Inc. Sr. Note, 10.75% 250,000 10/15/2003 258,750
Tokheim Corp. Sr. Sub. Note,
11.50%+ 1,000,000 8/01/2006 1,057,500
TransTexas Gas Corp. Sr. Sec.
Note, 11.50% 1,000,000 6/15/2002 1,060,000
Universal Outdoor Inc. Sr. Sub.
Note, 9.75% 500,000 10/15/2006 495,000
Wireless One Inc. Unit, 0.00% to
7/31/2001, 13.50% from 8/1/2001
to maturity 750,000 8/01/2006 388,125
Wireless One Inc. Sr. Disc. Note,
13.00% 1,000,000 10/15/2003 1,015,000
--------------
21,327,000
--------------
Total Fixed Income Securities (Cost $42,017,487) 42,642,528
--------------
- ----------------------------------------------------------------------------
Shares
--------------------------------- ------------ ------------- --------------
PREFERRED STOCKS 2.1%
Hollinger International, Inc. Cv.
Pfd. 80,000 980,000
--------------
Total Preferred Stocks (Cost $911,398) 980,000
--------------
SHORT-TERM OBLIGATIONS 7.6%
American Express Credit Corp.,
5.30% $ 112,000 11/04/1996 $ 112,000
American Express Credit Corp.,
5.25% 1,806,000 11/04/1996 1,806,000
Ford Motor Credit Co., 5.20% 1,620,000 11/01/1996 1,620,000
--------------
Total Short-Term Obligations (Cost $3,538,000) 3,538,000
--------------
Total Investments (Cost $46,466,885)--101.0% 47,160,528
Cash and Other Assets, Less Liabilities--(1.0)% (450,666)
--------------
Net Assets--100.0% $46,709,862
==============
Federal Income Tax Information:
At October 31, 1996, the net unrealized appreciation of
investments based on cost for Federal income tax purposes
of $46,466,885 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost $ 813,580
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value (119,937)
--------------
$ 693,643
==============
+ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securities among certain
qualified buyers. The cost and market value of the Rule 144A security owned
at October 31, 1996 was $6,245,673 and $6,285,000 (13.46% of net assets),
respectively.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
Forward currency exchange contracts outstanding at October 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation Delivery
Total Value Contract Price (Depreciation) Date
- --------------------------------------------- ------------------ --------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Buy Australian dollars, Sell U.S. dollars 370,000 AUD .79172 AUD $ 176 11/14/96
Sell Australian dollars, Buy U.S. dollars 1,840,000 AUD .79979 AUD 13,964 11/14/96
Sell Canadian dollars, Buy U.S. dollars 1,020,000 CAD .74683 CAD (3,337) 1/24/97
Sell Danish krone, Buy U.S. dollars 6,140,000 DKK .17441 DKK 13,810 11/14/96
Sell Danish krone, Buy U.S. dollars 1,379,000 DKK .17111 DKK (1,454) 11/14/96
Sell European currency units, Buy U.S.
dollars 325,000 ECU 1.26900 ECU 592 11/14/96
Sell European currency units, Buy U.S.
dollars 163,000 ECU 1.24706 ECU (3,280) 11/14/96
Sell Italian lira, Buy U.S. dollars 560,000,000 ITL .00066 ITL 623 11/14/96
Sell Italian lira, Buy U.S. dollars 350,000,000 ITL .00065 ITL (2,528) 11/14/96
Sell Italian lira, Buy U.S. dollars 350,000,000 ITL .00066 ITL (1,108) 11/14/96
Sell Italian lira, Buy U.S. dollars 465,000,000 ITL .00065 ITL (2,755) 11/14/96
Sell Spanish peseta, Buy U.S. dollars 39,300,000 ESP .00774 ESP (3,453) 11/14/96
Sell Spanish peseta, Buy U.S. dollars 29,200,000 ESP .00778 ESP (1,602) 11/14/96
Sell Spanish peseta, Buy U.S. dollars 63,400,000 ESP .00772 ESP (5,550) 1/24/97
Sell Swedish krona, Buy U.S. dollars 3,000,000 SEK .15172 SEK (1,190) 11/14/96
-------------
$ 2,908
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996 (Unaudited)
Assets
Investments, at value (Cost $46,466,885) (Note 1) $47,160,528
Cash 956
Receivable for fund shares sold 1,053,533
Interest and dividends receivable 924,788
Receivable for open forward contracts 29,165
Receivable from Distributor (Note 3) 5,000
Deferred organization costs and other assets (Note 1) 78,980
--------------
49,252,950
--------------
Liabilities
Payable for securities purchased 2,201,518
Dividends payable 236,216
Accrued management fee (Note 2) 27,598
Payable for open forward contracts 26,257
Accrued distribution and service fees (Note 5) 11,223
Payable for fund shares redeemed 4,296
Accrued trustees' fees (Note 2) 2,520
Accrued transfer agent and shareholder services (Note 2) 189
Other accrued expenses 33,326
--------------
2,543,143
--------------
Net Assets $46,709,807
==============
Net Assets consist of:
Undistributed net investment income $ 127,644
Unrealized appreciation of investments 693,643
Unrealized appreciation of forward contracts and foreign
currency 3,416
Accumulated net realized gain 105,954
Shares of beneficial interest 45,779,150
--------------
$46,709,807
==============
Net Asset Value and redemption price per share of Class A
shares ($28,801,924 / 4,016,213 shares of beneficial
interest) $7.17
==============
Maximum Offering Price per share of Class A shares ($7.17 /
.955) $7.51
==============
Net Asset Value, offering price and redemption price per
share of Class B shares ($5,070,278 / 707,958 shares of
beneficial interest)* $7.16
==============
Net Asset Value, offering price and redemption price per
share of Class C shares ($9,298,007 / 1,296,418 shares of
beneficial interest) $7.17
==============
Net Asset Value and offering price and redemption price per
share of Class D shares ($3,539,598 /
494,261 shares of beneficial interest)* $7.16
==============
*Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
STATEMENT OF OPERATIONS
For the period August 30, 1996 (commencement of operations) to October 31,
1996 (Unaudited)
Investment Income
Interest, net of foreign taxes of $10,858 $ 511,595
Dividends 11,900
-------------
523,495
Expenses
Management fee (Note 2) 47,349
Custodian fee 12,411
Service fee--Class A (Note 5) 10,424
Distribution and service fees--Class B (Note 5) 3,719
Distribution and service fees--Class D (Note 5) 3,382
Registration fees 6,486
Audit fee 3,906
Amortization of organization costs (Note 1) 2,754
Trustees' fees (Note 2) 2,520
Legal fees 1,575
Reports to shareholders 1,449
Transfer agent and shareholder services (Note 2) 189
Miscellaneous 252
-------------
96,416
Expenses borne by the Distributor (Note 3) (9,444)
-------------
86,972
-------------
Net investment income 436,523
-------------
Realized and Unrealized Gain (Loss) on Investments,
Foreign Currency and Forward Contracts
Net realized gain on investments (Notes 1 and 4) 124,764
Net realized loss on forward contracts and foreign
currency (Note 1) (18,810)
-------------
Total net realized gain 105,954
-------------
Net unrealized appreciation of investments 693,643
Net unrealized appreciation of forward contracts and
foreign currency 3,416
-------------
Total net unrealized appreciation 697,059
-------------
Net gain on investments, foreign currency and forward
contracts 803,013
-------------
Net increase in net assets resulting from operations $1,239,536
=============
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period August 30, 1996 (commencement of operations) to October 31,
1996 (Unaudited)
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 436,523
Net realized gain on investments, foreign currency and
forward contracts 105,954
Net unrealized appreciation of investments, foreign
currency and forward contracts 697,059
---------------
Net increase resulting from operations 1,239,536
---------------
Dividends from net investment income:
Class A (202,980)
Class B (18,748)
Class C (71,776)
Class D (15,375)
---------------
(308,879)
---------------
Net increase from fund share transactions (Note 6) 45,779,150
---------------
Total increase in net assets 46,709,807
Net Assets
Beginning of period --
---------------
End of period (including undistributed net investment
income of $127,644) $ 46,709,807
===============
*Net realized gain for Federal income tax purposes (Note
1) $ 124,764
===============
The accompanying notes are an integral part of the financial statements.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
October 31, 1996
Note 1
State Street Research Strategic Income Fund (the "Fund"), is a series of
State Street Research Securities Trust (the "Trust"), which was organized as
a Massachusetts business trust in January, 1994 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund commenced operations in August, 1996. The Trust
consists presently of two separate funds: State Street Research Strategic
Income Fund and State Street Research Intermediate Bond Fund.
The investment objective of the Fund is to provide high current income
consistent with overall total return. In seeking to achieve its investment
objective, the Fund invests primarily in U.S. Government securites; high
yield, high risk debt securities (commonly known as "junk bonds"), as well as
investment grade debt, of U.S. issuers; and international debt securities of
governmental and private issuers.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and
pay annual distribution and service fees of 1.00%. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after the issuance of the Class B shares. Class C shares are only
offered to certain employee benefit plans and large institutions. No sales
charge is imposed at the time of purchase or redemption of Class C shares.
Class C shares do not pay any distribution or service fees. Class D shares are
subject to a contingent deferred sales charge of 1.00% on any shares redeemed
within one year of their purchase. Class D shares also pay annual distribution
and service fees of 1.00%. The Fund's expenses are borne pro-rata by each
class, except that each class bears expenses, and has exclusive voting rights
with respect to provisions of the Plan of Distribution, related specifically to
that class. The Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. 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.
6
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
NOTES (cont'd)
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of
the Fund. Interest income is accrued daily as earned. Dividend income is
accrued on the ex-dividend date. Discount on debt obligations is amortized
under the effective yield method. The Fund is charged for expenses directly
attributable to it, while indirect expenses are allocated between both funds
in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing
treatments for foreign currency transactions.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund intends
to qualify under Subchapter M of the Internal Revenue Code and its policy is
to distribute all of its taxable income, including net realized capital
gains, within the prescribed time periods.
F. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
G. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are
marked-to-market at the applicable transaction rates resulting in unrealized
gains or losses. The Fund records realized gains or losses at the time the
forward contracts are extinguished by entry into a closing contract or by
delivery of the currency. Neither spot transactions nor forward currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
price of these securities should decline.
H. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the period August 30, 1996 (commencement of operations)
to October 31, 1996, the fees pursuant to such agreement amounted to $47,349.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the period August 30, 1996 (commencement of
operations) to October 31, 1996, the amount of such expenses was $99.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $2,520 during the period August 30, 1996 (commencement of operations) to
October 31, 1996.
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 August 30, 1996 (commencement of operations) to
October 31, 1996, the amount of such expenses assumed by the Distributor and
its affiliates was $9,444.
Note 4
For the period August 30, 1996 (commencement of operations) to October 31,
1996, purchases and sales of securities, exclusive of short-term obligations,
aggregated $50,781,281 and $8,001,326 (including $17,726,933 and $3,888,826
of U.S. Government securities), respectively.
7
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
will pay annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund will pay annual distribution fees of 0.75% of average daily net assets
for Class B and Class D shares. The Distributor uses such payments for
personal service and/or the maintenance or servicing of shareholder accounts,
to reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the period August 30, 1996
(commencement of operations) to October 31, 1996, fees pursuant to such plan
amounted to $10,424, $3,719 and $3,382 for Class A, Class B and Class D,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $6,042 and $17,260, respectively, on sales of Class A shares of
the Fund during the period August 30, 1996 (commencement of operations) to
October 31, 1996, and that MetLife Securities, Inc. earned commissons
aggregating $13,246 on sales of Class B shares.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At October 31, 1996,
Metropolitan owned 3,571,428 Class A shares, 71,428 Class B shares, 1,285,714
Class C shares and 71,428 Class D shares of the Fund and the Adviser owned
one share of each of Class A, Class B, Class C and Class D shares of the
Fund.
Share transactions were as follows:
August 30, 1996
(Commencement of
Operations) to
October 31, 1996
(Unaudited)
---------------------------
Class A Shares Amount
- ------------------------- ------------ --------------
Shares sold 4,018,620 $28,191,155
Issued upon reinvestment
of dividends 1,671 11,978
Shares repurchased (4,078) (29,200)
------------ --------------
Net increase 4,016,213 $28,173,933
============ ==============
Class B Shares Amount
- ------------------------- ------------ --------------
Shares sold 708,103 $ 5,033,343
Issued upon reinvestment
of dividends 638 4,566
Shares repurchased (783) (5,605)
------------ --------------
Net increase 707,958 $ 5,032,304
============ ==============
Class C Shares Amount
- ------------------------- ------------ -------------
Shares sold 1,296,376 $9,075,924
Issued upon reinvestment
of dividends 42 295
------------ -------------
Net increase 1,296,418 $9,076,219
============ =============
Class D Shares Amount
- ------------------------- ------------ -------------
Shares sold 495,566 $3,505,952
Issued upon reinvestment
of dividends 147 1,049
Shares repurchased (1,452) (10,307)
------------ -------------
Net increase 494,261 $3,496,694
============ =============
8
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
For a share outstanding from August 30, 1996 (commencement of operations) to
October 31, 1996 (Unaudited):
<TABLE>
<CAPTION>
Class A Class B Class C Class D
----------------------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.00 $ 7.00 $ 7.00 $ 7.00
Net investment income* 0.07 0.05 0.08 0.06
Net realized and unrealized gain on investments, foreign
currency and forward contracts 0.15 0.16 0.15 0.15
Dividends from net investment income (0.05) (0.05) (0.06) (0.05)
--------- --------- --------- ----------
Net asset value, end of period $ 7.17 $ 7.16 $ 7.17 $ 7.16
========= ========= ========= ==========
Total return 3.19%+ 2.94%+ 3.22%+ 2.94%+
Net assets at end of period (000s) $28,802 $5,070 $9,298 $3,540
Ratio of operating expenses to average net assets* 1.35%++ 2.10%++ 1.10%++ 2.10%++
Ratio of net investment income to average net assets* 6.89%++ 6.14%++ 7.14%++ 6.14%++
Portfolio turnover rate 29.84% 29.84% 29.84% 29.84%
*Reflects voluntary assumption of fees or expenses per
share (Note 3). $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
+ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charge. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
++ Annualized.
9
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH SECURITIES
TRUST
Fund Information
State Street Research
Strategic Income Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Bartlett R. Geer
Vice President
John H. Kallis
Vice President
Kim M. Peters
Vice President
Thomas A. Shively
Vice President
Elizabeth McCombs Westvold
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of the
Board and Chief Executive Officer,
Raytheon Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School
of Management, Massachusetts
Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel,
Choate, Hall & Stewart
10
<PAGE>
State Street Research Strategic Income Fund
One Financial Center
Boston, MA 02111
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[STATE STREET RESEARCH LOGO]
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was
not industry-wide.
CONTROL NUMBER: 3558-961219(0198)SSR-LD Cover Illustration by Dorothy Cullinan
SI-520E-1296
