STATE STREET RESEARCH
---------------------
STRATEGIC INCOME FUND
---------------------
SEMIANNUAL REPORT
October 31, 1998
---------------------
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
STATE STREET RESEARCH FUNDS
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT UPDATE
- --------------------------------------------------------------------------------
INVESTMENT ENVIRONMENT
The Economy
[bullet] The economy continued positive during the past six months. Personal
income rose, and unemployment remained at a low 4.5%. Inflation
remained in check at 1.5%.
[bullet] Consumer confidence has trended downward, and the savings rate has
fallen to zero, both indications that the U.S. economy is likely to
slow in the months ahead.
[bullet] The Federal Reserve Board cut short-term interest rates by one-quarter
percent late in September, then surprised most investors with another
one-quarter percent cut in October.
The Markets
[bullet] After sliding nearly 1500 points late in the summer, the Dow Jones
Industrial Average bounced back strongly on the heels of the Fed's
back-to-back interest rate cuts.
[bullet] The bond market produced mixed results. High-quality U.S. Treasury
bonds were strong performers. The yield on the benchmark 30-year
Treasury fell, then pushed back up over 5.0% at the quarter's end.
Investors sold high-yield bonds on fears of an economic slowdown.
THE FUND
Over the Past Six Months
[bullet] For the six months ended October 31, 1998, Strategic Income Fund Class
A shares lost 1.87% [does not reflect sales charge).(2) During a
turbulent period in the financial markets, the Fund held up much better
than the average multi-sector fund, which lost 5.09%, according to
Lipper Analytical Services. However, the Fund underperformed the Lehman
Brothers Aggregate Bond Index, which returned 5.55% for the same
period.(1)
[bullet] The Fund's investment in high-yield bonds hurt performance. The yield
spread between high-grade and high-yield bonds widened from about 3% at
the beginning of the period to almost 7% at the end of the period.
[bullet] The Fund benefited from avoiding emerging markets, which lost
substantial ground during the period.
Current Strategy
[bullet] We increased the Fund's holdings in investment-grade bonds.
[bullet] We cut back on the Fund's investment in high-yield, lower quality
bonds.
[bullet] We have positioned the Fund's investments to anticipate a slower
economy with declining interest rates.
October 31, 1998
(1)The Lehman Brothers Aggregate Bond Index is a market-value weighted index of
fixed-rate debt issues, including U.S. treasury, agency, and corporate bond
issues, and mortgage-backed securities. The index does not take transaction
charges into consideration. It is not possible to invest directly in the index.
(2)-2.10% for Class B shares; -2.11% for Class C shares; -1.75% 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.
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, 1998, except where
noted)
- --------------------------------------------------------------------------------
Average Annual Total Return
for periods ended 9/30/98
(at maximum applicable sales charge)(3,4)
<TABLE>
<CAPTION>
==========================================
Life of Fund
(since 8/30/96) 1 Year
- ------------------------------------------
<S> <C> <C>
Class A 6.59% 0.07%
- ----------------------------------------
Class B 6.72% -0.86%
- ----------------------------------------
Class C 8.04% 2.93%
- ----------------------------------------
Class S 9.23% 5.04%
==========================================
</TABLE>
Average Annual Total Return
(at maximum applicable sales charge)(3,4)
<TABLE>
<CAPTION>
======================================
Life of Fund
(since 8/30/96) 1 Year
- --------------------------------------
<S> <C> <C>
Class A 5.58% -2.03%
- --------------------------------------
Class B 5.74% -2.80%
- --------------------------------------
Class C 7.00% 0.91%
- --------------------------------------
Class S 8.11% 2.84%
======================================
</TABLE>
<TABLE>
<CAPTION>
Yield
================
<S> <C>
Class A 6.37%
- ----------------
Class B 5.92%
- ----------------
Class C 5.93%
- ----------------
Class S 6.92%
================
</TABLE>
Yield is based on the net investment income produced for the 30 days ended
October 31, 1998.
Asset Allocation
(by percentage of net assets)
[PIE CHART]
High-Yield Corporate 44%
Cash 1%
Equities 2%
Finance/Mortgage 6%
International 15%
U.S. Government 32%
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 96.5%
U.S. Treasury 18.6%
U.S. Treasury Bond, 11.625% ............. $1,125,000 11/15/2004 $ 1,539,495
U.S. Treasury Bond, 12.00% .............. 950,000 8/15/2013 1,466,715
U.S. Treasury Bond, 9.875% .............. 175,000 11/15/2015 265,179
U.S. Treasury Bond, 8.75% ............... 1,025,000 5/15/2017 1,431,638
U.S. Treasury Bond, 8.125% .............. 2,125,000 8/15/2021 2,876,379
U.S. Treasury Bond, 6.875% .............. 2,050,000 8/15/2025 2,482,735
U.S. Treasury Bond, 6.625% .............. 2,125,000 2/15/2027 2,516,128
U.S. Treasury Note TIPS, 3.625% ......... 353,563 4/15/2028 353,782
U.S. Treasury Note, 5.625% .............. 925,000 10/31/1999 935,554
U.S. Treasury Note, 6.375% .............. 1,450,000 8/15/2002 1,548,325
U.S. Treasury Note, 6.25% ............... 1,100,000 8/31/2002 1,169,949
U.S. Treasury Note, 5.75% ............... 300,000 4/30/2003 316,923
U.S. Treasury Note, 7.875% .............. 725,000 11/15/2004 852,441
U.S. Treasury STRIPS, 0.00% ............. 1,400,000 11/15/2001 1,227,478
U.S. Treasury STRIPS, 0.00% ............. 2,750,000 5/15/2007 1,831,388
-----------
20,814,109
-----------
U.S. Agency Mortgage 12.5%
Federal Home Loan Mortgage
Corp., 6.00% .......................... 965,370 5/01/2013 969,290
Federal Home Loan Mortgage
Corp., 6.50% .......................... 375,000 10/15/2019 385,429
Federal National Mortgage
Association, 8.50% .................... 1,000,000 2/01/2005 1,045,780
Federal National Mortgage
Association, 6.82% .................... 650,000 8/23/2005 716,014
Federal National Mortgage
Association, 6.96% .................... 875,000 4/02/2007 973,849
Federal National Mortgage
Association, 6.00% .................... 400,000 5/15/2008 424,000
Federal National Mortgage
Association, 9.00% .................... 656,844 5/01/2009 692,557
Federal National Mortgage
Association, 8.00% .................... 354,469 5/01/2016 370,200
Federal National Mortgage
Association TBA, 6.50% ................ 1,025,000 11/17/2013 1,041,656
Federal National Mortgage
Association TBA, 6.50% ................ 3,025,000 11/12/2028 3,046,742
Federal National Mortgage
Association TBA, 6.50% ................ 1,725,000 11/12/2028 1,703,438
Government National Mortgage
Association TBA, 7.00% ................ 600,000 11/18/2028 613,688
Government National Mortgage
Association TBA, 7.00% ................ 2,000,000 11/18/2028 1,981,248
-----------
13,963,891
-----------
<CAPTION>
- ---------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Canadian-Yankee 0.5%
Manitoba Province Canada,
5.50% ................................. $225,000 10/01/2008 $ 224,017
Province of Ontario Deb.,
5.50% ................................. 375,000 10/01/2008 372,690
-----------
596,707
-----------
Foreign Government 14.8%
Republic of Greece, Greek Drachma
8.80% ................................. 1,195,000,000 6/19/2007 4,406,449
Government of New Zealand, New Zealand Dollar
10.00% ................................ 4,150,000 3/15/2002 2,513,322
Government of New Zealand,
8.00% ................................. 4,800,000 11/15/2006 2,967,903
United Kingdom Treasury, Pound Sterling
8.50% ................................. 3,295,000 12/07/2005 6,617,806
-----------
16,505,480
-----------
Finance/Mortgage 6.1%
AT&T Universal Card Master
Trust Series 95-2A, 5.95% ............. $600,000 10/17/2002 608,622
Capital One Bank Sr. Note,
6.25% ................................. 250,000 2/20/2001 250,380
Capital One Bank Sr. Note,
6.15% ................................. 325,000 6/01/2001 323,853
Citibank Credit Card Master
Trust, 6.55% .......................... 225,000 2/15/2004 233,481
CNA Financial Corp. Note,
6.50% ................................. 400,000 4/15/2005 402,468
Countrywide Funding Corp.
Note, 6.58% ........................... 575,000 9/21/2001 593,527
ERAC USA Finance Co., Note
6.75%+ ................................ 500,000 5/15/2007 504,900
ERAC USA Finance Co. Note,
6.625%+ ............................... 150,000 2/15/2005 151,961
Finova Capital Corp. Note,
6.50% ................................. 400,000 7/28/2002 403,384
Florida Windstorm Sr. Sec.
Note, Series 1997, 6.85%+ ............. 175,000 8/25/2007 182,597
Ford Credit Auto owner Trust
1996A-A3, 6.50% ....................... 69,512 11/15/1999 69,555
GMAC Commercial Mortgage
Security Inc. 98-C1 Cl. A1,
6.411% ................................ 194,562 11/15/2007 194,805
LB Commercial Mortgage Trust
98C1-A1, 6.33% ........................ 167,221 11/18/2004 169,050
MBNA Corp. Sr. Note, 6.12% .............. 425,000 8/13/2001 434,554
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
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INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance/Mortgage (cont'd)
MBNA Master Credit Card
Trust Series 98-JA, 5.25% ........ $ 925,000 2/15/2006 $ 922,317
Morgan Stanley Capital Inc.
98-A1, 6.19% ..................... 168,181 1/15/2007 170,332
Prudential Home Mortgage
Securities Co. Series 93-45
A-2 PAC, 6.75% ................... 285,934 11/25/2007 287,629
Sears Credit Account Master
Trust Series 1998-2A, 5.25%....... 475,000 10/16/2008 470,518
Zurich Capital Trust Note,
8.376%+ .......................... 350,000 6/01/2037 375,914
---------
6,749,847
---------
Corporate 44.0%
Advanstar Commerce Inc. Sr.
Note, 9.25%+ ..................... 900,000 5/01/2008 837,000
Allbritton Communications Co.
Series B Sr. Sub. Deb.,
9.75% ............................ 500,000 11/30/2007 505,000
American Lawyer Media Inc.
Sr. Sub. Note Series B,
9.75% ............................ 500,000 12/15/2007 496,250
American Pacific Corp. Sr.
Note, 9.25% ...................... 550,000 3/01/2005 536,250
American Telecasting Inc. Sr.
Note, 0.00% to 6/14/99,
12.50% from 6/15/99
to maturity ...................... 372,349 6/15/2004 85,640
Ameristar Casinos Inc. Sr. Sub.
Note, 10.50% ..................... 750,000 8/01/2004 705,000
Ametek Inc. Sr. Note, 7.20% ........ 500,000 7/15/2008 479,690
Archibald Candy Corp. Sr. Sec.
Note, 10.25% ..................... 750,000 7/01/2004 757,500
Aurora Foods Inc. Sr. Sub.
Note, 8.75% ...................... 250,000 7/01/2008 257,500
Auto Leasing Investment Trust
1997-A4, 6.066%+ ................. 200,000 8/14/1998 203,936
Ball Corp. Sr. Note, 7.75%+ ........ 1,250,000 8/01/2006 1,293,750
Ball Corp. Sr. Sub. Note,
8.25%+ ........................... 250,000 8/01/2008 258,125
Benedek Communications Corp.
Sr. Sub. Note, 0.00% to
5/14/2001, 13.25% from
5/15/2001 to maturity ............ 1,500,000 5/15/2006 997,500
British Gas Finance Inc.
Note, 6.625% ..................... 200,000 6/01/2018 192,698
<CAPTION>
- ---------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Infrastructure
Development Series
1997-A6, 6.38% ................... $ 225,000 9/25/2008 $ 231,750
California Infrastructure
Development Series
1997-A7, 6.42% ................... 250,000 9/25/2008 259,531
Call-Net Enterprises Inc. Sr.
Note, 8.00% ...................... 500,000 8/15/2008 465,000
Capstar Broadcasting Partners Sr.
Note, 0.00% to 1/31/2002,
12.75% from 2/1/2002
to maturity ...................... 1,000,000 2/01/2009 730,000
Cargill Inc. Sr. Note, 6.875%+ ..... 200,000 5/01/2028 197,708
Cellnet Data Systems Inc. Sr.
Note Series B, 0.00% to
9/30/2002, 14.00% from
10/1/2002 to maturity ............ 750,000 10/01/2007 195,000
Cluett American Corp. Sr. Sub.
Note, 10.125%+ ................... 250,000 5/15/2008 221,250
Columbia/HCA Healthcare Corp.
Note, 8.12% ...................... 325,000 8/04/2003 335,403
Columbia/HCA Healthcare Corp.
Note, 7.69% ...................... 175,000 6/15/2025 149,373
Columbia/HCA Healthcare Corp.
Note, 7.75% ...................... 400,000 7/15/2036 345,700
Drypers Corp. Series B Sr.
Note, 10.25% ..................... 500,000 6/15/2007 457,500
E. Spire Communications Sr.
Note, 0.00% to 3/31/2001,
12.75% from 4/1/2001
to maturity ...................... 400,000 4/01/2006 290,000
Econophone Inc. Sr. Note,
13.50% ........................... 1,000,000 7/15/2007 1,000,000
Econophone Inc. Sr. Note,
0.00% to 2/14/2003, 11.00%
from 2/15/2003 to maturity ....... 500,000 2/15/2008 242,500
Elgar Holdings Inc. Sr. Sub.
Note, 9.875% ..................... 500,000 2/01/2008 440,000
Elgin National Industries Inc.
Sr. Note Series B, 11.00% ........ 250,000 11/01/2007 246,250
Empire Gas Corp. Sr. Sec.
Note, 7.00% to 7/14/99,
12.875% from 7/15/99
to maturity ...................... 1,000,000 7/15/2004 775,000
Envirosource Inc. Note, 9.75% ...... 1,500,000 6/15/2003 1,440,000
Envirosource Inc. Sr. Note
Series B, 9.75% .................. 250,000 6/15/2003 207,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
First Wave Marine Inc. Sr.
Note, 11.00% ................... $ 250,000 2/01/2008 $ 238,750
French Fragrances Inc. Series B
Sr. Note, 10.375% .............. 150,000 5/15/2007 150,750
Frontier Corp. Sr. Note, 9.125% 750,000 2/15/2006 660,000
GNI Group Inc. Sr. Note,
10.875%+ ....................... 300,000 7/15/2005 294,000
Golden Ocean Group Ltd. Sr.
Note, 10.00% ................... 1,000,000 8/31/2001 330,000
Henry Co. Sr. Note, 10.00%+ ...... 350,000 4/15/2008 326,375
ICG Holdings Inc. Sr. Note,
0.00% to 9/14/2000, 13.50%
from 9/15/2000 to maturity ..... 350,000 9/15/2005 262,500
International Knife & Saw Inc.
Sr. Sub. Note, 11.375% ......... 600,000 11/15/2006 588,000
International Shipholding Corp.
Sr. Note, 9.00% ................ 250,000 7/01/2003 256,250
International Shipholding Corp.
Sr. Note Series B, 7.75% ....... 750,000 10/15/2007 701,250
Intertek Finance PLC Series B
Sr. Sub. Note, 10.25% .......... 1,250,000 11/01/2006 1,137,500
J. Crew Group Inc. Sr. Deb.
Note, 0.00% to 10/14/2002,
13.125% from 10/15/2002 to
maturity ....................... 500,000 10/15/2008 180,000
J. Crew Operating Corp. Sr.
Sub. Note, 10.375% ............. 750,000 10/15/2007 562,500
J.B. Poindexter Inc. Sr. Note,
12.50% ......................... 1,000,000 5/15/2004 900,000
J.H. Heafner Inc. Sr. Note,
10.00%+ ........................ 250,000 5/15/2008 237,500
Johnstown America Industries
Inc. Sr. Sub. Note, 11.75% ..... 500,000 8/15/2005 519,375
K-III Communications Corp. Sr.
Note, 8.50% .................... 750,000 2/01/2006 765,000
Kaiser Aluminum & Chemical
Corp. Sub. Note, 12.75% ........ 500,000 2/01/2003 455,000
Krystal Co. Sr. Note, 10.25% ..... 250,000 10/01/2007 247,500
Loehmanns Inc. Sr. Note,
11.875% ........................ 500,000 5/15/2003 400,000
Loewen Group International Inc.
Sr. Note, 7.60%+ ............... 1,000,000 6/01/2008 720,000
Microcell Telecommunications
Inc. Sr. Note Series B,
0.00% to 10/14/2002,
11.125% from 10/15/2002
to maturity .................... 1,250,000 10/15/2007 392,903
<CAPTION>
- ---------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
NE Restaurant Inc. Sr. Note,
10.75%+ ........................ $ 900,000 7/15/2008 $ 850,500
Newpark Resources Inc.
Sr. Sub. Note Series B,
8.625% ......................... 250,000 12/15/2007 243,750
News America Holdings Inc.
Deb., 7.375% ................... 400,000 10/17/2008 414,632
North Atlantic Trading Inc.
Sr. Note, 11.00% ............... 1,000,000 6/15/2004 945,000
Ocean Energy Inc. Series B
Sr. Note, 7.625%+ .............. 250,000 7/01/2005 237,500
Ocean Energy Inc. Sr. Sub.
Note, 8.375%+ .................. 750,000 7/01/2008 725,625
Orion Network Systems Inc.
Sr. Note, 11.25% ............... 1,000,000 1/15/2007 930,000
Owens-Illinois Inc. Sr. Deb.,
7.50% .......................... 1,000,000 5/15/2010 1,050,310
P&L Coal Holdings Corp. Sr.
Note, 8.875%+ .................. 400,000 5/15/2008 406,000
Packaging Resources Inc. Sr.
Sec. Note, 11.625% ............. 750,000 5/01/2003 727,500
Pagemart Nationwide Inc. Sr.
Note, 0.00% to 1/31/2000,
15.00% from 2/1/2000
to maturity .................... 1,325,000 2/01/2005 1,179,250
Pagemart Wireless Inc. Sr. Sub.
Note, 0.00% to 1/31/2002,
11.25% from 2/1/2003
to maturity .................... 500,000 2/01/2008 237,500
Phase Metrics Inc. Sr. Note,
10.75%+ ........................ 500,000 2/01/2005 337,500
Pogo Producing Co. Sr. Sub.
Note, 8.75% .................... 250,000 5/15/2007 238,750
Primus Telecommunications
Group Sr. Note, 11.75%+ ........ 500,000 8/01/2004 460,000
Quest Diagnostics Inc. Sr.
Sub. Note, 10.75% .............. 1,000,000 12/15/2006 1,040,000
Railcar Leasing LLC Sr. Sec.
Note, 6.75%+ ................... 167,628 7/15/2006 171,661
Rose Hills Co. Sr. Sub. Note,
9.50% .......................... 250,000 11/15/2004 220,000
RSL Communications Ltd. Sr.
Note, 12.25% ................... 1,000,000 11/15/2006 1,030,000
Service Corp. Note, 6.30% ........ 350,000 3/15/2020 358,946
SFX Entertainment Inc. Sr. Note
Series B, 9.125% ............... 500,000 2/01/2008 460,000
Simonds Industries Inc. Sr. Sub.
Note, 10.25%+ .................. 500,000 7/01/2008 475,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Spanish Broadcasting Systems
Inc. Sr. Note, 12.50% ........... $1,000,000 6/15/2002 $ 1,085,000
Startec Global Communications
Sr. Note, 12.00%+ ............... 750,000 5/15/2008 472,500
Stena AB Sr. Note, 8.75% .......... 500,000 6/15/2007 462,500
Tekni Plex Inc. Series B Sr.
Sub. Note, 11.25% ............... 500,000 4/01/2007 530,000
Tenet Healthcare Corp. Sr.
Note, 7.625%+ ................... 1,250,000 6/01/2008 1,262,500
Tom's Foods Inc. Sr. Sec.
Note, 10.50% .................... 500,000 11/01/2004 452,500
Transamerican Energy Corp.
Sr. Sec. Note Series B,
11.50% .......................... 1,250,000 6/15/2002 462,500
Transamerican Energy Corp.
Sr. Sec. Note Series B,
0.00% to 6/14/99,
13.00% from 6/15/99
to maturity ..................... 1,000,000 6/15/2002 320,000
Transwestern Publishing
Company LP Sr. Sub. Note,
9.625% .......................... 250,000 11/15/2007 251,250
U.S.A. Mobile Communications
Inc. Sr. Note, 9.50% ............ 500,000 2/01/2004 375,000
Unilab Corp. Sr. Note, 11.00% ..... 500,000 4/01/2006 500,000
Usinor Sacilor SA Note, 7.25% 650,000 8/01/2006 663,169
Viacom Inc. Sr. Note, 7.75% ....... 750,000 6/01/2005 808,373
Viatel Inc. Sr. Note, 11.25% ...... 1,000,000 4/15/2008 800,000
Viatel Inc. Sr. Note, 0.00% to
4/14/2003, 12.50% from
4/15/2003 to maturity+ .......... 500,000 4/15/2008 235,000
Westpoint Stevens Inc. Sr.
Note, 7.875% .................... 500,000 6/15/2008 502,188
Winstar Equipment Corp. Sr.
Sec. Exch. Note, 12.50% ......... 625,000 3/15/2004 578,125
Wireless One Inc. Sr. Note,
13.00% .......................... 1,000,000 10/15/2003 135,000
Wireless One Inc. Sr. Note,
0.00% to 7/31/2001, 13.50%
from 8/1/2001 to maturity ....... 750,000 8/01/2006 60,000
Woodside Finance Ltd. Note,
6.60%+ .......................... 300,000 4/15/2008 282,906
------------
49,138,392
------------
Total Fixed Income Securities (Cost $113,329,897) ........... 107,768,426
------------
<CAPTION>
- ---------------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS & OTHER 2.2%
Ameriking Inc. Com.+* ...................... 300 $ 11,700
Ameriking Inc. Sr. Exch. Pfd.(diamond) ..... 14,997 374,924
Cluett American Corp. Sr. Exch. Pfd.+
(diamond) ................................ 5,000 427,500
Econophone Inc. Wts.+* ..................... 750 7,500
Golden Ocean Group Ltd. Wts.+* ............. 250 750
Hollinger International, Inc. Cl. A, Com.* . 96,900 1,259,700
Ionica PLC Wts.+* .......................... 1,000 500
Loral Orion Network Systems Inc. Wts.* ..... 1,000 9,000
North Atlantic Trading Inc. Sr. Pfd.
(diamond) ................................. 11,571 260,347
North Atlantic Trading Inc. Wts.+* ......... 10 10
Primus Telecommunications Group Wts.* ...... 500 3,500
RSL Communications Ltd. Wts.+* ............. 500 46,000
Viatel Inc. Pfd.+(diamond).................. 748 44,857
Wireless One Inc. Wts.* .................... 750 8
-----------
Total Common Stocks & Other (Cost $2,474,195) .............. 2,446,296
-----------
SHORT-TERM INVESTMENTS 26.1%
State Street Navigator Securities Lending
Prime Portfolio .......................... 29,154,641 29,154,641
-----------
Total Short-Term Investments (Cost $29,154,641)............. 29,154,641
-----------
<CAPTION>
- -------------------------------------------------------------------------------
Principal Maturity
Amount Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 9.2%
American Express Credit Corp.,
5.35% ....................... $ 293,000 11/02/1998 293,000
American Express Credit Corp.,
5.35% ....................... 135,000 11/02/1998 135,000
American Express Credit Corp.,
5.13% ....................... 3,205,000 11/09/1998 3,205,000
General Electric Capital Corp.,
5.10% ....................... 3,374,000 11/04/1998 3,374,000
Household Finance Corp.,
5.50% ....................... 3,205,000 11/03/1998 3,205,000
------------
Total Commercial Paper (Cost $10,212,000) ............... 10,212,000
------------
Total Investments (Cost $155,170,733)--134.0% ........... 149,581,363
Cash and Other Assets, Less Liabilities--(34.0%) ........ (37,945,598)
------------
Net Assets--100.0% ...................................... $111,635,765
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Federal Income Tax Information:
At October 31, 1998, the net unrealized depreciation of investments based on
cost for Federal income tax purposes of $155,178,626 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost ....................................... $ 2,584,123
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .......................................... (8,181,386)
------------
$ (5,597,263)
============
</TABLE>
- --------------------------------------------------------------------------------
* Nonincome-producing securities
+ Security restricted in accordance with Rule 144A under the Securities Act of
1933, which allows for the resale of such securities among certain qualified
buyers. The total cost and market value of Rule 144A securities owned at
October 31, 1998 were $13,781,695 and $12,825,525 (11.49% of net assets),
respectively.
TBA Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the principal
value has not been finalized and may vary by no more than 1%.
(diamond) Payments of income may be made in cash or in the form of additional
securities.
Forward currency exchange contracts outstanding at October 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation Delivery
Total Value Contract Price (Depreciation) Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sell British pounds, Buy U.S. dollars ....... 3,871,000 GBP 1.69865 GBP $ 123,485 1/22/99
Sell Canadian dollars, Buy U.S. dollars ..... 609,169 CAD .64842 CAD 166 1/22/99
Sell Deutsche marks, Buy U.S. dollars ....... 5,221,000 DEM .56465 DEM (205,926) 11/13/98
Sell Deutsche marks, Buy U.S. dollars ....... 2,150,000 DEM .56453 DEM (85,074) 11/13/98
Sell New Zealand dollars, Buy U.S. dollars .. 645,000 NZD .50741 NZD (14,407) 11/13/98
Sell New Zealand dollars, Buy U.S. dollars .. 1,885,000 NZD .50100 NZD (54,186) 11/13/98
Sell New Zealand dollars, Buy U.S. dollars .. 199,000 NZD .50400 NZD (5,123) 11/13/98
Sell New Zealand dollars, Buy U.S. dollars .. 4,455,000 NZD .52640 NZD (18,184) 1/22/99
Sell New Zealand dollars, Buy U.S. dollars .. 2,710,000 NZD .52550 NZD (13,501) 1/22/99
----------
$ (272,750)
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
October 31, 1998 (Unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $155,170,733) (Note 1) ................... $149,581,363
Cash ................................................................. 1,533
Receivable for securities sold ....................................... 4,839,573
Interest and dividends receivable .................................... 2,462,344
Receivable for fund shares sold ...................................... 672,852
Receivable for open forward contracts ................................ 123,651
Deferred organization costs and other assets (Note 1) ................ 98,104
------------
157,779,420
Liabilities
Payable for collateral received on securities loaned ................. 29,154,641
Payable for securities purchased ..................................... 15,614,885
Payable for open forward contracts ................................... 396,401
Dividends payable .................................................... 392,978
Payable for fund shares redeemed ..................................... 241,808
Accrued management fee (Note 2) ...................................... 70,420
Accrued distribution and service fees (Note 5) ....................... 57,002
Accrued transfer agent and shareholder services
(Note 2) ........................................................... 29,036
Accrued trustees' fees (Note 2) ...................................... 7,701
Other accrued expenses ............................................... 178,783
------------
46,143,655
------------
Net Assets $111,635,765
============
Net Assets consist of:
Undistributed net investment income ................................. $ 681,958
Unrealized depreciation of investments .............................. (5,589,370)
Unrealized depreciation of forward contracts and
foreign currency .................................................. (262,672)
Accumulated net realized gain ....................................... 507,453
Paid-in capital ..................................................... 116,298,396
------------
$111,635,765
============
Net Asset Value and redemption price per share of
Class A shares ($42,591,335 [divided by] 6,215,862 shares) ......... $ 6.85
============
Maximum offering Price per share of Class A shares
($6.85 [divided by] .955) .......................................... $ 7.17
============
Net Asset Value and offering price per share of
Class B shares ($44,061,874 [divided by] 6,446,130 shares)*......... $ 6.84
============
Net Asset Value and offering price per share of
Class C shares ($13,573,169 [divided by] 1,985,368 shares)*......... $ 6.84
============
Net Asset Value, offering price and redemption price per share of
Class S shares ($11,409,387 [divided by] 1,664,988 shares) ......... $ 6.85
============
</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 six months ended October 31, 1998 (Unaudited)
<TABLE>
<S> <C>
Investment Income
Interest, net of foreign taxes of $25,032 (Note 1) ......... $ 4,617,508
Dividends .................................................. 92,328
-----------
4,709,836
Expenses
Management fee (Note 2) .................................... 409,737
Custodian fee .............................................. 138,368
Service fee--Class A (Note 5) .............................. 53,736
Distribution and service fees--Class B (Note 5) ............ 205,850
Distribution and service fees--Class C (Note 5) ............ 66,700
Transfer agent and shareholder services (Note 2) ........... 61,640
Reports to shareholders .................................... 26,864
Legal fees ................................................. 20,240
Audit fee .................................................. 9,752
Amortization of organization costs (Note 1) ................ 8,190
Trustees' fees (Note 2) .................................... 920
-----------
1,001,997
Expenses borne by the Distributor (Note 3) ................. (74,763)
-----------
927,234
-----------
Net investment income ...................................... 3,782,602
-----------
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency
and Forward Contracts
Net realized gain on investments (Notes 1 and 4) ........... 244,679
Net realized gain on forward contracts and foreign
currency (Note 1) ........................................ 270,357
-----------
Total net realized gain .................................. 515,036
-----------
Net unrealized depreciation of investments ................. (6,141,290)
Net unrealized depreciation of forward contracts and
foreign currency ......................................... (393,584)
-----------
Total net unrealized depreciation ........................ (6,534,874)
-----------
Net loss on investments, foreign currency and
forward contracts ........................................ (6,019,838)
-----------
Net decrease in net assets resulting from operations $(2,237,236)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
October 31, 1998
<TABLE>
<CAPTION>
Six months ended
Year ended October 31, 1998
April 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ................ $ 6,679,112 $ 3,782,602
Net realized gain on
investments, foreign
currency and forward
contracts .......................... 3,167,777 515,036
Net unrealized appreciation
(depreciation) of
investments, foreign
currency and forward
contracts .......................... 1,289,060 (6,534,874)
------------ ------------
Net increase (decrease)
resulting from operations .......... 11,135,949 (2,237,236)
------------ ------------
Dividends from net investment income:
Class A ............................. (3,130,569) (1,578,577)
Class B ............................. (1,958,332) (1,360,570)
Class C ............................. (778,492) (439,802)
Class S ............................. (898,928) (446,413)
------------ ------------
(6,766,321) (3,825,362)
------------ ------------
Distributions from net realized gains:
Class A ............................. (648,291) (495,957)
Class B ............................. (436,211) (460,362)
Class C ............................. (179,325) (158,030)
Class S ............................. (176,107) (136,996)
------------ ------------
(1,439,934) (1,251,345)
------------ ------------
Net increase from fund share
transactions (Note 6) .............. 25,482,412 15,251,025
------------ ------------
Total increase in net assets ......... 28,412,106 7,937,082
Net Assets
Beginning of period .................. 75,286,577 103,698,683
------------ ------------
End of period (including
undistributed net
investment income of
$724,718 and $681,958,
respectively) ...................... $103,698,683 $111,635,765
============ ============
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
October 31, 1998
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 three separate funds: State Street Research Strategic Income Fund,
State Street Research Legacy Fund and State Street Research Galileo 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 securities; 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 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 to certain employee retirement
accounts, advisory accounts of State Street Research & Management Company (the
"Adviser"), an indirect wholly owned subsidiary of Metropolitan Life Insurance
Company ("Metropolitan"). 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
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.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered. Gains and losses that arise from
changes in exchange rates are not segregated from gains and losses that arise
from changes in market prices of investments.
C. Net Investment Income
Net investment income is determined daily and consists of interest and dividends
accrued and discount earned, less the estimated daily expenses of the Fund.
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. Discount on debt obligations is amortized under the effective
yield method. The Fund is charged for expenses directly attributable to it,
while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income are declared daily and paid or reinvested
monthly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund 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.
I. Securities Lending
The Fund may seek additional income by lending portfolio securities to qualified
institutions. The Fund will receive cash or securities as collateral in an
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the Fund could realize additional gains and losses. If
the borrower fails to return the securities and the value of the collateral has
declined during the term of the loan, the Fund will bear the loss. At October
31, 1998, the value of the securities loaned and the value of collateral were
$23,290,944 and $29,154,641, respectively. During the six months ended October
31, 1998, income from securities lending amount to $15,032 and is included in
interest income.
Note 2
The Trust and the Adviser have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses of
management. During the six months ended October 31, 1998, the fees pursuant to
such agreement amounted to $409,737.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the six months ended October 31, 1998, the amount of
such expenses was $35,184.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$920 during the six months 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 six months ended October 31, 1998, the amount of such expenses assumed by
the Distributor and its affiliates was $74,763.
9
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 4
For the six months ended October 31, 1998, purchases and sales of securities,
exclusive of short-term obligations, aggregated $98,004,190 and $86,093,393
(including $59,865,977 and $55,495,061 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 C shares. In addition, the Fund will pay
annual distribution fees of 0.75% of average daily net assets for Class B and
Class C shares. The Distributor uses such payments for personal service and/or
the maintenance or servicing of shareholder accounts, to compensate or reimburse
securities dealers for distribution and marketing services, to furnish ongoing
assistance to investors and to defray a portion of its distribution and
marketing expenses. For the six months ended October 31, 1998, fees pursuant to
such plan amounted to $53,736, $205,850 and $66,700 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 $23,332 and $107,815, respectively, on sales of Class A shares of
the Fund during the six months ended October 31, 1998, and that MetLife
Securities, Inc. earned commissions aggregating $193,654 on sales of Class B
shares, and that the Distributor collected contingent deferred sales charges
aggregating $51,218 and $1,263 on redemptions of Class B and Class C shares,
respectively, during the same period.
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, 1998,
Metropolitan owned 2,848,416 Class A shares and 1,323,999 Class S shares of the
Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Six months ended
Year ended October 31, 1998
April 30, 1998 (Unaudited)
---------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Class A Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 1,831,188 $ 13,384,860 976,548 $ 6,991,879
Issued upon reinvestment of:
Dividends from net investment income .......... 113,717 832,229 80,100 567,770
Distributions from net realized gains ......... 84,556 616,483 64,049 461,788
Shares repurchased ............................. (1,501,194) (10,988,056) (548,507) (3,912,721)
---------- ------------- -------- ------------
Net increase ................................... 528,267 $ 3,845,516 572,190 $ 4,108,716
========== ============= ======== ============
Class B Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 3,029,126 $ 22,080,859 1,880,149 $ 13,418,498
Issued upon reinvestment of:
Dividends from net investment income .......... 132,474 967,752 93,644 660,996
Distributions from net realized gains ......... 45,675 332,565 53,236 382,767
Shares repurchased ............................. (879,529) (6,410,034) (701,553) (5,047,781)
---------- ------------- --------- ------------
Net increase ................................... 2,327,746 $ 16,971,142 1,325,476 $ 9,414,480
========== ============= ========= ============
Class C Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 837,933 $ 6,117,105 532,717 $ 3,795,428
Issued upon reinvestment of:
Dividends from net investment income .......... 19,637 143,668 9,422 65,597
Distributions from net realized gains ......... 20,990 152,814 18,812 135,254
Shares repurchased ............................. (286,313) (2,097,991) (386,958) (2,782,775)
---------- ------------- --------- ------------
Net increase ................................... 592,247 $ 4,315,596 173,993 $ 1,213,504
========== ============= ========= ============
Class S Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 21,859 $ 158,930 73,048 $ 526,860
Issued upon reinvestment of:
Dividends from net investment income .......... 20,699 151,403 11,716 83,077
Distributions from net realized gains ......... 24,029 175,173 18,908 136,325
Shares repurchased ............................. (18,351) (135,348) (32,083) (231,937)
---------- ------------- --------- ------------
Net increase ................................... 48,236 $ 350,158 71,589 $ 514,325
========== ============= ========= ============
</TABLE>
10
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------
August 30, 1996
(Commencement Six months ended
of Operations) to Year ended October 31, 1998
April 30, 1997(1) April 30, 1998(1) (Unaudited)(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ($) 7.00 7.06 7.33
----- ----- -----
Net investment income ($)* 0.38 0.55 0.26
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) 0.01 0.38 (0.39)
----- ----- -----
Total from investment operations ($) 0.39 0.93 (0.13)
----- ----- -----
Dividends from net investment income ($) (0.31) (0.55) (0.26)
Distributions from net realized gains ($) (0.02) (0.11) (0.09)
----- ----- -----
Total distributions ($) (0.33) (0.66) (0.35)
----- ----- -----
Net asset value, end of period ($) 7.06 7.33 6.85
===== ===== =====
Total return(2) (%) 5.60(3) 13.70 (1.87)(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 36,110 41,348 42,591
Ratio of operating expenses to average net assets (%)* 1.35(4) 1.35 1.35(4)
Ratio of net investment income to average net assets (%)* 7.30(4) 7.51 7.27(4)
Portfolio turnover rate (%) 110.37 179.82 81.51
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.01 0.01 0.00
<CAPTION>
Class B
---------------------------------------------------------
August 30, 1996
(Commencement Six months ended
of Operations) to Year ended October 31, 1998
April 30, 1997(1) April 30, 1998(1) (Unaudited)(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ($) 7.00 7.05 7.31
----- ----- ------
Net investment income ($)* 0.31 0.49 0.23
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) 0.04 0.38 (0.37)
----- ----- ------
Total from investment operations ($) 0.35 0.87 (0.14)
----- ----- ------
Dividends from net investment income ($) (0.28) (0.50) (0.24)
Distributions from net realized gains ($) (0.02) (0.11) (0.09)
----- ----- ------
Total distributions ($) (0.30) (0.61) (0.33)
----- ----- ------
Net asset value, end of period ($) 7.05 7.31 6.84
===== ===== ======
Total return(2) (%) 4.96(3) 12.74 (2.10)(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 19,678 37,432 44,062
Ratio of operating expenses to average net assets (%)* 2.10(4) 2.10 2.10(4)
Ratio of net investment income to average net assets (%)* 6.73(4) 6.77 6.52(4)
Portfolio turnover rate (%) 110.37 179.82 81.51
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.01 0.01 0.00
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------
August 30, 1996
(Commencement Six months ended
of Operations) to Year ended October 31, 1998
April 30, 1997(1) April 30, 1998(1) (Unaudited)(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ($) 7.00 7.05 7.31
----- ----- -----
Net investment income ($)* 0.32 0.49 0.23
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) 0.03 0.38 (0.37)
----- ----- -----
Total from investment operations ($) 0.35 0.87 (0.14)
----- ----- -----
Dividends from net investment income ($) (0.28) (0.50) (0.24)
Distributions from net realized gains ($) (0.02) (0.11) (0.09)
----- ----- -----
Total distributions ($) (0.30) (0.61) (0.33)
----- ----- -----
Net asset value, end of period ($) 7.05 7.31 6.84
===== ===== =====
Total return(2) (%) 4.96(3) 12.74 (2.11)(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 8,590 13,243 13,573
Ratio of operating expenses to average net assets (%)* 2.10(4) 2.10 2.10(4)
Ratio of net investment income to average net assets (%)* 6.67(4) 6.77 6.52(4)
Portfolio turnover rate (%) 110.37 179.82 81.51
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.01 0.01 0.00
<CAPTION>
Class S
---------------------------------------------------------
August 30, 1996
(Commencement Six months ended
of Operations) to Year ended October 31, 1998
April 30, 1997(1) April 30, 1998(1) (Unaudited)(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ($) 7.00 7.06 7.33
----- ----- -----
Net investment income ($)* 0.39 0.57 0.27
Net realized and unrealized gain (loss) on investments,
foreign currency and forward contracts ($) 0.02 0.38 (0.39)
----- ----- -----
Total from investment operations ($) 0.41 0.95 (0.12)
----- ----- -----
Dividends from net investment income ($) (0.33) (0.57) (0.27)
Distributions from net realized gains ($) (0.02) (0.11) (0.09)
----- ----- -----
Total distributions ($) (0.35) (0.68) (0.36)
----- ----- -----
Net asset value, end of period ($) 7.06 7.33 6.85
===== ===== =====
Total return(2) (%) 5.76(3) 13.99 (1.75)(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 10,908 11,675 11,409
Ratio of operating expenses to average net assets (%)* 1.10(4) 1.10 1.10(4)
Ratio of net investment income to average net assets (%)* 7.51(4) 7.74 7.52(4)
Portfolio turnover rate (%) 110.37 179.82 81.51
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.01 0.01 0.00
</TABLE>
- --------------------------------------------------------------------------------
(1) Per share figures have been calculated using the average shares method.
(2) 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 reduced a portion of the Fund's expenses.
(3) Not annualized.
(4) Annualized.
11
<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
Service Center
P.0. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Thomas J. Dillman
Vice President
Bartlett R. Geer
Vice President
John H. Kallis
Vice President
Kim M. Peters
Vice President
Thomas A. Shively
Vice President
James M. Weiss
Vice President
Elizabeth McCombs Westvold
Vice President
Kennard Woodworth, Jr.
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Steve A. Garban
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
12
<PAGE>
State Street Research Strategic Income Fund
One Financial Center
Boston, MA 02111
-------------
Bulk Rate
U.S. Postage
PAID
Permit #20
Holliston, MA
01746
-------------
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 LOGO] State Street Research
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Strategic Income 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 SI-520E-1298
<PAGE>
--------------------------------
STATE STREET RESEARCH
--------------------------------
GALILEO FUND
--------------------------------
SEMIANNUAL REPORT
October 31, 1998
---------------------
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 STATE STREET RESEARCH FUNDS
Shareholder Service
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
INVESTMENT UPDATE
- --------------------------------------------------------------------------------
INVESTMENT ENVIRONMENT
THE ECONOMY
o The economy continued positive during the past six months. Personal income
rose, and unemployment remained at a low 4.5%. Inflation remained in check
at 1.5%.
o Consumer confidence has trended downward, and the savings rate has fallen
to zero, both indications that the U.S. economy is likely to slow in the
months ahead.
o The Federal Reserve Board cut short-term interest rates by one-quarter per
cent late in September, then surprised most investors with another
one-quarter per cent cut in October.
THE MARKETS
o After sliding nearly 1500 points late in the summer, the Dow Jones
Industrial Average bounced back strongly on the heels of the Fed's
back-to-back interest rate cuts.
o The bond market produced mixed results. High-quality U.S. Treasury bonds
were strong performers. The yield on the benchmark 30-year Treasury fell,
then pushed back up over 5.0% at the quarter's end. Investors sold
high-yield bonds on fears of an economic slowdown.
THE FUND
OVER THE PAST SIX MONTHS
o For the six months ended October 31, 1998, Galileo Fund Class A shares lost
5.85% [does not reflect sales charge](2). That was slightly better than the
average growth fund, which lost 6.78%, according to Lipper Analytical
Services. The Fund underperformed the Russell 1000 Index, which returned
-1.82% for the same period.
o The Fund trailed its benchmark because it did not have the same emphasis on
the very largest domestic companies, which were the best performing sector
of the stock market during the period.
o The Fund was helped by its investment in retail stocks and also by
underweighting tobacco and food and beverage company stocks. An emphasis on
semiconductor, property and casualty insurers and pharmaceutical
manufacturers hurt performance.
CURRENT STRATEGY
o The Fund relies on in-depth fundamental research by the investment
manager's large number of research analysts.
o We believe that stock selection is the key to long-term performance,
through both good and bad markets.
October 31, 1998
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN FOR PERIOD
ENDED 9/30/98
(at maximum applicable sales charge)(3)(4)(5)
- --------------------------------------------------------------------------------
LIFE OF FUND
(since 3/11/98)
- ---------------------------------------------------------------
Class A -14.80%
- ---------------------------------------------------------------
Class B -15.74%
- ---------------------------------------------------------------
Class C -12.09%
- ---------------------------------------------------------------
Class S -10.68%
- ---------------------------------------------------------------
AGGREGATE TOTAL RETURN
(at maximum applicable sales charge)(3)(4)(5)
- ---------------------------------------------------------------
LIFE OF FUND
(since 3/11/98)
- ---------------------------------------------------------------
Class A - 6.60%
- ---------------------------------------------------------------
Class B - 7.49%
- ---------------------------------------------------------------
Class C - 3.59%
- ---------------------------------------------------------------
Class S - 1.99%
- ---------------------------------------------------------------
TOP 10 HOLDINGS
(by percentage of net assets)
1 MCI WORLDCOM Telecommunication services 2.2%
2 QWEST COMMUNICATIONS Telecommunications 2.1%
3 STAR BANC Full service banking 2.0%
4 WARNER-LAMBERT Pharmaceuticals, consumer products 1.8%
5 CVS Drug retailing 1.7%
6 SMITHKLINE BEECHAM Pharmaceuticals 1.7%
7 RITE AID Discount drug stores 1.6%
8 LUCENT TECHNOLOGIES Telecommunications 1.6%
9 DAYTON HUDSON Retail department stores 1.5%
10 TYCO INTERNATIONAL Diversified manufacturer 1.5%
These securities represent an aggregate of 17.7% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities listed in this table or in the text
above.
TOP 5 INDUSTRIES
(by percentage of net assets)
DRUGS AND BIOTECHNOLOGY 9.1%
TELECOMMUNICATIONS 7.7%
BANKS AND S&LS 6.2%
RETAIL 6.0%
MISCELLANEOUS FINANCIAL 5.7%
Total: 34.7%
Performance results for the Fund are increased by the voluntary reduction of
fund fees and expenses; without subsidization, performance would have been
lower.
(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 index does not take
transaction charges into consideration. It is not possible to invest
directly in the index.
(2) -6.06% for Class B shares; -6.16% for Class C shares; -5.65% 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) Aggregate returns; not annualized.
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 92.0%
AUTOMOBILES & TRANSPORTATION 2.4%
AIR TRANSPORT 0.3%
America West Holdings Corp. Cl. B* ................................ 6,600 $ 101,475
------------
MISCELLANEOUS TRANSPORTATION 1.3%
Harley-Davidson, Inc. ............................................. 11,900 461,125
------------
TRUCKERS 0.8%
CNF Transportation, Inc. .......................................... 9,600 290,400
------------
Total Autos & Transportation .................................................. 853,000
------------
CONSUMER DISCRETIONARY 10.8%
CASINOS/GAMBLING, HOTEL/MOTEL 0.6%
Mirage Resorts, Inc. .............................................. 13,200 223,575
------------
COMMERCIAL SERVICES 1.1%
Cendant Corp. ..................................................... 19,700 225,319
Cintas Corp. ...................................................... 3,200 171,200
------------
396,519
COMMUNICATIONS, MEDIA & ENTERTAINMENT 1.0%
Chancellor Media Corp. ............................................ 8,800 337,700
------------
CONSUMER SERVICES 0.8%
Apollo Group, Inc. Cl. A* ......................................... 9,205 295,711
------------
PRINTING & PUBLISHING 0.6%
News Corp. Ltd. ADR ............................................... 8,200 223,963
------------
RESTAURANTS 0.5%
CKE Restaurants, Inc.* ............................................ 6,800 178,925
------------
RETAIL 6.0%
Dayton Hudson Corp. ............................................... 12,400 525,450
Family Dollar Stores, Inc. ........................................ 9,100 164,938
Fred Meyer Inc.* .................................................. 9,100 485,144
Jones Apparel Group, Inc. ......................................... 7,300 125,925
Office Depot, Inc.* ............................................... 7,400 185,000
Saks, Inc.* ....................................................... 11,200 254,800
Wal-Mart Stores, Inc. ............................................. 5,600 386,400
------------
2,127,656
------------
Total Consumer Discretionary .................................................. 3,784,048
------------
CONSUMER STAPLES 7.9%
BEVERAGES 0.8%
Coca-Cola Enterprises, Inc. ....................................... 7,900 284,894
------------
DRUG & GROCERY STORE CHAINS 4.1%
CVS Corp. ......................................................... 13,300 607,644
Rite Aid Corp. .................................................... 14,500 575,469
Safeway, Inc. ..................................................... 5,700 272,531
------------
1,455,644
------------
FOODS 0.6%
H.J. Heinz Co. .................................................... 3,600 209,250
------------
HOUSEHOLD PRODUCTS 1.1%
Procter & Gamble Co. .............................................. 4,500 399,938
------------
TOBACCO 1.2%
Philip Morris Companies, Inc. ..................................... 8,400 429,450
------------
Total Consumer Staples ........................................................ 2,779,175
------------
FINANCIAL SERVICES 17.5%
BANKS & SAVINGS & LOANS 6.2%
BankAmerica Corp. ................................................. 6,760 388,278
Chase Manhattan Corp. ............................................. 3,800 215,888
Mellon Bank Corp. ................................................. 6,050 363,756
Star Banc Corp. ................................................... 9,500 718,438
U.S. Bancorp ...................................................... 13,500 492,750
------------
2,179,109
------------
INSURANCE 5.6%
Ace Ltd. .......................................................... 8,800 298,100
Exel Ltd. Cl. A ................................................... 2,753 210,432
Hartford Financial Services Group, Inc. ........................... 8,200 435,625
Mutual Risk Management Ltd. ....................................... 6,200 209,638
Saint Paul Companies, Inc. ........................................ 8,200 271,625
Travelers Property Casualty Corp. Cl. A ........................... 7,900 242,431
UNUM Corp. ........................................................ 7,000 311,063
------------
1,978,914
------------
MISCELLANEOUS FINANCIAL 5.7%
AMBAC, Inc. ....................................................... 4,600 267,663
Capital One Financial Corp. ....................................... 2,800 284,900
Citigroup, Inc. ................................................... 9,700 456,506
Federal National Mortgage Association ............................. 4,750 336,359
Merrill Lynch & Company, Inc. ..................................... 5,400 319,950
Providian Financial Corp. ......................................... 4,300 341,313
------------
2,006,691
------------
Total Financial Services ...................................................... 6,164,713
------------
HEALTH CARE 12.1%
DRUGS & BIOTECHNOLOGY 9.1%
Abbott Laboratories ............................................... 1,300 61,019
American Home Products Corp. ...................................... 6,200 302,250
Baxter International, Inc. ........................................ 4,100 245,744
Bristol-Myers Squibb Co. .......................................... 2,900 320,631
Johnson & Johnson ................................................. 3,900 317,850
Pfizer, Inc. ...................................................... 3,600 386,325
Schering-Plough, Corp. ............................................ 3,320 341,545
SmithKline Beecham PLC ............................................ 9,300 592,875
Warner-Lambert Co. ................................................ 8,100 634,838
------------
3,203,076
------------
HEALTH CARE FACILITIES 0.9%
Health Management Associates Cl. A* ............................... 8,100 144,281
Tenet Healthcare Corp. ............................................ 6,200 173,213
------------
317,494
------------
HEALTH CARE SERVICES 0.9%
Quorum Health Group, Inc.* ........................................ 22,800 330,600
HOSPITAL SUPPLY 1.2%
Boston Scientific Corp.* .......................................... 3,800 206,863
Guidant Corp. ..................................................... 2,800 214,200
------------
421,063
------------
Total Health Care ............................................................. 4,272,233
------------
INTEGRATED OILS 2.4%
OIL: INTEGRATED DOMESTIC 1.2%
Amerada Hess Corp. ................................................ 3,900 215,475
Unocal Corp. ...................................................... 5,800 196,838
------------
412,313
------------
OIL: INTEGRATED INTERNATIONAL 1.2%
Mobil Corp. ....................................................... 2,800 211,925
Total SA Cl. B ADR ................................................ 3,700 216,450
------------
428,375
------------
Total Integrated Oils ......................................................... 840,688
------------
MATERIALS & PROCESSING 3.6%
CHEMICALS 0.5%
Cytec Industries, Inc. ............................................ 7,700 184,800
------------
NON-FERROUS METALS 1.0%
Aluminum Co. of America ........................................... 4,300 340,775
------------
PAPER & FOREST PRODUCTS 1.3%
Fort James Corp. .................................................. 11,200 451,500
------------
STEEL 0.8%
Harsco Corp. ...................................................... 8,500 278,375
------------
Total Materials & Processing .................................................. 1,255,450
------------
OTHER 5.2%
MULTI-SECTOR 5.2%
General Electric Co. .............................................. 5,800 507,500
Raytheon Co. Cl. B* ............................................... 5,300 307,731
Teleflex, Inc. .................................................... 5,300 205,044
Trinity Industries, Inc. .......................................... 8,300 308,138
Tyco International Ltd. ........................................... 8,300 514,081
------------
1,842,494
------------
Total Other ................................................................... 1,842,494
------------
OTHER ENERGY 3.8%
GAS PIPELINES 0.5%
Williams Companies, Inc. .......................................... 6,500 178,344
------------
OIL AND GAS PRODUCERS 1.4%
Burlington Resources, Inc. ........................................ 6,050 249,184
Vastar Resources, Inc. ............................................ 5,300 253,406
------------
502,591
------------
OIL WELL EQUIPMENT & SERVICES 1.9%
Halliburton Co. ................................................... 7,100 255,156
Ultramar Diamond Shamrock Co. ..................................... 6,900 185,869
Valero Refining & Marketing Corp. ................................. 9,100 227,500
------------
668,525
------------
Total Other Energy ............................................................ 1,349,459
------------
PRODUCER DURABLES 3.8%
ELECTRICAL EQUIPMENT & COMPONENTS 0.5%
Philips Electronics NV ............................................ 3,500 192,063
------------
INDUSTRIAL PRODUCTS 1.1%
Honeywell, Inc. ................................................... 4,700 375,413
------------
MISCELLANEOUS EQUIPMENT 1.0%
Danaher Corp. ..................................................... 8,400 335,475
------------
OFFICE FURNITURE & BUSINESS EQUIPMENT 1.2%
Xerox Corp. ....................................................... 4,400 426,250
------------
Total Producer Durables ....................................................... 1,329,200
------------
TECHNOLOGY 12.4%
COMMUNICATIONS TECHNOLOGY 2.8%
Ascend Communications, Inc.* ...................................... 9,300 448,725
Lucent Technologies, Inc. ......................................... 6,900 553,294
------------
1,002,019
------------
COMPUTER SOFTWARE 1.8%
Checkpoint Software Technologies Ltd.* ............................ 11,900 270,725
i2 Technologies, Inc.* ............................................ 20,200 376,225
------------
646,950
------------
COMPUTER TECHNOLOGY 4.8%
Cisco Systems, Inc.* .............................................. 7,800 491,400
EMC Corp.* ........................................................ 3,500 225,313
Gateway 2000, Inc.* ............................................... 8,300 463,244
International Business Machines Corp. ............................. 1,600 237,500
Sun Microsystems, Inc.* ........................................... 4,900 285,425
------------
1,702,881
------------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS 2.8%
Analog Devices Inc.* .............................................. 13,400 266,325
Intel Corp.* ...................................................... 5,300 472,694
Texas Instruments Inc. ............................................ 4,000 255,750
------------
994,769
------------
Total Technology .............................................................. 4,346,619
------------
UTILITIES 10.2%
ELECTRICAL 2.0%
DPL, Inc. ......................................................... 7,500 142,031
Idacorp Inc. ...................................................... 4,200 131,250
OGE Energy Corp. .................................................. 5,100 135,469
Sierra Pacific Resources .......................................... 3,800 138,463
Unicom Corp. ...................................................... 3,800 143,213
------------
690,425
------------
GAS DISTRIBUTION 0.5%
Questar Corp. ..................................................... 8,500 167,344
------------
TELECOMMUNICATIONS 7.7%
AirTouch Communications, Inc.* .................................... 7,700 431,200
Colt Telecom Group PLC ADR ........................................ 9,100 467,513
MCI Worldcom Inc.* ................................................ 13,900 767,975
Qwest Communications International, Inc. 19,226 752,217
Sprint Corp. ...................................................... 4,000 307,000
------------
2,725,905
------------
Total Utilities ............................................................... 3,583,674
------------
Total Common Stocks (Cost $32,330,397) ........................................ 32,400,752
------------
<CAPTION>
PRINCIPAL MATURITY
AMOUNT DATE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 6.5%
American Express Credit Corp., 5.13% ................ $ 432,000 11/04/1998 432,000
American Express Credit Corp., 5.40% ................ 854,000 11/04/1998 854,000
Ford Motor Credit Co., 5.40% ........................ 1,000,000 11/06/1998 1,000,000
---------------
Total Commercial Paper (Cost $2,286,000) ................................................ 2,286,000
---------------
Total Investments (Cost $34,616,397) - 98.5% ............................................ 34,686,752
Cash and Other Assets, Less Liabilities - 1.5% .......................................... 536,569
---------------
Net Assets - 100.0% ..................................................................... $ 35,223,321
===============
- ---------------------------------------------------------------------------------------------------------------
Federal Income Tax Information:
At October 31, 1998, the net unrealized appreciation of investments based on cost for
Federal income tax purposes of $34,617,054 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess
of value over tax cost ................................................................ $ 2,405,590
Aggregate gross unrealized depreciation for all investments in which there is an excess
of tax cost over value ................................................................ (2,335,892)
---------------
$ 69,698
===============
- ---------------------------------------------------------------------------------------------------------------
*Non-income-producing securities.
ADR stands for American Depositary Receipt, representing ownership of foreign securities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
October 31, 1998 (Unaudited)
ASSETS
Investments, at value (Cost $34,616,397) (Note 1) ............. $34,686,752
Cash .......................................................... 28,797
Receivable for securities sold ................................ 468,422
Receivable for fund shares sold ............................... 46,417
Receivable from Distributor (Note 3) .......................... 25,777
Dividends and interest receivable ............................. 24,087
Deferred organizational costs and other assets (Note 1) 81,929
-----------
35,362,181
LIABILITIES
Payable for securities purchased .............................. 28,750
Payable for fund shares redeemed .............................. 21,177
Accrued management fee (Note 2) ............................... 18,089
Accrued distribution and service fees (Note 5) ................ 16,737
Accrued trustees' fees (Note 2) ............................... 14,375
Accrued transfer agent and shareholder services (Note 2) ...... 1,892
Other accrued expenses ........................................ 37,840
-----------
138,860
-----------
NET ASSETS $35,223,321
===========
Net Assets consist of:
Unrealized appreciation of investments ...................... $ 70,355
Accumulated net realized loss ............................... (1,615,010)
Paid-in capital ............................................. 36,767,976
-----------
$35,223,321
===========
Net Asset Value and redemption price per share of
Class A shares ($12,558,163 / 1,344,100 shares) ............. $9.34
=====
Maximum Offering Price per share of Class A shares
($9.34 / .955) .............................................. $9.78
=====
Net Asset Value and offering price per share of
Class B shares ($16,110,807 / 1,733,264 shares)* ............ $9.30
=====
Net Asset Value and offering price per share of
Class C shares ($1,955,302 / 210,310 shares)* ............... $9.30
=====
Net Asset Value, offering price and redemption
price per share of Class S shares
($4,599,049 / 491,397 shares) ............................... $9.36
=====
- ------------------------------------------------------------------------------
*Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the six months ended October 31, 1998 (Unaudited)
INVESTMENT INCOME
Dividends, net of foreign taxes of $2,285 ............... $ 155,727
Interest ................................................ 42,943
-----------
198,670
EXPENSES
Management fee (Note 2) ................................. 97,123
Custodian fee ........................................... 80,999
Registration fees ....................................... 34,656
Reports to shareholders ................................. 17,784
Audit fee ............................................... 15,870
Transfer agent and shareholder services (Note 2) ........ 14,993
Amortization of organization costs (Note 1) ............. 10,929
Trustees' fees (Note 2) ................................. 9,611
Service fee-Class A (Note 5) ............................ 13,481
Distribution and service fees-Class B (Note 5) .......... 63,247
Distribution and service fees-Class C (Note 5) .......... 8,868
Legal fees .............................................. 2,750
Miscellaneous ........................................... 1,400
-----------
371,711
Expenses borne by the Distributor (Note 3) .............. (136,695)
-----------
235,016
-----------
Net investment loss ..................................... (36,346)
-----------
Net realized loss on investments (Notes 1 and 4) ........ (1,612,851)
Net unrealized depreciation of investments .............. (216,002)
-----------
Net loss on investments ................................. (1,828,853)
-----------
Net decrease in net assets resulting from operations .... $(1,865,199)
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 11, 1998
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO OCTOBER 31, 1998
APRIL 30, 1998 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) ........................ $ 7,199 $ (36,346)
Net realized loss on investments .................... (2,159) (1,612,851)
Net unrealized appreciation
(depreciation) of investments ..................... 286,357 (216,002)
----------- -----------
Net increase (decrease) resulting
from operations.................................... 291,397 (1,865,199)
----------- -----------
Net increase from fund share
transactions (Note 6).............................. 16,806,946 19,990,177
----------- -----------
Total increase in net assets 17,098,343 18,124,978
NET ASSETS
Beginning of period ................................. -- 17,098,343
----------- -----------
End of period (including undistributed net investment
income of $9,454 and $0, respectively) ............ $17,098,343 $35,223,321
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- ------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
October 31, 1998
NOTE 1
State Street Research Galileo 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 March, 1988. The Trust presently consists of three
separate funds: State Street Research Galileo Fund, State Street Research Legacy
Fund and State Street Research Strategic Income Fund.
The Fund seeks to provide long-term growth of capital. Under normal market
conditions, the Fund invests at least 65% of total assets in stocks and
convertible securities of companies in the Russell 1000 Index and of other U.S.
and foreign companies of comparable size.
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 subjet to a contingent deferred sales charge on
certain redemptions made within five years of purchase and pay annual
distribution and service fees of 1.00%. Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight years
after the issuance of the Class B shares. Class C shares are subject to a
contingent deferred sales charge of 1.00% on any shares redeemed within one year
of their purchase. Class C shares also pay annual distribution and service fees
of 1.00%. Class S shares are only offered through certain retirement accounts,
advisory accounts of State Street Research & Management Company (the "Adviser"),
an indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), and special programs. No sales charge is imposed at the time
of purchase or redemption of Class S shares. Class S shares do not pay any
distribution or service fees. The Fund's expenses are borne pro-rata by each
class, except that each class bears expenses, and has exclusive voting rights
with respect to provisions of the Plan of Distribution, related specifically to
that class. The Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. INVESTMENT VALUATION
Values for listed securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange. Over-the-
counter securities quoted on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") system are valued at closing prices supplied
through such system. In the absence of recorded sales and for those over-the-
counter securities not quoted on the NASDAQ system, valuations are at the mean
of the closing bid and asked quotations. Short-term securities maturing within
sixty days are valued at amortized cost. Other securities, if any, are valued
at their fair value as determined in accordance with established methods
consistently applied.
B. SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. NET INVESTMENT INCOME
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to
it, while indirect expenses are allocated among all funds in the Trust.
D. DIVIDENDS
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. FEDERAL INCOME TAXES
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
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. ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
H. 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 six months ended October 31, 1998, there were no loaned
securities.
NOTE 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.65% of the Fund's average
daily net assets. In consideration of these fees, the Adviser furnishes the
Fund with management, investment advisory, statistical and research facilities
and services. The Adviser also pays all salaries, rent and certain other
expenses of management. During the six months ended October 31, 1998, the fees
pursuant to such agreement amounted to $97,123.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the six months ended October 31, 1998, the amount
of such expenses was $4,160.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$9,611 during the six months 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 six months ended October 31, 1998, the amount of such expenses assumed by
the Distributor and its affiliates was $136,695.
NOTE 4
For the six months ended October 31, 1998, purchases and sales of securities,
exclusive of short-term obligations, aggregated $44,483,138 and $25,105,220,
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 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 service and/or the
maintenance or servicing of shareholder accounts, to compensate or reimburse
securities dealers for distribution and marketing services, to furnish ongoing
assistance to investors and to defray a portion of its distribution and
marketing expenses. For the six months ended October 31, 1998, fees pursuant to
such plan amounted to $13,481, $63,247 and $8,868 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 $16,269 and $95,091, respectively, on sales of Class A shares of the
Fund during the six months ended October 31, 1998, and that MetLife Securities,
Inc. earned commissions aggregating $279,783 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$12,021 and $410 on redemptions of Class B and Class C shares, respectively,
during the period.
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, 1998,
Metropolitan owned 52,356 shares of each of Class A, Class B and Class C and
471,204 Class S shares of the Fund and the Adviser owned one share of each of
Class A, Class B, Class C and Class S of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
MARCH 11, 1998
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO OCTOBER 31, 1998
APRIL 30, 1998 (UNAUDITED)
----------------------------- --------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 622,025 $6,115,137 969,570 $ 9,321,848
Shares repurchased ................... (3,867) (38,335) (243,628) (2,213,570)
------- ---------- ------- -----------
Net increase ......................... 618,158 $6,076,802 725,942 $ 7,108,278
======= ========== ======= ===========
<CAPTION>
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 555,377 $5,459,591 1,309,674 $12,611,212
Shares repurchased ................... (36,142) (355,963) (95,645) (861,607)
------- ---------- ------- -----------
Net increase ......................... 519,235 $5,103,628 1,214,029 $11,749,605
======= ========== ======= ===========
<CAPTION>
CLASS C SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 107,096 $1,038,510 125,870 $ 1,225,935
Shares repurchased ................... -- -- (22,656) (205,498)
------- ---------- ------- -----------
Net increase ......................... 107,096 $1,038,510 103,214 $ 1,020,437
======= ========== ======= ===========
<CAPTION>
CLASS S SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 480,088 $4,588,006 11,824 $ 116,784
Shares repurchased ................... -- -- (515) (4,927)
------- ---------- ------- -----------
Net increase ......................... 480,088 $4,588,006 11,309 $ 111,857
======= ========== ======= ===========
</TABLE>
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------- ---------------------------------
MARCH 11, 1998 MARCH 11, 1998
(COMMENCEMENT OF SIX MONTHS ENDED (COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO OCTOBER 31, 1998 OPERATIONS) TO OCTOBER 31, 1998
APRIL 30, 1998(1) (UNAUDITED)(1) APRIL 30, 1998(1) (UNAUDITED)(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 9.55 9.92 9.55 9.90
------ ------ ------ ------
Net investment income (loss)($)* 0.01 0.00 (0.00) (0.03)
Net realized and unrealized gain (loss)
on investments ($) 0.36 (0.58) 0.35 (0.57)
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ($) 0.37 (0.58) 0.35 (0.60)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ($) 9.92 9.34 9.90 9.30
====== ====== ====== ======
Total return(2)(%) 3.87(3) (5.85)(3) 3.66(3) (6.06)(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 6,132 12,558 5,142 16,111
Ratio of operating expenses to
average net assets (%)* 1.25(4) 1.25(4) 2.00(4) 2.00(4)
Ratio of net investment income (loss)
to average net assets(%)* 0.45(4) 0.08(4) (0.31)(4) (0.68)(4)
Portfolio turnover rate(%) 13.04 97.41 13.04 97.41
*Reflects voluntary reduction of expenses per
share of these amounts(Note 3) ($) 0.03 0.04 0.03 0.04
<CAPTION>
CLASS C CLASS S
------------------------------------- -------------------------------------
MARCH 11, 1998 MARCH 11, 1998
(COMMENCEMENT OF SIX MONTHS ENDED (COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO OCTOBER 31, 1998 OPERATIONS) TO OCTOBER 31, 1998
APRIL 30, 1998(1) (UNAUDITED)(1) APRIL 30, 1998(1) (UNAUDITED)(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 9.55 9.91 9.55 9.92
------ ------ ------ ------
Net investment income (loss)($)* (0.00) (0.03) 0.02 0.02
Net realized and unrealized gain
(loss) on investments($) 0.36 (0.58) 0.35 (0.58)
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ($) 0.36 (0.61) 0.37 (0.56)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD ($) 9.91 9.30 9.92 9.36
====== ====== ====== ======
Total return(2)(%) 3.77(3) (6.16)(3) 3.87(3) (5.65)(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 1,061 1,955 4,763 4,599
Ratio of operating expenses to
average net assets (%)* 2.00(4) 2.00(4) 1.00(4) 1.00(4)
Ratio of net investment income
(loss) to average net assets (%)* (0.13)(4) (0.67)(4) 0.98(4) 0.35(4)
Portfolio turnover rate (%) 13.04 97.41 13.04 97.41
*Reflects voluntary reduction of expenses
per share of these amounts (Note 3) ($) 0.04 0.04 0.06 0.04
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) 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.
(3) Not annualized.
(4) Annualized.
</TABLE>
<PAGE>
STATE STREET RESEARCH GALILEO FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH SECURITIES TRUST
- ---------------------------------------------------------------------------------------------------------------
FUND INFORMATION OFFICERS TRUSTEES
<S> <C> <C>
STATE STREET RESEARCH RALPH F. VERNI RALPH F. VERNI
GALILEO FUND Chairman of the Board, Chairman of the Board,
One Financial Center President and President, Chief Executive
Boston, MA 02111 Chief Executive Officer Officer and Director,
State Street Research &
INVESTMENT ADVISER PETER C. BENNETT Management Company
State Street Research & Vice President
Management Company STEVE A. GARBAN
One Financial Center THOMAS J. DILLMAN Former Senior Vice President
Boston, MA 02111 Vice President for Finance and Operations and
Treasurer, The Pennsylvania
DISTRIBUTOR BARTLETT R. GEER State University
State Street Research Vice President
Investment Services, Inc. MALCOLM T. HOPKINS
One Financial Center JOHN H. KALLIS Former Vice Chairman of the
Boston, MA 02111 Vice President Board and Chief Financial
Officer, St. Regis Corp.
SHAREHOLDER SERVICES KIM M. PETERS
State Street Research Vice President EDWARD M. LAMONT
Service Center Formerly in banking
P.O. Box 8408 THOMAS A. SHIVELY (with an affiliate of
Boston, MA 02266-8408 Vice President J.P. Morgan & Co. in New York);
1-800-562-0032 presently engaged in private
JAMES M. WEISS investments and civic affairs
CUSTODIAN Vice President
State Street Bank and ROBERT A. LAWRENCE
Trust Company ELIZABETH MCCOMBS WESTVOLD Former Partner, Saltonstall & Co.
225 Franklin Street Vice President
Boston, MA 02110 DEAN O. MORTON
KENNARD WOODWORTH, JR. Former Executive Vice
LEGAL COUNSEL Vice President President, Chief Operating
Goodwin, Procter & Hoar LLP Officer and Director,
Exchange Place GERARD P. MAUS Hewlett-Packard Company
Boston, MA 02109 Treasurer
TOBY ROSENBLATT
JOSEPH W. CANAVAN President,
Assistant Treasurer The Glen Ellen Company
Vice President,
DOUGLAS A. ROMICH Founders Investments Ltd.
Assistant Treasurer
MICHAEL S. SCOTT MORTON
FRANCIS J. MCNAMARA, III Jay W. Forrester Professor of
Secretary and General Counsel Management, Sloan School of
Management, Massachusetts
DARMAN A. WING Institute of Technology
Assistant Secretary and
Assistant General Counsel
AMY L. SIMMONS
Assistant Secretary
</TABLE>
<PAGE>
STATE STREET RESEARCH GALILEO FUND -------------------
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Permit #20
Holliston, MA 01746
-------------------
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
EMAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
[logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Galileo 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 GA-357F-1298
<PAGE>
STATE STREET RESEARCH
-----------------------------------------------------
LEGACY FUND
-----------------------------------------------------
SEMIANNUAL REPORT
October 31, 1998
--------------------------------
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 STATE STREET RESEARCH FUNDS
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
INVESTMENT UPDATE
- --------------------------------------------------------------------------------
INVESTMENT ENVIRONMENT
The Economy
[bullet] The economy continued positive during the past six months. Personal
income rose, and unemployment remained at a low 4.5%. Inflation
remained in check at 1.5%.
[bullet] Consumer confidence has trended downward, and the savings rate has
fallen to zero, both indications that the U.S. economy is likely to
slow in the months ahead.
[bullet] The Federal Reserve Board cut short-term interest rates by
one-quarter per cent late in September, then surprised most investors
with another one- quarter per cent cut in October.
The Markets
[bullet] After sliding nearly 1500 points late in the summer, the Dow Jones
Industrial Average bounced back strongly on the heels of the Fed's
back-to-back interest rate cuts.
[bullet] The bond market produced mixed results. High-quality U.S. Treasury
bonds were strong performers. The yield on the benchmark 30-year
Treasury fell, then pushed back up over 5.0% at the quarter's end.
Investors sold high-yield bonds on fears of an economic slowdown.
THE FUND
Over the Past Six Months
[bullet] For the six months ended October 31, 1998, Legacy Fund Class A shares
lost 1.46% (does not reflect sales charge).(2) During a turbulent
period in the market, the Fund held up much better than the average
growth fund, which lost 6.78%, according to Lipper Analytical
Services. The Fund underperformed the S&P 500 Index, which returned
-0.40% for the same period.(1)
[bullet] The Fund's investment in traditional defensive sectors with good
earnings potential--such as consumer staples, retail drug and grocery
chains, and health care--helped performance.
[bullet] Investments in capital equipment and financial stocks detracted from
performance as fear of recession took its toll on these sectors.
Current Strategy
[bullet] The Fund has 95% of its assets invested in growth companies across a
variety of industry sectors.
[bullet] We believe the Fund's investments will weather a slower economy.
[bullet] We manage the Fund to keep turnover low and to minimize realized
capital gains for shareholders.
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 index does not take
transaction charges into consideration. It is not possible to invest directly in
the index.
(2)-1.89% for Class B shares; -1.81% for Class C shares; -1.37% 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
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)Aggregate returns; 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, 1998, except where
noted)
- --------------------------------------------------------------------------------
Aggregate Total Return for
period ended 9/30/98
(at maximum applicable sales charge)(3,4,5)
<TABLE>
<CAPTION>
=================================
Life of Fund
(since 12/31/97)
- ---------------------------------
<S> <C>
Class A 2.18%
- ---------------------------------
Class B 1.50%
- ---------------------------------
Class C 5.50%
- ---------------------------------
Class S 7.30%
=================================
</TABLE>
Aggregate Total Return
(at maximum applicable sales charge)(3,4,5)
<TABLE>
<CAPTION>
=================================
Life of Fund
(since 12/31/97)
- ---------------------------------
<S> <C>
Class A 9.73%
- ---------------------------------
Class B 9.20%
- ---------------------------------
Class C 13.20%
- ---------------------------------
Class S 15.20%
=================================
</TABLE>
Top 10 Holdings
(by percentage of net assets)
<TABLE>
<S> <C>
(1) General Electric Diversified manufacturer 4.6%
(2) Total Oil company 4.5%
(3) Banc One Bank holding company 4.0%
(4) Johnson & Johnson Medical products 3.9%
(5) Procter & Gamble Cosmetics & toiletries 3.8%
(6) BankAmerica Money center banks 3.6%
(7) Bristol-Myers Squibb Pharmaceuticals 3.5%
(8) CVS Drug retailing 3.4%
(9) Xerox Office automation & equipment 3.3%
(10) IBM Computer systems 3.1%
</TABLE>
These securities represent an aggregate of 37.7% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities listed in this table or in the text
above.
Top 5 Industries
(by percentage of net assets)
[BAR CHART]
<TABLE>
<S> <C>
Retail Trade 10.7%
Drug 8.4%
Bank 7.7%
Computer
Software & 7.3%
Service
Office
Equipment 6.4%
Total: 40.5%
</TABLE>
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
October 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 97.9%
Basic Industries 10.4%
Chemical 3.1%
E.I. Du Pont De Nemours & Co. ................. 48,400 $ 2,783,000
-----------
Electrical Equipment 4.6%
General Electric Co. .......................... 47,400 4,147,500
-----------
Machinery 2.7%
Tyco International Ltd. ....................... 39,200 2,427,950
-----------
Total Basic Industries ........................ 9,358,450
-----------
Consumer Cyclical 18.4%
Automotive 3.1%
Danaher Corp. ................................. 68,900 2,751,694
-----------
Recreation 4.6%
MediaOne Group Inc.* .......................... 54,300 2,297,569
News Corp. Ltd. ADR ........................... 68,100 1,859,981
-----------
4,157,550
-----------
Retail Trade 10.7%
CVS Corp. ..................................... 66,800 3,051,925
Dayton Hudson Corp. ........................... 47,000 1,991,625
Home Depot Inc. ............................... 50,100 2,179,350
Kroger Co.* ................................... 43,400 2,408,700
-----------
9,631,600
-----------
Total Consumer Cyclical ....................... 16,540,844
-----------
Consumer Staple 25.2%
Business Service 3.1%
Apollo Group Inc. Cl. A* ...................... 30,300 973,388
Interpublic Group of Companies, Inc. .......... 30,300 1,772,550
-----------
2,745,938
-----------
Drug 8.4%
Bristol-Myers Squibb Co. ...................... 28,700 3,173,143
Pfizer Inc. ................................... 21,500 2,307,219
Warner-Lambert Co. ............................ 26,200 2,053,425
-----------
7,533,787
-----------
Food & Beverage 2.5%
Coca-Cola Co. ................................. 33,400 2,258,675
-----------
Hospital Supply 5.9%
Johnson & Johnson ............................. 43,500 3,545,250
Medtronic Inc. ................................ 27,200 1,768,000
-----------
5,313,250
-----------
<CAPTION>
- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
Personal Care 5.3%
Gillette Co. .................................. 29,500 $ 1,325,656
Procter & Gamble Co. .......................... 38,800 3,448,350
-----------
4,774,006
-----------
Total Consumer Staple ......................... 22,625,656
-----------
Energy 4.5%
Oil 4.5%
Total SA Cl. B ADR ............................ 68,500 4,007,250
-----------
Total Energy .................................. 4,007,250
-----------
Finance 15.1%
Bank 7.7%
Bank One Corp. ................................ 74,200 3,626,525
BankAmerica Corp. ............................. 57,037 3,276,063
-----------
6,902,588
-----------
Financial Service 2.9%
American Express Co. .......................... 29,900 2,642,413
-----------
Insurance 4.5%
Ace Ltd. ...................................... 58,300 1,974,912
UNUM Corp. .................................... 46,000 2,044,125
-----------
4,019,037
-----------
Total Finance ................................. 13,564,038
-----------
Science & Technology 18.6%
Aerospace 1.6%
Boeing Co. .................................... 39,200 1,470,000
-----------
Computer Software & Service 7.3%
Cisco Systems Inc.* ........................... 42,250 2,661,750
i2 Technologies Inc.* ......................... 27,900 519,638
J.D. Edwards & Co.* ........................... 23,500 769,625
Microsoft Corp.* .............................. 24,700 2,615,112
-----------
6,566,125
-----------
Electronic Components 1.1%
Analog Devices Inc.* .......................... 49,700 987,788
-----------
Electronic Equipment 2.2%
Lucent Technologies Inc. ...................... 24,400 1,956,575
-----------
Office Equipment 6.4%
International Business Machines Corp. ......... 18,900 2,805,469
Xerox Corp. ................................... 30,300 2,935,312
-----------
5,740,781
-----------
Total Science & Technology .................... 16,721,269
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
Utility 2.7%
Telephone 2.7%
AirTouch Communications Inc.* ................. 44,100 $ 2,469,600
-----------
Total Utility ................................. 2,469,600
-----------
Other 3.0%
Multi-Sector Companies 3.0%
Standard & Poor's Depositary Receipt .......... 24,200 2,663,512
-----------
Total Other ................................... 2,663,512
-----------
Total Common Stocks (Cost $86,779,829) ........ 87,950,619
-----------
<CAPTION>
- -----------------------------------------------------------------------
Principal Maturity
Amount Date
- -----------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 1.7%
Household Finance Corp.,
5.50% ..................... $1,470,000 11/04/1998 1,470,000
-----------
Total Short-Term Obligations (Cost $1,470,000) .......... 1,470,000
-----------
Total Investments (Cost $88,249,829)--99.6% ............. 89,420,619
Cash and Other Assets, Less Liabilities--0.4% ........... 388,001
-----------
Net Assets--100.0% ...................................... $89,808,620
===========
Federal Income Tax Information:
At October 31, 1998, the net unrealized
appreciation of investments based on cost
for Federal income tax purposes of
$88,249,829 was as follows:
Aggregate gross unrealized appreciation
for all investments in which there is an
excess of value over tax cost ........ $ 5,540,864
Aggregate gross unrealized depreciation
for all investments in which there is an
excess of tax cost over value ........ (4,370,074)
------------
$ 1,170,790
============
</TABLE>
- --------------------------------------------------------------------------------
*Nonincome-producing securities
ADR stands for American Depository Receipt, representing ownership of foreign
securities.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
October 31, 1998 (Unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $88,249,829) (Note 1) ............... $89,420,619
Cash ............................................................ 539
Receivable for fund shares sold ................................. 513,655
Dividends and interest receivable ............................... 44,151
Receivable from Distributor (Note 3) ............................ 3,619
Deferred organization costs and other assets (Note 1) .......... 85,701
-----------
90,068,284
Liabilities
Payable for fund shares redeemed ................................ 58,172
Accrued distribution and service fees (Note 5) .................. 52,926
Accrued management fee (Note 2) ................................. 46,452
Accrued transfer agent and shareholder services
(Note 2) ...................................................... 20,600
Accrued trustees' fees (Note 2) ................................. 16,340
Other accrued expenses .......................................... 65,174
-----------
259,664
-----------
Net Assets $89,808,620
===========
Net Assets consist of:
Unrealized appreciation of investments ......................... $ 1,170,790
Accumulated net realized loss .................................. (364,700)
Paid-in capital ................................................ 89,002,530
-----------
$89,808,620
===========
Net Asset Value and redemption price per share of
Class A shares ($25,166,982 [divided by] 2,189,808 shares) .... $11.49
======
Maximum Offering Price per share of Class A shares
($11.49 [divided by] .955) .................................... $12.03
======
Net Asset Value and offering price per share of Class
B shares ($48,816,890 [divided by] 4,273,623 shares)* ......... $11.42
======
Net Asset Value and offering price per share of Class
C shares ($11,652,410 [divided by] 1,019,955 shares)* ......... $11.42
======
Net Asset Value, offering price and redemption price
per share of Class S shares
($4,172,338 [divided by] 362,123 shares) ...................... $11.52
======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset value
less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the six months ended October 31, 1998 (Unaudited)
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $350 .................. $ 323,221
Interest ................................................. 99,790
-----------
423,011
Expenses
Management fee (Note 2) .................................. 231,449
Custodian fee ............................................ 56,085
Transfer agent and shareholder services (Note 2) ......... 29,820
Service fee--Class A (Note 5) ............................ 25,212
Distribution and service fees--Class B (Note 5) .......... 189,386
Distribution and service fees--Class C (Note 5) .......... 44,854
Reports to shareholders .................................. 15,092
Amortization of organization costs (Note 1) .............. 15,070
Registration fees ........................................ 14,365
Audit fee ................................................ 13,421
Trustees' fees (Note 2) .................................. 9,472
Legal fees ............................................... 2,986
Miscellaneous ............................................ 1,536
-----------
648,748
Expenses borne by the Distributor (Note 3) ............... (33,220)
-----------
615,528
-----------
Net investment loss ...................................... (192,517)
-----------
Realized and Unrealized Loss on Investments
Net realized loss on investments (Notes 1 and 4) ......... (422,150)
Net unrealized depreciation of investments ............... (1,391,239)
-----------
Net loss on investments .................................. (1,813,389)
-----------
Net decrease in net assets resulting from operations $(2,005,906)
===========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997
(Commencement of Six months ended
Operations) to October 31, 1998
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss .................. $ (16,273) $ (192,517)
Net realized gain (loss) on
investments ........................ 68,845 (422,150)
Net unrealized appreciation
(depreciation) of
investments ........................ 2,562,029 (1,391,239)
----------- -----------
Net increase (decrease)
resulting from operations .......... 2,614,601 (2,005,906)
----------- -----------
Net increase from fund share
transactions (Note 7) .............. 38,160,723 51,039,202
----------- -----------
Total increase in net assets ......... 40,775,324 49,033,296
Net Assets
Beginning of period .................. -- 40,775,324
----------- -----------
End of period ........................ $40,775,324 $89,808,620
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
October 31, 1998
Note 1
State Street Research Legacy 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 December, 1997. The Trust presently consists of three
separate funds: State Street Research Legacy Fund, State Street Research Galileo
Fund and State Street Research Strategic Income Fund.
The investment objective of the Fund is to provide long-term growth of capital.
In seeking to achieve its investment objective, the Fund invests at least 65% of
total assets in stocks and convertible securities of mid- and large-size
companies. The Fund employs a tax-managed strategy, generally seeking to
identify stocks with long-term growth potential and holding them for extended
periods.
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 "Adviser"),
an indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), and special programs. No sales charge is imposed at the time
of purchase or redemption of Class S shares. Class S shares do not pay any
distribution or service fees. The Fund's expenses are borne pro-rata by each
class, except that each class bears expenses, and has exclusive voting rights
with respect to provisions of the Plan of Distribution, related specifically to
that class. The Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Values for listed securities represent final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are at
the mean of the closing bid and asked quotations. Short-term securities maturing
within sixty days are valued at amortized cost. Other securities, if any, are
valued at their fair value as determined in accordance with established methods
consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
C. Net Investment Income
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The Fund is charged for expenses directly attributable to it,
while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
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. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
H. 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
six months ended October 31, 1998, there were no loaned securities.
Note 2
The Trust and the Adviser have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.65% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays
5
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
all salaries, rent and certain other expenses of management. During the six
months ended October 31, 1998, the fees pursuant to such agreement amounted to
$231,449.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the six months ended October 31, 1998, the amount of
such expenses was $17,646.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$9,472 during the six months 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 six months ended October 31, 1998, the amount of such expenses assumed by
the Distributor and its affiliates was $33,220.
Note 4
For the six months ended October 31, 1998, purchases and sales of securities,
exclusive of short-term obligations, aggregated $60,639,339 and $10,024,275,
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 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 service and/or the
maintenance or servicing of shareholder accounts, to compensate or reimburse
securities dealers for distribution and marketing services, to furnish ongoing
assistance to investors and to defray a portion of its distribution and
marketing expenses. For the six months ended October 31, 1998, fees pursuant to
such plan amounted to $25,212, $189,386 and $44,854 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 $37,778 and $122,804, respectively, on sales of Class A shares of
the Fund during the six months ended October 31, 1998, and that MetLife
Securities, Inc. earned commissions aggregating $391,040 on sales of Class B
shares, and that the Distributor collected contingent deferred sales charges
aggregating $27,459 on redemptions of Class B shares during the same period.
Note 6
The Trustees declared a distribution of capital gains to shareholders of record
on December 18, 1998, payable on December 21, 1998. The distribution was
comprised of approximately $.01 per share from short-term capital gains.
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At October 31, 1998, the Adviser
owned one share of each of Class A, Class B, Class C and Class S and
Metropolitan owned 50,000 shares of each of Class A, Class B, Class C and
350,000 Class S shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
December 31, 1997 Six months ended
(Commencement of Operations) to October 31, 1998
April 30, 1998 (Unaudited)
------------------------------- ----------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................ 1,060,271 $11,720,798 1,465,245 $ 17,005,559
Shares repurchased ......... (32,822) (360,909) (302,886) (3,290,889)
--------- ----------- --------- ------------
Net increase ............... 1,027,449 $11,359,889 1,162,359 $ 13,714,670
========= =========== ========= ============
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
Shares sold ................ 1,699,460 $18,706,942 2,831,708 $ 33,116,551
Shares repurchased ......... (7,377) (83,326) (250,168) (2,728,286)
--------- ----------- --------- ------------
Net increase ............... 1,692,083 $18,623,616 2,581,540 $ 30,388,265
========= =========== ========= ============
Class C Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
Shares sold ................ 428,033 $ 4,641,277 660,089 $ 7,568,796
Shares repurchased ......... (234) (2,653) (67,933) (735,115)
--------- ----------- --------- ------------
Net increase ............... 427,799 $ 4,638,624 592,156 $ 6,833,681
========= =========== ========= ============
Class S Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
Shares sold ................ 353,464 $ 3,538,594 8,938 $ 105,699
Shares repurchased ......... -- -- (279) (3,113)
--------- ----------- --------- ------------
Net increase ............... 353,464 $ 3,538,594 8,659 $ 102,586
========= =========== ========= ============
</TABLE>
6
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class A
--------------------------------------
December 31, 1997
(Commencement of Six months ended
Operations) to October 31, 1998
April 30, 1998(1) (Unaudited)(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ($) 10.00 11.66
----- -----
Net investment income (loss) ($)* 0.00 (0.00)
Net realized and unrealized gain (loss) on investments ($) 1.66 (0.17)
----- -----
Total from investment operations ($) 1.66 (0.17)
----- -----
Net asset value, end of period ($) 11.66 11.49
===== =====
Total return(2) (%) 16.60(3) (1.46)(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 11,984 25,167
Ratio of operating expenses to average net assets (%)* 1.25(4) 1.25(4)
Ratio of net investment income (loss) to average net assets (%)* 0.01(4) (0.06)(4)
Portfolio turnover rate (%) 6.44 15.40
*Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) 0.04 0.01
<CAPTION>
Class B
-------------------------------------
December 31, 1997
(Commencement of Six months ended
Operations) to October 31, 1998
April 30, 1998(1) (Unaudited)(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ($) 10.00 11.64
----- -----
Net investment income (loss) ($)* (0.03) (0.05)
Net realized and unrealized gain (loss) on investments ($) 1.67 (0.17)
----- -----
Total from investment operations ($) 1.64 (0.22)
----- -----
Net asset value, end of period ($) 11.64 11.42
===== =====
Total return(2) (%) 16.40(3) (1.89)(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 19,688 48,817
Ratio of operating expenses to average net assets (%)* 2.00(4) 2.00(4)
Ratio of net investment income (loss) to average net assets (%)* (0.76)(4) (0.82)(4)
Portfolio turnover rate (%) 6.44 15.40
*Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) 0.04 0.01
</TABLE>
<TABLE>
<CAPTION>
Class C
--------------------------------------
December 31, 1997
(Commencement of Six months ended
Operations) to October 31, 1998
April 30, 1998(1) (Unaudited)(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ($) 10.00 11.63
----- -----
Net investment income (loss) ($)* (0.03) (0.05)
Net realized and unrealized gain (loss) on investments ($) 1.66 (0.16)
----- -----
Total from investment operations ($) 1.63 (0.21)
----- -----
Net asset value, end of period ($) 11.63 11.42
===== =====
Total return(2) (%) 16.30(3) (1.81)(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 4,977 11,652
Ratio of operating expenses to average net assets (%)* 2.00(4) 2.00(4)
Ratio of net investment income (loss) to average net assets (%)* (0.69)(4) (0.82)(4)
Portfolio turnover rate (%) 6.44 15.40
*Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) 0.04 0.01
<CAPTION>
Class S
-------------------------------------
December 31, 1997
(Commencement of Six months ended
Operations) to October 31, 1998
April 30, 1998(1) (Unaudited)(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ($) 10.00 11.68
------ ------
Net investment income (loss) ($)* 0.03 0.02
Net realized and unrealized gain (loss) on investments ($) 1.65 (0.18)
------ ------
Total from investment operations ($) 1.68 (0.16)
------ ------
Net asset value, end of period ($) 11.68 11.52
====== ======
Total return(2) (%) 16.80(3) (1.37)(3)
Ratios/supplemental data:
Net assets at end of period ($ thousands) 4,127 4,172
Ratio of operating expenses to average net assets (%)* 1.00(4) 1.00(4)
Ratio of net investment income (loss) to average net assets (%)* 0.60(4) 0.26(4)
Portfolio turnover rate (%) 6.44 15.40
*Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) 0.09 0.01
</TABLE>
- --------------------------------------------------------------------------------
(1) Per share figures have been calculated using the average shares method.
(2) 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.
(3) Not annualized
(4) Annualized
7
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH SECURITIES
TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Legacy 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
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 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Thomas J. Dillman
Vice President
Bartlett R. Geer
Vice President
John H. Kallis
Vice President
Kim M. Peters
Vice President
Thomas A. Shively
Vice President
James M. Weiss
Vice President
Elizabeth McCombs Westvold
Vice President
Kennard Woodworth, Jr.
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Steve A. Garban
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
8
<PAGE>
State Street Research Legacy Fund ------------------
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Permit #20
Holliston, MA
01746
------------------
Questions? Comments?
Call us at 1-800-562-0032, or
[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 STREE RESEARCH LOGO] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Legacy 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 LF-356F-1298
