[Front cover]
STATE STREET RESEARCH
---------------------
STRATEGIC INCOME FUND
---------------------
ANNUAL REPORT
April 30, 1999
-------------
WHAT'S INSIDE
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From the Chairman
A healthy economy
benefited Americans
Portfolio Manager's Review
Bonds weather a
stormy environment
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Graphic: DALBAR
HONORS COMMITMENT TO:
INVESTORS
1998]
For Excellence
in
Shareholder Service
[Graphic: STATE STREET RESEARCH
75 YEARS
LASTING VALUES
- --------------
LEADING IDEAS]
STATE STREET RESEARCH FUNDS
<PAGE>
FROM THE CHAIRMAN
[Picture: Ralph F. Verni]
Dear Shareholder:
In a year marked by market volatility at home and currency upheaval abroad,
Americans continued to reap the benefits of a healthy economy. Inflation
remained low, unemployment hovered around 4%, wages rose, and prices fell at the
gas pump and in the mortgage market. Many Americans took their prosperity to the
mall. The holiday season was strong and retail sales rose. However, the nation's
savings rate fell below zero late last fall--and remains there now.
Stocks
It was a strong 12 months for the U.S. stock market. A correction late in the
summer was short-lived as most segments of the market staged a comeback in the
fourth quarter. The Dow Jones Industrial Average pierced 10,000 in the first
quarter of 1999. The S&P 500 returned 21.83% for 12 months ended April 30,
1999.(1)
Large-company growth stocks and technology stocks were the strongest performers,
led by Internet stocks. However, gains were concentrated in a narrow band of
stocks. Small and medium-sized company stocks continued to lag the market, and
the gap between growth and value strategies remained. Economically-sensitive
cyclical stocks of large companies began to rise in April.
Bonds
The bond market benefited from the Federal Reserve Board's three quick interest
rate cuts last fall as the benchmark U.S. Treasury bond's yield hit a low of 5%.
Under the weight of a robust economy, that yield climbed back up to 5.7% at the
end of the period. Bond prices move in the opposite direction of yields. As a
result, the value of U.S. Treasury bonds fell. High-yield "junk" bonds had been
weak, but bounced back on the strong economic news to close among the strongest
bond market performers.
International
Foreign markets delivered mixed returns. Expectations surrounding the debut of
the euro, the new common currency shared by 11 nations, helped European markets
in the first half of this reporting period. But the luster was short-lived. Most
European economies are still suffering from the Asian flu, and most European
markets stumbled in the first months of 1999. Asian emerging markets started to
show some signs of life, while Latin American emerging markets remain mired in
currency woes. Once again, economists waited for a revival in Japan. Japan's
stock market, including small company stocks, managed to deliver attractive
returns in the first four months of 1999, encouraged by corporate restructurings
and signs that the central bank was trying to help get the economy going.
Outlook and Opportunities
As investors, you may have been unsettled by the market's volatility in the past
year. But remember, volatility also creates opportunities. Regardless of the
environment, we are confident that our in-depth research can help us uncover
good values in companies and markets, both at home and abroad. As always, we
will exercise diligence in finding new investments and in monitoring the ones we
already own. Thank you for your confidence in State Street Research.
Sincerely,
[Graphic: Signature of Ralph F. Verni]
Ralph F. Verni
Chairman
April 30, 1999
(1)The S&P 500 (officially the "Standard & Poor's 500 Composite Stock Price
Index") is an unmanaged index of 500 U.S. stocks. The Lehman Brothers Aggregate
Bond Index is a market-value weighted index of fixed-rate debt issues, including
U.S. treasury, agency, and corporate bond issues, and mortgage-backed
securities. The indices do not take transaction charges into consideration. It
is not possible to invest directly in the indices.
(2)2.49% for Class B(1) shares; 2.49% for Class B shares; 2.49% for Class C
shares; 3.51% 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(1) or Class B
share or 1% Class C share contingent deferred sales charge, where applicable.
Performance for Class B(1) reflects Class B performance through December 31,
1998. Class B(1) was introduced on January 1, 1999.
(4)Class S shares, offered without a sales charge, are available through certain
employee benefit plans and special programs.
(5)The Fund's returns include performance before the creation of share classes.
If this performance reflected the share classes' current 12b-1 fees, the fund's
returns may have been lower.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended April 30, 1999, except where
noted.)
- --------------------------------------------------------------------------------
Average Annual Total Return
for period ended 3/31/99
(at maximum applicable sales charge)(3),(4),(5)
<TABLE>
<CAPTION>
- ------------------------------------------
Life of Fund
(since 8/30/96) 1 Year
- ------------------------------------------
<S> <C> <C>
Class A 6.20% -2.37%
- ------------------------------------------
Class B(1) 6.20% -3.18%
- ------------------------------------------
Class B 6.20% -3.18%
- ------------------------------------------
Class C 7.22% 0.54%
- ------------------------------------------
Class S 8.38% 2.48%
- ------------------------------------------
</TABLE>
Average Annual Total Return
(at maximum applicable sales charge)(3),(4),(5)
<TABLE>
<CAPTION>
- ------------------------------------------
Life of Fund
(since 8/30/96) 1 Year
- ------------------------------------------
<S> <C> <C>
Class A 6.47% -1.54%
- ------------------------------------------
Class B(1) 6.51% -2.21%
- ------------------------------------------
Class B 6.51% -2.21%
- ------------------------------------------
Class C 7.49% 1.55%
- ------------------------------------------
Class S 8.65% 3.51%
- ------------------------------------------
</TABLE>
Yield(5)
<TABLE>
<S> <C>
- ------------------------------------------
Class A 6.08%
- ------------------------------------------
Class B(1) 5.61%
- ------------------------------------------
Class B 5.63%
- ------------------------------------------
Class C 5.62%
- ------------------------------------------
Class S 6.61%
- ------------------------------------------
</TABLE>
Yield is based on the net investment income produced for the 30 days ended April
30, 1999.
A high yield could be indicative of high risk bond holdings that have decreased
in price because of financial problems of the issuers of the bonds.
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Strategic Income Fund: Bonds weather a stormy environment
[Picture: John H. Kallis]
John H. Kallis
Portfolio Manager
Jack Kallis, portfolio manager of State Street Research Strategic Income Fund,
comments on the year ended April 30, 1999 and his outlook for the period ahead.
Q: How did the Fund perform last year?
A: Class A shares of Strategic Income
Fund returned 3.10% for the year ended April 30, 1999 [does not reflect sales
charge.](2) That was higher than the Lipper average multi-sector income fund
return of 1.05%. However, the Fund lagged the Lehman Brothers Aggregate Bond
Index, which returned 6.27% over the same period.(1)
Q: What factors accounted for the Fund's performance?
A: It was a difficult environment for the bond market, in general. Turbulence
was ignited last summer when Russia defaulted on its obligations and devalued
its currency, leaving large hedge funds -- private funds that had large,
leveraged investments in Russian debt -- exposed to billions of dollars of
potential losses. Then, Brazil devalued its currency, bringing a host of
neighboring bond markets down with it on fears that it would also default. As a
result, investors sought out the highest quality bonds, i.e. U.S. Treasuries,
and virtually every other sector lost ground. The Fund's relatively high
exposure to high-yield bonds was a damper on performance during this period,
although it is worth noting that it outperformed its peers.
Q: How did you respond to the market turbulence?
A: We moved money from the high-yield portion of the Fund into high-grade bonds.
As the year progressed, we also reduced our exposure to foreign bonds from about
14% to 10% of the Fund's total assets. Then, as the market began to settle down,
our research enabled us to spot opportunities among mortgages, asset-backed and
agency bonds. We since sold these bonds at a profit, and added the proceeds back
into high-yield bonds, which began to look attractive again in the last quarter
of 1998. We also raised the quality of the high-yield bond allocation by adding
to our investment in BB-rated bonds.
Q: Did you make any new purchases for the Fund?
A: Yes, near the end of April we allocated a modest amount -- approximately 2%
of the portfolio--to short-term or floating-rate emerging market bonds,
denominated in U.S. dollars. (That's important because it eliminates currency
risk.) Specifically, we built small positions in Argentina, Panama, Peru, Brazil
and Bulgaria.
Q: What is attractive about these five markets?
A: The four South American markets we've invested in were dragged down by the
events in Brazil although their currencies were more stable. Bulgaria is
negotiating to join the European Common Market, which provides an incentive to
improve its economic situation and bring interest rates down.
Q: What is your outlook for bonds for the period ahead?
A: We expect the U.S. economy to slow somewhat from the rapid rate of growth
registered in the past two quarters. As a result, we expect to see interest
rates come down -- although it may take until next year. However, we are keeping
our eye on factors such as consumer spending, the U.S. trade deficit, capital
spending by U.S. business, and the economic situation in Asia -- any one of
which could have a negative impact on the U.S. economy -- and by extension, on
interest rates and the bond market -- if there are any surprises.
April 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Allocation
(by percentage of net assets)
[Pie Chart Data]
High-Yield Corporate 49%
U.S. Government 27%
International 10%
Finance/Mortgage 7%
Cash 4%
Equities 3%
Performance by Sector
(12 months ended 4/30/99)
[Bar Chart Data]
Investment Grade 5.7%
Lower Quality -0.3%
Foreign 15.5%
2
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 93.3%
U.S. Treasury 10.9%
U.S. Treasury Bond, 11.625% ........ $1,125,000 11/15/2004 $1,456,346
U.S. Treasury Bond, 8.125% ......... 2,700,000 8/15/2021 3,427,299
U.S. Treasury Bond, 6.625% ......... 1,565,000 2/15/2027 1,721,250
U.S. Treasury Bond, 6.125% ......... 525,000 11/15/2027 543,459
U.S. Treasury Bond, 5.25% .......... 450,000 11/15/2028 416,390
U.S. Treasury Bond, 5.25% .......... 875,000 2/15/2029 821,406
U.S. Treasury Note, 6.625% ......... 475,000 7/31/2001 490,067
U.S. Treasury Note, 6.375% ......... 175,000 8/15/2002 181,097
U.S. Treasury Note, 5.875% ......... 950,000 9/30/2002 969,589
U.S. Treasury Note, 7.875% ......... 225,000 11/15/2004 252,140
U.S. Treasury STRIPS, 0.00% ........ 1,400,000 11/15/2001 1,221,700
U.S. Treasury STRIPS, 0.00% ........ 400,000 5/15/2007 257,576
U.S. Treasury TIPS, 3.875% ......... 425,259 4/15/2029 426,453
----------
12,184,772
----------
U.S. Agency Mortgage 16.1%
Federal Home Loan Mortgage
Corp. TBA, 6.50% ................. 875,000 6/16/2029 870,074
Federal National Mortgage
Association, 5.125% .............. 850,000 2/13/2004 830,875
Federal National Mortgage
Association, 8.50% ............... 1,000,000 2/01/2005 1,023,750
Federal National Mortgage
Association, 6.96% ............... 875,000 4/02/2007 929,416
Federal National Mortgage
Association, 9.00% ............... 598,378 5/01/2009 634,837
Federal National Mortgage
Association, 5.50% ............... 175,000 2/01/2014 169,750
Federal National Mortgage
Association, 5.50% ............... 747,167 3/01/2014 724,752
Federal National Mortgage
Association, 6.50% ............... 263,896 9/01/2028 262,162
Federal National Mortgage
Association, 6.50% ............... 1,104,128 11/01/2028 1,096,874
Federal National Mortgage
Association, 6.50% ............... 1,481,558 12/01/2028 1,471,824
Federal National Mortgage
Association, 6.00% ............... 952,507 12/01/2028 923,036
Federal National Mortgage
Association, 6.00% ............... 934,869 2/01/2029 905,944
Federal National Mortgage
Association TBA, 6.50% ........... 450,000 6/16/2029 447,043
Government National Mortgage
Association, 6.50% ............... 1,917,057 11/15/2028 1,904,462
Government National Mortgage
Association, 6.00% ............... 1,107,263 11/15/2028 1,072,307
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Government National Mortgage
Association TBA, 6.50% ........... $1,725,000 5/24/2029 $1,713,943
Government National Mortgage
Association TBA, 7.00% ........... 2,900,000 6/23/2029 2,942,572
----------
17,923,621
----------
Canadian-Yankee 1.0%
British Sky Broadcasting Group
Note, 6.875% ..................... 400,000 2/23/2009 397,436
Province of Quebec Deb.,
5.75% ............................ 500,000 2/15/2009 482,760
Woodside Finance Ltd. Note,
6.60%+ ........................... 300,000 4/15/2008 285,542
----------
1,165,738
----------
Foreign Government 9.8%
Republic of Argentina, 5.94%++...... 558,000 3/31/2005 493,523
Republic of Brazil, 8.00%[diamond].. 717,168 4/15/2014 495,743
Republic of Bulgaria, 5.875%++ ..... 750,000 7/28/2011 510,076
Republic of Panama, 4.00%++ ........ 625,000 7/17/2014 491,406
Republic of Peru, 4.50%++ .......... 750,000 3/07/2017 506,396
Greek Drachma
Republic of Greece, 8.80% .......... 986,300,000 6/19/2007 3,749,028
Government of New Zealand, New Zealand Dollar
10.00% ............................ 3,400,000 3/15/2002 2,153,656
Government of New Zealand,
8.00% ............................ 4,050,000 11/15/2006 2,593,126
----------
10,992,954
----------
Finance/Mortgage 6.6%
AT&T Capital Corp. Note,
6.75% ............................ $ 500,000 2/04/2002 509,430
Capital One Bank Note, 6.28%........ 250,000 2/20/2001 251,163
Capital One Bank Note, 6.15%........ 325,000 6/01/2001 325,845
Capital One Bank Note, 6.48%........ 225,000 1/28/2002 226,334
Capital One Bank Note, 6.62%........ 525,000 8/04/2003 530,339
Citibank Credit Card Master Trust
Series 97-2 Cl. A, 6.55% ......... 225,000 2/15/2004 229,640
Countrywide Funding Corp.
Note, 6.58% ...................... 575,000 9/21/2001 581,992
DLJ Commercial Mortgage
Corp. 98-C2, 6.24% ............... 500,000 11/12/2031 493,437
DLJ Commercial Mortgage
Corp. 98-C2 Cl. A1-A, 5.88%....... 709,460 11/12/2031 700,149
ERAC USA Finance Co. Note,
6.625%+ .......................... 150,000 2/15/2005 146,373
ERAC USA Finance Co. Note,
6.75%+ ........................... 500,000 5/15/2007 489,415
Finova Capital Corp. Note,
6.50% ............................ 400,000 7/28/2002 404,732
</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>
Finance/Mortgage (cont'd)
First Union Commercial
Mortgage Trust 99-C1
Cl. A2, 6.07% ................... $ 350,000 10/15/2008 $ 341,250
GMAC Commercial Mortgage
Security Inc. 98-C1 Cl. A1,
6.41% ........................... 244,056 11/15/2007 248,147
GS Mortgage Securities Corp.
Series 97-G1, 6.86% ............. 200,000 7/13/2030 205,630
LB Commercial Mortgage Trust
98C1-A1, 6.33% .................. 156,825 11/18/2004 157,707
LB Commercial Mortgage Trust
98C4-A1, 5.87% .................. 219,848 8/15/2006 217,237
LB Commercial Mortgage Trust
98C4-A1, 6.21% .................. 105,000 10/15/2008 103,064
MBNA Corp. Sr. Note, 6.12% ........ 425,000 8/13/2001 423,555
MBNA Master Credit Card
Trust Series 98-JA, 5.25% ....... 475,000 2/15/2006 464,754
Morgan Stanley Capital Inc.
98-A1, 6.19% .................... 82,261 1/15/2007 82,287
Prudential Home Mortgage
Securities Co. Series 93-45
A-2 PAC, 6.75% .................. 232,182 11/25/2007 233,052
----------
7,365,532
----------
Corporate 48.9%
Advanstar Communications Inc.
Sr. Sub. Note, 9.25% ............ 900,000 5/01/2008 929,250
Alaska Steel Corp. Note,
7.875%+ ......................... 500,000 2/15/2009 498,750
Allied Waste North America
Inc. Sr. Note, 7.625% ........... 250,000 1/01/2006 244,375
Allied Waste North America
Inc. Sr. Note, 7.875% ........... 250,000 1/01/2009 244,375
American Lawyer Media Inc.
Sr. Sub. Note Series B,
9.75% ........................... 500,000 12/15/2007 518,750
American Pacific Corp. Sr.
Note, 9.25% ..................... 550,000 3/01/2005 574,750
American Telecasting Inc. Sr.
Note, 0.00% to 6/14/99,
14.50% from 6/15/99 to
maturity ........................ 372,349 6/15/2004 335,114
Ameristar Casinos Inc. Sr. Sub.
Note, 10.50% .................... 250,000 8/01/2004 243,125
Ametek Inc. Sr. Note, 7.20% ....... 500,000 7/15/2008 475,995
Archibald Candy Corp. Sr. Sec.
Note, 10.25% .................... 750,000 7/01/2004 768,750
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aurora Foods Inc. Sr. Sub. Note
Series B, 8.75% ................. $ 250,000 7/01/2008 $ 261,250
Ball Corp. Sr. Note, 7.75% ........ 1,250,000 8/01/2006 1,290,625
Ball Corp. Sr. Sub. Note,
8.25% ........................... 250,000 8/01/2008 260,625
BTI Telecom Corp. Sr. Note,
10.50% .......................... 100,000 9/15/2007 93,250
California Infrastructure
Development Series
1997-A6, 6.38% .................. 675,000 9/25/2008 681,325
Call-Net Enterprises Inc. Sr.
Note, 8.00% ..................... 500,000 8/15/2008 482,500
Calpine Corp. Sr. Note, 7.625%..... 350,000 4/15/2006 347,757
Canadian First Oil Ltd. Sr. Sub.
Note, 8.75% ..................... 150,000 9/15/2007 145,500
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 842,500
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 255,000
Century Communications Corp.
Sr. Note, 8.375% ................ 500,000 12/15/2007 507,500
Charter Communications
Holdings Inc. Sr. Note,
8.625%+ ......................... 500,000 4/01/2009 515,000
Cluett American Corp. Sr. Sub.
Note Series B, 10.125% .......... 250,000 5/15/2008 240,000
Columbia/HCA Healthcare Corp.
Note, 8.12% ..................... 575,000 8/04/2003 569,750
Columbia/HCA Healthcare Corp.
Note, 6.91% ..................... 750,000 6/15/2005 684,323
Columbia/HCA Healthcare Corp.
Note, 7.69% ..................... 175,000 6/15/2025 143,971
Columbia/HCA Healthcare Corp.
Note, 7.75% ..................... 400,000 7/15/2036 335,764
CSC Holdings Inc. Sr. Deb.,
7.875% .......................... 500,000 2/15/2018 511,315
Drypers Corp. Series B Sr.
Note, 10.25% .................... 500,000 6/15/2007 440,000
E. Spire Communications Sr.
Note, 0.00% to 3/31/2001,
12.75% from 4/1/2001 to
maturity ........................ 100,000 4/01/2006 67,000
</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)
Econophone Inc. Sr. Note,
13.50% ............................ $1,000,000 7/15/2007 $1,080,000
Econophone Inc. Sr. Note,
0.00% to 2/14/2003, 11.00%
from 2/15/2003 to maturity ........ 500,000 2/15/2008 287,500
Elgar Holdings Inc. Sr. Sub.
Note, 9.875% ...................... 500,000 2/01/2008 390,000
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 700,000
Envirosource Inc. Note, 9.75% ....... 1,500,000 6/15/2003 1,421,250
Envirosource Inc. Sr. Note
Series B, 9.75% ................... 250,000 6/15/2003 150,000
Extended Stay America Inc. Sr.
Sub. Note, 9.15% .................. 500,000 3/15/2008 487,500
Falcon Holding Group LP Series
B Sr. Deb., 8.375% ................ 500,000 4/15/2010 511,250
First Wave Marine Inc. Sr.
Note, 11.00% ...................... 250,000 2/01/2008 237,500
Fisher Scientific International
Inc. Sr. Sub. Note, 9.00% ......... 250,000 2/01/2008 250,000
Florida Windstorm Underwriting
Sr. Sec. Note Series 1999-A,
7.125%+ ........................... 225,000 2/25/2019 226,512
Frontier Corp. Sr. Note, 9.125% ..... 750,000 2/15/2006 735,000
GNI Group Inc. Sr. Note,
10.875% ........................... 300,000 7/15/2005 258,000
Golden Ocean Group Ltd. Sr.
Note, 10.00% ...................... 1,000,000 8/31/2001 240,000
Great Central Mines Ltd. Sr.
Note, 8.875% ...................... 500,000 4/01/2008 492,500
Harrahs Operating Inc. Sr. Sub.
Note, 7.875% ...................... 750,000 12/15/2005 757,500
Henry Co. Sr. Note Series B,
10.00% ............................ 200,000 4/15/2008 199,000
Hollywood Park Inc. Sr. Sub.
Note, 9.25%+ ...................... 150,000 2/15/2007 154,875
Hyperion Telecommunications
Inc. Sr. Sub. Note, 12.00%+........ 400,000 11/01/2007 422,000
ICG Holdings Inc. Sr. Note,
0.00% to 9/14/2000, 13.50%
from 9/15/2000 to maturity ........ 350,000 9/15/2005 319,375
International Knife & Saw Inc.
Sr. Sub. Note, 11.375% ............ 450,000 11/15/2006 461,250
International Shipholding Corp.
Sr. Note, 9.00% ................... 250,000 7/01/2003 253,438
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Shipholding Corp.
Sr. Note Series B, 7.75% .......... $ 750,000 10/15/2007 $ 725,625
Intertek Finance PLC Series B
Sr. Sub. Note, 10.25% ............. 1,000,000 11/01/2006 990,000
Isle of Capri Casinos Inc. Note,
8.75%+ ............................ 100,000 4/15/2009 99,500
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 270,000
J. Crew Operating Corp. Sr.
Sub. Note Series B, 10.375%........ 750,000 10/15/2007 729,375
J.B. Poindexter Inc. Sr. Note,
12.50% ............................ 1,000,000 5/15/2004 965,000
J.H. Heafner Inc. Sr. Note,
10.00% ............................ 250,000 5/15/2008 260,000
J.H. Heafner Inc. Sr. Note
Series C, 10.00%+ ................. 250,000 5/15/2008 260,000
Johnstown America Industries
Inc. Sr. Sub. Note, 11.75% ........ 500,000 8/15/2005 545,000
Kaiser Aluminum & Chemical
Corp. Sub. Note, 12.75% ........... 500,000 2/01/2003 497,500
Loehmanns Inc. Sr. Note,
11.875% ........................... 500,000 5/15/2003 356,250
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 548,659
Mohegan Tribal Gaming
Authority Inc. Sr. Note,
8.125%+ ........................... 350,000 1/01/2006 357,000
NE Restaurant Inc. Sr. Note,
10.75% ............................ 900,000 7/15/2008 873,000
Network Associates Inc. Cv.
Sub. Deb., 0.00% .................. 880,000 2/13/2018 288,200
Newpark Resources Inc. Sr.
Sub. Note Series B, 8.625%......... 250,000 12/15/2007 241,250
News America Holdings Inc.
Deb., 7.375% ...................... 400,000 10/17/2008 422,060
Nextel Partners Inc. Sr. Note,
0.00% to 1/31/2004, 14.00%
from 2/1/2004 to maturity+ ........ 650,000 2/01/2009 396,500
North Atlantic Trading Inc. Sr.
Note, 11.00% ...................... 1,000,000 6/15/2004 1,025,000
Nuevo Energy Co. Sr. Sub.
Note, 9.50% ....................... 300,000 4/15/2006 307,125
Ocean Energy Inc. Series B Sr.
Note, 7.625% ...................... 250,000 7/01/2005 239,375
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Ocean Energy Inc. Sr. Sub.
Note, 10.375% ..................... $ 100,000 10/15/2005 $ 105,750
Oglebay Norton Co. Sub. Note,
10.00%+ ........................... 250,000 2/01/2009 246,250
Orion Network Systems Inc. Sr.
Note, 11.25% ...................... 1,000,000 1/15/2007 930,000
Owens-Illinois Inc. Sr. Deb.,
7.50% ............................. 750,000 5/15/2010 737,677
Packaging Resources Inc. Sr.
Sec. Note, 11.625% ................ 750,000 5/01/2003 780,000
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 1,119,625
Pagemart Wireless Inc. Sr. Sub.
Note, 0.00% to 1/31/2003,
11.25% from 2/1/2003 to
maturity .......................... 500,000 2/01/2008 175,000
Pathmark Stores Inc. Sub. Deb.,
12.625% ........................... 750,000 6/15/2002 765,000
Peco Energy Transport Trust,
Series 1999-A Cl. A-7 6.13%........ 425,000 3/01/2009 423,478
Phase Metrics Inc. Sr. Note,
10.75% ............................ 500,000 2/01/2005 287,500
Pogo Producing Co. Sr. Sub.
Note, 8.75% ....................... 250,000 5/15/2007 232,500
Pool Energy Services Co. Sr.
Sub. Note, 8.625% ................. 300,000 4/01/2008 309,750
Primus Telecommunications
Group Sr. Note, 11.75% ............ 500,000 8/01/2004 520,000
Quest Diagnostics Inc. Sr. Sub.
Note, 10.75% ...................... 1,000,000 12/15/2006 1,102,500
Rose Hills Co. Sr. Sub. Note,
9.50% ............................. 500,000 11/15/2004 450,000
RSL Communications Ltd. Sr.
Note, 12.25% ...................... 1,000,000 11/15/2006 1,110,000
Scotts Co. Sr. Sub. Note Series
B, 8.625%+ ........................ 100,000 1/15/2009 103,500
SFX Entertainment Inc. Sr. Note
Series B, 9.125% .................. 500,000 2/01/2008 517,500
Simonds Industries Inc. Sr. Sub.
Note, 10.25% ...................... 500,000 7/01/2008 510,000
Smiths Food & Drug Note
Series 1994 A3, 9.20% ............. 700,000 7/02/2018 760,900
Spanish Broadcasting Systems
Inc. Sr. Note, 12.50% ............. 1,000,000 6/15/2002 1,130,000
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Startec Global Communications
Sr. Note, 12.00% .................. $ 750,000 5/15/2008 $ 678,750
Stena AB Sr. Note, 8.75% ............ 500,000 6/15/2007 471,250
Tekni Plex Inc. Series B Sr.
Sub. Note, 11.25% ................. 150,000 4/01/2007 164,250
Telecorp PCS Inc. Sr. Sub.
Note, 0.00% to 4/14/2004,
11.625% from 4/15/2004 to
maturity+ ......................... 675,000 4/15/2009 379,688
Time Warner Telecom LLC Sr.
Note, 9.75% ....................... 350,000 7/15/2008 378,000
Tom's Foods Inc. Sr. Sec. Note,
10.50% ............................ 500,000 11/01/2004 467,500
Transamerican Energy Corp. Sr.
Sec. Note Series B, 11.50%......... 355,000 6/15/2002 62,125
Transdigm Inc. Sr. Sub. Note,
10.375%+ .......................... 200,000 12/01/2008 202,000
Transwestern Publishing Co. Sr.
Sub. Note Series D, 9.625%......... 250,000 11/15/2007 262,500
Triad Hospitals Holdings Inc. Sr.
Sub. Note, 11.00%+ ................ 350,000 5/15/2009 350,000
Triton PCS Inc. Sr. Sub. Note,
0.00% to 4/30/2003, 11.00%
from 5/1/2003 to maturity ......... 400,000 5/01/2008 252,000
Unilab Corp. Sr. Note, 11.00%........ 500,000 4/01/2006 510,000
Union Pacific Resources Group
Inc. Note, 7.30% .................. 225,000 4/15/2009 222,946
Viatel Inc. Sr. Note, 11.25% ........ 1,000,000 4/15/2008 1,040,000
Viatel Inc. Sr. Note, 0.00% to
4/14/2003, 12.50% from
4/15/2003 to maturity ............. 500,000 4/15/2008 325,000
Vintage Petroleum Inc. Sr. Sub.
Note, 9.75%+ ...................... 400,000 6/30/2009 413,000
Westinghouse Air Brake Co. Sr.
Note, 9.375%+ ..................... 150,000 6/15/2005 156,000
Westpoint Stevens Inc. Sr.
Note, 7.875% ...................... 1,000,000 6/15/2008 1,022,500
Winstar Communications Inc.
Sr. Exch. Note, 14.50% ............ 250,000 10/15/2005 335,000
Winstar Equipment Corp. Sr.
Sec. Exch. Note, 12.50% ........... 625,000 3/15/2004 643,750
-----------
54,592,247
-----------
Total Fixed Income Securities (Cost $107,001,798)........................... 104,224,864
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS & OTHER 2.6%
Ameriking Inc. Com.+* ...................... 300 $ 12,000
Ameriking Inc. Sr. Exch. Pfd.[diamond]...... 15,979 415,454
Cluett American Corp. Pfd.[diamond]......... 5,307 467,016
Econophone Inc. Wts.+* ..................... 750 7,500
Golden Ocean Group Ltd. Wts.+* ............. 250 125
Hollinger International, Inc. Cl. A* ....... 96,900 1,362,656
Ionica PLC Wts.+* .......................... 1,000 10
Loral Orion Network Systems Inc. Wts.* ..... 1,000 9,500
North Atlantic Trading Inc. Sr. Pfd.[diamond] 12,274 276,165
North Atlantic Trading Inc. Wts.+* ......... 10 10
Packaging Corp. of America Pfd.+[diamond]... 400 41,350
Primus Telecommunications Group Wts.+* ..... 500 7,500
RSL Communications Ltd. Wts.+* ............. 500 62,500
Startec Global Communications Wts.+* ....... 750 750
Viatel Inc. Pfd.[diamond]................... 803 199,144
Wireless One Inc. Wts.* .................... 750 8
------------
Total Common Stocks & Other (Cost $2,630,461) ............. 2,861,688
------------
SHORT-TERM INVESTMENTS 5.3%
State Street Navigator Securities Lending
Prime Portfolio .......................... 5,963,750 5,963,750
------------
Total Short-Term Investments (Cost $5,963,750) ............ 5,963,750
------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Principal Maturity
Amount Date
- -------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 7.6%
American Express Credit
Corp., 4.72% .................. $ 101,000 5/03/1999 101,000
American Express Credit
Corp., 4.60% .................. 2,626,000 5/03/1999 2,626,000
Ford Motor Credit Co., 4.86%..... 397,000 5/06/1999 397,000
John Deere Capital Corp.,
4.84% ......................... 4,734,000 5/06/1999 4,734,000
Merrill Lynch & Company Inc.,
4.80% ......................... 631,000 5/03/1999 630,832
------------
Total Commercial Paper (Cost $8,488,832)................. 8,488,832
------------
Total Investments (Cost $124,084,841)--108.8%............ 121,539,134
Cash and Other Assets, Less Liabilities--(8.8%) ......... (9,848,267)
------------
Net Assets--100.0% ...................................... $111,690,867
============
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------
Federal Income Tax Information:
At April 30, 1999, the net unrealized depreciation of
investments based on cost for Federal income tax
purposes of $124,136,408 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost .................................... $ 1,804,397
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value .................................. (4,401,671)
------------
$ (2,597,274)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* 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 April 30, 1999 were $5,815,230 and $5,833,650
(5.22% 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.
++ Interest rates on these floating-rate bonds will reset annually or
biannually based on the six month London Interbank Offered Rate
(LIBOR) plus .8125%.
Futures contracts open at April 30, 1999, are as follows:
<TABLE>
<CAPTION>
Expiration Unrealized
Type Notional Amount Month Appreciation
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
30 year U.S. Treasury Bonds $500,000 June, 1999 $6,057
</TABLE>
Forward currency exchange contracts outstanding at April 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation Delivery
Total Value Contract Price (Depreciation) Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sell Canadian dollars, Buy U.S. dollars ..... 825,000 CAD .67420 CAD $ (9,914) 7/23/99
Sell Euro currency, Buy U.S. dollars ........ 187,055 EUR 1.06350 EUR 1,237 5/07/99
Sell Euro currency, Buy U.S. dollars ........ 2,882,000 EUR 1.14030 EUR 236,176 5/28/99
Sell Euro currency, Buy U.S. dollars ........ 224,000 EUR 1.07320 EUR 2,470 7/22/99
Buy Greek drachma, Sell U.S. dollars ........ 60,952,000 GRD .00325 GRD (788) 5/07/99
Sell Greek drachma, Buy U.S. dollars ........ 60,952,000 GRD .00327 GRD 1,744 5/07/99
Sell New Zealand dollars, Buy U.S. dollars .. 1,040,000 NZD .55490 NZD (5,568) 5/28/99
Sell New Zealand dollars, Buy U.S. dollars .. 4,455,000 NZD .55050 NZD (45,143) 7/22/99
Sell New Zealand dollars, Buy U.S. dollars .. 2,710,000 NZD .55057 NZD (27,257) 7/22/99
---------
$ 152,957
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1999
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $124,084,841) (Note 1) ................ $121,539,134
Cash .............................................................. 333
Receivable for securities sold .................................... 4,923,838
Interest receivable ............................................... 2,333,004
Receivable for open forward contracts ............................. 241,627
Receivable for fund shares sold ................................... 212,864
Receivable for variation margin (Note 1) .......................... 10,156
Deferred organization costs and other assets (Note 1) ............. 73,233
------------
129,334,189
Liabilities
Payable for securities purchased .................................. 10,882,881
Payable for collateral received on securities loaned .............. 5,963,750
Dividends payable ................................................. 331,882
Payable for fund shares redeemed .................................. 89,796
Payable for open forward contracts ................................ 88,670
Accrued management fee (Note 2) ................................... 67,470
Accrued distribution and service fees (Note 5) .................... 59,750
Accrued transfer agent and shareholder services
(Note 2) ........................................................ 43,642
Accrued trustees' fees (Note 2) ................................... 12,256
Other accrued expenses ............................................ 103,225
------------
17,643,322
------------
Net Assets $111,690,867
============
Net Assets consist of:
Undistributed net investment income .............................. $ 140,066
Unrealized depreciation of investments ........................... (2,545,707)
Unrealized appreciation of forward contracts and
foreign currency ............................................... 144,200
Unrealized appreciation of futures contracts ..................... 6,057
Accumulated net realized loss .................................... (2,007,998)
Paid-in capital .................................................. 115,954,249
------------
$111,690,867
============
Net Asset Value and redemption price per share of
Class A shares ($36,227,275 [divided by] 5,262,651 shares) ...... $6.88
=====
Maximum Offering Price per share of Class A shares
($6.88 [divided by] .955) ....................................... $7.20
=====
Net Asset Value and offering price per share of
Class B(1) shares ($3,725,667 [divided by] 542,562 shares)* ..... $6.87
=====
Net Asset Value and offering price per share of
Class B shares ($44,110,343 [divided by] 6,423,079 shares)* ..... $6.87
=====
Net Asset Value and offering price per share of
Class C shares ($15,948,831 [divided by] 2,322,361 shares)* ..... $6.87
=====
Net Asset Value, offering price and redemption price
per share of Class S shares
($11,678,751 [divided by] 1,696,253 shares) ..................... $6.89
=====
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B(1), Class B and Class C is equal to
net asset value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended April 30, 1999
<TABLE>
<S> <C>
Investment Income
Interest, net of foreign taxes of $34,747 (Note 1) ....... $ 9,545,123
Dividends ................................................ 192,751
-----------
9,737,874
Expenses
Management fee (Note 2) .................................. 836,499
Custodian fee ............................................ 173,170
Transfer agent and shareholder services (Note 2) ......... 163,957
Registration fees ........................................ 46,035
Reports to shareholders .................................. 29,200
Audit fee ................................................ 24,130
Legal fees ............................................... 22,000
Amortization of organization costs (Note 1) .............. 16,246
Trustees' fees (Note 2) .................................. 15,025
Service fee--Class A (Note 5) ............................ 104,839
Distribution and service fees--Class B(1) (Note 5) ....... 7,208
Distribution and service fees--Class B (Note 5) .......... 431,970
Distribution and service fees--Class C (Note 5) .......... 140,631
Miscellaneous ............................................ 5,185
-----------
2,016,095
Expenses borne by the Distributor (Note 3) ............... (87,690)
Fees paid indirectly (Note 2) ............................ (5,217)
-----------
1,923,188
-----------
Net investment income .................................... 7,814,686
-----------
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency and Forward
Contracts
Net realized loss on investments (Notes 1 and 4) ......... (1,733,580)
Net realized gain on futures contracts (Note 1) .......... 8,203
Net realized gain on forward contracts and foreign
currency (Note 1) ...................................... 126,730
-----------
Total net realized loss ................................ (1,598,647)
-----------
Net unrealized depreciation of investments ............... (3,097,627)
Net unrealized appreciation of forward contracts and
foreign currency ....................................... 13,288
Net unrealized appreciation of futures contracts ......... 6,057
-----------
Total net unrealized depreciation ...................... (3,078,282)
-----------
Net loss on investments, forward contracts, foreign
currency and futures contracts ......................... (4,676,929)
-----------
Net increase in net assets resulting from operations ..... $ 3,137,757
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended April 30
--------------------------------
1998 1999
- --------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ................ $ 6,679,112 $ 7,814,686
Net realized gain (loss) on
investments, foreign
currency, forward contracts
and futures contracts .............. 3,167,777 (1,598,647)
Net unrealized appreciation
(depreciation) of
investments, foreign
currency, forward contracts
and futures contracts .............. 1,289,060 (3,078,282)
------------ ------------
Net increase resulting from
operations ......................... 11,135,949 3,137,757
------------ ------------
Dividends from net
investment income:
Class A ............................. (3,130,569) (3,329,784)
Class B(1) .......................... -- (48,325)
Class B ............................. (1,958,332) (3,122,662)
Class C ............................. (778,492) (1,011,221)
Class S ............................. (898,928) (948,209)
------------ ------------
(6,766,321) (8,460,201)
------------ ------------
Distributions from net realized
gains:
Class A ............................. (648,291) (630,946)
Class B ............................. (436,211) (603,363)
Class C ............................. (179,325) (201,990)
Class S ............................. (176,107) (172,194)
------------ ------------
(1,439,934) (1,608,493)
------------ ------------
Net increase from fund share
transactions (Note 6) .............. 25,482,412 14,923,121
------------ ------------
Total increase in net assets ......... 28,412,106 7,992,184
Net Assets
Beginning of year .................... 75,286,577 103,698,683
------------ ------------
End of year (including
undistributed net
investment income of
$724,718 and $140,066,
respectively) ...................... $103,698,683 $111,690,867
============ ============
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1999
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 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 five 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. On January 1, 1999, the Fund began offering Class B(1) shares and
continued offering Class B shares but only to current shareholders. Class B(1)
and Class B pay annual distribution and service fees of 1.00% and both classes
automatically convert into Class A shares (which pay lower ongoing expenses) at
the end of eight years. Class B(1) shares are subject to a contingent deferred
sales charge on certain redemptions made within six years of purchase. Class B
shares are subject to a contingent deferred sales charge on certain redemptions
made within five years of purchase. Class C shares are subject to a contingent
deferred sales charge of 1.00% on any shares redeemed within one year of their
purchase. Class C shares also pay annual distribution and service fees of 1.00%.
Class S shares are only offered 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
Fixed income securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. If not valued by a pricing service, such
securities are valued at prices obtained from independent brokers. Values for
listed equity securities reflect final sales on
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
national securities exchanges quoted prior to the close of the New York Stock
Exchange. Over-the-counter securities quoted on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system are valued at closing
prices supplied through such system. If not quoted on the NASDAQ system, such
securities are valued at prices obtained from independent brokers. In the
absence of recorded sales, 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 good faith under consistently applied procedures established by
and under the supervision of the Trustees.
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. For the year ended April 30, 1999, the Fund has designated as
long-term $592,632 of the distributions from net realized gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund intends to
qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section 4982
of the Internal Revenue Code, the Fund is required to measure and distribute
annually, if necessary, net capital gains realized during a twelve-month period
ending October 31. In this connection, the Fund is permitted to defer into its
next fiscal year any net capital losses incurred between each November 1 and the
end of its fiscal year. From November 1, 1998 through April 30, 1999, the Fund
incurred net capital losses of approximately $1,956,000 and intends to defer and
treat such losses as arising in the fiscal year ended April 30, 2000.
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 April 30,
1999, the value of the securities loaned and the value of collateral were
$5,687,591 and $5,963,750, respectively. During the year ended April 30, 1999,
income from securities lending amount to $42,699 and is included in interest
income.
11
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
J. Futures Contracts
The Fund may enter into futures contracts as a hedge against unfavorable market
conditions and to enhance income. The Fund will limit its risks by entering into
a futures position only if it appears to be a liquid investment.
Upon entering into a futures contract, the Fund deposits with the selling broker
sufficient cash or U.S. Government securities to meet the minimum "initial
margin" requirements. Thereafter, the Fund receives from or pays to the broker
cash or U.S. Government securities equal to the daily fluctuation in value of
the contract ("variation margin"), which is recorded as unrealized gain or loss.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
Note 2
The Trust and the Adviser have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses of
management. During the year ended April 30, 1999, the fees pursuant to such
agreement amounted to $836,499.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended April 30, 1999, the amount of such
expenses was $67,537.
The Fund has entered into an agreement with its transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the Fund's expense. During the year ended April 30, 1999 the Fund's transfer
agent fees were reduced by $5,217 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$15,025 during the year ended April 30, 1999.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund. During
the year ended April 30, 1999, the amount of such expenses assumed by the
Distributor and its affiliates was $87,690.
Note 4
For the year ended April 30, 1999, purchases and sales of securities, exclusive
of short-term obligations, aggregated $192,064,462 and $184,781,394 (including
$99,517,210 and $112,366,855 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(1), 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(1), Class B and Class C shares. The Distributor uses such payments for
personal service and/or the maintenance or servicing of shareholder accounts, to
compensate or reimburse securities dealers for distribution and marketing
services, to furnish ongoing assistance to investors and to defray a portion of
its distribution and marketing expenses. For the year ended April 30, 1999, fees
pursuant to such plan amounted to $104,839, $431,970 and $140,631 for Class A,
Class B and Class C shares, respectively. For the period January 1, 1999
(commencement of share class) to April 30, 1999, fees pursuant to such plan
amounted to $7,208 for Class B(1) shares.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $40,730 and $180,796, respectively, on sales of Class A shares of
the Fund during the year ended April 30, 1999, and that MetLife Securities, Inc.
earned commissions aggregating $268,548 on sales of Class B shares, and that the
Distributor collected contingent deferred sales charges aggregating $109,863 and
$1,758 on redemptions of Class B and Class C shares, respectively, during the
same period. MetLife Securities, Inc. earned commissions aggregating $50,018 on
sales and the distributor collected contingent deferred sales charges
aggregating $133 on redemptions of Class B(1) shares during the period January
1, 1999 (commencement of share class) to April 30, 1999.
12
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At April 30, 1999, Metropolitan
owned 1,606,767 Class A shares, 72,359 Class B(1) shares, and 1,328,045 Class S
shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years ended April 30
------------------------------------------------------------------
1998 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Class A Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 1,831,188 $ 13,384,860 1,663,344 $ 11,724,754
Issued upon reinvestment of:
Dividends from net investment income .......... 113,717 832,229 184,480 1,287,946
Distributions from net realized gains ......... 84,556 616,483 82,187 588,209
Shares repurchased ............................. (1,501,194) (10,988,056) (2,311,032) (15,949,011)
---------- ------------ ---------- ------------
Net increase (decrease) ........................ 528,267 $ 3,845,516 (381,021) $ (2,348,102)
========== ============ ========== ============
Class B(1)* Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... -- -- 553,702 $ 3,800,702
Issued upon reinvestment of dividends from
net investment income ......................... -- -- 3,640 24,932
Shares repurchased ............................. -- (14,780) (101,368)
---------- ---------- ------------
Net increase ................................... -- -- 542,562 $ 3,724,266
========== ============ ========== ============
Class B Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 3,029,126 $ 22,080,859 2,632,299 $ 18,607,800
Issued upon reinvestment of:
Dividends from net investment income .......... 132,474 967,752 229,456 1,595,713
Distributions from net realized gains ......... 45,675 332,565 69,847 498,378
Shares repurchased ............................. (879,529) (6,410,034) (1,629,177) (11,427,253)
---------- ------------ ---------- ------------
Net increase ................................... 2,327,746 $ 16,971,142 1,302,425 $ 9,274,638
========== ============ ========== ============
Class C Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 837,933 $ 6,117,105 1,162,260 $ 8,135,977
Issued upon reinvestment of:
Dividends from net investment income .......... 19,637 143,668 36,564 249,739
Distributions from net realized gains ......... 20,990 152,814 24,066 171,822
Shares repurchased ............................. (286,313) (2,097,991) (711,904) (5,017,485)
---------- ------------ ---------- ------------
Net increase ................................... 592,247 $ 4,315,596 510,986 $ 3,540,053
========== ============ ========== ============
Class S Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 21,859 $ 158,930 105,621 $ 753,209
Issued upon reinvestment of:
Dividends from net investment income .......... 20,699 151,403 26,264 183,457
Distributions from net realized gains ......... 24,029 175,173 23,933 171,355
Shares repurchased ............................. (18,351) (135,348) (52,964) (375,755)
---------- ------------ ---------- ------------
Net increase ................................... 48,236 $ 350,158 102,854 $ 732,266
========== ============ ========== ============
</TABLE>
- --------------------------------------------------------------------------------
* January 1, 1999 (commencement of share class) to April 30, 1999.
13
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-----------------------------------------
August 30, 1996
(Commencement Years ended April 30
of Operations) to ---------------------
April 30, 1997(a) 1998(a) 1999(a)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 7.00 7.06 7.33
----- ----- -----
Net investment income ($)* 0.38 0.55 0.52
Net realized and unrealized gain (loss) on
investments, foreign currency, forward
contracts and futures contracts ($) 0.01 0.38 (0.30)
----- ----- -----
Total from investment operations ($) 0.39 0.93 0.22
----- ----- -----
Dividends from net investment income ($) (0.31) (0.55) (0.56)
Distributions from net realized gains ($) (0.02) (0.11) (0.11)
----- ----- ------
Total distributions ($) (0.33) (0.66) (0.67)
----- ----- -----
Net asset value, end of year ($) 7.06 7.33 6.88
===== ===== =====
Total return(b) (%) 5.60(d) 13.70 3.10
Ratios/supplemental data:
Net assets at end of year ($ thousands) 36,110 41,348 36,227
Ratio of operating expenses to average net
assets (%)* 1.35(e) 1.35 1.35
Ratio of net investment income to average net
assets (%)* 7.30(e) 7.51 7.36
Portfolio turnover rate (%) 110.37 179.82 169.92
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) ($) 0.01 0.01 0.01
<CAPTION>
Class B(1) Class B
---------------------- -----------------------------------------
August 30, 1996
(Commencement Years ended April 30
Period ended of Operations) to ----------------------
April 30, 1999(a)(c) April 30, 1997(a) 1998(a) 1999(a)
- ---------------------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 6.91 7.00 7.05 7.31
----- ----- ------ -----
Net investment income ($)* 0.12 0.31 0.49 0.47
Net realized and unrealized gain (loss) on
investments, foreign currency, forward
contracts and futures contracts ($) 0.00 0.04 0.38 (0.30)
----- ----- ------ -----
Total from investment operations ($) 0.12 0.35 0.87 0.17
----- ----- ------ -----
Dividends from net investment income ($) (0.16) (0.28) (0.50) (0.50)
Distributions from net realized gains ($) -- (0.02) (0.11) (0.11)
----- ----- ------ -----
Total distributions ($) (0.16) (0.30) (0.61) (0.61)
----- ----- ------ -----
Net asset value, end of year ($) 6.87 7.05 7.31 6.87
===== ===== ====== =====
Total return(b) (%) 1.71(d) 4.96(d) 12.74 2.49
Ratios/supplemental data:
Net assets at end of year ($ thousands) 3,726 19,678 37,432 44,110
Ratio of operating expenses to average net
assets (%)* 2.10(e) 2.10(e) 2.10 2.10
Ratio of net investment income to average net
assets (%)* 6.54(e) 6.73(e) 6.77 6.63
Portfolio turnover rate (%) 169.92 110.37 179.82 169.92
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) ($) -- 0.01 0.01 0.01
</TABLE>
<TABLE>
<CAPTION>
Class C
-----------------------------------------
August 30, 1996
(Commencement Years ended April 30
of Operations) to ---------------------
April 30, 1997(a) 1998(a) 1999(a)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 7.00 7.05 7.31
----- ------ -----
Net investment income ($)* 0.32 0.49 0.46
Net realized and unrealized gain (loss) on
investments, foreign currency, forward
contracts and futures contracts ($) 0.03 0.38 (0.29)
----- ------ -----
Total from investment operations ($) 0.35 0.87 0.17
----- ------ -----
Dividends from net investment income ($) (0.28) (0.50) (0.50)
Distributions from net realized gains ($) (0.02) (0.11) (0.11)
----- ------ -----
Total distributions ($) (0.30) (0.61) (0.61)
----- ------ -----
Net asset value, end of year ($) 7.05 7.31 6.87
===== ====== =====
Total return(b) (%) 4.96(d) 12.74 2.49
Ratios/supplemental data:
Net assets at end of year ($ thousands) 8,590 13,243 15,949
Ratio of operating expenses to average net
assets (%)* 2.10(e) 2.10 2.10
Ratio of net investment income to average net
assets (%)* 6.67(e) 6.77 6.62
Portfolio turnover rate (%) 110.37 179.82 169.92
*Reflects voluntary reduction of expenses per
share of these amounts (Note 3) ($) 0.01 0.01 0.01
<CAPTION>
Class S
-----------------------------------------
August 30, 1996
(Commencement Years ended April 30
of Operations) to ----------------------
April 30, 1997(a) 1998(a) 1999(a)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 7.00 7.06 7.33
----- ------ -----
Net investment income ($)* 0.39 0.57 0.54
Net realized and unrealized gain (loss) on
investments, foreign currency, forward
contracts and futures contracts ($) 0.02 0.38 (0.30)
----- ------ -----
Total from investment operations ($) 0.41 0.95 0.24
----- ------ -----
Dividends from net investment income ($) (0.33) (0.57) (0.57)
Distributions from net realized gains ($) (0.02) (0.11) (0.11)
----- ------ -----
Total distributions ($) (0.35) (0.68) (0.68)
----- ------ -----
Net asset value, end of year ($) 7.06 7.33 6.89
===== ====== =====
Total return(b) (%) 5.76(d) 13.99 3.51
Ratios/supplemental data:
Net assets at end of year ($ thousands) 10,908 11,675 11,679
Ratio of operating expenses to average net
assets (%)* 1.10(e) 1.10 1.10
Ratio of net investment income to average net
assets (%)* 7.51(e) 7.74 7.62
Portfolio turnover rate (%) 110.37 179.82 169.92
*Reflects voluntary reduction of expenses per
share of these amounts (Note 3) ($) 0.01 0.01 0.01
</TABLE>
- --------------------------------------------------------------------------------
(a) Per share figures have been calculated using the average shares method.
(b) 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.
(c) January 1, 1999 (commencement of share class) to April 30, 1999.
(d) Not annualized.
(e) Annualized.
14
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Securities Trust
and Shareholders of State Street Research Strategic Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in the net assets and the financial highlights present fairly, in all
material respects, the financial position of State Street Research Strategic
Income Fund (a series of State Street Research Securities Trust, hereafter
referred to as the "Trust") at April 30, 1999, and the results of its
operations, the change in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at April
30, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 4, 1999
15
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Strategic Income Fund Class A shares returned 3.10% for
the 12 months ended April, 1999 (does not reflect sales charge). The Fund
outperformed the average Lipper multi-sector income fund which rose 1.05%.
During the period, the Fund was hurt by volatility in the U.S. bond market,
which was triggered by currency devaluations in both Russia and Brazil. The
Fund's heavy investment in high-yield bonds hurt performance in the first half
of the fiscal year. However, it fared better than its peer group because
management's shift away from the sector and into high-grade U.S. Treasury bonds
was well timed. Management bought and sold mortgage, asset-backed and agency
bonds for a positive contribution to performance. In the second half of the
fiscal year, the Fund's high-yield bond position was rebuilt, with purchases
emphasizing higher quality BB-rated bonds.
In the last month of the fiscal year, 2% of the Fund's assets were invested in
short-term or floating-rate emerging market bonds where research had identified
opportunities. During the year, the Fund's overall international exposure was
reduced from 14% to approximately 10% at the end of the period.
April 30, 1999
All returns represent past performance, which is no guarantee of future results.
The investment return and principal value of an investment made in the Fund will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost. All returns assume reinvestment of capital gain distributions and
income dividends. Performance reflects maximum 4.5% Class A share front-end
sales charge, or 5% Class B(1) or Class B share or 1% Class C share contingent
deferred sales charges, where applicable. Performance for Class B(1) reflects
Class B performance through December 31, 1998. Class B(1) was introduced on
January 1, 1999. The fund's returns include performance before the creation of
share classes. If this performance reflected the share classes' current 12b-1
fees, the fund's returns may have been lower. Class S shares, offered without a
sales charge, are available through certain employee benefit plans and special
programs. 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. Direct investment in the index is
not possible; results are for illustrative purposes only.
Change In Value Of $10,000
Based On The Lehman Brothers Aggregate Bond Index
Compared To Change In Value Of $10,000
Invested In Strategic Income Fund
[Line Chart Data]
Class A Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
-1.54% 6.47%
- ---------------------------
<TABLE>
<CAPTION>
Lehman
Brothers
Strategic Aggregate
Income Bond
Fund Index
---- -----
<S> <C> <C>
Inception 8/30/96 9550 10000
4/30/97 10085 10577
4/30/98 11466 11731
4/30/99 11822 12467
</TABLE>
Class B(1) Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
-2.21% 6.51%
- ---------------------------
<TABLE>
<CAPTION>
Lehman
Brothers
Strategic Aggregate
Income Bond
Fund Index
---- -----
<S> <C> <C>
Inception 8/30/96 10000 10000
4/30/97 10496 10577
4/30/98 11832 11731
4/30/99 11833 12467
</TABLE>
Class B Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
-2.21% 6.51%
- ---------------------------
<TABLE>
<CAPTION>
Lehman
Brothers
Strategic Aggregate
Income Bond
Fund Index
---- -----
<S> <C> <C>
Inception 8/30/96 10000 10000
4/30/97 10496 10577
4/30/98 11832 11731
4/30/99 11833 12467
</TABLE>
Class C Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
-2.21% 6.51%
- ---------------------------
<TABLE>
<CAPTION>
Lehman
Brothers
Strategic Aggregate
Income Bond
Fund Index
---- -----
<S> <C> <C>
Inception 8/30/96 10000 10000
4/30/97 10496 10577
4/30/98 11832 11731
4/30/99 12127 12467
</TABLE>
Class S Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
-2.21% 6.51%
- ---------------------------
<TABLE>
<CAPTION>
Lehman
Brothers
Strategic Aggregate
Income Bond
Fund Index
---- -----
<S> <C> <C>
Inception 8/30/96 10000 10000
4/30/97 10576 10577
4/30/98 12056 11731
4/30/99 12479 12467
</TABLE>
16
<PAGE>
STATE STREET RESEARCH STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Shareholders of the State Street Research Strategic Income
Fund ("Fund"), along with shareholders of other series of State Street Research
Securities Trust ("Trust"), was convened on April 6, 1999 ("Meeting"). The
results of the Meeting are set forth below.
<TABLE>
<CAPTION>
Votes (millions of
shares)
(Combined for All
Series
of the Trust)
---------------------
Action on Proposal For Withheld
- -----------------------------------------------------------------------
<S> <C> <C>
The following persons were elected as Trustees:
Bruce R. Bond ................................. 19.1 0.2
Steve A. Garban ............................... 19.1 0.2
Malcolm T. Hopkins ............................ 19.0 0.2
Susan M. Phillips ............................. 19.1 0.2
</TABLE>
17
<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.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
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
Bruce R. Bond
Chairman of the Board,
Chief Executive Officer and
President, PictureTel Corporation
Steve A. Garban
Former Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial
Officer, St. Regis Corp.
Dean O. Morton
Former Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and
Public Management, George
Washington University; former
Member of the Board of Governors
of the Federal Reserve System and
Chairman and Commissioner of
the Commodity Futures Trading
Commission
Toby Rosenblatt
President,
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
18
<PAGE>
[Back cover]
State Street Research Strategic Income Fund
One Financial Center
Boston, MA 02111
- ------------
Bulk Rate
U.S. Postage
PAID
Permit #6
Hartford, CT
- ------------
Questions? Comments?
Call us at 1-800-562-0032 or
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-Mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[Graphic: STATE STREET RESEARCH Logo]
This report is prepared for the general information of current shareholders.
This report must be accompanied or preceded by a current State Street Research
Strategic Income Fund prospectus. When used after June 30, 1999, 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: (exp0700)SSR-LD SI-765F-0699
<PAGE>
[Front cover]
STATE STREET RESEARCH
------------
GALILEO FUND
------------
ANNUAL REPORT
April 30, 1999
-------------
WHAT'S INSIDE
-------------
From the Chairman
A healthy economy
benefited Americans
Portfolio Manager's Review
Stock selection
aided performance
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Graphic: DALBAR
HONORS COMMITMENT TO:
INVESTORS
1998]
For Excellence
in
Shareholder Service
[Graphic: STATE STREET RESEARCH
75 YEARS
LASTING VALUES
- --------------
LEADING IDEAS]
STATE STREET RESEARCH FUNDS
<PAGE>
FROM THE CHAIRMAN
[Picture: Ralph F. Verni]
Dear Shareholder:
In a year marked by market volatility at home and currency upheaval abroad,
Americans continued to reap the benefits of a healthy economy. Inflation
remained low, unemployment hovered around 4%, wages rose, and prices fell at the
gas pump and in the mortgage market. Many Americans took their prosperity to the
mall. The holiday season was strong and retail sales rose. However, the nation's
savings rate fell below zero late last fall - and remains there now.
Stocks
It was a strong 12 months for the U.S. stock market. A correction late in the
summer was short-lived as most segments of the market staged a comeback in the
fourth quarter. The Dow Jones Industrial Average pierced 10,000 in the first
quarter of 1999. The S&P 500 returned 21.83% for 12 months ended April 30,
1999.(1)
Large-company growth stocks and technology stocks were the strongest performers,
led by Internet stocks. However, gains were concentrated in a narrow band of
stocks. Small and medium-sized company stocks continued to lag the market, and
the gap between growth and value strategies remained. Economically-sensitive
cyclical stocks of large companies began to rise in April.
Bonds
The bond market benefited from the Federal Reserve Board's three quick interest
rate cuts last fall as the benchmark U.S. Treasury bond's yield hit a low of 5%.
Under the weight of a robust economy, that yield climbed back up to 5.7% at the
end of the period. Bond prices move in the opposite direction of yields. As a
result, the value of U.S. Treasury bonds fell. High-yield "junk" bonds had been
weak, but bounced back on the strong economic news to close among the strongest
bond market performers.
International
Foreign markets delivered mixed returns. Expectations surrounding the debut of
the euro, the new common currency shared by 11 nations, helped European markets
in the first half of this reporting period. But the luster was short-lived. Most
European economies are still suffering from the Asian flu, and most European
markets stumbled in the first months of 1999. Asian emerging markets started to
show some signs of life, while Latin American emerging markets remain mired in
currency woes. Once again, economists waited for a revival in Japan. Japan's
stock market, including small company stocks, managed to deliver attractive
returns in the first four months of 1999, encouraged by corporate restructurings
and signs that the central bank was trying to help get the economy going.
Outlook and Opportunities
As investors, you may have been unsettled by the market's volatility in the past
year. But remember, volatility also creates opportunities. Regardless of the
environment, we are confident that our in-depth research can help us uncover
good values in companies and markets, both at home and abroad. As always, we
will exercise diligence in finding new investments and in monitoring the ones we
already own. Thank you for your confidence in State Street Research.
Sincerely,
[Graphic: Signature of Ralph F. Verni]
Ralph F. Verni
Chairman
April 30, 1999
(1)The S&P 500 (officially the "Standard & 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)17.51% for Class B(1) shares; 17.50% for Class B shares; 17.36% for Class C
shares; 18.59% 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 5.75% Class A share front-end sales charge, or 5% Class B(1) or Class B
share or 1% Class C share contingent deferred sales charge, where applicable.
Performance for Class B(1) reflects Class B performance through December 31,
1998. Class B(1) was introduced on January 1, 1999.
(4)Class S shares, offered without a sales charge, are available through certain
employee benefit plans and special programs.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended April 30, 1999, except where
noted)
- --------------------------------------------------------------------------------
Average Annual Total Return
for period ended 3/31/99
(at maximum applicable sales charge)(3),(4)
<TABLE>
<CAPTION>
- ------------------------------------------
Life of Fund
(since 3/11/98) 1 Year
- ------------------------------------------
<S> <C> <C>
Class A 10.05% 7.40%
- ------------------------------------------
Class B(1) 11.76% 8.05%
- ------------------------------------------
Class B 11.65% 7.93%
- ------------------------------------------
Class C 15.48% 12.01%
- ------------------------------------------
Class S 16.60% 14.16%
- ------------------------------------------
</TABLE>
Average Annual Total Return
(at maximum applicable sales charge)(3),(4)
<TABLE>
<CAPTION>
- ------------------------------------------
Life of Fund
(since 3/11/98) 1 Year
- ------------------------------------------
<S> <C> <C>
Class A 13.73% 11.48%
- ------------------------------------------
Class B(1) 15.48% 12.51%
- ------------------------------------------
Class B 15.46% 12.50%
- ------------------------------------------
Class C 18.88% 16.36%
- ------------------------------------------
Class S 20.07% 18.59%
- ------------------------------------------
</TABLE>
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Galileo Fund: Stock selection, emphasizing top-performing sectors, aided
performance
[Picture: Tom J. Dillman]
Tom J. Dillman
Portfolio Manager
We spoke with Tom Dillman, portfolio manager of State Street Research Galileo
Fund, about the Fund's performance for the year ended April 30, 1999 and his
views on the period ahead.
Q: How did the Fund perform during the fiscal year?
A: It was a good year for the Fund relative to its peer group. Class A shares
returned 18.28% for the 12 months ended April 30, 1999 [does not reflect sales
charge](2). That was higher than the Lipper average growth fund, which returned
15.05%. The Fund underperformed the Standard & Poor's 500 Stock Index (S&P 500),
which gained 21.83% for the same period.(1)
Q: What decisions helped the Fund outperform other growth funds?
A: Stock selection was important to performance. Our analysts sought companies
with prospects for steady revenue growth and profit margins that appear to be
sustainable over a long period. We found such companies in a broad selection of
industries, ranging from telecommunications -- one of the few sectors we choose
to overweight relative to the overall market -- to retail drug stores. The Fund
was also helped by underweighting food and beverage and tobacco stocks.
Q: Were there any disappointments during the period?
A: There were two factors that hurt our performance relative to the overall
market, as measured by the S&P 500. First, investors favored a handful of the
very largest growth companies. To the extent that this Fund is designed to have
broad exposure to the entire market, this factor hurt performance in the short
term. However, we believe that our approach to the market will serve our
investors well over the long term. Second, the Fund had a slightly larger than
normal cash position during most of the period. That was partly the result of
the fact that the Fund was new and money was coming into the Fund just as the
market hit a rough spot last summer. It was also the result of our decision to
hold back on some of the Fund's cash. That hurt us, because the market then took
off in the fall and climbed sharply before we had put most of the Fund's cash to
work in the market.
Q: What is your outlook for the period ahead?
A: We have already seen signs that the market is broadening. In other words,
some relatively smaller stocks and value-oriented stocks have started to come
back. Because the Fund is invested in both of these segments, we believe it will
be a positive factor for the period ahead. We will stick to our discipline, and
we believe our research will help us keep our mission on target: To select
attractive stocks in a broad range of market sectors.
April 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<S> <C>
1 Qwest Communications Telecommunications 2.0%
2 Providian Financial Consumer loans 2.0%
3 MCI WorldCom Telecommunication services 1.9%
4 Colt Telecom Telecommunications 1.9%
5 Citigroup Financial services 1.8%
6 Harley-Davidson Motorcycle manufacturer 1.7%
7 AirTouch Communications Wireless telecommunications 1.7%
8 Tyco International Diversified manufacturer 1.6%
9 Dayton Hudson Retail department stores 1.6%
10 CVS Drug retailing 1.5%
</TABLE>
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)
[Bar Chart Data]
Telecommunications 9.0%
Drugs &
Biotechnology 8.2%
Miscellaneous
Financial 8.2%
Computer
Technology 6.1%
Banks and
Savings & Loans 5.3%
Total: 36.8%
Best and Worst Contributors to Performance
(May 1, 1998 through April 30, 1999)
Best [Graphic: Up triangle]
- ---------------------------------------------------
Qwest Communications
Telecommunications leader, spurred by high growth
and demand
Providian Financial
Continued to grow earnings at accelerated rate
MCI WorldCom
Telecommunications leader, spurred by high growth
and demand
Worst [Graphic: Down triangle]
- ---------------------------------------------------
Rite Aid
Earnings growth disappointed
Cadence Design Systems
Missed quarterly earnings predictions
McKesson HBOC
Missed quarterly earnings predictions
2
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.2%
Automobiles & Transportation 3.7%
Automotive Parts 0.7%
Magna International, Inc. Cl. A ................. 5,600 $ 334,600
----------
Automobiles 0.5%
General Motors Corp. ............................ 2,800 249,025
----------
Miscellaneous Transportation 1.7%
Harley-Davidson Inc. ............................ 13,500 804,937
----------
Railroads 0.8%
Canadian National Railway Co. ................... 5,800 366,125
----------
Total Automobiles & Transportation .......................... 1,754,687
----------
Consumer Discretionary 11.7%
Casinos/Gambling, Hotel/Motel 0.7%
Mirage Resorts Inc.* ............................ 14,900 334,319
----------
Commercial Services 0.9%
Cendant Corp.* .................................. 22,300 401,400
----------
Communications, Media & Entertainment 1.7%
Chancellor Media Corp.* ......................... 9,900 543,262
Fox Entertainment Group Inc. Cl. A* ............. 10,600 271,625
----------
814,887
----------
Consumer Products 0.5%
Maytag Corp. .................................... 3,100 211,963
----------
Consumer Services 0.8%
Apollo Group Inc. Cl. A* ........................ 15,305 378,798
----------
Leisure Time 0.5%
Royal Caribbean Cruises Ltd. .................... 6,500 240,094
----------
Restaurants 1.4%
McDonald's Corp. ................................ 6,400 271,200
Tricon Global Restaurants Inc.* ................. 6,000 386,250
----------
657,450
----------
Retail 4.5%
Circuit City Stores Inc. ........................ 5,900 362,850
Dayton Hudson Corp. ............................. 10,800 726,975
Family Dollar Stores Inc. ....................... 10,400 250,900
Saks Inc.* ...................................... 12,700 359,569
Wal-Mart Stores, Inc. ........................... 8,300 381,800
----------
2,082,094
----------
Textile Apparel Manufacturers 0.7%
Tommy Hilfiger Corp.* ........................... 4,800 335,400
----------
Total Consumer Discretionary ................................ 5,456,405
----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------------
<S> <C> <C>
Consumer Staples 7.0%
Beverages 0.6%
Anheuser-Busch Companies, Inc. .................. 3,800 $ 277,875
----------
Drug & Grocery Store Chains 3.0%
CVS Corp. ....................................... 15,000 714,375
Rite Aid Corp. .................................. 29,500 687,719
----------
1,402,094
----------
Foods 0.4%
Quaker Oats Co. ................................. 3,200 206,600
----------
Household Products 3.0%
Clorox Co. ...................................... 2,200 253,825
Colgate-Palmolive Co. ........................... 3,700 379,019
Dial Corp. ...................................... 9,500 323,000
Procter & Gamble Co. ............................ 4,900 459,681
----------
1,415,525
----------
Total Consumer Staples ...................................... 3,302,094
----------
Financial Services 18.5%
Banks & Savings & Loan 5.3%
Bank of America Corp. ........................... 7,660 551,520
Chase Manhattan Corp. ........................... 4,300 355,825
Firstar Corp. ................................... 21,600 649,350
Mellon Bank Corp. ............................... 6,850 509,041
U.S. Bancorp .................................... 10,600 392,862
----------
2,458,598
----------
Financial Data Processing Services & Systems 0.5%
First Data Corp. ................................ 5,300 224,919
----------
Insurance 4.5%
Ace Ltd. ........................................ 13,900 420,475
Hartford Financial Services Group, Inc. ......... 4,800 282,900
Mutual Risk Management Ltd. ..................... 7,000 272,125
Saint Paul Companies, Inc. ...................... 6,500 186,469
Travelers Property Casualty Corp. Cl. A ......... 9,000 310,500
UNUM Corp. ...................................... 7,900 431,537
XL Capital Ltd. Cl. A ........................... 3,153 191,348
----------
2,095,354
----------
Miscellaneous Financial 8.2%
AMBAC Inc. ...................................... 7,300 440,737
Capital One Financial Corp. ..................... 3,600 625,275
Citigroup, Inc. ................................. 11,000 827,750
Federal National Mortgage Association ........... 3,250 230,547
Merrill Lynch & Company Inc. .................... 6,200 520,412
Metris Companies Inc. ........................... 4,200 256,725
Providian Financial Corp. ....................... 7,350 948,609
----------
3,850,055
----------
Total Financial Services .................................... 8,628,926
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------------
<S> <C> <C>
Health Care 9.8%
Drugs & Biotechnology 8.2%
American Home Products Corp. ................. 8,500 $ 518,500
Amgen Inc.* .................................. 8,000 491,500
Baxter International Inc. .................... 5,700 359,100
Biogen Inc.* ................................. 2,300 218,644
Bristol-Myers Squibb Co. ..................... 3,900 247,894
Johnson & Johnson ............................ 4,100 399,750
McKesson HBOC, Inc. .......................... 4,800 168,000
Pharmacia & Upjohn Inc. ...................... 9,800 548,800
Schering-Plough Corp. ........................ 11,840 572,020
Warner-Lambert Co. ........................... 4,900 332,893
----------
3,857,101
----------
Health Care Facilities 0.7%
Health Management Associates, Inc. Cl. A* 19,600 306,250
----------
Hospital Supply 0.9%
Guidant Corp. ................................ 2,900 155,694
Medtronic Inc. ............................... 3,600 258,975
----------
414,669
----------
Total Health Care ........................................... 4,578,020
----------
Integrated Oils 2.2%
Integrated Domestic 1.1%
Amerada Hess Corp. ........................... 3,900 222,300
Unocal Corp. ................................. 6,600 274,313
----------
496,613
----------
Integrated International 1.1%
Total SA Cl. B ADR ........................... 7,800 530,400
----------
Total Integrated Oils ....................................... 1,027,013
----------
Materials & Processing 3.4%
Chemicals 0.7%
Cytec Industries, Inc.* ...................... 11,800 335,562
----------
Non-Ferrous Metals 1.3%
Alcoa Inc. ................................... 9,700 603,825
----------
Paper & Forest Products 0.6%
Fort James Corp. ............................. 7,900 300,200
----------
Steel 0.8%
Harsco Corp. ................................. 10,600 347,813
----------
Total Materials & Processing ................................ 1,587,400
----------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------------
<S> <C> <C>
Other 5.0%
Multi-Sector 5.0%
General Electric Co. ......................... 5,500 $ 580,250
Raytheon Co. Cl. B ........................... 6,000 421,500
Teleflex Inc. ................................ 6,000 261,375
Trinity Industries Inc. ...................... 9,400 327,237
Tyco International Ltd. ...................... 9,400 763,750
----------
Total Other ................................................. 2,354,112
----------
Other Energy 3.7%
Gas Pipelines 0.8%
Williams Companies Inc. ...................... 7,600 359,100
----------
Oil & Gas Producers 1.4%
Burlington Resources Inc. .................... 6,850 315,528
Vastar Resources Inc. ........................ 6,000 329,250
----------
644,778
----------
Oil Well Equipment & Services 1.5%
Halliburton Co. .............................. 7,500 319,688
Ultramar Diamond Shamrock Co. ................ 7,800 179,888
Valero Refining & Marketing Corp. ............ 10,400 232,050
----------
731,626
----------
Total Other Energy .......................................... 1,735,504
----------
Producer Durables 2.6%
Miscellaneous Equipment 1.4%
Danaher Corp. ................................ 9,500 631,156
----------
Office Furniture & Business Equipment 1.2%
Xerox Corp. .................................. 9,900 581,625
----------
Total Producer Durables ..................................... 1,212,781
----------
Technology 17.1%
Communications Technology 2.5%
Lucent Technologies Inc. ..................... 11,800 709,475
Metromedia Fiber Network Inc. Cl. A* ......... 5,200 438,100
----------
1,147,575
----------
Computer Software 4.3%
Cadence Design Systems Inc.* ................. 18,600 252,263
Citrix Systems Inc.* ......................... 11,200 476,000
i2 Technologies Inc.* ........................ 17,700 599,587
Microsoft Corp.* ............................. 8,300 674,894
----------
2,002,744
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------------
<S> <C> <C>
Computer Technology 6.1%
Cisco Systems Inc.* .......................... 6,100 $ 695,781
Dell Computer Corp.* ......................... 6,100 251,244
Electronic Data Systems Corp. ................ 4,400 236,500
EMC Corp.* ................................... 2,000 217,875
Gateway 2000 Inc.* ........................... 10,700 708,206
International Business Machines Corp. ........ 2,400 502,050
Seagate Technology, Inc.* .................... 8,900 248,088
-----------
2,859,744
-----------
Electronics 1.3%
Nokia Corp. ADR .............................. 8,500 630,594
-----------
Electronics: Semi-Conductors/Components 2.9%
Altera Corp.* ................................ 5,900 426,275
Analog Devices Inc.* ......................... 19,300 677,912
Intel Corp. .................................. 4,500 275,344
-----------
1,379,531
-----------
Total Technology ............................................ 8,020,188
-----------
Utilities 11.5%
Electrical 2.0%
BEC Energy ................................... 5,200 221,000
Montana Power Co. ............................ 6,600 492,113
Unicom Corp. ................................. 5,700 221,231
-----------
934,344
-----------
Gas Distribution 0.5%
Questar Corp. ................................ 11,900 216,431
-----------
Telecommunications 9.0%
AirTouch Communications Inc.* ................ 8,600 803,025
Colt Telecom Group PLC ADR* .................. 11,700 893,587
Equant* ...................................... 3,600 321,300
Global Crossing Ltd.* ........................ 6,300 340,200
MCI WorldCom Inc.* ........................... 10,900 895,844
Qwest Communications International Inc.* ..... 11,126 950,578
-----------
4,204,534
-----------
Total Utilities ............................................. 5,355,309
-----------
Total Common Stocks (Cost $37,365,851) ...................... 45,012,439
-----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 2.0%
American Express Credit Corp.,
4.72% ...................... $215,000 5/03/1999 $ 215,000
Merrill Lynch & Company Inc.,
4.80% ...................... 700,000 5/03/1999 699,813
-----------
Total Commercial Paper (Cost $914,813) ............... 914,813
-----------
Total Investments (Cost $38,280,664)--98.2% .......... 45,927,252
Cash and Other Assets, Less Liabilities--1.8% ........ 842,642
-----------
Net Assets--100.0% ................................... $46,769,894
===========
</TABLE>
<TABLE>
<S> <C>
Federal Income Tax Information:
At April 30, 1999, the net unrealized appreciation of
investments based on cost for Federal income tax
purposes of $38,451,498 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost .......................................... $9,185,701
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................ (1,709,947)
----------
$7,475,754
==========
</TABLE>
- --------------------------------------------------------------------------------
*Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1999
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $38,280,664) (Note 1) ................ $45,927,252
Cash ............................................................. 8,260
Receivable for securities sold ................................... 1,168,742
Receivable for fund shares sold .................................. 72,035
Receivable from Distributor (Note 3) ............................. 42,698
Dividends and interest receivable ................................ 28,977
Deferred organization costs and other assets (Note 1) ............ 147,504
-----------
47,395,468
Liabilities
Payable for securities purchased ................................. 478,606
Accrued management fee (Note 2) .................................. 24,931
Accrued distribution and service fees (Note 5) ................... 23,618
Accrued trustees' fees (Note 2) .................................. 10,442
Payable for fund shares redeemed ................................. 8,930
Other accrued expenses ........................................... 79,047
-----------
625,574
-----------
Net Assets $46,769,894
===========
Net Assets consist of:
Unrealized appreciation of investments .......................... $ 7,646,588
Accumulated net realized loss ................................... (18,305)
Paid-in capital ................................................. 39,141,611
-----------
$46,769,894
===========
Net Asset Value and redemption price per share of
Class A shares ($16,220,454 [divided by] 1,382,781 shares) ..... $11.73
======
Maximum Offering Price per share of Class A shares
($11.73 [divided by] .9425) .................................... $12.45
======
Net Asset Value and offering price per share of
Class B(1) shares ($1,776,361 [divided by] 152,750 shares)*..... $11.63
======
Net Asset Value and offering price per share of
Class B shares ($19,300,141 [divided by] 1,660,009 shares)*..... $11.63
======
Net Asset Value and offering price per share of
Class C shares ($3,667,198 [divided by] 315,259 shares)*........ $11.63
======
Net Asset Value, offering price and redemption
price per share of Class S shares
($5,805,740 [divided by] 493,619 shares) ....................... $11.76
======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B(1), Class B and Class C is equal to
net asset value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended April 30, 1999
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $3,707 ................ $ 341,494
Interest ................................................. 68,076
----------
409,570
Expenses
Management fee (Note 2) .................................. 229,514
Custodian fee ............................................ 170,995
Transfer agent and shareholder services (Note 2) ......... 75,451
Reports to shareholders .................................. 46,388
Registration fees ........................................ 35,716
Audit fee ................................................ 27,774
Amortization of organization costs (Note 1) .............. 19,786
Trustees' fees (Note 2) .................................. 10,603
Legal fees ............................................... 5,230
Service fee--Class A (Note 5) ............................ 31,405
Distribution and service fees--Class B(1) (Note 5) ....... 3,525
Distribution and service fees--Class B (Note 5) .......... 152,157
Distribution and service fees--Class C (Note 5) .......... 22,441
Miscellaneous ............................................ 4,676
----------
835,661
Expenses borne by the Distributor (Note 3) ............... (265,492)
Fees paid indirectly (Note 2) ............................ (7,542)
----------
562,627
----------
Net investment loss ...................................... (153,057)
----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) ......... 90,025
Net unrealized appreciation of investments ............... 7,360,231
----------
Net gain on investments .................................. 7,450,256
----------
Net increase in net assets resulting from operations ..... $7,297,199
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 11, 1998
(Commencement of
Operations) to Year ended
April 30, 1998 April 30, 1999
- ---------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income (loss) $ 7,199 $ (153,057)
Net realized gain (loss) on
investments ........................ (2,159) 90,025
Net unrealized appreciation of
investments ........................ 286,357 7,360,231
----------- -----------
Net increase resulting from
operations ......................... 291,397 7,297,199
----------- -----------
Dividend from net investment income:
Class A ............................. -- (4,187)
Class B(1) .......................... -- (392)
Class B ............................. -- (3,499)
Class C ............................. -- (162)
Class S ............................. -- (1,833)
----------- -----------
-- (10,073)
----------- -----------
Net increase from fund share
transactions (Note 6) .............. 16,806,946 22,384,425
----------- -----------
Total increase in net assets ......... 17,098,343 29,671,551
Net Assets
Beginning of year .................... -- 17,098,343
----------- -----------
End of year (including
undistributed net
investment income of
$9,454 and $0,
respectively) ...................... $17,098,343 $46,769,894
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1999
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 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 five classes of shares. Until December 31, 1998, Class A shares
were subject to an initial sales charge of up to 4.50% and effective January 1,
1999 became subject to an initial sales charge of up to 5.75%. Class A shares
pay a service fee equal to 0.25% of average daily net assets. On January 1,
1999, the Fund began offering Class B(1) shares and continued offering Class B
shares but only to current shareholders. Class B(1) and Class B pay annual
distribution and service fees of 1.00% and both classes automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight
years. Class B(1) shares are subject to a contingent deferred sales charge on
certain redemptions made within six years of purchase. Class B shares are
subject to a contingent deferred sales charge on certain redemptions made within
five years of purchase. Class C shares are subject to a contingent deferred
sales charge of 1.00% on any shares redeemed within one year of their purchase.
Class C shares also pay annual distribution and service fees of 1.00%. Class S
shares are only offered through certain retirement accounts, advisory accounts
of State Street Research & Management Company (the "Adviser"), an indirect
wholly owned subsidiary of Metropolitan Life Insurance Company ("Metropolitan"),
and special programs. No sales charge is imposed at the time of purchase or
redemption of Class S shares. Class S shares do not pay any distribution or
service fees. The Fund's expenses are borne pro-rata by each class, except that
each class bears expenses, and has exclusive voting rights with respect to
provisions of the 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
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
year ended April 30, 1999, 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 year ended April 30, 1999, the fees pursuant to such
agreement amounted to $229,514.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended April 30, 1999, the amount of such
expenses was $31,750.
The Fund has entered into an agreement with its transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the Fund's expense. During the year ended April 30, 1999 the Fund's transfer
agent fees were reduced by $7,542 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$10,603 during the year ended April 30, 1999.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund. During
the year ended April 30, 1999, the amount of such expenses assumed by the
Distributor and its affiliates was $265,492.
Note 4
For the year ended April 30, 1999, purchases and sales of securities, exclusive
of short-term obligations, aggregated $67,466,893 and $44,756,383, 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(1), Class B and Class C shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B(1),
Class B and Class C shares. The Distributor uses such payments for personal
service and/or the maintenance or servicing of shareholder accounts, to
compensate or reimburse securities dealers for distribution and marketing
services, to furnish ongoing assistance to investors and to defray a portion of
its distribution and marketing expenses. For the year ended April 30, 1999, fees
pursuant to such plan amounted to $31,405, $152,157 and $22,441 for Class A,
Class B and Class C shares, respectively. For the period January 1, 1999
(commencement of share class) to April 30, 1999, fees pursuant to such plan
amounted to $3,525 for Class B(1) shares.
8
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $22,383 and $130,848, respectively, on sales of Class A shares of
the Fund during the year ended April 30, 1999, and that MetLife Securities, Inc.
earned commissions aggregating $333,479 on sales of Class B shares, and that the
Distributor collected contingent deferred sales charges aggregating $72,384 and
$778 on redemptions of Class B and Class C shares, respectively, during the
period. MetLife Securities, Inc. earned commissions aggregating $16,053 on sales
and the Distributor collected contingent deferred sales charges aggregating $853
on redemptions of Class B(1) shares during the period January 1, 1999
(commencement of share class) to April 30, 1999.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At April 30, 1999, Metropolitan
owned 52,356 Class A shares, 47,037 Class B(1) shares, 5,319 Class B shares,
52,356 Class C shares 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
Operations) to Year ended
April 30, 1998 April 30, 1999
------------------------ ---------------------------
Class A Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .................................. 622,025 $6,115,137 1,300,910 $12,827,023
Issued upon reinvestment of dividend ......... -- -- 346 3,871
Shares repurchased ........................... (3,867) (38,335) (536,633) (5,339,004)
------- ---------- --------- -----------
Net increase ................................. 618,158 $6,076,802 764,623 $ 7,491,890
======= ========== ========= ===========
Class B(1)* Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
Shares sold .................................. -- $ -- 155,558 $ 1,695,333
Issued upon reinvestment of dividend ......... -- -- 25 278
Shares repurchased ........................... -- -- (2,833) (31,548)
------- ---------- --------- -----------
Net increase ................................. -- $ -- 152,750 $ 1,664,063
======= ========== ========= ===========
Class B Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
Shares sold .................................. 555,377 $5,459,591 1,541,674 $15,031,738
Issued upon reinvestment of dividend ......... -- -- 273 3,041
Shares repurchased ........................... (36,142) (355,963) (401,173) (4,085,786)
------- ---------- --------- ------------
Net increase ................................. 519,235 $5,103,628 1,140,774 $10,948,993
======= ========== ========= ===========
Class C Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
Shares sold .................................. 107,096 $1,038,510 251,953 $ 2,568,968
Issued upon reinvestment of dividend ......... -- -- 5 55
Shares repurchased ........................... -- -- (43,795) (422,874)
------- ---------- --------- -----------
Net increase ................................. 107,096 $1,038,510 208,163 $ 2,146,149
======= ========== ========= ===========
Class S Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
Shares sold .................................. 480,088 $4,588,006 16,658 $ 166,409
Issued upon reinvestment of dividend ......... -- -- 9 85
Shares repurchased ........................... -- -- (3,136) (33,164)
------- ---------- --------- -----------
Net increase ................................. 480,088 $4,588,006 13,531 $ 133,330
======= ========== ========= ===========
</TABLE>
- --------------------------------------------------------------------------------
*January 1, 1999 (commencement of share class) to April 30, 1999.
9
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A
---------------------------------------
March 11, 1998
(Commencement of
Operations) to Year ended
April 30, 1998(a) April 30, 1999(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year ($) 9.55 9.92
----- -----
Net investment income (loss) ($)* 0.01 (0.01)
Net realized and unrealized gain on investments ($) 0.36 1.82
----- -----
Total from investment operations ($) 0.37 1.81
----- -----
Dividend from net investment income ($) -- (0.00)
----- -----
Total distributions ($) -- (0.00)
----- -----
Net asset value, end of year ($) 9.92 11.73
===== =====
Total return(b) (%) 3.87(d) 18.28
Ratios/supplemental data:
Net assets at end of year ($ thousands) 6,132 16,220
Ratio of operating expenses to average net assets (%)* 1.25(e) 1.27
Ratio of net investment income (loss) to average net
assets (%)* 0.45(e) (0.09)
Portfolio turnover rate (%) 13.04 134.16
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.03 0.08
<CAPTION>
Class B(1) Class B
---------------------- --------------------------------------
March 11, 1998
(Commencement of
Period ended Operations) to Year ended
April 30, 1999(a)(c) April 30, 1998(a) April 30, 1999(a)
- ------------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 10.63 9.55 9.90
----- ----- ------
Net investment income (loss) ($)* (0.03) (0.00) (0.09)
Net realized and unrealized gain on investments ($) 1.03 0.35 1.82
----- ----- ------
Total from investment operations ($) 1.00 0.35 1.73
----- ----- ------
Dividend from net investment income ($) (0.00) -- (0.00)
----- ----- ------
Total distributions ($) (0.00) -- (0.00)
----- ----- ------
Net asset value, end of year ($) 11.63 9.90 11.63
===== ===== ======
Total return(b) (%) 9.44(d) 3.66(d) 17.50
Ratios/supplemental data:
Net assets at end of year ($ thousands) 1,776 5,142 19,300
Ratio of operating expenses to average net assets (%)* 2.02(e) 2.00(e) 2.02
Ratio of net investment income (loss) to average net
assets (%)* (1.01)(e) (0.31)(e) (0.84)
Portfolio turnover rate (%) 134.16 13.04 134.16
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.02 0.03 0.08
</TABLE>
<TABLE>
<CAPTION>
Class C
---------------------------------------
March 11, 1998
(Commencement of
Operations) to Year ended
April 30, 1998(a) April 30, 1999(a)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year ($) 9.55 9.91
----- -----
Net investment income (loss) ($)* (0.00) (0.09)
Net realized and unrealized gain on investments ($) 0.36 1.81
----- -----
Total from investment operations ($) 0.36 1.72
----- -----
Dividend from net investment income ($) -- (0.00)
----- -----
Total distributions ($) -- (0.00)
----- -----
Net asset value, end of year ($) 9.91 11.63
===== ======
Total return(b) (%) 3.77(d) 17.36
Ratios/supplemental data:
Net assets at end of year ($ thousands) 1,061 3,667
Ratio of operating expenses to average net assets (%)* 2.00(e) 2.02
Ratio of net investment loss to average net assets (%)* (0.13)(e) (0.85)
Portfolio turnover rate (%) 13.04 134.16
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.04 0.08
<CAPTION>
Class S
--------------------------------------
March 11, 1998
(Commencement of
Operations) to Year ended
April 30, 1998(a) April 30, 1999(a)
- ----------------------------------------------------------------------------- ------------------
<S> <C> <C>
Net asset value, beginning of year ($) 9.55 9.92
----- -----
Net investment income (loss) ($)* 0.02 0.02
Net realized and unrealized gain on investments ($) 0.35 1.82
----- -----
Total from investment operations ($) 0.37 1.84
----- -----
Dividend from net investment income ($) -- (0.00)
----- -----
Total distributions ($) -- (0.00)
----- -----
Net asset value, end of year ($) 9.92 11.76
===== =====
Total return(b) (%) 3.87(d) 18.59
Ratios/supplemental data:
Net assets at end of year ($ thousands) 4,763 5,806
Ratio of operating expenses to average net assets (%)* 1.00(e) 1.02
Ratio of net investment loss to average net assets (%)* 0.98(e) 0.18
Portfolio turnover rate (%) 13.04 134.16
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.06 0.08
</TABLE>
- --------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily reduced a portion of the Fund's expenses.
(c) January 1, 1999 (commencement of share class) to April 30, 1999.
(d) Not annualized
(e) Annualized
10
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Securities Trust and Shareholders of
State Street Research Galileo Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of State Street Research Galileo Fund
(a series of State Street Research Securities Trust, hereafter referred to as
the "Trust") at April 30, 1999, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at April
30, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 4, 1999
11
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Galileo Fund had a good year relative to its peer group.
The total return for the Fund's Class A shares was 18.28% for the 12 months
ended April 30, 1999 (does not reflect sales charge). The Fund outperformed the
Lipper average growth fund which rose 15.05%. However, it underperformed the
Standard & Poor's 500 Index, which gained 21.83% for the same period.
During the period, the Fund benefited from stock selection. The manager sought
companies with reasonable profit margins. A decision to overweight
telecommunications and retail drug stocks helped performance. A decision to
underweight food and beverage and tobacco stocks was also a positive factor.
The Fund was hurt by the market's preference for a handful of large-cap growth
stocks during most of the period and by a larger-than-average cash position
during a period in which the market appreciated strongly. However, the cash
position has been reduced, and the portfolio's emphasis on medium-sized "value"
stocks put the Fund in a good position to benefit if the market continues to
broaden in the period ahead.
April 30, 1999
Keep in mind that past performance is no guarantee of future results. The fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 5.75% Class A share front-end sales charge, or 5% Class B(1) or Class B
share or 1% Class C share contingent deferred sales charge, where applicable.
Performance for Class B(1) reflects Class B performance through December 31,
1998. Class B(1) was introduced on January 1, 1999. Class S shares, offered
without a sales charge, are available through certain employee benefit plans and
special programs. The S&P 500 (officially the "Standard and Poor's 500 Composite
Stock Price Index") is an unmanaged index of 500 U.S. stocks. The Russell 1000
Index is an index of the 1,000 largest publicly-traded U.S. companies. The
indices do not take transaction charges into consideration. It is not possible
to invest directly in the indices.
Change in Value of $10,000
Based on the S&P 500 and the Russell 1000 Index
Compared to Change in Value of $10,000
Invested in Galileo Fund
[Line Chart Data]
Class A Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
11.48% 13.73%
- ---------------------------
<TABLE>
<CAPTION>
Galileo Russell S&P
Fund 1000 500
---- ---- ---
<S> <C> <C> <C>
Inception 3/11/98 9425 10000 10000
4/30/98 9790 10103 10102
4/30/99 11580 12154 12308
</TABLE>
Class B(1) Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
12.51% 15.48%
- ---------------------------
<TABLE>
<CAPTION>
Galileo Russell S&P
Fund 1000 500
---- ---- ---
<S> <C> <C> <C>
Inception 3/11/98 10000 10000 10000
4/30/98 10366 10103 10102
4/30/99 11782 12154 12308
</TABLE>
Class B Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
12.50% 15.46%
- ---------------------------
<TABLE>
<CAPTION>
Galileo Russell S&P
Fund 1000 500
---- ---- ---
<S> <C> <C> <C>
Inception 3/11/98 10000 10000 10000
4/30/98 10366 10103 10102
4/30/99 11780 12154 12308
</TABLE>
Class C Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
16.36% 18.88%
- ---------------------------
<TABLE>
<CAPTION>
Galileo Russell S&P
Fund 1000 500
---- ---- ---
<S> <C> <C> <C>
Inception 3/11/98 10000 10000 10000
4/30/98 10377 10103 10102
4/30/99 12179 12154 12308
</TABLE>
Class S Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
18.54% 20.07%
- ---------------------------
<TABLE>
<CAPTION>
Galileo Russell S&P
Fund 1000 500
---- ---- ---
<S> <C> <C> <C>
Inception 3/11/98 10000 10000 10000
4/30/98 10387 10103 10102
4/30/99 12318 12154 12308
</TABLE>
12
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- ------------------------------------------------------------------------------
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
- ------------------------------------------------------------------------------
A Special Meeting of Shareholders of the State Street Research Galileo Fund
("Fund"), along with shareholders of other series of State Street Research
Securities Trust ("Trust"), was convened on April 6, 1999 ("Meeting"). The
results of the Meeting are set forth below.
<TABLE>
<CAPTION>
Votes (millions of shares)
(Combined for All Series of the Trust)
--------------------------------------
Action on Proposal For Withheld
- ------------------------------------------------------------------------------------
<S> <C> <C>
The following persons were elected as Trustees:
Bruce R. Bond ................................. 19.1 0.2
Steve A. Garban ............................... 19.1 0.2
Malcolm T. Hopkins ............................ 19.0 0.2
Susan M. Phillips ............................. 19.1 0.2
</TABLE>
13
<PAGE>
STATE STREET RESEARCH GALILEO FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH SECURITIES
TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Galileo 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 02109
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
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
Bruce R. Bond
Chairman of the Board,
Chief Executive Officer and
President, PictureTel Corporation
Steve A. Garban
Former Senior Vice President
for Finance and Operations and
Treasurer, The Pennsylvania
State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial
Officer, St. Regis Corp.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer
and Director, Hewlett-Packard
Company
Susan M. Phillips
Dean, School of Business and
Public Management, George
Washington University; former
Member of the Board of Governors
of the Federal Reserve System and
Chairman and Commissioner of
the Commodity Futures Trading
Commission
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
14
<PAGE>
[Back cover]
State Street Research Galileo Fund
One Financial Center
Boston, MA 02111
- ------------
Bulk Rate
U.S. Postage
PAID
Permit #6
Hartford, CT
- ------------
Questions? Comments?
Call us at 1-800-562-0032, or
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[Graphic: STATE STREET RESEARCH Logo]
This report is prepared for the general information of current shareholders.
This publication must be preceded or accompanied by a current State Street
Research Galileo Fund prospectus. The prospectus contains more complete
information, including sales charges and expenses. Please read the prospectus
carefully before investing.
When used after June 30, 1999, 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: (exp 0700)SSR-LD GA-761F-0699
<PAGE>
[Front cover]
STATE STREET RESEARCH
-----------
LEGACY FUND
-----------
ANNUAL REPORT
April 30, 1999
-------------
WHAT'S INSIDE
-------------
From the Chairman
A healthy economy
benefited Americans
Portfolio Manager's Review
Large-cap growth stocks
rallied on
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Graphic: DALBAR
HONORS COMMITMENT TO:
INVESTORS
1998]
For Excellence
in
Shareholder Service
[Graphic: STATE STREET RESEARCH
75 YEARS
LASTING VALUES
- --------------
LEADING IDEAS]
STATE STREET RESEARCH FUNDS
<PAGE>
FROM THE CHAIRMAN
[Picture: Ralph F. Verni]
Dear Shareholder:
In a year marked by market volatility at home and currency upheaval abroad,
Americans continued to reap the benefits of a healthy economy. Inflation
remained low, unemployment hovered around 4%, wages rose, and prices fell at the
gas pump and in the mortgage market. Many Americans took their prosperity to the
mall. The holiday season was strong and retail sales rose. However, the nation's
savings rate fell below zero last fall - and remains there now.
Stocks
It was a strong 12 months for the U.S. stock market. A correction late in the
summer was short-lived as most segments of the market staged a comeback in the
fourth quarter. The Dow Jones Industrial Average pierced 10,000 in the first
quarter of 1999. The S&P 500 returned 21.83% for 12 months ended April 30,
1999.(1)
Large-company growth stocks and technology stocks were the strongest performers,
led by Internet stocks. However, gains were concentrated in a narrow band of
stocks. Small and medium-sized company stocks continued to lag the market, and
the gap between growth and value strategies remained. Economically-sensitive
cyclical stocks of large companies began to rise in April.
Bonds
The bond market benefited from the Federal Reserve Board's three quick interest
rate cuts last fall as the benchmark U.S. Treasury bond's yield hit a low of 5%.
Under the weight of a robust economy, that yield climbed back up to 5.7% at the
end of the period. Bond prices move in the opposite direction of yields. As a
result, the value of U.S. Treasury bonds fell. High-yield "junk" bonds had been
weak, but bounced back on the strong economic news to close among the strongest
bond market performers.
International
Foreign markets delivered mixed returns. Expectations surrounding the debut of
the euro, the new common currency shared by 11 nations, helped European markets
in the first half of this reporting period. But the luster was short-lived. Most
European economies are still suffering from the Asian flu, and most European
markets stumbled in the first months of 1999. Asian emerging markets started to
show some signs of life, while Latin American emerging markets remained mired in
currency woes. Once again, economists waited for a revival in Japan. Japan's
stock market, including small company stocks, managed to deliver attractive
returns in the first four months of 1999, encouraged by corporate restructurings
and signs that the central bank was trying to help get the economy going.
Outlook and Opportunities
As investors, you may have been unsettled by the market's volatility in the past
year. But remember, volatility also creates opportunities. Regardless of the
environment, we are confident that our in-depth research can help us uncover
good values in companies and markets, both at home and abroad. As always, we
will exercise diligence in finding new investments and in monitoring the ones we
already own. Thank you for your confidence in State Street Research.
Sincerely,
[Graphic: Signature of Ralph F. Verni]
Ralph F. Verni
Chairman
April 30, 1999
(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)22.74% for Class B(1) shares; 22.74% for Class B shares; 22.85% for Class C
shares; 24.04% 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 5.75% Class A share front-end sales charge, or 5% Class B(1) or Class B
share or 1% Class C share contingent deferred sales charge, where applicable.
Performance for Class B(1) reflects Class B performance through December 31,
1998. Class B(1) was introduced on January 1, 1999.
(4)Class S shares, offered without a sales charge, are available through certain
employee benefit plans and special programs.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data, and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended April 30, 1999, except where
noted)
- --------------------------------------------------------------------------------
Average Annual Total Return
for period ended 3/31/99
(at maximum applicable sales charge)(3),(4)
<TABLE>
<CAPTION>
Life of Fund
(since 12/31/97) 1 Year
- ------------------------------------------
<S> <C> <C>
Class A 23.90% 14.05%
- ------------------------------------------
Class B(1) 25.92% 15.08%
- ------------------------------------------
Class B 25.92% 15.08%
- ------------------------------------------
Class C 28.94% 19.08%
- ------------------------------------------
Class S 30.21% 21.25%
- ------------------------------------------
</TABLE>
Average Annual Total Return
(at maximum applicable sales charge)(3),(4)
<TABLE>
<CAPTION>
Life of Fund
(since 12/31/97) 1 Year
- ------------------------------------------
<S> <C> <C>
Class A 25.96% 16.62%
- ------------------------------------------
Class B(1) 27.97% 17.74%
- ------------------------------------------
Class B 27.97% 17.74%
- ------------------------------------------
Class C 30.73% 21.85%
- ------------------------------------------
Class S 32.10% 24.04%
- ------------------------------------------
</TABLE>
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Legacy Fund: Large-cap growth stocks rallied on
[Picture: Kennard "Pete" Woodworth]
Kennard "Pete"
Woodworth
Portfolio Manager
We spoke with Pete Woodworth, portfolio manager of State Street Research Legacy
Fund, about the Fund's performance for the year ended April 30, 1999 and his
views on the period ahead.
Q: How did the Fund perform during the fiscal year?
A: It was an excellent year for the Fund. Class A shares returned 23.73% for the
12 months ended April 30, 1999 [does not reflect sales charge]2. That was
significantly higher than the Lipper average growth fund, which returned 15.05%.
The Fund also outperformed the Standard & Poor's 500 Stock Index (S&P 500),
which gained 21.83% for the same period.(1)
Q: What contributed to the Fund's strong performance?
A: The Fund was helped by the fact that the market favored the very stocks the
Fund invests in: large-cap growth stocks. That, plus good stock selection, were
the key factors in the Fund's performance. Because the Fund is designed to have
market-like diversification and market-like volatility, any time the Fund
outperforms, stock selection is generally the reason.
Q: What does it mean that the Fund has market-like diversification and
volatility?
A: It means that, generally speaking, the Fund's assets are distributed along
the same lines as the S&P 500. For example, health care companies make up about
10% of the S&P 500. Likewise, 12% of the Fund's assets are invested in health
care. Consequently, there should be no big surprises as a result of
overemphasizing or underweighting a certain group of stocks.
Q: Tell us about some of the stocks that were especially strong during the year.
A: The Fund owned many good performers in the technology sector: Cisco Systems,
Microsoft and IBM were among our top 10 holdings. MediaOne, a cable company, and
General Electric, were also strong performers. We mined the mid-cap sector to
find Danaher, a company that makes hand tools and small equipment. The company
has been increasing its profits at a strong rate. It is not a household name,
but that's what we like to think we are good at: discovering opportunities that
the rest of the market may not yet have noticed.
Q: Were there any disappointments during the year?
A: The financial sector was the most disappointing. Earnings (another term for
profits) were lower than expected for several bank and insurance companies in
the portfolio.
Q: What action did you take as a result of these disappointments?
A: We used the opportunity to buy more of the same stocks at cheaper prices.
We're still confident about the companies. That's also consistent with the
Fund's mandate to be mindful of our shareholders' tax situations. Every stock in
the Fund is there because we expect it to be a solid performer over a long
period of time.
Q: What is your outlook for the period ahead?
A: At current levels, the large-cap growth segment of the stock market is
relatively expensive. Although corporate earnings growth has improved over last
year, and inflation remains low, I don't expect the 20% returns that investors
have grown somewhat accustomed to. Shareholders of Legacy Fund should keep in
mind that because we are managing with tax-consequences in mind, our goal is to
invest in solid companies that we expect to own for five to seven years, or even
longer. That's why stock selection is so important to the Fund. When we do it
well, as we did last year, we feel pretty good about it. And when the market
shifts in favor of other sectors, good stock selection will help keep us on
track.
April 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<S> <C>
1 Total Oil company 4.5%
2 General Electric Diversified manufacturer 4.1%
3 BankAmerica Money center banks 4.0%
4 Bank One Bank holding company 3.9%
5 Cisco Systems Computer network products 3.9%
6 Danaher Hand tools, auto parts 3.8%
7 MediaOne Cable/telecommunications 3.7%
8 Johnson & Johnson Medical products 3.5%
9 IBM Computer systems 3.3%
10 Microsoft Computer software & service 3.2%
</TABLE>
These securities represent an aggregate of 37.9% 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 Data]
Drugs &
Biotechnology 10.4%
Computer
Technology 8.2%
Banks and
Savings & Loans 8.0%
Multi-sector
companies 7.0%
Telecommunications 6.6%
Total: 40.2%
Best and Worst Contributors to Performance
(May 1, 1998 through April 30, 1999)
Best [Graphic: Up triangle]
- -----------------------------------------------------
MediaOne
AT&T plans to acquire for significant premium
Cisco Systems
Continues to post rapid growth in sales and earnings
Danaher
Continues fast growth supplemented with timely
acquisitions
Worst [Graphic: Down triangle]
- -----------------------------------------------------
Amgen
Market leadership swing from growth to value hurt
some high quality stocks
J.D. Edwards
Significant slowing of growth
Boeing
Sharp reduction in demand from Asia
2
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
April 30, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 95.0%
Consumer Discretionary 12.6%
Advertising Agencies 2.0%
Interpublic Group of Companies, Inc. ......... 51,400 $ 3,986,713
------------
Communications, Media & Entertainment 2.7%
CBS Corp.* ................................... 124,200 5,658,862
------------
Consumer Services 0.7%
Apollo Group Inc. Cl. A* ..................... 62,300 1,541,925
------------
Restaurants 2.1%
McDonald's Corp. ............................. 99,400 4,212,075
------------
Retail 5.1%
Dayton Hudson Corp. .......................... 79,300 5,337,881
Home Depot Inc. .............................. 84,700 5,076,706
------------
10,414,587
------------
Total Consumer Discretionary .......................... 25,814,162
------------
Consumer Staples 9.5%
Beverages 1.9%
Coca-Cola Co. ................................ 56,500 3,842,000
------------
Drug & Grocery Store Chains 4.6%
CVS Corp. .................................... 113,000 5,381,625
Kroger Co.* .................................. 73,300 3,981,106
------------
9,362,731
------------
Household Products 3.0%
Procter & Gamble Co. ......................... 65,600 6,154,100
------------
Total Consumer Staples ................................ 19,358,831
------------
Financial Services 14.5%
Banks & Savings & Loan 8.0%
Bank of America Corp. ........................ 114,737 8,261,064
Bank One Corp. ............................... 136,400 8,047,600
------------
16,308,664
------------
Insurance 3.4%
Ace Ltd. ..................................... 89,800 2,716,450
UNUM Corp. ................................... 78,000 4,260,750
------------
6,977,200
------------
Miscellaneous Financial 3.1%
American Express Co. ......................... 48,100 6,286,069
------------
Total Financial Services .............................. 29,571,933
------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Health Care 12.0%
Drugs & Biotechnology 10.4%
Amgen Inc.* .................................. 57,600 $ 3,538,800
Bristol-Myers Squibb Co. ..................... 97,000 6,165,562
Johnson & Johnson ............................ 73,700 7,185,750
Pfizer Inc. .................................. 39,100 4,498,944
------------
21,389,056
------------
Hospital Supply 1.6%
Medtronic Inc. ............................... 44,700 3,215,606
------------
Total Health Care ..................................... 24,604,662
------------
Integrated Oils 4.5%
Integrated International 4.5%
Total SA Cl. B ADR ........................... 133,800 9,098,400
------------
Total Integrated Oils ................................. 9,098,400
------------
Materials & Processing 2.8%
Chemicals 2.8%
E.I. Du Pont De Nemours & Co. ................ 81,900 5,784,188
------------
Total Materials & Processing .......................... 5,784,188
------------
Other 7.0%
Multi-Sector 7.0%
General Electric Co. ......................... 80,100 8,450,550
Tyco International Ltd. ...................... 72,400 5,882,500
------------
Total Other ........................................... 14,333,050
------------
Producer Durables 8.6%
Machinery 1.9%
Caterpillar Inc. ............................. 59,900 3,856,063
------------
Miscellaneous Equipment 3.8%
Danaher Corp. ................................ 116,600 7,746,612
------------
Office Furniture & Business Equipment 2.9%
Xerox Corp. .................................. 102,700 6,033,625
------------
Total Producer Durables ............................... 17,636,300
------------
Technology 16.9%
Communications Technology 3.0%
Lucent Technologies Inc. ..................... 100,100 6,018,512
------------
Computer Software 3.9%
i2 Technologies Inc.* ........................ 41,700 1,412,588
Microsoft Corp.* ............................. 81,400 6,618,837
------------
8,031,425
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Value
Shares (Note 1)
- ------------------------------------------------------------------------
<S> <C> <C>
Computer Technology 8.2%
Cisco Systems Inc.* ........................... 69,550 $ 7,933,046
EMC Corp.* .................................... 19,400 2,113,388
International Business Machines Corp. ......... 32,000 6,694,000
------------
16,740,434
------------
Electronics: Semi-Conductors/Components 1.8%
Analog Devices Inc.* .......................... 105,100 3,691,638
------------
Total Technology ....................................... 34,482,009
------------
Utilities 6.6%
Telecommunications 6.6%
MCI WorldCom Inc.* ............................ 71,700 5,892,844
MediaOne Group Inc.* .......................... 91,900 7,495,594
------------
Total Utilities ........................................ 13,388,438
------------
Total Common Stocks (Cost $162,888,529) ................ 194,071,973
------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Principal Maturity
Amount Date
- -------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 3.8%
American Express Credit Corp.,
4.88% .......................... $1,522,000 5/05/1999 1,522,000
Commercial Credit Co., 4.77%...... 2,542,000 5/03/1999 2,542,000
Ford Motor Credit Co., 4.85% ..... 3,638,000 5/05/1999 3,638,000
------------
</TABLE>
<TABLE>
<S> <C>
Total Commercial Paper (Cost $7,702,000) .............. 7,702,000
------------
Total Investments (Cost $170,590,529)--98.8% .......... 201,773,973
Cash and Other Assets, Less Liabilities--1.2% ......... 2,470,521
------------
Net Assets--100.0% .................................... $204,244,494
============
</TABLE>
<TABLE>
<S> <C>
Federal Income Tax Information:
At April 30, 1999, the net unrealized
appreciation of investments based on cost
for Federal income tax purposes of
$170,590,553 was as follows:
Aggregate gross unrealized appreciation
for all investments in which there is an
excess of value over tax cost ............ $ 32,987,192
Aggregate gross unrealized depreciation
for all investments in which there is an
excess of tax cost over value ............ (1,803,772)
------------
$ 31,183,420
============
</TABLE>
- --------------------------------------------------------------------------------
*Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
April 30, 1999
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $170,590,529) (Note 1) ................ $201,773,973
Cash .............................................................. 324
Receivable for fund shares sold ................................... 2,559,781
Dividends and interest receivable ................................. 86,616
Deferred organization costs and other assets (Note 1) ............. 171,640
------------
204,592,334
Liabilities
Accrued distribution and service fees (Note 5) .................... 119,840
Accrued management fee (Note 2) ................................... 102,943
Payable for fund shares redeemed .................................. 52,469
Accrued trustees' fees (Note 2) ................................... 16,868
Other accrued expenses ............................................ 55,720
------------
347,840
------------
Net Assets $204,244,494
============
Net Assets consist of:
Unrealized appreciation of investments ........................... $ 31,183,444
Accumulated net realized loss .................................... (353,583)
Paid-in capital .................................................. 173,414,633
------------
$204,244,494
============
Net Asset Value and redemption price per share of
Class A shares ($58,642,279 [divided by] 4,066,244 shares) ...... $14.42
======
Maximum Offering Price per share of Class A shares
($14.42 [divided by] .9425) ..................................... $15.30
======
Net Asset Value and offering price per share of
Class B(1) shares ($24,453,662 [divided by] 1,712,635 shares)* $14.28
======
Net Asset Value and offering price per share of
Class B shares ($88,382,764 [divided by] 6,188,684 shares)* ..... $14.28
======
Net Asset Value and offering price per share of
Class C shares ($26,399,187 [divided by] 1,848,695 shares)* ..... $14.28
======
Net Asset Value, offering price and redemption price
per share of Class S shares ($6,366,602 [divided by] 439,824
shares) ......................................................... $14.48
======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B(1), Class B and Class C is equal to
net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended April 30, 1999
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $350 .................. $ 869,863
Interest ................................................. 216,035
-----------
1,085,898
Expenses
Management fee (Note 2) .................................. 675,883
Custodian fee ............................................ 114,431
Transfer agent and shareholder services (Note 2) ......... 75,800
Registration fees ........................................ 43,495
Service fee--Class A (Note 5) ............................ 72,682
Distribution and service fees--Class B(1) (Note 5) ....... 33,433
Distribution and service fees--Class B (Note 5) .......... 534,046
Distribution and service fees--Class C (Note 5) .......... 136,341
Reports to shareholders .................................. 30,602
Audit fee ................................................ 24,441
Amortization of organization costs (Note 1) .............. 23,927
Trustees' fees (Note 2) .................................. 17,550
Legal fees ............................................... 5,962
Miscellaneous ............................................ 5,968
-----------
1,794,561
Expenses borne by the Distributor (Note 3) ............... (34,070)
Fees paid indirectly (Note 2) ............................ (9,028)
-----------
1,751,463
-----------
Net investment loss ...................................... (665,565)
-----------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss on investments (Notes 1 and 4) ......... (353,576)
Net unrealized appreciation of investments ............... 28,621,415
-----------
Net gain on investments .................................. 28,267,839
-----------
Net increase in net assets resulting from operations ..... $27,602,274
===========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the year ended April 30, 1999
<TABLE>
<CAPTION>
December 31, 1997
(Commencement of
Operations) to Year ended
April 30, 1998 April 30, 1999
- -----------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss .................. $ (16,273) $ (665,565)
Net realized gain (loss) on
investments ........................ 68,845 (353,576)
Net unrealized appreciation
of investments ..................... 2,562,029 28,621,415
----------- ------------
Net increase resulting from
operations ......................... 2,614,601 27,602,274
----------- ------------
Distribution from net realized
gains:
Class A ............................. -- (15,436)
Class B ............................. -- (32,058)
Class C ............................. -- (7,667)
Class S ............................. -- (2,296)
----------- ------------
-- (57,457)
----------- ------------
Net increase from fund share
transactions (Note 6) .............. 38,160,723 135,924,353
----------- ------------
Total increase in net assets ......... 40,775,324 163,469,170
Net Assets
Beginning of year .................... -- 40,775,324
----------- ------------
End of year .......................... $40,775,324 $204,244,494
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
April 30, 1999
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 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 five classes of shares. Until December 31, 1998, Class A shares
were subject to an initial sales charge of up to 4.50% and effective January 1,
1999 became subject to an initial sales charge of up to 5.75%. Class A shares
pay a service fee equal to 0.25% of average daily net assets. On January 1,
1999, the Fund began offering Class B(1) shares and continued offering Class B
shares but only to current shareholders. Class B(1) and Class B pay annual
distribution and service fees of 1.00% and both classes automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight
years. Class B(1) shares are subject to a contingent deferred sales charge on
certain redemptions made within six years of purchase. Class B shares are
subject to a contingent deferred sales charge on certain redemptions made within
five years of purchase. Class C shares are subject to a contingent deferred
sales charge of 1.00% on any shares redeemed within one year of their purchase.
Class C shares also pay annual distribution and service fees of 1.00%. Class S
shares are only offered through certain retirement accounts, advisory accounts
of State Street Research & Management Company (the "Adviser"), an indirect
wholly owned subsidiary of Metropolitan Life Insurance Company ("Metropolitan"),
and special programs. No sales charge is imposed at the time of purchase or
redemption of Class S shares. Class S shares do not pay any distribution or
service fees. The Fund's expenses are borne pro-rata by each class, except that
each class bears expenses, and has exclusive voting rights with respect to
provisions of the 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. At April 30, 1999, the Fund had a capital
loss carryforward of $353,559 available, to the extent provided in regulations,
to offset future capital gains, if any, which expires on April 30, 2007.
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
6
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
of the loan, the Fund will bear the loss. During the year ended April 30, 1999,
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 year ended April 30, 1999, the fees pursuant to such
agreement amounted to $675,883.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended April 30, 1999, the amount of such
expenses was $71,570.
The Fund has entered into an agreement with its transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the Fund's expense. During the year ended April 30, 1999 the Fund's transfer
agent fees were reduced by $9,028 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$17,550 during the year ended April 30, 1999.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund. During
the year ended April 30, 1999, the amount of such expenses assumed by the
Distributor and its affiliates was $34,070.
Note 4
For the year ended April 30, 1999, purchases and sales of securities, exclusive
of short-term obligations, aggregated $169,237,052 and $42,581,862,
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(1), Class B and Class C shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B(1),
Class B and Class C shares. The Distributor uses such payments for personal
service and/or the maintenance or servicing of shareholder accounts, to
compensate or reimburse securities dealers for distribution and marketing
services, to furnish ongoing assistance to investors and to defray a portion of
its distribution and marketing expenses. For the year ended April 30, 1999, fees
pursuant to such plan amounted to $72,682, $534,046 and $136,341 for Class A,
Class B and Class C shares, respectively. For the period January 1, 1999
(commencement of share class) to April 30, 1999, fees pursuant to such plan
amounted to $33,433 for Class B(1) shares.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $102,858 and $331,017, respectively, on sales of Class A shares of
the Fund during the year ended April 30, 1999, and that MetLife Securities, Inc.
earned commissions aggregating $744,559 on sales of Class B shares, and that the
Distributor collected contingent deferred sales charges aggregating $94,525 and
$964 on redemptions of Class B and Class C shares, respectively, during the same
period. MetLife Securities, Inc. earned commissions aggregating $128,353 on
sales and the Distributor collected contingent deferred sales charges
aggregating $1,271 on redemptions of Class B(1) shares during the period January
1, 1999 (commencement of share class) to April 30, 1999.
7
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At April 30, 1999, the Adviser
owned one share of each of Class A, Class B, Class C and Class S and
Metropolitan owned 50,025 Class A shares, 11,799 Class B shares, 50,026 Class C
shares and 387,909 Class S shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
December 31, 1997
(Commencement of
Operations) to Year ended
April 30, 1998 April 30, 1999
-------------------------- --------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .................................................... 1,060,271 $11,720,798 3,622,168 $45,842,648
Issued upon reinvestment of distribution from net realized gains -- -- 919 11,400
Shares repurchased ............................................. (32,822) (360,909) (584,292) (7,001,947)
--------- ----------- --------- -----------
Net increase ................................................... 1,027,449 $11,359,889 3,038,795 $38,852,101
========= =========== ========= ===========
Class B(1)* Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
Shares sold .................................................... -- $ -- 1,782,571 $24,178,751
Shares repurchased ............................................. -- -- (69,936) (989,900)
--------- ----------- --------- -----------
Net increase ................................................... -- $ -- 1,712,635 $23,188,851
========= =========== ========= ===========
Class B Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
Shares sold .................................................... 1,699,460 $18,706,942 5,151,707 $63,062,399
Issued upon reinvestment of distribution from net realized gains -- -- 1,370 16,880
Shares repurchased ............................................. (7,377) (83,326) (656,476) (8,053,180)
--------- ----------- --------- -----------
Net increase ................................................... 1,692,083 $18,623,616 4,496,601 $55,026,099
========= =========== ========= ===========
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
Shares sold .................................................... 428,033 $ 4,641,277 1,558,281 $19,296,668
Issued upon reinvestment of distribution from net realized gains -- -- 227 2,800
Shares repurchased ............................................. (234) (2,653) (137,612) (1,639,209)
--------- ----------- --------- -----------
Net increase ................................................... 427,799 $ 4,638,624 1,420,896 $17,660,259
========= =========== ========= ===========
Class S Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------
Shares sold .................................................... 353,464 $ 3,538,594 87,078 $ 1,205,796
Issued upon reinvestment of distribution from net realized gains -- -- 184 2,294
Shares repurchased ............................................. -- -- (902) (11,047)
--------- ----------- --------- -----------
Net increase ................................................... 353,464 $ 3,538,594 86,360 $ 1,197,043
========= =========== ========= ===========
</TABLE>
- --------------------------------------------------------------------------------
*January 1, 1999 (commencement of share class) to April 30, 1999.
8
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
---------------------------------------
December 31, 1997
(Commencement of
Operations) to Year ended
April 30, 1998(a) April 30, 1999(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year ($) 10.00 11.66
----- -----
Net investment income (loss) ($)* 0.00 (0.02)
Net realized and unrealized gain on investments ($) 1.66 2.79
----- -----
Total from investment operations ($) 1.66 2.77
----- -----
Distribution from net realized gains ($) -- (0.01)
----- -----
Total distributions ($) -- (0.01)
----- -----
Net asset value, end of year ($) 11.66 14.42
===== =====
Total return(b) (%) 16.60(d) 23.73
Ratios/supplemental data:
Net assets at end of year ($ thousands) 11,984 58,642
Ratio of operating expenses to average net assets (%)* 1.25(e) 1.20
Ratio of net investment income (loss) to average net assets (%)* 0.01(e) (0.14)
Portfolio turnover rate (%) 6.44 42.09
*Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) 0.04 0.00
<CAPTION>
Class B(1) Class B
---------------------- --------------------------------------
December 31, 1997
(Commencement of
Period ended Operations) to Year ended
April 30, 1999(a)(c) April 30, 1998(a) April 30, 1999(a)
- ----------------------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 13.08 10.00 11.64
----- ----- -----
Net investment income (loss) ($)* (0.04) (0.03) (0.11)
Net realized and unrealized gain on investments ($) 1.24 1.67 2.76
----- ----- -----
Total from investment operations ($) 1.20 1.64 2.65
----- ----- -----
Distribution from net realized gains ($) -- -- (0.01)
----- ----- -----
Total distributions ($) -- -- (0.01)
----- ----- -----
Net asset value, end of year ($) 14.28 11.64 14.28
===== ===== =====
Total return(b) (%) 9.17(d) 16.40(d) 22.74
Ratios/supplemental data:
Net assets at end of year ($ thousands) 24,454 19,688 88,383
Ratio of operating expenses to average net assets (%)* 1.88(e) 2.00(e) 1.95
Ratio of net investment income (loss) to average net assets (%)* (1.00)(e) (0.76)(e) (0.89)
Portfolio turnover rate (%) 42.09 6.44 42.09
*Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) -- 0.04 0.00
</TABLE>
<TABLE>
<CAPTION>
Class C
---------------------------------------
December 31, 1997
(Commencement of
Operations) to Year ended
April 30, 1998(a) April 30, 1999(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year ($) 10.00 11.63
----- -----
Net investment income (loss) ($)* (0.03) (0.11)
Net realized and unrealized gain on investments ($) 1.66 2.77
----- -----
Total from investment operations ($) 1.63 2.66
----- -----
Distribution from net realized gains ($) -- (0.01)
----- -----
Total distributions ($) -- (0.01)
----- -----
Net asset value, end of year ($) 11.63 14.28
===== =====
Total return(b) (%) 16.30(d) 22.85
Ratios/supplemental data:
Net assets at end of year ($ thousands) 4,977 26,399
Ratio of operating expenses to average net assets (%)* 2.00(e) 1.95
Ratio of net investment income (loss) to average net assets (%)* (0.69) (e) (0.90)
Portfolio turnover rate (%) 6.44 42.09
*Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) 0.04 0.00
<CAPTION>
Class S
--------------------------------------
December 31, 1997
(Commencement of
Operations) to Year ended
April 30, 1998(a) April 30, 1999(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year ($) 10.00 11.68
----- -----
Net investment income (loss) ($)* 0.03 0.02
Net realized and unrealized gain on investments ($) 1.65 2.79
----- -----
Total from investment operations ($) 1.68 2.81
----- -----
Distribution from net realized gains ($) -- (0.01)
----- -----
Total distributions ($) -- (0.01)
----- -----
Net asset value, end of year ($) 11.68 14.48
===== =====
Total return(b) (%) 16.80(d) 24.04
Ratios/supplemental data:
Net assets at end of year ($ thousands) 4,127 6,367
Ratio of operating expenses to average net assets (%)* 1.00(e) 0.95
Ratio of net investment income (loss) to average net assets (%)* 0.60(e) 0.16
Portfolio turnover rate (%) 6.44 42.09
*Reflects voluntary reduction of expenses per share
of these amounts (Note 3) ($) 0.09 0.01
</TABLE>
- --------------------------------------------------------------------------------
(a) Per share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily reduced a portion of the Fund's expenses.
(c) January 1, 1999 (commencement of share class) to April 30, 1999.
(d) Not annualized.
(e) Annualized.
9
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Securities Trust and Shareholders of
State Street Research Legacy Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of State Street Research Legacy Fund
(a series of State Street Research Securities Trust, hereafter referred to as
the "Trust") at April 30, 1999, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at April
30, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 4, 1999
10
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Legacy Fund had a strong year. The total return for the
Fund's Class A shares was 23.73% for the 12 months ended April 30, 1999 (does
not reflect sales charge). The Fund outperformed the Lipper average growth fund
which rose 15.05%. It also outperformed the Standard & Poor's 500 Index, which
gained 21.83% for the same period.
During the period, the Fund benefited from two key factors: The market favored
large-cap growth stocks, the universe in which the Fund invests. And good stock
selection pushed performance above the peer group average. Large technology
companies such as Cisco Systems, Microsoft and IBM were among the Fund's top
performers. Financial stocks were disappointing, but the manager took the
opportunity to add to the Fund's investment in several insurance companies when
prices were down during the period.
The Fund's mandate is to be mindful of the tax consequences of investment
decisions. As a result, stocks in the portfolio are selected because the manager
believes they have solid long-term growth potential.
April 30, 1999
Keep in mind that past performance is no guarantee of future results. The fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 5.75% Class A share front-end sales charge, or 5% Class B(1) or Class B
share or 1% Class C share contingent deferred sales charge, where applicable.
Performance for Class B(1) reflects Class B performance through December 31,
1998. Class B(1) was introduced on January 1, 1999. Class S shares, offered
without a sales charge, are available through certain employee benefit plans and
special programs. The S&P 500 (officially "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. Direct investment in the index is
not possible; results are for illustrative purposes only.
Change In Value Of $10,000
Based On The S&P 500
Compared to Change In Value of $10,000
Invested In Legacy Fund
[Line Chart Data]
Class A Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
16.62% 25.96%
- ---------------------------
<TABLE>
<CAPTION>
Legacy S&P
Fund 500
---- ---
<S> <C> <C>
Inception 12/31/97 9425 10000
4/30/98 10990 11511
4/30/99 13598 14023
</TABLE>
Class B(1) Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
17.74% 27.97%
- ---------------------------
<TABLE>
<CAPTION>
Legacy S&P
Fund 500
---- ---
<S> <C> <C>
Inception 12/31/97 10000 10000
4/30/98 11640 11511
4/30/99 13887 14023
</TABLE>
Class B Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
17.74% 27.97%
- ---------------------------
<TABLE>
<CAPTION>
Legacy S&P
Fund 500
---- ---
<S> <C> <C>
Inception 12/31/97 10000 10000
4/30/98 11640 11511
4/30/99 13887 14023
</TABLE>
Class C Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
21.85% 30.73%
- ---------------------------
<TABLE>
<CAPTION>
Legacy S&P
Fund 500
---- ---
<S> <C> <C>
Inception 12/31/97 10000 10000
4/30/98 11630 11511
4/30/99 14287 14023
</TABLE>
Class S Shares
- ---------------------------
Average Annual Total Return
- ---------------------------
1 Year Life of Fund
- ---------------------------
24.04% 32.10%
- ---------------------------
<TABLE>
<CAPTION>
Legacy S&P
Fund 500
---- ---
<S> <C> <C>
Inception 12/31/97 10000 10000
4/30/98 11680 11511
4/30/99 14487 14023
</TABLE>
11
<PAGE>
STATE STREET RESEARCH LEGACY FUND
- ------------------------------------------------------------------------------
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
- ------------------------------------------------------------------------------
A Special Meeting of Shareholders of the State Street Research Legacy Fund
("Fund"), along with shareholders of other series of State Street Research
Securities Trust ("Trust"), was convened on April 6, 1999 ("Meeting"). The
results of the Meeting are set forth below.
<TABLE>
<CAPTION>
Votes (millions of shares)
(Combined for All Series of the Trust)
--------------------------------------
Action on Proposal For Withheld
- ------------------------------------------------------------------------------------
<S> <C> <C>
The following persons were elected as Trustees:
Bruce R. Bond ................................. 19.1 0.2
Steve A. Garban ............................... 19.1 0.2
Malcolm T. Hopkins ............................ 19.0 0.2
Susan M. Phillips ............................. 19.1 0.2
</TABLE>
12
<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 02109
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
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
Bruce R. Bond
Chairman of the Board,
Chief Executive Officer and
President, PictureTel Corporation
Steve A. Garban
Former Senior Vice President
for Finance and Operations and
Treasurer, The Pennsylvania
State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial
Officer, St. Regis Corp.
Dean O. Morton
Former Executive Vice President,
Chief Operating Officer
and Director, Hewlett-Packard
Company
Susan M. Phillips
Dean, School of Business and
Public Management, George
Washington University; former
Member of the Board of Governors
of the Federal Reserve System and
Chairman and Commissioner of
the Commodity Futures Trading
Commission
Toby Rosenblatt
President,
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
13
<PAGE>
[Back cover]
State Street Research Legacy Fund
One Financial Center
Boston, MA 02111
- ------------
Bulk Rate
U.S. Postage
PAID
Permit #6
Hartford, CT
- ------------
Questions? Comments?
Call us at 1-800-562-0032, or
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[Graphic: STATE STREET RESEARCH Logo]
This report is prepared for the general information of current shareholders.
This publication must be preceded or accompanied by a current State Street
Research Legacy Fund prospectus. The prospectus contains more complete
information, including sales charges and expenses. Please read the prospectus
carefully before investing.
When used after June 30, 1999, 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: (exp0700)SSR-LD LF-762F-0699
