<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04911
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State Street Research Financial Trust
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, MA 02111
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(Address of principal executive offices) (Zip code)
Terrence J. Cullen, Assistant Secretary
State Street Research & Management Company
One Financial Center, Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 617-357-1200
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Date of fiscal year end: 2/29/04
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Date of reporting period: 3/1/03 - 2/29/04
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
ITEM 1 (REPORT TO SHAREHOLDERS): The Annual Report is attached.
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[STATE STREET RESERACH LOGO]
[GRAPHIC OMITTED]
Health Sciences Fund
February 29, 2004
Annual Report to Shareholders
Table of Contents
3 Performance Discussion
6 Portfolio Holdings
7 Financial Statements
12 Financial Highlights
14 Independent Auditors'
Report
15 Trustees and Officers
FROM THE CHAIRMAN
State Street Research
From war jitters to investor enthusiasm, from sluggish recovery to robust
growth--the ground covered by both the financial markets and the U.S. economy
over the past twelve months was nothing short of remarkable.
In March 2003, economic growth was sluggish, unemployment edged higher and
consumer confidence sank as the nation prepared to go to war with Iraq. However,
once war was declared--and major military action came to a relatively swift
end--the clouds of uncertainty lifted and better times followed. Economic growth
picked up. A combination of accelerated tax cuts, tax rebates and the lowest
mortgage rates in a generation fueled higher disposable income for most working
Americans. The housing market remained strong, and consumer spending continued
to rise. Better yet, business spending recovered after a long period of
stagnation. Corporate profits staged a solid rebound, making it easier for
companies to increase outlays, especially on information technology and
electronic equipment.
By the end of February 2004, the economic news was less upbeat. Durable goods
orders slipped after five consecutive months of growth. The number of new jobs
added to the labor market continued to fall short of expectations, and as the
bleak outlook for employment weighed on the minds of American households,
consumer confidence fell.
Stock and Bond Markets Moved Higher
Stocks staged an impressive rally early in the reporting period, with the
riskiest sectors of the stock market leading the way--technology, small-caps and
companies that had been beaten down in the previous bear market. However, index
returns for the period as a whole mask the sideways movement that developed late
in the period as the economic picture became clouded once again and investors
grew more cautious.
Confidence in the economy also translated into gains for high-yield bonds that
were in line with the stock market. Interest rates spiked midway through 2003,
but came back down during the second half of the period, which helped
investment-grade corporate and government bonds earn solid but modest returns
for the year. The municipal market was a standout among investment-grade
sectors, but mortgage bonds lagged as more homeowners took advantage of low
rates and refinanced their mortgages.
Looking Ahead
The recent bear and bull cycles serve as a reminder that the markets can be
unpredictable, which underscores the importance of having an asset allocation
plan in place. If you have a plan in place, stay with it, invest regularly and
consult your investment professional before you make a significant move outside
your plan.
As always, we look forward to helping you achieve your long-term financial goals
with State Street Research funds.
Sincerely,
/s/ Richard S. Davis
Richard S. Davis
Chairman
February 29, 2004
2
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PERFORMANCE
- -----------
Discussion as of February 29, 2004
How State Street Research Health Sciences Fund Performed
State Street Research Health Sciences Fund returned 87.13% for the 12-month
period ended February 29, 2004.1 The fund significantly outperformed both the
Lipper Health/Biotechnology Funds Index and the S&P 500 Index, which returned
41.51% and 38.50%, respectively, for the same period.(2)
Reasons for the Fund's Performance
After three years of disappointing returns, investors returned to the equity
markets during the 12-month period and stock prices moved sharply higher. Health
care stocks benefited from that trend. Strong stock selection and the fund's
emphasis on biotechnology and small-cap pharmaceutical companies accounted for
its significant gains relative to its peer group and benchmark. Within
pharmaceuticals, small-cap names such as First Horizon Pharmaceutical and
Indevus Pharmaceuticals delivered significant gains. Indevus rose sharply at the
beginning of the period as returns were driven by improving business prospects
and the pending approval of Trospium, a drug indicated for the treatment of
overactive bladder. Within the biotechnology industry, strong product
development boosted returns from Axonyx and DOV Pharmaceuticals.
Our investments in the health care facilities and health care management
services industries delivered strong positive returns, but they were
disappointing compared to the robust gains of the pharmaceutical and
biotechnology industries. Pharmacy services firm Medco Health Solutions was one
of the stocks that delivered a negative return within the portfolio. Cellegy
Pharmaceuticals and Hollis-Eden Pharmaceuticals underperformed as well.
Looking Ahead
Health care companies face a challenging environment going forward because of
increased pressure to control prices. Given this environment, we continue to
focus on select small- and mid-cap pharmaceutical and biotechnology companies,
both domestic and foreign. Although we believe that the national focus on
medical policy in the upcoming elections will have an impact on the health care
markets, we continue to target companies that we feel have strong product
pipelines and the potential to outperform the overall health care market.
Risk Information
The major risks of stock investing include sudden and unpredictable drops in
value and periods of lackluster performance. Because the fund is focused on one
market sector, it may involve more risk than a broadly diversified fund. The
entire portfolio will be affected by the performance of the health care sector
in general. Investments in health sciences companies pose a number of risks,
including adverse impact of legislative actions and government regulations,
which can affect approval processes, funding and licensing associated with these
companies.
Top 10 Holdings
- --------------------------------------------------------------------------------
Issuer/Security % of fund net assets
o1 Pfizer 3.2%
-----------------------------------------
o2 Novartis AG 3.1%
-----------------------------------------
o3 Johnson & Johnson 3.1%
-----------------------------------------
o4 First Horizon Pharmaceutical 3.1%
-----------------------------------------
o5 Pharmaceutical Holders Trust 2.9%
-----------------------------------------
o6 Becton Dickinson 2.5%
-----------------------------------------
o7 Amgen 2.4%
-----------------------------------------
o8 Progenics Pharmaceuticals 2.1%
-----------------------------------------
o9 Bristol-Myers Squibb 2.1%
-----------------------------------------
o10 Aspect Medical Systems 2.1%
-----------------------------------------
Total 26.6%
Performance: Class A
- --------------------------------------------------------------------------------
Fund average annual total return as of 2/29/04(3)
(does not reflect sales charge)
Life of Fund
1 Year 3 Years (12/21/99)
87.13% 15.49% 22.52%
- --------------------------------------------------------------------------------
Fund average annual total return as of 3/31/04(3,4)
(at maximum applicable sales charge)
Life of Fund
1 Year 3 Years (12/21/99)
63.64% 15.67% 19.92%
- --------------------------------------------------------------------------------
S&P 500 Index as of 3/31/04(2)
Life of Fund
1 Year 3 Years (12/21/99)
35.10% 0.63% -3.83%
- --------------------------------------------------------------------------------
See pages 4 and 5 for additional performance data for Class A shares and for
performance data on other share classes.
Because financial markets and mutual fund strategies are constantly evolving, it
is possible that the fund's holdings, market stance, outlook for various
industries or securities and other matters discussed in this report have changed
since this information was prepared. Portfolio changes should not be considered
recommendations for action by individual investors.
(1) Class A shares; does not reflect sales charge.
(2) The Lipper Health/Biotechnology Funds Index is an equally weighted index of
typically the 30 largest mutual funds within its respective investment
objective. The S&P 500 Index (officially the "Standard & Poor's 500
Composite Stock Price Index") is an index of 500 U.S. stocks. The indexes
are unmanaged and do not take transaction charges into consideration. It is
not possible to invest directly in an index.
(3) Keep in mind that the performance data quoted represents past performance
and is no guarantee of future results. Current performance may be lower or
higher than the performance data quoted herein. For the most recent
month-end performance results, visit our website at www.ssrfunds.com. The
fund's share price, yield and return will fluctuate, and you may have a
gain or loss when you sell your shares. All returns assume reinvestment of
capital gains distributions and income dividends at net asset value. The
returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
Performance results for the fund are increased by the voluntary reduction
of fund fees and expenses; without subsidization, performance would have
been lower.
(4) Performance reflects a maximum 5.75% Class A front-end sales charge.
State Street Research Health Sciences Fund 3
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PERFORMANCE
- -----------
Discussion as of February 29, 2004
These two pages focus on the fund's long-term track record. While a mutual
fund's past performance is not a guarantee of future results, long-term returns
can serve as an important context for evaluating recent performance. There are
three ways of measuring long-term performance: cumulative total returns, average
annual total returns and the change in dollar value over time of a given
investment. Information about these measures follows, while the share class
boxes contain the results of these measures for each share class.
Cumulative Total Return
Represents the total percentage you would have earned or lost if you had
invested a lump sum in the fund and left it there until the end of the period
indicated.
Average Annual Total Return
Represents the rate you would have had to earn during each year of a given time
period in order to end up with the fund's actual cumulative return for those
years. In reality, of course, fund performance varies from year to year. Because
of this, a fund's actual performance for a given year may be higher or lower
than an average annual performance figure.
$10,000 Over Life of Fund
Similar to cumulative total return, but uses dollars rather than percentages,
and assumes that the lump sum you invested was $10,000 (less the applicable
maximum sales charge, if any) and compares fund performance to the performance
of a market index.
- --------------------------------------------------------------------------------
Class A $10,000 Over Life of Fund
(reflects maximum applicable sales charge)
Life of Fund
1 Year 3 Years (12/21/99)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 87.13% 54.02% 134.69%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 76.37% 45.17% 121.20%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 76.37% 13.23% 20.81%
- --------------------------------------------------------------------------------
[THE DATA BELOW WAS PRESENTED AS A LINE CHART IN ORIGINAL PRINTED MATERIAL]
Class A S&P 500 Index
'99 9425 10000
'00 12564 9656
'01 14361 8865
'02 14707 8022
'03 11820 6203
'04 22120 8592
- --------------------------------------------------------------------------------
Class B(1) $10,000 Over Life of Fund
(reflects maximum applicable sales charge)
Life of Fund
1 Year 3 Years (12/21/99)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 85.89% 50.89% 129.93%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 80.89% 47.89% 127.93%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 80.89% 13.93% 21.67%
- --------------------------------------------------------------------------------
[THE DATA BELOW WAS PRESENTED AS A LINE CHART IN ORIGINAL PRINTED MATERIAL]
Class B(1) S&P 500 Index
'99 10000 10000
'00 13330 9656
'01 15238 8865
'02 15508 8022
'03 12369 6203
'04 22793 8592
Please keep in mind the major risks of stock investing include sudden and
unpredictable drops in value and period of lackluster performance. Because the
fund is focused on one market sector, it may involve more risk than a broadly
diversified fund. The entire portfolio will be affected by the performance of
the health care industry in general. Investments in health sciences companies
pose a number of risks, including adverse impact of legislative actions and
government regulations, which can affect approval processes, funding and
licensing associated with these companies.
Keep in mind that the performance data quoted represents past performance and is
no guarantee of future results. Current performance may be lower or higher than
the performance data quoted herein. For the most recent month-end performance
results, visit our website at www.ssrfunds.com. The fund's share price, yield
and return will fluctuate, and you may have a gain or loss when you sell your
shares. All returns assume reinvestment of capital gains distributions and
income dividends at net asset value.
4
- --------------------------------------------------------------------------------
Class B (only available through $10,000 Over Life of Fund exchanges from another
Class B (reflects maximum applicable sales charge) account)
Life of Fund
1 Year 3 Years (12/21/99)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 85.89% 50.18% 128.52%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 80.89% 47.18% 126.52%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 80.89% 13.75% 21.49%
- --------------------------------------------------------------------------------
[THE DATA BELOW WAS PRESENTED AS A LINE CHART IN ORIGINAL PRINTED MATERIAL]
Class B S&P 500 Index
'99 10000 10000
'00 13330 9656
'01 15217 8865
'02 15476 8022
'03 12293 6203
'04 22652 8592
- --------------------------------------------------------------------------------
Class C $10,000 Over Life of Fund
(reflects maximum applicable sales charge)
Life of Fund
1 Year 3 Years (12/21/99)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 85.87% 50.93% 129.50%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 84.87% 50.93% 129.50%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 84.87% 14.71% 21.87%
- --------------------------------------------------------------------------------
[THE DATA BELOW WAS PRESENTED AS A LINE CHART IN ORIGINAL PRINTED MATERIAL]
Class C S&P 500 Index
'99 10000 10000
'00 13330 9656
'01 15206 8865
'02 15476 8022
'03 12348 6203
'04 22950 8592
- --------------------------------------------------------------------------------
Class S $10,000 Over Life of Fund
(reflects maximum applicable sales charge)
Life of Fund
1 Year 3 Years (12/21/99)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 87.73% 55.45% 136.86%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 87.73% 55.45% 136.86%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 87.73% 15.84% 22.79%
- --------------------------------------------------------------------------------
[THE DATA BELOW WAS PRESENTED AS A LINE CHART IN ORIGINAL PRINTED MATERIAL]
Class S S&P 500 Index
'99 10000 10000
'00 13330 9656
'01 15237 8865
'02 15658 8022
'03 12617 6203
'04 23686 8592
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 Classes B(1), B, C and S reflects Class A share performance for
the period from December 21, 1999, through October 16, 2000 (commencement of
share classes), and the respective share classes thereafter. If the returns for
Classes B(1), B, C and S had reflected their current service/ distribution (Rule
12b-1) fees for the entire period, these returns would have been lower. Class S
shares, offered without sales charge, are available through certain retirement
plans and special programs. The returns shown do not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption of
fund shares.
Performance results for the fund are increased by the voluntary reduction of
fund fees and expenses; without subsidization, performance would have been
lower.
The S&P 500 Index (officially the "Standard & Poor's 500 Composite Stock Price
Index") is an index of 500 U.S. stocks. The index is unmanaged and does not take
transaction charges into consideration. It is not possible to invest directly in
an index.
State Street Research Health Sciences Fund 5
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PORTFOLIO
- -----------
Holdings
February 29, 2004
Issuer Shares Value
- ------------------------------------------------------------------------------------------------------------
Common Stocks 87.4%
Consumer Discretionary 2.2%
Consumer Services 1.7%
Service Corporation International Inc.* .................................. 134,640 $ 911,513
Stewart Enterprises Inc. Cl. A* .......................................... 130,530 787,096
-----------
1,698,609
-----------
Retail 0.5%
Fisher Scientific International Inc.* .................................... 8,930 475,522
-----------
Total Consumer Discretionary ............................................. 2,174,131
-----------
Financial Services 0.6%
Insurance 0.6%
WellChoice Inc.* ......................................................... 15,010 554,470
-----------
Total Financial Services ................................................. 554,470
-----------
Health Care 82.0%
Drugs & Biotechnology 64.7%
Abbott Laboratories Inc. ................................................. 32,030 1,370,884
Alexion Pharmaceuticals Inc.* ............................................ 81,300 1,860,957
Alkermes Inc.* ........................................................... 105,330 1,500,952
Amgen Inc.* .............................................................. 37,270 2,367,763
Atrix Laboratories Inc.* ................................................. 36,585 989,990
Aventis Corp. ADR ........................................................ 24,660 1,904,985
Barr Laboratories Inc.* .................................................. 12,250 948,272
Baxter International Inc. ................................................ 53,350 1,553,552
Biogen Idec Inc.* ........................................................ 26,870 1,489,941
BioMarin Pharmaceutical Inc.* ............................................ 87,035 665,818
BioVail Corp.* ........................................................... 48,860 999,676
Bristol-Myers Squibb Co. ................................................. 74,050 2,060,071
Charles River Laboratories International Inc.* ........................... 21,840 940,430
Chiron Corp.* ............................................................ 16,170 790,875
Corgentech Inc.* ......................................................... 20,230 389,428
Cypress Biosciences Inc.* ................................................ 66,500 841,225
Cytyc Corp.* ............................................................. 49,480 815,430
Discovery Laboratories Inc.* ............................................. 87,140 1,045,680
Dyax Corp.* .............................................................. 42,360 550,680
Elan Corp. plc* ADR ...................................................... 104,010 1,499,824
ENDO Pharmaceuticals Holdings Inc.* ...................................... 43,190 1,048,221
First Horizon Pharmaceutical Corp.* ...................................... 159,180 2,971,891
Forest Laboratories Inc.* ................................................ 11,920 899,722
Genome Therapeutics Corp.* ............................................... 82,620 536,204
Genzyme Corp.* ........................................................... 7,770 394,561
Gilead Sciences Inc.* .................................................... 23,800 1,290,198
Immunogen Inc.* .......................................................... 128,370 890,888
Indevus Pharmaceuticals Inc.* ............................................ 120,140 719,639
InterMune Inc.* .......................................................... 74,860 1,438,809
Johnson & Johnson Ltd. ................................................... 55,310 2,981,762
Ligand Pharmaceuticals Inc. Cl. B* ....................................... 45,840 705,478
Medimmune Inc.* .......................................................... 38,580 991,120
Merck & Company, Inc. .................................................... 35,470 1,705,398
Millennium Pharmaceuticals Inc.* ......................................... 84,650 1,507,616
Novartis AG ADR .......................................................... 69,100 3,050,765
Orphan Medical Inc.* ..................................................... 62,130 738,726
Penwest Pharmaceuticals Co.* ............................................. 40,800 680,952
Pfizer Inc. .............................................................. 85,089 3,118,512
Pharmaceutical Holders Trust ............................................. 35,000 2,859,500
Issuer Shares Value
- ------------------------------------------------------------------------------------------------------------
Drugs & Biotechnology (continued)
Progenics Pharmaceuticals Inc.* .......................................... 92,390 $ 2,065,840
Protein Design Labortories Inc.* ......................................... 54,230 1,301,520
Schering-Plough Inc. ..................................................... 44,610 801,196
Shire Pharmaceuticals Group ADR* ......................................... 30,320 937,494
Teva Pharmaceutical Industries Ltd. ADR .................................. 18,250 1,186,250
Transkaryotic Therapies Inc.* ............................................ 113,160 1,365,841
Valeant Pharmaceuticals Inc. ............................................. 56,030 1,228,738
Vicuron Phamaceuticals Inc.* ............................................. 31,440 738,211
-----------
62,741,485
-----------
Health Care Facilities 1.7%
HCA Inc. ................................................................. 37,865 1,610,020
-----------
Health Care Services 6.8%
Aetna Inc. ............................................................... 11,250 908,887
Anthem Inc.* ............................................................. 9,398 807,758
Caremark Rx Inc.* ........................................................ 31,390 1,012,641
Cerner Corp.* ............................................................ 13,130 588,487
Medco Health Solutions Inc.* ............................................. 37,810 1,234,875
Universal Health Services Inc. ........................................... 27,150 1,464,199
WellPoint Health Networks Inc. Cl. A* .................................... 5,670 616,726
-----------
6,633,573
-----------
Hospital Supply 8.8%
Aspect Medical Systems Inc.* ............................................. 114,261 1,988,141
Becton Dickinson & Co. ................................................... 49,870 2,426,176
Guidant Corp. ............................................................ 23,870 1,626,502
Kinetic Concepts Inc.* ................................................... 25,900 1,045,065
Medtronic Inc. ........................................................... 29,790 1,397,151
-----------
8,483,035
-----------
Total Health Care ........................................................ 79,468,113
-----------
Producer Durables 0.9%
Electronics: Industrial 0.9%
Thermo Electron Corp.* ................................................... 30,810 864,837
-----------
Total Producer Durables .................................................. 864,837
-----------
Technology 1.7%
Electronics: Semiconductors/Components 1.7%
PerkinElmer, Inc. ........................................................ 81,280 1,693,875
-----------
Total Technology ......................................................... 1,693,875
-----------
Total Common Stocks (Cost $68,903,884) ................................... 84,755,426
-----------
Short-Term Investments 13.6%
State Street Navigator
Securities Lending Prime Portfolio ...................................... 13,177,081
-----------
Total Short-Term Investments (Cost $13,177,081)........................... 13,177,081
-----------
Maturity Amount of
Issuer Date Principal
- --------------------------------------------------------------------------
Commercial Paper 9.8%
American Express Credit
Corp. 0.99% ................. 3/05/2004 $2,000,000 1,999,780
E.I. du Pont de Nemours
& Co. 0.99% ................. 3/11/2004 1,500,000 1,499,587
E.I. du Pont de Nemours
& Co. 1.01% ................. 3/19/2004 1,838,000 1,837,072
General Electric Capital
Corp. 0.97% ................. 3/01/2004 1,500,000 1,500,000
General Electric Capital
Corp. 1.00% ................. 3/02/2004 319,000 318,991
General Electric Capital
Corp. 0.98% ................. 3/03/2004 761,000 760,959
Merrill Lynch & Co. 1.00%..... 3/01/2004 279,000 279,000
Merrill Lynch & Co. 1.02%..... 3/03/2004 1,280,000 1,279,927
---------
Total Commercial Paper (Cost $9,475,316) ............... 9,475,316
---------
6 The notes are an integral part of the financial statements.
% of
Issuer Net Assets Value
- ----------------------------------------------------------------------------
Summary of Portfolio Assets
Investments (Cost $91,556,281).............. 110.8% $107,407,823
Cash and Other Assets, Less Liabilities..... (10.8%) (10,469,295)
----- ------------
Net Assets ................................. 100.0% $ 96,938,528
===== ============
KEY TO SYMBOLS
* Denotes a security which has not paid a dividend during the last year.
ADR Stands for American Depositary Receipt.
Federal Income Tax Information
At February 29, 2004, the net unrealized
appreciation of investments based on cost for federal
income tax purposes of $91,855,259 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $15,837,632
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value (285,068)
-----------
$15,552,564
===========
- ----------
FINANCIAL
- ----------
Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
February 29, 2004
Assets
Investments, at value (Cost $91,556,281) (Note 1) ............ $107,407,823
Cash ......................................................... 155
Receivable for securities sold ............................... 4,420,771
Receivable for fund shares sold .............................. 1,723,838
Dividends receivable ......................................... 104,154
Receivable from distributor .................................. 8,040
Other assets ................................................. 30,037
------------
113,694,818
------------
Liabilities
Payable for collateral received on securities loaned ......... 13,177,081
Payable for securities purchased ............................. 3,238,832
Payable for fund shares redeemed ............................. 76,329
Accrued management fee ....................................... 50,484
Accrued transfer agent and shareholder services .............. 48,538
Accrued distribution and service fees ........................ 37,699
Accrued administration fee ................................... 16,399
Accrued trustees' fees ....................................... 4,198
Other accrued expenses ....................................... 106,730
------------
16,756,290
------------
Net Assets ................................................... $ 96,938,528
============
Net Assets consist of:
Unrealized appreciation of investments ..................... $ 15,851,542
Accumulated net realized gain .............................. 2,192,522
Paid-in capital ............................................ 78,894,464
------------
$ 96,938,528
============
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Class Net Assets [divided by] Number of Shares = NAV
A $54,637,937 2,607,172 $20.96*
B(1) $22,825,058 1,112,578 $20.52**
B $ 3,390,669 166,317 $20.39**
C $11,017,450 538,207 $20.47**
S $ 5,067,414 239,595 $21.15
* Maximum offering price per share = $22.24 ($20.96 [divided by] 0.9425)
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
The notes are an integral part of the financial statements.
State Street Research Health Sciences Fund 7
- ----------
FINANCIAL
- ----------
Statements
Statement of Operations
- --------------------------------------------------------------------------------
For the year ended February 29, 2004
Investment Income
Dividends, net of foreign taxes of $21,577 (Note 1) .......... $ 326,393
Interest (Note 1) ............................................ 73,607
-----------
400,000
-----------
Expenses
Management fee (Note 2) ...................................... 361,824
Transfer agent and shareholder services (Note 2) ............. 215,502
Administration fee (Note 2) .................................. 92,649
Custodian fee ................................................ 86,535
Distribution and service fees - Class A (Note 5) ............. 74,484
Distribution and service fees - Class B(1) (Note 5) .......... 150,743
Distribution and service fees - Class B (Note 5) ............. 26,969
Distribution and service fees - Class C (Note 5) ............. 38,565
Registration fees ............................................ 61,025
Audit fee .................................................... 23,495
Trustees' fees (Note 2) ...................................... 16,312
Reports to shareholders ...................................... 6,789
Legal fees ................................................... 4,116
Miscellaneous ................................................ 22,488
-----------
1,181,496
Expenses borne by the distributor (Note 3) ................... (287,695)
Fees paid indirectly (Note 2) ................................ (1,763)
-----------
892,038
-----------
Net investment loss .......................................... (492,038)
-----------
Realized and Unrealized Gain (Loss)
on Investments, Foreign Currency
and Options
Net realized gain on investments (Notes 1 and 4) ............. 10,864,315
Net realized loss on foreign currency (Note 1) ............... (337)
Net realized loss on options (Note 1) ........................ (603,250)
-----------
Total net realized gain .................................... 10,260,728
-----------
Change in unrealized appreciation of investments ............. 15,869,865
-----------
Net realized gain on investments, foreign currency, and
options .................................................... 26,130,593
-----------
Net increase in net assets resulting from operations ......... $25,638,555
===========
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year ended Year ended
February 29, 2004 February 28, 2003*
----------------------------------------
Increase (Decrease) In Net Assets
Operations:
Net investment loss ................. $ (492,038) $ (354,863)
Net realized gain (loss) on
investments, foreign
currency and options .............. 10,260,728 (5,060,168)
Change in unrealized
appreciation (depreciation)
of investments .................... 15,869,865 (873,778)
----------- -----------
Net increase (decrease)
resulting from operations ......... 25,638,555 (6,288,809)
----------- -----------
Distributions from capital
gains:
Class A ........................... (1,108,987) (32,999)
Class B(1) ........................ (617,283) (29,756)
Class B ........................... (110,601) (6,142)
Class C ........................... (195,094) (3,829)
Class S ........................... (59,350) (2,787)
----------- -----------
(2,091,315) (75,513)
----------- -----------
Net increase (decrease) from
fund share transactions
(Note 7) .......................... 50,919,824 (588,099)
----------- -----------
Total increase (decrease) in
net assets ........................ 74,467,064 (6,952,421)
Net Assets
Beginning of year ................... 22,471,464 29,423,885
----------- -----------
End of year ......................... $96,938,528 $22,471,464
=========== ===========
* Audited by other auditors
8 The notes are an integral part of the financial statements.
- --------------------
NOTES TO FINANCIAL
- --------------------
Statements
February 29, 2004
Note 1
State Street Research Health Sciences Fund is a series of State Street Research
Financial Trust (the "Trust"), which is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The Trust consists presently of two
separate funds: State Street Research Health Sciences Fund and State Street
Research Government Income Fund, which has an October 31 fiscal year end.
The investment objective of the fund is to provide long-term growth of capital.
In seeking to achieve its investment objective, the fund invests primarily in
securities of companies in health sciences and related industries. These may
include common and preferred stocks, convertible securities, warrants and
depositary receipts.
The fund offers five classes of shares. Class A shares are subject to an initial
sales charge of up to 5.75% and pay annual service and distribution fees equal
to 0.30% of average daily net assets. Class B(1) and Class B shares pay annual
service and distribution fees of 1.00% and automatically convert into Class A
shares (which pay lower ongoing expenses) at the end of eight years. Class B(1)
and Class B shares are subject to a contingent deferred sales charge on certain
redemptions made within six years and five years of purchase, respectively.
Class B shares are offered only to current shareholders through reinvestment of
dividends and distributions or through exchanges from existing Class B accounts
of State Street Research funds. Class C shares are subject to a contingent
deferred sales charge of 1.00% on any shares redeemed within one year of their
purchase, and also pay annual service and distribution 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 investment
management subsidiary of MetLife, Inc. ("MetLife"), and special programs. No
sales charge is imposed at the time of purchase or redemption of Class S shares.
Class S shares do not pay any service or distribution fees. The fund's expenses
are borne prorata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the plans of distribution,
related specifically to that class. The Trustees declare separate dividends on
each class of shares.
The following significant accounting policies are consistently followed by the
fund in preparing its financial statements, and such policies are in conformity
with accounting principles generally accepted in the United States of America.
A. Investment Valuation
Values for listed equity 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. 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. If trading or events occurring in
other markets after the close of the principal market in which foreign
securities are traded, and before the close of business of the fund, are
expected to materially affect the value of these securities, then they are
valued at their fair value taking this trading or these events into account.
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
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. The fund is charged for expenses directly attributable to it,
while indirect expenses are allocated between both funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
annually. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations. For the year ended February 29, 2004, the fund has designated
$2,091,315 as ordinary income dividends, and $0 as long-term capital gains
distributions.
Income dividends and capital gains distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. The difference is primarily
due to differing treatments for wash sale deferrals.
The fund hereby designates the maximum amount allowable of its net taxable
income as qualified dividend income as provided in the Jobs and Growth Tax
Relief Reconciliation Act of 2003. This amount has been reflected on Form 1099
for the calendar year 2003.
E. Federal Income Taxes
No provision for federal income taxes is necessary because the fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section 4982
of the Internal Revenue Code, the fund is required to measure and distribute
annually, if necessary, net capital gains realized during a twelve-month period
ending October 31. In this connection, the fund is permitted to defer into its
next fiscal year any net capital losses incurred between each November 1 and the
end of its fiscal year. From November 1, 2002, through February 28, 2003, the
fund incurred net capital losses of $1,492,207 and has deferred and treated such
losses as arising in the fiscal year ended February 29, 2004.
To the extent book/tax differences are permanent in nature, such amounts are
reclassified within the capital accounts based on federal tax basis treatment.
The fund reclassified for book purposes amounts arising from permanent book/tax
differences primarily relating to net operating losses and foreign cash
reclasses. At February 29, 2004, components of distributable earnings on a tax
basis differ from the amounts reflected in the Statement of Assets and
Liabilities by temporary book/tax differences largely arising from wash sales.
At February 29, 2004, the tax basis distributable earnings were $1,254,777 in
undistributed ordinary income and $1,236,582 in undistributed long-term gains.
F. Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 these estimates.
G. Securities Lending
The fund may seek additional income by lending portfolio securities to qualified
institutions. The fund will receive cash or securities as collateral in an
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the fund could realize additional gains and losses. If
the borrower fails to return the securities and the value of the collateral has
declined during the term of the loan, the fund will bear the loss. At February
29, 2004, the value of the securities loaned and the value of collateral were
$12,897,611 and $13,177,081 (including $13,081,861 of collateral cash invested
in State Street Navigator Securities Lending prime portfolio and $95,220 of U.S.
government obligations), respectively. During the year ended February 29, 2004,
income from securities lending amounted to $21,303 and is included in interest
income.
State Street Research Health Sciences Fund 9
Notes (continued)
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 net assets. In
consideration of these fees, the Adviser furnishes the fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the year ended February 29, 2004, the fees pursuant to such agreement
amounted to $361,824.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), provides certain shareholder services to the fund such as
responding to inquiries and instructions from investors with respect to the
purchase and redemption of shares of the fund. In addition, MetLife receives a
fee for maintenance of the accounts of certain shareholders who are participants
in sponsored arrangements, such as employee benefit plans, through or under
which shares of the fund may be purchased. Total shareholder service costs are
allocated to each fund in the same ratios as the transfer agent costs. During
the year ended February 29, 2004, the amount of such expenses allocated to the
fund was $71,458.
The fund has entered into an arrangement with its transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the fund's expenses. During the year ended February 29, 2004, the fund's
transfer agent fees were reduced by $1,763 under this arrangement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$16,312 during the year ended February 29, 2004.
The fund has agreed to pay the Adviser for certain administrative costs incurred
in providing other assistance and services to the fund. The fee was based on a
fixed amount that has been allocated equally among State Street Research funds.
During the year ended February 29, 2004, the amount of such expenses was
$92,649.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the fund. During
the year ended February 29, 2004, the amount of such expenses assumed by the
Distributor and its affiliates was $287,695.
Note 4
For the year ended February 29, 2004, purchases and sales of securities,
exclusive of short-term obligations and U.S. government obligations, aggregated
$82,646,339, and $46,852,387, respectively.
Note 5
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the plans, the fund pays annual service
fees to the Distributor at a rate of 0.25% of average daily net assets for Class
A, Class B(1) and Class C shares. In addition, the fund pays annual distribution
fees of 0.05% of average daily net assets for Class A shares. The fund pays
annual distribution fees of 0.75% of average daily net assets for Class B(1),
Class B and Class C shares. The Distributor uses such payments for personal
services and/or the maintenance of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing assistance
to investors and to defray a portion of its distribution and marketing expenses.
For Class A, Class B and Class C shares the payments are intended to reimburse
the distributor for expenditures incurred under the plan, and any unused
payments are returnable to the fund. As of February 29, 2004, there were
$509,585 and $249,728 for Class A and Class C shares, respectively, of
unreimbursed distribution and shareholder servicing related expenses to be
carried forward to future plan years. For Class B(1) shares, the payments
compensate the distributor for services and expenditures incurred under the
plan, and none of the payments are returnable to the fund. For the year ended
February 29, 2004, fees pursuant to such plans amounted to $74,484, $150,743,
$26,969 and $38,565 for Class A, Class B(1), Class B and Class C shares,
respectively. The payments compensate the distributor for services and
expenditures incurred under the plan, and none of the payments are returnable to
the fund.
The fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of MetLife, earned initial sales charges aggregating
$63,673 and $121,152, respectively, on sales of Class A shares of the fund
during the year ended February 29, 2004, and that MetLife Securities, Inc.,
earned commissions aggregating $95,898 and $1,401 on sales of Class B(1) and
Class C shares, respectively, and the Distributor collected contingent deferred
sales charges aggregating $34,292, $253 and $1,960 on redemptions of Class B(1),
Class B and Class C shares, respectively, during the same period.
Note 6
PricewaterhouseCoopers LLP resigned as the fund's independent accountants as of
April 25, 2003. The Trustees voted to appoint Deloitte & Touche LLP as the
fund's independent accountants for the fund's fiscal year ended February 29,
2004. During the previous two years, PricewaterhouseCoopers LLP's audit reports
contained no adverse opinion or disclaimer of opinion; nor were its reports
qualified or modified as to uncertainty, audit scope, or accounting principle.
Further, in connection with its audits for the two previous fiscal years and
through April 25, 2003, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which if not
resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused it
to make reference to the disagreements in its report on the financial statements
for such years.
10
Note 7
The trustees have the authority to issue an unlimited number of fund shares of
beneficial interest with a $0.001 par value per share. At February 29, 2004 the
Adviser owned one Class S share and MetLife owned 28,083 Class S shares of the
fund. These transactions break down by share class as follows:
Year ended Year ended
February 29 February 28
2004 2003*
-------------------------- ------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 2,672,797 $ 48,968,677 424,141 $ 5,509,615
Issued upon reinvestment of distributions from capital gains 51,953 994,845 2,097 31,088
Shares redeemed (916,932) (16,125,410) (532,299) (6,628,461)
--------- ------------ -------- -----------
Net increase (decrease) 1,807,818 $ 33,838,112 (106,061) $(1,087,758)
========= ============ ======== ===========
Class B(1) Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 397,168 $ 7,191,329 216,449 $ 2,769,137
Issued upon reinvestment of distributions from capital gains 31,705 594,591 1,989 29,278
Shares redeemed (130,198) (2,141,232) (199,671) (2,377,172)
--------- ------------ -------- -----------
Net increase 298,675 $ 5,644,688 18,767 $ 421,243
========= ============ ======== ===========
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 65,757 $ 1,142,465 34,052 $ 442,039
Issued upon reinvestment of distributions from capital gains 5,817 108,548 412 6,044
Shares redeemed (50,967) (923,378) (65,760) (795,205)
--------- ------------ -------- ---------
Net increase (decrease) 20,607 $ 327,635 (31,296) $(347,122)
========= ============ ======== =========
Class C Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 494,043 $ 9,163,916 43,631 $ 582,314
Issued upon reinvestment of distributions from capital gains 8,373 156,831 257 3,769
Shares redeemed (77,584) (1,331,219) (22,332) (267,641)
--------- ------------ -------- ---------
Net increase 424,832 $ 7,989,528 21,556 $ 318,442
========= ============ ======== =========
Class S Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 183,218 $ 3,639,921 17,914 $ 229,325
Issued upon reinvestment of distributions from capital gains 3,043 58,784 187 2,787
Shares redeemed (31,546) (578,844) (9,811) (125,016)
--------- ------------ -------- ---------
Net increase 154,715 $ 3,119,861 8,290 $ 107,096
========= ============ ======== =========
* Audited by other auditors
State Street Research Health Sciences Fund 11
- ---------
FINANCIAL
- ---------
Highlights
Class A
- ------------------------------------------------------------------------------------
December 21, 1999
Years ended February 28 (commencement of
Year ended -------------------------------------- operations) to
February 29, 2004(a) 2003(a)(f) 2002(a)(f) 2001(a)(f) February 29, 2000(a)(f)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 11.57 14.43 14.14 13.33 10.00
------ ------ ----- ------ -----
Net investment loss ($)* (0.12) (0.12) (0.13) (0.06) (0.00)
Net realized and unrealized gain
(loss) on investments, foreign currency
and options ($) 10.15 (2.70) 0.47 1.88 3.33
------ ------ ----- ------ -----
Total from investment operations ($) 10.03 (2.82) 0.34 1.82 3.33
------ ------ ----- ------ -----
Distributions from capital gains ($) (0.64) (0.04) (0.05) (1.01) --
------ ------ ----- ------ -----
Total distributions ($) (0.64) (0.04) (0.05) (1.01) --
------ ------ ----- ------ -----
Net asset value, end of year ($) 20.96 11.57 14.43 14.14 13.33
====== ====== ===== ====== =====
Total return (%)(b) 87.13 (19.63) 2.41 14.31 33.30 (c)
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 54,638 9,250 13,069 6,863 1,654
Expense ratio (%)* 1.55 1.56 1.58 1.57 1.50 (d)
Expense ratio after expense reductions (%)* 1.55 1.55 1.55 1.54 1.50 (d)
Ratio of net investment loss to average
net assets (%)* (0.71) (0.99) (0.88) (0.48) (0.13)(d)
Portfolio turnover rate (%) 105.97 157.37 75.31 139.09 44.48
*Reflects voluntary reduction of expenses of
these amounts (%) 0.56 1.48 1.83 6.87 8.56 (d)
Class B(1)
- ----------------------------------------------------------------------------------
Years Ended February 28
Year ended ----------------------------------------
February 29, 2004(a) 2003(a)(f) 2002(a)(f) 2001(a)(e)(f)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 11.41 14.34 14.14 15.50
------ ------ ----- ------
Net investment loss ($)* (0.24) (0.21) (0.23) (0.04)
Net realized and unrealized gain
(loss) on investments, foreign currency
and options ($) 9.99 (2.68) 0.48 (0.63)
------ ------ ----- ------
Total from investment operations ($) 9.75 (2.89) 0.25 (0.67)
------ ------ ----- ------
Distributions from capital gains ($) (0.64) (0.04) (0.05) (0.69)
------ ------ ----- ------
Total distributions ($) (0.64) (0.04) (0.05) (0.69)
------ ------ ----- ------
Net asset value, end of year ($) 20.52 11.41 14.34 14.14
====== ====== ===== ======
Total return (%)(b) 85.89 (20.24) 1.77 (4.47)(c)
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 22,825 9,290 11,399 4,645
Expense ratio (%)* 2.25 2.26 2.28 2.28 (d)
Expense ratio after expense reductions (%)* 2.25 2.25 2.25 2.25 (d)
Ratio of net investment loss to average
net assets (%)* (1.44) (1.69) (1.59) (0.81)(d)
Portfolio turnover rate (%) 105.97 157.37 75.31 139.09
*Reflects voluntary reduction of expenses of
these amounts (%) 0.66 1.48 1.71 6.26 (d)
12
Class B
- -----------------------------------------------------------------
Years ended February 28
Year ended -----------------------------------------
February 29, 2004(a) 2003(a)(f) 2002(a)(f) 2001(a)(e)(f)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 11.34 14.31 14.12 15.50
------ ------ ----- ------
Net investment loss ($)* (0.24) (0.21) (0.22) (0.04)
Net realized and unrealized gain (loss) on investments,
foreign currency and options($) 9.93 (2.72) 0.46 (0.65)
------ ------ ----- ------
Total from investment operations ($) 9.69 (2.93) 0.24 (0.69)
------ ------ ----- ------
Distributions from capital gains ($) (0.64) (0.04) (0.05) (0.69)
------ ------ ----- ------
Total distributions ($) (0.64) (0.04) (0.05) (0.69)
------ ------ ----- ------
Net asset value, end of year ($) 20.39 11.34 14.31 14.12
====== ====== ===== ======
Total return (%)(b) 85.89 (20.56) 1.70 (4.61)(c)
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 3,391 1,653 2,533 1,964
Expense ratio (%)* 2.25 2.26 2.28 2.28 (d)
Expense ratio after expense reductions (%)* 2.25 2.25 2.25 2.25 (d)
Ratio of net investment loss to average net assets (%)* (1.46) (1.70) (1.57) (0.83)(d)
Portfolio turnover rate (%) 105.97 157.37 75.31 139.09
*Reflects voluntary reduction of expenses of these amounts (%) 0.67 1.47 1.97 6.36 (d)
Class C
- -----------------------------------------------------------------
Years ended February 28
Year ended ------------------------------------------
February 29, 2004(a) 2003(a)(f) 2002(a)(f) 2001(a)(e)(f)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 11.39 14.31 14.11 15.50
------ ------ ----- ------
Net investment loss ($)* (0.23) (0.21) (0.23) (0.04)
Net realized and unrealized gain (loss) on investments,
foreign currency and options($) 9.95 (2.67) 0.48 (0.66)
------ ------ ----- ------
Total from investment operations ($) 9.72 (2.88) 0.25 (0.70)
------ ------ ----- ------
Distributions from capital gains ($) (0.64) (0.04) (0.05) (0.69)
------ ------ ----- ------
Total distributions ($) (0.64) (0.04) (0.05) (0.69)
------ ------ ----- ------
Net asset value, end of year ($) 20.47 11.39 14.31 14.11
====== ====== ===== ======
Total return (%)(b) 85.87 (20.21) 1.77 (4.67)(c)
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 11,017 1,291 1,314 645 (d)
Expense ratio (%)* 2.25 2.26 2.28 2.28 (d)
Expense ratio after expense reductions (%)* 2.25 2.25 2.25 2.25 (d)
Ratio of net investment loss to average net assets (%)* (1.38) (1.69) (1.58) (0.83)(d)
Portfolio turnover rate (%) 105.97 157.37 75.31 139.09
*Reflects voluntary reduction of expenses of these amounts (%) 0.52 1.49 1.71 5.87 (d)
Class S
- -----------------------------------------------------------------
Years ended February 28
Year ended ----------------------------------------
February 29, 2004(a) 2003(a)(f) 2002(a)(f) 2001(a)(e)(f)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 11.64 14.48 14.14 15.50
------ ------ ----- ------
Net investment income (loss) ($)* (0.06) (0.09) (0.08) 0.01
Net realized and unrealized gain (loss) on investments,
foreign currency and options ($) 10.21 (2.71) 0.47 (0.68)
------ ------ ----- ------
Total from investment operations ($) 10.15 (2.80) 0.39 (0.67)
------ ------ ----- ------
Distributions from capital gains ($) (0.64) (0.04) (0.05) (0.69)
------ ------ ----- ------
Total distributions ($) (0.64) (0.04) (0.05) (0.69)
------ ------ ----- ------
Net asset value, end of year ($) 21.15 11.64 14.48 14.14
====== ====== ===== ======
Total return (%)(b) 87.73 (19.42) 2.76 (4.48)(c)
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 5,067 988 1,109 946
Expense ratio (%)* 1.25 1.26 1.28 1.28 (d)
Expense ratio after expense reductions (%)* 1.25 1.25 1.25 1.25 (d)
Ratio of net investment income (loss) to average net assets (%)* (0.38) (0.69) (0.56) 0.18 (d)
Portfolio turnover rate (%) 105.97 157.37 75.31 139.09
*Reflects voluntary reduction of expenses of these amounts (%) 0.59 1.49 1.97 5.58 (d)
(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
voluntarliy assumed a portion of the fund's expenses.
(c) Not annualized
(d) Annualized
(e) October 16, 2000 (commencement of share class) to February 28, 2001
(f) Audited by other auditors
State Street Research Health Sciences Fund 13
- ---------------------
INDEPENDENT AUDITORS'
- ---------------------
Report
To the Board of Trustees and Shareholders
of State Street Research Health Sciences Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio holdings, of State Street Research Health Sciences Fund (the
"Fund"), a series of State Street Research Financial Trust, as of February 29,
2004, and the related statement of operations, the statement of changes in net
assets, and the financial highlights for the year ended February 29, 2004. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended February 28, 2003, and the financial
highlights for each of the years in the three-year period ended February 28,
2003, and the period ended February 29, 2000, were audited by other auditors
whose report dated April 7, 2003, expressed an unqualified opinion on such
statement and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of February 29, 2004, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of February 29, 2004, the results of its operations, the changes in its
net assets, and the financial highlights for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 26, 2004
14
- ---------------------
TRUSTEES AND OFFICERS
- ---------------------
State Street Research Financial Trust
Number of Funds
Name, Position(s) Term of Office in Fund Complex Other
Address Held with and Length of Principal Occupations Overseen by Directorships Held
and Age(a) Fund Time Served(b) During Past 5 Years Trustee/Officer(c) by Trustee/Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
Bruce R. Bond Trustee Since Retired; formerly Chairman of the Board, 19 Avaya Corp.
(58) 1999 Chief Executive Officer and President,
PictureTel Corporation (video
conferencing systems)
- ------------------------------------------------------------------------------------------------------------------------------------
Peter S. Drotch Trustee Since Retired; formerly Partner, 19 The First
(62) 2004 PricewaterhouseCoopers LLP Marblehead Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Since Retired; formerly Senior Vice President 56 Metropolitan Series
(66) 1997 for Finance and Operations and Fund, Inc.; and
Treasurer, The Pennsylvania State Metropolitan Series
University Fund II
- ------------------------------------------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Since Dean, School of Business and Public 19 The Kroger Co.
(59) 1998 Management, George Washington
University; formerly a member
of the Board of Governors of
the Federal Reserve System; and
Chairman and Commissioner of
the Commodity Futures Trading
Commission
- ------------------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since President, Founders Investments Ltd. 56 A.P. Pharma, Inc.;
(65) 1993 (investments); President, Pacific Four Metropolitan Series
Investments (investments); formerly Fund, Inc.; and
President, The Glen Ellen Company Metropolitan Series
(private investment firm) Fund II
- ------------------------------------------------------------------------------------------------------------------------------------
Michael S. Trustee Since Jay W. Forrester Professor of 56 Metropolitan Series
Scott Morton (66) 1987 Management, Sloan School of Management, Fund, Inc.; and
Massachusetts Institute of Technology Metropolitan Series
Fund II
- ------------------------------------------------------------------------------------------------------------------------------------
Interested Trustees
Richard S. Davis(+) Trustee Since Chairman of the Board, President and 19 None
(58) 2000 Chief Executive Officer of State Street
Research & Management Company; formerly
Senior Vice President, Fixed Income
Investments, Metropolitan Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Officers
C. Kim Goodwin Vice Since Managing Director and Chief Investment 18 None
(44) President 2002 Officer - Equities of State Street
Research & Management Company; formerly
Chief Investment Officer - U.S. Growth
Equities, American Century
- ------------------------------------------------------------------------------------------------------------------------------------
John S. Lombardo Vice Since Managing Director, Chief Financial 19 None
(49) President 2001 Officer and Director of State Street
Research & Management Company; formerly
Executive Vice President, State Street
Research & Management Company; and
Senior Vice President, Product and
Financial Management, MetLife Auto &
Home
- ------------------------------------------------------------------------------------------------------------------------------------
Mark A. Marinella Vice Since Managing Director and Chief Investment 9 None
(46) President 2003 Officer - Fixed Income, State Street
Research & Management Company; formerly
Executive Vice President and Senior Vice
President, State Street Research &
Management Company; and Chief Investment
Officer and Head of Fixed Income, Columbia
Management Group
- ------------------------------------------------------------------------------------------------------------------------------------
Ajay Mehra (39 Vice Since Managing Director, State Street Research & 4 None
President 2003 Management Company; formerly Senior Vice
President, Vice President and portfolio
manager, Columbia Management Group
- ------------------------------------------------------------------------------------------------------------------------------------
Elizabeth M. Vice Since Managing Director, State Street Research & 8 None
Westvold (43) President 2003 Management Company; formerly Senior Vice
President, State Street Research &
Management Company
- ------------------------------------------------------------------------------------------------------------------------------------
Erin Xie (36) Vice Since Senior Vice President, State Street 2 None
President 2003 Research & Management Company; formerly
Vice President, State Street Research &
Management Company; and research associate,
Sanford Bernstein & Company
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas A. Romich Treasurer Since Senior Vice President and Treasurer of 19 None
(47) 2001 State Street Research & Management
Company; formerly Vice President and
Assistant Treasurer, State Street
Research & Management Company
- ------------------------------------------------------------------------------------------------------------------------------------
The fund's Statement of Additional Information includes additional information
about the fund's trustees, and is available without charge, by contacting State
Street Research, One Financial Center, Boston, Massachusetts 02111-2690, or by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637).
(a) The address of each person is c/o State Street Research & Management
Company, One Financial Center, Boston, MA 02111-2690.
(b) A Trustee serves until he or she retires, resigns or is removed as provided
in the master trust agreement of the respective Trust. Each Trust has
adopted a mandatory retirement age of 72. Each officer holds office until
he or she resigns, is removed or a successor is elected.
(c) Includes all series of 9 investment companies for which State Street
Research & Management Company has served as sole investment adviser and all
series of Metropolitan Series Fund, Inc. and Metropolitan Series Fund II.
The primary adviser to Metropolitan Series Fund, Inc. and Metropolitan
Series Fund II is MetLife Advisers, LLC, which has retained State Street
Research & Management Company as sub-adviser to certain series of
Metropolitan Series Fund, Inc.
(+) Mr. Davis is an "interested person" of the Trust under the Investment
Company Act of 1940 by reason of his affiliation with the Trust's
Investment Manager, State Street Research & Management Company, as noted.
State Street Research Health Sciences Fund 15
----------------
[LOGO] STATE STREET RESEARCH | FIRST STD |
One Financial Center | U.S. POSTAGE |
Boston, MA 02111-2690 | PAID |
| PERMIT #6 |
| HUDSON, MA |
----------------
- ------------------------------------------------------------------------------------------------------------------------------
New accounts, mutual fund purchases,
- ------------------------------------------------
exchanges and account information
Did You Know?
Internet www.ssrfunds.com
State Street Research offers electronic delivery
E-mail info@ssrfunds.com of quarterly statements, shareholder reports
and fund prospectuses. If you elect this
Phone 1-87-SSR-FUNDS (1-877-773-8637), option, we will send these materials to you
toll-free, 7 days a week, 24 hours a day via e-mail. To learn more, visit us on the Web
Hearing-impaired: 1-800-676-7876 at www.ssrfunds.com and click on "Go to
Chinese- and Spanish-speaking: 1-888-638-3193 Your Account" or call us at 1-87-SSR-FUNDS
(1-877-773-8637).
Fax 1-617-737-9722 (request confirmation number
first from the Service Center by calling Did you know that you can give a State Street
1-877-773-8637) Research mutual fund as a gift? Call a service
center representative at 1-87-SSR-FUNDS
Mail State Street Research Service Center (1-877-773-8637), Monday through Friday, 8am-6pm
P.O. Box 8408, Boston, MA 02266-8408 eastern time, to learn more.
- ------------------------------------------------------------------------------------------------------------------------------
Investors should carefully consider the fund's investment objective, risks,
charges and expenses before investing. The fund's prospectus contains more
complete information on these and other matters. A prospectus for any State
Street Research fund is available through your financial professional, by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637) or by visiting our website at [LOGO]
www.ssrfunds.com. Please read the prospectus carefully before investing. for Excellence in
Shareholder Communications
OverView
For more information on the products and services we offer, refer to OverView, [LOGO]
our quarterly shareholder newsletter. For Excellence in Service
Webcasts
For a professional perspective on the markets, the economy and timely investment
topics, tune in to a State Street Research webcast by visiting our website at
www.ssrfunds.com.
Complete Fund Listing
For a list of our funds, visit our website at www.ssrfunds.com under Research
Our Funds.
This report must be accompanied or preceded by a current prospectus. When used
as sales material after June 30, 2004, this report must be accompanied by a
current Quarterly Performance Update.
"State Street Research Proxy Voting Policies and Procedures"--which describes
how we vote proxies relating to portfolio securities--is available upon request,
free of charge, by calling the State Street Research Service Center toll-free at
1-87-SSR-FUNDS (1-877-773-8637) or by accessing the U.S. Securities and Exchange
Commission website at www.sec.gov.
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
industrywide.
Member NASD, SIPC
(C)2004 State Street Research Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
www.ssrfunds.com
CONTROL NUMBER:(exp0405)SSR-LD
HS-1588-0404
<Page>
FORM N-CSR(2 OF 3)
ITEM 2: CODE OF ETHICS
(a) The Registrant has, as of the end of the period covered by this
report, adopted a code of ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in the instructions to Form N-CSR
that applies to the Registrant's principal executive officer,
principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of
whether these individuals are employed by the Registrant or a third
party.
(b) During the period covered by this report, there were not any amendments
to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers or
implicit waivers to a provision of the code of ethics adopted in 2(a)
above.
ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant's Board of Directors has determined that Steve A. Garban,
a member of the Registrant's Board of Directors and Audit Committee,
qualifies as the "audit committee financial expert" as such term is
defined in the instructions to Form N-CSR. Mr. Garban is "independent",
as defined in the instructions to Form N-CSR.
ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES
<Table>
<Caption>
Audit Fees Registrant Investment Adviser
Fiscal year ended February 28, 2003* $20,000 $133,000
Fiscal year ended February 29, 2004 $22,000 $158,760
Audit-Related Fees
Fiscal year ended February 28, 2003* $0 $0
Fiscal year ended February 29, 2004 $0 $0
Tax Fees
Fiscal year ended February 28, 2003* $3,500 $15,000
Fiscal year ended February 29, 2004 $3,500 $0
All Other Fees
Fiscal year ended February 28, 2003* $0 $0
Fiscal year ended February 29, 2004 $15,800 $60,000
</Table>
* The fees reported for the fiscal year ended February 28, 2003 were
attributable to services provided by other accountants.
ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6: (RESERVED)
ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES & PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 8: (RESERVED)
ITEM 9: SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS
The Governance Committee will consider nominees recommended by
shareholders. Shareholders may submit recommendations to the
attention of the Secretary of the Trust, State Street Research
& Management Company, One Financial Center, 30th Floor, Boston
MA 02111.
ITEM 10: CONTROLS AND PROCEDURES
SUB-ITEM 10a - The Principal Executive Officer and the Principal
Financial Officer have concluded that the State Street Research
Financial Trust disclosure controls and procedures (as defined in
Rule 30-a2(c) under the Investment Company Act) provide reasonable
assurances that material information relating to the State Street
Research Financial Trust is made known to them by the appropriate
persons, based on their evaluation of these controls and procedures
as of a date within 90 days of the filing date of this report.
SUB-ITEM 10b - There were no significant changes in the registrant's
internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation referenced in
(a)(i) above.
ITEM 11: EXHIBITS
(a)(1) Code of Ethics required to be disclosed under Item 2 of Form
N-CSR attached hereto as Exhibit 99.CODE ETH
(a)(2) Certification for each principal executive and principal
financial officer of the Registrant required by Rule 30a-2(a)
under the Investment Company Act of 1940, as amended
(17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.302CERT
(b) Certification required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) attached
hereto as Exhibit 99.906CERT
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
State Street Research Financial Trust
By: /s/ Richard S. Davis
------------------------------------------------------
Richard S. Davis, President, Chairman and
Chief Executive Officer
Principal Executive Officer
Date April 27, 2004
------------------------------------------------------
<Page>
FORM N-CSR(3 OF 3)
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities, and on the
dates indicated.
By: /s/ Richard S. Davis
------------------------------------------------------
Richard S. Davis, President, Chairman and
Chief Executive Officer
Principal Executive Officer
Date April 27, 2004
------------------------
By: /s/ Douglas A. Romich
------------------------------------------------------
Douglas A. Romich, Treasurer
Principal Financial Officer
Date April 27, 2004
------------------------