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)
Francis J. McNamara, III, Secretary
State Street Research & Management Company
One Financial Center, Boston, MA 02110
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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: 10/31/03
-----------------
Date of reporting period: 11/01/02 - 4/30/03
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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 Semiannual Report is attached.
FORM N-CSR(2 OF 3)
ITEM 2 (CODE OF ETHICS): Not applicable to this filing.
ITEM 3 (AUDIT COMMITTEE FINANCIAL EXPERT): Not applicable to this filing.
ITEM 4 (PRINCIPAL ACCOUNTANT FEES AND SERVICES): Not applicable to this filing.
ITEM 5 (RESERVED)
ITEM 6 (RESERVED)
ITEM 7 (DISCLOSURE OF PROXY VOTING POLICIES & PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES): Not applicable to this filing.
ITEM 8 (RESERVED)
ITEM 9 (CONTROLS AND PROCEDURES):
SUB-ITEM 9a - 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 9b - 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 10 (EXHIBITS):
SUB-ITEM 10a - Not applicable to this filing.
SUB-ITEM 10b - Certification Exhibits are attached.
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
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Richard S. Davis, President, Chairman and
Chief Executive Officer
Date June 25, 2003
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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 June 25, 2003
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By: /s/ Douglas A. Romich
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Douglas A. Romich, Treasurer
Principal Financial Officer
Date June 25, 2003
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[LOGO] STATE STREET RESEARCH
Government Income Fund
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[GRAPHIC]
Semiannual Report to Shareholders
April 30, 2003
In This Report
Investment Update
plus
A Review of Fund Performance,
Key Facts and Financial Statements
Contents
2 6-Month Review
A look at the fund and its market environment over the past 6 months
4 The Fund in Detail
Portfolio holdings, financials and notes
From the Chairman
Better Times
for the U.S. financial markets have raised hopes that the darkest period for
American investors in more than 30 years is coming to an end. Almost every major
U.S. stock and bond market index reported a gain for the six-month period ended
April 30, 2003, despite uncertainty about the U.S. economy and the outbreak of
war with Iraq. In the final month of the period, the economy also gave signs of
stabilizing as pockets of improvement emerged in the manufacturing sector.
[Photo of Richard S. Davis]
Richard S. Davis
In the report that follows, your portfolio management team talks in greater
detail about the fund's performance and management during the period. We hope
that you will discuss any questions you have about the fund with your financial
advisor. As always, thank you for investing with State Street Research.
Sincerely,
/s/ Richard S. Davis
Richard S. Davis, Chairman
April 30, 2003
[GRAPHIC]
6-Month Review
How State Street Research Government Income Fund Performed
In a generally volatile period for bonds, State Street Research Government
Income Fund returned 2.68% for the six months ended April 30, 2003.(1) The fund
slightly outperformed its peer group, the Lipper General U.S. Government Funds
Average, which returned 2.62%.(2) The Merrill Lynch Government Master Index
gained 3.02% for the period.(3)
Reasons for the Fund's Performance
As interest rates declined throughout the period in response to the mounting
threat of war, rising energy prices and a disappointing economy, our decision to
lengthen the fund's duration helped the fund's performance. Duration is a
measure of the fund's sensitivity to changing interest rates. Nevertheless, the
fund's shorter duration was a slight drag on relative performance.
The fund's relatively heavy weighting in higher-yielding mortgage-backed
securities also helped performance. However, a relatively light exposure to
agency securities kept the fund from fully participating in the gains of this
sector.
Looking Ahead
We expect the economy to pick up in the period ahead. However, we anticipate it
will remain below the economy's long-term trend as capital investment is not
likely to pick up until late 2003 or 2004.We also expect interest rates and
inflation to remain relatively low. To capitalize on this environment, we have
focused on intermediate- and long-term maturities. Should interest rates move
higher, we would selectively scale back our mortgage holdings. n
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.
Class A Shares(1)
2.68% [UP ARROW]
"Our decision to lengthen duration and to emphasize higher-yielding mortgage
securities helped performance."
The State Street Research Fixed Income Team
Merrill Lynch Government Master Index(3)
3.02% [UP ARROW]
2 State Street Research Government Income Fund
The Fund at a Glance as of 4/30/03
State Street Research Government Income Fund is a bond fund focusing on U.S.
government securities.
Hits & Misses
[GRAPHIC]
Mortgage-Backed Securities
As the spread between Treasury and mortgage-backed bond yields narrowed, the
fund's emphasis on the latter produced gains for the fund.
[GRAPHIC]
Agency Bonds
Our modestly lighter weight in agency debentures was a slight drag on
performance as the sector performed well.
Total Net Assets: $747 million
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Asset Allocation
[THE FOLLOWING DATA WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL]
U.S. Agency Mortgage 49%
U.S. Treasury 43%
Other Mortgage 6%
Cash 2%
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Total 100%
See page 7 for more detail.
Performance
Fund average annual total return as of 4/30/03 (4,6,7)
(does not reflect sales charge)
Share Class 1 Year 5 Years 10 Years
- ----------------------------------------------------
Class A 8.48% 6.55% 6.57%
Class B(1) 7.72% 5.72% 5.74%
Class B 7.76% 5.80% 5.78%
Class C 7.76% 5.79% 5.78%
Class R 8.43% 6.54% 6.57%
Class S 8.81% 6.85% 6.85%
Fund average annual total return as of 3/31/03 (4,5,6,7)
(at maximum applicable sales charge)
Share Class 1 Year 5 Years 10 Years
- ----------------------------------------------------
Class A 5.22% 5.56% 6.10%
Class B(1) 4.50% 5.40% 5.78%
Class B 4.45% 5.46% 5.81%
Class C 8.45% 5.78% 5.81%
Class S 10.60% 6.86% 6.87%
Bond Yields
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October 31, 2002, to April 30, 2003
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
90-Day U.S. 10-Year U.S. 30-Year U.S.
Treasury Treasury Treasury
Securities Securities Securities
10/02 1.45 3.89 4.99
11/02 1.22 4.21 5.04
12/02 1.2 3.82 4.78
1/03 1.17 3.96 4.84
2/03 1.2 3.69 4.67
3/03 1.11 3.8 4.82
4/03 1.11 3.84 4.77
Ticker Symbols
State Street Research Government Income Fund
Class A: SSGIX Class B(1): SGIPX Class B: SSGBX Class C: SGIDX Class R: SGIRX
Class S: SGISX
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(1) Does not reflect sales charge.
(2) The Lipper General U.S. Government Funds Average shows the performance of
a category of mutual funds with similar goals. The Lipper average shows
you how well the fund has done compared with competing funds.
(3) The Merrill Lynch Government Master Index is comprised of fixed-rate U.S.
Treasury and agency securities. The index is unmanaged and does not take
transaction charges into consideration. It is not possible to invest
directly in the index.
(4) 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 gains distributions and income dividends at net asset value.
Returns for Class B(1) reflect Class B performance through December 31,
1998. Class B(1) was introduced on January 1, 1999. The returns shown do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
(5) Performance reflects a maximum 4.5% Class A front end sales charge, or 5%
Class B or B(1) share or 1% Class C share contingent deferred sales
charge, where applicable.
(6) Class S shares, offered without sales charge, are only available to
certain employee benefit plans and through special programs.
(7) Class R shares, offered without sales charge, are only available through
retirement plans participating in certain platforms sponsored by
brokers/dealers. Returns for Class R reflect Class A performance through
April 2, 2003. Class R was introduced on April 3, 2003.
3
[GRAPHIC]
The Fund in Detail
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CHANGE IN INDEPENDENT ACCOUNTANTS
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 April 30, 2003.
During the two previous years, PricewaterhouseCoopers LLP's audited 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
to such years.
- --------------------------------------------------------------------------------
The following pages describe the fund in detail as of the date of this report.
They provide a "snapshot" of the fund's holdings at one moment in time (the
report date), describe the financial dimensions of its operations for the six
months leading up to the report date, and give a summary of operations on a
per-share basis. There's also an overview of the fund and its business
structure, as well as information on the accounting policies the fund uses in
arriving at the figures it presents here.
[GRAPHIC]
Together, the words and numbers in this section offer a comprehensive picture of
the fund and its recent activities. In fact, the text and notes on pages 5 to 18
are an integral part of the financial statements, which wouldn't be complete
without them.
For more information about the fund's strategies, risks and expenses, refer to
the fund's prospectus; you'll need to read it before making any investments. The
prospectus also has more details on the fund's share classes and its policies
for shareholder accounts. To obtain a copy of any State Street Research
prospectus, see the back cover of this report.
Keep in mind that in annual reports, the portfolio holdings and financial
statements are audited, while in semiannual reports they are unaudited.
4 State Street Research Government Income Fund
About the Fund
Business Structure
State Street Research Government Income Fund is a mutual fund. A mutual fund
allows shareholders to pool their assets for investment in a portfolio of
securities. This fund is a series of State Street Research Financial Trust, a
Massachusetts business trust, and is an open-end management investment company.
Four entities administer the fund's main business functions:
o The board of trustees oversees the fund with its shareholders' interests
in mind and has ultimate responsibility for the fund's activities.
o The investment manager, State Street Research & Management Company, is
responsible for the fund's investment and business activities, and
receives the management fee as compensation.
o The distributor, State Street Research Investment Services, Inc., sells
shares of the fund, handles investor inquiries and transaction orders, and
provides other shareholder services.
o The custodian, State Street Bank and Trust Company, holds fund securities,
provides data on their market value, and handles related services.
The investment manager and the distributor are subsidiaries of MetLife, Inc.
("MetLife"). State Street Bank and Trust Company is not affiliated with MetLife
(the similarity between its name and the names of the investment manager and
distributor is coincidental). A majority of the trustees consists of people who
are not affiliated with MetLife or any of its subsidiaries. The distributor pays
a portion of its fees to MetLife for services it provides, including maintaining
the accounts of some investors who hold shares through their firms' employee
benefit plans and other sponsored arrangements.
Goal and Strategy
The fund seeks to provide high current income. Under normal market conditions,
the fund invests at least 80% of its net assets in U.S. government securities.
Share Classes
The fund generally offers five share classes, each with its own sales charge and
expense structure.The fund also offers an additional class of shares (Class B),
but only to current Class B shareholders through reinvestment of dividends and
distributions or through exchanges from existing Class B accounts of other State
Street Research funds.
Class A shares are subject to an initial sales charge of up to 4.50% 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 both classes 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 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 the investment manager, 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. Class R shares are offered
to retirement plans participating in certain platforms sponsored by
broker/dealers, which may involve multiple fund families. Class R shares pay
annual service and distribution fees of 0.50%.
The text and notes are an integral part of the financial statements.
5
The Fund's Accounting Policies
In keeping with accounting principles generally accepted in the United States,
the fund has used the following policies in preparing the portfolio holdings and
financial statements in this report:
The fund values all portfolio securities as of the date of this report (or, if
that day wasn't a business day, the most recent business day).The fund uses the
following methods for determining the values of various types of securities:
o Fixed income securities - The fund uses a pricing service that the fund's
trustees have approved.
o Securities maturing within sixty days - The fund adjusts the value of
these securities daily, moving them closer to the amount due on maturity
as the maturity date approaches.
The fund accounts for each purchase and sale of portfolio securities on the
trade date. In calculating realized gains or losses, the fund takes as its cost
basis the identified cost of securities sold.
The fund records investment income from portfolio securities as follows:
o Interest - The fund accrues interest daily as it earns it.
Investment income and realized and unrealized gains and losses are allocated pro
rata on the basis of relative net assets by the holders of all classes of
shares. Net investment income is determined daily and consists of interest
earned, less the estimated daily expenses of the fund.
The fund may use forward foreign currency exchange contracts and future
contracts for hedging purposes, attempting to offset a potential loss in one
position by establishing an interest in an opposite position.The fund accounts
for forward contracts by recording their total principal in its accounts and
then marking them to market.The fund accounts for futures contracts by recording
the variation margin, which is the daily change in the value of the contract.
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 or losses. If the borrower
fails to return the securities and the collateral has declined in value, the
fund could lose money. The fund accounts for income from the lending of its
securities by including it in interest income. Investments in the State Street
Navigator Securities Lending Prime Portfolio are valued at its closing net asset
value per share on the day of valuation.
The fund distributes its net earnings to its shareholders.The fund calculates
these distributions using federal income tax regulations. As a result, they may
be different than if the fund used generally accepted accounting principles.The
difference is primarily due to differing treatments for market discount, paydown
gains and losses, wash sale deferrals and premium amortization.The fund
distributes its earnings on the following schedule:
o Dividends from net investment income - The fund declares dividends daily
and pays them monthly.
o Net realized capital gains - The fund distributes these annually, if any.
If the fund has no earnings to distribute, it won't make a distribution.
The fund has elected to be taxed under Subchapter M of the Internal Revenue
Code. As such, the fund does not intend to pay federal income taxes, in part
because it makes distributions as described above.
The fund pays expenses as follows:
o Expenses attributed to the fund - The fund pays these directly. Examples
of these expenses include the management fee, transfer agent fee,
custodian fee and distribution and service fees.
o Expenses attributed to the trust of which the fund is a series - These
expenses are divided up among all funds in the trust. Each fund pays a
proportional share. Examples of these expenses include the legal fees and
trustees' fees.
The fund has used certain estimates and assumptions in preparing this report.
Although they are necessary in order to follow generally accepted accounting
principles, these estimates and assumptions affect several key areas, including
the reported amounts of assets and liabilities,and income and expenses. Actual
results could differ from these estimates.
The text and notes are an integral part of the financial statements.
6 State Street Research Government Income Fund
Portfolio Holdings
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April 30, 2003 (unaudited)
The listings that begin on this page detail the fund's investment holdings as of
the report date.We have grouped the holdings by asset class and by smaller
subgroups as well.
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Notes about specific elements of the financials are called out in boxes such as
this.
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- --------------------------------------------------------------------------------
KEY TO SYMBOLS
* Denotes a 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.
** A portion of this security was pledged and segregated with the custodian
to cover margin requirements for futures contracts at April 30, 2003.
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Coupon Maturity Amount
Issuer Rate Date of Principal Value
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 92.0% of net assets
U.S. Treasury 43.3%
U.S. Treasury Bond ** 13.75% 8/15/2004 $23,950,000 $27,779,198
U.S. Treasury Bond 11.625% 11/15/2004 42,700,000 49,345,187
U.S. Treasury Bond 10.75% 8/15/2005 9,500,000 11,444,907
U.S. Treasury Bond 10.375% 11/15/2012 9,850,000 13,051,250
U.S. Treasury Bond 12.00% 8/15/2013 23,475,000 33,840,668
U.S. Treasury Bond 11.25% 2/15/2015 19,325,000 32,162,540
U.S. Treasury Bond 10.625% 8/15/2015 27,275,000 44,111,994
U.S. Treasury Bond 9.875% 11/15/2015 12,650,000 19,583,781
U.S. Treasury Bond 9.25% 2/15/2016 17,800,000 26,512,263
U.S. Treasury Bond 8.875% 2/15/2019 1,325,000 1,968,868
U.S. Treasury Bond 6.75% 8/15/2026 19,250,000 24,261,006
U.S. Treasury Bond 5.25% 11/15/2028 5,500,000 5,781,017
U.S. Treasury Bond 6.25% 5/15/2030 17,400,000 20,966,321
U.S. Treasury STRIP 0.00% 8/15/2025 40,325,000 12,593,901
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323,402,901
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The text and notes are an integral part of the financial statements.
7
Portfolio Holdings (continued)
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April 30, 2003
Coupon Maturity Amount
Issuer Rate Date of Principal Value
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Agency Mortgage 48.7%
ENSCO Offshore Co. 6.36% 12/01/2015 $3,011,691 $3,292,953
Federal Home Loan Mortgage Corp. 9.00% 12/01/2009 1,202,487 1,302,634
Federal Home Loan Mortgage Corp. 6.25% 3/05/2012 5,000,000 5,478,315
Federal Housing Administration Charles River Project 9.625% 12/01/2033 9,224,267 9,456,350
Federal Housing Administration East Bay Manor Project 10.00% 3/01/2033 6,603,745 6,603,745
Federal National Mortgage Association 6.00% 12/15/2005 4,675,000 5,162,032
Federal National Mortgage Association 5.50% 5/02/2006 9,350,000 10,178,326
Federal National Mortgage Association 6.625% 10/15/2007 14,450,000 16,705,963
Federal National Mortgage Association 8.00% 4/01/2008 899,225 963,570
Federal National Mortgage Association 8.00% 6/01/2008 1,326,204 1,440,214
Federal National Mortgage Association 8.50% 2/01/2009 1,778,978 1,938,331
Federal National Mortgage Association 9.00% 5/01/2009 1,532,762 1,673,531
Federal National Mortgage Association 7.125% 6/15/2010 33,400,000 40,406,151
Federal National Mortgage Association 6.02% 11/25/2010 3,600,000 4,062,215
Federal National Mortgage Association 6.50% 12/01/2014 3,698,557 3,921,253
Federal National Mortgage Association 9.00% 4/01/2016 411,650 453,876
Federal National Mortgage Association 6.50% 9/01/2016 3,288,324 3,484,588
Federal National Mortgage Association 6.50% 10/01/2016 4,087,296 4,331,247
Federal National Mortgage Association 7.00% 1/01/2017 3,747,526 4,002,906
Federal National Mortgage Association * 6.00% 5/19/2018 19,025,000 19,934,623
Federal National Mortgage Association * 5.50% 5/19/2018 9,300,000 9,669,099
Federal National Mortgage Association * 5.00% 6/17/2018 38,475,000 39,484,969
Federal National Mortgage Association 6.50% 12/01/2028 3,907,023 4,086,001
Federal National Mortgage Association 6.50% 5/01/2029 2,849,823 2,979,385
Federal National Mortgage Association 7.50% 7/01/2029 2,930,160 3,130,810
Federal National Mortgage Association 7.00% 4/01/2032 10,416,921 11,006,195
Federal National Mortgage Association * 7.00% 5/01/2032 6,533,917 6,903,567
Federal National Mortgage Association * 7.50% 5/14/2033 2,650,000 2,823,906
Federal National Mortgage Association * 6.50% 5/14/2033 40,075,000 41,865,872
Federal National Mortgage Association * 5.50% 5/14/2033 12,000,000 12,326,256
Federal National Mortgage Association * 6.00% 6/12/2033 38,625,000 40,085,488
Federal National Mortgage Association * 5.50% 6/12/2033 7,375,000 7,545,547
Government National Mortgage Association 9.50% 9/15/2009 605,681 672,666
Government National Mortgage Association 9.50% 10/15/2009 1,081,947 1,201,539
Government National Mortgage Association 9.50% 11/15/2009 511,556 568,132
Government National Mortgage Association 9.50% 11/15/2017 71,249 80,322
The text and notes are an integral part of the financial statements.
8 State Street Research Government Income Fund
Coupon Maturity Amount
Issuer Rate Date of Principal Value
- --------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association 9.50% 9/15/2019 $49,454 $55,807
Government National Mortgage Association 7.00% 5/15/2027 2,088,871 2,220,787
Government National Mortgage Association 7.00% 6/15/2028 1,646,969 1,749,920
Government National Mortgage Association 7.00% 11/15/2028 7,563,653 8,040,031
Government National Mortgage Association 6.50% 11/15/2028 4,680,976 4,931,796
Government National Mortgage Association 6.50% 9/15/2029 4,604,601 4,848,732
Government National Mortgage Association 7.50% 6/15/2031 2,841,098 3,032,767
Government National Mortgage Association * 7.00% 5/21/2033 1,875,000 1,988,085
U.S. Department of Veterans Affairs REMIC 1998-3C 6.50% 6/15/2021 7,500,000 7,702,570
-----------
363,793,072
-----------
Total U.S. Government Securities 687,195,973(1)
-----------
- --------------------------------------------------------------------------------
(1) The fund paid a total of $666,033,922 for these securities.
- --------------------------------------------------------------------------------
Other Investments 6.4% of net assets
Finance/Mortgage 6.4%
Bear Stearns Commercial Mortgage Securities Inc. 2000-2 Cl. A1 7.11% 10/15/2032 5,632,961 6,339,385
Chase Commercial Mortgage Securities Corp. 1998-2 Cl. A1 6.025% 11/18/2030 1,909,423 2,061,837
Chase Commercial Mortgage Securities Corp. 1998-2 Cl. A2 6.39% 11/18/2030 2,875,000 3,251,141
First Union Lehman Brothers Bank Series 1998-C2 Cl. A1 6.28% 11/18/2035 3,210,060 3,437,665
LB Commercial Conduit Mortgage Trust 1997-LL1 Cl. A1 6.79% 10/12/2034 2,152,802 2,245,576
LB Commercial Conduit Mortgage Trust 1999-C2 Cl. A1 7.105% 10/15/2032 3,153,161 3,479,376
LB-UBS Commercial Mortgage Trust 2001-C7 Cl. A4 5.93% 12/15/2025 3,450,000 3,825,641
Merrill Lynch Mortgage Investments Inc. Series 1997-C2 Cl. A1 6.46% 12/10/2029 1,454,556 1,491,641
Morgan Stanley Capital Inc. 1998-A1 6.19% 3/15/2030 966,843 1,020,740
Morgan Stanley Capital Inc. 1999-A1 5.91% 11/15/2031 3,119,309 3,351,956
Morgan Stanley Dean Witter Capital Inc. 2002 Cl. A1 5.38% 1/15/2039 5,143,321 5,502,059
Salomon Brothers Commercial Mortgage Trust 2001 Cl. A1 5.14% 12/18/2035 2,341,719 2,456,357
Salomon Brothers Commercial Mortgage Trust 2001 Cl. A2 6.23% 12/18/2035 4,850,000 5,404,818
Washington Mutual Mortgage Inc. 2003-A6 3.40% 5/25/2033 4,350,000 4,478,631
-----------
Total Other Investments 48,346,823(2)
-----------
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(2) The fund paid a total of $45,132,991 for these securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
9
Portfolio Holdings (continued)
- --------------------------------------------------------------------------------
April 30, 2002
Issuer Shares Value
- --------------------------------------------------------------------------------------------------------------------------------
Short-Term Investments 16.3% of net assets
State Street Navigator Securities Lending Prime Portfolio 121,775,454 $121,775,454
------------
Total Short-Term Investments 121,775,454(1)
------------
- --------------------------------------------------------------------------------
(1) The fund paid a total of $121,775,454 for this security.
- --------------------------------------------------------------------------------
Coupon Maturity Amount
Issuer Rate Date of Principal Value
- --------------------------------------------------------------------------------------------------------------------------------
Commercial Paper 23.7% of net assets
Federal Home Loan Bank 1.17% 5/16/2003 $42,980,000 42,959,047
Federal Home Loan Bank 1.16% 5/16/2003 34,475,000 34,458,337
Federal Home Loan Bank 1.17% 5/23/2003 8,065,000 8,059,258
Federal Home Loan Mortgage Corp. 1.16% 5/20/2003 62,510,000 62,471,730
Federal National Mortgage Association 1.16% 5/07/2003 18,940,000 18,936,338
Federal National Mortgage Association 1.18% 5/30/2003 10,000,000 9,990,495
-----------
Total Commercial Paper 176,875,205(2)
-----------
- --------------------------------------------------------------------------------
(2) The fund paid a total of $176,875,205 for these securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
10 State Street Research Government Income Fund
% of
Net Assets Value
- --------------------------------------------------------------------------------------------------------------------------------
Summary of Portfolio Assets
Total Investments 138.4% $1,034,193,455(1)
Cash and Other Assets, Less Liabilities (38.4%) (287,066,375)
----- --------------
Net Assets 100.0% $747,127,080
===== ==============
- --------------------------------------------------------------------------------
(1) The fund paid a total of $1,009,817,572 for these securities.
- --------------------------------------------------------------------------------
Futures contracts open at April 30, 2003 are as follows:
Unrealized
Number of Notional Expiration Appreciation
Type Contracts Cost Month (Depreciation)
- --------------------------------------------------------------------------------------------------------------------------------
5 Year U.S. Treasury Notes Long 165 $18,768,750 June, 2003 $48,200
2 Year U.S. Treasury Notes Short (225) ($48,578,906) June, 2003 (208,490)
10 Year U.S. Treasury Notes Short (28) ($3,223,500) June, 2003 (24,148)
---------
($184,438)
=========
Federal Income Tax Information
At April 30, 2003, the net unrealized appreciation of investments based on cost
for federal income tax purposes of $1,009,921,335 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost $34,474,232
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value (10,202,112)
-----------
$24,272,120
===========
At October 31, 2002, the fund had a capital loss carryforward of $18,840,593
available, to the extent provided in regulations, to offset future capital
gains, if any, of which $4,139,815, $5,115,196, $7,218,002 and $2,367,580
expires on October 31, 2004, 2007, 2008 and 2010, respectively.
The text and notes are an integral part of the financial statements.
11
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
April 30, 2003 (unaudited)
This is the fund's balance sheet as of the report date. It shows the fund's
total assets, its liabilities and, by subtraction, its net assets. It also shows
the share price for each share class as of the report date.
Assets
Investments, at value* $1,034,193,455(1)
--------------
Cash 124,242
Receivable for securities sold 32,348,375
Interest receivable 9,831,688
Receivable for fund shares sold 3,851,868
Other assets 57,680
--------------
1,080,407,308
Liabilities
Payable for securities purchased 207,555,062
Payable for collateral received on securities loaned 121,775,454
Payable for fund shares redeemed 1,708,841
Dividends payable 1,012,272
Accrued management fee 356,877
Accrued distribution and service fees 309,902
Accrued transfer agent and shareholder services 214,372
Payable for variation margin 42,120
Accrued trustees' fees 17,314
Accrued administration fee 5,593
Other accrued expenses 282,421
--------------
333,280,228
--------------
Net Assets $747,127,080
==============
Net Assets consist of:
Unrealized appreciation of investments $24,375,883
Unrealized depreciation of futures contracts (184,438)
Accumulated net realized loss (9,027,491)
Paid-in capital 731,963,126
--------------
$747,127,080(2)
==============
*Includes securities on loan valued at $154,863,651
- --------------------------------------------------------------------------------
(1) The fund paid a total of $1,009,817,572 for these securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) 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 / Number of Shares = NAV
A $496,496,326 38,108,239 $13.03*
B(1) $133,276,566 10,313,035 $12.92**
B $68,657,155 5,289,942 $12.98**
C $34,000,291 2,618,202 $12.99**
R $100,694 7,725 $13.03
S $14,596,048 1,120,993 $13.02
* Maximum offering price per share = $13.64 ($13.03 / 0.955)
** When you sell Class B(1), Class B and Class C shares, you receive the net
asset value minus deferred sales charge, if any.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
12 State Street Research Government Income Fund
Statement of Operations
For the six months ended April 30, 2003 (unaudited)
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
Interest $17,125,929(1)
Expenses
Management fee 2,166,040(2)
Transfer agent and shareholder services 665,988(3)
Custodian fee 106,790
Reports to shareholders 49,594
Administration fee 38,372(4)
Distribution and service fees - Class A 749,562(5)
Distribution and service fees - Class B(1) 629,311(5)
Distribution and service fees - Class B 353,017(5)
Distribution and service fees - Class C 159,893(5)
Distribution and service fees - Class R 39(5)
Registration fees 25,702
Audit fee 21,720
Trustees' fees 11,222(6)
Miscellaneous 13,576
-----------
4,990,826
Fees paid indirectly (5,160)(7)
-----------
4,985,666
-----------
Net investment income 12,140,263
-----------
Realized and Unrealized Gain (Loss) on
Investments and Futures Contracts
Net realized gain on investments 10,451,726(8)
Net realized loss on futures contracts (3,694,429)
-----------
Total net realized gain 6,757,297
-----------
Change in unrealized depreciation
of investments (22,984,576)
Change in unrealized appreciation of
futures contracts 2,975,130
-----------
Total change in unrealized depreciation (20,009,446)
-----------
Net loss on investments and futures contracts (13,252,149)
-----------
Net decrease in net assets resulting
from operations ($1,111,886)
===========
- --------------------------------------------------------------------------------
(1) Includes $64,876 in income from the lending of portfolio securities. As of
the report date, the fund had a total of $154,863,651 of securities out on loan
and was holding a total of $156,597,177 in collateral (including $121,775,454 of
cash collateral invested in State Street Navigator Securities Lending Prime
Portfolio and $34,821,723 of U.S. government obligations) related to those
loans.
- --------------------------------------------------------------------------------
(2) The management fee is 0.60% of the first $500 million of fund assets,
annually, 0.55% of the next $500 million, and 0.50% of any amount over $1
billion.
- --------------------------------------------------------------------------------
(3) Includes a total of $430,057 paid to the distributor and MetLife for
services provided, including maintaining the accounts of some investors who hold
shares through the firm's employee benefit plans and other sponsored
arrangements. Total shareholder service costs are allocated to each fund in the
same ratios as the transfer agent costs.
- --------------------------------------------------------------------------------
(4) Payments made to the investment manager for certain administrative costs
incurred in providing other assistance and services to the fund. The fee is
based on a fixed amount that has been allocated equally among State Street
Research funds.
- --------------------------------------------------------------------------------
(5) Payments made to the distributor under the fund's 12b-1 plans. The fees
cover personal services and the maintenance of shareholder accounts.The fees
also cover distribution and marketing expenditures for the sale of fund shares.
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 April 30, 2003, there were
$4,627,251, $1,405,280, and $2,031,613 for Class A, Class B, and Class C,
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.
- --------------------------------------------------------------------------------
(6) Paid only to trustees who aren't currently affiliated with the adviser (the
fund doesn't pay trustees' fees to affiliated trustees).
- --------------------------------------------------------------------------------
(7) Represents transfer agent credits earned from uninvested cash balances.
- --------------------------------------------------------------------------------
(8) To earn this, the fund sold $942,937,020 worth of securities. During this
same period, the fund also bought $943,950,669 worth of securities. These
figures don't include short-term obligations.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
13
Statement of Changes in Net Assets
This shows how the fund's size changed over the report period, including changes
that resulted from investment performance as well as those that resulted from
shareholders buying and selling fund shares.
Six months ended
April 30, 2003 Year ended
(unaudited) October 31, 2002
- --------------------------------------------------------------------------------
Increase (Decrease) In Net Assets
Operations:
Net investment income $12,140,263 $28,062,570
Net realized gain on
investments and futures
contracts 6,757,297 1,640,605
Change in unrealized
appreciation (depreciation) of
investments and futures
contracts (20,009,446) 5,399,531
-------------------------------
Net increase (decrease)
resulting from operations (1,111,886) 35,102,706
-------------------------------
Dividends from net investment income:
Class A (11,808,479) (28,363,714)
Class B(1) (2,540,276) (4,308,285)
Class B (1,416,768) (3,518,701)
Class C (646,318) (1,205,766)
Class R (308) --
Class S (363,333) (785,008)
-------------------------------
(16,775,482) (38,181,474)
-------------------------------
Net increase (decrease)
from fund share transactions (33,727,999)(1) 90,606,612
-------------------------------
Total increase (decrease) in
net assets (51,615,367) 87,527,844
Net Assets
Beginning of period 798,742,447 711,214,603
-------------------------------
End of period $747,127,080 $798,742,447
===============================
The text and notes are an integral part of the financial statements.
14 State Street Research Government Income Fund
These transactions break down by share class as follows:
Six months ended
April 30, 2003 Year ended
(unaudited) October 31, 2002
--------------------------------------------------------------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 10,160,956 $131,939,578* 24,095,020 $307,041,292
Issued upon reinvestment of dividends
from net investment income 585,032 7,605,192 1,402,351 17,888,808
Shares redeemed (15,456,036) (185,075,929) (22,047,118) (281,385,832)
---------------------------------------------------------------------------
Net increase (decrease) (4,710,048) ($45,531,159) 3,450,253 $43,544,268
===========================================================================
Class B(1) Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 2,111,481 $27,209,549 ** 5,136,173 $65,240,581
Issued upon reinvestment of dividends
from net investment income 165,732 2,137,780 281,462 3,562,378
Shares redeemed (1,336,086) (15,042,422)*** (1,842,428) (23,300,463)
---------------------------------------------------------------------------
Net increase 941,127 $14,304,907 3,575,207 $45,502,496
===========================================================================
Class B Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 491,403 $6,366,607 1,658,273 $21,198,889
Issued upon reinvestment of dividends
from net investment income 82,074 1,062,869 202,472 2,572,159
Shares redeemed (1,060,590) (12,388,565)*** (2,454,077) (31,137,088)
---------------------------------------------------------------------------
Net decrease (487,113) ($4,959,089) (593,332) ($7,366,040)
===========================================================================
Class C Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 720,041 $9,335,146 ** 1,588,076 $20,316,949
Issued upon reinvestment of dividends
from net investment income 34,713 449,908 56,278 716,983
Shares redeemed (580,143) (6,936,462)**** (1,081,045) (13,754,403)
---------------------------------------------------------------------------
Net increase 174,611 $2,848,592 563,309 $7,279,529
===========================================================================
Class R Shares+ Amount+ Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 7,725 $100,120 -- --
---------------------------------------------------------------------------
Net increase 7,725 $100,120 -- --
===========================================================================
Class S Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Shares sold 323,308 $4,202,846 1,184,505 $15,190,577
Issued upon reinvestment of dividends
from net investment income 24,402 317,165 47,334 602,841
Shares redeemed (408,154) (5,011,381) (1,105,121) (14,147,059)
---------------------------------------------------------------------------
Net increase (decrease) (60,444) ($491,370) 126,718 $1,646,359
===========================================================================
The trustees have the authority to issue an unlimited number of fund
shares, with a $0.001 par value per share. At April 30, 2003, the Adviser
held 7,716 Class R shares.
* Sales charges collected by the distributor and MetLife were $65,605 and
$389,201, respectively.
** Like all broker/dealers, MetLife received commissions that were calculated
as a percentage of these sales but the commissions of $533,611 and $11,448
for Class B(1) and Class C, respectively, were paid by the distributor,
not the fund.
*** Includes $218,731 and $20,028 in deferred sales charges collected by the
distributor for Class B(1) and Class B, respectively. **** Includes $6,207
in deferred sales charges collected by the distributor.
+ April 3, 2003 (commencement of share class) to April 30, 2003
The text and notes are an integral part of the financial statements.
15
Financial Highlights
- --------------------------------------------------------------------------------
These provide a summary of each share class's financial performance.
Class A
-------------------------------------------------------------------------
Six months ended Years ended October 31
April 30, 2003 --------------------------------------------------------
Per-Share Data (unaudited)(a) 2002(a)(e) 2001(a) 2000(a) 1999(a) 1998(a)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 12.99 13.08 12.19 12.21 13.07 12.65
------- ------- ------- ------- ------- -------
Net investment income ($) 0.22 0.51 0.74 0.75 0.74 0.78
Net realized and unrealized gain (loss) on
investments and futures contracts ($) 0.12 0.09 0.88 0.00 (0.85) 0.43
------- ------- ------- ------- ------- -------
Total from investment operations ($) 0.34 0.60 1.62 0.75 (0.11) 1.21
------- ------- ------- ------- ------- -------
Dividends from net investment income ($) (0.30) (0.69) (0.73) (0.77) (0.75) (0.79)
------- ------- ------- ------- ------- -------
Total distributions ($) (0.30) (0.69) (0.73) (0.77) (0.75) (0.79)
------- ------- ------- ------- ------- -------
Net asset value, end of period ($) 13.03 12.99 13.08 12.19 12.21 13.07
======= ======= ======= ======= ======= =======
Total return % (b) 2.68(c) 4.82 13.66 6.41 (0.84) 9.85
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 496,496 556,251 514,750 474,054 480,643 518,651
Expense ratio (%) 1.14(d) 1.17 1.23 1.13 1.05 1.09
Expense ratio after expense reductions (%) 1.13(d) 1.16 1.22 1.13 1.04 1.09
Ratio of net investment income to average
net assets (%) 3.48(d) 4.02 5.87 6.21 5.86 6.11
Portfolio turnover rate (%) 127.32 175.05 134.55 148.88 213.70 160.89
Class B(1)
------------------------------------------------------------------------------
January 1, 1999
Six months ended Years ended October 31 (commencement of
April 30, 2003 -------------------------------------- share class) to
Per-Share Data (unaudited)(a) 2002(a)(e) 2001(a) 2000(a) October 31, 1999(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 12.89 12.98 12.11 12.14 12.97
------- ------- ------ ------ ------
Net investment income ($) 0.18 0.41 0.64 0.65 0.52
Net realized and unrealized gain (loss)
on investments and futures contracts ($) 0.11 0.10 0.87 0.01 (0.82)
------- ------- ------ ------ ------
Total from investment operations ($) 0.29 0.51 1.51 0.66 (0.30)
------- ------- ------ ------ ------
Dividends from net investment income ($) (0.26) (0.60) (0.64) (0.69) (0.53)
------- ------- ------ ------ ------
Total distributions ($) (0.26) (0.60) (0.64) (0.69) (0.53)
------- ------- ------ ------ ------
Net asset value, end of period ($) 12.92 12.89 12.98 12.11 12.14
======= ======= ====== ====== ======
Total return % (b) 2.27(c) 4.14 12.80 5.60 (2.31)(c)
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 133,277 120,766 75,219 34,533 24,250
Expense ratio (%) 1.84(d) 1.87 1.93 1.85 1.80(d)
Expense ratio after expense reductions (%) 1.83(d) 1.86 1.92 1.85 1.79(d)
Ratio of net investment income to average
net assets (%) 2.77(d) 3.29 5.12 5.44 5.01(d)
Portfolio turnover rate (%) 127.32 175.05 134.55 148.88 213.70
The text and notes are an integral part of the financial statements.
16 State Street Research Government Income Fund
Class B
-------------------------------------------------------------------------
Six months ended Years ended October 31
April 30, 2003 --------------------------------------------------------
Per-Share Data (unaudited)(a) 2002(a)(e) 2001(a) 2000(a) 1999(a) 1998(a)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 12.94 13.02 12.15 12.17 13.03 12.61
------ ------ ------ ------ ------- -------
Net investment income ($) 0.18 0.43 0.65 0.65 0.64 0.68
Net realized and unrealized gain (loss)
on investments and futures contracts ($) 0.12 0.09 0.86 0.02 (0.84) 0.43
------ ------ ------ ------ ------- -------
Total from investment operations ($) 0.30 0.52 1.51 0.67 (0.20) 1.11
------ ------ ------ ------ ------- -------
Dividends from net investment income ($) (0.26) (0.60) (0.64) (0.69) (0.66) (0.69)
------ ------ ------ ------ ------- -------
Total distributions ($) (0.26) (0.60) (0.64) (0.69) (0.66) (0.69)
------ ------ ------ ------ ------- -------
Net asset value, end of period ($) 12.98 12.94 13.02 12.15 12.17 13.03
====== ====== ====== ====== ======= =======
Total return % (b) 2.33(c) 4.20 12.75 5.67 (1.58) 9.07
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 68,657 74,747 82,963 84,327 106,902 129,976
Expense ratio (%) 1.84(d) 1.87 1.93 1.85 1.80 1.84
Expense ratio after expense reductions (%) 1.83(d) 1.86 1.92 1.85 1.79 1.84
Ratio of net investment income to average
net assets (%) 2.78(d) 3.34 5.20 5.49 5.12 5.33
Portfolio turnover rate (%) 127.32 175.05 134.55 148.88 213.70 160.89
Class C
-------------------------------------------------------------------------
Six months ended Years ended October 31
April 30, 2003 --------------------------------------------------------
Per-Share Data (unaudited)(a) 2002(a)(e) 2001(a) 2000(a) 1999(a) 1998(a)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 12.95 13.03 12.16 12.18 13.04 12.62
------ ------ ------ ------ ------ ------
Net investment income ($) 0.18 0.42 0.65 0.66 0.64 0.67
Net realized and unrealized gain (loss)
on investments and futures contracts ($) 0.12 0.10 0.86 0.01 (0.84) 0.44
------ ------ ------ ------ ------ ------
Total from investment operations ($) 0.30 0.52 1.51 0.67 (0.20) 1.11
------ ------ ------ ------ ------ ------
Dividends from net investment income ($) (0.26) (0.60) (0.64) (0.69) (0.66) (0.69)
------ ------ ------ ------ ------ ------
Total distributions ($) (0.26) (0.60) (0.64) (0.69) (0.66) (0.69)
------ ------ ------ ------ ------ ------
Net asset value, end of period ($) 12.99 12.95 13.03 12.16 12.18 13.04
====== ====== ====== ====== ====== ======
Total return % (b) 2.33(c) 4.19 12.74 5.66 (1.58) 9.06
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 34,000 31,641 24,507 19,512 25,818 27,659
Expense ratio (%) 1.84(d) 1.87 1.93 1.85 1.80 1.84
Expense ratio after expense reductions (%) 1.83(d) 1.86 1.92 1.85 1.79 1.84
Ratio of net investment income to average
net assets (%) 2.77(d) 3.30 5.17 5.50 5.11 5.28
Portfolio turnover rate (%) 127.32 175.05 134.55 148.88 213.70 160.89
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) Not annualized
(d) Annualized
(e) Effective November 1, 2001, the fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium on all fixed income securities. The effect of this change for the
year ended October 31, 2002, was to decrease net investment income per
share by $0.16, increase net realized and unrealized gain per share by
$0.16, and decrease the ratio of net investment income to average net
assets by 1.24%. The financial highlights for periods prior to November 1,
2001, have not been restated for this change in policy.
The text and notes are an integral part of the financial statements.
17
Financial Highlights (continued)
Class R
----------------
April 3, 2003
(commencement of
share class) to
April 30, 2003
Per-Share Data (unaudited)(a)
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 12.96
------
Net investment income ($) 0.03
Net realized and unrealized gain on investments and
futures contracts ($) 0.08
------
Total from investment operations ($) 0.11
------
Dividend from net investment income ($) (0.04)
------
Total distributions ($) (0.04)
------
Net asset value, end of period ($) 13.03
======
Total return (%) (b) 2.63(c)
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 101
Expense ratio (%) 1.34(d)
Expense ratio after expense reductions (%) 1.33(d)
Ratio of net investment income to average net assets (%) 2.97(d)
Portfolio turnover rate (%) 127.32
Class S
------------------------------------------------------------------------
Six months ended Years ended October 31
April 30, 2003 ------------------------------------------------------
Per-Share Data (unaudited)(a) 2002(a)(e) 2001(a) 2000(a) 1999(a) 1998(a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 12.98 13.06 12.18 12.20 13.06 12.64
------ ------ ------ ------ ------ ------
Net realized and unrealized gain (loss) on investments
and futures contracts ($) 0.11 0.10 0.87 0.01 (0.83) 0.43
------ ------ ------ ------ ------ ------
Total from investment operations ($) 0.35 0.65 1.65 0.79 (0.08) 1.24
------ ------ ------ ------ ------ ------
Dividends from net investment income ($) (0.31) (0.73) (0.77) (0.81) (0.78) (0.82)
------ ------ ------ ------ ------ ------
Total distributions ($) (0.31) (0.73) (0.77) (0.81) (0.78) (0.82)
------ ------ ------ ------ ------ ------
Net asset value, end of period ($) 13.02 12.98 13.06 12.18 12.20 13.06
====== ====== ====== ====== ====== ======
Total return (%) (b) 2.83(c) 5.22 13.93 6.71 (0.60) 10.13
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 14,596 15,338 13,775 13,418 187,373 31,468
Expense ratio (%) 0.84(d) 0.87 0.93 0.85 0.80 0.84
Expense ratio after expense reductions (%) 0.83(d) 0.86 0.92 0.85 0.79 0.84
Ratio of net investment income to average net assets (%) 3.75(d) 4.33 6.18 6.39 5.94 6.38
Portfolio turnover rate (%) 127.32 175.05 134.55 148.88 213.70 160.89
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) Not annualized
(d) Annualized
(e) Effective November 1, 2001, the fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium on all fixed income securities. The effect of this change for the
year ended October 31, 2002, was to decrease net investment income per
share by $0.16, increase net realized and unrealized gain per share by
$0.16, and decrease the ratio of net investment income to average net
assets by 1.24%. The financial highlights for periods prior to November 1,
2001, have not been restated for this change in policy.
The text and notes are an integral part of the financial statements.
18 State Street Research Government Income Fund
State Street Research Financial Trust
Term
of Office Number of Funds Other
Position(s) and Length in Fund Complex Directorships
Name, Address Held with of Time Principal Occupations During Overseen by Held by
and Age (a) Fund Served (b) Past 5 Years Trustee/Officer(c) Trustee/Officer
====================================================================================================================================
Independent Trustees
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Since 1999 Retired; formerly Chairman of 19 Ceridian Corporation
(57) the Board, Chief Executive
Officer and President,
PictureTel Corporation (video
conferencing systems)
- ------------------------------------------------------------------------------------------------------------------------------------
Steve A. Trustee Since 1997 Retired; formerly Senior Vice 54 Metropolitan Series Fund,
Garban President for Finance and Inc.(d)
(65) Operations and Treasurer, The
Pennsylvania State University
- ------------------------------------------------------------------------------------------------------------------------------------
Dean O. Trustee Since 1987 Retired; formerly Executive 54 The Clorox Company;
Morton Vice President, Chief KLA-Tencor Corporation; BEA
(71) Operating Officer and Systems, Inc.; Cepheid;
Director, Hewlett-Packard Pharsight Corporation; and
Company (computer Metropolitan Series Fund,
manufacturer) Inc.(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Susan M. Trustee Since 1998 Dean, School of Business and 19 None
Phillips Public Management, George
(58) 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 Trustee Since 1993 President, Founders 54 A.P. Pharma, Inc.; and
Rosenblatt Investments Ltd. Metropolitan Series Fund,
(64) (investments); formerly Inc.(d)
President, The Glen Ellen
Company (private investment
firm)
- ------------------------------------------------------------------------------------------------------------------------------------
Michael S. Trustee Since 1987 Jay W. Forrester Professor of 54 Metropolitan Series
Scott Morton Management, Sloan School of Fund, Inc.(d)
(65) Management, Massachusetts
Institute of Technology
- ------------------------------------------------------------------------------------------------------------------------------------
James M. Trustee Since 2002 Attorney; formerly Partner, 19 SEI Investments Funds
Storey Dechert (law firm) (consisting of 104
(72) portfolios); and The
Massachusetts Health &
Education Tax-Exempt
Trust
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Richard S. Trustee Since 2000 Chairman of the Board, 19 None
Davis++ President and Chief Executive
(57) Officer of State Street
Research & Management
Company; formerly Senior Vice
President, Fixed Income
Investments, Metropolitan
Life Insurance Company
====================================================================================================================================
Officers
- ------------------------------------------------------------------------------------------------------------------------------------
John R. Vice Since 2002 Managing Director of State 2 None
Borzilleri, President (previously Street Research & Management
MD (44) served from Company; formerly Senior Vice
1999 to 2001) President, Vice President and
equity analyst, State Street
Research & Management Company
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Bray Vice Since 2003 Managing Director of State 4 None
(41) President Street Research & Management
Company; formerly Senior Vice
President, State Street
Research & Management Company
- ------------------------------------------------------------------------------------------------------------------------------------
C. Kim Vice Since 2002 Managing Director and Chief 18 None
Goodwin (44) President Investment Officer-Equities
of State Street Research &
Management Company; formerly
Chief Investment Officer-U.S.
Growth Equities, American
Century; and Senior Vice
President and portfolio
manager, Putnam Investments
- ------------------------------------------------------------------------------------------------------------------------------------
John S. Vice Since 2001 Managing Director, Chief 19 None
Lombardo President Financial Officer and
(48) 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
- ------------------------------------------------------------------------------------------------------------------------------------
Dan R. Vice Since 2002 Managing Director of State 11 None
Strelow President Street Research & Management
(44) Company; formerly Executive
Vice President and Senior
Vice President, State Street
Research & Management Company
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas A. Treasurer Since 2001 Senior Vice President and 19 None
Romich Treasurer of State Street
(46) Research & Management
Company; formerly Vice
President and Assistant
Treasurer, State Street
Research & Management Company
- ------------------------------------------------------------------------------------------------------------------------------------
Francis J. Secretary Since 1995 Managing Director, General 19 None
McNamara, III Counsel and Secretary of
(47) State Street Research &
Management Company; formerly
Executive Vice President,
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. The primary adviser to
Metropolitan Series Fund, Inc. is MetLife Advisers, LLC, which has
retained State Street Research & Management Company as sub-adviser to
certain series of Metropolitan Series Fund, Inc.
(d) Serves as Director of Metropolitan Series Fund, Inc., an investment
company comprising 36 separate portfolios.
++ 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.
19
[LOGO] STATE STREET RESEARCH --------------
One Financial Center o Boston, MA 02111-2690 PRSRT STD
U.S. POSTAGE
PAID
PERMIT #6
HUDSON, MA
--------------
Contact Information for
INVESTOR SERVICES
- --------------------------------------------------------------------------------
New accounts, mutual fund purchases, exchanges and account information
[INTERNET] Internet
www.ssrfunds.com
[COMPUTER] E-mail
info@ssrfunds.com
[PHONE] Phone
1-87-SSR-FUNDS (1-877-773-8637), toll-free, 7 days a week,
24 hours a day
Hearing-impaired: 1-800-676-7876
Chinese- and Spanish-speaking: 1-888-638-3193
[FAX] Fax
1-617-737-9722 (request confirmation number first from the
Service Center by calling 1-877-773-8637)
[MAILBOX] Mail
State Street Research Service Center
P.O. Box 8408, Boston, MA 02266-8408
For 24-Hour
Automated Access
to Your Account
Toll-Free
[PHONE] 1-87-SSR-FUNDS
----------------
(1-877-773-8637)
www.ssrfunds.com
OverView
- --------------------------------------------------------------------------------
For more information on the products and services mentioned in OverView, our
shareholder newsletter, visit our web site at www.ssrfunds.com.
Webcasts
- --------------------------------------------------------------------------------
[GRAPHIC] For a professional perspective on the markets, the economy and
timely investment topics, tune in to a State Street Research
web cast.
Complete Fund Listing
- --------------------------------------------------------------------------------
[GRAPHIC] For a list of our funds, visit our web site at
www.ssrfunds.com under Research Our Funds.
State Street Research
FYI
- --------------------------------------------------------------------------------
[COMPUTER] State Street Research offers electronic delivery of quarterly
statements, shareholder reports and fund prospectuses. If you
elect this option, we will send these materials to you via
e-mail. To learn more, visit us on the web at www.ssrfunds.com
and click on "Go to Your Account" or call us toll-free at
1-87-SSR-FUNDS (1-877-773-8637).
Did you know that you can give a State Street Research mutual
fund as a gift? To learn more, call a service center
representative at 1-87-SSR-FUNDS (1-877-773-8637), Monday
through Friday, 8am-6pm eastern time.
[GRAPHIC] The DALBAR awards recognize quality shareholder service and
for Excellence quality shareholder communications, and should not be
in Service considered a rating of fund performance. The survey included
mutual fund complexes that volunteered or were otherwise
[GRAPHIC] selected to participate and was not industrywide.
for Excellence
in Shareholder
Communications
- --------------------------------------------------------------------------------
This report must be accompanied or preceded by a current State Street Research
Government Income Fund prospectus. When used as sales material after June 30,
2003, this report must be accompanied by a current Quarterly Performance Update.
To obtain a prospectus for any State Street Research fund, call 1-87-SSR-FUNDS
(1-877-773-8637). The prospectus contains more complete information, including
sales charges and expenses. Please read the prospectus carefully before
investing or sending money.
(C)2003 State Street Research Investment Services, Inc.,
One Financial Center, Boston, MA 02111-2690
Member NASD, SIPC
CONTROL NUMBER:(exp0604)SSR-LD GI-1893-0603
[LOGO] STATE STREET RESEARCH
International Equity Fund
- --------------------------------------------------------------------------------
[GRAPHIC]
Semiannual Report to Shareholders
April 30, 2003
In This Report
Investment Update
plus
A Review of Fund Performance
Key Facts and Financial Statements
The Fund in Detail
The following pages describe the fund in detail as of the date of this report.
They provide a "snapshot" of the fund's holdings at one moment in time (the
report date), describe the financial dimensions of its operations for the six
months leading up to the report date, and give a summary of operations on a
per-share basis for the past five fiscal years. There's also an overview of the
fund and its business structure, as well as information on the accounting
policies the fund uses in arriving at the figures it presents here.
[GRAPHIC]
Together, the words and numbers in this section offer a comprehensive picture of
the fund and its recent activities. In fact, the text and notes on pages 3 to 14
are an integral part of the financial statements, which wouldn't be complete
without them.
For more information about the fund's strategies, risks and expenses, refer to
the fund's prospectus; you'll need to read it before making any investments. The
prospectus also has more details on the fund's share classes and its policies
for shareholder accounts. To obtain a copy of any State Street Research
prospectus, see the back cover of this report.
Keep in mind that in annual reports, the portfolio holdings and financial
statements are audited, while in semiannual reports they are unaudited.
2 State Street Research International Equity Fund
About the Fund
- --------------------------------------------------------------------------------
Business Structure
State Street Research International Equity Fund is a mutual fund. A mutual fund
allows shareholders to pool their assets for investment in a portfolio of
securities. This fund is a series of State Street Research Financial Trust, a
Massachusetts business trust, and is an open-end management investment company.
Four entities administer the fund's main business functions:
o The board of trustees oversees the fund with its shareholders'
interests in mind and has ultimate responsibility for the fund's
activities.
o The investment manager, Quantitative Investment Advisors, Inc., is
responsible for the fund's investment and business activities, and
receives the management fee as compensation.
o The distributor, U.S. Boston Capital Corporation, sells shares of
the fund. At the time of this report, State Street Research
Investment Services, Inc., formerly the distributor, handled
investor inquiries and transaction orders, and provided other
shareholder services.
o The custodian at the time of this report, State Street Bank and
Trust Company, holds fund securities, provides data on their market
value, and handles related services.
State Street Research Investment Services, Inc., is a subsidiary of MetLife,
Inc. ("MetLife"). State Street Bank and Trust Company is not affiliated with
MetLife (the similarity between its name and the name of the former distributor
is coincidental). A majority of the trustees consists of people who are not
affiliated with MetLife or any of its subsidiaries. The distributor pays a
portion of its fees to MetLife for services it provides, including maintaining
the accounts of some investors who hold shares through their firms' employee
benefit plans and other sponsored arrangements.
At a Special Meeting of Shareholders on April 25, 2003, shareholders of the fund
approved an Agreement and Plan of Reorganization providing for the acquisition
of all of the assets and liabilities of the fund by the Quant Foreign Value
Fund.
On May 2, 2003, the Quant Foreign Value Fund acquired the assets and liabilities
of the fund in exchange for shares of each class of the Quant Foreign Value
Fund. The acquisition was accounted for as a tax-free exchange of 2,926,596
shares of the Quant Foreign Value Fund for the 1,873,326 Class A shares, 624,641
Class B(1) shares, 699,468 Class B shares, 148,276 Class C shares, respectively,
and 691,037 Institutional shares of the Quant Foreign Value Fund for the 752,288
Class S shares of the fund, outstanding on May 2, 2003. The net assets of the
fund and Quant Foreign Value Fund immediately before the acquisition were
$31,369,125 and $33,802,582, respectively. The fund's unrealized depreciation of
$329,247 was combined with that of the Quant Foreign Value Fund. Immediately
after the acquisition, the combined net assets were $65,171,707.
Goal and Strategy
The fund seeks to provide long-term growth of capital by investing primarily in
common stocks and equity-related securities of non-U.S. companies.
Share Classes
The fund generally offers four share classes, each with its own sales charge and
expense structure.The fund also offers an additional class of shares (Class B)
but only to current Class B shareholders through reinvestment of dividends and
distributions or through exchanges from existing Class B accounts of other State
Street Research funds.
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 both classes 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 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 the investment manager 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 text and notes are an integral part of the financial statements.
3
The Fund's Accounting Policies
- --------------------------------------------------------------------------------
In keeping with accounting principles generally accepted in the United States,
the fund has used the following policies in preparing the portfolio holdings and
financial statements in this report:
The fund values all portfolio securities as of the date of this report (or, if
that day wasn't a business day, then the most recent business day). The fund
uses the following methods for determining the values of various types of
securities:
o Listed securities - The fund uses the price of the last sale on a
national securities exchange that was quoted before the close of the
New York Stock Exchange.
o Over-the-counter securities - The fund uses the closing prices
quoted on the Nasdaq system. If a security hasn't traded that day,
or if it is not quoted on the Nasdaq system, the value is set at
halfway between the closing bid and asked quotations.
o Securities maturing within sixty days - The fund adjusts the value
of these securities daily, moving them closer to the amount due on
maturity as the maturity date approaches.
o Other securities - The fund prices these securities at fair value
under procedures established and supervised by the trustees.
o Foreign securities - 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 those securities, then
they are valued at their fair value taking this trading or these
events into account.
Securities quoted in foreign currencies are translated into U.S. dollars at the
current exchange rate. 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.
The fund accounts for each purchase and sale of portfolio securities on the
trade date. In calculating realized gains or losses, the fund takes as its cost
basis the identified cost of securities sold.
The fund records investment income from portfolio securities as follows:
o Interest - The fund accrues interest daily as it earns it.
o Cash dividends - The fund accrues these on the ex-dividend date.
Investment income and realized and unrealized gains and losses are allocated pro
rata on the basis of relative net assets by the holders of all classes of
shares. Net investment income is determined daily and consists of interest and
dividends earned, less the estimated daily expenses of the fund.
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 or losses. If the borrower
fails to return the securities and the collateral has declined in value, the
fund could lose money. The fund accounts for income from the lending of its
securities by including it in interest income. Investments in the State Street
Navigator Securities Lending Prime Portfolio are valued at its closing net asset
value per share on the day of valuation.
The fund distributes its net earnings to its shareholders. The fund calculates
these distributions using federal income tax regulations. As a result, they may
be different than if the fund used accounting principles generally accepted in
the United States.The difference is primarily due to differing treatments for
foreign currency transactions and wash sale deferrals.The fund distributes its
earnings on the following schedule:
o Dividends from net investment income - The fund ordinarily declares
and pays these annually, if any.
o Net realized capital gains - The fund distributes these annually, if
any.
If the fund has no earnings to distribute, it won't make a distribution.
The fund has elected to be taxed under Subchapter M of the Internal Revenue
Code. As such, the fund does not intend to pay federal income taxes, in part
because it makes distributions as described above.
The fund pays expenses as follows:
o Expenses attributed to the fund - The fund pays these directly.
Examples of these expenses include the management fee, transfer
agent fee, custodian fee and distribution and service fees.
o Expenses attributed to the trust of which the fund is a series -
These expenses are divided up among all funds in the trust. Each
fund pays a proportional share. Examples of these expenses include
the legal fees and trustees' fees.
The fund has used certain estimates and assumptions in preparing this report.
Although they are necessary in order to follow generally accepted accounting
principles, these estimates and assumptions affect several key areas, including
the reported amounts of assets and liabilities and income and expenses. Actual
results could differ from these estimates.
4 State Street Research International Equity Fund
Portfolio Holdings
- --------------------------------------------------------------------------------
April 30, 2003 (unaudited)
The listings that begin on this page detail the fund's investment holdings as of
the report date.We have grouped the holdings by asset class and by smaller
subgroups as well. For example, we have grouped this fund's stocks by country of
incorporation.
The solid black circles (1) show the fund's ten largest holdings, with the
number in the circle showing where the holding ranks in the top ten.
- --------------------------------------------------------------------------------
Notes about specific elements of the financials are called out in boxes such as
this.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY TO SYMBOLS
* Denotes a security which has not paid a dividend during the last year.
@ Denotes an American Depositary Receipt, a form of ownership of foreign
securities that is traded in the United States and denominated in U.S.
dollars.
- --------------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------------------------------------
Common Stocks 107.0% of net assets
Australia 3.8%
Broken Hill Proprietary Co. 219,000 $1,239,825
----------
Croatia 2.4%
Pliva DD @ 56,000 770,000
----------
Finland 4.6%
Huhtamaki Oy 56,200 600,096
YIT YHTYMA 50,000 894,480
----------
1,494,576
----------
France 17.7%
(8) Carrefour SA 35,000 1,525,033
Renault SA 17,000 736,549
CNP Assurances SA 19,000 765,205
(10)Groupe Danone 9,700 1,375,219
Peugeot SA 28,000 1,313,008
----------
5,715,014
----------
Germany 2.9%
Continental AG 53,000 949,927
----------
Hong Kong 12.8%
(6) Cathay Pacific Airways Ltd. 1,345,000 1,621,095
(1) CNOOC Ltd. 1,915,100 2,516,944
----------
4,138,039
----------
Italy 3.7%
ENI SpA @ 17,000 1,207,850
----------
Japan 12.7%
(5)Denso Corp. 129,000 1,841,619
Nikon Corp. 800 5,341
(3)Takeda Chemical Industries Ltd. 61,000 2,238,579
----------
4,085,539
----------
Netherlands 3.6%
Heineken NV 31,000 1,153,175
----------
Norway 3.4%
Norsk Hydro ASA 25,600 1,083,590
----------
Spain 4.5%
(9)Repsol YPF SA @ 100,000 1,455,000
----------
Sweden 9.6%
ASSA ABLOY AB 101,800 973,367
(4)Autoliv Inc.@ 86,900 2,126,332
----------
3,099,699
----------
The text and notes are an integral part of the financial statements.
5
Portfolio Holdings (continued)
- -----------------------------------------------------------------------------
April 30, 2003
Issuer Shares Value
--------------------------------------------------------------------------
United Kingdom 25.3%
Anglo American PLC 51,800 $ 742,396
Barratt Developments PLC 200,000 1,337,224
(2)British Sky Broadcasting PLC* 234,000 2,427,301
FKI PLC 800,000 950,132
(7)GlaxoSmithKline PLC 79,400 1,592,633
WPP Group PLC 150,000 1,068,299
-----------
8,117,985
-----------
Total Common Stocks 34,510,219(a)
-----------
--------------------------------------------------------------
(a) The fund paid a total of $35,087,606 for these securities.
--------------------------------------------------------------
Equity-Related Securities
3.6% of net assets
Samsung Electronics Ltd. Pfd. 9,500 1,165,021
-----------
Total Equity-Related Securities 1,165,021(b)
-----------
-------------------------------------------------------------
(b) The fund paid a total of $125,965 for this security.
-------------------------------------------------------------
Issuer Shares Value
--------------------------------------------------------------------------
Short-Term Investments
5.8% of net assets
State Street Navigator Securities
Lending Prime Portfolio 1,871,051 $1,871,051
-----------
Total Short-Term Investments 1,871,051(c)
-----------
-------------------------------------------------------------
(c) The fund paid a total of $1,871,051 for this security.
-------------------------------------------------------------
Principal
Amount
- -----------------------------------------------------------------------------
Commercial Paper 45.2% of net assets
American Express Credit Corp.,
1.18% 5/01/2003 $7,303,000 7,303,000
Prudential Funding Corp.,
1.17% 5/01/2003 7,285,000 7,285,000
-----------
Total Commercial Paper 14,588,000(d)
-----------
--------------------------------------------------------------
(d) The fund paid a total of $14,588,000 for these securities.
--------------------------------------------------------------
The text and notes are an integral part of the financial statements.
6 State Street Research International Equity Fund
% of
Issuer Net Assets Value
- --------------------------------------------------------------------------------
Summary of Portfolio Assets
Total Investments 161.6% $52,134,291(e)
Cash and Other Assets,
Less Liabilities (61.6%) (19,871,547)
----- -----------
Net Assets 100.0% 32,262,744
===== ===========
- ---------------------------------------------------------------
(e) The fund paid a total of $51,672,622 for these securities.
- ---------------------------------------------------------------
Federal Income Tax Information
At April 30, 2003, the net unrealized
appreciation of investments based on cost
for federal income tax purposes of $51,889,810
was as follows:
Aggregate gross unrealized appreciation
for all investments in which there is an
excess of value over tax cost $2,767,349
Aggregate gross unrealized depreciation
for all investments in which there is an
excess of tax cost over value (2,522,868)
-----------
$244,481
===========
At October 31, 2002, the fund had a capital loss carryforward of $7,121,135
available, to the extent provided in regulations, to offset future capital
gains, if any, of which $2,624,608 and $4,496,527 expires on October 31, 2009
and 2010, respectively.
The text and notes are an integral part of the financial statements.
7
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
April 30, 2003 (unaudited)
This is the fund's balance sheet as of the report date. It shows the fund's
total assets, its liabilities and, by subtraction, its net assets. It also shows
the share price for each share class as of the report date.
Assets
Investments, at value* $52,134,291(a)
Cash 370
Receivable for fund shares sold 343,988
Receivable from distributor 73,709
Interest and dividends receivable 72,867
Foreign tax receivable 12,405
Other assets 41,306
-----------
52,678,936
Liabilities
Payable for fund shares redeemed 18,296,608
Payable for collateral received on securities loaned 1,871,051
Accrued transfer agent and shareholder services 83,686
Accrued management fee 33,614
Accrued distribution and service fees 23,278
Accrued trustees' fees 12,141
Accrued administration fee 4,372
Other accrued expenses 91,442
-----------
20,416,192
-----------
Net Assets $32,262,744
===========
Net Assets consist of:
Unrealized appreciation of investments $461,669
Unrealized appreciation of foreign currency 3,090
Accumulated net realized loss (9,333,833)
Paid-in capital 41,131,818
-----------
$32,262,744(b)
===========
*Includes securities on loan valued at $1,823,524.
- ---------------------------------------------------------------
(a) The fund paid a total of $51,672,622 for these securities.
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) 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 / Number of Shares = NAV
A $15,471,157 2,001,449 $7.73*
B(1) $4,578,820 631,538 $7.25**
B $5,129,907 707,423 $7.25**
C $1,098,246 150,952 $7.28**
S $5,984,614 755,417 $7.92
* Maximum offering price per share = $8.20 ($7.73 / 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 text and notes are an integral part of the financial statements.
8 State Street Research International Equity Fund
Statement of Operations
- --------------------------------------------------------------------------------
For the six months ended April 30, 2003 (unaudited)
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
Dividends, net of foreign taxes $294,740(a)
Interest 33,919(b)
-----------
328,659
Expenses
Management fee 200,163(c)
Transfer agent and shareholder services 169,859(d)
Custodian fee 54,665
Legal fees 37,214
Administration fee 36,937(e)
Distribution and service fees - Class A 34,555(f)
Distribution and service fees - Class B(1) 27,104(f)
Distribution and service fees - Class B 29,305(f)
Distribution and service fees - Class C 6,071(f)
Registration fees 23,397
Audit fee 13,530
Reports to shareholders 8,637
Trustees' fees 1,043(g)
Miscellaneous 10,300
-----------
652,780
Expenses borne by the distributor (210,234)(h)
Fees paid indirectly (2,165)(i)
-----------
440,381
-----------
Net investment loss (111,722)
-----------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Net realized loss on investments (1,982,333)(j)
Net realized loss on foreign currency (13,177)
-----------
Total net realized loss (1,995,510)
-----------
Change in unrealized appreciation
of investments 2,972,866
Change in unrealized appreciation
of foreign currency 2,054
-----------
Total change in unrealized appreciation 2,974,920
-----------
Net gain on investments and foreign currency 979,410
-----------
Net increase in net assets resulting
from operations $867,688
===========
- --------------------------------------------------------------------------------
(a) The fund paid foreign taxes of $43,687.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) Includes $20,740 in income from the lending of portfolio securities. As of
the report date, the fund had a total of $1,823,524 of securities out on
loan and was holding a total of $1,871,051 in collateral (consisting
entirely of cash collateral invested in State Street Navigator Securities
Lending Prime Portfolio) related to those loans.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(c) The management fee is 0.95% of fund net assets, annually.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(d) Includes a total of $78,448 paid to the former distributor and MetLife for
services provided, including maintaining the accounts of some investors who
hold shares through the firm's employee benefit plans and other sponsored
arrangements. Total shareholder service costs are allocated to each fund in
the same ratio as the transfer agent costs.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(e) Payments made for certain administrative costs incurred in providing other
assistance and services to the fund. The fee is based on a fixed amount that
has been allocated equally among State Street Research funds.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(f) Payments made under the fund's 12b-1 plans. The fees cover personal services
and the maintenance of shareholder accounts.The fees also cover distribution
and marketing expenditures for the sale of fund shares. 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 April 30, 2003, there were $2,359,630,
$1,033,418, and $1,201,524 for Class A, Class B, and Class C, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(g) Paid only to trustees who aren't currently affiliated with State Street
Research & Management Company, the former adviser (the fund doesn't pay
trustees' fees to affiliated trustees).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(h) Represents the share of expenses that the fund's former distributor and its
affiliates paid voluntarily.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(i) Represents transfer agent credits earned from uninvested cash balances.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(j) The fund sold $23,618,461 worth of securities. During this same period, the
fund also bought $8,553,707 worth of securities. These figures don't include
short-term obligations or U.S. government securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
9
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
This shows how the fund's size changed over the report period, including changes
that resulted from investment performance as well as those that resulted from
shareholders buying and selling fund shares.
Six months ended
April 30,
2003 Year ended
(unaudited) October 31, 2002
- --------------------------------------------------------------------------------
Increase (Decrease) In Net Assets
Operations:
Net investment loss ($111,722) ($259,488)
Net realized loss on investments
and foreign currency (1,995,510) (4,228,508)
Change in unrealized appreciation
(depreciation) of investments
and foreign currency 2,974,920 (3,332,263)
------------------------------
Net increase (decrease) resulting
from operations 867,688 (7,820,259)
------------------------------
Net decrease from fund share
transactions (16,956,039)(a) (10,864,866)
------------------------------
Total decrease in net assets (16,088,351) (18,685,125)
Net Assets
Beginning of period 48,351,095 67,036,220
------------------------------
End of period $32,262,744 $48,351,095
==============================
The text and notes are an integral part of the financial statements.
10 State Street Research International Equity Fund
- --------------------------------------------------------------------------------
(a) These transactions break down by share class as follows:
Six months ended
April 30, 2003 Year ended
(unaudited) October 31, 2002
---------------------------------------------------------------------
Class A Shares Amount Shares Amount
====================================================================================================
Shares sold 23,438,851 178,159,761* 25,077,688 238,300,420
Shares redeemed (24,528,137) (188,321,07) (25,489,225) (243,916,404)
---------------------------------------------------------------------
Net decrease (1,089,286) (10,161,310) (411,537) ($5,615,984)
=====================================================================
Class B(1) Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
Shares sold 22,307 $167,015** 286,296 2,497,183
Shares redeemed (293,314) (2,183,339)*** (175,451) (1,527,749)
---------------------------------------------------------------------
Net increase (decrease) (271,007) (2,016,324) 110,845 $969,434
=====================================================================
Class B Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
Shares sold 3,106 22,441 40,231 $367,910
Shares redeemed (219,524) (1,610,015)*** (575,222) (5,132,292)
---------------------------------------------------------------------
Net decrease (216,418) (1,587,574) (534,991) ($4,764,382)
=====================================================================
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
Shares sold 32,275 240,419 668,400 5,644,771
Shares redeemed (79,813) (597,872)**** (707,085) (6,051,053)
---------------------------------------------------------------------
Net decrease (47,538) ($357,453) (38,685) ($406,282)
=====================================================================
Class S Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
Shares sold 254,206 2,098,304 893,010 8,230,661
Shares redeemed (596,146) (4,931,68) (984,036) (9,278,313)
---------------------------------------------------------------------
Net decrease (341,940) (2,833,378) (91,026) ($1,047,652)
=====================================================================
The trustees have the authority to issue an unlimited number of fund
shares, with a $0.001 par value per share.
* Sales charges collected by the former distributor and MetLife were
$111,342 and $7,218, respectively.
** Like all broker/dealers, MetLife received commissions that were calculated
as a percentage of these sales but the commissions of $2,764 for Class
B(1) were paid by the distributor, not the fund.
*** Includes $12,248 and $1,243 in deferred sales charges collected by the
former distributor for Class B(1) and Class B, respectively.
**** Includes $318 in deferred sales charges collected by the former
distributor.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
11
Financial Highlights
- --------------------------------------------------------------------------------
These provide a summary of each share class's financial performance.
Class A
=============================================================================
Six months ended Years ended October 31
April 30, 2003 -----------------------------------------------------------
Per-Share Data (unaudited)(a) 2002 (a) 2001 (a) 2000 (a) 1999 (a) 1998 (a)
===================================================================================================================================
Net asset value, beginning of period ($) 7.91 9.48 14.19 12.85 10.31 9.42
------ ------ ------ ------ ------ ------
Net investment loss ($)* (0.01) (0.02) (0.06) (0.06) (0.06) (0.01)
Net realized and unrealized gain (loss)
on investments and foreign currency($) (0.17) (1.55) (3.86) 1.85 2.81 0.90
------ ------ ------ ------ ------ ------
Total from investment operations ($) (0.18) 1.57 (3.92) 1.79 2.75 0.89
------ ------ ------ ------ ------ ------
Dividend from net investment income ($) -- -- -- -- (0.21) --
Distributions from capital gains ($) -- -- (0.79) (0.45) -- --
------ ------ ------ ------ ------ ------
Total distributions ($) -- -- (0.79) (0.45) (0.21) --
------ ------ ------ ------ ------ ------
Net asset value, end of period ($) 7.73 7.91 9.48 14.19 12.85 10.31
====== ====== ====== ====== ====== ======
Total return (%) (b) (2.28)(c) (16.56) (29.01) 13.80 27.02 9.45
Ratios/Supplemental Data
===================================================================================================================================
Net assets at end of period ($ thousands) 15,471 24,433 33,189 44,084 22,667 15,104
Expense ratio (%)* 1.96(d) 1.98 1.99 1.93 1.92 1.90
Expense ratio after expense reductions (%)* 1.95(d) 1.95 1.95 1.93 1.90 1.90
Ratio of net investment loss to average net assets (%)* (0.34)(d) (0.24) (0.56) (0.35) (0.54) (0.20)
Portfolio turnover rate (%) 24.08 144.36 199.08 77.61 78.04 116.28
*Reflects voluntary reduction of expenses of
these amounts (%) 0.99(d) 0.60 0.33 0.24 0.42 0.75
Class B(1)
======================================================================
January 1, 1999
Six months ended Years ended October 31 (commencement of
April 30, 2003 ------------------------------- share class) to
Per-Share Data (unaudited)(a) 2002(a) 2001(a) 2000(a) October 31, 1999(a)
===========================================================================================================================
Net asset value, beginning of period ($) 7.43 8.98 13.59 12.42 10.63
----- ----- ----- ----- -----
Net investment loss ($)* (0.04) (0.08) (0.14) (0.16) (0.11)
Net realized and unrealized gain
(loss) on investments
and foreign currency ($) (0.14) (1.47) (3.68) 1.78 1.90
----- ----- ----- ----- -----
Total from investment operations ($) (0.18) (1.55) (3.82) 1.62 1.79
----- ----- ----- ----- -----
Distributions from capital gains ($) -- -- (0.79) (0.45) --
----- ----- ----- ----- -----
Total distributions ($) -- -- (0.79) (0.45) --
----- ----- ----- ----- -----
Net asset value, end of period ($) 7.25 7.43 8.98 13.59 12.42
===== ====== ====== ===== =====
Total return (%) (b) (2.42)(c) (17.26) (29.59) 12.89 16.84(c)
Ratios/Supplemental Data
===========================================================================================================================
Net assets at end of period ($ thousands) 4,579 6,707 7,110 7,887 2,433
Expense ratio (%)* 2.66(d) 2.68 2.69 2.65 2.67(d)
Expense ratio after expense reductions (%)* 2.65(d) 2.65 2.65 2.65 2.65(d)
Ratio of net investment loss to average net assets (%)* (1.13)(d) (0.91) (1.25) (1.02) (1.29)(d)
Portfolio turnover rate (%) 24.08 144.36 199.08 77.61 78.04
*Reflects voluntary reduction of expenses of
these amounts (%) 1.01(d) 0.56 0.33 0.24 0.42(d)
The text and notes are an integral part of the financial statements.
12 State Street Research International Equity Fund
Class B
=============================================================================
Six months ended Years ended October 31
April 30, 2003 -----------------------------------------------------------
Per-Share Data (unaudited)(a) 2002 (a) 2001 (a) 2000 (a) 1999 (a) 1998 (a)
===================================================================================================================================
Net asset value, beginning of period ($) 7.43 8.98 13.59 12.42 9.95 9.16
----- ----- ------ ------ ------ ------
Net investment loss ($)* (0.04) (0.08) (0.15) (0.17) (0.14) (0.05)
Net realized and unrealized gain
(loss) on investments
and foreign currency ($) (0.14) (1.47) (3.67) 1.79 2.73 0.84
----- ----- ------ ------ ------ ------
Total from investment operations ($) (0.18) (1.55) (3.82) 1.62 2.59 0.79
----- ----- ------ ------ ------ ------
Dividend from net investment income ($) -- -- -- -- (0.12) --
Distributions from capital gains ($) -- -- (0.79) (0.45) -- --
----- ----- ------ ------ ------ ------
Total distributions ($) -- -- (0.79) (0.45) (0.12) --
----- ----- ------ ------ ------ ------
Net asset value, end of period ($) 7.25 7.43 8.98 13.59 12.42 9.95
===== ====== ====== ====== ====== ======
Total return (%) (b) (2.42)(c) (17.26) (29.64) 12.97 26.30 8.62
Ratios/Supplemental Data
===================================================================================================================================
Net assets at end of period ($ thousands) 5,130 6,866 13,106 22,366 19,865 21,117
Expense ratio (%)* 2.66(d) 2.68 2.69 2.65 2.67 2.65
Expense ratio after expense reductions (%)* 2.65(d) 2.65 2.65 2.65 2.65 2.65
Ratio of net investment loss to average net assets (%)* (1.09)(d) (0.93) (1.36) (1.09) (1.28) (0.88)
Portfolio turnover rate (%) 24.08 144.36 199.08 77.61 78.04 116.28
*Reflects voluntary reduction of expenses of
these amounts (%) 1.02(d) 0.65 0.33 0.24 0.42 0.75
Class C
=============================================================================
Six months ended Years ended October 31
April 30, 2003 -----------------------------------------------------------
Per-Share Data (unaudited)(a) 2002 (a) 2001 (a) 2000 (a) 1999 (a) 1998 (a)
===================================================================================================================================
Net asset value, beginning of period ($) 7.46 9.02 13.62 12.44 9.95 9.16
----- ----- ----- ----- ----- -----
Net investment loss ($)* (0.04) (0.08) (0.14) (0.16) (0.14) (0.05)
Net realized and unrealized gain
(loss) on investments
and foreign currency ($) (0.14) (1.48) (3.67) 1.79 2.73 0.84
----- ----- ----- ----- ----- -----
Total from investment operations ($) (0.18) (1.56) (3.81) 1.63 2.59 0.79
----- ----- ----- ----- ----- -----
Dividend from net investment income ($) -- -- -- -- (0.10) --
Distributions from capital gains ($) -- -- (0.79) (0.45) -- --
----- ----- ----- ----- ----- -----
Total distributions ($) -- -- (0.79) (0.45) (0.10) --
----- ----- ----- ----- ----- -----
Net asset value, end of period ($) 7.28 7.46 9.02 13.62 12.44 9.95
===== ====== ====== ===== ===== ====
Total return (%) (b) (2.41)(c) (17.29) (29.49) 13.03 26.17 8.62
Ratios/Supplemental Data
===================================================================================================================================
Net assets at end of period ($ thousands) 1,098 1,480 2,139 3,518 2,339 1,706
Expense ratio (%)* 2.66(d) 2.68 2.69 2.65 2.67 2.65
Expense ratio after expense reductions (%)* 2.65(d) 2.65 2.65 2.65 2.65 2.65
Ratio of net investment loss to average net assets (%)* (1.11)(d) (0.95) (1.24) (1.04) (1.29) (0.90)
Portfolio turnover rate (%) 24.08 144.36 199.08 77.61 78.04 116.28
*Reflects voluntary reduction of expenses of
these amounts (%) 1.01(d) 0.61 0.33 0.24 0.42 0.75
(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 former distributor and its affiliates had not
voluntarily reduced a portion of the fund's expenses.
(c) Not annualized
(d) Annualized
The text and notes are an integral part of the financial statements.
13
Financial Highlights (continued)
- --------------------------------------------------------------------------------
Class S
=============================================================================
Six months ended Years ended October 31
April 30, 2003 -----------------------------------------------------------
Per-Share Data (unaudited)(a) 2002 (a) 2001 (a) 2000 (a) 1999 (a) 1998 (a)
===================================================================================================================================
Net asset value, beginning of period ($) 8.08 9.67 14.43 13.03 10.44 9.51
----- ----- ------ ------ ------ ------
Net investment income (loss) ($)* (0.00) 0.01 (0.04) (0.01) (0.03) 0.00
Net realized and unrealized gain (loss) on investments
and foreign currency ($) (0.16) (1.60) (3.93) 1.86 2.85 0.93
----- ----- ------ ------ ------ ------
Total from investment operations ($) (0.16) (1.59) (3.97) 1.85 2.82 0.93
----- ----- ------ ------ ------ ------
Dividend from net investment income ($) -- -- -- -- (0.23) --
Distributions from capital gains ($) -- -- (0.79) (0.45) -- --
----- ----- ------ ------ ------ ------
Total distributions ($) -- -- (0.79) (0.45) (0.23) --
----- ----- ------ ------ ------ ------
Net asset value, end of period ($) 7.92 8.08 9.67 14.43 13.03 10.44
===== ====== ====== ====== ====== ======
Total return (%) (b) (1.98)(c) (16.44) (28.92) 14.16 27.48 9.78
Ratios/Supplemental Data
=================================================================================================================================
Net assets at end of period ($ thousands) 5,985 8,866 11,493 17,037 13,595 13,615
Expense ratio (%)* 1.66(d) 1.68 1.69 1.65 1.67 1.65
Expense ratio after expense reductions (%)* 1.65(d) 1.65 1.65 1.65 1.65 1.65
Ratio of net investment income (loss)
to average net assets (%)* (0.10)(d) 0.07 (0.32) (0.08) (0.28) 0.06
Portfolio turnover rate (%) 24.08 144.36 199.08 77.61 78.04 116.28
*Reflects voluntary reduction of expenses of
these amounts (%) 1.01(d) 0.59 0.33 0.24 0.42 0.75
(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 former distributor and its affiliates had not
voluntarily reduced a portion of the fund's expenses.
(c) Not annualized
(d) Annualized
The text and notes are an integral part of the financial statements.
14 State Street Research International Equity Fund
State Street Research International Equity Fund
- --------------------------------------------------------------------------------
Report on Special Meeting of Shareholders
A Special Meeting of Shareholders of the State Street Research International
Equity Fund (the "Fund"), a series of State Street Research Financial Trust, was
convened on April 25, 2003 ("Meeting"). The results of the Meeting are set forth
below.
Votes (millions of shares)
---------------------------
Action on Proposal For Against Abstain
- ----------------------------------------------------------------------------------------------------
For All Classes of International Equity Fund
To approve an Agreement and Plan of
Reorganization between State Street Research
Financial Trust on behalf of State Street Research
International Equity Fund and Quantitative Group
of Funds on behalf of the Quant Foreign Value Fund 2.0 0.1 0.4
To approve the Interim Advisory Agreement
between Quantitative Investment Advisors, Inc., and
State Street Research Financial Trust on behalf of
State Street Research International Equity Fund 2.0 0.1 0.4
To approve the Interim Sub-Advisory Agreement
between Quantitative Investment Advisors, Inc.,
and Polaris Capital Management, Inc. 2.0 0.1 0.4
The text and notes are an integral part of the financial statements.
15
-------------
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