-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QSB6zJF6gyRyqi0rRlVblwvv0NB202ADgcAKpE1iEKzM3dQaS33JeN1iptm9stUY BJKPBgtssvT6/jO1Bf2Png== 0001047469-04-022328.txt : 20040701 0001047469-04-022328.hdr.sgml : 20040701 20040701152805 ACCESSION NUMBER: 0001047469-04-022328 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20040701 EFFECTIVENESS DATE: 20040701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STATE STREET RESEARCH FINANCIAL TRUST CENTRAL INDEX KEY: 0000806390 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04911 FILM NUMBER: 04895094 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CTR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6173571340 MAIL ADDRESS: STREET 1: STATE STREET RESEARCH FINANCIAL TRUST STREET 2: ONE FINACIAL CTR CITY: BOSTON STATE: MA ZIP: 02111 FORMER COMPANY: FORMER CONFORMED NAME: METLIFE STATE STREET FINANCIAL TRUST DATE OF NAME CHANGE: 19931228 FORMER COMPANY: FORMER CONFORMED NAME: METLIFE STATE STREET FIXED INCOME TRUST DATE OF NAME CHANGE: 19920703 N-CSRS 1 a2138667zn-csrs.txt N-CSRS 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 ---------------------------------------------- State Street Research Financial Trust ------------------------------------------------------------------------ (Exact name of registrant as specified in charter) One Financial Center, Boston, MA 02111 ------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Terrence J. Cullen, Senior Vice President and Counsel State Street Research One Financial Center, Boston, MA 02111 ------------------------------------------------------------------------ (Name and address of agent for service) Registrant's telephone number, including area code: 617-357-1200 ------------------ Date of fiscal year end: 10/31/04 ----------------- Date of reporting period: 11/1/03 - 4/30/04 ---------------------------- 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 Semi-annual Report is attached. [LOGO] STATE STREET RESEARCH Government Income Fund April 30, 2004 Semiannual Report to Shareholders Table of Contents 3 Performance Discussion 4 Portfolio Holdings 6 Financial Statements 10 Financial Highlights 13 Trustees and Officers FROM THE CHAIRMAN State Street Research After putting on a spectacular show of strength in the second quarter of 2003, the U.S. economy settled down to a slower, but nevertheless solid, pace of growth during the six-month period from November 1, 2003, to April 30, 2004. Gross Domestic Product (GDP), a common measure of economic growth, rose 4.1% in the fourth quarter of 2003 and 4.2% for the first quarter of 2004. Consumer confidence was generally strong throughout the period as a combination of accelerated tax cuts and tax rebates fueled higher disposable income for most working Americans. The housing market was strong, and consumer spending continued to rise. Better yet, business spending began to recover after a long period of stagnation. Corporate profits staged a solid rebound, making it easier for companies to increase outlays, especially on information technology and electronic equipment. The economic news was slightly less upbeat as the first quarter of 2004 began. Durable goods orders declined and the number of new jobs added to the labor market in January and February fell short of expectations. Consumer confidence slipped in March. However, strong job growth in March and April suggested that the economic recovery was on solid ground. The period ended with the expectation that the Federal Reserve Board would likely raise short-term interest rates sooner rather than later in the year. Stock and Bond Markets Moved Higher The stock market moved sharply higher through early February as economic growth firmed up and corporate profits rose 20% or more for the reporting period, as reported by Thomson First Call. However, a host of worries stopped the major indexes in their tracks in the final six weeks of the period. Investors grew more cautious about interest rates, the threat of terrorist attacks and corporate profit comparisons going forward. High-yield bonds continued to rally, delivering returns that exceeded those of the broad stock market. However, they also stalled along with the stock market late in the period. Most other segments of the bond market reported low single-digit returns. Mortgage bonds bounced back as prepayment activity slowed. Investment-grade and municipal bonds earned solid but modest returns. Government bonds were the period's weakest performers; they were hurt the most when interest rates rose late in the period. Looking Ahead The recent bear and bull cycles serve as a reminder that markets can be unpredictable, which underscores the importance of having an asset allocation plan in place. If you have a plan in place, stay with it, invest regularly and talk to your investment professional before you make a significant move outside your plan. As always, we look forward to helping you achieve your long-term financial goals with State Street Research Funds. Sincerely, /s/ RICHARD S. DAVIS Richard S. Davis Chairman April 30, 2004 2 - ----------- PERFORMANCE - ----------- Discussion as of April 30, 2004 How State Street Research Government Income Fund Performed State Street Research Government Income Fund returned 0.29% for the six-month period ended April 30, 2004.(1) The fund trailed both the Merrill Lynch Government Master Index, which returned 0.80%, and the Lipper General U.S. Government Funds Average, which returned 0.56% over the same period.(2) Reasons for the Fund's Performance Interest rates remained volatile over the six-month reporting period. From November 2003 through March 2004, as employment growth appeared to be weak, interest rates gradually fell. However, interest rates spiked dramatically higher as improved payroll data was reported for both March and April. In this environment, the fund's decision to underweight government agency issues detracted from its return because agency bonds performed better than Treasuries. The fund's exposure to mortgage-backed securities (MBS) benefited performance during the first five months of the period. However, much of this gain was offset in April as the mortgage sector underperformed Treasuries amid sharply rising interest rates. The fund's investment in commercial mortgage-backed securities (CMBS) helped performance as the sector beat Treasuries. Security selection among CMBS was also a positive factor. The fund's shorter-than-benchmark duration was a slight positive for the six-month period. Initially, the fund's shorter duration hampered returns as interest rates fell. However, these losses were more than offset when interest rates rose in April. Duration is a measure of interest-rate sensitivity. Our decision to shorten duration in anticipation of higher interest rates proved favorable when interest rates did move higher over the period. Looking Ahead The fixed income markets have signaled that they expect inflation to move higher and the Federal Reserve Board to respond with higher short-term interest rates. With that in mind, we plan to maintain the fund's shorter-than-benchmark duration in order to reduce interest-rate risk. We also expect to stay underweight in government agencies, which we believe could suffer from potential legislative changes and headline risks. In April, we began adding to our stake in mortgages, which look more attractive on a risk/return basis after the recent rise in interest rates. We also plan to maintain the fund's modest exposure to CMBS, paying close attention to the credit risk of specific issues because the prospects for commercial real estate are less certain. A Word about Risk The major risks of bond investing include the tendency for bond prices to fall when interest rates rise. Although the U.S. government ensures the timely payment of principal and interest on certain underlying securities, the value of fund shares is not guaranteed and will fluctuate. Asset Allocation - -------------------------------------------------------------------------------- Issuer/Security % of Fund Net Assets - -------------------------------------------------------------------------------- U.S. Treasury 46% - -------------------------------------------------------------------------------- U.S. Agency Mortgage 45% - -------------------------------------------------------------------------------- Other Mortgage 7% - -------------------------------------------------------------------------------- Foreign 1% - -------------------------------------------------------------------------------- Cash 1% - -------------------------------------------------------------------------------- Total 100% - -------------------------------------------------------------------------------- Interest Rates - -------------------------------------------------------------------------------- (November 1, 2003 to April 30, 2004) [DATA BELOW IS REPRESENTED BY A LINE CHART IN THE ORIGINAL REPORT] 90-Day 90-day 10-year 30-year 30-year Date Commercial Treasury Treasury Treasury Mortgage 10/31/2003 1.10 0.93 4.29 5.13 5.94 11/28/2003 1.08 0.91 4.33 5.13 5.93 12/31/2003 1.07 0.90 4.25 5.07 5.88 01/30/2004 1.03 0.89 4.13 4.96 5.71 02/27/2004 1.03 0.92 3.97 4.84 5.64 03/31/2004 1.02 0.92 3.83 4.77 5.45 04/30/2004 1.08 0.94 4.51 5.28 6.01 Performance - -------------------------------------------------------------------------------- Fund average annual total return as of 4/30/04(3,5,6) (does not reflect sales charge) 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Class A -0.41% 5.14% 6.33% - -------------------------------------------------------------------------------- Class B(1) -1.11% 4.35% 5.51% - -------------------------------------------------------------------------------- Class B -1.11% 4.40% 5.55% - -------------------------------------------------------------------------------- Class C -1.11% 4.41% 5.56% - -------------------------------------------------------------------------------- Class R -0.61% 5.09% 6.30% - -------------------------------------------------------------------------------- Class S -0.11% 5.45% 6.61% - -------------------------------------------------------------------------------- Fund average annual total return as of 3/31/04(3,4,5,6) (at maximum applicable sales charge) 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Class A -1.62% 4.86% 6.06% - -------------------------------------------------------------------------------- Class B(1) -2.69% 4.71% 5.74% - -------------------------------------------------------------------------------- Class B -2.63% 4.76% 5.78% - -------------------------------------------------------------------------------- Class C 1.32% 5.10% 5.78% - -------------------------------------------------------------------------------- Class R 2.78% 5.78% 6.53% - -------------------------------------------------------------------------------- Class S 3.25% 6.14% 6.84% - -------------------------------------------------------------------------------- Because financial markets and mutual fund strategies are constantly evolving, it is possible that the fund's holdings, market stance, outlook for various industries or securities and other matters discussed in this report have changed since this information was prepared. Portfolio changes should not be considered recommendations for action by individual investors. (1) Class A shares; does not reflect sales charge. (2) The 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 an index. 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) Keep in mind that the performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted herein. For the most recent month-end performance results, visit our website at www.ssrfunds.com. The fund's share price, yield and return will fluctuate, and you may have a gain or loss when you sell your shares. All returns assume reinvestment of capital gains distributions and income dividends at net asset value. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. (4) Performance reflects a maximum 4.50% Class A share front-end sales charge, or a 5% Class B or Class B(1), or 1% Class C share contingent deferred sales charge, where applicable. (5) Performance for Class B(1) shares reflects Class B share performance through December 31, 1998, and Class B(1) share performance thereafter. Performance for Class R shares reflects Class A share performance through April 2, 2003, and Class R share performance thereafter. If the returns for Class B(1) and Class R shares had reflected their current service/distribution (Rule 12b-1) fees for the entire period, these returns would have been lower. (6) Class R and Class S shares, offered without sales charge, are only available through certain employee benefit plans and special programs. State Street Research Government Income Fund 3 - --------- PORTFOLIO - --------- Holdings April 30, 2004 (unaudited) Maturity Principal Market Issuer Date Amount Value - -------------------------------------------------------------------------------- U.S. Government Securities 91.3% U.S. Treasury 46.1% U.S. Treasury Note, 4.00% ........... 11/15/2012 $ 1,575,000 $ 1,534,025 U.S. Treasury Bond, 10.75% .......... 8/15/2005 43,075,000 47,929,337 U.S. Treasury Bond, 10.375% ......... 11/15/2012 36,425,000 45,157,056 U.S. Treasury Bond, 12.00% .......... 8/15/2013 17,600,000 23,594,313 U.S. Treasury Bond, 10.625% ......... 8/15/2015 27,775,000 42,138,786 U.S. Treasury Bond, 9.875% .......... 11/15/2015 12,650,000 18,390,924 U.S. Treasury Bond, 9.25% ........... 2/15/2016 4,350,000 6,091,531 U.S. Treasury Bond, 8.875% .......... 2/15/2019 12,200,000 17,017,097 U.S. Treasury Bond, 6.25% ........... 8/15/2023 7,400,000 8,222,673 U.S. Treasury Bond, 6.75% ........... 8/15/2026 34,275,000 40,435,143 U.S. Treasury Bond, 6.25% ........... 5/15/2030 6,475,000 7,276,534 ------------ 257,787,419 ------------ U.S. Agency Mortgage 44.5% ENSCO Offshore Co., 6.36% ........... 12/01/2015 2,780,037 3,042,305 Federal Home Loan Mortgage Corp., 9.00% ...................... 12/01/2009 795,153 863,195 Federal Home Loan Mortgage Corp., 4.00% ...................... 3/15/2010 2,925,000 2,977,833 Federal Home Loan Mortgage Corp., 3.75% ...................... 3/15/2011 4,706,000 4,775,587 Federal Home Loan Mortgage Corp., 4.00% ...................... 8/15/2013 3,000,000 3,045,198 Federal National Mortgage Association, 5.50% ................ 5/02/2006 9,350,000 9,859,005 Federal National Mortgage Association, 8.00% ................ 4/01/2008 578,421 616,787 Federal National Mortgage Association, 8.00% ................ 6/01/2008 837,877 893,452 Federal National Mortgage Association, 8.50% ................ 2/01/2009 1,182,637 1,272,759 Federal National Mortgage Association, 9.00% ................ 5/01/2009 1,012,862 1,096,167 Federal National Mortgage Association, 7.13% ................ 6/15/2010 19,575,000 22,493,495 Federal National Mortgage Association, 6.02% ................ 11/25/2010 3,600,000 3,862,301 Federal National Mortgage Association, 6.50% ................ 12/01/2014 1,139,656 1,207,559 Federal National Mortgage Association, 9.00% ................ 4/01/2016 283,380 311,958 Federal National Mortgage Association, 7.00% ................ 1/01/2017 1,989,510 2,124,246 Federal National Mortgage Association, 7.50% ................ 7/01/2029 1,437,306 1,541,012 Federal National Mortgage Association, 6.50% ................ 12/01/2029 2,550,232 2,659,676 Federal National Mortgage Association, 7.00% ................ 4/01/2032 1,285,950 1,359,397 Maturity Principal Market Issuer Date Amount Value - -------------------------------------------------------------------------------- Federal National Mortgage Association, 6.00%* ............... 11/13/2033 $ 15,925,000 $ 16,288,281 Federal National Mortgage Association, 4.50%* ............... 11/13/2033 19,950,000 19,632,037 Federal National Mortgage Association, 4.00%* ............... 11/13/2033 2,400,000 2,306,251 Federal National Mortgage Association, 5.00%* ............... 11/13/2033 26,025,000 25,211,719 Federal National Mortgage Association, 6.50%** .............. 11/13/2033 5,625,000 5,853,516 Federal National Mortgage Association, 6.00%** .............. 11/13/2033 5,650,000 5,891,888 Federal National Mortgage Association, 5.50%** .............. 11/13/2033 50,975,000 51,099,623 Federal National Mortgage Association, 5.00%* ............... 11/13/2033 13,100,000 13,148,765 Government National Mortgage Association, 9.50% ................ 9/15/2009 389,983 430,244 Government National Mortgage Association, 9.50% ................ 10/15/2009 718,670 792,825 Government National Mortgage Association, 9.50% ................ 11/15/2009 330,770 364,918 Government National Mortgage Association, 9.50% ................ 11/15/2017 41,724 46,989 Government National Mortgage Association, 9.50% ................ 9/15/2019 47,897 53,966 Government National Mortgage Association, 7.00% ................ 5/15/2027 966,695 1,030,253 Government National Mortgage Association, 7.00% ................ 11/15/2028 3,557,260 3,790,079 Government National Mortgage Association, 6.50% ................ 11/15/2028 2,120,766 2,218,320 Government National Mortgage Association, 6.50% ................ 9/15/2029 2,003,600 2,094,950 Government National Mortgage Association, 7.50% ................ 6/15/2031 569,235 611,418 Government National Mortgage Association, 6.00% ................ 9/20/2033 2,225,629 2,280,352 Government National Mortgage Association, 6.00% ................ 10/20/2033 3,580,011 3,680,428 Government National Mortgage Association, 5.00% ................ 10/20/2033 3,133,468 3,044,850 Government National Mortgage Association, 6.00% ................ 11/20/2033 4,697,986 4,813,499 Government National Mortgage Association, 6.00% ................ 2/20/2034 3,174,477 3,252,422 Government National Mortgage Association, 5.50%* ............... 12/01/2034 6,925,000 6,925,000 Overseas Private Investor Bond, 3.42% ............................. 1/15/2015 3,215,954 3,103,814 Private Export Funding Note, 3.38% ............................. 2/15/2009 5,250,000 5,122,415 U.S. Department Housing & Urban Development 2003-A, 4.44% ............................. 8/01/2011 2,099,000 2,069,121 ------------ 249,159,875 ------------ Foreign Government 0.7% Canadian Dollar Republic of Canada, 3.50% ........... 6/01/2005 1,150,000 850,480 Euro Republic of Germany, 5.00% .......... 8/19/2005 700,000 867,045 Japanese Yen Republic of Japan, 3.00% ............ 10/20/2005 250,000,000 2,266,241 ------------ 3,983,766 ------------ Total U.S. Government Securities (Cost $512,278,545) ............ 510,931,060 ------------ 4 The notes are an integral part of the financial statements. Maturity Principal Market Issuer Date Amount Value - ------------------------------------------------------------------------------- Other Investments 6.7% Finance/Mortgage 6.7% Bear Stearns Commercial Mortgage Securities Inc., 2002 Cl. A1, 5.92% ............... 10/15/2036 $ 2,625,777 $ 2,822,744 Chase Commercial Mortgage Securities Corp. 1998 Cl. A1, 6.025% ........................... 11/18/2030 1,428,431 1,505,605 Chase Commercial Mortgage Securities Corp. 1998 Cl. A2, 6.39% ............................ 11/18/2030 2,875,000 3,139,338 First Union Lehman Brothers Bank Corp. Series 1998 Cl. A1, 6.28% .................... 11/18/2035 2,134,588 2,208,997 LB Commercial Commercial Mortgage Trust, 3.25% ............ 3/15/2029 2,100,000 2,020,788 LB Commercial Conduit Mortgage Trust 1997 Cl. A1, 6.79% ............................ 10/12/2034 30,125 30,197 LB-UBS Commercial Mortgage Trust 2001 Cl. A4, 5.64% ......... 12/15/2025 4,052,412 4,295,782 LB-UBS Commercial Mortgage Trust 2001 Cl. A4, 5.93% ......... 12/15/2025 3,450,000 3,699,052 Merrill Lynch Mortgage Investments Inc. Series 1997 Cl. A1, 6.46% .................... 12/10/2029 326,289 327,455 Morgan Stanley Capital Inc. 1999, 5.91% ...................... 11/15/2031 1,799,361 1,890,639 Morgan Stanley Dean Witter Capital Inc. 2002 Cl. A1, 5.38% ............................ 1/15/2039 4,909,284 5,156,068 Nomura Asset Securities Corp., 1998 Cl. D6, 6.59% ............... 3/15/2030 2,625,000 2,887,183 Washington Mutual Mortgage Inc. 2003, 3.42% ................. 5/25/2033 4,350,000 4,249,725 Washington Mutual Mortgage Inc. 2003, 1.00% ................. 10/25/2033 3,275,000 3,186,402 ------------ 37,419,975 ------------ Total Other Investments (Cost $42,202,591) ................... 37,419,975 ------------ Market Issuer Shares Value - ------------------------------------------------------------------------------- Short-Term Investments 25.2% State Street Navigator Securities Lending Prime Portfolio ....................................... 140,979,392 $140,979,392 ------------ Total Short-Term Investments (Cost $140,979,392) ............... 140,979,392 ------------ Maturity Principal Date Amount - ------------------------------------------------------------------------------- Commercial Paper 26.8% Federal Home Loan Bank, 0.85% ......... 5/03/2004 $5,000,000 4,999,764 Federal Home Loan Bank, 0.97% ......... 5/05/2004 28,068,000 28,064,975 Federal Home Loan Bank, 1.00% ......... 5/10/2004 46,338,000 46,327,128 Federal Home Loan Bank, 0.93% ......... 5/10/2004 10,273,000 10,270,611 Federal Home Loan Bank, 0.93% ......... 5/13/2004 10,001,000 9,997,900 Federal Home Loan Bank, 0.92% ......... 5/18/2004 42,819,000 42,800,423 Federal Home Loan Bank, 0.98% ......... 5/20/2004 7,500,000 7,496,121 ------------ Total Commercial Paper (Cost $149,956,922) ..................... 149,956,922 ------------ % of Net Assets - ------------------------------------------------------------------------------- Summary of Portfolio Assets Total Investments (Cost $834,525,289).. 150.0% 839,287,349 Other Assets, Less Liabilities ........ (50.0%) (279,708,921) ----- ------------ Net Assets ............................ 100.0% $559,578,428 ====== ============ 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, 2004. Federal Income Tax Information At April 30, 2004, the net unrealized depreciation of investments based on cost for federal income tax purposes of $845,493,544 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 6,714,381 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (12,920,576) ------------- $ (6,206,195) ============= Futures contracts open at April 30, 2004, are as follows:
Unrealized Number Notional Expiration Appreciation Type of Contracts Amount Month (Depreciation) - ---------------------------------------------------------------------------------------------------------------- 2-Year U.S. Treasury Notes Long ........... 174 $ 36,983,156 June 2004 $ (259,545) 5-Year U.S. Treasury Notes Short .......... (115) (12,643,261) June 2004 5 10-Year U.S. Treasury Notes Short ......... (229) (25,304,500) June 2004 (14,510) 30-Year U.S. Treasury Notes Short ......... (101) (10,816,469) June 2004 439,725 ---------- $ 165,675 ========== Options open at April 30, 2004, are as follows: Number Expiration Type of Contracts Premium Month Value - -------------------------------------------------------------------------------------------------------------- 10-Year U.S. Treasury Futures Call ......... (449) $ (446,868) May 2004 $ (154,344) 10-Year U.S. Treasury Futures Put .......... (449) (559,117) May 2004 (827,844) ------------ ---------- $ (1,005,985) $ (982,188) ============ ==========
The notes are an integral part of the financial statements. State Street Research Government Income Fund 5 - --------- FINANCIAL - --------- Statements Statement of Assets and Liabilities - -------------------------------------------------------------------------------- April 30, 2004 (unaudited) Assets Investments, at value (cost $834,525,289) (Note 1) ........... $839,287,349 Receivable for securities sold ............................... 9,509,666 Interest receivable .......................................... 7,156,164 Receivable for fund shares sold .............................. 362,825 Receivable for variation margin .............................. 1,254 Other assets ................................................. 91,068 ------------ 856,408,326 ------------ Liabilities Payable for securities purchased ............................. 151,152,867 Payable for collateral received on securities loaned ......... 140,979,392 Payable for fund shares redeemed ............................. 1,662,487 Options written at fair value (premium $1,005,985) ........... 982,188 Dividends payable ............................................ 823,824 Accrued transfer agent and shareholder services .............. 477,076 Accrued management fee ....................................... 279,377 Accrued distribution and service fees ........................ 219,386 Payable to custodian (Note 1) ................................ 95,333 Accrued trustees' fees ....................................... 13,734 Accrued administration fee ................................... 4,115 Other accrued expenses ....................................... 140,119 ------------ 296,829,898 ------------ Net Assets ................................................... $559,578,428 ============ Net Assets consist of: Unrealized appreciation of investments ..................... $ 4,762,060 Unrealized appreciation of futures contracts and options .............................................. 189,472 Unrealized depreciation of foreign currency ................ (2,001) Accumulated net realized loss .............................. (21,462,470) Paid-in capital ............................................ 576,091,367 ------------ $559,578,428 ============ Net Asset Value (NAV) of Each Share Class Except where noted, the NAV is the offering and the redemption price for each class. Class Net Assets [divided by] Number of Shares = NAV A $405,257,757 32,584,123 $ 12.44* B(1) $ 97,525,559 7,908,632 $ 12.33** B $ 29,907,693 2,414,101 $ 12.39** C $ 17,360,134 1,400,419 $ 12.40** R $ 96,109 7,726 $ 12.44 S $ 9,431,176 758,897 $ 12.43 * Maximum offering price per share = $13.03 ($12.44 [divided by] 0.955) ** When you sell Class B(1), Class B or Class C shares, you receive the net asset value minus deferred sales charge, if any. Statement of Operations - -------------------------------------------------------------------------------- For the six months ended April 30, 2004 (unaudited) Investment Income Interest ...................................................... $12,509,876 ----------- Expenses Management fee (Note 2) ....................................... 1,779,255 Transfer agent and shareholder services (Note 2) .............. 854,456 Distribution and service fees - Class A (Note 4) .............. 639,972 Distribution and service fees - Class B(1) (Note 4) ........... 532,642 Distribution and service fees - Class B (Note 4) .............. 188,058 Distribution and service fees - Class C (Note 4) .............. 102,224 Distribution and service fees - Class R (Note 4) .............. 244 Custodian fee ................................................. 99,918 Administration fee (Note 2) ................................... 45,500 Trustees' fees (Note 2) ....................................... 31,284 Registration fees ............................................. 25,844 Reports to shareholders ....................................... 21,850 Audit fee ..................................................... 17,290 Legal fees .................................................... 9,646 Miscellaneous ................................................. 23,650 ----------- 4,371,833 Fees paid indirectly (Note 2) ................................. (10,320) ----------- 4,361,513 ----------- Net investment income ......................................... 8,148,363 ----------- Realized and Unrealized Gain (Loss) on Investments, Foreign Currencies, Futures Contracts and Options Net increase from payment by affiliate (Note 2) ............... 138,757 ----------- Net realized gain on investments (Notes 1 and 3) .............. 8,271,454 Net realized gain on foreign currency (Note 1) ................ 2,545 Net realized loss on futures contracts and options (Note 1) ........................................... (1,938,433) ----------- Total net realized gain ..................................... 6,335,566 ----------- Change in unrealized depreciation of investments .............. (13,830,174) Change in unrealized depreciation of foreign currency ......... (2,001) Change in unrealized appreciation of futures contracts and options ................................................. 1,127,548 ----------- Total change in unrealized depreciation ..................... (12,704,627) ----------- Net loss on investments, foreign currencies, futures contracts and options ....................................... (6,230,304) ----------- Net increase in net assets resulting from operations .......... $ 1,918,059 =========== 6 The notes are an integral part of the financial statements. Statement of Changes in Net Assets - -------------------------------------------------------------------------------- Six months ended April 30, 2004 Year ended (unaudited) October 31, 2003 ---------------- ---------------- Increase (Decrease) In Net Assets Operations: Net investment income ................... $ 8,148,363 $ 21,756,769 Net increase from payment by affiliate ............................. 138,757 -- Net realized gain on investments, foreign currency, future contracts and options ........................... 6,335,566 17,525,536 Change in unrealized depreciation of investments, foreign currency, futures contracts and options ......... (12,704,627) (26,546,733) ------------ ------------ Net increase resulting from operations ....................... 1,918,059 12,735,572 ------------ ------------ Dividends from net investment income: Class A ............................... (9,108,344) (21,773,956) Class B(1) ............................ (1,921,754) (4,783,459) Class B ............................... (674,663) (2,405,307) Class C ............................... (366,997) (1,160,250) Class R ............................... (1,989) (2,293) Class S ............................... (239,094) (658,794) ------------ ------------ (12,312,841) (30,784,059) ------------ ------------ Net decrease from fund share transactions (Note 5) ................. (66,656,986) (144,063,764) ------------ ------------ Total decrease in net assets ............ (77,051,768) (162,112,251) Net Assets Beginning of period ..................... 636,630,196 798,742,447 ------------ ------------ End of period including undistributed net investment income of $0 and $913,934, respectively .......................... $559,578,428 $636,630,196 ============ ============ Notes to Unaudited Financial Statements - -------------------------------------------------------------------------------- April 30, 2004 Note 1 State Street Research Government Income Fund is a series of State Street Research Financial Trust (the "Trust"), which is organized as a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of this fund is to seek high current income. Under normal market conditions, the fund invests at least 80% of net assets in U.S. government securities. The fund offers six classes of shares. 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) shares pay annual service and distribution fees equal to 1.00% of average daily net assets and automatically convert into Class A shares (which pay lower ongoing expenses) at the end of eight years. Class B(1) shares are subject to contingent deferred sales charge on certain redemptions made within six years of purchase. Class B shares are offered only to current shareholders through reinvestment of dividends and distributions or through exchanges from existing Class B accounts of State Street Research funds. Class B shares automatically convert into Class A shares at the end of eight years. Class B shares are subject to a contingent deferred sales charge on certain redemptions made within five years of purchase. Class C shares are subject to a contingent deferred sales charge of 1.00% on any shares redeemed within one year of purchase. Class C shares also pay annual service and distribution fees equal to 1.00% of average daily net assets. 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 a service and distribution fee of 0.50%. No sales charge is imposed at the time of purchase or redemption of Class R shares. Class S shares are only offered through certain retirement accounts, advisory accounts of State Street Research & Management Company (the "Adviser"), an investment management subsidiary of MetLife, Inc. ("MetLife"), and special programs. No sales charge is imposed at the time of purchase or redemption of Class S shares. Class S shares do not pay any service or distribution fees. The fund's expenses are borne prorata by each class, except that each class bears expenses, and has exclusive voting rights with respect to provisions of the plans of distribution, related specifically to that class. The Trustees declare separate dividends on each class of shares. The following significant accounting policies are consistently followed by the fund in preparing its financial statements, and such policies are in conformity with accounting principles generally accepted in the United States of America. A. Investment Valuation Securities are valued by a pricing service, which utilizes market transactions, quotations from dealers, and various relationships among securities in determining value. Securities for which there is no such valuation, if any, are valued at their fair value as determined in accordance with established methods consistently applied. Short-term securities maturing within sixty days are valued at amortized cost. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. B. Foreign Currencies 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. C. Security Transactions Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains or losses are reported on the basis of identified cost of securities delivered. As part of the custodian contract between the custodian bank and the fund, the custodian bank has a lien on the securities of the fund to the extent permitted by the fund's investment restriction to cover any advances made by the The notes are an integral part of the financial statements. State Street Research Government Income Fund 7 Notes (continued) custodian bank for the settlement of securities purchased by the fund. At April 30, 2003, the payable to the custodian bank of $95,333 represents the amount due for cash advance for the settlement of a security purchased. D. Net Investment Income Net investment income is determined daily and consists of interest accrued and discount earned, less the estimated daily expenses of the fund. The fund is charged for expenses directly attributable to it, while indirect expenses are allocated among both funds in the Trust. E. Dividends Dividends from net investment income are declared daily and paid or reinvested monthly. Net realized capital gains, if any, are distributed annually, unless additional distributions are required for compliance with applicable tax regulations. Income dividends and capital gains distributions are determined in accordance with federal income tax regulations which may differ from accounting principles generally accepted in the United States of America. The difference is primarily caused by differing treatment of accrued interest on defaulted bonds and premium amortization on fixed income securities. F. Federal Income Taxes No provision for federal income taxes is necessary because the fund has elected to qualify under Subchapter M of the Internal Revenue Code and its policy is to distribute all of its taxable income, including net realized capital gains, within the prescribed time periods. At October 31, 2003, the fund had a capital loss carryforward of $10,078,466 available, to the extent provided in regulations, to offset future capital gains, if any, of which, $492,884, $7,218,002, and $2,367,580 expire on October 31, 2007, 2008 and 2010, respectively. G. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from these estimates. H. Securities Lending The fund may seek additional income by lending portfolio securities to qualified institutions. The fund will receive cash or securities as collateral in an amount equal to at least 100% of the current market value of any loaned securities plus accrued interest. By reinvesting any cash collateral it receives in these transactions, the fund could realize additional gains and losses. If the borrower fails to return the securities and the value of the collateral has declined during the term of the loan, the fund will bear the loss. At April 30, 2004, the value of the securities loaned and the value of collateral were $138,314,173 and $140,979,392 (consisting entirely of cash collateral invested in State Street Navigator Securities Lending Prime Portfolio), respectively. During the six months ended April 30, 2004, income from securities lending amounted to $42,597 and is included in interest income. I. Futures The fund may enter into futures contracts as a hedge against unfavorable market conditions and to enhance income. The fund will not purchase any futures contract if, after such purchase, more than one-third of net assets would be represented by long future contracts. The fund will limit its risks by entering into a futures position only if it appears to be a liquid investment. Upon entering into a futures contract, the fund deposits with the selling broker sufficient cash or U.S. government securities to meet the minimum "initial margin" requirements. Thereafter, the fund receives from or pays to the broker cash or U.S. government securities equal to the daily fluctuation in value of the contract ("variation margin"), which is recorded as unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it has opened and the value at the time it was closed. The potential risk to the fund is that the change in value of futures contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise in changes from the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. J. Options The fund may use options to hedge against changes in values of securities the Portfolio owns or expects to purchase. Writing puts or buying calls tends to increase the fund's exposure to the underlying instrument and writing calls or buying puts tends to decrease the fund's exposure to the underlying instrument, or hedge other fund investments. For options purchased to hedge the fund's investments, the potential risk to the fund is that the change in value of options contracts may correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market, or if the counter party is unable to perform. The maximum loss for purchased options is limited to the premium initially paid for the option. For options written by the fund, the maximum loss is not limited to the premium initially received for the option. Note 2 The Trust and the Adviser have entered into an agreement under which the Adviser earns monthly fees at an annual rate of 0.60% of the first $500 million of net assets annually, 0.55% of the next $500 million, and 0.50% of any amount over $1 billion. In consideration of these fees, the Adviser furnishes the fund with management, investment advisory, statistical and research facilities and services. The Adviser also pays all salaries, rent and certain other expenses of management. During the six months ended April 30, 2004, the fees pursuant to such agreement amounted to $1,779,255. State Street Research Service Center, a division of State Street Research Investment Services, Inc., the Trust's principal underwriter (the "Distributor"), provides certain shareholder services to the fund such as responding to inquiries and instructions from investors with respect to the purchase and redemption of shares of the fund. In addition, MetLife receives a fee for maintenance of the accounts of certain shareholders who are participants in sponsored arrangements, such as employee benefit plans, through or under which shares of the fund may be purchased. Total shareholder service costs are allocated to each fund in the same ratios as the transfer agent costs. During the six months ended April 30, 2004, the amount of such expenses allocated to the fund was $282,917. The fund has entered into an arrangement with its transfer agent whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's expense. During the six months ended April 30, 2004, the fund's transfer agent fees were reduced by $10,320 under this arrangement. The fees of the Trustees not currently affiliated with the Adviser amounted to $31,284 during the six months ended April 30, 2004. The fund has agreed to pay the Adviser for certain administrative costs incurred in providing other assistance and services to the fund. The fee was based on a fixed amount that has been allocated equally among the State Street Research funds. During the six months ended April 30, 2004, the amount of such expenses was $45,500. On February 19, 2004, the Distributor entered into an agreement with the NASD resolving all outstanding issues relating to an investigation by the NASD of the Distributor's e-mail retention practices and supervision of trading activity in shares of the State Street Research funds. The Distributor, without admitting or denying the allegations or the findings set forth in the agreement, and solely for the purposes of the settlement, agreed to the entry of certain findings by the NASD relating to the Distributor's compliance with document retention requirements and the Distributor's supervision of enforcement of shareholder exchange limitations set forth in the funds' prospectuses. The agreement contains no allegations or findings of fraudulent conduct by the Distributor. As part of this agreement, the Distributor made a payment to the fund to compensate the fund for losses relating to the exchange of fund shares beyond the annual limit set forth in the fund's prospectus. The payment was allocated among the fund's share classes as follows: $99,915 to Class A, $24,174 to Class B(1), $7,801 to Class B, $4,470 to Class C and $2,397 to Class S. These amounts are shown in the total amount of $138,757 as "Net increase from payment by affiliate" in the Statement of Operations. Note 3 For the six months ended April 30, 2004, purchases and sales of securities, exclusive of short-term obligations, aggregated $1,034,500,362, and $1,091,651,626 (including $1,027,986,529 and $1,081,279,705 of U.S. government obligations), respectively. 8 Note 4 The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the plans, the fund pays annual service fees to the Distributor at a rate of 0.25% of average daily net assets for Class A, Class B(1), Class B, Class C and Class R shares. In addition, the fund pays annual distribution fees of 0.05% of average daily net assets for Class A shares. The fund pays annual distribution fees of 0.75% of average daily net assets for Class B(1), Class B and Class C shares and 0.25% of average net assets for Class R shares. The Distributor uses such payments for personal services and/or the maintenance of shareholder accounts, to reimburse securities dealers for distribution and marketing services, to furnish ongoing assistance to investors and to defray a portion of its distribution and marketing expenses. For the six months ended April 30, 2004, fees pursuant to such plans amounted to $639,972, $532,642, $188,058, $102,224 and $244 for Class A, Class B(1), Class B, Class C and Class R shares, respectively. 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, 2004, there were $5,561,073, $857,238 and $2,291,636 for Class A, B and Class C shares, respectively, of unreimbursed distribution and shareholder servicing related expenses to be carried forward to future plan years. For Class B(1) and R shares, the payments compensate the distributor for services and expenditures incurred under the plan, and none of the payments are returnable to the fund. The fund has been informed that the Distributor and MetLife Securities, Inc., a wholly owned subsidiary of MetLife, earned initial sales charges aggregating $163,659 and $798,290, respectively, on sales of Class A shares of the fund during the six months ended April 30, 2004, and that MetLife Securities, Inc. earned commissions aggregating $513,963 and $13,920 on sales of Class B(1) and Class C shares, and the Distributor collected contingent deferred sales charges aggregating $244,886, $1,519 and $910 on redemptions of Class B(1), Class B and Class C shares, respectively, during the same period. Note 5 The Trustees have the authority to issue an unlimited number of shares of beneficial interest at $0.001 par value per share. At April 30, 2004, the Adviser held 7,716 Class R shares. These transactions break down by share class as follows:
Six months ended April 30, 2004 Year ended (unaudited) October 31, 2003 ---------------------------------------------------------------- Class A Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Shares sold 2,020,113 $ 25,823,181 16,756,640 $ 218,104,367 Issued upon reinvestment of dividends from net investment income 481,494 6,110,564 1,104,644 14,289,248 Shares redeemed (4,697,904) (59,657,211) (25,899,151) (335,827,118) ------------- ------------- ------------- ------------- Net decrease (2,196,297) $ (27,723,466) (8,037,867) $(103,433,503) ============= ============= ============= ============= Class B(1) Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Shares sold 325,148 $ 4,122,304 2,905,289 $ 37,451,974 Issued upon reinvestment of dividends from net investment income 127,419 1,603,440 315,320 4,044,422 Shares redeemed (1,708,362) (21,538,422) (3,428,090) (43,764,045) ------------- ------------- ------------- ------------- Net decrease (1,255,795) $ (15,812,678) (207,481) $ (2,267,649) ============= ============= ============= ============= Class B Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Shares sold 25,301 $ 329,219 581,326 $ 7,524,870 Issued upon reinvestment of dividends from net investment income 40,951 515,418 141,611 1,825,769 Shares redeemed (1,284,769) (16,283,047) (2,867,374) (36,930,667) ------------- ------------- ------------- ------------- Net decrease (1,218,517) $ (15,438,410) (2,144,437) $ (27,580,028) ============= ============= ============= ============= Class C Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Shares sold 73,006 $ 926,994 875,725 $ 11,343,080 Issued upon reinvestment of dividends from net investment income 21,645 273,847 65,528 848,984 Shares redeemed (564,734) (7,151,209) (1,514,342) (19,422,859) ------------- ------------- ------------- ------------- Net decrease (470,083) $ (5,950,368) (573,089) $ (7,230,795) ============= ============= ============= ============= Class R Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Shares sold -- $ -- 7,726 $ 100,128 ------------- ------------- ------------- ------------- Net increase -- $ -- 7,726 $ 100,128 ============= ============= ============= ============= Class S Shares Amount Shares Amount - ----------------------------------------------------------------------------------------------------------------------------------- Shares sold 84,612 $ 1,081,091 524,562 $ 6,797,691 Issued upon reinvestment of dividends from net investment income 16,318 206,919 44,745 578,531 Shares redeemed (238,163) (3,020,074) (854,614) (11,028,139) ------------- ------------- ------------- ------------- Net decrease (137,233) $ (1,732,064) (285,307) $ (3,651,917) ============= ============= ============= =============
State Street Research Government Income Fund 9 FINANCIAL Highlights For a share outstanding throughout each period:
Class A - --------------------------------------------------------------------------------------------------------------------------------- Six months ended Years ended October 31 April 30, 2004 --------------------------------------------------------------- (unaudited)(a)(i) 2003(a) 2002(a)(f)(h) 2001(a)(h) 2000(a)(h) 1999(a)(h) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period ($) 12.67 12.99 13.08 12.19 12.21 13.07 ------- ------- ------- ------- ------- ------- Net investment income ($) 0.18 0.41 0.51 0.74 0.75 0.74 Net realized and unrealized gain (loss) on investments, future contracts and options ($) (0.14) (0.16) 0.09 0.88 0.00 (0.85) ------- ------- ------- ------- ------- ------- Total from investment operations ($) 0.04 0.25 0.60 1.62 0.75 (0.11) ------- ------- ------- ------- ------- ------- Dividends from net investment income ($) (0.27) (0.57) (0.69) (0.73) (0.77) (0.75) ------- ------- ------- ------- ------- ------- Total distributions ($) (0.27) (0.57) (0.69) (0.73) (0.77) (0.75) ------- ------- ------- ------- ------- ------- Net asset value, end of period ($) 12.44 12.67 12.99 13.08 12.19 12.21 ======= ======= ======= ======= ======= ======= Total return (%)(b) 0.29 (c) 1.96 4.82 13.66 6.41 (0.84) Ratios/Supplemental Data - ------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period ($ thousands) 405,258 440,597 556,251 514,750 474,054 480,643 Expense ratio (%) 1.27 (d) 1.15 1.17 1.23 1.13 1.05 Expense ratio after expense reductions (%) 1.27 (d) 1.15 1.16 1.22 1.13 1.04 Ratio of net investment income to average net assets (%) 2.90 (d) 3.21 4.02 5.87 6.21 5.86 Portfolio turnover rate (%) 174.66 273.16 175.05 134.55 148.88 213.70 Class B(1) - ---------------------------------------------------------------------------------------------------------------------------------- Six months ended Years ended October 31 April 30, 2004 ---------------------------------------------------------------- (unaudited)(a)(i) 2003(a) 2002(a)(f)(h) 2001(a)(h) 2000(a)(h) 1999(a)(e)(h) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period ($) 12.56 12.89 12.98 12.11 12.14 12.97 ------- ------- ------- ------- ------- ------- Net investment income ($) 0.14 0.32 0.41 0.64 0.65 0.52 Net realized and unrealized gain (loss) on investments, future contracts and options ($) (0.14) (0.17) 0.10 0.87 0.01 (0.82) ------- ------- ------- ------- ------- ------- Total from investment operations ($) 0.00 0.15 0.51 1.51 0.66 (0.30) ------- ------- ------- ------- ------- ------- Dividends from net investment income ($) (0.23) (0.48) (0.60) (0.64) (0.69) (0.53) ------- ------- ------- ------- ------- ------- Total distributions ($) (0.23) (0.48) (0.60) (0.64) (0.69) (0.53) ------- ------- ------- ------- ------- ------- Net asset value, end of period ($) 12.33 12.56 12.89 12.98 12.11 12.14 ======= ======= ======= ======= ======= ======= Total return (%)(b) (0.05)(c) 1.19 4.14 12.80 5.60 (2.31)(c) Ratios/Supplemental Data - ------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period ($ thousands) 97,526 115,134 120,766 75,219 34,533 24,250 Expense ratio (%) 1.97 (d) 1.85 1.87 1.93 1.85 1.80 (d) Expense ratio after expense reductions (%) 1.97 (d) 1.85 1.86 1.92 1.85 1.79 (d) Ratio of net investment income to average net assets (%) 2.19 (d) 2.50 3.29 5.12 5.44 5.01 (d) Portfolio turnover rate (%) 174.66 273.16 175.05 134.55 148.88 213.70
10
Class B - --------------------------------------------------------------------------------------------------------------------------------- Six months ended Years ended October 31 April 30, 2004 --------------------------------------------------------------- (unaudited)(a)(i) 2003(a) 2002(a)(f)(h) 2001(a)(h) 2000(a)(h) 1999(a)(h) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period ($) 12.62 12.94 13.02 12.15 12.17 13.03 ------- ------- ------- ------- ------- ------- Net investment income ($) 0.14 0.33 0.43 0.65 0.65 0.64 Net realized and unrealized gain (loss) on investments, future contracts and options ($) (0.14) (0.17) 0.09 0.86 0.02 (0.84) ------- ------- ------- ------- ------- ------- Total from investment operations ($) 0.00 0.16 0.52 1.51 0.67 (0.20) ------- ------- ------- ------- ------- ------- Dividends from net investment income ($) (0.23) (0.48) (0.60) (0.64) (0.69) (0.66) ------- ------- ------- ------- ------- ------- Total distributions ($) (0.23) (0.48) (0.60) (0.64) (0.69) (0.66) ------- ------- ------- ------- ------- ------- Net asset value, end of period ($) 12.39 12.62 12.94 13.02 12.15 12.17 ======= ======= ======= ======= ======= ======= Total return (%)(b) (0.05)(c) 1.26 4.20 12.75 5.67 (1.58) Ratios/Supplemental Data - ------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period ($ thousands) 29,908 45,840 74,747 82,963 84,327 106,902 Expense ratio (%) 1.97 (d) 1.85 1.87 1.93 1.85 1.80 Expense ratio after expense reductions (%) 1.97 (d) 1.85 1.86 1.92 1.85 1.79 Ratio of net investment income to average net assets (%) 2.18 (d) 2.52 3.34 5.20 5.49 5.12 Portfolio turnover rate (%) 174.66 273.16 175.05 134.55 148.88 213.70 Class C - --------------------------------------------------------------------------------------------------------------------------------- Six months ended Years ended October 31 April 30, 2004 --------------------------------------------------------------- (unaudited)(a)(i) 2003(a) 2002(a)(f)(h) 2001(a)(h) 2000(a)(h) 1999(a)(h) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period ($) 12.63 12.95 13.03 12.16 12.18 13.04 ------- ------- ------- ------- ------- ------- Net investment income ($) 0.14 0.33 0.42 0.65 0.66 0.64 Net realized and unrealized gain (loss) on investments, future contracts and options ($) (0.14) (0.17) 0.10 0.86 0.01 (0.84) ------- ------- ------- ------- ------- ------- Total from investment operations ($) 0.00 0.16 0.52 1.51 0.67 (0.20) ------- ------- ------- ------- ------- ------- Dividends from net investment income ($) (0.23) (0.48) (0.60) (0.64) (0.69) (0.66) ------- ------- ------- ------- ------- ------- Total distributions ($) (0.23) (0.48) (0.60) (0.64) (0.69) (0.66) ------- ------- ------- ------- ------- ------- Net asset value, end of period ($) 12.40 12.63 12.95 13.03 12.16 12.18 ======= ======= ======= ======= ======= ======= Total return (%)(b) (0.05)(c) 1.26 4.19 12.74 5.66 (1.58) Ratios/Supplemental Data - ------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period ($ thousands) 17,360 23,618 31,641 24,507 19,512 25,818 Expense ratio (%) 1.97 (d) 1.85 1.87 1.93 1.85 1.80 Expense ratio after expense reductions (%) 1.97 (d) 1.85 1.86 1.92 1.85 1.79 Ratio of net investment income to average net assets (%) 2.19 (d) 2.51 3.30 5.17 5.50 5.11 Portfolio turnover rate (%) 174.66 273.16 175.05 134.55 148.88 213.70
(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) January 1, 1999 (commencement of share class) to October 31, 1999 (f) Effective November 1, 2001, the fund has adopted the provisions on the AICPA Audit and Accounting Guide, Audit of 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 loss per share by $0.16, and decrease the ratio of net investment income to average net assets by 1.24%. The statement of changes and financial highlights for the period prior to November 1, 2001, have not been restated for this change in policy. (g) April 3, 2003 (commencement of share class) to October 31, 2003 (h) Audited by other auditors (i) During the six months ended April 30, 2004, the Distributor made restitution payments to the fund as part of a settlement with NASD. This had no effect on net realized gain on investments per share. State Street Research Government Income Fund 11 Class R - ----------------------------------------------------------------------------- Six months ended April 30, 2004 (unaudited)(a) 2003(a)(g) - ----------------------------------------------------------------------------- Net asset value, beginning of period ($) 12.67 12.96 ------ ------ Net investment income ($)* 0.17 0.22 Net realized and unrealized loss on investments, future contracts and options ($) (0.14) (0.21) ------ ------ Total from investment operations ($) 0.03 0.01 ------ ------ Dividend from net investment income ($) (0.26) (0.30) ------ ------ Total distributions ($) (0.26) (0.30) ------ ------ Net asset value, end of period ($) 12.44 12.67 ====== ====== Total return (%)(b) 0.19 (c) (0.04)(c) Ratios/Supplemental Data - ----------------------------------------------------------------------------- Net assets at end of period ($ thousands) 96 98 Expense ratio (%)* 1.47 (d) 1.35 (d) Expense ratio after expense reductions (%)* 1.47 (d) 1.35 (d) Ratio of net investment income to average net assets (%)* 2.70 (d) 2.88 (d) Portfolio turnover rate (%) 174.66 273.16
Class S - --------------------------------------------------------------------------------------------------------------------------------- Six months ended Years ended October 31 April 30, 2004 -------------------------------------------------------------- (unaudited)(a)(i) 2003(a) 2002(a)(f)(h) 2001(a)(h) 2000(a)(h) 1999(a)(h) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period ($) 12.66 12.98 13.06 12.18 12.20 13.06 ------ ------ ------ ------ ------ ------- Net investment income ($) 0.20 0.46 0.55 0.78 0.78 0.75 Net realized and unrealized gain (loss) on investments, future contracts and options ($) (0.14) (0.17) 0.10 0.87 0.01 (0.83) ------ ------ ------ ------ ------ ------- Total from investment operations ($) 0.06 0.29 0.65 1.65 0.79 (0.08) ------ ------ ------ ------ ------ ------- Dividends from net investment income ($) (0.29) (0.61) (0.73) (0.77) (0.81) (0.78) ------ ------ ------ ------ ------ ------- Total distributions ($) (0.29) (0.61) (0.73) (0.77) (0.81) (0.78) ------ ------ ------ ------ ------ ------- Net asset value, end of period ($) 12.43 12.66 12.98 13.06 12.18 12.20 ====== ====== ====== ====== ====== ======= Total return (%)(b) 0.44 (c) 2.26 5.22 13.93 6.71 (0.60) Ratios/Supplemental Data - --------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period ($ thousands) 9,431 11,344 15,338 13,775 13,418 187,373 Expense ratio (%)* 0.97 (d) 0.85 0.87 0.93 0.85 0.80 Expense ratio after expense reductions (%)* 0.97 (d) 0.85 0.86 0.92 0.85 0.79 Ratio of net investment income to average net assets (%)* 3.20 (d) 3.54 4.33 6.18 6.39 5.94 Portfolio turnover rate (%) 174.66 273.16 175.05 134.55 148.88 213.70
(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) January 1, 1999 (commencement of share class) to October 31, 1999 (f) Effective November 1, 2001, the fund has adopted the provisions on the AICPA Audit and Accounting Guide, Audit of 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 loss per share by $0.16, and decrease the ratio of net investment income to average net assets by 1.24%. The statement of changes and financial highlights for the period prior to November 1, 2001, have not been restated for this change in policy. (g) April 3, 2003 (commencement of share class) to October 31, 2003 (h) Audited by other auditors (i) During the six months ended April 30, 2004, the Distributor made restitution payments to the fund as part of a settlement with NASD. This had no effect on net realized gain on investments per share. 12 - --------------------- TRUSTEES AND OFFICERS - --------------------- State Street Research Financial Trust
Number of Funds Other Name, Position(s) Term of Office in Fund Complex Directorships Held Address Held with and Length of Principal Occupations Overseen by by Trustee/Officer and Age(a) Fund Time Served(b) During Past 5 Years Trustee/Officer(c) - ------------------------------------------------------------------------------------------------------------------------------------ Independent Trustees Bruce R. Bond Trustee Since Retired; formerly Chairman of the 19 Avaya Corp. (58) 1999 Board, Chief Executive Officer and President, PictureTel Corporation (video conferencing systems) - ------------------------------------------------------------------------------------------------------------------------------------ Peter S. Drotch (62) Trustee Since Retired, formerly Partner, 19 The First Marblehead 2004 PricewaterhouseCoopers LLP Corp. - ------------------------------------------------------------------------------------------------------------------------------------ Steve A. Garban Trustee Since Retired; formerly Senior Vice 53 Metropolitan Series (66) 1997 President for Finance and Operations Fund, Inc. and and Treasurer, The Pennsylvania State Metropolitan Series University Fund II - ------------------------------------------------------------------------------------------------------------------------------------ Susan M. Phillips Trustee Since Dean, School of Business and Public 19 The Kroger Co. (59) 1998 Management, George Washington University; formerly a member of the Board of Governors of the Federal Reserve System; and Chairman and Commissioner of the Commodity Futures Trading Commission - ------------------------------------------------------------------------------------------------------------------------------------ Toby Rosenblatt Trustee Since President, Founders Investments Ltd. 53 A.P. Pharma, Inc.; (65) 1993 (investments); President, Pacific Four Metropolitan Series Investments (investments); formerly Fund, Inc. and President, The Glen Ellen Company Metropolitan Series (private investment firm) Fund II - ------------------------------------------------------------------------------------------------------------------------------------ Michael S. Scott Trustee Since Jay W. Forrester Professor of 53 Metropolitan Series Morton (66) 1987 Management, Sloan School of Fund, Inc. and Management, Massachusetts Institute of Metropolitan Series Technology Fund II - ------------------------------------------------------------------------------------------------------------------------------------ Interested Trustees Richard S. Davis+ Trustee Since Chairman of the Board, President and 19 None (58) 2000 Chief Executive Officer of State Street Research & Management Company; formerly Senior Vice President, Fixed Income Investments, Metropolitan Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Officers C. Kim Goodwin Vice Since Managing Director and Chief Investment 18 None (45) President 2002 Officer - Equities of State Street Research & Management Company; formerly Chief Investment Officer - U.S. Growth Equities, American Century - ------------------------------------------------------------------------------------------------------------------------------------ John S. Lombardo Vice Since Managing Director, Chief Financial 19 None (49) President 2001 Officer and Director of State Street Research & Management Company; formerly Executive Vice President, State Street Research & Management Company; and Senior Vice President, Product and Financial Management, MetLife Auto & Home - ------------------------------------------------------------------------------------------------------------------------------------ Mark Marinella (46) Vice Since Managing Director and Chief Investment 9 None President 2003 Officer - Fixed Income, State Street Research & Management Company; formerly Executive Vice President and Senior Vice President, State Street Research & Management Company; and Chief Investment Officer and Head of Fixed Income, Columbia Management Group - ------------------------------------------------------------------------------------------------------------------------------------ Ajay Mehra Vice Since Managing Director of State Street 4 None (39) President 2003 Research & Management Company; formerly Senior Vice President and Portfolio Manager, Columbia Management Group - ------------------------------------------------------------------------------------------------------------------------------------ Elizabeth M. Vice Since Managing Director of State Street 8 None Westvold (44) President 2003 Research & Management Company; formerly Senior Vice President, State Street Research & Management Company - ------------------------------------------------------------------------------------------------------------------------------------ Erin Xie (36) Vice Since Senior Vice President, State Street 2 None President 2003 Research & Management Company; formerly Vice President, State Street Research & Management Company; and research associate, Sanford Bernstein & Company - ------------------------------------------------------------------------------------------------------------------------------------ Douglas A. Romich Treasurer Since Senior Vice President and Treasurer of 19 None (47) 2001 State Street Research & Management Company; formerly Vice President and Assistant Treasurer, State Street Research & Management Company
The fund's Statement of Additional Information includes additional information about the fund's trustees, and is available without charge, by contacting State Street Research, One Financial Center, Boston, Massachusetts 02111-2690, or by calling toll-free 1-87-SSR-FUNDS (1-877-773-8637). (a) The address of each person is c/o State Street Research & Management Company, One Financial Center, Boston, MA 02111-2690. (b) A Trustee serves until he or she retires, resigns or is removed as provided in the master trust agreement of the respective Trust. Each Trust has adopted a mandatory retirement age of 72. Each officer holds office until he or she resigns, is removed or a successor is elected. (c) Includes all series of 9 investment companies for which State Street Research & Management Company has served as sole investment adviser and all series of Metropolitan Series Fund, Inc. and Metropolitan Series Fund II. The primary adviser to Metropolitan Series Fund, Inc. and Metropolitan Series Fund II is MetLife Advisers, LLC, which has retained State Street Research & Management Company as sub-adviser to certain series of Metropolitan Series Fund, Inc. (+) Mr. Davis is an "interested person" of the Trust under the Investment Company Act of 1940 by reason of his affiliation with the Trust's Investment Manager, State Street Research & Management Company, as noted. State Street Research Government Income Fund 13 ------------ [LOGO] STATE STREET RESEARCH PRSRT STD One Financial Center U.S. POSTAGE Boston, MA 02111-2690 PAID PERMIT #6 HUDSON, MA ------------ New accounts, mutual fund purchases, exchanges and account information Internet www.ssrfunds.com E-mail info@ssrfunds.com 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 1-617-737-9722 (request confirmation number first from the Service Center by calling 1-877-773-8637) Mail State Street Research Service Center P.O. Box 8408, Boston, MA 02266-8408 - -------------------------------------------------------------------------------- Did You Know? 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 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? Call a service center representative at 1-87-SSR-FUNDS (1-877-773-8637), Monday through Friday, 8am-6pm eastern time, to learn more. - -------------------------------------------------------------------------------- Investors should carefully consider the fund's investment objective, risks, charges and expenses before investing. The fund's prospectus contains more complete information on these and other matters. A prospectus for any State Street Research fund is available through your financial professional, by calling toll-free 1-87-SSR-FUNDS (1-877-773-8637) or by visiting our website at www.ssrfunds.com. Please read the prospectus carefully before investing. Webcasts For a professional perspective on the markets, the economy and timely investment topics, tune in to a State Street Research webcast by visiting our website at www.ssrfunds.com. Complete Fund Listing For a list of our funds, visit our website at www.ssrfunds.com under Research Our Funds. [Graphic] for Excellence in Shareholder Communications [Graphic] for Excellence in Service This report must be accompanied or preceded by a current prospectus. When used as sales material after June 30, 2004, this report must be accompanied by a current Quarterly Performance Update. "State Street Research Proxy Voting Policies and Procedures"-which describes how we vote proxies relating to portfolio securities-is available upon request free of charge, by calling the State Street Research Service Center toll-free at 1-87-SSR-FUNDS (1-877-773-8637) or by accessing the U.S. Securities and Exchange Commission website at www.sec.gov. The DALBAR awards recognize quality shareholder service and quality shareholder communications, and should not be considered a rating of fund performance. The survey included mutual fund complexes that volunteered or were otherwise selected to participate and was not industrywide. Member NASD, SIPC (C)2004 State Street Research Investment Services, Inc. One Financial Center Boston, MA 02111-2690 www.ssrfunds.com CONTROL NUMBER:(exp0605)SSR-LD GI-1893-0604 FORM N-CSR(2 OF 3) ITEM 2: CODE OF ETHICS Not applicable for the reporting period. ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT Not applicable for the reporting period. ITEM 4: (PRINCIPAL ACCOUNTANT FEES AND SERVICES) Not applicable for the reporting period. ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS Not applicable. ITEM 6: SCHEDULE OF INVESTMENTS Not applicable. ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES & PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES: Not applicable. ITEM 8: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS Not applicable. ITEM 9: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Governance Committee will consider nominees recommended by shareholders. Shareholders may submit recommendations to the attention of the Secretary of the Trust, State Street Research & Management Company, One Financial Center, 30th Floor, Boston, MA 02111. ITEM 10: CONTROLS AND PROCEDURES (a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the Registrant's internal control over financial reporting during the Registrant's second fiscal half-year that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting. ITEM 11: EXHIBITS (a)(1) Code of Ethics required to be disclosed under Item 2 of Form N-CSR attached hereto as Exhibit 99.CODE ETH (a)(2) Certification for each principal executive and principal financial officer of the Registrant required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.302CERT (b) Certification required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. State Street Research Financial Trust By: /s/ Richard S. Davis ------------------------------------------------------ Richard S. Davis, President, Chairman and Chief Executive Officer Principal Executive Officer Date June 30, 2004 ------------------------------------------------------ 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 30, 2004 ------------------------ By: /s/ Douglas A. Romich ------------------------------------------------------ Douglas A. Romich, Treasurer Principal Financial Officer Date June 30, 2004 ------------------------ EX-99.CODEETH 2 a2138667zex-99_codeeth.txt EXHIBIT 99.CODEETH Exhibit 99.CODE ETH STATE STREET RESEARCH FUNDS FINANCIAL OFFICER CODE OF PROFESSIONAL CONDUCT INTRODUCTION The reputation and integrity of the State Street Research Funds (the "Funds") are valuable assets that are vital to the Funds' success. Each Fund's senior financial officers ("SFOs") are responsible for conducting the Fund's business in a manner that demonstrates a commitment to the highest standards of integrity. A Fund's SFOs include the principal executive officer, the principal financial officer, comptroller or principal accounting officer, and any person who performs a similar function. The Sarbanes-Oxley Act of 2002 (the "Act") effected sweeping corporate disclosure and financial reporting reform on public companies, including mutual funds, to address corporate malfeasance and assure investors that the companies in which they invest are accurately and completely disclosing financial information. Under the Act, all public companies (including the Funds) must either have a code of ethics for their SFOs, or disclose why they do not. The Act was intended to foster corporate environments that encourage employees to question unethical and potentially illegal business practices. Each Fund has chosen to adopt a financial officer code of ethics to encourage its SFOs to act ethically and to question potentially unethical or illegal practices, and to strive to ensure that the Fund's financial disclosures are complete, accurate, and understandable. This Code of Ethics should be read in conjunction with the Fund's other policy statements, including the Code of Ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940. PURPOSES OF THE CODE The purposes of this Code are: - To promote honest and ethical conduct among the Fund's SFOs, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - To assist SFOs to recognize and avoid conflicts of interest, including disclosure to an appropriate person of any material transaction or relationship that reasonably could be expected to give rise to such a conflict; - To promote full, fair, accurate, timely, and understandable disclosure in reports and documents that the Fund files with, or submits to, the SEC and in other public communications the Fund makes; - To promote compliance with applicable laws, rules and regulations; - To encourage the prompt internal reporting to an appropriate person of violations of the Code; and - To establish accountability for adherence to the Code. QUESTIONS ABOUT THIS CODE The Board of Trustees of each Fund has designated the Secretary of the Fund to be the Compliance Officer for the implementation and administration of the Code. You should direct your questions about this Code to the Compliance Officer. CONDUCT GUIDELINES Each Fund has adopted the following guidelines under which its SFOs must perform their duties and conduct the business affairs of the Funds. Persons subject to this requirement include the principal executive officer, the principal financial officer, comptroller or principal accounting officer, and any person who performs a similar function. However, the Fund expects that ALL persons who participate in the preparation of any part of the Fund's financial statements follow these guidelines: - ETHICAL AND HONEST CONDUCT IS OF PARAMOUNT IMPORTANCE. The Fund's SFOs must act with honesty and integrity and avoid violations of this Code, including actual or apparent conflicts of interest with the Fund in personal and professional relationships. - SFOS MUST DISCLOSE MATERIAL TRANSACTIONS OR RELATIONSHIPS. The Fund's SFOs must disclose to the Fund's Compliance Officer any material transaction or relationship that reasonably could be expected to give rise to any violations of the Code, including actual or apparent conflicts of interest with the Fund. You should disclose these transactions or relationships whether you are involved or have only observed the transaction or relationship. If it is not possible to disclose the matter to the Compliance Officer, it should be disclosed to the Fund's Chief Financial Officer or Chief Executive Officer. - STANDARDS FOR QUALITY OF INFORMATION SHARED WITH FUND SERVICE PROVIDERS. The Fund's SFOs must at all times seek to provide information to the Fund's other employees and service providers (adviser, administrator, outside auditor, outside counsel, custodian, ETC.) that is accurate, complete, objective, relevant, timely, and understandable. - STANDARDS FOR QUALITY OF INFORMATION INCLUDED IN PERIODIC REPORTS. The Fund's SFOs must at all times endeavor to ensure full, fair, timely, accurate, and understandable disclosure in the Fund's periodic reports. 2 - COMPLIANCE WITH LAWS. The Fund's SFOs must comply with the federal securities laws and other applicable laws and rules, such as the Internal Revenue Code. - STANDARD OF CARE. The Fund's SFOs must at all times act in good faith, responsibly, and with due care, competence and diligence, without misrepresenting material facts or allowing your independent judgment to be subordinated. - CONFIDENTIALITY OF INFORMATION. The Fund's SFOs must at all times respect the confidentiality of information acquired in the course of their professional duties, except when authorized by the Fund to disclose it or where disclosure is otherwise legally mandated. You may not use confidential information acquired in the course of your work for personal advantage. - SHARING OF INFORMATION AND ETHICAL STANDARDS. The Fund's SFOs should share information with relevant parties to keep them informed of the business affairs of the Fund, as appropriate, and maintain skills important and relevant to the Fund's needs. - PROMOTE ETHICAL CONDUCT. The Fund's SFOs should at all times proactively promote ethical behavior among peers in the work environment. - STANDARDS FOR RECORDKEEPING. The Fund's SFOs must at all times endeavor to ensure that the Fund's books and records are thoroughly and accurately maintained to the best of their knowledge in a manner consistent with applicable laws and this Code. WAIVERS OF THIS CODE You may request a waiver of a provision of this Code by submitting your request in writing to the Compliance Officer for appropriate review. For example, if a family member works for a service provider that prepares the Fund's financial statements, you may have a potential conflict of interest in reviewing those statements and should seek a waiver of this Code to review the work. An executive officer of the Fund or the Audit Committee will decide whether to grant a waiver. All waivers of this Code must be disclosed to the Fund's shareholders to the extent required by SEC rules. ANNUAL CERTIFICATION To the extent necessary, the Fund's Compliance Officer will provide guidance on the conduct required by this Code and the manner in which violations must be reported and waivers must be requested. Each SFO will be asked to certify on an annual basis that he/she is in full compliance with this Code. 3 REPORTING SUSPECTED VIOLATIONS SFOs who observe, learn of, or, in good faith, suspect a violation of the Code MUST immediately report the violation to the Compliance Officer, another member of the Fund's senior management, or to the Audit Committee of the Board. An example of a possible Code violation is the preparation and filing of financial disclosure that omits material facts, or that is accurate but is written in a way that obscures its meaning. Because service providers such as the adviser, outside accounting firm, and custodian provide much of the work relating to the Fund's financial statements, the Fund's SFOs should be alert for actions by service providers that may be illegal, or that could be viewed as dishonest or unethical conduct. A SFO should report these actions to the Compliance Officer even if you know, or think, that the service provider has its own code of ethics for its SFOs or employees. SFOs who report violations or suspected violations in good faith will not be subject to retaliation of any kind. Reported violations will be investigated and addressed promptly and will be treated confidentially to the extent possible. VIOLATIONS OF THE CODE Dishonest or unethical conduct or conduct that is illegal will constitute a violation of this Code, regardless of whether this Code refers to that particular conduct. A violation of this Code may result in disciplinary action, up to and including termination of employment. A variety of laws apply to the Fund and its operations, including the Securities Act of 1933, the Investment Company Act of 1940, state laws relating to duties owed by Fund directors/trustees and officers, and criminal laws. The federal securities laws generally prohibit the Fund from making material misstatements in its prospectus and other documents filed with the SEC, or from omitting to state a material fact. These material misstatements and omissions include financial statements that are misleading or omit material facts. The Fund must and will report all suspected criminal violations to the appropriate authorities for possible prosecution, and will investigate, address and report, as appropriate, non-criminal violations. ADOPTED MAY 7, 2003 4 EX-99.302CERT 3 a2138667zex-99_302cert.txt EXHIBIT 99.302CERT Exhibit 99.302 CERT State Street Research Financial Trust Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Douglas A. Romich, certify that: 1. I have reviewed this report on Form N-CSR of State State Street Research Financial Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and changes in net assets of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2 (c) under the Investment Company Act) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 30, 2004 /s/ Douglas A. Romich Douglas A. Romich Treasurer State Street Research Financial Trust Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Richard S. Davis, certify that: 1. I have reviewed this report on Form N-CSR of State Street Research Financial Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and changes in net assets of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2 (c) under the Investment Company Act) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 30, 2004 /s/ Richard S. Davis Richard S. Davis President, Chairman and Chief Executive Officer EX-99.906CERT 4 a2138667zex-99_906cert.txt EXHIBIT 99.906CERT Exhibit 99.906 CERT State Street Research Financial Trust Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the State Street Research Financial Trust, a Massachusetts business trust, (the "Trust"), does hereby certify that the Trust's report on Form N-CSRS for the six months ended April 30, 2004 (the "N-CSRS") fully complies with the requirements of Section 13 (a) or 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the N-CSRS fairly presents, in all material respects, the financial condition and the results of operations of the Trust. This certification is provided solely pursuant to 18 U.S.C. 1350 and shall not be deemed a part of the N-CSRS, the financial statements filed with the N-CSRS or otherwise "filed" for any purpose. Date: June 30, 2004 /s/ Douglas A. Romich Douglas A. Romich Treasurer State Street Research Financial Trust Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the State Street Research Financial Trust, a Massachusetts business trust, (the "Trust"), does hereby certify that the Trust's report on Form N-CSRS for the six months ended April 30, 2004 (the "N-CSRS") fully complies with the requirements of Section 13 (a) or 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the N-CSRS fairly presents, in all material respects, the financial condition and the results of operations of the Trust. This certification is provided solely pursuant to 18 U.S.C. 1350 and shall not be deemed a part of the N-CSRS, the financial statements filed with the N-CSRS or otherwise "filed" for any purpose. Date: June 30, 2004 /s/ Richard S. Davis Richard S. Davis President, Chairman and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----