FROM THE CHAIRMAN
[Photo: Ralph F. Verni]
To Our Shareholders:
What a difference a year makes! Twelve months ago, investors were experiencing
one of the more difficult years in memory. Now, for at least the first three
months of 1995, nearly every category of stock and bond mutual fund enjoyed
positive performance. From year-to-year, markets will rise and fall--what's
most important is how your investments perform over longer periods of time.
It's often best to keep your money in the market, rather than trying to "time"
the rebounds. The lesson in all this is to think long-term.
Why has the market turned around so dramatically? Primarily, it's because the
economy is showing signs of slowing. After hiking rates in January, the Federal
Reserve chose not to do so at the end of March. Investors no longer feel that a
rate hike is constantly around the corner, and the result is more market
stability and optimism. The Fed may or may not be done with interest
rates--that will depend on what happens with the economy, inflation and the
U.S. dollar.
After such a strong quarter, it's easy to get overly optimistic. We would not
be surprised if stocks and bonds retreated somewhat in the short-term. However,
most signs are positive: the bond market is healthy and corporate profits
remain strong. Overall, we believe the long-term investment outlook is
positive.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
April 28, 1995
(1) +0.82% for Class B shares; +1.77% for Class C shares; +0.82% for Class D
shares.
(2) Source: Lipper Analytical Services (does not reflect sales charges) for 127
funds in Lipper's Flexible Portfolio Category.
(3) Investment result is based on a $10,000 investment in Class A shares at the
maximum sales charge of 4.5% with reinvestment of capital gain
distributions and income dividends. No adjustment has been made for income
taxes payable by shareholders on income dividends or capital gain
distributions.
(4) All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or
less than their original cost. All results assume reinvestment of capital
gains distributions and income dividends.
(5) Shares of the Fund had no class designations until June 1, 1993, when
designations were assigned based on the pricing and 12b-1 fees applicable
to shares sold thereafter. Performance data for a specified class include
periods prior to the adoption of class designations. "A" share returns for
each of the periods reflect the maximum 4.5% sales charge. "B" share
returns for the 1- and 5-year periods reflect a 5% and a 2% contingent
deferred sales charge, respectively. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions. "D" share return for the 1-year period reflects a 1%
contingent deferred sales charge. Performance for "B" and "D" shares prior
to June 1, 1993, reflects annual 12b-1 fees of .25% and performance
thereafter reflects annual 12b-1 fees of 1%, which will reduce subsequent
performance.
Fund Information (all data are for periods ended March 31, 1995)
Total value of $10,000 invested on December 29, 1988(3)
(Class A shares, at maximum applicable sales charge)
[Mountain Chart]
12/88 9,550
3/89 9,957
3/90 11,030
3/91 11,478
3/92 13,003
3/93 15,154
3/94 16,815
3/95 17,070
SEC Average Annual Compound Rates of Return
(at maximum applicable sales charge)4,5
Life of Fund 5 years 1 year
Class A +8.92% +8.13% -3.05%
Class B +9.49% +8.55% -4.08%
Class C +9.82% +9.25% +1.77%
Class D +9.50% +8.85% -0.16%
Cumulative Total Returns
(do not reflect sales charge)(4)
Life of Fund 5 years 1 year Year-to-date
Class A +78.75% +54.76% +1.52% +5.26%
Class B +76.38% +52.71% +0.82% +5.09%
Class C +79.74% +55.61% +1.77% +5.31%
Class D +76.47% +52.79% +0.82% +5.08%
<PAGE>
[Photo: Michael R. Yogg, Portfolio Manager]
After a difficult 1994, Managed Assets has taken a turn for the better in 1995.
Nearly every type of investment performed poorly in 1994, so our strategy of
diversifying into stocks, bonds and inflation-responsive securities did not
provide many benefits for investors. For the twelve months ended March 31,
1995, performance was positive but disappointing. Class A shares provided a
total return of +1.52% (this return does not include sales charges).(1)
However, Managed Assets trailed the +6.83% return for the Flexible Portfolio
category.(2) The first quarter of 1995 was much better.
The portfolio's structure is not significantly different from 12 months ago,
except for a slight decrease in the percentage of bonds and an increase in the
percentage of inflation-responsive securities. As of March 31, 1995, Managed
Assets was more heavily weighted in stocks, at 52% of the portfolio. Bonds
represented 35% of the portfolio, inflation-responsive securities 10% and cash
the final 3%.
Stocks
Our stock holdings provided positive, but unspectacular, performance over the
past 12 months. Large-capitalization stocks--both value and growth--performed
best, particularly in the first three months of 1995. The portfolio's
small-capitalization stock holdings performed poorly--the result of weak stock
selection and general underperformance by small stocks. International stocks,
in general, performed poorly.
Bonds
Our holdings in high-grade and high-yield bonds fell less than the averages in
1994, and recovered strongly--along with the bond market--through March 1995.
Foreign government bonds continued to disappoint.
Inflation-Responsive
Inflation-responsive securities had the best performance for Managed Assets
over the past 12 months. In 1994, our strategy focused on the stocks of
companies in the commodities industries, which we expected to benefit from the
booming world economy. Our current strategy is more targeted on energy stocks,
particularly in natural gas.
Recent Changes
In March 1995, we made some small changes to the portfolio. After a nice surge
by our large-cap holdings in 1995, we took some profits and moved the money
into small-cap stocks. As the economy begins to slow, investors will be
searching for the growth small caps offer. In addition, after the strong first
quarter for U.S. bonds, we sold some high-grade bonds and moved the money into
international bonds, which, after performing poorly, offered attractive value.
Asset Allocation (by percentage of net assets)
[Pie chart]
Equities 52%
Bonds 35%
Inflation Responsive 10%
Net Cash 3%
Top 5 Portfolio Sectors (by percentage of net assets)
[Horizontal bar chart]
Basic industries stocks 14.8%
Consumer cyclical stocks 12.1%
Science & technology stocks 9.3%
Energy stocks 8.8%
U.S. Treasury securities 8.5%
Total net assets: 53.5%
2
<PAGE>
Investment Portfolio
March 31, 1995
Principal Maturity Value
Amount Date (Note 1)
Fixed Income Securities 35.0%
U.S. Treasury 8.5%
U.S. Treasury Bond, 8.125% $11,650,000 8/15/2021 $ 12,372,649
U.S. Treasury Note, 8.50% 4,800,000 5/15/1997 4,955,232
U.S. Treasury Note, 5.875% 4,100,000 3/31/1999 3,937,927
U.S. Treasury Note, 7.125% 3,825,000 9/30/1999 3,832,764
U.S. Treasury Note, 7.50% 3,250,000 11/15/2001 3,306,875
U.S. Treasury Note, 6.375% 1,275,000 8/15/2002 1,215,432
U.S. Treasury Note, 5.75% 2,275,000 8/15/2003 2,063,857
31,684,736
U.S. Agency Mortgage 6.9%
Federal Home Loan Mortgage
Corp., 7.50% 194,482 4/01/2002 191,442
Federal Home Loan Mortgage
Corp., 6.50% 942,774 5/01/2009 895,927
Federal Home Loan Mortgage
Corp., 8.50% 574 7/01/2009 581
Federal Home Loan Mortgage
Corp., 6.60% 850,000 2/15/2022 780,665
Federal Home Loan Mortgage
Corp., 6.50% 655,829 4/01/2009 623,240
Federal Home Loan Mortgage
Corp., 6.50% 225,615 7/01/2009 214,404
Federal Home Loan Mortgage
Corp., 7.50% 2,175,441 1/01/2025 2,106,762
Federal Home Loan Mortgage
Corp., 7.50% 1,412,289 8/01/2024 1,367,703
Federal Home Loan Mortgage
Corp., 8.00% 1,493,049 8/01/2024 1,479,045
Federal Home Loan Mortgage
Corp. TBA, 7.00% 4,375,000 4/19/2025 4,126,172
Federal National Mortgage
Association, 5.41% 1,300,000 6/25/1998 1,237,197
Federal National Mortgage
Association, 8.00% 352,163 4/01/2008 350,053
Federal National Mortgage
Association, 8.00% 454,986 6/01/2008 452,261
Federal National Mortgage
Association, 8.50% 411,930 2/01/2009 424,543
Federal National Mortgage
Association, 9.00% 94,157 5/01/2009 96,818
Federal National Mortgage
Association, 7.00% 1,743,095 2/01/2024 1,641,769
Federal National Mortgage
Association, 7.00% 502,224 4/01/2024 473,029
U.S. Agency Mortgage (cont.)
Federal National Mortgage
Association, 7.00% $ 281,615 5/01/2024 $ 265,245
Federal National Mortgage
Association, 7.00% 1,492,500 11/01/2024 1,405,741
Federal National Mortgage
Association REMIC Series
93-138-HA PAC, 6.75% 825,000 12/25/2021 763,381
Government National Mortgage
Association, 9.00% 560,133 6/15/2016 580,707
Government National Mortgage
Association, 8.00% 359,448 9/15/2022 356,076
Government National Mortgage
Association, 6.50% 272,992 1/15/2024 246,459
Government National Mortgage
Association, 8.00% 873,285 1/15/2024 865,093
Government National Mortgage
Association, 8.00% 917,672 2/15/2024 909,064
Government National Mortgage
Association, 6.50% 2,284,218 7/15/2024 2,062,214
Government National Mortgage
Association, 8.00% 399,036 7/15/2024 395,293
Government National Mortgage
Association, 7.00% 1,417,372 1/15/2025 1,325,682
25,636,566
Trust Certificates 0.4%
Cooperative Utility Trust
Certificates, 10.70% 350,000 9/15/2017 389,701
Cooperative Utility Trust
Certificates, 10.125% 225,000 3/15/2019 246,942
Cooperative Trust
Certificates, 10.11% 900,000 12/15/2017 988,686
1,625,329
Foreign 1.0%
Bell Canada Deb., 13.375% 600,000 10/15/2010 650,664
Carter Holt Harvey Ltd. Deb.,
9.50% 400,000 12/01/2024 434,572
Hydro Quebec Deb., 13.25% 600,000 12/15/2013 727,080
Hydro Quebec Deb., 9.40% 750,000 2/01/2021 812,115
Province of Manitoba, 9.25% 475,000 4/01/2020 526,276
Province of Quebec, 7.50% 675,000 7/15/2023 596,565
3,747,272
Foreign Government 6.8%
Commonwealth of Australia, Australian
9.50% Dollar
7,300,000 8/15/2003 5,260,783
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Foreign Government (cont'd)
Federal Republic of Germany, Deutsche
6.625% Mark
4,950,000 7/09/2003 $ 3,470,214
United Kingdom Treasury Stock, Pound
9.75% Sterling
1,450,000 8/27/2002 2,491,747
Canadian
Dollar
Government of Canada, 9.75% 1,100,000 12/01/2001 838,763
Government of Canada, 7.50% 1,500,000 12/01/2003 1,003,063
Danish
Krone
Kingdom of Denmark, 8.00% 2,500,000 5/15/2003 436,399
Kingdom of Denmark, 7.00% 39,300,000 12/15/2004 6,333,590
Italian
Lira
Republic of Italy, 8.50% 3,500,000,000 4/01/1999 1,786,923
Republic of Italy, 10.00% 1,750,000,000 8/01/2003 875,257
... Spanish
Peseta
Government of Spain, 11.45% 120,000,000 8/30/1998 936,389
Government of Spain, 8.30% 170,000,000 12/15/1998 1,202,291
Government of Spain, 11.30% 30,000,000 1/15/2002 226,464
Government of Spain, 10.90% 65,000,000 8/30/2003 475,930
25,337,813
Corporate 7.7%
Acme Boot, Inc. Sr. Notes,
11.50%*** $250,000 12/15/2000 100,000
Affinity Group, Inc. Sr. Sub.
Deb., 11.50% 250,000 10/15/2003 245,000
Allied Waste Industries, Inc.
Sr. Sub. Notes, 12.00% 250,000 2/01/2004 251,250
Almacs Inc. Sr. Sec. Notes,
11.50%** 27,000 11/18/2004 7,425
American Home Products Note,
7.70% 850,000 2/15/2000 855,933
American Telecasting Co. Sr.
Sub. Units, 0.00% to
6/14/99, 12.50% from 6/15/99
to maturity 250,000 6/15/2004 112,500
Amerisource Distribution Corp.
Sr. Deb., 11.25%** 293,420 7/15/2005 316,894
Anacomp, Inc. Cv. Deb.,
13.875% 395,000 1/15/2002 383,278
Anacomp International N.V. Cv.
Sub. Deb., 9.00% 250,000 1/15/1996 248,750
Axia Holdings Corp. Sr. Sub.
Note, 11.00% 250,000 3/15/2001 230,000
Bayou Steel Corp. First
Mortgage Note, 10.25% 500,000 3/01/2001 440,000
Corporate (cont'd)
Bell & Howell Co. Series B Sr.
Disc. Deb., 0.00% to
2/28/2000, 11.50% from
3/01/2000 to maturity $ 250,000 3/01/2005 $ 133,750
Belle Casinos, Inc. First
Mortgage Note, 12.00%+*** 125,000 10/15/2000 36,875
Boomtown, Inc. First Mortgage
Note, 11.50% 500,000 11/01/2003 475,000
CHC Helicopter Corp. Sr. Sub.
Note, 11.50% 250,000 7/15/2002 206,250
Carrols Corp. Sr. Notes,
11.50% 250,000 8/15/2003 230,000
Celcaribe S.A. Units, 0.00% to
3/14/98, 13.50% from 3/15/98
to maturity+ 183,000 3/15/2004 1,491,450
Central Rents, Inc. Sr. Units,
12.875% 750,000 12/15/2003 682,500
Chatwins Group Inc. Sr. Exch.
Note, 13.00% 500,000 5/01/2003 412,500
Chevron Corp. Note, 8.11% 750,000 12/01/2004 767,183
Color Tile, Inc. Sr. Note,
10.75% 250,000 12/15/2001 200,000
Computervision Corp. Sr.
Notes, 10.875% 480,000 8/15/1997 465,600
Computervision Corp. Sr.
Notes, 11.375% 250,000 8/15/1999 228,750
Consolidated Hydro Inc. Sr.
Disc. Notes, 0.00% 500,000 7/15/2003 332,480
Crown Packaging Holdings Ltd.,
0.00% to 10/31/2000, 12.25%
from 11/1/2000 to maturity 1,250,000 11/01/2003 600,000
Doskocil Companies Inc. Sr.
Sub. Red. Notes, 9.75% 250,000 7/15/2000 230,000
Dual Drilling Co. Sr. Sub.
Notes, 9.875% 250,000 1/15/2004 205,000
Equitable Bag Co. Inc. Sr.
Notes, 11.00%*** 238,000 12/16/2004 171,360
Finlay Enterprises, Inc. Sr.
Disc. Deb., 0.00% to 4/30/98,
12.00% from 5/01/98 to
maturity 1,000,000 5/01/2005 620,000
Fitzgeralds Gaming Corp. Sr.
Sec. Units, 13.75% to
6/14/95, 14.00% from 6/15/95
to 9/14/95, 14.25% from
9/15/95 to 12/14/95, 14.50%
from 12/15/95 to maturity+ 250,000 3/15/1996 132,500
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Corporate (cont'd)
Flagstar Corp. Sr. Sub. Deb.,
11.25% $ 250,000 11/01/2004 $210,000
Food 4 Less Supermarkets, Inc.
Sr. Disc. Notes, 0.00% to
12/14/97, 15.25% from
12/15/97 to maturity 250,000 12/15/2004 197,500
General Media Inc. Sr. Sec.
Note, 10.625% 250,000 12/31/2000 207,500
General Medical Corp. Sub.
Deb., 12.125%** 294,491 8/15/2005 290,810
Genmar Holdings, Inc. Sr. Sub.
Notes, 13.50% 250,000 7/15/2001 243,750
Goldriver Hotel & Casino Corp.
Mortgage Notes, 13.375% 317,000 8/31/1999 174,350
Grand Union Co. Sr. Sub.
Notes, 12.25%*** 500,000 7/15/2002 170,000
Granite Broadcasting Corp. Sr.
Sub. Deb., 12.75% 500,000 9/01/2002 515,000
HWCC-Tunica, Inc. Note,
13.50%+ 250,000 9/30/1998 260,000
Harvard Industries, Inc. Sr.
Notes, 12.00% 250,000 7/15/2004 256,875
Haynes International Inc. Sr.
Sec. Notes, 11.25% 500,000 6/15/1998 465,000
Haynes International Inc. Sr.
Sub. Notes, 13.50% 250,000 8/15/1999 162,500
Horsehead Industries, Inc.
Sub. Note, 14.00% 750,000 6/01/1999 766,875
ICF Kaiser International, Inc.
Sr. Sub. Units, 12.00% 250,000 12/31/2003 226,875
John Q. Hammons Hotels Notes,
8.875% 250,000 2/15/2004 233,125
Kaiser Aluminum and Chemical
Corp. Sr. Notes, 9.875% 250,000 2/15/2002 234,375
Loews Corp. Sr. Notes, 7.00% 450,000 10/15/2023 372,555
Mail-Well Holdings, Inc. Sr.
Notes, 0.00% to 2/14/2000,
11.75% from 2/15/2000 to
maturity 1,000,000 2/15/2006 460,000
Marcus Cable Capital Co. Sr.
Disc. Note, 0.00% to 7/31/99,
13.50% from 8/1/99 to
maturity 500,000 8/01/2004 285,000
Merrill Lynch & Co., Inc.
Equity Partnership, 0.00% 1,015,000 1/31/2000 851,331
Miles Home Services, Inc. Sr.
Units, 12.00% 250,000 4/01/2001 175,000
Corporate (cont'd)
Moran Energy International,
Inc. Cv. Sub. Deb., 8.00% $ 250,000 11/01/1995 $240,938
Motels of America, Inc. Sr. 507,500
Sub. Notes, 12.00% 500,000 4/15/2004
PageMart, Inc. Sr. Disc. Exch.
Note, 0.00% to 10/31/98,
12.25% from 11/01/98 to
maturity 500,000 11/01/2003 305,000
Penda Industries, Inc. Sr.
Notes, 10.75% 250,000 3/01/2004 220,000
Presidio Oil Co. Sr. Sec.
Notes, 11.50% 500,000 9/15/2000 421,250
Presidio Oil Co. Sr. Sub. Gas
Indexed Notes, 13.30% 200,000 7/15/2002 116,500
P.T. Indah Kiat Pulp & Paper
Note, 12.50% 250,000 6/15/2006 239,375
Rohr Industries, Inc. Cv. Sub.
Note, 7.75% 450,000 5/15/2004 515,250
SPI Holdings Inc. Sr. Notes,
0.00% to 9/30/96, 11.50% from
10/1/96 to maturity 300,000 10/01/2001 135,000
Sam Houston Race Park Ltd. Sr.
Sec. Note, 11.75%*** 250,000 7/15/1999 37,500
Santa Fe Hotel Inc. First
Mortgage Note, 11.00% 500,000 12/15/2000 485,000
Seven-Up/RC Bottling Co. of
Southern California Notes,
11.50% 750,000 8/01/1999 648,750
Sheffield Steel Corp. First
Mortgage Units, 12.00% 250,000 11/01/2001 237,500
Southwest Forest Industries,
Inc. Sub. Deb., 12.125% 250,000 9/15/2001 251,250
Sullivan Graphics, Inc. Sr.
Sub. Notes, 15.00% 500,000 2/01/2000 530,000
Talley Manufacturing and
Technology Inc. Sr.
Note, 10.75% 250,000 10/15/2003 232,500
Terex Corp. Sr. Sec. Notes,
13.00%+ 203,000 8/01/1996 197,417
Terex Corp. Sr. Sub. Notes,
13.50% 250,000 7/01/1997 235,000
Thermoscan, Inc. Sr. Sub.
Units, 11.50%+ 250,000 8/15/2001 250,000
Tiphook Finance Corp. Notes,
7.125% 148,000 5/01/1998 114,700
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Corporate (cont'd)
Total Renal Care, Inc. Sr.
Sub. Disc. Units, 0.00% to
8/14/97, 12.00% from 8/15/97
to maturity $ 500,000 8/15/2004 $ 435,000
Trans Ocean Container Corp.
Sr. Sub. Notes, 12.25% 250,000 7/01/2004 240,000
Treasure Bay Gaming & Resorts,
Inc. First Mortgage Units,
12.25%+*** 250,000 11/15/1998 50,000
Truck Components, Inc. Sr.
Notes, 12.25% 250,000 6/30/2001 258,750
Trump Plaza Funding, Inc.
First Mortgage Notes, 10.875% 500,000 6/15/2001 405,000
UCAR Global Enterprises, Inc.
Sr. Sub. Notes, 12.00%+ 250,000 1/15/2005 262,500
UCC Investors Inc. Sub. Disc.
Notes, 0.00% to 4/30/98,
12.00% from 5/01/98 to
maturity 500,000 5/01/2005 352,500
Universal Outdoor Holdings,
Inc. Units, 0.00% to 6/30/99,
14.00% from 7/01/99 to
maturity 1,000,000 7/01/2004 515,000
U.S.A. Mobile Communications,
Inc. Sr. Notes, 14.00% 250,000 11/01/2004 262,500
U.S.A. Mobile Communications,
Inc. Sr. Notes, 9.50% 500,000 2/01/2004 425,000
Waxman Industries, Inc. Sr.
Sec. Notes, 12.25% 500,000 9/01/1998 470,000
Waxman Industries, Inc. Sr.
Sec. Units, 0.00% to
5/31/99, 12.75% from 6/01/99
to maturity 928,000 6/01/2004 380,480
Wilrig A.S. Sr. Sec. Notes,
11.25% 750,000 3/15/2004 720,000
Wyman-Gordon Co. Sr. Notes,
10.75% 250,000 3/15/2003 235,000
28,502,809
Finance/Mortgage 3.7%
Ambac Inc. Deb., 9.375% 250,000 8/01/2011 275,010
American General Finance Corp.
Notes, 8.00% 600,000 2/15/2000 608,034
American Southwest Financial
Services Corp., 8.00% 541,041 8/25/2010 543,678
Finance/Mortgage (cont'd)
Beneficial Corp. Note, 9.125% $ 425,000 2/15/1998 $ 442,047
Beneficial Corp. Note, 8.17% 200,000 11/09/1999 203,790
Caterpillar Financial Services
Co. Note, 6.03% 200,000 11/16/1995 198,994
Countrywide Mortgage Series
1994-2 Class A-7, 6.50% 650,000 3/25/2008 629,889
Countrywide Mortgage Series
1993-E Class A-1, 6.50% 524,041 1/25/2024 512,578
Finova Capital Corp.
Global Notes, 9.125% 750,000 2/27/2002 794,085
First Chicago Credit Master
Trust Series 1991-D, 8.40% 350,000 6/15/1998 354,921
Fleet Mortgage Group, Inc.
Note, 7.25% 400,000 1/15/1998 397,116
Fleet Mortgage Group, Inc.
Note, 6.50% 600,000 9/15/1999 571,302
Ford Motor Credit Co. Notes,
8.45% 850,000 12/30/1998 873,604
General Electric Capital Corp.
Note, 7.625% 1,000,000 7/24/1996 1,007,940
General Motors Acceptance
Corp., 7.85% 675,000 11/17/1997 679,448
General Motors Acceptance
Corp., 8.625% 1,000,000 6/15/1999 1,031,290
Prudential Home Mortgage
Series 93-29 A-6, 6.75% 1,490,110 8/25/2008 1,448,655
Prudential Home Mortgage
Series 93-54 A-21, 5.50% 425,000 1/25/2024 393,656
Residential Funding Corp.
Series 93-S25 A-1, 6.50% 254,334 7/25/2008 245,272
Residential Funding Corp.
Series 93-S49 A-1, 6.00% 671,531 12/25/2008 659,564
Sears Roebuck & Co. Master
Trust Series 95-2, 8.10% 650,000 6/15/2004 667,875
Standard Credit Card Master
Trust Series 1993-3A, 5.50% 950,000 2/07/2000 891,214
Tandy Master Trust Series
1991-A, 8.25% 443,892 4/15/1999 446,804
13,876,766
Total Fixed Income Securities (Cost $132,896,323) 130,411,291
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Value
Shares (Note 1)
Equity Securities 51.9%
Basic Industries 11.1%
Chemical 3.1%
Atlantic Richfield Co. 57,400 $ 1,435,000
Cookson Group PLC* 170,000 571,533
Cookson Group PLC Rts.* 34,000 114,031
Daicel Chemical Industries,
Inc.* 160,000 865,861
E.I. duPont de Nemours & Co. 54,400 3,291,200
FMC Corp.* 16,300 986,150
Mississippi Chemical Corp.*++ 16,800 306,600
Mitsui Petrochemical Co.* 100,000 868,164
Potash Corp. of Saskatchewan,
Inc. 29,400 1,308,300
P.T. Tri Polyta Indonesia ADR* 25,000 550,000
Rohm & Haas Co. 4,500 265,500
Seagram Ltd. 30,000 952,500
11,514,839
Diversified 2.2%
Axia Holdings Corp.*+ 750 21,375
Coltec Industries, Inc.* 45,500 784,875
Corning Inc. 155,600 5,601,600
Johnson Controls, Inc. 26,300 1,338,013
Mark IV Industries, Inc. 32,100 658,050
PST Holdings, Inc.* 7,500 7,500
8,411,413
Electrical Equipment 0.1%
Union Switch & Signal, Inc.* 13,900 180,700
Forest Product 1.2%
Boise Cascade Corp. 9,600 333,600
Bowater, Inc. 30,000 1,072,500
Champion International Corp. 9,500 410,875
Crown Packaging Holdings Ltd.
Wts.*+ 3,750 112,500
Equitable Bag, Inc. Cl.A* 22,619 33,928
International Paper Co. 3,500 262,938
James River Corp. of Virginia 13,800 358,800
MacMillan Bloedel Ltd. 33,000 418,687
Mail-Well Holdings, Inc.*+ 5,000 35,000
S.D. Warren Co.+ 18,000 549,000
Westvaco Corp. 21,200 879,800
4,467,628
Machinery 2.8%
Black & Decker Corp. 24,400 704,550
CBI Industries, Inc. 52,900 1,355,563
Caterpillar Inc. 33,600 1,869,000
Chatwins Group, Inc. Wts.* 500 500
Cincinnati Milacron Inc. 40,400 924,150
Cooper Industries, Inc. 3,400 131,750
Machinery (cont'd)
Fluor Corp. 35,000 $ 1,688,750
Harsco Corp. 4,500 198,000
Millipore Corp. 33,900 1,889,925
Specialty Equipment Companies,
Inc.* 30,000 363,750
Sundstrand Corp. 23,800 1,198,925
Terex Corp. Rts. 750 563
10,325,426
Metal & Mining 1.1%
Algoma Finance Corp. Pfd.* 1,600 25,159
Alumax, Inc.* 35,100 943,312
Bohler Uddeholm 12,000 680,760
Geneva Steel Co. Wts.*+ 7,075 45,987
Geneva Steel Co. Series B Exch.
Pfd.* 2,500 280,000
Hylsamex S.A. Series B+ 357,400 557,544
Kaiser Aluminum Corp. Cv. Pfd. 6,400 67,200
Mitsubishi Materials 180,000 870,466
Sheffield Steel Corp. Wts.* 1,250 7,500
Stelco, Inc. Series C Cv. Pfd. 6,400 96,570
Timken Co. 14,700 521,850
4,096,348
Railroad 0.5%
CSX Corp. 17,000 1,338,750
Southern Pacific Rail Corp. 25,600 448,000
1,786,750
Truckers 0.1%
Arkansas Best Corp. 40,800 433,500
Total Basic Industries 41,216,604
Consumer Cyclical 11.9%
Airline 0.1%
Air Express International
Corp.* 18,450 470,475
CHC Helicopter Corp. Wts.* 2,000 2,000
472,475
Automotive 1.4%
Douglas & Lomason Co. 20,000 330,000
General Motors Corp. 16,000 708,000
Harvard Industries, Inc. Cl. B* 1,000 17,375
Harvard Industries, Inc. 14.25%
Exch. Pfd.** 10,192 279,006
Lear Seating Corp.* 124,730 2,245,140
Renault Group* 44,000 1,536,203
5,115,724
Building 0.7%
Cameron Ashley, Inc.* 8,700 139,200
Waxman Industries, Inc. Wts.*+ 29,500 3,687
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Building (cont'd)
Cementos Paz Del Rio SA ADR+ 15,000 $ 270,000
Fleetwood Enterprises Inc. 55,500 1,311,187
Hanson PLC ADR 27,900 526,613
Lafarge Corp. 14,000 262,500
Miles Homes Services, Inc.
Wts.* 3,000 1,500
2,514,687
Hotel & Restaurant 2.0%
Apple South, Inc. 16,500 257,813
Au Bon Pain Company, Inc.* 19,700 268,412
IHOP Corp* 24,300 715,331
Mirage Resorts, Inc.* 84,950 2,378,600
Motels of America, Inc.+ 500 40,000
Outback Steakhouse, Inc.* 13,500 342,563
Primadonna Resorts, Inc.* 15,200 380,000
Promus Companies, Inc.* 64,200 2,407,500
Station Casinos, Inc.* 63,400 729,100
7,519,319
Recreation 3.5%
Acclaim Entertainment, Inc.* 20,200 350,975
American Telecasting, Inc.
Wts.* 1,250 1,250
Boomtown, Inc. Wts.* 500 250
Brunswick Corp. 42,400 853,300
Comcast Corp. Cl. A 57,800 899,513
Comcast Corp. Cl. A Special 90,100 1,407,813
Walt Disney Co. 51,300 2,738,138
Gaylord Entertainment Co. Cl. A 11,700 307,125
Goldriver Hotel & Casino Corp.
Cl. B* 20,000 20,000
Goldriver Hotel & Casino Corp.
Liquidation Trust Units*# 500,000 6,350
Infinity Broadcasting Corp. Cl.
A* 20,225 844,394
Lewis Galoob Toys Inc. Cv.
Pfd.* 40,000 600,000
Pyramid Communications, Inc.
Cl. B*+ 700 31,404
Pyramid Communications, Inc.
Series C Exch. Pfd.*+ 22,597 531,032
Radica Games Ltd.* 10,500 38,063
Renaissance Communications
Corp.* 16,900 545,025
Taj Mahal Holdings Corp. Cl. A* 3,821 30,568
Viacom, Inc. Cl. B* 85,283 3,816,414
13,021,614
Retail Trade 3.7%
Central Rents, Inc. Wts.* 750 20,625
Color Tile, Inc. Pfd.* 5,000 115,000
Color Tile, Inc. Pfd.*+ 15,000 345,000
Department 56, Inc.* 17,900 713,763
Discount Auto Parts, Inc.* 8,400 201,600
Ethan Allen Interiors Inc.* 16,700 348,613
Retail Trade (cont'd)
Federated Department Stores,
Inc.* 42,800 $ 946,950
Finlay Enterprises, Inc. Cl. A* 1,333 14,663
Food 4 Less Holdings, Inc.
Wts.*# 584 52,058
Gymboree Corp.* 27,800 705,425
May Department Stores Co. 15,900 588,300
Peebles, Inc.*# 8,000 152,960
Penn Traffic Co.* 37,600 1,287,800
J.C. Penney, Inc. 33,800 1,516,775
Safety 1st, Inc.* 15,700 402,312
Sears Roebuck & Co. 9,700 517,738
Stop & Shop Companies, Inc.* 27,000 648,000
Supermarkets General Holding
Corp.
Exch. Pfd.* 14,198 340,752
Tandy Corp. 72,800 3,476,200
Woolworth Corp. 81,000 1,488,375
13,882,909
Textile & Apparel 0.5%
Authentic Fitness Corp.* 43,500 696,000
Norton McNaughton, Inc.* 21,000 372,750
Warnaco Group, Inc. Cl. A 49,000 875,875
1,944,625
Total Consumer Cyclical 44,471,353
Consumer Staple 6.7%
Business Service 0.4%
Acme Boot Co.+ 250 250
Franklin Quest Co.* 12,000 378,000
La Petite Holdings Corp. Red.
Exch. Pfd.* 22,000 550,000
PageMart, Inc. Wts.*+ 2,300 7,475
Universal Outdoor Holdings,
Inc. Wts.* 1,000 40,000
Vestar/LPA Investment Corp.*+ 1,375 19,250
Viking Office Products, Inc.* 13,200 409,200
1,404,175
Container 0.2%
Ball Corp. 9,800 336,875
Owens-Illinois, Inc. 23,900 268,875
605,750
Drug 0.3%
Arris Pharmaceutical Corp.* 25,700 179,900
Cyto Therapeutic, Inc.* 19,900 136,812
Rexall Sundown, Inc.* 14,300 146,575
Yamanouchi Pharmaceutical Co. 30,000 656,304
1,119,591
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Food & Beverage 0.8%
Coca-Cola Enterprises, Inc. 21,100 $ 440,463
Dr. Pepper Bottling Co. Cl. A* 56,000 196,000
LVMH Moet Hennessy Louis
Vuitton* 4,400 862,799
Pepsi Co, Inc. 42,300 1,649,700
3,148,962
Hospital Supply 3.8%
Abbott Laboratories 65,800 2,344,125
Advocat, Inc.* 14,200 181,050
Community Health Systems, Inc. 26,300 828,450
Genesis Health Ventures, Inc.* 13,500 421,875
Grancare, Inc.* 19,900 338,300
Healthcare Compare Corp.* 19,900 661,675
Healthsource Inc.* 9,900 469,013
Heart Technology, Inc.* 8,900 166,875
I-Stat Corp.* 5,100 127,500
IDEXX Laboratories, Inc.* 4,400 182,600
Mariner Health Group, Inc.* 23,300 451,437
Maxicare Health Plans, Inc.* 30,400 528,200
Multicare Companies, Inc.* 17,400 374,100
Owens & Miner, Inc. 25,500 331,500
Pyxis Corp. 17,700 367,275
Rightchoice Managed Care, Inc.
Cl. A* 9,500 171,000
Rotech Medical Corp.* 2,800 87,500
Sierra Health Services, Inc.* 22,900 752,838
United Healthcare Corp. 74,300 3,473,525
Vencor, Inc.* 28,350 1,009,969
Vivra, Inc.* 21,100 680,475
Wellcare Management Group,
Inc.* 2,900 99,325
14,048,607
Personal Care 0.4%
Procter & Gamble Co. 24,900 1,649,625
Printing & Publishing 0.8%
British Sky Broadcasting Group
ADR 2,800 68,950
Dimac Corp.* 2,774 38,142
General Media Inc. Wts.*+ 500 5,625
K-III Communications Corp.
Series B Exch. Pfd.** 3,133 303,901
News Corp. Ltd. ADR 136,800 2,616,300
Sullivan Holdings, Inc.* 148 53,467
3,086,385
Total Consumer Staple 25,063,095
Energy 3.7%
Oil 3.3%
Anadarko Petroleum Corp.++ 62,900 2,751,875
Ashland Oil, Inc. 9,300 331,313
Imperial Oil Ltd. 25,700 915,562
Oil (cont'd)
Louisiana Land & Exploration
Co.++ 59,400 $ 2,220,075
Mitchell Energy & Development
Corp. Cl. B 19,300 340,163
Phillips Petroleum Co. 67,900 2,486,838
Tosco Corp. 35,000 1,085,000
Total S.A. 12,600 751,441
Ultramar Corp. 9,900 257,400
Unocal Corp. 38,400 1,104,000
12,243,667
Oil Service 0.4%
Coflexip ADR* 24,500 1,350,073
Total Energy 13,593,740
Finance 6.0%
Bank 2.0%
H.F. Ahmanson & Co. 29,700 534,600
BankAmerica Corp. 39,900 1,925,175
Baybanks, Inc. 4,000 258,000
Chase Manhattan Corp. 20,300 723,187
Citicorp* 46,300 1,967,750
Mellon Bank Corp. 6,300 256,725
NationsBank Corp. 14,200 720,650
Riverbank American Non-cum.
Pfd. 20,000 440,000
West One Bancorp 23,600 643,100
7,469,187
Financial Service 0.8%
Federal Home Loan Mortgage
Corp. 24,500 1,482,250
Federal National Mortgage
Association 7,800 634,725
Money Store, Inc. 24,300 610,538
United Companies Financial
Corp. 4,960 173,600
2,901,113
Insurance 3.2%
Ace Ltd.* 28,900 729,725
AMBAC, Inc. 16,100 654,063
American Re Corp.* 32,800 1,148,000
Chubb Corp. 38,600 3,049,400
Equitable Companies, Inc. 64,700 1,423,400
General Re Corp. 15,800 2,085,600
Horace Mann Educators Corp. 3,300 73,012
Mutual Risk Management Ltd. 12,400 345,650
NAC Re Corp. 11,400 344,850
National Re Corp. 15,400 450,450
Progressive Corp. of Ohio 4,600 186,875
Safeco Corp. 22,400 1,226,400
20th Century Industries, Inc. 26,600 312,550
12,029,975
Total Finance 22,400,275
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Science & Technology 9.3%
Aerospace 0.7%
Boeing Co. 29,700 $ 1,600,088
Ladish Company, Inc.* 52,000 39,000
Sequa Corp.* 30,000 877,500
2,516,588
Computer Software & Service 2.3%
Atlantec Corp.* 9,000 402,750
Computervision Corp.* 400,000 2,000,000
FTP Software, Inc.* 25,500 809,625
General Motors Corp. Cl. E 20,200 785,275
Hyperion Software Corp.* 20,800 972,400
ITI Technologies, Inc.* 18,500 467,125
Intersolv, Inc.* 21,000 336,000
Keane, Inc.* 19,100 463,175
Mattson Technologies, Inc.* 10,100 229,775
Progress Software Corp.* 6,100 317,200
Softkey Software Products,
Inc.* 14,100 384,225
Symantec Corp.* 41,500 954,500
TGV Software, Inc.* 10,200 229,500
Wonderware Corp. 7,200 228,600
8,580,150
Electronic 5.3%
AMP, Inc. 35,200 1,267,200
Credence Systems Corp.* 8,600 268,750
Electroglas, Inc.* 21,900 958,125
L.M. Ericsson Telephone Co. Cl.
B ADR* 43,100 2,664,119
L.M. Ericsson Telephone Co. 20,000 1,241,723
FSI International, Inc.* 11,600 468,350
Intel Corp.* 37,300 3,165,838
Itron, Inc.* 19,300 453,550
Motorola, Inc. 21,000 1,147,125
Nokia Corp. Pfd. 9,600 1,409,252
Perkin-Elmer Corp. 150,400 4,380,400
Planar Systems, Inc.* 17,700 371,700
Tektronix, Inc.* 34,400 1,376,000
Tencor Instruments 9,300 551,025
19,723,157
Office Equipment 1.0%
Sequent Computer Systems, Inc. 20,700 341,550
Syquest Technology, Inc.* 19,800 240,075
Xerox Corp. 26,000 3,051,750
3,633,375
Total Science & Technology 34,453,270
Utility 3.2%
Electric 0.4%
Central Costanera S.A. de C.V.* 200,000 $ 589,941
Empresa Nacional de
Electricidad S.A. ADR 20,000 853,418
1,443,359
Natural Gas 1.0%
Broken Hill Proprietary Ltd.
ADR 68,000 891,182
Coastal Corp. 44,000 1,265,000
Transportadora de Gas del Sur
S.A. ADR 887,500 1,686,081
3,842,263
Telephone 1.8%
ALC Communications Corp.* 12,300 419,737
Air Touch Communications, Inc.* 63,800 1,738,550
Allen Group, Inc. 29,400 727,650
Cidco Inc.* 12,400 373,550
Cointel Prides* 20,000 995,000
Southern New England Telecom
Corp. 19,600 654,150
Sprint Corp.* 20,500 684,188
Tele Danmark AS Cl. B ADR 9,750 515,418
Vodafone Group PLC 200,000 643,227
6,751,470
Total Utility 12,037,092
Total Equity Securities (Cost
$174,706,733) 193,235,429
Equity Securities--Inflation Responsive Investments 10.3%
Basic Industries 3.7%
Chemical 0.3%
Cominco Fertilizers Ltd.* 40,000 1,118,576
Forest Product 0.2%
St. Laurent Paperboard, Inc.*@ 45,000 675,434
Metal & Mining 3.2%
Aber Resources Ltd.* 60,000 326,250
Birmingham Steel Co. 30,000 607,500
Coeur d'Alene Mines Corp. 20,000 370,000
Crown Resources Corp.* 75,000 328,125
Cyprus Amax Minerals Co.@ 108,900 3,090,038
Dia Met Minerals Ltd. Cl. A* 2,000 14,116
Dia Met Minerals Ltd. Cl. B* 20,000 157,244
Echo Bay Mines Ltd. 50,000 518,750
Falconbridge Ltd.* 40,000 671,860
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Metal and Mining (cont'd)
Freeport-McMoRan, Inc. 50,000 $ 906,250
Gibralter Mines Ltd. 30,000 144,736
Great Lakes Minerals, Inc.* 250,000 321,635
Kinross Gold Corp.* 100,000 562,500
Magma Copper Co. Cl. B* 100,000 1,737,500
Novicourt, Inc.* 50,000 153,670
Nucor Corp. 10,000 562,500
Rio Algom Ltd. 40,000 717,500
Santa Fe Pacific Gold Corp.* 20,000 252,500
Southernera Resources Ltd.* 100,000 115,789
TVX Gold, Inc.* 70,000 463,750
12,022,213
Total Basic Industries 13,816,223
Consumer Cyclical 0.2%
Building 0.2%
Giant Cement Holdings, Inc.* 67,000 770,500
Total Consumer Cyclical 770,500
Energy 5.1%
Oil 4.1%
Arakis Energy Corp.* 10,900 78,344
Barrett Resources Corp.* 30,000 648,750
Basin Exploration, Inc.* 20,000 176,250
Box Energy Corp. Cl. B* 24,000 213,000
Tom Brown Inc.*@ 74,600 1,156,300
CS Resources Ltd.* 100,000 616,468
Coda Energy, Inc.* 45,400 266,725
Crystal Oil Co.* 10,000 312,500
Discovery West Corp.* 50,000 146,523
Forest Oil Corp.* 60,000 138,750
Fortune Energy, Inc.* 21,975 9,738
Garnet Resources Corp.* 25,000 71,875
Gerrity Oil & Gas Corp.* 70,000 271,250
Global Natural Resources, Inc.* 165,000 1,278,750
Intensity Resources Ltd.* 161,300 332,031
Inverness Petroleum Ltd.* 30,000 176,899
Morgan Hydrocarbons, Inc.* 250,000 643,271
Nuevo Energy Co.*@ 28,100 554,975
Optima Petroleum Corp.* 33,300 74,925
Oil (cont'd)
Pan East Petroleum, Inc.* 50,000 $ 107,212
Phoenix Resource Cos., Inc.* 120,000 2,610,000
Plains Resources Inc.* 104,800 812,200
Ranchmens Resources Ltd.* 35,000 143,842
Ranger Oil Ltd.*@ 316,600 2,097,475
Stampeder Exploration Ltd. 30,000 128,654
Summit Resources Ltd. 50,000 330,570
Swift Energy Co.* 31,850 302,575
Tatham Offshore, Inc.* 20,000 130,000
Tipperary Corp. 15,300 95,625
Ulster Petroleum Ltd. 175,000 562,862
Ultra Petroleum Corp.* 50,000 66,114
United Meridian 13,500 189,000
Wascana Energy, Inc.* 65,000 551,694
Clayton Williams Energy, Inc. 30,000 135,000
15,430,147
Oil Service 1.0%
BJ Services Co.* 8,000 164,000
Energy Ventures, Inc.* 30,000 393,750
Grant Geophysical, Inc.* 30,000 84,375
Input/Output, Inc.* 14,400 379,800
Landmark Graphics Corp.* 18,200 341,250
J. Ray McDermott S.A. 6,500 175,500
Noble Drilling Corp.* 160,500 983,063
Nowsco Well Service Ltd.@ 72,400 805,450
Scientific Software-Intercomp
Inc.* 40,000 240,000
3,567,188
Total Energy 18,997,335
Utility 1.3%
Natural Gas 1.3%
ENSERCH Corp.@ 167,700 2,494,538
TransTexas Gas Corp.* 188,400 2,119,500
4,614,038
Total Utility 4,614,038
Total Equity
Securities--Inflation
Responsive Investments (Cost
$41,808,013) 38,198,096
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Principal Maturity Value
Amount Date (Note 1)
Cash Equivalents 7.5%
American Express Credit Corp.,
5.90% $ 532,000 4/6/1995 $ 532,000
Chevron Oil Finance Co., 5.85% 3,922,000 4/5/1995 3,922,000
Ford Motor Credit Co., 5.89% 6,780,000 4/3/1995 6,780,000
Ford Motor Credit Co., 5.96% 8,814,000 4/6/1995 8,814,000
Household Finance Corp., 5.95% 7,812,000 4/4/1995 7,812,000
Total Cash Equivalents (Cost $27,860,000) 27,860,000
Total Investments (Cost $377,271,069)--104.7% 389,704,816
Cash and Other Assets, Less Liabilities--(4.7)% (17,521,643)
Net Assets--100.0% $372,183,173
Federal Income Tax Information:
At March 31, 1995, the
net unrealized
appreciation of
investments based on
cost for Federal
income tax purposes
of $377,958,048 was
as follows:
Aggregate gross
unrealized
appreciation for all
investments in which
there is an excess of
value over tax cost $ 25,902,446
Aggregate gross
unrealized
depreciation for all
investments in which
there is an excess of
tax cost over value (14,155,678)
$ 11,746,768
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
* Nonincome-producing securities.
** Payments of income may be made in cash or in the form of additional
securities.
*** Security is in default.
# Security valued under consistently applied procedures established by the
Trustees. Security restricted as to public resale. The total cost and
market value of restricted securities owned at March 31, 1995 were $108,762
and $211,368 (0.06% of net assets), respectively.
+ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securities among certain
qualified institutional buyers. The total cost and market value of Rule
144A securities owned at March 31, 1995 were $6,376,601 and $5,255,871
(1.41% of net assets), respectively.
++ 5,000 shares of Anadarko Petroleum Corp., 25,000 shares of Louisiana Land &
Exploration Co., 8,200 shares of Mississippi Chemical Corp. are considered
by the Adviser to be part of Inflation Responsive Investments.
@ 14,600 shares of Tom Brown, Inc., 48,900 shares of Cyprus Amax Minerals
Co., 2,300 shares of Nuevo Energy Co., 67,700 shares of ENSERCH Corp.,
17,400 shares of Nowsco Well Service Ltd., 66,600 shares of Ranger Oil Ltd.
and 20,000 shares of St. Laurent Paperboard, Inc. are considered by the
Adviser to be part of Equity Securities.
TBA Represents "TBA" (to be announced) purchase commitment to purchase
securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price has been established, the
principal value has not been finalized.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Forward currency exchange contracts outstanding at March 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
<S> <C> <C> <C> <C>
Sell Australian dollars, buy U.S. dollars 2,000,000 AUD .74200 AUD $ 17,650 4/13/95
Sell Australian dollars, buy U.S. dollars 3,242,306 AUD .74490 AUD 36,096 5/16/95
Sell Australian dollars, buy U.S. dollars 1,087,701 AUD .73610 AUD 2,356 5/24/95
Sell Canadian dollars, buy U.S. dollars 535,926 CAD .70572 CAD (3,136) 4/24/95
Sell Canadian dollars, buy U.S. dollars 953,000 CAD .70646 CAD (6,111) 5/16/95
Sell Canadian dollars, buy U.S. dollars 836,588 CAD .71141 CAD (1,223) 5/16/95
Sell Danish krone, buy U.S. dollars 3,460,000 DKK .16480 DKK (64,351) 4/24/95
Sell Danish krone, buy U.S. dollars 19,993,300 DKK .17630 DKK (139,279) 5/16/95
Sell Danish krone, buy U.S. dollars 7,127,750 DKK .16745 DKK (112,781) 5/16/95
Sell Danish krone, buy U.S. dollars 4,324,150 DKK .17149 DKK (50,768) 5/24/95
Sell Deutsche marks, buy U.S. dollars 4,757,700 DEM .71721 DEM (52,229) 5/24/95
Sell Italian lira, buy U.S. dollars 606,626,890 ITL .00059 ITL 3,820 5/16/95
Sell Italian lira, buy U.S. dollars 935,635,680 ITL .00062 ITL 30,810 5/16/95
Sell Italian lira, buy U.S. dollars 683,900,000 ITL .00062 ITL 22,533 5/16/95
Sell Italian lira, buy U.S. dollars 1,470,000,000 ITL .00059 ITL 3,095 5/16/95
Sell Italian lira, buy U.S. dollars 864,900,000 ITL .00061 ITL 23,617 5/24/95
Sell Pound sterling, buy U.S. dollars 914,100 GBP 1.56800 GBP (47,159) 4/24/95
Sell Pound sterling, buy U.S. dollars 578,000 GBP 1.58110 GBP (21,395) 5/24/95
Sell Spanish peseta, buy U.S. dollars 23,250,000 ESP .00767 ESP (4,560) 5/16/95
Sell Spanish peseta, buy U.S. dollars 21,215,000 ESP .00762 ESP (5,191) 5/16/95
Sell Spanish peseta, buy U.S. dollars 62,350,000 ESP .00764 ESP (14,275) 5/16/95
Sell Spanish peseta, buy U.S. dollars 140,000,000 ESP .00768 ESP (26,797) 5/16/95
Sell Spanish peseta, buy U.S. dollars 108,400,000 ESP .00769 ESP (18,421) 5/24/95
$(427,699)
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Statement of Assets and Liabilities
March 31, 1995
Assets
Investments, at value (Cost $377,271,069) (Note 1) $389,704,816
Cash 5,286
Receivable for securities sold 6,900,119
Interest and dividends receivable 2,544,170
Receivable for fund shares sold 377,630
Receivable from Distributor (Note 3) 140,644
Receivable for open forward contracts 139,977
Other assets 66,873
399,879,515
Liabilities
Payable for securities purchased 26,024,148
Payable for open forward contracts 567,676
Payable for fund shares redeemed 282,814
Accrued management fee (Note 2) 232,656
Accrued distribution fee (Note 5) 173,777
Accrued transfer agent and shareholder services
(Note 2) 150,099
Dividends payable 107,510
Accrued trustees' fees (Note 2) 7,856
Other accrued expenses 149,806
27,696,342
Net Assets $372,183,173
Net Assets consist of:
Undistributed net investment income $ 1,018,118
Unrealized appreciation of investments 12,433,747
Unrealized depreciation of forward contracts
and foreign currency (424,954)
Accumulated net realized loss (12,755,387)
Shares of beneficial interest 371,911,649
$372,183,173
Net Asset Value and redemption price per share of
Class A shares ($181,357,717 / 20,697,855 shares of
beneficial interest) $8.76
Maximum Offering Price per share of Class A shares
($8.76 / .955) $9.17
Net Asset Value and offering price per share of Class
B shares ($152,250,575 / 17,423,324 shares of
beneficial interest)* $8.74
Net Asset Value, offering price and redemption price
per share of Class C shares ($25,802,975 / 2,943,770
shares of beneficial interest) $8.77
Net Asset Value and offering price per share of Class
D shares ($12,771,906 / 1,460,284 shares of
beneficial interest)* $8.75
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
Statement of Operations
For the year ended March 31, 1995
Investment Income
Interest, net of foreign taxes of $45,736 $ 11,837,812
Dividends, net of foreign taxes of $71,207 3,099,275
14,937,087
Expenses
Management fee (Note 2) 2,564,590
Transfer agent and shareholder services (Note 2) 1,171,091
Custodian fee 335,810
Registration fees 191,236
Reports to shareholders 115,209
Distribution fee--Class A (Note 5) 447,030
Distribution fee--Class B (Note 5) 1,277,012
Distribution fee--Class D (Note 5) 109,939
Audit fee 54,424
Trustees' fees (Note 2) 25,102
Legal fees 18,208
Miscellaneous 7,105
6,316,756
Expenses borne by the Distributor (Note 3) (1,062,971)
5,253,785
Net investment income 9,683,302
Realized and Unrealized Gain (Loss)
on Investments, Foreign Currency
and Forward Contracts
Net realized loss on investments (Notes 1 and 4) (12,175,757)
Net realized loss on forward contracts and foreign
currency (Note 1) (2,622,262)
Total net realized loss (14,798,019)
Net unrealized appreciation of investments 10,287,612
Net unrealized depreciation of forward contracts
and foreign currency (99,349)
Total net unrealized appreciation 10,188,263
Net loss on investments, foreign currency and forward
contracts (4,609,756)
Net increase in net assets resulting from operations $ 5,073,546
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Statement of Changes in Net Assets
March 31, 1995
Year ended March 31
1995 1994
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 9,683,302 $ 4,198,909
Net realized gain (loss) on
investments, foreign currency
and forward contracts* (14,798,019) 8,956,207
Net unrealized appreciation
(depreciation) of investments,
foreign currency and forward
contracts 10,188,263 (4,601,368)
Net increase resulting from
operations 5,073,546 8,553,748
Dividends from net investment income:
Class A (3,550,468) (3,076,231)
Class B (1,701,801) (673,462)
Class C (551,533) (425,534)
Class D (145,276) (54,466)
(5,949,078) (4,229,693)
Distributions from net realized gains:
Class A (2,686,125) (8,710,939)
Class B (1,571,333) (988,753)
Class C (352,065) (411,515)
Class D (134,219) (67,101)
(4,743,742) (10,178,308)
Net increase from fund share
transactions
(Note 6) 99,996,131 190,123,317
Total increase in net assets 94,376,857 184,269,064
Net Assets
Beginning of period 277,806,316 93,537,252
End of period (including
undistributed
(overdistributed) net
investment income of
$1,018,118 and $(381,760),
respectively) $372,183,173 $277,806,316
* Net realized gain (loss) for
Federal income tax purposes
(Note 1) $ (2,823,098) $ 9,536,372
The accompanying notes are an integral part of the financial statements.
Notes to Financial Statements
Note 1
MetLife-State Street Research Managed Assets, formerly MetLife-State Street
Managed Assets (the "Fund") is a series of MetLife-State Street Income Trust
(the "Trust"), which was organized as a Massachusetts business trust in
December, 1985 and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund commenced
operations in December, 1988. The Trust consists presently of three separate
funds: MetLife-State Street Research Managed Assets, MetLife-State Street
Research High Income Fund and MetLife-State Street Research Government
Securities Fund.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Investments of $1 million or more in Class A shares,
which are not subject to any initial sales charge, are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase. Class
B shares are subject to a contingent deferred sales charge on certain
redemptions made within five years of purchase and pay annual distribution and
service fees of 1.00%. Class B shares automatically convert into Class A shares
(which pay lower ongoing expenses) at the end of eight years after the issuance
of the Class B shares. Class C shares are only offered to certain employee
benefit plans and large institutions. No sales charge is imposed at the time of
purchase or redemption of Class C shares. Class C shares do not pay any
distribution or service fees. Class D shares are subject to a contingent
deferred sales charge of 1.00% on any shares redeemed within one year of their
purchase. Class D shares also pay annual distribution and service fees of
1.00%. The Fund's expenses are borne pro-rata by each class, except that each
class bears expenses, and has exclusive voting rights with respect to
provisions of the Plan of Distribution, related specifically to that class. The
Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Values for listed equity securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at closing prices
supplied through such system. If not quoted on the NASDAQ system, such
securities are valued at prices obtained from independent brokers. In the
absence of recorded sales, valuations are at the mean of the closing bid and
asked quotations. Fixed income securities are valued by a pricing service,
which utilizes market transactions, quotations from dealers, and various
relationships among securities in determining value. Short-term securities
maturing within sixty days are valued at amortized cost. Other securities, if
any, are valued at their fair value as determined in good faith under
consistently applied procedures established by and under the supervision of the
Trustees.
15
<PAGE>
B. Forward Contracts and Foreign Currencies
The fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange contract
is an obligation by the Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the origination date of
the contract. Forward foreign currency exchange contracts establish an exchange
rate at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated movements
in the value of foreign currencies relative to the U.S. dollar. The aggregate
principal amount of forward currency exchange contracts is recorded in the
Fund's accounts. All commitments are marked-to-market at the applicable
transaction rates resulting in unrealized gains or losses. The Fund records
realized gains or losses at the time the forward contracts are extinguished by
entry into a closing contract or by delivery of the currency. Neither spot
transactions nor forward currency exchange contracts eliminate fluctuations in
the prices of the Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the price of these securities should decline.
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.
D. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of the
Fund. Interest income is accrued daily as earned. Dividend income is accrued on
the ex-dividend date. Discount on debt obligations is amortized under the
effective yield method. Certain fixed income securities held by the Fund pay
interest or dividends in the form of additional securities (payment-in-kind
securities). Interest income on payment-in-kind fixed income securities is
recorded using the effective-interest method. Dividend income on
payment-in-kind preferred securities is recorded at the market value of
securities received. The Fund is charged for expenses directly attributable to
it, while indirect expenses are allocated among all funds in the Trust.
E. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions, paydown gains and losses and wash sale
deferrals.
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 March 31, 1995, the Fund had a capital
loss carryforward of $2,823,098 available, to the extent provided in
regulations, to offset future capital gains, if any, which expires on March 31,
2003.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through March 31, 1995, the Fund incurred net capital losses of approximately
$9,217,000 and intends to defer and treat such losses as arising in the fiscal
year ending March 31, 1996.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly-owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees at an annual rate of 0.75% of the Fund's average daily net assets.
In consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the year ended March 31, 1995, the fees pursuant to such agreement
amounted to $2,564,590.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly-owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan 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. During the year ended March 31, 1995, the amount of
such expenses was $310,318.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$25,102 during the year ended March 31, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund.
During the year ended March 31, 1995, the amount of such expenses assumed by
the Distributor and its affiliates was $1,062,971.
Note 4
For the year ended March 31, 1995, purchases and sales of securities, exclusive
of short-term obligations and forward foreign currency
16
<PAGE>
exchange contracts, aggregated $396,468,986 and $290,491,526 (including
$122,338,288 and $102,896,631 of U.S. Government obligations), respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund pays
annual service fees to the Distributor at a rate of 0.25% of average daily net
assets for Class A, Class B and Class D shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class D 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
year ended March 31, 1995, fees pursuant to such plan amounted to $447,030,
$1,277,012 and $109,939 for Class A, Class B and Class D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $198,230 and $1,353,232, respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1995, and that MetLife Securities,
Inc. earned commissions aggregating $2,430,895 and $53 on sales of Class B and
Class D shares, respectively, and the Distributor collected contingent deferred
sales charges aggregating $657, $451,301 and $7,564 on redemptions of Class A,
Class B and Class D shares, respectively during the same period.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At March 31, 1995, Metropolitan owned 23,306 Class A shares and 59,315 Class D
shares of the Fund and the Distributor owned one Class A share of the Fund.
Share transactions were as follows:
Year ended March 31
1995 1994
Class A Shares Amount Shares Amount
Shares sold 6,602,965 $ 57,372,536 10,442,962 $ 96,214,351
Issued upon
reinvestment
of:
Dividends from
net investment
income 392,651 3,377,080 322,498 2,915,135
Distributions
from net
realized gains 297,451 2,584,847 958,393 8,393,862
Shares
repurchased (5,156,516) (44,295,455) (3,619,570) (32,581,833)
Net increase 2,136,551 $ 19,039,008 8,104,283 $ 74,941,515
June 1, 1993
(Commencement of
Share Class Designations) to
March 31, 1994
Class B Shares Amount Shares Amount
Shares sold 10,279,851 $88,909,733 9,419,196 $87,131,459
Issued upon
reinvestment
of:
Dividends from
net investment
income 189,138 1,630,253 69,475 626,074
Distributions
from net
realized gains 176,093 1,524,943 105,681 959,585
Shares
repurchased (2,549,340) (21,785,748) (266,770) (2,450,176)
Net increase 8,095,742 $ 70,279,181 9,327,582 $86,266,942
Class C Shares Amount Shares Amount
Shares sold 1,583,387 $ 13,778,442 2,718,736 $24,514,943
Issued upon
reinvestment
of:
Dividends from
net investment
income 63,889 549,690 47,360 425,534
Distributions
from net
realized gains 40,418 351,228 45,129 411,515
Shares
repurchased (1,139,442) (9,788,334) (415,707) (3,810,851)
Net increase 548,252 $ 4,891,026 2,395,518 $21,541,141
Class D Shares Amount Shares Amount
Shares sold 844,434 $ 7,326,800 826,147 $ 7,652,126
Dividends from
net investment
income 14,873 128,335 1,771 15,830
Distributions
from net
realized gains 14,278 123,793 7,306 66,416
Shares
repurchased (209,961) (1,792,012) (38,564) (360,653)
Net increase 663,624 $ 5,786,916 796,660 $ 7,373,719
17
<PAGE>
Financial Highlights
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A
Year ended March 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 8.94 $ 8.94 $ 8.22 $ 7.61 $ 7.81
Net investment income* .27 .22 .27 .37 .44
Net realized and
unrealized gain (loss)
on investments and
forward contracts (.14) .72 1.01 .62 (.14)
Dividends from net
investment income (.17) (.22) (.25) (.38) (.41)
Distributions from net
realized gains (.14) (.72) (.31) -- (.09)
Net asset value, end of
year $ 8.76 $ 8.94 $ 8.94 $ 8.22 $ 7.61
Total return 1.52%+ 10.96%+ 16.54%+ 13.29%+ 4.06%+
Net assets at end of year
(000s) $181,358 $166,011 $93,537 $78,483 $64,139
Ratio of operating
expenses to average net
assets* 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment
income to average net
assets* 3.11% 2.75% 3.26% 4.60% 5.78%
Portfolio turnover rate 89.58% 105.17% 142.86% 97.76% 68.08%
*Reflects voluntary
assumption of fees or
expenses per share in
each year (Note 3) $ .03 $ .02 $ .02 $ .02 $ .02
</TABLE>
<TABLE>
<CAPTION>
Class B Class C Class D
Year ended Year ended Year ended
March 31, March 31, March 31,
1995 1994** 1995 1994** 1995 1994**
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 8.92 $ 8.78 $ 8.95 $ 8.78 $ 8.93 $ 8.78
Net investment income* .20 .16 .29 .21 .20 .16
Net realized and
unrealized gain (loss)
on investments and
forward contracts (.13) .39 (.14) .43 (.13) .40
Dividends from net
investment income (.11) (.18) (.19) (.24) (.11) (.18)
Distributions from net
realized gains (.14) (.23) (.14) (.23) (.14) (.23)
Net asset value, end of
year $ 8.74 $ 8.92 $ 8.77 $ 8.95 $ 8.75 $ 8.93
Total return 0.82%+ 6.26%++ 1.77%+ 7.27%++ 0.82%+ 6.31%++
Net assets at end of year
(000s) $152,251 $83,244 $25,803 $21,434 $12,772 $ 7,117
Ratio of operating
expenses to average net
assets* 2.00% 2.00%# 1.00% 1.00%# 2.00% 2.00#
Ratio of net investment
income to average net
assets* 2.38% 2.03%# 3.37% 3.03%# 2.39% 2.03%#
Portfolio turnover rate 89.58% 105.17% 89.58% 105.17% 89.58% 105.17%
* Reflects voluntary
assumption of fees or
expenses per share in
each year (Note 3) $ .03 $ .03 $ .03 $ .02 $ .03 $ .03
</TABLE>
# Annualized.
** June 1, 1993 (commencement of share class designations) to March 31, 1994.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
18
<PAGE>
Report of Independent Accountants
To the Trustees of MetLife-State Street
Income Trust and the Shareholders of
MetLife-State Street Research Managed Assets
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MetLife-State Street Research
Managed Assets (formerly MetLife-State Street Managed Assets) (a series of
MetLife-State Street Income Trust, hereafter referred to as the "Trust") at
March 31, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits which included confirmation of securities owned at March 31, 1995,
by correspondence with the custodian and brokers and the application of
alternative procedures where confirmations from brokers were not received,
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
May 12, 1995
19
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
As of March 31, 1995, Managed Assets was more heavily weighted in stocks, at
52% of the portfolio, than bonds, at 35% of the portfolio. Inflation-
responsive securities represented 10% and cash the final 3% of the portfolio.
The portfolio's structure is not significantly different from 12 months ago
except for a slight decrease in the percentage of bonds and an increase in the
percentage of inflation-responsive securities.
Stocks
Our stock holdings provided positive performance over the past 12 months.
Large-capitalization stocks--both growth and value--performed best,
particularly in the first three months of 1995. The portfolio's small-
capitalization and international stock holdings performed poorly.
Bonds
Our holdings in high-grade and high-yield bonds fell less than average in 1994,
and recovered strongly--along with the bond market--through March 1995.
International bonds continued to disappoint.
Inflation-Reponsive
Inflation-reponsive securities had the best performance for Managed Assets over
the past 12 months. In 1994, our strategy with this sector focused on the
securities of companies in the commodities industries. In 1995, we have
targeted energy stocks, particularly in natural gas.
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in the
Fund will fluctuate and shares, when redeemed, may be worth more or less than
their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Shares of the Fund had no class
designations until June 1, 1993, when designations were assigned based on the
pricing and 12b-1 fees applicable to shares sold thereafter. Performance data
for a specified class include periods prior to the adoption of class
designations. "A" share returns for each of the periods reflect the maximum
4.5% sales charge. "B" share returns for the 1- and 5-year periods reflect a 5%
and a 2% contingent deferred sales charge, respectively. "C" shares, offered
without a sales charge, are available only to certain employee benefit plans
and large institutions. "D" share return for the 1-year period reflects a 1%
contingent deferred sales charge. Performance for "B" and "D" shares prior to
June 1, 1993, reflects annual 12b-1 fees of .25% and performance thereafter
reflects annual 12b-1 fees of 1%, which will reduce subsequent performance. The
Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely-traded
common stocks and is a commonly-used measure of U.S. stock market performance.
Lehman Brothers Government/ Corporate Index is a commonly-used index of bond
market performance. Indices are unmanaged and do not take sales charges into
consideration. Direct investment in the indices are not possible; results are
for illustrative purposes only.
Comparison Of Change In Value Of A $10,000
Investment In Managed Assets, The S&P 500 And
The Lehman Brothers Government/Corporate Index
[Four line charts]
Class A Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
-3.05% +8.13% +8.92%
Managed LB Gov't/
Assets Corp Index S&P 500
88 10,000 10,000 10,000
89 10,426 10,111 10,708
90 11,550 11,293 12,767
91 12,019 12,703 14,603
92 13,616 14,149 16,212
93 15,868 16,172 18,678
94 17,504 16,621 18,951
95 17,070 17,381 21,896
Class B Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
-4.08% +9.55% +9.49%
Managed LB Gov't/
Assets Corp Index S&P 500
88 10,000 10,000 10,000
89 10,426 10,111 10,708
90 11,550 11,293 12,767
91 12,019 12,703 14,603
92 13,616 14,149 16,212
93 15,868 16,172 18,678
94 17,495 16,621 18,951
95 17,638 17,381 21,896
Class C Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
+1.77% +8.25% +9.82%
Managed LB Gov't/
Assets Corp Index S&P 500
88 10,000 10,000 10,000
89 10,426 10,111 10,708
90 11,550 11,293 12,767
91 12,019 12,703 14,603
92 13,616 14,149 16,212
93 15,868 16,172 18,678
94 17,661 16,621 18,951
95 17,974 17,381 21,896
Class D Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
-0.16% +8.85% +9.50%
Managed LB Gov't/
Assets Corp Index S&P 500
88 10,000 10,000 10,000
89 10,426 10,111 10,708
90 11,550 11,293 12,767
91 12,019 12,703 14,603
92 13,616 14,149 16,212
93 15,868 16,172 18,678
94 17,504 16,621 18,951
95 17,647 17,381 21,896
20
<PAGE>
Fund Information, Officers and Trustees
of MetLife-State Street Income Trust
Fund Information
Investment Adviser
State Street Research and
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Barlett R. Geer
Vice President
John H. Kallis
Vice President
Michael R. Yogg
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Constantine Hutchins, Jr.
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director, State
Street Research & Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust Company of
New York); presently
engaged in private investments
and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly
Executive Vice President,
Chief Operating Officer and
Director, Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman
of the Board and Chief Executive
Officer, Raytheon Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of Management,
Massachusetts Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel, Choate, Hall & Stewart
21
<PAGE>
[Back Cover]
MetLife-State Street Research Managed Assets
One Financial Center
Boston, MA 02111
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[State Street Research logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective investors.
CONTROL NUMBER: 2323-950525(0696)SSR-LD
Cover Illustration by Dorothy Cullinan MA-575D-595
<PAGE>
[Front Cover]
[State Street Research logo] STATE STREET RESEARCH
METLIFE-STATE STREET RESEARCH MANAGED ASSETS
Annual Report
March 31, 1995
[Drawing of person running up a mountain towards the stars]
WHAT'S INSIDE
New and Improved:
A new design that's
easier to read
From the Chairman:
What a difference
a year makes!
Portfolio Manager's Review:
The Fund has begun to recover after a difficult 1994
Fund Information:
Facts and Figures
Plus, Complete Portfolio Holdings
and Financial Statements
FROM THE CHAIRMAN
[Photo: Ralph F. Verni]
To Our Shareholders:
What a difference a year makes! Twelve months ago, investors were experiencing
one of the more difficult years in memory. Now, for at least the first three
months of 1995, nearly every category of stock and bond mutual fund enjoyed
positive performance. From year-to-year, markets will rise and fall--what's
most important is how your investments perform over longer periods of time.
It's often best to keep your money in the market, rather than trying to "time"
the rebounds. The lesson in all this is to think long-term.
Why has the market turned around so dramatically? Primarily, it's because the
economy is showing signs of slowing. After hiking rates in January, the Federal
Reserve chose not do to so at the end of March. Investors no longer feel that a
rate hike is constantly around the corner, and the result is more market
stability and optimism. The Fed may or may not be done with interest rates--
that will depend on what happens with the economy, inflation and the U.S.
dollar.
After such a strong quarter, it's easy to get overly optimistic. We would not
be surprised if stocks and bonds retreated somewhat in the short-term. However,
most signs are positive: the bond market is healthy and corporate profits
remain strong. Overall, we believe the long-term investment outlook is
positive.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
April 28, 1995
(1) +0.89% for Class B shares; +1.73% for Class C shares; +0.88% for Class D
shares.
(2) Source: Lipper Analytical Services, (does not reflect sales charges) for 99
funds in Lipper's High Current Yield Category.
(3) Investment result is based on a $10,000 investment in Class A shares at the
maximum sales charge of 4.5% with reinvestment of capital gain
distributions and income dividends. No adjustment has been made for income
taxes payable by shareholders on income dividends or capital gain
distributions.
(4) All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or
less than their original cost. All returns assume reinvestment of capital
gain distributions and income dividends. In January 1994, the Fund changed
its investment objective to include capital appreciation as a secondary
consideration in selecting portfolio securities, to eliminate requirements
that a percentage of the Fund be invested in certain rating categories, and
to allow greater use of convertible and preferred securities. Previously,
the Fund was required to invest at least 65% in securities rated BBB, BB
or B.
(5) Shares of the Fund had no class designations until June 1, 1993, when
designations were assigned based on the pricing and 12b-1 fees applicable
to shares sold thereafter. Performance data for a specified class include
periods prior to the adoption of class designations. "A" share returns for
each of the periods reflect the maximum 4.5% sales charge. "B" share
returns for the 1- and 5-year periods reflect a 5% and a 2% contingent
deferred sales charge, respectively. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions. "D" share return for the 1-year period reflects a 1%
contingent deferred sales charge. Performance for "B" and "D" shares prior
to June 1, 1993, reflects annual 12b-1 fees of .25% and performance
thereafter reflects annual 12b-1 fees of 1%, which will reduce subsequent
performance.
Fund Information (all data are for periods ended March 31, 1995)
Total value of $10,000 invested on August 25, 1986(3)
(Class A shares, at maximum applicable sales charge)
[Mountain chart]
8/86 9,550
8/87 10,631
3/88 11,136
3/89 12,509
3/90 11,670
3/91 11,926
3/92 15,378
3/93 18,252
3/94 20,912
3/95 21,289
SEC Yield
Class A 10.69%
Class B 10.47%
Class C 11.53%
Class D 10.46%
SEC yield is calculated according to Securities and Exchange Commission
requirements and is based on the net investment income produced for the 30
days ended March 31, 1995. Yield does not necessarily reflect the income stream
an investor can expect. A high yield is in part indicative of the lower prices
of the high risk bonds in the Fund's portfolio. Such lower prices reflect the
increased risk of the financial restructuring or default of the issuers of such
bonds.
SEC Average Annual Compound
Rates of Return
(at maximum applicable sales charge)(4),(5)
Life of Fund 5 years 1 year
Class A +9.18% +11.74% -2.78%
Class B +9.55% +12.17% -3.62%
Class C +9.76% +12.77% +1.73%
Class D +9.55% +12.40% -0.02%
Cumulative Total Returns
(do not reflect sales charge)(4)
Life of Fund 5 years 1 year
Class A +123.07% +82.50% +1.80%
Class B +119.45% +79.53% +0.89%
Class C +123.07% +82.50% +1.73%
Class D +119.37% +79.47% +0.88%
<PAGE>
PORTFOLIO MANAGER'S REVIEW
[Photo: Bartlett R. Geer, Portfolio Manager]
High Income Fund continues to provide attractive performance for shareholders.
Class A shares of the Fund provided a total return of +1.80% (does not include
sales charges) for the 12 months ended March 31, 1995.(1) The average
high-yield bond fund provided a total return of +1.55% over the same time
period.(2) In addition, the Fund continues to provide a high level of income.
As of March 31, 1995, the Fund's yield was in the top 10% of all high-yield
funds according to Lipper Analytical Services.(2)
Longer-term, the Fund's performance has been excellent. Morningstar, the
well-known mutual fund analyst, awarded Class A shares of High Income Fund a
[4-star] overall rating, its second highest rating, for the fund's
risk-adjusted performance for the five years ended March 31, 1995. Class A
shares received a five-star rating for the three years ended March 31, 1995
(among 2027 funds in the hybrid category) and a four-star rating for the five
years (among 1516 hybrid funds). Morningstar credited High Income Fund for
"above average returns" and "below average risk." The Morningstar ratings are
based on Class A shares and should be interpreted carefully by investors who
invest in another class of shares.
Star ratings for classes other than Class A may vary and are only available for
classes with at least three years of performance history. All classes of shares
have a common portfolio. Morningstar proprietary ratings reflect historical
risk-adjusted performance as of March 31, 1995, and are subject to change every
month. Funds with at least three years of performance history are assigned
ratings from one star (lowest) to five stars (highest). Morningstar ratings are
calculated from the fund's three- and five-year average annual returns in
excess of 90-day Treasury bill returns, with appropriate fee adjustments and a
risk factor that reflects fund performance below 90-day T-bill returns. Ten
percent of the funds receive five stars, and 22.5% four stars. High Income Fund
was compared with a combined universe of equity, fixed income and hybrid funds.
Past performance is no guarantee of future results.
High Income Fund weathered the difficulties of 1994 relatively well. The
portfolio's "B" rated bonds were less sensitive than higher-quality bonds to
the Fed's interest rate hikes. Plus, the Fund's high level of income helped
balance price weakness to some extent. Performance suffered during the last few
months of 1994, however, because of the coincidence of several defaults in the
portfolio between September and November, as well as general weakness in the
high-yield market.
Gains in the first three months of 1995 helped the fund significantly.
High-yield bond prices moved higher because supply was low--issuers were
hesitant after 1994's difficulties--and demand was very strong.
High Income Fund's portfolio continues to emphasize high-yield bonds, at about
80% of the portfolio. Equities--primarily high-yielding preferred
stocks--represent approximately 15% of the portfolio. Some of the equities are
warrants or common stocks, which come either as a "sweetener" in bond or
preferred stock purchases, or as part of restructuring settlements. The
portfolio is diversified in more than 250 different securities. This broad
diversification is one way we help compensate for the greater default risk of
high-yield bonds.
Thus far in 1995, we have begun to reduce our position in bonds from cyclical
industries, such as paper (forest products), which do best when the economy is
strong. Such bonds helped the Fund in 1994, when the economy was stronger. We
also are working to make the portfolio more "recession-proof." To help protect
the portfolio, we are gradually weeding through our holdings, and trying to
"trade-up" to high-yield bonds that can better weather a weak economy.
Quality Ratings (by percentage of net assets)
[Pie chart]
B 49%
Not rated 16%
Equities/Other 15%
CCC and below 12%
Cash 5%
BB 3%
Quality ratings based on those provided by Standard & Poor's Corp.
and/or equivalent ratings by Moody's Investors Service, Inc.
5 Largest Positions (by percentage of net assets)
[Horizontal bar chart]
Metals & Mining 10.7%
Media 7.2%
Gaming & Lodging 6.9%
Technology 5.8%
Grocery 5.6%
Total net assets: 36.2%
2
<PAGE>
METLIFE-STATE STREET RESEARCH HIGH INCOME FUND
Investment Portfolio
March 31, 1995
Principal Maturity Value
Amount Date (Note 1)
BONDS 79.5%
Aerospace 2.6%
Alliant TechSystems, Inc.
Sr. Sub. Notes, 11.75%+ $6,250,000 3/01/2003 $ 6,375,000
K&F Industries, Inc. Sr.
Secured Notes, 13.75% 1,700,000 8/01/2001 1,691,500
K&F Industries, Inc. Sr.
Secured Notes, 11.875% 6,000,000 12/01/2003 6,030,000
Talley Mfg. & Technology,
Inc. Sr. Notes, 10.75% 1,250,000 10/15/2003 1,162,500
Tracor Inc. Sr. Sub. Notes,
10.875% 1,000,000 8/15/2001 1,005,000
Wyman-Gordon Co. Sr. Notes,
10.75% 3,050,000 3/15/2003 2,867,000
19,131,000
Airlines 1.4%
CHC Helicopter Corp. Sr.
Sub. Note, 11.50% 4,750,000 7/15/2002 3,918,750
GPA Delaware, Inc. Deb.,
8.75% 8,000,000 12/15/1998 6,340,000
10,258,750
Automotive 0.5%
Harvard Industries, Inc.
Sr. Notes, 12.00% 2,250,000 7/15/2004 2,311,875
Penda Industries, Inc. Sr.
Notes, 10.75% 1,750,000 3/01/2004 1,540,000
Venture Holdings Trust Sr.
Sub. Notes, 9.75% 250,000 4/01/2004 217,500
4,069,375
Cable 1.4%
American Telecasting, Inc.
Sr. Sub. Units, 0.00% to
6/14/99, 12.50% from
6/15/99 to maturity 5,750,000 6/15/2004 2,587,500
Insight Communications Co.,
L.P. Sr. Sub. Disc. Note,
8.25% 1,525,000 3/01/2000 1,475,438
Marcus Cable Operating Co.
L.P. Sr. Disc. Note, 0.00%
to 7/30/99, 13-1/2% from
8/1/99 to maturity 5,500,000 8/01/2004 3,135,000
Scott Cable Communications,
Inc. Sub. Deb., 12.25% 2,275,000 4/15/2001 1,820,000
Videotron Group LTD. Sub.
Deb. 10.625% 1,500,000 2/15/2005 1,522,500
10,540,438
Capital Goods/Equipment 5.0%
Acme Holdings Inc. Sr.
Notes, 11.75%## $3,000,000 6/01/2000 $ 1,080,000
Axia Holdings Corp. Sr.
Sub. Notes, 11.00% 750,000 3/15/2001 690,000
Chatwins Group, Inc. Sr.
Exch. Note, 13.00% 5,000,000 5/01/2003 4,125,000
Consolidated Hydro Inc. Sr.
Disc. Note, 0.00% to
1/14/99, 12.00% from
1/15/99 to maturity 2,525,000 7/15/2003 1,679,024
Fairfield Manufacturing
Inc. Sr. Sub. Notes,
11.375% 485,000 7/01/2001 458,325
Genmar Holdings, Inc. Sr.
Sub. Notes, 13.50% 3,250,000 7/15/2001 3,168,750
ICF Kaiser International,
Inc. Sr. Sub. Notes,
12.00% 4,750,000 12/31/2003 4,263,125
Interlake Corp. Sr. Sub.
Deb., 12.125% 3,000,000 3/01/2002 2,925,000
Kenetech Corp. Sr. Sec.
Notes, 12.75% 4,858,000 12/15/2002 5,040,175
Specialty Equipment
Companies, Inc. Sr. Sub.
Note, 11.375% 1,250,000 12/01/2003 1,231,250
Terex Corp. Sr. Sec. Notes,
13.00%+ 3,767,000 8/01/1996 3,663,408
Terex Corp. Sr. Units, 13%+ 350,000 8/01/1996 341,250
Terex Corp. Sr. Sub. Notes,
13.50% 5,950,000 7/01/1997 5,593,000
Truck Components, Inc. Sr.
Notes, 12.25% 1,500,000 6/30/2001 1,552,500
Waters Corp. Sr. Sub. Note,
12.75% 1,500,000 9/30/2004 1,526,250
37,337,057
Chemical 0.7%
Harris Chemical of North
America Inc. Sr. Disc.
Notes, 0.00% to 1/14/96,
10.25% from 1/15/96 to
maturity 3,500,000 7/15/2001 3,027,500
UCC Investors Inc. Sub.
Disc. Notes, 0.00% to
4/30/98, 12.00% from
5/01/98 to maturity 3,000,000 5/01/2005 2,115,000
5,142,500
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Conglomerate 0.2%
Dyncorp, Inc. Jr. Sub.
Deb., 16.00%*** $ 1,360,022 6/30/2003 $ 1,305,621
IMO Industries, Inc. Sr.
Sub. Deb., 12.00% 500,000 11/01/2001 510,000
1,815,621
Consumer Goods 3.0%
Allied Waste Industries,
Inc. Sr. Sub. Notes,
10.75% to 1/31/95, 12.00%
from 2/01/95 to maturity 1,250,000 2/01/2004 1,256,250
Carrols Corp. Sr. Notes,
11.50% 3,750,000 8/15/2003 3,450,000
Central Rents, Inc. Sr.
Units, 12.875% 8,000,000 12/15/2003 7,280,000
Envirotest Systems Corp.
Sr. Notes, 9.125% 2,000,000 3/15/2001 1,600,000
Roadmaster Industries Inc.
Sr. Sub. Notes, 11.75% 2,750,000 7/15/2002 2,646,875
Thermoscan, Inc. Sr. Sub.
Units, 11.50%+ 2,750,000 8/15/2001 2,750,000
Town & Country Corp. Sr.
Sub. Notes, 13.00%*** 2,404,695 5/31/1998 1,442,815
U.S. Leather, Inc. Sr.
Notes, 10.25% 2,000,000 7/31/2003 1,660,000
22,085,940
Cosmetics 0.4%
Chattem, Inc. Sr. Sub.
Note, 12.75% 2,000,000 6/15/2004 1,830,000
Renaissance Cosmetics, Inc.
Sr. Notes, 13.75% 1,000,000 8/15/2001 945,000
2,775,000
Drug 0.8%
General Medical Corp. Sub.
Deb., 12.125%*** 6,202,709 8/15/2005 6,125,175
Electronic 0.3%
LTX Corp. Cv. Sub. Deb.,
13.50% 1,840,000 4/15/2011 1,895,200
Entertainment 1.0%
Live Entertainment Inc. Sr.
Sub. Notes, 10.00% to
3/22/96, 12.00% from
3/23/96 to maturity 7,936,100 3/23/1999 5,317,187
Entertainment (cont'd)
Spectravision, Inc. Sr.
Notes, 0.00% to 9/30/96,
11.50% from 10/1/96 to
maturity $ 5,500,000 10/01/2001 $ 2,475,000
7,792,187
Food & Beverage 4.3%
Beatrice Foods, Inc. Sr.
Sub. Note, 12.00% 3,800,000 12/01/2001 3,648,000
Doskocil Companies, Inc.
Sr. Sub. Red. Notes, 9.75% 8,430,000 7/15/2000 7,755,600
Flagstar Corp. Sr. Sub.
Notes, 11.25% 4,250,000 11/01/2004 3,570,000
MAFCO Inc. Sr. Sub. Notes,
11.875% 2,500,000 11/15/2002 2,412,500
Seven-Up/RC Bottling Co. of
Southern California, Inc.,
11.50% 12,500,000 8/01/1999 10,812,500
Smittys Super Value Inc.
Sr. Sub. Notes, 12.75% 3,250,000 6/15/2004 3,055,000
Specialty Foods Corp. Sr.
Sub. Notes, 11.25% 1,000,000 8/15/2003 965,000
32,218,600
Gaming & Lodging 6.8%
AZTAR Corp. Sr. Sub. Notes,
13.75% 1,000,000 10/01/2004 1,077,500
Belle Casinos, Inc. First
Mortgage Notes, 12.00%+## 700,000 10/15/2000 206,500
Boomtown Inc. First
Mortgage Notes, 11.50% 8,750,000 11/01/2003 8,312,500
Fitzgeralds Gaming Corp.
Sr. Sec. Units, 13.75% to
6/14/95, 14.00% from
6/15/95 to 9/14/95, 14.25%
from 9/15/95 to 12/14/95,
14.50% to maturity+ 750,000 3/15/1996 397,500
Goldriver Hotel & Casino
Corp. Mortgage Notes,
13.375% 8,924,000 8/31/1999 4,908,200
Great Bay Property Funding
Corp. First Mortgage Note,
10.875% 3,000,000 1/15/2004 2,527,500
HWCC-Tunica, Inc. First
Mortgage Note, 13.50%+ 2,000,000 9/30/1998 2,080,000
Harrah's Jazz First
Mortgage Note, 14.25% 1,000,000 11/15/2001 1,070,000
Motels of America, Inc. Sr.
Sub. Notes, 12.00% 5,500,000 9/15/2001 5,582,500
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Gaming & Lodging (cont'd)
President Riverboat
Casinos, Inc., Sr. Sub.
Notes, 13.00%+ $ 2,000,000 9/15/2001 $ 1,885,000
Resorts International, Inc.
Notes, 0.00% 1,950,000 6/30/2000 1,622,400
Sahara Finance Corp. Notes,
12.125% 1,985,670 8/31/1996 1,826,817
Santa Fe Hotel, Inc. First
Mortgage Units, 11.00% 1,000,000 12/15/2000 970,000
Santa Fe Hotel, Inc. First
Mortgage Notes, 11.00% 6,370,000 12/15/2000 6,178,900
Treasure Bay Gaming and
Resorts Inc. First
Mortgage Notes, 12.25%+## 1,000,000 11/15/1998 200,000
Trump's Castle Funding,
Inc. First Mortgage Notes,
11.75% 7,268,750 11/15/2003 4,397,594
Trump Plaza Funding, Inc.
First Mortgage Notes,
10.875% 7,500,000 6/15/2001 6,075,000
Trump Taj Mahal Funding,
Inc. Series A Mortgage
Bonds, 11.35%*** 2,202,253 11/15/1999 1,668,207
50,986,118
Groceries 5.3%
Almacs Inc. Sr. Sec. Notes,
11.50%## 1,840,000 11/18/2004 506,000
Farm Fresh Inc. Sr. Notes,
12.25% 5,500,000 10/01/2000 5,115,000
Farm Fresh Inc. Cv. Sub.
Deb., 7.50% 100,000 3/01/2010 66,250
Food 4 Less Supermarkets,
Inc. Sr. Notes, 10.45% 1,000,000 4/15/2000 990,000
Food 4 Less Supermarkets,
Inc. Sr. Sub. Notes,
13.75% 2,500,000 6/15/2001 2,687,500
Food 4 Less Supermarkets,
Inc. Sr. Disc. Notes,
0.00% to 12/14/97, 15.25%
from 12/15/97 to maturity 19,720,000 12/15/2004 15,578,800
Grand Union Co. Sr. Sub.
Notes, 12.25%## 8,750,000 7/15/2002 2,975,000
Kash N Karry Food Stores
Inc. Sr. Note, 11.50% 1,250,000 2/01/2003 1,206,250
Pathmark Stores, Inc. Sub.
Notes, 11.625% 3,000,000 6/15/2002 3,030,000
Groceries (cont'd)
Pathmark Stores, Inc. Jr.
Sub. Notes, 0.00% to
10/31/99, 10.75% from
11/1/99 to maturity $ 8,000,000 11/01/2003 $ 4,280,000
Penn Traffic Co. Sr. Sub.
Notes, 9.625% 3,000,000 4/15/2005 2,771,250
Safeway Stores, Inc. Lease
Certificates, 13.50% 95,000 1/15/2009 113,644
Victory Markets Inc. Sub.
Deb., 12.50% 925,000 3/15/2000 397,750
39,717,444
Health Care & Hospital Management 2.1%
Amerisource Distribution
Corp. Sr. Deb., 11.25% 10,277,497 7/15/2005 11,099,697
Continental Medical
Systems, Inc. Sr. Sub.
Notes, 10.875% 1,000,000 8/15/2002 940,000
Continental Medical
Systems, Inc. Sr. Sub.
Notes, 10.375% 2,500,000 4/01/2003 2,287,500
Total Renal Care, Inc. Sr.
Sub. Disc. Units, 0.00% to
8/14/97, 12.00% from
8/15/97 to maturity 1,750,000 8/15/2004 1,522,500
15,849,697
Media 7.2%
Affinity Group, Inc. Sr.
Sub. Deb., 11.50% 8,000,000 10/15/2003 7,840,000
Granite Broadcasting Corp.,
12.75% 9,619,000 9/01/2002 9,907,570
Heritage Media Corp. Notes,
11.00% 6,250,000 10/01/2002 6,406,250
Lamar Advertising Co. Sr.
Sec. Notes, 11.00% 750,000 5/15/2003 731,250
New City Communications
Inc. Sr. Sub. Note,
11.375% 1,000,000 11/01/2003 930,000
Outlet Broadcasting, Inc.
Sr. Sub. Note, 10.875% 750,000 7/15/2003 750,000
PageMart, Inc. Sr. Disc.
Note, 0.00% to 10/31/98,
12.25% from 11/01/98 to
maturity 4,750,000 11/01/2003 2,897,500
SFX Broadcasting Co. Sr.
Sub. Notes, 11.375% 4,500,000 10/01/2000 4,590,000
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Media (cont'd)
Universal Outdoor Holdings,
Inc. Units, 0.00% to
6/30/99, 14.00% from
7/01/99 to maturity $ 9,700,000 7/01/2004 $ 4,995,500
U.S.A. Mobile
Communications, Inc. Sr.
Notes, 9.50% 10,270,000 2/01/2004 8,729,500
U.S.A. Mobile
Communications, Inc. Sr.
Notes, 14.00% 5,500,000 11/01/2004 5,775,000
53,552,570
Metal & Mining 10.0%
Bayou Steel Corp. First
Mortgage Notes, 10.25% 6,250,000 3/01/2001 5,500,000
Carbide/Graphite Group,
Inc. Sr. Notes, 11.50% 2,750,000 9/01/2003 2,860,000
GS Technologies Operating
Co. Sr. Notes, 12.00% 5,250,000 9/01/2004 5,269,688
Geneva Steel Co. Sr. Notes,
11.125% 750,000 3/15/2001 680,625
Geneva Steel Co. Sr. Notes,
9.50% 7,500,000 1/15/2004 6,075,000
Haynes International, Inc.
Sr. Sec. Notes, 11.25% 6,050,000 6/15/1998 5,626,500
Haynes International, Inc. 5,297,500
Sr. Sub. Notes, 13.50% 8,150,000 8/15/1999
Horsehead Industries, Inc.
Sr. Sub. Ext. Notes,
15.75% 9,946,000 6/01/1997 10,144,920
Horsehead Industries, Inc.
Sub. Notes, 14.00% 11,712,000 6/01/1999 11,975,520
Kaiser Aluminum & Chemical
Corp. Sr. Notes, 9.875% 3,050,000 2/15/2002 2,859,375
Kaiser Aluminum & Chemical
Corp. Sr. Sub. Note,
12.75% 3,250,000 2/01/2003 3,363,750
Renco Metals Inc. Sr.
Notes, 12.00% 1,500,000 7/15/2000 1,490,625
Sheffield Steel Corp. First
Mortgage Units, 12.00% 6,750,000 11/01/2001 6,615,000
Sheffield Steel Corp. First
Mortgage Notes, 12.00% 5,000,000 11/01/2001 4,750,000
UCAR Global Enterprises Sr.
Sub. Notes, 12.00%+ 1,750,000 1/15/2005 1,837,500
74,346,003
Oil & Gas 5.6%
Dual Drilling Co. Sr. Sub.
Notes, 9.875% 5,500,000 1/15/2004 4,510,000
Oil & Gas (cont'd)
Empire Gas Corp. Sr. Sec.
Notes, 7.00% to 7/14/99,
12.875% from 7/15/99 to
maturity $ 2,000,000 7/15/2004 $ 1,460,000
Global Marine Inc. Sr. Sec.
Notes, 12.75% 2,000,000 12/15/1999 2,157,500
Mesa Capital Corp. Sec.
Disc. Note, 0.00% to
6/29/95, 12.75% from
6/30/95 to maturity 2,031,000 6/30/1998 1,959,915
Moran Energy, Inc. Cv. Sub.
Deb., 8.75% 2,420,000 1/15/2008 1,566,950
Moran Energy International
N.V. Cv. Sub. Deb., 8.00% 6,067,000 11/01/1995 5,847,071
Presidio Oil Co. Sr. Sec.
Notes, 11.50% 5,346,950 9/15/2000 4,504,805
Presidio Oil Co. Sr. Sub.
Gas Indexed Notes, 13.30% 5,500,000 7/15/2002 3,203,750
Presidio Oil Co. Cv. Sub.
Deb., 9.00% 2,000,000 3/15/2015 460,000
Rowan Drilling Co., 11.875% 5,154,000 12/01/2001 5,385,930
TransAmerican Refining
Corp. Sr. Sec. Notes,
16.50% to 8/14/98, 16.00%
from 8/15/98 to maturity 250,000 2/15/2002 251,875
Tuboscope Vetco
International Inc. Sr.
Sub. Deb., 10.75% 2,000,000 4/15/2003 2,010,000
Wilrig A.S. Sr. Sec. Notes,
11.25% 8,430,000 3/15/2004 8,092,800
41,410,596
Paper 4.5%
Crown Packaging Holdings
Ltd. Sr. Sec. Notes,
10.75% 2,300,000 11/01/2000 2,277,000
Crown Packaging Holdings
Ltd. Sr. Sub. Notes, 0.00%
to 10/31/2000, 12.25% from
11/1/2000 to maturity 13,000,000 11/01/2003 6,240,000
Equitable Bag Co., Inc. Sr.
Notes, 11.00%## 6,738,000 12/16/2004 4,851,360
Fort Howard Paper Co. Jr.
Sub. Disc. Deb., 0.00% to
10/31/94, 14.125% from
11/1/94 to maturity 4,900,000 11/01/2004 4,924,500
Fort Howard Paper Co. Sr.
Sub. Notes, 9.00% 1,000,000 2/01/2006 875,000
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Investment Portfolio (cont'd)
Paper (cont'd)
Gaylord Container Corp. Sr.
Note, 11.50% $ 750,000 5/15/2001 $ 787,500
Mail-Well Holdings, Inc.
Sr. Notes, 0.00% to
2/14/2000, 11.75% from
2/15/2000 to maturity 1,000,000 2/15/2006 460,000
P.T. Indah Kiat Pulp &
Paper Co. Gtd. Note,
12.50% 2,500,000 6/15/2006 2,425,000
Southwest Forest
Industries, Inc. Sub.
Deb., 12.125% 8,250,000 9/15/2001 8,291,250
Stone Container Corp. Sr.
Notes, 9.875% 2,500,000 2/01/2001 2,425,000
33,556,610
Plastics 0.6%
Foamex L.P. Sr. Notes,
11.25% 4,500,000 10/01/2002 4,477,500
Publishing 2.9%
Bell & Howell Co. Series A
Sr. Disc. Deb., 0.00% to
2/28/2000, 11.50% from
3/01/2000 to maturity 2,500,000 3/01/2005 1,337,500
General Media Inc. Sr. Sec.
Notes, 10.625% 2,500,000 12/31/2000 2,075,000
Sullivan Graphics, Inc. Sr.
Sub. Notes, 15.00% 17,150,000 2/01/2000 18,179,000
21,591,500
Real Estate/Building 3.1%
Associated Materials Inc.
Sr. Sub. Notes, 11.50% 3,000,000 8/15/2003 2,895,000
Dal-Tile International Inc.
Sr. Sec. Notes, 0.00% 10,500,000 7/15/1998 6,903,750
Miles Home Services, Inc.
Sr. Note, 12.00% 4,250,000 4/01/2001 2,975,000
Overhead Door Corp., 12.25% 2,500,000 2/01/2000 2,562,500
Waxman Industries, Inc. Sr.
Sec. Notes, 12.25% 5,000,000 9/01/1998 4,700,000
Waxman Industries, Inc. Sr.
Sec. Units, 0.00% to
5/31/99, 12.75% from
6/01/99 to maturity 7,424,000 6/01/2004 3,043,840
23,080,090
Retail Trade 2.7%
Color Tile Inc. Sr. Notes,
10.75% $ 5,000,000 12/15/2001 $ 4,000,000
County Seat Stores, Inc.
Sr. Sub. Units, 12.00% 2,000,000 10/01/2001 2,020,000
Finlay Enterprises, Inc.
Sr. Disc. Deb., 0.00% to
4/30/98, 12.00% from
5/01/98 to maturity 9,570,000 5/01/2005 5,933,400
Loehmann's Holdings, Inc.
Sr. Sub. Notes, 13.75% 3,000,000 2/15/1999 2,917,500
Pamida, Inc. Sr. Sub.
Notes, 11.75% 250,000 3/15/2003 237,500
Petro PSC Properties, Inc.
Units, 12.50% 2,000,000 6/01/2002 2,050,000
Rickel Home Centers, Inc.
Units, 13.50% 3,500,000 12/15/2001 3,255,000
20,413,400
Shipping/Transportation 1.1%
Tiphook Finance Corp.
Notes, 7.125% 6,083,000 5/01/1998 4,714,325
Tiphook Finance Corp.
Notes, 8.00% 595,000 3/15/2000 452,200
Tiphook Finance Corp.
Notes, 10.75% 711,000 11/01/2002 568,800
Trans Ocean Container Corp.
Sr. Sub. Note, 12.25% 2,250,000 7/01/2004 2,160,000
7,895,325
Technology 5.8%
Anacomp, Inc. Sr. Sub.
Notes, 15.00% 9,179,000 11/01/2000 9,087,210
Anacomp, Inc. Cv. Deb.,
13.875% 120,000 1/15/2002 116,439
Anacomp International N.V.
Cv. Sub. Deb., 9.00% 3,100,000 1/15/1996 3,084,500
Celcaribe S.A. Units, 0.00%
to 3/14/98, 13.50% from
3/15/98 to maturity+ 581,000 3/15/2004 4,735,150
Comdata Network, Inc. Sr.
Sub. Notes, 12.50% 3,000,000 12/15/1999 3,206,250
Comdata Network, Inc. Sr.
Sub. Deb., 13.25% 2,000,000 12/15/2002 2,180,000
Computervision Corp. Sr.
Notes, 10.875% 3,380,000 8/15/1997 3,278,600
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Technology (cont'd)
Computervision Corp. Sr.
Sub. Notes, 11.375% $8,000,000 8/15/1999 $ 7,320,000
Dial Call Communications
Inc. Sr. Disc. Notes,
12.25% 3,250,000 4/15/2004 1,218,750
GenRad Inc. Cv. Sub. Deb.,
7.25% 608,000 5/01/2011 443,840
Mobile Telecommunications
Inc. Sr. Sub. Notes, 13.5% 5,500,000 12/15/2002 5,713,125
Nextel Communications Inc.
Sr. Disc. Notes, 0.00% 750,000 8/15/2004 307,500
Viatel, Inc. Sr. Disc.
Units, 0.00% to 1/14/2000,
15.00% from 1/15/2000 to
maturity + 450,000 1/15/2005 2,880,000
43,571,364
Textile & Apparel 0.2%
Ithaca Industries, Inc. Sr.
Sub. Notes, 11.125% 1,250,000 12/15/2002 1,137,500
Total Bonds (Cost $644,994,082) 592,772,560
Value
Shares (Note 1)
Preferred Stocks 11.3%
Automotive 1.4%
Harvard Industries, Inc. 14.25% Exch.
Pfd.*** 374,513 $ 10,252,293
Banking 1.4%
First City Bancorporation of Texas, Inc.
Sr. Incr. Rate Pfd. Series A*++ 60,250 8,194,000
Riverbank American Pfd.* 110,000 2,420,000
10,614,000
Business Service 1.3%
Anacomp, Inc. Cv. Pfd. 25,000 900,000
La Petite Holdings Co. Cum. Red. Exch.
Pfd.* 361,000 9,025,000
9,925,000
Drug 0.2%
Fox Meyer Health Corp. Pfd. Series A*** 33,962 1,192,915
Electric 0.1%
Consolidated Hydro, Inc. Cv. Pfd.* 2,000 1,040,000
Machinery 0.8%
Navistar International Series G Cv. Pfd. 114,700 6,007,413
Metal & Mining 0.6%
Algoma Finance Corp. Cum. Pfd.* 11,100 $ 174,541
Geneva Steel Co. Series B Red. Exch.
Pfd. 22,500 2,520,000
Kaiser Aluminum Corp. Cv. Pfd. 93,100 977,550
Stelco Inc. Series C Cv. Pfd. 69,600 1,050,194
4,722,285
Printing & Publishing 0.2%
K-III Communications Corp. Series B
Exch. Pfd.*** 12,531 1,215,550
Recreation 3.2%
Granite Broadcasting Corp. Cv. Exch.
Pfd.* 272,000 10,540,000
Lewis Galoob Toys, Inc. Cv. Exch. Pfd.* 352,000 5,280,000
Live Entertainment Inc. Series B Cv.
Pfd. 351,700 1,593,641
Pyramid Communications, Inc. Series C
Exch. Pfd.*+ 260,092 6,112,177
Sahara Gaming Corp. Exch. Pfd.**** 401,394 351,220
23,877,038
Retail Trade 1.9%
Color Tile Inc. Pfd.* 50,000 1,150,000
Color Tile Inc. Pfd.*+ 120,000 2,760,000
Loehmanns Holdings, Inc. Series A
Pfd.*** 852,705 366,663
Supermarkets General Holding Corp. Exch.
Pfd.**** 420,137 10,083,288
14,359,951
Textile & Apparel 0.2%
JPS Textile Group, Inc. Series A Sr.
Pfd.*** 49,618 1,240,450
Town & Country Corp. Exch. Pfd.***++ 94,263 117,829
1,358,279
Total Preferred Stocks (Cost
$80,172,406) 84,564,724
Common Stocks & Other 3.7%
American Telecasting, Inc. Wts.* 28,750 28,750
Atlantic Richfield Co. 380,000 9,500,000
Axia Holdings Corp. Com.*+ 2,250 64,125
Belle Casinos, Inc. Wts.*+ 1,400 14
Boomtown, Inc. Wts.* 7,250 3,625
CHC Helicopter Corp. Wts.* 38,000 38,000
Central Rents, Inc. Wts.* 8,000 220,000
Chattem, Inc. Wts.* 2,000 9,000
Chatwins Group Inc. Wts.* 5,000 5,000
Crown Packaging Holdings Ltd. Wts.*+ 17,250 517,500
Dimac Corp. Com.* 24,174 332,393
Dr. Pepper Bottling Co. Cl. A Com.* 50,000 175,000
Empire Gas Corp. Wts.* 2,760 2,760
Equitable Bag, Inc. Cl. A Com.* 640,117 960,176
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Common Stocks & Other (cont'd)
Federated Department Stores, Inc. Com.* 69,713 $ 1,542,400
Federated Department Stores, Inc. Series
C Wts.* 46,435 255,393
Federated Department Stores, Inc. Ser. D
Wts.* 46,435 261,197
Finlay Enterprises, Inc. Cl. A Com.* 12,760 140,360
Food 4 Less Holdings, Inc. Wts.*++ 24,223 2,159,238
Gaylord Container Corp. Wts.* 50,000 525,000
General Media Inc. Wts.*+ 2,500 28,125
Geneva Steel Co. Wts.*+ 91,975 597,838
Goldriver Hotel & Casino Corp. Cl. B
Com.* 52,500 52,500
Goldriver Hotel & Casino Corp.
Liquidation Trust Units*++ 5,250,000 66,675
Harvard Industries, Inc. Cl. B Com.* 40,000 695,000
ICF Kaiser International, Inc. Wts.* 22,800 5,700
INDSPEC Chemical Corp. Wts.*++ 506 147,985
Insight Communications Co., L.P. Wts.* 25,000 21,250
Jewel Recovery L.P. Units* 82,594 826
Ladish Company, Inc. Com.* 520,000 390,000
Little Switzerland, Inc. Com.* 94,263 471,315
Mail-Well Holdings, Inc. Com.*+ 5,000 35,000
Miles Homes, Inc. Wts.* 51,000 25,500
Motels of America, Inc. Com.*+ 5,500 440,000
Northeast Utilities Wts.* 23,693 23,693
PageMart, Inc. Wts.*+ 21,850 71,013
Investment Portfolio (cont'd)
Peebles Inc. Com.*++ 57,984 1,108,654
PST Holdings, Inc. Wts.* 45,300 45,300
Pyramid Communications, Inc. Cl. B
Com.*+ 8,225 368,989
Renaissance Cosmetics, Inc. Wts.*+ 2,000 30,000
S.D. Warren Holdings Corp. Units*+ 108,000 3,294,000
Santa Fe Hotel Inc. Wts.* 637,000 617,890
Sheffield Steel Corp. Wts.* 5,000 30,000
Smittys Supermarkets, Inc. Cl. B Com.* 3,250 32,500
Terex Corp. Rts.* 5,250 3,938
Town & Country Corp. Cl. A Com.* 371,830 232,394
COMMON STOCKS & OTHER (cont'd)
TransAmerican Refinancing Corp. Wts.* 12,626 $ 34,722
Universal Outdoor Holdings, Inc. Wts.* 9,700 388,000
Vestar/LPA Investment Corp. Com.+* 14,250 199,500
Waxman Industries, Inc. Wts.*+ 236,000 29,500
Zale Corp. Com.* 78,086 917,511
Total Common Stocks & Other
(Cost $26,753,075) 27,145,249
Principal Maturity Value
Amount Date (Note 1)
Commercial Paper 4.0%
Commercial Credit Co.,
5.93% $10,472,000 4/11/1995 $ 10,472,000
Ford Motor Credit Co.,
5.77% 602,000 4/04/1995 602,000
General Electric Capital
Corp., 5.85% 10,166,000 4/04/1995 10,166,000
SmithKline Beecham Corp.,
6.24% 8,810,000 4/03/1995 8,806,917
Total Commercial Paper (Cost $30,046,917) 30,046,917
Total Investments (Cost $781,966,479)--98.5% 734,529,450
Cash and Other Assets, Less Liabilities--1.5% 11,045,157
Net Assets--100.0% $745,574,607
Federal Income Tax Information (Note 1):
At March 31, 1995, the net unrealized depreciation of
investments based on cost for Federal income tax purposes
of $784,358,501 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost $ 27,466,294
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value (77,295,345)
$(49,829,051)
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
* Nonincome-producing securities
*** Payments of income may be made in cash or in the form of additional
securities.
## Security is in default.
++ Security valued under consistently applied procedures established by the
Trustees. Security restricted as to public resale. At March 31, 1995, there
were no outstanding unrestricted securities of the same class as those
held. The total cost and market value of restricted securities owned at
March 31, 1995 were $7,905,324 and $11,794,381 (1.58% of net assets),
respectively.
+ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such securities among certain
qualified institutional buyers. The total cost and market value of Rule
144A securities owned at March 31, 1995 were $43,420,415 and $41,899,089
(5.62% of net assets), respectively.
ASSET COMPOSITION TABLE
March 31, 1995
(Unaudited)
Percentage of
Ratings+++ Net Assets
BB 3.6%
B 48.7
CCC and below 12.4
Unrated 15.8
Equities 14.6
Other 4.9
TOTAL 100.0%
+++ As rated by Standard & Poor's Corp. and/or
equivalent rating by Moody's Investors Service, Inc.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Statement of Assets and Liabilities
March 31, 1995
Statement of Operations
For the year ended March 31, 1995
Assets
Investments, at value (Cost $781,966,479) (Note 1) $734,529,450
Cash 5,143
Interest and dividends receivable 16,888,315
Receivable for securities sold 3,491,483
Receivable for fund shares sold 961,591
Other assets 29,253
755,905,235
Liabilities
Payable for securities purchased 6,353,845
Dividends payable 2,319,539
Payable for fund shares redeemed 542,705
Accrued management fee (Note 2) 407,202
Accrued transfer agent and shareholder services
(Note 2) 299,767
Accrued distribution fee (Note 4) 233,062
Accrued trustees' fees (Note 2) 6,109
Other accrued expenses 168,399
10,330,628
Net Assets $745,574,607
Net Assets consist of:
Undistributed net investment income $ 1,789,475
Unrealized depreciation of investments and foreign
currency (47,430,074)
Accumulated net realized loss (11,473,395)
Shares of beneficial interest 802,688,601
$745,574,607
Net Asset Value and redemption price per share of
Class A shares ($618,462,348 / 106,544,027 shares of
beneficial interest) $5.80
Maximum Offering Price per share of Class A shares
($5.80 / .955) $6.07
Net Asset Value and offering price per share of Class
B shares ($117,767,451 / 20,351,219 shares of
beneficial interest)* $5.79
Net Asset Value, offering price and redemption price
per share of Class C shares ($2,578,646 / 445,864
shares of beneficial interest) $5.78
Net Asset Value and offering price per share of Class
D shares ($6,766,162 / 1,167,801 shares of
beneficial interest)* $5.79
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
Investment Income
Interest $ 77,025,308
Dividends, net of foreign taxes of $52,552 5,660,507
82,685,815
Expenses
Management fee (Note 2) 4,696,647
Transfer agent and shareholder services (Note 2) 1,717,854
Custodian fee 269,911
Reports to shareholders 106,460
Registration fees 93,113
Audit fee 72,555
Distribution fee--Class A (Note 4) 1,563,183
Distribution fee--Class B (Note 4) 911,610
Distribution fee--Class D (Note 4) 45,186
Legal fees 30,093
Trustees' fees (Note 2) 29,540
Miscellaneous 37,781
9,573,933
Net investment income 73,111,882
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Net realized loss on investments (Notes 1 and 3) (10,256,401)
Net unrealized depreciation of investments (51,724,952)
Net unrealized appreciation of foreign currency 6,956
Total net unrealized depreciation (51,717,996)
Net loss on investments and foreign currency (61,974,397)
Net increase in net assets resulting from operations $ 11,137,485
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Statement of Changes in Net Assets
Year ended March 31
1995 1994
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 73,111,882 $ 64,391,566
Net realized gain (loss) on
investments* (10,256,401) 16,907,763
Net unrealized appreciation
(depreciation) of investments
and foreign currency (51,717,996) 574,548
Net increase resulting from
operations 11,137,485 81,873,877
Dividends from net investment
income:
Class A (68,341,894) (56,631,474)
Class B (9,517,499) (2,589,605)
Class C (185,611) (37,348)
Class D (474,138) (89,456)
(78,519,142) (59,347,883)
Distributions from net realized
gains:
Class A (5,956,632) (13,829,751)
Class B (701,101) (716,569)
Class C (10,576) (8,941)
Class D (29,366) (25,700)
(6,697,675) (14,580,961)
Net increase from fund share
transactions (Note 5) 98,050,321 217,306,233
Total increase in net assets 23,970,989 225,251,266
Net Assets
Beginning of year 721,603,618 496,352,352
End of year (including
undistributed net investment
income of $1,789,475 and
$6,010,539, respectively) $ 745,574,607 $ 721,603,618
* Net realized gain for Federal
income tax purposes
(Note 1) $ 1,433,108 $ 16,907,844
The accompanying notes are an integral part of the financial statements.
Notes to Financial Statements
March 31, 1995
Note 1
MetLife-State Street Research High Income Fund, formerly MetLife-State Street
High Income Fund (the "Fund") is a series of MetLife-State Street Income Trust
(the "Trust"), which was organized as a Massachusetts business trust on
December 23, 1985 and is registered under the Investment Company Act of 1940,
as amended, as an open-end management investment company. The Trust commenced
operations in August, 1986. The Trust consists of three separate funds:
MetLife-State Street Research High Income Fund, MetLife-State Street Research
Government Securities Fund and MetLife-State Street Research Managed Assets.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Investments of $1 million or more in Class A shares,
which are not subject to any initial sales charge, are subject to a 1.00%
contingent deferred sales charge if redeemed within one year of purchase. Class
B shares are subject to a contingent deferred sales charge on certain
redemptions made within five years of purchase and pay annual distribution and
service fees of 1.00%. Class B shares automatically convert into Class A shares
(which pay lower ongoing expenses) at the end of eight years after the issuance
of the Class B shares. Class C shares are only offered to certain employee
benefit plans and large institutions. No sales charge is imposed at the time of
purchase or redemption of Class C shares. Class C shares do not pay any
distribution or service fees. Class D shares are subject to a contingent
deferred sales charge of 1.00% on any shares redeemed within one year of their
purchase. Class D shares also pay annual distribution and service fees of
1.00%. The Fund's expenses are borne pro-rata by each class, except that each
class bears expenses, and has exclusive voting rights with respect to
provisions of the Plan of Distribution, related specifically to that class. The
Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Fixed income securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. If not valued by a pricing service, such
securities are valued at prices obtained from independent brokers. Values for
listed equity securities reflect final sales on national securities exchanges
quoted prior to the close of the New York Stock Exchange. Over-the-counter
securities quoted on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system are valued at closing prices supplied through such
system. If not quoted on the NASDAQ system, such securities are valued at
prices obtained from independent brokers. In the absence of recorded sales,
valuations are at the mean of the closing bid and asked quotations. Short-term
securities maturing within sixty days are valued at amortized cost. Other
securities,
12
<PAGE>
if any, are valued at their fair value as determined in good faith under
consistently applied procedures established by and under the supervision of the
Trustees.
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.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of the
Fund. Interest income is accrued daily as earned. Dividend income is accrued on
the ex-dividend date. Discount on debt obligations is amortized under the
effective yield method. Certain fixed income and preferred securities held by
the Fund pay interest or dividends in the form of additional securities
(payment-in-kind securities). Interest income on payment-in-kind fixed income
securities is recorded using the effective-interest method. Dividend income on
payment-in-kind preferred securities is recorded at the market value of
securities received. The Fund is charged for expenses directly attributable to
it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends are declared daily based upon projected net investment income and
paid or reinvested monthly. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatment
of accrued interest on defaulted bonds.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through March 31, 1995, the Fund incurred net capital losses of approximately
$9,300,000 and intends to defer and treat such losses as arising in the fiscal
year ending March 31, 1996.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly-owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees at an annual rate of 0.65% of the Fund's average daily net assets.
In consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the year ended March 31, 1995, the fees pursuant to such agreement
amounted to $4,696,647.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly-owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended March 31, 1995, the amount of such
expenses was $369,932.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$29,540 during the year ended March 31, 1995.
Note 3
For the year ended March 31, 1995, purchases and sales of securities, exclusive
of short-term investments, aggregated $276,104,221 and $219,397,330,
respectively.
Note 4
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund pays
annual service fees to the Distributor at a rate of 0.25% of average daily net
assets for Class A, Class B and Class D shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class D shares. The Distributor uses such payments for personal service 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
year ended March 31, 1995, fees pursuant to such plan amounted to $1,563,183,
$911,610 and $45,186 for Class A, Class B and Class D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $447,617 and $3,074,444, respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1995, and that MetLife Securities,
Inc. earned commissions aggregating $1,900,150 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$1,238, $274,749 and $2,188 on redemptions of Class A, Class B and Class D
shares, respectively, during the same period.
13
<PAGE>
Note 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At March 31, 1995, Metropolitan owned 161 Class C shares and 80,884 Class D
shares and the Distributor owned 7,018 Class A shares of the Fund.
Share transactions were as follows:
Year ended March 31
1995 1994
Class A Shares Amount Shares Amount
Shares sold 21,246,001 $128,017,213 32,495,584 $ 210,084,064
Issued upon
reinvestment
of:
Dividends from
net investment
income 7,531,344 44,748,968 6,172,634 39,889,890
Distributions
from net
realized gains 721,885 4,490,064 1,715,679 11,077,389
Shares
repurchased (24,109,224) (144,623,371) (17,791,152) (115,421,759)
Net increase 5,390,006 $ 32,632,874 22,592,745 $ 145,629,584
June 1, 1993
(Commencement of
Share Class Designations)
to March 31, 1994
Class B Shares Amount Shares Amount
Shares sold 11,897,541 $ 71,267,750 11,214,389 $ 72,828,188
Issued upon
reinvestment
of:
Dividends from
net investment
income 978,091 5,757,785 236,230 1,537,046
Distributions
from net
realized gains 85,923 533,729 93,345 607,668
Shares
repurchased (3,103,165) (18,503,010) (1,051,135) (6,853,424)
Net increase 9,858,390 $ 59,056,254 10,492,829 $ 68,119,478
Class C Shares Amount Shares Amount
Shares sold 425,482 $ 2,530,906 155,693 $ 1,010,768
Issued upon
reinvestment
of:
Dividends from
net investment
income 19,434 114,077 4,127 26,652
Distributions
from net
realized gains 1,182 7,338 1,127 7,339
Shares
repurchased (132,914) (791,910) (28,267) (184,726)
Net increase 313,184 $ 1,860,411 132,680 $ 860,033
Class D Shares Amount Shares Amount
Shares sold 1,263,734 $ 7,538,932 491,529 $ 3,205,001
Issued upon
reinvestment
of:
Dividends from
net investment
income 35,765 209,720 2,443 15,956
Distributions
from net
realized gains 3,762 23,361 4,616 30,091
Shares
repurchased (549,698) (3,271,231) (84,350) (553,910)
Net increase 753,563 $ 4,500,782 414,238 $ 2,697,138
14
<PAGE>
Financial Highlights
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A
Year ended March 31
1995*** 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 6.43 $ 6.32 $ 5.95 $ 5.21 $ 5.88
Net investment income* .61 .66 .67 .71 .75
Net realized and
unrealized gain (loss)
on investments and
foreign currency (.58) .22 .37 .72 (.67)
Dividends from net
investment income (.60) (.62) (.67) (.69) (.75)
Distributions from net
realized gains (.06) (.15) -- -- --
Net asset value, end of
year $5.80 $6.43 $6.32 $5.95 $5.21
Total return 1.80%+ 14.58%+ 18.70%+ 28.99%+ 2.18%+
Net assets at end of year
(000s) $618,462 $650,755 $496,352 $308,921 $195,739
Ratio of operating
expenses to average net
assets* 1.23% 1.16% 1.15% 1.17% 1.21%
Ratio of net investment
income to average net
assets* 10.19% 10.41% 11.25% 12.71% 14.21%
Portfolio turnover rate 31.55% 24.36% 79.39% 72.62% 58.15%
*Reflects voluntary
assumption of fees or
expenses per share in
each year. -- $ .00 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class B Class C Class D
Year ended Year ended Year ended
March 31, March 31, March 31,
1995*** 1994** 1995*** 1994** 1995*** 1994**
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 6.42 $ 6.34 $ 6.42 $ 6.34 $ 6.42 $ 6.34
Net investment income* .57 .51 .64 .57 .58 .51
Net realized and
unrealized gain (loss)
on investments and
foreign currency (.58) .15 (.60) .14 (.59) .15
Dividends from net
investment income (.56) (.48) (.62) (.53) (.56) (.48)
Distributions from net
realized gains (.06) (.10) (.06) (.10) (.06) (.10)
Net asset value, end of
year $5.79 $6.42 $5.78 $6.42 $5.79 $6.42
Total return 0.89%+ 10.76%+++ 1.73%+ 11.67%+++ 0.88%+ 10.74%+++
Net assets at end of year
(000s) $117,767 $67,337 $2,579 $ 851 $6,766 $2,661
Ratio of operating
expenses to average net
assets* 1.98% 1.93%++ 0.98% 0.93%++ 1.98% 1.93%++
Ratio of net investment
income to average net
assets* 9.65% 10.32%++ 10.85% 11.32%++ 9.81% 10.32%++
Portfolio turnover rate 31.55% 24.36% 31.55% 24.36% 31.55% 24.36%
*Reflects voluntary
assumption of fees or
expenses per share in
each year. -- $ .00 -- $ .00 -- $ .00
</TABLE>
** June 1, 1993 (commencement of share class designations) to March 31, 1994.
++ Annualized
+ Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
*** Per-share figures have been calculated using the average shares method.
15
<PAGE>
Report of Independent Accountants
To the Trustees of MetLife-State Street Income Trust and the
Shareholders of MetLife-State Street Research High Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MetLife-State Street Research High
Income Fund (formerly MetLife-State Street High Income Fund) (a series of
MetLife-State Street Income Trust, hereafter referred to as the "Trust") at
March 31, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities owned at March 31, 1995
by correspondence with the custodian and brokers and the application of
alternative procedures where confirmations from brokers were not received,
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
May 12, 1995
16
<PAGE>
Management's Discussion of Fund Performance
High Income Fund outperformed the average for Lipper's High Current Yield
category for the 12 months ended March 31, 1995.
During 1994, the portfolio's "B" rated bonds were less sensitive than
higher-quality bonds to the Fed's interest rate hikes. Plus, the Fund's high
level of income helped balance price weakness to some extent. Performance
suffered during the last few months of 1994, however, because of some defaults
in the portfolio and weakness in the high-yield market.
In the first three months of 1995, the Fund benefited from a favorable
supply-demand relationship. Supply was low--issuers were hesitant after 1994's
difficulties--and demand was very strong.
High Income Fund's portfolio continues to emphasize high-yield bonds, at about
80% of the portfolio. Preferred stocks, common stocks and warrants represent
approximately 15% of the portfolio. The portfolio is diversified in more than
150 different securities.
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in the
Fund will fluctuate and shares, when redeemed, may be worth more or less than
their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. In January 1994, the Fund changed its
investment objective to include capital appreciation as a secondary
consideration in selecting portfolio securities, to eliminate requirements that
a percentage of the Fund be invested in certain rating categories, and to allow
greater use of convertible and preferred securities. Previously, the Fund was
required to invest at least 65% in securities rated BBB, BB or B. Shares of the
Fund had no class designations until June 1, 1993, when designations were
assigned based on the pricing and 12b-1 fees applicable to shares sold
thereafter. Performance data for a specified class include periods prior to the
adoption of class designations. "A" share returns for each of the periods
reflect the maximum 4.5% sales charge. "B" share returns for the 1- and 5-year
periods reflect a 5% and a 2% contingent deferred sales charge, respectively.
"C" shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions. "D" share return for the 1-year
period reflects a 1% contingent deferred sales charge. Performance for "B" and
"D" shares prior to June 1, 1993, reflects annual 12b-1 fees of .25% and
performance thereafter reflects annual 12b-1 fees of 1%, which will reduce
subsequent performance. The First Boston High Yield Index is a commonly-used
measure of high-yield bond performance. The index is unmanaged and does not
take sales charges into consideration. Direct investment in the index is not
possible; results are for illustrative purposes only.
Comparison of Change In Value Of A $10,000
Investment in High Income Fund and
The First Boston High Yield Index
Class A Shares [Line chart]
Average Annual Total Return
1 Year 5 Year Life of Fund
-2.78% +11.74% +9.18%
86 9,550 10,000
87 10,631 10,888
88 11,136 11,555
89 12,509 12,642
90 11,670 12,152
91 11,926 13,841
92 15,378 18,163
93 18,252 20,951
94 20,912 23,037
95 21,289 24,144
Class B Shares [Line chart]
Average Annual Total Return
1 Year 5 Year Life of Fund
-3.62 +12.17% +9.55%
86 10,000 10,000
87 11,132 10,888
88 11,661 11,555
89 13,099 12,642
90 12,220 12,152
91 12,488 13,841
92 16,102 18,163
93 19,113 20,951
94 21,736 23,037
95 21,930 24,144
Class C Shares [Line chart]
Average Annual Total Return
1 Year 5 Year Life of Fund
+1.73% +12.77% +9.76%
86 10,000 10,000
87 11,132 10,888
88 11,661 11,555
89 13,099 12,642
90 12,220 12,152
91 12,488 13,841
92 16,102 18,163
93 19,113 20,951
94 21,913 20,037
95 22,292 24,144
Class D Shares [Line chart]
Average Annual Total Return
1 Year 5 Year Life of Fund
-0.02% +12.40% +9.55%
86 10,000 10,000
87 11,132 10,888
88 11,661 11,555
89 13,099 12,642
90 12,220 12,152
91 12,488 13,841
92 16,102 18,163
93 19,113 20,951
94 21,731 23,037
95 21,922 24,144
17
<PAGE>
Fund Information, Officers and Trustees of MetLife-State Street Income Trust
Fund Information
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Bartlett R. Geer
Vice President
John H. Kallis
Vice President
Michael R. Yogg
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Constantine Hutchins, Jr.
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust Company of
New York); presently engaged
in private investments and
civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of
the Board and Chief Executive Officer,
Raytheon Company
Toby Rosenblatt
President, The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management,
Sloan School of Management,
Massachusetts Institute of
Technology
Jeptha H. Wade
Retired; formerly Of Counsel,
Choate, Hall & Stewart
18
<PAGE>
[Back Cover]
MetLife-State Street Research High Income Fund
One Financial Center
Boston, MA 02111
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
MetLife-State Street Research Government Securities Fund
Investment Portfolio
March 31, 1995
<TABLE>
<CAPTION>
Principal
Amount Maturity Date Value (Note 1)
<S> <C> <C> <C> <C>
U.S. Government Securities 85.0%
U.S. $ 1,850,000 U.S. Treasury Bond, 10.75% 8/15/2005 $ 2,304,120
Treasury 9,150,000 U.S. Treasury Bond, 9.25% 2/15/2016 10,754,086
47.9% 7,225,000 U.S. Treasury Bond, 8.125% 8/15/2021 7,673,167
3,875,000 U.S. Treasury Note, 9.375% 4/15/1996 3,982,764
9,650,000 U.S. Treasury Note, 8.50% 5/15/1997 9,962,081
550,000 U.S. Treasury Note, 5.875% 3/31/1999 528,258
4,100,000 U.S. Treasury Note, 7.125% 9/30/1999 4,108,323
1,800,000 U.S. Treasury Note, 7.50% 11/15/2001 1,831,500
3,700,000 U.S. Treasury Note, 6.375% 8/15/2002 3,527,136
1,600,000 U.S. Treasury Note, 5.75% 8/15/2003 1,451,504
46,122,939
U.S. Agency 464,090 Federal Home Loan Mortgage Corp.
Mortgage Gold, 6.50% 2/01/2009 441,030
35.5% 1,885,548 Federal Home Loan Mortgage Corp.
Gold, 6.50% 5/01/2009 1,791,855
892,835 Federal Home Loan Mortgage Corp.
FHA-VA, 9.00% 12/01/2009 915,486
2,000,000 Federal Home Loan Mortgage Corp.
Series 1547-PJ PAC, 6.60% 2/15/2022 1,836,860
1,142,017 Federal Home Loan Mortgage Corp.
Gold, 7.50% 8/01/2024 1,105,964
3,021,300 Federal Home Loan Mortgage Corp.
Gold, 7.50% 1/01/2025 2,925,918
4,900,000 Federal Home Loan Mortgage Corp.
Gold, 7.00%+ 4/19/2025 4,621,312
1,813,460 Federal Housing Administration, 10.00% 3/01/2033 1,884,298
1,047,818 Federal Housing Administration, 9.625% 12/01/2033 1,076,633
1,125,000 Federal National Mortgage Association
REMIC Series 93-121-PK PAC, 6.50% 10/25/2021 1,024,099
880,407 Federal National Mortgage Association
FHA-VA, 8.00% 4/01/2008 875,133
1,237,562 Federal National Mortgage Association
FHA-VA, 8.00% 6/01/2008 1,230,149
1,888,011 Federal National Mortgage Association
FHA-VA, 8.50% 2/01/2009 1,945,822
1,554,255 Federal National Mortgage Association
FHA-VA, 9.00% 5/01/2009 1,598,178
The accompanying notes are an integral part of the financial statements.
<PAGE>
U.S. Agency $ 698,014 Federal National Mortgage Association
Mortgage FHA-VA, 9.00% 4/01/2016 $ 717,740
(cont'd) 2,132,005 Federal National Mortgage Association, 7.00% 6/01/2023 2,008,071
1,098,388 Federal National Mortgage Association, 7.00% 2/01/2024 1,034,539
427,337 Government National Mortgage Association,
9.00% 4/15/2017 442,661
317,739 Government National Mortgage Association,
9.50% 9/15/2019 333,229
1,808,352 Government National Mortgage Association,
7.50% 1/15/2023 1,745,060
943,329 Government National Mortgage Association,
7.50% 10/15/2023 910,313
686,343 Government National Mortgage Association,
7.50% 12/15/2023 662,321
976,736 Government National Mortgage Association,
7.50% 1/15/2024 942,551
2,359,522 Government National Mortgage Association,
6.50% 7/15/2024 2,130,200
34,199,422
U.S. Agency 1,400,000 Federal National Mortgage Association, 9.65% 8/10/2020 1,508,500
1.6% Total U.S. Government Securities (Cost
$82,126,508) 81,830,861
Other Investments 13.4%
Trust 1,000,000 Cooperative Utility Trust Certificates,
Certificates 9.52% 3/15/2019 1,092,010
4.3% 707,264 Government Backed Trust, Class T-2, 9.40% 11/15/1996 717,852
1,294,871 Government Trust Certificates, Class 2-D,
9.25% 11/15/1996 1,318,929
1,000,000 Government Trust Certificates, Class 2-E,
9.40% 5/15/2002 1,071,360
4,200,151
Finance/ 2,254,057 Prudential Home Mortgage Series 93-29 A-6
Mortgage PAC, 6.75% 8/25/2008 2,191,349
5.3% 1,200,000 Prudential Home Mortgage Series 93-54 A-21
PAC, 5.50% 1/25/2024 1,111,500
1,356,445 Residential Funding Corp. Series 93-S25 A-1
PAC, 6.50% 7/25/2008 1,308,115
488,386 Residential Funding Corp. Series 93-S49 A-1
PAC, 6.00% 12/25/2008 479,683
5,090,647
Foreign Australian Dollar
Government 1,000,000 Commonwealth of Australia, 9.50% 8/15/2003 720,655
3.8% Canadian Dollar
75,000 Government of Canada, 9.75% 12/01/2001 57,188
300,000 Government of Canada, 7.50% 12/01/2003 200,613
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Foreign Danish Krone
Government 4,500,000 Kingdom of Denmark, 7.00% 12/15/2004 $ 725,220
(cont'd) Deutsche Mark
1,350,000 Republic of Germany, 6.625% 7/09/2003 946,422
Italian Lira
800,000,000 Republic of Italy, 8.50% 4/01/1999 408,440
Pound Sterling
200,000 United Kingdom Treasury, 9.75% 8/27/2002 343,689
Spanish Peseta
35,000,000 Government of Spain, 10.90% 8/30/2003 256,270
3,658,497
Total Other Investments (Cost $13,194,705) 12,949,295
Short-Term Obligations 5.6%
$2,360,000 Federal Home Loan Bank, 5.85% 4/03/1995 2,359,233
3,000,000 Federal Home Loan Bank, 6.00% 4/07/1995 2,997,000
Total Short-Term Obligations (Cost $5,356,233) 5,356,233
Total Investments (Cost
$100,677,446)--104.0% 100,136,389
Cash and Other Assets, Less
Liabilities--(4.0)% (3,827,297)
Net Assets--100.0% $96,309,092
Federal Income Tax Information:
At March 31, 1995, the net unrealized
depreciation of investments based on cost
for
Federal income tax purposes of
$100,780,837 was as follows:
Aggregate gross unrealized appreciation
for all investments in which there is an
excess of value over tax cost $ 948,170
Aggregate gross unrealized depreciation
for all investments in which there is an
excess of tax cost over value (1,592,618)
$ (644,448)
</TABLE>
+ Represents "TBA" (to be announced) purchase commitment to purchase securities
for a fixed unit price at a future date beyond customary settlement time.
Although the unit price has been established, the principal value has not been
finalized.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Forward currency exchange contracts outstanding at March 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Unrealized
Contract Appreciation Delivery
Total Value Price (Depreciation) Date
<S> <C> <C> <C> <C> <C> <C>
Sell Australian dollar
Buy U.S. dollars 295,000 AUD .74200 AUD $ 2,603 4/13/95
Sell Australian dollar
Buy U.S. dollars 345,848 AUD .74490 AUD 3,850 5/16/95
Sell Australian dollar
Buy U.S. dollars 224,894 AUD .73610 AUD 487 5/24/95
Sell Canadian dollar
Buy U.S. dollars 55,228 CAD .70572 CAD 35 4/24/95
Sell Canadian dollar
Buy U.S. dollars 269,700 CAD .70602 CAD (1,850) 5/16/95
Sell Danish krone
Buy U.S. dollars 3,863,000 DKK .17621 DKK (27,271) 5/16/95
Sell Deutsche mark
Buy U.S. dollars 1,297,600 DEM .71721 DEM (14,245) 5/24/95
Sell Italian lira
Buy U.S. dollars 685,210,280 ITL .00059 ITL 1,443 5/16/95
Sell Pound sterling
Buy U.S. dollars 101,600 GBP 1.56800 GBP (5,241) 4/24/95
Sell Pound sterling
Buy U.S. dollars 105,000 GBP 1.58110 GBP (3,887) 5/24/95
Sell Spanish peseta
Buy U.S. dollars 33,164,993 ESP .00768 ESP (6,348) 5/16/95
$(50,424)
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
MetLife-State Street Research Government Securities Fund
Statement of Assets and Liabilities
March 31, 1995
<TABLE>
<S> <S> <C> <C>
Assets Investments, at value (Cost $100,677,446) (Note 1) $100,136,389
Cash 4,305
Interest receivable 1,265,297
Receivable for fund shares sold 44,000
Receivable from Distributor (Note 3) 12,235
Foreign tax receivable 9,082
Receivable for open forward contracts 8,418
Other assets 9,861
101,489,587
Liabilities Payable for securities purchased $4,659,213
Dividends payable 136,346
Payable for fund shares redeemed 102,724
Accrued transfer agent and shareholder services (Note
2) 63,258
Payable for open forward contracts 58,842
Accrued management fee (Note 2) 53,714
Accrued distribution fee (Note 5) 30,644
Accrued trustees' fees (Note 2) 2,295
Other accrued expenses 73,459 5,180,495
Net Assets $ 96,309,092
Net Assets consist of:
Distribution in excess of net investment income $ (239,293)
Unrealized depreciation of investments (541,057)
Unrealized depreciation of forward contracts and foreign currency (48,865)
Accumulated net realized loss (5,013,760)
Shares of beneficial interest 102,152,067
$ 96,309,092
Net Asset Value and redemption price per share of Class A shares
($80,294,119 / 11,547,948 shares of beneficial interest) $ 6.95
Maximum Offering Price per share of Class A shares ($6.95 / .955) $ 7.28
Net Asset Value and offering price per share of Class B shares
($14,217,486 / 2,045,557 shares of beneficial interest)* $ 6.95
Net Asset Value, offering price and redemption price per share of
Class C shares ($212,837 / 30,580 shares of beneficial interest) $ 6.96
Net Asset Value and offering price per share of Class D shares
($1,584,650 / 227,649 shares of beneficial interest)* $ 6.96
</TABLE>
*Redemption price per share for Class B and Class D is equal to net asset value
less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
MetLife-State Street Research Government Securities Fund
Statement of Operations
For the year ended March 31, 1995
<TABLE>
<S> <S> <C> <C>
Investment
Income Interest, net of foreign taxes of $11,319 $ 8,108,057
Expenses Management fee (Note 2) $ 676,164
Transfer agent and shareholder services (Note 2) 369,580
Custodian fee 133,282
Registration fees 72,306
Reports to shareholders 36,687
Audit fee 31,288
Distribution fee--Class A (Note 5) 220,358
Distribution fee--Class B (Note 5) 141,126
Distribution fee--Class D (Note 5) 15,350
Legal fees 14,392
Trustees' fees (Note 2) 13,193
Miscellaneous 13,761
1,737,487
Expenses borne by the distributor (Note 3) (320,400) 1,417,087
Net investment income 6,690,970
Realized and
Unrealized Net realized loss on investments (Notes 1 and 4) (4,914,104)
Gain (Loss) on Net realized loss on forward contracts and foreign
Investments, currency (Note 1) (467,052)
Total net realized loss (5,381,156)
Foreign Currency Net unrealized appreciation of investments 1,698,025
and Forward Net unrealized appreciation of forward contracts and
Contracts foreign currency 117,183
Total net unrealized appreciation 1,815,208
Net loss on investments, foreign currency and
forward contracts (3,565,948)
Net increase in net assets resulting from operations $ 3,125,022
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
MetLife-State Street Research Government Securities Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended March 31
1995 1994
<S> <S> <C> <C>
Increase Operations:
(Decrease) Net investment income $ 6,690,970 $ 6,661,206
in Net Assets Net realized gain (loss) on investments, foreign
currency and forward contracts* (5,381,156) 1,709,018
Net unrealized appreciation (depreciation)
of investments, foreign currency and
forward contracts 1,815,208 (5,820,842)
Net increase resulting from operations 3,125,022 2,549,382
Dividends from net investment income:
Class A (5,376,299) (6,384,227)
Class B (758,387) (342,779)
Class C (15,053) (1,581)
Class D (82,366) (31,523)
(6,232,105) (6,760,110)
Distributions from net realized gains:
Class A (267,802) (2,625,526)
Class B (39,582) (155,313)
Class C (793) (558)
Class D (4,229) (9,177)
(312,406) (2,790,574)
Net increase (decrease) from fund share transactions
(Note 7) (17,469,461) 27,632,491
Total increase (decrease) in net assets (20,888,950) 20,631,189
Net Assets Beginning of year 117,198,042 96,566,853
End of year (including overdistributed net
investment income of $239,293 and $202,102,
respectively) $ 96,309,092 $117,198,042
* Net realized gain (loss) for Federal income
tax purposes (Note 1) $ (3,074,207) $ 2,091,358
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
MetLife-State Street Research Government Securities Fund
Notes to Financial Statements
March 31, 1995
Note 1
MetLife-State Street Research Government Securities Fund, formerly
MetLife-State Street Government Securities Fund (the "Fund") is a series of
MetLife-State Street Income Trust (the "Trust"), which was organized as a
Massachusetts business trust in December, 1985 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Trust commenced operations in August, 1986. The Trust
consists presently of three separate funds: MetLife-State Street Research
Government Securities Fund, MetLife- State Street Research High Income Fund
and MetLife-State Street Research Managed Assets.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and
pay annual distribution and service fees of 1.00%. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after the issuance of the Class B shares. Class C
shares are only offered to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. 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.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
C. Net Investment Income
Net investment income is determined daily and consists of interest accrued
and discount earned, less the estimated daily expenses of the Fund. Interest
income is accrued daily as earned. Accretion of discount is computed under
the effective yield method. The Fund is charged for expenses directly
attributable to it, while indirect expenses are allocated among all funds in
the Trust.
D. Dividends
Dividends are declared daily based upon projected net investment income and
paid or reinvested monthly. Net realized capital gains, if any, are
distributed annually, unless additional distributions are required for
compliance with applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from
8
<PAGE>
generally accepted accounting principles. The difference is primarily due to
differing treatments for foreign currency transactions and paydown gains and
losses.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods. At March 31, 1995, the
Fund had a capital loss carryforward of $3,074,207 available, to the extent
provided in regulations, to offset future capital gains, if any, which
expires on March 31, 2003.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1993
through March 31, 1994, the Fund incurred net capital losses of $194,698 and
has deferred and treated such losses as arising in the fiscal year ending
March 31, 1995. From November 1, 1994 through March 31, 1995, the Fund
incurred net capital losses of approximately $1,836,000 and intends to defer
and treat such losses as arising in the fiscal year ending March 31, 1996.
F. Forward Contracts and Foreign Currencies
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are marked-to-
market at the applicable transaction rates resulting in unrealized gains or
losses. The Fund records realized gains or losses at the time the forward
contracts are extinguished by entry into a closing contract or by delivery of
the currency. Neither spot transactions nor forward currency exchange
contracts eliminate fluctuations in the prices of the Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the price of
these securities should decline.
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.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly-owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.65% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment
9
<PAGE>
advisory, statistical and research facilities and services. The Adviser also
pays all salaries, rent and certain other expenses of management. During the
year ended March 31, 1995, the fees pursuant to such agreement amounted to
$676,164.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly-owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended March 31, 1995, the amount of such
expenses was $73,343.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $13,193 during the year ended March 31, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended March 31, 1995, the amount of such expenses
assumed by the Distributor and its affiliates was $320,400.
Note 4
For the year ended March 31, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $129,315,755 and $138,333,757
(including $123,715,180 and $131,616,638 of U.S. Government obligations),
respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
pays annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
service 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 year ended March 31, 1995, fees pursuant to
such plan amounted to $220,358, $141,126 and $15,350 for Class A, Class B and
Class D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly-owned subsidiary of Metropolitan, earned initial sales charges
aggregating $28,307 and $200,911, respectively, on sales of Class A shares of
the Fund during the year ended March 31, 1995, and that MetLife Securities,
Inc. earned commissions aggregating $119,001 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $75,141
and $360 on redemptions of Class B and Class D shares, respectively, during
the same period.
Note 6
At a meeting held on April 21, 1995, the shareholders approved a merger of
the Fund into State Street Research Government Income Fund. The closing date
for the merger will be on or about May 15, 1995.
10
<PAGE>
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Notes (cont'd)At March 31, 1995, Metropolitan owned 135 Class C shares and
67,748 Class D shares of the Fund and the Distributor owned 6,945 Class A
shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended March 31
1995 1994
<S> <C> <C> <C> <C>
Class A Shares Amount Shares Amount
Shares sold 1,283,129 $ 8,855,649 4,180,729 $ 31,583,729
Issued upon reinvestment of:
Dividends from net investment income 555,675 3,832,140 655,790 4,928,284
Distributions from net realized gains 31,820 223,034 296,896 2,212,298
Shares repurchased (4,549,885) (31,412,092) (3,649,225) (27,342,206)
Net increase (decrease) (2,679,261) $(18,501,269) 1,484,190 $ 11,382,105
June 1, 1993
(Commencement of
Share Class Designations)
to March 31, 1994
Class B Shares Amount Shares Amount
Shares sold 647,574 $ 4,497,892 2,167,713 $ 16,313,099
Issued upon reinvestment of:
Dividends from net investment income 85,196 586,853 34,715 258,187
Distributions from net realized gains 5,262 36,905 18,821 140,026
Shares repurchased (600,293) (4,140,549) (313,431) (2,324,770)
Net increase 137,739 $ 981,101 1,907,818 $ 14,386,542
Class C Shares Amount Shares Amount
Shares sold 3,211 $ 22,685 42,565 $ 305,304
Issued upon reinvestment of:
Dividends from net investment income 116 806 156 1,161
Distributions from net realized gains 10 69 76 558
Shares repurchased (10,255) (71,448) (5,299) (39,247)
Net increase (decrease) (6,918) $ (47,888) 37,498 $ 267,776
Class D Shares Amount Shares Amount
Shares sold 83,966 $ 577,108 212,354 $ 1,587,887
Issued upon reinvestment of:
Dividends from net investment income 7,895 54,510 1,248 9,064
Distributions from net realized gains 611 4,285 1,242 9,251
Shares repurchased (78,272) (537,308) (1,395) (10,134)
Net increase 14,200 $ 98,595 213,449 $ 1,596,068
</TABLE>
11
<PAGE>
MetLife-State Street Research Government Securities Fund
Financial Highlights
For a share outstanding throughout each year.
<TABLE>
<CAPTION>
Class A
Year ended March 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $7.15 $7.58 $7.13 $6.90 $6.62
Net investment income* .45 .44 .46 .50 .54
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts (.21) (.23) .45 .23 .27
Dividends from net investment income (.42) (.45) (.46) (.50) (.53)
Distributions from net realized gains (.02) (.19) -- -- --
Net asset value,
end of year $6.95 $7.15 $7.58 $7.13 $6.90
Total return 3.61%+ 2.59%+ 13.10%+ 10.82%+ 12.78%+
Net assets at end of
year (000s) $80,294 $101,759 $96,567 $66,228 $39,189
Ratio of operating expenses to average
net assets* 1.25% 1.24% 1.24% 1.25% 1.25%
Ratio of net investment income to
average net assets* 6.54% 5.85% 6.27% 7.11% 8.00%
Portfolio turnover rate 126.79% 112.20% 159.36% 73.40% 42.69%
*Reflects voluntary assumption of fees
or expenses per share in each year.
(Note 3) $.02 $.01 $.00 $.01 $.02
</TABLE>
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
12
<PAGE>
Financial Highlights (cont'd)
<TABLE>
<CAPTION>
Class B Class C Class D
Year ended Year ended Year ended
March 31, 1995 1994** March 31, 1995 1994** March 31, 1995 1994**
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $7.15 $7.51 $7.16 $7.51 $7.16 $7.51
Net investment income* .40 .33 .46 .39 .40 .33
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts (.21) (.17) (.20) (.16) (.21) (.17)
Dividends from net investment income (.37) (.33) (.44) (.39) (.37) (.32)
Distributions from net realized gains (.02) (.19) (.02) (.19) (.02) (.19)
Net asset value,
end of year $6.95 $7.15 $6.96 $7.16 $6.96 $7.16
Total return 2.85%+ 0.89%+++ 3.87%+ 1.86%+++ 2.84%+
1.00%+++
Net assets at end of year (000s) $14,217 $13,642 $213 $268 $1,585 $1,528
Ratio of operating expenses to average
net assets* 2.00% 2.00%++ 1.00% 1.00%++ 2.00% 2.00%++
Ratio of net investment income to
average net assets* 5.81% 5.07%++ 6.79% 6.07%++ 5.80% 5.07%++
Portfolio turnover rate 126.79% 112.20% 126.79% 112.20% 126.79% 112.20%
*Reflects voluntary assumption of fees
or expenses per share in each year.
(Note 3) $.02 $.02 $.02 $.00 $.02 $.02
</TABLE>
**June 1, 1993 (commencement of share class designations) to March 31, 1994.
++Annualized
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
13
<PAGE>
Report of Independent Accountants
To the Trustees of MetLife-State Street
Income Trust and the Shareholders of
MetLife-State Street Research Government
Securities Fund
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of MetLife-State Street
Research Government Securities Fund (formerly MetLife-State Street Government
Securities Fund) (a series of MetLife-State Street Income Trust, hereafter
referred to as the "Trust") at March 31, 1995, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities owned at March 31, 1995 by
correspondence with the custodian and brokers and the application of
alternative procedures where confirmations from brokers were not received,
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
May 12, 1995
14
<PAGE>
Management's Discussion of Fund Performance
Government Securities Fund outperformed Lipper's average for General U.S.
Government Funds. As of March 31, 1995, the Fund held 48% in U.S. Treasury
securities; 36% in U.S. Agency mortgage securities; 10% in trust certificates
and other investments; 4% in international government bonds; and 2% in cash.
We responded to the rising interest rate environment in most of 1994 by
taking a more defensive position. We held the Fund's duration shorter than
the market average. (Duration is a measure of the Fund's sensitivity to
interest rate changes--the shorter the duration, the less the fund's price
will fall in response to rising interest rates.) We also added to our position
in mortgage securities, which are generally more defensive in nature.
In the last three months of 1994 and first three months of 1995, we were able
to position the Fund for a falling interest rate environment. We gradually
lengthened Government Securities Fund's duration to slightly longer than the
market average. In the first quarter of 1995, we also reduced the Fund's
position in mortgage securities and increased our holdings in U.S. Treasury
securities. This change allowed the Fund to benefit from the decline in
interest rates over the past six months.
Comparison Of Change In Value Of A $10,000 Investment In Government
Securities Fund and The Merrill Lynch Blended Index
Class A Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
- -1.05% +7.48% +6.58%
8/86 9550 10000
3/87 10075 10343
3/88 10159 10870
3/89 10505 11409
3/90 11524 12798
3/91 12994 14466
3/92 14399 16070
3/93 16282 18180
3/94 16704 18637
3/95 17307 19532
Class B Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
- -2.01% +7.90% +6.99%
8/86 10000 10000
3/87 10550 10343
3/88 10638 10870
3/89 11000 11409
3/90 12067 12798
3/91 13606 14466
3/92 15077 16070
3/93 17049 18180
3/94 17386 18637
3/95 17881 19532
Class C Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
+3.87% +8.60% +7.23%
8/86 10000 10000
3/87 10550 10343
3/88 10638 10870
3/89 11000 11409
3/90 12067 12798
3/91 13606 14466
3/92 15077 16070
3/93 17049 18180
3/94 17552 18637
3/95 18230 19532
Class D Shares
Average Annual Total Return
1 Year 5 Year Life of Fund
+1.77% +8.20% +7.00%
8/86 10000 10000
3/87 10550 10343
3/88 10638 10870
3/89 11000 11409
3/90 12067 12798
3/91 13606 14466
3/92 15077 16070
3/93 17049 18180
3/94 17404 18637
3/95 17898 19532
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Investments in the Fund are not insured
or guaranteed by the U.S. Government or any other entity.
Shares of the Fund had no class designations until June 1, 1993, when
designations were assigned based on the pricing and 12b-1 fees applicable to
shares sold thereafter. Performance data for a specified class include
periods prior to the adoption of class designations. "A" share returns for
each of the periods reflect the maximum 4.5% sales charge. "B" share returns
for the 1-year and 5-year periods reflect a 5% and 2% contingent deferred
sales charge, respectively. "C" shares, offered without a sales charge, are
available only to certain employee benefit plans and large institutions. "D"
share return for the 1-year period reflects a 1% contingent deferred sales
charge. Performance for "B" and "D" shares prior to June 1, 1993, reflects
annual 12b-1 fees of .25% and performance thereafter reflects annual 12b-1
fees of 1%, which will reduce subsequent performance. The Merrill Lynch
Blended Index is a commonly-used measure of bond market performance. The
index is unmanaged and does not take sales charges into consideration. Direct
investment in the index is not possible; results are for illustrative
purposes only.
15
<PAGE>
MetLife-State Street Research Government Securities Fund
The Trustees and Officers of MetLife-State Street Income Trust
Trustees
Ralph F. Verni
Chairman of the Board, President, Chief Executive Officer and Director, State
Street Research & Management Company
Edward M. Lamont
Formerly in banking (Morgan Guaranty Trust Company of New York); presently
engaged in private investments and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive Vice President, Chief Operating Officer and
Director, Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of the Board and Chief
Executive Officer, Raytheon Company
Toby Rosenblatt
President, The Glen Ellen Company
Vice President, Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of Management, Sloan School of
Management, Massachusetts Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel, Choate, Hall & Stewart
Officers
Ralph F. Verni
Chairman of the Board, President and Chief Executive Officer
Bartlett R. Geer
Vice President
John H. Kallis
Vice President
Michael R. Yogg
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Constantine Hutchins, Jr.
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and Assistant General Counsel
16
<PAGE>
[COVERS]
MetLife-State Street Research
Government Securities Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
MetLife-State Street Research
Government Securities Fund
March 31, 1995
Annual Report
What's Inside:
@ Complete Portfolio Holdings
@ Financial Statements
MetLife-State Street Research
Government Securities Fund
One Financial Center
Boston, MA 02111
CONTROL NUMBER: 2350-950523(0696)SSR-LD
This report is prepared for the general information of shareholders. It is not
authorized for distribution to prospective investors, and must be preceded or
accompanied by a current prospectus.
<PAGE>
A MetLife Company
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 600
GS-574D-595
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[State Street Research logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective investors.
CONTROL NUMBER: 2322-950524(0696)SSR-LD
Cover Illustration by Dorothy Cullinan HI-573D-595
<PAGE>
[Front Cover]
[State Street Research logo] STATE STREET RESEARCH
METLIFE-STATE STREET RESEARCH HIGH INCOME FUND
Annual Report
March 31, 1995
[Drawing of person running up a mountain towards the stars]
WHAT'S INSIDE
New and Improved:
A new design that's
easier to read
From the Chairman:
What a difference
a year makes!
Portfolio Manager's Review:
The Fund's strong
performance continues
Fund Information:
Facts and Figures
Plus, Complete Portfolio Holdings
and Financial Statements
