[front cover]
[logo] STATE STREET RESEARCH
STATE STREET RESEARCH
HIGH INCOME FUND
ANNUAL REPORT
March 31, 1997
[graphic of person fishing]
WHAT'S INSIDE
From the Chairman:
The markets kept
us on our toes
Portfolio Manager's Review:
Solid performance from
high-yield bonds
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[DALBAR box logo]
DALBAR KEY HONORS
COMMITMENT TO:
INVESTORS
1996
For Excellence
in
Shareholder Service
<PAGE>
FROM THE CHAIRMAN
[PHOTO: Ralph F. Verni]
Dear Shareholders:
The markets kept us on our toes, but the past 12 months brought another year
of positive returns for many investors. For a good portion of the year ended
March 31, 1997, there were strong profits, low inflation and slow to moderate
economic growth. The Lehman Brothers Government/Corporate Bond Index gained
+4.46% and the Standard & Poor's 500 Composite Index increased +19.82% for
the year ended March 31, 1997.(1)
However, the first quarter of 1997 saw the economy grow faster than expected.
This growth prompted the Federal Reserve to raise the Federal Funds rate by
one-quarter point, the first such increase since early 1995.
The Fed's tightening had a predictable effect on both the stock and bond
markets. The bond market anticipated and then reacted to the Fed's action by
experiencing negative returns for the first quarter for all sectors but the
high-yield area. The stock market, as measured by the Dow Jones Industrial
Average, experienced a sizable correction as the quarter ended.
The bond market has yields topping 7% at this writing, so investor interest
is likely to increase in this area. We believe the correction in the stock
market is normal and long overdue. At current levels, we see stock market
valuations as fairly reasonable, given today's relatively low rates and
inflation.
What's the outlook?
The economy remains quite healthy, with unemployment low and job creation
strong. Corporate profitability and consumer confidence also remain high.
Therefore, our outlook remains positive. We recommend that investors stay
true to their long-term investment goals. In time, the markets tend
to recover from short-term setbacks. If you are concerned about the
current market environment, it is always a good idea to consult your
investment professional.
The economy remains quite healthy, with unemployment low and job creation
strong. Corporate profitability and consumer confidence also remain high.
Therefore, our outlook remains positive. We recommend that investors stay
true to their long-term investment goals. In time, the markets tend
to recover from short-term setbacks. If you are concerned about the
current market environment, it is always a good idea to consult your
investment professional.
Thank you for investing with State Street Research.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
March 31, 1997
(1) 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. The Lehman Brothers Government/Corporate Bond Index is a
commonly used measure of bond market performance. The indices are unmanaged
and do not take transaction charges into consideration. Direct investment in
the indices is not possible; results are for illustrative purposes only.
(2) Investment results are based on an assumed $10,000 investment at "A"
share maximum sales charge of 4.5%; thus, the net amount invested was $9,550.
Also assumes 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.
(3) +9.35% for Class B shares; +10.63% for Class C shares; +9.52% for Class D
shares.
(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 part of
its objective, and to allow greater use of lower-rated securities, and
convertible and preferred securities. Performance for a class may include
periods prior to the adoption of class designations in 1993, which resulted
in new or increased 12b-1 fees of up to 1% per class thereafter and which
will reduce subsequent performance. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions.
(5) Performance reflects maximum 4.5% "A" share front-end sales charge or 5%
"B" share or 1% "D" share contingent deferred sales charges, where
applicable.
(6) Cumulative total returns are not annualized and do not reflect sales
charges, which, if reflected, would reduce performance.
Please note that the discussion throughout this shareholder report is dated
as indicated and, because of possible changes in viewpoint, data and
transactions, should not be relied upon as being current thereafter.
FUND INFORMATION (all data are for periods ended March 31, 1997)
Total value of $10,000 invested on March 31, 1987(2)
(Class A shares, at maximum applicable sales charge)
[GRAPHIC INSERTED HERE]
[MOUNTAIN CHART PLOT POINTS]
3/87 9550
3/88 10004
3/89 11247
3/90 10484
3/91 10713
3/92 13814
3/93 16397
3/94 18786
3/95 19124
3/96 21581
3/97 23804
SEC Yield
- ---------------------------
Class A 7.60%
- ---------------------------
Class B 7.22%
- ---------------------------
Class C 8.27%
- ---------------------------
Class D 7.20%
- ---------------------------
SEC yield is based on the net investment income produced for the 30 days
ended March 31, 1997. 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)
- ----------------------------------------------------
10 Years 5 Years 1 Year
- ----------------------------------------------------
Class A +9.06% +10.48% +5.34%
- ----------------------------------------------------
Class B +9.21% +10.52% +4.35%
- ----------------------------------------------------
Class C +9.63% +11.63% +10.63%
- ----------------------------------------------------
Class D +9.22% +10.81% +8.52%
- ----------------------------------------------------
Cumulative Total Returns
(do not reflect sales charge)(4,6)
- ----------------------------------------------------
10 Years 5 Years 1 Year
- ----------------------------------------------------
Class A +149.38% +72.34% +10.30%
- ----------------------------------------------------
Class B +141.52% +66.90% +9.35%
- ----------------------------------------------------
Class C +150.89% +73.38% +10.63%
- ----------------------------------------------------
Class D +141.78% +67.08% +9.52%
- ----------------------------------------------------
<PAGE>
PORTFOLIO MANAGER'S REVIEW
[PHOTO: Bartlett R. Geer]
Bartlett R. Geer
Portfolio Manager
The following is a discussion with High Income Fund portfolio manager
Bartlett R. Geer. Bart is the lead portfolio manager for our equity group's
value team. He has 17 years of investment experience.
Q: How did the Fund perform over the past year?
A: The Fund turned in a solid performance but slightly underperformed the
average of its competitive group. Class A shares generated a total return of
+10.30% (does not reflect sales charge) versus the average of +11.35% of the
154 fund classes in Lipper Analytical Services' High Current Yield Funds
category.(3)
Q: What was the environment like for high-yield bonds over the past twelve
months?
A: The environment was extremely positive for high-yield bonds for most of
the past year. At the end of 1996, however, interest rates began to rise.
Throughout 1996 and the first part of 1997, the economic climate was
favorable and demand was strong from both traditional and non-traditional
investors in high-yield bonds. The economy was strong enough to sustain solid
corporate earnings and generous cash flow. Inflation was low and interest
rates were stable.
High-yield bonds were the top-performing U.S. fixed-income sector during the
past year and were the only U.S. fixed-income sector to generate a positive
return in the first quarter of 1997. In addition to the attractive yields in
an otherwise low-interest-rate environment, positive events, such as
takeovers, pushed high-yield bond prices higher.
Q: Why did the environment change in 1997?
A: The economy began to show signs of strength late in 1996. U.S. Treasury
yields rose further in March 1997, as the Federal Reserve Board raised the
Federal Funds rate--the rate at which banks lend to each other overnight--by
a quarter of a percent. High-yield bonds maintained their value better than
most U.S. fixed-income sectors during this time. Yields rose, however, as the
effects of the weaker U.S. Treasury market "spilled over" into the high-yield
sector.
Q: How was the Fund invested?
A: We primarily invested in B-rated bonds. These bonds tended to benefit from
the healthy economic environment and provided attractive yields. We also
believe that B-rated bonds help us add more value through our fundamental
credit research. In terms of sectors, telecommunications was a point of focus
over the past year.
Q: What is your outlook going forward?
A: We think there could be moderately higher interest rates over the near
term, but believe the economic environment is still favorable for high-yield
bonds. We expect these somewhat higher interest rates could slow economic
growth later in the year.
The yields of lower-quality bonds recently have risen, bringing them back to
more historically consistent relationships with higher-quality alternatives.
This makes them more attractive than they were over the past couple of
months. If interest rates keep rising, we will continue to emphasize B-rated
bonds for their higher yields and lower vulnerability to interest-rate
movements.
March 31, 1997
Asset Allocation
(by percentage of net assets)
[PIE CHART PLOT POINTS]
Preferred stocks 3%
BB 4%
Common stocks 5%
Cash 6%
CCC 10%
Convertibles 12%
B 60%
Quality ratings based on those provided by Standard & Poor's Corp.
and/or equivalent ratings by Moody's Investors Service, Inc.
*14% of the above bonds were unrated and included among relevant
rating categories as determined by the Fund's manager.
5 Largest Industry Positions
(by percentage of net assets)
[BAR CHART PLOT POINTS]
Technology and communications 24.6%
Media 12.7%
Oil and gas 5.9%
Cable television 5.8%
Metals/mining/steel 5.4%
Total: 54.4%
2
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
March 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 74.2%
Aerospace/Defense 1.5%
Dyncorp Inc. Sr. Sub. Note, 9.50%+ $ 2,250,000 3/01/2007 $ 2,193,750
Haynes International Inc. Sr. Note, 11.625% 5,240,000 9/01/2004 5,502,000
Ladish Company, Inc. Sr. Sub. Sec. Note, 12.00%++ 199,732 12/22/2000 213,234
Ladish Inc. Sr. Sub. Note, 12.00%++**@ 975,550 12/22/2000 908,530
Wyman-Gordon Co. Sr. Note, 10.75% 5,390,000 3/15/2003 5,740,350
--------------
14,557,864
--------------
Airlines 1.3%
CHC Helicopter Corp. Sr. Sub. Note, 11.50% 11,700,000 7/15/2002 12,051,000
--------------
Automotive Parts 0.2%
Exide Corp. Sr. Note, 10.00% 2,250,000 4/15/2005 2,250,000
--------------
Cable Television 5.2%
American Telecasting Inc. Sr. Note, 0.00% to
6/14/99, 14.50% from 6/15/99 to maturity 15,685,372 6/15/2004 5,333,027
American Telecasting Inc. Sr. Note Series B, 0.00%
to 8/14/2000, 14.50% from 8/15/2000 to maturity 4,545,000 8/15/2005 1,386,225
Intermedia Capital Partners LP Sr. Note, 11.25% 6,250,000 8/01/2006 6,375,000
Marcus Cable Co. L.P. Sr. Deb., 11.875% 6,500,000 10/01/2005 6,760,000
Marcus Cable Co. L.P. Sr. Note, 0.00% to 6/14/2000,
14.25% from 6/15/2000 to maturity 19,750,000 12/15/2005 13,627,500
Telewest Communications PLC Sr. Deb., 9.625% 2,000,000 10/01/2006 1,940,000
Wireless One Inc. Sr. Disc. Note, 13.00% 10,950,000 10/15/2003 7,117,500
Wireless One Inc. Sr. Note, 0.00% to 7/31/2001,
13.50% from 8/1/2001 to maturity 27,250,000 8/01/2006 7,357,500
--------------
49,896,752
--------------
Capital Goods/Equipment 4.3%
Celestica International Inc. Sr. Sub. Note, 10.50%+ 1,750,000 12/31/2006 1,837,500
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Goods/Equipment (cont'd)
Chatwins Group Inc. Sr. Exch. Note, 13.00% $ 6,250,000 5/01/2003 $ 5,812,500
ICF International Inc. Sr. Sub. Note, 13.00% 10,250,000 6/30/1996 9,686,250
Intertek Financial Corp. Sr. Sub. Note, 10.25%+ 9,000,000 11/01/2006 9,270,000
Tokheim Corp. Sr. Sub. Note Series B, 11.50% 10,500,000 8/01/2006 11,235,000
Tracor Inc. Sr. Sub. Note, 8.50%+ 3,250,000 3/01/2007 3,120,000
--------------
40,961,250
--------------
Conglomerate 0.9%
Alvey Systems Inc. Sr. Sub. Note, 11.375% 7,375,000 1/31/2003 7,670,000
Axia Inc. Sr. Sub. Note Series B, 11.00% 750,000 3/15/2001 765,000
--------------
8,435,000
--------------
Consumer Goods & Services 3.0%
Anchor Advanced Products Inc. Sr. Note, 11.75%+ 3,000,000 4/01/2004 3,037,500
La Petite Holdings Corp. Sr. Sec. Notes, 9.625% 10,750,000 8/01/2001 10,535,000
Norcal Waste Systems Inc. Sr. Note Series B, 13.00%
to 5/14/97, 13.25% from 5/15/97 to 11/14/97,
13.50% from 11/15/97 to maturity 7,940,000 11/15/2005 8,734,000
Renaissance Cosmetics Inc. Sr. Note, 11.75%+ 1,000,000 2/15/2004 1,005,000
Rose Hills Acquisition Corp. Sr. Sub. Note, 9.50%+ 4,750,000 11/15/2004 4,797,500
--------------
28,109,000
--------------
Electric Utility 0.2%
Calpine Corp. Sr. Note, 9.25% 2,000,000 2/01/2004 2,000,000
--------------
Entertainment/Leisure 2.5%
Coleman Worldwide Corp. Sr. Sec. Liquid Yield
Option Note, 0.00% 65,000,000 5/27/2013 18,850,000
Premier Parks Inc. Sr. Note Series A, 12.00% 3,300,000 8/15/2003 3,630,000
Premier Parks Inc. Sr. Note, 9.75% 1,000,000 1/15/2007 1,015,000
--------------
23,495,000
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Food & Beverage 0.8%
Cafeteria Operators L.P. Sr. Sec. Note, 12.00% $ 8,082,980 12/31/2001 $ 7,759,661
--------------
Gaming & Lodging 0.5%
Belle Casinos Inc. First Mortgage Note, 12.00%+*** 700,000 10/15/2000 266,000
Mohegan Tribal Gaming Authority Sr. Sec. Notes
Series B, 13.50% 3,000,000 11/15/2002 3,870,000
Treasure Bay Gaming and Resorts, Inc. First
Mortgage Units, 12.25%+*** 1,000,000 11/15/2000 200,000
--------------
4,336,000
--------------
Grocery 2.5%
Electronic Retailing Systems International, Inc.
Unit, 13.25%+ 1,500,000 2/01/2004 1,012,500
Grand Union Co. Sr. Sub. Note, 12.00% 13,000,000 9/01/2004 12,772,500
Pathmark Stores Inc. Sub. Note, 11.625% 3,750,000 6/15/2002 3,871,875
Ralphs Grocery Co. Sr. Sub. Note, 13.75% 2,500,000 6/15/2005 2,675,000
Safeway Inc. Lease Certificate, 13.50% 90,123 1/15/2009 126,623
Star Market Inc. Sr. Sub. Note, 13.00% 2,500,000 11/01/2004 2,800,000
Victory Markets Inc. Sub. Deb., 12.50%*** 925,000 3/15/2000 46,250
--------------
23,304,748
--------------
Hospital/Health Care 1.8%
Dade International Inc. Sr. Sub. Note, 11.125% 4,000,000 5/01/2006 4,510,000
Healthsource Inc. Sub. Cv. Note, 5.00% 2,000,000 3/01/2003 1,962,500
Owens & Minor Inc. Sr. Sub. Note, 10.875% 1,875,000 6/01/2006 2,020,313
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% 5,250,000 12/15/2006 5,407,500
Theratx, Inc. Cv. Sub. Deb., 8.00% 3,000,000 2/01/2002 2,902,500
--------------
16,802,813
--------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Media 9.9%
Affiliated Newspapers Investments, Inc. Sr. Deb.,
0.00% to 6/30/99, 13.25% from 7/1/99 to maturity $ 3,000,000 7/01/2006 $ 2,550,000
Affinity Group Inc. Sr. Sub. Deb., 11.50% 5,250,000 10/15/2003 5,512,500
Allbritton Communications Co. Sr. Sub. Deb., 11.50% 5,000,000 8/15/2004 5,225,000
Benedek Broadcasting Corp. Sr. Note, 11.875% 6,250,000 3/01/2005 6,875,000
Benedek Communications Corp. Sr. Sub. Note, 0.00%
to 5/14/2001, 13.25% from 5/15/2001 to maturity 16,500,000 5/15/2006 9,570,000
Busse Broadcasting Corp. Sr. Sec. Note, 11.625% 4,000,000 10/15/2000 4,210,000
Capstar Broadcasting Partners Sr. Note, 0.00% to
1/31/2002, 12.75% from 2/1/2002 to maturity+ 15,500,000 2/01/2009 8,215,000
Lamar Advertising Co. Sr. Sub. Note, 9.625% 3,250,000 12/01/2006 3,250,000
Muzak L.P. Sr. Note, 10.00% 3,000,000 10/01/2003 3,030,000
Outdoor Systems Inc. Sr. Sub. Note, 9.375% 11,250,000 10/15/2006 11,475,000
Spanish Broadcasting Systems Inc. Sr. Note, 7.50%
to 6/14/97, 12.50% from 6/15/97 to maturity 13,250,000 6/15/2002 14,177,500
Sun Media Corp. Sr. Sub. Note, 9.50%+ 3,000,000 2/15/2007 2,850,000
Telemundo Group Inc. Sr. Note, 7.00% to 2/14/99,
10.50% from 2/15/99 to maturity 7,000,000 2/15/2006 6,895,000
TV Azteca SA de CV Sr. Note Series B, 10.50%+ 3,500,000 2/15/2007 3,410,190
Universal Outdoor Inc. Sr. Sub. Note, 9.75% 6,000,000 10/15/2006 5,940,000
Universal Outdoor Inc. Sr. Sub. Note Series B,
9.75%+ 1,250,000 10/15/2006 1,237,500
--------------
94,422,690
--------------
Metals/Mining/Steel 5.4%
Crown Resources Corp. Cv. Sub. Deb., 5.75% 220,000 8/27/2001 193,600
Envirosource Inc. Note, 9.75% 17,875,000 6/15/2003 17,428,125
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Metals/Mining/Steel (cont'd)
Euramax International PLC Sr. Sub. Note, 11.25% $ 2,500,000 10/01/2006 $ 2,631,250
GS Technologies Operating Inc. Sr. Note, 12.00% 5,250,000 9/01/2004 5,486,250
NS Group Inc. Sr. Sec. Note, 13.50% 14,500,000 7/15/2003 15,515,000
Sheffield Steel Corp. First Mortgage Note, 12.00% 10,750,000 11/01/2001 10,105,000
--------------
51,359,225
--------------
Oil & Gas 5.3%
Empire Gas Corp. Sr. Sec. Note, 7.00% to 7/14/99,
12.875% from 7/15/99 to maturity 11,500,000 7/15/2004 10,005,000
Moran Energy Inc. Cv. Deb., 8.75% 2,420,000 1/15/2008 2,117,500
TransAmerican Refining Corp. Sr. Note, 0.00% to
2/14/98, 18.50% from 2/15/98 to 8/14/98, 18.00%
from 8/15/98 to maturity 10,000,000 2/15/2002 9,150,000
TransAmerican Refining Corp. Sr. Note, 16.50% to
8/14/98, 16.00% from 8/15/98 to maturity 5,190,000 2/15/2002 5,605,200
TransTexas Gas Corp. Sr. Sec. Note, 11.50% 21,713,000 6/15/2002 23,775,735
--------------
50,653,435
--------------
Paper Products 2.8%
Crown Packaging Enterprises Ltd. Sr. Sec. Note,
14.00%+ 9,000,000 8/01/2006 1,530,000
Crown Packaging Ltd. Sr. Sec. Note, 10.75% 1,000,000 11/01/2000 945,000
Mail-Well Envelope Corp. Sr. Sub. Note, 10.50% 2,250,000 2/15/2004 2,351,250
Packaging Resources Inc. Sr. Sec. Note, 11.625% 12,250,000 5/01/2003 12,678,750
Spinnaker Industries Inc. Sr. Sec. Note, 10.75%+ 9,000,000 10/15/2006 9,270,000
--------------
26,775,000
--------------
Plastics 1.2%
Plastic Containers Inc. Sr. Sec. Note, 10.00%+ 1,250,000 12/15/2006 1,262,500
Plastic Specialties & Technologies, Inc. Sr. Note,
11.25% 9,750,000 12/01/2003 10,530,000
--------------
11,792,500
--------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate/Building 0.9%
Miles Homes Services Inc. Sr. Note, 12.00% $ 2,000,000 4/01/2001 $ 1,620,000
Overhead Door Corp. Note, 12.25% 7,000,000 2/01/2000 7,350,000
--------------
8,970,000
--------------
Retail Trade 1.0%
Almacs Inc. Sr. Sub. Note, 11.50%** 1,000 11/18/2004 20
Finlay Enterprises, Inc. Sr. Deb., 0.00% to
4/30/98, 12.00% from 5/1/98 to maturity 10,070,000 5/01/2005 9,314,750
--------------
9,314,770
--------------
Technology/Communications 23.0%
Advanced Radio Telecom Corp. Unit, 14.00% 6,500,000 2/15/2007 7,085,000
Anacomp Inc. Sr. Sub. Note, 13.00%** 13,605,260 6/04/2002 14,557,628
Brooks Fiber Properties Inc. Sr. Note, 0.00% to
2/28/2001, 10.875% from 3/1/2001 to maturity 5,500,000 3/01/2006 3,410,000
Celcaribe SA Sr. Sec. Note, 0.00% to 3/14/98,
13.50% from 3/15/98 to maturity 5,810,000 3/15/2004 5,229,000
Clearnet Communications Inc. Sr. Note, 0.00% to
12/14/2000, 14.75% from
12/15/2000 to maturity 27,100,000 12/15/2005 16,666,500
Dial Callable Communications Inc. Sr. Note, 0.00%
to 4/14/99, 12.25% from 4/15/99 to maturity 10,750,000 4/15/2004 7,740,000
Echostar Satellite Broadcast Corp. Sr. Sec. Note,
0.00% to 3/14/2000, 13.125% from 3/15/2000 to
maturity 9,000,000 3/15/2004 7,110,000
Geotek Communications Inc. Sr. Note Series B, 0.00%
to 7/14/2000, 15.00% from 7/15/2000 to maturity 6,000,000 7/15/2005 3,450,000
ICG Holdings Inc. Sr. Note, 0.00% to 9/14/2000,
13.50% from 9/15/2000 to maturity 20,575,000 9/15/2005 13,785,250
Intercel Inc. Sr. Note, 0.00% to 1/31/2001, 12.00%
from 2/1/2001 to maturity 2,650,000 2/01/2006 1,590,000
Ionica PLC Sr. Note, 13.50% 8,500,000 8/15/2006 8,500,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Technology/Communications (cont'd)
Mobile Telecommunication Technology, Inc. Sr. Sub.
Disc. Note, 13.50% $ 7,500,000 12/15/2002 $ 7,050,000
Nextel Communications Inc. Sr. Note, 0.00% to
2/14/99, 9.75% from 2/15/99 to maturity 16,000,000 8/15/2004 10,880,000
Orion Network Systems Inc. Unit, 11.25% 14,250,000 1/15/2007 14,036,250
Pagemart Inc. Sr. Exch. Note, 0.00% to 10/31/98,
12.25% from 11/1/98 to maturity 7,400,000 11/01/2003 5,920,000
Pagemart Nationwide Inc. Sr. Exch. Note, 0.00% to
1/31/2000,15.00% from 2/1/2000 to maturity 16,750,000 2/01/2005 11,515,625
Phonetel Technologies Inc. Sr. Note, 12.00% 1,500,000 12/15/2006 1,501,875
Pricellular Wireless Corp. Sr. Note, 10.75% 6,000,000 11/01/2004 6,075,000
Protection One Alarm Inc. Sr. Sub. Note, 0.00% to
6/29/98, 13.625% from 6/30/98 to maturity 6,000,000 6/30/2005 5,700,000
Qwest Communications International Inc. Sr. Note,
10.875%+ 2,000,000 4/01/2007 1,970,000
Real Time Data Inc. Unit, 0.00% to 8/14/2001,
13.50% from 8/15/2001 to maturity+ 17,436,000 8/15/2006 9,415,440
RSL Communications Ltd. Unit, 12.25%+ 12,500,000 11/15/2006 12,500,000
U.S.A. Mobile Communications Inc. Sr. Note, 9.50% 7,120,000 2/01/2004 6,123,200
U.S.A. Mobile Communications Inc. Sr. Note, 14.00% 11,000,000 11/01/2004 11,770,000
Viatel Inc. Sr. Note, 0.00% to 1/14/2000, 15.00%
from 1/15/2000 to maturity 5,190,000 1/15/2005 3,269,700
Winstar Communications Inc. Sr. Sub. Cv. Note,
0.00% to 10/14/2000, 14.00% from 10/15/2000 to
maturity+ 6,525,000 10/15/2005 4,110,750
Winstar Equipment Corp. Sr. Sec. Note, 12.50%+ 18,250,000 3/15/2004 17,839,375
--------------
218,800,593
--------------
Total Bonds (Cost $716,310,042) 706,047,301
--------------
</TABLE>
- -----------------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------------
PREFERRED STOCKS 14.7%
Automotive 0.1%
Harvard Industries Inc. 14.25% Exch. Pfd.** 423,790 1,218,396
--------------
Bank 0.3%
Riverbank America Pfd.* 110,000 2,640,000
--------------
Business Service 1.6%
La Petite Holdings Corp. Cum. Red. Exch. Pfd.* 361,000 14,710,750
--------------
Cable Television 0.6%
Cablevision Systems Corp. Series B Pfd. 57,913 5,168,735
--------------
Chemical 1.9%
Atlantic Richfield Co. Exch. Note 836,800 18,409,600
--------------
Electric 0.0%
Consolidated Hydro Inc. Cv. Pfd.* 2,000 300,000
--------------
Food & Beverage 0.1%
Silgan Holdings Inc. Exch. Pfd.* 1,065 1,235,400
--------------
Financial Service 0.6%
Gentra Inc. Series G Pfd.* 100,100 1,418,897
Gentra Inc. Series J Pfd.* 264,102 3,672,057
Gentra Inc. Series Q Pfd.* 70,300 787,035
--------------
5,877,989
--------------
Forest Product 0.7%
Equitable Bag Inc. Series A Pfd.* 134,760 2,897,340
S.D. Warren Co. Series B Sr. Exch. Pfd.* 108,000 4,023,000
--------------
6,920,340
--------------
Gaming & Lodging 0.4%
Station Casinos Inc. Cv. Pfd. 78,600 3,389,625
--------------
Hotel & Restaurant 0.5%
Ameriking Inc. Sr. Exch. Pfd.* 191,000 5,061,500
--------------
Media 2.3%
American Radio Systems Corp. Exch. Pfd.+ 12,500 1,225,000
Granite Broadcasting Corp. Cv. Exch. Pfd. 114,700 5,620,300
Granite Broadcasting Corp. Exch. Pfd.+ 15,250 14,106,250
SFX Broadcasting Inc. Series E Pfd. 10,000 990,000
--------------
21,941,550
--------------
Personal Care 0.0%
Renaissance Cosmetics Inc. Sr. Exch. Pfd.+** 72 63,000
--------------
Printing & Publishing 3.8%
Hollinger International, Inc. Cv. Pfd. 2,000,000 20,000,000
K-III Communications Corp. Series B Exch. Pfd.** 73,485 8,028,227
K-III Communications Corp. Series D Exch. Pfd.* 80,000 8,020,000
--------------
36,048,227
--------------
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade 1.4%
Supermarkets General Holdings Corp. Exch. Pfd.** 568,540 $13,502,825
--------------
Telephone 0.4%
ICG Holdings Inc. Exch. Pfd.* 3,890 3,890,000
--------------
Total Preferred Stocks (Cost $151,798,079) 140,377,937
--------------
COMMON STOCKS & OTHER 4.6%
American Communications Services, Inc. Wts.*+ 9,500 285,000
American Telecasting Inc. Wts.* 41,130 41,130
Ameriking Inc. Com.*+ 4,775 238,750
Anacomp Inc. Com.* 873,507 9,608,577
Anacomp Inc. Wts.* 25,848 96,930
Axia Holding Corp. Com.*++ 2,250 90,000
Bar Technologies Inc. Wts.*+ 4,250 191,250
Belle Casinos Inc. Wts.*+ 1,400 14
Boomtown Inc. Wts.*+ 7,250 15
Celcaribe SA Trust Certificates*+ 944,706 2,125,588
Central Rents Inc. Com.*+ 5,250 288,750
Chatwins Group Inc. Wts.*+ 7,000 7,000
CHC Helicopter Corp. Wts.*++ 46,000 23,000
Clearnet Communications Inc. Wts.* 85,305 490,504
County Seat Holdings Inc. Wts.*++ 2,000 20
Crown Packaging Enterprises Ltd. Com.*+ 1,170,000 11,700
Crown Packaging Holdings Ltd. Wts.*+ 20,750 2,594
DeGeorge Financial Corp. Wts.* 51,000 12,750
Dr Pepper Bottling Holdings Inc. Cl. A Com.* 50,000 700,000
Empire Gas Corp. Wts.*++ 2,760 13,800
Equitable Bag Inc. Com.* 1,347,600 673,800
Fitzgeralds South Inc. Wts.*++ 3,750 37,500
Goldriver Hotel & Casino Corp. Cl. B Com.*++ 52,500 6,563
Goldriver Hotel & Casino Corp. Liquidation Trust
Units*++ 5,250,000 66,675
Heartland Wireless Communications, Inc. Wts.*++ 37,500 37,500
ICF Kaiser International Inc. Wts.* 49,200 24,600
Indspec Chemical Corp. Wts.*++@ 506 1,479,630
Insight Capital Corp. Wts.*++ 25,000 68,750
Intelcom Group, Inc. Wts.*++ 21,450 257,400
Intercel Inc. Wts.* 8,480 50,880
Intermedia Communications Inc. Wts.*+ 1,500 30,000
Ionica PLC Wts.*+ 9,500 1,377,500
Jewel Recovery L.P. Units*++ 82,595 826
Ladish Co., Inc. Wts.++@* 520,000 975,000
LTX Corp. Com.* 145,000 715,937
Mail-Well Holdings, Inc. Com.*++ 14,205 280,549
<CAPTION>
- -----------------------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Motels of America Inc. Com.*+ 5,500 $ 63,250
Nextel Communications Inc. Wts.* 1,250 38
NS Group Inc. Wts.*+ 13,250 39,750
Pagemart Inc. Wts.*+ 21,850 87,400
Pagemart Nationwide Inc. Com.*+ 18,375 101,062
Pegasus Communications Corp. Cl. A Com.*+ 8,461 93,071
Plastic Specialties & Technologies, Inc. Com.* 45,300 135,900
Protection One Inc. Wts.*+ 10,400 70,200
Ralphs Grocery Co. Wts.*++@ 401,762 4,050,086
Renaissance Cosmetics Inc. Com.*+ 1,000 1,000,000
Renaissance Cosmetics Inc. Wts.*+ 2,000 100,000
Sabreliner Corp. Wts.*+ 1,750 5,250
SDW Holdings Corp. Wts.* 108,000 459,000
Seven-Up / RC Bottling Company of Southern California
Com.* 472,500 5,610,937
Sheffield Steel Corp. Wts.* 38,750 116,250
Tom Brown, Inc. Com.* 283,304 5,241,124
Town & Country Corp. Cl. A Com.*++@ 188,526 58,914
TransAmerican Refining Corp. Wts.* 12,626 25,252
Universal Outdoor Holdings Inc. Com.* 155,200 4,500,800
Vestar/LPA Investment Corp. Com.*+ 14,250 142,500
Viatel Inc. Com.*+ 108,300 649,800
Waxman Industries Inc. Wts.*+ 236,000 708,000
Wireless One Inc. Wts.*+ 16,500 16,500
Wireless One Inc. Wts.* 27,250 20,437
--------------
Total Common Stocks & Other (Cost $32,700,049) 43,606,003
--------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Principal Maturity
Amount Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 5.4%
Beneficial Corp., 5.55% $14,458,000 4/01/1997 14,458,000
Commercial Credit Co., 5.45% 10,000,000 4/02/1997 10,000,000
Ford Motor Credit Co., 5.65% 11,730,000 4/07/1997 11,730,000
General Electric Capital Corp., 5.63% 8,448,000 4/03/1997 8,448,000
General Electric Capital Corp., 5.65% 6,813,000 4/03/1997 6,813,000
--------------
Total Short-Term Obligations (Cost $51,449,000) 51,449,000
--------------
Total Investments (Cost $952,257,170) - 98.9% 941,480,241
Cash and Other Assets, Less Liabilities - 1.1% 10,751,937
--------------
Net Assets - 100.0% $952,232,178
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Federal Income Tax Information (Note 1):
At March 31, 1997, the net unrealized depreciation
of investments based on cost for Federal income
tax purposes of $952,442,680 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $ 51,153,778
Aggregate gross unrealized depreciation for all
investments in which there is an excess of value
over tax cost (62,116,217)
---------------
$(10,962,439)
===============
- --------------------------------------------------------------------------------
*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, 1997, 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,
1997 were $4,032,871 and $8,567,977 (0.90% 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, 1997 were $128,334,504 and $123,379,699
(12.96% of net assets), respectively.
ASSET COMPOSITION TABLE
March 31, 1997 (Unaudited)
Percentage of
Ratings+++ Net Assets*
- ---------- -----------
BB 4.4%
B 59.9
CCC and below 9.9
Equities 19.3
Other 6.5
-----
TOTAL 100.0%
=====
++As rated by Standard & Poor's Corp. and/or
equivalent rating by Moody's Investors Service, Inc.
*Unrated bonds were included among relevant rating
categories as determined by the Fund's manager.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------
March 31, 1997
Assets
Investments, at value (Cost $952,257,170) (Note 1) $941,480,241
Cash 28,628
Interest and dividends receivable 15,646,022
Receivable for securities sold 4,684,543
Receivable for fund shares sold 1,722,546
Other assets 39,427
-------------
963,601,407
Liabilities
Payable for securities purchased 5,110,773
Dividends payable 2,631,925
Payable for fund shares redeemed 2,000,197
Accrued transfer agent and shareholder services (Note 2) 573,330
Accrued management fee (Note 2) 538,356
Accrued distribution and service fees (Note 4) 392,014
Accrued trustees' fees (Note 2) 10,850
Other accrued expenses 111,784
-------------
11,369,229
-------------
Net Assets $952,232,178
=============
Net Assets consist of:
Undistributed net investment income $ 6,713,699
Unrealized depreciation of investments (10,776,929)
Accumulated net realized loss (26,194,290)
Shares of beneficial interest 982,489,698
-------------
$952,232,178
=============
Net Asset Value and redemption price per share of Class A
shares ($658,412,513 [divided by] 109,584,701 shares of
beneficial interest) $6.01
=====
Maximum Offering Price per share of Class A shares ($6.01
[divided by] .955) $6.29
=====
Net Asset Value and offering price per share of
Class B shares ($259,077,249 [divided by] 43,309,066
shares of beneficial interest)* $5.98
=====
Net Asset Value, offering price and redemption price per
share of Class C shares ($6,254,742 [divided by] 1,046,284
shares of beneficial interest) $5.98
=====
Net Asset Value and offering price per share of
Class D shares ($28,487,674 [divided by] 4,757,298 shares
of beneficial interest)* $5.99
=====
- --------------------------------------------------------------------------------
* 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, 1997
Investment Income
Interest, net of foreign taxes of $46,751 $91,335,450
Dividends 7,006,175
------------
98,341,625
Expenses
Management fee (Note 2) 5,911,041
Transfer agent and shareholder services (Note 2) 1,284,233
Custodian fee 210,634
Service fee--Class A (Note 4) 1,649,935
Distribution and service fees--Class B (Note 4) 2,236,399
Distribution and service fees--Class D (Note 4) 207,441
Reports to shareholders 130,348
Audit fee 40,817
Registration fees 38,972
Trustees' fees (Note 2) 29,250
Legal fees 3,393
Miscellaneous 44,406
------------
11,786,869
------------
Net investment income 86,554,756
------------
Realized and Unrealized (Gain) Loss on Investments
Net realized gain on investments (Notes 1 and 3) 5,358,925
Net unrealized depreciation of investments (6,463,064)
------------
Net loss on investments (1,104,139)
------------
Net increase in net assets resulting from operations $85,450,617
============
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- ------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
Year ended March 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 86,554,756 $ 69,201,345
Net realized gain (loss) on
investments* 5,358,925 (16,029,655)
Net unrealized appreciation
(depreciation) of investments (6,463,064) 43,116,209
------------ ------------
Net increase resulting from operations 85,450,617 96,287,899
------------ ------------
Dividends from net investment income:
Class A (58,427,483) (60,859,257)
Class B (18,222,317) (13,275,143)
Class C (463,672) (319,668)
Class D (1,682,938) (1,000,485)
------------ ------------
(78,796,410) (75,454,553)
------------ ------------
Distribution from net realized
gains:
Class A -- (804,838)
Class B -- (159,995)
Class C -- (3,577)
Class D -- (10,572)
------------ ------------
-- (978,982)
------------ ------------
Net increase from fund share
transactions (Note 5) 94,267,308 85,881,692
------------ ------------
Total increase in net assets 100,921,515 105,736,056
Net Assets
Beginning of year 851,310,663 745,574,607
------------ ------------
End of year (including undistributed
net investment income of $6,713,699
and $635,185, respectively) $952,232,178 $851,310,663
============ ============
* Net realized gain (loss) for Federal
income tax purposes (Note 1) $ 10,417,121 $(27,502,856)
============ ============
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
March 31, 1997
Note 1
State Street Research High Income Fund, (the "Fund"), is a series of State
Street Research 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 two separate funds: State Street Research High Income Fund and
State Street Research Managed Assets.
The investment objective of the Fund is to seek, primarily, high current
income and, secondarily, capital appreciation, from investments in fixed
income securities. In selecting investments for the Fund, the investment
manager seeks to identify those fixed income securities which it believes
will not involve undue risk. Certain of the Fund's investments, however, may
be considered predominantly speculative.
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
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, 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.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
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 between both 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. At March 31, 1997, the
Fund had a capital loss carryforward of $20,803,392 available, to the extent
provided in regulations, to offset future capital gains, if any, which
expires on March 31, 2004.
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, 1996
through March 31, 1997, the Fund incurred net capital losses of $5,068,197
and has deferred and treated such losses as arising in the fiscal year ended
March 31, 1998.
F. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
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, 1997, the fees pursuant to
such agreement amounted to $5,911,041.
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, 1997, the amount of such
expenses was $288,490.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $29,250 during the year ended March 31, 1997.
Note 3
For the year ended March 31, 1997, purchases and sales of securities,
exclusive of short-term investments, aggregated $803,583,108 and
$707,229,117, 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 or servicing 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, 1997, fees
pursuant to such plan amounted to $1,649,935, $2,236,399, and $207,441 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 $294,695 and $1,737,055 respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1997, and that MetLife
Securities, Inc. earned commissions aggregating $1,356,752 on sales of Class
B shares, and that the Distributor collected contingent deferred sales
charges aggregating $493,705 and $61,492 on redemptions of Class B and Class
D shares, respectively, during the same period.
11
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1997, the
Distributor owned 7,018 Class A shares and Metropolitan owned 1,567 Class B
and 16,155 Class D shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended March 31
-----------------------------------------------------------------
1997 1996
------------------------------- --------------------------------
Class A Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 15,602,119 $ 94,973,592 18,288,203 $ 107,141,811
Issued upon reinvestment of:
Dividends from net investment income 6,212,698 37,840,814 6,699,217 39,227,013
Distribution from net realized gains -- -- 110,651 647,284
Shares repurchased (20,888,291) (127,047,788) (22,983,923) (134,676,806)
----------- ------------ ----------- ------------
Net increase 926,526 $ 5,766,618 2,114,148 $ 12,339,302
=========== ============ =========== ============
Class B Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
Shares sold 15,907,481 $ 96,551,028 14,268,713 $ 83,337,086
Issued upon reinvestment of:
Dividends from net investment income 1,668,549 10,129,956 1,319,995 7,702,343
Distribution from net realized gains -- -- 21,578 125,811
Shares repurchased (5,605,180) (33,954,283) (4,623,289) (27,005,817)
----------- ------------ ----------- ------------
Net increase 11,970,850 $ 72,726,701 10,986,997 $ 64,159,423
=========== ============ =========== ============
Class C Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
Shares sold 733,872 $ 4,470,033 458,494 $ 2,676,110
Issued upon reinvestment of:
Dividends from net investment income 58,765 357,467 42,106 245,608
Distribution from net realized gains -- -- 486 2,834
Shares repurchased (394,609) (2,403,760) (298,694) (1,741,339)
----------- ------------ ----------- ------------
Net increase 398,028 $ 2,423,740 202,392 $ 1,183,213
=========== ============ =========== ============
Class D Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
Shares sold 2,630,966 $ 16,046,241 1,922,890 $ 11,234,354
Issued upon reinvestment of:
Dividends from net investment income 163,926 998,823 76,557 447,554
Distribution from net realized gains -- -- 1,314 7,661
Shares repurchased (609,727) (3,694,815) (596,429) (3,489,815)
----------- ------------ ----------- ------------
Net increase 2,185,165 $ 13,350,249 1,404,332 $ 8,199,754
=========== ============ =========== ============
</TABLE>
12
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------
Year ended March 31
--------------------------------------------------------------
1997* 1996* 1995* 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 5.95 $ 5.80 $ 6.43 $ 6.32 $ 5.95
Net investment income 0.59 0.52 0.61 0.66 0.67
Net realized and unrealized gain
(loss) on investments (0.01) 0.20 (0.58) 0.22 0.37
----- ----- ----- ----- -----
Total from investment operations 0.58 0.72 0.03 0.88 1.04
----- ----- ----- ----- -----
Dividends from net investment income (0.52) (0.56) (0.60) (0.62) (0.67)
Distributions from net realized gains -- (0.01) (0.06) (0.15) --
----- ----- ----- ----- -----
Total distributions (0.52) (0.57) (0.66) (0.77) (0.67)
----- ----- ----- ----- -----
Net asset value, end of year $6.01 $5.95 $5.80 $6.43 $6.32
===== ===== ===== ===== =====
Total return 10.30%+ 12.85%+ 1.80%+ 14.58%+ 18.70%+
Net assets at end of year (000s) $658,413 $646,473 $618,462 $650,755 $496,352
Ratio of operating expenses to
average net assets 1.10% 1.17% 1.23% 1.16% 1.15%
Ratio of net investment income to
average net assets 9.70% 8.88% 10.19% 10.41% 11.25%
Portfolio turnover rate 81.75% 56.47% 31.55% 24.36% 79.39%
Average commission rate@ $0.0152 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class B
------------------------------------------------
Year ended March 31
------------------------------------------------
1997* 1996* 1995* 1994**
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 5.93 $ 5.79 $ 6.42 $ 6.34
Net investment income 0.55 0.46 0.57 0.51
Net realized and unrealized gain
(loss) on investments (0.02) 0.21 (0.58) 0.15
----- ----- ----- -----
Total from investment operations 0.53 0.67 (0.01) 0.66
----- ----- ----- -----
Dividends from net investment income (0.48) (0.52) (0.56) (0.48)
Distributions from net realized gains -- (0.01) (0.06) (0.10)
----- ----- ----- -----
Total distributions (0.48) (0.53) (0.62) (0.58)
----- ----- ----- -----
Net asset value, end of year $5.98 $5.93 $5.79 $6.42
===== ===== ===== =====
Total return 9.35%+ 12.06%+ 0.89%+ 10.76%+++
Net assets at end of year (000s) $259,077 $185,735 $117,767 $67,337
Ratio of operating expenses to
average net assets 1.85% 1.92% 1.98% 1.93%++
Ratio of net investment income to
average net assets 9.01% 7.95% 9.65% 10.32%++
Portfolio turnover rate 81.75% 56.47% 31.55% 24.36%
Average commission rate@ $0.0152 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------
Year ended March 31
----------------------------------------------------
1997* 1996* 1995* 1994**
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 5.92 $ 5.78 $ 6.42 $ 6.34
Net investment income 0.61 0.53 0.64 0.57
Net realized and unrealized gain
(loss) on investments (0.01) 0.20 (0.60) 0.14
------ ------ ------ ------
Total from investment operations 0.60 0.73 0.04 0.71
------ ------ ------ ------
Dividends from net investment income (0.54) (0.58) (0.62) (0.53)
Distributions from net realized gains -- (0.01) (0.06) (0.10)
------ ------ ------ ------
Total distributions (0.54) (0.59) (0.68) (0.63)
------ ------ ------ ------
Net asset value, end of year $ 5.98 $ 5.92 $ 5.78 $ 6.42
====== ====== ====== ======
Total return 10.63%+ 13.19%+ 1.73%+ 11.67%+++
Net assets at end of year (000s) $6,255 $3,840 $2,579 $851
Ratio of operating expenses to
average net assets 0.85% 0.92% 0.98% 0.93%++
Ratio of net investment income to
average net assets 10.04% 8.97% 10.85% 11.32%++
Portfolio turnover rate 81.75% 56.47% 31.55% 24.36%
Average commission rate@ $0.0152 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class D
-------------------------------------------------
Year ended March 31
-------------------------------------------------
1997* 1996* 1995* 1994**
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 5.93 $ 5.79 $ 6.42 $ 6.34
Net investment income 0.54 0.46 0.58 0.51
Net realized and unrealized gain
(loss) on investments (0.00) 0.21 (0.59) 0.15
------ ------ ------ ------
Total from investment operations 0.54 0.67 (0.01) 0.66
------ ------ ------ ------
Dividends from net investment income (0.48) (0.52) (0.56) (0.48)
Distributions from net realized gains -- (0.01) (0.06) (0.10)
------ ------ ------ ------
Total distributions (0.48) (0.53) (0.62) (0.58)
------ ------ ------ ------
Net asset value, end of year $ 5.99 $ 5.93 $ 5.79 $ 6.42
====== ====== ====== ======
Total return 9.52%+ 12.05%+ 0.88%+ 10.74%+++
Net assets at end of year (000s) $28,488 $15,262 $6,766 $2,661
Ratio of operating expenses to
average net assets 1.85% 1.92% 1.98% 1.93%++
Ratio of net investment income to
average net assets 9.09% 7.91% 9.81% 10.32%++
Portfolio turnover rate 81.75% 56.47% 31.55% 24.36%
Average commission rate@ $ 0.0152 -- -- --
</TABLE>
- --------------------------------------------------------------------------------
* Per-share figures have been calculated using the average shares method.
** 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.
@ For fiscal years beginning on or after April 1, 1996, the Fund is required
to disclose its average commission rate per share paid for security trades.
13
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Income Trust and
the Shareholders of 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 State Street Research High
Income Fund (a series of State Street Research Income Trust, hereafter
referred to as the "Trust") at March 31, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at March 31, 1997 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 9, 1997
14
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
High Income Fund turned in a solid performance but slightly underperformed
the average of its competitive group. Class A shares generated a total return
of 10.30% (does not reflect sales charge) versus the average of 11.35% of the
154 fund classes in Lipper Analytical Services' High Current Yield Funds
category.
The environment was positive for high-yield bonds for most of the past year.
At the end of 1996, however, interest rates began to rise. Throughout 1996
and the first part of 1997, the economic climate was favorable and demand was
strong from both traditional and non-traditional investors in high-yield
bonds. Inflation was low and interest rates were stable.
High-yield bonds were the top-performing U.S. fixed- income sector during the
past year and were the only U.S. fixed-income sector to generate a positive
return in the first quarter of 1997. In addition to the attractive yields in
an otherwise low-interest-rate environment, positive events, such as
takeovers, pushed high-yield bond prices higher. This demand drove yields in
this sector to historically low levels relative to higher- quality
fixed-income investments. High-yield bonds maintained their value better than
most U.S. fixed- income sectors during this time.
The Fund was primarily invested in B-rated bonds. These bonds tended to
benefit from the healthy economic environment and provided attractive yields.
Fund management believes that B-rated bonds help add more value through the
firm's fundamental credit research. In terms of sectors, telecommunications
was a point of focus over the past year.
The yields of lower-quality bonds recently have risen, making them more
attractive. If rates continue to rise, we will continue our emphasis on
B-rated bonds.
March 31, 1997
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 part of
its objective and to allow greater use of lower-rated securities, and
convertible and preferred securities. Performance for a class may include
periods prior to the adoption of class designations in 1993, which resulted
in new or increased 12b-1 fees of up to 1% per class thereafter and which
will reduce subsequent performance. Performance reflects maximum 4.5% "A"
share front-end sales charge, or 5% "B" share or 1% "D" share contingent
deferred sales charges, where applicable. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions. The First Boston High Yield Index is a commonly used measure of
bond market performance. The index is unmanaged and does not take transaction
charges into consideration. Direct investment in the index is not possible;
results are for illustrative purposes only.
Change In Value of $10,000
Based On The First Boston High Yield Index
Compared to Change In Value of $10,000
Invested In High Income Fund
[LINE CHART CLASS A SHARES]
High Income Fund First Boston High Yield Index
3/87 9550 10000
3/88 10004 10613
3/89 11247 11612
3/90 10484 11162
3/91 10713 12713
3/92 13814 16682
3/93 16397 19243
3/94 18786 21159
3/95 19124 22176
3/96 21581 25398
3/97 23804 28363
[LINE CHART CLASS B SHARES]
High Income Fund First Boston High Yield Index
3/87 10000 10000
3/88 10475 10613
3/89 11767 11612
3/90 10978 11162
3/91 11218 12713
3/92 12182 16682
3/93 17169 19243
3/94 19526 21159
3/95 19700 22176
3/96 22076 25398
3/97 24140 28363
[LINE CHART CLASS C SHARES]
High Income Fund First Boston High Yield Index
3/87 10000 10000
3/88 10475 10613
3/89 11767 11612
3/90 10978 11162
3/91 11218 12713
3/92 14465 16682
3/93 17169 19243
3/94 19685 21159
3/95 20025 22176
3/96 22668 25398
3/97 25076 28363
[LINE CHART CLASS D SHARES]
High Income Fund First Boston High Yield Index
3/87 10000 10000
3/88 10475 10613
3/89 11767 11612
3/90 10978 11162
3/91 11218 12713
3/92 14465 16682
3/93 17169 19243
3/94 19522 21159
3/95 19693 22176
3/96 22066 25398
3/97 24166 28363
15
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Shareholders of the State Street Research High Income Fund
("Fund"), along with shareholders of other series of State Street Research
Income Trust ("Meeting"), was convened on July 19, 1996. The results of the
Meeting are set forth below.
Votes (millions of
shares)
------------------
For Withheld
--- --------
1. The following persons were elected as Trustees:
Thomas L. Phillips 97.9 2.6
Toby Rosenblatt 98.2 2.3
Ralph F. Verni 98.0 2.5
<TABLE>
<CAPTION>
Votes (millions
of shares)
--------------------------
Against
For Proposal Abstain
- -------------------------------------------------------------------------------------------------------- ------- ---------- -------
<S> <C> <C> <C>
Proposal
2. The Fund's following investment policies were reclassified from fundamental to nonfundamental:
a. The policy regarding investments in securities of companies with less than three (3) years'
continuous operation 67.9 3.7 5.9
c. The policy regarding arbitrage and warrants 67.8 3.2 6.4
3. The Fund's fundamental policy regarding investments in commodities and commodity contracts was amended 67.5 4.0 6.0
4. The Fund's fundamental policy on lending was amended to clarify the permissibility of securities
lending 67.2 3.9 6.3
5. The Fund's fundamental policies regarding diversification of investments were amended 68.8 2.7 5.9
6. The Fund's fundamental policy regarding industry concentration was amended 68.4 3.0 6.1
7. The Fund's fundamental policy regarding participation in underwritings was amended 67.7 3.1 6.6
8. The Master Trust Agreement was amended to permit the Trustees to reorganize, merge or liquidate a fund
without prior shareholder approval 83.0 9.8 7.6
9. The Master Trust Agreement was amended to eliminate specified time permitted between the record date
and any shareholders meeting 86.2 6.3 8.0
</TABLE>
16
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH INCOME TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
High Income Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
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
Peter C. Bennett
Vice President
Bartlett R. Geer
Vice President
John H. Kallis
Vice President
Thomas A. Shively
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Steve A. Garban
Retired; formerly Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial
Officer, St. Regis Corp.
Edward M. Lamont
Formerly in banking (Morgan
Guaranty Trust Company of
New York); presently engaged
in private investments and
civic affairs
Robert A. Lawrence
Associate, 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
17
<PAGE>
[back cover]
State Street Research High Income Fund
One Financial Center
Boston, MA 02111
[indicia]
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]
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied by a current Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar award recognizes quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was
not industry-wide.
CONTROL NUMBER: 3960-970520(0698)SSR-LD
Cover Illustration by Dorothy Cullinan HI-271D-597IBS
<PAGE>
[front cover]
[logo] STATE STREET RESEARCH
STATE STREET RESEARCH
MANAGED ASSETS
ANNUAL REPORT
March 31, 1997
[graphic of person climbing to the stars]
WHAT'S INSIDE
From the Chairman
The markets kept
us on our toes
Portfolio Manager's Review
Strong performance from
this diversified portfolio
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[DALBAR box logo]
DALBAR KEY HONORS
COMMITMENT TO:
INVESTORS
1996
For Excellence
in
Shareholder Service
<PAGE>
FROM THE CHAIRMAN
[PHOTO: Ralph F. Verni]
Dear Shareholder:
The markets kept us on our toes, but the past 12 months brought another year
of positive returns for many investors. For a good portion of the year ended
March 31, 1997, there were strong profits, low inflation and slow to moderate
economic growth. The Lehman Brothers Government/Corporate Bond Index gained
+4.46% and the Standard & Poor's 500 Composite Index increased +19.82% for
the year ended March 31, 1997.(1)
However, the first quarter of 1997 saw the economy grow faster than expected.
This growth prompted the Federal Reserve to raise the Federal Funds rate by
one-quarter point, the first such increase since early 1995.
The Fed's tightening had a predictable effect on both the stock and bond
markets. The bond market anticipated and then reacted to the Fed's action by
experiencing mostly negative returns for the first quarter. The stock market,
as measured by the Dow Jones Industrial Average, experienced a sizable
correction as the quarter ended.
The bond market has yields topping 7% at this writing, so investor interest
is likely to increase in this area. We believe the correction in the stock
market is normal and long overdue. At current levels, we see stock market
valuations as fairly reasonable, given today's relatively low rates and
inflation.
What's the outlook?
The economy remains quite healthy, with unemployment low and job creation
strong. Corporate profitability and consumer confidence also remain high.
Therefore, our outlook remains positive. We recommend that investors stay
true to their long-term investment goals. In time, the markets tend to
recover from short-term setbacks. If you are concerned about the current
market environment, it is always a good idea to consult your investment
professional.
Thank you for investing with State Street Research.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
March 31, 1997
(1) 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. The Lehman Brothers Government/ Corporate Bond Index is a
commonly used measure of bond market performance. The indices are unmanaged
and do not take transaction charges into consideration. Direct investment in
the indices is not possible; results are for illustrative purposes only.
(2) Investment results are based on an assumed $10,000 investment at "A" share
maximum sales charge of 4.5%; thus, the net amount invested was $9,550. Also
assumes 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.
(3) +11.76% for Class B shares; +12.77% for Class C shares; +11.64% for Class D
shares.
(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. Performance for a class may include
periods prior to the adoption of class designations in 1993, which resulted
in new or increased 12b-1 fees of up to 1% per class thereafter and which
will reduce subsequent performance. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions.
(5) Performance reflects maximum 4.5% "A" share front-end sales charge, or 5%
"B" share or 1% "D" share contingent deferred sales charges, where
applicable.
(6) Cumulative total returns are not annualized and do not reflect sales
charges, which, if reflected, would reduce performance.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
Fund Information (all data are for periods ended March 31, 1997)
- --------------------------------------------------------------------------------
Total value of $10,000 invested at Fund's inception(2)
(Class A shares, at maximum applicable sales charge)
12/88 9550
3/89 9957
3/90 11030
3/91 11478
3/92 13003
3/93 15154
3/94 16815
3/95 17070
3/96 20918
3/97 23531
SEC Average Annual Compound Rates of Return
(at maximum applicable sales charge)(4),(5)
- -------------------------------------------------
Life of Fund
(since 12/29/88) 5 years 1 year
- -------------------------------------------------
Class A +10.92% +11.56% +7.43%
- -------------------------------------------------
Class B +11.15% +11.70% +6.76%
- -------------------------------------------------
Class C +11.66% +12.80% +12.77%
- -------------------------------------------------
Class D +11.15% +11.95% +10.64%
- -------------------------------------------------
Cumulative Total Returns
(do not reflect sales charge)(4),(6)
- -------------------------------------------------
Life of Fund
(since 12/29/88) 5 years 1 year
- -------------------------------------------------
Class A +146.39% +80.96% +12.49%
- -------------------------------------------------
Class B +139.45% +75.86% +11.76%
- -------------------------------------------------
Class C +148.69% +82.65% +12.77%
- -------------------------------------------------
Class D +139.45% +75.86% +11.64%
- -------------------------------------------------
<PAGE>
PORTFOLIO MANAGER'S REVIEW
[PHOTO: Peter C. Bennett]
Peter C. Bennett
Portfolio Manager
The following is a discussion with Managed Assets portfolio manager Peter C.
Bennett. Peter has 35 years of investment experience and is chairman of our
Equity Strategy Committee.
Q: How did the Fund perform over the past 12 months?
A: Managed Assets provided shareholders with consistent performance during
the year, in line with its broadly diversified portfolio. For the 12 months
ended March 31, 1997, Class A shares returned +12.49% (does not reflect sales
charge).3 The Fund outperformed the average for Lipper Analytical Services'
Flexible Portfolio Funds, which was +10.13% for 196 fund classes.
Q: What factors affected Fund performance?
A: It was a year of generally rising stock prices that peaked in mid-March of
1997 and then experienced a modest correction during the last weeks of the
period. Returns were positive in all areas in which the Fund invests, but
varied considerably among asset classes. Our overweighting in stocks helped
performance, particularly our value stock and inflation-responsive holdings.
Small-company stocks, which had made a very strong contribution early in the
year, were hit hardest in the first quarter of 1997 and dampened Fund
performance.
Bond returns improved over the year. High-yield bonds continued as the top
performers and international bonds rebounded from their disappointing returns
the year before.
Q: Did you make any asset allocation changes during the year?
A: The Fund's asset allocation changed little during the year. We maintained
our emphasis on stocks, with the equity allocation increasing from 54% on
March 31, 1996 to 55% a year later. Our bond allocation decreased from 27% to
25%, inflation-responsive holdings remained steady at 12% and cash increased
slightly from 7% to 8%.
Q: The Fund's fiscal year-end coincided with a dip in stock market prices.
Should shareholders be concerned?
A: No, and for several reasons. First, we view the recent stock market
decline as a healthy--and long overdue--correction in large-company stocks,
not the beginning of a prolonged bear market. At this writing, the Dow Jones
Industrial Average was substantially down from its high on March 11, 1997,
and we wouldn't be surprised to see it go down further. It's also important
to remember that the DJIA represents the largest U.S. stocks. Small- and mid-
cap stocks have already experienced corrections throughout the year. Finally,
Managed Assets is diversified across a broad range of equity and fixed-income
assets, limiting the effect of any single market sector on performance. This
characteristic can be particularly valuable when markets decline.
Q: What is your strategy for the Fund and outlook for the market in the
coming year?
A: We believe the Fund's emphasis on stocks has served it well over the past
several years, and think the economy will continue to demonstrate steady,
moderate growth. We are becoming increasingly comfortable with the outlook
for the fixed-income markets and may increase our allocation to high-grade
bonds as the year progresses. We continue to foresee low inflation, and
believe the possibility of modest interest-rate increases is already being
reflected in the stock and bond markets.
March 31, 1997
================================================================================
Asset Allocation
(by percentage of net assets)
[PIE CHART PLOT POINTS]
Equities 55%
Inflation Responsive 12%
Bonds 25%
Net Cash 8%
Top 5 Equity Industries
(by percentage of net assets)
[BAR CHART PLOT POINTS]
Oil 11.5%
Metals and mining 4.1%
Hospital supply 3.8%
Insurance 3.4%
Oil Service 3.4%
Total: 26.2%
2
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
March 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 24.7%
U.S. Treasury 6.0%
U.S. Treasury Bond, 12.00% $ 800,000 8/15/2013 $ 1,099,872
U.S. Treasury Bond, 8.125% 4,375,000 8/15/2021 4,814,556
U.S. Treasury Bond, 6.25% 875,000 8/15/2023 775,329
U.S. Treasury Note, 5.125% 975,000 6/30/1998 962,510
U.S. Treasury Note, 5.875% 1,950,000 10/31/1998 1,935,687
U.S. Treasury Note, 6.75% 2,275,000 5/31/1999 2,286,375
U.S. Treasury Note, 6.625% 6,475,000 7/31/2001 6,442,625
U.S. Treasury Note, 7.25% 3,475,000 5/15/2004 3,545,056
U.S. Treasury Note, 7.875% 6,375,000 11/15/2004 6,732,574
U.S. Treasury Note, 6.50% 3,700,000 8/15/2005 3,597,658
-------------
32,192,242
-------------
U.S. Agency Mortgage 5.4%
Federal Home Loan Mortgage Corp., 7.50% 103,849 4/01/2002 103,330
Federal Home Loan Mortgage Corp., 8.50% 358 7/01/2009 369
Federal Home Loan Mortgage Corp., 9.50% 444,890 7/25/2022 478,448
Federal Home Loan Mortgage Corp., 7.00% 1,568,475 6/01/2024 1,509,171
Federal Home Loan Mortgage Corp., 7.50% 1,221,813 8/01/2024 1,205,013
Federal Home Loan Mortgage Corp., 7.00% 803,606 12/01/2024 773,221
Federal Home Loan Mortgage Corp., 7.50% 908,998 11/01/2025 895,218
Federal Home Loan Mortgage Corp., 7.50% 495,435 4/01/2026 487,924
Federal Home Loan Mortgage Corp. Series 29-H PAC,
6.50% 425,000 3/25/2023 400,427
Federal National Mortgage Association, 9.50% 1,705,243 10/01/2003 1,794,751
Federal National Mortgage Association, 8.00% 252,528 4/01/2008 257,563
Federal National Mortgage Association, 8.00% 324,735 6/01/2008 331,210
Federal National Mortgage Association, 8.50% 293,961 2/01/2009 309,061
Federal National Mortgage Association, 7.50% 1,992,418 6/01/2010 1,998,874
Federal National Mortgage Association, 7.50% 982,977 10/01/2025 965,460
Federal National Mortgage Association, 7.50% 1,689,384 10/01/2025 1,657,709
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Agency Mortgage (cont'd)
Government National Mortgage Association, 6.50% $ 646,881 2/15/2009 $ 626,362
Government National Mortgage Association, 6.50% 238,466 6/15/2009 230,863
Government National Mortgage Association, 6.50% 1,417,768 7/15/2009 1,372,796
Government National Mortgage Association, 9.00% 422,142 6/15/2016 448,817
Government National Mortgage Association, 8.00% 754,986 9/15/2017 768,289
Government National Mortgage Association, 8.00% 735,673 8/15/2022 743,714
Government National Mortgage Association, 8.00% 578,287 12/15/2022 584,607
Government National Mortgage Association, 8.00% 590,114 12/15/2022 596,564
Government National Mortgage Association, 7.00% 1,217,897 1/15/2025 1,167,282
Government National Mortgage Association, 8.00% 744,805 5/15/2025 748,760
Government National Mortgage Association, 8.00% 909,559 7/15/2025 913,252
Government National Mortgage Association, 6.50% 937,647 11/15/2025 868,196
Government National Mortgage Association, 7.50% 1,334,858 11/15/2025 1,309,402
Government National Mortgage Association, 8.00% 640,212 9/15/2026 642,812
Government National Mortgage Association TBA,
7.50% 975,000 5/15/2012 978,656
Government National Mortgage Association TBA,
8.50% 2,925,000 4/17/2027 2,999,953
Government National Mortgage Association TBA,
8.00% 500,000 5/19/2027 500,938
-------------
28,669,012
-------------
Foreign 0.8%
Hydro-Quebec Deb. Series HS,
9.40% 1,025,000 2/01/2021 1,174,435
Usinor Sacilor Note ADR, 7.25% 3,500,000 8/01/2006 3,382,190
-------------
4,556,625
-------------
Foreign Government 1.8%
Government of Australia,
10.00% Australian Dollar
6,375,000 2/15/2006 5,630,900
Canadian Dollar
Government of Canada, 7.50% 1,775,000 12/01/2003 1,354,923
French Franc
Government of France, 8.00% 1,925,000 4/25/2003 2,511,711
-------------
9,497,534
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Certificates 0.3%
Cooperative Trust Certificates, 10.11% $ 900,000 12/15/2017 $ 964,989
Cooperative Utility Trust Certificates, 10.70% 350,000 9/15/2017 375,123
Cooperative Utility Trust Certificates, 10.125% 225,000 3/15/2019 243,455
-------------
1,583,567
-------------
Corporate 6.5%
Acme Boot Inc. Sr. Note Series B, 11.50% 250,000 12/15/2000 105,000
Allbritton Communications Co. Sr. Sub. Deb.,
11.50% 500,000 8/15/2004 522,500
Alvey Systems Inc. Sr. Sub. Note, 11.375% 375,000 1/31/2003 390,000
American Telecasting Inc. Sr. Note, 0.00% to
6/14/99, 12.50% from 6/15/99 to maturity 499,947 6/15/2004 169,982
Anacomp Inc. Sr. Sub. Note, 13.00%[diamond] 268,688 6/04/2002 287,496
Anchor Advanced Products Inc. Sr. Note, 11.75%+ 500,000 4/01/2004 506,250
Axia Inc. Sr. Sub. Note, 11.00% 250,000 3/15/2001 255,000
Belle Casinos Inc. First Mortgage Note, 12.00%+[ ] 125,000 10/15/2000 47,500
Benedek Broadcasting Corp. Sr. Note, 11.875% 250,000 3/01/2005 275,000
Benedek Communications Co. Sr. Sub. Note, 0.00%
to 5/14/2001, 13.25% from 5/15/2001 to maturity 1,000,000 5/15/2006 580,000
Brooks Fiber Properties Inc. Sr. Note, 0.00% to
2/28/2001, 10.875% from 3/1/2001 to maturity 500,000 3/01/2006 310,000
Busse Broadcasting Corp. Sr. Sec. Note, 11.625% 500,000 10/15/2000 526,250
Cafeteria Operators L.P. Sr. Sec. Note, 12.00% 250,000 12/31/2001 240,000
Calpine Corp. Sr. Note, 9.25% 500,000 2/01/2004 500,000
Capstar Broadcasting Partners Sr. Note, 0.00% to
1/31/2002, 12.75% from 2/1/2002 to maturity+ 750,000 2/01/2009 397,500
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Celcaribe SA Sr. Sec. Note, 0.00% to 3/14/98,
13.50% from 3/15/98 to maturity $1,830,000 3/15/2004 $1,647,000
Celestica International Inc. Sr. Sub. Note,
10.50%+ 250,000 12/31/2006 262,500
Chatwins Group Inc. Sr. Exch. Note, 13.00% 250,000 5/01/2003 232,500
CHC Helicopter Corp. Sr. Sub. Note, 11.50% 600,000 7/15/2002 618,000
Clearnet Communications Inc. Sr. Note, 0.00% to
12/14/2000, 14.75% from 12/15/2000 to maturity 1,050,000 12/15/2005 645,750
Coleman Worldwide Corp. Sr. Sec. Liquid Yield
Option Note, 0.00% 5,000,000 5/27/2013 1,450,000
Dyncorp Inc. Sr. Sub. Note, 9.50%+ 500,000 3/01/2007 487,500
Echostar Satellite
Broadcast Corp. Sr. Note, 0.00% to 3/14/2000,
13.125% from 3/15/2000 to maturity 250,000 3/15/2004 197,500
Edison Mission Energy Funding Corp. Series A
Note, 6.77%+ 2,463,700 9/15/2003 2,423,468
Empire Gas Corp. Sr. Sec Note, 7.00% to 7/14/99,
12.875% from 7/15/99 to maturity 750,000 7/15/2004 652,500
Envirosource Inc. Note, 9.75% 1,000,000 6/15/2003 975,000
Euramax International PLC Sr. Sub. Note, 11.25% 500,000 10/01/2006 526,250
Exide Corp. Sr. Note, 10.00% 250,000 4/15/2005 250,000
Finlay Enterprises, Inc. Sr. Deb., 0.00% to
4/30/98, 12.00% from 5/1/98 to maturity 250,000 5/01/2005 231,250
Grand Union Co. Sr. Note, 12.00% 500,000 9/01/2004 491,250
Haynes International Inc. Sr. Note, 11.625% 125,000 9/01/2004 131,250
ICF International Inc. Sr. Sub. Note, 13.00% 500,000 12/31/2003 472,500
ICG Holdings Inc. Sr. Note, 0.00% to 9/14/2000,
13.50% from 9/15/2000 to maturity 675,000 9/15/2005 452,250
Intercel Inc. Sr. Note, 0.00% to 1/31/2001,
12.00% from 2/1/2001 to maturity 300,000 2/01/2006 180,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Intertek Financial Corp. Sr. Sub. Note, 10.25%+ $ 500,000 11/01/2006 $515,000
Ladish Company, Inc. Sr. Sub. Sec. Note, 12.00%++ 19,974 12/22/2000 21,324
Lamar Advertising Co. Sr. Sub. Note, 9.625% 250,000 12/01/2006 250,000
Mail-Well Envelope Corp. Sr. Sub. Note, 10.50% 250,000 2/15/2004 261,250
Marcus Cable Company L.P. Sr. Note, 0.00% to
6/14/2000, 14.25% from 6/15/2000 to maturity 1,000,000 12/15/2005 690,000
Muzak L.P. Sr. Note, 10.00% 250,000 10/01/2003 252,500
Nextel Communications Inc.
Sr. Note, 0.00% to 2/14/99, 9.75% from 2/15/99
to maturity 1,000,000 8/15/2004 680,000
Norcal Waste Systems Inc.
Sr. Note Series B, 13.00% to 5/14/97, 13.25%
from 5/15/97 to 11/14/97, 13.50% from 11/15/97
to maturity 500,000 11/15/2005 550,000
NS Group Inc. Sr. Sec. Note, 13.50% 650,000 7/15/2003 695,500
Outdoor Systems Inc. Sr. Sub. Note, 9.375% 500,000 10/15/2006 510,000
Overhead Door Corp. Note, 12.25% 500,000 2/01/2000 525,000
Owens & Minor Inc. Sr. Sub. Note, 10.875% 125,000 6/01/2006 134,687
Packaging Resources Inc.
Sr. Sec. Note, 11.625% 750,000 5/01/2003 776,250
Pagemart Inc. Sr. Exch. Note, 0.00% to 10/31/98,
12.25% from 11/1/98 to maturity 500,000 11/01/2003 400,000
Pathmark Stores Inc. Sub. Note, 11.625% 500,000 6/15/2002 516,250
Plastic Specialties & Technologies, Inc. Sr.
Note, 11.25% 350,000 12/01/2003 378,000
Pricellular Wireless Corp. Sr. Note, 10.75% 250,000 11/01/2004 253,125
Protection One Alarm Inc. Sr. Note, 0.00% to
6/29/98, 13.625% from 6/30/98 to maturity 500,000 6/30/2005 475,000
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% $ 500,000 12/15/2006 $ 515,000
Qwest Communications International Inc. Sr. Note,
10.875%+ 500,000 4/01/2007 492,500
RSL Communications Ltd. Unit, 12.25%+ 750,000 11/15/2006 750,000
Sam Houston Race Park Ltd. Sr. Sec. Note,
11.00%[diamond] 140,244 9/01/2001 56,097
Sheffield Steel Corp. First Mortgage Note, 12.00% 500,000 11/01/2001 470,000
Spanish Broadcasting Systems Inc. Sr. Note, 7.50% 1,000,000 6/15/2002 1,070,000
Spinnaker Industries Inc. Sr. Sec. Note, 10.75%+ 250,000 10/15/2006 257,500
Sun Media Corp. Sr. Sub. Note, 9.50%+ 250,000 2/15/2007 237,500
Telemundo Group Inc. Sr. Note, 7.00% to 2/14/99,
10.50% from 2/15/99 to maturity 250,000 2/15/2006 246,250
Tokheim Corp. Sr. Sub. Note, 11.50% 750,000 8/01/2006 802,500
Tracor Inc., 8.50%+ 750,000 3/01/2007 720,000
TransAmerican Refining Corp. Sr. Note, 0.00% to
2/14/98, 18.50% from 2/15/98 to 8/14/98, 18.00%
from 8/15/98 to maturity 500,000 2/15/2002 457,500
TransTexas Gas Corp. Sr. Sec. Note, 11.50% 750,000 6/15/2002 821,250
Treasure Bay Gaming and Resorts, Inc. First
Mortgage Units, 12.25%+[ ] 250,000 11/15/2000 50,000
TV Azteca SA de CV Sr. Note Series B, 10.50%+ 500,000 2/15/2007 487,170
U.S.A. Mobile Communications Inc. Sr. Note, 9.50% 150,000 2/01/2004 129,000
U.S.A. Mobile Communications Inc. Sr. Note,
14.00% 750,000 11/01/2004 802,500
Universal Outdoor Inc. Sr. Sub. Note Series B,
9.75%+ 250,000 10/15/2006 247,500
Winstar Communications Inc. Sr. Sub. Cv. Note,
0.00% to 10/14/2000, 14.00% from 10/15/2000 to
maturity+ 300,000 10/15/2005 189,000
Wireless One Inc. Sr. Disc Note, 13.00% 400,000 10/15/2003 260,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate (cont'd)
Wireless One Inc. Sr. Note, 0.00% to 7/31/2001,
13.50% from 8/1/2001 to maturity $1,250,000 8/01/2006 $ 337,500
Wyman-Gordon Co. Sr. Note, 10.75% 250,000 3/15/2003 266,250
-------------
34,987,849
-------------
Finance/Mortgage 3.9%
Advanta Credit Card Master Trust Series 95F-A1,
6.05% 475,000 8/01/2003 462,085
Bank of New York Institutional Capital Trust,
7.78%+ 2,650,000 12/01/2026 2,475,126
BankAmerica Institutional Capital Series B,
7.70%+ 2,600,000 12/31/2026 2,432,404
Capital One Bank Sr. Note, 7.08% 2,500,000 10/30/2001 2,467,950
Chase Mortgage Finance Corp. Series 93L-2A5,
6.25% 675,000 10/25/2024 646,102
Countrywide Mortgage Inc. Series 1993-E A-1,
6.50% 270,352 1/25/2024 269,423
Countrywide Mortgage Inc. Series 1994-2 A-7,
6.50% 650,000 4/25/2008 647,354
DeBartolo Capital Partnership Class A2, 7.48%+ 2,475,000 5/01/2004 2,504,391
Ford Credit Auto Loan Master Trust Series 95-1,
6.50% 1,100,000 8/15/2000 1,086,591
GE Global Insurance Holding Corp. Note, 7.00% 1,500,000 2/15/2026 1,363,695
Prudential Home Mortgage Securities Co. Series
93-29 A-6 PAC, 6.75% 1,046,908 8/25/2008 1,040,030
Residential Funding Corp. Series 1993-S25 A-1,
6.50% 163,016 7/25/2008 161,182
Sears Credit Account Master Trust Series 1995-2A,
8.10% 2,650,000 6/15/2004 2,738,589
Sears Roebuck Acceptance Corp. Note, 6.86% 2,500,000 8/06/2001 2,475,625
-------------
20,770,547
-------------
Total Fixed Income Securities (Cost $134,462,387) 132,257,376
-------------
</TABLE>
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
EQUITY SECURITIES 55.3%
Basic Industries 8.9%
Chemical 3.3%
Agrium Inc.*+++ 347,747 $ 4,433,774
Cabot Corp. 120,000 2,880,000
Cambrex Corp.+++ 45,750 1,532,625
Ciba Specialty Chemicals AG* 2,700 223,280
Monsanto Co. 65,000 2,486,250
Nippon Chemical Industrial Co. Ltd.* 19,000 109,849
Rhone-Poulenc SA* 72,700 2,464,122
Thiokol Corp. 60,000 3,315,000
--------------
17,444,900
--------------
Diversified 0.2%
Axia Holdings Corp.*++ 750 30,000
Plastic Specialties & Technology, Inc.* 7,500 22,500
Tenma Corp.* 99,000 1,320,854
--------------
1,373,354
--------------
Electrical Equipment 0.8%
Asia Pacific Wire & Cable Corp.* 121,800 1,461,600
General Electric Co. 25,900 2,570,575
Protection One Inc. Wts.*+ 800 5,400
Watsco Inc.* 10,800 275,400
--------------
4,312,975
--------------
Forest Product 0.7%
Aracruz Celulose SA ADR 47,000 857,750
Crown Packaging Holdings Ltd. Wts.*+ 3,750 469
Equitable Bag Inc.* 47,600 23,800
Equitable Bag Inc. Pfd.* 4,760 102,340
Mail-Well Holdings, Inc.*++ 14,205 280,548
S.D. Warren Co. Exch. Pfd.* 18,000 670,500
SDW Holdings Corp. Wts.* 18,000 76,500
Stone Container Corp. 135,000 1,501,875
--------------
3,513,782
--------------
Machinery 1.3%
Amada Co* 262,000 1,896,094
Chatwins Group Inc. Wts.*+ 500 500
NSK Ltd.* 50,000 266,435
Sundstrand Corp. 85,000 3,686,875
US Filter Corp.* 39,600 1,222,650
--------------
7,072,554
--------------
Metal & Mining 2.1%
Alumax Inc.* 80,000 2,770,000
Aluminum Company of America 35,800 2,434,400
Bar Technologies Inc. Wts.*+ 250 11,250
Kennametal Inc. 85,000 3,081,250
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
Metal & Mining (cont'd)
NS Group Inc. Wts.*+ 650 $ 1,950
RTZ Corp.* 51,952 823,129
SGL Carbon AG* 10,700 1,469,005
Sheffield Steel Corp. Wts.* 1,250 3,750
Wyman-Gordon Co.* 21,000 427,875
------------
11,022,609
------------
Railroad 0.5%
Canadian National Railway Co. 80,000 2,830,000
------------
Total Basic Industries 47,570,174
------------
Consumer Cyclical 7.7%
Airline 0.2%
America West Holding Corp. Cl. B* 46,500 726,563
CHC Helicopter Corp. Wts.*++ 2,000 1,000
UNC Inc.* 16,800 239,400
------------
966,963
------------
Automotive 1.3%
Exide Corp. 165,000 2,701,875
Harvard Industries Inc. 14.25% Exch. Pfd.[diamond] 11,533 33,157
Honda Motor Co.* 73,000 2,178,135
Lear Corp.* 18,800 627,450
NGK Spark Plug Co.* 175,000 1,698,068
------------
7,238,685
------------
Building 0.7%
DeGeorge Financial Corp. Wts.* 3,000 750
Lafarge Corp. 116,600 2,652,650
Shenzhen Expressway Co. Ltd.* 2,900,000 907,572
Waxman Industries Inc. Wts.*+ 29,500 88,500
------------
3,649,472
------------
Hotel & Restaurant 1.3%
Fine Host Corp.* 30,100 707,350
Harrah's Entertainment Inc.* 201,000 3,442,125
Mirage Resorts Inc.* 121,900 2,590,375
Motels of America Inc.*+ 500 5,750
Primadonna Resorts Inc.* 14,600 290,175
------------
7,035,775
------------
Recreation 1.2%
Amer Group Ltd. Cl. A* 80,300 1,655,637
American Radio Systems Corp. 14,300 436,150
American Radio Systems Corp. Exch. Pfd.*+ 2,500 245,000
American Telecasting Inc. Wts.* 1,250 1,250
Evergreen Media Corp. Cl. A 17,800 519,538
Fitzgeralds South Inc. Wts.*++ 1,250 12,500
Goldriver Hotel & Casino Corp. Cl. B*++ 20,000 2,500
Recreation (cont'd)
Goldriver Hotel & Casino Corp. Liquidation Trust
Units++ 500,000 $ 6,350
Granite Broadcasting Corp.*+ 250 231,250
Heartland Wireless Communications, Inc. Wts.*++ 1,500 1,500
SHRP Equity Inc.* 37 148
Walt Disney Co. 45,000 3,285,000
Wireless One Inc. Wts.*+ 750 750
Wireless One Inc. Wts.* 1,250 938
------------
6,398,511
------------
Retail Trade 2.8%
Carson Pirie Scott & Co.* 14,300 441,513
Central Rents Inc.*+ 250 13,750
Dominick's Supermarkets Inc.* 27,500 632,500
Filenes Basement Corp.* 35,100 236,925
Genesco Inc.* 29,500 331,875
Global DirectMail Corp.* 37,000 642,875
Gucci Group NV* 35,300 2,546,013
Kroger Co.* 100,000 5,075,000
Ralphs Grocery Co. Wts.*++# 9,686 97,645
Rite-Aid Corp. 41,600 1,747,200
Sears Roebuck & Co. 39,100 1,964,775
Stride Rite Corp. 19,100 286,500
Sunglass Hut International Inc.* 63,000 441,000
Supermarkets General Holdings Corp.
Exch. Pfd.[diamond] 18,200 432,250
------------
14,889,821
------------
Textile & Apparel 0.2%
Acme Boot Co.*+ 250 250
Kenneth Cole Productions Inc. Cl. A* 24,600 516,600
Samsonite Corp.* 8,700 376,275
------------
893,125
------------
Total Consumer Cyclical 41,072,352
------------
Consumer Staple 12.8%
Business Service 2.4%
ADT Ltd.* 170,000 4,250,000
Greenwich Air Services Inc.* 42,700 1,216,950
HBO & Co. 40,000 1,900,000
ICF Kaiser International Inc. Wts.* 2,400 1,200
La Petite Holdings Corp.* 22,000 896,500
Pagemart Inc. Wts.*+ 2,300 9,200
Philip Environmental Inc.* 74,900 1,132,863
Republic Industries Inc.* 76,700 2,660,531
Universal Outdoor Holdings Inc.* 16,000 464,000
Vestar/LPA Investment Corp.*+ 1,375 13,750
----------
12,544,994
----------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
Drug 2.5%
Amgen Inc.* 44,300 $ 2,475,263
Axogen Ltd.* 52,500 1,207,500
Biora AB* 168,900 1,781,787
BioVail Corp.* 44,800 1,041,600
Novartis AG* 2,700 3,351,077
Pfizer Inc. 40,300 3,390,238
------------
13,247,465
------------
Food & Beverage 1.5%
Coca-Cola Enterprises Inc. 47,500 2,725,312
Dr Pepper Bottling Holdings Inc. Cl. A* 56,000 784,000
LVMH Moet Hennessy Louis Vuitton* 4,400 1,070,514
Seven-Up/RC Bottling Co. of Southern California* 26,250 311,719
Whitman Corp. 131,900 3,231,550
------------
8,123,095
------------
Hospital Supply 3.8%
Baxter International Inc. 59,600 2,570,250
Columbia/HCA Healthcare Corp. 84,350 2,836,269
Genesis Health Ventures Inc.* 10,900 340,625
Healthdyne Technologies Inc.* 67,100 944,642
IDX Systems Corp.* 5,400 147,150
Johnson & Johnson 60,000 3,172,500
Karrington Health Inc.* 35,000 420,000
Pacificare Health Systems, Inc. Cl. A* 12,000 991,500
Physio-Control International Corp.* 13,700 190,088
Roche Holdings AG* 475 4,107,974
Rural/Metro Corp.* 29,500 899,750
Tenet Healthcare Corp. 108,800 2,679,200
Total Renal Care Holdings Inc.* 25,700 780,637
Xomed Surgical Products Inc.* 22,300 367,950
------------
20,448,535
------------
Personal Care 0.6%
Avon Products Inc. 50,500 2,651,250
Wesley Jessen Visioncare Inc.* 48,000 744,000
------------
3,395,250
------------
Printing & Publishing 1.4%
A.H. Belo Corp. Cl. A 12,852 475,524
General Media Inc. Wts.*++ 250 250
Hollinger International, Inc. Cl. A* 340,000 3,102,500
K-III Communications Corp. Series B Exch. Pfd.* 5,424 592,562
K-III Communications Corp. Series D Exch. Pfd.* 2,500 250,625
Sullivan Holdings Inc.* 149 53,467
Valassis Communications Inc. 125,000 2,796,875
------------
7,271,803
------------
Tobacco 0.6%
Imperial Tobacco Group PLC* 359,100 $ 2,463,717
Philip Morris Companies, Inc. 8,500 970,062
------------
3,433,779
------------
Total Consumer Staple 68,464,921
------------
Energy 6.0%
Oil 4.9%
Burlington Resources Inc. 59,800 2,556,450
Energy Africa Ltd.* 938,900 4,355,119
ENI SPA ADR 41,700 2,111,063
Oryx Energy Co. 186,200 3,584,350
Royal Dutch Petroleum Co. 17,000 2,975,000
Seagull Energy Corp.*+++ 358,288 6,449,184
Tosco Corp. 117,000 3,334,500
Total SA Cl. B* 12,909 1,119,493
------------
26,485,159
------------
Oil Service 1.1%
Cliffs Drilling Co.* 4,700 279,062
Coflexip* 31,763 1,951,774
Schlumberger Ltd. 34,900 3,743,025
------------
5,973,861
------------
Total Energy 32,459,020
------------
Finance 7.6%
Bank 3.3%
BankAmerica Corp. 43,000 4,332,250
Citicorp 35,000 3,788,750
Fleet Financial Group Inc. 65,900 3,772,775
Glendale Federal Bank FSB 22,300 512,900
Mellon Bank Corp. 49,900 3,630,225
NationsBank Corp. 11,600 642,350
Riverbank America Pfd.* 20,000 480,000
Sovereign Bancorp Inc.* 32,660 391,920
------------
17,551,170
------------
Financial Service 0.9%
Beacon Properties Corp. 10,000 331,250
CMAC Investment Corp. 13,500 450,562
CRIIMI MAE Inc.* 13,500 199,125
Essex Property Trust, Inc.* 11,300 337,588
Federal Home Loan Mortgage Corp. 96,800 2,637,800
First Industrial Realty Trust Inc. 11,300 357,363
Homeside Inc.* 30,100 443,975
----------
4,757,663
----------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
Insurance 3.4%
Ace Ltd. 88,900 $ 5,689,600
AMBAC Inc. 27,200 1,754,400
Capital Re Corp. 5,500 234,438
Mid Ocean Ltd. 90,000 4,297,500
Mutual Risk Management Ltd. 12,900 467,625
Penncorp Financial Group Inc.* 20,000 640,000
Saint Paul Companies, Inc. 7,000 454,125
Travelers Group Inc. 46,100 2,207,037
Travelers Property Casualty Corp. Cl. A 76,700 2,435,225
------------
18,179,950
------------
Total Finance 40,488,783
------------
Science & Technology 10.0%
Aerospace 1.2%
Boeing Co. 18,246 1,799,512
Bombardier, Inc. Cl. B 85,200 1,541,538
First Aviation Services Inc.* 49,900 474,050
General Dynamics Corp. 34,800 2,344,650
Ladish Company, Inc.*++# 52,000 97,500
Triumph Group, Inc.* 14,700 369,338
------------
6,626,588
------------
Computer Software & Service 3.2%
Anacomp Inc.* 19,457 214,027
Anacomp Inc. Wts.* 4,941 18,529
Boston Technology Inc.* 19,600 369,950
Check Point Software Technologies Ltd.* 21,200 434,600
Cisco Systems Inc.* 51,000 2,454,375
Complete Business Solutions Inc.* 15,500 151,125
Manugistics Group Inc.* 9,900 361,350
Mastech Corp.* 22,000 354,750
Microsoft Corp.* 27,800 2,548,912
National Processing, Inc.* 57,700 461,600
Planning Sciences International PLC ADR* 51,600 464,400
SAP AG Pfd.* 14,900 2,554,796
Sema Group PLC* 72,300 1,635,315
TriTeal Corp.* 12,000 141,000
TT Tieto Oy Cl. B* 8,000 658,179
Veritas Software Co.* 15,500 459,188
Wang Laboratories Inc.* 44,200 784,550
Western Digital Corp.* 27,500 1,557,187
Wind River Systems Inc.* 10,350 244,519
WM Data AB Cl. B* 8,100 706,170
Xylan Corp.* 12,400 238,700
------------
16,813,222
------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
Electronic Components 2.0%
ABB AG* 775 $ 931,723
AMP Inc. 59,400 2,041,875
Hitachi Ltd.* 220,000 1,956,821
Intel Corp. 13,000 1,808,625
Lernout & Hauspie Speech Products NV ADR* 4,000 77,000
Microtouch Systems Inc.* 20,500 404,875
Remec Inc.* 28,900 621,350
Rohm Co. 32,000 2,359,829
Zebra Technologies Corp. Cl A* 20,400 469,200
------------
10,671,298
------------
Electronic Equipment 2.7%
Berg Electronics Corp.* 16,000 456,000
Chicago Miniature Lamp, Inc.* 22,900 449,412
L.M. Ericsson Telephone Co. ADR Cl. B* 88,480 2,991,730
L.M. Ericsson Telephone Co. Cl. B* 96,800 3,416,773
Lucent Technologies Inc.* 34,600 1,825,150
Motorola Inc. 38,900 2,348,587
Network Equipment Technologies, Inc.* 61,800 834,300
Pioneer-Standard Electronics Inc. 14,400 183,600
Toolex Alpha NV* 204,400 1,929,022
------------
14,434,574
------------
Office Equipment 0.9%
Compaq Computer Corp.* 45,400 3,478,775
FileNet Corp.* 17,500 282,188
Hewlett-Packard Co. 23,200 1,235,400
------------
4,996,363
------------
Total Science & Technology 53,542,045
------------
Utility 2.3%
Electric 1.7%
Allegheny Power Systems Inc. 78,600 2,328,525
Edison International Inc. 103,800 2,335,500
OGE Energy Corp. 60,000 2,512,500
Veba AG* 37,000 2,095,114
------------
9,271,639
------------
Electronic Equipment 0.1%
Telco Systems Inc.* 24,100 265,100
------------
Telephone 0.5%
Allen Telecom Inc. 33,400 584,500
BCE Inc. 30,000 1,380,000
Celcaribe SA Trust Certificates*+ 297,558 669,505
Clearnet Communications Inc. Wts.* 2,640 15,180
Intelcom Group, Inc. Wts.*++ 1,650 19,800
Intercel Inc. Wts.* 960 5,760
------------
2,674,745
------------
Total Utility 12,211,484
-----------
Total Equity Securities (Cost $266,295,334) 295,808,779
-----------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------------------
EQUITY SECURITIES--INFLATION RESPONSIVE
INVESTMENTS 12.2%
Basic Industries 2.3%
Metal & Mining 2.0%
Ashanti Goldfields Ltd. GDR 50,000 $ 687,500
AUR Resources Inc.* 50,000 274,467
Battle Mountain Gold Co. 100,000 662,500
Carpenter Technology Corp.* 25,000 956,250
Crown Resources Corp.* 125,000 765,625
Delta Gold NL* 168,000 247,601
Freeport-McMoRan Copper & Gold, Inc. Cl. B* 20,000 607,500
Kinross Gold Corp.* 60,000 405,000
Maxxam Inc.* 25,000 1,131,250
Menzies Gold NL* 400,000 163,061
Newcrest Mining Ltd.* 150,000 491,533
Normandy Mining Ltd.* 500,000 678,504
Pan African Resources Corp.* 215,600 62,290
Placer Dome Inc. 30,000 543,750
Royal Oak Mines Inc.* 100,000 318,750
Southernera Resources Ltd.* 100,000 548,935
Stillwater Mining Co.* 30,900 606,412
Sutton Resources Ltd.* 28,000 490,000
TVX Gold Inc.* 60,000 427,500
Vaal Reefs Exploration & Mining Ltd. ADR 43,100 261,294
Viceroy Resource Corp.* 100,000 426,147
------------
10,755,869
------------
Railroad 0.3%
OMI Corp. 142,200 1,386,450
------------
Total Basic Industries 12,142,319
------------
Consumer Staple 0.3%
Business Service 0.3%
Commodore Applied Technologies, Inc.* 150,000 1,068,750
Commodore Applied Technologies, Inc. Wts.* 150,000 337,500
------------
1,406,250
------------
Total Consumer Staple 1,406,250
------------
Energy 8.9%
Oil 6.6%
3DX Technologies Inc.* 50,000 550,000
Abacan Resource Corp.*@ 395,100 3,111,412
Apache Corp. 37,500 1,256,250
Arakis Energy Corp.*@ 453,100 1,925,675
Barrett Resources Corp.* 38,900 1,162,138
Barrington Petroleum Ltd.* 91,400 330,083
Basin Exploration Inc.* 65,000 446,875
Canadian 88 Energy Corp.* 40,700 163,153
- ------------------------------------------------------------------------------
Value
Shares (Note 1)
- ------------------------------------------------------------------------------
Oil (cont'd)
Canadian Conquest Exploration Inc.* 173,600 $ 206,891
Clayton Williams Energy Inc.* 27,198 333,176
Coho Energy Inc.* 139,300 1,009,925
Crystal Oil Co.* 10,000 347,500
CS Resources Ltd.* 100,000 841,459
Forcenergy Inc. 8,900 255,875
Intensity Resources Ltd.* 161,300 258,639
KCS Energy Inc.@ 110,800 3,642,550
Mercantile International Petroleum, Inc.* 101,600 162,560
Nuevo Energy Co.*@ 89,100 3,419,212
Oil Search Ltd.* 1,598,100 3,382,620
Optima Petroleum Corp.* 43,100 94,281
Pan East Petroleum Inc.* 85,300 277,248
Plains Resources Inc.* 109,800 1,454,850
Ranger Oil Ltd.* 367,000 3,486,500
Seven Seas Petroleum Inc* 30,000 300,000
Southwestern Energy Co.* 58,600 783,775
Stampeder Exploration Ltd. 225,350 1,126,750
Summit Resources Ltd. 50,000 234,742
Tarragon Oil & Gas Ltd.* 116,357 1,416,118
Tom Brown, Inc.*@ 96,843 1,791,595
Triton Energy Ltd. Cl. A 28,500 1,104,375
Ulster Petroleum Ltd.* 89,000 636,403
------------
35,512,630
------------
Oil Service 2.3%
Atwood Oceanics Inc.* 35,000 2,174,375
Dailey Petroleum Services Corp. Cl. A* 34,200 230,850
Dreco Energy Services Ltd. Cl. A*@ 47,100 1,601,400
Ensco International Inc.*@ 61,887 3,047,935
Global Marine Inc.* 31,900 685,850
J. Ray McDermott SA* 46,900 1,137,325
Noble Drilling Corp.* 83,200 1,435,200
Patterson Energy, Inc.* 4,584 126,633
Pool Energy Services Co.* 51,400 758,150
Rowan Companies, Inc.* 11,400 257,925
TMBR / Sharp Drilling, Inc.* 20,500 243,437
Tuboscope Vetco International Corp.* 30,000 408,750
------------
12,107,830
------------
Total Energy 47,620,460
------------
Utility 0.7%
Natural Gas 0.7%
TransTexas Gas Corp.*@ 279,700 3,915,800
------------
Total Utility 3,915,800
------------
Total Equity Securities--Inflation Responsive Investments
(Cost $50,538,462) 65,084,829
----------
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
Investment Portfolio (cont'd)
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.1%
State Street Bank and Trust Co.,
dated 3/31/97, repurchase
proceeds $260,031,
collateralized by $265,000 U.S.
Treasury Note, 6.00%, due
5/31/98, market value $269,582 $ 260,000 4/01/1997 $ 260,000
--------------
Total Repurchase Agreements (Cost $260,000) 260,000
--------------
CASH EQUIVALENTS 8.8%
American Express Credit Corp.,
5.48% 1,325,000 4/01/1997 1,325,000
American Express Credit Corp.,
5.60% 2,646,000 4/08/1997 2,646,000
Deere & Co., 5.60% 15,000,000 4/10/1997 15,000,000
Ford Motor Credit Co., 5.56%* 14,582,000 4/01/1997 14,582,000
General Electric Capital Corp.,
5.63% 11,725,000 4/02/1997 11,725,000
General Electric Capital Corp.,
5.65% 1,643,000 4/10/1997 1,643,000
--------------
Total Cash Equivalents (Cost $46,921,000) 46,921,000
--------------
Total Investments (Cost $498,477,183)--101.1% 540,331,984
Cash and Other Assets, Less Liabilities--(1.1%) (5,718,014)
--------------
Net Assets--100.0% $ 534,613,970
==============
- -----------------------------------------------------------------------------
Federal Income Tax Information:
At March 31, 1997, the net unrealized appreciation of
investments based on cost for Federal income tax purposes of
$499,107,458 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $ 61,630,193
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (20,405,667)
-----------
$ 41,224,526
===========
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
* Nonincome-producing securities.
[diamond] Payments of income may be made in cash or in the form of additional
securities.
[ ] Security is in default.
# Security valued under consistently applies procedures established by
the Trustees.
++ Security restricted as to public resale. The total cost and market
value of restricted securities owned at March 31, 1997 were $396,266
and $570,917 (0.11% 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, 1997 were $17,345,368
and $16,780,083 (3.14% of net assets), respectively.
+++ 152,747 shares of Agrium, Inc., 22,500 shares of Cambrex Corp. and
158,780 shares of Seagull Energy Corp. are considered by the Adviser
to be part of Inflation Responsive Investments.
@ 107,000 shares of Abacan Resource Corp., 118,200 shares of Arakis
Energy Corp., 17,100 shares of Dreco Energy Services Ltd., 28,100
shares of Ensco International, Inc., 30,800 shares of KCS Energy,
Inc., 14,100 shares of Nuevo Energy Co., 9,444 shares of Tom Brown,
Inc., and 70,000 shares of TransTexas Gas Corp. 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 and may vary by no more than
1%.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Forward currency exchange contracts outstanding at March 31, 1997, 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 2,300,000 AUD 0.78840 AUD $ 10,845 4/24/97
Sell Australian dollars, buy U.S. dollars 1,141,000 AUD 0.77500 AUD (9,910) 4/24/97
Buy Australian dollars, sell U.S. dollars 655,500 AUD 0.77567 AUD 5,150 5/14/97
Sell Australian dollars, buy U.S. dollars 3,965,500 AUD 0.75560 AUD (110,743) 5/14/97
Sell Canadian dollars, buy U.S. dollars 1,580,000 CAD 0.74223 CAD 28,064 5/14/97
Buy Canadian dollars, sell U.S. dollars 1,632,000 CAD 0.74228 CAD (29,078) 5/14/97
Buy Canadian dollars, sell U.S. dollars 1,580,000 CAD 0.74267 CAD (28,761) 5/14/97
Sell Canadian dollars, buy U.S. dollars 1,632,000 CAD 0.74247 CAD 29,393 5/14/97
Sell Danish krone, buy U.S. dollars 24,516,700 DKK 0.15680 DKK (23,029) 5/14/97
Buy Danish krone, sell U.S. dollars 14,170,000 DKK 0.15305 DKK 66,359 5/14/97
Buy Danish krone, sell U.S. dollars 10,346,700 DKK 0.15553 DKK 22,840 5/14/97
Buy Danish krone, sell U.S. dollars 3,032,300 DKK 0.15516 DKK 7,229 4/24/97
Sell Danish krone, buy U.S. dollars 3,032,300 DKK 0.16063 DKK 9,353 4/24/97
Sell European currency units, buy U.S.
dollars 2,148,000 XEU 1.16180 XEU (12,838) 5/14/97
Buy Hong Kong dollars, sell U.S. dollars 4,042,616 HKD 0.12904 HKD 53 4/01/97
Buy Hong Kong dollars, sell U.S. dollars 3,000,589 HKD 0.12907 HKD (35) 4/02/97
----------
$ (35,108)
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1997
Assets
Investments, at value (Cost $498,477,183) (Note 1) $ 540,331,984
Cash 799,829
Receivable for securities sold 3,927,457
Interest and dividends receivable 2,574,248
Receivable for fund shares sold 1,157,255
Receivable for open forward contracts 179,286
Receivable from Distributor (Note 3) 43,318
Other assets 73,585
-----------
549,086,962
Liabilities
Payable for securities purchased 12,092,628
Payable for fund shares purchased 900,757
Accrued transfer agent and shareholder services (Note
2) 381,612
Accrued management fee (Note 2) 348,777
Accrued distribution and service fees (Note 5) 286,100
Payable for open forward contracts 214,394
Dividends payable 91,700
Accrued trustees' fees (Note 2) 8,580
Other accrued expenses 148,444
-----------
14,472,992
-----------
Net Assets $ 534,613,970
===========
Net Assets consist of:
Undistributed net investment income $ 6,424
Unrealized appreciation of investments 41,854,801
Unrealized depreciation of forward contracts and
foreign currency (52,419)
Accumulated net realized gain 25,604,549
Shares of beneficial interest 467,200,615
-----------
$ 534,613,970
===========
Net Asset Value and redemption price per share of Class
A shares ($244,347,819 / 23,497,866 shares of
beneficial interest) $10.40
======
Maximum Offering Price per share of Class A shares
($10.40 / .955) $10.89
======
Net Asset Value and offering price per share of
Class B shares ($251,518,149 / 24,263,341 shares of
beneficial interest)* $10.37
======
Net Asset Value, offering price and redemption price
per share of Class C shares ($21,262,673 / 2,044,892
shares of beneficial interest) $10.40
======
Net Asset Value and offering price per share of
Class D shares ($17,485,329 / 1,683,937 shares of
beneficial interest)* $10.38
======
- --------------------------------------------------------------------------------
* 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, 1997
Investment Income
Interest $ 12,294,998
Dividends, net of foreign taxes of $143,358 3,785,347
-----------
16,080,345
Expenses
Management fee (Note 2) 3,692,033
Transfer agent and shareholder services (Note 2) 1,050,878
Custodian fee 383,283
Service fee-Class A (Note 5) 574,953
Distribution and service fees-Class B (Note 5) 2,248,670
Distribution and service fees-Class D (Note 5) 154,456
Reports to shareholders 123,770
Registration fees 41,671
Audit fee 41,012
Trustees' fees (Note 2) 28,894
Miscellaneous 36,566
-----------
8,376,186
Expenses borne by the Distributor (Note 3) (475,396)
-----------
7,900,790
-----------
Net investment income 8,179,555
-----------
Realized and Unrealized Gain (Loss) on Investments,
Foreign Currency and Forward Contracts
Net realized gain on investments (Notes 1 and 4) 52,402,713
Net realized gain on forward contracts and foreign
currency (Note 1) 1,399,025
-----------
Total net realized gain 53,801,738
-----------
Net unrealized depreciation of investments (7,984,019)
Net unrealized depreciation of forward contracts and
foreign currency (260,085)
-----------
Total net unrealized depreciation (8,244,104)
-----------
Net gain on investments, foreign currency and forward
contracts 45,557,634
-----------
Net increase in net assets resulting from operations $ 53,737,189
===========
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year ended March 31
------------------------
1997 1996
- --------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 8,179,555 $ 8,195,807
Net realized gain on investments,
foreign currency and forward
contracts* 53,801,738 33,933,659
Net unrealized appreciation
(depreciation) of investments,
foreign currency and forward
contracts (8,244,104) 38,037,693
---------- -----------
Net increase resulting from
operations 53,737,189 80,167,159
---------- -----------
Dividends from net investment
income:
Class A (6,086,782) (5,148,650)
Class B (4,234,267) (3,355,386)
Class C (634,525) (819,460)
Class D (289,417) (240,897)
---------- -----------
(11,244,991) (9,564,393)
---------- -----------
Distributions from net realized
gains:
Class A (18,380,936) (3,056,467)
Class B (18,075,176) (2,771,674)
Class C (1,771,455) (490,395)
Class D (1,236,399) (194,112)
---------- -----------
(39,463,966) (6,512,648)
---------- -----------
Net increase (decrease) from fund
share transactions (Note 6) 97,991,295 (2,678,848)
---------- -----------
Total increase in net assets 101,019,527 61,411,270
Net Assets
Beginning of year 433,594,443 372,183,173
---------- -----------
End of year (including
undistributed net investment
income of $6,424 and $3,185,167,
respectively) $534,613,970 $ 433,594,443
========== ===========
*Net realized gain for Federal
income tax purposes (Note 1) $ 52,820,595 $ 20,102,035
========== ===========
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
March 31, 1997
Note 1
State Street Research Managed Assets (the "Fund"), is a series of State
Street Research 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 two separate funds: State Street Research Managed
Assets and State Street Research High Income Fund.
The investment objective of the Fund is to seek a high total return while
attempting to limit investment risk and preserve capital. To achieve its
investment objective, the Fund intends to allocate assets among selected
investments in the following sectors: Fixed Income Securities, Equity
Securities, Inflation Responsive Investments and Cash & Cash Equivalents.
Total return may include current income as well as capital appreciation. The
Fund's investment manager believes that the timely re-allocation of assets
can enhance performance and reduce portfolio volatility.
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
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,
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
are valued at their fair value as determined in good faith under consistently
applied procedures established by and under the supervision of the Trustees.
B. 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
reinvestedquarterly. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicabletax 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.
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 $9,216,832
and has deferred and treated such losses as arising in the fiscal year ended
March 31, 1996.
G. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
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, 1997, the fees pursuant to
such agreement amounted to $3,692,033.
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, 1997, the
amount of such expenses was $275,962.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $28,894 during the year ended March 31, 1997.
15
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1997, the amount of such expenses
assumed by the Distributor and its affiliates was $475,396.
Note 4
For the year ended March 31, 1997, purchases and sales of securities,
exclusive of short-term obligations and forward foreign currency exchange
contracts, aggregated $547,388,033 and $490,693,454 (including $62,847,769
and $49,513,359 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 mar- keting services, to furnish
ongoing assistance to investors and to defray a portion of its distribution
and marketing expenses. For the year ended March 31, 1997, fees pursuant to
such plan amounted to $574,953, $2,248,670 and $154,456 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 $158,495 and $1,045,013, respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1997, and that MetLife
Securities, Inc. earned commissions aggregating $1,972,843 on sales of Class
B shares, and the Distributor collected contingent deferred sales charges
aggregating $387,778 and $1,277 on redemptions of 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, 1997, the Distributor owned one Class A share and Metropolitan
owned 1,019 Class B shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended March 31
-------------------------------------------------------------
1997 1996
---------------------------- ------------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,746,853 $ 50,499,204 3,142,066 $ 30,625,584
Issued upon reinvestment of:
Dividends from net investment income 558,830 5,876,689 505,011 4,934,090
Distributions from net realized gains 1,699,169 17,870,060 307,042 2,969,095
Shares repurchased (3,698,792) (39,318,613) (4,460,168) (43,019,460)
---------- ----------- ---------- -----------
Net increase (decrease) 3,306,060 $ 34,927,340 (506,049) $ (4,490,691)
========== =========== ========== ===========
<CAPTION>
Class B Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,191,667 $ 65,679,543 3,862,169 $ 37,612,607
Issued upon reinvestment of:
Dividends from net investment income 389,723 4,088,191 332,475 3,235,190
Distributions from net realized gains 1,680,278 17,607,323 281,171 2,710,479
Shares repurchased (2,845,172) (30,131,674) (3,052,294) (29,408,533)
---------- ----------- ---------- -----------
Net increase 5,416,496 $ 57,243,383 1,423,521 $ 14,149,743
========== =========== ========== ===========
<CAPTION>
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 718,397 $ 7,645,927 1,072,850 $ 10,385,513
Issued upon reinvestment of:
Dividends from net investment income 60,113 631,951 84,178 819,983
Distributions from net realized gains 168,533 1,771,442 50,697 489,441
Shares repurchased (802,252) (8,601,591) (2,251,394) (22,256,352)
---------- ----------- ---------- -----------
Net increase (decrease) 144,791 $ 1,447,729 (1,043,669) $(10,561,415)
========== =========== ========== ===========
<CAPTION>
Class D Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 594,410 $ 6,307,999 252,653 $ 2,474,692
Issued upon reinvestment of:
Dividends from net investment income 25,583 268,626 22,570 219,580
Distributions from net realized gains 110,940 1,163,717 18,905 182,432
Shares repurchased (319,082) (3,367,499) (482,326) (4,653,189)
---------- ----------- ---------- -----------
Net increase (decrease) 411,851 $ 4,372,843 (188,198) $ (1,776,485)
========== =========== ========== ===========
</TABLE>
16
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
-----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
Year ended March 31
--------------------------------------------------------
1997*** 1996*** 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 10.29 $ 8.76 $ 8.94 $ 8.94 $ 8.22
Net investment income* 0.21 0.23 0.27 0.22 0.27
Net realized and unrealized
gain (loss) on investments,
foreign currency and
forward contracts 1.05 1.72 (0.14) 0.72 1.01
--------- --------- --------- --------- ---------
Total from investment
operations 1.26 1.95 0.13 0.94 1.28
--------- --------- --------- --------- ---------
Dividends from net
investment income (0.28) (0.26) (0.17) (0.22) (0.25)
Distributions from net
realized gains (0.87) (0.16) (0.14) (0.72) (0.31)
--------- --------- --------- --------- ---------
Total distributions (1.15) (0.42) (0.31) (0.94) (0.56)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 10.40 $ 10.29 $ 8.76 $ 8.94 $ 8.94
========= ========= ========= ========= =========
Total return 12.49%+ 22.55%+ 1.52%+ 10.96%+ 16.54%+
Net assets at end of year
(000s) $244,348 $207,713 $181,358 $166,011 $93,537
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* 2.02% 2.34% 3.11% 2.75% 3.26%
Portfolio turnover rate 108.41% 109.20% 89.58% 105.17% 142.86%
Average commission rate@ $ 0.0266 -- -- -- --
*Reflects voluntary
assumption of fees
or expenses per share in
each year (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.02 $ 0.02
</TABLE>
Class B
----------------------------------------------
Year ended March 31
----------------------------------------------
1997*** 1996*** 1995 1994**
- -----------------------------------------------------------------------------
Net asset value, beginning
of year $ 10.25 $ 8.74 $ 8.92 $ 8.78
Net investment income* 0.13 0.15 0.20 0.16
Net realized and unrealized
gain (loss) on investments,
foreign currency and
forward contracts 1.06 1.71 (0.13) 0.39
--------- --------- --------- ----------
Total from investment
operations 1.19 1.86 0.07 0.55
--------- --------- --------- ----------
Dividends from net
investment income (0.20) (0.19) (0.11) (0.18)
Distributions from net
realized gains (0.87) (0.16) (0.14) (0.23)
--------- --------- --------- ----------
Total distributions (1.07) (0.35) (0.25) (0.41)
--------- --------- --------- ----------
Net asset value, end of year $ 10.37 $ 10.25 $ 8.74 $ 8.92
========= ========= ========= ==========
Total return 11.76%+ 21.48%+ 0.82%+ 6.26%+++
Net assets at end of year
(000s) $251,518 $193,272 $152,251 $83,244
Ratio of operating expenses
to average net assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment
income to average net
assets* 1.27% 1.59% 2.38% 2.03%++
Portfolio turnover rate 108.41% 109.20% 89.58% 105.17%
Average commission rate@ $ 0.0266 -- -- --
*Reflects voluntary
assumption of fees
or expenses per share in
each year (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.03
- --------------------------------------------------------------------------------
++ Annualized.
** June 1, 1993 (commencement of share class designations) to March 31, 1994.
*** Per-share figures have been calculated using the average shares method.
+ 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.
@ For fiscal years beginning on or after April 1, 1996, the Fund is required
to disclose its average commission rate per share paid for security trades.
17
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-----------------------------------------
Year ended March 31
-----------------------------------------
1997*** 1996*** 1995 1994**
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.29 $ 8.77 $ 8.95 $ 8.78
Net investment income* 0.24 0.25 0.29 0.21
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts 1.05 1.71 (0.14) 0.43
-------- -------- -------- ---------
Total from investment operations 1.29 1.96 0.15 0.64
-------- -------- -------- ---------
Dividends from net investment income (0.31) (0.28) (0.19) (0.24)
Distributions from net realized
gains (0.87) (0.16) (0.14) (0.23)
-------- -------- -------- ---------
Total distributions (1.18) (0.44) (0.33) (0.47)
-------- -------- -------- ---------
Net asset value, end of year $ 10.40 $ 10.29 $ 8.77 $ 8.95
======== ======== ======== =========
Total return 12.77%+ 22.70%+ 1.77%+ 7.27%+++
Net assets at end of year (000s) $21,263 $19,548 $25,803 $21,434
Ratio of operating expenses to
average net assets* 1.00% 1.00% 1.00% 1.00%++
Ratio of net investment income to
average net assets* 2.26% 2.59% 3.37% 3.03%++
Portfolio turnover rate 108.41% 109.20% 89.58% 105.17%
Average commission rate @ $0.0266 -- -- --
*Reflects voluntary assumption of
fees or expenses per share in each
year (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
Class D
-----------------------------------------
Year ended March 31
-----------------------------------------
1997*** 1996*** 1995 1994**
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.27 $ 8.75 $ 8.93 $ 8.78
Net investment income* 0.13 0.15 0.20 0.16
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts 1.05 1.72 (0.13) 0.40
-------- -------- -------- ---------
Total from investment operations 1.18 1.87 0.07 0.56
-------- -------- -------- ---------
Dividends from net investment income (0.20) (0.19) (0.11) (0.18)
Distributions from net realized
gains (0.87) (0.16) (0.14) (0.23)
-------- -------- -------- ---------
Total distributions (1.07) (0.35) (0.25) (0.41)
-------- -------- -------- ---------
Net asset value, end of year $ 10.38 $ 10.27 $ 8.75 $ 8.93
======== ======== ======== =========
Total return 11.64%+ 21.54%+ 0.82%+ 6.31%+++
Net assets at end of year (000s) $17,485 $13,061 $12,772 $ 7,117
Ratio of operating expenses to
average net assets* 2.00% 2.00% 2.00% 2.00%++
Ratio of net investment income to
average net assets* 1.26% 1.60% 2.39% 2.03%++
Portfolio turnover rate 108.41% 109.20% 89.58% 105.17%
Average commission rate @ $0.0266 -- -- --
*Reflects voluntary assumption of
fees or expenses per share in each
year (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.03
</TABLE>
- --------------------------------------------------------------------------------
++ Annualized.
** June 1, 1993 (commencement of share class designations) to March 31, 1994.
*** Per-share figures have been calculated using the average shares method.
+ 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.
@ For fiscal years beginning on or after April 1, 1996, the Fund is required
to disclose its average commission rate per share paid for security trades.
18
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Income Trust and
the Shareholders of 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 State Street Research
Managed Assets (a series of State Street Research Income Trust, hereafter
referred to as the "Trust") at March 31, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at March 31, 1997, 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 9, 1997
19
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Managed Assets provided shareholders with consistent performance during the
year, in line with its broadly diversified portfolio. For the 12 months ended
March 31, 1997, Class A shares returned +12.49% (does not reflect sales
charge). The Fund outperformed the average for Lipper Analytical Services'
Flexible Portfolio Funds, which was +10.13% for 196 fund classes.
It was a year of generally rising stock prices that peaked in mid-March of
1997 and then experienced a modest correction during the last weeks of the
period. Returns were positive in all areas in which the Fund invests, but
varied considerably among asset classes. The Fund's overweighting in stocks
helped performance, particularly the portfolio's value stock and
inflation-responsive holdings. Small-company stocks, which had made a very
strong contribution early in the year, were hit hardest in the first quarter
of 1997 and dampened Fund performance.
Bond returns improved over the year. High-yield bonds continued as the top
performers and international bonds rebounded from their disappointing returns
the year before.
The Fund's asset allocation changed little during the year. The portfolio
continued its emphasis on stocks, with the equity allocation increasing from
54% on March 31, 1996 to 55% a year later. Bond allocation decreased from 27%
to 25%, inflation-responsive holdings remained steady at 12%, and cash
increased slightly from 7% to 8%.
March 31, 1997
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Performance for a class may include
periods prior to the adoption of class designations in 1993, which resulted
in new or increased 12b-1 fees of up to 1% per class thereafter and which
will reduce subsequent performance. Performance reflects maximum 4.5% "A"
share front-end sales charge, or 5% "B" share or 1% "D" share contingent
deferred sales charges, where applicable. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions. 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. The Lehman Brothers Government/Corporate Bond Index is a
commonly used measure of bond market performance. The indices are unmanaged
and do not take transaction charges into consideration. Direct investment in
the indices is not possible; results are for illustrative purposes only.
Change In Value of $10,000 Based On The S&P 500
And The Lehman Brothers Government/Corporate Index
Compared To Change In Value of $10,000 Invested In
Managed Assets
Class A Shares
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 Year 5 Years Life of Fund
- ---------------------------------
+7.43% +11.56% +10.92%
- ---------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
12/88 9550 10000 10000
3/89 9957 10111 10708
3/90 11030 11293 12767
3/91 11478 12703 14603
3/92 13003 14149 16212
3/93 15154 16172 18678
3/94 16815 16621 18951
3/95 17070 17381 21896
3/96 20918 19280 28918
3/97 23531 20140 34649
Class B Shares
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 Year 5 Years Life of Fund
- ---------------------------------
+6.76% +11.70% +11.15%
- ---------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
12/88 10000 10000 10000
3/89 10426 10111 10708
3/90 11550 11293 12767
3/91 12019 12703 14603
3/92 13616 14149 16212
3/93 15868 16172 18678
3/94 17495 16621 18951
3/95 17638 17381 21896
3/96 21425 19280 28918
3/97 23945 20140 34649
Class C Shares
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 Year 5 Years Life of Fund
- ---------------------------------
+12.77% +12.80% +11.66%
- ---------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
12/88 10000 10000 10000
3/89 10426 10111 10708
3/90 11550 11293 12767
3/91 12019 12703 14603
3/92 13616 14149 16212
3/93 15868 16172 18678
3/94 17661 16621 18951
3/95 17974 17381 21896
3/96 22053 19280 28918
3/97 24869 20140 34649
Class D Shares
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 Year 5 Years Life of Fund
- ---------------------------------
+10.64% +11.95% +11.15%
- ---------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
12/88 10000 10000 10000
3/89 10426 10111 10708
3/90 11550 11293 12767
3/91 12019 12703 14603
3/92 13616 14149 16212
3/93 15868 16172 18678
3/94 17504 16621 18951
3/95 17647 17381 21896
3/96 21449 19280 28918
3/97 23945 20140 34649
20
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
Report on Special Meeting of ShareholdersA Special Meeting of Shareholders of
State Street Research Managed Assets ("Fund"), along with shareholders of
other series of State Street Research Income Trust ("Meeting"), was convened
on July 19, 1996. The results of the Meeting are set forth below.
Votes (millions
of shares)
------------------
For Withheld
----- ----------
1. The following persons were elected as Trustees:
Thomas L. Phillips 97.9 2.6
Toby Rosenblatt 98.2 2.3
Ralph F. Verni 98.0 2.5
<TABLE>
<CAPTION>
Votes (millions
of shares)
---------------------
Proposal For Against Abstain
--- ------- -------
<S> <C> <C> <C>
2. The Fund's following investment policies were
reclassified from fundamental to nonfundamental:
a. The policy regarding investments in securities of
companies with less than three (3) years'
continuous operation 19.9 1.3 1.8
b. The policy regarding investments in illiquid
securities. 19.7 1.4 1.9
3. The Fund's fundamental policy regarding investments in
commodities and commodity contracts was amended. 19.6 1.4 1.9
5. The Fund's fundamental policies regarding
diversification of investments were amended 20.1 1.1 1.8
6. The Fund's fundamental policy regarding industry
concentration was amended. 19.8 1.2 2.0
8. The Master Trust Agreement was amended to permit the
Trustees to reorganize, merge or liquidate a fund
without prior shareholder approval. 83.0 9.8 7.6
9. The Master Trust Agreement was amended to eliminate
specified time permitted between the record date and
any shareholders meeting. 86.2 6.3 8.0
</TABLE>
21
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH INCOME TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Managed Assets
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
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Bartlett R. Geer
Vice President
John H. Kallis
Vice President
Thomas A. Shively
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Steve A. Garban
Retired; formerly Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial
Officer, St. Regis Corp.
Edward M. Lamont
Formerly in banking (Morgan
Guaranty Trust Company of
New York); presently engaged
in private investments and
civic affairs
Robert A. Lawrence
Associate, 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
22
<PAGE>
[back cover]
State Street Research Managed Assets
One Financial Center
Boston, MA 02111
[indicia]
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]
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied by a current Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar award recognizes quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was
not industry-wide.
CONTROL NUMBER: 3961-970520(0698)SSR-LD
Cover Illustration by Dorothy Cullinan MA-273D-597IBS