<PAGE>
STATE STREET RESEARCH
----------------------------------------
HIGH INCOME FUND
----------------------------------------
ANNUAL REPORT
March 31, 1998
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WHAT'S INSIDE
----------------------------------------
FROM THE CHAIRMAN
Another year of solid growth
PORTFOLIO MANAGER'S REVIEW
The economy and strong demand favored
high-yield bonds
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
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DALBAR LOGO
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For Excellence
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
Americans have enjoyed another year of solid economic growth, low inflation and
strong investment returns. Unemployment and interest rates remain low, and
consumer confidence continues at near-record highs. Together these favorable
factors have stimulated a boom in the housing market and stronger-than-expected
retail sales. Not even an economic crisis in Southeast Asia could restrain the
financial markets for long.
STOCKS
The stock market delivered a third consecutive year of double-digit gains
despite a volatile year. In October 1997, the Dow Jones Industrial Average
reported its largest one-day drop ever as investors expressed fear that
Southeast Asian economic turmoil could spill over to the U.S. Common stocks
dropped again early in the first quarter of 1998, as U.S. companies released
lower earnings forecasts; then rose sharply through the end of the period. The
technology-heavy Nasdaq, Dow Jones Industrial Average and the S&P 500 all set
record highs.(1) Investors continued to seek the quality of large, blue-chip
companies. However, smaller stocks with higher earnings growth and more
attractive valuation picked up ground later in the first quarter of 1998.
After falling sharply in the fourth quarter of 1997, Southeast Asian stocks
rallied in the new year. Malaysia, Thailand and Korean markets came back
especially strong. In Europe, many major markets outperformed the U.S.,
bolstered by lower interest rates, low inflation, and a wave of corporate
restructuring that is, by most accounts, just beginning to pick up steam. Japan
had a modest gain during the first quarter of 1998, but hardly enough to offset
three previous weak periods. What's more, the Japanese economy continues to sink
into recession despite defensive efforts by the government to rescue the
debt-laden financial sector.
BONDS
After a fourth quarter rally, bond markets steadied early in 1998. Treasuries
were buoyed by the same energy cost cuts that briefly boosted the stock market.
High yield bonds were the star performers as investors sought more robust
returns. Mortgage bonds have held steady, and global bond markets continue to
benefit from Asia's economic difficulties.
WHAT'S AHEAD
The combination of moderate economic growth and no significant inflation is
likely to keep short-term interest rates unchanged for the period ahead.
Although it would be imprudent to expect the stock market to continue to
generate double-digit gains, a more modest, positive trend seems likely. With
inflation and government spending under control, bond markets are well
positioned to reap any gains that could accrue from any future interest rate
cut. In fact, the possibility that the U.S. could have its first federal budget
surplus could provide the downward pressure on rates that would be necessary to
lift the bond market.
As always, it makes sense for investors to put the market's short-term
performance in perspective. Maintain a diversified portfolio, and let your
long-term goals lead your investment decisions. Talk to your financial
professional if you have any questions or concerns about the markets. Thank
you for investing with State Street Research.
Sincerely,
/S/ Ralph F Verni
Ralph F. Verni
Chairman
March 31, 1998
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.
(1) The Standard & Poor's 500 Composite Index (S&P 500) is a market-value
weighted index composed of 500 widely held common stocks. The Lehman Brothers
Aggregate Bond Index is a market-value weighted index of fixed-rate debt issues,
including U.S. Treasury, agency, and corporate bond issues, and mortgage/backed
securities. The First Boston High Yield Index is a commonly used measure of
high- yield bond 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)+20.02% for Class B shares; +19.99% for Class C shares; +21.22% for Class S
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. "S" shares, offered without a sales charge, are available through
certain employee benefit plans and special programs.
(5)Performance reflects maximum 4.5% "A" share front-end sales charge or 5% "B"
share or 1% "C" share contingent deferred sales charges where applicable.
(6)Before November 1, 1997, Class C shares were designated Class D and Class S
shares were designated Class C.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended March 31, 1998)
- --------------------------------------------------------------------------------
TOTAL VALUE OF $10,000 INVESTED ON MARCH 31, 1988(2)
(Class A shares, at maximum applicable sales charge)
[Graphic Omitted]
High Income Fund
----------------
3/88 $ 9,550
3/89 10,730
3/90 10,010
3/91 10,230
3/92 13,190
3/93 15,650
3/94 17,930
3/95 18,260
3/96 20,600
3/97 22,720
3/98 27,492
SEC YIELD(6)
---------------------------------------------
Class A 6.18%
---------------------------------------------
Class B 5.46%
---------------------------------------------
Class C 5.46%
---------------------------------------------
Class S 6.41%
---------------------------------------------
SEC yield is based on the net investment
income produced for the 30 days ended March
31, 1998. A high yield could be indicative of
high risk bond holdings that have decreased
in price because of financial problems of the
issuers of the bonds.
- ----------------------------------------------------------------
SEC AVERAGE ANNUAL COMPOUND RATES OF RETURN (at
maximum applicable sales charge)(4)(5)(6)
- ----------------------------------------------------------------
10 YEARS 5 YEARS 1 YEAR
- ----------------------------------------------------------------
Class A +10.64% +10.90% +15.54%
- ----------------------------------------------------------------
Class B +10.71% +10.77% +15.02%
- ----------------------------------------------------------------
Class C +10.72% +11.05% +18.99%
- ----------------------------------------------------------------
Class S +11.24% +12.10% +21.22%
- ----------------------------------------------------------------
<PAGE>
PORTFOLIO MANAGER'S REVIEW
High Income Fund: The economy and strong demand favored high-yield bonds
[Photo of Bartlett R. Geer]
Bartlett R. Geer
Portfolio Manager
We spoke with Bart Geer, portfolio manager of State Street Research High Income
Fund, about the year ended March 31, 1998 and his outlook on the period ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: It was a good year for the Fund. Class A shares gained 20.98%, [without sales
charge](3) for the 12 months ended March 31, 1998. That was significantly higher
than the average high current yield fund, which gained 16.94%, according to
Lipper Analytical Services. Over the same period, the Fund also outperformed the
First Boston High Yield Index, which rose 14.33% and the Lehman Brothers
Aggregate Bond Index, a measure of a mix of government and corporate bonds,
which rose 11.99%.(1)
Q: WHAT ACCOUNTED FOR THIS STRONG PERFORMANCE?
A: The economic environment was positive for high-yield bonds. Economic growth
was moderate and interest rates declined. For the 12-month period, high-yield
bonds outperformed investment-grade bonds. Beyond the economic backdrop,
security selection was crucial to performance. We chose securities and
industries that did well.
Q: WHICH INDUSTRIES OFFERED THE BEST OPPORTUNITIES?
A: At 22% of assets, technology/communications accounted for the Fund's largest
industry bond concentration. The industry has been an area of emphasis for us
for the past three years. In the past 12 months, these securities became
increasingly popular with investors, and the influx of investment dollars into
some of the companies in the portfolio improved their credit quality.
Q: WHY WERE TECHNOLOGY/TELECOMMUNICATIONS SECURITIES POPULAR WITH INVESTORS?
A: Two key events have created opportunity in the telecommunications area: the
breakup of AT&T in 1983 and passage of the Telecommunications Act of 1996, which
deregulated the industry. Deregulation has opened all markets, including local
phone service, to new competitors. In addition, new technologies and the
availability of large blocks of frequencies have accelerated the development of
wireless communications. Simultaneously, demand for voice, data, wire and
wireless communications has increased.
Q: WHAT OTHER INDUSTRIES WERE ATTRACTIVE?
A: Radio and television companies accounted for the third largest industry
concentration of bond portfolio assets. This area is similar to
telecommunications in that there is a proliferation of new delivery systems --
cable, wireless, direct broadcast satellite. In addition, a strong business
environment boosted advertising revenues to many broadcasters. Broadcasters are
also benefiting from new sources of these revenues. For example, until recently
pharmaceutical companies were not allowed to advertise on radio and television.
Now they can market their products directly to consumers through radio and
television commercials. Also, new federal regulations on ownership rules have
allowed meaningful consolidation in this area.
Q: WHAT OTHER FACTORS HELPED PERFORMANCE?
A: The stock market's strong performance also helped the Fund. Here's why: A
number of the companies represented in the portfolio saw the favorable stock
market environment as an opportunity to issue stock -- a cheap source of new
capital. With new money on their balance sheets, there was less financial risk
and the prices of their bonds rose. What's more, the Fund also benefited on the
equity side by converting warrants that came along with some of these same bonds
into common stock.
Q: DID YOU MAKE ANY SIGNIFICANT CHANGES IN THE PORTFOLIO?
A: While we made no sweeping changes, we have taken steps to increase the
quality of the portfolio going forward. Most of the bonds in the portfolio have
"B" or "B-" ratings. We continued to slowly decrease the number of "B-" and
"CCC" rated bonds throughout the 12-month period and increased our investment in
bonds rated B+ and higher.
We also favored companies and industries that we believe should perform in a
changing economic environment. We've had a long period of strong economic growth
and full employment. Should these conditions change, we want to be invested
primarily in companies that should continue to do well in a slower growing
economy. We also reduced our oil company bonds, because they had performed well,
and their prices had risen to a level where we believed they were overvalued.
Q: WHAT IS YOUR OUTLOOK?
A: For the prior 12-month period, the economic environment for high-yield bonds
was ideal. While we expect the environment to remain positive, we believe there
is a need for vigilance. We've experienced a long period of strong economic
growth and full employment, but the economy and the financial markets don't move
in one direction indefinitely. That is why we have taken incremental steps to
manage risk in the future.
March 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[Graphic Omitted]
ASSET ALLOCATION*
(by percentage of net assets)
Convertibles 13%
CCC 3%
Cash 3%
Common stocks 7%
BB 5%
Preferred stocks 2%
B 67%
Quality ratings based on those provided by Standard &
Poor's Corp. and/or equivalent ratings by Moody's
Investors Services, Inc. *14% of the above bonds were
unrated and included among relevant rating categories as
determined by the Fund's manager.
5 LARGEST INDUSTRY BOND POSITIONS
(by percentage of net assets)
TECHNOLOGY AND COMMUNICATIONS 21.9%
CONSUMER GOODS 12.3%
MEDIA 7.5%
SHIPPING 5.2%
OIL SERVICE 4.1%
Total 51.0%
<PAGE>
<TABLE>
STATE STREET RESEARCH HIGH INCOME FUND
- -------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
March 31, 1998
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -------------------------------------------------------------------------------------------------------------
BONDS 75.2%
AEROSPACE/DEFENSE 0.5%
<S> <C> <C> <C>
L-3 Communications Corp. Sr. Sub. Note, 10.375% .. $ 2,625,000 5/01/2007 $2,907,188
Tracor Inc. Sr. Sub. Deb., 8.50% ................. 3,000,000 3/01/2007 3,101,250
----------
6,008,438
----------
AIRLINES 0.2%
Kitty Hawk Inc. Sr. Sec. Note, 9.95%+ . 2,500,000 11/15/2004 2,581,250
----------
CABLE TELEVISION 1.1%
American Telecasting Inc. Sr. Note, 0.00% to
6/14/99, 14.50% from 6/15/99 to maturity ....... 17,785,372 6/15/2004 3,734,928
American Telecasting Inc. Sr. Note Series B, 0.00%
to 8/14/2000, 14.50% from 8/15/2000 to maturity. 2,265,000 8/15/2005 453,000
Falcon Holding Group L.P. Sr. Deb., 8.375%+ ...... 8,500,000 4/15/2010 8,477,220
----------
12,665,148
----------
CAPITAL GOODS/EQUIPMENT 2.2%
Alvey Systems Inc. Sr. Sub. Note, 11.375% ........ 5,625,000 1/31/2003 6,046,875
Columbus McKinnon Corp. Sr. Sub. Note, 8.50%+ .... 3,000,000 4/01/2008 3,015,000
Elgar Holdings Inc. Sr. Note, 9.875%+ . 3,750,000 2/01/2008 3,787,500
International Knife & Saw Inc. Sr. Sub. Note,
11.375% ........................................ 3,650,000 11/15/2006 4,005,875
Tokheim Corp. Sr. Sub. Note Series B, 11.50% ..... 6,875,000 8/01/2006 7,665,625
----------
24,520,875
----------
CHEMICALS/FERTILIZERS 0.2%
American Pacific Corp. Sr. Sub. Note, 9.25%+ ..... 2,750,000 3/01/2005 2,832,500
----------
CONGLOMERATE 3.8%
Amphenol Corp. Sr. Sub. Note, 9.875% ............. 1,000,000 5/15/2007 1,070,000
Axia Inc. Sr. Sub. Note Series B, 11.00% ......... 394,000 3/15/2001 401,092
Elgin National Industries Inc. Sr. Note, 11.00%+ . 2,700,000 11/01/2007 2,868,750
ICF International Inc. Sr. Sub. Note, 13.00% ..... 9,500,000 12/31/2003 9,880,000
International Utility Structures Inc. Sr. Sub.
Note, 10.75%+ .................................. 2,500,000 2/01/2008 2,593,750
J.B. Poindexter Inc. Sr. Note, 12.50% ............ 8,250,000 5/15/2004 8,250,000
Numatics Inc. Sr. Sub. Note, 9.625%+ . 3,300,000 4/01/2008 3,378,375
Owens-Illinois Inc. Sr. Note, 8.10% .............. 10,000,000 5/15/2007 10,616,100
Purina Mills Inc. Sr. Sub. Note, 9.00%+ . 2,500,000 3/15/2010 2,581,250
----------
41,639,317
----------
CONSUMER GOODS & SERVICES 12.3%
Anchor Advanced Products Inc. Sr. Note Series B,
11.75% ......................................... 3,000,000 4/01/2004 3,285,000
Drypers Corp. Series B Sr. Note, 10.25% .......... 9,250,000 6/15/2007 9,643,125
Empire Gas Corp. Sr. Sec. Note, 7.00% to 7/14/99,
12.875% from 7/15/99 to maturity ............... 16,100,000 7/15/2004 13,966,750
Intertek Finance PLC Series B Sr. Sub. Note,
10.25% ......................................... 17,900,000 11/01/2006 18,974,000
Krystal Co. Sr. Note, 10.25% ..................... 7,250,000 10/01/2007 7,540,000
La Petite Holdings Corp. Sr. Sec. Note, 9.625% ... 10,750,000 8/01/2001 11,018,750
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 9,210,400
North Atlantic Trading Inc. Sr. Note, 11.00% ..... 12,500,000 6/15/2004 12,968,750
Pagemart Nationwide Inc. Sr. Exch. Note, 0.00% to
1/31/2000, 15.00% from 2/1/2000 to maturity .... 25,275,000 2/01/2005 22,494,750
Real Time Data Inc. Sub. Note, 0.00% to 8/14/2001,
13.50% from 8/15/2001 to maturity+ ............. 25,250,000 8/15/2006 13,887,500
Rose Hills Co. Sr. Sub. Note, 9.50% .............. 4,750,000 11/15/2004 4,963,750
Shop Vac Corp. Sr. Sec. Note, 10.625% ............ 7,500,000 9/01/2003 8,175,000
-----------
136,127,775
-----------
COSMETICS 0.8%
French Fragrances Inc. Sr. Note Series B, 10.375% 8,250,000 5/15/2007 8,786,250
-----------
ENTERTAINMENT/LEISURE 0.4%
SFX Entertainment Inc. Sr. Sub. Note, 9.125%+ .... 4,000,000 2/01/2008 3,960,000
-----------
FOOD & BEVERAGE 2.1%
Archibald Candy Corp. Sr. Sec. Note, 10.25% ...... 17,000,000 7/01/2004 18,147,500
Silgan Holdings Inc. Sub. Deb., 13.25% ........... 1,123,000 7/15/2006 1,274,605
Tom's Foods Inc. Sr. Sec. Note, 10.50%+ .......... 3,750,000 11/01/2004 3,787,500
-----------
23,209,605
-----------
GAMING & LODGING 0.6%
Ameristar Casinos Inc. Sr. Sub. Note, 10.50% ..... 6,750,000 8/01/2004 7,222,500
-----------
GROCERY 0.6%
Pathmark Stores Inc. Sub. Note, 11.625% 3,250,000 6/15/2002 3,201,250
Safeway Inc. Lease Certificate, 13.50% ........... 90,123 1/15/2009 135,185
Star Market Inc. Sr. Sub. Note, 13.00% ........... 2,500,000 11/01/2004 2,850,000
Victory Markets Inc. Sub. Deb., 12.50%[ ] ........ 925,000 3/15/2000 46,250
-----------
6,232,685
-----------
HOSPITAL/HEALTH CARE 2.0%
Dade International Inc. Sr. Sub. Note, 11.125% ... 4,000,000 5/01/2006 4,470,000
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% ..... 8,500,000 12/15/2006 9,520,000
Unilab Corp. Sr. Note, 11.00% .................... 7,400,000 4/01/2006 7,807,000
----------
21,797,000
----------
HOTEL & RESTAURANT 0.2%
Extended Stay America Inc. Sr. Sub. Note, 9.15%+ . 2,000,000 3/15/2008 2,005,000
----------
MEDIA 7.5%
Allbritton Communications Co. Sr. Sub. Deb., 9.75% 9,345,000 11/30/2007 9,835,612
Benedek Broadcasting Corp. Sr. Note, 11.875% ..... 6,250,000 3/01/2005 7,046,875
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 13,200,000
Busse Broadcasting Corp. Sr. Sec. Note, 11.625% .. 4,000,000 10/15/2000 4,315,000
CapStar Broadcasting Partners Sr. Note, 0.00% to
1/31/2002, 12.75% from 2/1/2002 to maturity .... 15,750,000 2/01/2009 11,891,250
CD Radio Inc. Sr. Note, 0.00% to
11/30/2002, 15.00% from 12/1/2002 to maturity .. 750,000 12/01/2007 405,000
Intermedia Capital Partners LP Sr. Note, 11.25% .. 6,250,000 8/01/2006 7,031,250
K-III Communications Corp. Sr. Note, 8.50% ....... 950,000 2/01/2006 973,750
Primedia Inc. Sr. Note, 7.625%+ .................. 8,250,000 4/01/2008 8,105,625
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 15,237,500
Telemundo Group Inc. Sr. Note, 7.00% to 2/14/99,
10.50% from 2/15/99 to maturity ................ 4,250,000 2/15/2006 4,515,625
----------
82,557,487
----------
METALS/MINING/STEEL 3.3%
Crown Resources Corp. Cv. Sub. Deb., 5.75% ....... 220,000 8/27/2001 171,600
Envirosource Inc. Note, 9.75% .................... 19,000,000 6/15/2003 19,427,500
Envirosource Inc. Sr. Note Series B, 9.75%+ ...... 3,250,000 6/15/2003 3,315,000
GS Technologies Operating Inc. Sr. Note, 12.00% .. 5,250,000 9/01/2004 5,840,625
Johnstown America Industries Inc. Sr. Sub. Note
Series C, 11.75% ............................... 4,875,000 8/15/2005 5,460,000
Kaiser Aluminum & Chemical Corp. Sr. Sub. Note,
12.75% ......................................... 2,500,000 2/01/2003 2,665,625
----------
36,880,350
----------
OIL & GAS 0.9%
Moran Energy Inc. Cv. Deb., 8.75% ................ 2,420,000 1/15/2008 2,401,850
Wainoco Oil Corp. Sr. Note, 9.125%+ .............. 7,250,000 2/15/2006 7,213,750
----------
9,615,600
----------
OIL SERVICE 4.1%
Newpark Resources Inc. Sr. Sub. Note, 8.625%+ .... 3,300,000 12/15/2007 3,374,250
Pool Energy Services Co. Sr. Sub. Note, 8.625%+ .. 6,400,000 4/01/2008 6,432,000
Transamerican Energy Corp. Sr. Sec. Note Series B,
0.00% to 6/14/2000, 13.00% from 6/15/2000 to
maturity ....................................... 21,750,000 6/15/2002 18,270,000
Transamerican Energy Corp. Sr. Sec. Note Series B,
11.50% ......................................... 17,500,000 6/15/2002 17,325,000
----------
45,401,250
----------
PAPER PRODUCTS 0.1%
Bear Island Paper Co. LLC Sr. Sec. Note Series B,
10.00% ......................................... $ 1,000,000 12/01/2007 1,033,750
Crown Packaging Enterprise Ltd. Sr. Sec. Note,
0.00% to 7/31/2003, 14.00% from 8/1/2003 to
maturity ....................................... 9,000,000 8/01/2006 450,000
----------
1,483,750
----------
PRINTING & PUBLISHING 2.0%
American Lawyer Media Holdings, Inc. Sr. Note,
0.00% to 12/14/2002, 12.50% from 12/15/2002 to
maturity+ 2,650,000 12/15/2008 1,689,375
American Lawyer Media Holdings, Inc. Sr. Sub.
Note, 9.75%+ ................................... 9,350,000 12/15/2007 9,794,125
Sun Media Corp. Sr. Sub. Note, 9.50% ............. 3,555,000 2/15/2007 3,839,400
Sun Media Corp. Sr. Sub. Note, 9.50% ............. 3,315,000 5/15/2007 3,563,625
Transwestern Holdings L.P. Sr. Note, 0.00% to 11/
14/2002, 11.875% from 11/15/2002 to maturity+ .. 1,700,000 11/15/2008 1,168,750
Transwestern Publishing Co. L.P. Sr. Sub. Note,
9.625%+ ........................................ 1,750,000 11/15/2007 1,850,625
----------
21,905,900
----------
PLASTICS 1.7%
Packaging Resources Inc. Sr. Sec. Note, 11.625% .. 12,250,000 5/01/2003 12,005,000
Tekni-Plex Inc. Series B Sr. Sub. Note, 11.25% ... 6,250,000 4/01/2007 7,015,625
----------
19,020,625
----------
RETAIL TRADE 1.5%
J Crew Operating Corp. Sr. Sub. Note, 10.375%+ ... 4,000,000 10/15/2007 3,760,000
Loehmanns Inc. Sr. Note, 11.875% ................. 6,160,000 5/15/2003 5,759,600
NBTY Inc. Sr. Sub. Note Series B, 8.625% ......... 1,900,000 9/15/2007 1,947,500
Phar-Mor, Inc. Note, 11.72% ...................... 4,564,000 9/11/2002 4,883,480
----------
16,350,580
----------
SHIPPING/TRANSPORTATION 5.2%
CHC Helicopter Corp. Sr. Sub. Note, 11.50% ....... 12,914,000 7/15/2002 13,753,410
First Wave Marine Inc. Sr. Note, 11.00% .......... 2,500,000 2/01/2008 2,618,750
Golden Ocean Group Ltd. Sr. Note, 10.00%+ ........ 9,750,000 8/31/2001 7,800,000
International Shipholding Corp. Sr. Note, 7.75%+ . 6,650,000 10/15/2007 6,533,625
International Shipholding Corp. Sr. Note, 9.00% .. 4,500,000 7/01/2003 4,618,125
Johnstown America Industries Inc. Sr. Sub. Note,
11.75% ......................................... 5,250,000 8/15/2005 5,880,000
Pegasus Shipping Hellas Ltd. Sr. Note, 11.875%+ .. 3,500,000 11/15/2004 3,482,500
Sea Containers Ltd. Sr. Note,
7.875%+ ........................................ 7,500,000 2/15/2008 7,387,500
Stena AB Sr. Note, 8.75% ......................... 5,250,000 6/15/2007 5,407,500
----------
57,481,410
----------
TECHNOLOGY/COMMUNICATIONS 21.9%
Advanced Radio Telecom Corp. Sr. Note, 14.00% .... 2,200,000 2/15/2007 2,376,000
Argo Tech Corp. Sr. Sub. Note, 8.625% ............ 3,000,000 10/01/2007 3,075,000
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 5,955,250
Cellnet Data Systems Inc. Sr. Note Series B, 0.00%
to 9/30/2002, 14.00% from 10/1/2002 to maturity 5,000,000 10/01/2007 2,650,000
Clearnet Communications Inc. Sr. Note, 0.00% to
12/14/2000, 14.75% from 12/15/2000 to maturity . 12,850,000 12/15/2005 10,601,250
Concentric Network Corp. Sr. Note, 12.75%+ ....... 1,500,000 12/15/2007 1,758,750
Dobson Communications Corp. Sr. Note, 11.75% ..... 4,100,000 4/15/2007 4,510,000
Econophone Inc. Sr. Note, 0.00% to 2/14/2003,
11.00% from 2/15/2003 to maturity+ ............. 5,850,000 2/15/2008 3,363,750
Econophone Inc. Sr. Note, 13.50% ................. 18,750,000 7/15/2007 21,562,500
ICG Holdings Inc. Sr. Note, 0.00% to
9/14/2000, 13.50% from 9/15/2000 to maturity ... 17,850,000 9/15/2005 15,217,125
ICG Services Inc. Sr. Note, 0.00% to
2/14/2003, 10.00% from 2/15/2003 to maturity+ .. 7,250,000 2/15/2008 4,658,125
Ionica PLC Sr. Note, 13.50% ...................... 10,250,000 8/15/2006 8,405,000
ITC Deltacom Inc. Sr. Note, 8.875%+ .............. 3,000,000 3/01/2008 3,090,000
Microcell Telecommunications Sr. Note Series B,
0.00% to 11/30/2001, 14.00% from 12/1/2001 to
maturity ....................................... 4,750,000 6/01/2006 3,526,875
Microcell Telecommunications, Inc. Sr. Note Series
B, 0.00% to 10/14/2002, 11.125% from 10/15/2002
to maturity .................................... 23,250,000 10/15/2007 10,420,122
Mobile Telecommunication Technology, Inc. Sr. Sub.
Note, 13.50% ................................... 4,500,000 12/15/2002 5,298,750
Nextel Communications Inc. Sr. Note, 0.00% to
2/14/2003, 9.95% from 2/15/2003 to maturity+ ... 4,500,000 2/15/2008 2,868,750
Orion Network Systems Inc. Sr. Note, 11.25% ...... 10,000,000 1/15/2007 11,600,000
Pagemart Wireless Inc. Sr. Sub. Note, 0.00% to
1/31/2003, 11.25% from 2/1/2003 to maturity+ ... 2,500,000 2/01/2008 1,543,750
Paging Network Do Brasil SA Sr. Note, 13.50% ..... 750,000 6/06/2005 759,375
Phase Metrics Inc. Sr. Note, 10.75%+ ............. 10,750,000 2/01/2005 10,750,000
Primus Telecommunications Group Sr. Note, 11.75% . 8,750,000 8/01/2004 10,018,750
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 6,810,000
RSL Communications Ltd. Sr. Note, 12.25% ......... 12,639,000 11/15/2006 14,408,460
Sitel Corp. Sr. Sub. Note, 9.25%+ ................ 6,250,000 3/15/2006 6,406,250
Trump Atlantic City Associates First Mortgage
Note, 11.25% ................................... 3,550,000 5/01/2006 3,647,625
U.S.A. Mobile Communications Inc. Sr. Note, 14.00% 21,250,000 11/01/2004 23,587,500
Viatel Inc. Sr. Note, 0.00% to 1/14/2000, 15.00%
from 1/15/2000 to maturity ..................... 8,690,000 1/15/2005 8,516,200
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 9,787,500
Winstar Equipment Corp. Sr. Sec. Exch. Note,
12.50% ......................................... 16,500,000 3/15/2004 18,892,500
Wireless One Inc. Sr. Note, 13.00% ............... 10,600,000 10/15/2003 2,968,000
Wireless One Inc. Sr. Note, 0.00% to 7/31/2001,
13.50% from 8/1/2001 to maturity ............... 26,750,000 8/01/2006 3,210,000
-----------
242,243,157
-----------
Total Bonds (Cost $825,749,518) ......................................................... 832,528,452
-----------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 14.8%
BANK 0.2%
<S> <C> <C>
Riverbank America Pfd.* ..................................... 110,000 2,640,000
----------
BUSINESS SERVICE 1.5%
La Petite Academy Inc. Cl. A Exch. Pfd.* .................... 361,000 16,606,000
----------
CHEMICAL 0.0%
KTI Inc. Cv. Exch. Pfd.+ .................................... 10,000 397,500
----------
ELECTRONIC COMPONENTS 1.1%
Nextel Communications Inc. Series D Exch. Pfd. # ............ 10,371 2,038,138
----------
FOREST PRODUCT 0.2%
Equitable Bag Inc. Series A Pfd.* ........................... 134,760 12,021,400
----------
HOTEL & RESTAURANT 0.6%
Ameriking Inc. Sr. Exch. Pfd.*# ............................. 223,961 6,046,947
---------
MEDIA 2.8%
American Radio Systems Corp. Series B Exch. Pfd.#............ 13,160 1,552,880
Benedek Communications Corp. Sr. Exch. Pfd.+# ............... 55,000 8,112,500
Granite Broadcasting Corp. Cv. Exch. Pfd. ................... 114,700 6,523,562
Granite Broadcasting Corp. Exch. Pfd.# ...................... 12,904 14,710,560
---------
30,899,502
---------
NATURAL GAS 0.2%
International Utility Structures Inc. Exch. Pfd.+# .......... 1,750 1,833,125
---------
OIL 0.9%
Clark U.S.A. Inc. Sr. Exch. Pfd. # .......................... 9,224 10,169,460
---------
HOSPITAL SUPPLY 0.3%
Laboratory Corp. of America Exch. Pfd. Series A * ........... 74,500 3,566,688
---------
PERSONAL CARE 0.0%
Renaissance Cosmetics Inc. Series C Sr. Pfd.* ............... 1,231 123,100
---------
PRINTING & PUBLISHING 4.3%
Hollinger International, Inc. Cv. Pfd. ...................... 2,252,000 32,231,750
Primedia Inc. Exch. Pfd. Series D ........................... 80,000 8,500,000
Primedia Inc. Exch. Pfd. Series F ........................... 64,500 6,611,250
---------
47,343,000
----------
RETAIL TRADE 1.5%
North Atlantic Trading Inc. Sr. Pfd.*# ...................... 173,803 4,736,132
Supermarkets General Holdings Corp. Exch. Pfd.# ............. 568,540 11,939,340
----------
16,675,472
----------
TELEPHONE 1.0%
ICG Holdings Inc. Exch. Pfd.* ............................... 8,688 10,686,240
----------
TOBACCO 0.2%
DECS Trust Exch. Pfd. ....................................... 148,000 2,590,000
-----------
Total Preferred Stocks (Cost $149,516,548) .................. 163,636,572
-----------
COMMON STOCKS & OTHER 7.0%
Advanced Radio Telecom Corp. Wts.* .......................... 52,500 1,124,550
American Communications Services, Inc. Wts.*+ ............... 9,500 1,520,000
American Telecasting Inc. Wts.* ............................. 41,130 41,130
Ameriking Inc. Com.*+ ....................................... 4,775 238,750
Anacomp Inc. Com.* .......................................... 873,507 13,320,982
Anacomp Inc. Wts.* .......................................... 25,940 184,012
Axia Holding Corp. Com.*(+) ................................. 2,250 227,250
Bar Technologies Inc. Wts.*+ ................................ 4,250 255,000
Belle Casinos Inc. Wts.*+ ................................... 1,400 14
Boomtown Inc. Wts.*+ ........................................ 7,250 7
Celcaribe SA Trust Certificates *+ .......................... 944,706 3,778,824
Central Rents Inc. Com.*+ ................................... 5,250 288,750
Chatwins Group Inc. Wts.*+ .................................. 7,000 7,000
CHC Helicopter Corp. Wts.*(+) ............................... 46,000 138,000
CHI Energy Inc. Cl. B Wts.* ................................. 5,052 50
CHI Energy Inc. Cl. C Wts.* ................................. 3,279 33
Clearnet Communications Inc. Wts.* .......................... 78,705 826,402
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 10,375
Dr Pepper Bottling Holdings Inc. Cl. A Com.* ................ 50,000 1,400,000
Econophone Inc. Wts.*+ ...................................... 14,750 590,000
Empire Gas Corp. Wts.*(+) ................................... 2,760 2,760
Equitable Bag Inc. Com.* .................................... 1,347,600 539,040
Fitzgeralds South Inc. Wts.*(+) ............................. 3,750 37,500
Fred Meyer Inc. Com.* ....................................... 197,230 9,109,563
Golden Ocean Group Ltd. Com.*+ .............................. 5,500 27,500
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.*(+) ............ 37,500 375
ICF Kaiser International Inc. Wts. * ........................ 49,200 24,600
Indspec Chemical Corp. Wts.*(+)@ ............................ 506 1,098,875
Insight Communications L.P. Unit *(+) ....................... 105,500 105,500
Intelcom Group, Inc. Wts.*(+) ............................... 21,450 536,250
Intermedia Communications Inc. Wts.*+ ....................... 1,500 241,500
Ionica PLC Wts.*+ ........................................... 9,500 950,000
Jewel Recovery L.P. Units *(+) .............................. 82,595 826
Ladish Inc. Com.*(+) ........................................ 86,667 1,332,500
Ladish Inc. Wts.*(+) ........................................ 150,946 2,139,657
Lyondell Petrochemical Co. Com. ............................. 550,000 18,734,375
Mail-Well Holdings, Inc. Com.*(+) ........................... 21,307 807,003
Motels of America Inc. Com.*+ ............................... 5,500 55,000
Nextel Communications Inc. Cl. A Com.* ...................... 41,442 1,398,668
Nextel Communications Inc. Wts.* ............................ 1,250 3,613
NS Group Inc. Wts.*+ ........................................ 13,250 1,987,500
Orion Network Systems Inc. Wts.*+ ........................... 14,500 174,000
Pagemart Inc. Wts.*+ ........................................ 21,850 163,875
Pagemart Nationwide Inc. Com.*+ ............................. 18,375 158,484
Paging Brazil Holdings Co. LLC Cl. B Com.*+ ................. 750 8
Pegasus Communications Corp. Cl. A Com.*+ ................... 8,461 194,603
Powertel Inc. Wts.* ......................................... 8,480 89,040
Primus Telecommunications Group Wts.*+ ...................... 6,500 19,500
Protection One Inc. Wts.*+ .................................. 10,400 140,400
Renaissance Cosmetics Inc. Wts.*+ ........................... 3,000 2,010
RSL Communications Ltd. Wts.*+ .............................. 13,500 1,215,000
Sabreliner Corp. Wts.*+ ..................................... 1,750 17,500
Seven-Up/RC Bottling Co. of
Southern California Com.* ................................. 472,500 5,670,000
Sheffield Steel Corp. Com.*+ ................................ 38,750 116,250
Tom Brown, Inc. Com.* ....................................... 180,000 4,027,500
Town & Country Corp. Cl. A Com.*+ ........................... 195,632 12,227
Vestar/LPA Investment Corp. Com. *+ ......................... 14,250 199,500
Viatel Inc. Com.* ........................................... 108,300 1,489,125
Waxman Industries Inc. Wts.*+ ............................... 236,000 590,000
Wireless One Inc. Wts.*+ .................................... 16,500 165
Wireless One Inc. Wts.* ..................................... 27,250 1,363
----------
Total Common Stocks & Other (Cost $45,124,272) .............. 77,449,242
----------
SHORT-TERM INVESTMENTS 4.5%
Navigator Securities Lending Prime Portfolio ................ 49,602,170 49,602,170
----------
Total Short-Term Investments (Cost $49,602,170) ............. 49,602,170
----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY
AMOUNT DATE
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 0.8%
<S> <C> <C> <C>
Ford Motor Credit Co., 5.62% .................... $6,902,000 4/01/1998 6,902,000
Merrill Lynch & Co. Inc., 5.85% ................. 2,149,000 4/03/1998 2,148,302
--------------
Total Commercial Paper (Cost $9,050,302) ............................................... 9,050,302
--------------
REPURCHASE AGREEMENTS 0.3%
State Street Bank and Trust Co., dated 3/31/98,
4.25%, repurchase proceeds $3,619,427,
collateralized by $3,655,000 U.S. Treasury
Note, 6.00%, due 5/31/98, market value
$3,731,897 .................................... 3,619,000 4/01/1998 3,619,000
---------------
Total Repurchase Agreements (Cost $3,619,000) .......................................... 3,619,000
---------------
Total Investments (Cost $1,082,661,810) - 102.6% ....................................... 1,135,885,738
Cash and Other Assets, Less Liabilities - (2.6%) ....................................... (28,938,411)
---------------
Net Assets - 100.0% .................................................................... $1,106,947,327
==============
Federal Income Tax Information (Note 1):
At March 31, 1998, the net unrealized appreciation of
investments based on cost for Federal income tax purposes
of $1,082,752,776 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........... $ 113,349,339
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ......... (60,216,377)
--------------
$ 53,132,962
==============
</TABLE>
* 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, 1998, 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,
1988 were $3,069,732 and $6,499,754 (0.59% of net assets), respectively.
+ Security restricted in accordance with Rule 144A under the Securities Act
of 1933, which allows for the resale of such secur ities among certain
qualified institutional buyers. The total cost and market value of Rule
144A securities owned at March 31, 199 8 were $184,880,691 and
$195,186,462 (17.63% of net assets), respectively.
Forward currency exchange contracts outstanding at March 31, 1998, are as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT APPRECIATION DELIVERY
TOTAL VALUE PRICE (DEPRECIATION) DATE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sell Canadian dollars, Buy U.S. dollars 5,900,000 CAD 0.70388 CAD $(13,608) 4/23/98
Sell Canadian dollars, Buy U.S. dollars 7,950,000 CAD 0.69575 CAD (82,964) 4/23/98
--------
$(96,572)
========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------------------
March 31, 1998
ASSETS
<S> <C>
Investments, at value (Cost $1,082,661,810) (Note 1) $1,135,885,738
Cash .................................................................. 550
Receivable for securities sold ........................................ 25,009,620
Interest and dividends receivable ..................................... 19,531,452
Receivable for fund shares sold ....................................... 2,120,571
Other assets .......................................................... 42,064
--------------
1,182,589,995
LIABILITIES
Payable for collateral received on securities loaned 49,602,170
Payable for securities purchased ...................................... 20,234,615
Dividends payable ..................................................... 3,066,601
Payable for fund shares redeemed ...................................... 926,864
Accrued management fee (Note 2) ....................................... 601,873
Accrued distribution and service fees (Note 4) ........................ 446,852
Accrued transfer agent and shareholder services
(Note 2) ............................................................ 395,992
Payable for open forward contracts .................................... 96,572
Accrued trustees' fees (Note 2) ....................................... 20,849
Other accrued expenses ................................................ 250,280
--------------
75,642,668
--------------
NET ASSETS $1,106,947,327
==============
Net Assets consist of:
Undistributed net investment income ................................. $ 2,927,957
Unrealized appreciation of investments .............................. 53,223,928
Unrealized depreciation of forward contracts ........................ (96,572)
Accumulated net realized gain ....................................... 11,432,291
Paid-in capital ..................................................... 1,039,459,723
--------------
$1,106,947,327
==============
Net Asset Value and redemption price per share of
Class A shares ($718,705,462 / 108,622,224 shares) .................. $6.62
=====
Maximum Offering Price per share of Class A shares ($6.62 / .955) ..... $6.93
=====
Net Asset Value and offering price per share of Class
B shares ($345,796,702 / 52,518,757 shares)* ........................ $6.58
=====
Net Asset Value and offering price per share of Class
C shares ($34,585,642 / 5,248,228 shares)* .......................... $6.59
=====
Net Asset Value, offering price and redemption price
per share of Class S shares ($7,859,521 /
1,194,458 shares) ................................................... $6.58
=====
- --------------------------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net
asset value less any applicable contingent deferred sales charge.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------------------
For the year ended March 31, 1998
INVESTMENT INCOME
<S> <C>
Interest (Note 1) ....................................................... $ 92,947,365
Dividends ............................................................... 11,487,180
------------
104,434,545
EXPENSES
Management fee (Note 2) ................................................. 6,649,051
Transfer agent and shareholder services (Note 2) ........................ 1,425,207
Service fee - Class A (Note 4) .......................................... 1,717,282
Distribution and service fees - Class B (Note 4) ........................ 2,974,244
Distribution and service fees - Class C (Note 4) ........................ 313,708
Custodian fee ........................................................... 237,186
Reports to shareholders ................................................. 209,197
Registration fees ....................................................... 85,251
Audit fee ............................................................... 44,743
Trustees' fees (Note 2) ................................................. 38,729
Legal fees .............................................................. 19,029
Miscellaneous ........................................................... 31,842
------------
13,745,469
------------
Net investment income ................................................... 90,689,076
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY AND FORWARD CONTRACTS
Net realized gain on investments (Notes 1 and 3) ........................ 37,778,193
Net realized loss on forward contracts and foreign
currency (Note 1) ..................................................... (7,455)
------------
Total net realized gain ............................................... 37,770,738
------------
Net unrealized appreciation of investments .............................. 64,000,857
Net unrealized depreciation of forward contracts ........................ (96,572)
------------
Total net unrealized appreciation ..................................... 63,904,285
------------
Net gain on investments, foreign currency and forward contracts ......... 101,675,023
------------
Net increase in net assets resulting from operations $192,364,099
============
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH HIGH INCOME FUND
- ------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED MARCH 31
--------------------------------------
1997 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ..................................... $ 86,554,756 $ 90,689,076
Net realized gain on investments,
foreign currency and forward
contracts ............................................... 5,358,925 37,770,738
Net unrealized appreciation
(depreciation) of investments and
forward contracts ................................... (6,463,064) 63,904,285
------------- --------------
Net increase resulting from operations 85,450,617 192,364,099
------------- --------------
Dividends from net investment income:
Class A ................................................. (58,427,483) (64,944,093)
Class B ................................................. (18,222,317) (26,096,802)
Class C ................................................. (1,682,938) (2,736,047)
Class S ................................................. (463,672) (661,138)
------------- --------------
(78,796,410) (94,438,080)
------------- --------------
Net increase from fund share
transactions (Note 5) ................................... 94,267,308 56,789,130
------------- --------------
Total increase in net assets .............................. 100,921,515 154,715,149
NET ASSETS
Beginning of year ......................................... 851,310,663 952,232,178
------------- --------------
End of year (including undistributed net investment income
of $6,713,699 and $2,927,957, respectively) ............. $ 952,232,178 $1,106,947,327
============= ==============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
March 31, 1998
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 presently 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. Before November 1, 1997, Class C
shares were designated Class D and Class S shares were designated Class C.
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 subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class C shares also pay annual distribution and service fees of 1.00%. Class S
shares are only offered through certain retirement accounts, advisory accounts
of State Street Research & Management Company (the "Adviser"), an indirect
wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), and special programs. No sales charge is imposed at the time
of purchase or redemption of Class S shares. Class S shares do not pay any
distribution or service fees. 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.
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 in 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 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.
E. 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.
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, 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.
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.
H. SECURITIES LENDING
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. At March 31, 1998, the value of the securities loaned and the value of
collateral were $48,574,052 and $49,602,170, respectively. During the year
ended March 31, 1998, income from securities lending amounted to $29,438 and
is included in interest income.
NOTE 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.65% 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, 1998, the fees
pursuant to such agreement amounted to $6,649,051.
State Street Research Service Center, 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, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the year ended March
31, 1998, the amount of such expenses was $312,377.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$38,729 during the year ended March 31, 1998.
NOTE 3
For the year ended March 31, 1998, purchases and sales of securities,
exclusive of short-term investments, aggregated $741,366,581 and $689,925,487,
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 C shares. In addition,
the Fund pays annual distribution fees of 0.75% of average daily net assets
for Class B and Class C 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, 1998, fees
pursuant to such plan amounted to $1,717,282, $2,974,244 and $313,708 for
Class A, Class B and Class C 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 $262,404 and $1,484,263, respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1998, and that MetLife Securities,
Inc. earned commissions aggregating $1,419,437 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$604,906 and $7,193 on redemptions of Class B and Class C shares,
respectively, during the same period.
NOTE 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Share transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------------------------------------------------------
1997 1998
------------------------------------ -----------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................ 15,602,119 $ 94,973,592 12,963,682 $ 82,425,854
Issued upon reinvestment of
dividends from net
investment income .......... 6,212,698 37,840,814 6,618,274 42,225,833
Shares repurchased ......... (20,888,291) (127,047,788) (20,544,433) (130,474,889)
----------- ------------- ----------- -------------
Net increase (decrease) .... 926,526 $ 5,766,618 (962,477) $ (5,823,202)
=========== ============= =========== =============
CLASS B SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
Shares sold ................ 15,907,481 $ 96,551,028 14,827,294 $ 93,945,959
Issued upon reinvestment of
dividends from net
investment income ........ 1,668,549 10,129,956 2,307,608 14,730,736
Shares repurchased ......... (5,605,180) (33,954,283) (7,925,211) (50,115,631)
----------- ------------- ---------- -------------
Net increase ............... 11,970,850 $ 72,726,701 9,209,691 $ 58,561,064
=========== ============= ========== =============
CLASS C (FORMERLY CLASS D) SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
Shares sold ................ 2,630,966 $ 16,046,241 2,027,089 $ 12,888,653
Issued upon reinvestment of
dividends from net
investment income .......... 163,926 998,823 284,960 1,810,521
Shares repurchased ......... (609,727) (3,694,815) (1,821,119) (11,592,323)
----------- ------------- ----------- -------------
Net increase ............... 2,185,165 $ 13,350,249 490,930 $ 3,106,851
=========== ============= =========== =============
CLASS S (FORMERLY CLASS C) SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
Shares sold ................ 733,872 $ 4,470,033 412,049 $ 2,620,376
Issued upon reinvestment of
dividends from net
investment income .......... 58,765 357,467 85,387 542,346
Shares repurchased ......... (394,609) (2,403,760) (349,262) (2,218,305)
----------- ------------- ----------- -------------
Net increase ............... 398,028 $ 2,423,740 148,174 $ 944,417
=========== ============= =========== =============
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH HIGH INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each year:
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
----------------------------------------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR($) 6.32 6.43 5.80 5.95 6.01
---- ---- ---- ---- ----
Net investment income ($) 0.66 0.61 0.52 0.59 0.58
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts
($) 0.22 (0.58) 0.20 (0.01) 0.63
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.88 0.03 0.72 0.58 1.21
---- ---- ---- ---- ----
Dividends from net investment
income ($) (0.62) (0.60) (0.56) (0.52) (0.60)
Distributions from net realized
gains ($) (0.15) (0.06) (0.01) -- --
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.77) (0.66) (0.57) (0.52) (0.60)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 6.43 5.80 5.95 6.01 6.62
==== ==== ==== ==== ====
Total return(3) (%) 14.58 1.80 12.85 10.30 20.98
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 650,755 618,462 646,473 658,413 718,705
Ratio of operating expenses to
average net assets (%) 1.16 1.23 1.17 1.10 1.10
Ratio of net investment income to
average net assets (%) 10.41 10.19 8.88 9.70 9.10
Portfolio turnover rate (%) 24.36 31.55 56.47 81.75 70.53
Average commission rate(6) ($) -- -- -- 0.0152 0.0075
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
------------------------------------------------------------------------------------------
1994(2) 1995(1) 1996(1) 1997(1) 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 6.34 6.42 5.79 5.93 5.98
---- ---- ---- ---- ----
Net investment income ($) 0.51 0.57 0.46 0.55 0.53
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts ($) 0.15 (0.58) 0.21 (0.02) 0.62
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.66 (0.01) 0.67 0.53 1.15
---- ---- ---- ---- ----
Dividends from net investment
income ($) (0.48) (0.56) (0.52) (0.48) (0.55)
Distributions from net realized
gains ($) (0.10) (0.06) (0.01) -- --
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.58) (0.62) (0.53) (0.48) (0.55)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 6.42 5.79 5.93 5.98 6.58
==== ==== ==== ==== ====
Total return(3) (%) 10.76(4) 0.89 12.06 9.35 20.02
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 67,337 117,767 185,735 259,077 345,797
Ratio of operating expenses to
average net assets (%) 1.93(5) 1.98 1.92 1.85 1.85
Ratio of net investment income to
average net assets (%) 10.32(5) 9.65 7.95 9.01 8.36
Portfolio turnover rate (%) 24.36 31.55 56.47 81.75 70.53
Average commission rate(6) ($) -- -- -- 0.0152 0.0075
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per-share figures have been calculated using the average shares method.
(2) June 1, 1993 (commencement of share class designations) to March 31,
1994.
(3) Does not reflect any front-end or contingent deferred sales charges.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid by the Fund for security trades on
which commissions are charged beginning with the fiscal year ended March
31, 1997.
<PAGE>
<TABLE>
<CAPTION>
Class C (Formerly Class D)
---------------------------------------------------------------------------------------
Years ended March 31
---------------------------------------------------------------------------------------
1994(2) 1995(1) 1996(1) 1997(1) 1998(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR($) 6.34 6.42 5.79 5.93 5.99
---- ---- ---- ---- ----
Net investment income ($) 0.51 0.58 0.46 0.54 0.53
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts ($) 0.15 (0.59) 0.21 (0.00) 0.62
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.66 (0.01) 0.67 0.54 1.15
---- ---- ---- ---- ----
Dividends from net investment
income ($) (0.48) (0.56) (0.52) (0.48) (0.55)
Distributions from net realized
gains ($) (0.10) (0.06) (0.01) -- --
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.58) (0.62) (0.53) (0.48) (0.55)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 6.42 5.79 5.93 5.99 6.59
==== ==== ==== ==== ====
Total return(3) (%) 10.74(4) 0.88 12.05 9.52 19.99
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 2,661 6,766 15,262 28,488 34,586
Ratio of operating expenses to
average net assets (%) 1.93(5) 1.98 1.92 1.85 1.85
Ratio of net investment income to
average net assets (%) 10.32(5) 9.81 7.91 9.09 8.35
Portfolio turnover rate (%) 24.36 31.55 56.47 81.75 70.53
Average commission rate(6) ($) -- -- -- 0.0152 0.0075
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class S (Formerly Class C)
------------------------------------------------------------------------------------------
Years ended March 31
------------------------------------------------------------------------------------------
1994(2) 1995(1) 1996(1) 1997(1) 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR($) 6.34 6.42 5.78 5.92 5.98
---- ---- ---- ---- ----
Net investment income ($) 0.57 0.64 0.53 0.61 0.59
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts
($) 0.14 (0.60) 0.20 (0.01) 0.63
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.71 0.04 0.73 0.60 1.22
---- ---- ---- ---- ----
Dividends from net investment
income ($) (0.53) (0.62) (0.58) (0.54) (0.62)
Distributions from net realized
gains ($) (0.10) (0.06) (0.01) -- --
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.63) (0.68) (0.59) (0.54) (0.62)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 6.42 5.78 5.92 5.98 6.58
==== ==== ==== ==== ====
Total return(3) (%) 11.67(4) 1.73 13.19 10.63 21.22
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 851 2,579 3,840 6,255 7,860
Ratio of operating expenses to
average net assets (%) 0.93(5) 0.98 0.92 0.85 0.85
Ratio of net investment income to
average net assets (%) 11.32(5) 10.85 8.97 10.04 9.36
Portfolio turnover rate (%) 24.36 31.55 56.47 81.75 70.53
Average commission rate(6) ($) -- -- -- 0.0152 0.0075
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per-share figures have been calculated using the average shares method.
(2) June 1, 1993 (commencement of share class designations) to March 31,
1994.
(3) Does not reflect any front-end or contingent deferred sales charges.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid by the Fund for security trades on
which commissions are charged beginning with the fiscal year ended March
31, 1997.
<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, 1998, 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, 1998 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 8, 1998
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
High Income Fund was among the top performers in its category for the 12-month
period ended March 31, 1998. The Fund's 20.98% return (without sales charge)
on Class A shares, outpaced most of the 199 high current yield funds tracked
by Lipper Analytical Services Inc. According to Lipper, the average high
current yield fund produced a 16.94% return. High Income Fund also
outperformed the First Boston High Yield Index, which rose 14.33% and the
Lehman Brothers Aggregate Bond Index, which rose 11.99%.
A positive economic environment for high-yield bonds and good security and
industry selection contributed to the Fund's successful year. Portfolio
strategy changed little over the 12 months. The Fund continued to invest the
largest portion of its assets in technology/communications, consumer goods and
broadcasting areas. These industries benefited from deregulation, new
technologies, and high product demand for voice, data, wire and wireless
communications. We reduced oil industry bonds from the portfolio, because
their prices had risen to a level at which we thought they were overvalued.
We began to upgrade the quality of the portfolio by adding higher-rated
securities. While we expect the environment to remain positive, we believe
there is a need for vigilance.
March 31, 1998
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% "C" share contingent deferred
sales charges, where applicable. "S" shares, offered without a sales charge,
are available through certain employee benefit plans and special programs. 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. The Lehman Brothers Aggregate Bond Index is a market-value
weighted index of fixed-rate debt issues, including U.S. Treasury, agency, and
corporate bond issues, and mortgage/backed securities. Direct investment in
the indices is not possible; results are for illustrative purposes only.
Before November 1, 1997, Class C shares were designated Class D, and Class S
shares were designated Class C.
<PAGE>
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
CLASS A SHARES
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
1 Year 5 Years 10 Years
- ------ ------- --------
+15.54% +10.90% +10.64%
High Income Fund S&P 500
- ---------------------------------------
3/88 $ 9,550 $10,000
3/89 10,730 10,940
3/90 10,010 10,520
3/91 10,260 11,980
3/92 13,190 15,720
3/93 15,650 18,130
3/94 17,930 19,940
3/95 18,260 20,900
3/96 20,600 23,930
3/97 22,720 26,730
3/98 27,492 30,555
CLASS B SHARES
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
1 Year 5 Years 10 Years
- ------ ------- --------
+15.02% +10.77% +10.71%
High Income Fund S&P 500
- ---------------------------------------
3/88 $10,000 $10,000
3/89 11,230 10,940
3/90 10,480 10,520
3/91 10,710 11,980
3/92 13,910 15,720
3/93 16,390 18,130
3/94 18,640 19,940
3/95 18,810 20,900
3/96 21,080 23,930
3/97 23,050 26,730
3/98 27,658 30,555
CLASS C SHARES
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
1 Year 5 Years 10 Years
- ------ ------- --------
+18.99% +11.05% +10.72%
High Income Fund S&P 500
- ---------------------------------------
3/88 $10,000 $10,000
3/89 11,230 10,940
3/90 10,480 10,520
3/91 10,710 11,980
3/92 13,810 15,720
3/93 16,390 18,130
3/94 18,640 19,940
3/95 18,800 20,900
3/96 21,070 23,930
3/97 23,070 26,730
3/98 27,681 30,555
CLASS S SHARES
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
1 Year 5 Years 10 Years
- ------ ------- --------
+21.22% +12.10% +11.24%
High Income Fund S&P 500
- ---------------------------------------
3/88 $10,000 $10,000
3/89 11,230 10,940
3/90 10,480 10,520
3/91 10,710 11,980
3/92 13,810 15,720
3/93 16,390 18,130
3/94 18,790 19,940
3/95 19,120 20,900
3/96 21,640 23,930
3/97 23,940 26,730
3/98 29,018 30,555
<PAGE>
<TABLE>
STATE STREET RESEARCH HIGH INCOME FUND
- ---------------------------------------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH INCOME TRUST
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
FUND INFORMATION OFFICERS TRUSTEES
<S> <C> <C>
STATE STREET RESEARCH RALPH F. VERNI RALPH F. VERNI
HIGH INCOME FUND Chairman of the Board, Chairman of the Board,
One Financial Center President and President, Chief Executive
Boston, MA 02111 Chief Executive Officer Officer and Director,
State Street Research &
INVESTMENT ADVISER PETER C. BENNETT Management Company
State Street Research & Vice President
Management Company
One Financial Center BARTLETT R. GEER STEVE A. GARBAN
Boston, MA 02111 Vice President Retired; formerly Senior Vice
President for Finance and
DISTRIBUTOR JOHN H. KALLIS Operations and Treasurer, The
State Street Research Vice President Pennsylvania State University
Investment Services, Inc.
One Financial Center THOMAS A. SHIVELY
Boston, MA 02111 Vice President MALCOLM T. HOPKINS
Former Vice Chairman of the
SHAREHOLDER SERVICES GERARD P. MAUS Board and Chief Financial
State Street Research Treasurer Officer, St. Regis Corp.
Service Center
P.O. Box 8408 JOSEPH W. CANAVAN
Boston, MA 02266-8408 Assistant Treasurer EDWARD M. LAMONT
1-800-562-0032 Formerly in banking (Morgan
DOUGLAS A. ROMICH Guaranty Trust Company of
CUSTODIAN Assistant Treasurer New York); presently engaged
State Street Bank and in private investments and
Trust Company FRANCIS J. MCNAMARA, III civic affairs
225 Franklin Street Secretary and General Counsel
Boston, MA 02110
DARMAN A. WING ROBERT A. LAWRENCE
LEGAL COUNSEL Assistant Secretary and Associate, Saltonstall & Co.
Goodwin, Procter & Hoar LLP Assistant General Counsel
Exchange Place
Boston, MA 02109 AMY L. SIMMONS DEAN O. MORTON
Assistant Secretary Retired; formerly Executive
INDEPENDENT ACCOUNTANTS Vice President, Chief
Price Waterhouse LLP Operating Officer and Director,
160 Federal Street Hewlett-Packard Company
Boston, MA 02110
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
</TABLE>
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND -------------------
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Permit #20
Holliston, MA 01746
-------------------
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032 or
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
[LOGO] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research High Income Fund
prospectus. When used after June 30, 1998, 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 awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: 4928-980520(0699)SSR-LD
HI-271D-0598
<PAGE>
STATE STREET RESEARCH
----------------------------------------
MANAGED ASSETS
----------------------------------------
ANNUAL REPORT
March 31, 1998
----------------------------------------
WHAT'S INSIDE
----------------------------------------
FROM THE CHAIRMAN
Another year of solid growth
PORTFOLIO MANAGER'S REVIEW
Stocks continued to reward
investors
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
- --------------------
DALBAR LOGO
- --------------------
For Excellence
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
Americans have enjoyed another year of solid economic growth, low inflation and
strong investment returns. Unemployment and interest rates remain low, and
consumer confidence continues at near-record highs. Together these favorable
factors have stimulated a boom in the housing market and stronger-than-expected
retail sales. Not even an economic crisis in Southeast Asia could restrain the
financial markets for long.
STOCKS
The stock market delivered a third consecutive year of double-digit gains
despite a volatile year. In October 1997, the Dow Jones Industrial Average
reported its largest one-day drop ever as investors expressed fear that
Southeast Asian economic turmoil could spill over to the U.S. Common stocks
dropped again early in the first quarter of 1998, as U.S. companies released
lower earnings forecasts; then rose sharply through the end of the period. The
technology-heavy Nasdaq, Dow Jones Industrial Average and the S&P 500 all set
record highs.(1) Investors continued to seek the quality of large, blue-chip
companies. However, smaller stocks with higher earnings growth and more
attractive valuation picked up ground later in the first quarter of 1998.
After falling sharply in the fourth quarter of 1997, Southeast Asian stocks
rallied in the new year. Malaysia, Thailand and Korean markets came back
especially strong. In Europe, many major markets outperformed the U.S.,
bolstered by lower interest rates, low inflation, and a wave of corporate
restructuring that is, by most accounts, just beginning to pick up steam. Japan
had a modest gain during the first quarter of 1998, but hardly enough to offset
three previous weak periods. What's more, the Japanese economy continues to sink
into recession despite defensive efforts by the government to rescue the
debt-laden financial sector.
BONDS
After a fourth quarter rally, bond markets steadied early in 1998. Treasuries
were buoyed by the same energy cost cuts that briefly boosted the stock market.
High- yield bonds were the star performers as investors sought more robust
returns. Mortgage bonds have held steady, and global bond markets continue to
benefit from Asia's economic difficulties.
WHAT'S AHEAD
The combination of moderate economic growth and no significant inflation is
likely to keep short-term interest rates unchanged for the period ahead.
Although it would be imprudent to expect the stock market to continue to
generate double-digit gains, a more modest, positive trend seems likely. With
inflation and government spending under control, bond markets are well
positioned to reap any gains that could accrue from any future interest rate
cut. In fact, the possibility that the U.S. could have its first federal budget
surplus could provide the downward pressure on rates that would be necessary to
lift the bond market.
As always, it makes sense for investors to put the market's short-term
performance in perspective. Maintain a diversified portfolio, and let your
long-term goals lead your investment decisions. Talk to your financial
professional if you have any questions or concerns about the markets. Thank you
for investing with State Street Research.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
March 31, 1998
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.
(1) The Standard & Poor's 500 Composite Index (S&P 500) is a market-value
weighted index composed of 500 widely traded common stocks. The Lehman
Brothers Government/ Corporate Bond Index is a commonly used measure of bond
market performance. The indices are unmanaged and do not take sales 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 capital gain distributions accepted in shares and income dividends
invested at net asset value. No adjustment has been made for income taxes
payable by shareholders on income dividends or capital gain distributions.
(3)+ 28.53% for Class B shares; +28.59 for Class C shares; +29.93% for Class S
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.
(5) Performance reflects maximum 4.5% "A" share front-end, or 5% "B" share or 1%
"C" share contingent deferred sales charges. "S" shares, offered without a
sales charge, are available only through certain employee benefit plans and
special programs.
(6) Before November 1, 1997, Class C shares were designated Class D, and Class S
shares were designated Class C.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended March 31, 1998)
- --------------------------------------------------------------------------------
TOTAL VALUE OF $10,000 INVESTED AT FUND'S INCEPTION(2)
(Class A shares, at maximum applicable sales charge)
[graphic omitted]
Managed Assets
- ------------------------------
12/88 $ 9,550
3/89 9,960
3/90 11,030
3/91 11,480
3/92 13,010
3/93 15,150
3/94 16,810
3/95 17,070
3/96 20,920
3/97 23,530
3/98 30,501
SEC AVERAGE ANNUAL COMPOUND RATES OF RETURN
(at maximum applicable sales charge)(4)(5)(6)
- ------------------------------------------------------------------------------
LIFE OF FUND
(since 12/29/88) 5 YEARS 1 YEAR
- ------------------------------------------------------------------------------
Class A +12.80% +13.96% +23.79%
- ------------------------------------------------------------------------------
Class B +12.91% +13.93% +23.53%
- ------------------------------------------------------------------------------
Class C +12.91% +14.18% +27.59%
- ------------------------------------------------------------------------------
Class S +13.50% +15.29% +29.93%
- ------------------------------------------------------------------------------
<PAGE>
PORTFOLIO MANAGER'S REVIEW
MANAGED ASSETS: STOCKS CONTINUED TO REWARD INVESTORS
[Photo of Peter C. Bennett]
Peter C. Bennett
Portfolio Manager
We spoke with Peter Bennett, portfolio manager of State Street Research Managed
Assets, about the year ended March 31, 1998 and his views on the financial
markets and economy in the year ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: It was a good year for the Fund. Class A shares gained 29.62%, [without sales
charge](3) for the 12 months ended March 31, 1998. The Fund outperformed the
average flexible portfolio fund, which gained 28.72%, according to Lipper
Analytical Services.
Q: WHAT ACCOUNTED FOR THE FUND'S STRONG PERFORMANCE?
A: The Fund's investments in common stock produced the biggest gains. 60% of the
Fund's assets were invested in a combination of large-cap growth, small-cap
growth and mid- cap value stocks. Of these, large-cap growth stocks performed
best. They were the market leaders throughout most of the 12-month period.
Q: LARGE-COMPANY STOCKS HAVE BEEN MARKET LEADERS FOR MORE THAN TWO YEARS. WHAT'S
DRIVING THEIR PERFORMANCE?
A: We believe three factors have contributed to the outperformance of
large-company stocks. First, a good percentage of the new money coming into the
stock market has come from individual mutual fund investors who tend to favor
large-company names. There has also been a significant amount of money coming
from foreign investors looking for high quality investments. Second, large-
company stocks have benefited from the growth of indexing. Over the past several
years, there's been a proliferation of mutual funds designed to match the
returns of the S&P 500 Index, which emphasizes large-company stocks. Third,
globalization has played a role. Many of the larger U.S. companies have been
well positioned to take advantage of the opening of new markets around the
world. This has boosted the profits and the stock prices of large companies.
Their heavy investment in technology has improved efficiencies which also go
directly to the bottom line.
Q: WHAT STRATEGIC CHANGES DID YOU MAKE IN THE PORTFOLIO?
A: Early in the period, we reduced the number of large- company growth stocks in
the portfolio in favor of small- and mid-cap stocks. Even though large-company
stocks continued to perform very well, the stocks of smaller companies were more
attractively valued and had stronger earnings expectations. Smaller companies
are also likely to benefit more from a cut in the capital gains tax. In the
third quarter of 1997, small- and mid-sized company stocks outperformed those of
large companies. In the fourth quarter, however, the potential fallout from the
currency crisis in Southeast Asia had a negative impact on these stocks. We
continue to hold these stocks in the portfolio because we believe they have the
potential to grow more rapidly than large-company stocks in the months ahead.
Q: DID YOU REDUCE ANY INVESTMENTS THAT WERE DISAPPOINTING?
A: Yes, during the last quarter of 1997, we reduced the Fund's investment in oil
stocks, which we had owned as a hedge against the possibility of rising
inflation. The collapse of several Asian economies reduced the demand for oil.
At the same time, OPEC and Venezuela were overproducing their quotas, creating
an oil glut. These factors contributed to a decline in oil prices and oil
company profits. Fortunately, we reduced our position before prices had declined
significantly.
Q: HOW DID YOU MANAGE THE BOND PORTION OF THE PORTFOLIO?
A: We invested 30% of the Fund's assets in a mix of investment-grade,
high-yield, and international bonds. All of these sectors were excellent
contributors to performance at times during the year. There was strong demand
for bonds from investors seeking income and diversification. High-yield debt was
particularly attractive to investors, and this sector produced the best
performance of the three.
Q: IN WHAT TYPES OF FOREIGN DEBT DID YOU INVEST?
A: In foreign bonds, we emphasized quality and liquidity. We focused on
sovereign debt, that is, government bonds, of the English-speaking block of
countries: the U.K., Australia, and New Zealand.
Q: WHAT IS YOUR OUTLOOK?
A: We believe the economy has the potential to continue to grow at a healthy
rate in 1998 and that interest rates will be stable. While we are optimistic
about the financial markets, we believe there is also reason for caution.
Problems in Asia are likely to dampen U.S. trade with the region. As a result,
many companies have lowered their profit estimates for 1998. Lower corporate
profits could certainly have an impact on stock prices.
We believe the Fund is well positioned for the current investment environment.
In the months ahead, we will rebalance the portfolio as we deem it necessary. We
will continue to monitor economic and financial events around the world and take
the actions that we think will provide the best possible results for
shareholders.
March 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[Graphic Omitted]
ASSET ALLOCATION
(by percentage of net assets)
Bonds 30%
Net Cash 5%
Inflation Responsive 5%
Equities 60%
TOP 5 EQUITY INDUSTRIES
(by percentage of net assets)
OIL 6.3%
COMPUER SOFTWARE & SERVICE 5.4%
RETAIL TRADE 4.2%
INSURANCE 4.1%
BANKS 3.0%
Total 23.0%
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
- ---------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES 59.8%
BASIC INDUSTRIES 8.4%
CHEMICAL 2.4%
<S> <C> <C>
Agrium Inc. .................................................... 353,000 $ 4,986,125
Cabot Corp.++ .................................................. 159,100 5,866,812
Cambrex Corp. .................................................. 21,050 1,060,394
Ciba Specialty Chemicals AG* ................................... 12,400 1,586,094
E.I. Du Pont De Nemours & Co. .................................. 19,900 1,353,200
OM Group Inc. .................................................. 14,700 619,238
Thiokol Corp. .................................................. 52,800 2,550,900
------------
18,022,763
------------
DIVERSIFIED 0.8%
Axia Holdings Corp.*(+) ........................................ 750 75,750
Johnson Controls Inc. .......................................... 28,900 1,753,869
Mark IV Industries Inc. ........................................ 127,500 2,900,625
Ogden Corp. .................................................... 40,800 1,173,000
------------
5,903,244
------------
ELECTRICAL EQUIPMENT 1.1%
Asia Pacific Wire & Cable Corp. Ltd.* .......................... 200,400 1,603,200
Essex International Inc.* ...................................... 23,500 928,250
General Electric Co. ........................................... 53,300 4,593,794
Protection One Inc. Wts.*+ ..................................... 800 10,800
Sony Corp.* .................................................... 16,000 1,357,102
------------
8,493,146
------------
FOREST PRODUCT 1.0%
Abitibi-Consolidated Inc. ...................................... 338,800 5,145,525
Equitable Bag Inc.* ............................................ 47,600 19,040
Equitable Bag Inc. Pfd.* ....................................... 4,760 71,400
MacMillan Bloedel Ltd. ......................................... 124,500 1,750,781
Mail-Well Holdings, Inc.*(+) ................................... 21,307 807,003
------------
7,793,749
------------
MACHINERY 1.8%
Chatwins Group Inc. Wts.*+ ..................................... 500 500
Howmet International Inc.* ..................................... 165,300 2,954,737
ITEQ Inc.* ..................................................... 145,800 2,077,650
Sundstrand Corp. ............................................... 62,800 3,799,400
Tyco International Ltd. ........................................ 79,600 4,348,150
------------
13,180,437
------------
METAL & MINING 1.1%
Bar Technologies Inc. Wts.*+ ................................... 250 15,000
Crown Packaging Holdings Ltd. Wts.*+ ........................... 3,750 1,875
General Cable Corp.* ........................................... 26,600 1,206,975
Kennametal Inc. ................................................ 101,000 5,315,125
NS Group Inc. Wts.*+ ........................................... 650 97,500
Sheffield Steel Corp.*+ ........................................ 1,250 3,750
Wyman-Gordon Co.* .............................................. 62,600 1,431,975
------------
8,072,200
------------
TRUCKERS 0.2%
CNF Transportation Inc. ........................................ 45,600 1,638,750
------------
Total Basic Industries ......................................... 63,104,289
------------
CONSUMER CYCLICAL 9.3%
AIRLINE 0.4%
Aeroporti Di Roma SPA* ......................................... 163,100 2,809,292
CHC Helicopter Corp. Wts.*(+) .................................. 2,000 6,000
Virgin Express Holdings PLC ADR* ............................... 9,800 232,750
------------
3,048,042
------------
AUTOMOTIVE 1.1%
Budget Group Inc. Cl. A* ....................................... 16,200 607,500
Exide Corp. .................................................... 165,000 2,794,688
Gencorp Inc. ................................................... 60,500 1,860,375
Midas Inc.* .................................................... 21,983 453,399
Renault SA* .................................................... 58,200 2,591,884
------------
8,307,846
------------
BUILDING 0.1%
Golf Trust America Inc.* ....................................... 12,000 376,500
Waxman Industries Inc. Wts.*+ .................................. 29,500 73,750
------------
450,250
------------
HOTEL & RESTAURANT 1.3%
CKE Restaurants Inc. ........................................... 9,460 347,655
Harrah's Entertainment Inc.* ................................... 153,900 3,780,169
Landry Seafood Restaurants Inc.* ............................... 7,800 239,850
Mirage Resorts Inc.* ........................................... 224,400 5,455,725
Motels of America Inc.*+ ....................................... 500 5,000
------------
9,828,399
------------
RECREATION 2.1%
American Radio Systems Corp. Cl. A* ............................ 16,900 1,072,097
American Radio Systems Corp. Series B Exch. Pfd. ............... 2,632 310,576
American Telecasting Inc. Wts.* ................................ 1,250 1,250
Chancellor Media Corp. ......................................... 34,900 1,601,037
Cox Communications Inc.* ....................................... 39,600 1,663,200
Fitzgeralds South Inc. Wts.*(+) ................................ 1,250 12,500
Goldriver Hotel & Casino Corp. Cl. B*(+) ....................... 20,000 2,500
Goldriver Hotel & Casino Corp. Liquidation Trust Units*(+) 500,000 6,350
Granite Broadcasting Corp. Exch. Pfd.# ......................... 288 328,320
Gtech Holdings Corp.* .......................................... 49,700 1,932,087
Heartland Wireless Communications, Inc. Wts.*(+) ............... 1,500 15
International Game Technology Inc. ............................. 76,400 1,910,000
Mattel Inc. .................................................... 49,800 1,973,325
Panavision Inc.* ............................................... 6,300 165,769
SHRP Equity Inc.* .............................................. 37 148
Steiner Leisure Ltd.* .......................................... 36,400 1,849,575
US West Inc.* .................................................. 71,600 2,488,100
Wireless One Inc. Wts.*+ ....................................... 750 8
Wireless One Inc. Wts.* ........................................ 1,250 62
------------
15,316,919
------------
RETAIL TRADE 4.2%
Blyth Industries Inc.* ......................................... 13,800 470,925
Cendant Corp.* ................................................. 90,700 3,593,987
Central Rents Inc.*+ ........................................... 250 13,750
CSK Auto Corp.* ................................................ 8,200 184,500
Dayton Hudson Corp. ............................................ 26,600 2,340,800
Fred Meyer Inc.* ............................................... 4,755 219,642
Hannaford Brothers Co. ......................................... 105,800 4,701,487
Home Depot Inc. ................................................ 50,200 3,385,362
InaCom Corp.* .................................................. 22,900 632,613
RETAIL TRADE (CONT'D)
Kroger Co.* .................................................... 102,900 4,752,694
Proffitts Inc.* ................................................ 37,725 1,367,531
Rite Aid Corp. ................................................. 123,400 4,226,450
Supermarkets General Holdings Corp. Exch. Pfd.# ................ 18,200 382,200
Wal-Mart Stores, Inc. .......................................... 64,300 3,267,244
Wolters Kluwer NV* ............................................. 15,300 2,186,815
------------
31,726,000
------------
TEXTILE & APPAREL 0.1%
Acme Boot Co.*+ ................................................ 250 250
Columbia Sportswear Co.* ....................................... 1,100 23,238
Warnaco Group Inc. Cl. A ....................................... 21,500 843,875
------------
867,363
------------
Total Consumer Cyclical ........................................ 69,544,819
------------
CONSUMER STAPLE 13.3%
BUSINESS SERVICE 2.2%
A.C. Nielson Corp.* ............................................ 148,800 3,933,900
Apollo Group Inc. Cl. A* ....................................... 39,000 1,876,875
Avis Rent A Car, Inc.* ......................................... 8,800 285,450
Comverse Technology Inc.* ...................................... 17,915 875,596
Dollar Thrifty Automotive Group, Inc.* ......................... 16,100 362,250
Hagler Bailly Inc.* ............................................ 30,400 760,000
HBO & Co. ...................................................... 56,400 3,405,150
ICF Kaiser International Inc. Wts.* ............................ 2,400 1,200
La Petite Academy Inc. Cl. A Exch. Pfd.* ....................... 22,000 1,012,000
Maximus Inc.* .................................................. 28,100 841,244
Pagemart Inc. Wts.*+ ........................................... 2,300 17,250
Pameco Corp.* .................................................. 27,500 505,312
Shared Medical Systems Corp. ................................... 8,200 642,675
Staff Leasing Inc.* ............................................ 21,200 588,300
Vestar/LPA Investment Corp.*+ .................................. 1,375 19,250
Vestcom International Inc.* .................................... 26,700 278,681
Waddell & Reed Financial Inc. Cl. A* ........................... 10,700 278,200
Waterlink Inc.* ................................................ 51,300 718,200
------------
16,401,533
------------
CONTAINER 0.6%
Ball Corp. ..................................................... 133,400 4,368,850
Golden Ocean Group Ltd. Wts.*+ ................................. 500 2,500
------------
4,371,350
------------
DRUG 2.8%
Ascent Pediatrics Inc.* ........................................ 23,000 87,688
Atrix Laboratories Inc.* ....................................... 33,600 638,400
Axogen Ltd.* ................................................... 21,700 1,236,900
Biovail Corp.* ................................................. 56,100 2,706,825
Bristol-Myers Squibb Co. ....................................... 23,000 2,399,187
Intelligent Polymers Ltd.* ..................................... 76,900 2,364,675
Kos Pharmaceuticals Inc.* ...................................... 88,400 828,750
Nutraceutical International Corp.* ............................. 3,800 83,600
Pathogenesis Corp.* ............................................ 14,300 479,050
Pfizer Inc. .................................................... 34,000 3,389,375
Schering-Plough Corp. .......................................... 27,400 2,238,238
Spiros Development Corp.* ...................................... 59,900 958,400
Warner-Lambert Co. ............................................. 22,500 3,832,031
------------
21,243,119
------------
FOOD & BEVERAGE 2.1%
Coca-Cola Co. .................................................. 33,000 2,555,437
Dr Pepper Bottling Holdings Inc. Cl. A* ........................ 56,000 1,568,000
H.J. Heinz Co. ................................................. 25,600 1,494,400
Hussmann International Inc.* ................................... 65,950 1,236,563
Keebler Foods Co.* ............................................. 20,900 627,000
PepsiCo Inc. ................................................... 43,600 1,861,175
Sara Lee Corp. ................................................. 61,300 3,777,612
Seven-Up/RC Bottling Co. of Southern California* ............... 26,250 315,000
Whitman Corp. .................................................. 131,900 2,605,025
------------
16,040,212
------------
HOSPITAL SUPPLY 2.5%
Aradigm Corp.* ................................................. 30,300 382,538
Aviron Corp.* .................................................. 28,300 654,438
Centennial Healthcare Corp.* ................................... 31,900 801,487
Guidant Corp. .................................................. 33,100 2,428,712
Johnson & Johnson .............................................. 16,100 1,180,331
National Surgery Centers Inc.* ................................. 37,600 961,150
Quorum Health Group Inc.* ...................................... 88,900 2,989,262
Respironics Inc.* .............................................. 58,823 1,702,191
Rural/Metro Corp.* ............................................. 9,400 309,025
Total Renal Care Holdings Inc.* ................................ 132,633 4,418,337
U.S. Surgical Corp. ............................................ 53,500 1,765,500
Xomed Surgical Products Inc.* .................................. 35,100 965,250
------------
18,558,221
------------
PERSONAL CARE 0.3%
Wesley Jessen VisionCare Inc.* ................................. 78,700 2,587,263
------------
PRINTING & PUBLISHING 2.6%
A.H. Belo Corp. Cl. A .......................................... 12,852 706,860
General Media Inc. Wts.*(+) .................................... 250 250
Hollinger International, Inc. Cl. A* ........................... 340,000 5,652,500
Primedia Inc. Series D Pfd. .................................... 2,500 265,625
Primedia Inc. Series F Pfd. .................................... 2,000 205,000
Prosieben Media AG* ............................................ 57,100 2,979,184
Sullivan Holdings Inc.* ........................................ 149 53,467
Torstar Corp. Cl. B* ........................................... 86,400 3,003,282
Valassis Communications Inc. ................................... 152,400 6,248,400
------------
19,114,568
------------
TOBACCO 0.2%
Dimon Inc. ..................................................... 89,900 1,500,206
------------
Total Consumer Staple .......................................... 99,816,472
------------
ENERGY 3.8%
OIL 3.4%
Abacan Resources Corp.*++ ...................................... 539,500 758,672
British Petroleum Co. PLC* ..................................... 109,800 1,579,805
Energy Africa Ltd.* ............................................ 614,900 2,210,245
ENI SPA ADR .................................................... 48,800 3,306,200
Maxx Petroleum Ltd.*++ ......................................... 334,600 439,162
Oryx Energy Co. ................................................ 114,500 2,977,000
PTT Exploration & Production Public Co. Ltd.* .................. 127,200 1,441,708
Saipem SPA* .................................................... 250,000 1,487,932
Seagull Energy Corp.*++ ........................................ 319,288 6,126,338
Total SA Cl. B* ................................................ 12,909 1,549,705
Total SA Cl. B ADR ............................................. 57,800 3,471,612
------------
25,348,379
------------
OIL SERVICE 0.4%
Cliffs Drilling Co.* ........................................... 12,300 508,144
Schlumberger Ltd. .............................................. 17,000 1,287,750
UTI Energy Corp.* .............................................. 28,800 473,400
Willbros Group Inc.*++ ......................................... 34,900 573,669
------------
2,842,963
------------
Total Energy ................................................... 28,191,342
------------
FINANCE 8.0%
BANK 3.0%
Banc One Corp. ................................................. 70,510 4,459,757
BankAmerica Corp. .............................................. 36,900 3,048,863
Canadian Imperial Bank of Commerce ............................. 126,100 4,366,212
Chase Manhattan Corp. .......................................... 18,700 2,522,163
Commercial Federal Corp. ....................................... 8,850 321,919
Fleet Financial Group Inc. ..................................... 29,200 2,483,825
Golden State Bancorp Inc. ...................................... 20,000 763,750
National Bank of Canada ........................................ 204,700 3,843,046
Riverbank America Pfd.* ........................................ 20,000 480,000
------------
22,289,535
------------
FINANCIAL SERVICE 0.9%
CMAC Investment Corp. .......................................... 13,100 874,425
Contifinancial Corp.* .......................................... 19,700 600,850
CRIIMI MAE Inc.* ............................................... 20,300 313,381
Federal National Mortgage Association .......................... 22,900 1,448,425
First Industrial Realty Trust Inc. ............................. 11,300 406,800
FirstPlus Financial Group Inc.* ................................ 20,200 848,400
INMC Mortgage Holdings Inc. .................................... 28,200 705,000
Liberty Property Trust ......................................... 11,700 314,438
T & W Financial Corp.* ......................................... 58,100 1,670,375
------------
7,182,094
------------
INSURANCE 4.1%
Ace Ltd. ....................................................... 272,400 10,266,075
AMBAC Inc. ..................................................... 97,900 5,721,031
Capital Re Corp.* .............................................. 6,400 411,200
HCC Insurance Holdings Inc. .................................... 39,100 899,300
Mid Ocean Ltd. ................................................. 71,700 5,556,750
Mutual Risk Management Ltd. .................................... 34,100 1,155,137
Travelers Group Inc. ........................................... 43,250 2,595,000
UNUM Corp. ..................................................... 69,700 3,846,569
------------
30,451,062
------------
Total Finance .................................................. 59,922,691
------------
SCIENCE & TECHNOLOGY 11.9%
AEROSPACE 0.3%
Ladish Inc.*(+) ................................................ 8,667 133,250
Ladish Inc. Wts.*(+) ........................................... 15,095 213,972
Raytheon Co. Cl. A* ............................................ 32,400 1,842,750
------------
2,189,972
------------
COMPUTER SOFTWARE & SERVICE 5.4%
Anacomp Inc. Wts.* ............................................. 4,941 35,050
Box Hill Systems Corp.* ........................................ 33,000 422,813
Check Point Software Technologies Ltd.* ........................ 21,900 1,000,556
Cisco Systems Inc.* ............................................ 75,400 5,155,475
Complete Business Solutions Inc.* .............................. 23,000 825,125
Diamond Multimedia Systems Inc.* ............................... 57,400 853,825
Duane Reade Inc.* .............................................. 3,800 97,138
EMC Corp.* ..................................................... 60,500 2,287,656
Industir-Matematik International Corp.* ........................ 30,600 960,075
Mapics Inc.* ................................................... 59,800 1,057,712
Mastech Corp.* ................................................. 23,300 1,187,572
Microsoft Corp.* ............................................... 33,200 2,971,400
Nintendo Co. Ltd.* ............................................. 22,700 1,959,467
Radiant Systems Inc.* .......................................... 85,000 2,103,750
SAP AG Pfd.* ................................................... 7,500 3,189,289
Sema Group PLC* ................................................ 93,100 3,674,926
STB Systems Inc.* .............................................. 29,200 584,000
Transition Systems Inc.* ....................................... 40,800 831,300
TT Tieto Oy Cl. B* ............................................. 24,600 4,162,474
Veritas Software Co.* .......................................... 14,000 827,750
Walker Interactive Systems, Inc.* .............................. 42,000 821,625
Wang Laboratories Inc.* ........................................ 22,700 702,281
WM Data AB Cl. B* .............................................. 151,800 4,024,964
Xylan Corp.* ................................................... 30,000 731,250
------------
40,467,473
------------
ELECTRONIC COMPONENTS 2.1%
Digital Microwave Corp.* ....................................... 27,120 400,020
Lernout & Hauspie Speech Products NV ADR* ...................... 83,100 7,260,862
Remec Inc.* .................................................... 76,150 2,184,553
RF Micro Devices Inc.* ......................................... 34,100 498,713
Rohm Co.* ...................................................... 15,000 1,373,616
Texas Instruments Inc. ......................................... 61,900 3,350,338
World Access Inc.* ............................................. 14,500 471,250
------------
15,539,352
------------
ELECTRONIC EQUIPMENT 2.8%
Aeroflex Inc.* ................................................. 151,200 2,003,400
Applied Micro Circuits Corp.* .................................. 19,400 436,500
ATMI Inc.* ..................................................... 9,400 284,350
Chicago Miniature Lamp, Inc.* .................................. 117,000 4,548,375
L.M. Ericsson Telephone Co. Cl. B* ............................. 96,800 4,600,588
Lucent Technologies Inc.* ...................................... 32,100 4,104,787
Nokia AB Cl. K Pfd.* ........................................... 13,800 1,484,106
Onix Systems Inc.* ............................................. 41,200 597,400
Spectrian Corp.* ............................................... 28,500 473,813
Teradyne Inc.* ................................................. 69,100 2,768,319
------------
21,301,638
------------
OFFICE EQUIPMENT 1.3%
Lexmark International Group Inc. Cl. A* ........................ 36,200 1,633,525
Unisys Corp. ................................................... 243,000 4,617,000
Xerox Corp. .................................................... 34,100 3,629,519
------------
9,880,044
------------
Total Science & Technology ..................................... 89,378,479
------------
UTILITY 5.1%
ELECTRIC 2.9%
Allegheny Energy Inc.* ......................................... 24,200 812,213
Edison International Inc. ...................................... 110,000 3,231,250
Elecricidade De Portugal SA* ................................... 100,000 2,321,098
GPU Inc. ....................................................... 55,300 2,447,025
Illinova Corp. ................................................. 27,200 821,100
Montana Power Co. .............................................. 25,000 901,563
OGE Energy Corp. ............................................... 60,000 3,472,500
Pinnacle West Capital Corp. .................................... 75,100 3,337,256
Veba AG* ....................................................... 37,000 2,624,638
Western Resources Inc. ......................................... 37,900 1,620,225
------------
21,588,868
------------
NATURAL GAS 0.8%
Calpine Corp.* ................................................. 37,800 673,313
Williams Cos Inc. .............................................. 177,489 5,679,648
------------
6,352,961
------------
TELEPHONE 1.4%
AirTouch Communications Inc.* .................................. 38,500 1,884,094
Celcaribe SA*+ ................................................. 297,558 1,190,232
Clearnet Communications Inc. Wts.* ............................. 2,640 27,720
Econophone Inc. Wts.*+ ......................................... 750 30,000
Intelcom Group, Inc. Wts.*(+) .................................. 1,650 41,250
Nextel Communications Inc. Cl. A* .............................. 1,549 52,279
Nortel Inversora SA ADR ........................................ 66,000 1,905,750
Powertel Inc. Wts.* ............................................ 960 10,080
RSL Communications Ltd. Wts.*+ ................................. 750 67,500
SK Telecom Ltd ADR* ............................................ 3,600 28,575
Telecom Italia SPA* ............................................ 285,500 2,249,702
WorldCom Inc.* ................................................. 75,200 3,238,300
------------
10,725,482
------------
Total Utility .................................................. 38,667,311
------------
Total Equity Securities (Cost $341,596,102) .................... 448,625,403
------------
EQUITY SECURITIES -- INFLATION RESPONSIVE INVESTMENTS 4.6%
BASIC INDUSTRIES 0.7%
METAL & MINING 0.6%
Aber Resources Ltd.* ........................................... 13,600 170,000
Anglogold Ltd. ADR ............................................. 43,100 183,175
Ashanti Goldfields Ltd. GDR .................................... 50,000 465,625
Battle Mountain Gold Co. ....................................... 100,000 637,500
Crown Resources Corp.* ......................................... 125,000 562,500
Delta Gold NL* ................................................. 168,000 219,991
Menzies Gold NL* ............................................... 400,000 52,908
Newcrest Mining Ltd.* .......................................... 150,000 238,979
Normandy Mining Ltd.* .......................................... 511,325 547,827
Pan African Resources Corp.* ................................... 215,600 10,652
Shaw Group Inc.* ............................................... 5,300 132,168
Southernera Resources Ltd.* .................................... 100,000 935,173
Sutton Resources Ltd.* ......................................... 56,000 420,000
Viceroy Resource Corp.* ........................................ 100,000 172,919
------------
4,749,417
------------
RAILROAD 0.1%
OMI Corp. ...................................................... 76,400 687,600
Overseas Shipholding Group Inc. ................................ 3,100 66,263
------------
753,863
------------
Total Basic Industries ......................................... 5,503,280
------------
CONSUMER STAPLE 0.1%
BUSINESS SERVICE 0.1%
Commodore Applied Technologies, Inc.* .......................... 150,000 656,250
Commodore Applied Technologies, Inc. Wts.* ..................... 150,000 168,750
------------
825,000
------------
Total Consumer Staple .......................................... 825,000
------------
ENERGY 3.1%
OIL 2.9%
3DX Technologies Inc.* ......................................... 50,000 92,188
Arakis Energy Corp.*@ .......................................... 529,300 1,058,600
Barrington Petroleum Ltd.* ..................................... 126,300 383,308
Basin Exploration Inc.* ........................................ 15,000 309,375
Benton Oil & Gas Co.* .......................................... 9,400 103,988
Brigham Exploration Co.* ....................................... 19,400 240,075
Cabot Oil & Gas Corp. Cl. A .................................... 20,200 457,025
Canadian 88 Energy Corp.* ...................................... 113,200 587,232
Coho Energy Inc.* .............................................. 19,900 155,469
Crystal Oil Co.* ............................................... 10,000 420,000
Forcenergy Inc.* ............................................... 7,200 190,800
Forest Oil Corp.* .............................................. 26,300 406,006
Gulfstream Resources Canada Ltd. ............................... 58,000 270,177
KCS Energy Inc.@ ............................................... 198,900 3,182,400
Meridian Resource Corp.* ....................................... 41,600 332,800
Miller Exploration Co.* ........................................ 13,100 132,637
Nuevo Energy Co.* .............................................. 40,000 1,432,500
Ocean Energy Inc.* ............................................. 7,410 174,598
Oil Search Ltd.* ............................................... 448,600 792,140
Optima Petroleum Corp.* ........................................ 43,100 52,528
Patina Oil & Gas Corp. ......................................... 15,500 110,437
Plains Resources Inc.* ......................................... 109,800 1,866,600
Ranger Oil Ltd.* ............................................... 251,300 1,633,450
Santa Fe Energy Resources Inc. ................................. 34,900 383,900
Seven Seas Petroleum Inc.*@ .................................... 58,800 1,517,040
Snyder Oil Corp. ............................................... 23,400 476,775
Southwestern Energy Co. ........................................ 58,600 622,625
St. Mary Land & Exploration Co. ................................ 9,600 366,900
Stone Energy Corp.* ............................................ 9,200 359,375
Tarragon Oil & Gas Ltd.* ....................................... 116,357 796,600
Titan Exploration Inc.* ........................................ 51,000 414,375
Tom Brown, Inc.* ............................................... 35,600 796,550
Tri Link Resources Ltd. Cl. A* ................................. 20,700 226,453
Ulster Petroleum Ltd.* ......................................... 121,500 1,050,482
------------
21,395,408
------------
OIL SERVICE 0.2%
Atwood Oceanics Inc.* .......................................... 3,600 194,625
Diamond Offshore Drilling Inc.* ................................ 14,300 648,862
J. Ray McDermott SA* ........................................... 3,300 139,013
TMBR/Sharp Drilling, Inc.* ..................................... 20,500 235,750
Transocean Offshore Inc. ....................................... 12,400 637,825
------------
1,856,075
------------
Total Energy ................................................... 23,251,483
------------
SCIENCE & TECHNOLOGY 0.1%
ELECTRONIC EQUIPMENT 0.1%
Commodore Separation Technologies, Inc.* ....................... 150,000 403,125
Commodore Separation Technologies, Inc. Wts.* .................. 150,000 93,750
------------
496,875
------------
Total Science & Technology ..................................... 496,875
------------
UTILITY 0.6%
NATURAL GAS 0.6%
Coastal Corp. .................................................. 4,600 299,575
K N Energy Inc. ................................................ 5,300 313,031
Questar Corp. .................................................. 11,000 457,187
TransTexas Gas Corp.*@ ......................................... 189,300 2,969,644
Valero Refining and Marketing Corp. ............................ 15,600 520,650
------------
4,560,087
------------
Total Utility .................................................. 4,560,087
------------
Total Equity Securities -- Inflation Responsive
Investments (Cost $34,342,471) ............................... 34,636,725
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- ------------------------------------------------------------------------------------------------------------------------
FIXED INCOME SECURITIES 29.7%
U.S. TREASURY 8.0%
<S> <C> <C> <C>
U.S. Treasury Bond, 12.00% ..................... $ 800,000 8/15/2013 $ 1,175,128
U.S. Treasury Bond, 8.75% ...................... 5,400,000 5/15/2017 7,068,924
U.S. Treasury Bond, 8.125% ..................... 8,175,000 8/15/2021 10,308,184
U.S. Treasury Bond, 8.50% ...................... 4,850,000 2/15/2020 6,301,217
U.S. Treasury Bond, 6.875% ..................... 1,425,000 8/15/2025 1,589,317
U.S. Treasury Note, 6.625% ..................... 2,100,000 7/31/2001 2,160,711
U.S. Treasury Note, 5.625% ..................... 3,775,000 10/31/1999 3,775,604
U.S. Treasury Note, 6.25% ...................... 5,825,000 2/28/2002 5,941,500
U.S. Treasury Note, 7.875% ..................... 3,650,000 11/15/2004 4,077,744
U.S. Treasury Note, 6.50% ...................... 2,150,000 8/15/2005 2,247,094
U.S. Treasury Note, 6.50% ...................... 1,450,000 5/31/2002 1,493,500
U.S. Treasury Note, 7.50% ...................... 1,575,000 2/15/2005 1,731,760
U.S. Treasury Note, 6.875% ..................... 1,200,000 5/15/2006 1,286,628
U.S. Treasury TIPS, 3.375% ..................... 688,399 1/15/2007 667,423
U.S. Treasury TIPS, 3.625% ..................... 725,116 1/15/2008 716,958
U.S. Treasury STRIPS, 0.00% .................... 3,500,000 11/15/2001 2,858,940
U.S. Treasury STRIPS, 0.00% .................... 5,850,000 5/15/2003 4,393,350
U.S. Treasury STRIPS, 0.00% .................... 4,225,000 5/15/2007 2,496,933
------------
60,290,915
------------
U.S. AGENCY MORTGAGE 4.7%
Federal Home Loan Mortgage Corp., 7.50% ........ 75,294 4/01/2002 76,217
Federal Home Loan Mortgage Corp., 8.50% ........ 331 7/01/2009 346
Federal Home Loan Mortgage Corp. TBA, 7.00% .... 4,050,000 4/16/2013 4,118,344
Federal Home Loan Mortgage Corp. TBA, 6.00% .... 4,250,000 4/16/2013 4,187,578
Federal Home Loan Mortgage Corp., 7.00% ........ 1,414,132 6/01/2024 1,430,918
Federal Home Loan Mortgage Corp., 7.50% ........ 1,060,878 8/01/2024 1,087,888
Federal Home Loan Mortgage Corp., 7.00% ........ 728,297 12/01/2024 736,942
Federal Home Loan Mortgage Corp. TBA, 7.50% .... 6,375,000 4/13/2028 6,528,398
Federal National Mortgage Association, 9.50% ... 1,193,894 10/01/2003 1,241,841
Federal National Mortgage Association, 8.00% ... 207,708 4/01/2008 216,990
Federal National Mortgage Association, 8.00% ... 268,926 6/01/2008 280,944
Federal National Mortgage Association, 8.50% ... 242,463 2/01/2009 255,061
Federal National Mortgage Association, 6.00% ... 1,000,000 5/25/2022 985,310
Federal National Mortgage Association, 7.50% ... 848,459 10/01/2025 870,197
Federal National Mortgage Association, 7.50% ... 1,417,170 10/01/2025 1,453,039
Federal National Mortgage Association TBA, 7.00% 2,800,000 5/13/2028 2,824,500
Government National Mortgage Association, 6.50% 552,640 2/15/2009 558,509
Government National Mortgage Association, 6.50% 199,282 6/15/2009 201,398
Government National Mortgage Association, 6.50% 1,210,224 7/15/2009 1,223,076
Government National Mortgage Association TBA,
7.50% ........................................ 975,000 4/16/2013 1,008,211
Government National Mortgage Association, 8.00% 639,562 9/15/2017 672,135
Government National Mortgage Association, 7.00% 1,090,942 1/15/2025 1,104,578
Government National Mortgage Association, 7.50% 1,243,445 11/15/2025 1,275,302
Government National Mortgage Association TBA,
6.50% ........................................ 925,000 4/20/2028 915,461
Government National Mortgage Association TBA,
7.00% ........................................ 1,600,000 5/20/2028 1,614,500
------------
34,867,683
------------
TRUST CERTIFICATES 0.1%
Cooperative Utility Trust Certificates, 10.70% . 350,000 9/15/2017 369,617
Cooperative Utility Trust Certificates, 10.125% 225,000 3/15/2019 237,551
------------
607,168
------------
FINANCE/MORTGAGE 6.1%
Advanta Credit Card Master Trust Series 95F-A1,
6.05% ........................................ 475,000 8/01/2003 475,147
American Express Credit Account Master Trust
96-1 A, 6.80% ................................ 1,350,000 12/15/2003 1,382,481
Arcadia Automobile Trust Series 97-C A5, 6.55% . 675,000 6/15/2005 685,415
Associates Corp. of North America Sr. Note,
6.45% ........................................ 700,000 10/15/2001 707,959
Associates Corp. of North America Sr. Note,
6.70% ........................................ 1,400,000 5/29/2001 1,425,018
Bank of New York Institutional Capital Trust,
7.78%+ ....................................... 2,650,000 12/01/2026 2,729,844
Capital One Bank Sr. Note, 7.08% ............... 1,850,000 10/30/2001 1,893,845
Cigna Corp. Deb., 7.875% ....................... 1,400,000 5/15/2027 1,523,102
CIT Group Holdings Inc. Sr. Note, 6.80% ........ 1,400,000 4/17/2000 1,419,936
Citibank Credit Card Master Trust, 5.80% ....... 1,000,000 2/07/2005 987,810
Commercial Credit Group Inc. Note, 6.45% ....... 1,450,000 7/01/2002 1,461,093
Commercial Credit Group Inc. Sr. Note, 5.55% ... 1,400,000 2/15/2001 1,377,628
Countrywide Funding Corp. Note, 7.26% .......... 1,400,000 5/10/2004 1,450,316
Countrywide Funding Corp. Note, 6.58% .......... 1,100,000 9/21/2001 1,109,185
Countrywide Mortgage Inc. Series 1993-E A-1,
6.50% ........................................ 129,952 1/25/2024 129,708
Countrywide Mortgage Inc. Series 1994-2 A-7,
6.50% ........................................ 288,422 4/25/2008 287,519
Credit Suisse First Boston 97-C2 A2, 6.52% ..... 1,400,000 7/17/2007 1,404,296
DMARC Commercial Mortgage Series
98-1 A1, 6.22% ............................... 1,200,000 6/15/2031 1,204,875
DMARC Commercial Mortgage Series
98-C1 A2, 6.54% ............................. 1,100,000 6/15/2031 1,116,500
DLJ Mortgage Acceptance Corp. 97-CF2-A1A, 6.55%+ 683,566 11/15/2006 695,101
First Union Lehman Brothers Commercial 97-C2 A2,
6.60% ........................................ 1,375,000 11/18/2029 1,385,313
First USA Credit Card Master Trust Series
1997-6A, 6.42% ............................... 1,350,000 3/17/2005 1,369,143
Ford Credit Auto Loan Master Trust Series 95-1,
6.50% ........................................ 1,100,000 8/15/2002 1,109,966
Ford Credit Auto Owner Trust 1996 A, 6.50% ..... 1,497,644 11/15/1999 1,501,388
GE Global Insurance Holding Corp. Note, 7.00% .. 2,225,000 2/15/2026 2,311,174
GMAC Commercial Mortgage Security Inc. 97-C2 A,
6.45% ........................................ 691,891 12/15/2004 698,810
LB Commercial Conduit Mortgage Trust 98-C1 A1,
6.33% ........................................ 694,551 11/18/2004 690,427
MBNA Corp. Sr. Note, 6.875% .................... 675,000 11/15/2002 684,356
Morgan Stanley Capital Inc. 98-A1, 6.19% ....... 700,000 1/15/2007 699,344
Prime Credit Card Master Trust Series 1995-1A,
6.75% ........................................ 1,800,000 11/15/2005 1,837,674
Prudential Home Mortgage Securities Co. Series
93-29 A-6 PAC, 6.75% ......................... 783,282 8/25/2008 785,969
Prudential Home Mortgage Securities Co. Series
93-47A-11, 6.10% ............................. 1,300,000 12/25/2023 1,257,750
Residential Funding Corp. Series 1993-S25 A-1,
6.50% ........................................ 121,946 7/25/2008 122,098
Sears Credit Account Master Trust Series
1995-2A, 8.10% ............................... 2,650,000 6/15/2004 2,729,500
Sears Credit Account Master Trust Series
1997-1A, 6.20% ............................... 700,000 7/16/2007 704,539
Structured Asset Securities Corp. Series 97-LL1-
A1, 6.79% .................................... 1,362,463 16/12/2004 1,394,822
World Omni Automobile Lease Trust 97-B A3, 6.18% 1,400,000 11/25/2003 1,403,934
Zurich Capital Trust, 8.376%+ .................. 1,425,000 6/01/2037 1,545,341
------------
45,698,326
------------
FOREIGN GOVERNMENT 3.7%
Australian Dollar
Commonwealth of Australia, 8.75% ............... 13,500,000 8/15/2008 10,975,286
New Zealand Dollar
Government of New Zealand, 10.00% .............. 7,800,000 3/15/2002 4,670,594
Government of New Zealand, 8.00% ............... 4,850,000 11/15/2006 2,842,895
Pound Sterling
United Kingdom Treasury, 8.50% ................. 4,800,000 12/07/2005 9,222,896
------------
27,711,671
------------
CORPORATE 6.6%
Acme Boot Inc. Sr. Note Series B, 11.50% ....... 250,000 12/15/2000 105,000
Allbritton Communications Co. Sr. Sub. Deb.,
9.75% ........................................ 750,000 11/30/2007 789,375
Alvey Systems Inc. Sr. Sub. Note, 11.375% ...... 250,000 1/31/2003 268,750
American Lawyer Media Inc. Sr. Sub. Note, 9.75%+
.............................................. 250,000 12/15/2007 261,875
American Telecasting Inc. Sr. Note, 0.00% to
6/14/99, 14.50% from 6/15/99 to maturity ..... 499,947 6/15/2004 104,989
Ameristar Casinos Inc. Sr. Sub. Note, 10.50% ... 250,000 8/01/2004 267,500
Anchor Advanced Products, Inc. Series B Sr.
Note, 11.75%+ ................................ 500,000 4/01/2004 547,500
Archibald Candy Corp. Sr. Sec. Note, 10.25% .... 500,000 7/01/2004 533,750
Axia Inc. Sr. Sub. Note, 11.00% ................ 132,000 3/15/2001 134,376
Benedek Broadcasting Corp. Sr. Note, 11.875% ... 250,000 3/01/2005 281,875
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 800,000
Busse Broadcasting Corp. Sr. Sec. Note, 11.625% 500,000 10/15/2000 539,375
Capstar Broadcasting Partners Sr. Note, 0.00% to
1/31/2002, 12.75% from 2/1/2002 to maturity .. 750,000 2/01/2009 566,250
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 1,875,750
CHC Helicopter Corp. Sr. Sub. Note, 11.50% ..... 600,000 7/15/2002 639,000
Clearnet Communications Inc. Sr. Note, 0.00% to
12/14/2000, 14.75% from 12/15/2000 to maturity 750,000 12/15/2005 616,875
Columbia/HCA Healthcare Corp. Deb., 7.50% ...... 700,000 12/15/2023 621,082
Columbia/HCA Healthcare Corp. Note, 6.91% ...... 1,400,000 6/15/2005 1,292,900
Columbia/HCA Healthcare Corp. Note, 7.69% ...... 650,000 6/15/2025 598,240
Columbus McKinnon Corp. Sr. Sub. Note, 8.50%+ .. 200,000 4/01/2008 201,000
Drypers Corp. Series B Sr. Note, 10.25% ........ 500,000 6/15/2007 521,250
Econophone Inc., 0.00% to 2/14/2003, 11.00% from
2/15/2003 to maturity+ ....................... 250,000 2/15/2008 143,750
Econophone Inc. Sr. Note, 13.50% ............... 750,000 7/15/2007 862,500
Edison Mission Energy Funding Corp. Series A
Note, 6.77%+ ................................. 2,162,420 9/15/2003 2,187,699
Elgar Holdings Inc. Sr. Note, 9.875%+ .......... 150,000 2/01/2008 151,500
Elgin National Industries Inc. Sr. Note, 11.00%+ 250,000 11/01/2007 265,625
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 650,625
Envirosource Inc. Note, 9.75% .................. 1,000,000 6/15/2003 1,022,500
ERAC USA Finance Co., 6.625%+ .................. 725,000 2/15/2005 725,770
Extended Stay America Inc. Sr. Sub. Note, 9.15%+ 250,000 3/15/2008 250,625
Falcon Holding Group LP Sr. Deb., 8.375%+ ...... 1,000,000 4/15/2010 997,320
First Wave Marine Inc. Sr. Note, 11.00% ........ 250,000 2/01/2008 261,875
Fort James Corp. Note, 6.23% ................... 825,000 3/15/2001 823,840
Fort James Corp. Sr. Note, 6.625% .............. 1,350,000 9/15/2004 1,350,567
French Fragrances Inc. Sr. Note, 10.375% ....... 250,000 5/15/2007 266,250
Golden Ocean Group Ltd. Sr. Note, 10.00%+ ...... 750,000 8/31/2001 600,000
ICF International Inc. Sr. Sub. Note, 13.00% ... 375,000 12/31/2003 390,000
ICG Holdings Inc. Sr. Note, 0.00% to 9/14/2000,
13.50% from 9/15/2000 to maturity ............ 500,000 9/15/2005 426,250
ICG Services Inc. Sr. Note, 0.00% to 2/14/2003,
10.00% from 2/15/2003 to maturity+ ........... 250,000 2/15/2008 160,625
International Knife & Saw Inc. Sr. Sub. Note,
11.375% ...................................... 250,000 11/15/2006 274,375
International Shipholding Corp. Sr. Note, 7.75% 250,000 10/15/2007 245,625
International Shipholding Corp. Sr. Note, 9.00%+ 250,000 7/01/2003 256,563
International Utility Structures Inc. Sr. Sub.
Note, 10.75%+ ................................ 250,000 2/01/2008 259,375
Intertek Finance PLC Series B Sr. Sub. Note,
10.25% ....................................... 625,000 11/01/2006 662,500
Ionica PLC Sr. Note, 13.50% .................... 500,000 8/15/2006 410,000
ITC Deltacom Inc. Sr. Note, 8.875%+ ............ 150,000 3/01/2008 155,250
J.B. Poindexter Co. Inc. Sr. Note, 12.50% ...... 350,000 5/15/2004 350,000
J Crew Operating Corp. Sr. Sub. Note, 10.375%+ . 250,000 10/15/2007 235,000
Johnstown America Industries Inc. Sr. Sub. Note
Series C, 11.75% ............................. 240,000 8/15/2005 268,800
Johnstown America Industries, Inc. Sr. Sub.
Note, 11.75% ................................. 250,000 8/15/2005 280,000
Kitty Hawk Inc. Sr. Sec. Note, 9.95%+ .......... 250,000 11/15/2004 258,125
Krystal Co. Sr. Note, 10.25% ................... 250,000 10/01/2007 260,000
L 3 Communications Corp. Sr. Sub. Note, 10.375% 250,000 5/01/2007 276,875
Loehmanns Inc. Sr. Note, 11.875% ............... 300,000 5/15/2003 280,500
Microcell Telecommunications Sr. Note Series B,
0.00% to 11/30/2001, 14.00% from 12/1/2001 to
maturity ..................................... 500,000 6/01/2006 371,250
National Energy Group Inc. Sr. Note Series D,
10.75% ....................................... 250,000 11/01/2006 242,500
NBTY Inc. Sr. Sub. Note Series B, 8.625% ....... 125,000 9/15/2007 128,125
New York State Power Authority Revenue Bonds
Series D, 6.17% .............................. 2,000,000 2/15/2001 2,003,740
Newpark Resources Inc. Sr. Sub. Note, 8.625%+ .. 100,000 12/15/2007 102,250
Norcal Waste Systems Inc. Series B Sr. Note,
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 580,000
North Atlantic Trading Inc. Sr. Note, 11.00% ... 750,000 6/15/2004 778,125
Numatics Inc. Sr. Sub. Note, 9.625%+ ........... 200,000 4/01/2008 204,750
Owens Illinois Inc. Sr. Note, 8.10% ............ 250,000 5/15/2007 265,403
Packaging Resources Inc. Sr. Sec. Note, 11.625% 750,000 5/01/2003 735,000
Pagemart Nationwide Inc. Sr. Note, 0.00% to 1/
31/2000, 15.00% from 2/1/2000 to maturity .... 550,000 2/01/2005 489,500
Pathmark Stores Inc. Sub. Note, 11.625% ........ 250,000 6/15/2002 246,250
Petroliam Nasional BHD Note, 7.125%+ ........... 1,450,000 8/15/2005 1,386,852
Phase Metrics Inc. Sr. Note, 10.75%+ ........... 250,000 2/01/2005 250,000
Pool Energy Services Co., 8.625%+ .............. 150,000 4/01/2008 150,750
Primedia Inc. Sr. Note, 7.625%+ ................ 250,000 4/01/2008 245,625
Primus Telecommunications Group Sr. Note, 11.75% 250,000 8/01/2004 286,250
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 567,500
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% ... 500,000 12/15/2006 560,000
Railcar Leasing LLC Sr. Sec. Note, 6.75%+ ...... 810,188 7/15/2006 822,551
RSL Communications Ltd. Sr. Note, 12.25% ....... 525,000 11/15/2006 598,500
Sam Houston Race Park Ltd. Sr. Sec. Note, 11.00%# 156,096 9/01/2001 62,438
Sea Containers Ltd., 7.875%+ ................... 400,000 2/15/2008 394,000
SFX Entertainment Inc. Sr. Sub. Note, 9.125%+ .. 150,000 2/01/2008 147,750
Shop Vac Corp. Sr. Sec. Note, 10.625% .......... 450,000 9/01/2003 490,500
Sitel Corp. Sr Sub. Note, 9.25%+ ............... 250,000 3/15/2006 256,250
Solutia Inc. Note, 6.50% ....................... 1,400,000 10/15/2002 1,403,500
Spanish Broadcasting Systems Inc. Sr. Note, 7.50% 1,000,000 6/15/2002 1,150,000
Stena AB Sr. Note, 8.75% ....................... 250,000 6/15/2007 257,500
Sun Media Corp. Sr. Sub. Note, 9.50% ........... 325,000 2/15/2007 351,000
Tekni Plex Inc. Series B Sr. Sub. Note, 11.25% . 500,000 4/01/2007 561,250
Telemundo Group Inc. Sr. Note, 7.00% to 2/14/99,
10.50% from 2/15/99 to maturity .............. 250,000 2/15/2006 265,625
Tokheim Corp. Sr. Sub. Note, 11.50% ............ 458,000 8/01/2006 510,670
Tracor Inc. Sr. Sub. Deb., 8.50% ............... 500,000 3/01/2007 516,875
Transamerican Energy Corp. Sr. Note, 0.00% to
6/14/99, 13.00% from 6/15/99 to maturity ..... 250,000 6/15/2002 210,000
Transamerican Energy Corp. Sr. Sec. Note Series
B, 11.50% .................................... 1,000,000 6/15/2002 990,000
Transwestern Holdings LP Sr. Note, 0.00% to
11/14/2002, 11.875% from 11/15/2002 to maturity+ 250,000 11/15/2008 171,875
Transwestern Publishing Co. LP Sr.
Sub. Note, 9.625%+ ........................... 250,000 11/15/2007 264,375
Trump Atlantic City Associates First Mortgage
Note, 11.25% ................................. 200,000 5/01/2006 205,500
U.S.A. Mobile Communications Inc. Sr. Note,
14.00% ....................................... 1,000,000 11/01/2004 1,110,000
Unilab Corp. Sr. Note, 11.00% .................. 500,000 4/01/2006 527,500
Viatel Inc. Sr. Note, 15.00% ................... 250,000 1/15/2005 245,000
Wainoco Oil Corp. Sr. Note, 9.125%+ ............ 250,000 2/15/2006 248,750
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 450,000
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 150,000
------------
49,532,300
------------
FOREIGN 0.5%
Province of Quebec Deb., 7.125% ................ 375,000 2/09/2024 388,627
Usinor Sacilor ADR Note, 7.25% ................. 3,500,000 8/01/2006 3,584,140
------------
3,972,767
------------
Total Fixed Income Securities (Cost $220,521,520) ..................................... 222,680,830
-------------
CASH EQUIVALENTS 9.7%
Deere & Co., 5.55% ............................. 16,366,000 4/06/1998 16,366,000
General Electric Capital Corp., 5.53% .......... 18,621,000 4/01/1998 18,621,000
Household Finance Corp., 5.53% ................. 1,013,000 4/13/1998 1,013,000
Merrill Lynch & Company Inc., 5.80% ............ 9,754,000 4/02/1998 9,752,429
Merrill Lynch & Company Inc., 5.85% ............ 8,406,000 4/03/1998 8,403,268
Wal-Mart Stores Inc., 5.53% .................... 18,320,000 4/02/1998 18,317,191
------------
Total Cash Equivalents (Cost $72,472,888) ............................................. 72,472,888
------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Shares
- ---------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 17.9%
<S> <C> <C>
Navigator Securities Lending Prime Portfolio .............................. 134,214,390 134,214,390
-------------
Total Short-Term Investments (Cost $134,214,390) ...................................... 134,214,390
-------------
Total Investments (Cost $803,147,371) - 121.7% ........................................ 912,630,236
Other Assets, Less Liabilities - (21.7%) .............................................. (162,779,977)
-------------
Net Assets - 100.0% ................................................................... $ 749,850,259
=============
Federal Income Tax Information (Note 1):
At March 31, 1998, the net unrealized appreciation of investments
based on cost for Federal income tax purposes of $804,097,961 was as
follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost .................... $126,167,733
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value .................... (17,635,458)
------------
$108,532,275
============
</TABLE>
ADR and GDR stand for American Depositary Receipt and Global Depositary
Receipt, respectively, representing ownership of foreign securities.
* Nonincome-producing securities
# Payments of income may be made in cash or in the form of additional
securities.
(+) Security restricted as to public resale. The total cost and market value of
restricted securities owned at March 31, 1998 were $375,898 and $1,298,840
(0.17% 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, 1998 were $17,625,298 and $19,272,581 (2.57%
of net assets), respectively.
++ 268,200 shares of Abacan Resources Corp., 1,400 shares of Cabot Corp.,
141,300 shares of Maxx Petroleum Ltd., 158,780 shares of Seagull Energy
Corp. and 4,600 shares of Willbros Group Inc. are considered by the Adviser
to be part of Inflation Responsive Investments.
@ 194,400 shares of Arakis Energy Corp., 38,900 shares of KCS Energy, Inc.,
25,000 shares of Seven Seas Petroleum 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. Although the unit price has been established, the principal
value has not been finalized and may vary by no more than 1%.
Forward currency exchange contracts outstanding at March 31, 1998, 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 5,034,000 AUD 0.66880 AUD $ 32,805 6/10/98
Sell Australian dollars, buy U.S. dollars 1,141,000 AUD 0.66695 AUD 6,066 4/23/98
Sell Australian dollars, buy U.S. dollars 1,490,000 AUD 0.68109 AUD 28,022 6/10/98
Sell Australian dollars, buy U.S. dollars 962,000 AUD 0.67830 AUD 15,775 5/13/98
Sell Australian dollars, buy U.S. dollars 10,333,000 AUD 0.66740 AUD 59,582 4/23/98
Sell Australian dollars, buy U.S. dollars 2,700,000 AUD 0.66695 AUD 14,354 4/23/98
Buy Australian dollars, sell U.S. dollars 1,141,000 AUD 0.66820 AUD (7,492) 4/23/98
Buy Australian dollars, sell U.S. dollars 4,803,000 AUD 0.66885 AUD (34,659) 4/23/98
Sell British pounds, buy U.S. dollars 1,292,000 GBP 1.61900 GBP (68,339) 4/23/98
Sell British pounds, buy U.S. dollars 6,331,000 GBP 1.61900 GBP (334,873) 4/23/98
Sell British pounds, buy U.S. dollars 447,000 GBP 1.63152 GBP (18,047) 4/23/98
Buy British pounds, sell U.S. dollars 911,000 GBP 1.63515 GBP 33,474 4/23/98
Buy British pounds, sell U.S. dollars 1,739,000 GBP 1.63370 GBP 66,419 4/23/98
Sell New Zealand dollars, buy U.S. dollars 7,207,000 NZD 0.57940 NZD 202,794 4/23/98
Sell New Zealand dollars, buy U.S. dollars 4,580,000 NZD 0.58058 NZD 134,256 4/23/98
Sell New Zealand dollars, buy U.S. dollars 1,940,000 NZD 0.58265 NZD 63,209 5/13/98
Sell Japanese yen, buy U.S. dollars 539,308,000 JPY 0.00824 JPY 320,293 8/11/98
--------
$513,639
========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1998
ASSETS
Investments, at value (Cost $803,147,371) (Note 1) ........... $912,630,236
Receivable for securities sold ............................... 10,998,237
Interest and dividends receivable ............................ 3,288,982
Receivable for open forward contracts ........................ 977,049
Receivable for fund shares sold .............................. 903,636
Other assets ................................................. 34,144
------------
928,832,284
LIABILITIES
Payable for collateral received on securities loaned ......... 134,214,390
Payable for securities purchased ............................. 42,146,983
Payable for fund shares redeemed ............................. 503,335
Accrued management fee (Note 2) .............................. 465,356
Payable for open forward contracts ........................... 463,410
Accrued distribution and service fees (Note 5) ............... 393,197
Accrued transfer agent and shareholder services (Note 2) ..... 259,769
Payable to custodian ......................................... 127,797
Dividends payable ............................................ 102,269
Accrued trustees' fees (Note 2) .............................. 20,737
Other accrued expenses ....................................... 284,782
------------
178,982,025
------------
NET ASSETS $749,850,259
============
Net Assets consist of:
Undistributed net investment income ........................ $ 2,015,262
Unrealized appreciation of investments ..................... 109,482,865
Unrealized appreciation of forward contracts
and foreign currency ..................................... 507,695
Accumulated net realized gain .............................. 29,827,380
Paid-in capital ............................................ 608,017,057
------------
$749,850,259
============
Net Asset Value and redemption price per share of
Class A shares ($330,420,901 / 28,496,828 shares) .......... $11.60
======
Maximum Offering Price per share of Class A shares
($11.60 / .955) ............................................ $12.15
======
Net Asset Value and offering price per share of Class B shares
($368,974,524 / 31,937,031 shares)* ........................ $11.55
======
Net Asset Value and offering price per share of Class C shares
($23,807,027 / 2,057,545 shares)* .......................... $11.57
======
Net Asset Value, offering price and redemption price per share
of Class S shares ($26,647,807 / 2,298,157 shares) ......... $11.60
======
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net
asset value less any applicable contingent deferred sales charge.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended March 31, 1998
INVESTMENT INCOME
Interest, net of foreign taxes of $2,670 (Note 1) ............ $ 16,872,684
Dividends, net of foreign taxes of $126,848 .................. 3,826,507
------------
20,699,191
EXPENSES
Management fee (Note 2) ...................................... 4,785,350
Transfer agent and shareholder services (Note 2) ............. 1,117,620
Custodian fee ................................................ 416,333
Service fee - Class A (Note 5) ............................... 716,302
Distribution and service fees - Class B (Note 5) ............. 3,073,880
Distribution and service fees - Class C (Note 5) ............. 205,588
Reports to shareholders ...................................... 161,846
Registration fees ............................................ 121,652
Trustees' fees (Note 2) ...................................... 38,787
Audit fee .................................................... 31,070
Legal fees ................................................... 7,047
Miscellaneous ................................................ 18,020
------------
10,693,495
Expenses borne by the Distributor (Note 3) ................... (113,307)
------------
10,580,188
------------
Net investment income ........................................ 10,119,003
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
FOREIGN CURRENCY AND FORWARD CONTRACTS
Net realized gain on investments (Notes 1 and 4) ............. 80,341,652
Net realized gain on forward contracts and foreign
currency (Note 1) .......................................... 2,516,122
------------
Total net realized gain .................................... 82,857,774
------------
Net unrealized appreciation of investments ................... 67,628,064
Net unrealized appreciation of forward contracts
and foreign currency ....................................... 560,114
------------
Total net unrealized appreciation .......................... 68,188,178
------------
Net gain on investments, foreign currency and forward contracts 151,045,952
------------
Net increase in net assets resulting from operations ......... $161,164,955
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
<TABLE>
- --------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------
<CAPTION>
Years ended March 31
-------------------------------
1997 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income .................................... $ 8,179,555 $ 10,119,003
Net realized gain on investments, foreign currency and
forward contracts ...................................... 53,801,738 82,857,774
Net unrealized appreciation (depreciation) of investments,
foreign currency and forward contracts ................. (8,244,104) 68,188,178
------------- -------------
Net increase resulting from operations ................... 53,737,189 161,164,955
------------- -------------
Dividends from net investment income:
Class A ................................................ (6,086,782) (5,845,453)
Class B ................................................ (4,234,267) (3,857,267)
Class C ................................................ (289,417) (254,051)
Class S ................................................ (634,525) (535,841)
------------- -------------
(11,244,991) (10,492,612)
------------- -------------
Distributions from net realized gains:
Class A ................................................ (18,380,936) (34,942,599)
Class B ................................................ (18,075,176) (37,667,215)
Class C ................................................ (1,236,399) (2,507,060)
Class S ................................................ (1,771,455) (2,858,624)
------------- -------------
(39,463,966) (77,975,498)
------------- -------------
Net increase from fund share transactions (Note 6) ....... 97,991,295 142,539,444
------------- -------------
Total increase in net assets ............................. 101,019,527 215,236,289
NET ASSETS
Beginning of year ........................................ 433,594,443 534,613,970
------------- -------------
End of year (including undistributed net investment income
of $6,424 and $2,015,262, respectively) ................ $ 534,613,970 $ 749,850,259
============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
March 31, 1998
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. Before November 1, 1997, Class C
shares were designated Class D and Class S shares were designated Class C.
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 subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class C shares also pay annual distribution and service fees of 1.00%. Class S
shares are only offered through certain retirement accounts, advisory accounts
of State Street Research & Management Company (the "Adviser"), an indirect
wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), and special programs. No sales charge is imposed at the time
of purchase or redemption of Class S shares. Class S shares do not pay any
distribution or service fees. The Fund's expenses are borne pro-rata by each
class, except that each class bears expenses, and has exclusive voting rights
with respect to provisions of the Plan of Distribution, related specifically
to that class. The Trustees declare separate dividends on each class of
shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. INVESTMENT VALUATION
Values for listed equity securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange. Over-the-
counter securities quoted on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") system are valued at closing prices supplied
through such system. If not quoted on the NASDAQ system, such securities are
valued at prices obtained from independent brokers. In the absence of recorded
sales, valuations are at the mean of the closing bid and asked quotations.
Fixed income securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term securities maturing within sixty
days are valued at amortized cost. Other securities, if any, are valued at
their fair value as determined in good faith under consistently applied
procedures established by and under the supervision of the Trustees.
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
between both funds in the Trust.
E. DIVIDENDS
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations For the year ended March 31, 1998, the Fund has designated its
distributions from net realized gains as $23,067,072 from 20% rate gains and
$30,673,983 from 28% rate gains.
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.
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.
H. SECURITIES LENDING
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. At March 31, 1998, the value of the securities loaned and the value of
collateral were $129,312,713 and $134,214,390, respectively. During the year
ended March 31, 1998, income from securities lending amounted to $101,934 and
is included in interest income.
NOTE 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.75% of the Fund's 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, 1998, the fees
pursuant to such agreement amounted to $4,785,350.
State Street Research Service Center, 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, 1998, the amount of
such expenses was $282,130.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$38,787 during the year ended March 31, 1998.
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 period April 1, 1997 through August 31, 1997, the amount of
such expenses assumed by the Distributor and its affiliates was $113,307. On
September 1, 1997, the Distributor eliminated the voluntary assumption of fees
or expenses incurred by the Fund.
NOTE 4
For the year ended March 31, 1998, purchases and sales of securities,
exclusive of short-term obligations and forward foreign currency exchange
contracts, aggregated $879,327,948 and $798,403,163 (including $299,562,798
and $266,634,088 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 C shares. In addition, the Fund pays annual
distribution fees of 0.75% of average daily net assets for Class B and Class C
shares. The Distributor uses such payments for personal services and/or the
maintenance of shareholder accounts, to reimburse securities dealers for
distribution and marketing services, to furnish ongoing assistance to investors
and to defray a portion of its distribution and marketing expenses. For the year
ended March 31, 1998, fees pursuant to such plan amounted to $716,302,
$3,073,880 and $205,588 for Class A, Class B and Class C 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 $203,896 and $1,339,451, respectively, on sales of Class A shares of
the Fund during the year ended March 31, 1998, and that MetLife Securities, Inc.
earned commissions aggregating $2,564,919 on sales of Class B shares, and the
Distributor collected contingent deferred sales charges aggregating $483,752 and
$1,611 on redemptions of Class B and Class C 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.
Share transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------------------------------------------------
1997 1998
------------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 4,746,853 $ 50,499,204 5,722,390 $ 63,984,989
Issued upon reinvestment of:
Dividends from net investment income .................... 558,830 5,876,689 511,711 5,655,896
Distributions from net realized gains .................... 1,699,169 17,870,060 3,275,657 34,024,678
Shares repurchased ......................................... (3,698,792) (39,318,613) (4,510,796) (50,245,975)
---------- ------------ ---------- ------------
Net increase ............................................... 3,306,060 $ 34,927,340 4,998,962 $ 53,419,588
========== ============ ========== ============
CLASS B SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................ 6,191,667 $ 65,679,543 7,594,312 $ 84,286,716
Issued upon reinvestment of:
Dividends from net investment income ..................... 389,723 4,088,191 351,570 3,838,405
Distributions from net realized gains .................... 1,680,278 17,607,323 3,545,630 36,684,475
Shares repurchased ......................................... (2,845,172) (30,131,674) (3,817,822) (42,267,060)
---------- ------------ ---------- ------------
Net increase ............................................... 5,416,496 $ 57,243,383 7,673,690 $ 82,542,536
========== ============ ========== ============
CLASS C (FORMERLY CLASS D) SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................ 594,410 $ 6,307,999 465,412 $ 5,129,443
Issued upon reinvestment of:
Dividends from net investment income ..................... 25,583 268,626 20,654 226,439
Distributions from net realized gains .................... 110,940 1,163,717 221,602 2,295,214
Shares repurchased ......................................... (319,082) (3,367,499) (334,060) (3,714,768)
---------- ------------ ---------- ------------
Net increase ............................................... 411,851 $ 4,372,843 373,608 $ 3,936,328
========== ============ ========== ============
CLASS S (FORMERLY CLASS C) SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................ 718,397 $ 7,645,927 644,321 $ 7,206,721
Issued upon reinvestment of:
Dividends from net investment income ..................... 60,113 631,951 48,246 534,170
Distributions from net realized gains .................... 168,533 1,771,442 274,906 2,856,650
Shares repurchased ......................................... (802,252) (8,601,591) (714,208) (7,956,549)
---------- ------------ ---------- ------------
Net increase ............................................... 144,791 $ 1,447,729 253,265 $ 2,640,992
========== ============ ========== ============
</TABLE>
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each year:
<CAPTION>
CLASS A
----------------------------------------------------
YEARS ENDED MARCH 31
----------------------------------------------------
1994 1995 1996(1) 1997(1) 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.94 8.94 8.76 10.29 10.40
----- ----- ----- ----- -----
Net investment income ($)* 0.22 0.27 0.23 0.21 0.22
Net realized and unrealized gain (loss) on investments, foreign currency
and forward contracts ($) 0.72 (0.14) 1.72 1.05 2.61
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.94 0.13 1.95 1.26 2.83
----- ----- ----- ----- -----
Dividends from net investment income ($) (0.22) (0.17) (0.26) (0.28) (0.23)
Distributions from net realizedgains ($) (0.72) (0.14) (0.16) (0.87) (1.40)
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.94) (0.31) (0.42) (1.15) (1.63)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 8.94 8.76 10.29 10.40 11.60
===== ===== ===== ===== =====
Total return(3) (%) 10.96 1.52 22.55 12.49 29.62
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 166,011 181,358 207,713 244,348 330,421
Ratio of operating expenses to average net assets (%)* 1.25 1.25 1.25 1.25 1.28
Ratio of net investment income to average net assets (%)* 2.75 3.11 2.34 2.02 1.96
Portfolio turnover rate (%) 105.17 89.58 109.20 108.41 133.30
Average commission rate(6) ($) -- -- -- 0.0266 0.0270
*Reflects voluntary assumption of fees or expenses per share in each
year (Note 3) ($) 0.02 0.03 0.02 0.01 0.00
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
YEARS ENDED MARCH 31
----------------------------------------------------
1994(2) 1995 1996(1) 1997(1) 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.78 8.92 8.74 10.25 10.37
----- ----- ----- ----- -----
Net investment income ($)* 0.16 0.20 0.15 0.13 0.13
Net realized and unrealized gain (loss) on investments, foreign currency
and forward contracts ($) 0.39 (0.13) 1.71 1.06 2.59
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.55 0.07 1.86 1.19 2.72
----- ----- ----- ----- -----
Dividends from net investment income ($) (0.18) (0.11) (0.19) (0.20) (0.14)
Distributions from net realized gains ($) (0.23) (0.14) (0.16) (0.87) (1.40)
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.41) (0.25) (0.35) (1.07) (1.54)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 8.92 8.74 10.25 10.37 11.55
===== ===== ===== ===== =====
Total return(3) (%) 6.26(4) 0.82 21.48 11.76 28.53
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 83,244 152,251 193,272 251,518 368,975
Ratio of operating expenses to average net assets (%)* 2.00(5) 2.00 2.00 2.00 2.03
Ratio of net investment income to average net assets (%)* 2.03(5) 2.38 1.59 1.27 1.21
Portfolio turnover rate (%) 105.17 89.58 109.20 108.41 133.30
Average commission rate(6) ($) -- -- -- 0.0266 0.0270
*Reflects voluntary assumption of fees or expenses per share in each
year (Note 3) ($) 0.03 0.03 0.02 0.01 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) June 1, 1993 (commencement of share class designations) to March 31, 1994.
(3) 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.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid by the Fund for security trades on which commissions are charged beginning with the
fiscal year ended March 31, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS C (FORMERLY CLASS D)
----------------------------------------------------
YEARS ENDED MARCH 31
----------------------------------------------------
1994(2) 1995 1996(1) 1997(1) 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.78 8.93 8.75 10.27 10.38
----- ----- ----- ----- -----
Net investment income ($)* 0.16 0.20 0.15 0.13 0.13
Net realized and unrealized gain (loss) on investments, foreign currency
and forward contracts ($) 0.40 (0.13) 1.72 1.05 2.60
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.56 0.07 1.87 1.18 2.73
----- ----- ----- ----- -----
Dividends from net investment income ($) (0.18) (0.11) (0.19) (0.20) (0.14)
Distributions from net realized gains ($) (0.23) (0.14) (0.16) (0.87) (1.40)
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.41) (0.25) (0.35) (1.07) (1.54)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 8.93 8.75 10.27 10.38 11.57
===== ===== ===== ===== =====
Total return(3) (%) 6.31(4) 0.82 21.54 11.64 28.59
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 7,117 12,772 13,061 17,485 23,807
Ratio of operating expenses to average net assets (%)* 2.00(5) 2.00 2.00 2.00 2.03
Ratio of net investment income to average net assets (%)* 2.03(5) 2.39 1.60 1.26 1.21
Portfolio turnover rate (%) 105.17 89.58 109.20 108.41 133.30
Average commission rate(6) ($) -- -- -- 0.0266 0.0270
*Reflects voluntary assumption of fees or expenses per share in each
year (Note 3) ($) 0.03 0.03 0.02 0.01 0.00
</TABLE>
<TABLE>
<CAPTION>
CLASS S (FORMERLY CLASS C)
----------------------------------------------------
YEARS ENDED MARCH 31
----------------------------------------------------
1994(2) 1995 1996(1) 1997(1) 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.78 8.95 8.77 10.29 10.40
----- ----- ----- ----- -----
Net investment income ($)* 0.21 0.29 0.25 0.24 0.25
Net realized and unrealized gain (loss) on investments, foreign currency
and forward contracts ($) 0.43 (0.14) 1.71 1.05 2.60
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.64 0.15 1.96 1.29 2.85
----- ----- ----- ----- -----
Dividends from net investment income ($) (0.24) (0.19) (0.28) (0.31) (0.25)
Distributions from net realized gains ($) (0.23) (0.14) (0.16) (0.87) (1.40)
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.47) (0.33) (0.44) (1.18) (1.65)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 8.95 8.77 10.29 10.40 11.60
===== ===== ===== ===== =====
Total return(3) (%) 7.27(4) 1.77 22.70 12.77 29.93
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 21,434 25,803 19,548 21,263 26,648
Ratio of operating expenses to average net assets (%)* 1.00(5) 1.00 1.00 1.00 1.03
Ratio of net investment income to average net assets (%)* 3.03(5) 3.37 2.59 2.26 2.21
Portfolio turnover rate (%) 105.17 89.58 109.20 108.41 133.30
Average commission rate(6) ($) -- -- -- 0.0266 0.0270
*Reflects voluntary assumption of fees or expenses per share in each
year (Note 3) ($) 0.02 0.03 0.02 0.01 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) June 1, 1993 (commencement of share class designations) to March 31, 1994.
(3) 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.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid by the Fund for security trades on which commissions are charged beginning with the
fiscal year ended
March 31, 1997.
</TABLE>
<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, 1998, 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, 1998 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 8, 1998
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Managed Assets was among the stronger performers in its category for the year
ended March 31, 1998. The total return for the Fund's Class A shares was
29.62% (without sales charge). The Fund outperformed the average of the 203
flexible portfolio funds tracked by Lipper Analytical Services, which rose
28.72%.
At March 31, 1998, the Fund's asset allocation was 60% stocks, 30% fixed-
income securities, 5% inflation-responsive and 5% cash. The stock portion of
the Fund was composed primarily of large-cap stocks, mid-cap value stocks, and
small-cap growth stocks. Large-company stocks were the largest contributor to
performance. Even though large-company stocks were market leaders during the
period, we reduced the number of large caps and added small- and mid-cap
stocks to the portfolio. We believed smaller stocks were more attractively
priced, had the potential for greater earnings growth, and would benefit from
a cut in the capital gains tax rate. Because oil prices declined as a result
of the Asian crisis and overproduction, we reduced oil stocks, which we had
owned as a hedge against the possibility of rising inflation.
The bond portion of the portfolio emphasized a combination of high-income,
investment-grade and international bonds. High-income bonds outperformed other
types of fixed-income securities during the period.
March 31, 1998
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 reflects maximum 4.5% "A"
share front-end, or 5% "B" share or 1% "C" share contingent deferred sales
charges. "S" shares, offered without a sales charge, are available only
through certain employee benefit plans and special programs. The Standard &
Poor's 500 Composite Index (S&P 500) includes 500 widely traded common stocks
and is a commonly used measure of U.S. stock market performance. Lehman
Brothers Government/Corporate Bond Index is a commonly used index of bond
market performance. Indices are unmanaged and do not take sales charges into
consideration. Direct investment in the indices is not possible; results are
for illustrative purposes only. Before November 1, 1997, Class C shares were
designated Class D, and Class S shares were designated Class C.
COMPARISON OF CHANGE IN VALUE OF A $10,000
INVESTMENT IN MANAGED ASSETS, THE S&P 500 AND
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX
CLASS A SHARES
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
1 Year 5 Years 10 Years
- ------ ------- --------
+23.79% +13.96% +12.80%
Managed Assets LB Gov't/Corp Index S&P 500
- ---------------------------------------------------------
12/88 $ 9,550 $10,000 $10,000
3/89 9,980 10,110 10,710
3/90 11,030 11,290 12,770
3/91 11,480 12,700 14,600
3/92 13,000 14,150 16,210
3/93 15,150 16,170 18,680
3/94 16,820 16,620 18,950
3/95 17,070 17,380 21,900
3/96 20,910 19,280 28,920
3/97 23,530 20,140 34,650
3/98 30,501 22,635 51,267
CLASS B SHARES
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
1 Year 5 Years 10 Years
- ------ ------- --------
+23.53% +13.93% +12.91%
Managed Assets LB Gov't/Corp Index S&P 500
- ---------------------------------------------------------
12/88 $10,000 $10,000 $10,000
3/89 10,430 10,110 10,710
3/90 11,550 11,290 12,770
3/91 12,020 12,700 14,600
3/92 13,620 14,150 16,210
3/93 15,870 16,170 18,680
3/94 17,500 16,620 18,950
3/95 17,650 17,380 21,900
3/96 21,450 19,280 28,920
3/97 23,950 20,140 34,650
3/98 30,775 22,635 51,267
CLASS C SHARES
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
1 Year 5 Years 10 Years
- ------ ------- --------
+27.59% +14.18% +12.91%
Managed Assets LB Gov't/Corp Index S&P 500
- ---------------------------------------------------------
12/88 $10,000 $10,000 $10,000
3/89 10,430 10,110 10,710
3/90 11,550 11,290 12,770
3/91 12,020 12,700 14,600
3/92 13,620 14,150 16,210
3/93 15,870 16,170 18,680
3/94 17,500 16,620 18,950
3/95 17,640 17,380 21,900
3/96 21,430 19,280 28,920
3/97 23,950 20,140 34,650
3/98 30,792 22,635 51,267
CLASS S SHARES
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
1 Year 5 Years 10 Years
- ------ ------- --------
+29.93% +15.29% +13.50%
Managed Assets LB Gov't/Corp Index S&P 500
- --------------------------------------------------------
12/88 $10,000 $10,000 $10,000
3/89 10,430 10,110 10,710
3/90 11,550 11,290 12,770
3/91 12,020 12,700 14,600
3/92 13,650 14,150 16,210
3/93 15,870 16,170 18,680
3/94 17,660 16,620 18,950
3/95 17,970 17,380 21,900
3/96 22,050 19,280 28,920
3/97 24,870 20,140 34,650
3/98 32,313 22,635 51,267
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- ---------------------------------------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH INCOME TRUST
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FUND INFORMATION OFFICERS TRUSTEES
STATE STREET RESEARCH RALPH F. VERNI RALPH F. VERNI
MANAGED ASSETS Chairman of the Board, Chairman of the Board,
One Financial Center President and President, Chief Executive
Boston, MA 02111 Chief Executive Officer Officer and Director,
State Street Research &
INVESTMENT ADVISER PETER C. BENNETT Management Company
State Street Research & Vice President
Management Company STEVE A. GARBAN
One Financial Center BARTLETT R. GEER Retired; formerly Senior Vice
Boston, MA 02111 Vice President President for Finance and
Operations and Treasurer, The
DISTRIBUTOR JOHN H. KALLIS Pennsylvania State University
State Street Research Vice President
Investment Services, Inc. MALCOLM T. HOPKINS
One Financial Center THOMAS A. SHIVELY Former Vice Chairman of the
Boston, MA 02111 Vice President Board and Chief Financial
Officer, St. Regis Corp.
SHAREHOLDER SERVICES GERARD P. MAUS
State Street Research Treasurer EDWARD M. LAMONT
Service Center Formerly in banking (Morgan
P.O. Box 8408 JOSEPH W. CANAVAN Guaranty Trust Company of
Boston, MA 02266-8408 Assistant Treasurer New York); presently engaged
1-800-562-0032 in private investments and
DOUGLAS A. ROMICH civic affairs
CUSTODIAN Assistant Treasurer
State Street Bank and ROBERT A. LAWRENCE
Trust Company FRANCIS J. MCNAMARA, III Associate, Saltonstall & Co.
225 Franklin Street Secretary and General Counsel
Boston, MA 02110 DEAN O. MORTON
DARMAN A. WING Retired; formerly Executive
LEGAL COUNSEL Assistant Secretary and Vice President, Chief
Goodwin, Procter & Hoar LLP Assistant General Counsel Operating Officer and Director,
Exchange Place Hewlett-Packard Company
Boston, MA 02109 AMY L. SIMMONS
Assistant Secretary TOBY ROSENBLATT
INDEPENDENT ACCOUNTANTS President,
Price Waterhouse LLP The Glen Ellen Company
160 Federal Street Vice President,
Boston, MA 02110 Founders Investments Ltd.
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
</TABLE>
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS -------------------
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Permit #20
Holliston, MA 01746
-------------------
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032 or
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
[LOGO] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Managed Assets
prospectus. When used after June 30, 1998, 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 awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: 4929-980520(0699)SSR-LD
MA-078F-0598
