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STATE STREET RESEARCH
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HIGH INCOME FUND
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SEMIANNUAL REPORT
September 30, 1998
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WHAT'S INSIDE
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INVESTMENT UPDATE
About the Fund,
economy and markets
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 STATE STREET RESEARCH FUNDS
Shareholder Service
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
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INVESTMENT UPDATE
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INVESTMENT ENVIRONMENT
THE ECONOMY
o The economy continued strong during the first half of 1998. Personal income
rose, and unemployment remained at a low 4.5%. Inflation remained in check at
1.6%.
o The third quarter saw U.S. consumer and capital spending still satisfactory,
but increasingly at risk. Consumers were exposed to stock market volatility,
the savings rate was zero, and job growth was slowing. Capital spending was
vulnerable to earnings deterioration, falling operating rates, and a possible
credit crunch.
o The Federal Reserve Board lowered interest rates by one-quarter percent late
in September.
THE MARKETS
o The Fed's interest rate cut came on the heels of a volatile second quarter.
Stocks hit a high of 9337.97 in mid-July, then plunged nearly 1500 points to
close the quarter at 7842.62. The S&P 500 fell -6.93%.(1)
o The bond market produced mixed results. High quality U.S. Treasury bonds were
strong performers as the yield on the benchmark 30-year Treasury fell below
5.0% during the period. In contrast, high-yield bonds sold off, driven by
fears of an economic slowdown.
THE FUND
OVER THE PAST SIX MONTHS
o For the six months ended September 30, 1998, State Street Research High
Income Fund Class A shares lost -7.23% (does not reflect sales charge).(2)
That loss was slightly more than the Lipper High Income Average, which fell
-6.84% and more than the First Boston High Yield Index, which lost -4.96%.
o We increased our investment in BB-rated bonds, which fared better than lower-
quality B-rated bonds.
CURRENT STRATEGY
o The Fund is positioned defensively against the possibility of a weaker
economy. The weightings in BB-rated bonds and in cash are relatively high for
the Fund.
o We believe that the recent sell-off in the high yield market has been driven
somewhat by investor psychology and reflects fear of an economic slowdown and
deterioration in global economies. That outlook has brought high yield bonds
down to a historically low level.
o We believe that interest rates could come down even further and that, if the
economy stabilizes or gets stronger, the potential for improvement from the
current low valuations in the high-yield bond sector is significant.
September 30, 1998
(1) The S&P 500 (officially the "Standard and Poor's 500 Composite Stock Price
Index") is an unmanaged index of 500 U.S. stocks. The First Boston High
Yield Index is a commonly used measure of high- yield bond performance. The
indices do not take transaction charges into consideration. It is not
possible to invest directly in the indices.
(2) -7.47% for Class B shares; -7.46% for Class C shares; -7.00% for Class S
shares.
(3) Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a gain
or loss when you sell your shares. All returns assume reinvestment of
capital gain distributions and income dividends at net asset value.
Performance reflects a maximum 4.5% Class A share front-end sales charge, or
5% Class B share or 1% Class C share contingent deferred sales charge, where
applicable.
(4) Class S shares, offered without a sales charge, are available through
certain employee benefit plans and special programs.
(5) The fund's returns include performance before the creation of share classes.
If this performance reflected the share classes' current 12b-1 fees, the
fund's returns may have been lower.
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.
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FUND INFORMATION (all data are for periods ended September 30, 1998)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(at maximum applicable sales charge)(3)(4)(5)
- ------------------------------------------------------------------------
10 YEARS 5 YEARS 1 YEAR
- ------------------------------------------------------------------------
Class A +9.14% +7.80% -5.35%
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Class B +9.18% +7.69% -6.08%
- ------------------------------------------------------------------------
Class C +9.19% +7.94% -2.51%
- ------------------------------------------------------------------------
Class S +9.76% +9.04% -0.63%
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ASSET ALLOCATION*
(by percentage of net assets)
B 55%
BB 15%
CASH 9%
COMMON STOCKS 7%
CONVERTIBLES 7%
CCC 4%
PREFERRED STOCKS 2%
BBB 1%
Quality ratings based on those provided by Standard & Poor's Corp. and/or
equivalent ratings by Moody's Investors Service, Inc.
* 6% 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 & COMMUNICATIONS 16.8%
CONSUMER GOODS 13.2%
MEDIA 9.0%
CAPITAL GOODS/EQUIPMENT 4.0%
CONGLOMERATE 4.0%
Total 47.0%
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
<TABLE>
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INVESTMENT PORTFOLIO
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September 30, 1998 (Unaudited)
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<CAPTION>
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PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 75.6%
AEROSPACE/DEFENSE 0.6%
American Pacific Corp. Sr. Note, 9.25% ..................... $ 6,750,000 3/01/2005 $ 6,615,000
--------------
AIRLINES 0.3%
Kitty Hawk Inc. Sr. Sec. Note, 9.95% ....................... 3,250,000 11/15/2004 3,250,000
--------------
AUTOMOTIVE PARTS 0.3%
J.H. Heafner Inc. Sr. Note, 10.00%+ ........................ 3,500,000 5/15/2008 3,255,000
--------------
CABLE TELEVISION 0.9%
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 4,268,489
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 498,300
Falcon Holding Group LP Series B Sr. Deb., 8.375%+ ......... 4,600,000 4/15/2010 4,554,000
--------------
9,320,789
--------------
CAPITAL GOODS/EQUIPMENT 4.0%
Alvey Systems Inc. Sr. Sub. Note, 11.375% .................. 5,625,000 1/31/2003 5,835,938
Ametek Inc. Sr. Note, 7.20%+ ............................... 7,300,000 7/15/2008 7,501,626
Ball Corp. Sr. Note, 7.75%+ ................................ 3,000,000 8/01/2006 3,090,000
Ball Corp. Sr. Sub. Note, 8.25%+ ........................... 9,150,000 8/01/2008 9,401,625
Columbus McKinnon Corp. Sr. Sub. Note, 8.50% ............... 3,000,000 4/01/2008 2,655,000
Elgin National Industries Inc. Sr. Note Series B, 11.00% ... 2,700,000 11/01/2007 2,794,500
International Knife & Saw Inc. Sr. Sub. Note, 11.375% ...... 3,650,000 11/15/2006 3,750,375
Tokheim Corp. Sr. Sub. Note Series B, 11.50% ............... 5,906,000 8/01/2006 6,673,780
--------------
41,702,844
--------------
CONGLOMERATE 4.0%
International Utility Structures Sr. Sub. Note, 10.75%+ .... 2,750,000 2/01/2008 2,447,500
J.B. Poindexter Inc. Sr. Note, 12.50% ...................... 12,150,000 5/15/2004 11,421,000
KTI Inc. Exch. Note, 8.75% ................................. 250,000 8/15/2004 403,125
Owens-Illinois Inc. Sr. Deb., 7.50% ........................ 19,750,000 5/15/2010 21,071,670
Simonds Industries Inc. Sr. Sub. Note, 10.25%+ ............. 5,700,000 7/01/2008 5,614,500
--------------
40,957,795
--------------
CONSUMER GOODS & SERVICES 13.2%
Drypers Corp. Series B Sr. Note, 10.25% .................... 5,850,000 6/15/2007 5,382,000
Empire Gas Corp. Sr. Sec. Note, 7.00% to 7/14/99,
12.875% from 7/15/99 to maturity ......................... 16,730,000 7/15/2004 12,882,100
Envirosource Inc. Note, 9.75% .............................. 19,000,000 6/15/2003 18,050,000
Envirosource Inc. Sr. Note Series B, 9.75% ................. 3,250,000 6/15/2003 2,957,500
Henry Co. Sr. Note, 10.00%+ ................................ 5,350,000 4/15/2008 5,082,500
Intertek Finance PLC Series B Sr. Sub. Note, 10.25% ........ 17,900,000 11/01/2006 16,468,000
Krystal Co. Sr. Note, 10.25% ............................... 4,250,000 10/01/2007 4,228,750
Norcal Waste Systems Inc. Sr. Note Series B, 13.50% ........ 7,940,000 11/15/2005 9,131,000
North Atlantic Trading Inc. Sr. Note, 11.00% ............... 12,500,000 6/15/2004 11,812,500
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 22,368,375
Purina Mills Inc. Sr. Sub. Note, 9.00% ..................... 2,500,000 3/15/2010 2,450,000
Real Time Data Inc. Sub. Note, 0.00% to 8/14/2001,
13.50% from 8/15/2001 to maturity+ ....................... 25,500,000 8/15/2006 12,367,500
Rose Hills Co. Sr. Sub. Note, 9.50% ........................ 5,250,000 11/15/2004 4,987,500
Shop Vac Corp. Sr. Sec. Note, 10.625% ...................... 7,500,000 9/01/2003 7,950,000
--------------
136,117,725
--------------
COSMETICS 0.8%
French Fragrances Inc. Sr. Note Series B, 10.375% .......... 8,250,000 5/15/2007 8,497,500
--------------
ENTERTAINMENT/LEISURE 0.8%
SFX Entertainment Inc. Sr. Note Series B, 9.125% ........... 8,500,000 2/01/2008 7,905,000
--------------
ELECTRIC UTILITY 0.1%
Niagara Mohawk Power Corp. Sr. Note Series G, 7.75% ........ 500,000 10/01/2008 533,295
--------------
FOOD & BEVERAGE 2.3%
Archibald Candy Corp. Sr. Sec. Note, 10.25% ................ 12,600,000 7/01/2004 12,694,500
Aurora Foods Inc. Sr. Sub. Note, 8.75% ..................... 1,250,000 7/01/2008 1,287,500
NE Restaurant Company, Inc. Sr. Note, 10.75%+ .............. 4,950,000 7/15/2008 4,727,250
Silgan Holdings Inc. Sub. Deb., 13.25% ..................... 1,123,000 7/15/2006 1,235,300
Tom's Foods Inc. Sr. Sec. Note, 10.50% ..................... 4,500,000 11/01/2004 4,185,000
--------------
24,129,550
--------------
GAMING & LODGING 0.6%
Ameristar Casinos Inc. Sr. Sub. Note, 10.50% ............... 6,750,000 8/01/2004 6,446,250
--------------
GROCERY 0.3%
Pathmark Stores Inc. Sub. Deb., 12.625% .................... 3,250,000 6/15/2002 3,087,500
Safeway Inc. Lease Certificate, 13.50% ..................... 90,123 1/15/2009 109,950
Victory Markets Inc. Sub. Deb., 12.50%[ ] .................. 925,000 3/15/2000 46,250
--------------
3,243,700
--------------
HOSPITAL/HEALTH CARE 3.4%
Dade International Inc. Sr. Sub. Note, 11.125% ............. 4,000,000 5/01/2006 4,300,000
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% ............... 8,500,000 12/15/2006 9,095,000
Tenet Healthcare Corp. Sr. Note, 7.625%+ ................... 6,000,000 6/01/2008 6,060,000
Tenet Healthcare Corp. Sr. Note, 8.00% ..................... 8,000,000 1/15/2005 8,120,000
Unilab Corp. Sr. Note, 11.00% .............................. 7,400,000 4/01/2006 7,622,000
--------------
35,197,000
--------------
HOTEL & RESTAURANT 0.1%
Extended Stay America Inc. Sr. Sub. Note, 9.15% ............ 750,000 3/15/2008 690,000
--------------
MEDIA 9.0%
Advanstar Commerce Inc. Sr. Note, 9.25%+ ................... 7,400,000 5/01/2008 7,178,000
Allbritton Communications Co. Sr. Sub. Deb., 9.75% ......... 6,795,000 11/30/2007 6,964,875
American Lawer Media Holdings Inc. Sr. Note Series
B, 12.25% ................................................ 2,650,000 12/15/2008 1,590,000
American Lawyer Media Inc. Sr. Sub. Note Series B, 9.75% ... 9,350,000 12/15/2007 9,350,000
Benedek Broadcasting Corp. Sr. Note, 11.875% ............... 6,250,000 3/01/2005 6,687,500
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 12,210,000
Capstar Broadcasting Corp. 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
CBS Radio Corp. Sub. Note, 11.375% ......................... 1,316,000 1/15/2009 1,510,110
CD Radio Inc. Sr. Note, 0.00% to
11/30/2002, 15.00% from 12/1/2002 to maturity ............ 750,000 12/01/2007 307,500
Intermedia Capital Partners LP Sr. Note, 11.25% ............ 6,250,000 8/01/2006 6,750,000
K-III Communications Corp. Sr. Note, 8.50% ................. 950,000 2/01/2006 959,500
Outdoor Systems Inc. Sr. Sub. Note, 9.375% ................. 900,000 10/15/2006 938,250
Primedia Inc. Sr. Note, 7.625% ............................. 8,250,000 4/01/2008 8,002,500
R.H. Donnelley Inc. Sr. Sub. Note, 9.125%+ ................. 3,000,000 6/01/2008 3,048,750
Spanish Broadcasting Systems Inc. Sr. Note, 12.50% ......... 13,250,000 6/15/2002 14,442,500
Transwestern Holdings LP Sr. Note Series B, 0.00%
to 11/14/2002, 11.875% from 11/15/2002 to maturity ....... 1,700,000 11/15/2008 1,062,500
--------------
92,893,235
--------------
METALS/MINING/STEEL 2.2%
Crown Resources Corp. Cv. Sub. Deb., 5.75% ................. 860,000 8/27/2001 662,200
Great Central Mines Ltd. Sr. Note, 8.875% .................. 8,750,000 4/01/2008 8,268,750
Johnstown America Industries Inc. Sr. Sub. Note, 11.75% .... 5,250,000 8/15/2005 5,407,500
Kaiser Aluminum & Chemical Corp. Sr. Sub. Note, 12.75% ..... 2,500,000 2/01/2003 2,425,000
P&L Coal Holdings Corp. Sr. Note, 8.875%+ .................. 5,650,000 5/15/2008 5,727,688
--------------
22,491,138
--------------
OIL & GAS 1.8%
Frontier Corp. Sr. Note, 9.125% ............................ 10,050,000 2/15/2006 9,145,500
Moran Energy Inc. Cv. Deb., 8.75% .......................... 2,420,000 1/15/2008 2,335,300
Ocean Energy Inc. Sr. Note, 7.625%+ ........................ 3,250,000 7/01/2005 3,201,250
Ocean Energy Inc. Sr. Sub. Note, 8.375%+ ................... 4,250,000 7/01/2008 4,058,750
--------------
18,740,800
--------------
OIL SERVICE 3.5%
GNI Group Inc. Sr. Note, 10.875%+ .......................... 6,000,000 7/15/2005 5,970,000
Newpark Resources Inc. Sr. Sub. Note Series B, 8.625% ...... 4,300,000 12/15/2007 4,085,000
Pool Energy Services Co. Sr. Sub. Note, 8.625% ............. 7,050,000 4/01/2008 6,168,750
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 10,440,000
Transamerican Energy Corp. Sr. Sec. Note Series B, 11.50% .. 17,500,000 6/15/2002 9,625,000
--------------
36,288,750
--------------
PAPER PRODUCTS 1.3%
Buckeye Technologies Inc. Sr. Sub. Note, 8.00% ............. 6,000,000 10/15/2010 5,730,000
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
General Binding Corp. Sr. Note, 9.375% ..................... 7,700,000 6/01/2008 7,661,500
--------------
13,841,500
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PLASTICS 2.0%
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% ............. 8,750,000 4/01/2007 9,143,750
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21,148,750
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RETAIL TRADE 1.6%
J. Crew Group Inc. Sr. Deb., 0.00% to 10/14/2002,
13.125% from 10/15/2002 to maturity ...................... 11,150,000 10/15/2008 4,348,500
J. Crew Operating Corp. Sr. Sub. Note, 10.375% ............. 7,000,000 10/15/2007 5,250,000
Loehmanns Inc. Sr. Note, 11.875% ........................... 7,442,000 5/15/2003 6,772,220
--------------
16,370,720
--------------
SHIPPING/TRANSPORTATION 3.8%
Cenargo International Ltd. Note, 9.75%+ .................... 6,250,000 6/15/2008 5,062,500
First Wave Marine Inc. Sr. Note, 11.00% .................... 3,250,000 2/01/2008 3,087,500
Golden Ocean Group Ltd. Sr. Note, 10.00% ................... 13,000,000 8/31/2001 6,045,000
International Shipholding Corp. Sr. Note, 9.00% ............ 4,500,000 7/01/2003 4,573,125
International Shipholding Corp. Sr. Note Series B, 7.75% ... 7,150,000 10/15/2007 6,506,500
Pegasus Shipping Hellas Ltd. Pfd. Note Series A, 11.875% ... 3,500,000 11/15/2004 3,360,000
Sea Containers Ltd. Sr. Note Series B, 7.875% .............. 5,900,000 2/15/2008 5,575,500
Stena AB Sr. Note, 8.75% ................................... 5,250,000 6/15/2007 4,908,750
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39,118,875
--------------
TECHNOLOGY/COMMUNICATIONS 16.8%
Advanced Radio Telecom Corp. Sr. Note, 14.00% .............. 2,200,000 2/15/2007 1,650,000
American Business Information, Inc. Note, 9.50%+ ........... 1,750,000 6/15/2008 1,557,500
Argo-Tech Corp. Sr. Sub. Note, 8.625% ...................... 3,000,000 10/01/2007 2,835,000
Celcaribe SA Sr. Sec. Note, 13.50% ......................... 5,810,000 3/15/2004 5,519,500
Cellnet Data Systems Inc. Sr. Note Series B, 0.00%
to 9/30/2002, 14.00% from 10/1/2002 to maturity .......... 13,500,000 10/01/2007 4,725,000
Concentric Network Corp. Sr. Note, 12.75% .................. 1,500,000 12/15/2007 1,395,000
Dobson Wireline Co. Sr. Note, 12.25%+ ...................... 1,500,000 6/15/2008 1,320,000
E. Spire Communications Inc. Sr. Note, 0.00% to 3/
31/2001, 12.75% from 4/1/2001 to maturity ................ 3,850,000 4/01/2006 2,839,375
Econophone Inc. Sr. Note, 0.00% to
2/14/2003, 11.00% from 2/15/2003 to maturity ............. 13,700,000 2/15/2008 6,850,000
Econophone Inc. Sr. Note, 13.50% ........................... 15,250,000 7/15/2007 15,860,000
Elgar Holdings Inc. Sr. Sub. Note, 9.875% .................. 4,250,000 2/01/2008 3,570,000
ICG Holdings Inc. Sr. Note, 0.00% to
9/14/2000, 13.50% from 9/15/2000 to maturity ............. 7,600,000 9/15/2005 5,928,000
Ionica PLC Sr. Note, 13.50% ................................ 10,250,000 8/15/2006 3,075,000
Microcell Telecommunications, Inc. Sr. Note Series
B, 0.00% to 10/14/2002, 11.125% from 10/15/2002 to maturity 24,200,000 10/15/2007 8,566,652
Mobilemedia Communications Inc. Sr. Sub. Note,
0.00% to 11/30/98, 10.50% from 12/1/98 to maturity ....... 20,040,000 12/01/2003 3,406,800
Mobilemedia Communications Inc. Sr. Sub. Note, 9.375%[ ] ... 5,000,000 11/01/2007 900,000
Orion Network Systems Inc. Sr. Note, 11.25% ................ 11,000,000 1/15/2007 10,450,000
Pagemart Wireless Inc. Sr. Sub. Note, 0.00% to 1/
31/2003, 11.25% from 2/1/2003 to maturity ................ 4,500,000 2/01/2008 2,430,000
Paging Network Do Brasil SA Sr. Note, 13.50% ............... 750,000 6/06/2005 322,500
Phase Metrics Inc. Sr. Note, 10.75%+ ....................... 12,000,000 2/01/2005 8,700,000
Primus Telecommunications Group Sr. Note, 11.75% ........... 6,550,000 8/01/2004 6,288,000
Protection One Alarm Inc. Sr. Sub. Note, 0.00% to
6/29/98, 13.625% from 6/30/98 to maturity ................ 4,400,000 6/30/2005 4,939,000
RSL Communications Ltd. Sr. Note, 12.25% ................... 13,664,000 11/15/2006 14,142,240
Sitel Corp. Sr. Sub. Note, 9.25%+ .......................... 5,750,000 3/15/2006 5,347,500
Startec Global Communications Corp. Sr. Note, 12.00%+ ...... 8,500,000 5/15/2008 7,352,500
Telecommunications Techniques Co. Sr. Sub. Note, 9.75%+ .... 2,250,000 5/15/2008 2,047,500
Time Warner Telecom LLC Sr. Note, 9.75% .................... 2,500,000 7/15/2008 2,500,000
Transwestern Publishing Co. LP Sr. Sub. Note, 9.625% ....... 1,750,000 11/15/2007 1,785,000
U.S.A. Mobile Communications Inc. Sr. Note, 9.50% .......... 6,750,000 2/01/2004 6,007,500
Viatel Inc. Sr. Note, 0.00% to
4/14/2003, 12.50% from 4/15/2003 to maturity+ ............ 10,350,000 4/15/2008 5,071,500
Viatel Inc. Sr. Note, 11.25%+ .............................. 8,350,000 4/15/2008 7,598,500
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 6,655,500
Winstar Equipment Corp. Sr. Sec. Exch. Note, 12.50% ........ 8,850,000 3/15/2004 8,053,500
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 2,541,250
Wireless One Inc. Sr. Note, 13.00% ......................... 10,600,000 10/15/2003 1,643,000
--------------
173,872,817
--------------
TEXTILE & APPAREL 1.9%
Cluett American Corp. Sr. Sub. Note, 10.125%+ .............. 1,950,000 5/15/2008 1,774,500
Westpoint Stevens Inc. Sr. Note, 7.875%+ ................... 18,000,000 6/15/2008 18,270,000
--------------
20,044,500
--------------
Total Bonds (Cost $892,889,970) .............................................................. 782,672,533
--------------
<CAPTION>
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SHARES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS 9.0%
BANK 0.2%
RB Asset Inc. Pfd. Series A* ................................................. 110,000 2,048,200
--------------
CONGLOMERATE 0.0%
International Utility Structures Inc. Exch. Pfd.# ............................ 114 10,323
--------------
CONSUMER GOODS & SERVICES 0.4%
North Atlantic Trading Inc. Sr. Pfd.# ........................................ 184,565 4,244,995
--------------
ELECTRONIC COMPONENTS 0.5%
Nextel Communications Inc. Series D Exch. Pfd.# .............................. 4,688 4,781,770
--------------
FOREST PRODUCT 0.1%
Equitable Bag Inc. Series A Pfd.* ............................................ 134,760 1,617,120
--------------
HOTEL & RESTAURANT 0.6%
Ameriking Inc. Sr. Exch. Pfd.# ............................................... 238,754 5,968,855
--------------
MEDIA 3.1%
Granite Broadcasting Corp. Cv. Exch. Pfd. .................................... 114,700 3,813,775
Granite Broadcasting Corp. Exch. Pfd.# ....................................... 13,727 14,138,429
Primedia Inc. Series D Exch. Pfd. ............................................ 80,000 7,800,000
Primedia Inc. Series F Exch. Pfd. ............................................ 64,500 6,192,000
--------------
31,944,204
--------------
OIL 0.9%
Clark U.S.A. Inc. Sr. Exch. Pfd.# ............................................ 9,754 8,095,820
Tesoro Petroleum Corp. PIES * ................................................ 63,800 909,150
--------------
9,004,970
--------------
PERSONAL CARE 0.0%
Renaissance Cosmetics Inc. Series C Sr. Pfd.* ................................ 1,275 1,275
--------------
RETAIL TRADE 1.0%
Supermarkets General Holdings Corp. Exch. Pfd.# .............................. 344,540 10,680,740
--------------
TECHNOLOGY/COMMUNICATIONS 0.9%
ICG Holdings Inc. Exch. Pfd.# ................................................ 9,317 8,944,320
Viatel Inc. Series A Pfd.+ ................................................... 9,350 654,492
--------------
9,598,812
--------------
TEXTILE & APPAREL 1.0%
Cluett American Corp. Sr. Exch. Pfd.+ ........................................ 117,500 10,810,000
--------------
TOBACCO 0.3%
DECS Trust Exch. Pfd.* ....................................................... 231,500 2,763,531
--------------
Total Preferred Stocks (Cost $106,303,942) ................................... 93,474,795
--------------
COMMON STOCKS & OTHER 6.6%
Advanced Radio Telecom Corp. Wts.* ........................................... 52,500 287,700
American Telecasting Inc. Wts.* .............................................. 41,130 41,130
Ameriking Inc. Com.*+ ........................................................ 4,775 191,000
Anacomp Inc. Com.* ........................................................... 873,507 11,464,779
Anacomp Inc. Wts.* ........................................................... 25,940 147,534
Bar Technologies Inc. Wts.*+ ................................................. 4,250 233,750
Belle Casinos Inc. Wts.*+ .................................................... 1,400 14
Boomtown Inc. Wts.*+ ......................................................... 7,250 7
Celcaribe SA Trust Certificates *+ ........................................... 944,706 2,597,942
Cellnet Data Systems Inc. Wts.*+ ............................................. 1,500 32,250
Central Rents Inc. Com.*+ .................................................... 5,250 157,500
Chatwins Group Inc. Wts.*+ ................................................... 7,000 7,000
CHC Helicopter Corp Cl. A Com.* .............................................. 46,000 109,250
CHI Energy Inc. Cl. C Wts.* .................................................. 3,279 33
Clearnet Communications Inc. Wts.* ........................................... 78,705 327,177
Concentric Network Corp. Wts.*+ .............................................. 1,500 135,000
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
E. Spire Communications Inc. Wts.*+ .......................................... 9,500 807,500
Econophone Inc. Wts.*+ ....................................................... 14,750 221,250
Empire Gas Corp. Wts.*(+) .................................................... 2,760 2,760
Equitable Bag Inc. Com.* ..................................................... 1,347,600 539,040
Fitzgeralds South Inc. Wts.*(+) .............................................. 3,750 375
Fred Meyer Inc. Com.* ........................................................ 197,230 7,667,316
Golden Ocean Group Ltd. Com.*+ ............................................... 5,500 24,750
Goldriver Finance Corp. Liquidation Trust Units*(+) .......................... 5,250,000 65,468
Goldriver Hotel & Casino Corp. Cl. B Com.*(+) ................................ 52,500 656
Heartland Wireless Communications, Inc. Wts.*(+) ............................. 37,500 375
Hollinger International, Inc. Cl. A Com.* .................................... 1,918,000 27,571,250
ICF Kaiser International Inc. Wts. * ......................................... 49,200 492
Indspec Chemical Corp. Wts.*(+)@ ............................................. 506 1,128,916
Insight Communications L.P. Unit*(+) ......................................... 105,500 105,500
Intelcom Group, Inc. Wts.*(+) ................................................ 21,450 278,850
Intermedia Communications Inc. Wts.* ......................................... 1,500 155,685
International Utility Structures Inc. Unit+ .................................. 1,750 1,592,500
Ionica PLC Wts.*+ ............................................................ 9,500 9,500
Jewel Recovery L.P. Units*(+) ................................................ 82,595 826
Ladish Inc. Com.*(+) ......................................................... 86,667 763,750
Ladish Inc. Wts.*(+) ......................................................... 150,946 1,149,075
Loral Orion Network Systems Inc. Wts.* ....................................... 14,500 145,000
Motels of America Inc. Com.*+ ................................................ 5,500 49,500
Nextel Communications Inc. Cl. A Com.* ....................................... 41,442 836,610
Nextel Communications Inc. Wts.* ............................................. 1,250 13
North Atlantic Trading Inc. Wts.*+ ........................................... 160 160
NS Group Inc. Wts.*+ ......................................................... 13,250 861,250
Pagemart Inc. Wts.*+ ......................................................... 21,850 120,175
Pagemart Nationwide Inc. Com.*+ .............................................. 18,375 140,109
Pegasus Communications Corp. Cl. A Com.*+ .................................... 8,461 134,847
Powertel Inc. Wts.* .......................................................... 8,480 41,340
Primus Telecommunications Group Wts.*+ ....................................... 6,500 32,500
Protection One Inc. Wts.*+ ................................................... 10,400 72,800
Renaissance Cosmetics Inc. Wts.*+ ............................................ 3,000 30
RSL Communications Ltd. Wts.*+ ............................................... 13,500 1,336,500
Sabreliner Corp. Wts.*+ ...................................................... 1,750 17,500
Seven-Up/RC Bottling Co. of Southern California Com.* ........................ 472,500 5,670,000
Town & Country Corp. Cl. A Com.*+ ............................................ 195,632 12,227
Waxman Industries Inc. Wts.*+ ................................................ 236,000 118,000
Wireless One Inc. Wts.*+ ..................................................... 437,500 438
--------------
Total Common Stocks & Other (Cost $51,407,244) ............................... 68,828,994
--------------
SHORT-TERM INVESTMENTS 6.3%
State Street Navigator Securities Lending Prime Portfolio .................... 64,946,049 64,946,049
--------------
Total Short-Term Investments (Cost $64,946,049) .............................. 64,946,049
--------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY
AMOUNT DATE
- -----------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 7.0%
<S> <C> <C> <C>
American Express Credit Corp., 5.38% ....................... $ 2,602,000 10/02/1998 2,602,000
CIT Group Holdings Inc., 5.25% ............................. 11,037,000 10/14/1998 11,037,000
Commercial Credit Co., 5.33% ............................... 12,985,000 10/06/1998 12,985,000
Commercial Credit Co., 5.44% ............................... 10,000,000 10/02/1998 10,000,000
Ford Motor Credit Co., 5.36% ............................... 10,276,000 10/09/1998 10,276,000
Ford Motor Credit Co., 5.53% ............................... 11,170,000 10/01/1998 11,170,000
Household Finance Corp., 5.54% ............................. 12,733,000 10/05/1998 12,733,000
John Deere Capital Corp., 5.53% ............................ 2,005,000 10/02/1998 2,005,000
--------------
Total Commercial Paper (Cost $72,808,000) .................................................... 72,808,000
--------------
Total Investments (Cost $1,188,355,205) - 104.5% ............................................. 1,082,730,371
Cash and Other Assets, Less Liabilities-(4.5%) ............................................... (47,077,872)
--------------
Net Assets - 100.0% .......................................................................... $1,035,652,499
==============
Federal Income Tax Information (Note 1):
At September 30, 1998, the net unrealized depreciation of investments based on cost for
Federal income tax purposes of $1,188,437,692 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost ............................................ $ 42,530,929
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ............................................ (148,238,250)
--------------
$ (105,707,321)
==============
- ------------------------------------------------------------------------------------------------------------------
* 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 September 30, 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
September 30, 1998 were $2,853,002 and $3,496,571 (0.34% 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 September 30, 1998 were $193,586,755 and $184,436,005 (17.81% of net assets),
respectively.
Forward currency exchange contracts outstanding at September 30, 1998, are as follows:
UNREALIZED
CONTRACT APPRECIATION DELIVERY
TOTAL VALUE PRICE (DEPRECIATION) DATE
- ------------------------------------------------------------------------------------------------------------
Buy Canadian dollars,
Sell U.S. dollars 4,335,000 CAD 0.65624 CAD $ (3,180) 10/23/98
Sell Canadian dollars,
Buy U.S. dollars 19,000,000 CAD 0.67249 CAD 322,839 10/23/98
--------
$319,659
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
ASSETS
Investments, at value (Cost $1,188,355,205) (Note 1) .......... $1,082,730,371
Cash .......................................................... 554
Interest and dividends receivable ............................. 21,648,473
Receivable for securities sold ................................ 16,211,510
Receivable for fund shares sold ............................... 1,404,763
Receivable for open forward contracts ......................... 322,839
Other assets .................................................. 71,848
--------------
1,122,390,358
LIABILITIES
Payable for collateral received on securities loaned .......... 64,946,049
Payable for securities purchased .............................. 16,212,491
Dividends payable ............................................. 3,338,290
Payable for fund shares redeemed .............................. 652,334
Accrued management fee (Note 2) ............................... 485,011
Accrued distribution and service fees (Note 4) ................ 442,979
Accrued transfer agent and shareholder services (Note 2) ...... 395,057
Accrued trustees' fees (Note 2) ............................... 18,849
Payable for open forward contracts ............................ 3,180
Other accrued expenses ........................................ 243,619
--------------
86,737,859
--------------
NET ASSETS .................................................... $1,035,652,499
==============
Net Assets consist of:
Undistributed net investment income ......................... $ 3,133,548
Unrealized depreciation of investments ...................... (105,624,834)
Unrealized appreciation of forward contracts ................ 319,659
Accumulated net realized gain ............................... 27,047,051
Paid-in capital ............................................. 1,110,777,075
--------------
$1,035,652,499
==============
Net Asset Value and redemption price per share of Class A
shares ($648,817,739 / 111,681,166 shares) .................. $5.81
=====
Maximum Offering Price per share of Class A shares
($5.81 / .955) .............................................. $6.08
=====
Net Asset Value and offering price per share of Class B shares
($341,830,797 / 59,146,377 shares)* ......................... $5.78
=====
Net Asset Value and offering price per share of Class C shares
($37,889,863 / 6,548,481 shares)* ........................... $5.79
=====
Net Asset Value, offering price and redemption price per share
of Class S shares ($7,114,100 / 1,231,743 shares) ........... $5.78
=====
- -------------------------------------------------------------------------------
*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 six months ended September 30, 1998 (Unaudited)
INVESTMENT INCOME
Interest (Note 1) ............................................... $ 50,080,300
Dividends ....................................................... 5,458,993
------------
55,539,293
EXPENSES
Management fee (Note 2) ......................................... 3,469,094
Transfer agent and shareholder services (Note 2) ................ 715,070
Service fee-Class A (Note 4) .................................... 885,149
Distribution and service fees-Class B (Note 4) .................. 1,788,193
Distribution and service fees-Class C (Note 4) .................. 191,772
Custodian fee ................................................... 120,413
Reports to shareholders ......................................... 52,155
Registration fees ............................................... 44,047
Audit fee ....................................................... 24,058
Trustees' fees (Note 2) ......................................... 18,849
Legal fees ...................................................... 13,207
Miscellaneous ................................................... 10,065
------------
7,332,072
------------
Net investment income ........................................... 48,207,221
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY AND FORWARD CONTRACTS
Net realized gain on investments (Notes 1 and 3) ................ 26,570,898
Net realized gain on forward contracts and foreign currency .... 570,597
------------
Total net realized gain ......................................... 27,141,495
------------
Net unrealized depreciation of investments ...................... (158,848,762)
Net unrealized appreciation of forward contracts ................ 416,231
------------
Total net unrealized depreciation ............................... (158,432,531)
------------
Net loss on investments, foreign currency and forward contracts . (131,291,036)
------------
Net decrease in net assets resulting from operations ............ $(83,083,815)
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, 1998
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ..................................... $ 90,689,076 $ 48,207,221
Net realized gain on investments, foreign currency and
forward contracts ....................................... 37,770,738 27,141,495
Net unrealized appreciation (depreciation) of investments
and forward contracts ................................... 63,904,285 (158,432,531)
-------------- --------------
Net increase (decrease) resulting from operations ......... 192,364,099 (83,083,815)
-------------- --------------
Dividends from net investment income:
Class A ................................................. (64,944,093) (31,454,904)
Class B ................................................. (26,096,802) (14,637,612)
Class C ................................................. (2,736,047) (1,556,397)
Class S ................................................. (661,138) (352,717)
-------------- --------------
(94,438,080) (48,001,630)
-------------- --------------
Distribution from net realized gains:
Class A ................................................. -- (7,396,217)
Class B ................................................. -- (3,665,490)
Class C ................................................. -- (384,617)
Class S ................................................. -- (80,411)
-------------- --------------
-- (11,526,735)
-------------- --------------
Net increase from fund share transactions (Note 5) ........ 56,789,130 71,317,352
-------------- --------------
Total increase (decrease) in net assets ................... 154,715,149 (71,294,828)
NET ASSETS
Beginning of period ....................................... 952,232,178 1,106,947,327
-------------- --------------
End of period (including undistributed net investment
income of $2,927,957 and $3,133,548,
respectively) ........................................... $1,106,947,327 $1,035,652,499
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 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. 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"), and 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 declared
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.
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 September 30, 1998, the value of the securities loaned and the value
of collateral were $62,287,013 and $64,946,049, respectively. During the six
months ended September 30, 1998, income from securities lending amounted to
$59,836 and is included in interest income.
NOTE 2
Prior to August 1, 1998, the Adviser earned monthly fees at an annual rate of
0.65% of the Fund's average daily net assets. Effective August 1, 1998 the
management fee is 0.60% of the first $500 million of net assets, annually,
0.55% of the next $500 million, and 0.50% of any amount over $1 billion. In
consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the six months ended September 30, 1998, the fees pursuant to such
agreement amounted to $3,469,094.
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 six months ended
September 30, 1998, the amount of such expenses was $268,196.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$18,849 during the six months ended September 30, 1998.
NOTE 3
For the six months ended September 30, 1998, purchases and sales of
securities, exclusive of short-term investments, aggregated $539,272,562 and
$548,597,397, 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 six months ended September 30,
1998, fees pursuant to such plan amounted to $885,149, $1,788,193 and $191,772
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 $172,922 and $921,586, respectively, on sales of Class A shares of
the Fund during the six months ended September 30, 1998, and that MetLife
Securities, Inc. earned commissions aggregating $988,402 on sales of Class B
shares, and that the Distributor collected contingent deferred sales charges
aggregating $115,072 and $2,045 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>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, 1998
MARCH 31, 1998 (UNAUDITED)
------------------------------ ------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 12,963,682 $ 82,425,854 9,809,635 $62,844,183
Issued upon reinvestment of:
Dividends from net
investment income ......... 6,618,274 42,225,833 3,277,227 20,597,148
Distribution from net
realized gains ............ -- -- 937,771 6,142,400
Shares repurchased ............ (20,544,433) (130,474,889) (10,965,691) (69,760,591)
----------- ------------ ----------- -----------
Net increase (decrease) ....... (962,477) $ (5,823,202) 3,058,942 $19,823,140
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 14,827,294 $ 93,945,959 10,203,205 $65,139,203
Issued upon reinvestment of:
Dividends from net
investment income ......... 2,307,608 14,730,736 1,321,532 8,255,063
Distribution from net
realized gains ............ -- -- 435,551 2,835,437
Shares repurchased ............ (7,925,211) (50,115,631) (5,332,668) (33,486,720)
----------- ------------ ----------- -----------
Net increase .................. 9,209,691 $ 58,561,064 6,627,620 $42,742,983
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 2,027,089 $ 12,888,653 2,035,617 $13,075,912
Issued upon reinvestment of:
Dividends from net
investment income ......... 284,960 1,810,521 155,382 970,517
Distribution from net
realized gains ............ -- -- 46,713 304,568
Shares repurchased ............ (1,821,119) (11,592,323) (937,459) (5,814,398)
----------- ------------ ----------- -----------
Net increase .................. 490,930 $ 3,106,851 1,300,253 $ 8,536,599
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CLASS S SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 412,049 $ 2,620,376 186,460 $ 1,157,539
Issued upon reinvestment of:
Dividends from net
investment income ......... 85,387 542,346 47,713 298,476
Distribution from net
realized gains ............ -- -- 11,406 74,254
Shares repurchased ............ (349,262) (2,218,305) (208,294) (1,315,639)
----------- ------------ ----------- -----------
Net increase .................. 148,174 $ 944,417 37,285 $ 214,630
=========== ============ =========== ===========
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH HIGH INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period:
<CAPTION>
CLASS A
----------------------------------------------------------------------------
YEARS ENDED MARCH 31 SIX MONTHS ENDED
------------------------------------------------- September 30, 1998
1994 1995(1) 1996(1) 1997(1) 1998(1) (UNAUDITED)(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 6.32 6.43 5.80 5.95 6.01 6.62
----- ----- ----- ----- ----- -----
Net investment income ($) 0.66 0.61 0.52 0.59 0.58 0.29
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts ($) 0.22 (0.58) 0.20 (0.01) 0.63 (0.74)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.88 0.03 0.72 0.58 1.21 (0.45)
----- ----- ----- ----- ----- -----
Dividends from net investment income ($) (0.62) (0.60) (0.56) (0.52) (0.60) (0.29)
Distributions from net realized gains ($) (0.15) (0.06) (0.01) -- -- (0.07)
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.77) (0.66) (0.57) (0.52) (0.60) (0.36)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD ($) 6.43 5.80 5.95 6.01 6.62 5.81
===== ===== ===== ===== ===== =====
Total return (%)(3) 14.58 1.80 12.85 10.30 20.98 (7.23)(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 650,755 618,462 646,473 658,413 718,705 648,818
Ratio of operating expenses to average
net assets (%) 1.16 1.23 1.17 1.10 1.10 1.09(5)
Ratio of net investment income to average
net assets (%) 10.41 10.19 8.88 9.70 9.10 9.30(5)
Portfolio turnover rate (%) 24.36 31.55 56.47 81.75 70.53 51.75
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------
YEARS ENDED MARCH 31 SIX MONTHS ENDED
------------------------------------------------- SEPTEMBER 30, 1998
1994(2) 1995(1) 1996(1) 1997(1) 1998(1) (UNAUDITED)(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 6.34 6.42 5.79 5.93 5.98 6.58
----- ----- ----- ----- ----- -----
Net investment income ($) 0.51 0.57 0.46 0.55 0.53 0.26
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts($) 0.15 (0.58) 0.21 (0.02) 0.62 (0.73)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.66 (0.01) 0.67 0.53 1.15 (0.47)
----- ----- ----- ----- ----- -----
Dividends from net investment income ($) (0.48) (0.56) (0.52) (0.48) (0.55) (0.26)
Distributions from net realized gains ($) (0.10) (0.06) (0.01) -- -- (0.07)
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.58) (0.62) (0.53) (0.48) (0.55) (0.33)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD ($) 6.42 5.79 5.93 5.98 6.58 5.78
===== ===== ===== ===== ===== =====
Total return (%)(3) 10.76(4) 0.89 12.06 9.35 20.02 (7.47)(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 67,337 117,767 185,735 259,077 345,797 341,831
Ratio of operating expenses to average
net assets (%) 1.93(5) 1.98 1.92 1.85 1.85 1.84(5)
Ratio of net investment income to average
net assets (%) 10.32(5) 9.65 7.95 9.01 8.36 8.54(5)
Portfolio turnover rate (%) 24.36 31.55 56.47 81.75 70.53 51.75
- ----------------------------------------------------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) June 1, 1993 (commencement of shares class designations) to March 31, 1994.
(3) Does not reflect any front-end or contingent deferred sales charges.
(4) Not annualized.
(5) Annualized.
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH HIGH INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------------------------------------------
YEARS ENDED MARCH 31 SIX MONTHS ENDED
--------------------------------------------------- SEPTEMBER 30, 1998
1994(2) 1995(1) 1996(1) 1997(1) 1998(1) (UNAUDITED)(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 6.34 6.42 5.79 5.93 5.99 6.59
----- ----- ----- ----- ----- -----
Net investment income ($) 0.51 0.58 0.46 0.54 0.53 0.26
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts ($) 0.15 (0.59) 0.21 (0.00) 0.62 (0.73)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.66 (0.01) 0.67 0.54 1.15 (0.47)
----- ----- ----- ----- ----- -----
Dividends from net investment income ($) (0.48) (0.56) (0.52) (0.48) (0.55) (0.26)
Distributions from net realized gains ($) (0.10) (0.06) (0.01) -- -- (0.07)
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.58) (0.62) (0.53) (0.48) (0.55) (0.33)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD ($) 6.42 5.79 5.93 5.99 6.59 5.79
===== ===== ===== ===== ===== =====
Total return (%)(3) 10.74(4) 0.88 12.05 9.52 19.99 (7.46)(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 2,661 6,766 15,262 28,488 34,586 37,890
Ratio of operating expenses to average
net assets (%) 1.93(5) 1.98 1.92 1.85 1.85 1.84(5)
Ratio of net investment income to average
net assets (%) 10.32(5) 9.81 7.91 9.09 8.35 8.59(5)
Portfolio turnover rate (%) 24.36 31.55 56.47 81.75 70.53 51.75
</TABLE>
<TABLE>
<CAPTION>
CLASS S
----------------------------------------------------------------------------
YEARS ENDED MARCH 31 SIX MONTHS ENDED
--------------------------------------------------- SEPTEMBER 30, 1998
1994(2) 1995(1) 1996(1) 1997(1) 1998(1) (UNAUDITED)(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 6.34 6.42 5.78 5.92 5.98 6.58
----- ----- ----- ----- ----- -----
Net investment income ($) 0.57 0.64 0.53 0.61 0.59 0.29
Net realized and unrealized gain (loss)
on investments, foreign currency and
forward contracts($) 0.14 (0.60) 0.20 (0.01) 0.63 (0.73)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.71 0.04 0.73 0.60 1.22 (0.44)
----- ----- ----- ----- ----- -----
Dividends from net investment income ($) (0.53) (0.62) (0.58) (0.54) (0.62) (0.29)
Distributions from net realized gains ($) (0.10) (0.06) (0.01) -- -- (0.07)
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.63) (0.68) (0.59) (0.54) (0.62) (0.36)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD ($) 6.42 5.78 5.92 5.98 6.58 5.78
===== ===== ===== ===== ===== =====
Total return (%)(3) 11.67(4) 1.73 13.19 10.63 21.22 (7.00)(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 851 2,579 3,840 6,255 7,860 7,114
Ratio of operating expenses to average
net assets (%) 0.93(5) 0.98 0.92 0.85 0.85 0.84(5)
Ratio of net investment income to average
net assets (%) 11.32(5) 10.85 8.97 10.04 9.36 9.55(5)
Portfolio turnover rate (%) 24.36 31.55 56.47 81.75 70.53 51.75
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) June 1, 1993 (commencement of shares class designations) to March 31, 1994.
(3) Does not reflect any front-end or contingent deferred sales charges.
(4) Not annualized.
(5) Annualized.
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH HIGH INCOME FUND
- ------------------------------------------------------------------------------------------------------------
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
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 Former Senior Vice President
for Finance and Operations and
DISTRIBUTOR JOHN H. KALLIS Treasurer, The Pennsylvania
State Street Research Vice President 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
DOUGLAS A. ROMICH (with an affiliate of
CUSTODIAN Assistant Treasurer J.P. Morgan & Co. in New York);
State Street Bank and presently engaged in private
Trust Company FRANCIS J. MCNAMARA, III investments and civic affairs
225 Franklin Street Secretary and General Counsel
Boston, MA 02110
DARMAN A. WING ROBERT A. LAWRENCE
LEGAL COUNSEL Assistant Secretary and Former Partner, Saltonstall & Co.
Goodwin, Procter & Hoar LLP Assistant General Counsel
Exchange Place
Boston, MA 02109 AMY L. SIMMONS DEAN O. MORTON
Assistant Secretary Former Executive Vice President,
Chief Operating Officer
and Director, Hewlett-Packard
Company
TOBY ROSENBLATT
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
</TABLE>
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
One Financial Center
Boston, MA 02111
-------------------
Bulk Rate
U.S. Postage
PAID
Permit #20
Holliston, MA 01746
-------------------
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032
[hearing-impaired 1-800-676-7876]
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 December 31, 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: (exp 1199) SSR-LD
HI-523E-1098
<PAGE>
---------------------
STATE STREET RESEARCH
---------------------
MANAGED ASSETS
---------------------
SEMIANNUAL REPORT
September 30, 1998
---------------------
WHAT'S INSIDE
---------------------
INVESTMENT UPDATE
About the Fund,
economy and markets
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
- -------------------
[DALBAR LOGO]
- -------------------
For Excellence
in STATE STREET RESEARCH FUNDS
Shareholder Service
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
INVESTMENT UPDATE
- --------------------------------------------------------------------------------
INVESTMENT ENVIRONMENT
THE ECONOMY
o The economy continued strong during the first half of 1998. Personal income
rose, and unemployment remained at a low 4.5%. Inflation remained in check at
1.6%.
o The third quarter saw U.S. consumer and capital spending still satisfactory,
but increasingly at risk. Consumers were exposed to a falling stock market,
the savings rate was zero, and job growth was slowing. Capital spending was
vulnerable to earnings deterioration, falling operating rates, and a possible
credit crunch.
o The Federal Reserve Board lowered interest rates by one-quarter percent late
in September.
THE MARKETS
o The Fed's interest rate cut came on the heels of a volatile market. Stocks
hit a high of 9337.97 in mid-July, then plunged nearly 1500 points to close
the quarter at 7842.62. The S&P 500 returned - 6.93%.(1)
o The bond market produced mixed results. High quality U.S. Treasury bonds were
strong performers as the yield on the benchmark 30-year Treasury fell below
5.0% during the period. In contrast, high-yield bonds sold off, driven by
fears of an economic slowdown.
THE FUND
OVER THE PAST SIX MONTHS
o For the six months ended September 30, 1998, State Street Research Managed
Assets Class A shares returned - 9.17% (does not reflect sales charge).(2)
The Lipper Flexible Portfolio Funds average ended - 6.79% for the period.
o Early in the period, we reduced our equity allocation substantially. Within
this sector, however, we added to international stocks, emphasizing Europe.
Bond holdings were correspondingly increased, principally in U.S. Treasuries.
o This decision to underweight stocks helped relative performance. The Fund was
hurt, however, by its exposure to mid-cap and small-cap issues, particularly
energy and small-cap growth, reflecting the narrow market.
o High-quality bonds were the strongest performers. High-yield bonds fell,
although they have helped performance in the longer term.
CURRENT STRATEGY
o The manager plans to maintain the current allocation policy. It offers a
defensive posture with the uncertain outlook for the global economy and the
inherently low risk in bonds. The stock allocation represents opportunity if
the market broadens.
(1) The S&P 500 (officially the "Standard and Poor's 500 Composite Stock Price
Index") is an unmanaged index of 500 U.S. stocks. The index does not take
transaction charges into consideration. It is not possible to invest
directly in the index.
(2) -9.46% for Class B shares; -9.49% for Class C shares; -9.05% for Class S
shares.
(3) Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a gain
or loss when you sell your shares. All returns assume reinvestment of
capital gain distributions and income dividends at net asset value. The
Fund's returns include performance from before the creation of share
classes. If this performance reflected the share classes' current 12b-1
fees, the fund's returns may have been lower. Class S shares, offered
without a sales charge, are available only through certain employee benefit
plans and special programs.
(4) Performance reflects up to maximum 4.5% Class A share front-end sales
charge, or 5% Class B share or 1% Class C share contingent deferred sales
charges, where applicable.
September 30, 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.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended September 30, 1998)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(at maximum applicable sales charge)(3)(4)
- -------------------------------------------------------------------------
LIFE OF FUND
(since 12/29/88) 5 YEARS 1 YEAR
- -------------------------------------------------------------------------
Class A +11.00% + 9.43% -6.94%
- -------------------------------------------------------------------------
Class B +11.07% + 9.34% -7.45%
- -------------------------------------------------------------------------
Class C +11.07% + 9.63% -4.12%
- -------------------------------------------------------------------------
Class S +11.68% +10.72% -2.31%
- -------------------------------------------------------------------------
ASSET ALLOCATION
(by percentage of net assets)
Bonds 37%
Net Cash 13%
Inflation Responsive 3%
Equities 47%
TOP 5 EQUITY INDUSTRIES
(by percentage of net assets)
COMPUTER SOFTWARE & SERVICE 5.0%
OIL 4.5%
ELECTRIC 4.3%
RETAIL TRADE 3.9%
INSURANCE 3.0%
Total 20.7%
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- ------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------
September 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------
<CAPTION>
VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY SECURITIES 47.4%
BASIC INDUSTRIES 5.6%
CHEMICAL 1.9%
Agrium Inc. ................................................... 306,500 $ 2,605,250
Cabot Corp.++ ................................................. 178,400 4,448,850
Cambrex Corp. ................................................. 45,100 1,062,669
Cluett American Corp. Sr. Exch. Pfd.+/\ ....................... 5,000 460,000
Cordant Technologies Inc. ..................................... 16,600 702,387
Nomura Securities Co. ......................................... 161,000 1,155,009
Tieto Corp. ................................................... 79,100 2,551,362
-------------
12,985,527
-------------
DIVERSIFIED 1.2%
Johnson Controls Inc. ......................................... 27,500 1,278,750
Mark IV Industries Inc. ....................................... 180,400 2,627,075
Ogden Corp. ................................................... 150,600 4,282,688
-------------
8,188,513
-------------
ELECTRICAL EQUIPMENT 0.4%
Asia Pacific Wire & Cable Corp. Ltd.* ......................... 200,400 388,275
General Electric Co. .......................................... 33,700 2,681,256
Protection One Inc. Wts.*+ .................................... 800 5,600
-------------
3,075,131
-------------
FOREST PRODUCT 0.2%
Abitibi-Consolidated Inc. ..................................... 153,000 1,348,313
Equitable Bag Inc.* ........................................... 47,600 19,040
Equitable Bag Inc. Pfd.* ...................................... 4,760 57,120
-------------
1,424,473
-------------
MACHINERY 1.2%
Harsco Corp. .................................................. 13,700 412,713
Howmet International Inc.* .................................... 216,300 2,514,487
ITEQ Inc.* .................................................... 151,600 502,175
Sundstrand Corp. .............................................. 26,000 1,205,750
Tyco International Ltd. ....................................... 48,500 2,679,625
Valeo SA Wts .................................................. 15,400 74,803
Valeo SA ...................................................... 15,400 1,100,039
-------------
8,489,592
-------------
METAL & MINING 0.7%
Bar Technologies Inc. Wts.*+ .................................. 250 13,750
Chatwins Group Inc.+ .......................................... 500 500
Crown Packaging Holdings Ltd. Wts.*+ .......................... 3,750 1,875
General Cable Corp.* .......................................... 21,500 397,750
Kennametal Inc. ............................................... 66,100 1,780,569
Ladish Inc. Wts.(+) ........................................... 15,095 114,910
NS Group Inc. Wts.* ........................................... 650 42,250
Shaw Communications Inc Cl. B ................................. 80,200 1,343,350
Wyman-Gordon Co.* ............................................. 57,000 819,375
-------------
4,514,329
-------------
TRUCKERS 0.0%
CNF Transportation Inc. ....................................... 9,200 267,950
-------------
Total Basic Industries ........................................ 38,945,515
-------------
CONSUMER CYCLICAL 6.8%
AUTOMOTIVE 0.8%
Danaher Corp. ................................................. 43,600 1,308,000
Exide Corp. ................................................... 158,900 1,827,350
Gencorp Inc. .................................................. 121,300 2,335,025
Teleflex Inc. ................................................. 10,500 367,500
-------------
5,837,875
-------------
BUILDING 0.0%
Golf Trust of America Inc.* ................................... 12,000 357,000
Waxman Industries Inc. Wts.*+ ................................. 29,500 14,750
-------------
371,750
-------------
HOTEL & RESTAURANT 0.7%
CKE Restaurants Inc.* ......................................... 17,260 513,485
Harrah's Entertainment Inc.* .................................. 145,000 1,930,313
Mirage Resorts Inc.* .......................................... 142,600 2,388,550
Motels of America Inc.*+ ...................................... 500 4,500
Servico Inc.* ................................................. 21,500 161,250
-------------
4,998,098
-------------
RECREATION 1.3%
American Telecasting Inc. Wts.* ............................... 1,250 1,250
American Tower Corp. Cl. A* ................................... 16,900 430,950
Chancellor Media Corp. ........................................ 57,900 1,932,415
Cinar Films Inc. Cl. B* ....................................... 29,400 527,363
Cox Communications Inc. Cl. A* ................................ 24,700 1,349,237
Fitzgeralds South Inc. Wts.*(+) ............................... 1,250 125
Goldriver Hotel & Casino Corp. Cl. B*(+) ...................... 20,000 250
Goldriver Finance Corp. Liquidation Trust Units*(+) ........... 500,000 6,235
Granite Broadcasting Corp. Exch. Pfd./\ ....................... 306 315,551
GTech Holdings Corp.* ......................................... 48,200 1,280,312
Heartland Wireless Communications, Inc. Wts.*(+) .............. 1,500 15
MediaOne Group Inc.* .......................................... 49,100 2,181,881
Steiner Leisure Ltd.* ......................................... 45,499 710,922
Wireless One Inc. Wts.* ....................................... 2,000 20
-------------
8,736,526
-------------
RETAIL TRADE 3.9%
Blyth Industries Inc.* ........................................ 13,800 378,638
Central Rents Inc.*+ .......................................... 250 7,500
CSK Auto Corp.* ............................................... 14,200 323,050
CVS Corp. ..................................................... 54,700 2,396,544
Elder-Beerman Stores Corp.* ................................... 19,700 342,288
Fred Meyer Inc.* .............................................. 4,755 184,851
Hannaford Brothers Co. ........................................ 102,000 4,309,500
Home Depot Inc. ............................................... 88,600 3,499,700
Kroger Co.* ................................................... 44,800 2,240,000
Linens 'n Things Inc.* ........................................ 9,100 250,250
Rite Aid Corp. ................................................ 4,900 173,950
Safeway Inc. .................................................. 53,000 2,457,875
Saks Inc.* .................................................... 37,725 846,455
Staples Inc.* ................................................. 40,600 1,192,625
Stride Rite Corp. ............................................. 37,100 303,756
Supermarkets General Holdings Corp. Exch. Pfd./\ .............. 12,200 378,200
Wal-Mart Stores, Inc. ......................................... 56,700 3,097,237
Walgreen Co. .................................................. 37,700 1,661,156
Wolters Kluwer NV* ............................................ 15,300 2,938,386
-------------
26,981,961
-------------
TEXTILE & APPAREL 0.1%
Acme Boot Co.*+ ............................................... 250 250
Gerber Childrenswear Inc.* .................................... 23,900 189,706
Maxwell Shoe Inc. Cl. A* ...................................... 28,600 339,625
-------------
529,581
-------------
Total Consumer Cyclical ....................................... 47,455,791
-------------
CONSUMER STAPLE 11.6%
BUSINESS SERVICE 1.9%
A.C. Nielson Corp.* ........................................... 230,200 5,121,950
Apollo Group Inc. Cl. A* ...................................... 51,600 1,438,350
Hagler Bailly Inc.* ........................................... 30,400 592,800
HBO & Co. ..................................................... 38,500 1,111,687
ICF Kaiser International Inc. Wts.* ........................... 2,400 24
Kokuyo Co. .................................................... 97,000 1,285,238
Lamar Advertising Co. Cl. A* .................................. 18,100 506,800
Maximus Inc.* ................................................. 28,100 857,050
Metris Companies Inc.* ........................................ 4,200 195,825
Pacific Gateway Exchange Inc.* ................................ 10,400 384,800
Pagemart Inc. Wts.*+ .......................................... 2,300 12,650
ProBusiness Services Inc.* .................................... 12,400 421,600
Staff Leasing Inc.* ........................................... 21,200 373,650
Waddell & Reed Financial Inc. Cl. A* .......................... 10,700 203,300
Young & Rubicam Inc.* ......................................... 32,300 916,513
-------------
13,422,237
-------------
CONTAINER 0.8%
Ball Corp. .................................................... 148,700 5,241,675
Golden Ocean Group Ltd. Wts.* ................................. 500 2,250
-------------
5,243,925
-------------
DRUG 2.1%
Ascent Pediatrics Inc.* ....................................... 23,000 54,625
Atrix Laboratories Inc.* ...................................... 33,600 424,200
Axogen Ltd.* .................................................. 14,500 1,004,125
Biovail Corp.* ................................................ 70,400 1,896,400
Intelligent Polymers Ltd.* .................................... 81,300 1,626,000
Kos Pharmaceuticals, Inc.* .................................... 88,400 524,875
Pathogenesis Corp.* ........................................... 21,000 700,875
Pfizer Inc. ................................................... 16,300 1,726,781
PharmaPrint Inc.* ............................................. 30,800 342,650
Schering-Plough Corp. ......................................... 28,600 2,961,888
Spiros Development Corp.* ..................................... 59,900 733,775
Warner-Lambert Co. ............................................ 31,100 2,348,050
-------------
14,344,244
-------------
FOOD & BEVERAGE 1.9%
Coca-Cola Co. ................................................. 42,700 2,460,587
Dr Pepper Bottling Holdings Inc. Cl. A* ....................... 56,000 1,568,000
H.J. Heinz Co. ................................................ 19,100 976,488
Keebler Foods Co.* ............................................ 46,200 1,201,200
Kirin Brewery Co. ............................................. 192,700 1,540,415
Seven-Up/RC Bottling Co. of Southern California* .............. 26,250 315,000
Takara Shuzo Co. .............................................. 616,000 2,525,237
Whitman Corp. ................................................. 148,400 2,365,125
-------------
12,952,052
-------------
HOSPITAL/HEALTH CARE 0.6%
Exel Ltd. Cl. A ............................................... 66,601 4,195,863
Healthsouth Corp.* ............................................ 26,552 280,455
-------------
4,476,318
-------------
HOSPITAL SUPPLY 1.7%
Aviron Corp.* ................................................. 25,100 387,481
Boston Scientific Corp.* ...................................... 19,100 981,263
IMPATH Inc.* .................................................. 21,800 648,550
Johnson & Johnson ............................................. 46,300 3,622,975
NCS Healthcare Inc. Cl. A* .................................... 33,200 585,150
Quorum Health Group Inc.* ..................................... 126,500 2,055,625
Total Renal Care Holdings Inc.* ............................... 147,733 3,545,592
-------------
11,826,636
-------------
PERSONAL CARE 0.2%
DeVry Inc.* ................................................... 20,500 480,469
Wesley Jessen VisionCare Inc.* ................................ 51,900 1,102,875
-------------
1,583,344
-------------
PRINTING & PUBLISHING 2.4%
Daishowa Paper Corp. .......................................... 263,000 841,338
General Media Inc. Wts.*(+) ................................... 250 250
Hollinger International, Inc. Cl. A* .......................... 349,000 5,016,875
Primedia Inc. Pfd. Series D ................................... 2,500 243,750
Primedia Inc. Pfd. Series F ................................... 2,000 192,000
Prosieben Media AG* ........................................... 57,100 3,138,884
Sullivan Holdings Inc.* ....................................... 149 53,467
Torstar Corp. Cl. B* .......................................... 124,800 1,349,897
Valassis Communications Inc. .................................. 147,000 5,880,000
-------------
16,716,461
-------------
TOBACCO 0.0%
DECS Trust Exch. Pfd. ......................................... 17,000 202,938
-------------
Total Consumer Staple ......................................... 80,768,155
-------------
ENERGY 2.7%
OIL 2.6%
Abacan Resource Corp.*++ ...................................... 539,500 118,016
Amoco Corp. ................................................... 32,300 1,740,163
British Petroleum Co. PLC* .................................... 109,800 1,680,038
Energy Africa Ltd.* ........................................... 553,800 1,008,151
Exxon Corp. ................................................... 22,800 1,600,275
IRI International Corp.* ...................................... 28,800 142,200
Maxx Petroleum Ltd.*++ ........................................ 83,650 209,125
Oryx Energy Co. ............................................... 109,700 1,419,244
Petroquest Energy Inc. ........................................ 43,100 32,325
PTT Exploration & Production Public Co. Ltd.* ................. 127,200 1,119,231
Saipem SPA .................................................... 250,000 1,060,188
Seagull Energy Corp.*++ ....................................... 303,488 3,736,696
Total SA Cl. B* ............................................... 12,909 1,627,514
Total SA Cl. B ADR ............................................ 38,600 2,424,562
-------------
17,917,728
-------------
OIL SERVICE 0.1%
Cliffs Drilling Co.*++ ........................................ 25,300 499,675
Willbros Group Inc.* .......................................... 30,300 193,163
-------------
692,838
-------------
Total Energy .................................................. 18,610,566
-------------
FINANCE 5.7%
BANK 1.7%
Banco Di Roma ................................................. 1,189,500 2,125,844
BHF Bank AG ................................................... 38,700 1,251,415
Chase Manhattan Corp. ......................................... 33,000 1,427,250
Commercial Federal Corp. ...................................... 8,850 208,528
Golden State Bancorp Inc. ..................................... 20,000 398,750
Golden State Bancorp Inc. Wts.* ............................... 20,000 84,375
Golden State Vintners Inc. Cl. B* ............................. 29,300 287,506
National Bank of Canada ....................................... 211,300 3,116,621
RB Asset Inc. Pfd. Series A ................................... 20,000 372,400
U.S. Bancorp .................................................. 67,900 2,414,694
-------------
11,687,383
-------------
FINANCIAL SERVICE 1.0%
CMAC Investment Corp. ......................................... 16,300 709,050
Federal National Mortgage Association ......................... 34,400 2,210,200
First Industrial Realty Trust Inc. ............................ 11,300 288,150
FirstPlus Financial Group Inc.* ............................... 14,100 161,269
Knight/Trimark Group Cl. A* ................................... 24,900 205,425
Laidlaw Inc. .................................................. 228,000 2,151,750
Liberty Property Trust ........................................ 11,700 278,606
T & W Financial Corp.* ........................................ 58,100 846,081
-------------
6,850,531
-------------
INSURANCE 3.0%
Ace Ltd. ...................................................... 181,500 5,445,000
AMBAC Inc. .................................................... 86,400 4,147,200
American International Group Inc. ............................. 19,350 1,489,950
ARM Financial Group, Inc. Cl. A* .............................. 27,100 481,025
Capital Re Corp. .............................................. 19,900 544,763
Horace Mann Educators Corp. ................................... 9,100 273,000
IndyMac Mortgage Holdings Inc. ................................ 28,200 571,050
Mutual Risk Management Ltd. ................................... 14,100 498,788
Orion Capital Corp. ........................................... 7,100 253,381
Terra Nova Holdings Ltd. Cl. A* ............................... 12,500 337,500
Transamerica Corp. ............................................ 6,500 689,000
Travelers Group Inc. .......................................... 38,150 1,430,625
UNUM Corp. .................................................... 97,400 4,839,562
-------------
21,000,844
-------------
Total Finance ................................................. 39,538,758
-------------
SCIENCE & TECHNOLOGY 8.0%
AEROSPACE 0.0%
CHC Helicopter Corp. Cl. A(+) ................................. 2,000 4,750
Ladish Inc.*(+) ............................................... 8,667 76,375
-------------
81,125
-------------
COMPUTER SOFTWARE & SERVICE 5.0%
America Online Inc.* .......................................... 17,900 1,991,375
Anacomp Inc. Wts.* ............................................ 4,941 28,102
Ascend Communications Inc.* ................................... 47,300 2,152,150
Automatic Data Processing Inc. ................................ 34,100 2,548,975
Broadcast Common Inc.* ........................................ 800 32,300
Check Point Software Technologies Ltd.* ....................... 27,400 544,575
Cisco Systems Inc.* ........................................... 41,650 2,574,491
Complete Business Solutions Inc.* ............................. 8,600 247,250
Duane Reade Inc.* ............................................. 6,200 235,213
EMC Corp.* .................................................... 44,500 2,544,844
Fore Systems Inc.* ............................................ 18,100 300,912
International Telecomm Systems Inc.* .......................... 17,300 501,700
J.D. Edwards & Co.* ........................................... 44,000 2,112,000
Mastech Corp.* ................................................ 9,500 228,594
META Group Inc.* .............................................. 13,900 454,356
Microsoft Corp.* .............................................. 20,100 2,212,256
Microstrategy Inc. Cl. A* ..................................... 9,900 371,250
Nintendo Co. Ltd.* ............................................ 22,700 2,133,655
Nova Corp.* ................................................... 23,600 724,225
Platinum Technology Inc.* ..................................... 16,100 289,800
Radiant Systems Inc.* ......................................... 62,200 478,162
SAP AG Pfd.* .................................................. 3,900 1,851,972
Sema Group PLC* ............................................... 224,100 2,221,185
Softbank Corp. ................................................ 56,100 2,299,769
Summitt Design Inc.* .......................................... 23,600 168,150
Transition Systems Inc.* ...................................... 51,700 432,987
Ultimate Software Group Inc.* ................................. 42,100 399,950
Verio Inc.* ................................................... 20,500 507,375
Walker Interactive Systems, Inc.* ............................. 65,700 572,822
Wang Laboratories Inc.* ....................................... 22,700 439,812
Wind River Systems Inc.* ...................................... 11,500 543,375
WM Data AB Cl. B* ............................................. 69,000 2,306,603
Xylan Corp.* .................................................. 18,000 238,500
-------------
34,688,685
-------------
ELECTRONIC COMPONENTS 1.0%
Digital Microwave Corp.* ...................................... 52,320 160,230
Intel Corp.* .................................................. 20,600 1,766,450
Lernout & Hauspie Speech Products NV ADR* ..................... 58,100 2,334,894
Remec Inc.* ................................................... 96,350 767,789
RF Micro Devices Inc.* ........................................ 28,300 512,938
Rohm Co. ...................................................... 15,000 1,427,473
-------------
6,969,774
-------------
ELECTRONIC EQUIPMENT 1.6%
Advanced Fibre Communications, Inc.* .......................... 21,400 147,125
Aeroflex Inc.* ................................................ 162,400 1,603,700
L 3 Communications Holding Corp.* ............................. 3,800 150,813
L.M. Ericsson Telephone Co. Cl. B* ............................ 96,800 1,827,930
Lucent Technologies Inc. ...................................... 35,200 2,431,000
Nokia AB Oy Cl. K* ............................................ 27,600 2,190,304
ONIX Systems Inc.* ............................................ 41,200 360,500
SLI Inc.* ..................................................... 117,000 1,806,187
Spectrian Corp.* .............................................. 28,500 345,562
-------------
10,863,121
-------------
OFFICE EQUIPMENT 0.4%
Xerox Corp. ................................................... 29,500 2,500,125
-------------
Total Science & Technology .................................... 55,102,830
-------------
UTILITY 7.0%
ELECTRIC 4.3%
Consolidated Edison Inc. ...................................... 19,000 990,375
Duke Energy Co. ............................................... 35,300 2,336,419
Edison International Inc. ..................................... 45,600 1,171,350
Elecricidade De Portugal SA ................................... 100,000 2,302,683
GPU Inc. ...................................................... 69,400 2,949,500
Illinova Corp. ................................................ 137,300 3,938,794
Montana Power Co. ............................................. 38,700 1,729,406
OGE Energy Corp. .............................................. 130,800 3,776,850
Pinnacle West Capital Corp. ................................... 99,400 4,454,362
Texas Utilities Co. ........................................... 23,000 1,070,938
Unicom Corp. .................................................. 48,000 1,794,000
Western Resources Inc. ........................................ 78,800 3,260,350
-------------
29,775,027
-------------
NATURAL GAS 0.8%
Calpine Corp.* ................................................ 30,400 615,600
Williams Cos Inc. ............................................. 182,189 5,237,934
-------------
5,853,534
-------------
TELEPHONE 1.9%
AirTouch Communications Inc.* ................................. 35,600 2,029,200
Bellsouth Corp. ............................................... 27,900 2,099,475
Cable & Wireless PLC .......................................... 111,900 760,964
Celcaribe SA*+ ................................................ 297,558 818,285
Clearnet Communications Inc. Wts.* ............................ 2,640 10,974
Econophone Inc. Wts.*+ ........................................ 750 11,250
Intelcom Group, Inc. Wts.*(+) ................................. 1,650 21,450
MCI WorldCom Inc. ............................................. 80,800 3,949,100
Nextel Communications Inc. Cl. A .............................. 1,549 31,270
Powertel Inc. Wts ............................................. 960 4,680
Qwest Communications International Inc.* ...................... 38,200 1,196,138
RSL Communications Ltd. Wts.*+ ................................ 750 74,250
Telecom Italia SPA* ........................................... 285,500 1,967,445
Viatel Inc. Pfd /\............................................. 548 38,369
-------------
13,012,850
-------------
Total Utility ................................................. 48,641,411
-------------
Total Equity Securities (Cost $323,743,155) ................... 329,063,026
-------------
EQUITY SECURITIES -- INFLATION RESPONSIVE INVESTMENTS 3.0%
BASIC INDUSTRIES 0.5%
METAL & MINING 0.5%
Aber Resources Ltd.* .......................................... 12,300 69,956
Anglogold Ltd. ADR* ........................................... 8,620 231,663
Ashanti Goldfields Ltd. GDR ................................... 100,000 912,500
Crown Resources Corp.* ........................................ 125,000 390,625
Delta Gold NL* ................................................ 168,000 235,034
Golden Star Resources Ltd.* ................................... 4,312 5,390
Menzies Gold NL* .............................................. 400,000 36,738
Newcrest Mining Ltd.* ......................................... 150,000 193,764
Normandy Mining Ltd.* ......................................... 511,325 431,755
Shaw Group Inc.* .............................................. 1,800 15,525
Southernera Resources Ltd.* ................................... 97,500 498,541
Sutton Resources Ltd.* ........................................ 56,000 210,000
Viceroy Resource Corp.* ....................................... 100,000 216,985
-------------
3,448,476
-------------
RAILROAD 0.0%
Marine Transport Corp. ........................................ 7,639 16,710
OMI Corp.* .................................................... 76,400 310,375
-------------
327,085
-------------
Total Basic Industries ........................................ 3,775,561
-------------
ENERGY 2.4%
OIL 1.9%
3DX Technologies Inc.* ........................................ 50,000 31,250
Arakis Energy Corp.*@ ......................................... 529,300 1,008,978
Basin Exploration Inc.* ....................................... 30,000 496,875
Baytex Energy Ltd. Cl. A ...................................... 32,300 110,105
Benton Oil & Gas Co.* ......................................... 9,400 53,463
Cabot Oil & Gas Corp. Cl. A ................................... 20,200 308,050
Canadian 88 Energy Corp.* ..................................... 113,200 374,975
Crystal Oil Co.* .............................................. 10,000 390,000
Esenjay Exploration Inc. ...................................... 12,100 22,688
Forcenergy Inc.* .............................................. 7,200 41,850
FX Energy Inc.* ............................................... 40,000 320,000
Gulfstream Resources Ltd. ..................................... 58,000 142,581
KCS Energy Inc.@ .............................................. 198,900 1,019,362
Meridian Resource Corp.* ...................................... 41,600 179,400
Merit Energy Ltd.* ............................................ 29,000 78,895
Nuevo Energy Co.* ............................................. 20,000 422,500
Oil Search Ltd.* .............................................. 448,600 558,218
Patina Oil & Gas Corp. ........................................ 15,500 77,500
Plains Resources Inc.* ........................................ 80,000 1,350,000
Ranger Oil Ltd.* .............................................. 251,300 1,649,156
Santa Fe Energy Resources Inc. ................................ 25,000 235,938
Seven Seas Petroleum Inc.*@ ................................... 75,000 778,125
Snyder Oil Corp. .............................................. 23,400 372,937
Southwestern Energy Co. ....................................... 58,600 498,100
St. Mary Land & Exploration Co.* .............................. 9,600 229,200
Stone Energy Corp.* ........................................... 5,400 169,425
Titan Exploration Inc.* ....................................... 51,000 309,187
Tom Brown, Inc.* .............................................. 35,600 436,100
Tri-Link Resources Ltd. Cl. A* ................................ 20,700 186,584
Ulster Petroleum Ltd.* ........................................ 121,500 999,590
-------------
12,851,032
-------------
OIL SERVICE 0.5%
Atwood Oceanics, Inc.*@ ....................................... 36,900 767,981
BJ Services Co.* .............................................. 20,000 325,000
Cooper Cameron Corp.* ......................................... 7,600 213,750
Diamond Offshore Drilling Inc. ................................ 17,000 442,000
J. Ray McDermott SA* .......................................... 10,000 300,625
NewPark Resources Inc.* ....................................... 60,900 418,687
Noble Drilling Corp.* ......................................... 15,300 225,675
Precision Drilling Corp.* ..................................... 9,100 114,319
TMBR/Sharp Drilling, Inc.* .................................... 20,500 125,563
Transocean Offshore Inc. ...................................... 20,000 693,750
-------------
3,627,350
-------------
Total Energy .................................................. 16,478,382
-------------
UTILITY 0.1%
NATURAL GAS 0.1%
TransTexas Gas Corp.* ......................................... 119,300 410,093
-------------
Total Utility ................................................. 410,093
-------------
Total Equity Securities -- Inflation Responsive
Investments (Cost $31,277,908) .............................. 20,664,036
-------------
- ------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- ------------------------------------------------------------------------------------------------------
FIXED INCOME SECURITIES 37.2%
U.S. TREASURY 9.6%
U.S. Treasury Bond, 12.00% ....................... $ 800,000 8/15/2013 $ 1,251,376
U.S. Treasury Bond, 8.75% ........................ 5,725,000 5/15/2017 8,168,831
U.S. Treasury Bond, 8.50% ........................ 4,000,000 2/15/2020 5,689,360
U.S. Treasury Bond, 8.125% ....................... 5,925,000 8/15/2021 8,216,316
U.S. Treasury Bond, 6.875% ....................... 2,800,000 8/15/2025 3,475,948
U.S. Treasury Bond, 6.625% ....................... 4,825,000 2/15/2027 5,862,375
U.S. Treasury Bond, 3.625% ....................... 1,740,508 4/15/2028 1,735,617
U.S. Treasury Note, 6.375% ....................... 6,775,000 8/15/2002 7,254,535
U.S. Treasury Note, 6.25% ........................ 1,200,000 8/31/2002 1,279,828
U.S. Treasury Note, 7.875% ....................... 7,150,000 11/15/2004 8,463,812
U.S. Treasury Note, 7.00% ........................ 3,225,000 7/15/2006 3,757,125
U.S. Treasury STRIPS, 0.00% ...................... 3,500,000 11/15/2001 3,059,945
U.S. Treasury STRIPS, 0.00% ...................... 5,850,000 5/15/2003 4,788,283
U.S. Treasury STRIPS, 0.00% ...................... 4,225,000 5/15/2007 2,844,862
U.S. Treasury STRIPS, 0.00% ...................... 2,675,000 2/15/2019 895,403
-------------
66,743,616
-------------
U.S. AGENCY MORTGAGE 6.5%
Federal Home Loan Mortgage Corp., 7.50% .......... 59,898 4/01/2002 60,664
Federal Home Loan Mortgage Corp., 8.50% .......... 295 7/01/2009 306
Federal Home Loan Mortgage Corp., 6.00% .......... 1,920,806 3/01/2013 1,941,800
Federal Home Loan Mortgage Corp., 6.00% .......... 2,184,597 5/01/2013 2,208,475
Federal National Mortgage Association, 9.50% ..... 958,627 10/01/2003 986,744
Federal National Mortgage Association, 8.00% ..... 182,682 4/01/2008 192,160
Federal National Mortgage Association, 8.00% ..... 236,750 6/01/2008 249,032
Federal National Mortgage Association, 8.50% ..... 212,016 2/01/2009 222,820
Federal National Mortgage Association, 6.00% ..... 1,000,000 5/25/2022 1,025,000
Federal National Mortgage
Association TBA, 6.50% ......................... 4,350,000 11/17/2013 4,423,406
Federal National Mortgage
Association TBA, 6.50% ......................... 11,300,000 11/12/2028 11,483,625
Government National Mortgage Association, 6.50% .. 496,159 2/15/2009 509,183
Government National Mortgage Association, 6.50% .. 177,179 6/15/2009 181,830
Government National Mortgage Association, 6.50% .. 1,083,301 7/15/2009 1,111,738
Government National Mortgage Association, 7.50% .. 106,351 11/15/2010 109,956
Government National Mortgage Association, 7.50% .. 759,132 12/15/2010 784,867
Government National Mortgage Association, 7.00% .. 1,008,491 1/15/2025 1,041,580
Government National Mortgage Association TBA,
6.50% .......................................... 4,825,000 11/18/2028 4,927,531
Government National Mortgage Association TBA,
7.00% .......................................... 13,050,000 11/18/2028 13,461,891
-------------
44,922,608
-------------
TRUST CERTIFICATES 0.0%
Cooperative Utility Trust Certificates, 10.125% .. $ 225,000 3/15/2019 $ 236,414
-------------
FINANCE/MORTGAGE 4.7%
A T & T Capital Corp. Note, 6.25% ................ 1,725,000 5/15/2001 1,752,289
Advanta Credit Card Master Trust Series 1996-A
Cl. A1, 6.00% .................................. 475,000 11/15/2005 489,545
Arcadia Automobile Trust Series 97-C A5, 6.55% ... 675,000 6/15/2005 691,954
Associates Corp. of North America Sr. Note, 6.45%. 700,000 10/15/2001 723,793
Capital One Bank Sr. Note, 7.08% ................. 1,850,000 10/30/2001 1,903,243
Cigna Corp. Deb., 7.875% ......................... 1,400,000 5/15/2027 1,519,546
CIT Group Holdings Inc. Sr. Note, 6.80% .......... 1,400,000 4/17/2000 1,430,156
Commercial Credit Group Inc. Note, 6.45% ......... 1,450,000 7/01/2002 1,505,868
Commercial Credit Group Inc. Sr. Note, 5.55% ..... 1,400,000 2/15/2001 1,408,890
Countrywide Funding Corp. Note, 7.26% ............ 1,400,000 5/10/2004 1,514,030
Countrywide Funding Corp. Note, 6.58% ............ 1,100,000 9/21/2001 1,133,385
Countrywide Mortgage Inc. Series 1993-E A-1,
6.50% .......................................... 6,367 1/25/2024 6,345
Countrywide Mortgage Inc. Series 1994-2 A-7,
6.50% .......................................... 35,095 4/25/2008 34,952
Credit Suisse First Boston 97-C2 Cl. A2, 6.52% ... 1,225,000 7/17/2007 1,297,734
ERAC USA Finance Co. Note, 6.75%+ ................ 700,000 5/15/2007 738,717
Ford Credit Auto Owner Trust 1996 A Cl. A3, 6.50%
.............................................. 432,117 11/15/1999 432,519
GE Global Insurance Holding Corp. Note, 7.00% .... 2,225,000 2/15/2026 2,451,394
GMAC Commercial Mortgage Security Inc. 1997-C2
Cl. A, 6.45% ................................... 676,001 12/15/2004 697,971
GMAC Commercial Mortgage Security Inc. 1998-C1
Cl. A1, 6.41% .................................. 807,228 11/15/2007 834,472
GMAC Commercial Mortgage Security Inc. 1997-C2
Cl. A, 6.55% ................................... 1,350,000 4/15/2029 1,405,687
LB Commercial Conduit Mortgage Trust 1998-C1 Cl ..
A1, 6.33% ...................................... 1,538,363 11/18/2004 1,580,180
MBNA Corp. Sr. Note, 6.875% ...................... 675,000 11/15/2002 710,674
MBNA Corp. Sr. Note, 7.125% ...................... 1,300,000 9/15/2004 1,404,325
Morgan Stanley Capital Inc. 98-Cl. A1, 6.19% ..... 676,969 1/15/2007 688,816
Prime Credit Card Master Trust Series 1995-1A,
6.75% .......................................... 1,800,000 11/15/2005 1,887,174
Prudential Home Mortgage Securities Co. Series
93-29 A-6 PAC, 6.75% ........................... 584,976 8/25/2008 589,176
Residential Funding Corp. Series 1993-S25 A-1,
6.50% .......................................... 96,094 7/25/2008 96,664
Sears Credit Account Master Trust Series 1997-1A,
6.20% .......................................... 700,000 7/16/2007 720,342
Structured Asset Securities Corp. Series 97-LL1-
A1, 6.79% ...................................... 1,346,869 6/12/2004 1,409,582
Zurich Capital Trust Note, 8.376%+ ............... 1,425,000 6/01/2037 1,558,708
-------------
32,618,131
-------------
CORPORATE 9.7%
Acme Boot Inc. Sr. Note Series B, 11.50% ......... 250,000 12/15/2000 105,000
Advanstar Commerce Inc. Sr. Note, 9.25%+ ......... 550,000 5/01/2008 533,500
Allbritton Communications Co. Sr. Sub. Deb.,
9.75% .......................................... 250,000 11/30/2007 256,250
Alvey Systems Inc. Sr. Sub. Note, 11.375% ........ 250,000 1/31/2003 259,375
American Business Information Inc. Sr. Note,
9.50%+ ......................................... 250,000 6/15/2008 222,500
American Lawyer Media Inc. Sr. Sub. Note Series
B, 9.75%+ ...................................... 250,000 12/15/2007 250,000
American Pacific Corp. Sr. Note, 9.25% ........... 500,000 3/01/2005 490,000
American Telecasting Inc. Sr. Note, 0.00% to
6/14/99, 12.50% from 6/15/99 to maturity ....... 499,947 6/15/2004 119,987
Ameristar Casinos Inc. Sr. Sub. Note, 10.50% ..... 250,000 8/01/2004 238,750
Ametek Inc. Sr. Note, 7.20%+ ..................... 300,000 7/15/2008 308,286
Archibald Candy Corp. Sr. Sec. Note, 10.25% ...... 500,000 7/01/2004 503,750
Aurora Foods Inc. Sr. Sub. Note, 8.75% ........... 100,000 7/01/2008 103,000
Ball Corp. Sr. Sub. Note, 8.25%+ ................. 750,000 8/01/2008 770,625
Benedek Broadcasting Corp. Sr. Note, 11.875% ..... 250,000 3/01/2005 267,500
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 740,000
Buckeye Technologies Inc. Sr. Sub. Note, 8.00% ... 500,000 10/15/2010 477,500
Capstar Broadcasting Corp. Sr. Note, 0.00% to
1/31/2002, 12.75% from 2/1/2002 to maturity .... 750,000 2/01/2009 566,250
CBS Radio Corp. Sub. Note, 11.375% ............... 263,200 1/15/2009 302,022
Celcaribe SA Sr. Sec. Note, 13.50% ............... 1,830,000 3/15/2004 1,738,500
Cellnet Data Systems Inc. Sr. Note Series B,
0.00% to 9/30/2002, 14.00% from 10/1/2002 to
maturity ....................................... 1,250,000 10/01/2007 437,500
Cenargo International Ltd. Note,
9.75%+ ......................................... 500,000 6/15/2008 405,000
Chase Manhattan Auto Owner Trust Note Cl. A4,
5.80% .......................................... 1,700,000 2/17/2003 1,734,000
Cluett American Corp. Sr. Sub. Note, 10.125%+ .... 250,000 5/15/2008 227,500
Coca-Cola Enterprises Inc. Deb., 6.75% ........... 1,825,000 9/15/2028 1,885,042
Columbia/HCA Healthcare Corp. Note, 6.91% ........ 1,400,000 6/15/2005 1,375,360
Columbia/HCA Healthcare Corp. Note, 7.69% ........ 650,000 6/15/2025 569,153
Columbia/HCA Healthcare Corp. Note, 7.75% ........ 750,000 7/15/2036 662,993
Columbus McKinnon Corp. Sr. Sub. Note, 8.50%+ .... 200,000 4/01/2008 177,000
Dover Corp. Deb., 6.65% .......................... 1,800,000 6/01/2028 1,842,390
Drypers Corp. Series B Sr. Note, 10.25% .......... 250,000 6/15/2007 230,000
E. Spire Communications Sr. Note, 0.00% to
3/31/2001, 12.75% from 4/1/2001 to maturity .... 250,000 4/01/2006 184,375
Econophone Inc. Sr. Note, 13.50% ................. 500,000 7/15/2007 520,000
Econophone Inc. Sr. Note, 0.00% to
2/14/2003, 11.00% from 2/15/2003 to maturity+ .. 850,000 2/15/2008 425,000
Edison Mission Energy Funding Corp. Series A
Note, 6.77%+ ................................... 1,997,440 9/15/2003 2,085,587
Elgar Holdings Inc. Sr. Sub. Note, 9.875%+ ....... 400,000 2/01/2008 336,000
Elgin National Industries Inc. Sr. Note Series B,
11.00%+ ........................................ 250,000 11/01/2007 258,750
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 577,500
Envirosource Inc. Note, 9.75% .................... 1,000,000 6/15/2003 950,000
ERAC USA Finance Co. Note, 6.625%+ ............... 725,000 2/15/2005 753,116
Falcon Holding Group LP Series B Sr. Deb.,
8.375%+ ........................................ 250,000 4/15/2010 247,500
First Wave Marine Inc. Sr. Note, 11.00% .......... 250,000 2/01/2008 237,500
Fort James Corp. Note, 6.23% ..................... 825,000 3/15/2001 837,086
Fort James Corp. Sr. Note, 6.625% ................ 1,350,000 9/15/2004 1,407,793
French Fragrances Inc. Sr. Note Series B, 10.375% 250,000 5/15/2007 257,500
Frontier Corp. Sr. Note, 9.125% .................. 500,000 2/15/2006 455,000
General Binding Corp. Sr. Note, 9.375% ........... 400,000 6/01/2008 398,000
GNI Group Inc. Sr. Note, 10.875%+ ................ 650,000 7/15/2005 646,750
Golden Ocean Group Ltd. Sr. Note, 10.00%+ ........ 750,000 8/31/2001 348,750
Great Central Mines Ltd. Sr. Note, 8.875%+ ....... 1,000,000 4/01/2008 945,000
Healthsouth Corp. Sr. Note, 6.875%+ .............. 900,000 6/15/2005 950,283
Henry Co. Sr. Note, 10.00%+ ...................... 200,000 4/15/2008 190,000
Household Finance Corp. Note, 6.125% ............. 900,000 7/15/2002 919,215
ICG Holdings Inc. Sr. Note, 0.00% to 9/14/2000,
13.50% from 9/15/2000 to maturity .............. 250,000 9/15/2005 195,000
International Knife & Saw Inc. Sr. Sub. Note,
11.375% ........................................ 250,000 11/15/2006 256,875
International Shipholding Corp. Sr. Note, 9.00%+ . 250,000 7/01/2003 254,063
International Shipholding Corp. Sr. Note Series
B, 7.75% ....................................... 500,000 10/15/2007 455,000
International Utility Structures Inc. Sr. Sub. ...
Note, 10.75%+ .................................. 250,000 2/01/2008 222,500
Intertek Finance PLC Series B Sr. Sub. Note,
10.25% ......................................... 625,000 11/01/2006 575,000
Ionica PLC Sr. Note, 13.50% ...................... 500,000 8/15/2006 150,000
J. Crew Group Inc. Sr. Note, 0.00% to 10/14/2002,
13.125% from
10/15/2002 to maturity ......................... 600,000 10/15/2008 234,000
J. Crew Operating Corp. Sr. Sub. Note, 10.375%+ .. 350,000 10/15/2007 262,500
J.B. Poindexter Inc. Sr. Note, 12.50% ............ 750,000 5/15/2004 705,000
J.H. Heafner Inc. Sr. Note, 10.00%+ .............. 500,000 5/15/2008 465,000
Johnstown America Industries, Inc. Sr. Sub. Note,
11.75% ......................................... 250,000 8/15/2005 257,500
Kitty Hawk Inc. Sr. Sec. Note, 9.95%+ ............ 250,000 11/15/2004 250,000
Krystal Co. Sr. Note, 10.25% ..................... 250,000 10/01/2007 248,750
Loehmanns Inc. Sr. Note, 11.875% ................. 350,000 5/15/2003 318,500
Microcell Telecommunications, Inc. Sr. Note
Series B, 0.00% to
10/14/2002, 11.125% from
10/15/2002 to maturity ......................... 425,000 10/15/2007 150,447
NE Restaurant Inc. Sr. Note, 10.75%+ ............. 250,000 7/15/2008 238,750
New York State Power Authority Revenue Bonds,
Series D, 6.17% ................................ 2,000,000 2/15/2001 2,050,900
Newpark Resources Inc. Sr. Sub. Note Series B,
8.625%+ ........................................ 250,000 12/15/2007 237,500
News America Holdings Inc. Deb., 7.375% .......... 1,675,000 10/17/2008 1,805,817
Norcal Waste Systems Inc. Series B Sr. Note,
13.50% ......................................... 500,000 11/15/2005 575,000
North Atlantic Trading Inc. Sr. Note, 11.00% ..... 750,000 6/15/2004 708,750
Ocean Energy Inc. Sr. Note, 7.625%+ .............. 100,000 7/01/2005 98,500
Ocean Energy Inc. Sr. Sub. Note, 8.375%+ ......... 150,000 7/01/2008 143,250
Owens-Illinois Inc. Sr. Deb., 7.50% .............. 1,000,000 5/15/2010 1,066,920
P&L Coal Holdings Corp. Sr. Note, 8.875%+ ........ 500,000 5/15/2008 506,875
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 486,750
Pagemart Wireless Inc. Sr. Sub. Note, 0.00% to
1/31/2002, 11.25% from 2/1/2003 to maturity .... 500,000 2/01/2008 270,000
Pathmark Stores Inc. Sub. Deb., 12.625% .......... 250,000 6/15/2002 237,500
Petroliam Nasional BHD Note, 7.125%+ ............. 1,450,000 8/15/2005 974,617
Phase Metrics Inc. Sr. Note, 10.75%+ ............. 750,000 2/01/2005 543,750
Pool Energy Services Co. Sr. Sub. Note, 8.625%+ .. 400,000 4/01/2008 350,000
Primedia Inc. Sr. Note, 7.625%+ .................. 250,000 4/01/2008 242,500
Primus Telecommunications Group Sr. Note, 11.75% . 250,000 8/01/2004 240,000
Protection One Alarm Inc. Sr. Note, 0.00% to
6/29/98, 13.625% from 6/30/98 to maturity ..... 325,000 6/30/2005 364,813
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% ..... 500,000 12/15/2006 535,000
R. H. Donnelley Inc. Sr. Sub. Note, 9.125%+ ...... 250,000 6/01/2008 254,063
Railcar Leasing LLC Sr. Sec. Note, 6.75%+ ........ 773,258 7/15/2006 809,802
Rose Hills Co. Sr. Sub. Note, 9.50% .............. 250,000 11/15/2004 237,500
RSL Communications Ltd. Sr. Note, 12.25% ......... 750,000 11/15/2006 776,250
Sea Containers Ltd. Sr. Note Series B, 7.875%+ ... 300,000 2/15/2008 283,500
SFX Entertainment Inc. Sr. Note Series B,
9.125%+ ........................................ 500,000 2/01/2008 465,000
Shop Vac Corp. Sr. Sec. Note, 10.625% ............ 450,000 9/01/2003 477,000
Simonds Industries Inc. Sr. Sub. Note, 10.25%+ ... 250,000 7/01/2008 246,250
Sitel Corp. Sr. Sub. Note, 9.25%+ ................ 250,000 3/15/2006 232,500
Solutia Inc. Note, 6.50% ......................... 1,400,000 10/15/2002 1,422,442
Spanish Broadcasting Systems Inc. Sr. Note,
12.50% ......................................... 1,000,000 6/15/2002 1,090,000
Startec Global Communications Corp. Sr. Note,
12.00%+ ........................................ 500,000 5/15/2008 432,500
Stena AB Sr. Note, 8.75% ......................... 250,000 6/15/2007 233,750
Tekni Plex Inc. Series B Sr. Sub. Note, 11.25% ... 500,000 4/01/2007 522,500
Telecommunications Techniques Co. LLC Sr. Sub. ...
Note, 9.75%+ ................................... 250,000 5/15/2008 227,500
Tenet Healthcare Corp. Sr. Note, 8.00% ........... 500,000 1/15/2005 507,500
Tenet Healthcare Corp. Sr. Note, 7.625%+ ......... 500,000 6/01/2008 505,000
Time Warner Telecom LLC Sr. Note, 9.75% .......... 100,000 7/15/2008 100,000
Tokheim Corp. Sr. Sub. Note Series B, 11.50% ..... 250,000 8/01/2006 282,500
Transamerican Energy Corp. Sr. Sec. Note Series
B, 0.00% to 6/14/99, 13.00% from 6/15/99 to
maturity ....................................... 250,000 6/15/2002 120,000
Transamerican Energy Corp. Sr. Sec. Note Series
B, 11.50% ...................................... 1,000,000 6/15/2002 550,000
Transwestern Holdings LP Sr. Note Series B, 0.00%
to 11/14/2002, 11.875% from 11/15/2002 to
maturity+ ...................................... 250,000 11/15/2008 156,250
Transwestern Publishing Company LP Sr. Sub. Note,
9.625% ......................................... 250,000 11/15/2007 255,000
Tyco International Group SA, 6.25% ............... 1,800,000 6/15/2003 1,863,810
U.S.A. Mobile Communications Inc. Sr. Note, 9.50%
.............................................. 750,000 2/01/2004 667,500
Unilab Corp. Sr. Note, 11.00% .................... 500,000 4/01/2006 515,000
Viatel Inc. Sr. Note, 11.25%+ .................... 750,000 4/15/2008 682,500
Viatel Inc. Sr. Note, 0.00% to
4/14/2003, 12.50% from 4/15/2003
to maturity+ ................................... 350,000 4/15/2008 171,500
Westpoint Stevens Inc. Sr. Note, 7.875% .......... 750,000 6/15/2008 761,250
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 306,000
Winstar Equipment Corp. Sr. Sec. Exch. Note,
12.50% ......................................... 400,000 3/15/2004 364,000
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 118,750
Woodside Finance Ltd. Note, 6.60%+ ............... 875,000 4/15/2008 879,883
Worldcom Inc. Note, 6.125% ....................... 1,800,000 8/15/2001 1,841,526
-------------
67,500,291
-------------
FOREIGN GOVERNMENT 5.9%
Greek Drachma
Republic of Greece, 8.80% ........................ 3,100,000,000 6/19/2007 $ 10,966,396
New Zealand Dollar
Government of New Zealand, 10.00% ................ 14,200,000 3/15/2002 8,054,238
Government of New Zealand, 8.00% ................. 16,075,000 11/15/2006 9,232,376
Pound Sterling
United Kingdom Treasury, 8.50% ................... 6,150,000 12/07/2005 12,602,277
-------------
40,855,287
-------------
FOREIGN 0.8%
Province of Ontario Deb., 5.50% .................. $ 1,550,000 10/01/2008 1,379,500
Province of Quebec Deb., 7.125% .................. 375,000 2/09/2024 405,915
Usinor Sacilor Note, 7.25% ....................... 3,500,000 8/01/2006 3,623,025
-------------
5,408,440
-------------
Total Fixed Income Securities (Cost $256,233,720)............................. 258,284,787
-------------
CASH EQUIVALENTS 17.1%
American Express Credit Corp., 5.55% ............. 9,000,000 10/05/1998 9,000,000
American Express Credit Corp., 5.27% ............. 3,236,000 10/08/1998 3,236,000
American Express Credit Corp., 5.50% ............. 18,280,000 10/20/1998 18,280,000
CIT Group Holdings Inc., 5.25% ................... 8,593,000 10/14/1998 8,593,000
E.I. Du Pont De Nemours & Co., 5.47% ............. 9,834,000 10/16/1998 9,811,669
Ford Motor Credit Co., 5.35% ..................... 3,093,000 10/01/1998 3,093,000
Ford Motor Credit Co., 5.21% ..................... 13,751,000 10/05/1998 13,751,000
Ford Motor Credit Co., 5.28% ..................... 7,793,000 10/08/1998 7,793,000
General Electric Capital Corp., 5.45% ............ 5,406,000 10/05/1998 5,406,000
General Electric Capital Corp., 5.49% ............ 5,767,000 10/14/1998 5,767,000
Goldman Sachs Group LP, 5.59% .................... 10,000,000 10/08/1998 9,989,150
Household Finance Corp., 5.28% ................... 13,000,000 10/14/1998 13,000,000
Merrill Lynch & Company Inc., 5.53% .............. 10,996,000 10/05/1998 10,989,268
-------------
Total Cash Equivalents (Cost $118,709,087) ................................... 118,709,087
-------------
- -----------------------------------------------------------------------------------------------------
SHARES
- -----------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 14.2%
State Street Navigator Securities
Lending Prime Portfolio ..................................... 98,419,742 98,419,742
-------------
Total Short-Term Investments (Cost $98,419,792) ............... 98,419,742
-------------
Total Investments (Cost $828,383,662) - 118.9% ................ 825,140,678
Cash and Other Assets, Less Liabilities - (18.9%) (131,233,237)
-------------
Net Assets - 100.0% ........................................... $ 693,907,441
=============
Federal Income Tax Information (Note 1):
At September 30, 1998, the net unrealized depreciation of investments
based on cost for Federal income tax purposes of $828,931,108 was as
follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost .............................. $ 58,996,794
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ............................ (62,787,224)
-------------
$ (3,790,430)
=============
ADR and GDR stand for American Depositary Receipt and Global Depositary Receipt, respectively,
representing ownership of for eign 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 September 30, 199 8 were $300,425 and $224,360 (0.03% 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 September 30, 1998 were $25,151,927 and $24,245,785
(3.49% of net assets), respectively.
++ 268,200 shares of Abacan Resource Corp., 1,400 shares of Cabot Corp., 10,000 shares of Cliffs
Drilling Co., 35,325 shares of Maxx Petroleum Ltd., and 149,580 shares of Seagull Energy Corp. are
considered by the Adviser to be part of Inflation Responsive Investments.
@ 194,400 shares of Arakis Energy Corp., 16,900 shares of Atwood Oceanics, Inc., 38,900 shares of KCS
Energy, Inc., and 25,000 shares of Seven Seas Petroleum Inc. are considered by the Adviser to be
part of Equity Securities.
TBA Represents "TBA" (to be announced) purchase commitment to purchase securities for a fixed unit price
at a future date beyond customary settlement. Although the unit price has been established, the
principal value has not been finalized and may vary by no more than 1%.
</TABLE>
Forward currency exchange contracts outstanding at September 30, 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 530,000 CAD 0.67249 CAD $ 9,006 10/23/98
Sell Canadian dollars, buy U.S. dollars 5,250,826 CAD 0.66122 CAD 30,267 12/15/98
Buy Canadian dollars, sell U.S. dollars 248,000 CAD 0.65624 CAD (182) 10/23/98
Sell Deutsche marks, buy U.S. dollars 9,398,000 DEM 0.56465 DEM (333,949) 11/13/98
Sell Deutsche marks, buy U.S. dollars 10,090,000 DEM 0.56453 DEM (359,825) 11/13/98
Sell British pounds, buy U.S. dollars 8,600,000 GBP 1.64000 GBP (498,035) 10/23/98
Buy British pounds, sell U.S. dollars 1,600,000 GBP 1.64310 GBP 87,698 10/23/98
Sell New Zealand dollars, buy U.S. dollars 4,580,000 NZD 0.52410 NZD 107,667 10/23/98
Sell New Zealand dollars, buy U.S. dollars 7,207,000 NZD 0.52500 NZD 175,909 10/23/98
Sell New Zealand dollars, buy U.S. dollars 18,210,000 NZD 0.50100 NZD 6,372 11/13/98
Sell New Zealand dollars, buy U.S. dollars 2,800,000 NZD 0.50741 NZD 18,928 11/13/98
Sell New Zealand dollars, buy U.S. dollars 666,000 NZD 0.50400 NZD 2,230 11/13/98
Sell Japanese yen, buy U.S. dollars 1,380,810,290 JPY 0.00725 JPY (206,686) 12/16/98
---------
$(960,600)
=========
</TABLE>
Futures contracts open at September 30, 1998, are as follows:
EXPIRATION UNREALIZED
TYPE NOTIONAL COST MONTH APPRECIATION
- ------------------------------------------------------------------------------
U.S. Treasury Bonds $1,200,000 December, 1998 $64,227
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
Investments, at value (Cost $828,383,662) (Note 1) ............ $825,140,678
Cash .......................................................... 1,191
Receivable for securities sold ................................ 36,269,149
Interest and dividends receivable ............................. 4,177,400
Receivable for fund shares sold ............................... 752,825
Receivable for open forward contracts ......................... 438,077
Receivable for variation margin (Note 1) ...................... 16,875
Other assets .................................................. 36,837
------------
866,833,032
LIABILITIES
Payable for collateral received on securities loaned .......... 98,419,742
Payable for securities purchased .............................. 71,298,026
Payable for open forward contracts ............................ 1,398,677
Accrued management fee (Note 2) ............................... 414,980
Accrued distribution and service fees (Note 4) ................ 364,438
Payable for fund shares redeemed .............................. 351,224
Accrued transfer agent and shareholder services
(Note 2) .................................................... 253,025
Dividends payable ............................................. 122,863
Accrued trustees' fees (Note 2) ............................... 18,849
Other accrued expenses ........................................ 283,767
------------
172,925,591
------------
NET ASSETS .................................................... $693,907,441
============
Net Assets consist of:
Undistributed net investment income ......................... $ 3,441,554
Unrealized depreciation of investments ...................... (3,242,984)
Unrealized appreciation of futures contracts ................ 64,227
Unrealized depreciation of forward contracts and
foreign currency .......................................... (947,221)
Accumulated net realized gain ............................... 34,696,074
Paid-in capital ............................................. 659,895,791
------------
$693,907,441
============
Net Asset Value and redemption price per share of Class A
shares ($301,520,328 / 30,129,764 shares) ................... $10.01
======
Maximum Offering Price per share of Class A shares
($10.01 / .955) ............................................. $10.48
======
Net Asset Value and offering price per share of Class B shares
($352,096,910 / 35,320,319 shares)* ......................... $ 9.97
======
Net Asset Value and offering price per share of Class C shares
($21,359,539 / 2,138,163 shares)* ........................... $ 9.99
======
Net Asset Value, offering price and redemption price per share
of Class S shares ($18,930,664 / 1,891,619 shares) .......... $10.01
======
- -------------------------------------------------------------------------------
* 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
- -------------------------------------------------------------------------------
Interest, net of foreign taxes of $43,442 (Note 1) .............. $ 10,774,751
Dividends, net of foreign taxes of $106,175 ..................... 2,207,119
-------------
12,981,870
EXPENSES
Management fee (Note 2) ......................................... 2,767,655
Transfer agent and shareholder services (Note 2) ................ 561,278
Custodian fee ................................................... 213,975
Service fee - Class A (Note 4) .................................. 404,724
Distribution and service fees - Class B (Note 4) ................ 1,860,084
Distribution and service fees - Class C (Note 4) ................ 115,819
Reports to shareholders ......................................... 51,090
Registration fees ............................................... 50,011
Audit fee ....................................................... 19,496
Trustees' fees (Note 2) ......................................... 18,849
Legal fees ...................................................... 6,921
Miscellaneous ................................................... 5,360
-------------
6,075,262
-------------
Net investment income ........................................... 6,906,608
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, FORWARD CONTRACTS AND
FUTURES CONTRACTS
Net realized gain on investments (Notes 1 and 3) ................ 33,379,231
Net realized gain on futures contracts (Note 1) ................. 85,023
Net realized gain on forward contracts and foreign
currency (Note 1) ............................................. 2,201,299
-------------
Total net realized gain ....................................... 35,665,553
-------------
Net unrealized depreciation of investments ...................... (112,725,849)
Net unrealized appreciation of futures contracts ................ 64,227
Net unrealized depreciation of forward contracts and
foreign currency .............................................. (1,454,916)
-------------
Total net unrealized depreciation ............................. (114,116,538)
-------------
Net loss on investments, foreign currency,
forward contracts and futures contracts ....................... (78,450,985)
-------------
Net decrease in net assets resulting from
operations .................................................... $ (71,544,377)
=============
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- ---------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, 1998
MARCH 31, 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ..................................... $ 10,119,003 $ 6,906,608
Net realized gain on investments,
foreign currency, forward contracts and futures contracts 82,857,774 35,665,553
Net unrealized appreciation
(depreciation) of investments, foreign currency, forward
contracts and futures contracts ......................... 68,188,178 (114,116,538)
-------------- --------------
Net increase (decrease) resulting from
operations .............................................. 161,164,955 (71,544,377)
-------------- --------------
Dividends from net investment income: Class A ............. (5,845,453) (2,996,320)
Class B ................................................. (3,857,267) (2,127,164)
Class C ................................................. (254,051) (119,172)
Class S ................................................. (535,841) (237,660)
-------------- --------------
(10,492,612) (5,480,316)
-------------- --------------
Distributions from net realized gains: Class A ............ (34,942,599) (13,408,629)
Class B ................................................. (37,667,215) (15,386,668)
Class C ................................................. (2,507,060) (958,429)
Class S ................................................. (2,858,624) (1,043,133)
-------------- --------------
(77,975,498) (30,796,859)
-------------- --------------
Net increase from fund share
transactions (Note 5) ................................... 142,539,444 51,878,734
-------------- --------------
Total increase (decrease) in net assets ................... 215,236,289 (55,942,818)
NET ASSETS
Beginning of period ....................................... 534,613,970 749,850,259
-------------- --------------
End of period (including undistributed net investment
income of $2,015,262 and $3,441,554, respectively) ...... $ 749,850,259 $ 693,907,441
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1
State Street Research Managed Assets (the "Fund"), is a series of State Street
Research Income Trust (the "Trust"), which was organized as a Massachusetts
business trust in December, 1985 and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund commenced operations in December 1988. The Trust consists presently
of two separate funds: State Street Research Managed Assets and State Street
Research High Income Fund.
The investment objective of the Fund is to seek a high total return while
attempting to limit investment risk and preserve capital. To achieve its
investment objective, the Fund intends to allocate assets among selected
investments in the following sectors: Fixed Income Securities, Equity
Securities, Inflation Responsive Investments and Cash & Cash Equivalents.
Total return may include current income as well as capital appreciation. The
Fund's investment manager believes that the timely re-allocation of assets can
enhance performance and reduce portfolio volatility.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and an annual service fee of 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and pay
annual distribution and service fees of 1.00%. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after the issuance of the Class B shares. Class C shares are
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.
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 September 30, 1998, the value of the securities loaned and the value
of collateral were $95,096,854 and $98,419,742, respectively. During the six
months ended September 30, 1998, income from securities lending amounted to
$174,336 and is included in interest income.
I. FUTURES CONTRACTS
The Fund may enter into futures contracts as a hedge against unfavorable
market conditions and to enhance income. The Fund will not purchase any
futures contract if, after such purchase, more than one-third of net assets
would be represented by long futures contracts. The Fund will limit its risks
by entering into a futures position only if it appears to be a liquid
investment.
Upon entering into a futures contract, the Fund deposits with the selling
broker sufficient cash or U.S. Government securities to meet the minimum
"initial margin" requirements. Thereafter, the Fund receives from or pays to
the broker cash or U.S. Government securities equal to the daily fluctuation
in value of the contract ("variation margin"), which is recorded as unrealized
gain or loss. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
NOTE 2
Prior to August 1, 1998, the Adviser earned monthly fees at an annual rate of
0.75% of the Fund's average daily net assets. Effective August 1, 1998 the
management fee is 0.75% of the first $500 million of net assets, annually,
0.70% of the next $500 million, and 0.65% of any amount over $1 billion. In
consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the six months ended September 30, 1998, the fees pursuant to such
agreement amounted to $2,767,655.
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 six months ended September 30, 1998, the
amount of such expenses was $199,303.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$18,849 during the six months ended September 30, 1998.
NOTE 3
For the six months ended September 30, 1998, purchases and sales of
securities, exclusive of short-term obligations and forward foreign currency
exchange contracts, aggregated $463,567,863, and $483,772,006 (including
$224,432,561 and $210,185,618 of U.S. Government obligations), 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 services and/or the maintenance of shareholder accounts, to reimburse
securities dealers for distribution and marketing services, to furnish ongoing
assistance to investors and to defray a portion of its distribution and
marketing expenses. For the six months ended September 30, 1998, fees pursuant
to such plan amounted to $404,724, $1,860,084 and $115,819 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 $102,378 and $681,058, respectively, on sales of Class A shares of
the Fund during the six months ended September 30, 1998, and that MetLife
Securities, Inc. earned commissions aggregating $1,475,935 on sales of Class B
shares, and the Distributor collected contingent deferred sales charges
aggregating $290,339 and $1,650 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.
<TABLE>
Share transactions were as follows:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, 1998
MARCH 31, 1998 (UNAUDITED)
--------------------------------- ---------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 5,722,390 $ 63,984,989 2,646,068 $28,917,144
Issued upon reinvestment of:
Dividends from net investment
income ........................ 511,711 5,655,896 276,594 2,908,359
Distributions from net realized
gains ......................... 3,275,657 34,024,678 1,183,580 13,078,558
Shares repurchased ............ (4,510,796) (50,245,975) (2,473,306) (26,965,582)
----------- ------------ ----------- -----------
Net increase .................. 4,998,962 $ 53,419,588 1,632,936 $17,938,479
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 7,594,312 $ 84,286,716 4,415,491 $48,336,080
Issued upon reinvestment of:
Dividends from net investment
income .................... 351,570 3,838,405 194,963 2,037,932
Distributions from net realized
gains ..................... 3,545,630 36,684,475 1,364,850 15,013,348
Shares repurchased ............ (3,817,822) (42,267,060) (2,592,016) (27,939,768)
----------- ------------ ----------- -----------
Net increase .................. 7,673,690 $ 82,542,536 3,383,288 $37,447,592
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 465,412 $ 5,129,443 253,243 $ 2,759,303
Issued upon reinvestment of:
Dividends from net investment
income .................... 20,654 226,439 10,376 109,179
Distributions from net realized
gains ..................... 221,602 2,295,214 77,902 858,473
Shares repurchased ............ (334,060) (3,714,768) (260,903) (2,794,783)
----------- ------------ ----------- -----------
Net increase .................. 373,608 $ 3,936,328 80,618 $ 932,172
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CLASS S SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 644,321 $ 7,206,721 329,152 $ 3,583,022
Issued upon reinvestment of:
Dividends from net investment
income .................... 48,246 534,170 22,426 236,970
Distributions from net realized
gains ..................... 274,906 2,856,650 94,172 1,041,538
Shares repurchased ............ (714,208) (7,956,549) (852,288) (9,301,039)
----------- ------------ ----------- -----------
Net increase (decrease) ....... 253,265 $ 2,640,992 (406,538) $(4,439,509)
=========== ============ =========== ===========
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period:
<CAPTION>
CLASS A
---------------------------------------------------------------------------
YEARS ENDED MARCH 31 SIX MONTHS ENDED
-------------------------------------------------- SEPTEMBER 30, 1998
1994 1995 1996(1) 1997(1) 1998(1) (UNAUDITED)(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 8.94 8.94 8.76 10.29 10.40 11.60
----- ----- ----- ----- ----- -----
Net investment income ($)* 0.22 0.27 0.23 0.21 0.22 0.12
Net realized and unrealized gain (loss)
on investments, foreign currency,
forward contracts and futures
contracts ($) 0.72 (0.14) 1.72 1.05 2.61 (1.14)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.94 0.13 1.95 1.26 2.83 (1.02)
----- ----- ----- ----- ----- -----
Dividends from net investment income ($) (0.22) (0.17) (0.26) (0.28) (0.23) (0.10)
Distributions from net realized gains ($) (0.72) (0.14) (0.16) (0.87) (1.40) (0.47)
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.94) (0.31) (0.42) (1.15) (1.63) (0.57)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD ($) 8.94 8.76 10.29 10.40 11.60 10.01
===== ===== ===== ===== ===== =====
Total return (3) (%) 10.96 1.52 22.55 12.49 29.62 (9.17)(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 166,011 181,358 207,713 244,348 330,421 301,520
Ratio of operating expenses to average
net assets (%)* 1.25 1.25 1.25 1.25 1.28 1.25(5)
Ratio of net investment income to average
net assets (%)* 2.75 3.11 2.34 2.02 1.96 2.25(5)
Portfolio turnover rate (%) 105.17 89.58 109.20 108.41 133.30 68.51
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.02 0.03 0.02 0.01 0.00 --
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------------
YEARS ENDED MARCH 31 SIX MONTHS ENDED
--------------------------------------------------- SEPTEMBER 30, 1998
1994(2) 1995 1996(1) 1997(1) 1998(1) (UNAUDITED)(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 8.78 8.92 8.74 10.25 10.37 11.55
----- ----- ----- ----- ----- -----
Net investment income ($)* 0.16 0.20 0.15 0.13 0.13 0.08
Net realized and unrealized gain (loss)
on investments, foreign currency,
forward contracts and futures
contracts ($) 0.39 (0.13) 1.71 1.06 2.59 (1.13)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.55 0.07 1.86 1.19 2.72 (1.05)
----- ----- ----- ----- ----- -----
Dividends from net investment income ($) (0.18) (0.11) (0.19) (0.20) (0.14) (0.06)
Distributions from net realized gains ($) (0.23) (0.14) (0.16) (0.87) (1.40) (0.47)
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.41) (0.25) (0.35) (1.07) (1.54) (0.53)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD ($) 8.92 8.74 10.25 10.37 11.55 9.97
===== ===== ===== ===== ===== =====
Total return(3) (%) 6.26(4) 0.82 21.48 11.76 28.53 (9.46)(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 83,244 152,251 193,272 251,518 368,975 352,097
Ratio of operating expenses to average
net assets (%)* 2.00(5) 2.00 2.00 2.00 2.03 2.00(5)
Ratio of net investment income to average
net assets (%)* 2.03(5) 2.38 1.59 1.27 1.21 1.50(5)
Portfolio turnover rate (%) 105.17 89.58 109.20 108.41 133.30 68.51
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.03 0.03 0.02 0.01 0.00 --
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) June 1, 1993 (commencement of share class designations) to March 31, 1994.
(3) Does not reflect any front-end or contingent deferred sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily reduced a portion of the Fund's expenses.
(4) Not annualized.
(5) Annualized.
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------------------------------------------
YEARS ENDED MARCH 31 SIX MONTHS ENDED
------------------------------------------------- SEPTEMBER 30, 1998
1994(2) 1995 1996(1) 1997(1) 1998(1) (UNAUDITED)(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 8.78 8.93 8.75 10.27 10.38 11.57
----- ----- ----- ----- ----- -----
Net investment income ($)* 0.16 0.20 0.15 0.13 0.13 0.08
Net realized and unrealized gain (loss)
on investments, foreign currency,
forward contracts and futures
contracts ($) 0.40 (0.13) 1.72 1.05 2.60 (1.13)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.56 0.07 1.87 1.18 2.73 (1.05)
----- ----- ----- ----- ----- -----
Dividends from net investment income ($) (0.18) (0.11) (0.19) (0.20) (0.14) (0.06)
Distributions from net realized gains ($) (0.23) (0.14) (0.16) (0.87) (1.40) (0.47)
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.41) (0.25) (0.35) (1.07) (1.54) (0.53)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD ($) 8.93 8.75 10.27 10.38 11.57 9.99
===== ===== ===== ===== ===== =====
Total return(3) (%) 6.31(4) 0.82 21.54 11.64 28.59 (9.49)(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 7,117 12,772 13,061 17,485 23,807 21,360
Ratio of operating expenses to average
net assets (%)* 2.00(5) 2.00 2.00 2.00 2.03 2.00(5)
Ratio of net investment income to average
net assets (%)* 2.03(5) 2.39 1.60 1.26 1.21 1.50(5)
Portfolio turnover rate (%) 105.17 89.58 109.20 108.41 133.30 68.51
*Reflects voluntary reduction of expenses
per share of these amounts ($) 0.03 0.03 0.02 0.01 0.00 --
</TABLE>
<TABLE>
<CAPTION>
CLASS S
----------------------------------------------------------------------------
YEARS ENDED MARCH 31 SIX MONTHS ENDED
-------------------------------------------------- SEPTEMBER 30, 1998
1994(2) 1995 1996(1) 1997(1) 1998(1) (UNAUDITED)(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 8.78 8.95 8.77 10.29 10.40 11.60
----- ----- ----- ----- ----- -----
Net investment income ($)* 0.21 0.29 0.25 0.24 0.25 0.14
Net realized and unrealized gain (loss)
on investments, foreign currency,
forward contracts and futures
contracts ($) 0.43 (0.14) 1.71 1.05 2.60 (1.15)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.64 0.15 1.96 1.29 2.85 (1.01)
----- ----- ----- ----- ----- -----
Dividends from net investment income ($) (0.24) (0.19) (0.28) (0.31) (0.25) (0.11)
Distributions from net realized gains ($) (0.23) (0.14) (0.16) (0.87) (1.40) (0.47)
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.47) (0.33) (0.44) (1.18) (1.65) (0.58)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD ($) 8.95 8.77 10.29 10.40 11.60 10.01
===== ===== ===== ===== ===== =====
Total return(3) (%) 7.27(4) 1.77 22.70 12.77 29.93 (9.05)(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 21,434 25,803 19,548 21,263 26,648 18,931
Ratio of operating expenses to average
net assets (%)* 1.00(5) 1.00 1.00 1.00 1.03 1.00(5)
Ratio of net investment income to average
net assets (%)* 3.03(5) 3.37 2.59 2.26 2.21 2.51(5)
Portfolio turnover rate (%) 105.17 89.58 109.20 108.41 133.30 68.51
*Reflects voluntary reduction of expenses
per share of these amounts ($) 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 reduced a portion of the Fund's expenses.
(4) Not annualized.
(5) Annualized.
</TABLE>
<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
One Financial Center BARTLETT R. GEER STEVE A. GARBAN
Boston, MA 02111 Vice President Former Senior Vice President
for Finance and Operations
DISTRIBUTOR JOHN H. KALLIS 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 JAMES M. WEISS Board and Chief Financial
State Street Research Vice President Officer, St. Regis Corp.
Service Center
P.O. Box 8408 GERARD P. MAUS
Boston, MA 02266-8408 Treasurer EDWARD M. LAMONT
1-800-562-0032 Formerly in banking (with an
JOSEPH W. CANAVAN affiliate
CUSTODIAN Assistant Treasurer of J.P. Morgan & Co. in New York);
State Street Bank and presently engaged in private invest-
Trust Company DOUGLAS A. ROMICH ments and civic affairs
225 Franklin Street Assistant Treasurer
Boston, MA 02110
FRANCIS J. MCNAMARA, III ROBERT A. LAWRENCE
LEGAL COUNSEL Secretary and General Counsel Former Partner, Saltonstall & Co.
Goodwin, Procter & Hoar LLP
Exchange Place DARMAN A. WING
Boston, MA 02109 Assistant Secretary and DEAN O. MORTON
Assistant General Counsel Former Executive Vice President,
Chief Operating Officer
AMY L. SIMMONS and Director,
Assistant Secretary Hewlett-Packard Company
TOBY ROSENBLATT
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
</TABLE>
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
One Financial Center
Boston, MA 02111
-------------------
Bulk Rate
U.S. Postage
PAID
Permit #20
Holliston, MA 01746
-------------------
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032
[hearing-impaired 1-800-676-7876]
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 December 31, 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: (exp 1199) SSR-LD
MA-273D-1098
