<PAGE>
- -------------------------------------------------------------------------------
STATE STREET RESEARCH
- -------------------------------------------------------------------------------
HIGH INCOME FUND
--------------------
ANNUAL REPORT
March 31, 1999
--------------------
WHAT'S INSIDE
--------------------
FROM THE CHAIRMAN
Americans benefited from a
healthy economy
PORTFOLIO MANAGER'S REVIEW
High-yield bonds slip as
investors seek quality, liquidity
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
STATE STREET RESEARCH
- ---------------------- ---------------------
DALBAR
HONORS COMMITMENT TO: 75 YEARS
INVESTORS
1998 ---------------------
- ---------------------- LASTING VALUES
---------------------
For Excellence LEADING IDEAS
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
In a year marked by market volatility at home and currency upheaval abroad,
Americans continued to reap the benefits of a healthy economy. Inflation
remained low, unemployment hovered around 4%, wages rose, and prices fell at the
gas pump and in the mortgage market. Many Americans took their prosperity to the
mall. The holiday season was strong and retail sales rose. However, the nation's
savings rate fell below zero.
STOCKS
It was a strong 12 months for the U.S. stock market. A correction late in the
summer was short-lived as most segments of the U.S. stock market staged a
comeback in the fourth quarter. The Dow Jones Industrial Average pierced the
10,000 mark in the first quarter of 1999, then fell back to close short of the
new milestone at the end of the period.
Large-company growth stocks and technology stocks were the strongest performers,
led by Internet stocks, which delivered amazing returns. However, gains were
concentrated in a narrow band of stocks. Small and medium-sized company stocks
continued to lag the market, and the gap between growth stocks and value stocks
widened.
BONDS
The bond market benefited from the Federal Reserve Board's three quick interest
rate cuts in the fall as the 30-year U.S. Treasury bond yield hit a low of 5.0%.
After struggling under the weight of a robust economy, this benchmark yield
climbed back up to 5.7% late in the period. Bond prices move in the opposite
direction of yields. As a result, the value of U.S. Treasury bonds fell during
the period. High-yield "junk" bonds had been weak, but bounced back on the
strong economic news to close among the best bond market performers in the first
quarter of 1999.
INTERNATIONAL
Foreign markets delivered mixed returns. Expectations surrounding the debut of
the euro, the new common currency shared by 11 nations, helped European markets
in the first half of this reporting period. But the luster was short-lived. Most
European economies are still suffering from the Asian flu, and most European
markets stumbled in the first quarter of 1999. Asian emerging markets have
started to show some signs of life, while Latin emerging markets remain mired in
currency woes. Once again, economists predicted a comeback for Japan, and once
again, they were disappointed. However, Japan's stock market managed to deliver
a double-digit return, encouraged by corporate restructurings and signs that
Japan's central bank is beginning to take steps that could help get the economy
back on track.
OUTLOOK AND OPPORTUNITIES
As investors, you may have been unsettled by the market's volatility in the past
12 months. But remember, volatility also creates opportunities. Regardless of
the environment, we are confident that our in-depth research can help us uncover
good values in companies and markets, both at home and abroad. As always, we
will exercise diligence in finding new investments and in monitoring those we
already own. Thank you for your confidence in State Street Research.
Sincerely,
[Graphic Omitted]
Ralph F. Verni, Chairman
March 31, 1999
(1) The S&P 500 (officially the "Standard & 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) -3.77% for Class B(1) shares; -3.77% for Class B shares; -3.76% for Class C
shares; -2.97% 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 4.50% Class A share front-end sales charge,
or 5% Class B(1) and Class B share or 1% Class C share contingent deferred
sales charge, where applicable. Performance for Class B(1) reflects Class B
performance through December 31, 1998. Class B (1) was introduced on January
1, 1999.
(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.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended March 31, 1999)
- --------------------------------------------------------------------------------
TOTAL VALUE OF $10,000 INVESTED ON MARCH 31, 1989(3)
(Class A shares, at maximum applicable sales charge)
VALUE OF
ACCOUNT AT
DATE YEAR END
---- --------
March 31, 1989 $ 9,550
March 31, 1990 8,910
March 31, 1991 9,105
March 31, 1992 11,740
March 31, 1993 13,935
March 31, 1994 15,965
March 31, 1995 16,253
March 31, 1996 18,340
March 31, 1997 20,230
March 31, 1998 24,474
March 31, 1999 23,693
YIELD
---------------------------------------------------------------
Class A 7.30%
---------------------------------------------------------------
Class B(1) 6.86%
---------------------------------------------------------------
Class B 6.95%
---------------------------------------------------------------
Class C 6.94%
---------------------------------------------------------------
Class S 7.95%
---------------------------------------------------------------
Yield is based on the net investment income produced for the 30
days ended March 31, 1999. A high yield could be indicative of
high risk bond holdings that have decreased in price because of
financial problems of the issuers of the bonds.
---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(at maximum applicable sales charge)(3)(4)(5)
----------------------------------------------------------------
10 YEARS 5 YEARS 1 YEAR
----------------------------------------------------------------
Class A 9.01% 7.22% -7.55%
----------------------------------------------------------------
Class B(1) 9.01% 7.12% -8.04%
----------------------------------------------------------------
Class B 9.01% 7.12% -8.04%
----------------------------------------------------------------
Class C 9.02% 7.41% -4.62%
----------------------------------------------------------------
Class S 9.62% 8.42% -2.97%
<PAGE>
PORTFOLIO MANAGER'S REVIEW
High Income Fund: High-yield bonds slip as investors seek quality, liquidity
[Photo of Bartlett R. Geer]
Bartlett R. Geer
Portfolio Manager
We spoke with Bart Geer, portfolio manager of State Street Research High Income
Fund, about the year ended March 31, 1999 and his outlook on the period ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: It was a challenging year for the Fund. Class A shares returned -3.19%, [does
not reflect sales charge](2) for the 12 months ended March 31, 1999. That was
lower than the Lipper average high current yield fund, which returned -1.94%.
Over the same period, the Fund also underperformed the First Boston High Yield
Index, which returned -0.75%. The S&P 500 returned 18.49% for the same
period.(1)
Q: WHAT ACCOUNTED FOR THE WEAK PERFORMANCE?
A: The easiest way to understand the Fund's performance is to look at the year
in two halves: first, before the late summer crisis in financial and investment
markets that was precipitated by Russia's currency devaluation and the
subsequent bail-out of a large hedge fund that had invested heavily in Russia
and other emerging markets; and the second half, after the crisis. The Fund had
been doing well in the first half of the year. Our investment selection worked
well; our industry selections were good. During that period, we increased the
Fund's exposure to higher-quality high-yield bonds, which was a good move in
light of the subsequent crisis. However, because we were still relatively
underweighted in higher-quality bonds, we were hurt more than our peers when the
market collapsed.
Q: HOW DID THE FUND PERFORM IN THE SECOND HALF OF THE YEAR?
A: In the second half of the year, the Fund did return to positive territory.
However, because there was a flight to both quality and liquidity on the part of
investors, the Fund's performance continued to lag its peer group.
Q: WHAT DOES IT MEAN THAT THERE WAS A FLIGHT TO "QUALITY" AND "LIQUIDITY"?
A: Because investors were nervous, they bid up prices on high yield bonds that
were rated BB and higher. They also favored bonds of larger issuers, because
they are easier to trade, i.e., more liquid. Because the Fund is heavily
invested in bonds of smaller companies, it was hurt by this move. However, by
the end of the period, some of the smaller issues in the high-yield market had
started to outperform the larger ones. We view that as a potential reversal in
the trend and favorable for the Fund in the period ahead.
Q: WHAT INDUSTRIES OFFERED THE BEST OPPORTUNITY DURING THE YEAR?
A: The Fund has been heavily invested in the communications sector for several
years. It is not as attractively priced today as it was when we began to focus
on it because more investors have discovered it. However, we continue to think
it has potential. The sector includes companies that are creating the electronic
pipeline for the Internet. The group has benefited from deregulation and the
break-up of the traditional telephone company system as well. We have been early
to invest in all these trends.
Q: WHAT IS YOUR OUTLOOK?
A: We believe that the U.S. economy continues to look good. Inflation remains
moderate. Companies are still functioning at less-than-peak capacity, which is a
positive sign. However, we're concerned that -- built into the current high
level of employment and consumer spending -- is a "wealth effect" that derives
from a rising stock market. With the wealth effect, consumer and investor
confidence is high. We think that represents a sizable risk to the high-yield
market today. Also, long-term interest rates have risen in the past six months,
and we believe that they could rise again. As a result, we have reduced the
Fund's interest rate exposure somewhat. And, we continue to increase the quality
of the bonds we own.
March 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET ALLOCATION* 5 LARGEST INDUSTRY BOND POSITIONS
(by percentage of net assets) (by percentage of net assets)
B 54% Technology/communications 17.7%
BB 20% Consumer goods and services 12.2%
Convertibles 8% Media 5.2%
Common Stocks/warrants 6% Metals/mining/steel 4.4%
CCC 5% Hospital/health care 4.3%
Cash 3%
Preferred Stocks 2% Total: 43.8%
AAA 1%
BBB 1%
Quality ratings based on those provided by Standard & Poor's Corp. and/or
equivalent ratings by Moody's Investors Services, Inc. *8% of the above bonds
were unrated and included among relevant rating categories as determined by the
Fund's manager.
<PAGE>
<TABLE>
<CAPTION>
STATE STREET RESEARCH HIGH INCOME FUND
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
March 31, 1999
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 81.4%
AEROSPACE/DEFENSE 2.1%
Advanstar Communications Inc. Sr. Sub. Note, 9.25% $ 9,810,000 5/01/2008 $ 10,226,925
American Pacific Corp. Sr. Note, 9.25% ........... 8,750,000 3/01/2005 9,143,750
Transdigm Inc. Sr. Sub. Note, 10.375%+ ........... 3,750,000 12/01/2008 3,731,250
--------------
23,101,925
--------------
AIRLINES 0.3%
Kitty Hawk Inc. Sr. Sec. Note, 9.95% ............. 3,250,000 11/15/2004 3,290,625
-------------
AUTOMOTIVE PARTS 0.4%
J.H. Heafner Inc. Sr. Note, 10.00% ............... 4,500,000 5/15/2008 4,590,000
J.H. Heafner Inc. Sr. Note Series C, 10.00%+ ..... 50,000 5/15/2008 51,000
--------------
4,641,000
--------------
CABLE TELEVISION 1.8%
American Telecasting Inc. Sr. Note, 0.00% to
6/14/99, 14.50% from 6/15/99 to maturity ....... 14,585,356 6/15/2004 3,500,485
American Telecasting Inc. Sr. Note Series B, 0.00%
to 8/14/2000, 14.50% from 8/15/2000 to maturity 1,874,155 8/15/2005 393,573
Bresnan Communications Group Sr. Note, 0.00% to
1/31/2004, 9.25% from 2/1/2004 to maturity ..... 250,000 2/01/2009 170,000
Charter Communications Holdings LLC Sr. Note,
8.625% ......................................... 15,000,000 4/01/2009 15,393,750
--------------
19,457,808
--------------
CAPITAL GOODS/EQUIPMENT 3.9%
Ametek Inc. Sr. Note, 7.20% ...................... 7,450,000 7/15/2008 7,137,621
Ball Corp. Sr. Note, 7.75% ....................... 3,500,000 8/01/2006 3,605,000
Ball Corp. Sr. Sub Note, 8.25% ................... 11,850,000 8/01/2008 12,264,750
Elgin National Industries Inc. Sr. Note Series B,
11.00% ......................................... 1,600,000 11/01/2007 1,608,000
International Knife & Saw Inc. Sr. Sub. Note,
11.375% ........................................ 4,420,000 11/15/2006 4,508,400
Simonds Industries Inc. Sr. Sub. Note, 10.25% .... 10,950,000 7/01/2008 10,676,250
Westinghouse Air Brake Co. Sr. Note, 9.375% ...... 2,650,000 6/15/2005 2,703,000
--------------
42,503,021
--------------
CONGLOMERATE 3.2%
Henry Co. Sr. Note Series B, 10.00% .............. 7,050,000 4/15/2008 7,155,750
International Utility Structures Inc. Sr. Sub.
Note, 10.75%+ .................................. 2,750,000 2/01/2008 2,805,000
J.B. Poindexter Inc. Sr. Note, 12.50% ............ 14,400,000 5/15/2004 14,004,000
Owens-Illinois Inc. Sr. Deb., 7.50% .............. 11,300,000 5/15/2010 11,199,995
--------------
35,164,745
--------------
CONSUMER GOODS & SERVICES 12.2%
Allied Waste North America Inc. Sr.
Note. 7.625% ................................... 2,000,000 1/01/2006 1,955,000
Allied Waste North America Inc. Sr.
Note. 7.875% ................................... 4,650,000 1/01/2009 4,533,750
Drypers Corp. Series B Sr. Note, 10.25% .......... 6,550,000 6/15/2007 6,369,875
Empire Gas Corp. Sr. Sec. Note, 7.00% to 7/14/99,
12.875% from 7/15/99 to maturity ............... 17,625,000 7/15/2004 12,359,531
Envirosource Inc. Sr. Note Series B, 9.75% ....... 3,250,000 6/15/2003 2,600,000
Intertek Finance PLC Series B Sr. Sub. Note,
10.25% ......................................... $17,900,000 11/01/2006 17,363,000
Loewen Group International Inc. Sr.
Note Series 7, 7.60% ........................... 6,500,000 6/01/2008 3,315,000
NE Restaurant Inc. Sr. Note, 10.75% .............. 6,850,000 7/15/2008 6,610,250
Norcal Waste Systems Inc. Sr. Note Series B,
13.50% ......................................... 7,940,000 11/15/2005 8,962,275
North Atlantic Trading Inc. Sr. Note, 11.00% ..... 12,500,000 6/15/2004 12,812,500
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 21,799,688
Prime Succession Inc. Sr. Sub. Note, 10.75% ...... 3,000,000 8/15/2004 1,950,000
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 13,515,000
Rose Hills Co. Sr. Sub. Note, 9.50% .............. 8,750,000 11/15/2004 7,612,500
Scotts Co. Sr. Sub. Note, 8.625% ................. 2,350,000 1/15/2009 2,426,375
Shop Vac Corp. Sr. Sec. Note, 10.625% ............ 7,500,000 9/01/2003 8,193,750
--------------
132,378,494
--------------
ELECTRIC 0.3%
Calpine Corp. Sr. Note, 7.625% ................... 1,450,000 4/15/2006 1,441,793
Calpine Corp. Sr. Note, 7.75% .................... 1,400,000 4/15/2009 1,396,080
--------------
2,837,873
--------------
ENTERTAINMENT/LEISURE 1.8%
Joseph E. Seagram & Sons Inc. Sr. Deb., 7.50% .... 3,500,000 12/15/2018 3,525,410
Joseph E. Seagram & Sons Inc. Sr. Note, 6.625% ... 3,500,000 12/15/2005 3,470,915
SFX Entertainment Inc. Sr. Note Series B, 9.125% . 10,250,000 2/01/2008 10,365,312
SFX Entertainment Inc. Sr. Sub. Note, 9.125% ..... 1,800,000 12/01/2008 1,838,250
--------------
19,199,887
--------------
FOOD & BEVERAGE 1.7%
Archibald Candy Corp. Sr. Sec. Note, 10.25% ...... 12,600,000 7/01/2004 12,915,000
Aurora Foods Inc. Sr. Sub. Note
Series E, 8.75% ................................ 1,250,000 7/01/2008 1,303,125
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% ........... 3,750,000 11/01/2004 3,468,750
--------------
18,922,175
--------------
GAMING & LODGING 1.5%
Ameristar Casinos Inc. Sr. Sub. Note, 10.50% ..... 1,950,000 8/01/2004 1,874,438
Circus Circus Enterprises Inc. Deb., 9.25% ....... 500,000 12/01/2005 522,500
Harrahs Operating Inc. Sr. Sub. Note, 7.875% ..... 6,350,000 12/15/2005 6,381,750
Hollywood Park Inc. Sr. Sub. Note, 9.25% ......... 2,550,000 2/15/2007 2,613,750
Mohegan Tribal Gaming Authority Sr. Note, 8.125% . 1,700,000 1/01/2006 1,738,250
Mohegan Tribal Gaming Authority Sr. Sub. Note,
8.75% .......................................... 3,300,000 1/01/2009 3,440,250
--------------
16,570,938
--------------
GROCERY 2.2%
Smiths Food & Drug Note Series 94-A3, 9.20% ...... 13,754,000 7/02/2018 15,030,509
Pathmark Stores Inc. Sub. Deb., 12.625% .......... 8,360,000 6/15/2002 8,527,200
--------------
23,557,709
--------------
HOSPITAL/HEALTH CARE 4.3%
Columbia/HCA Healthcare Corp. Note, 6.91% ........ 2,195,000 6/15/2005 2,001,818
Columbia/HCA Healthcare Corp. Note, 7.00% ........ 17,020,000 7/01/2007 15,299,448
Dade International Inc. Sr. Sub. Note, 11.125% ... 4,000,000 5/01/2006 4,470,000
Fisher Scientific International Inc. Sr. Sub.
Note, 9.00%+ ................................... 3,750,000 2/01/2008 3,787,500
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% ..... 8,500,000 12/15/2006 9,435,000
Unilab Corp. Sr. Note, 11.00% .................... 11,150,000 4/01/2006 11,386,940
--------------
46,380,706
--------------
HOTEL & RESTAURANT 0.7%
Extended Stay America Inc. Sr. Sub. Note, 9.15% .. 7,700,000 3/15/2008 7,430,500
--------------
MEDIA 5.2%
American Lawer Media Holdings Inc. Sr. Note Series
B, 12.25% ...................................... 2,650,000 12/15/2008 1,715,875
American Lawyer Media Inc. Sr. Sub. Note Series B,
9.75% .......................................... 9,350,000 12/15/2007 9,630,500
Benedek Broadcasting Corp. Sr. Note, 11.875% ..... 6,250,000 3/01/2005 6,750,000
CBS Radio Corp. Sub. Note, 11.375% ............... 1,316,000 1/15/2009 1,526,560
CD Radio Inc. Sr. Note, 0.00% to 11/30/2002, 15.00%
from 12/1/2002 to maturity ..................... 750,000 12/01/2007 405,938
Intermedia Capital Partners LP Sr. Note, 11.25% .. 6,250,000 8/01/2006 7,109,375
K-III Communications Corp. Sr. Note, 8.50% ....... 950,000 2/01/2006 971,375
Outdoor Systems Inc. Sr. Sub. Note, 9.375% ....... 900,000 10/15/2006 967,500
Primedia Inc. Sr. Note, 7.625% ................... 8,250,000 4/01/2008 8,219,062
R.H. Donnelley Inc. Sr. Sub. Note, 9.125% ........ 3,000,000 6/01/2008 3,165,000
Spanish Broadcasting Systems Inc. Sr. Note, 12.50% 13,250,000 6/15/2002 14,972,500
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 1,198,500
--------------
56,632,185
--------------
METALS/MINING/STEEL 4.4%
AK Steel Corp. Note, 7.875% ...................... 8,500,000 2/15/2009 8,478,750
California Steel Industries Inc. Sr. Note, 8.50% . 1,700,000 4/01/2009 1,717,000
Crown Resources Corp. Cv. Sub. Deb., 5.75% ....... 1,110,000 8/27/2001 666,000
Envirosource Inc. Sr. Note, 9.75% ................ 19,000,000 6/15/2003 18,002,500
Great Central Mines Ltd. Sr. Note, 8.875% ........ 11,000,000 4/01/2008 10,752,500
Kaiser Aluminum & Chemical Corp. Sr. Sub. Note,
12.75% ......................................... 5,775,000 2/01/2003 5,587,312
Oglebay Norton Co. Sr. Sub. Note,
10.00% ......................................... 2,500,000 2/01/2009 2,431,250
--------------
47,635,312
--------------
OIL & GAS 3.6%
Belden & Blake Corp. Sr. Sub. Note Series B,
9.875% ......................................... 1,500,000 6/15/2007 870,000
Frontier Corp. Sr. Note, 9.125% .................. 10,050,000 2/15/2006 9,849,000
Moran Energy Inc. Cv. Deb., 8.75% ................ 2,420,000 1/15/2008 2,311,100
Nuevo Energy Co. Sr. Sub. Note, 9.50% ............ 7,250,000 4/15/2006 7,358,750
Ocean Energy Inc. Series B Sr. Note, 7.625% ...... 3,250,000 7/01/2005 3,111,875
Ocean Energy Inc. Sr. Sub. Note, 10.375% ......... 4,400,000 10/15/2005 4,460,500
Ocean Energy Inc. Sr. Sub. Note Series B, 8.375% . 950,000 7/01/2008 902,500
Pogo Producing Co. Sr. Sub. Note, 8.75% .......... 2,585,000 5/15/2007 2,404,050
Pogo Producing Co. Sub. Note, 5.50% .............. 850,000 6/15/2006 637,500
Vintage Petroleum Inc. Sr. Sub. Note, 9.75% ...... 7,550,000 6/30/2009 7,701,000
--------------
39,606,275
--------------
OIL SERVICE 2.1%
GNI Group Inc. Sr. Note, 10.875% ................. 7,000,000 7/15/2005 6,020,000
Newpark Resources Inc. Sr. Sub. Note Series B,
8.625% ......................................... 5,470,000 12/15/2007 5,223,850
Pool Energy Services Co. Sr. Sub. Note, 8.625% ... 8,270,000 4/01/2008 8,559,450
Transamerican Energy Corp. Sr. Sec. Note Series B,
11.50% ......................................... 14,450,000 6/15/2002 3,612,500
--------------
23,415,800
--------------
PAPER PRODUCTS 0.7%
Buckeye Technologies Inc. Sr. Sub. Note, 8.00% ... 7,500,000 10/15/2010 7,537,500
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 90,000
--------------
7,627,500
--------------
PLASTICS 2.0%
Packaging Resources Inc. Sr. Sec. Note, 11.625% .. 11,250,000 5/01/2003 11,756,250
Tekni-Plex Inc. Series B Sr. Sub. Note, 11.25% ... 8,750,000 4/01/2007 9,581,250
--------------
21,337,500
--------------
RETAIL TRADE 1.9%
J. Crew Group Inc. Sr. Deb., 0.00% to 10/14/2002,
13.125% from 10/15/2002 to maturity ............ 14,900,000 10/15/2008 7,450,000
J. Crew Operating Corp. Sr. Sub. Note, 10.375% ... 8,250,000 10/15/2007 7,724,062
Loehmanns Inc. Sr. Note, 11.875% ................. 7,442,000 5/15/2003 5,302,425
--------------
20,476,487
--------------
SHIPPING/TRANSPORTATION 4.0%
Cenargo International PLC Note, 9.75% ............ 7,050,000 6/15/2008 6,274,500
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 2,470,000
International Shipholding Corp. Sr. Note, 9.00% .. 4,500,000 7/01/2003 4,584,375
International Shipholding Corp. Sr. Note Series B,
7.75% .......................................... 7,150,000 10/15/2007 6,846,125
Johnstown America Industries Inc. Sr. Sub. Note,
11.75% ......................................... 6,250,000 8/15/2005 6,812,500
Pegasus Shipping Hellas Ltd. Pfd. Note Series A,
11.875% ........................................ 3,500,000 11/15/2004 2,450,000
Sea Containers Ltd. Sr. Note Series B, 7.875% .... 5,900,000 2/15/2008 5,723,000
Stena AB Sr. Note, 8.75% ......................... 5,250,000 6/15/2007 4,882,500
--------------
43,130,500
--------------
TECHNOLOGY/COMMUNICATIONS 17.7%
Advanced Radio Telecom Corp. Sr. Note, 14.00% .... 2,200,000 2/15/2007 1,694,000
Argo-Tech Corp. Sr. Sub. Note, 8.625% ............ 3,000,000 10/01/2007 2,850,000
Callable Net Enterprises Inc. Sr. Note, 8.00% .... 4,500,000 8/15/2008 4,455,000
Celcaribe SA Sr. Sec. Note, 13.50% ............... 5,810,000 3/15/2004 4,531,800
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 4,320,000
E. Spire Communications Inc. Sr. Note, 0.00% to
3/31/2001, 12.75% from 4/1/2001 to maturity .... 1,850,000 4/01/2006 1,230,250
Econophone Inc. Sr. Note, 0.00% to
2/14/2003, 11.00% from 2/15/2003 to maturity ... 13,700,000 2/15/2008 7,432,250
Econophone Inc. Sr. Note, 13.50% ................. 15,250,000 7/15/2007 16,012,500
Elgar Holdings Inc. Sr. Sub. Note, 9.875% ........ 4,250,000 2/01/2008 3,315,000
Hyperion Telecommunications Sr. Sub. Note, 12.00% 11,000,000 11/01/2007 11,467,500
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 6,726,000
Logix Communications Sr. Note, 12.25% ............ 1,500,000 6/15/2008 1,395,000
Microcell Telecommunications, Inc. Sr. Note Series
B, 0.00% to 10/14/2002, 11.125% from 10/15/2002
to maturity .................................... 26,950,000 10/15/2007 11,426,300
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 2,004,000
Mobilemedia Communications Inc. Sr. Sub. Note,
9.375%[ ] ...................................... 5,950,000 11/01/2007 699,125
Orion Network Systems Inc. Sr. Note, 11.25% ...... 11,000,000 1/15/2007 10,175,000
Pagemart Wireless Inc. Sr. Sub. Note, 0.00% to
1/31/2003, 11.25% from 2/1/2003 to maturity .... 8,750,000 2/01/2008 3,325,000
Paging Network Do Brasil SA Sr. Note, 13.50% ..... 750,000 6/06/2005 345,000
Phase Metrics Inc. Sr. Note, 10.75% .............. 12,000,000 2/01/2005 6,840,000
Primus Telecommunications Group Sr. Note, 11.75% . 6,550,000 8/01/2004 6,779,250
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 5,016,000
RSL Communications Ltd. Sr. Note, 12.25% ......... 15,824,000 11/15/2006 17,287,720
Startec Global Communications Sr. Note, 12.00% ... 9,600,000 5/15/2008 8,688,000
Time Warner Telecom LLC Sr. Note, 9.75% .......... 4,050,000 7/15/2008 4,333,500
Transwestern Publishing Co. LP Sr. Sub. Note,
9.625% ......................................... 1,750,000 11/15/2007 1,839,688
Triton PCS Inc. Sr. Sub. Note, 0.00% to 4/30/2003,
11.00% from 5/1/2003 to maturity ............... 9,125,000 5/01/2008 5,212,656
Viatel Inc. Sr. Note, 0.00% to 4/14/2003, 12.50%
from 4/15/2003 to maturity ..................... 10,350,000 4/15/2008 6,365,250
Viatel Inc. Sr. Note, 11.25% ..................... 8,350,000 4/15/2008 8,454,375
Winstar Communications Inc. Sr. Sub. Cv. Note,
0.00% to 10/14/2000, 14.00% from 10/15/2000 to
maturity+ ...................................... 6,525,000 10/15/2005 9,004,500
Winstar Equipment Corp. Sr. Sec. Exch. Note,
12.50% ......................................... 11,175,000 3/15/2004 10,965,469
Wireless One Inc. Sr. Note, 0.00% to 7/31/2001,
13.50% from 8/1/2001 to maturity ............... 20,000,000 8/01/2006 5,500,000
Wireless One Inc. Sr. Note, 13.00% ............... 10,600,000 10/15/2003 3,180,000
--------------
192,870,133
--------------
TEXTILE & APPAREL 2.3%
Cluett American Corp. Sr. Sub. Note Series B,
10.125% ........................................ 6,700,000 5/15/2008 6,164,000
Westpoint Stevens Inc. Sr. Note, 7.875% .......... 100,000 6/15/2005 102,250
Westpoint Stevens Inc. Sr. Note, 7.875% .......... 18,000,000 6/15/2008 18,405,000
--------------
24,671,250
--------------
U.S. TREASURY 1.1%
U.S. Treasury Bond, 8.125% ....................... 2,800,000 8/15/2021 3,559,052
U.S. Treasury Note, 6.625% ....................... 7,500,000 5/15/2007 8,087,100
--------------
11,646,152
--------------
Total Bonds (Cost $974,125,960) ......................................................... 884,486,500
--------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SHARES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS 9.3%
BANK 0.2%
RB Asset Inc. Pfd. Series A* ....................................... 110,000 2,048,200
--------------
CONGLOMERATE 0.3%
International Utility Structures Inc. Exch. Pfd.( ) ................ 367 355,898
International Utility Structures Inc. Unit Exch. Pfd.( ) ........... 2,750 2,667,500
--------------
3,023,398
--------------
CONSUMER GOODS & SERVICES 0.4%
North Atlantic Trading Inc. Sr. Pfd.( ) ............................ 195,804 4,307,688
--------------
ELECTRONIC COMPONENTS 0.5%
Nextel Communications Inc. Series D Exch. Pfd. ( ) ................. 4,997 5,571,655
--------------
FOREST PRODUCT 0.1%
Equitable Bag Inc. Series A Pfd.* .................................. 134,760 $ 1,482,360
--------------
HOTEL & RESTAURANT 0.6%
Ameriking Inc. Sr. Exch. Pfd. ( ) .................................. 254,393 6,614,218
--------------
MEDIA 3.1%
Granite Broadcasting Corp. Cv. Exch. Pfd. .......................... 114,700 3,799,437
Granite Broadcasting Corp. Exch. Pfd. ( ) .......................... 14,601 14,966,059
Primedia Inc. Series D Exch. Pfd. .................................. 80,000 8,300,000
Primedia Inc. Series F Exch. Pfd. .................................. 64,500 6,417,750
--------------
33,483,246
--------------
OIL 0.6%
Clark U.S.A. Inc. Sr. Exch. Pfd. ( ) ............................... 9,754 6,583,950
--------------
RETAIL TRADE 1.2%
Supermarkets General Holdings Corp. Exch Pfd. ( ) .................. 344,540 12,575,710
--------------
TECHNOLOGY/COMMUNICATIONS 1.2%
ICG Holdings Inc. Exch. Pfd. ( ) ................................... 9,992 10,091,837
Packaging Corporation America Sr. Exch. Pfd. ....................... 17,000 1,700,000
Viatel Inc. Series A Pfd.+ ( ) ..................................... 9,821 1,571,360
--------------
13,363,197
--------------
TEXTILE & APPAREL 1.0%
Cluett American Corp. Sr. Exch. Pfd.* .............................. 124,721 10,383,024
--------------
TOBACCO 0.1%
DECS Trust Exch. Pfd.* ............................................. 231,500 1,389,000
--------------
Total Preferred Stocks (Cost $113,019,023) ......................... 100,825,646
--------------
COMMON STOCKS & OTHER 5.9%
Advanced Radio Telecom Corp. Wts.* ................................. 52,500 593,906
American Telecasting Inc. Wts.* .................................... 41,130 41,130
Ameriking Inc. Com.*+ .............................................. 4,775 191,000
Anacomp Inc. Com.* ................................................. 873,507 14,030,706
Anacomp Inc. Wts.* ................................................. 25,940 196,982
Bar Technologies Inc. Wts.*+ ....................................... 4,250 233,750
Belle Casinos Inc. Wts.*+@ ......................................... 1,400 14
Celcaribe SA Trust Certificates*+ .................................. 944,706 1,889,412
Cellnet Data Systems Inc. Wts.*+ ................................... 1,500 12,000
Central Rents Inc. Com.*+ .......................................... 5,250 115,500
Chatwins Group Inc. Wts.*+ ......................................... 7,000 7,000
CHC Helicopter Corp Cl. A Com.* .................................... 46,000 106,375
CHI Energy Inc. Cl. C Wts.* ........................................ 3,279 33
Clearnet Communications Inc. Wts.* ................................. 78,705 511,582
Concentric Network Corp. Wts.*+ .................................... 1,500 450,000
Crown Packaging Enterprises Ltd. Com.*+ ............................ 1,171,137 11,711
Dr Pepper Bottling Holdings Inc. Cl. A Com.* ....................... 50,000 1,400,000
E. Spire Communications Inc. Wts.*+ ................................ 9,500 617,500
Econophone Inc. Wts.*+ ............................................. 14,750 147,500
Empire Gas Corp. Wts.*(+) .......................................... 2,760 690
Equitable Bag Inc. Com.* ........................................... 1,347,600 539,040
Golden Ocean Group Ltd. Com.*+ ..................................... 5,500 2,750
Goldriver Finance Corp. Liquidation Trust Units*(+) ................ 5,250,000 65,468
Goldriver Hotel & Casino Corp. Cl. B Com.*(+) ...................... 52,500 6,563
Heartland Wireless Communications, Inc. Wts.*(+) ................... 37,500 375
Hollinger International, Inc. Cl. A Com ............................ 1,918,000 26,012,875
Indspec Chemical Corp. Wts.*(+)@ ................................... 506 1,213,737
Insight Communications L.P. Unit *(+) .............................. 105,500 105,500
Intelcom Group, Inc. Wts.*(+) ...................................... 21,450 65,637
Intermedia Communications Inc. Wts.* ............................... 1,500 135,375
Ionica PLC Wts.*+ .................................................. 9,500 95
Jewel Recovery L.P. Units*(+) ...................................... 82,595 826
Ladish Inc. Com.*(+) ............................................... 86,667 595,833
Ladish Inc. Wts.*(+) ............................................... 150,946 856,618
Loral Orion Network Systems Inc. Wts.* ............................. 14,500 145,000
Motels of America Inc. Com.*+ ...................................... 5,500 37,125
Nextel Communications Inc. Cl. A Com.* ............................. 41,442 1,517,813
Nextel Communications Inc. Wts.* ................................... 1,250 13,100
North Atlantic Trading Inc. Wts.*+ ................................. 160 160
NS Group Inc. Wts.*+ ............................................... 13,250 728,750
Pagemart Inc. Wts.*+ ............................................... 21,850 60,088
Pagemart Nationwide Inc. Com.*+ .................................... 18,375 89,578
Pegasus Communications Corp. Cl. A Com.*+ .......................... 8,461 236,908
Powertel Inc. Wts.* ................................................ 8,480 23,320
Primus Telecommunications Group Wts.*+ ............................. 6,500 97,500
Protection One Inc. Wts.*+ ......................................... 10,400 33,800
RSL Communications Ltd. Wts.*+ ..................................... 13,500 1,755,000
Sabreliner Corp. Wts.*+ ............................................ 1,750 17,500
Seven-Up/RC Bottling Co. of Southern California Com.*@ ............. 472,500 5,670,000
Startec Global Communications Inc. Wts.+* .......................... 8,500 8,500
Town & Country Corp. Com.+ ......................................... 195,632 12,227
UGI Corp. Com.* .................................................... 170,000 2,836,875
Waxman Industries Inc. Wts.*+ ...................................... 236,000 236,000
Wireless One Inc. Wts.*+ ........................................... 16,500 165
Wireless One Inc. Wts.* ............................................ 27,250 273
--------------
Total Common Stocks & Other (Cost $52,696,534) ..................... 63,677,165
--------------
SHORT-TERM INVESTMENTS 3.6%
State Street Navigator Securities Lending Prime Portfolio .......... 39,288,980 39,288,980
--------------
Total Short-Term Investments (Cost $39,288,980) ......................................... 39,288,980
--------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY
AMOUNT DATE
- -----------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 2.0%
<S> <C> <C> <C>
American Express Credit Corp., 4.85% ............. $4,446,000 4/01/1999 4,446,000
American Express Credit Corp., 4.94% ............. 9,372,000 4/05/1999 9,372,000
Ford Motor Credit Co., 4.89% ..................... 8,246,000 4/07/1999 8,246,000
--------------
Total Commercial Paper (Cost $22,064,000) ............................................... 22,064,000
--------------
Total Investments (Cost $1,201,194,497) - 102.2% ........................................ 1,110,342,291
Cash and Other Assets, Less Liabilities - (2.2)% ........................................ (24,246,321)
--------------
Net Assets - 100.0% ..................................................................... $1,086,095,970
==============
Federal Income Tax Information (Note 1):
At March 31, 1999, the net unrealized depreciation of
investments based on cost for Federal income tax purposes
of $1,201,252,270 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ........... $ 44,082,818
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ......... (134,992,797)
--------------
$ (90,909,979)
==============
* Nonincome-producing securities.
( ) Payments of income may be made in cash or in the form of additional securities.
[ ] Security is in default.
@ Security valued under consistently applied procedures established by the Trustees.
(+) Security restricted as to public resale. At March 31, 1999, there were no outstanding unrestricted securities
of the same class as those held. The total cost and market value of restricted securities owned at March 31,
1999 were $2,773,082 and $2,911,247 (0.27% of net assets), respectively.
+ Security restricted in accordance with Rule 144A under the Securities Act of 1933, which allows for the resale
of such securities among certain qualified institutional buyers. The total cost and market value of Rule 144A
securities owned at March 31, 1999 were $39,036,962 and $44,124,643 (4.06% of net assets), respectively.
Forward currency exchange contracts outstanding at March 31, 1999, are as follows:
UNREALIZED
CONTRACT APPRECIATION DELIVERY
TOTAL VALUE PRICE (DEPRECIATION) DATE
- ----------------------------------------------------------------------------------------------------------
Sell Canadian dollars, Buy U.S. dollars 16,000,000 CAD 0.65902 CAD $(55,915) 4/23/99
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
March 31, 1999
ASSETS
Investments, at value (Cost $1,201,194,497) (Note 1) ..... $1,110,342,291
Cash ..................................................... 104,735
Interest and dividends receivable ........................ 24,172,196
Receivable for securities sold ........................... 1,736,322
Receivable for fund shares sold .......................... 1,277,881
Other assets ............................................. 92,792
--------------
1,137,726,217
LIABILITIES
Payable for collateral received on securities loaned ..... 39,288,980
Payable for securities purchased ......................... 5,817,500
Dividends payable ........................................ 3,238,046
Payable for fund shares redeemed ......................... 1,434,321
Accrued transfer agent and shareholder services
(Note 2) ............................................... 584,049
Accrued management fee (Note 2) .......................... 518,426
Accrued distribution and service fees (Note 4) ........... 461,646
Payable for open forward contracts ....................... 55,915
Accrued trustees' fees (Note 2) .......................... 28,744
Other accrued expenses ................................... 202,620
--------------
51,630,247
--------------
NET ASSETS $1,086,095,970
==============
Net Assets consist of:
Undistributed net investment income .................... $ 2,674,214
Unrealized depreciation of investments ................. (90,852,206)
Unrealized depreciation of forward contracts ........... (55,915)
Accumulated net realized loss .......................... (15,777,024)
Paid-in capital ........................................ 1,190,106,901
--------------
$1,086,095,970
==============
Net Asset Value and redemption price per share of
Class A shares ($648,217,137 / 114,689,932
shares) ................................................ $5.65
=====
Maximum Offering Price per share of Class A shares
($5.65 / .955) ......................................... $5.92
=====
Net Asset Value and offering price per share of Class B(1)
shares ($12,732,193 / 2,267,532 shares)* .............. $5.62
=====
Net Asset Value and offering price per share of Class B
shares ($336,420,165 / 59,860,235 shares)* ............. $5.62
=====
Net Asset Value and offering price per share of Class C
shares ($40,341,989 / 7,169,487 shares)* ............... $5.63
=====
Net Asset Value, offering price and redemption price per
share of Class S shares ($48,384,486 / 8,620,570 shares) $5.61
=====
- ------------------------------------------------------------------------------
* Redemption price per share for Class B(1), Class B and Class C is equal to
net asset value less any applicable contingent deferred sales charge.
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
For the year ended March 31, 1999
INVESTMENT INCOME
Interest (Note 1) .......................................... $ 104,153,616
Dividends .................................................. 11,314,514
--------------
115,468,130
EXPENSES
Management fee (Note 2) .................................... 6,463,062
Transfer agent and shareholder services (Note 2) ........... 1,637,149
Custodian fee .............................................. 241,111
Registration fees .......................................... 104,655
Reports to shareholders .................................... 104,025
Audit fee .................................................. 47,900
Trustees' fees (Note 2) .................................... 37,595
Legal fees ................................................. 31,561
Service fee - Class A (Note 4) ............................. 1,686,952
Distribution and service fees - Class B(1) (Note 4) ........ 15,166
Distribution and service fees - Class B (Note 4) ........... 3,478,093
Distribution and service fees - Class C (Note 4) ........... 388,196
Miscellaneous .............................................. 28,794
--------------
14,264,259
Fees paid indirectly (Note 2) .............................. (67,535)
--------------
14,196,724
--------------
Net investment income ...................................... 101,271,406
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY AND FORWARD CONTRACTS
Net realized gain on investments (Notes 1 and 3) ........... 3,230,687
Net realized gain on forward contracts and foreign
currency (Note 1) ........................................ 848,053
--------------
Total net realized gain .................................. 4,078,740
--------------
Net unrealized depreciation of investments ................. (144,076,134)
Net unrealized appreciation of forward contracts ........... 40,657
--------------
Total net unrealized depreciation ........................ (144,035,477)
--------------
Net loss on investments, foreign currency and forward
contracts ............................................... (139,956,737)
--------------
Net decrease in net assets resulting from operations ....... $ (38,685,331)
==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
--------------------------------------
1998 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ................................... $ 90,689,076 $ 101,271,406
Net realized gain on investments, foreign currency and
forward contracts ..................................... 37,770,738 4,078,740
Net unrealized appreciation (depreciation) of investments
and forward contracts ................................. 63,904,285 (144,035,477)
-------------- --------------
Net increase (decrease) resulting from operations ....... 192,364,099 (38,685,331)
-------------- --------------
Dividends from net investment income:
Class A ............................................... (64,944,093) (65,376,715)
Class B(1) ............................................ -- (126,881)
Class B ............................................... (26,096,802) (31,354,348)
Class C ............................................... (2,736,047) (3,495,607)
Class S ............................................... (661,138) (1,801,692)
-------------- --------------
(94,438,080) (102,155,243)
-------------- --------------
Distribution from net realized gains:
Class A ............................................... -- (9,878,189)
Class B ............................................... -- (4,999,368)
Class C ............................................... -- (539,370)
Class S ............................................... -- (185,070)
-------------- --------------
-- (15,601,997)
-------------- --------------
Distribution in excess of net realized
gains:
Class A ............................................... -- (9,170,762)
Class B ............................................... -- (4,927,708)
Class C ............................................... -- (571,701)
Class S ............................................... -- (386,636)
-------------- --------------
-- (15,056,807)
-------------- --------------
Net increase from fund share
transactions (Note 5) ................................. 56,789,130 150,648,021
-------------- --------------
Total increase (decrease) in net assets 154,715,149 (20,851,357)
NET ASSETS
Beginning of year ....................................... 952,232,178 1,106,947,327
-------------- --------------
End of year (including undistributed net investment
income of $2,927,957 and $2,674,214, respectively) .... $1,106,947,327 $1,086,095,970
============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
March 31, 1999
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 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 five 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. On January 1, 1999, the Fund began offering Class B
(1) shares and continued offering Class B shares but only to current
shareholders. Class B(1) and Class B pay annual distribution and service fees
of 1.00% and both classes automatically convert into Class A shares (which pay
lower ongoing expenses) at the end of eight years. Class B(1) shares are
subject to a contingent deferred sales charge on certain redemptions made
within six years of purchase. Class B shares are subject to a contingent
deferred sales charge on certain redemptions made within five years of
purchase. Class C shares are subject to a contingent deferred sales charge of
1.00% on any shares redeemed within one year of their purchase. Class C shares
also pay annual distribution and service fees of 1.00%. Class S shares are
only offered through certain retirement accounts, advisory accounts of State
Street Research & Management Company (the "Adviser"), an indirect wholly owned
subsidiary of Metropolitan Life Insurance Company ("Metropolitan"), and
special programs. No sales charge is imposed at the time of purchase or
redemption of Class S shares. Class S shares do not pay any distribution or
service fees. The Fund's expenses are borne pro-rata by each class, except
that each class bears expenses, and has exclusive voting rights with respect
to provisions of the Plan of Distribution, related specifically to that class.
The Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. INVESTMENT VALUATION
Fixed income securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. If not valued by a pricing service, such
securities are valued at prices obtained from independent brokers. Values for
listed equity securities reflect final sales on national securities exchanges
quoted prior to the close of the New
York Stock Exchange. Over-the-counter securities quoted on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
system are valued at closing prices supplied through such system. If not
quoted on the NASDAQ system, such securities are valued at prices obtained
from independent brokers. In the absence of recorded sales, valuations are at
the mean of the closing bid and asked quotations. Short-term securities
maturing within sixty days are valued at amortized cost. Other securities, if
any, are valued at their fair value as determined in good faith under
consistently applied procedures established by and under the supervision of
the Trustees.
B. FORWARD CONTRACTS AND FOREIGN CURRENCIES
The Fund enters into forward foreign currency exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain purchase and sale commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is an obligation by the Fund to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the origination
date of the contract. Forward foreign currency exchange contracts establish an
exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar. The aggregate principal amount of forward currency exchange
contracts is recorded in the Fund's accounts. All commitments are marked-to-
market at the applicable transaction rates resulting in unrealized gains or
losses. The Fund records realized gains or losses at the time the forward
contracts are extinguished by entry into a closing contract or by delivery of
the currency. Neither spot transactions nor forward currency exchange
contracts eliminate fluctuations in the prices of the Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the price of these
securities should decline.
Securities quoted in foreign currencies are translated in U.S. dollars at the
current exchange rate. Gains and losses that arise from changes in exchange
rates are not segregated from gains and losses that arise from changes in
market prices of investments.
C. SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
D. NET INVESTMENT INCOME
Net investment income is determined daily and consists of interest and dividends
accrued and discount earned, less the estimated daily expenses of the Fund.
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. Discount on debt obligations is amortized under the effective
yield method. Certain fixed income and preferred securities held by the Fund pay
interest or dividends in the form of additional securities (payment-in-kind
securities). Interest income on payment-in-kind fixed income securities is
recorded using the effective-interest method. Dividend income on payment-in-
kind preferred securities is recorded at the market value of securities
received. The Fund is charged for expenses directly attributable to it, while
indirect expenses are allocated between both funds in the Trust.
E. DIVIDENDS
Dividends are declared daily based upon projected net investment income and
paid or reinvested monthly. Net realized capital gains, if any, are
distributed annually, unless additional distributions are required for
compliance with applicable tax regulations. For the year ended March 31, 1999,
the Fund has designated as long-term $28,895,199 of the distributions from net
realized gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatment
of accrued interest on defaulted bonds.
F. FEDERAL INCOME TAXES
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a twelve-
month period ending October 31. In this connection, the Fund is permitted to
defer into its next fiscal year any net capital losses incurred between each
November 1 and the end of its fiscal year. From November 1, 1998 through March
31, 1999, the Fund incurred net capital losses of approximately $15,818,000
and intends to defer and treat such losses as arising in the fiscal year ended
March 31, 2000.
G. ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
H. SECURITIES LENDING
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. At March 31, 1999, the value of the securities loaned and the value of
collateral were $38,205,751 and $39,288,980, respectively. During the year
ended March 31, 1999, income from securities lending amounted to $151,414 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 year ended March 31, 1999, the fees pursuant to such agreement
amounted to $6,463,062.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the year ended March
31, 1999, the amount of such expenses was $623,828.
The Fund has entered into an arrangement with its transfer agent whereby
credits realized as a result of uninvested cash balances were used to reduce a
portion of the Fund's expense. During the year ended March 31, 1999 the Fund's
transfer agent fees were reduced by $67,535 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$37,595 during the year ended March 31, 1999.
NOTE 3
For the year ended March 31, 1999, purchases and sales of securities,
exclusive of short-term investments, aggregated $985,331,139 and $895,973,784,
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(1), 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(1), Class B and Class C shares. The Distributor uses
such payments for personal service and/or the maintenance or servicing of
shareholder accounts, to reimburse securities dealers for distribution and
marketing services, to furnish ongoing assistance to investors and to defray a
portion of its distribution and marketing expenses. For the year ended March
31, 1999, fees pursuant to such plan amounted to $1,686,952, $3,478,093 and
$388,196 for Class A, Class B and Class C shares, respectively. For the period
January 1, 1999 (commencement of share class) to March 31, 1999, fees pursuant
to such plan amounted to $15,166 for Class B(1) shares.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $335,706 and $1,788,926, respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1999, and that MetLife Securities,
Inc. earned commissions aggregating $1,483,172 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$692,839 and $4,393 on redemptions of Class B and Class C shares,
respectively, during the same period. MetLife Securities, Inc. earned
commissions aggregating $130,368 on sales and the Distributor collected
contingent deferred sales charges aggregating $428 on redemptions of Class B
(1) shares during the period January 1, 1999 (commencement of share class) to
March 31, 1999.
NOTE 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At March 31, 1999, Metropolitan owned 88,968 Class B(1) shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------------------------------------------------
1998 1999
--------------------------------- ---------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............... 12,963,682 $ 82,425,854 20,276,045 $ 121,986,092
Issued upon reinvestment of:
Dividends from net
investment income ..... 6,618,274 42,225,833 7,224,259 42,925,293
Distribution from net
realized gains ........ -- -- 2,640,762 15,798,355
Shares repurchased ........ (20,544,433) (130,474,889) (24,073,358) (143,844,378)
----------- ------------- ----------- - -------------
Net increase (decrease) ... (962,477) $ (5,823,202) 6,067,708 $ 36,865,362
=========== ============= =========== =============
<CAPTION>
CLASS B(1)(a) SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............... -- $ -- 2,306,218 $ 12,887,088
Issued upon reinvestment of
dividend from net
investment income ....... -- -- 8,749 49,080
Shares repurchased ........ -- -- (47,435) (268,123)
----------- ------------- ----------- - -------------
Net increase .............. -- $ -- 2,267,532 $ 12,668,045
=========== ============= =========== =============
<CAPTION>
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............... 14,827,294 $ 93,945,959 16,017,044 $ 97,744,288
Issued upon reinvestment of:
Dividends from net
investment income ..... 2,307,608 14,730,736 2,785,476 16,611,341
Distribution from net
realized gains ........ -- -- 1,285,486 7,629,070
Shares repurchased ........ (7,925,211) (50,115,631) (12,746,528) (75,119,927)
----------- ------------- ----------- - -------------
Net increase .............. 9,209,691 $ 58,561,064 7,341,478 $ 46,864,772
=========== ============= =========== =============
<CAPTION>
CLASS C SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............... 2,027,089 $ 12,888,653 4,100,226 $ 24,694,993
Issued upon reinvestment of:
Dividends from net
investment income ..... 284,960 1,810,521 339,756 2,008,561
Distribution from net
realized gains ........ -- -- 144,432 856,430
Shares repurchased ........ (1,821,119) (11,592,323) (2,663,155) (15,519,090)
----------- ------------- ----------- - -------------
Net increase .............. 490,930 $ 3,106,851 1,921,259 $ 12,040,894
=========== ============= =========== =============
<CAPTION>
CLASS S SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............... 412,049 $ 2,620,376 7,536,611 $ 42,912,636
Issued upon reinvestment of:
Dividends from net
investment income ..... 85,387 542,346 296,656 1,693,323
Distribution from net
realized gains ........ -- -- 96,895 555,557
Shares repurchased ........ (349,262) (2,218,305) (504,050) (2,952,568)
----------- ------------- ----------- - -------------
Net increase .............. 148,174 $ 944,417 7,426,112 $ 42,208,948
=========== ============= =========== =============
- -------------------------------------------------------------------------------------------------------
(a) January 1, 1999 (commencement of share class) to March 31, 1999.
</TABLE>
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
---------------------------------------------------------------------------------------
1995(a) 1996(a) 1997(a) 1998(a) 1999(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 6.43 5.80 5.95 6.01 6.62
---- ---- ---- ---- ----
Net investment income ($) 0.61 0.52 0.59 0.58 0.58
Net realized and unrealized
gain (loss) on investments,
foreign currency and forward
contracts ($) (0.58) 0.20 (0.01) 0.63 (0.80)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.03 0.72 0.58 1.21 (0.22)
---- ---- ---- ---- ----
Dividends from net investment
income ($) (0.60) (0.56) (0.52) (0.60) (0.58)
Distributions from net realized
gains ($) (0.06) (0.01) -- -- (0.09)
Distribution in excess of net
realized gains ($) -- -- -- -- (0.08)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.66) (0.57) (0.52) (0.60) (0.75)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 5.80 5.95 6.01 6.62 5.65
==== ==== ==== ==== ====
Total return(b) (%) 1.80 12.85 10.30 20.98 (3.19)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 618,462 646,473 658,413 718,705 648,217
Ratio of operating expenses to
average net assets (%) 1.23 1.17 1.10 1.10 1.06
Ratio of net investment income to
average net assets (%) 10.19 8.88 9.70 9.10 9.63
Portfolio turnover rate (%) 31.55 56.47 81.75 70.53 53.46
<CAPTION>
CLASS B(1)
---------
1999(a)(e)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 5.62
----
Net investment income ($) 0.12
Net realized and unrealized gain on investments, foreign currency and forward contracts ($) 0.01
----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.13
----
Dividends from net investment income ($) (0.13)
----
TOTAL DISTRIBUTIONS ($) (0.13)
----
NET ASSET VALUE, END OF PERIOD ($) 5.62
====
Total return(b) (%) 2.25(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 12,732
Ratio of operating expenses to average net assets (%) 1.74(d)
Ratio of net investment income to average net assets (%) 8.81(d)
Portfolio turnover rate (%) 53.46
- -----------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) Not annualized.
(d) Annualized.
(e) January 1, 1999 (commencement of share class) to March 31, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
---------------------------------------------------------------------------------------
1995(a) 1996(a) 1997(a) 1998(a) 1999(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 6.42 5.79 5.93 5.98 6.58
---- ---- ---- ---- ----
Net investment income ($) 0.57 0.46 0.55 0.53 0.53
Net realized and unrealized
gain (loss) on investments,
foreign currency and forward
contracts ($) (0.58) 0.21 (0.02) 0.62 (0.79)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) (0.01) 0.67 0.53 1.15 (0.26)
---- ---- ---- ---- ----
Dividends from net investment
income ($) (0.56) (0.52) (0.48) (0.55) (0.53)
Distributions from net realized
gains ($) (0.06) (0.01) -- -- (0.09)
Distribution in excess of net
realized gains ($) -- -- -- -- (0.08)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.62) (0.53) (0.48) (0.55) (0.70)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 5.79 5.93 5.98 6.58 5.62
==== ==== ==== ==== ====
Total return(b) (%) 0.89 12.06 9.35 20.02 (3.77)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 117,767 185,735 259,077 345,797 336,420
Ratio of operating expenses to
average net assets (%) 1.98 1.92 1.85 1.85 1.81
Ratio of net investment income to
average net assets (%) 9.65 7.95 9.01 8.36 8.90
Portfolio turnover rate (%) 31.55 56.47 81.75 70.53 53.46
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
----------------------------------------------------------------------------------------
1995(a) 1996(a) 1997(a) 1998(a) 1999(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 6.42 5.79 5.93 5.99 6.59
---- ---- ---- ---- ----
Net investment income ($) 0.58 0.46 0.54 0.53 0.53
Net realized and unrealized
gain (loss) on investment,
foreign currency and forward
contracts ($) (0.59) 0.21 (0.00) 0.62 (0.79)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) (0.01) 0.67 0.54 1.15 (0.26)
---- ---- ---- ---- ----
Dividends from net investment
income ($) (0.56) (0.52) (0.48) (0.55) (0.53)
Distributions from net
realized gains ($) (0.06) (0.01) -- -- (0.09)
Distribution in excess of net
realized gains ($) -- -- -- -- (0.08)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.62) (0.53) (0.48) (0.55) (0.70)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 5.79 5.93 5.99 6.59 5.63
==== ==== ==== ==== ====
Total return(b) (%) 0.88 12.05 9.52 19.99 (3.76)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 6,766 15,262 28,488 34,586 40,342
Ratio of operating expenses to
average net assets (%) 1.98 1.92 1.85 1.85 1.81
Ratio of net investment income
to average net assets (%) 9.81 7.91 9.09 8.35 8.91
Portfolio turnover rate (%) 31.55 56.47 81.75 70.53 53.46
- ----------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS S
----------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
----------------------------------------------------------------------------------------
1995(a) 1996(a) 1997(a) 1998(a) 1999(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 6.42 5.78 5.92 5.98 6.58
---- ---- ---- ---- ----
Net investment income ($) 0.64 0.53 0.61 0.59 0.58
Net realized and unrealized
gain (loss) on investments,
foreign currency and
forward contracts ($) (0.60) 0.20 (0.01) 0.63 (0.77)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.04 0.73 0.60 1.22 (0.21)
---- ---- ---- ---- ----
Dividends from net investment
income ($) (0.62) (0.58) (0.54) (0.62) (0.59)
Distributions from net
realized gains ($) (0.06) (0.01) -- -- (0.09)
Distribution in excess of net
realized gains ($) -- -- -- -- (0.08)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.68) (0.59) (0.54) (0.62) (0.76)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 5.78 5.92 5.98 6.58 5.61
==== ==== ==== ==== ====
Total return(b) (%) 1.73 13.19 10.63 21.22 (2.97)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 2,579 3,840 6,255 7,860 48,384
Ratio of operating expenses to
average net assets (%) 0.98 0.92 0.85 0.85 0.81
Ratio of net investment income
to average net assets (%) 10.85 8.97 10.04 9.36 10.00
Portfolio turnover rate (%) 31.55 56.47 81.75 70.53 53.46
- -----------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF STATE STREET RESEARCH INCOME TRUST AND
THE SHAREHOLDERS OF STATE STREET RESEARCH HIGH INCOME FUND:
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research High
Income Fund (a series of State Street Research Income Trust, hereafter
referred to as the "Trust") at March 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 7, 1999
<PAGE>
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- -------------------------------------------------------------------------------
High Income Fund Class A shares returned -3.19% (does not reflect sales
charge) for the 12-month period ended March 31, 1999. Performance lagged the
Lipper average high current yield funds which returned -1.94%. The Fund also
underperformed the First Boston High Yield Index, which returned -0.75%.
A volatile market environment hurt the Fund, especially in the second half of
the year. The manager increased the quality of bonds held in the Fund and
shortened its duration. The Fund continued to invest the largest portion of
its assets in the telecommunications and broadcasting industries on the belief
that these industries continue to demonstrate potential to benefit from
deregulation, new technologies, and high product demand for voice, data, wire
and wireless communications.
March 31, 1999
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. 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.
Performance reflects maximum 4.5% Class A share front-end sales charge, or 5%
Class B(1) or Class B share or 1% Class C share contingent deferred sales
charges, where applicable. Performance for Class B(1) reflects Class B
performance through December 31, 1998. Class B(1) was introduced on January 1,
1999. Class S shares, offered without a sales charge, are available through
certain employee benefit plans and special programs. The First Boston High
Yield Index is a commonly used measure of bond market performance. The index
is unmanaged and does not take transaction charges into consideration. Direct
investment in the index is not possible; results are for illustrative purposes
only.
CHANGE IN VALUE OF $10,000
BASED ON THE FIRST BOSTON HIGH YIELD INDEX
COMPARED TO CHANGE IN VALUE OF $10,000
INVESTED IN HIGH INCOME FUND
SSR HIGH INCOME FUND - CLASS A
LINE CHART DATA
VALUE OF
ACCOUNT OF
FIRST BOSTON
VALUE OF HIGH YIELD
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
---- -------- -------------
March 31, 1989 $ 9,550 $10,000
March 31, 1990 8,910 9,612
March 31, 1991 9,105 10,948
March 31, 1992 11,740 14,367
March 31, 1993 13,935 16,572
March 31, 1994 15,965 18,222
March 31, 1995 16,253 19,098
March 31, 1996 18,340 21,873
March 31, 1997 20,230 24,426
March 31, 1998 24,474 27,927
March 31, 1999 23,693 27,718
SSR HIGH INCOME FUND - CLASS B
LINE CHART DATA
VALUE OF
ACCOUNT OF
FIRST BOSTON
VALUE OF HIGH YIELD
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
---- -------- -------------
March 31, 1989 $10,000 $10,000
March 31, 1990 9,330 9,612
March 31, 1991 9,534 10,948
March 31, 1992 12,293 14,367
March 31, 1993 14,591 16,572
March 31, 1994 16,594 18,222
March 31, 1995 16,742 19,098
March 31, 1996 18,761 21,873
March 31, 1997 20,515 24,426
March 31, 1998 24,622 27,927
March 31, 1999 23,693 27,718
SSR HIGH INCOME FUND - CLASS B(1)
LINE CHART DATA
VALUE OF
ACCOUNT OF
FIRST BOSTON
VALUE OF HIGH YIELD
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
---- -------- -------------
March 31, 1989 $10,000 $10,000
March 31, 1990 9,330 9,612
March 31, 1991 9,534 10,948
March 31, 1992 12,293 14,367
March 31, 1993 14,591 16,572
March 31, 1994 16,594 18,222
March 31, 1995 16,742 19,098
March 31, 1996 18,761 21,873
March 31, 1997 20,515 24,426
March 31, 1998 24,622 27,927
March 31, 1999 23,693 27,718
SSR HIGH INCOME FUND - CLASS C
LINE CHART DATA
VALUE OF
ACCOUNT OF
FIRST BOSTON
VALUE OF HIGH YIELD
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
---- -------- -------------
March 31, 1989 $10,000 $10,000
March 31, 1990 9,330 9,612
March 31, 1991 9,534 10,948
March 31, 1992 12,293 14,367
March 31, 1993 14,591 16,572
March 31, 1994 16,591 18,222
March 31, 1995 16,736 19,098
March 31, 1996 18,753 21,873
March 31, 1997 20,538 24,426
March 31, 1998 24,642 27,927
March 31, 1999 23,715 27,718
SSR HIGH INCOME FUND - CLASS S
LINE CHART DATA
VALUE OF
ACCOUNT OF
FIRST BOSTON
VALUE OF HIGH YIELD
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
---- -------- -------------
March 31, 1989 $10,000 $10,000
March 31, 1990 9,330 9,612
March 31, 1991 9,534 10,948
March 31, 1992 12,293 14,367
March 31, 1993 14,591 16,572
March 31, 1994 16,730 18,222
March 31, 1995 17,018 19,098
March 31, 1996 19,264 21,873
March 31, 1997 21,311 24,426
March 31, 1998 25,832 27,927
March 31, 1999 25,065 27,718
<PAGE>
<TABLE>
<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 BRUCE R. BOND
Boston, MA 02111 Vice President Chairman of the Board,
Chief Executive Officer
DISTRIBUTOR JOHN H. KALLIS and President,
State Street Research Vice President PictureTel Corporation
Investment Services, Inc.
One Financial Center THOMAS A. SHIVELY
Boston, MA 02111 Vice President STEVE A. GARBAN
Former Senior Vice President
SHAREHOLDER SERVICES JAMES M. WEISS for Finance and Operations and
State Street Research Vice President Treasurer, The Pennsylvania
Service Center State University
P.O. Box 8408 GERARD P. MAUS
Boston, MA 02266-8408 Treasurer
1-800-562-0032 MALCOLM T. HOPKINS
JOSEPH W. CANAVAN Former Vice Chairman of the
CUSTODIAN Assistant Treasurer Board and Chief Financial
State Street Bank and Officer, St. Regis Corp.
Trust Company DOUGLAS A. ROMICH
225 Franklin Street Assistant Treasurer
Boston, MA 02110 DEAN O. MORTON
FRANCIS J. MCNAMARA, III Former Executive Vice President,
LEGAL COUNSEL Secretary and General Counsel Chief Operating Officer and
Goodwin, Procter & Hoar LLP Director, Hewlett-Packard Company
Exchange Place DARMAN A. WING
Boston, MA 02109 Assistant Secretary and
Assistant General Counsel SUSAN M. PHILLIPS
INDEPENDENT ACCOUNTANTS Dean, School of Business and
PricewaterhouseCoopers LLP AMY L. SIMMONS Public Management, George
160 Federal Street Assistant Secretary Washington University; former
Boston, MA 02110 Member of the Board of Governors
of the Federal Reserve System and
Chairman and Commissioner of
the Commodity Futures Trading
Commission
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 #6
Hartford, CT
-------------------
QUESTIONS? COMMENTS?
Call us at 1-800-562-0032 or
[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.
This publication must be preceded or accompanied by a current State Street
Research High Income Fund prospectus. The prospectus contains more complete
information, including sales charges and expenses. Please read the prospectus
carefully before investing.
When used in after June 30, 1999, 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: (0500)SSR-LD
HI-624F-0599
<PAGE>
- -------------------------------------------------------------------------------
STATE STREET RESEARCH
- -------------------------------------------------------------------------------
MANAGED ASSETS
------------------
ANNUAL REPORT
March 31, 1999
--------------------
WHAT'S INSIDE
--------------------
FROM THE CHAIRMAN
Americans benefited from a
healthy economy
PORTFOLIO MANAGER'S REVIEW
A disappointing year
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
STATE STREET RESEARCH
- ---------------------- ---------------------
DALBAR
HONORS COMMITMENT TO: 75 YEARS
INVESTORS
1998 ---------------------
- ---------------------- LASTING VALUES
---------------------
For Excellence LEADING IDEAS
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
In a year marked by market volatility at home and currency upheaval abroad,
Americans continued to reap the benefits of a healthy economy. Inflation
remained low, unemployment hovered around 4%, wages rose, and prices fell
at the gas pump and in the mortgage market. Many Americans took their
prosperity to the mall: The holiday season was strong and retail sales
rose. However, the nation's savings rate fell below zero.
STOCKS
It was a strong 12 months for the U.S. stock market. A correction late in
the summer was short-lived as most segments of the U.S. stock market staged
a comeback in the fourth quarter. The Dow Jones Industrial Average pierced
the 10,000 mark in the first quarter of 1999, then fell back to close short
of the new milestone at the end of the period.
Large-company growth stocks and technology stocks were the strongest
performers, led by Internet stocks, which delivered amazing returns.
However, gains were concentrated in a narrow band of stocks. Small and
medium-sized company stocks continued to lag the market, and the gap
between growth stocks and value stocks widened.
BONDS
The bond market benefited from the Federal Reserve Board's three quick
interest rate cuts in the fall as the 30-year U.S. Treasury bond yield hit
a low of 5.0%. After struggling under the weight of a robust economy, this
benchmark yield climbed back up to 5.7% late in the period. Bond prices
move in the opposite direction of yields. As a result, the value of U.S.
Treasury bonds fell during the period. High-yield "junk" bonds had been
weak, but bounced back on the strong economic news to close among the best
bond market performers in the first quarter of 1999.
INTERNATIONAL
Foreign markets delivered mixed returns. Expectations surrounding the debut
of the euro, the new common currency shared by 11 nations, helped European
markets in the first half of this reporting period. But the luster was
short-lived. Most European economies are still suffering from the Asian
flu, and most European markets stumbled in the first quarter of 1999. Asian
emerging markets have started to show some signs of life, while Latin
emerging markets remain mired in currency woes. Once again, economists
predicted a comeback for Japan, and once again, they were disappointed.
However, Japan's stock market managed to deliver a double-digit return,
encouraged by corporate restructurings and signs that Japan's central bank
is beginning to take steps that could help get the economy back on track.
OUTLOOK AND OPPORTUNITIES
As investors, you may have been unsettled by the market's volatility in the
past 12 months. But remember, volatility also creates opportunities.
Regardless of the environment, we are confident that our in-depth research
can help us uncover good values in companies and markets, both at home and
abroad. As always, we will exercise diligence in finding new investments
and in monitoring those we already own. Thank you for your confidence in
State Street Research.
Sincerely,
[Graphic Omitted]
Ralph F. Verni, Chairman
March 31, 1999
(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 Lehman Brothers
Aggregate Bond Index is a commonly used index of bond market performance.
The indices do not take transaction charges into consideration. It is not
possible to invest directly in the indices.
(2) -1.25% for Class B(1) shares; -1.31% for Class B shares; -1.33% for Class C
shares; -0.41% 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 5.75% Class A share front-end sales charge,
or 5% Class B(1) or Class B share or 1% Class C share contingent deferred
sales charge, where applicable. Performance for Class B(1) reflects Class B
performance through December 31, 1998. Class B (1) was introduced on January
1, 1999.
(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 March 31, 1999)
- --------------------------------------------------------------------------------
TOTAL VALUE OF $10,000 INVESTED ON MARCH 31, 1989(3)
(Class A shares, at maximum applicable sales charge)
Managed Assets
------------------------------------
3/89 $ 9,425
3/90 10,440
3/91 10,864
3/92 12,308
3/93 14,344
3/94 15,915
3/95 16,157
3/96 19,800
3/97 22,273
3/98 28,871
3/99 28,681
AVERAGE ANNUAL TOTAL RETURN
(at maximum applicable sales charge)(3)(4)(5)
- --------------------------------------------------------------------------------
LIFE OF FUND
(since 12/29/88) 10 YEARS 5 YEARS 1 YEAR
- --------------------------------------------------------------------------------
Class A 11.27% 11.11% 11.18% -6.37%
- --------------------------------------------------------------------------------
Class B(1) 11.44% 11.29% 11.42% -5.74%
- --------------------------------------------------------------------------------
Class B 11.44% 11.28% 11.41% -5.79%
- --------------------------------------------------------------------------------
Class C 11.44% 11.29% 11.66% -2.23%
- --------------------------------------------------------------------------------
Class S 12.07% 11.93% 12.75% -0.41%
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Managed Assets: A disappointing year
[Photo of Peter C. Bennett]
Peter C. Bennett
Portfolio Manager
We spoke with Peter Bennett, portfolio manager of State Street Research
Managed Assets about the year ended March 31, 1999 and his views on the
financial markets and economy in the year ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: It was a disappointing year for the Fund. Class A shares returned -0.66%
[does not reflect sales charge](2) for the 12 months ended March 31, 1999. The
Fund underperformed the Lipper average flexible portfolio fund, which gained
6.08%. Over the same period, the Fund also underperformed the Lehman Brothers
Aggregate Bond Index, which returned 6.49%. The S&P 500 returned 18.49% for
the same 12-month period.(1)
Q: WHAT ACCOUNTED FOR THE FUND'S WEAK PERFORMANCE?
A: It was an unusual period in the market in that diversification, which would
normally provide a cushion against volatility in a choppy market, failed us
last year. The market was ruled by large-cap growth stocks, and to the extent
that we had any investments outside of that segment, there were
disappointments. In fact, the Fund's investment in large-cap growth stocks
returned 29% -- significantly higher than the S&P 500 -- with strong stock
selection accounting for our substantial outperformance.
Q: HOW DID THE FUND'S LARGE-CAP GROWTH PERFORMANCE COMPARE TO OTHER AREAS
WHERE INVESTMENTS WERE MADE?
A: This is a broadly-diversified fund by design. Unfortunately, those gains
were more than offset by the Fund's investments in other market segments. For
example, the Fund's investment in value stocks, which accounted for
approximately 20% of the portfolio, returned -12%. Small-cap growth stocks,
which accounted for 10% of the portfolio, returned -20%. And the Fund's
investment in energy stocks, which represented a modest 4% of total assets,
was off more than 57% for the year.
Q: HOW DID THE FUND'S INTERNATIONAL INVESTMENTS PERFORM?
QUITE WELL. ALTHOUGH INTERNATIONAL MARKETS FAILED TO KEEP PACE WITH THE U.S.,
THE FUND'S INTERNATIONAL EQUITY INVESTMENTS -- PRIMARILY IN JAPAN AND EUROPE
- -- ROSE APPROXIMATELY 9%. THE FUND'S INVESTMENTS IN INTERNATIONAL BONDS DID
EVEN BETTER -- UP MORE THAN 20% FOR THE YEAR.
Q: HOW DID YOU MANAGE THE BOND PORTION OF THE PORTFOLIO?
A: We invested 35% of the Fund's assets in a mix of investment-grade, high-
yield, and international bonds. This reflects our opinion that bonds were
attractively priced in the prevailing environment. In fact, the single largest
asset category at the end of the period was high-grade debt. Real bond returns
have been high after adjusting for inflation, and historically the market
risks associated with bonds have been lower.
Q: DID YOU ADJUST THE FUND'S ASSET ALLOCATION DURING THE PERIOD?
A: No significant changes were made to the portfolio. The Fund is designed to
offer broad diversification among a number of different asset classes and
investment styles. The volatility in world financial markets has made us
cautious. And while our strategic positioning is prudent, it clearly hurt us
in the past year.
Over the long term, we believe this approach should help cushion investors
against market volatility so we are sticking with our discipline. And, we
believe that many areas of the market that were beaten down are positioned to
rebound as investors begin to look for better value.
Q: WHAT IS YOUR OUTLOOK?
A: We continue to believe that the U.S. economy is in good shape. Although
corporate earnings growth has slowed, we expect modest growth of about 6% to
8% in 1999. Rising commodity prices and higher wages may put downward pressure
on corporate profit margins. However, we expect higher productivity to offset
these increases. Short-term interest rates remain low, and we believe they
could even come down later this year.
Any way you measure them, valuations are extremely high for large-cap growth
stocks. The balance of the market is more reasonably priced, and we believe
that offers opportunity for the Fund's broadly diversified portfolio.
March 31, 1999
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ASSET ALLOCATION TOP 5 EQUITY INDUSTRIES
(by percentage of net assets) (by percentage of net assets)
Equities 57% COMMERCIAL SERVICES 4.2%
Bonds 35% COMPUTER TECHNOLOGY 3.6%
Net Cash 4% DRUGS & BIOTECHNOLOGY 2.9%
Inflation Responsive 4% TELECOMMUNICATIONS 2.7%
ELECTRIC UTILITIES 2.3%
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
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INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------
March 31, 1999
<CAPTION>
- ------------------------------------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY SECURITIES 57.1%
AUTOMOBILES & TRANSPORTATION 0.3%
AIR TRANSPORT 0.3%
CHC Helicopter Corp. Cl. A .................................... 2,000 $ 4,625
Mesa Air Group, Inc.* ......................................... 46,000 287,500
UAL Corp. ..................................................... 12,500 971,875
US Airways Group Inc.* ........................................ 13,700 668,731
------------
1,932,731
------------
MISCELLANEOUS TRANSPORTATION 0.0%
Golden Ocean Group Ltd. Wts.*+ ................................ 500 250
------------
Total Automobiles & Transportation ............................ 1,932,981
------------
CONSUMER DISCRETIONARY 11.9%
ADVERTISING AGENCIES 1.6%
Lamar Advertising Co. Cl. A* .................................. 21,000 712,687
Valassis Communications Inc. .................................. 178,700 9,247,725
Young & Rubicam Inc.* ......................................... 35,000 1,426,250
------------
11,386,662
------------
CASINOS/GAMBLING, HOTEL/MOTEL 1.3%
Goldriver Hotel & Casino Corp. Cl. B*(+) ...................... 20,000 2,500
GTech Holdings Corp.* ......................................... 57,500 1,401,562
Harrah's Entertainment Inc.* .................................. 216,000 4,117,500
Mirage Resorts Inc.* .......................................... 165,400 3,514,750
Motels of America Inc.*+ ...................................... 500 3,378
------------
9,039,690
------------
COMMERCIAL SERVICES 4.2%
A.C. Nielson Corp.* ........................................... 274,600 7,448,525
Abacus Direct Corp.* .......................................... 5,100 418,200
Allied Waste Industries Inc. .................................. 35,500 512,531
America Online Inc.* .......................................... 71,600 10,453,600
Autobytel Inc. ................................................ 2,200 92,125
Autoweb.com Inc. .............................................. 400 14,250
Casella Waste Systems Inc. Cl. A* ............................. 30,300 683,644
Cendant Corp.* ................................................ 105,200 1,656,900
Cheap Tickets Inc. ............................................ 2,100 70,613
Copart Inc. ................................................... 34,400 713,800
Corporate Executive Board Co. ................................. 6,100 160,888
Critical Path Inc. ............................................ 1,300 100,100
GeoCities ..................................................... 3,400 372,513
Maximus Inc.* ................................................. 29,100 847,537
META Group Inc.* .............................................. 18,200 279,825
Miningco Common Inc. .......................................... 3,300 295,350
Priceline.com, Inc.* .......................................... 800 66,300
ProBusiness Services Inc.* .................................... 18,200 764,400
Protection One Inc. Wts.*+ .................................... 800 2,600
Steiner Leisure Ltd.* ......................................... 47,899 1,472,894
Valley Media Inc. ............................................. 13,800 313,950
Waste Connections Inc. ........................................ 21,400 510,925
Waste Management Inc.* ........................................ 71,000 3,150,625
Ziff-Davis Inc. ............................................... 1,000 36,000
------------
30,438,095
------------
COMMUNICATIONS, MEDIA & ENTERTAINMENT 0.7%
Chancellor Media Corp. ........................................ 26,400 1,244,100
Cinar Films Inc. Cl. B* ....................................... 41,500 954,500
Time Warner Inc. .............................................. 47,000 3,339,937
------------
5,538,537
------------
CONSUMER ELECTRONICS 0.2%
Abovenet Communications Inc. .................................. 3,200 418,800
InfoSpace.com Inc. ............................................ 1,200 106,350
iVillage Inc.* ................................................ 800 80,400
Multex Systems Inc. ........................................... 900 56,250
TheGlobe.com, Inc. ............................................ 5,800 302,325
Xoom.com, Inc. ................................................ 2,100 140,831
------------
1,104,956
------------
CONSUMER SERVICES 0.2%
Bright Horizons Family Solutions Corp. ........................ 21,000 459,375
Central Rents Inc.*+ .......................................... 250 5,500
Corinthian Colleges Inc. ...................................... 5,800 127,600
DeVry Inc.* ................................................... 31,500 913,500
ITT Educational Services Inc. ................................. 3,100 116,444
Strayer Education Inc. ........................................ 3,700 136,900
------------
1,759,319
------------
PRINTING & PUBLISHING 0.8%
General Media Inc. Wts.*(+) ................................... 250 250
Hollinger International, Inc. Cl. A* .......................... 443,100 6,009,544
Sullivan Holdings Inc.* ....................................... 149 53,467
------------
6,063,261
------------
RESTAURANTS 0.5%
McDonald's Corp. .............................................. 77,600 3,516,250
------------
RETAIL 2.3%
Aviation Sales Co. ............................................ 12,100 538,450
CSK Auto Corp.* ............................................... 27,500 823,281
Federated Department Stores Inc.* ............................. 46,800 1,877,850
Global Imaging Systems, Inc. ................................. 25,200 335,475
Guitar Center Inc.* ........................................... 14,500 296,344
Home Depot Inc. ............................................... 47,500 2,956,875
Jones Apparel Group Inc.* ..................................... 27,000 754,312
Linens 'n Things Inc.* ........................................ 11,300 512,738
Men's Wearhouse, Inc.* ........................................ 13,000 375,375
Saks Inc.* .................................................... 28,725 746,850
Staples Inc.* ................................................. 112,350 3,693,506
Ticketmaster Online City Search, Inc. Cl. B ................... 2,000 67,250
Wal-Mart Stores, Inc. ......................................... 35,700 3,291,094
------------
16,269,400
------------
SHOES 0.1%
Acme Boot Co.*+# .............................................. 250 250
Stride Rite Corp. ............................................. 43,000 526,750
------------
527,000
------------
Total Consumer Discretionary .................................. 85,643,170
------------
CONSUMER STAPLES 3.4%
BEVERAGES 0.7%
Anheuser-Busch Companies, Inc. ................................ 54,700 4,167,456
Golden State Vintners Inc. Cl. B* ............................. 29,300 349,769
Seven-Up/RC Bottling Co. of Southern California*# ............. 26,250 315,000
------------
4,832,225
------------
DRUG & GROCERY STORE CHAINS 1.9%
CVS Corp. ..................................................... 37,200 1,767,000
Duane Reade Inc.* ............................................. 23,300 649,488
Hannaford Brothers Co. ........................................ 95,000 4,316,562
Kroger Co.* ................................................... 47,600 2,850,050
Rite Aid Corp. ................................................ 59,200 1,480,000
Safeway Inc. .................................................. 53,000 2,719,562
------------
13,782,662
------------
FOODS 0.2%
Keebler Foods Co.* ............................................ 28,700 1,047,550
------------
HOUSEHOLD PRODUCTS 0.4%
Dial Corp. .................................................... 25,100 862,812
Procter & Gamble Co. .......................................... 21,100 2,066,481
------------
2,929,293
------------
TOBACCO 0.2%
RJR Nabisco Holdings Corp. .................................... 27,600 690,000
UST Inc. ...................................................... 34,700 906,537
------------
1,596,537
------------
Total Consumer Staples ........................................ 24,188,267
------------
FINANCIAL SERVICES 6.4%
BANKS & SAVINGS & LOAN 1.5%
Astoria Financial Corp. ....................................... 15,800 790,000
Chase Manhattan Corp. ......................................... 25,700 2,089,731
City National Corp. ........................................... 9,100 280,963
Golden State Bancorp Inc. ..................................... 20,000 445,000
Golden State Bancorp Inc. Wts.* ............................... 20,000 96,875
Golden West Financial Corp. ................................... 14,800 1,413,400
Goldriver Finance Corp. Liquidation Trust Units(+) ............ 500,000 6,235
Mercantile Bankshares Corp. ................................... 36,300 1,343,100
One Valley Bancorp Inc.* ...................................... 7,300 254,588
Peoples Heritage Financial Group .............................. 132,300 2,381,400
Saint Paul Bancorp, Inc. ...................................... 13,500 292,359
Southtrust Corp. .............................................. 33,900 1,264,894
TCF Financial Corp. ........................................... 11,100 288,600
------------
10,947,145
------------
FINANCIAL DATA PROCESSING SERVICES & SYSTEMS 0.3%
Bisys Group Inc.* ............................................. 4,400 247,500
International Telecommuniction Data Systems, Inc.* ............ 23,400 289,575
Nova Corp.* ................................................... 46,300 1,215,375
Profit Recovery Group International Inc. ...................... 14,900 588,550
------------
2,341,000
------------
INSURANCE 2.0%
Ace Ltd. ...................................................... 176,000 5,489,000
American International Group Inc. ............................. 19,350 2,334,094
Mutual Risk Management Ltd. ................................... 14,100 539,325
Saint Paul Companies, Inc. .................................... 29,300 910,131
Terra Nova Holdings Ltd. Cl. A* ............................... 17,900 391,563
UNUM Corp. .................................................... 99,600 4,737,225
------------
14,401,338
------------
MISCELLANEOUS FINANCIAL 1.9%
AMBAC Inc. .................................................... 103,100 5,567,400
ARM Financial Group, Inc. Cl. A* .............................. 17,000 253,938
Capital One Financial Corp. ................................... 20,700 3,125,700
Capital Re Corp. .............................................. 9,700 167,325
Citigroup, Inc. ............................................... 44,000 2,810,500
Heller Financial Inc. Cl. A ................................... 24,100 566,350
Metris Companies Inc.* ........................................ 10,800 436,050
RB Asset Inc. Series A Pfd. ................................... 20,000 372,400
T & W Financial Corp.* ........................................ 41,500 347,563
------------
13,647,226
------------
REAL ESTATE INVESTMENT TRUSTS 0.1%
First Industrial Realty Trust Inc. ............................ 11,300 270,494
Golf Trust of America Inc.* ................................... 9,000 201,375
IndyMac Mortgage Holdings Inc. ................................ 26,800 291,450
Liberty Property Trust ........................................ 11,700 242,775
------------
1,006,094
------------
RENTAL & LEASING SERVICES: COMMERCIAL 0.1%
United Rentals Inc. ........................................... 28,500 812,250
------------
SECURITIES BROKERAGE & SERVICES 0.5%
Bear Stearns Company Inc. ..................................... 38,010 1,698,572
Knight/Trimark Group, Inc. Cl. A* ............................. 19,300 1,293,100
Waddell & Reed Financial Inc. Cl. A* .......................... 10,700 219,350
------------
3,211,022
------------
Total Financial Services ...................................... 46,366,075
------------
HEALTH CARE 3.8%
DRUGS & BIOTECHNOLOGY 2.9%
Abbott Laboratories Inc. ...................................... 52,000 2,434,250
Axogen Ltd. ................................................... 14,500 451,313
Baxter International Inc. ..................................... 38,500 2,541,000
Biovail Corp.* ................................................ 65,600 2,525,600
Elan Corp. PLC ................................................ 14,500 619,875
Intelligent Polymers Ltd.* .................................... 81,300 2,276,400
Pfizer Inc. ................................................... 16,300 2,261,625
Pharmacia & Upjohn Inc. ....................................... 57,700 3,599,037
PharmaPrint Inc.* ............................................. 29,400 264,600
Quintiles Transnational Corp. ................................. 16,441 620,633
Schering-Plough Corp. ......................................... 57,200 3,163,875
Spiros Development Corp.* ..................................... 59,900 509,150
------------
21,267,358
------------
HEALTH CARE FACILITIES 0.3%
Healthsouth Corp.* ............................................ 36,152 375,077
Total Renal Care Holdings Inc.* ............................... 151,733 1,669,063
------------
2,044,140
------------
HEALTH CARE SERVICES 0.6%
Eclipsys Corp. ................................................ 11,965 252,761
Healtheon Corp. ............................................... 9,300 395,541
IMPATH Inc.* .................................................. 18,100 443,450
NCS Healthcare Inc. Cl. A* .................................... 33,300 399,600
Quorum Health Group Inc.* ..................................... 188,900 1,889,000
Wesley Jessen Vision Care Inc.* ............................... 30,200 832,387
------------
4,212,739
------------
Total Health Care ............................................. 27,524,237
------------
INTEGRATED OILS 1.1%
INTEGRATED DOMESTIC 0.6%
Kerr-McGee Corp. .............................................. 55,423 1,818,567
Lyondell Petrochemical Co. .................................... 23,000 314,813
Unocal Corp. .................................................. 54,500 2,006,281
------------
4,139,661
------------
INTEGRATED INTERNATIONAL 0.5%
Exxon Corp. ................................................... 31,800 2,243,887
Total SA Cl. B ADR ............................................ 23,800 1,451,800
------------
3,695,687
------------
Total Integrated Oils ......................................... 7,835,348
------------
MATERIALS & PROCESSING 2.6%
BUILDING & CONSTRUCTION 0.0%
Waxman Industries Inc. Wts.*+ ................................. 29,500 29,500
------------
CHEMICALS 1.0%
Agrium Inc. ................................................... 320,100 2,940,919
Cabot Oil & Gas Corp. ......................................... 191,600 4,071,500
Cambrex Corp. ................................................. 15,700 347,363
------------
7,359,782
------------
CONTAINERS & PACKAGING 0.2%
Equitable Bag Inc.* ........................................... 47,600 19,040
Smurfit Stone Container Corp. ................................. 66,200 1,278,487
------------
1,297,527
------------
DIVERSIFIED MANUFACTURING 1.0%
Ball Corp. .................................................... 157,700 7,402,044
------------
FOREST PRODUCTS 0.2%
Champion International Corp. .................................. 31,200 1,281,150
------------
MISCELLANEOUS MATERIALS & PROCESSING 0.0%
Ladish Inc. Wts.*(+) .......................................... 15,095 85,664
------------
PAPER & FOREST PRODUCTS 0.2%
Bowater Inc. .................................................. 26,700 1,057,987
------------
STEEL 0.0%
Bar Technologies Inc. Wts.*+ .................................. 250 13,750
------------
TEXTILE & PRODUCTS 0.0%
Cluett American Corp. Sr. Exch. Pfd.<> ........................ 2,807 233,683
------------
Total Materials & Processing .................................. 18,761,087
------------
NON-US EQUITIES 8.8%
Asia Pacific Wire & Cable Corp. Ltd.* ......................... 200,400 488,475
Banco Di Roma ................................................. 589,500 956,095
British Petroleum Co. PLC* .................................... 109,800 1,856,038
Cable & Wireless PLC .......................................... 111,900 1,264,637
Clearnet Communications Inc. Wts.* ............................ 2,640 17,160
Continental AG ................................................ 124,900 3,092,600
Credit Commerce France ........................................ 11,300 1,044,038
Econophone Inc. Wts.*+ ........................................ 750 7,500
Energy Africa Ltd.* ........................................... 553,800 876,301
Equitable Bag Inc. Pfd.* ...................................... 4,760 52,360
Gentex Corp. .................................................. 10,500 226,406
Granite Broadcasting Corp. Exch. Pfd.<> ....................... 326 333,646
Gulfstream Resources Ltd.++ ................................... 156,800 453,936
IXOS Software AG .............................................. 7,400 1,876,292
Kirin Brewery Co. ............................................. 192,700 2,258,731
Kokuyo Co. .................................................... 97,000 1,600,625
L.M. Ericsson Telephone Co. Cl. B* ............................ 92,800 2,259,832
Lernout & Hauspie Speech Products NV ADR* ..................... 58,100 1,743,000
Morse Holdings PLC ............................................ 300,000 1,210,875
National Bank of Canada ....................................... 239,900 3,504,336
Nokia AB Cl. K* ............................................... 12,800 2,062,159
Orange Corp. .................................................. 40,000 559,263
Packaging Corp. of America Sr. Pfd.<> ......................... 400 40,000
Pharmacia & Upjohn ............................................ 36,800 2,316,523
Post Energy Corp.*++ .......................................... 142,100 404,790
PTT Exploration & Production Public Co. Ltd.* ................. 127,200 989,013
QP Corp. ...................................................... 306,000 2,403,243
Richland Petroleum Corp ....................................... 44,600 67,956
Seagull Energy Corp.* ......................................... 225,088 1,533,412
Sema Group PLC* ............................................... 224,100 2,518,193
Shaw Communications Inc. Cl. B ................................ 80,200 2,581,437
Snow Brand Milk Co. ........................................... 268,000 1,471,097
Societe Generale .............................................. 6,800 1,308,744
Softbank Corp. ................................................ 31,100 3,487,801
Takara Shuzo Co. .............................................. 413,000 2,615,800
Telecom Italia SPA* ........................................... 285,500 3,037,576
Tieto Corp. ................................................... 50,100 2,066,608
WM Data AB Cl. B* ............................................. 50,000 1,954,219
Wolters Kluwer NV* ............................................ 15,300 2,779,243
Xl Capital Ltd. ............................................... 62,901 3,821,236
------------
Total Non-US Equities ......................................... 63,141,196
------------
OTHER 2.0%
MULTI-SECTOR 2.0%
Gencorp Inc. .................................................. 113,300 2,039,400
General Electric Co. .......................................... 43,400 4,801,125
Johnson Controls Inc. ......................................... 11,500 717,312
Ogden Corp. ................................................... 144,200 3,469,812
Teleflex Inc. ................................................. 10,500 357,656
Tyco International Ltd. ....................................... 45,400 3,257,450
------------
14,642,755
------------
Total Other ................................................... 14,642,755
------------
OTHER ENERGY 1.5%
GAS PIPELINES 0.9%
Williams Companies Inc. ....................................... 171,689 6,781,715
------------
OIL & GAS PRODUCERS 0.1%
Abacan Resources Corp.*++ ..................................... 539,500 92,729
Maxx Petroleum Ltd.*++ ........................................ 123,850 278,663
------------
371,392
------------
OIL WELL EQUIPMENT & SERVICES 0.5%
Calpine Corp.* ................................................ 24,500 892,719
Halliburton Co. ............................................... 57,500 2,213,750
Willbros Group Inc.* .......................................... 30,300 157,181
------------
3,263,650
------------
Total Other Energy ............................................ 10,416,757
------------
PRODUCER DURABLES 1.9%
AEROSPACE 0.1%
Heico Corp. Cl. A ............................................. 26,400 564,300
Ladish Inc.*(+) ............................................... 8,667 59,583
------------
623,883
------------
ELECTRICAL EQUIPMENT & COMPONENTS 0.6%
General Semiconductor Inc. .................................... 20,700 150,075
Mark IV Industries Inc. ....................................... 294,500 3,846,906
------------
3,996,981
------------
ELECTRONICS: INDUSTRIAL 0.1%
Mettler Toledo International Inc. ............................. 20,800 514,800
------------
MACHINERY 0.5%
Chatwins Group Inc.+ .......................................... 500 500
Helix Technology Corp.* ....................................... 12,100 186,038
Howmet International Inc.* .................................... 246,300 3,525,169
------------
3,711,707
------------
OFFICE FURNITURE & BUSINESS EQUIPMENT 0.4%
Anacomp Inc. Wts.* ............................................ 4,941 37,521
Xerox Corp. ................................................... 59,000 3,149,125
------------
3,186,646
------------
PRODUCTION TECHNOLOGY EQUIPMENT 0.1%
Cymer Inc.* ................................................... 20,800 413,400
Dupont Photomasks Inc. ........................................ 6,200 245,675
Novellus Systems Inc.* ........................................ 3,500 192,938
------------
852,013
------------
TELECOMMUNICATIONS EQUIPMENT 0.1%
L-3 Communications Holding Corp.* ............................. 12,000 555,000
------------
Total Producer Durables ....................................... 13,441,030
------------
TECHNOLOGY 7.8%
COMMUNICATIONS TECHNOLOGY 1.4%
American Tower Corp. Cl. A* ................................... 32,100 786,450
Covad Communications Group Inc. ............................... 2,900 190,675
Digital Microwave Corp.* ...................................... 83,720 701,155
Go2Net, Inc. .................................................. 3,600 477,450
Lucent Technologies Inc. ...................................... 35,100 3,782,025
MMC Networks Inc.* ............................................ 25,600 409,600
NCR Corp. ..................................................... 37,600 1,880,000
Remec Inc.* ................................................... 96,350 2,011,306
Spectrian Corp.* .............................................. 20,400 239,700
------------
10,478,361
------------
COMPUTER SOFTWARE 1.8%
Answerthink Consulting Group, Inc. ............................ 14,100 394,800
Cadence Design Systems Inc.* .................................. 72,100 1,856,575
Ceridian Corp. ................................................ 53,000 1,937,812
Check Point Software Technologies Ltd.* ....................... 10,200 438,600
Exchange Applications Software Inc. ........................... 2,800 70,350
Microsoft Corp.* .............................................. 54,400 4,875,600
Neon Systems Inc. ............................................. 1,700 93,500
Novell Inc.* .................................................. 30,700 773,256
Peregrine Systems Inc. ........................................ 13,900 467,388
Platinum Technology Inc.* ..................................... 43,900 1,119,450
RoweCom Inc. .................................................. 900 39,263
Transaction Systems Architects Inc. Cl. A ..................... 8,500 306,000
Walker Interactive Systems, Inc.* ............................. 65,700 279,225
Whittman-Hart Inc.* ........................................... 15,900 341,850
Wind River Systems Inc.* ...................................... 12,899 229,763
------------
13,223,432
------------
COMPUTER TECHNOLOGY 3.6%
Cisco Systems Inc.* ........................................... 52,450 5,746,553
Dell Computer Corp.* .......................................... 61,800 2,526,075
EMC Corp.* .................................................... 44,500 5,684,875
Fore Systems Inc.* ............................................ 20,100 380,016
International Business Machines Corp. ......................... 14,600 2,587,850
NeoMagic Corp.* ............................................... 12,300 122,231
Radiant Systems Inc.* ......................................... 56,900 540,550
Silicon Graphics Inc.* ........................................ 285,000 4,755,937
Unisys Corp. .................................................. 29,700 822,319
Verio Inc.* ................................................... 18,800 867,150
Wang Laboratories Inc.* ....................................... 22,700 445,488
Xylan Corp.* .................................................. 25,500 938,719
Zebra Technologies Corp. Cl. A* ............................... 11,700 277,875
------------
25,695,638
------------
ELECTRONICS 0.4%
Aeroflex Inc.* ................................................ 101,200 1,442,100
SLI Inc.* ..................................................... 54,422 1,142,862
------------
2,584,962
------------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS 0.6%
Analog Devices Inc.* .......................................... 62,800 1,868,300
Cypress Semiconductor Corp.* .................................. 27,100 243,900
Integrated Circuit Systems Inc. ............................... 20,700 373,894
Intel Corp.* .................................................. 15,800 1,882,175
------------
4,368,269
------------
Total Technology .............................................. 56,350,662
------------
UTILITIES 5.6%
CABLE TELEVISION & RADIO 0.4%
American Telecasting Inc. Wts.* ............................... 1,250 1,250
Cox Communications Inc. Cl. A* ................................ 37,800 2,858,625
Heartland Wireless Communications, Inc. Wts.*(+) .............. 1,500 15
Wireless One Inc. Wts.*+ ...................................... 750 8
Wireless One Inc. Wts.* ....................................... 1,250 13
------------
2,859,911
------------
ELECTRICAL 2.3%
Consolidated Edison Inc. ...................................... 18,500 838,281
DQE, Inc. ..................................................... 41,100 1,577,212
GPU Inc. ...................................................... 77,500 2,891,719
Illinova Corp. ................................................ 153,200 3,245,925
OGE Energy Corp. .............................................. 143,500 3,237,719
Pinnacle West Capital Corp. ................................... 134,100 4,877,887
------------
16,668,743
------------
GAS DISTRIBUTION 0.2%
Columbia Energy Group ......................................... 7,900 412,775
Nicor Inc. .................................................... 10,500 377,344
Questar Corp. ................................................. 24,600 416,663
------------
1,206,782
------------
TELECOMMUNICATIONS 2.7%
AT&T Corp. .................................................... 30,300 2,418,319
Bellsouth Corp. ............................................... 30,700 1,229,919
Celcaribe SA*+ ................................................ 297,558 595,116
Intelcom Group, Inc. Wts.*(+) ................................. 1,650 5,049
MCI WorldCom Inc.* ............................................ 80,800 7,155,850
MediaOne Group Inc.* .......................................... 56,900 3,613,150
Nextel Communications Inc. .................................... 1,549 56,732
Pacific Gateway Exchange Inc.* ................................ 8,300 275,456
Pagemart Inc. Wts.*+ .......................................... 2,300 6,325
Powertel Inc. Wts.* ........................................... 960 2,640
Qwest Communications International Inc.* ...................... 38,200 2,753,981
RCN Corp. ..................................................... 18,300 614,194
RSL Communications Ltd. Cl. A* ................................ 12,800 460,000
RSL Communications Ltd. Wts.*+ ................................ 750 97,500
Startec Global Communications Wts.*+ .......................... 500 500
Viatel Inc. Pfd.+<> ........................................... 575 92,000
------------
19,376,731
------------
Total Utilities ............................................... 40,112,167
------------
Total Equity Securities (Cost $339,242,400) ................... 410,355,732
------------
EQUITY SECURITIES -- INFLATION RESPONSIVE INVESTMENTS 4.0%
AUTOMOBILES & TRANSPORTATION 0.0%
MISCELLANEOUS TRANSPORTATION 0.0%
Marine Transport Corp. ........................................ 7,639 21,962
OMI Corp.* .................................................... 106,400 212,800
------------
234,762
------------
Total Automobiles & Transportation ............................ 234,762
------------
INTEGRATED OILS 0.3%
INTEGRATED DOMESTIC 0.3%
Cabot Oil & Gas Corp. Cl. A ................................... 57,100 824,381
Callon Petroleum Co.* ......................................... 59,500 661,938
Crystal Oil Co.* .............................................. 10,000 332,500
KCS Energy, Inc.@ ............................................. 209,900 275,494
------------
2,094,313
------------
Total Integrated Oils ......................................... 2,094,313
------------
MATERIALS & PROCESSING 0.2%
GOLD & PRECIOUS METALS 0.2%
Anglogold Ltd. ADR* ........................................... 8,620 173,478
Ashanti Goldfields Co. Ltd. GDR ............................... 100,000 875,000
Golden Star Resources Ltd.* ................................... 4,312 3,504
------------
1,051,982
------------
NON-FERROUS METALS 0.0%
Crown Resources Corp.* ........................................ 70,400 114,400
------------
Total Materials & Processing .................................. 1,166,382
------------
NON-US EQUITIES 0.5%
Baytex Energy Ltd. Cl. A ...................................... 100,000 311,361
Berkley Petroleum Corp. ....................................... 2,400 16,535
Delta Gold NL* ................................................ 168,000 237,791
Elk Point Resources Inc. Cl. A* ............................... 15,600 21,186
Menzies Gold NL* .............................................. 400,000 23,083
Merit Energy Ltd.* ............................................ 74,900 267,943
Newcrest Mining Ltd.* ......................................... 150,000 292,977
Normandy Mining Ltd.* ......................................... 511,325 408,564
Oil Search Ltd.* .............................................. 468,100 564,007
Probe Exploration Inc.* ....................................... 350,000 132,163
Seven Seas Petroleum Inc.*@ ................................... 129,700 648,500
Southernera Resources Ltd.* ................................... 97,500 377,857
Tri-Link Resources Ltd. Cl. A* ................................ 20,700 161,815
Virginia Gold Mines Inc.* ..................................... 50,000 18,549
Westminster Resource Ltd. ..................................... 19,300 67,764
Zimbabwe Platinum Mines Ltd. .................................. 33,600 7,223
------------
Total Non-US Equities ......................................... 3,557,318
------------
OTHER 0.0%
MULTI-SECTOR 0.0%
Viceroy Resource Corp.* ....................................... 67,000 73,680
------------
Total Other ................................................... 73,680
------------
OTHER ENERGY 2.7%
OFFSHORE DRILLING 0.3%
Atwood Oceanics Inc.*@ ........................................ 28,600 858,000
Santa Fe International Corp. .................................. 50,000 934,375
TMBR/Sharp Drilling, Inc.* .................................... 20,500 87,125
-----------------
1,879,500
-----------------
OIL & GAS PRODUCERS 1.8%
Basin Exploration Inc.* ....................................... 100,000 1,387,500
Canadian 88 Energy Corp.* ..................................... 113,200 403,275
Esenjay Exploration Inc. ...................................... 12,100 15,125
FX Energy Inc.* ............................................... 25,000 118,750
Mallon Resources Corp. ........................................ 12,400 93,000
Nuevo Energy Co.* ............................................. 75,600 1,020,600
Ocean Energy Inc.@ ............................................ 284,000 1,934,750
Patina Oil & Gas Corp. ........................................ 15,500 62,000
Petroquest Energy Inc. ........................................ 43,100 30,978
Plains Resources, Inc.*@ ...................................... 132,000 1,980,000
Ranger Oil Ltd.* .............................................. 278,200 1,112,800
Santa Fe Energy Resources Inc. ................................ 25,000 182,813
Snyder Oil Corp. .............................................. 73,400 1,087,237
St. Mary Land & Exploration Co.* .............................. 9,600 166,800
Talisman Energy, Inc.@ ........................................ 43,230 929,445
Titan Exploration Inc.* ....................................... 145,300 726,500
Tom Brown, Inc.* .............................................. 75,600 916,650
Ulster Petroleum Ltd.* ........................................ 121,500 1,046,373
------------
13,214,596
------------
OIL WELL EQUIPMENT & SERVICES 0.6%
3DX Technologies Inc.* ........................................ 50,000 16,406
BJ Services Co.* .............................................. 11,900 278,906
Cooper Cameron Corp.* ......................................... 50,000 1,693,750
Global Industries Inc.* ....................................... 25,500 258,188
NewPark Resources Inc.* ....................................... 119,600 867,100
Noble Drilling Corp.* ......................................... 78,500 1,359,031
Precision Drilling Corp.* ..................................... 9,100 118,300
------------
4,591,681
------------
Total Other Energy ............................................ 19,685,777
------------
UTILITIES 0.3%
GAS DISTRIBUTION 0.3%
Southwestern Energy Co. ....................................... 67,300 475,306
Western Gas Resources Inc. .................................... 189,700 1,422,750
------------
1,898,056
------------
Total Utilities ............................................... 1,898,056
------------
Total Equity Securities -- Inflation Responsive
Investments (Cost $37,221,322) .............................. 28,710,288
------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- ------------------------------------------------------------------------------------------------------
FIXED INCOME SECURITIES 35.2%
U.S. TREASURY 4.9%
<S> <C> <C> <C>
U.S. Treasury Bond, 12.00% ................... $ 800,000 8/15/2013 $ 1,165,000
U.S. Treasury Bond, 8.125% ................... 1,800,000 8/15/2021 2,287,962
U.S. Treasury Bond, 6.625% ................... 7,950,000 2/15/2027 8,763,603
U.S. Treasury Bond, 6.125% ................... 1,500,000 11/15/2027 1,556,715
U.S. Treasury Bond, 5.25% .................... 3,250,000 2/15/2029 3,072,257
U.S. Treasury Note, 6.625% ................... 2,625,000 7/31/2001 2,714,014
U.S. Treasury Note, 6.375% ................... 1,200,000 8/15/2002 1,244,064
U.S. Treasury Note, 6.625% ................... 3,925,000 5/15/2007 4,232,249
U.S. Treasury Note TIPS, 3.875% .............. 776,294 1/15/2009 774,113
U.S. Treasury STRIPS, 0.00% .................. 5,850,000 5/15/2003 4,723,992
U.S. Treasury STRIPS, 0.00% .................. 3,600,000 5/15/2007 2,304,252
U.S. Treasury STRIPS, 0.00% .................. 4,200,000 5/15/2017 1,413,678
U.S. Treasury STRIPS, 0.00% .................. 3,700,000 5/15/2018 1,172,752
------------
35,424,651
------------
U.S. AGENCY MORTGAGE 8.4%
Federal Home Loan Mortgage Corp., 7.50% ...... $ 47,228 4/01/2002 $ 47,728
Federal Home Loan Mortgage Corp., 7.10% ...... 1,100,000 4/10/2007 1,185,591
Federal Home Loan Mortgage Corp., 8.50% ...... 250 7/01/2009 260
Federal Home Loan Mortgage Corp. TBA, 6.50% .. 3,600,000 5/17/2029 3,622,500
Federal National Mortgage Association, 9.50% . 745,003 10/01/2003 772,144
Federal National Mortgage Association, 8.00% . 161,436 4/01/2008 166,892
Federal National Mortgage Association, 8.00% . 207,882 6/01/2008 215,307
Federal National Mortgage Association, 8.50% . 185,926 2/01/2009 195,401
Federal National Mortgage Association, 5.50% . 3,200,001 12/01/2013 3,116,001
Federal National Mortgage Association, 6.00% . 1,000,000 5/25/2022 995,620
Federal National Mortgage Association, 7.50% . 175 10/01/2025 179
Federal National Mortgage Association, 6.50% . 627,000 9/01/2028 624,060
Federal National Mortgage Association, 6.50% . 5,011,136 11/01/2028 4,987,633
Federal National Mortgage Association, 6.50% . 5,206,557 12/01/2028 5,182,138
Federal National Mortgage Association, 6.00% . 3,748,840 2/01/2029 3,643,385
Federal National Mortgage Association, 6.00% . 3,800,000 3/01/2029 3,693,106
Federal National Mortgage
Association TBA, 6.50% ..................... 1,950,000 5/17/2029 1,940,855
Government National Mortgage Association,
6.50% ...................................... 442,558 2/15/2009 448,227
Government National Mortgage Association,
6.50% ...................................... 166,333 6/15/2009 168,464
Government National Mortgage Association,
6.50% ...................................... 970,358 7/15/2009 982,788
Government National Mortgage Association,
7.50% ...................................... 90,295 11/15/2010 93,286
Government National Mortgage Association,
7.50% ...................................... 587,409 12/15/2010 606,864
Government National Mortgage Association,
7.00% ...................................... 905,298 1/15/2025 920,580
Government National Mortgage Association,
7.00% ...................................... 3,603,915 5/15/2028 3,659,090
Government National Mortgage Association,
6.50% ...................................... 1,823,213 11/15/2028 1,815,227
Government National Mortgage Association,
6.50% ...................................... 4,709,407 11/15/2028 4,688,780
Government National Mortgage Association,
7.00% ...................................... 1,555,222 11/15/2028 1,579,032
Government National Mortgage Association,
7.00% ...................................... 3,737,485 11/15/2028 3,794,706
Government National Mortgage Association,
7.00% ...................................... 142,182 11/15/2028 144,359
Government National Mortgage Association,
6.00% ...................................... 3,000,544 2/15/2029 2,915,208
Government National Mortgage Association,
6.00% ...................................... 425,042 2/15/2029 412,954
Government National Mortgage Association TBA,
6.50% ...................................... 2,875,000 5/24/2029 2,862,407
Government National Mortgage Association TBA,
7.00% ...................................... 4,850,000 5/24/2029 4,912,136
------------
60,392,908
------------
FINANCE/ MORTGAGE 6.8%
AT&T Capital Corp. Note, 7.50% ............... 925,000 11/15/2000 948,606
AT&T Capital Corp. Note, 6.875% .............. 550,000 1/16/2001 560,307
AT&T Capital Corp. Note, 6.75% ............... 1,125,000 2/04/2002 1,148,951
Arcadia Automobile Trust Series
97-C A5, 6.55% ............................. 675,000 6/15/2005 684,281
Capital One Bank Note, 6.65% ................. 1,175,000 3/15/2004 1,179,348
Capital One Bank Sr. Note, 7.08% ............. 1,850,000 10/30/2001 1,891,052
Capital One Bank Sr. Note, 6.48% ............. 825,000 1/28/2002 827,805
Chase Commercial Mortgage
Securities Corp. Cl. A, 6.03% .............. 904,019 8/18/2007 902,183
Chase Manhattan Auto Owner Trust Note Cl. A4,
5.80% ...................................... 1,700,000 2/17/2003 1,706,375
CIT Group Holdings Inc. Sr. Note, 6.80% ...... 1,400,000 4/17/2000 1,418,046
Commercial Credit Group Inc. Note, 6.45% ..... 1,450,000 7/01/2002 1,476,796
Commercial Credit Group Inc. Sr. Note, 5.55% . 1,400,000 2/15/2001 1,398,544
Countrywide Funding Corp. Note, 6.58% ........ 1,100,000 9/21/2001 1,115,609
Credit Suisse First Boston 97-C2 Cl. A2,
6.52% ...................................... 975,000 7/17/2007 984,750
Discover Card Master Trust 98-Cl. A, 5.60% ... 1,825,000 5/15/2006 1,807,882
DLJ Commercial Mortgage Corp. ................
98-C2, 6.24% ............................... 500,000 11/12/2031 495,469
ERAC USA Finance Co. Note, 6.625%+ ........... 725,000 2/15/2005 707,752
ERAC USA Finance Co. Note, 6.75%+ ............ 700,000 5/15/2007 689,668
Finova Capital Corp. Sr. Note, 6.125% ........ 1,950,000 3/15/2004 1,947,075
First Union Commercial Mortgage Trust, 6.07% . 1,325,000 10/15/2008 1,300,156
Ford Motor Credit Co. Note, 5.75% ............ 1,950,000 2/23/2004 1,931,963
Ford Motor Credit Co. Note, 5.80% ............ 1,850,000 1/12/2009 1,777,129
GE Global Insurance Holding Corp. Note, 7.00% 2,825,000 2/15/2026 2,920,089
GMAC Commercial Mortgage Security Inc. 97-C2
Cl. A, 6.55% ............................... 1,350,000 4/15/2029 1,363,922
GMAC Commercial Mortgage Security Inc. 97-C2
Cl. A, 6.451% .............................. 658,983 12/15/2004 664,955
GMAC Commercial Mortgage Security Inc. 98-C1
Cl. A1, 6.41% .............................. 1,019,854 11/15/2007 1,034,514
GMAC Commercial Mortgage Security Inc. 99-C1
Cl. A2, 6.14% .............................. 1,975,000 5/15/2033 1,985,392
Household Finance Corp. Sr. Note,
6.125% ..................................... 900,000 7/15/2002 906,084
Intertek Finance PLC Series B Sr. Sub. Note,
10.25% ..................................... 625,000 11/01/2006 606,250
LB Commercial Conduit Mortgage Trust, 98-C4-
A1, 6.21% .................................. 450,000 10/15/2008 438,891
LB Commercial Conduit Mortgage Trust 97-LL1-
A1, 6.79% .................................. 1,330,651 6/12/2004 1,362,254
LB Commercial Conduit Mortgage Trust 98-C1-
A1,6.33% ................................... 1,482,270 11/18/2004 1,484,122
MBNA Corp. Sr. Note, 6.875% .................. 675,000 11/15/2002 673,603
MBNA Corp. Sr. Note, 7.125% .................. 1,300,000 9/15/2004 1,301,638
MBNA Master Credit Card Trust Series 98-JA,
5.25% ...................................... 1,250,000 2/15/2006 1,224,600
MBNA Master Credit Card Trust Series 99-BA,
5.90% ...................................... 975,000 8/15/2011 959,461
Morgan Stanley Capital Inc. 98-A1, 6.19% ..... 328,847 1/15/2007 330,080
Prime Credit Card Master Trust Series 1995-1A,
6.75% ...................................... 1,800,000 11/15/2005 1,845,000
Sears Credit Account Master Trust Series
1998-2A, 5.25% ............................. 1,875,000 10/16/2008 1,828,706
Woodside Finance Ltd. Note,
6.60%+ ..................................... 875,000 4/15/2008 838,696
------------
48,668,004
------------
FOREIGN GOVERNMENT 4.1%
Greek Drachma
Republic of Greece, 8.80% .................... 2,981,200,000 6/19/2007 11,481,668
New Zealand Dollar
Government of New Zealand, 10.00% ............ 11,675,000 3/15/2002 7,063,511
Government of New Zealand, 8.00% ............. 17,425,000 11/15/2006 10,602,254
------------
29,147,433
------------
CORPORATE 10.6%
Acme Boot Inc. Sr. Note Series B, 11.50%# .... $ 250,000 12/15/2000 105,000
Advanstar Communications Inc. Sr. Sub. Note,
9.25% ...................................... 550,000 5/01/2008 573,375
AK Steel Corp. Note, 7.875% .................. 500,000 2/15/2009 498,750
Allied Waste North America Inc. Sr. Note,
7.625% ..................................... 750,000 1/01/2006 733,125
American Lawyer Media Inc. Sr. Sub. Note
Series B, 9.75%+ ........................... 250,000 12/15/2007 257,500
American Pacific Corp. Sr. Note, 9.25% ....... 500,000 3/01/2005 522,500
American Telecasting Inc. Sr. Note, 0.00% to
6/14/99, 14.50% from 6/15/99 to maturity ... 413,677 6/15/2004 99,282
Ameristar Casinos Inc. Sr. Sub. Note, 10.50% . 75,000 8/01/2004 72,094
Ametek Inc. Sr. Note, 7.20% .................. 400,000 7/15/2008 383,228
Archibald Candy Corp. Sr. Sec. Note, 10.25% .. 500,000 7/01/2004 512,500
Aurora Foods Inc. Sr. Sub. Note Series E,
8.75% ...................................... 100,000 7/01/2008 104,250
Ball Corp. Sr. Sub. Note, 8.25% .............. 750,000 8/01/2008 776,250
Belden & Blake Corp. Sr. Sub. Note Series B,
9.875% ..................................... 100,000 6/15/2007 58,000
Benedek Broadcasting Corp. Sr. Note, 11.875% . 250,000 3/01/2005 270,000
British Sky Broadcasting Group Note, 6.875% .. 975,000 2/23/2009 961,253
Buckeye Technologies Inc. Sr. Sub. Note,
8.00% ...................................... 500,000 10/15/2010 502,500
California Infrastructure Development Series
1997-A7, 6.42% ............................. 2,800,000 9/25/2008 2,863,437
California Steel Industries Inc. Sr. Note,
8.50% ...................................... 50,000 4/01/2009 50,500
Calpine Corp. Sr. Note, 7.625% ............... 300,000 4/15/2006 298,302
Capital One Bank Note, 6.62% ................. 1,900,000 8/04/2003 1,921,964
CBS Radio Corp. Sub. Note, 11.375%<> ......... 263,200 1/15/2009 305,312
Celcaribe SA Sr. Sec. Note, 13.50% ........... 1,830,000 3/15/2004 1,427,400
Cellnet Data Systems Inc. Sr. Note Series B,
0.00% to 9/30/2002, 14.00% from 10/1/2002
to maturity ................................ 750,000 10/01/2007 240,000
Cenargo International PLC Note, 9.75% ........ 500,000 6/15/2008 445,000
Century Communications Corp. Sr. Note, 8.375% 500,000 12/15/2007 506,250
Charter Communications Holdings Sr. Note,
8.625% ..................................... 500,000 4/01/2009 513,125
Cluett American Corp. Sr. Sub. Note Series
B,10.125% .................................. 250,000 5/15/2008 230,000
CMS Energy Corp. Sub. Note, 7.625% ........... 1,000,000 11/15/2004 1,000,590
Columbia/HCA Healthcare Corp. Note, 8.12% .... 1,625,000 8/04/2003 1,615,201
Columbia/HCA Healthcare Corp. Note, 6.91% .... 300,000 6/15/2005 273,597
Columbia/HCA Healthcare Corp. Note, 7.69% .... 650,000 6/15/2025 546,156
Columbia/HCA Healthcare Corp. Note, 7.75% .... 750,000 7/15/2036 633,818
Columbia/HCA Healthcare Corp. Note, 6.73% .... 1,325,000 7/15/2045 1,232,502
CSC Holdings Inc. Sr. Deb., 7.875% ........... 500,000 2/15/2018 512,480
Drypers Corp. Series B Sr. Note, 10.25% ...... 300,000 6/15/2007 291,750
E. Spire Communications Sr. Note, 0.00% to
3/31/2001, 12.75% from 4/1/2001 to
maturity ................................... 100,000 4/01/2006 66,500
Econophone Inc. Sr. Note, 13.50% ............. 250,000 7/15/2007 262,500
Edison Mission Energy Funding Corp. Series A
Note, 6.77%+ ............................... 1,842,450 9/15/2003 1,868,097
Elgar Holdings Inc. Sr. Sub. Note, 9.875% .... 400,000 2/01/2008 312,000
Elgin National Industries Inc. Sr. Note Series
B,11.00% ................................... 200,000 11/01/2007 201,000
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 525,938
Envirosource Inc. Sr. Note, 9.75% ............ 1,000,000 6/15/2003 947,500
Extended Stay America Inc. Sr. Sub. Note,
9.15% ...................................... 500,000 3/15/2008 482,500
Falcon Holding Group LP Series B Sr. Deb.,
8.375%+ .................................... 500,000 4/15/2010 505,000
First Wave Marine Inc. Sr. Note, 11.00% ...... 250,000 2/01/2008 237,500
Fisher Scientific International Inc. Sr. Sub.
Note, 9.00%+ ............................... 250,000 2/01/2008 252,500
Fort James Corp. Note, 6.234% ................ 825,000 3/15/2001 823,482
Fort James Corp. Sr. Note, 6.625% ............ 1,350,000 9/15/2004 1,373,976
Fred Meyer Inc. Note, 9.20% .................. 700,000 7/02/2018 764,967
Frontier Corp. Sr. Note, 9.125% .............. 500,000 2/15/2006 490,000
GNI Group Inc. Sr. Note, 10.875% ............. 650,000 7/15/2005 559,000
Golden Ocean Group Ltd. Sr. Note, 10.00% ..... 750,000 8/31/2001 142,500
Great Central Mines Ltd. Sr. Note, 8.875% .... 1,000,000 4/01/2008 977,500
Harrahs Operating Inc. Sr. Sub. Note, 7.875% . 750,000 12/15/2005 753,750
Healthsouth Corp. Sr. Note, 6.875% ........... 900,000 6/15/2005 850,059
Henry Co. Sr. Note Series B, 10.00% .......... 200,000 4/15/2008 203,000
Hollywood Park Inc. Sr. Sub. Note, 9.25% ..... 150,000 2/15/2007 153,750
Hyperion Telecommunications Sr. Sub. Note,
12.00% ..................................... 500,000 11/01/2007 521,250
ICG Holdings Inc. Sr. Note, 0.00% to 9/14/
2000, 13.50% from 9/15/2000 to maturity .... 250,000 9/15/2005 221,250
International Knife & Saw Inc. Sr. Sub. Note,
11.375% .................................... 250,000 11/15/2006 255,000
International Shipholding Corp. Sr. Note,
9.00% ...................................... 250,000 7/01/2003 254,688
International Shipholding Corp. Sr. Note
Series B, 7.75% ............................ 500,000 10/15/2007 478,750
International Utility Structures Sr. Sub. ....
Note,10.75% ................................ 250,000 2/01/2008 255,000
J. Crew Group Inc. Sr. Note, 0.00% to 10/14/
2002, 13.125% from 10/15/2002 to maturity .. 300,000 10/15/2008 150,000
J. Crew Operating Corp. Sr. Sub. Note,
10.375% .................................... 500,000 10/15/2007 468,125
J.B. Poindexter Inc. Sr. Note, 12.50% ........ 750,000 5/15/2004 729,375
J.H. Heafner Inc. Sr. Note, 10.00% ........... 500,000 5/15/2008 510,000
Johnstown America Industries, Inc. Sr. Sub. ..
Note, 11.75% ............................... 250,000 8/15/2005 272,500
Joseph E. Seagram & Sons Inc. Sr. Note,
6.625% ..................................... 500,000 12/15/2005 495,845
Kaiser Aluminum & Chemical Corp. Sub. Note,
12.75% ..................................... 350,000 2/01/2003 338,625
Kitty Hawk Inc. Sr. Sec. Note,
9.95% ...................................... 250,000 11/15/2004 253,125
Loehmanns Inc. Sr. Note, 11.875% ............. 350,000 5/15/2003 249,375
Loewen Group International Inc. Sr. Note,
7.60% ...................................... 350,000 6/01/2008 178,500
Lucent Technologies Inc. Deb., 6.45% ......... 2,750,000 3/15/2029 2,675,337
Metromedia Fiber Network Inc. Sr. Note,
10.00%+ .................................... 500,000 11/15/2008 535,000
Microcell Telecommunications Sr. Note Series
B, 0.00% to 10/14/2002, 11.125% from
10/15/2002 to maturity ..................... 675,000 10/15/2007 286,187
Mohegan Tribal Gaming Authority Sr. Note,
8.125% ..................................... 350,000 1/01/2006 357,875
NE Restaurant Inc. Sr. Note, 10.75% .......... 250,000 7/15/2008 241,250
New York State Power Authority Revenue Series
D, 6.17% ................................... 2,000,000 2/15/2001 2,026,360
Newpark Resources Inc. Sr. Sub. Note Series
B, 8.625%+ ................................. 250,000 12/15/2007 238,750
News America Holdings Inc. Deb., 7.375% ...... 1,675,000 10/17/2008 1,773,607
News America Inc. Sr. Deb., 7.125% ........... 925,000 4/08/2028 903,068
Norcal Waste Systems Inc. Series B Sr. Note,
13.50% ..................................... 500,000 11/15/2005 564,375
North Atlantic Trading Inc. Sr. Note, 11.00% . 750,000 6/15/2004 768,750
Nuevo Energy Co. Sr. Sub. Note, 9.50% ........ 450,000 4/15/2006 456,750
Ocean Energy Inc. Series B Sr. Note, 7.625% .. 100,000 7/01/2005 95,750
Ocean Energy Inc. Sr. Sub. Note Series B,
8.375% ..................................... 400,000 7/01/2008 380,000
Oglebay Norton Co. Sr. Sub. Note, 10.00% ..... 250,000 2/01/2009 243,125
Owens-Illinois Inc. Sr. Deb., 7.50% .......... 750,000 5/15/2010 743,363
Packaging Resources Inc. Sr. Sec. Note,
11.625% .................................... 750,000 5/01/2003 783,750
Pagemart Nationwide Inc. Sr. Note, 0.00% to
1/31/2000, 15.00% from 2/1/2000 to maturity .. 250,000 2/01/2005 215,625
Pagemart Wireless Inc. Sr. Sub. Note, 0.00% to
1/31/2003, 11.25% from 2/1/2003 to maturity 500,000 2/01/2008 190,000
Pathmark Stores Inc. Sub. Deb., 12.625% ...... 250,000 6/15/2002 255,000
Peco Energy Transport Trust Series 99A Cl. A7,
6.13% ...................................... 1,950,000 3/01/2009 1,937,203
Pepsi Bottling Holdings Inc. Note, 5.625%+ ... 1,950,000 2/17/2009 1,873,814
Phase Metrics Inc. Sr. Note, 10.75% .......... 750,000 2/01/2005 427,500
Pool Energy Services Co. Sr. Sub. Note,
8.625% ..................................... 500,000 4/01/2008 517,500
Prime Succession Inc. Sr. Sub. Note, 10.75% .. 150,000 8/15/2004 97,500
Primedia Inc. Sr. Note, 7.625% ............... 750,000 4/01/2008 747,188
Primus Telecommunications Group Sr. Note,
11.75% ..................................... 250,000 8/01/2004 258,750
Protection One Alarm Inc. Sr. Note, 13.375% .. 325,000 6/30/2005 370,500
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% . 500,000 12/15/2006 555,000
R H Donnelley Inc. Sr. Sub. Note, 9.125% ..... 250,000 6/01/2008 263,750
Rose Hills Co. Sr. Sub. Note, 9.50% .......... 500,000 11/15/2004 435,000
RSL Communications Ltd. Sr. Note, 12.25% ..... 900,000 11/15/2006 983,250
Scotts Co. Sr. Sub. Note, 8.625% ............. 100,000 1/15/2009 103,250
Sea Containers Ltd. Sr. Note Series B, 7.875% 300,000 2/15/2008 291,000
SFX Entertainment Inc. Sr. Note Series B,
9.125% ..................................... 500,000 2/01/2008 505,625
Shop Vac Corp. Sr. Sec. Note, 10.625% ........ 450,000 9/01/2003 491,625
Simonds Industries Inc. Sr. Sub. Note, 10.25% 500,000 7/01/2008 487,500
Solutia Inc. Note, 6.50% ..................... 1,400,000 10/15/2002 1,392,104
Spanish Broadcasting Systems Inc. Sr
Note,12.50% ................................ 1,000,000 6/15/2002 1,130,000
Startec Global Communications Sr. Note,
12.00% ..................................... 500,000 5/15/2008 452,500
Stena AB Sr. Note, 8.75% ..................... 250,000 6/15/2007 232,500
Tekni Plex Inc. Series B Sr. Sub. Note,
11.25% ..................................... 500,000 4/01/2007 547,500
Time Warner Telecom LLC Sr. Note, 9.75% ...... 500,000 7/15/2008 535,000
Transamerican Energy Corp. Sr. Sec. Note
Series B,11.50% ............................ 800,000 6/15/2002 200,000
Transdigm Inc. Sr. Sub. Note, 10.375%+ ....... 200,000 12/01/2008 199,000
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 176,250
Transwestern Publishing Company LP Sr. Sub. ..
Note, 9.625% ............................... 250,000 11/15/2007 262,813
Tyco International Group SA, 6.25% ........... 1,800,000 6/15/2003 1,811,772
U.S. West Communications Inc. Note, 5.625% ... 1,900,000 11/15/2008 1,830,308
Unilab Corp. Sr. Note, 11.00% ................ 500,000 4/01/2006 510,625
Viatel Inc. Sr. Note, 11.25% ................. 500,000 4/15/2008 506,250
Vintage Petroleum Inc. Sr. Sub. Note, 9.75% .. 500,000 6/30/2009 510,000
Westinghouse Air Brake Co. Sr. Note, 9.375% .. 150,000 6/15/2005 153,000
Westpoint Stevens Inc. Sr. Note, 7.875% ...... 1,000,000 6/15/2008 1,022,500
Winstar Communications Inc. Sr. Sub. Cv. Note,
0.00% to 10/14/2000, 14.00% from 10/15/2000
to maturity+ ............................... 300,000 10/15/2005 414,000
Winstar Equipment Corp. Sr. Sec. Exch. Note,
12.50% ..................................... 500,000 3/15/2004 490,627
Wireless One Inc. Sr. Note, 0.00% to
7/31/2001,13.50% from 8/1/2001 to maturity . 1,000,000 8/01/2006 275,000
------------
76,453,040
------------
FOREIGN 0.4%
Province of Quebec Deb., 5.75% ............... 2,900,000 2/15/2009 2,813,000
------------
Total Fixed Income Securities (Cost $256,577,549) ............................... 252,899,040
------------
CASH EQUIVALENTS 4.4%
American Express Credit Corp., 4.82% ......... 4,838,000 4/01/1999 4,838,000
American Express Credit Corp., 4.85% ......... 8,576,000 4/01/1999 8,576,000
American Express Credit Corp., 4.92% ......... 5,988,000 4/05/1999 5,988,000
American Express Credit Corp., 4.94% ......... 11,000,000 4/05/1999 11,000,000
General Electric Capital Corp., 4.90% ........ 1,472,000 4/07/1999 1,472,000
------------
Total Cash Equivalents (Cost $31,874,000) ..................... 31,874,000
------------
- ------------------------------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 13.7%
State Street Navigator Securities Lending Prime Portfolio ..... 98,822,416 98,822,416
------------
Total Short-Term Investments (Cost $98,822,416) ................................. 98,822,416
------------
Total Investments (Cost $763,737,687) - 114.4% .................................. 822,661,476
Cash and Other Assets, Less Liabilities - (14.4%) ............................... (103,434,071)
------------
Net Assets - 100.0% ............................................................. $719,227,405
============
Federal Income Tax Information (Note 1):
At March 31, 1999, the net unrealized appreciation of
investments based on cost for Federal income tax purposes
of $766,049,370 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost ............. $106,093,142
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ............. (49,481,036)
------------
$ 56,612,106
============
ADR and GDR stand for American Depositary Receipt and Global Depositary Receipt, respectively, representing ownership of
foreign securities.
* Nonincome-producing securities.
<> Payments of income may be made in cash or in the form of additional securities.
# Security valued under consistently applied procedures established by the Trustees.
(+) Security restricted as to public resale. The total cost and market value of restricted securities
owned at March 31, 1999 were $285,991 and $159,296 (0.02% of net assets), respectively.
+ Security restricted in accordance with Rule 144A under the Securities Act of 1933, which allows
for the resale of such securities among certain qualified institutional buyers. The total cost and
market value of Rule 144A securities owned at March 31, 1999 were $8,904,142 and $9,234,454 (1.28%
of net assets), respectively.
++ 268,200 shares of Abacan Resources Corp., 58,000 shares of Gulfstream Resources Ltd., 35,325
shares of Maxx Petroleum Ltd., and 50,000 shares of Post Energy Corp., are considered by the
Adviser to be part of Inflation Responsive Investments.
@ 8,600 shares of Atwood Oceanics, Inc., 49,900 shares of KCS Energy, Inc., 51,920 shares of Ocean
Energy Inc., 12,000 shares of Plains Resources, Inc., 25,000 shares of Seven Seas Petroleum Inc.
and 9,740 shares of Talisman Energy, 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%.
Forward currency exchange contracts outstanding at March 31, 1999, are as follows:
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT APPRECIATION DELIVERY
TOTAL VALUE PRICE (DEPRECIATION) DATE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sell Canadian dollars, buy U.S. dollars 400,000 CAD 0.65902 CAD $ (1,398) 4/23/99
Sell European currency, buy U.S. dollars 3,018,000 EUR 1.17630 EUR 282,758 4/22/99
Sell European currency, buy U.S. dollars 1,382,000 EUR 1.13690 EUR (75,029) 4/22/99
Sell European currency, buy U.S. dollars 6,957,000 EUR 1.14030 EUR 385,959 5/28/99
Sell Greek Drachma, buy U.S. dollars 443,345,000 GDR 0.00337 GDR 26,913 4/05/99
Sell New Zealand dollars, buy U.S. dollars 4,580,000 NZD 0.54055 NZD 25,451 4/22/99
Sell New Zealand dollars, buy U.S. dollars 7,207,000 NZD 0.54152 NZD 47,075 4/22/99
Sell New Zealand dollars, buy U.S. dollars 4,395,000 NZD 0.54390 NZD 39,146 4/22/99
Sell New Zealand dollars, buy U.S. dollars 15,970,000 NZD 0.55490 NZD 315,293 5/28/99
Sell Japanese yen, buy U.S. dollars 508,635,000 JPY 0.00885 JPY 40,982 12/30/99
Sell Japanese yen, buy U.S. dollars 718,502,500 JPY 0.00884 JPY 51,150 12/30/99
----------
$1,138,300
==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- -----------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------
March 31, 1999
<S> <C>
ASSETS
Investments, at value (Cost $763,737,687) (Note 1) ...................... $822,661,476
Cash .................................................................... 9,163
Receivable for securities sold .......................................... 16,287,461
Interest and dividends receivable ....................................... 4,335,254
Receivable for open forward contracts ................................... 1,214,727
Receivable for fund shares sold ......................................... 514,796
Other assets ............................................................ 89,952
------------
845,112,829
LIABILITIES
Payable for collateral received on securities loaned .................... 98,822,416
Payable for securities purchased ........................................ 24,724,130
Payable for fund shares redeemed ........................................ 555,502
Accrued management fee (Note 2) ......................................... 442,817
Accrued transfer agent and shareholder services
(Note 2) .............................................................. 421,302
Accrued distribution and service fees (Note 4) .......................... 395,122
Dividends payable ....................................................... 133,333
Payable for open forward contracts ...................................... 76,427
Accrued trustees' fees (Note 2) ......................................... 33,532
Other accrued expenses .................................................. 280,843
------------
125,885,424
------------
NET ASSETS .............................................................. $719,227,405
============
Net Assets consist of:
Undistributed net investment income ................................... $ 1,544,151
Unrealized appreciation of investments ................................ 58,923,789
Unrealized appreciation of forward contracts
and foreign currency ................................................ 1,112,205
Accumulated net realized gain ......................................... 144,809
Paid-in capital ....................................................... 657,502,451
------------
$719,227,405
============
Net Asset Value and redemption price per share of Class A shares
($309,752,474 / 29,778,612 shares) .................................... $10.40
======
Maximum Offering Price per share of Class A shares ($10.40 / .9425) ..... $11.03
======
Net Asset Value and offering price per share of Class B(1) shares
($10,289,420 / 993,052 shares)* ....................................... $10.36
======
Net Asset Value and offering price per share of Class B shares
($363,516,614 / 35,086,230 shares)* ................................... $10.36
======
Net Asset Value and offering price per share of Class C shares
($20,519,462 / 1,976,716 shares)* ..................................... $10.38
======
Net Asset Value, offering price and redemption price per share of Class S
shares ($15,149,435 / 1,456,078 shares) ............................... $10.40
======
- ----------------------------------------------------------------------------------------
* Redemption price per share for Class B(1), Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------
For the year ended March 31, 1999
<S> <C>
INVESTMENT INCOME
Interest, net of foreign taxes of $77,256 (Note 1) ...................... $ 21,785,882
Dividends, net of foreign taxes of $146,870 ............................. 4,258,240
------------
26,044,122
EXPENSES
Management fee (Note 2) ................................................. 5,412,219
Transfer agent and shareholder services (Note 2) ........................ 1,329,543
Custodian fee ........................................................... 453,851
Reports to shareholders ................................................. 103,142
Registration fees ....................................................... 63,479
Audit fee ............................................................... 38,970
Trustees' fees (Note 2) ................................................. 37,595
Legal fees .............................................................. 12,563
Service fee-Class A (Note 4) ............................................ 788,433
Distribution and service fees-Class B(1) (Note 4) ....................... 11,657
Distribution and service fees-Class B (Note 4) .......................... 3,678,605
Distribution and service fees-Class C (Note 4) .......................... 223,009
Miscellaneous ........................................................... 19,671
------------
12,172,737
Fees paid indirectly (Note 2) ........................................... (65,563)
------------
12,107,174
------------
Net investment income ................................................... 13,936,948
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, FORWARD CONTRACTS
AND FUTURES CONTRACTS
Net realized gain on investments (Notes 1 and 3) ........................ 27,936,047
Net realized gain on futures contracts (Note 1) ......................... 72,831
Net realized loss on forward contracts and
foreign currency (Note 1) ............................................. (1,114,494)
------------
Total net realized gain ............................................... 26,894,384
------------
Net unrealized depreciation of investments .............................. (50,559,076)
Net unrealized appreciation of forward contracts
and foreign currency .................................................. 604,510
------------
Total net unrealized depreciation ..................................... (49,954,566)
------------
Net loss on investments, foreign currency and
forward contracts ..................................................... (23,060,182)
------------
Net decrease in net assets resulting from operations .................... $ (9,123,234)
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- ----------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED MARCH 31
------------------------------------
1998 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income .......................................... $ 10,119,003 $ 13,936,948
Net realized gain on investments,
foreign currency, forward contracts and futures contracts .... 82,857,774 26,894,384
Net unrealized appreciation
(depreciation) of investments, foreign currency and
forward contracts ............................................ 68,188,178 (49,954,566)
------------ ------------
Net increase (decrease) resulting from operations .............. 161,164,955 (9,123,234)
------------ ------------
Dividends from net investment income:
Class A ...................................................... (5,845,453) (6,552,247)
Class B(1) ................................................... (42,086)
Class B ...................................................... (3,857,267) (4,962,495)
Class C ...................................................... (254,051) (288,622)
Class S ...................................................... (535,841) (427,400)
------------ ------------
(10,492,612) (12,272,850)
------------ ------------
Distributions from net realized gains:
Class A ...................................................... (34,942,599) (25,005,097)
Class B ...................................................... (37,667,215) (29,297,803)
Class C ...................................................... (2,507,060) (1,782,441)
Class S ...................................................... (2,858,624) (1,606,730)
------------ ------------
(77,975,498) (57,692,071)
------------ ------------
Distribution in excess of net realized gains:
Class A ...................................................... -- (433,237)
Class B ...................................................... -- (519,581)
Class C ...................................................... -- (30,773)
Class S ...................................................... -- (21,048)
------------ ------------
-- (1,004,639)
------------ ------------
Net increase from fund share
transactions (Note 5) ........................................ 142,539,444 49,469,940
------------ ------------
Total increase (decrease) in net assets ........................ 215,236,289 (30,622,854)
NET ASSETS
Beginning of year .............................................. 534,613,970 749,850,259
------------ ------------
End of year (including undistributed net investment income
of $2,015,262 and $1,838,837, respectively) .................. $749,850,259 $719,227,405
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
March 31, 1999
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 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 five classes of shares. Until December 31, 1998, Class A
shares were subject to an initial sales charge of up to 4.50% and effective
January 1, 1999 became subject to an initial sales charge of up to 5.75%.
Class A shares pay a service fee equal to 0.25% of average daily net assets.
On January 1, 1999, the Fund began offering class B(1) shares and continued
offering Class B shares but only to current shareholders. Class B(1) and Class
B pay annual distribution and service fees of 1.00% and both classes
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years. Class B(1) shares are subject to a contingent
deferred sales charge on certain redemptions made within six years of
purchase. Class B shares are subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase. Class C shares are
subject to a contingent deferred sales charge of 1.00% on any shares redeemed
within one year of their purchase. Class C shares also pay annual distribution
and service fees of 1.00%. Class S shares are only offered through certain
retirement accounts, advisory accounts of State Street Research & Management
Company (the "Adviser"), an indirect wholly owned subsidiary of Metropolitan
Life Insurance Company ("Metropolitan"), and special programs. No sales charge
is imposed at the time of purchase or redemption of Class S shares. Class S
shares do not pay any distribution or service fees. The Fund's expenses are
borne pro-rata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the Plan of
Distribution, related specifically to that class. The Trustees declare
separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. INVESTMENT VALUATION
Values for listed equity securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange. Over-the-
counter securities quoted on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") system are valued at closing prices supplied
through such system. If not quoted on the NASDAQ system, such securities are
valued at prices obtained from independent brokers. In the absence of recorded
sales, valuations are at the mean of the closing bid and asked quotations.
Fixed income securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term securities maturing within sixty
days are valued at amortized cost. Other securities, if any, are valued at
their fair value as determined in good faith under consistently applied
procedures established by and under the supervision of the Trustees.
B. FORWARD CONTRACTS AND FOREIGN CURRENCIES The fund enters into forward foreign
currency exchange contracts in order to hedge its exposure to changes in foreign
currency exchange rates on its foreign portfolio holdings and to hedge certain
purchase and sale commitments denominated in foreign currencies. A forward
foreign currency exchange contract is an obligation by the Fund to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the origination date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. Risks may arise from the
potential inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the U.S.
dollar. The aggregate principal amount of forward currency exchange contracts is
recorded in the Fund's accounts. All commitments are marked-to- market at the
applicable transaction rates resulting in unrealized gains or losses. The Fund
records realized gains or losses at the time the forward contracts are
extinguished by entry into a closing contract or by delivery of the currency.
Neither spot transactions nor forward currency exchange contracts eliminate
fluctuations in the prices of the Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the price of these securities should decline.
Securities quoted in foreign currencies are translated into U.S. dollars at
the current exchange rate. Gains and losses that arise from changes in
exchange rates are not segregated from gains and losses that arise from
changes in market prices of investments.
C. SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
D. NET INVESTMENT INCOME
Net investment income is determined daily and consists of interest and dividends
accrued and discount earned, less the estimated daily expenses of the Fund.
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. Discount on debt obligations is amortized under the effective
yield method. Certain fixed income securities held by the Fund pay interest or
dividends in the form of additional securities (payment-in-kind securities).
Interest income on payment-in-kind fixed income securities is recorded using the
effective- interest method. Dividend income on payment-in-kind preferred
securities is recorded at the market value of securities received. The Fund is
charged for expenses directly attributable to it, while indirect expenses are
allocated between both funds in the Trust.
E. DIVIDENDS
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually,
unless additional distributions are required for compliance with applicable
tax regulations. For the year ended March 31, 1999, the Trust has designated
as long-term $51,173,552 of the distributions from net realized gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for foreign currency transactions, paydown gains and losses and wash sale
deferrals.
F. FEDERAL INCOME TAXES
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
G. ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
H. SECURITIES LENDING
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. At March 31, 1999, the value of the securities loaned and the value of
collateral were $96,438,913 and $98,822,416, respectively. During the year
ended March 31, 1999, income from securities lending amounted to $409,581 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 year ended March 31, 1999, the fees pursuant to such agreement
amounted to $5,412,219.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, such as employee benefit plans, through or under which shares of
the Fund may be purchased. During the year ended March 31, 1999, the amount of
such expenses was $454,557.
The Fund has entered into an agreement with its transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the Fund's expense. During the year ended March 31, 1999 the Fund's
transfer agent fees were reduced by $65,563 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$37,595 during the year ended March 31, 1999.
NOTE 3
For the year ended March 31, 1999, purchases and sales of securities,
exclusive of short-term obligations and forward foreign currency exchange
contracts, aggregated $932,975,655, and $924,169,496 (including $405,847,972
and $427,670,065 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(1), 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(1), Class B and Class C shares. The Distributor uses
such payments for personal services and/or the maintenance of shareholder
accounts, to reimburse securities dealers for distribution and marketing
services, to furnish ongoing assistance to investors and to defray a portion
of its distribution and marketing expenses. For the year ended March 31, 1999,
fees pursuant to such plan amounted to $788,433, $3,678,605 and $223,009 for
Class A, Class B and Class C shares, respectively. For the period January 1,
1999 (commencement of share class) to March 31, 1999, fees pursuant to such
plan amounted to $11,657 for Class B(1) shares.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $167,865 and $1,116,824, respectively, on sales of Class A shares
of the Fund during the year ended March 31, 1999, and that MetLife Securities,
Inc. earned commissions aggregating $2,063,898 on sales of Class B shares, and
the Distributor collected contingent deferred sales charges aggregating
$656,057 and $3,304 on redemptions of Class B and Class C shares,
respectively, during the same period. MetLife Securities, Inc. earned
commissions aggragating $203,700 on sales and the Distributor collected
contingent deferred sales charges aggregating $4,579 on redemptions of Class B
(1) shares during the period January 1, 1999 (commencement of share class) to
March 31, 1999.
NOTE 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At March 31, 1999, Metropolitan owned 48,309 Class B(1) shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-----------------------------------------------------------------
1998 1999
------------------------------ ---------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .................... 5,722,390 $ 63,984,989 4,456,292 $ 47,419,479
Issued upon reinvestment of:
Dividends from net
investment income ........... 511,711 5,655,896 613,434 6,336,535
Distributions from net
realized gains ............. 3,275,657 34,024,678 2,356,464 24,830,861
Shares repurchased ............. (4,510,796) (50,245,975) (6,144,406) (64,512,494)
---------- ------------ ---------- ------------
Net increase ................... 4,998,962 $ 53,419,588 1,281,784 $ 14,074,381
========== ============ ========== ============
CLASS B(1)(a) SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
Shares sold .................... -- $ -- 1,015,988 $ 10,366,494
Issued upon reinvestment of
dividend from net investment
income ....................... -- -- 4,081 42,086
Shares repurchased ............. -- -- (27,017) (277,270)
---------- ------------ ---------- ------------
Net increase ................... -- $ -- 993,052 $ 10,131,310
========== ============ ========== ============
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
Shares sold .................... 7,594,312 $ 84,286,716 6,312,468 $ 67,591,232
Issued upon reinvestment of:
Dividends from net investment
income ..................... 351,570 3,838,405 466,974 4,800,489
Distributions from net
realized gains ............. 3,545,630 36,684,475 2,779,332 29,144,016
Shares repurchased ............. (3,817,822) (42,267,060) (6,409,575) (66,796,029)
---------- ------------ ---------- ------------
Net increase ................... 7,673,690 $ 82,542,536 3,149,199 $ 34,739,708
========== ============ ========== ============
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
Shares sold .................... 465,412 $ 5,129,443 412,134 $ 4,373,703
Issued upon reinvestment of:
Dividends from net investment
income ..................... 20,654 226,439 23,639 244,153
Distributions from net
realized gains ............. 221,602 2,295,214 157,152 1,655,108
Shares repurchased ............. (334,060) (3,714,768) (673,754) (7,003,491)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 373,608 $ 3,936,328 (80,829) $ (730,527)
========== ============ ========== ============
CLASS S SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
Shares sold .................... 644,321 $ 7,206,721 485,399 $ 5,189,422
Issued upon reinvestment of:
Dividends from net investment
income ..................... 48,246 534,170 40,956 425,454
Distributions from net
realized gains ............. 274,906 2,856,650 152,390 1,624,883
Shares repurchased ............. (714,208) (7,956,549) (1,520,824) (15,984,691)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 253,265 $ 2,640,992 (842,079) $ (8,744,932)
========== ============ ========== ============
- ------------------------------------------------------------------------------------------------------
(a) January 1, 1999 (commencement of share class) to March 31, 1999.
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each year:
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
YEARS ENDED MARCH 31
----------------------------------------------------------------------------------
1995 1996(a) 1997(a) 1998(a) 1999(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.94 8.76 10.29 10.40 11.60
------- ------- ------- ------- -------
Net investment income ($)* 0.27 0.23 0.21 0.22 0.25
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts ($) (0.14) 1.72 1.05 2.61 (0.35)
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS ($) 0.13 1.95 1.26 2.83 (0.10)
------- ------- ------- ------- -------
Dividends from net investment
income ($) (0.17) (0.26) (0.28) (0.23) (0.22)
Distributions from net realized
gains ($) (0.14) (0.16) (0.87) (1.40) (0.87)
Distribution in excess of net
realized gains ($) -- -- -- -- (0.01)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS ($) (0.31) (0.42) (1.15) (1.63) (1.10)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ($) 8.76 10.29 10.40 11.60 10.40
======= ======= ======= ======= =======
Total return(b) (%) 1.52 22.55 12.49 29.62 (0.66)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 181,358 207,713 244,348 330,421 309,752
Ratio of operating expenses to
average net assets (%)* 1.25 1.25 1.25 1.28 1.28
Ratio of net investment income to
average net assets (%)* 3.11 2.34 2.02 1.96 2.32
Portfolio turnover rate (%) 89.58 109.20 108.41 133.30 136.37
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.03 0.02 0.01 0.00 --
</TABLE>
<TABLE>
<CAPTION>
CLASS B(1)
---------
1999(a)(e)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.35
-------
Net investment income ($) 0.04
Net realized and unrealized gain on investments, foreign currency and forward contracts ($) 0.01
-------
TOTAL FROM INVESTMENT OPERATIONS ($) 0.05
-------
Dividend from net investment income ($) (0.04)
-------
TOTAL DISTRIBUTIONS ($) (0.04)
-------
NET ASSET VALUE, END OF PERIOD ($) 10.36
=======
Total return(b) (%) 0.51(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 10,289
Ratio of operating expenses to average net assets (%) 2.08(d)
Ratio of net investment income to average net assets (%) 1.89(d)
Portfolio turnover rate (%) 136.37
- ----------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) 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.
(c) Not annualized.
(d) Annualized.
(e) January 1, 1999 (commencement of share class) to March 31, 1999.
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
--------------------------------------------------------------------------------------
1995 1996(a) 1997(a) 1998(a) 1999(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.92 8.74 10.25 10.37 11.55
------- ------- ------- ------- -------
Net investment income ($)* 0.20 0.15 0.13 0.13 0.17
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts ($) (0.13) 1.71 1.06 2.59 (0.34)
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS ($) 0.07 1.86 1.19 2.72 (0.17)
------- ------- ------- ------- -------
Dividends from net investment
income ($) (0.11) (0.19) (0.20) (0.14) (0.14)
Distributions from net realized
gains ($) (0.14) (0.16) (0.87) (1.40) (0.87)
Distribution in excess of net
realized gains ($) -- -- -- -- (0.01)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS ($) (0.25) (0.35) (1.07) (1.54) (1.02)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ($) 8.74 10.25 10.37 11.55 10.36
======= ======= ======= ======= =======
Total return(b) (%) 0.82 21.48 11.76 28.53 (1.31)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 152,251 193,272 251,518 368,975 363,517
Ratio of operating expenses to
average net assets (%)* 2.00 2.00 2.00 2.03 2.03
Ratio of net investment income to
average net assets (%)* 2.38 1.59 1.27 1.21 1.57
Portfolio turnover rate (%) 89.58 109.20 108.41 133.30 136.37
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.03 0.02 0.01 0.00 --
<CAPTION>
CLASS C
-------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
-------------------------------------------------------------------------------------
1995 1996(a) 1997(a) 1998(a) 1999(a)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.93 8.75 10.27 10.38 11.57
------- ------- ------- ------- -------
Net investment income ($)* 0.20 0.15 0.13 0.13 0.17
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts ($) (0.13) 1.72 1.05 2.60 (0.34)
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS ($) 0.07 1.87 1.18 2.73 (0.17)
------- ------- ------- ------- -------
Dividends from net investment
income ($) (0.11) (0.19) (0.20) (0.14) (0.14)
Distributions from net realized
gains ($) (0.14) (0.16) (0.87) (1.40) (0.87)
Distribution in excess of net
realized gains ($) -- -- -- -- (0.01)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS ($) (0.25) (0.35) (1.07) (1.54) (1.02)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ($) 8.75 10.27 10.38 11.57 10.38
======= ======= ======= ======= =======
Total return(b) (%) 0.82 21.54 11.64 28.59 (1.33)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 12,772 13,061 17,485 23,807 20,519
Ratio of operating expenses to
average net assets (%)* 2.00 2.00 2.00 2.03 2.03
Ratio of net investment income to
average net assets (%)* 2.39 1.60 1.26 1.21 1.56
Portfolio turnover rate (%) 89.58 109.20 108.41 133.30 136.37
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.03 0.02 0.01 0.00 --
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily reduced a portion of the Fund's expenses.
</TABLE>
<PAGE>
<TABLE>
STATE STREET RESEARCH MANAGED ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS S
-------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
-------------------------------------------------------------------------------------
1995 1996(a) 1997(a) 1998(a) 1999(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.95 8.77 10.29 10.40 11.60
------- ------- ------- ------- -------
Net investment income ($)* 0.29 0.25 0.24 0.25 0.27
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts ($) (0.14) 1.71 1.05 2.60 (0.34)
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS ($) 0.15 1.96 1.29 2.85 (0.07)
------- ------- ------- ------- -------
Dividends from net investment
income ($) (0.19) (0.28) (0.31) (0.25) (0.25)
Distributions from net realized
gains ($) (0.14) (0.16) (0.87) (1.40) (0.87)
Distribution in excess of net
realized gains ($) -- -- -- -- (0.01)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS ($) (0.33) (0.44) (1.18) (1.65) (1.13)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ($) 8.77 10.29 10.40 11.60 10.40
======= ======= ======= ======= =======
Total return(b) (%) 1.77 22.70 12.77 29.93 (0.41)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 25,803 19,548 21,263 26,648 15,149
Ratio of operating expenses to
average net assets (%)* 1.00 1.00 1.00 1.03 1.03
Ratio of net investment income to
average net assets (%)* 3.37 2.59 2.26 2.21 2.53
Portfolio turnover rate (%) 89.58 109.20 108.41 133.30 136.37
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.03 0.02 0.01 0.00 --
- ----------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) 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.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF STATE STREET RESEARCH INCOME TRUST AND
THE SHAREHOLDERS OF STATE STREET RESEARCH MANAGED ASSETS
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research Managed
Assets (a series of State Street Research Income Trust, hereafter referred to
as the "Trust") at March 31, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 7, 1999
<PAGE>
STATE STREET RESEARCH MANAGED ASSETS
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Managed Assets delivered disappointing performance for the year ended March
31, 1999. The total return for the Fund's Class A shares was -0.66% (does not
reflect sales charge). The Fund underperformed the Lipper average of the 214
flexible portfolio funds, which rose 6.08%. The Fund also underperformed the
Lehman Brothers Aggregate Bond Index, which returned 6.49% and the S&P 500
which returned 18.49% for 12 months.
At the end of the period, approximately 61% of the Fund's assets were invested
in stocks and 35% in fixed-income securities. Large-company growth stocks and
mid-cap value stocks accounted for about two-thirds of the Fund's stock market
investments. Small-cap growth, international equity and energy stocks rounded
out the equity portfolio. Large-company stocks were the largest contributors
to performance. However, their gains were more than offset by losses in mid-
cap value, small-cap growth, and energy stocks.
The bond portion of the portfolio emphasized high-grade bonds, which turned in
a good performance. However, international bonds were the strongest performers
in the fixed-income portfolio. High-yield bonds underperformed throughout most
of the period, the result of a general flight to quality by investors.
March 31, 1999
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Performance reflects maximum 5.75% Class A
share front-end, or 5% Class B(1) share or Class B share or 1% Class C share
contingent deferred sales charges where applicable. Performance for Class B(1)
reflects Class B performance through December 31, 1998. Class B(1) was
introduced on January 1, 1999. 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. Class S
shares, offered without a sales charge, are available only through certain
employee benefit plans and special programs. The Standard & Poor's 500
Composite Index (S&P 500) includes 500 widely traded common stocks and is a
commonly used measure of U.S. stock market performance. Lehman Brothers
Government/Corporate Bond Index is a commonly used index of bond market
performance. Indices are unmanaged and do not take sales charges into
consideration. Direct investment in the indices is not possible; results are
for illustrative purposes only.
COMPARISON OF CHANGE IN VALUE OF A $10,000
INVESTMENT IN MANAGED ASSETS, THE S&P 500 AND
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX
CLASS A SHARES
- --------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------
-6.37% 11.18% 11.11%
- --------------------------------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
- --------------------------------------------------------
3/89 $ 9,430 $10,000 $10,000
3/90 10,440 11,170 11,920
3/91 10,860 12,560 13,640
3/92 12,310 13,990 15,140
3/93 14,340 16,000 17,440
3/94 15,920 16,440 17,700
3/95 16,160 17,190 20,450
3/96 19,800 19,070 27,000
3/97 22,270 19,920 32,360
3/98 28,870 22,390 47,860
3/99 28,681 23,854 56,725
CLASS B(1) SHARES
- --------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------
-5.74% 11.42% 11.29%
- --------------------------------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
- --------------------------------------------------------
3/89 $10,000 $10,000 $10,000
3/90 11,080 11,170 11,920
3/91 11,530 12,560 13,640
3/92 13,060 13,990 15,140
3/93 15,220 16,000 17,440
3/94 16,780 16,440 17,700
3/95 16,920 17,190 20,450
3/96 20,550 19,070 27,000
3/97 22,970 19,920 32,360
3/98 29,520 22,390 47,860
3/99 29,146 23,854 56,725
CLASS B SHARES
- --------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------
-5.79% 11.41% 11.28%
- --------------------------------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
- --------------------------------------------------------
3/89 $10,000 $10,000 $10,000
3/90 11,070 11,170 11,920
3/91 11,530 12,560 13,640
3/92 13,060 13,990 15,140
3/93 15,220 15,990 17,440
3/94 16,780 16,440 17,700
3/95 16,920 17,190 20,450
3/96 20,550 19,070 27,000
3/97 22,970 19,920 32,360
3/98 29,520 22,390 47,860
3/99 29,130 23,854 56,754
CLASS C SHARES
- --------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------
-2.23% 11.66% 11.29%
- --------------------------------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
- --------------------------------------------------------
3/89 $10,000 $10,000 $10,000
3/90 11,070 11,170 11,920
3/91 11,530 12,560 13,640
3/92 13,060 13,990 15,140
3/93 15,220 16,000 17,440
3/94 16,790 16,440 17,700
3/95 16,930 17,190 20,450
3/96 20,570 19,070 27,000
3/97 22,970 19,920 32,360
3/98 29,530 22,390 47,860
3/99 29,140 23,854 56,725
CLASS S SHARES
- --------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------
-0.41% 12.75% 11.93%
- --------------------------------------------------------
Managed Assets LB Gov't/Corp Index S&P 500
- --------------------------------------------------------
3/89 $10,000 $10,000 $10,000
3/90 11,080 11,170 11,900
3/91 11,530 12,560 13,640
3/92 13,060 13,990 15,140
3/93 15,220 16,000 17,440
3/94 16,940 16,440 17,700
3/95 17,240 17,190 20,450
3/96 21,150 19,070 27,000
3/97 23,850 19,920 32,360
3/98 30,990 22,390 47,860
3/99 30,863 23,854 56,725
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STATE STREET RESEARCH MANAGED ASSETS
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FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH INCOME TRUST
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<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 BRUCE R. BOND
One Financial Center BARTLETT R. GEER Chairman of the Board,
Boston, MA 02111 Vice President Chief Executive Officer and
President, PictureTel Corporation
DISTRIBUTOR JOHN H. KALLIS
State Street Research Vice President STEVE A. GARBAN
Investment Services, Inc. Former Senior Vice President
One Financial Center THOMAS A. SHIVELY for Finance and Operations and
Boston, MA 02111 Vice President Treasurer, The Pennsylvania
State University
SHAREHOLDER SERVICES JAMES M. WEISS
State Street Research Vice President MALCOLM T. HOPKINS
Service Center Former Vice Chairman of the
P.O. Box 8408 GERARD P. MAUS Board and Chief Financial
Boston, MA 02266-8408 Treasurer Officer, St. Regis Corp.
1-800-562-0032
JOSEPH W. CANAVAN DEAN O. MORTON
CUSTODIAN Assistant Treasurer Former Executive Vice President,
State Street Bank and Chief Operating Officer and
Trust Company DOUGLAS A. ROMICH Director, Hewlett-Packard Company
225 Franklin Street Assistant Treasurer
Boston, MA 02110 SUSAN M. PHILLIPS
FRANCIS J. MCNAMARA, III Dean, School of Business and
LEGAL COUNSEL Secretary and General Counsel Public Management, George
Goodwin, Procter & Hoar LLP Washington University; former
Exchange Place DARMAN A. WING Member of the Board of Governors
Boston, MA 02109 Assistant Secretary and of the Federal Reserve System and
Assistant General Counsel Chairman and Commissioner of
INDEPENDENT ACCOUNTANTS the Commodity Futures Trading
PricewaterhouseCoopers LLP AMY L. SIMMONS Commission
160 Federal Street Assistant Secretary
Boston, MA 02110 TOBY ROSENBLATT
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
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STATE STREET RESEARCH MANAGED ASSETS
One Financial Center -------------------
Boston, MA 02111 Bulk Rate
U.S. Postage
PAID
Permit #6
Hartford, CT
-------------------
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032 or
[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.
This publication must be preceded or accompanied by a current State Street
Research Managed Assets prospectus. The prospectus contains more complete
information, including sales charges and expenses. Please read the prospectus
carefully before investing.
When used after June 30, 1999, this report must be accompanied by a current
Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: 4929-980520(0699)SSR-LD
MA-643F-0599
