<PAGE>
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STATE STREET RESEARCH
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HIGH INCOME FUND
---------------------
ANNUAL REPORT
March 31, 2000
--------------------
WHAT'S INSIDE
--------------------
FROM THE CHAIRMAN
America's economic prosperity
continues
PORTFOLIO MANAGER'S REVIEW
A disappointing year for high-
yield bonds
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
----------------------
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1999
----------------------
For Excellence
[Logo] STATE STREET RESEARCH in
Shareholder Service
<PAGE>
FROM THE CHAIRMAN
[Photo of Gerard P. Maus]
DEAR SHAREHOLDER:
America's cycle of economic prosperity has extended to a record-breaking nine
consecutive years. Gross domestic product, a measure of goods and services
produced in the U.S., rose strongly during the year. It surged ahead at an
annualized rate of 7.3% in the fourth quarter of 1999, and slowed only slightly
to 5.4% in the first quarter of 2000, despite the efforts of the Federal Reserve
Board to cool down the economy by raising interest rates. Beginning in the
second half of 1999 and continuing to the end of the reporting period, the Fed
raised a key short-term interest rate in five consecutive 0.25% steps from 4.75%
to 6.00%.
STOCKS
The U.S. stock market delivered double-digit gains over the 12 months ended
March 31, 2000, despite weakness at the end of the period. The S&P 500 rose
17.93%, however, S&P technology stocks accounted for a disproportionate share of
those gains. And the technology-heavy NASDAQ gained a stunning 86.25% over the
same period.
BONDS
In 1999, the bond market was hurt by factors associated with Y2K. Fears that
issuers would go to the market with their debt issues early in the year drove
yields up and bond prices down. However, those fears were not realized, and the
market began to close the yield gap in the second half of the year. Rising
interest rates also hurt the bond market. Mortgage bonds have held up better
than government and corporate bonds. With both delivering modest single-digit
returns. High-yield bonds, which were relatively strong in 1999, finished the
fund reporting year behind other bond sectors. Despite a volatile year,
long-term U.S. Treasury bonds were helped somewhat by the first repurchase of
bonds since the 1930s and by the perception that the Federal Reserve is working
to stem inflation through higher interest rates.
INTERNATIONAL
Economic growth around the globe was better than expected during the year. In
Asia and the emerging markets of Latin America, economies rebounded from
currency and economic woes faster than anticipated. Japan began to show signs of
progress in revitalizing its economy after a decade of stagnation and decline.
That was reflected in strong stock market performance in 1999, especially among
small Japanese companies. However, Japanese stocks lagged early in 2000 as
recession fears returned. European stock markets delivered mixed results.
European technology stocks, strong at first, suffered from the same volatility
that has plagued the U.S. market.
OUTLOOK AND OPPORTUNITIES
As we enter the year 2000, many markets are poised for growth. However, there
are also areas, such as the technology sector in the U.S., where extraordinarily
high valuations and increasing volatility suggest caution in the months ahead.
Now is a good time to consult your financial professional about the strategies
that make sense for your personal portfolio. And, as always, we thank you for
your confidence in State Street Research.
Sincerely,
/s/ Gerard P. Maus
Gerard P. Maus, Chief Executive Officer
State Street Research Funds
(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) -2.57% for Class B(1) shares; -2.38% for Class B shares; -2.57% for Class C
shares; -1.41% 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 gains 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) 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.
--------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended March 31, 2000)
--------------------------------------------------------------------------------
TOTAL VALUE OF $10,000 INVESTED ON MARCH 31, 1990(3)
(Class A shares, at maximum applicable sales charge)
3/90 $ 9,550
3/90 8,415
3/91 11,478
3/92 13,815
3/93 16,900
3/94 16,587
3/95 18,641
3/96 21,786
3/97 24,922
3/98 24,827
3/99 25,393
3/00 24,977
YIELD
-------------------------------------------------------------------------
Class A 8.96%
-------------------------------------------------------------------------
Class B(1) 8.73%
-------------------------------------------------------------------------
Class B 8.67%
-------------------------------------------------------------------------
Class C 8.67%
-------------------------------------------------------------------------
Class S 9.74%
-------------------------------------------------------------------------
Yield is based on the net investment income produced for the 30 days ended March
31, 2000. 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 9.59% 6.49% -6.07%
-------------------------------------------------------------------
Class B(1) 9.48% 6.37% -7.02%
-------------------------------------------------------------------
Class B 9.50% 6.41% -6.85%
-------------------------------------------------------------------
Class C 9.49% 6.66% -3.46%
-------------------------------------------------------------------
Class S 10.23% 7.74% -1.41%
-------------------------------------------------------------------
<PAGE>
PORTFOLIO MANAGER'S REVIEW
HIGH INCOME FUND: A DISAPPOINTING YEAR FOR HIGH-YIELD BONDS
[Photo of Bartlett R. Geer]
Bartlett R. Geer
Portfolio Manager
We spoke with Bart Geer, portfolio manager of State Street Research High Income
Fund, about the year ended March 31, 2000 and his outlook for the period ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: Class A shares returned -1.65% [without sales charge](2) for the 12 months
ended March 31, 2000. That was slightly lower than the average high current
yield fund, which returned 0.06%, according to Lipper Analytical Services. Also,
the fund slightly underperformed the First Boston High Yield Index, which
returned 0.30%.(1)
Q: WHAT ACCOUNTED FOR THE FUND'S PERFORMANCE?
A: Overall, it was a challenging year for high-yield bonds. Volatility in the
equity markets spilled over to the high-yield market as the sector sunk to a
10-year low relative to U.S. Treasuries. The fund's performance reflects that
weak environment. The fund's bias against emerging market debt relative to its
peers hindered performance as this sector performed well over the past 12
months.
Q: WHAT INDUSTRIES OFFERED THE BEST OPPORTUNITY DURING THE YEAR?
A: The fund's investments in telecommunications, health care, industrial,
retail, conglomerate and technology bonds helped performance. Among them, both
telecommunications and industrial bonds offer high yields March 31, 2000 and
strong business fundamentals.
Q: WHERE WERE THE FUND'S DISAPPOINTMENTS?
A: We were hurt by our investments in food and waste management bonds. Two of
our holdings in these areas were hit hard as accounting problems were uncovered.
As previously mentioned, the fund's avoidance of emerging market debt negatively
impacted performance.
Q: DID YOU ADJUST THE FUND'S ASSET POSITIONS IN LIGHT OF THE HIGH-YIELD MARKET'S
OVERALL WEAKNESS?
A: Yes, in fact, we increased our investment in higher-quality BB rated bonds in
the second half of the period because we were concerned that the "wealth effect"
that has boosted consumer and investor confidence will lead to even higher
interest rates and a slower economy. We also cut the fund's duration to protect
against further interest rate increases from the Federal Reserve Board. Yet, not
all of our moves were defensive. We added to our positions in media,
telecommunications and cyclical bonds because we believe those areas could be
the chief beneficiaries of stronger global economies, which have started to
recover. We also added some smaller issues which are oversold due to investor
concerns about liquidity.
Q: WHAT IS YOUR OUTLOOK?
A: We expect the Federal Reserve Board to succeed in its efforts to slow the
U.S. economy with higher short-term interest rates. A decelerating economy with
higher short-term interest rates should eventually be positive for high-yield
bonds, because it could ease the recession fears that have resulted in wider
spreads, for example, declining values for high-yield bonds. In fact, with
high-yield spreads relative to treasury bonds at their wider end of the 15 year
range, we believe there is significant opportunity among high-yield bonds going
forward.
March 31, 2000
----------------------------------------------------------------------------
ASSET ALLOCATION* 5 LARGEST INDUSTRY BOND POSITIONS
(by percentage of net assets) (by percentage of net assets)
B 56% FIXED COMMUNICATIONS 19.2%
BB 16% GENERAL INDUSTRY 7.6%
BBB 3% MOBILE COMMUNICATIONS 7.1%
Cash 4% ENERGY 6.6%
Convertibles 6% PAPER & PACKAGING 5.1%
Common stocks/warrants 7%
Preferred stock 2% Total: 45.6%
CCC 6%
Quality ratings based on those provided by Standard & Poor's Corp. and/or
equivalent ratings by Moody's Investors Services, Inc. *6% of the above bonds
were unrated and included among relevant rating categories as determined by the
fund's manager.
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
March 31, 2000
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 81.0%
AUTOMOTIVE 0.7%
Federal Mogul Corp., 7.50% .......................... $1,730,000 1/15/2009 $ 1,331,512
Lear Corp. Sr. Note Series B, 8.11% ................. 5,040,000 5/15/2009 4,627,476
--------------
5,958,988
--------------
INDUSTRIAL 0.5%
Pioneer Americas Acquisition Corp. Sr. Sec. Note
Series B, 9.25% ................................... 5,530,000 6/15/2007 4,534,600
--------------
CABLE 0.9%
Charter Communications Holdings Sr. Note, 10.25%+ ... 7,435,000 1/15/2010 7,137,600
Insight Midwest LP Sr. Note, 9.75%+ ................. 460,000 10/01/2009 457,700
--------------
7,595,300
--------------
CASINO 2.2%
Harrah's Operating Inc. Sr. Sub. Note, 7.875% ....... 3,340,000 12/15/2005 3,081,150
Hollywood Casino Corp. Note, 13.00%+ ................ 2,400,000 8/01/2006 2,568,000
International Game Technology Sr. Note, 8.375% ...... 4,490,000 5/15/2009 4,063,450
Mohegan Tribal Gaming Authority Sr. Note, 8.125% .... 7,370,000 1/01/2006 6,835,675
Park Place Entertainment Corp. Sr. Sub. Note,
9.375%+ ........................................... 2,300,000 2/15/2007 2,254,000
--------------
18,802,275
--------------
CHEMICAL 1.7%
Acetex Sr. Note, 9.75% .............................. 1,300,000 10/01/2003 1,209,000
Agriculture Minerals & Chemicals Sr. Note, 10.75% ... 310,000 9/30/2003 235,600
American Pacific Corp. Sr. Note, 9.25% .............. 5,150,000 3/01/2005 5,278,750
GNI Group Inc. Sr. Note, 10.875% .................... 7,000,000 7/15/2005 2,800,000
PCI Chemicals Inc. Sr. Note Series B, 9.25% ......... 4,810,000 10/15/2007 3,932,175
Terra Industries Sr. Note, 10.50% ................... 550,000 6/15/2005 401,500
--------------
13,857,025
--------------
ENERGY 6.6%
Canadian Forest Oil Ltd. Sr. Sub. Note, 8.75% ....... 3,045,000 9/15/2007 2,801,400
Chesapeake Energy Corp. Sr. Note Series B, 9.625% ... 7,220,000 5/01/2005 6,714,600
Frontier Corp. Sr. Note, 9.125% ..................... 10,050,000 2/15/2006 8,542,500
Gulfmark Offshore Inc. Sr. Note, 8.75% .............. 3,880,000 6/01/2008 3,501,700
Moran Energy Inc. Cv. Deb., 8.75% ................... 2,420,000 1/15/2008 2,214,300
Newpark Resources Inc. Sr. Sub. Note Series B, 8.625% 10,020,000 12/15/2007 8,617,200
Ocean Energy Inc. Series B Sr. Note, 7.625% ......... 1,750,000 7/01/2005 1,627,500
Ocean Energy Inc. Sr. Sub. Note, 8.625% ............. 2,425,000 8/01/2005 2,352,250
Plains Resources Inc. Sr. Sub. Note, 10.25%+ ........ 4,315,000 3/15/2006 4,147,794
Plains Resources Inc. Sr. Sub. Note Series B, 10.25% 2,595,000 3/15/2006 2,494,444
Pogo Producing Co. Sr. Sub. Note, 8.75% ............. 3,010,000 5/15/2007 2,784,250
Pogo Producing Co. Sub. Note, 5.50% ................. 850,000 6/15/2006 735,250
Pool Energy Services Co. Sr. Sub. Note, 8.625% ...... 9,010,000 4/01/2008 9,269,217
--------------
55,802,405
--------------
FIXED COMMUNICATIONS 19.2%
Advanced Radio Telecom Corp. Sr. Note, 14.00% ....... 5,013,000 2/15/2007 4,712,220
BTI Telecom Corp. Sr. Note, 10.50% .................. 5,250,000 9/15/2007 4,633,125
Call-Net Enterprises Inc. Sr. Note, 8.00% ........... 5,250,000 8/15/2008 3,871,875
Call-Net Enterprises Inc. Sr. Note, 9.375% .......... 9,405,000 5/15/2009 7,524,000
Covad Commerce Group, 12.00%+ ....................... 2,965,000 2/15/2010 2,638,850
Econophone Inc. Sr. Note, 13.50% .................... 15,250,000 7/15/2007 15,593,125
Globenet Communications Group Sr. Note, 13.00% ...... 1,915,000 7/15/2007 1,935,946
GST Equipment Funding Inc. Sr. Sec. Note, 13.25% .... 145,000 5/01/2007 102,950
Hyperion Telecommunication Inc. Sr. Sub. Note, 12.00% 6,265,000 11/01/2007 6,296,325
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 7,106,000
Intermedia Communications Inc. Sr. Note, 8.60% ...... 1,200,000 6/01/2008 1,056,000
Level 3 Communications Inc. Sr. Note, 11.25%+ ....... 2,875,000 3/15/2010 2,731,250
Logix Communications Sr. Note, 12.25% ............... 1,500,000 6/15/2008 720,000
Northpoint Commerce Group Inc. Sr. Note, 12.875%+ ... 6,000,000 2/15/2010 5,355,000
Primus Telecommunications Group Sr. Note, 11.75% .... 6,550,000 8/01/2004 6,320,750
Primus Telecommunications Inc. Sr. Note, 12.75% ..... 3,025,000 10/15/2009 2,934,250
PSINet Inc. Sr. Note, 10.50%+ ....................... 7,610,000 12/01/2006 7,305,600
PSINet Inc. Sr. Note, 11.00% ........................ 1,390,000 8/01/2009 1,348,300
Rhythms Netconnections Inc., 14.00%+ ................ 2,200,000 2/15/2010 1,914,000
Rhythms Netconnections Inc. Note, 12.75% ............ 5,060,000 4/15/2009 4,301,000
RSL Communications Ltd. Sr. Note, 12.25% ............ 15,974,000 11/15/2006 15,814,260
Startec Global Communications Corp. Sr. Note, 12.00% 10,300,000 5/15/2008 8,600,500
Viatel Inc. Sr. Note, 0.00% to 4/14/2003, 12.50%
from 4/15/2003 to maturity ........................ 11,685,000 4/15/2008 6,543,600
Viatel Inc. Sr. Note, 11.25% ........................ 5,785,000 4/15/2008 5,148,650
Viatel Inc. Sr. Note, 11.50% ........................ 5,173,000 3/15/2009 4,785,025
Williams Communications Group Sr. Note, 10.875% ..... 4,150,000 10/01/2009 4,087,750
Winstar Communicaions Inc., 12.50%+ ................. 5,510,000 4/15/2008 5,420,463
Winstar Communications Inc. Sr. Exch. Note, 14.50% .. 8,905,000 10/15/2005 14,248,000
Winstar Equipment Corp. Sr. Sec. Exch. Note, 12.50% . 1,830,000 3/15/2004 2,049,600
World Access Inc. Sr. Note, 13.25% .................. 7,315,000 1/15/2008 6,364,050
--------------
161,462,464
--------------
FOOD & BEVERAGE 1.4%
Archibald Candy Corp. Sr. Sec. Note, 10.25% ......... 7,950,000 7/01/2004 7,592,250
Aurora Foods Inc. Sr. Sub. Note Series B, 8.75% ..... 500,000 7/01/2008 192,500
Aurora Foods Inc. Sr. Sub. Note Series B, 9.875% .... 2,000,000 2/15/2007 810,000
Tom's Foods Inc. Sr. Sec. Note, 10.50% .............. 3,750,000 11/01/2004 3,243,750
--------------
11,838,500
--------------
GENERAL INDUSTRIAL 7.6%
Ametek Inc. Sr. Note, 7.20% ......................... 7,300,000 7/15/2008 6,637,744
Argo-Tech Corp. Sr. Sub. Note, 8.625% ............... 1,500,000 10/01/2007 1,147,500
Cluett American Corp. Sr. Sub. Note Series B, 10.125% 6,700,000 5/15/2008 4,455,500
Envirosource Inc. Note, 9.75% ....................... 19,000,000 6/15/2003 11,970,000
Envirosource Inc. Sr. Note Series B, 9.75% .......... 600,000 6/15/2003 330,000
Gentek Inc. Sr. Sub. Note, 11.00% ................... 5,890,000 8/01/2009 5,860,550
Henry Co. Sr. Note Series B, 10.00% ................. 5,050,000 4/15/2008 3,661,250
International Knife & Saw Inc. Sr. Sub. Note, 11.375% 9,325,000 11/15/2006 6,947,125
International Utility Structures Inc. Sr. Sub. Note,
10.75% ............................................ 2,000,000 2/01/2008 1,710,000
J.B. Poindexter Inc. Sr. Note, 12.50% ............... 15,940,000 5/15/2004 15,143,000
Simonds Industries Inc. Sr. Sub. Note, 10.25% ....... 5,180,000 7/01/2008 3,677,800
Transdigm Inc. Sr. Sub. Note, 10.375% ............... 2,950,000 12/01/2008 2,301,000
Westpoint Stevens Inc. Sr. Note,
7.875% ............................................ 210,000 6/15/2005 170,100
--------------
64,011,569
--------------
HEALTH CARE 4.8%
Beckman Instruments Inc. Sr. Note, 7.10% ............ 980,000 3/04/2003 939,820
Bio-Rad Laboratories Inc. Sr. Sub. Note, 11.625%+ ... 680,000 2/15/2007 681,700
Columbia/HCA Healthcare Corp. Note, 6.91% ........... 2,195,000 6/15/2005 1,980,987
Columbia/HCA Healthcare Corp. Note, 7.00% ........... 14,270,000 7/01/2007 12,557,600
Dade International Inc. Sr. Sub. Note, 11.125% ...... 2,000,000 5/01/2006 1,930,000
Fisher Scientific International Inc. Sr
Sub. Note, 9.00% ................................... 4,370,000 2/01/2008 3,976,700
Fresenius Medical Care Capital Trust, 9.00% ......... 200,000 12/01/2006 189,500
Iasis Healthcare Corp. Sr. Sub. Note, 13.00%+ ....... 6,615,000 10/15/2009 6,581,925
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% ........ 8,500,000 12/15/2006 8,776,250
Triad Hospitals Sr. Sub. Note, 11.00% ............... 2,965,000 5/15/2009 2,987,238
--------------
40,601,720
--------------
HOTELS & LODGING 0.4%
Extended Stay America Inc. Sr. Sub. Note, 9.15% ..... 3,810,000 3/15/2008 3,467,100
--------------
LEISURE 1.0%
Premier Parks Inc. Sr. Note, 9.75% .................. 4,665,000 6/15/2007 4,396,763
SFX Entertainment Inc. Sr. Note Series B, 9.125% .... 2,130,000 2/01/2008 2,130,000
SFX Entertainment Inc. Sr. Sub. Note, 9.125% ........ 1,800,000 12/01/2008 1,804,500
--------------
8,331,263
--------------
MANUFACTURING 2.8%
Drypers Corp. Series B Sr. Note,
10.25% ............................................ 11,775,000 6/15/2007 9,184,500
North Atlantic Trading Inc. Sr. Note, 11.00% ........ 12,500,000 6/15/2004 11,312,500
Prime Succession Inc. Sr. Sub. Note, 10.75%[] ....... 3,000,000 8/15/2004 720,000
Scotts Co. Sr. Sub. Note, 8.625%+ ................... 2,450,000 1/15/2009 2,278,500
--------------
23,495,500
--------------
MEDIA 2.7%
Advanstar Communications Inc. Sr. Sub. Note, 9.25% .. 6,480,000 5/01/2008 5,994,000
Hollinger International Publishing Inc. Sr. Sub. ....
Note, 9.25% ....................................... 3,375,000 3/15/2007 3,155,625
Hollinger International, Inc. Sr. Sub. Note, 9.25% .. 1,174,000 2/01/2006 1,097,690
K-III Communications Corp. Sr. Note, 8.50% .......... 4,650,000 2/01/2006 4,417,500
R. H. Donnelley Inc. Sr. Sub. Note, 9.125% .......... 3,000,000 6/01/2008 2,835,000
Spanish Broadcasting Systems Inc. Sr. Sub. Note,
9.625% ............................................ 2,015,000 11/01/2009 1,914,250
Transwestern Publishing Co. LP Sr. Sub. Note
Series D, 9.625% .................................... 3,325,000 11/15/2007 3,208,625
--------------
22,622,690
--------------
METALS 3.0%
Alaska Steel Corp. Sr. Note, 9.125% ................. 4,080,000 12/15/2006 3,978,000
Crown Resources Corp. Cv. Sub. Deb., 5.75% .......... 1,110,000 8/27/2001 555,000
Great Central Mines Ltd. Sr. Note, 8.875% ........... 8,500,000 4/01/2008 7,650,000
Kaiser Aluminum & Chemical Corp. Sr. Sub. Note,
12.75% ............................................ 10,570,000 2/01/2003 9,777,250
Sheffield Steel Corp. Note Series B, 11.50% ......... 4,030,000 12/01/2005 3,224,000
--------------
25,184,250
--------------
MOBILE COMMUNICATIONS 7.2%
AirGate PCS, Inc. Sr. Sub. Note, 0.00% to 9/30/2004,
13.50% from 10/1/2004 to maturity ................. 7,065,000 10/01/2009 3,885,750
Celcaribe SA Sr. Sec. Note, 0.00% to
3/14/2004, 14.50% from 3/15/2004 to maturity ...... 5,810,000 3/15/2004 4,822,300
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 1,113,750
Clearnet Communications Inc. Sr. Note, 11.75% ....... 14,450,000 8/13/2007 7,085,771
Nextel Partners Inc. Sr. Note, 0.00% to 1/31/2004,
14.00% from 2/1/2004 to maturity .................. $2,645,000 2/01/2009 1,692,800
Nextel Partners Inc. Sr. Note, 11.00%+ .............. 3,370,000 3/15/2010 3,252,050
Orion Network Systems Inc. Sr. Note, 11.25% ......... 1,500,000 1/15/2007 1,012,500
Pagemart Nationwide Inc. Sr. Exch. Note, 0.00% to
1/31/2000, 15.00% from 2/1/2000 to maturity ....... 25,940,000 1/31/2005 27,107,300
Pagemart Wireless Inc. Sr. Sub. Note, 0.00% to 1/31/
2003, 11.25% from
2/1/2003 to maturity .............................. 11,700,000 2/01/2008 5,733,000
Paging Network Do Brasil SA Sr. Note, 13.50% ........ 750,000 6/06/2005 202,500
US Unwired Inc. Sr. Sub. Note, 0.00% to 10/31/2009,
13.375% from 11/1/2009 to maturity+ ............... 7,625,000 11/01/2009 4,136,562
--------------
60,044,283
--------------
PAPER & PACKAGING 5.1%
American Tissue Inc. Note, 12.50% ................... 1,265,000 7/15/2006 1,246,025
Ball Corp. Sr. Note, 7.75% .......................... 4,030,000 8/01/2006 3,808,350
Ball Corp. Sr. Sub. Note, 8.25% ..................... 13,065,000 8/01/2008 12,281,100
Buckeye Cellulose Corp. Sr. Sub. Note, 9.25% ........ 1,900,000 9/15/2008 1,871,500
Buckeye Technologies Inc. Sr. Sub. Note, 8.00% ...... 8,000,000 10/15/2010 7,240,000
Crown Packaging Enterprise Ltd. Sr. Sec. Note, 0.00%
to 7/31/2003, from 14.00% 8/1/2003 to maturity .... 9,000,000 8/01/2006 90,000
Four M Corp. Sr. Sec. Note Series B, 12.00% ......... 4,075,000 6/01/2006 4,044,437
Owens-Illinois Inc. Sr. Deb., 7.50% ................. 5,330,000 5/15/2010 4,865,224
Packaging Resources Inc. Sr. Sec. Note, 11.625% ..... 10,450,000 5/01/2003 6,322,250
Silgan Holdings Inc. Sub. Deb., 13.25% .............. 681,000 7/15/2006 735,480
--------------
42,504,366
--------------
RESTAURANTS 1.1%
NE Restaurant Company, Inc. Sr. Note, 10.75% ........ 7,890,000 7/15/2008 6,667,050
Sbarro Inc. Sr. Note, 11.00% ........................ 2,665,000 9/15/2009 2,691,650
--------------
9,358,700
--------------
RETAIL 3.4%
J. Crew Group Inc. Sr. Deb., 0.00% to 10/14/2002,
13.125% from 10/15/2002 to maturity ............... 21,940,000 10/15/2008 12,396,100
J. Crew Operating Corp. Sr. Sub. Note, 10.375% ...... 10,675,000 10/15/2007 9,394,000
J.H. Heafner Inc. Sr. Note Series D, 10.00% ......... 5,600,000 5/15/2008 4,872,000
Loehmanns Inc. Sr. Note, 11.875%[] .................. 7,442,000 5/15/2003 1,637,240
--------------
28,299,340
--------------
SERVICES 2.0%
Rose Hills Co. Sr. Sub. Note, 9.50% ................. 8,750,000 11/15/2004 6,562,500
Safety Kleen Corp. Sr. Note, 9.25% .................. 4,865,000 5/15/2009 389,200
Safety Kleen Services Inc. Sr. Sub. Note, 9.25% ..... 4,085,000 6/01/2008 459,563
Stericycle Inc. Sr. Sub. Note Series B, 12.375% ..... 1,400,000 11/15/2009 1,428,000
USA Waste Services Inc. Sr. Note, 7.00% ............. 8,320,000 10/01/2004 7,500,147
Waste Management Inc., 7.70% ........................ 600,000 10/01/2002 572,352
--------------
16,911,762
--------------
SUPERMARKETS/DRUG 0.6%
Pathmark Stores Inc. Sr. Sub. Note, 9.625% .......... 2,275,000 5/01/2003 1,660,750
Stater Brothers Holdings Inc. Sr. Note, 10.75% ...... 3,090,000 8/15/2006 3,113,175
--------------
4,773,925
--------------
TECHNOLOGY 2.3%
Anacomp Inc. Sr. Sub. Note Series D, 10.875% ........ 450,000 4/01/2004 423,000
Elgar Holdings Inc. Sr. Sub. Note, 9.875% .......... 4,250,000 2/01/2008 2,146,250
Intersil Corp. Sr. Note, 13.25% ..................... 3,445,000 8/15/2009 3,927,300
Intertek Finance PLC Series B Sr. Sub. Note, 10.25% . 8,850,000 11/01/2006 7,345,500
Phase Metrics Inc. Sr. Note, 10.75%[] .............. 12,000,000 2/01/2005 1,200,000
SCG Holding Corp. Note Series B, 12.00% ............. 2,335,000 8/01/2009 2,498,450
Zilog Inc. Sr. Sec. Note, 9.50% ..................... 1,630,000 3/01/2005 1,450,700
--------------
18,991,200
--------------
TRANSPORTATION 2.5%
Cenargo International PLC Note, 9.75% ............... 6,935,000 6/15/2008 6,033,450
First Wave Marine Inc. Sr. Note, 11.00% ............. 3,250,000 2/01/2008 1,803,750
Golden Ocean Group Ltd. Sr. Note, 10.00%[] .......... 13,000,000 8/31/2001 1,820,000
International Shipholding Corp. Sr. Note
Series B, 7.75% ................................... 8,050,000 10/15/2007 7,043,750
Pegasus Shipping Hellas Ltd. Pfd. Note
Series A, 11.875%[] ............................... 3,500,000 11/15/2004 1,312,500
Westinghouse Air Brake Co. Sr. Note
Series B2, 9.375% ................................. 2,650,000 6/15/2005 2,583,750
--------------
20,597,200
--------------
UTILITY 1.3%
Calpine Corp. Sr. Note, 7.625% ...................... 650,000 4/15/2006 613,945
Empire Gas Corp. Sr. Sec. Note, 0.00% to 7/14/99,
12.875% from 7/15/99 to maturity .................. 18,110,000 7/15/2004 10,051,050
--------------
10,664,995
--------------
Total Bonds (Cost $800,776,705) ........................................................... 679,711,420
--------------
-----------------------------------------------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 7.9%
ELECTRONIC COMPONENTS 0.5%
Nextel Communications Inc. Series D Exch. Pfd.> ..... 4,281 $ 4,388,025
--------------
ENERGY 0.3%
Clark U.S.A. Inc. Sr. Exch. Pfd.> ................... 10,909 2,181,800
--------------
FINANCIAL 0.2%
RB Asset Inc. Pfd. Series A* ........................ 110,000 2,048,200
--------------
FIXED COMMUNICATIONS 1.2%
ICG Holdings Inc. Exch. Pfd.> ....................... 11,585 10,194,800
--------------
MANUFACTURING 0.6%
DECS Trust Exch. Pfd.* .............................. 231,500 795,781
North Atlantic Trading Inc. Sr. Pfd.> ............... 220,811 4,471,423
--------------
5,267,204
--------------
MEDIA 1.8%
Granite Broadcasting Corp. Exch. Pfd.> .............. 16,521 14,868,900
--------------
PAPER & PACKAGING 0.0%
Equitable Bag Inc. Series A Pfd.* ................... 134,760 134,760
--------------
RESTAURANTS 0.4%
Ameriking Inc. Sr. Exch. Pfd.> ...................... 289,109 3,035,644
--------------
SERVICES 2.1%
Real Time Data Inc. Series B Pfd.*+@ ................ 32,864 8,158,159
Real Time Data Inc. Series C Pfd.*+@ ................ 47,292 9,441,848
--------------
17,600,007
--------------
SUPERMARKETS/DRUG 0.1%
Supermarkets General Holdings Corp. Exch. Pfd.> ..... 344,540 559,878
--------------
TEXTILES 0.4%
Cluett American Corp. Sr. Exch. Pfd.* ............... 140,798 3,801,546
--------------
UTILITY 0.3%
International Utility Structures Inc. ...............
Unit Exch. Pfd.+> ................................. 3,533 2,437,770
--------------
Total Preferred Stocks (Cost $119,651,139) .......... 66,518,534
--------------
COMMON STOCKS & OTHER 7.2%
Advanced Radio Telecom Corp. Wts.*+ ................. 52,500 2,073,120
AirGate PCS, Inc. Com.* ............................. 22,811 2,406,560
Ameriking Inc. Com.*+ ............................... 4,775 47,750
Anacomp Inc. Com.* .................................. 873,507 13,593,953
Anacomp Inc. Wts.* .................................. 25,940 223,733
Celcaribe SA Trust Certificates *+ .................. 944,706 1,889,412
Cellnet Data Systems Inc. Wts.*+ .................... 1,500 390
Central Rents Inc. Com.*+ ........................... 5,250 115,500
CHC Helicopter Corp Cl. A Com.* ..................... 46,000 149,500
CHI Energy Inc. Cl. C Wts.* ......................... 3,279 33
Clearnet Communications Inc. Wts.* .................. 78,705 728,021
Concentric Network Corp. Com.*+ ..................... 19,022 1,046,210
E. Spire Communications Inc. Wts.*+ ................. 9,500 380,000
Empire Gas Corp. Wts.*(+) ........................... 2,760 690
Equitable Bag Inc. Com.* ............................ 1,347,600 67,380
FreedomPay Inc. Com.*@ .............................. 786,335 50,876
Granite Broadcasting Corp. Com.* .................... 540,000 3,847,500
Hollinger International, Inc. Cl. A Com.* ........... 1,918,000 20,618,500
Insight Communications Inc. Cl. A Com.* ............. 42,518 876,934
Intelcom Group, Inc. Wts.* .......................... 21,450 332,475
Intermedia Communications Inc. Wts.*+ ............... 1,500 292,500
International Utility Structures Inc. Wts.* ......... 2,750 2,750
Ionica PLC Wts.*+ ................................... 9,500 95
Ladish Inc. Com.* ................................... 86,667 541,669
Ladish Inc. Wts.* ................................... 150,946 781,145
Loral Orion Network Systems Inc. Wts.*+ ............. 14,500 72,500
Motels of America Inc. Com.*+ ....................... 5,500 1,375
NS Group Inc. Wts.* ................................. 13,250 927,500
Nucentrix Broadband Networks, Inc. Wts.*+ ........... 37,500 375
Pagemart Inc. Wts.*+ ................................ 21,850 223,964
Pagemart Nationwide Inc. Com.*+ ..................... 18,375 250,359
Powertel Inc. Wts.*+ ................................ 8,480 407,040
Primus Telecommunications Group Wts.*+ .............. 6,500 404,627
Protection One Inc. Wts.*+ .......................... 10,400 5,200
Reunion Industries Inc. Com.* ....................... 227,049 539,241
RSL Communications Ltd. Wts.*+ ...................... 13,500 1,215,000
Sabreliner Corp. Wts.*+ ............................. 1,750 17,500
Startec Global Communications Corp. Wts.*+ .......... 8,545 15,381
Town & Country Corp. Cl. A Com.* .................... 195,632 12,227
Viatel Inc. Com.* ................................... 115,000 5,771,562
Waxman Industries Inc. Wts.*+ ....................... 236,000 2,360
Wireless One Inc. Wts.* ............................. 43,750 27,415
World Access Inc. Com.* ............................. 22,984 439,569
--------------
Total Common Stocks & Other (Cost $46,480,630) ...... 60,399,891
--------------
SHORT-TERM INVESTMENTS 4.8%
State Street Navigator Securities Lending
Prime Portfolio ................................... 40,595,981 40,595,981
--------------
Total Short-Term Investments (Cost $40,595,981) ........................................... 40,595,981
--------------
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY
AMOUNT DATE
-----------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 2.0%
American Express Credit Corp., 6.06% ................ $7,552,000 4/04/2000 7,552,000
Household Finance Corp., 6.27% ...................... 9,449,000 4/03/2000 9,449,000
--------------
Total Commercial Paper (Cost $17,001,000) ................................................. 17,001,000
--------------
Total Investments (Cost $1,024,505,455) - 102.9% .......................................... 864,226,826
Cash and Other Assets, Less Liabilities - (2.9%) .......................................... (24,470,258)
--------------
Net Assets - 100.0% ....................................................................... $ 839,756,568
==============
Federal Income Tax Information (Note 1):
At March 31, 2000, the net unrealized depreciation of investments based on cost for
Federal income tax purposes of $1,024,767,450 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost ........................................................... $ 27,152,684
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value ........................................................... (187,693,308)
-------------
$(160,540,624)
=============
-----------------------------------------------------------------------------------------------------------------
* 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, 2000, 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, 2000 were $19,300 and $690 (0.00% 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, 2000 were $89,802,031 and $87,359,429 (10.40% of net assets),
respectively.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
---------------------------------------------------------------------------
March 31, 2000
ASSETS
Investments, at value (Cost $1,024,505,455) (Note 1) $ 864,226,826
Cash ................................................ 29,993
Interest and dividends receivable ................... 21,535,271
Receivable for securities sold ...................... 11,524,011
Receivable for fund shares sold ..................... 571,889
Other assets ........................................ 37,832
---------------
897,925,822
LIABILITIES
Payable for collateral received on securities loaned 40,595,981
Payable for securities purchased .................... 11,671,313
Dividends payable ................................... 2,486,599
Payable for fund shares redeemed .................... 1,801,223
Accrued transfer agent and shareholder services
(Note 2) .......................................... 548,089
Accrued management fee (Note 2) ..................... 407,159
Accrued distribution and service fees (Note 4) ...... 368,045
Accrued trustees' fees (Note 2) ..................... 15,849
Other accrued expenses .............................. 274,996
---------------
58,169,254
---------------
NET ASSETS .......................................... $ 839,756,568
===============
Net Assets consist of:
Undistributed net investment income ............... $ 1,501,659
Unrealized depreciation of investments ............ (160,278,629)
Accumulated net realized loss ..................... (53,801,363)
Paid-in capital ................................... 1,052,334,901
---------------
$ 839,756,568
===============
Net Asset Value and redemption price per share of
Class A shares ($501,042,307 / 99,227,088
shares) ........................................... $5.05
=====
Maximum Offering Price per share of Class A shares
($5.05 / .955) .................................... $5.29
=====
Net Asset Value and offering price per share of
Class B(1) shares ($36,037,781 / 7,192,820 shares)* $5.01
=====
Net Asset Value and offering price per share of
Class B shares ($230,785,800 / 45,987,237 shares)* $5.02
=====
Net Asset Value and offering price per share of
Class C shares ($26,153,778 / 5,205,337 shares)* .. $5.02
=====
Net Asset Value, offering price and redemption price
per share of Class S shares
($45,736,902 /9,128,033 shares) ................... $5.01
=====
----------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
----------------------------------------------------------------------------
For the year ended March 31, 2000
INVESTMENT INCOME
Interest, net of foreign taxes of $26,853 (Note 1) .. $ 94,357,264
Dividends ........................................... 11,095,050
---------------
105,452,314
EXPENSES
Management fee (Note 2) ............................. 5,695,524
Transfer agent and shareholder services (Note 2) .... 2,190,792
Service fee - Class A (Note 4) ...................... 1,476,482
Distribution and service fees - Class B(1) (Note 4) . 289,766
Distribution and service fees - Class B (Note 4) .... 2,907,346
Distribution and service fees - Class C (Note 4) .... 355,301
Custodian fee ....................................... 268,006
Registration fees ................................... 125,874
Reports to shareholders ............................. 95,420
Legal fees .......................................... 94,058
Audit fee ........................................... 46,705
Trustees' fees (Note 2) ............................. 20,650
Miscellaneous ....................................... 74,601
---------------
13,640,525
Fees paid indirectly (Note 2) ....................... (63,140)
---------------
13,577,385
---------------
Net investment income ............................... 91,874,929
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY AND FORWARD CONTRACTS
Net realized loss on investments (Notes 1 and 3) .... (38,253,622)
Net realized loss on forward contracts and foreign
currency .......................................... (468,037)
---------------
Total net realized loss ........................... (38,721,659)
---------------
Net unrealized depreciation of investments .......... (69,426,423)
Net unrealized appreciation of forward contracts .... 55,915
---------------
Total net unrealized depreciation ................. (69,370,508)
---------------
Net loss on investments, foreign currency and
forward contracts ................................. (108,092,167)
---------------
Net decrease in net assets resulting from operations $ (16,217,238)
===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------------
1999 2000
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ............................... $ 101,271,406 $ 91,874,929
Net realized gain (loss) on investments, foreign
currency and forward contracts .................... 4,078,740 (38,721,659)
Net unrealized depreciation of investments and
forward contracts ................................. (144,035,477) (69,370,508)
--------------- --------------
Net decrease resulting from
operations ........................................ (38,685,331) (16,217,238)
--------------- --------------
Dividends from net investment income:
Class A ........................................... (65,376,715) (56,225,697)
Class B(1) ........................................ (126,881) (2,555,427)
Class B ........................................... (31,354,348) (25,669,267)
Class C ........................................... (3,495,607) (3,137,992)
Class S ........................................... (1,801,692) (4,670,012)
--------------- --------------
(102,155,243) (92,258,395)
--------------- --------------
Distributions from net realized gains:
Class A ........................................... (9,878,189) (57,728)
Class B(1) ........................................ -- (3,737)
Class B ........................................... (4,999,368) (27,783)
Class C ........................................... (539,370) (3,350)
Class S ........................................... (185,070) (4,912)
--------------- --------------
(15,601,997) (97,510)
--------------- --------------
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 (decrease) from fund share transactions
(Note 5) .......................................... 150,648,021 (137,766,259)
--------------- --------------
Total decrease in net assets ........................ (20,851,357) (246,339,402)
NET ASSETS
Beginning of year ................................... 1,106,947,327 1,086,095,970
--------------- --------------
End of year (including undistributed net investment
income of $2,674,214 and $1,501,659, respectively) $ 1,086,095,970 $ 839,756,568
=============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
March 31, 2000
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 Strategic Growth & Income Fund.
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 through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of State Street Research funds. 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 ("MetLife"), 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 plans 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 divi- dends 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, 2000, the Fund has
designated as long-term all of the distributions from net realized gains.
Income dividends and capital gains distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily caused by 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. At March 31, 2000, the Fund had a capital
loss carryforward of $44,657,700 available, to the extent provided in
regulations, to offset future capital gains, if any, which expires on March 31,
2008.
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 $15,817,598 and has deferred and treated such
losses as arising in the fiscal year ended March 31, 2000. From November 1, 1999
through March 31, 2000, the Fund incurred net capital losses of approximately
$8,882,000 and intends to defer and treat such losses as arising in the fiscal
year ended March 31, 2001.
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,
2000, the value of the securities loaned and the value of collateral were
$38,675,084 and $40,595,981, respectively. During the year end March 31, 2000,
income from securities lending amounted to $120,063 and is included in interest
income.
NOTE 2
The Trust and the Adviser have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.60% of the first $500 million of net
assets, 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, 2000, the fees pursuant to such agreement
amounted to $5,695,524.
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,
2000, the amount of such expenses was $772,603.
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, 2000 the Fund's
transfer agent fees were reduced by $63,140 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$20,650 during the year ended March 31, 2000.
NOTE 3
For the year ended March 31, 2000, purchases and sales of securities, exclusive
of short-term investments, aggregated $481,714,789 and $622,613,292,
respectively.
NOTE 4
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the plans, 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, 2000, fees pursuant to such
plans amounted to $1,476,482, $289,766, $2,907,346 and $355,301 for Class A,
Class B(1), Class B and Class C shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $118,809 and $609,617, respectively, on sales of Class A shares of
the Fund during the year ended March 31, 2000, and that MetLife Securities, Inc.
earned commissions aggregating $549,055, $14,290 and $30 on sales of Class B(1),
Class B and Class C shares, and that the Distributor collected contingent
deferred sales charges aggregating $94,826, $770,148 and $6,203 on redemptions
of Class B(1), Class B and Class C shares, respectively, during the same period.
NOTE 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Share transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
------------------------------------------------------------
1999 2000
------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 20,276,045 $121,986,092 15,101,807 $ 81,649,256
Issued upon reinvestment of:
Dividends from net investment income 7,224,259 42,925,293 6,810,041 36,691,333
Distribution from net realized gains 2,640,762 15,798,355 9,153 48,145
Shares redeemed ...................... (24,073,358) (143,844,378) (37,383,845) (201,178,010)
------------ ------------ ------------ ------------
Net increase (decrease) .............. 6,067,708 $ 36,865,362 (15,462,844) $(82,789,276)
============ ============ ============ ============
<CAPTION>
CLASS B(1) SHARES* AMOUNT* SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 2,306,218 $ 12,887,088 6,202,418 $ 33,670,868
Issued upon reinvestment of:
Dividends from net investment income 8,749 49,080 267,246 1,412,718
Distribution from net realized gains -- -- 553 2,890
Shares redeemed ...................... (47,435) (268,123) (1,544,929) (8,172,377)
------------ ------------ ------------ ------------
Net increase ......................... 2,267,532 $ 12,668,045 4,925,288 $ 26,914,099
============ ============ ============ ============
<CAPTION>
CLASS B SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 16,017,044 $ 97,744,288 2,383,374 $ 12,804,208
Issued upon reinvestment of:
Dividends from net investment income 2,785,476 16,611,341 2,649,415 14,210,138
Distributions from net realized gains 1,285,486 7,629,070 4,050 21,182
Shares redeemed ...................... (12,746,528) (75,119,927) (18,909,837) (101,229,683)
------------ ------------ ------------ ------------
Net increase (decrease) .............. 7,341,478 $ 46,864,772 (13,872,998) $(74,194,155)
============ ============ ============ ============
<CAPTION>
CLASS C SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 4,100,226 $ 24,694,993 3,200,506 $ 17,277,504
Issued upon reinvestment of:
Dividends from net investment income 339,756 2,008,561 309,193 1,661,769
Distribution from net realized gains 144,432 856,430 457 2,395
Shares redeemed ...................... (2,663,155) (15,519,090) (5,474,306) (29,315,203)
------------ ------------ ------------ ------------
Net increase (decrease) .............. 1,921,259 $ 12,040,894 (1,964,150) $(10,373,535)
============ ============ ============ ============
<CAPTION>
CLASS S SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 7,536,611 $ 42,912,636 304,414 $ 1,658,715
Issued upon reinvestment of:
Dividends from net investment income 296,656 1,693,323 855,646 4,566,991
Distribution from net realized gains 96,895 555,557 933 4,870
Shares redeemed ...................... (504,050) (2,952,568) (653,530) (3,553,968)
------------ ------------ ------------ ------------
Net increase ......................... 7,426,112 $ 42,208,948 507,463 $ 2,676,608
============ ============ ============ ============
-----------------------------------------------------------------------------------------------------
*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
-------------------------------------------------------------------------------------
1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 5.80 5.95 6.01 6.62 5.65
---- ---- ---- ---- ----
Net investment income ($) 0.52 0.59 0.58 0.58 0.52
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts ($) 0.20 (0.01) 0.63 (0.80) (0.60)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.72 0.58 1.21 (0.22) (0.08)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.56) (0.52) (0.60) (0.58) (0.52)
Distributions from net realized gains ($) (0.01) -- -- (0.09) --
Distribution in excess of net realized
gains ($) -- -- -- (0.08) --
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.57) (0.52) (0.60) (0.75) (0.52)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 5.95 6.01 6.62 5.65 5.05
==== ==== ==== ==== ====
Total return(b) (%) 12.85 10.30 20.98 (3.19) (1.65)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 646,473 658,413 718,705 648,217 501,042
Expense ratio (%) 1.17 1.10 1.10 1.06 1.12
Expense ratio after expense reductions (%) 1.17 1.10 1.10 1.05 1.11
Ratio of net investment income to
average net assets (%) 8.88 9.70 9.10 9.50 9.50
Portfolio turnover rate (%) 56.47 81.75 70.53 53.46 50.49
<CAPTION>
CLASS B(1)
--------------------------------
YEARS ENDED MARCH 31
--------------------------------
1999(a)(e) 2000(a)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 5.62 5.62
---- ----
Net investment income ($) 0.12 0.47
Net realized and unrealized gain (loss) on investments, foreign
currency and forward contracts ($) 0.01 (0.60)
---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.13 (0.13)
---- ----
Dividends from net investment income ($) (0.13) (0.48)
---- ----
TOTAL DISTRIBUTIONS ($) (0.13) (0.48)
---- ----
NET ASSET VALUE, END OF YEAR ($) 5.62 5.01
==== ====
Total return(b) (%) 2.25(c) (2.57)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 12,732 36,038
Expense ratio (%) 1.74(d) 1.87
Expense ratio after expense reductions (%) 1.73(d) 1.86
Ratio of net investment income to average net assets (%) 8.81(d) 8.76
Portfolio turnover rate (%) 53.46 50.49
-----------------------------------------------------------------------------------------------------
(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>
STATE STREET RESEARCH HIGH INCOME FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
-------------------------------------------------------------------------------------
1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 5.79 5.93 5.98 6.58 5.62
---- ---- ---- ---- ----
Net investment income ($) 0.46 0.55 0.53 0.53 0.47
Net realized and unrealized gain
(loss) on investments, foreign
currency and forward contracts ($) 0.21 (0.02) 0.62 (0.79) (0.59)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.67 0.53 1.15 (0.26) (0.12)
---- ---- ---- ---- ----
Dividends from net investment income
($) (0.52) (0.48) (0.55) (0.53) (0.48)
Distributions from net realized gains
($) (0.01) -- -- (0.09) --
Distribution in excess of net realized
gains ($) -- -- -- (0.08) --
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.53) (0.48) (0.55) (0.70) (0.48)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 5.93 5.98 6.58 5.62 5.02
==== ==== ==== ==== ====
Total return(b) (%) 12.06 9.35 20.02 (3.77) (2.38)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 185,735 259,077 345,797 336,420 230,786
Expense ratio (%) 1.92 1.85 1.85 1.81 1.87
Expense ratio after expense reductions
(%) 1.92 1.85 1.85 1.80 1.86
Ratio of net investment income to
average net assets (%) 7.95 9.01 8.36 8.90 8.76
Portfolio turnover rate (%) 56.47 81.75 70.53 53.46 50.49
<CAPTION>
CLASS C
-------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
-------------------------------------------------------------------------------------
1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 5.79 5.93 5.99 6.59 5.63
---- ---- ---- ---- ----
Net investment income ($) 0.46 0.54 0.53 0.53 0.48
Net realized and unrealized gain
(loss) on investment, foreign
currency and forward contracts ($) 0.21 (0.00) 0.62 (0.79) (0.61)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.67 0.54 1.15 (0.26) (0.13)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.52) (0.48) (0.55) (0.53) (0.48)
Distributions from net realized gains ($) (0.01) -- -- (0.09) --
Distribution in excess of net realized
gains ($) -- -- -- (0.08) --
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.53) (0.48) (0.55) (0.70) (0.48)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 5.93 5.99 6.59 5.63 5.02
==== ==== ==== ==== ====
Total return(b) (%) 12.05 9.52 19.99 (3.76) (2.57)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 15,262 28,488 34,586 40,342 26,154
Expense ratio (%) 1.92 1.85 1.85 1.81 1.87
Expense ratio after expense reductions (%) 1.92 1.85 1.85 1.80 1.86
Ratio of net investment income to
average net assets (%) 7.91 9.09 8.35 8.91 8.77
Portfolio turnover rate (%) 56.47 81.75 70.53 53.46 50.49
--------------------------------------------------------------------------------------------------------------------------------
(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>
STATE STREET RESEARCH HIGH INCOME FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S
-------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
-------------------------------------------------------------------------------------
1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 5.78 5.92 5.98 6.58 5.61
---- ---- ---- ---- ----
Net investment income ($) 0.53 0.61 0.59 0.58 0.53
Net realized and unrealized gain
(loss) on investments,foreign
currency and forward contracts ($) 0.20 (0.01) 0.63 (0.77) (0.60)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.73 0.60 1.22 (0.21) (0.07)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.58) (0.54) (0.62) (0.59) (0.53)
Distributions from net realized gains ($) (0.01) -- -- (0.09) --
Distribution in excess of net realized
gains ($) -- -- -- (0.08) --
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.59) (0.54) (0.62) (0.76) (0.53)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 5.92 5.98 6.58 5.61 5.01
==== ==== ==== ==== ====
Total return(b) (%) 13.19 10.63 21.22 (2.97) (1.41)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 3,840 6,255 7,860 48,384 45,737
Expense ratio (%) 0.92 0.85 0.85 0.81 0.87
Expense ratio after expense reductions (%) 0.92 0.85 0.85 0.80 0.86
Ratio of net investment income to
average net assets (%) 8.97 10.04 9.36 10.00 9.81
Portfolio turnover rate (%) 56.47 81.75 70.53 53.46 50.49
--------------------------------------------------------------------------------------------------------------------------------
(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, 2000, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States.
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 auditing standards generally accepted in the United States 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, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 18, 2000
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
--------------------------------------------------------------------------------
High Income Fund Class A shares returned -1.65% (does not reflect sales
charge) for the 12-month period ended March 31, 2000. It lagged the average
high current yield fund tracked by Lipper Analytical Services, Inc., which
returned 0.06%. However, the fund slightly underperformed the First Boston
High Yield Index, which returned 0.30%.
A volatile market environment hurt the fund. The manager raised the fund's
position in higher quality bonds and shortened the fund's duration to protect
against further interest rate increases and an uncertain economic environment.
The manager also continued to emphasize telecommunications and technology
bonds on the belief that these sectors could benefit from global economic
recovery. The fund's investment in emerging market debt paid off, but it
represented a small portion of the portfolio.
March 31, 2000
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 gains
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
CLASS A
Average Annual Total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
-6.07% 6.49% 9.59%
-------------------------------------
First Boston
High Income Fund High Yield Index
3/90 $ 9,550 $10,000
3/91 9,759 11,390
3/92 12,584 14,946
3/93 14,936 17,240
3/94 17,112 18,957
3/95 17,421 19,868
3/96 19,659 22,755
3/97 21,684 25,411
3/98 26,233 29,053
3/99 25,396 28,835
3/00 24,977 28,922
CLASS B(1)
Average Annual Total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
-7.02% 6.37% 9.48%
-------------------------------------
First Boston
High Income Fund High Yield Index
3/90 $10,000 $10,000
3/91 10,219 11,390
3/92 13,177 14,946
3/93 15,640 17,240
3/94 17,786 18,957
3/95 17,945 19,868
3/96 20,110 22,755
3/97 21,990 25,411
3/98 26,391 29,053
3/99 25,396 28,835
3/00 24,744 28,922
CLASS B
Average Annual Total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
-6.85% 6.41% 9.50%
-------------------------------------
First Boston
High Income Fund High Yield Index
3/90 $10,000 $10,000
3/91 10,219 11,390
3/92 13,177 14,946
3/93 15,640 17,240
3/94 17,786 18,957
3/95 17,945 19,868
3/96 20,110 22,755
3/97 21,990 25,411
3/98 26,391 29,053
3/99 25,396 28,835
3/00 24,790 28,922
CLASS C
Average Annual Total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
-3.46% 6.66% 9.49%
-------------------------------------
First Boston
High Income Fund High Yield Index
3/90 $10,000 $10,000
3/91 10,219 11,390
3/92 13,177 14,946
3/93 15,640 17,240
3/94 17,783 18,957
3/95 17,939 19,868
3/96 20,110 22,755
3/97 22,014 25,411
3/98 26,413 29,053
3/99 25,419 28,835
3/00 24,766 28,922
CLASS S
Average Annual Total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
-1.41% 7.74% 10.23%
-------------------------------------
First Boston
High Income Fund High Yield Index
3/90 $10,000 $10,000
3/91 10,219 11,390
3/92 13,177 14,946
3/93 15,640 17,240
3/94 17,932 18,957
3/95 18,242 19,868
3/96 20,648 22,755
3/97 22,842 25,411
3/98 27,689 29,053
3/99 26,866 28,835
3/00 26,487 28,922
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
--------------------------------------------------------------------------------
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
--------------------------------------------------------------------------------
A Special Meeting of Shareholders of the State Street Research High Income
Fund ("Fund"), a series of State Street Research Income Trust, was convened on
February 25, 2000 ("Meeting"). The results of the Meeting are set forth below.
<TABLE>
<CAPTION>
VOTES (MILLIONS OF SHARES)
------------------------------------------------
ACTION ON PROPOSAL FOR AGAINST ABSTAIN
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES
The Fund's current Rule 12b-1
Distribution Plan was amended
to increase the amount that
may be expended for the distribution
of Class A shares ................................... 54.4 6.0 3.4
CLASS B SHARES
The Fund's current Rule 12b-1 Distribution
Plan was amended to increase the amount that
may be expended for the distribution of
Class A shares ...................................... 26.6 3.0 2.4
CLASS B(1) SHARES
The Fund's current Rule 12b-1 Distribution
Plan was amended to increase the amount that
may be expended for the distribution of
Class A shares ...................................... 2.8 0.3 0.3
</TABLE>
<PAGE>
STATE STREET RESEARCH HIGH INCOME FUND
--------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH INCOME TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND INFORMATION OFFICERS TRUSTEES
<S> <C> <C>
STATE STREET RESEARCH GERARD P. MAUS GERARD P. MAUS
HIGH INCOME FUND Chairman of the Board, Interim Chief Operating Officer,
One Financial Center President, Chief Executive Chief Financial Officer,
Boston, MA 02111 Officer and Treasurer Chief Administrative 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 Former 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 JOSEPH W. CANAVAN
Boston, MA 02266-8408 Assistant Treasurer
1-87-SSR-FUNDS (toll free) DEAN O. MORTON
DOUGLAS A. ROMICH Former Executive Vice President,
CUSTODIAN Assistant Treasurer Chief Operating Officer and
State Street Bank and Director, Hewlett-Packard Company
Trust Company FRANCIS J. MCNAMARA, III
225 Franklin Street Secretary and General Counsel
Boston, MA 02110 SUSAN M. PHILLIPS
DARMAN A. WING Dean, School of Business and
LEGAL COUNSEL Assistant Secretary and Public Management, George
Goodwin, Procter & Hoar LLP Assistant General Counsel Washington University; former
Exchange Place Member of the Board of Governors
Boston, MA 02109 AMY L. SIMMONS of the Federal Reserve System and
Assistant Secretary Chairman and Commissioner of
INDEPENDENT ACCOUNTANTS the Commodity Futures Trading
PricewaterhouseCoopers LLP Commission
160 Federal Street
Boston, MA 02110
TOBY ROSENBLATT
President,
Founders Investments Ltd.;
President,
The Glen Ellen Company
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
</TABLE>
<PAGE>
---------------
Bulk Rate
STATE STREET RESEARCH HIGH INCOME FUND U.S. Postage
One Financial Center PAID
Boston, MA 02111 Canton, MA
Permit #313
---------------
QUESTIONS? COMMENTS?
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
CALL us toll free at 1-87-ssr-funds (1-877-773-8637) or
[hearing impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
[LOGO] STATE STREET RESEARCH
(C)2000 State Street Research Investment Services, Inc., One Financial Center,
Boston, MA 02111
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.
When used after June 30, 2000, 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:(exp0501)SSR-LD HI-1756-0500
<PAGE>
-------------------------------------------------------------------------------
STATE STREET RESEARCH
-------------------------------------------------------------------------------
STRATEGIC GROWTH & INCOME FUND
------------------------------
ANNUAL REPORT
March 31, 2000
--------------------
WHAT'S INSIDE
--------------------
FROM THE CHAIRMAN
America's economic prosperity
continues
PORTFOLIO MANAGER'S REVIEW
Diversification generated
solid results
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
----------------------
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1998
----------------------
For Excellence
[Logo] STATE STREET RESEARCH in
Shareholder Service
<PAGE>
FROM THE CHAIRMAN
[Photo of Gerard P. Maus]
DEAR SHAREHOLDER:
America's cycle of economic prosperity has extended to a record-breaking nine
consecutive years. Gross domestic product, a measure of goods and services
produced in the U.S., rose strongly during the year. It surged ahead at an
annualized rate of 7.3% in the fourth quarter of 1999, and slowed only slightly
to 5.4% in the first quarter of 2000, despite the efforts of the Federal Reserve
Board to cool down the economy by raising interest rates. Beginning in the
second half of 1999 and continuing to the end of the reporting period, the Fed
raised a key short-term interest rate in five consecutive 0.25% steps from 4.75%
to 6.00%.
STOCKS
The U.S. stock market delivered double-digit gains over the 12 months ended
March 31, 2000, despite weakness at the end of the period. The S&P 500 rose
17.93%. However, S&P technology stocks accounted for a disproportionate share of
those gains. And the technology-heavy NASDAQ gained a stunning 86.25% over the
same period.
BONDS
In 1999, the bond market was hurt by factors associated with Y2K. Fears that
issuers would go to the market with their debt issues early in the year drove
yields up and bond prices down. However, those fears were not realized, and the
market began to close the yield gap in the second half of the year. Rising
interest rates also hurt the bond market. Mortgage bonds have held up better
than government and corporate bonds. Both delivered modest single-digit returns.
High-yield bonds, which were relatively strong in 1999, finished the fund
reporting year behind other bond sectors. Despite a volatile year, long-term
U.S. Treasury bonds were helped somewhat by the first repurchase of bonds since
the 1930s and by the perception that the Federal Reserve is working to stem
inflation through higher interest rates.
INTERNATIONAL
Economic growth around the globe was better than expected during the year. In
Asia and the emerging markets of Latin America, economies rebounded from
currency and economic woes faster than anticipated. Japan began to show signs of
progress in revitalizing its economy after a decade of stagnation and decline.
That was reflected in strong stock market performance in 1999, especially among
small Japanese companies. However, Japanese stocks lagged early in 2000 as
recession fears returned. European stock markets delivered mixed results.
European technology stocks, strong at first, suffered from the same volatility
that has plagued the U.S. market.
OUTLOOK AND OPPORTUNITIES
As we enter the year 2000, many markets are poised for growth. However, there
are also areas, such as the technology sector in the U.S., where extraordinarily
high valuations and increasing volatility suggest caution in the months ahead.
Now is a good time to consult your financial professional about the strategies
that make sense for your personal portfolio. And, as always, we thank you for
your confidence in State Street Research funds.
Sincerely,
/s/ Gerard P. Maus
Gerard P. Maus, Chief Executive Officer
State Street Research Funds
(1) The S&P 500 (officially the "Standard and Poor's 500 Composite Stock Price
Index") is an unmanaged index of 500 U.S. stocks. The index does not take
transaction charges into consideration. It is not possible to invest
directly in the index.
(2) 15.93% for Class B(1) shares; 15.98% for Class B shares; 15.93% for Class C
shares; 17.17% 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 gains distributions and income dividends at net asset value. The
fund's returns include performance from before the creation of share
classes. If this performance reflected the share classes' current 12b-1
fees, the fund's returns may have been lower. Class S shares, offered
without a sales charge, are available only through certain employee benefit
plans and special programs.
(4) Performance reflects up to maximum 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.
(5) The Lehman Brothers Aggregate Bond Index is a market value weighted index of
fixed-rate debt issues, including U.S. treasury, agency, and corporate bond
issues, and mortgage-backed securities. The index does not take transaction
charges into consideration. It is not possible to invest directly in the
index.
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, 2000)
--------------------------------------------------------------------------------
TOTAL VALUE OF $10,000 INVESTED ON MARCH 31, 1990(3)
(Class A shares, at maximum applicable sales charge)
3/90 $ 9,421
3/91 9,803
3/92 11,106
3/93 12,943
3/94 14,361
3/95 14,580
3/96 17,867
3/97 20,098
3/98 26,050
3/99 25,879
3/00 30,261
AVERAGE ANNUAL TOTAL RETURN
(at maximum applicable sales charge)(3)(4)
--------------------------------------------------------------------------------
LIFE OF FUND
(since 12/29/88) 10 YEARS 5 YEARS 1 YEAR
--------------------------------------------------------------------------------
Class A 11.75% 11.71% 14.35% 10.15%
--------------------------------------------------------------------------------
Class B(1) 11.83% 11.80% 14.61% 10.93%
--------------------------------------------------------------------------------
Class B 11.83% 11.80% 14.61% 10.98%
--------------------------------------------------------------------------------
Class C 11.83% 11.80% 14.82% 14.93%
--------------------------------------------------------------------------------
Class S 12.51% 12.56% 15.97% 17.17%
--------------------------------------------------------------------------------
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Strategic Growth & Income Fund: Diversification Generated Solid Results
[Photo of Peter C. Bennett]
Peter C. Bennett
Portfolio Manager
We spoke with Peter Bennett, portfolio manager of State Street Research
Strategic Growth & Income Fund, about the year ended March 31, 2000 and his
views on the financial markets and economy in the year ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: It was a good year for the fund. Class A shares returned 16.88% [does not
reflect sales charge] for the 12 months ended March 31, 2000.(2) The fund
outperformed the Lipper Flexible Portfolio Funds Average, which returned 14.77%
over the same period. The fund ranked in the top one-third of its Lipper peer
group.(1)
Q: WHAT ACCOUNTED FOR THE FUND'S STRONG PERFORMANCE?
A: Several factors contributed to the fund's solid performance. Stocks accounted
for 55% of the portfolio, and they substantially outperformed the broad market,
as measured by the S&P 500, which was up 17.93% for the year. The fund's bond
portfolio substantially matched the Lehman Brothers Aggregate Bond Index.(5)
Asset allocation within the stock portfolio also added value as the action began
to move away from large-cap growth stocks and broaden in the second half of the
year.
Q: WHERE WERE THE FUND'S STOCK POSITIONS CONCENTRATED, AND HOW DID THEY FARE?
A: The strongest sectors were international equity, small- cap growth and
energy, which came alive in the second half after falling more than 15% in the
fourth quarter of 1999. International stock markets were stronger in the first
half of the year, reflecting the continued recovery in the global economy. In
the U.S., interest rates continued to push upward, but the stock market largely
ignored it. For the bond market, higher interest rates were a different story,
and bond prices remained under pressure throughout the year.
Q: WHERE WERE THE FUND'S DISAPPOINTMENTS?
A: Mid-cap value stocks were disappointing for most of the year. However, we
continue to feel that the value sector is one of the more attractive areas in
the market, given the long slide in prices, attractive valuations, and the fact
that this sector ought to be one of the beneficiaries of the global recovery. In
the last quarter, high- yield and international bonds were also a drag on
performance. Fortunately, they were underweighted relative to the normal
targets.
Q: DID YOU ADJUST THE FUND'S ASSET ALLOCATION DURING THE PERIOD?
A: Yes, in fact, we made a strategic decision in the third quarter of 1999 to
change the fund's normal target of 70% stocks/30% bonds to 60% stocks/40% bonds.
That reflected our view that bonds have the potential to improve their
performance relative to stocks over the next several years and that the risk/
reward potential between the two asset classes has shifted. By the end of the
year, we had reduced the fund's stock allocation to 55%. Stocks and bonds
actually provided very similar returns in the final quarter, so that decision
was not a factor in performance on a risk adjusted basis, we believe that it
could be a positive factor going forward.
Q: WHAT IS YOUR OUTLOOK?
A: Our outlook for the U.S. economy is generally positive. We believe economic
growth could slow to a more reasonable pace as higher interest rates take
effect. We think the prospects for higher corporate profits are good and that
the global recovery, which has been underway, could have a positive impact on
foreign markets. The fund has clearly benefited in recent quarters from a
broadening of the stock market away from large-cap growth stocks and the
strengthening of international economies. The fund is positioned to do well if
that environment persists.
Q: WHERE WAS THE HEAVIEST EMPHASIS IN BONDS?
A: The most overweighted sector of the bond portion of the portfolio was
high-grade bonds. While this proved to be a reasonable strategy, performance was
still hurt by the risk in interest rates.
March 31, 2000
--------------------------------------------------------------------------------
ASSET ALLOCATION TOP 5 EQUITY INDUSTRIES
(by percentage of net assets) (by percentage of net assets)
Equities 53% COMPUTER TECHNOLOGY 3.6%
Bonds 41% COMMUNICATIONS TECHNOLOGY 2.9%
Net Cash 4% OIL & GAS PRODUCERS 2.4%
Inflation Responsive 2% COMPUTER SOFTWARE 2.4%
DRUGS & BIOTECHNOLOGY 1.9%
<PAGE>
STATE STREET RESEARCH STRATEGIC GROWTH AND INCOME FUND
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
March 31, 2000
-------------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
-------------------------------------------------------------------------------
EQUITY SECURITIES 52.9%
AUTOMOBILES & TRANSPORTATION 0.4%
AIR TRANSPORT 0.0%
CHC Helicopter Corp. Cl. A* ......................... 2,000 $ 6,500
------------
AUTOMOTIVE PARTS 0.3%
Delphi Automotive Systems Corp. ..................... 68,300 1,092,800
Gentex Corp. ........................................ 21,600 800,550
------------
1,893,350
------------
TRUCKERS 0.1%
CNF Transportation Inc. ............................. 32,800 910,200
------------
Total Automobiles & Transportation .................. 2,810,050
------------
CONSUMER DISCRETIONARY 7.7%
ADVERTISING AGENCIES 1.6%
Cybergold Inc. ...................................... 14,600 156,950
Lifeminders.com, Inc.* .............................. 24,100 1,635,788
Mediaplex Inc. ...................................... 8,000 416,000
Omnicom Group Inc. .................................. 37,100 3,466,531
Valassis Communications Inc.* ....................... 157,450 5,245,053
Young & Rubicam Inc.* ............................... 19,600 921,200
------------
11,841,522
------------
CASINOS/GAMBLING, HOTEL/MOTEL 0.8%
GTech Holdings Corp.* ............................... 71,900 1,334,644
Harrah's Entertainment Inc.* ........................ 163,525 3,035,433
International Game Technology Inc. .................. 69,392 1,504,939
Motels of America Inc.*+ ............................ 500 125
------------
5,875,141
------------
COMMERCIAL SERVICES 1.5%
A.C. Nielsen Corp.* ................................. 184,290 4,146,525
America Online Inc.* ................................ 49,000 3,295,250
Copart Inc.* ........................................ 47,500 831,250
Hotel Reservations Network Inc. Cl. A* .............. 16,300 289,325
Protection One Inc. Wts.*+ .......................... 800 400
QRS Corp.* .......................................... 24,300 1,828,575
Safety Kleen Corp.* ................................. 92,600 121,538
------------
10,512,863
------------
COMMUNICATIONS, MEDIA & ENTERTAINMENT 1.3%
AMFM Inc.* .......................................... 9,900 615,037
CBS Corp.* .......................................... 94,000 5,322,750
Granite Broadcasting Corp. Exch. Pfd.> .............. 366 329,400
TiVo Inc.* .......................................... 15,500 536,688
USA Networks, Inc.* ................................. 35,700 805,481
Wink Communications, Inc.* .......................... 18,600 620,775
World Wrestling Federation Entertainment Inc. Cl. A . 54,900 973,617
------------
9,203,748
------------
CONSUMER SERVICES 0.1%
Central Rents Inc.*+ ................................ 250 5,500
DeVry Inc.* ......................................... 28,100 857,050
------------
862,550
------------
PRINTING & PUBLISHING 0.7%
General Media Inc. Wts.*(+) ......................... 250 250
Hollinger International, Inc. Cl. A ................. 443,100 4,763,325
Sullivan Holdings Inc.*(+) .......................... 149 20,781
------------
4,784,356
------------
RETAIL 1.6%
Circuit City Stores Inc. ............................ 68,400 4,163,850
Federated Department Stores Inc.* ................... 46,800 1,953,900
Home Depot Inc. ..................................... 44,100 2,844,450
Shopnow.com Inc. .................................... 32,600 476,775
Ticketmaster Online City Search, Inc. Cl. B* ........ 22,100 553,881
Wal-Mart Stores, Inc. ............................... 22,300 1,237,650
------------
11,230,506
------------
TOYS 0.1%
Mattel Inc. ......................................... 68,400 713,925
------------
Total Consumer Discretionary ........................ 55,024,611
------------
CONSUMER STAPLES 1.1%
BEVERAGES 0.2%
Anheuser-Busch Companies, Inc. ...................... 24,700 1,537,575
------------
DRUG & GROCERY STORE CHAINS 0.3%
Duane Reade Inc.* ................................... 23,800 553,350
Hannaford Brothers Co. .............................. 23,985 1,768,894
------------
2,322,244
------------
HOUSEHOLD PRODUCTS 0.4%
Colgate-Palmolive Co. ............................... 40,000 2,255,000
Dial Corp. .......................................... 51,495 708,056
------------
2,963,056
------------
TOBACCO 0.2%
UST Inc. ............................................ 57,300 895,312
------------
Total Consumer Staples .............................. 7,718,187
------------
FINANCIAL SERVICES 5.3%
BANKS & SAVINGS & LOAN 1.1%
BankNorth Group Inc. ................................ 25,300 678,356
Golden West Financial Corp. ......................... 44,400 1,384,725
Hudson City Bancorp Inc.* ........................... 65,200 953,550
Hudson United Bancorp ............................... 19,000 412,063
Mercantile Bankshares Corp. ......................... 21,900 669,319
North Fork BanCorp., Inc.* .......................... 34,700 620,262
Peoples Heritage Financial Group .................... 213,900 3,208,500
Southtrust Corp. .................................... 10,700 272,181
------------
8,198,956
------------
FINANCIAL DATA PROCESSING SERVICES & SYSTEMS 0.7%
First Data Corp. .................................... 85,000 3,761,250
Profit Recovery Group International Inc.* ........... 51,650 955,525
------------
4,716,775
------------
INSURANCE 1.6%
Ace Ltd. ............................................ 184,200 4,213,575
Partnerre Ltd.* ..................................... 6,600 242,963
Saint Paul Companies, Inc. .......................... 84,100 2,869,912
XL Capital Ltd. Cl. A ............................... 69,101 3,826,468
------------
11,152,918
------------
MISCELLANEOUS FINANCIAL 1.9%
Ambac Financial Group, Inc. ......................... 103,100 5,193,663
Citigroup, Inc. ..................................... 89,400 5,302,537
Metris Companies Inc. ............................... 12,200 474,275
Morgan Stanley Dean Witter & Co. .................... 21,700 1,769,906
RB Asset Inc. Series A Pfd.* ........................ 20,000 372,400
S1 Corp. ............................................ 4,400 377,025
------------
13,489,806
------------
SECURITIES BROKERAGE & SERVICES 0.0%
Bear Stearns Company Inc. ........................... 6,405 292,228
------------
Total Financial Services ............................ 37,850,683
------------
HEALTH CARE 2.8%
DRUGS & BIOTECHNOLOGY 1.9%
Amgen Inc.* ......................................... 60,000 3,682,500
ArQule, Inc.* ....................................... 6,600 89,100
Biovail Corp. ....................................... 20,900 926,131
Biovail Corp. Wts ................................... 24,200 1,234,200
ILEX Oncology Inc.* ................................. 19,900 835,800
Intelligent Polymers Ltd. ........................... 58,500 2,025,563
Intermune Pharmaceuticals Inc. ...................... 4,300 85,731
Priority Healthcare Corp. Cl. B* .................... 10,500 527,625
Sangstat Medical Corp.* ............................. 20,500 567,594
Warner-Lambert Co. .................................. 40,000 3,900,000
------------
13,874,244
------------
HEALTH CARE FACILITIES 0.1%
Tenet Healthcare Corp. .............................. 20,200 464,600
------------
HEALTH CARE SERVICES 0.4%
Province Healthcare Co.* ............................ 15,000 429,375
Quorum Health Group Inc.* ........................... 256,900 2,585,056
------------
3,014,431
------------
HOSPITAL SUPPLY 0.4%
Aradigm Corp.* ...................................... 43,000 897,625
Medtronic Inc. ...................................... 40,000 2,057,500
------------
2,955,125
------------
Total Health Care ................................... 20,308,400
------------
INTEGRATED OILS 1.1%
INTEGRATED DOMESTIC 0.3%
Unocal Corp. ........................................ 75,100 2,234,225
------------
INTEGRATED INTERNATIONAL 0.8%
BP Amoco PLC ADR .................................... 65,200 3,459,675
Total Fina SA ADR ................................... 28,400 2,090,950
------------
5,550,625
------------
Total Integrated Oils ............................... 7,784,850
------------
MATERIALS & PROCESSING 3.9%
BUILDING & CONSTRUCTION 0.1%
Waxman Industries Inc. Wts.*+ ....................... 29,500 295
York International Corp. ............................ 33,000 771,375
------------
771,670
------------
CHEMICALS 0.8%
Cambrex Corp. ....................................... 11,100 482,850
Dow Chemical Co. .................................... 19,900 2,268,600
Omnova Solutions Inc. ............................... 52,615 295,960
Reunion Industries Inc. ............................. 16,217 38,515
Solutia Inc. ........................................ 152,200 2,035,675
Valence Technology Inc. ............................. 21,300 501,881
------------
5,623,481
------------
CONTAINERS & PACKAGING 0.8%
American Material Can Group Inc. .................... 262,400 3,444,000
Equitable Bag Inc.* ................................. 47,600 2,380
Smurfit Stone Container Corp.* ...................... 125,600 2,127,350
------------
5,573,730
------------
DIVERSIFIED MANUFACTURING 0.7%
Ball Corp. .......................................... 144,900 5,008,106
------------
FERTILIZERS 0.2%
Agrium Inc. ......................................... 191,500 1,543,969
------------
FOREST PRODUCTS 0.1%
Champion International Corp. ........................ 17,200 915,900
------------
MISCELLANEOUS MATERIALS & PROCESSING 0.0%
Ladish Inc. Wts.* ................................... 15,095 78,117
------------
PAPER & FOREST PRODUCTS 0.7%
Fort James Corp. .................................... 119,075 2,619,650
Westvaco Corp. ...................................... 66,800 2,229,450
------------
4,849,100
------------
STEEL 0.5%
Alaska Steel Holding Corp. .......................... 152,518 1,582,374
Harsco Corp. ........................................ 71,100 2,057,456
------------
3,639,830
------------
TEXTILE & PRODUCTS 0.0%
Cluett American Corp. Sr. Exch. Pfd.> ............... 3,168 85,536
------------
Total Materials & Processing ........................ 28,089,439
------------
OTHER 1.8%
MULTI-SECTOR 1.8%
Gencorp Inc. ........................................ 113,300 878,075
General Electric Co. ................................ 34,300 5,322,931
Ogden Corp. ......................................... 241,400 2,881,713
Tyco International Ltd. ............................. 82,500 4,114,687
------------
Total Other ......................................... 13,197,406
------------
OTHER ENERGY 3.9%
GAS PIPELINES 1.5%
Columbia Energy Group ............................... 7,900 468,075
Dynegy Inc. Cl. A ................................... 76,700 4,812,925
Williams Companies Inc. ............................. 128,389 5,641,092
------------
10,922,092
------------
OFFSHORE DRILLING 0.0%
TMBR/Sharp Drilling Inc.* ........................... 20,500 251,125
------------
OIL & GAS PRODUCERS 1.3%
Burlington Resources Inc. ........................... 34,000 1,258,000
Ocean Energy Inc.* .................................. 321,508 4,621,677
Santa Fe Snyder Corp.* .............................. 37,700 362,863
St. Mary Land & Exploration Co.* .................... 9,200 274,850
Union Pacific Resources Group Inc. .................. 209,330 3,035,285
------------
9,552,675
------------
OIL WELL EQUIPMENT & SERVICES 1.1%
Baker Hughes Inc. ................................... 46,200 1,397,550
Calpine Corp.* ...................................... 13,100 1,231,400
Halliburton Co. ..................................... 28,300 1,160,300
IRI International Corp.* ............................ 21,900 206,681
Valero Energy Corp. ................................. 59,800 1,831,375
Veritas DGC Inc.* ................................... 9,400 264,375
Weatherford International Inc. ...................... 23,300 1,373,244
------------
7,464,925
------------
Total Other Energy .................................. 28,190,817
------------
PRODUCER DURABLES 3.0%
AEROSPACE 0.0%
Ladish Inc.* ........................................ 8,666 54,163
------------
ELECTRICAL EQUIPMENT & COMPONENTS 1.1%
Mark IV Industries Inc. ............................. 251,900 5,557,544
Nortel Networks Corp. ............................... 17,000 2,142,000
------------
7,699,544
------------
MACHINERY 0.8%
Helix Technology Corp. .............................. 13,800 828,862
Howmet International Inc.* .......................... 258,400 5,216,450
------------
6,045,312
------------
MISCELLANEOUS EQUIPMENT 0.3%
Thomas & Betts Corp. ................................ 71,895 2,031,034
------------
OFFICE FURNITURE & BUSINESS EQUIPMENT 0.0%
Anacomp Inc. Wts.* .................................. 4,941 42,616
------------
PRODUCTION TECHNOLOGY EQUIPMENT 0.8%
Brooks Automation Inc.* ............................. 17,700 1,106,250
Cymer Inc.* ......................................... 12,100 605,000
PRI Automation Inc. ................................. 11,000 672,375
Teradyne Inc.* ...................................... 42,300 3,479,175
------------
5,862,800
------------
Total Producer Durables ............................. 21,735,469
------------
TECHNOLOGY 11.1%
COMMUNICATIONS TECHNOLOGY 2.9%
About.com Inc. ...................................... 5,200 458,250
Ask Jeeves Inc.* .................................... 5,800 354,525
Cisco Systems Inc.* ................................. 98,300 7,599,819
Covad Communications Group Inc.* .................... 19,550 1,417,375
CSG Systems International Inc.* ..................... 11,000 536,938
Digital Microwave Corp.* ............................ 30,120 1,020,315
Extreme Networks Inc.* .............................. 9,900 782,100
Inktomi Corp.* ...................................... 9,000 1,755,000
Lernout & Hauspie Speech Products NV ADR* ........... 14,000 1,547,000
Marimba Inc. ........................................ 14,900 657,463
NCR Corp.* .......................................... 45,700 1,833,712
Packeteer Inc.* ..................................... 34,200 1,197,000
Remec Inc.* ......................................... 22,300 1,126,150
Spectrasite Holdings, Inc.* ......................... 28,000 792,750
Telocity Inc. ....................................... 8,600 106,425
World Access Inc.* .................................. 1,571 30,045
------------
21,214,867
------------
COMPUTER SOFTWARE 2.4%
Acxiom Corp. ........................................ 67,300 2,237,725
Bluestone Software, Inc.* ........................... 4,400 148,500
Extensity, Inc.* .................................... 2,400 115,200
GRIC Communications, Inc.* .......................... 10,500 354,375
Interworld Corp. .................................... 24,000 1,356,000
Level 8 Systems Inc. ................................ 27,100 1,266,925
Microsoft Corp.* .................................... 67,600 7,182,500
Netegrity Inc. ...................................... 16,800 1,150,800
Sanchez Computer Associates Inc. .................... 7,700 270,462
Tenfold Corp. ....................................... 12,100 732,050
Versata, Inc.* ...................................... 7,600 457,425
Viador Inc. ......................................... 13,200 645,150
Websense Inc. ....................................... 600 28,838
Zoran Corp. ......................................... 22,600 1,272,662
------------
17,218,612
------------
COMPUTER TECHNOLOGY 3.6%
Electronic Data Systems Corp. ....................... 66,000 4,236,375
EMC Corp.* .......................................... 57,200 7,150,000
International Business Machines Corp. ............... 21,600 2,548,800
Radiant Systems Inc.* ............................... 27,600 1,735,350
Silicon Graphics Inc.* .............................. 217,200 2,294,175
Sun Microsystems Inc.* .............................. 82,400 7,721,137
Unisys Corp.* ....................................... 19,700 502,350
------------
26,188,187
------------
ELECTRONICS 1.6%
Aeroflex Inc.* ...................................... 43,400 2,148,300
Nokia Corp. ADR ..................................... 26,300 5,713,675
Solectron Corp.* .................................... 82,800 3,317,175
------------
11,179,150
------------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS 0.6%
Artisan Components Inc. ............................. 15,500 304,188
Cree Research Inc. .................................. 5,500 620,813
Cypress Semiconductor Corp.* ........................ 48,635 2,398,313
Sawtek Inc.* ........................................ 19,300 1,014,456
------------
4,337,770
------------
Total Technology .................................... 80,138,586
------------
UTILITIES 3.4%
CABLE TELEVISION & RADIO 0.0%
Wireless One Inc. Wts.* ............................. 2,000 1,258
------------
ELECTRICAL 1.9%
CMP Group Inc. ...................................... 61,200 1,782,450
DQE, Inc. ........................................... 40,900 1,860,950
Energy East Corp. ................................... 54,400 1,077,800
Niagara Mohawk Holdings Inc. ........................ 58,500 789,750
OGE Energy Corp. .................................... 99,300 1,905,319
Pinnacle West Capital Corp. ......................... 134,100 3,779,944
Scana Corp. ......................................... 94,600 2,323,612
------------
13,519,825
------------
GAS DISTRIBUTION 0.2%
National Fuel Gas Co. ............................... 13,200 588,225
Nicor Inc. .......................................... 20,100 662,044
Questar Corp. ....................................... 24,600 456,637
------------
1,706,906
------------
TELECOMMUNICATIONS 1.3%
AirGate PCS, Inc.* .................................. 1,503 158,567
Broadwing Inc. ...................................... 20,200 751,187
Celcaribe SA*+ ...................................... 297,558 595,116
Intelcom Group, Inc. Wts.* .......................... 1,650 25,575
MCI WorldCom Inc.* .................................. 41,200 1,866,875
Nextel Communications Inc. Cl. A* ................... 15,549 2,305,139
Nucentrix Broadband Networks Inc. Wts.*+ ............ 1,500 15
Pagemart Inc. Wts.*+ ................................ 2,300 23,575
Powertel Inc. Wts.*+ ................................ 960 46,080
RSL Communications Ltd. Cl. A* ...................... 105,300 2,527,200
RSL Communications Ltd. Wts.*+ ...................... 750 67,500
TELECOMMUNICATIONS (CONT'D)
Startec Global Communications Corp. Wts.*+ .......... 500 900
Time Warner Telecom Inc. Cl. A* ..................... 9,500 755,250
Viatel Inc.* ........................................ 7,291 365,917
------------
9,488,896
------------
Total Utilities ..................................... 24,716,885
------------
NON-U.S. EQUITIES 7.4%
China Telecom Ltd. .................................. 199,800 1,757,685
I-Cable Communication Ltd. .......................... 958,000 725,893
Petrochina Co. ...................................... 9,058,200 1,489,041
Sunday Communications Ltd. .......................... 76,900 24,196
Fanuc ............................................... 14,700 1,540,662
NTT Mobile Communications ........................... 40 1,640,286
Royal Dutch Petroleum Co. ........................... 44,400 2,593,853
Keppel Corp. ........................................ 519,900 1,220,936
Singapore Airlines Ltd. ............................. 133,200 1,245,005
BP Amoco PLC ........................................ 188,800 1,751,680
Cable & Wireless PLC ................................ 96,200 1,615,839
Clearnet Communications Inc. Wts.* .................. 2,640 24,420
Equitable Bag Inc. Series A Pfd.* ................... 4,760 4,760
Hikari Tsushin Inc. ................................. 1,800 1,293,917
Infineon Technologies AG ............................ 19,900 1,087,102
Kone Corp. Series B ................................. 43,000 2,491,066
KPNQwest ............................................ 30,900 1,645,109
L.M. Ericsson Telephone Co. Cl. B* .................. 24,450 2,150,852
Nintendo Co. Ltd. ................................... 7,800 1,371,353
Nokia AB OY ......................................... 13,250 2,803,945
PTT Exploration & Production Public Co. Ltd.* ....... 430,600 2,220,175
RTZ Corp.* .......................................... 57,000 961,947
Sema Group PLC ...................................... 192,600 3,805,385
Siemens AG .......................................... 11,000 1,579,852
Societe Generale .................................... 5,900 1,177,365
Softbank Corp. ...................................... 2,900 2,584,620
Takara Shuzo Co. Ltd. ............................... 172,200 3,857,790
Telecom Italia SPA* ................................. 245,400 3,665,731
Tieto Corp. ......................................... 43,000 2,581,650
Wolters Kluwer ...................................... 52,600 1,208,811
Woodside Petroleum Ltd. ADR* ........................ 211,300 1,268,824
------------
Total Non-U.S. Equities ............................. 53,389,750
------------
Total Equity Securities (Cost $291,801,965) ......... 380,955,133
------------
EQUITY SECURITIES -- INFLATION RESPONSIVE INVESTMENTS 2.1%
AUTOMOBILES & TRANSPORTATION 0.1%
MISCELLANEOUS TRANSPORTATION 0.1%
OMI Corp.* .......................................... 106,400 405,650
------------
Total Automobiles & Transportation .................. 405,650
------------
INTEGRATED OILS 0.1%
INTEGRATED DOMESTIC 0.1%
Callon Petroleum Co.* ............................... 59,500 721,438
KCS Energy Inc. ..................................... 160,000 220,000
------------
941,438
------------
Total Integrated Oils ............................... 941,438
------------
OTHER 0.0%
MULTI-SECTOR 0.0%
Viceroy Resource Corp.* ............................. 67,000 29,050
------------
Total Other ......................................... 29,050
------------
OTHER ENERGY 1.3%
OIL & GAS PRODUCERS 1.1%
Basin Exploration Inc.* ............................. 91,800 1,371,262
Cabot Oil & Gas Corp. Cl. A ......................... 57,100 1,031,369
Canadian 88 Energy Corp.* ........................... 110,800 159,275
Esenjay Exploration Inc.* ........................... 15,384 30,768
Louis Dreyfus Natural Gas Corp.*@ ................... 41,600 1,414,400
Maxx Petroleum Ltd.*@ ............................... 94,550 271,831
Patina Oil & Gas Corp. .............................. 15,500 210,219
Petroquest Energy Inc.* ............................. 43,100 78,119
Plains Resources Inc.*@ ............................. 83,400 1,042,500
Ranger Oil Ltd.* .................................... 278,200 1,078,025
Titan Exploration Inc.* ............................. 163,000 815,000
Ulster Petroleum Ltd.* .............................. 121,500 606,246
------------
8,109,014
------------
OIL WELL EQUIPMENT & SERVICES 0.2%
Global Industries Inc.* ............................. 15,400 225,225
NewPark Resources Inc.* ............................. 119,600 956,800
------------
1,182,025
------------
Total Other Energy .................................. 9,291,039
------------
UTILITIES 0.4%
GAS DISTRIBUTION 0.4%
Southwestern Energy Co. ............................. 67,300 445,862
Western Gas Resources Inc. .......................... 172,200 2,733,675
------------
3,179,537
------------
Total Utilities ..................................... 3,179,537
------------
NON-U.S. EQUITIES 0.2%
Prize Energy Inc. ................................... 21,307 3,959
Badger Daylighting Inc.* ............................ 40,000 52,306
Berkley Petroleum Corp. ............................. 42,700 264,487
Elk Point Resources Inc. Cl. A* ..................... 15,600 35,860
Gulfstream Resources Ltd. ........................... 58,000 71,851
Magin Energy Inc. ................................... 18,600 30,211
Post Energy Corp.* .................................. 50,000 197,867
Richland Petroleum Corp.* ........................... 44,600 99,759
Seven Seas Petroleum Inc.* .......................... 104,700 209,400
Tri-Link Resources Ltd. Cl. A* ...................... 20,700 67,670
------------
Total Non-U.S. Equities ............................. 1,033,370
------------
Total Equity Securities -- Inflation Responsive
Investments (Cost $18,562,452) .................... 14,880,084
------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIXED INCOME SECURITIES 41.1%
U.S. TREASURY 4.2%
U.S. Treasury Bond, 12.00% .......................... $ 800,000 8/15/2013 1,080,248
U.S. Treasury Bond, 11.25% .......................... 1,050,000 2/15/2015 1,552,687
U.S. Treasury Bond, 8.875% .......................... 1,375,000 2/15/2019 1,778,906
U.S. Treasury Bond, 7.875% .......................... 3,250,000 2/15/2021 3,892,395
U.S. Treasury Bond, 8.125% .......................... 1,250,000 5/15/2021 1,534,963
U.S. Treasury Bond, 8.125% .......................... 2,075,000 8/15/2021 2,550,943
U.S. Treasury Bond, 6.75% ........................... 1,675,000 8/15/2026 1,820,507
U.S. Treasury Bond, 6.625% .......................... 1,525,000 2/15/2027 1,636,035
U.S. Treasury Bond, 6.25% ........................... 700,000 5/15/2030 740,033
U.S. Treasury Note, 5.875% .......................... 2,225,000 9/30/2002 2,194,406
U.S. Treasury Note, 5.875% .......................... 6,650,000 11/15/2004 6,529,436
U.S. Treasury Note, 7.875% .......................... 625,000 11/15/2004 661,325
U.S. Treasury STRIPS, 0.00% ......................... 3,775,000 5/15/2003 3,102,748
U.S. Treasury STRIPS, 0.00% ......................... 3,425,000 2/15/2021 985,544
--------------
30,060,176
--------------
U.S. AGENCY MORTGAGE 11.4%
Federal Home Loan Mortgage Corp., 7.50% ............. 25,304 4/01/2002 25,292
Federal Home Loan Mortgage Corp., 8.50% ............. 158 7/01/2009 160
Federal Home Loan Mortgage Corp., 6.50% ............. 2,656,280 7/01/2029 2,492,733
Federal Home Loan Mortgage Corp. TBA, 6.50% ......... 2,150,000 4/13/2030 2,017,646
Federal National Mortgage Association, 9.50% ........ 421,070 10/01/2003 428,371
Federal National Mortgage Association, 8.00% ........ 127,327 4/01/2008 128,946
Federal National Mortgage Association, 8.00% ........ 164,140 6/01/2008 164,995
Federal National Mortgage Association, 8.50% ........ 146,343 2/01/2009 150,052
Federal National Mortgage Association, 6.625% ....... 175,000 9/15/2009 168,301
Federal National Mortgage Association, 7.50% ........ 162 10/01/2025 160
Federal National Mortgage Association, 6.50% ........ 590,886 9/01/2028 554,328
Federal National Mortgage Association, 6.50% ........ 4,555,218 11/01/2028 4,273,386
Federal National Mortgage Association, 6.00% ........ 800,079 12/01/2028 728,568
Federal National Mortgage Association, 6.50% ........ 2,215,397 12/01/2028 2,082,473
Federal National Mortgage Association, 6.00% ........ 2,006,315 2/01/2029 1,826,991
Federal National Mortgage Association, 6.50% ........ 1,064,963 3/01/2029 999,074
Federal National Mortgage Association, 6.50% ........ 2,549,911 5/01/2029 2,392,148
Federal National Mortgage Association, 7.50% ........ 2,671,348 7/01/2029 2,630,423
Federal National Mortgage Association, 7.00% ........ 16,092,762 12/01/2029 15,469,167
Federal National Mortgage Association TBA, 7.00% .... 10,800,000 4/13/2030 10,383,228
Federal National Mortgage Association TBA, 7.50% .... 7,600,000 4/13/2030 7,470,572
Federal National Mortgage Association TBA, 8.00% .... 4,650,000 4/13/2030 4,663,067
Government National Mortgage Association, 6.50% ..... 352,525 2/15/2009 343,641
Government National Mortgage Association, 6.50% ..... 129,296 6/15/2009 126,038
Government National Mortgage Association, 6.50% ..... 780,690 7/15/2009 761,017
Government National Mortgage Association, 7.50% ..... 70,875 11/15/2010 71,184
Government National Mortgage Association, 7.50% ..... 433,850 12/15/2010 435,746
Government National Mortgage Association, 7.00% ..... 778,984 1/15/2025 758,777
Government National Mortgage Association, 7.00% ..... 3,304,592 5/15/2028 3,202,348
Government National Mortgage Association, 6.50% ..... 6,155,488 11/15/2028 5,809,242
Government National Mortgage Association, 7.00% ..... 3,535,086 11/15/2028 3,425,710
Government National Mortgage Association TBA,
7.00% ............................................. 3,200,000 4/19/2030 3,100,512
Government National Mortgage Association TBA,
8.00% ............................................. 5,100,000 4/19/2030 5,158,191
--------------
82,242,487
--------------
FOREIGN 0.3%
Province of Quebec, 7.50% ........................... 1,250,000 9/15/2029 1,255,988
United Mexican States, 10.375% ...................... 850,000 2/17/2009 918,000
--------------
2,173,988
--------------
FINANCE/MORTGAGE 7.8%
Arcadia Automobile Trust 97-C A5, 6.55% ............. 675,000 6/15/2005 669,215
AT&T Capital Corp. Note, 6.25% ...................... 925,000 5/15/2001 914,326
AT&T Capital Corp. Note, 6.75% ...................... 1,125,000 2/04/2002 1,113,041
AT&T Corp. Note, 6.00% .............................. 1,900,000 3/15/2009 1,719,101
AT&T Corp. Note, 6.50% .............................. 2,400,000 3/15/2029 2,080,392
Bombardier Capital Inc. Note,
7.30%+ ............................................ 1,750,000 12/15/2002 1,734,600
Capital One Bank Note, 6.62% ........................ 1,900,000 8/04/2003 1,825,083
Capital One Bank Note, 6.65% ........................ 1,175,000 3/15/2004 1,127,271
Capital One Bank Sr. Note, 6.48% .................... 825,000 1/28/2002 806,933
Chase Manhattan Auto Owner Trust Note 98-B-A, 5.80% 1,700,000 2/17/2003 1,672,902
CIT Group Holdings Inc. Sr. Note, 6.80% ............. 1,400,000 4/17/2000 1,400,378
Citibank Credit Cord Master Trust Series 1999-A, 5.875% 750,000 3/10/2011 695,385
Commercial Credit Group Inc. Note, 6.45% ............ 1,450,000 7/01/2002 1,424,857
Commercial Credit Group Inc. Sr. Note, 5.55% ........ 1,400,000 2/15/2001 1,381,016
Conseco Inc., 8.75% ................................. 1,675,000 2/09/2004 1,623,443
Conseco Inc. Note, 9.00% ............................ 1,700,000 10/15/2006 1,660,050
Countrywide Funding Corp. Note, 6.58% ............... 1,100,000 9/21/2001 1,086,217
Credit Suisse First Boston 97-C2 Cl. A2, 6.52% ...... 975,000 7/17/2007 929,830
DLJ Commercial Mortgage Corp. 98-C2, 6.24% .......... 500,000 11/12/2031 461,875
DLJ Commercial Mortgage Corp. 98-C2 Cl. A1-A, 5.88% 1,406,177 11/12/2031 1,325,761
Finova Capital Corp. Sr. Note, 6.125% ............... 1,950,000 3/15/2004 1,790,860
First Union Lehman Brothers Bank Series 1998-C2
Cl. A1, 6.28% ..................................... 1,564,358 6/18/2007 1,503,739
Ford Motor Credit Co. Note, 6.30% ................... 1,625,000 7/16/2002 1,627,340
Ford Motor Credit Co. Note, 7.50% ................... 1,875,000 3/15/2005 1,876,144
Ford Motor Credit Co. Note, 7.375% .................. 3,400,000 10/28/2009 3,330,844
GE Global Insurance Holding Corp. Note, 7.00% ....... 2,825,000 2/15/2026 2,601,542
General Motors Acceptance Corp. Note, 6.33% ......... 1,625,000 10/07/2002 1,636,424
GMAC Commercial Mortgage Security Inc. 97-C2 Cl A,
6.55% ............................................ 1,350,000 4/15/2029 1,272,375
GMAC Commercial Mortgage Security Inc. 98-C1 Cl A1,
6.411% ........................................... 929,547 11/15/2007 860,575
GMAC Commercial Mortgage Security Inc. 99-C1 Cl A2,
6.175% ........................................... 1,250,000 5/15/2033 1,138,672
Household Finance Corp. Sr. Note, 6.125% ............ 900,000 7/15/2012 874,863
LB Commercial Conduit Mortgage Trust 97-LL1-A1, 6.79% 1,296,225 6/12/2004 1,281,643
LB Commercial Conduit Mortgage Trust 98C1-A1, 6.33%.. 1,330,244 11/18/2004 1,289,921
LB Commercial Conduit Mortgage Trust 98C4-A1, 6.21%.. 450,000 10/15/2008 414,985
MBNA Corp. Sr. Note, 6.875% ......................... 675,000 11/15/2002 662,641
MBNA Corp. Sr. Note, 7.125% ......................... 1,300,000 9/15/2004 1,271,920
MBNA Master Credit Card Trust Series 99-J-A, 7.00%... 1,425,000 2/15/2012 1,413,671
Morgan Stanley Capital Inc. 98-A1, 6.19% ............ 282,163 1/15/2007 269,775
Prime Credit Card Master Trust Series 1995-1A, 6.75% 1,800,000 11/15/2005 1,787,058
Vodafone Airtouch PLC, 7.75%+ ....................... 2,750,000 2/15/2010 2,802,800
Woodside Finance Ltd. Note, 6.60%+ .................. 875,000 4/15/2008 814,713
--------------
56,174,181
--------------
FOREIGN GOVERNMENT 4.6%
Greek Drachma
Republic of Greece, 8.80% ....................... 2,689,600,000 6/19/2007 8,832,154
Republic of Greece, 6.95% ....................... 1,800,000 3/04/2008 1,758,636
New Zealand Dollar
Government of New Zealand, 8.00% ................ 7,025,000 4/15/2004 3,601,839
Government of New Zealand, 8.00% ................ 15,750,000 11/15/2006 8,224,864
Spanish Peseta
Government of Spain, 6.00% ...................... 11,000,000 1/31/2008 10,894,332
----------------
33,311,825
----------------
CORPORATE 12.8%
Acetex Sr. Note, 9.75% .............................. 120,000 10/01/2003 111,600
Acme Boot Inc. Sr. Note Series B, 11.50%#[] ......... 250,000 12/15/2000 62,500
Advanced Radio Telecom Corp. Sr. Note, 14.00% ....... 300,000 2/15/2007 282,000
Advanstar Communications Inc. Sr. Sub. Note, 9.25% .. 800,000 5/01/2008 740,000
Agriculture Minerals & Chemicals Sr. Note, 10.75% ... 30,000 9/30/2003 22,800
Airgate PCS Inc. Sr. Sub. Note, 0.00% to
9/30/2004, 13.50% from 10/1/2004 to maturity ...... 700,000 10/01/2009 385,000
Alaska Steel Corp. Sr. Note, 9.125% ................. 850,000 12/15/2006 828,750
Albertsons Inc. Sr. Deb., 7.45% ..................... 2,050,000 8/01/2029 1,938,480
Allbritton Communications Co. Sr. Sub. Deb., 9.75% .. 750,000 11/30/2007 705,000
American Pacific Corp. Sr. Note, 9.25% .............. 375,000 3/01/2005 384,375
American Tissue Inc. Note, 12.50% ................... 150,000 7/15/2006 147,750
Ametek Inc. Sr. Note, 7.20% ......................... 400,000 7/15/2008 363,712
Archibald Candy Corp. Sr. Sec. Note, 10.25% ......... 200,000 7/01/2004 191,000
Atlantic Richfield Co. Note, 5.90% .................. 1,350,000 4/15/2009 1,226,745
Aurora Foods Inc. Sr. Sub. Note Series E, 8.75% ..... 350,000 7/01/2008 134,750
Ball Corp. Sr. Sub. Note, 8.25% ..................... 250,000 8/01/2008 235,000
Beckman Industries Sr. Note, 7.45% .................. 400,000 3/04/2008 362,464
Bio-Rad Laboratories Inc. Sr. Sub. Note, 11.625%+ ... 65,000 2/15/2007 65,165
British Sky Broadcasting Group Note, 6.875% ......... 550,000 2/23/2009 492,514
BTI Telecom Corp. Sr. Note, 10.50% .................. 250,000 9/15/2007 220,625
Buckeye Cellulose Corp. Sr. Sub. Note, 9.25% ........ 275,000 9/15/2008 270,875
Buckeye Technologies Inc. Sr. Sub. Note, 8.00% ...... 500,000 10/15/2010 452,500
California Infrastructure Development Series
1997-A7, 6.42% .................................... 1,475,000 9/25/2008 1,423,891
Call-Net Enterprises Inc. Sr. Note, 9.375% .......... 1,000,000 5/15/2009 800,000
Calpine Corp. Sr. Note, 7.625% ...................... 300,000 4/15/2006 283,359
Canadian First Oil Ltd. Sr. Sub. Note, 8.75% ........ 150,000 9/15/2007 138,000
Celcaribe SA Sr. Sec. Note, 13.50% .................. 1,830,000 3/15/2004 1,518,900
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 61,875
Cenargo International PLC Note, 9.75% ............... 500,000 6/15/2008 435,000
Century Communications Corp. Sr. Note, 8.375% ....... 500,000 12/15/2007 447,500
Charter Communication Holding LLC Sr. Note, 8.625% .. 250,000 4/01/2009 220,000
Charter Communications Holdings Corp. Sr. Note, 10.25%+ 1,000,000 1/15/2010 960,000
Cheasapeake Energy Sr. Note Series B, 9.625% ........ 650,000 5/01/2005 604,500
CK Witco Corp. Sr. Note, 8.50%+ ..................... 450,000 3/15/2005 453,020
Clearnet Communications Inc. Sr. Note, 0.00% to
4/30/2004, 10.125% from 5/1/2004 to maturity ...... 1,000,000 5/01/2009 565,000
Coca-Cola Enterprises Inc. Deb., 6.95% .............. 1,850,000 11/15/2026 1,694,082
Columbia/HCA Healthcare Corp. Note, 8.12% ........... 1,625,000 8/04/2003 1,565,947
Columbia/HCA Healthcare Corp. Note, 7.69% ........... 650,000 6/15/2025 520,813
Columbia/HCA Healthcare Corp. Note, 7.75% ........... 750,000 7/15/2036 637,500
Covad Commerce Group, 12.00%+ ....................... 175,000 2/15/2010 155,750
Drypers Corp. Series B Sr. Note, 10.25% ............. 750,000 6/15/2007 585,000
Dynegy Holdings Inc., 8.125% ........................ 2,300,000 3/15/2005 2,289,788
Echostar DBS Corp. Sr. Note, 9.375% ................. 525,000 2/01/2009 506,625
Econophone Inc. Sr. Note, 13.50% .................... 250,000 7/15/2007 255,625
Edison Mission Energy Funding Corp. Series A
Note, 6.77%+ ...................................... 1,498,700 9/15/2003 1,466,628
Elgar Holdings Inc. Sr. Sub. Note, 9.875% ........... 400,000 2/01/2008 202,000
Empire Gas Corp. Sr. Sec. Note, 12.875% ............. 750,000 7/15/2004 416,250
Envirosource Inc. Note, 9.75% ....................... 1,000,000 6/15/2003 630,000
Extended Stay America Inc. Sr. Sub. Note, 9.15% ..... 200,000 3/15/2008 182,000
First Wave Marine Inc. Sr. Note, 11.00% ............. 250,000 2/01/2008 138,750
Fisher Scientific International Inc. Sr. Sub. .......
Note, 9.00% ....................................... 625,000 2/01/2008 568,750
Fort James Corp. Note, 6.234% ....................... 825,000 3/15/2011 816,354
Four M Corp. Sr. Sec. Note Series B, 12.00% ......... 475,000 6/01/2006 471,437
Fresenius Medical Care Capital Trust, 9.00% ......... 350,000 12/01/2006 331,625
Frontier Corp. Sr. Note, 9.125% ..................... 600,000 2/15/2006 510,000
Gentek Inc. Sr. Sub. Note, 11.00% ................... 460,000 8/01/2009 457,700
Global Crossing Holdings Ltd. Sr. Note, 9.50%+ ...... 450,000 11/15/2009 432,000
Globenet Communications Group Sr. Note, 13.00% ...... 100,000 7/15/2007 101,094
GNI Group Inc. Sr. Note, 10.875% .................... 650,000 7/15/2005 260,000
Golden Ocean Group Ltd. Sr. Note, 10.00%[] .......... 750,000 8/31/2001 105,000
Great Central Mines Ltd. Sr. Note, 8.875% ........... 1,000,000 4/01/2008 900,000
GST Equipment Funding Inc. Sr. Sec. Note, 13.25% .... 270,000 5/01/2007 191,700
GST Network Funding Inc. Sr. Sec. Note, 0.00% ....... 600,000 5/01/2008 273,000
Gulf Canada Resources Ltd., 8.375% .................. 1,000,000 11/15/2005 972,500
Gulfmark Offshore Inc. Sr. Note, 8.75% .............. 300,000 6/01/2008 270,750
Harrah's Operating Inc. Sr. Sub. Note, 7.875% ....... 750,000 12/15/2005 691,875
Henry Co. Sr. Note Series B, 10.00% ................. 200,000 4/15/2008 145,000
Hollinger International Publishing Inc. Sr. Sub. ....
Note, 9.25% ....................................... 300,000 3/15/2007 280,500
Hollinger International Sr. Sub. Note, 9.25% ........ 90,000 2/01/2006 84,150
Hollywood Casino Note, 13.00%+ ...................... 125,000 8/01/2006 133,750
Huntsman ICI Chemicals LLC, 10.125% ................. 250,000 7/01/2009 237,500
Hyperion Telecommunication Inc. Sr. Sub. Note, 12.00% 350,000 11/01/2007 351,750
Iasis Healthcare Corp. Sr. Sub. Note, 13.00%+ ....... 300,000 10/15/2009 298,500
ICG Holdings Inc. Sr. Note, 0.00% to 9/14/2000,
13.50% from 9/15/2000 to maturity ................. 250,000 9/15/2005 233,750
Insight Midwest LP Sr. Note, 9.75%+ ................. 775,000 10/01/2009 771,125
Intermedia Communications Inc. Sr. Note, 8.60% ...... 350,000 6/01/2008 308,000
International Game Technology Sr. Note, 8.375% ...... 550,000 5/15/2009 497,750
International Knife & Saw Inc. Sr. Sub. Note, 11.375% 180,000 11/15/2006 134,100
International Shipholding Corp. Sr. Note, 9.00% ..... 250,000 7/01/2003 246,250
International Shipholding Corp. Sr. Note
Series B, 7.75% ................................... 500,000 10/15/2007 437,500
Intersil Corp. Sr. Note, 13.25% ..................... 244,000 8/15/2009 278,160
Intertek Finance PLC Series B Sr. Sub. Note, 10.25% . 300,000 11/01/2006 249,000
J. Crew Group Inc. Sr. Deb., 0.00% to 10/14/2002,
13.125% from 10/15/2002 to maturity ............... 450,000 10/15/2008 254,250
J. Crew Operating Corp. Sr. Sub. Note, 10.375% ...... 1,000,000 10/15/2007 880,000
J.B. Poindexter Inc. Sr. Note, 12.50% ............... 1,350,000 5/15/2004 1,282,500
J.H. Heafner Inc. Sr. Note Series D, 10.00% ......... 500,000 5/15/2008 435,000
K-III Communications Corp. Sr. Note, 8.50% .......... 1,250,000 2/01/2006 1,187,500
Kaiser Aluminum & Chemical Corp. Sub. Note, 12.75% .. 650,000 2/01/2003 601,250
Lear Corp. Sr. Note Series B, 8.11% ................. 450,000 5/15/2009 413,168
Level 3 Communications Inc. Sr. Note, 11.25%+ ....... 600,000 3/15/2010 570,000
Lockheed Martin Corp. Note, 7.95% ................... 3,000,000 12/01/2005 2,981,310
Loehmanns Inc. Sr. Note, 11.875%[] .................. 350,000 5/15/2003 77,000
Lucent Technologies Inc. Deb., 6.45% ................ 3,325,000 3/15/2029 2,921,943
Metromedia Fiber Network Inc. Sr. Note, 10.00% ...... 250,000 11/15/2008 240,000
Mohegan Tribal Gaming Authority Sr. Note, 8.125% .... 350,000 1/01/2006 324,625
NE Restaurant Inc. Sr. Note, 10.75% ................. 450,000 7/15/2008 380,250
New York State Power Authority Revenue Series D, 6.17% 2,000,000 2/15/2001 1,982,900
Newpark Resources Inc. Sr. Sub. Note Series B, 8.625% 700,000 12/15/2007 602,000
News America Holdings Inc. Deb., 7.375% ............. 400,000 10/17/2008 388,096
News America Inc. Sr. Deb., 7.125% .................. 925,000 4/08/2028 796,055
Nextel Partners Inc. Sr. Note, 0.00% to 1/31/2004,
14.00% from 2/1/2004 to maturity .................. 130,000 2/01/2009 83,200
Nextel Partners Inc. Sr. Note, 11.00%+ .............. 250,000 3/15/2010 241,250
North Atlantic Trading Inc. Sr. Note, 11.00% ........ 750,000 6/15/2004 678,750
Northpoint Commerce Group Inc. Sr. Note, 12.875%+ ... 325,000 2/15/2010 290,063
Ocean Energy Inc. Series B Sr. Note, 7.625% ......... 200,000 7/01/2005 186,000
Owens-Illinois Inc. Sr. Deb., 7.50% ................. 250,000 5/15/2010 228,200
Packaging Corp. America Sr. Sub. Note Series B, 9.625% 250,000 4/01/2009 243,750
Packaging Resources Inc. Sr. Sec. Note, 11.625% ..... 650,000 5/01/2003 393,250
Pagemart Nationwide Inc. Sr. Note, 0.00% to
1/31/2000, 15.00% from 2/1/2000 to maturity ....... 250,000 1/31/2005 261,250
Pagemart Wireless Inc. Sr. Sub. Note, 0.00% to
1/31/2003, 11.25% from 2/1/2003 to maturity ....... 650,000 2/01/2008 318,500
Park Place Entertainment Corp. Sr. Sub. Note, 9.375%+ 650,000 2/15/2007 637,000
Pathmark Stores Inc. Sr. Sub. Note, 9.625% .......... 50,000 5/01/2003 36,500
Peco Energy Transport Trust Series 99-A Cl. A7, 6.13% 1,150,000 3/01/2009 1,060,507
Pepsi Bottling Holdings Inc. Note, 5.625%+ .......... 1,950,000 2/17/2009 1,737,332
Phase Metrics Inc. Sr. Note, 10.75%[] ............... 750,000 2/01/2005 75,000
Pioneer Americas Acquisition Corp. Sr. Sec Note
Series B, 9.25% ................................... 450,000 6/15/2007 369,000
Plains Resources Inc. Sr. Sub. Note, 10.25% ......... 250,000 3/15/2006 240,313
Plains Resources Inc. Sr. Sub. Note, 10.25%+ ........ 250,000 3/15/2006 240,313
Playtex Family Products Corp. Sr. Sub. Note, 9.00% .. 250,000 12/15/2003 242,500
Pogo Producing Co. Sr. Sub. Note, 8.75% ............. 150,000 5/15/2007 138,750
Pool Energy Services Co. Sr. Sub. Note, 8.625% ...... 800,000 4/01/2008 823,016
Premier Parks Inc. Sr. Note, 9.75% .................. 500,000 6/15/2007 471,250
Price Communications Wireless Inc. Sr. Sec. Note
Series B, 9.125% .................................. 625,000 12/15/2006 618,750
Prime Succession Inc. Sr. Sub. Note, 10.75%[] ....... 150,000 8/15/2004 36,000
Primus Telecommunications Group Sr. Note, 11.75% .... 250,000 8/01/2004 241,250
Primus Telecommunications Inc. Sr. Note, 12.75% ..... 125,000 10/15/2009 121,250
Procter & Gamble Co. Note, 6.875% ................... 1,250,000 9/15/2009 1,217,600
PSINet Inc. Sr. Note, 10.50%+ ....................... 500,000 12/01/2006 480,000
PSINet Inc. Sr. Note, 11.00% ........................ 250,000 8/01/2009 242,500
Quest Diagnostics Inc. Sr. Sub. Note, 10.75% ........ 500,000 12/15/2006 516,250
R. H. Donnelley Inc. Sr. Sub. Note, 9.125% .......... 250,000 6/01/2008 236,250
Raytheon Co., 5.95% ................................. 1,050,000 3/15/2001 1,033,063
Raytheon Co. Note, 8.30%+ ........................... 1,850,000 3/01/2010 1,872,200
Rhythms Netconnections Inc. Note, 12.75% ............ 600,000 4/15/2009 510,000
Rose Hills Co. Sr. Sub. Note, 9.50% ................. 500,000 11/15/2004 375,000
RSL Communications Ltd. Sr. Note, 12.25% ............ 900,000 11/15/2006 891,000
Safety Kleen Corp. Sr. Note, 9.25% .................. 200,000 5/15/2009 16,000
Safety Kleen Services Inc. Sr. Sub. Note, 9.25% ..... 575,000 6/01/2008 64,688
Safeway Inc. Note, 7.00% ............................ 1,775,000 9/15/2002 1,752,298
Sbarro Inc. Sr. Note, 11.00% ........................ 200,000 9/15/2009 202,000
SCG Holding Corp., 12.00% ........................... 290,000 8/01/2009 310,300
Scotts Co. Sr. Sub. Note, 8.625%+ ................... 250,000 1/15/2009 232,500
Seagull Energy Corp. Sr. Sub. Note, 8.625% .......... 350,000 8/01/2005 339,500
Service Master Co. Note, 8.45% ...................... 975,000 4/15/2005 972,367
SFX Entertainment Inc. Sr. Note Series B, 9.125% .... 125,000 2/01/2008 125,000
Sheffield Steel Corp. Note Series B, 11.50% ......... 350,000 12/01/2005 280,000
Silgan Holdings Inc. Sr. Sub. Deb., 9.00% ........... 650,000 6/01/2009 607,750
Simonds Industries Inc. Sr. Sub. Note, 10.25% ....... 395,000 7/01/2008 280,450
Spanish Broadcasting Systems Inc. Sr. Sub.
Note, 9.625% ...................................... 500,000 11/01/2009 475,000
Startec Global Communications Sr. Note, 12.00% ...... 650,000 5/15/2008 542,750
Stater Brothers Holdings Inc. Sr. Note, 10.75% ...... 350,000 8/15/2006 352,625
Stericycle Inc. Sr. Sub. Note Series B, 12.375% ..... 160,000 11/15/2009 163,200
Terra Industries Sr. Note, 10.50% ................... 100,000 6/15/2005 73,000
Transdigm Inc. Sr. Sub. Note, 10.375% ............... 345,000 12/01/2008 269,100
Transwestern Publishing Co. LP Sr. Sub. Note
Series D, 9.625% .................................. 675,000 11/15/2007 651,375
Triad Hospitals Sr. Sub. Note, 11.00% ............... 300,000 5/15/2009 302,250
Tyco International Group S A, 6.875%+ ............... 1,050,000 9/05/2002 1,031,226
United Technologies Corp., 7.50% .................... 1,425,000 9/15/2029 1,403,468
US Unwired Inc. Sr. Sub. Note, 0.00%+ ............... 335,000 11/01/2009 181,738
USA Waste Services Inc. Sr. Note, 6.50% ............. 775,000 12/15/2002 715,232
USA Waste Services Inc. Sr. Note, 7.00% ............. 200,000 10/01/2004 180,292
Viatel Inc. Sr. Note, 11.25% ........................ 500,000 4/15/2008 445,000
Wal-Mart Stores, Inc. Note, 7.55% ................... 1,750,000 2/15/2030 1,794,677
Waste Management Inc., 7.70% ........................ 650,000 10/01/2002 620,048
Westinghouse Air Brake Co. Sr. Note
Series B2, 9.375% ................................. 150,000 6/15/2005 146,250
Williams Communications Group Sr. Note, 10.875% ..... 1,000,000 10/01/2009 985,000
Winstar Communicaions Inc., 12.50%+ ................. 375,000 4/15/2008 368,906
Winstar Communications Inc. Sr. Exch. Note, 14.50% .. 425,000 10/15/2005 680,000
Winstar Equipment Corp. Sr. Sec. Exch. Note, 12.50% 250,000 3/15/2004 280,000
World Access Inc. Sr. Note, 13.25% .................. 500,000 1/15/2008 435,000
Zilog Inc. Sr. Note, 9.50% .......................... 100,000 3/01/2005 89,000
--------------
91,894,622
--------------
Total Fixed Income Securities (Cost $309,299,056) ... 295,857,279
--------------
CASH EQUIVALENTS 8.9%
American Express Credit Corp., 6.06% ................ 5,261,000 4/03/2000 5,261,000
American Express Credit Corp., 6.40% ................ 4,000,000 4/03/2000 4,000,000
American Express Credit Corp., 6.01% ................ 9,259,000 4/04/2000 9,259,000
American Express Credit Corp., 6.04% ................ 3,731,000 4/10/2000 3,731,000
American Express Credit Corp., 5.86% ................ 7,716,000 4/13/2000 7,716,000
Ford Motor Credit Co., 6.05% ........................ 8,549,000 4/04/2000 8,549,000
General Electric Capital Corp., 6.06% ............... 2,739,000 4/07/2000 2,739,000
Goldman Sachs Group LP, 5.90% ....................... 10,000,000 4/13/2000 9,980,333
Merrill Lynch & Company Inc., 6.03% ................. 5,000,000 4/11/2000 4,991,625
Norwest Financial Inc., 5.92% ....................... 8,000,000 4/19/2000 8,000,000
--------------
Total Cash Equivalents (Cost $64,226,958) ........... 64,226,958
--------------
-----------------------------------------------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 7.8%
State Street Navigator Securities Lending Prime Portfolio 55,704,435 $ 55,704,435
--------------
Total Short-Term Investments (Cost $55,704,435) .............................................. 55,704,435
--------------
Total Investments (Cost $739,594,866) - 112.8% ............................................... 811,623,889
Cash and Other Assets, Less Liabilities - (12.8%) ............................................ (91,932,331)
--------------
Net Assets - 100.0% .......................................................................... $ 719,691,558
==============
Federal Income Tax Information (Note 1):
At March 31, 2000, the net unrealized appreciation of investments based on cost for Federal
income tax purposes of $742,655,035 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of
value over tax cost ........................................................................ $ 113,513,004
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax
cost over value ............................................................................ (44,616,150)
--------------
$ 68,896,854
==============
------------------------------------------------------------------------------------------------------------------
ADR and GDR stand for American Depositary Receipt and Global Depositary Receipt, respectively, representing
ownership of foreign securities.
* Nonincome-producing securities.
[] Security is in default.
> 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, 2000 were $469,896 and $83,531 (0.01% 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, 2000 were $18,877,077 and $18,710,085 (2.60% of net assets), respectively.
@ 11,600 shares of Louis Dreyfus Natural Gas Corp., 35,325 shares of Maxx Petroleum Ltd. and 13,400 shares of
Plains Resources, 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.
Forward currency exchange contracts outstanding at March 31, 2000, are as follows:
<CAPTION>
UNREALIZED
CONTRACT APPRECIATION DELIVERY
TOTAL VALUE PRICE (DEPRECIATION) DATE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy British pounds, sell U.S. dollars 186,210 GBP 1.58747 GBP $ 862 4/03/00
Buy British pounds, sell U.S. dollars 668,736 GBP 1.58687 GBP 3,498 4/04/00
Sell Euro, buy U.S. dollars 1,288,971 EUR 0.95770 EUR 194 4/05/00
Sell Euro, buy U.S. dollars 1,288,971 EUR 0.95727 EUR (361) 4/05/00
Sell Euro, buy U.S. dollars 1,308,800 EUR 1.01690 EUR 75,455 4/26/00
Sell Euro, buy U.S. dollars 430,080 EUR 0.99120 EUR 13,102 5/18/00
Buy Euro, sell U.S. dollars 202,867 EUR 0.96400 EUR (1,308) 4/28/00
Buy Euro, sell U.S. dollars 681,806 EUR 0.96230 EUR (3,239) 4/03/00
Sell Greek Drachma, buy U.S. dollars 192,630,000 GDR 0.00286 GDR 1,460 5/09/00
Sell Greek Drachma, buy U.S. dollars 349,780,000 GDR 0.00287 GDR 4,658 5/09/00
Sell Greek Drachma, buy U.S. dollars 815,602,000 GDR 0.00294 GDR 70,522 5/18/00
Buy Hong Kong dollars, sell U.S. dollars 11,594,496 HKD 0.12844 HKD (143) 4/07/00
Buy Japanese yen, sell U.S. dollars 111,672,566 JPY 0.00945 JPY 32,550 4/03/00
Sell New Zealand dollars, buy U.S. dollars 12,980,000 NZD 0.51243 NZD 210,829 4/26/00
Sell New Zealand dollars, buy U.S. dollars 11,602,000 NZD 0.51345 NZD 200,339 4/26/00
Sell New Zealand dollars, buy U.S. dollars 10,247,000 NZD 0.49023 NZD (60,848) 5/18/00
Sell New Zealand dollars, buy U.S. dollars 2,338,000 NZD 0.49000 NZD (14,421) 5/18/00
Sell New Zealand dollars, buy U.S. dollars 30,000 NZD 0.49538 NZD (24) 5/18/00
Buy New Zealand dollars, sell U.S. dollars 1,448,000 NZD 0.48837 NZD 11,292 4/18/00
Buy New Zealand dollars, sell U.S. dollars 4,644,000 NZD 0.49612 NZD 223 4/18/00
Buy New Zealand dollars, sell U.S. dollars 7,914,000 NZD 0.48944 NZD 53,359 4/26/00
Sell Swedish Krona, buy U.S. dollars 15,537,010 SEK 0.11582 SEK (1,251) 4/05/00
Buy Thailand Baht, sell U.S. dollars 8,068,060 THB 0.02648 THB (282) 4/03/00
--------
$596,466
========
<CAPTION>
Futures contracts open at March 31, 2000, are as follows:
EXPIRATION UNREALIZED
TYPE NOTIONAL COST MONTH DEPRECIATION
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5 year U.S. Treasury Notes $10,200,000 June, 2000 $(122,018)
10 year U.S. Treasury Notes $ 9,400,000 June, 2000 (129,504)
---------
$(251,522)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC GROWTH & INCOME FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
March 31, 2000
ASSETS
Investments, at value (Cost $739,594,866) (Note 1) ............. $811,623,889
Foreign currency, at value (Cost $17,206) ...................... 17,206
Cash ........................................................... 32,261
Receivable for securities sold ................................. 6,084,451
Interest and dividends receivable .............................. 5,144,161
Receivable for fund shares sold ................................ 768,188
Receivable for open forward contracts .......................... 678,343
Other assets ................................................... 14,117
------------
824,362,616
LIABILITIES
Payable for collateral received on securities loaned ........... 55,704,435
Payable for securities purchased ............................... 46,535,033
Payable for fund shares redeemed ............................... 1,088,128
Accrued management fee (Note 2) ................................ 446,539
Accrued distribution and service fees (Note 4) ................. 395,404
Dividends payable .............................................. 94,137
Payable for open forward contracts ............................. 81,877
Accrued trustees' fees (Note 2) ................................ 75,884
Accrued transfer agent and shareholder services
(Note 2) ..................................................... 66,310
Payable for variation margin (Note 1) .......................... 39,313
Other accrued expenses ......................................... 143,998
------------
104,671,058
------------
NET ASSETS $719,691,558
============
Net Assets consist of:
Undistributed net investment income .......................... $ 1,781,742
Unrealized appreciation of investments ....................... 72,029,023
Unrealized depreciation of futures contracts ................. (251,522)
Unrealized appreciation of forward
contracts and foreign currency ............................. 507,593
Accumulated net realized gain ................................ 71,246,432
Paid-in capital .............................................. 574,378,290
------------
$719,691,558
============
Net Asset Value and redemption price per share of
Class A shares ($304,399,638 / 26,047,295 shares) $11.69
======
Maximum Offering Price per share of Class A shares
($11.69 / .9425) ............................................. $12.40
======
Net Asset Value and offering price per share of Class B(1)
shares ($36,045,422 / 3,098,246 shares)* ..................... $11.63
======
Net Asset Value and offering price per share of Class B
shares ($338,837,775 / 29,089,751 shares)* ................... $11.65
======
Net Asset Value and offering price per share of Class C shares
($17,092,808 / 1,464,289 shares)* ............................ $11.67
======
Net Asset Value, offering price and redemption price per share
of Class S shares ($23,315,915 / 1,994,814 shares)* .......... $11.69
======
------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC GROWTH & INCOME FUND
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------
For the year ended March 31, 2000
INVESTMENT INCOME
Interest, net of foreign taxes of $18,186 (Note 1) ............. $ 21,014,852
Dividends, net of foreign taxes of $96,553 ..................... 4,024,808
------------
25,039,660
EXPENSES
Management fee (Note 2) ........................................ 5,213,801
Service fee - Class A (Note 4) ................................. 755,327
Distribution and service fees - Class B(1) (Note 4) ............ 240,131
Distribution and service fees - Class B (Note 4) ............... 3,458,578
Distribution and service fees - Class C (Note 4) ............... 186,638
Transfer agent and shareholder services (Note 2) ............... 1,460,259
Custodian fee .................................................. 428,677
Registration fees .............................................. 92,328
Reports to shareholders ........................................ 76,352
Trustees' fees (Note 2) ........................................ 75,884
Audit fee ...................................................... 36,596
Legal fees ..................................................... 22,318
Miscellaneous .................................................. 49,221
------------
12,096,110
Fees paid indirectly (Note 2) .................................. (54,288)
------------
12,041,822
------------
Net investment income .......................................... 12,997,838
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, FORWARD CONTRACTS
AND FUTURES CONTRACTS
Net realized gain on investments (Notes 1 and 3) ............... 82,190,608
Net realized gain on futures contracts (Note 1) ................ 10,159
Net realized gain on forward contracts and
foreign currency (Note 1) .................................... 559,872
------------
Total net realized gain ...................................... 82,760,639
------------
Net unrealized appreciation of investments ..................... 13,105,234
Net unrealized depreciation of futures contracts ............... (251,522)
Net unrealized depreciation of forward contracts and
foreign currency ............................................. (604,612)
------------
Total net unrealized appreciation ............................ 12,249,100
------------
Net gain on investments, foreign currency andforward contracts . 95,009,739
------------
Net increase in net assets resulting from operations $108,007,577
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC GROWTH & INCOME FUND
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-----------------------------------------
1999 2000
------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ..................................... $ 13,936,948 $ 12,997,838
Net realized gain on investments,
foreign currency, forward contracts and futures contracts
......................................................... 26,894,384 82,760,639
Net unrealized appreciation
(depreciation) of investments, foreign currency, forward
contracts and futures contracts ......................... (49,954,566) 12,249,100
----------- -----------
Net increase (decrease) resulting from operations ......... (9,123,234) 108,007,577
----------- -----------
Dividends from net investment income:
Class A ................................................. (6,552,247) (6,002,303)
Class B(1) .............................................. (42,086) (346,435)
Class B ................................................. (4,962,495) (4,035,270)
Class C ................................................. (288,622) (210,626)
Class S ................................................. (427,400) (443,039)
----------- -----------
(12,272,850) (11,037,673)
----------- -----------
Distributions from net realized gains:
Class A ................................................. (25,005,097) (5,639,218)
Class B(1) .............................................. -- (501,338)
Class B ................................................. (29,297,803) (6,456,349)
Class C ................................................. (1,782,441) (337,772)
Class S ................................................. (1,606,730) (452,326)
----------- -----------
(57,692,071) (13,387,003)
----------- -----------
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 (decrease) from fund
share transactions (Note 5) ............................. 49,469,940 (83,118,748)
----------- -----------
Total increase (decrease) in net assets (30,622,854) 464,153
NET ASSETS
Beginning of year ......................................... 749,850,259 719,227,405
----------- -----------
End of year (including undistributed
net investment income of $1,838,837 and $1,781,742,
respectively) ........................................... $719,227,405 $719,691,558
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH STRATEGIC GROWTH & INCOME FUND
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
March 31, 2000
NOTE 1
State Street Research Strategic Growth & Income Fund (the "Fund"), formerly
State Street Research Managed Assets, 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 Strategic Growth
& Income Fund 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. Class A shares are subject to an initial
sales charge of up to 5.75% and 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 through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of State Street Research funds. 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 plans 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, 2000, the Fund has designated as
long-term $9,172,904 of the distributions from net realized gains.
Income dividends and capital gains 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, 2000, the value of the securities loaned and the value of
collateral were $56,393,233 and $58,355,829 (including $55,704,435 of cash
collateral), respectively. During the year ended March 31, 2000, income from
securities lending amounted to $442,896 and is included in interest income.
I. FUTURES
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
The Trust and the Adviser have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.75% of the 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, 2000, the fees pursuant to such
agreement amounted to $5,213,801.
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, 2000, the amount of
such expenses was $619,649.
The Fund has entered into an agreement with its transfer agent and custodian
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, 2000 the
Fund's transfer agent and custodian fees were reduced by $53,074 and $1,214,
respectively under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$75,884 during the year ended March 31, 2000.
NOTE 3
For the year ended March 31, 2000, purchases and sales of securities, exclusive
of short-term obligations and forward foreign currency exchange contracts,
aggregated $835,616,549, and $920,791,215 (including $317,330,583 and
$297,347,326 of U.S. Government obligations), respectively.
NOTE 4
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the plans, 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, 2000, fees pursuant to such
plans amounted to $755,327, $240,131, $3,458,578 and $186,638 for Class A,
Class B(1), Class B and Class C shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $70,650 and $360,109, respectively, on sales of Class A shares of
the Fund during the year ended March 31, 2000, and that MetLife Securities,
Inc. earned commissions aggregating $532,605, $21,044 and $50 on sales of
Class B(1), Class B and Class C shares, and the Distributor collected
contingent deferred sales charges aggregating $2,000,641, $652,716 and $2,147
on redemptions of Class B(1), Class B and Class C shares, respectively, during
the same period.
NOTE 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Share transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
------------------------------------------------------------
1999 2000
---------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 4,456,292 $ 47,419,479 2,085,702 $ 22,724,696
Issued upon reinvestment of:
Dividends from net investment income 613,434 6,336,535 536,778 5,849,521
Distributions from net realized gains 2,356,464 24,830,861 507,119 5,498,604
Shares redeemed ...................... (6,144,406) (64,512,494) (6,860,916) (74,711,926)
------------ ------------ ------------ ------------
Net increase (decrease) .............. 1,281,784 $ 14,074,381 (3,731,317) $(40,639,105)
============ ============ ============ ============
<CAPTION>
CLASS B(1) SHARES* AMOUNT* SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 1,015,988 $ 10,366,494 2,460,931 $ 26,554,583
Issued upon reinvestment of:
Dividends from net investment income 4,081 42,086 30,143 326,960
Distribution from net realized gains -- -- 45,856 495,228
Shares redeemed ...................... (27,017) (277,270) (431,736) (4,713,993)
------------ ------------ ------------ ------------
Net increase ......................... 993,052 $ 10,131,310 2,105,194 $ 22,662,778
============ ============ ============ ============
<CAPTION>
CLASS B SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 6,312,468 $ 67,591,232 540,623 $ 5,895,812
Issued upon reinvestment of:
Dividends from net investment income 466,974 4,800,489 361,328 3,908,090
Distributions from net realized gains 2,779,332 29,144,016 582,763 6,293,003
Shares redeemed ...................... (6,409,575) (66,796,029) (7,481,193) (81,084,212)
------------ ------------ ------------ ------------
Net increase (decrease) .............. 3,149,199 $ 34,739,708 (5,996,479) $(64,987,307)
============ ============ ============ ============
CLASS C SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 412,134 $ 4,373,703 161,261 $ 1,747,522
Issued upon reinvestment of:
Dividends from net investment income 23,639 244,153 15,283 165,634
Distributions from net realized gains 157,152 1,655,108 28,548 308,824
Shares redeemed ...................... (673,754) (7,003,491) (717,519) (7,776,036)
------------ ------------ ------------ ------------
Net decrease ......................... (80,829) $ (730,527) (512,427) $ (5,554,056)
============ ============ ============ ============
CLASS S SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .......................... 485,399 $ 5,189,422 1,462,967 $ 15,554,370
Issued upon reinvestment of:
Dividends from net investment income 40,956 425,454 40,271 441,422
Distributions from net realized gains 152,390 1,624,883 41,650 451,884
Shares redeemed ...................... (1,520,824) (15,984,691) (1,006,152) (11,048,734)
------------ ------------ ------------ ------------
Net increase (decrease) .............. (842,079) $ (8,744,932) 538,736 $ 5,398,942
============ ============ ============ ============
-------------------------------------------------------------------------------------------------------
* January 1, 1999 (commencement of share class) to March 31, 1999.
</TABLE>
<PAGE>
STATE STREET RESEARCH STRATEGIC GROWTH & INCOME FUND
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
--------------------------------------------------------------------------------------
1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.76 10.29 10.40 11.60 10.40
----- ----- ----- ----- -----
Net investment income ($)* 0.23 0.21 0.22 0.25 0.24
Net realized and unrealized gain
(loss) on investments, foreign
currency, forward contracts and
futures contracts ($) 1.72 1.05 2.61 (0.35) 1.48
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.95 1.26 2.83 (0.10) 1.72
----- ----- ----- ----- -----
Dividends from net investment income($) (0.26) (0.28) (0.23) (0.22) (0.22)
Distributions from net realized gains($) (0.16) (0.87) (1.40) (0.87) (0.21)
Distribution in excess of net realized
gains ($) -- -- -- (0.01) --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.42) (1.15) (1.63) (1.10) (0.43)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 10.29 10.40 11.60 10.40 11.69
===== ===== ===== ===== =====
Total return(b) (%) 22.55 12.49 29.62 (0.66) 16.88
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 207,713 244,348 330,421 309,752 304,400
Expense ratio (%)* 1.25 1.25 1.28 1.28 1.30
Expense ratio after expense reductions(%)* 1.25 1.25 1.28 1.27 1.29
Ratio of net investment income to
average net assets (%)* 2.34 2.02 1.96 2.32 2.23
Portfolio turnover rate (%) 109.20 108.41 133.30 136.37 122.57
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.02 0.01 0.00 -- --
<CAPTION>
CLASS B(1)
----------------------------------
YEARS ENDED MARCH 31
----------------------------------
1999(a)(e) 2000(a)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 10.35 10.36
----- -----
Net investment income ($) 0.04 0.17
Net realized and unrealized gain on investments, foreign currency,
forward contracts and futures contracts ($) 0.01 1.45
----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 0.05 1.62
----- -----
Dividends from net investment income ($) (0.04) (0.14)
Distribution from net realized gains ($) -- (0.21)
----- -----
TOTAL DISTRIBUTIONS ($) (0.04) (0.35)
----- -----
NET ASSET VALUE, END OF YEAR ($) 10.36 11.63
===== =====
Total return(b) (%) 0.51(c) 15.93
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 10,289 36,045
Expense ratio (%) 2.08(d) 2.05
Expense ratio after expense reductions (%) 2.08(d) 2.04
Ratio of net investment income to average net assets (%) 1.89(d) 1.48
Portfolio turnover rate (%) 136.37 122.57
-------------------------------------------------------------------------------------------------------
(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>
STATE STREET RESEARCH STRATEGIC GROWTH & INCOME FUND
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
------------------------------------------------------------------------------------------
1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.74 10.25 10.37 11.55 10.36
----- ----- ----- ----- -----
Net investment income ($)* 0.15 0.13 0.13 0.17 0.16
Net realized and unrealized gain
(loss) on investments, foreign
currency, forward contracts and
futures contracts ($) 1.71 1.06 2.59 (0.34) 1.47
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.86 1.19 2.72 (0.17) 1.63
----- ----- ----- ----- -----
Dividends from net investment income($) (0.19) (0.20) (0.14) (0.14) (0.13)
Distributions from net realized gains($) (0.16) (0.87) (1.40) (0.87) (0.21)
Distribution in excess of net realized
gains ($) -- -- -- (0.01) --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.35) (1.07) (1.54) (1.02) (0.34)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 10.25 10.37 11.55 10.36 11.65
===== ===== ===== ===== =====
Total return(b) (%) 21.48 11.76 28.53 (1.31) 15.98
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 193,272 251,518 368,975 363,517 338,838
Expense ratio (%)* 2.00 2.00 2.03 2.03 2.05
Expense ratio after expense reductions(%)* 2.00 2.00 2.03 2.02 2.04
Ratio of net investment income to
average net assets (%)* 1.59 1.27 1.21 1.57 1.48
Portfolio turnover rate (%) 109.20 108.41 133.30 136.37 122.57
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.02 0.01 0.00 -- --
<CAPTION>
CLASS C
--------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
--------------------------------------------------------------------------------------
1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.75 10.27 10.38 11.57 10.38
----- ----- ----- ----- -----
Net investment income ($)* 0.15 0.13 0.13 0.17 0.16
Net realized and unrealized gain
(loss) on investments, foreign
currency, forward contracts and
futures contracts ($) 1.72 1.05 2.60 (0.34) 1.47
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.87 1.18 2.73 (0.17) 1.63
----- ----- ----- ----- -----
Dividends from net investment income
($) (0.19) (0.20) (0.14) (0.14) (0.13)
Distributions from net realized gains
($) (0.16) (0.87) (1.40) (0.87) (0.21)
Distribution in excess of net realized
gains ($) -- -- -- (0.01) --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.35) (1.07) (1.54) (1.02) (0.34)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 10.27 10.38 11.57 10.38 11.67
===== ===== ===== ===== =====
Total return(b) (%) 21.54 11.64 28.59 (1.33) 15.93
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 13,061 17,485 23,807 20,519 17,093
Expense ratio (%)* 2.00 2.00 2.03 2.03 2.05
Expense ratio after expense reductions
(%)* 2.00 2.00 2.03 2.02 2.04
Ratio of net investment income to
average net assets (%)* 1.60 1.26 1.21 1.56 1.47
Portfolio turnover rate (%) 109.20 108.41 133.30 136.37 122.57
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.02 0.01 0.00 -- --
-------------------------------------------------------------------------------------------------------------------------------
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
</TABLE>
<PAGE>
STATE STREET RESEARCH STRATEGIC GROWTH & INCOME FUND
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S
--------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
--------------------------------------------------------------------------------------
1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 8.77 10.29 10.40 11.60 10.40
----- ----- ----- ----- -----
Net investment income ($)* 0.25 0.24 0.25 0.27 0.29
Net realized and unrealized gain
(loss) on investments, foreign
currency, forward contracts and
futures contracts ($) 1.71 1.05 2.60 (0.34) 1.46
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.96 1.29 2.85 (0.07) 1.75
----- ----- ----- ----- -----
Dividends from net investment income($) (0.28) (0.31) (0.25) (0.25) (0.25)
Distributions from net realized gains($) (0.16) (0.87) (1.40) (0.87) (0.21)
Distribution in excess of net realized
gains ($) -- -- -- (0.01) --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (0.44) (1.18) (1.65) (1.13) (0.46)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 10.29 10.40 11.60 10.40 11.69
===== ===== ===== ===== =====
Total return(b) (%) 22.70 12.77 29.93 (0.41) 17.17
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 19,548 21,263 26,648 15,149 23,316
Expense ratio (%)* 1.00 1.00 1.03 1.03 1.05
Expense ratio after expense reductions(%)* 1.00 1.00 1.03 1.02 1.04
Ratio of net investment income to
average net assets (%)* 2.59 2.26 2.21 2.53 2.62
Portfolio turnover rate (%) 109.20 108.41 133.30 136.37 122.57
*Reflects voluntary reduction of
expenses per share of these amounts ($) 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.
</TABLE>
<PAGE>
-------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
-------------------------------------------------------------------------------
TO THE TRUSTEES OF STATE STREET RESEARCH INCOME TRUST
AND THE SHAREHOLDERS OF STATE STREET RESEARCH
STRATEGIC GROWTH & 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 Strategic
Growth & Income Fund (formerly State Street Research Managed Assets) (a series
of State Street Research Income Trust, hereafter referred to as the "Trust") at
March 31, 2000, and the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States 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, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 18, 2000
<PAGE>
STATE STREET RESEARCH STRATEGIC GROWTH & INCOME FUND
-------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
-------------------------------------------------------------------------------
Strategic Growth & Income Fund delivered strong performance for the year ended
March 31, 2000. The total return for the fund's Class A shares was 16.88%
(does not reflect sales charge). The fund outperformed the average of the 234
flexible portfolio funds tracked by Lipper, which rose 14.77%. The fund ranked
in the top third of its Lipper peer group.
During the period, the manager reduced the fund's exposure to stocks to 55%
and raised the fund's exposure to bonds to 41%. That was the result of a
strategic decision at around mid-year to shift the fund's target asset
allocation from 70% stocks/30% bonds to 60% stocks/40% bonds.
The strongest-performing sectors were international equity, small-cap growth
and energy, which came alive near the end of the period. Mid-cap value, high
yield and international bonds were disappointing. Higher interest rates hurt
the bond market, and bond prices were under pressure throughout the year.
March 31, 2000
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 gains
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 STRATEGIC GROWTH & INCOME FUND,
THE S&P 500 AND
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX
CLASS A
Average Annual total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
10.15% 14.35% 11.71%
-------------------------------------
Lehman Brothers
Strategic Growth Government/Corporate
& Income Fund Bond Index S&P 500
3/90 $ 9,425 $10,000 $10,000
3/91 9,807 11,249 11,438
3/92 11,111 12,529 12,698
3/93 12,949 14,321 14,629
3/94 14,368 14,781 14,843
3/95 14,586 15,392 17,150
3/96 17,875 17,073 22,650
3/97 20,107 17,835 27,139
3/98 26,063 20,044 40,156
3/99 25,892 21,357 47,579
3/00 30,261 21,720 56,111
CLASS B(1)
Average Annual total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
10.93% 14.61% 11.80%
-------------------------------------
Lehman Brothers
Strategic Growth Government/Corporate
& Income Fund Bond Index S&P 500
3/90 $10,000 $10,000 $10,000
3/91 10,406 11,249 11,438
3/92 11,789 12,529 12,698
3/93 13,739 14,321 14,629
3/94 15,147 14,781 14,843
3/95 15,271 15,392 17,150
3/96 18,550 17,073 22,650
3/97 20,732 17,835 27,139
3/98 26,646 20,044 40,156
3/99 26,312 21,357 47,579
3/00 30,504 21,720 56,111
CLASS B
Average Annual total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
10.98% 14.61% 11.80%
-------------------------------------
Lehman Brothers
Strategic Growth Government/Corporate
& Income Fund Bond Index S&P 500
3/90 $10,000 $10,000 $10,000
3/91 10,406 11,249 11,438
3/92 11,789 12,529 12,698
3/93 13,739 14,321 14,629
3/94 15,147 14,781 14,843
3/95 15,271 15,392 17,150
3/96 18,550 17,073 22,650
3/97 20,732 17,835 27,139
3/98 26,646 20,044 40,156
3/99 26,312 21,357 47,579
3/00 30,499 21,720 56,111
CLASS C
Average Annual total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
14.93% 14.82% 11.80%
-------------------------------------
Lehman Brothers
Strategic Growth Government/Corporate
& Income Fund Bond Index S&P 500
3/90 $10,000 $10,000 $10,000
3/91 10,406 11,249 11,438
3/92 11,789 12,529 12,698
3/93 13,739 14,321 14,629
3/94 15,155 14,781 14,843
3/95 15,279 15,392 17,150
3/96 18,571 17,073 22,650
3/97 20,732 17,835 27,139
3/98 26,660 20,044 40,156
3/99 26,306 21,357 47,579
3/00 30,496 21,720 56,111
CLASS S
Average Annual total Return
-------------------------------------
1 Year 5 Years 10 Years
-------------------------------------
17.17% 15.97% 12.56%
-------------------------------------
Lehman Brothers
Strategic Growth Government/Corporate
& Income Fund Bond Index S&P 500
3/90 $10,000 $10,000 $10,000
3/91 10,406 11,249 11,438
3/92 11,789 12,529 12,698
3/93 13,739 14,321 14,629
3/94 15,155 14,781 14,843
3/95 15,279 15,392 17,150
3/96 18,571 17,073 22,650
3/97 20,732 17,835 27,139
3/98 26,660 20,044 40,156
3/99 26,306 21,357 47,579
3/00 32,646 21,720 56,111
<PAGE>
STATE STREET RESEARCH STRATEGIC GROWTH & INCOME FUND
-------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH INCOME TRUST
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND INFORMATION OFFICERS TRUSTEES
<S> <C> <C>
STATE STREET RESEARCH GERARD P. MAUS GERARD P. MAUS
STRATEGIC GROWTH & INCOME FUND Chairman of the Board, Interim Chief Operating Officer,
One Financial Center President, Chief Executive Chief Financial Officer,
Boston, MA 02111 Officer and Treasurer Chief Administrative
Officer and Director,
INVESTMENT ADVISER PETER C. BENNETT State Street Research &
State Street Research & Vice President Management Company
Management Company
One Financial Center BARTLETT R. GEER BRUCE R. BOND
Boston, MA 02111 Vice President Former Chairman of the Board,
Chief Executive Officer and
DISTRIBUTOR JOHN H. KALLIS President, PictureTel Corporation
State Street Research Vice President
Investment Services, Inc. STEVE A. GARBAN
One Financial Center THOMAS A. SHIVELY Former Senior Vice President
Boston, MA 02111 Vice President for Finance and Operations and
Treasurer, The Pennsylvania
SHAREHOLDER SERVICES JAMES M. WEISS State University
State Street Research Vice President
Service Center DEAN O. MORTON
P.O. Box 8408 JOSEPH W. CANAVAN Former Executive Vice President,
Boston, MA 02266-8408 Assistant Treasurer Chief Operating Officer and
1-87-SSR-FUNDS (toll free) Director, Hewlett-Packard Company
DOUGLAS A. ROMICH
CUSTODIAN Assistant Treasurer SUSAN M. PHILLIPS
State Street Bank and Dean, School of Business and
Trust Company FRANCIS J. MCNAMARA, III Public Management, George
225 Franklin Street Secretary and General Counsel Washington University; former
Boston, MA 02110 Member of the Board of Governors
DARMAN A. WING of the Federal Reserve System;
LEGAL COUNSEL Assistant Secretary and Chairman and Commissioner of
Goodwin, Procter & Hoar LLP Assistant General Counsel the Commodity Futures Trading
Exchange Place Commission
Boston, MA 02109 AMY L. SIMMONS
Assistant Secretary TOBY ROSENBLATT
INDEPENDENT ACCOUNTANTS President,
PricewaterhouseCoopers LLP Founders Investments Ltd.;
160 Federal Street President,
Boston, MA 02110 The Glen Ellen Company
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
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(C)2000 State Street Research Investment Services, Inc., One Financial Center,
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This report is prepared for the general information of current shareholders.
This publication must be preceded or accompanied by a current State Street
Research Strategic Growth & Income Fund prospectus. The Prospectus contains more
information, including sales charges and expenses. Please read the prospectus
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When used after June 30, 2000, this report must be accompanied by a current
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Portfolio changes should not be considered recommendations for action by
individual investors.
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considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: (exp 0501) SSR-LD SGI-1758-0500
