<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04559
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State Street Research Income Trust
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, MA 02111
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(Address of principal executive offices) (Zip code)
Richard S. Davis, President and Chief Executive Officer
State Street Research
One Financial Center, Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 617-357-1200
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Date of fiscal year end: 03/31/04
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Date of reporting period: 04/01/04 - 09/30/04
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
ITEM 1: REPORT TO SHAREHOLDERS
The Semi-annual Report is attached.
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[GRAPHIC] STATE STREET RESEARCH
[GRAPHIC]
Asset Allocation Fund
September 30, 2004
Semiannual Report to Shareholders
Table of Contents
3 Performance Discussion
4 About Your Fund Expenses
5 Portfolio Holdings
18 Financial Statements
23 Financial Highlights
25 Trustees and Officers
FROM THE CHAIRMAN
State Street Research
The U.S. economy grew at a solid pace during the six-month period from
April 1, 2004 to September 30, 2004. Gross Domestic Product (GDP), a
common measure of economic growth, rose at a pace of more than 3.5% for
the first half of 2004. Estimates for second half suggest that the pace of
growth could have picked up somewhat, as the US economy remains on solid
ground.
Consumer confidence wavered early in the period as the number of new jobs
added to the economy fell below expectations. When the job picture
brightened in April and May, consumer confidence tracked higher. More than
1.2 million jobs were added to the U.S. economy in the spring, and the
quality of new jobs improved, as reported by the U.S. Labor Department.
However, caution returned on disappointing jobs reports in July and August
and consumer confidence pulled back.
Yet, consumers continued to fuel the economy, pumping dollars into the
retail and housing markets. Sales of new and existing homes soared as
homebuyers anticipated higher mortgage rates ahead. Corporate profits
continued to rise, making it easier for companies to increase spending,
especially on information technology, electronic equipment and new jobs.
As the period wore on, it became clear that the days of record-low
short-term interest rates were coming to an end. In June, the Federal
Reserve Board raised the federal funds rate from 1.0% to 1.25%. The Fed
raised this key short-term rate to 1.5% in August and to 1.75% in
September. These increases had little or no impact on the financial
markets because they had been widely anticipated and because the Fed has
signaled that it will take a measured approach to raising rates as the
economic recovery matures.
Stocks Stumble as Bonds Edge Higher
After a relatively positive start to the calendar year, a host of worries
stopped the major stock market indexes in their tracks. Investors grew
more cautious about interest rates, rising energy prices, the threat of
terrorist attacks and the outcome of the presidential election and stocks
retreated. Value stocks held up considerably better than growth stocks.
The energy sector was the stock market's strongest performer.
High-yield bonds continued to lead the bond market. Most other sectors of
the bond market eked out modest positive returns as the yield on the
benchmark 10-year U.S. Treasury bond moved lower in the final months of
the period. Yields and bond prices move in opposite directions.
Looking Ahead
Any time the financial markets deliver negative returns, it is
disheartening for investors. However, the seeds of a new market rally are
often sown in periods of weakness and decline. With a diversified
portfolio and a long-term perspective on the markets, it is easier to
weather periods of volatility--and more likely that you may reap the
potential benefits in better times. We urge you to talk to your investment
professional about your investment plan. And we look forward to helping
you achieve your long-term financial goals.
Sincerely,
/s/ Richard S. Davis
Richard S. Davis
Chairman
September 30, 2004
2
PERFORMANCE
Discussion as of September 30, 2004
How State Street Research Asset Allocation Fund Performed State Street Research
Asset Allocation Fund (Class A shares, without sales charge) returned -0.94% for
the six-month period ended September 30, 2004. It underperformed its peer group,
the Lipper Flexible Portfolio Funds Average, which was -0.72% for the period.
The fund also underperformed the S&P 500/Lehman Brothers Blended Index, which
returned -0.19% for the same period.
Reasons for the Fund's Performance
The broad equity markets struggled during the six-month period, with growth
stocks experiencing the largest downturn. Bonds recovered during the third
calendar quarter, resulting in positive returns for the year to date.
Within the equity portion of the portfolio, small-cap growth stocks had the
largest negative impact on returns because the sector suffered the largest
declines during the period. However, an increased exposure to large-cap value
shares helped the fund's return as value stocks led the market. In addition, the
fund's inflation-sensitive holdings aided return, as they benefited from rising
oil prices. Finally, a modest international equity allocation was detrimental,
as the Japanese stock market continued to lose ground.
In the fixed income portfolio, high-yield and emerging markets exposure had the
greatest positive impact on returns. The high-yield sector benefited from a
recovery in corporate earnings and a decline in the expected default rate to
3.0%. The outlook for emerging markets debt also improved. Meanwhile, we
slightly increased our high-grade bond allocation, which helped performance.
Looking Ahead
We continue to emphasize equities over bonds, ending the period with a 63%
stocks/37% bonds allocation. That represents a slight decrease in our exposure
to equities and a slight increase in bonds, reflecting our view that corporate
profit growth has decelerated and the stock market outlook remains uncertain.
In the equity portfolio, we continue to favor large-cap stocks over small-cap,
and value issues over growth. We believe that business prospects for growth
stocks, especially in the technology area, remain weak, and we continue to find
investment opportunities among value stocks. The fund has maintained its modest
position in international equities.
Within fixed income, we remain invested in both high-yield and emerging markets
debt, as we believe they offer the highest return potential.
A Word about Risk
When investing in stocks, the fund may experience sudden or unpredictable drops
in value and periods of lackluster performance. When investing in bonds, the
fund takes on the risks of bond investing, including the tendency for bond
prices to fall when interest rates rise. Investments in foreign derivative
securities are subject to economic and currency risk. The fund may not correctly
anticipate the relative performance of different asset categories over specific
time periods.
Because financial markets and mutual fund strategies are constantly evolving, it
is possible that the fund's holdings, market stance, outlook for various
industries or securities and other matters discussed in this report have changed
since this information was prepared. Portfolio changes should not be considered
recommendations for action by individual investors.
Performance:
- -------------------------------------------------------------------------------
Fund average annual total return as of 9/30/04
(does not reflect sales charge)
1 Year 5 Years 10 Years
Class A 13.38% 6.43% 9.56%
- -------------------------------------------------------------------------------
Class B (1) 12.62% 5.68% 8.76%
- -------------------------------------------------------------------------------
Class B (closed) 15.03% 6.49% 9.17%
- -------------------------------------------------------------------------------
Class C 12.58% 5.67% 8.75%
- -------------------------------------------------------------------------------
Class S 13.81% 6.76% 9.85%
- -------------------------------------------------------------------------------
Fund average annual total return as of 9/30/04
(at maximum applicable sales charge)
1 Year 5 Years 10 Years
Class A 6.86% 5.18% 8.91%
- -------------------------------------------------------------------------------
Class B(1) 7.62% 5.36% 8.76%
- -------------------------------------------------------------------------------
Class B (closed) 10.03% 6.17% 9.17%
- -------------------------------------------------------------------------------
Class C 11.58% 5.67% 8.75%
- -------------------------------------------------------------------------------
Class S 13.81% 6.76% 9.85%
- -------------------------------------------------------------------------------
Keep in mind that the performance data quoted represents past performance and is
no guarantee of future results. Current performance may be lower or higher than
the performance data quoted herein. For the most recent month-end performance
results, visit our website at www.ssrfunds.com. 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 returns shown do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
Average annual total return without sales charge does not reflect the maximum
applicable sales charges. If the applicable sales charges were deducted,
performance results would be lower.
Average Annual Total return at maximum applicable sales charge reflects a
maximum 5.75% Class A share front-end sales charge, or 5% Class B or B(1) share
or 1% Class C share contingent deferred sales charge, where applicable.
Performance for Class B(1) shares reflects Class B share performance through
December 31, 1998, and Class B(1) performance thereafter. If the returns for
Class B(1) shares had reflected their current service/distribution (Rule 12b-1)
fees for the entire period, these returns would have been lower.
Class S shares, offered without sales charge, are available through certain
employee benefit plans and special programs.
The Lipper Flexible Portfolio Funds Average shows the performance of a category
of mutual funds with similar goals. The Lipper average shows you how well the
fund has done compared to competing funds.
The S&P 500/Lehman Blended Index is an index created by State Street Research.
The index is comprised of 60% of the performance of the S&P 500 Index and 40% of
the performance of the Lehman Brothers Aggregate Bond Index. The S&P 500 Index
(officially the "Standard & Poor's 500 Composite Stock Price Index") is an
unmanaged index of 500 U.S. stocks. The Lehman Brothers Aggregate Bond Index is
a market value-weighted index of investment-grade, fixed-rate debt issues,
including government, corporate, asset-backed and mortgage-backed securities,
with maturities of one year or more. The indexes are unmanaged and do not take
transaction charges into consideration. It is not possible to invest directly in
an index.
State Street Research Asset Allocation Fund 3
PERFORMANCE
Discussion as of September 30, 2004 (continued)
Because of active management, there is no guarantee that the fund currently
invests, or will continue to invest, in the industries referenced.
Beginning Ending Expenses
Account Account Paid Annualized
Six months ended Value Value during Expense
September 30, 2004 3/31/04 9/30/04 Period* Ratio
- ----------------------------------------------------------------------------------
Actual Fund Return
- ----------------------------------------------------------------------------------
Class A $1,000 $ 983.51 $ 7.01 1.41%
- ----------------------------------------------------------------------------------
Class B(1) $1,000 $ 976.58 $ 10.45 2.11%
- ----------------------------------------------------------------------------------
Class B $1,000 $ 989.46 $ 5.52 1.11%
- ----------------------------------------------------------------------------------
Class C $1,000 $ 975.90 $ 10.45 2.11%
- ----------------------------------------------------------------------------------
Class S $1,000 $ 986.46 $ 5.51 1.11%
- ----------------------------------------------------------------------------------
Hypothetical 5% Return
- ----------------------------------------------------------------------------------
Class A $1,000 $ 1,017.93 $ 7.14 1.41%
- ----------------------------------------------------------------------------------
Class B(1) $1,000 $ 1,014.43 $ 10.65 2.11%
- ----------------------------------------------------------------------------------
Class B $1,000 $ 1,019.45 $ 5.60 1.11%
- ----------------------------------------------------------------------------------
Class C $1,000 $ 1,014.43 $ 10.65 2.11%
- ----------------------------------------------------------------------------------
Class S $1,000 $ 1,019.45 $ 5.60 1.11%
- ----------------------------------------------------------------------------------
* Expenses are equal to the fund's annualized expense ratio multiplied by the
average account value over the period, multiplied by the number of days in
the period and then divided by the number of days in the year.
About Your Fund Expenses
As a fund shareholder, you incur two types of costs: (1) Transaction costs,
which include sales charges, and (2) ongoing expenses, which include management
fees, service/distribution fees (12b-l) and "other" expenses. The examples below
illustrate the ongoing cost in dollars of investing in the fund and allow you to
compare these costs with the expenses of other funds. The examples are based on
a $1,000 investment at the beginning of the period and held for the entire
period from March 31, 2004 to September 30, 2004.
Actual Fund Return is based on the fund's actual return and expenses. To
estimate the ongoing expenses you paid during the entire period shown, simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number shown for your
fund under the column "Expenses Paid during the Period".
Hypothetical 5% Return is based on the fund's actual expense ratio and an
assumed rate of 5% per year before expenses. Please note that the return used is
not the fund's actual return; therefore, this information may not be used to
estimate your actual ending balance and expenses paid during the period. To
compare your fund's ongoing expenses with those of other funds, simply compare
this 5% hypothetical example with the hypothetical examples shown in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight and help
you compare ongoing costs only and do not reflect transactional expenses such as
sales charges, which would result in higher total expenses. It should also be
noted that, for certain funds, expenses have been subsidized or reduced through
expense offset arrangements, which reduces costs for shareholders. Generally,
the fund expects that the expense subsidy or expense offset arrangement will
continue although there is no guarantee that it will. Please see the fund's
prospectus for more information.
Top 5 Equity Industries
- -------------------------------------------------------------------------------
% of Fund Net Assets
1 Drugs & Biotechnology 4.5%
-------------------------------------------------------------------------
2 Miscellaneous Financial 4.0%
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3 Banks and Savings & Loans 3.1%
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4 Retail 2.6%
-------------------------------------------------------------------------
5 Diversified Manufacturing 2.5%
-------------------------------------------------------------------------
Total 16.7%
Summary Portfolio Schedule
- -------------------------------------------------------------------------------
Industries % of Fund Net Assets
Finance/Mortgage 14.7%
- -------------------------------------------------------------------------------
Consumer Discretionary 10.3%
- -------------------------------------------------------------------------------
Financial Services 10.2%
- -------------------------------------------------------------------------------
U.S. Agency Mortgage 10.0%
- -------------------------------------------------------------------------------
Corporate 8.9%
- -------------------------------------------------------------------------------
Health Care 7.0%
- -------------------------------------------------------------------------------
Other Energy 6.1%
- -------------------------------------------------------------------------------
Technology 5.5%
- -------------------------------------------------------------------------------
Net Cash 4.7%
- -------------------------------------------------------------------------------
U.S. Treasury 4.4%
- -------------------------------------------------------------------------------
Foreign Government 3.4%
- -------------------------------------------------------------------------------
Materials & Processing 3.0%
- -------------------------------------------------------------------------------
Utilities 2.6%
- -------------------------------------------------------------------------------
Diversified Manufacturing 2.5%
- -------------------------------------------------------------------------------
Consumer Staples 2.0%
- -------------------------------------------------------------------------------
Producer Durables 1.5%
- -------------------------------------------------------------------------------
Integrated Oils 1.1%
- -------------------------------------------------------------------------------
Automobiles & Transportation 1.0%
- -------------------------------------------------------------------------------
Non-U.S. Equities 0.9%
- -------------------------------------------------------------------------------
Foreign 0.2%
- -------------------------------------------------------------------------------
Total 100.0%
4
PORTFOLIO
Holdings
September 30, 2004 (unaudited)
Issuer Shares Value
- ------------------------------------------------------------------------------------
Equity Securities 53.8%
Automobiles & Transportation 1.0%
Air Transport 0.1%
Expeditors International of Washington Inc. ......... 15,900 $ 822,030
-----------
Automobiles 0.1%
General Motors Corp.^ ............................... 19,800 841,104
-----------
Miscellaneous Transportation 0.2%
OMI Corp.*^ ......................................... 41,000 656,820
Stolt Nielsen SA*^ .................................. 13,000 266,520
Stolt Nielsen SA ADR ................................ 24,800 507,160
-----------
1,430,500
-----------
Railroads 0.5%
CSX Corp. ........................................... 20,200 670,640
Norfolk Southern Corp. .............................. 22,300 663,202
Union Pacific Corp. ................................. 28,000 1,640,800
-----------
2,974,642
-----------
Truckers 0.1%
Yellow Roadway Corp.* ............................... 10,100 473,589
-----------
Total Automobiles & Transportation .................. 6,541,865
-----------
Consumer Discretionary 10.3%
Casinos/Gambling, Hotel/Motel 0.9%
Boyd Gaming Corp. ................................... 15,000 422,250
International Game Technology Inc. .................. 31,800 1,143,210
Marriott International Inc. ......................... 41,400 2,151,144
Pinnacle Entertainment Inc.*^ ....................... 28,500 393,300
Starwood Hotels & Resorts Inc. ...................... 22,900 1,063,018
Station Casinos Inc.* ............................... 11,500 563,960
WMS Industries Inc.*^ ............................... 17,100 439,299
-----------
6,176,181
-----------
Commercial Services 1.3%
Ask Jeeves Inc.*^ ................................... 14,600 477,566
Autobytel Inc.*^ .................................... 61,000 547,170
Cendant Corp.* ...................................... 80,800 1,745,280
eBay Inc.* .......................................... 31,800 2,923,692
Manpower Inc. ....................................... 35,500 1,579,395
Tech Data Corp.* .................................... 6,900 265,995
Waste Management Inc. ............................... 47,700 1,304,118
-----------
8,843,216
-----------
Communications, Media & Entertainment 1.4%
Alliance Gaming Corp.*^ ............................. 81,000 1,219,860
Citadel Broadcasting Corp. .......................... 29,900 383,318
DirecTV Group Inc.* ................................. 69,474 1,222,048
Liberty Media Corp.* ................................ 127,500 1,111,800
LIN TV Corp.^ ....................................... 66,200 1,289,576
Time Warner Inc. .................................... 75,600 1,220,184
Viacom Inc. Cl. B* .................................. 20,200 677,912
Walt Disney Co. ..................................... 100,600 2,268,530
-----------
9,393,228
-----------
Issuer Shares Value
- -------------------------------------------------------------------------------------
Consumer Electronics 0.7%
Activision Inc.* .................................... 16,300 $ 226,081
Harman International Inc. ........................... 12,800 1,379,200
Yahoo! Inc.* ........................................ 93,900 3,184,149
------------
4,789,430
------------
Consumer Products 0.4%
International Flavors & Fragrances Inc. ............. 30,100 1,149,820
Kimberly-Clark Corp. ................................ 18,000 1,162,620
------------
2,312,440
------------
Consumer Services 0.2%
Corporate Executive Board Co.* ...................... 6,000 367,440
InterActiveCorp^ .................................... 3 66
Laureate Education Inc.^ ............................ 10,800 401,976
Resources Connection Inc. ........................... 6,400 243,043
SkillSoft plc ADR* .................................. 52,000 347,880
------------
1,360,405
------------
Household Furnishings 0.3%
Newell Rubbermaid Inc. .............................. 102,400 2,052,096
------------
Printing & Publishing 0.9%
A.H. Belo Corp. ..................................... 44,200 996,268
News Corp. Ltd. ADR^ ................................ 86,100 2,830,107
RR Donnelley & Sons Co. ............................. 45,000 1,409,400
Tribune Co. ......................................... 16,400 674,860
------------
5,910,635
------------
Restaurants 0.7%
Darden Restaurants Inc. ............................. 58,600 1,366,552
McDonald's Corp. .................................... 63,100 1,768,693
Starbucks Corp.* .................................... 26,500 1,204,690
------------
4,339,935
------------
Retail 2.6%
Abercrombie & Fitch Co. ............................. 26,100 822,150
Ann Taylor Stores Corp.* ............................ 14,400 336,960
AutoZone Inc.* ...................................... 23,200 1,792,200
Blockbuster Inc.^ ................................... 73,400 557,106
Federated Department Stores Inc. .................... 32,800 1,490,104
Gap Inc. ............................................ 63,200 1,181,840
Home Depot Inc. ..................................... 36,500 1,430,800
Kohl's Corp.* ....................................... 24,400 1,175,836
Limited Inc. ........................................ 75,400 1,680,666
Linens 'n Things Inc.* .............................. 11,300 261,821
Lowes Companies Inc. ................................ 27,000 1,467,450
Pacific Sunwear of California Inc. .................. 16,900 355,745
PETsMART Inc. ....................................... 22,100 627,419
Staples Inc.* ....................................... 48,400 1,443,288
Target Corp. ........................................ 69,800 3,158,450
------------
17,781,835
------------
Shoes 0.2%
Nike Inc. ........................................... 19,700 1,552,360
------------
Textile Apparel Manufacturers 0.3%
Coach Inc.* ......................................... 17,160 727,927
Polo Ralph Lauren Corp.^ ............................ 40,000 1,454,800
------------
2,182,727
------------
Toys 0.4%
Mattel Inc. ......................................... 109,700 1,988,861
Toys "R" Us Inc.* ................................... 49,200 872,808
------------
2,861,669
------------
Total Consumer Discretionary ........................
69,556,157
------------
The notes are an integral part of the financial statements.
State StreetResearch AssetAllocation Fund 5
Issuer Shares Value
- ------------------------------------------------------------------------------------
Consumer Staples 2.0%
Beverages 0.3%
Anheuser-Busch Inc. .............................. 39,700 $ 1,983,015
------------
Drug & Grocery Store Chains 0.4%
CVS Corp. ........................................ 36,300 1,529,319
Kroger Co.* ...................................... 84,900 1,317,648
------------
2,846,967
------------
Foods 0.3%
General Mills Inc. ............................... 15,600 700,440
Kraft Foods Inc. ................................. 30,400 964,288
------------
1,664,728
------------
Household Products 0.9%
Clorox Co. ....................................... 53,300 2,840,890
Procter & Gamble Co. ............................. 64,180 3,473,422
------------
6,314,312
------------
Tobacco 0.1%
Altria Group Inc. ................................ 20,000 940,800
------------
Total Consumer Staples ........................... 13,749,822
------------
Financial Services 10.3%
Banks & Savings & Loan 3.1%
Aon Corp. ........................................ 79,900 2,296,326
Bank of America Corp. ............................ 80,036 3,467,960
Bank of New York Co. Inc. ........................ 51,900 1,513,923
Comerica Inc. .................................... 20,900 1,240,415
Goldman Sachs Group Inc. ......................... 13,600 1,268,064
J.P. Morgan Chase & Co. .......................... 41,900 1,664,687
KeyCorp .......................................... 46,900 1,482,040
Merrill Lynch & Co. Inc. ......................... 16,400 815,408
North Fork Bancorp Inc.^ ......................... 28,400 1,262,380
PNC Financial Corp. .............................. 17,500 946,750
Regions Financial Corp. .......................... 43,900 1,451,334
Southwest Bancorp of Texas Inc.^ ................. 22,400 451,136
UCBH Holdings Inc. ............................... 14,200 554,794
US Bancorp. ...................................... 64,900 1,875,610
Washington Mutual Inc.* .......................... 14,000 547,120
------------
20,837,947
------------
Financial Data Processing Services & Systems 0.5%
Alliance Data Systems Corp. ...................... 26,200 1,062,672
First Data Corp. ................................. 47,800 2,079,300
------------
3,141,972
------------
Insurance 1.8%
American International Group Inc. ................ 66,100 4,494,139
Assurant Inc.* ................................... 47,400 1,232,400
Bristol West Holdings Inc.*^ ..................... 18,900 323,946
Genworth Financial Inc. .......................... 67,900 1,582,070
Hartford Financial Services Group Inc. ........... 18,000 1,114,740
UNUM Provident Corp.^ ............................ 35,000 549,150
XL Capital Ltd. .................................. 36,400 2,693,236
------------
11,989,681
------------
Miscellaneous Financial 4.1%
Ambac Financial Group Inc. ....................... 20,650 1,650,968
American Express Co. ............................. 44,640 2,297,174
Capital One Financial Corp. ...................... 15,600 1,152,840
CapitalSource Inc.*^ ............................. 22,300 498,182
CIT Group Inc. ................................... 41,700 1,559,163
Citigroup Inc. ................................... 128,620 5,674,714
Collegiate Funding Services Inc.^ ................ 26,700 335,352
Dow Jones & Co. Inc. ............................. 23,900 970,579
Federal National Mortgage Association ............ 13,600 862,240
Issuer Shares Value
- -------------------------------------------------------------------------------------
Miscellaneous Financial (Continued)
H&R Block Inc. ................................... 26,600 $ 1,314,572
MBNA Corp. ....................................... 115,200 2,903,040
MoneyGram International Inc. ..................... 68,800 1,175,104
Morgan Stanley Inc. .............................. 28,000 1,380,400
Nelnet Inc.*^ .................................... 10,500 234,990
Prospect Energy Corp. ............................ 2,200 32,890
Providian Financial Corp.* ....................... 82,000 1,274,280
Radian Group Inc. ................................ 41,600 1,923,168
SLM Corp. ........................................ 45,700 2,038,220
Willis Group Holdings Ltd.^ ...................... 25,600 957,440
------------
28,235,316
------------
Real Estate Investment Trusts 0.2%
Boston Properties Inc. ........................... 23,000 1,273,970
------------
Securities Brokerage & Services 0.5%
Affiliated Managers Group Inc.*^ ................. 10,500 562,170
AG Edwards Inc. .................................. 46,300 1,602,906
Ameritrade Holding Corp. ......................... 46,700 560,867
Janus Capital Group Inc. ......................... 70,800 963,588
------------
3,689,531
------------
Real Estate & Construction 0.1%
Equity Office Properties Trust ................... 21,000 572,250
------------
Total Financial Services ........................
69,740,667
------------
Health Care 7.0%
Drugs & Biotechnology 4.3%
Abgenix Inc.^ .................................... 17,800 175,508
Alkermes Inc.*^ .................................. 21,500 248,110
Allergan Inc. .................................... 21,800 1,581,590
Amgen Inc.* ...................................... 12,540 710,767
Baxter International Inc. ........................ 46,400 1,492,224
Biogen Idec Inc.* ................................ 37,200 2,275,524
Bristol-Myers Squibb Co. ......................... 44,900 1,062,783
Charles River Laboratories
International Inc.*^ ........................... 31,400 1,438,120
Chiron Corp.* .................................... 11,100 490,620
Dyax Corp.*^ ..................................... 24,600 187,944
Elan Corp. plc ADR^ .............................. 23,200 542,880
Genentech, Inc.* ................................. 13,300 697,186
ICOS Corp.*^ ..................................... 23,400 564,876
Invitrogen Corp.* ................................ 12,400 681,876
IVAX Corp.* ...................................... 36,625 701,369
Johnson & Johnson Ltd. ........................... 50,840 2,863,817
Martek Biosciences Corp.*^ ....................... 6,600 321,024
MedImmune Inc.* .................................. 59,300 1,405,410
Novartis AG ADR .................................. 74,330 3,468,981
Pfizer Inc. ...................................... 169,982 5,201,449
Schering-Plough Inc. ............................. 41,100 783,366
Watson Pharmaceuticals Inc.* ..................... 43,400 1,278,564
Wyeth Inc. ....................................... 21,800 815,320
------------
28,989,308
------------
Health Care Facilities 0.5%
HCA Inc. ......................................... 36,800 1,403,920
Laboratory Corp. of America Holdings* ............ 8,000 349,760
LCA-Vision Inc.^ ................................. 12,600 324,954
LifePoint Hospitals Inc.*^ ....................... 19,900 597,199
Psychiatric Solutions Inc.* ...................... 16,500 418,275
United Surgical Partners International*^ ......... 16,600 570,210
------------
3,664,318
------------
6 The notes are an integral part of the financial statements.
Issuer Shares Value
- -------------------------------------------------------------------------------------
Health Care Services 1.3%
Amedisys Inc.^ .............................. 13,700 $ 410,315
AmSurg Corp.*^ .............................. 27,200 576,096
Caremark Rx Inc.* ........................... 76,600 2,456,562
Community Health Systems Inc.* .............. 16,100 429,548
Covance Inc.* ............................... 10,700 427,679
UnitedHealth Group Inc. ..................... 42,500 3,133,950
Universal Health Services Inc.^ ............. 26,800 1,165,800
------------
8,599,950
------------
Hospital Supply 0.9%
Advanced Medical Optics Inc. ................ 10,100 399,657
Alcon Inc.* ................................. 9,600 769,920
Animas Corp.^ ............................... 12,600 202,860
Boston Scientific Corp.* .................... 17,700 703,221
Cooper Companies Inc. ....................... 4,600 315,330
Cutera Inc.^ ................................ 21,800 245,904
Guidant Corp. ............................... 19,200 1,267,968
INAMED Corp. ................................ 8,100 386,127
Steris Corp. ................................ 56,600 1,241,804
Zimmer Holdings Inc.* ....................... 8,600 679,744
------------
6,212,535
------------
Total Health Care ........................... 47,466,111
------------
Integrated Oils 1.1%
Integrated Domestic 0.2%
Amerada Hess Corp. .......................... 11,600 1,032,400
------------
Integrated International 0.9%
BP plc ADR .................................. 19,300 1,110,329
ChevronTexaco Corp. ......................... 31,200 1,673,568
ExxonMobil Corp. ............................ 56,500 2,730,645
Royal Dutch Petroleum Co. ................... 17,700 913,320
------------
6,427,862
------------
Total Integrated Oils ....................... 7,460,262
------------
Materials & Processing 3.0%
Agriculture 0.4%
Monsanto Co. ................................ 76,800 2,797,056
------------
Building & Construction 0.1%
Trex Inc.*^ ................................. 8,700 385,236
------------
Chemicals 0.8%
Air Products & Chemicals Inc. ............... 22,400 1,218,112
E.I. du Pont de Nemours & Co. ............... 38,800 1,660,640
Lyondell Petrochemical Co.^ ................. 51,400 1,154,444
Reunion Industries Inc.* .................... 595 178
Sherwin Williams Co. ........................ 27,400 1,204,504
------------
5,237,878
------------
Containers & Packaging 0.4%
Pactiv Corp.* ............................... 42,300 983,475
Smurfit-Stone Container Corp.* .............. 86,200 1,669,694
------------
2,653,169
------------
Diversified Manufacturing 0.3%
American Standard Companies Inc.* ........... 23,400 910,494
Ashland Inc. ................................ 26,000 1,458,080
------------
2,368,574
------------
Gold & Precious Metals 0.3%
NovaGold Resources Inc.*^ ................... 100,000 448,133
Coeur d'Alene Mines Corp.*^ ................. 40,000 189,600
Crystallex International Corp. (acquired
12/24/03 through 1/9/04, cost
$803,088)*^++ ............................. 300,000 1,011,000
Gold Reserve Inc. ........................... 39,100 182,597
------------
1,831,330
------------
Issuer Shares Value
- --------------------------------------------------------------------------------
Miscellaneous Materials & Processing 0.2%
Alcoa Inc. .................................. 15,300 $ 513,927
Timken Co. .................................. 27,300 672,126
------------
1,186,053
------------
Office Supplies 0.1%
Avery Dennison Corp. ........................ 15,100 993,278
------------
Paper & Forest Products 0.4%
International Paper Co. ..................... 33,000 1,333,530
MeadWestvaco Corp. .......................... 47,700 1,521,630
------------
2,855,160
------------
Total Materials & Processing ................
20,307,734
------------
Non-U.S. Equities 0.9%
Accrete Energy Inc. ......................... 4,960 9,173
Argo Energy Ltd.^ ........................... 19,200 36,116
Axis Capital Holdings Ltd. .................. 44,440 1,155,440
Baytex Energy Ltd. .......................... 54,300 552,764
Blizzard Energy Inc. (acquired 5/18/04,
cost $10,768)++ ........................... 12,000 20,391
Bow Valley Energy Ltd. ...................... 31,400 39,211
C1 Energy Ltd.* ............................. 85,733 116,547
Chamaelo Energy Inc. ........................ 1,900 7,884
Chamaelo Energy Inc. (acquired
6/18/04, cost $28,719)++@ ................. 9,800 34,971
Cinch Energy Corp.@ ......................... 26,880 15,721
Cinch Energy Corp. Wts.@ .................... 33,600 531
Crew Energy Inc. (acquired 5/12/04,
cost $36,232)++ ........................... 9,400 50,148
Crew Energy Inc. ............................ 44,466 237,222
Defiant Energy Corp.* ....................... 28,600 85,444
Endev Energy Inc. ........................... 231,700 208,764
Esprit Exploration Ltd. ..................... 176,700 550,246
Fording Canadian Coal Trust^ ................ 6,200 347,014
Galleon Energy Inc. ......................... 14,400 116,657
Interoil Corp.*^ ............................ 5,000 103,537
Lightning Energy Ltd. ....................... 13,000 40,585
Meridian Energy Corp.* ...................... 37,000 84,805
Mustang Resources Inc.* ..................... 18,600 119,076
Mustang Resources Inc. (acquired 2/6/04,
cost $32,522)*++ .......................... 9,600 61,458
Niko Resources Ltd.^ ........................ 13,500 424,126
Niko Resources Ltd. (acquired 4/2/04,
cost $52,500)++ ........................... 2,000 57,980
Oilexco Inc.*^ .............................. 23,400 72,128
Oilexco Inc. (acquired 12/10/03,
cost $32,299)*++ .......................... 38,900 119,905
Oilexco Inc. Wts (acquired 12/10/03,
cost $0)*++ ............................... 9,725 19,984
Paramount Resources Ltd. .................... 15,600 286,663
Purcell Energy Inc. (acquired 7/23/03,
cost $118,977)++ .......................... 68,773 212,509
Purcell Energy Inc. Wts. (acquired 7/23/03,
cost $0)*++ ............................... 68,773 25,003
Railpower Technologies Corp. ................ 17,600 62,596
Southwestern Resources Corp.* ............... 30,000 340,723
StarPoint Energy Ltd.* ...................... 43,400 169,793
Sunridge Gold Corp.* ........................ 76,700 45,465
Technicoil Corp. (acquired 6/15/04,
cost $24,418)++@ .......................... 33,500 36,697
Tempest Energy Corp. ........................ 6,300 28,755
Thunder Energy Inc.* ........................ 22,967 128,880
True Energy Inc. ............................ 3,800 13,630
Tullow Oil plc. ............................. 97,735 254,252
Westport Innovations Inc.* .................. 70,500 91,305
------------
Total Non-U.S. Equities .....................
6,384,099
------------
The notes are an integral part of the financial statements.
State Street Research Asset Allocation Fund 7
Issuer Shares Value
- --------------------------------------------------------------------------------
Diversified Manufacturing 2.5%
Multi-Sector 2.5%
FMC Corp.* ..................................... 23,600 $ 1,146,252
General Electric Co. ........................... 176,920 5,940,974
Hillenbrand Industries, Inc. ................... 15,600 788,268
Honeywell International Inc. ................... 49,200 1,764,312
ITT Industries Inc. ............................ 14,200 1,135,858
McDermott International Inc.*^ ................. 16,500 194,700
Textron Inc. ................................... 12,100 777,667
Tyco International Ltd. ........................ 173,800 5,328,708
------------
Total Diversified Manufacturing ................ 17,076,739
------------
Other Energy 6.1%
Miscellaneous 0.1%
iShares Trust^ ................................. 4,838 550,807
------------
Gas Pipelines 0.8%
EOG Resources Inc. ............................. 77,500 5,103,375
------------
Miscellaneous Energy 2.0%
Arch Coal Inc.^ ................................ 38,300 1,359,267
Consol Energy Inc. (acquired 9/18/03,
cost $516,524)*++ ............................ 35,200 1,228,128
Consol Energy Inc.^ ............................ 159,400 5,561,466
Diamond Offshore Drilling Inc.^ ................ 9,200 303,508
Massey Energy Corp.* ........................... 59,900 1,732,907
Peabody Energy Corp. ........................... 29,400 1,749,300
Penn Virginia Corp. ............................ 36,000 1,425,240
------------
13,359,816
------------
Offshore Drilling 0.4%
Transocean Inc. ................................ 82,600 2,955,428
------------
Oil & Gas Producers 1.6%
Compton Petroleum Corp. ........................ 17,100 122,447
Fairborne Energy Ltd. .......................... 1,800 13,942
PetroFalcon Corp. .............................. 3,100 7,914
Rio Alto Resources International Inc.* ......... 24,300 25,159
Anadarko Petroleum Corp. ....................... 18,100 1,201,116
Burlington Resources Inc. ...................... 21,900 893,520
Canargo Energy Corp. ........................... 191,100 137,592
Clayton Williams Energy Inc.*^ ................. 35,000 750,050
Denbury Resources Inc.* ........................ 14,400 365,760
Devon Energy Corp. ............................. 1 71
Exploration Co. of Delaware^ ................... 10,300 46,865
Longview Energy Co. (acquired 8/13/04,
cost $48,000)++ .............................. 3,200 48,000
Matador Resources Co. (acquired
10/14/03, cost $8,950)*++@ ................... 895 8,950
Newfield Exploration Co.* ...................... 53,800 3,294,712
Petrohawk Energy Corp.^ ........................ 4,300 36,120
PetroKazakhstan Inc.* .......................... 22,200 760,794
Pioneer Drilling Co. (acquired 2/13/04,
cost $40,440)*++ ............................. 8,600 72,240
Pioneer Natural Resources Co. .................. 32,900 1,134,392
Plains Exploration & Production Co.* ........... 54,500 1,300,370
Quicksilver Resources Inc.^ .................... 7,500 245,025
Remington Oil Gas Corp.* ....................... 7,200 189,000
Treasure Islands Royalty Trust (acquired
8/27/03 through 8/28/03, cost
$96,000)*++ .................................. 300,000 165,000
Yukos Corp.^ ................................... 15,500 249,550
------------
11,068,589
------------
Issuer Shares Value
- --------------------------------------------------------------------------------
Oil Well Equipment & Services 1.2%
BJ Services Co.* ............................... 16,000 $ 838,560
Global Industries Inc.*^ ....................... 50,000 309,000
Grey Wolf Inc.* ................................ 38,900 190,221
Halliburton Co. ................................ 44,400 1,495,836
Hanover Compressor Co.* ........................ 43,600 586,420
Key Energy Services Inc.* ...................... 9,900 109,395
MarkWest Hydrocarbon Inc.*^ .................... 9,300 139,314
Nabors Industries Ltd.* ........................ 18,700 885,445
NewPark Resources Inc.*^ ....................... 71,300 427,800
Patterson-UTI Energy Inc.* ..................... 63,200 1,205,224
Pride International Inc.* ...................... 24,400 482,876
Schlumberger Ltd. .............................. 15,700 1,056,767
Weatherford International Ltd.* ................ 11,600 591,831
------------
8,318,689
------------
Total Other Energy .............................
41,356,704
------------
Producer Durables 1.5%
Aerospace 0.5%
Alliant Technology Systems Inc.* ............... 17,000 1,028,500
Boeing Co. ..................................... 25,000 1,290,500
Lockheed Martin Corp. .......................... 15,300 853,434
------------
3,172,434
------------
Electrical Equipment & Components 0.1%
Cooper Industries Ltd. ......................... 10,600 625,400
------------
Industrial Products 0.2%
American Power Conversion Corp. ................ 74,700 1,299,033
------------
Machinery 0.1%
AGCO Corp.* .................................... 32,100 726,102
Helix Technology Corp.^ ........................ 11,500 156,343
------------
882,445
------------
Miscellaneous Equipment 0.1%
W.W. Grainger Inc. ............................. 15,200 876,280
------------
Office Furniture & Business Equipment 0.1%
HNI Corp. ...................................... 21,780 862,052
------------
Production Technology Equipment 0.3%
ATMI Inc.* ..................................... 16,900 346,112
Cymer Inc.*^ ................................... 9,300 266,538
Lam Research Corp.* ............................ 46,100 1,008,668
Phase Metrics Inc. (acquired 1/23/98
through 11/15/00, cost $642,597)*++@ 50,574 7,080
------------
1,628,398
------------
Telecommunications Equipment 0.1%
American Tower Corp. Cl. A*+^ .................. 27,000 414,450
Polycom Inc.* .................................. 24,100 477,662
------------
892,112
------------
Total Producer Durables ........................
10,238,154
------------
Technology 5.5%
Communications Technology 1.1%
Anaren Microwave Inc.*^ ........................ 13,600 183,056
Cisco Systems Inc.* ............................ 149,120 2,699,072
Juniper Networks Inc.* ......................... 44,200 1,043,120
Motorola Inc. .................................. 48,900 882,156
NCR Corp.* ..................................... 29,700 1,472,823
QUALCOMM Inc. .................................. 32,000 1,249,280
------------
7,529,507
------------
8 The notes are an integral part of the financial statements.
Issuer Shares Value
- --------------------------------------------------------------------------------
Computer Software 2.0%
Anteon International Corp.^ .................. 12,400 $ 454,460
Caci International Inc. ...................... 5,200 274,456
eCollege Inc. (acquired 8/13/03, cost
$170,100)*++ ............................... 16,200 156,330
Microsoft Corp. .............................. 247,820 6,852,223
Oracle Systems Corp.* ........................ 238,400 2,689,152
Quest Software Inc.*^ ........................ 15,800 175,696
Red Hat Inc.*^ ............................... 36,000 440,640
Symantec Corp.* .............................. 22,100 1,212,848
Unisys Corp.* ................................ 117,200 1,209,504
------------
13,465,309
------------
Computer Technology 1.1%
Dell Inc.* ................................... 93,500 3,328,600
Electronic Data Systems Corp. ................ 35,100 680,589
Emulex Corp.*^ ............................... 28,300 326,016
Epicor Software Corp.*^ ...................... 34,100 410,223
Hewlett-Packard Co.^ ......................... 45,000 843,750
NVIDIA Inc.* ................................. 18,500 268,620
Sun Microsystems Inc.* ....................... 242,400 979,296
Zebra Technologies Corp. ..................... 16,500 1,006,665
------------
7,843,759
------------
Electronics 0.6%
Aeroflex Inc.* ............................... 18,800 198,716
General Dynamics Corp. ....................... 18,700 1,909,270
Raytheon Co. ................................. 46,100 1,750,878
------------
3,858,864
------------
Electronics: Semiconductors/Components 0.7%
Cree Inc.*^ .................................. 11,000 335,830
Cypress Semiconductor Corp.*^ ................ 56,300 497,692
Intel Corp. .................................. 80,730 1,619,444
Linear Technology Corp. ...................... 34,600 1,253,904
Microsemi Corp.* ............................. 27,500 387,750
PMC Sierra Inc.* ............................. 56,700 499,527
------------
4,594,147
------------
Total Technology ............................. 37,291,586
------------
Utilities 2.6%
Cable Television & Radio 0.2%
Comcast Corp.* ............................... 34,400 960,448
------------
Electrical 1.0%
Constellation Energy Group Inc. .............. 21,900 872,496
NiSource Inc. ................................ 48,900 1,027,389
PPL Corp. .................................... 74,000 3,491,320
Public Service Enterprise Group Inc. ......... 30,300 1,290,780
------------
6,681,985
------------
Gas Distribution 0.2%
KeySpan Corp. ................................ 22,500 882,000
Sempra Energy Co. ............................ 18,100 655,039
------------
1,537,039
------------
Telecommunications 1.2%
Centurytel Inc. .............................. 35,100 1,201,824
SBC Communications Inc. ...................... 75,400 1,956,630
Sprint Corp. ................................. 143,300 2,884,629
Verizon Communications Inc. .................. 45,200 1,779,976
Western Wireless Corp.* ...................... 18,800 483,348
------------
8,306,407
------------
Total Utilities ............................. 17,485,879
------------
Total Equity Securities (Cost $317,670,083) . 364,655,779
------------
Maturity Principal
Date Amount Value
- --------------------------------------------------------------------------------
Fixed Income Securities 41.5%
U.S. Treasury 4.4%
U.S. Treasury Bond, 7.25%^ 5/15/2016 $ 725,000 $ 912,650
U.S. Treasury Bond, 8.875%^ 2/15/2019 2,975,000 4,297,248
U.S. Treasury Bond, 6.25%^ 8/15/2023 400,000 467,094
U.S. Treasury Bond, 6.25%^ 5/15/2030 1,975,000 2,344,078
U.S. Treasury Note, 7.00%^ 7/15/2006 11,500,000 12,394,838
U.S. Treasury Note, 5.625%^ 5/15/2008 1,825,000 1,984,617
U.S. Treasury Note, 6.50%^ 2/15/2010 600,000 688,453
U.S. Treasury Note, 4.00%^ 11/15/2012 5,475,000 5,501,521
U.S. Treasury Notes, 5.75%^ 8/15/2010 1,275,000 1,421,376
------------
30,011,875
------------
U.S. Agency Mortgage 9.9%
Federal Home Loan Mortgage
Corp., 8.50% ............... 7/01/2009 28 28
Federal Home Loan Mortgage
Corp., 4.00% ............... 3/15/2010 225,000 227,500
Federal Home Loan Mortgage
Corp., 3.75% ............... 3/15/2011 700,000 705,874
Federal Home Loan Mortgage
Corp., 4.00% ............... 7/15/2014 625,000 630,150
Federal Home Loan Mortgage
Corp., 9.50% ............... 12/01/2022 534,836 602,040
Federal Home Loan Mortgage
Corp., 5.50% ............... 7/01/2033 1,408,306 1,431,656
Federal National Mortgage
Association, 0.00% ......... 11/25/2012 6,834,639 252,977
Federal National Mortgage
Association, 3.50% ......... 6/25/2010 750,000 753,531
Federal National Mortgage
Association, 6.50% ......... 12/01/2029 403,394 424,463
Federal National Mortgage
Association, 8.00% ......... 4/01/2008 25,928 27,337
Federal National Mortgage
Association, 8.00% ......... 6/01/2008 34,024 35,903
Federal National Mortgage
Association, 8.50% ......... 2/01/2009 34,096 36,345
Federal National Mortgage
Association, 4.50% ......... 4/25/2009 1,443,086 1,460,908
Federal National Mortgage
Association, 7.00% ......... 8/01/2014 193,856 205,717
Federal National Mortgage
Association, 7.00% ......... 9/01/2014 292,304 310,240
Federal National Mortgage
Association, 6.00% ......... 5/01/2017 463,916 486,762
Federal National Mortgage
Association, 5.00% ......... 6/01/2018 583,566 594,128
Federal National Mortgage
Association, 4.50% ......... 10/01/2018 438,397 438,148
Federal National Mortgage
Association, 5.00% ......... 6/01/2023 576,384 579,052
Federal National Mortgage
Association, 5.50% ......... 1/01/2024 387,396 397,014
Federal National Mortgage
Association, 7.50% ......... 10/01/2025 9 10
Federal National Mortgage
Association, 6.50% ......... 5/01/2029 225,996 237,620
Federal National Mortgage
Association, 7.50% ......... 7/01/2029 259,698 278,770
Federal National Mortgage
Association, 7.50% ......... 1/01/2031 777,270 833,348
The notes are an integral part of the financial statements.
State Street Research Asset Allocation Fund 9
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
U.S. Agency Mortgage (Continued)
Federal National Mortgage
Association, 8.00% .......... 2/01/2033 $ 479,255 $ 522,697
Federal National Mortgage
Association, 5.50% .......... 5/01/2033 869,276 882,691
Federal National Mortgage
Association, 5.00% .......... 11/01/2033 2,001,772 1,985,828
Federal National Mortgage
Association, 5.50% .......... 11/01/2033 1,116,479 1,133,709
Federal National Mortgage
Association, 5.50% .......... 11/01/2033 716,520 727,577
Federal National Mortgage
Association, 5.50% .......... 1/01/2034 2,307,423 2,343,032
Federal National Mortgage
Association, 5.00% .......... 3/01/2034 $1,527,336 1,515,172
Federal National Mortgage
Association, 5.00% .......... 3/01/2034 1,330,278 1,319,683
Federal National Mortgage
Association TBA, 4.00% ...... 10/19/2019 775,000 755,141
Federal National Mortgage
Association TBA, 4.50% ...... 10/19/2019 5,225,000 5,205,406
Federal National Mortgage
Association TBA, 5.00% ...... 10/19/2019 5,125,000 5,205,078
Federal National Mortgage
Association TBA, 5.00% ...... 10/14/2034 4,525,000 4,476,922
Federal National Mortgage
Association TBA, 5.50% ...... 10/19/2019 1,775,000 1,833,797
Federal National Mortgage
Association TBA, 5.50% ...... 10/14/2034 5,350,000 5,420,219
Federal National Mortgage
Association TBA, 6.00% ...... 11/15/2034 4,750,000 4,893,982
Federal National Mortgage
Association TBA, 6.50% ...... 10/19/2019 1,450,000 1,533,827
Federal National Mortgage
Association TBA, 6.50% ...... 10/14/2034 3,450,000 3,618,188
Federal National Mortgage
Association TBA, 7.00% ...... 10/14/2034 1,175,000 1,245,500
Federal National Mortgage
Association TBA, 6.00% ...... 10/19/2019 825,000 864,187
Federal National Mortgage
Association, 4.125^% ........ 4/15/2014 1,775,000 1,709,834
Government National Mortgage
Association, 6.50% .......... 2/15/2009 71,937 76,313
Government National Mortgage
Association, 6.50% .......... 6/15/2009 26,669 28,340
Government National Mortgage
Association, 6.50% .......... 7/15/2009 154,327 163,612
Government National Mortgage
Association, 7.50% .......... 11/15/2010 7,871 8,405
Government National Mortgage
Association, 7.50% .......... 12/15/2010 89,765 95,848
Government National Mortgage
Association, 7.00% .......... 1/15/2025 121,888 130,612
Government National Mortgage
Association, 6.50% .......... 11/15/2028 502,023 531,441
Government National Mortgage
Association, 7.00% .......... 11/15/2028 217,108 231,930
Government National Mortgage
Association, 7.00% .......... 11/15/2028 15,645 16,720
Government National Mortgage
Association, 5.50% .......... 4/15/2033 1,427,261 1,455,011
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
U.S. Agency Mortgage (Continued)
Government National Mortgage
Association, 6.00% .......... 9/20/2033 $ 418,943 $ 434,338
Government National Mortgage
Association, 5.00% .......... 10/20/2033 1,906,348 1,897,452
Government National Mortgage
Association, 6.00% .......... 10/20/2033 676,523 703,713
Government National Mortgage
Association, 6.00% .......... 11/20/2033 904,941 938,194
Government National Mortgage
Association, 6.00% .......... 2/20/2034 726,701 753,225
Government National Mortgage
Association TBA, 5.50% ...... 10/21/2034 1,475,000 1,499,891
------------
67,107,036
------------
Finance/Mortgage 14.7%
AIG Sunamerica Global
Financing Sr. Note,
6.90%+ ...................... 3/15/2032 175,000 203,955
Allstate Financial Global
Funding LLC Note, 2.50%+..... 6/20/2008 325,000 312,169
AmeriCredit Automobile
Recreation Trust, 2002-DA4
3.40% ....................... 4/13/2009 350,000 352,439
Artesia Mortgage Securities
Inc. Note, 6.99% ............ 6/25/2030 150,000 164,409
Asset Backed Funding
Corp. Note, 4.45%+ .......... 5/25/2034 133,204 132,983
Bank of America Corp.
Sub. Note, 7.40% ............ 1/15/2011 450,000 524,450
Bankamerica Institution Bond,
8.07%+ ...................... 12/31/2026 225,000 251,604
Bank One Issuance Trust,
1.83%# ...................... 12/31/2006 1,400,000 1,402,870
Bank One Issuance Trust
Note, 3.76% ................. 8/15/2008 300,000 302,783
Bear Stearns Commercial
Mortgage Securities
Inc., 4.36% ................. 6/11/2041 956,068 974,855
Bear Stearns Commercial
Mortgage Securities
Inc. Note Cl. A1, 5.92% ..... 10/15/2036 918,831 992,832
Bear Stearns Commercial
Mortgage Securities
Inc. Note Cl. A2, 7.08% ..... 7/15/2031 250,000 280,553
Bear Stearns Commercial
Mortgage Securities Inc.
Note Cl. A2, 7.32% .......... 10/15/2032 475,000 543,590
C Bass Trust Note, 5.78% ...... 10/25/2018 275,000 280,009
Capital Auto Receivables Trust
Note, 4.16% ................. 7/16/2007 261,364 263,335
Caterpillar Financial Asset
Trust, 3.13% ................ 10/24/2004 500,000 501,025
CDC Commercial Mortgage
Trust, 5.25% ................ 5/15/2009 1,771,838 1,853,114
Centex Home Equity Loan
Trust, 6.54% ................ 1/25/2032 550,000 564,976
Centex Home Equity Loan
Trust Note, 4.715% .......... 6/25/2033 475,000 494,026
Chase Commercial Mortgage
Securities Corp. Note,
1998-02 Cl. A, 6.39% ........ 11/18/2030 1,475,000 1,611,500
10 The notes are an integral part of the financial statements.
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Finance/Mortgage (Continued)
Chase Funding NIM Trust
Note, 5.00%+ ...................... 11/01/2034 $ 93,360 $ 93,770
Chase Funding NIM Trust
Note, 3.75%+ ...................... 3/27/2035 108,352 107,622
Chase Manhattan Auto Owner
Trust Note, 2001-B Cl. A4,
3.80% ............................. 5/15/2008 98,693 99,409
Chase Manhattan Auto Owner
Trust Note, 2002-A, 4.17%.......... 9/15/2008 509,103 513,832
Chase Manhattan Auto Owner
Trust Note, 2002-A, 3.49%.......... 3/15/2006 4,593 4,596
Chase Manhattan Auto
Owner Trust Note, 2.43% ........... 2/16/2010 1,500,000 1,487,607
CIT Group Inc. Note, 4.125%.......... 2/21/2006 275,000 279,820
Citibank Credit Card Issuance
Trust Note, 7.45% ................. 9/15/2007 300,000 313,344
Citibank Credit Card Issuance
Trust Note, 2001 Cl. A8,
4.10% ............................. 12/07/2006 275,000 276,125
Citibank Credit Card Issuance
Trust, 2.33%# ..................... 12/10/2008 500,000 503,033
Citibank Credit Card Issuance
Trust Note 2001 Cl. C3,
6.65% ............................. 5/15/2008 575,000 605,995
Citigroup Capital Note,
7.75% ............................. 12/01/2036 225,000 248,269
Citigroup Inc. Note, 5.00%+.......... 9/15/2014 944,363 945,538
Commercial Mortgage
Acceptance Corp.
Note, 6.47% ....................... 9/15/2030 275,000 300,193
Countrywide Asset-Backed
Securities, Inc. Note, 2.765%...... 12/25/2031 75,000 75,250
Countrywide Asset-Backed
Securities, Inc. Note, 3.62% ...... 9/25/2032 300,000 308,251
Countrywide Asset-Backed
Securities, Inc. Note, 5.10% ...... 11/25/2031 250,000 258,364
Countrywide Asset-Backed
Securities, Inc. Note, 3.275% ..... 3/26/2032 1,075,000 1,096,403
Countrywide Asset-Backed
Securities, Inc. Note, 4.50% ...... 7/25/2023 1,500,000 1,569,896
Countrywide Asset-Backed
Securities, Inc. Note, 3.365% ..... 6/25/2033 650,000 661,174
Countrywide Funding Corp.
Mtn, 4.125% ....................... 9/15/2009 450,000 449,203
Countrywide Home Loan Inc.
Note, 4.01% ....................... 6/25/2033 888,350 873,411
Countrywide Home Loan Inc.
Note, 4.62% ....................... 2/19/2034 247,837 245,210
Countrywide Home Loan Inc.
Note, 4.80% ....................... 9/19/2032 91,113 93,899
Countrywide Home Loan Inc.
Note, 6.12% ....................... 9/19/2031 565,221 564,532
Crestar Capital Trust Note,
8.16% ............................. 12/15/2026 175,000 205,611
Distribution Financial Services
Note, 5.67% ....................... 1/17/2017 91,999 93,490
DLJ Commercial Mortgage
Corp. Note 1999-CG1
Cl. A1B, 6.46% .................... 3/10/2032 150,000 165,366
DLJ Commercial Mortgage
Corp. Note 1998-CG1
Cl. A1B, 6.11% .................... 6/10/2031 38,591 38,843
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Finance/Mortgage (Continued)
EOP Operating LP Note,
6.80% ............................. 1/15/2009 $ 775,000 $ 852,661
ERAC USA Finance Co.,
6.70%+ ............................ 6/01/2034 200,000 211,402
ERAC USA Finance Co.
Note, 8.25%+ ...................... 5/01/2005 450,000 463,942
ERAC USA Finance Co.
Note, 6.625%+ ..................... 5/15/2006 225,000 237,268
ERP Operating LP Note,
6.63% ............................. 4/13/2015 600,000 612,940
First National Bank Sub.
Note, 7.375% ...................... 9/15/2006 125,000 135,294
First Union Capital Bond,
7.934% ............................ 1/15/2027 325,000 361,309
First Union Lehman Brothers,
6.28% ............................. 11/18/2035 87,477 88,831
Fleet Commercial Loan
Note, 3.81%+# ..................... 11/16/2009 750,000 750,450
Fleet Commercial Loan
Note, 2.61%+# ..................... 11/16/2009 475,000 475,045
Ford Credit Auto Owner
Trust Note 4.36% .................. 9/15/2006 275,000 277,937
Ford Credit Auto Owner
Trust, 4.79% ...................... 11/15/2006 525,000 533,879
Ford Credit Auto Owner
Trust Note, 2.01% ................. 8/15/2007 325,000 326,542
Ford Credit Auto Owner
Trust Note, 4.18% ................. 1/15/2008 75,000 75,586
General Electric Business Loan
Trust Note, 2.46%+ ................ 5/15/2023 272,319 272,319
General Electric Business Loan
Trust Note, 2.03%+ ................ 4/15/2031 346,907 348,207
General Electric Business Loan
Trust Note, 2.90%+ ................ 5/15/2023 231,205 231,205
General Electric Business Loan
Trust Note, 2.76% ................. 11/15/2031 1,154,559 1,156,967
General Electric Capital Corp.
Global Note, 6.75% ................ 3/15/2032 125,000 143,863
General Electric Capital Corp.
Note, 6.125% ...................... 2/22/2011 975,000 1,075,120
General Motors Acceptance
Corp. Note, 7.25% ................. 3/02/2011 700,000 747,394
General Motors Acceptance
Corp. Note, 8.00% ................. 11/01/2031 100,000 103,499
GGP Mall Properties Trust
Note, 5.56% ....................... 11/15/2011 499,065 520,697
GGP Mall Properties Trust
Note, 2.90%+ ...................... 10/14/2004 53,082 53,770
Goldman Sachs Group Inc.
Note, 6.875% ...................... 1/15/2011 625,000 705,812
Grace Church Card Funding
plc Note, 2.53% ................... 8/15/2008 750,000 753,310
Granite Mortgage Trust
Note, 2.81% ....................... 3/20/2044 500,000 500,000
Granite plc Note, 2.61% ............. 6/20/2044 250,000 250,000
Granite Mortgage plc Note,
2.505% ............................ 9/20/2044 300,000 300,000
GSR Mortgage Loan Trust
Note 2002-9 Cl. B2, 5.21% 10/25/2032 132,466 133,215
Hedged Mutual Fund Fee
Trust Note, 5.22%+ ................ 11/30/2040 141,218 141,218
HFG HealthCo. LLC Note,
2.986%+# .......................... 6/05/2007 125,000 124,464
The notes are an integral part of the financial statements.
State Street Research Asset Allocation Fund 11
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Finance/Mortgage (Continued)
HFG Healthco. Sr. Note,
2.786%+# .................. 6/05/2007 $ 200,000 $ 198,582
Holmes Financing Series
Note, 3.05% ............... 7/15/2040 180,000 181,598
Holmes Financing Series
Note, 2.22% ............... 7/15/2040 250,000 250,078
Household Finance Corp.,
Note, 6.375% .............. 10/15/2011 225,000 247,996
Household Finance Corp.,
Note, 6.375% .............. 11/27/2012 1,050,000 1,163,447
IMPAC Commercial Trust
Note, 1.99%# .............. 11/25/2031 1,089,185 1,089,461
IMPAC Commercial Trust
Note, 2.20%# .............. 9/25/2034 475,342 475,341
IMPAC Commercial Mortgage
Trust Note, 3.82%# ........ 10/15/2030 182,031 182,800
IMPAC Commercial Mortgage
Trust Note, 2002-4 CL. MI,
5.58% ..................... 11/25/2032 53,523 54,430
IMPAC Commercial Mortgage
Trust Note, 1.99%# ........ 7/25/2032 108,840 109,044
IMPAC Commercial Mortgage
Trust Note, 2.08%# ........ 3/25/2033 72,631 72,883
IMPAC Commercial Mortgage
Trust Note, 2.37%# ........ 1/25/2033 159,905 160,959
IMPAC Commercial Mortgage
Trust Note, 3.49%# ........ 7/25/2033 97,994 99,376
IMPAC Commercial Mortgage
Trust Note, 3.04%# ........ 12/25/2033 252,965 253,564
IMPAC Commercial Mortgage
Trust, 1.99%# ............. 11/25/2031 42,513 42,526
iStar Asset Receivables Trust
Note, 2.49%+ .............. 5/28/2020 225,000 229,984
J.P. Morgan Commercial
Mortgage Finance
Corp., 6.18% .............. 10/15/2035 115,527 121,841
J.P. Morgan Capital Trust
Bond, 7.54% ............... 1/15/2027 175,000 186,772
J.P. Morgan Chase & Co.
Note, 6.75% ............... 2/01/2011 550,000 618,781
J.P. Morgan Commercial
Mortgage Finance Corp.
Note, 7.238% .............. 9/15/2029 1,600,000 1,802,166
J.P. Morgan Commercial
Mortgage Finance Corp.
Note, 7.30%+ .............. 2/15/2032 1,550,000 1,731,947
J.P. Morgan Commercial
Mortgage Finance
Corp., 6.51% .............. 10/15/2035 600,000 657,980
J.P. Morgan Commercial
Mortgage Finance Corp.
Note, 7.18%+ .............. 2/15/2032 125,000 140,510
J.P. Morgan Commercial
Mortgage Finance Corp.
Note, 2.80%+ .............. 2/17/2015 101,527 102,000
J.P. Morgan Commercial
Mortgage Finance Corp.
Note, 3.55%+ .............. 2/17/2015 101,527 102,007
John Hancock Global Funding
Note, 7.90%+ .............. 7/02/2010 525,000 620,095
Knollwood CDO Ltd.
Note, 4.78%+# ............. 1/10/2039 220,903 217,866
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Finance/Mortgage (Continued)
Lehman Brothers Commercial
Conduit Mortgage Trust,
7.47% ..................... 10/15/2032 $ 125,000 $ 140,387
Lehman Brothers USB
Commercial Mortgage
Trust, 2.95% .............. 3/15/2029 363,220 354,766
Lehman Brothers USB
Commercial Mortgage
Trust, 3.64% .............. 8/15/2008 535,203 536,109
Lehman Brothers USB
Commercial Mortgage
Trust, 3.88% .............. 8/15/2009 273,474 274,954
Lehman Brothers USB
Commercial Mortgage
Trust, 4.07% .............. 9/15/2026 878,284 885,570
Lehman Brothers USB
Commercial Mortgage
Trust, 4.57% .............. 4/17/2009 1,325,000 1,361,940
Lehman Brothers USB
Commercial Mortgage
Trust, 3.25% .............. 3/15/2029 1,500,000 1,464,619
Lehman Brothers Commercial
Conduit Mortgage Trust
Note, 5.93% ............... 12/15/2025 825,000 893,537
Lehman Brothers Commercial
Conduit Mortgage Trust
Note, 6.21% ............... 10/15/2035 460,000 499,775
Lehman Brothers Commercial
Conduit Mortgage Trust
Note, 6.16% + ............. 7/14/2016 866,791 933,598
Lehman Brothers Commerical
Conduit Mortgage Trust
Note, 5.64% ............... 12/15/2025 1,400,691 1,486,484
Lehman Brothers Holdings
Inc. Note, 4.00% .......... 1/22/2008 200,000 203,156
Long Beach Asset Holdings
Corp. Note, 4.94%+ ........ 6/25/2034 152,162 152,162
Long Beach Mortgage Loan
Trust Note, 2.72% ......... 3/25/2034 475,000 476,351
Long Beach Mortgage Loan
Trust, 5.84% .............. 8/25/2033 200,000 208,700
Lothian Mortgages Plc,
1.80+% .................... 7/24/2019 275,000 274,989
Manufacturers & Traders Trust
Co. Note, 3.85% ........... 4/01/2008 225,000 224,200
Massachusetts Mutual Life
Insurance Co. Note,
5.625%+ ................... 5/15/2033 425,000 418,730
MBNA Corp. Note, 5.625%...... 11/30/2007 525,000 554,046
MBNA Credit Card Master
Trust Note, 3.46% ......... 6/15/2012 675,000 714,406
MBNA Credit Card Master
Trust Note, 2.98% ......... 6/15/2009 475,000 483,158
MBNA Credit Card Master
Trust Note, 6.55% ......... 12/15/2008 350,000 368,792
Mellon Capital II Bond,
7.995% .................... 1/15/2027 250,000 286,799
Merrill Lynch & Co. Inc.
Note, 3.70% ............... 4/21/2008 425,000 425,875
Morgan Stanley Capital
Inc. 2.65%+ ............... 4/15/2016 300,000 300,960
12 The notes are an integral part of the financial statements.
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Finance/Mortgage (Continued)
Morgan Stanley Capital Inc.
Note, 4.75% .................. 4/01/2014 $ 750,000 $ 726,057
Morgan Stanley Capital Inc.
Note, 7.22%+ ................. 7/15/2029 585,419 631,549
Morgan Stanley Capital Inc.
Note, 5.91% .................. 11/15/2031 253,160 262,767
Morgan Stanley Capital Inc.
Note, 6.21% .................. 11/15/2031 475,000 513,547
Morgan Stanley Dean
Witter, 7.50%+ ............... 2/15/2013 225,000 255,936
Morgan Stanley Dean Witter
Inc., 7.00% .................. 2/15/2033 125,000 141,950
Morgan Stanley Dean Witter
Inc., 5.38% .................. 1/15/2039 804,750 848,159
National RMBS Trust 2004-1
A1, 2.05%# ................... 3/20/2034 575,000 575,000
NationsLink Funding Corp.
Note, 6.48% .................. 8/20/2030 225,000 245,676
NationsLink Funding Corp.
Note, 6.80% .................. 8/20/2030 525,000 578,967
NationsLink Funding Corp.
Note, 7.50% .................. 6/20/2031 175,000 198,642
NationsLink Funding
Corp. Note, 6.32% ............ 1/20/2031 2,236,277 2,427,361
Nissan Auto Receivables
Owners Trust Note, 2.23%...... 3/15/2007 1,250,000 1,247,285
Nomura Asset Securities
Corp. Note, 6.59% ............ 3/15/2030 875,000 958,698
Northwest Airlines Inc.
Note 8.072% .................. 4/01/2021 151,757 166,727
Option One Mortgage Loan
Trust, 4.74% ................. 8/25/2033 125,000 128,738
Option One Mortgage Loan
Trust Note, 2.59% ............ 1/25/2033 150,000 150,941
Option One Mortgage Loan
Trust Note, 3.54% ............ 1/25/2032 575,000 581,187
Option One Mortgage Loan
Trust Note, 3.565% ........... 2/25/2033 150,000 152,464
Option One Mortgage Loan
Trust Note, 3.32% ............ 4/25/2033 150,000 152,314
Option One Mortgage Loan
Trust Note, 3.21% ............ 5/25/2033 375,000 382,519
Option One Mortgage Loan
Trust Note, 2.16% ............ 7/25/2033 588,924 589,845
Option One Mortgage Loan
Trust, 5.59% ................. 7/25/2033 275,000 282,010
Pacific Coast CDO Ltd.,
2.09%# ....................... 10/15/2036 409,033 404,689
Permanent Financing plc
Note, 2.36% .................. 6/10/2042 550,000 549,890
PNC Mortgage Acceptance
Corp. Note, 7.05% ............ 10/12/2033 341,727 369,253
PNC Mortgage Acceptance
Corp. Note, 7.30% ............ 10/12/2033 840,000 965,864
PSE&G Transitions Funding
LLC Note, 5.98% .............. 6/15/2008 600,000 623,994
PSE&G Transitions Funding
LLC Note, 5.74% .............. 3/15/2007 54,221 54,869
Reckson Oper Partnership
LP, 5.875% ................... 8/15/2014 300,000 300,585
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Finance/Mortgage (Continued)
Residential Asset Security
Mortgage Corp.
Note, 1.77% .................. 3/25/2021 $ 563,143 $ 563,295
Residential Asset Security
Mortgage Corp.
Note, 1.87% .................. 7/25/2032 165,278 165,148
Residential Asset Security
Mortgage Corp.
Note, 2.82% .................. 1/25/2034 1,250,000 1,253,629
Residential Asset Security
Mortgage Corp.
Note, 2.96% .................. 12/25/2033 1,000,000 1,009,422
Residential Asset Security
Mortgage Corp.
Note, 3.37% .................. 1/25/2033 625,000 634,028
Residential Asset Security
Mortgage Corp.
Note, 3.37% .................. 1/25/2033 425,000 432,438
Residential Asset Security
Mortgage Corp.
Note, 3.41% .................. 3/25/2034 400,000 399,999
Residential Asset Security
Mortgage Corp.
Note, 5.50% .................. 4/25/2033 425,000 431,325
Residential Federal Mortgage
Security Inc, 1.99% .......... 4/25/2033 482,431 482,467
Russell Corp. Note, 9.25% ...... 5/01/2010 250,000 271,250
Salomon Brothers Mortgage
Trust Note 6.13% ............. 2/18/2034 600,000 635,105
Simon Property Group LP
Note, 7.375% ................. 1/20/2006 400,000 421,742
Structured Asset Investment
Loan Trust Note, 1.75% ....... 7/25/2033 65,684 65,679
Structured Asset Investment
Loan Trust Note, 1.94% ....... 4/25/2033 2,152 2,152
Structured Asset Investment
Loan Trust Note, 3.79% ....... 4/25/2033 150,000 151,582
Structured Asset Securities
Corp. Note, 5.45% ............ 2/25/2033 223,257 226,441
Structured Asset Securities
Corp. Note, 6.69% ............ 1/25/2032 87,084 89,244
Structured Asset Securities
Corp. Note, 2.05% ............ 1/25/2033 108,425 108,665
Structured Asset Securities
Corp. Note, 2.71% ............ 6/25/2032 575,000 576,620
Structured Asset Securities
Corp. Note, 2.77% ............ 7/25/2032 525,000 527,198
Structured Asset Securities
Corp. Note, 2.82% ............ 7/25/2032 250,000 251,377
Structured Asset Securities
Corp. Note, 3.57% ............ 4/25/2033 350,000 353,875
Structured Asset Securities
Corp. Note, 3.66% ............ 1/01/2032 750,000 751,860
Sutter Investment CBO 2001-
1A A3L Note, 3.02%+# ......... 5/15/2007 425,000 419,953
US Bancorp Note, 8.27% ......... 12/15/2026 250,000 288,865
USA Education Note, 5.625% ..... 4/10/2007 250,000 263,123
Vornado Realty Trust Sr. Note,
5.625% ....................... 6/15/2007 650,000 681,962
Wachovia Bank Commercial
Mortgage Trust Note,
2.99% ........................ 6/15/2035 1,114,979 1,065,721
The notes are an integral part of the financial statements.
State Street Research Asset Allocation Fund 13
Maturity Principal
Date Amount Value
----------------- ---------------------- ------------------
Finance/Mortgage (Continued)
Wachovia Bank Commerical
Mortgage Trust Note,
1.95%+ .............................................. 3/15/2015 $ 438,543 $ 438,546
Wachovia Bank Commerical
Mortgage Trust Note,
2.38% ............................................... 3/15/2014 250,000 250,987
Wachovia Bank Commercial
Mortgage Trust Note,
3.40%+ .............................................. 7/15/2041 1,393,346 1,390,976
Washington Mutual 2004-
AR3 B1 Note, 4.20% .................................. 6/25/2034 224,567 221,932
Washington Mutual 2003-
AR3 B2 Note, 4.76% .................................. 4/25/2033 194,508 195,570
Washington Mutual 2003-
AR5-B2 Note, 4.54% .................................. 3/25/2034 515,964 516,945
Washington Mutual Inc.
2003-AR5 A6 Note,
3.69% ............................................... 5/25/2033 850,000 841,071
Washington Mutual Inc.
Note, 3.93% ......................................... 3/25/2033 300,000 297,667
Washington Mutual Inc.
Note, 4.22% ......................................... 8/25/2033 398,675 386,010
Washington Mutual Inc.
Note, 4.545% ........................................ 3/25/2034 1,247,715 1,225,482
Washington Mutual Inc.
Note, 4.13% ......................................... 3/25/2033 184,219 184,480
Washington Mutual Inc.
Note, 3.42% ......................................... 5/25/2033 850,000 850,470
Washington Mutual Inc.
Note, 3.985% ........................................ 10/25/2033 1,350,000 1,354,068
Western Massachusetts
Electrical Co. Note, 6.53%........................... 6/01/2015 1,210,436 1,334,452
------------
99,968,080
------------
Foreign 0.2%
Pamex Project Funding Master
Trust Note, 7.375% .................................. 2/15/2014 575,000 626,750
Petronas Capital Ltd.
Note, 7.875%+ ....................................... 5/22/2022 325,000 389,078
------------
1,015,828
------------
Foreign Government 3.4%
Australian Dollar
Australia, 6.25% ...................................... 4/15/2015 2,000,000 1,537,363
Banque Centrale de Tunisie
Note, 7.375% ........................................ 4/25/2012 $ 425,000 482,906
BCP Caylux Holdings
Luxembourg, 9.625%+ ................................. 6/15/2014 250,000 270,000
Brazil Federative Republic,
7.72% ............................................... 6/29/2009 675,000 738,450
Brazil Federative Republic,
11.00%^ ............................................. 8/17/2040 1,650,000 1,849,650
Corporacion Andina de
Fomento Note, 6.875% ................................ 3/15/2012 125,000 140,580
Corporacion Nacional del
Cobre Note, 5.50%+ .................................. 10/15/2013 225,000 234,267
Export Import Bank Korea,
4.50% ............................................... 8/12/2009 1,375,000 1,391,669
Korea Development Bank
Note, 3.875% ........................................ 3/02/2009 150,000 148,528
Malaysia Government
Bond, 7.50% ......................................... 7/15/2011 175,000 205,153
Maturity Principal
Date Amount Value
----------------- ---------------------- ------------------
Foreign Government (Continued)
Petroleos Mexicanos
Note, 6.50%^ ........................................ 2/01/2005 $ 425,000 $ 430,525
Republic of Argentina,
1.98%# .............................................. 2/03/2005 2,525,000 1,871,025
Republic of Brazil, 8.00%^ ............................ 4/15/2014 2,345,540 2,319,270
Republic of Chile, 5.625% ............................. 7/23/2007 425,000 447,823
Republic of Colombia,
10.75% .............................................. 1/15/2013 925,000 1,060,050
Republic of Colombia, 8.25%............................ 12/22/2014 500,000 493,750
Republic of South Africa,
9.125% .............................................. 5/19/2009 200,000 237,000
Republic of Ukraine, 7.65%+............................ 6/11/2013 1,050,000 1,050,000
Republic of Venezuela,
10.75% .............................................. 9/19/2013 1,425,000 1,600,987
Russian Federation Bond,
8.25%+ .............................................. 3/31/2010 2,400,000 2,611,500
Russian Federation Bond,
5.00% ............................................... 3/31/2007 925,000 889,758
Republic of South Africa,
6.50% ............................................... 6/02/2014 925,000 987,437
State of Qatar Bond, 9.75%+............................ 6/15/2030 125,000 179,688
Republic of Turkey, 7.25% ............................. 3/15/2015 375,000 369,649
United Mexican States, 6.63%^.......................... 3/03/2015 100,000 106,000
United Mexican States, 8.30%........................... 8/15/2031 1,125,000 1,279,687
United Mexican States, 4.63% .......................... 10/08/2008 250,000 252,500
------------
23,185,215
------------
Corporate 8.9%
AES Corp, Note, 8.75%+ ................................ 5/15/2013 200,000 225,500
AES Eastern Energy Note,
9.00% ............................................... 1/02/2017 525,505 591,193
Ainsworth Lumber Co. Ltd.
Note, 5.67%+ ........................................ 10/01/2010 400,000 404,000
Alcan Alum Ltd. Note,
6.125% .............................................. 12/15/2033 200,000 207,634
Allbritton Communications
Co. Note, 7.75% ..................................... 12/15/2012 500,000 517,500
Allied Waste North America
Inc. Note, 6.375% ................................... 4/15/2011 175,000 170,188
American Achievement Corp.
Note, 8.25%+ ........................................ 4/01/2012 300,000 315,000
American Tower Corp. Note,
7.50% ............................................... 5/01/2012 800,000 816,000
AMETEK Inc. Sr. Note, 7.20%............................ 7/15/2008 150,000 163,809
ArvinMeritor Inc. Note,
8.75% ............................................... 3/01/2012 250,000 276,875
Associated Materials Inc.
Note, 11.25%+ ....................................... 3/01/2009 525,000 381,937
Associated Materials Inc.
Note, 9.75% ......................................... 4/15/2012 450,000 516,375
AT&T Broadband Corp. Note,
9.455% .............................................. 11/15/2022 400,000 536,135
Availl Inc. Note, 7.625% .............................. 7/01/2011 300,000 324,000
BAE Systems Holdings Inc.
Note, 6.66%+ ........................................ 9/15/2013 749,831 832,935
Boeing Co. Note, 8.75% ................................ 8/15/2021 175,000 232,319
Bombardier Capital Inc.
Note, 6.125%+ ....................................... 6/29/2006 300,000 297,570
British Telecommunications plc
Note 8.875% ......................................... 12/15/2030 225,000 295,583
BWAY Corp. Note 10.00% ................................ 10/15/2010 500,000 547,500
Cargill Inc., 6.125%+ ................................. 4/19/2034 300,000 311,525
Cargill Inc. Note 4.375%+ ............................. 6/01/2013 225,000 219,524
14 The notes are an integral part of the financial statements.
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Corporate (Continued)
Cendant Corp. Note, 6.25%........ 3/15/2010 $ 200,000 $ 217,479
Centex Corp. Note, 7.875%........ 2/01/2011 225,000 262,310
Cenveo Corp. Note, 7.875%........ 12/01/2013 475,000 463,125
CCHII LLC Corp. Note,
10.25% ........................ 9/15/2010 300,000 306,375
Charter Communications Sr. Note,
8.00%+ ........................ 4/30/2012 300,000 299,250
Chumash Casino & Resort
Enterprise Sr. Note, 9.00%..... 7/15/2010 700,000 777,000
Cinemark Inc. 0% to
3/14/04, 9.75% from
3/15/04 to maturity ........... 3/15/2009 475,000 326,562
Comcast Corp. Note, 7.05%........ 3/15/2033 525,000 575,949
Concentra Operating Corp.
Note, 9.50% ................... 8/15/2010 375,000 414,375
Conoco Inc. 6.95% ............... 4/15/2029 375,000 431,865
Continental Airlines Inc.
Note, 7.38% ................... 6/15/2017 170,847 134,004
Continental Airlines Inc.
Note, 7.88% ................... 7/02/2018 499,753 470,643
Continental Airlines Inc.
Note, 6.70% ................... 12/15/2022 650,814 606,509
Crown Castle International
Corp. Note, 7.50% ............. 12/01/2013 600,000 628,500
Crystal US Hldgs Disc Note,
0% to 9/30/09, 10.50%
from 10/1/09 to maturity....... 10/01/2014 575,000 343,562
CSC Holdings Inc. Note
7.625% ........................ 4/01/2011 600,000 632,250
CSK Auto Inc. 7.00% ............. 1/15/2014 500,000 483,750
Delco Remy Int'l Inc. 9.375%..... 4/15/2012 200,000 196,000
Deutsche Telekom
International Finance
Co. Note, 8.75% ............... 6/15/2030 250,000 323,144
Dex Media Inc. Note, 9.00%....... 11/15/2013 300,000 219,750
DTE Energy Co. Note, 6.45%....... 6/01/2006 350,000 368,042
Eagle-Picher Inc. Note,
9.75% ......................... 9/01/2013 500,000 510,000
Earle M. Jorgensen Co.
Note, 9.75% ................... 6/01/2012 750,000 832,500
Eircom Funding Inc.
Note, 8.25% ................... 8/15/2013 600,000 657,000
El Paso Production Holding
Co. Note, 7.75% ............... 6/01/2013 250,000 250,625
Encana Corp. Note, 6.50% ........ 8/15/2034 325,000 347,370
Energy Partners Ltd.
Note, 8.75% ................... 8/01/2010 600,000 651,000
Entergy Gulf States Inc.
Note, 3.60% ................... 6/01/2008 300,000 296,565
Enterprise Products Note,
5.60%+ ........................ 10/15/2014 150,000 151,140
EXCO Resources Inc. 7.25%........ 1/15/2011 600,000 636,000
FFCA Secured Lending Corp.
Note, 6.94% ................... 9/18/2025 100,000 101,496
FirstEnergy Corp. 6.45% ......... 11/15/2011 225,000 245,446
Ford Motor Co. Note, 7.45%....... 7/16/2031 300,000 294,159
Ford Motor Credit Co.
Note, 7.375% .................. 10/28/2009 950,000 1,040,568
Foundation Coal Co. Note,
7.25%+ ........................ 8/01/2014 150,000 159,375
Gaylord Entertainment Co.
Note, 8.00% ................... 11/15/2013 225,000 236,813
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Corporate (Continued)
General Electric Co.
Note, 5.00% ................... 2/01/2013 $ 750,000 $ 771,331
General Motors Corp.
Note, 8.25% ................... 7/15/2023 250,000 262,976
General Motors Corp. Note,
8.375% ........................ 7/15/2033 450,000 477,797
Georgia Power Co.
Note, 4.875% .................. 7/15/2007 525,000 545,773
Graham Packaging Co. Note,
8.50%+ ........................ 10/15/2012 125,000 125,000
Graham Packaging Co. Note,
9.875%+ ....................... 4/15/2005 275,000 275,000
Grief Brothers Corp. Note,
8.875% ........................ 8/01/2012 650,000 724,750
Gulfmark Offshore Inc. Note,
7.75%+ ........................ 7/15/2014 225,000 227,813
Halliburton Co. Note,
2.41%+ ........................ 1/26/2007 325,000 325,161
Hanover Compressor Co.
Note, 8.625% .................. 12/15/2010 200,000 217,000
Hanover Equipment Trust
Sub. Note, 0.00% .............. 3/31/2007 750,000 633,750
HCA Inc. Note, 6.30% ............ 10/01/2012 325,000 336,950
Hewlett Packard Co.
Note, 3.625% .................. 3/15/2008 475,000 476,552
Host Marriott LP Note,
7.125% ........................ 11/01/2013 450,000 472,500
Huntsman ICI Chemicals LLC
Note, 10.125%^ ................ 7/01/2009 750,000 787,500
IASIS Healthcare LLC 8.75%+...... 6/15/2014 425,000 445,187
Indiana Michigan Power Co.
Note, 6.125% .................. 12/15/2006 325,000 344,044
Insight Midwest Note, 9.75%...... 10/01/2009 325,000 339,625
Interline Brands Inc.
Note, 11.50% .................. 5/15/2011 400,000 444,000
International Lease Finance
Corp. Note, 5.75% ............. 2/15/2007 525,000 555,819
International Paper Co.
Note, 6.75% ................... 9/01/2011 275,000 306,438
Intertape Polymer US Inc.
Note, 8.50%+ .................. 8/01/2014 125,000 126,250
INVISTA Note, 9.25%+ ............ 5/01/2012 375,000 400,312
IPSOC Inc. Note, 8.75% .......... 6/01/2013 750,000 855,000
ISP Chemco Inc. Note,
10.25% ........................ 7/01/2011 725,000 808,375
Jean Coutu Group PJC Inc.
7.625%+ ....................... 8/01/2012 75,000 76,312
Jean Coutu Group PJC Inc.
8.50%+ ........................ 8/01/2014 250,000 248,125
Kennametal Inc. Note, 7.20%...... 6/15/2012 75,000 81,828
Kern River Funding Corp.
Note, 4.89%+ .................. 4/30/2018 259,065 261,197
Kerr-McGee Corp. Note,
6.875% ........................ 9/15/2011 125,000 139,830
Kroger Co. Sr. Sub.
Note, 7.80% ................... 8/15/2007 775,000 863,259
Lennar Corp. Note, 2.66% ........ 3/19/2009 400,000 401,878
Loral Corp. Note, 7.00% ......... 9/15/2023 150,000 167,373
Lyondell Chemical Co. Sr.
Note, 10.50%^ ................. 6/01/2013 250,000 288,750
MeadWestvaco Corp. Note,
6.85% ......................... 4/01/2012 250,000 278,484
The notes are an integral part of the financial statements.
State Street Research Asset Allocation Fund 15
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Corporate (Continued)
Meritage Corp. Note, 7.00%........ 5/01/2014 $ 200,000 $ 205,000
Motorola Inc. Note, 7.625%........ 11/15/2010 300,000 351,068
Nalco Co. Note, 8.875% ........... 11/15/2013 400,000 430,000
Nash Finch Co. Note,
8.50%^ ......................... 5/01/2008 500,000 514,375
Newark Group Inc. Note,
9.75%+ ......................... 3/15/2014 300,000 309,000
Newfield Exploration Co.
Note, 6.625%+ .................. 9/01/2014 250,000 260,625
Newmont Mining Corp.
Note, 8.63% .................... 5/15/2011 250,000 306,124
News America Inc. Sr.
Note, 6.625% ................... 1/09/2008 450,000 490,669
Nextel Communications Inc.
Sr. Note, 7.375% ............... 8/01/2015 550,000 591,250
Norcraft Holdings Note, 0%
to 8/31/03, 9.75% from
9/1/03 to maturity+ ............ 9/01/2008 225,000 163,125
NRG Energy Inc. Note,
8.00%+ ......................... 12/15/2013 575,000 615,969
O'Charley's Inc. Note, 9.00%...... 11/01/2013 500,000 525,000
OMI Corp. Note, 7.63% ............ 12/01/2013 750,000 769,687
Perry Ellis International Inc.
Note, 8.875% ................... 9/15/2013 750,000 795,000
Phillips Van Heusen
Corp. Note, 7.25% .............. 2/15/2011 375,000 390,000
Ply Gem Industries Inc.
Note, 9.00%+ ................... 2/15/2012 300,000 299,250
Progress Energy Inc. Sr.
Note, 7.10% .................... 3/01/2011 300,000 338,721
Pulte Homes Inc. Note, 6.38% ..... 5/15/2033 250,000 245,787
Qwest Communications
International Inc.
Note, 7.25%+ ................... 2/15/2011 300,000 284,250
Qwest Corp. Note, 7.875%+......... 9/01/2011 225,000 233,438
Reliant Resources Inc.
Note, 9.25% .................... 7/15/2010 250,000 268,438
Rhodia, Note, 10.25% ............. 6/01/2010 400,000 414,000
Riddell Bell Holdings Inc.
Note, 8.38%+ ................... 10/01/2012 200,000 203,250
River Rock Entertainment
Authority Note, 9.75% .......... 11/01/2011 250,000 263,125
Rogers Wireless Inc. Note,
9.63% .......................... 5/01/2011 550,000 613,250
Sealy Mattress Co. Note,
8.25% .......................... 6/15/2014 450,000 453,375
Sinclair Broadcast Group Inc.
Note, 8.75% .................... 12/15/2011 300,000 325,500
Solo Cup Co. Note, 8.50%^......... 2/15/2014 175,000 172,375
Sprint Capital Corp.
Note, 8.75% .................... 3/15/2032 325,000 412,487
Stena AB Note, 9.625% ............ 12/01/2012 200,000 223,250
Superior Essex
Communications Note,
9.00%+ ......................... 4/15/2012 500,000 500,000
TD Funding Corp. Note,
8.375% ......................... 7/15/2011 300,000 321,000
Telecom de Puerto Rico Sr.
Note, 6.65% .................... 5/15/2006 725,000 762,923
Telecom Italia Capital Note,
4.95%+ ......................... 9/30/2014 475,000 469,146
Maturity Principal
Date Amount Value
----------------- ------------------- ------------------
Corporate (Continued)
Tenet Healthcare Corp. Note,
9.875%+ ........................ 7/01/2014 $ 200,000 $ 209,000
Tenet Healthcare Corp.
Note, 6.38% .................... 12/01/2011 300,000 269,250
Terex Corp. Sr. Sub.
Note, 9.25%+ ................... 7/15/2011 425,000 476,000
Thomson Corp. Sr.
Note, 5.75% .................... 2/01/2008 250,000 266,118
Time Warner Entertainment
Co. Note, 8.375% ............... 3/15/2023 25,000 29,900
Time Warner Inc.
Note, 9.15% .................... 2/01/2023 400,000 515,510
TriMas Corp. Note, 9.875% ........ 6/15/2012 1,225,000 1,270,937
Trinity Industries Inc. Note,
6.50% .......................... 3/15/2014 450,000 443,250
TRW Automotive Inc.
Note, 9.375% ................... 2/15/2013 500,000 571,250
Tyco International Group S A
6.375% ......................... 10/15/2011 400,000 442,368
UAP Holding Corp. Note,
0.00% to 1/14/03,
10.75% from 1/15/03
to maturity+ ................... 1/15/2008 500,000 382,500
United Agri Products Inc.
Note, 8.25%+ ................... 12/15/2011 600,000 648,000
United Auto Group Inc.
Note, 9.625% ................... 3/15/2012 575,000 633,937
United Components Inc.
Note, 9.375% ................... 6/15/2013 500,000 538,750
United Rentals North
America, Inc. Note,
7.75%^ ......................... 11/15/2013 200,000 187,500
UnitedHealth Group Inc.
Note, 7.50% .................... 11/15/2005 175,000 184,290
Verizon Global Funding Corp.
Note, 7.75% .................... 12/01/2030 525,000 628,752
Videotron Ltee Note, 6.875%....... 1/15/2014 250,000 256,250
Warnaco Inc. Note, 8.875%......... 6/15/2013 500,000 556,250
Western Wireless Corp. Note,
9.25% .......................... 7/15/2013 775,000 790,500
Weyerhaeuser Co.
Note, 7.375% ................... 3/15/2032 150,000 172,123
------------
60,158,434
------------
Total Fixed Income Securities (Cost $278,065,860)
281,446,468
------------
Shares
-------------
Options Purchased - 0.0%
10 Year Future Option Dec 04 Call ....................... 213,544 190,000
10 Year Future Option Dec 04 Put ........................ 124,544 110,000
-------
Total Options Purchased (Identified Cost $388,088) 300,000
-------
Short-Term Investments 9.4%
State Street Navigator Securities Lending
Prime Portfolio ....................................... 63,355,290 63,355,290
-----------
Total Short-Term Investments (Cost $63,355,290) 63,355,290
-----------
16 The notes are an integral part of the financial statements.
Maturity Principal
Date Amount Value
------------ ------------- ---------------
Commercial Paper 9.9%
International Business
Machines Corp., 1.83% ....... 10/01/2004 $ 1,854,000 $ 1,854,000
International Lease Finance
Corp., 1.56% ................ 10/05/2004 12,000,000 11,997,920
International Lease Finance
Corp., 1.63% ................ 10/08/2004 2,950,000 2,949,065
International Lease Finance
Corp., 1.75% ................ 10/27/2004 12,000,000 11,984,833
UBS Finance Inc., 1.778% ...... 12/07/2004 10,855,000 10,819,242
E.I. du Pont de Nemours &
Co., 1.73% .................. 11/10/2004 10,939,000 10,918,094
General Electric Capital
Corp., 1.65% ................ 10/01/2004 2,789,000 2,789,000
General Electric Capital
Corp., 1.70% ................ 10/04/2004 12,428,000 12,426,240
General Electric Capital
Corp., 1.70% ................ 10/04/2004 1,600,000 1,599,773
------------
Total Commercial Paper (Cost $67,338,167) 67,338,167
------------
% of
Net Assets
------------
Summary of Portfolio Assets
Investments (Cost $726,817,488).............. 114.6% $ 777,095,704
Cash and Other Assets, Less Liabilities ..... (14.6%) (98,974,032)
----- -------------
Net Assets .................................. 100.0% $ 678,121,672
===== =============
Federal Income Tax Information
At September 30, 2004, the net
unrealized appreciation
of investments based on cost for
federal income tax
purposes of $729,072,867 was as
follows:
Aggregate gross unrealized
appreciation for all
investments in which there is an
excess of value over
tax cost $ 57,464,724
Aggregate gross unrealized
depreciation for all
investments in which there is an
excess of tax cost
over value (9,441,887)
------------
$ 48,022,837
============
ADR stands for American Depositary Receipt * Non-income-producing securities.
** A portion of these securities was pledged and segregated with the custodian
to cover margin requirements for futures contracts at September 30, 2004.
@ 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 September 30, 2004, were $2,668,194 and
$3,335,774 (0.49% of net assets), respectively.
+ Security restricted in accordance with Rule 144A under the Securities Act of
1933, which allows for the resale of such securities among certain qualified
institutional buyers. The total cost and market value of Rule 144A securities
owned at September 30, 2004, were $28,595,494 and $30,227,970 (4.28% of net
assets), respectively.
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.
# Interest rates on this floating-rate bond will reset annually or biannually
based on the six-months London Interbank Offered Rate (LIBOR) plus 0.8125%.
^ A portion of the security was held on loan. At September 30, 2004, the value
of securities loaned was $61,488,625.
Futures contracts open at September 30, 2004, are as follows:
Unrealized
Number of Notional Expiration Appreciation
Type Contracts Amount Currency Month (Depreciation)
- -------------------------------------------------------------------------------------------------------------------
Share Price Index 200 Long 155 14,082,985 AUD December 2004 $ 129,488
DJ Euro Stoxx 50 Index Long 573 15,948,882 EUR December 2004 (520,173)
FTSE 100 Index Long 82 3,781,445 GBP December 2004 60,941
Topix Index Long 267 3,039,720,000 JPY December 2004 (713,289)
Interest Rate Swap 10 Yr Long 20 2,182,278 USD December 2004 32,722
5-Year US Treasury Notes Short (67) (7,379,137) USD December 2004 (41,113)
10-Year US Treasury Notes Short (47) (5,293,375) USD December 2004 (19,917)
2-Year US Treasury Notes Short (70) (14,786,406) USD December 2004 821
------------
$ (1,070,520)
============
Forward currency exchange contracts outstanding at September 30, 2004, are as
follows:
Unrealized
Contract Appreciation Delivery
Transaction Total Value Price (Depreciation) Date
- ---------------------------------------------------------------------------------------------------------------------
Sell Australian Dollars, Buy U.S. dollars 1,890,000 AUD 1.38254 AUD $ (30,710) 10/13/04
Buy Euro, Sell U.S. dollars 15,200,000 EUR 0.80539 EUR 581,417 10/13/04
Buy Pound Sterling, Sell U.S. dollars 8,000,000 GBP 0.55317 GBP (50,776) 10/13/04
Buy Yen, Sell U.S. dollars 2,490,000,000 JPY 110.12075 JPY 178,302 10/13/04
---------
$ 678,233
=========
The notes are an integral part of the financial statements.
State Street Research Asset Allocation Fund 17
FINANCIAL
Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
September 30, 2004 (unaudited)
Assets
Investments, at value (Cost $726,817,488) (Note 1) ........... $777,095,704
Receivable for securities sold ............................... 25,758,864
Interest and dividends receivable ............................ 2,929,787
Receivable for fund shares sold .............................. 1,017,574
Receivable for open forward contracts ........................ 759,719
Receivable for futures variation margin ...................... 184,179
Other assets ................................................. 30,196
------------
807,776,023
------------
Liabilities
Payable for collateral received on securities loaned ......... 63,355,290
Payable for securities purchased ............................. 63,743,787
Accrued transfer agent and shareholder services .............. 743,712
Accrued management fee ....................................... 409,139
Payable for fund shares redeemed ............................. 388,350
Dividends payable ............................................ 276,724
Accrued distribution and service fees ........................ 250,936
Payable to custodian ......................................... 250,026
Payable for open forward contracts ........................... 81,486
Accrued trustees' fees ....................................... 19,070
Accrued administration fee ................................... 6,846
Other accrued expenses ....................................... 128,985
------------
129,654,351
------------
Net Assets ................................................... $678,121,672
============
Net Assets consist of:
Undistributed net investment income .......................... $ 4,428,153
Unrealized appreciation of investments ....................... 50,278,216
Unrealized depreciation of futures contracts ................. (1,070,520)
Unrealized appreciation of forward contracts ................. 678,232
Accumulated net realized loss ................................ (1,156,703)
Paid-in capital .............................................. 624,964,294
------------
$678,121,672
============
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Class Net Assets [divided by] Number of Shares = NAV
A $380,823,034 36,599,962 $ 10.41*
B(1) $139,761,324 13,496,211 $ 10.36**
B $ 83,088,059 8,016,169 $ 10.37**
C $ 54,199,570 5,208,985 $ 10.41**
S $ 20,249,685 1,944,268 $ 10.42
* Maximum offering price per share = $11.05 ($10.41 [divided by] 0.9425)
** Redemption price per share for Class B(1), Class B or Class C shares, is
equal to net asset value less any applicable contingent deferred sales
charge.
Statement of Operations
- --------------------------------------------------------------------------------
For the six months ended September 30, 2004 (unaudited)
Investment Income
Interest (Note 1) ............................................ $ 5,599,610
Dividends, net of foreign taxes of $20,159 (Note 1)........... 2,566,107
Securities lending income (Note 1) ........................... 79,641
-----------
8,245,358
-----------
Expenses
Management fee (Note 2) ...................................... 2,459,507
Transfer agent and shareholder services (Note 2) ............. 823,628
Distribution and service fees - Class A (Note 4) ............. 553,606
Distribution and service fees - Class B(1) (Note 4) .......... 679,300
Distribution and service fees - Class C (Note 4) ............. 240,986
Custodian fee ................................................ 162,360
Administration fee (Note 2) .................................. 57,442
Reports to shareholders ...................................... 37,515
Registration fees ............................................ 35,319
Trustees' fees (Note 2) ...................................... 21,381
Audit fee .................................................... 21,320
Legal fees ................................................... 4,255
Miscellaneous ................................................ 15,955
-----------
5,112,574
Fees paid indirectly (Note 2) ................................ (137)
-----------
5,112,437
3,132,921
-----------
Reimbursement of distribution fees (Note 4) .................. 294,508
-----------
Net investment income ........................................ 3,427,429
-----------
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency, Forward
Contracts, Futures Contracts and Options
Net realized gain on investments (Notes 1 and 3) ............. 3,649,629
Net realized loss on foreign currency and
forward contracts (Note 1) ................................. (598,359)
Net realized gain on futures contracts and
options (Note 1) ........................................... 757,577
-----------
Total net realized gain .................................. 3,808,847
-----------
Change in unrealized depreciation of investments ............. (10,625,954)
Change in unrealized depreciation of foreign currency
and forward contracts ...................................... (721,740)
Change in unrealized depreciation of
futures contracts .......................................... (2,820,682)
-----------
Total change in unrealized depreciation .................. (14,168,376)
-----------
Net loss on investments, foreign currency, forward
contracts and futures contracts and options ................ (10,359,529)
-----------
Net decrease in net assets resulting from operations ......... $(6,932,100)
===========
18 The notes are an integral part of the financial statements.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Six months ended
September 30, 2004 Year ended
(unaudited) March 31, 2004
-------------------- ---------------
Increase (Decrease) In Net Assets
Operations:
Net investment income ............ $ 3,427,429 $ 8,516,159
Net realized gain on
investments, foreign
currency, forward
contracts and future
contracts ...................... 3,808,847 88,662,078
Change in unrealized
appreciation
(depreciation)
of investments, foreign
currency, forward
contracts, and futures
contracts ...................... (14,168,376) 61,187,645
------------ ------------
Net increase (decrease)
resulting from operations (6,932,100) 158,365,882
------------ ------------
Dividends from net investment income:
Class A ........................ (2,876,865) (4,754,062)
Class B(1) ..................... (586,502) (865,650)
Class B ........................ (2,009,448) (2,034,133)
Class C ........................ (226,531) (237,660)
Class S ........................ (194,146) (378,790)
------------ ------------
(5,893,492) (8,270,295)
------------ ------------
Distribution from capital gains:
Class A ........................ (3,998,012) --
Class B(1) ..................... (1,483,977) --
Class B ........................ (1,041,508) --
Class C ........................ (500,365) --
Class S ........................ (236,632) --
------------ ------------
(7,260,494) --
------------ ------------
Net increase from fund
share transactions
(Note 6) ....................... 38,833,439 30,609,858
------------ ------------
Total increase in net assets ..... 18,747,353 180,705,445
Net Assets
Beginning of period .............. 659,374,319 478,668,874
------------ ------------
End of period (including
undistributed net
investment income of
$4,428,153 and
$4,682,594 respectively) $678,121,672 $659,374,319
============ ============
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
September 30, 2004
Note 1
State Street Research Asset Allocation Fund is a series of State Street Research
Income Trust (the "Trust"), which is organized as a Massachusetts business
trust, 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 Asset Allocation 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 uses an asset allocation strategy, investing in
varying percentages of its portfolio in three major categories: stocks, bonds
and, to a lesser extent, money market instruments. Drawing on its analysis of
financial trends and market conditions, the investment manager monitors and
adjusts those allocations from time to time. The fund has wide flexibility in
the relative weightings given to each category; however, it intends to remain
diversified across categories.
The fund offers five classes of shares. Class A shares are subject to an initial
sales charge of up to 5.75% and pay annual service and distribution fees equal
to 0.30% of average daily net assets. Class B(1) shares pay annual service and
distribution fees of 1.00% and 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 offered only to current shareholders
through reinvestment of dividends and distributions or through exchanges from
existing Class B accounts of State Street Research funds. Currently, the annual
service and distribution fees paid by Class B shares have been voluntarily
reduced to 0.00%. Class B shares automatically convert into Class A shares at
the end of eight years. 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, and also pay annual service and
distribution 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 investment management subsidiary of MetLife, Inc.
("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 service
or distribution fees. The fund's expenses are borne prorata 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. Income, expenses (other than service and distribution fees), and
unrealized and realized gains or losses on investments are allocated to each
class of shares based on its relative net assets. 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 accounting principles generally accepted in the United States of America.
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. In the event that the market quotations
for a portfolio instrument are not deemed to be readily available, the
Investment Adviser's Valuation Committee determines the fair value for such
portfo-
The notes are an integral part of the financial statements.
State Street Research Asset Allocation Fund 19
lio instrument. The fair value of any such portfolio instruments are determined
based upon a consideration of all available facts and information. The fair
valuation of a restricted portfolio instrument reflects the inherent worth of
the portfolio instrument, without regard to the restrictive feature, adjusted
for any diminution in value resulting from the restrictive feature. The
Investment Adviser and the Custodian also monitor domestic and foreign markets
and news information for any developing events that may have an impact on the
valuation of portfolio instruments. Such monitoring includes general market news
and financial market information sources currently utilized in making investment
decisions, trading and investment personnel located abroad, foreign regional
brokers, and/or foreign custodians. The value assigned to these securities is
based upon available information at the time, and does not necessarily represent
the amount which might ultimately be realized upon sale.
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.
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.
As part of the custodian contract between the custodian bank and the fund, the
custodian bank has a lien on the securities of the fund to the extent permitted
by the fund's investment restriction to cover any advances made by the custodian
bank for the settlement of securities purchased by the fund. At September 30,
2004, the payable to the custodian bank of $250,026 represents the amount due
for cash advance for the settlement of the security purchased.
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. All discounts/premiums are accreted/amortized. Certain fixed
income and equity 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. The fund is charged for expenses directly attributable to it, while
indirect expenses are allocated between both funds in the Trust.
E. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gains distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. The difference is primarily
due to differing treatments for 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 accounting principles
generally accepted in the United States of America 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 these estimates.
H. Securities Lending
The fund may seek additional income by lending portfolio securities to qualified
institutions. The fund will receive cash or securities as collateral in an
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the fund could realize additional gains and losses. If
the borrower fails to return the securities and the value of the collateral has
declined during the term of the loan, the fund will bear the loss. At September
30, 2004, the value of the securities loaned and the value of collateral were
$61,488,625 and $63,355,290 (consisting entirely of cash collateral invested in
State Street Navigator Securities Lending Prime Portfolio), respectively. During
the six months ended September 30, 2004, income from securities lending amounted
to $79,641.
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 future 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 has opened and
the value at the time it was closed.
The potential risk to the fund is that the change in value of futures contracts
may not correspond to the change in value of the hedged instruments. In
addition, losses may arise in changes from the value of the underlying
instruments, if there is an illiquid secondary market for the contracts, or if
the counterparty to the contract is unable to perform.
J. Options
The fund may use options to hedge against changes in values of securities the
fund owns or expects to purchase. Writing puts or buying calls tends to increase
the fund's exposure to the underlying instrument and writing calls or buying
puts tends to decrease the fund's exposure to the underlying instrument, or
hedge other fund investments.
For options purchased to hedge the fund's investments, the potential risk to the
fund is that the change in value of options contracts may correspond to the
change in value of the hedged instruments. In addition, losses may arise from
changes in the value of the underlying instruments, if there is an illiquid
secondary market, or if the counter party is unable to perform. The maximum loss
for purchased options is limited to the premium initially paid for the option.
For options written by the fund, the maximum loss is not limited to the premium
initially received for the option.
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 six
20
months ended September 30, 2004, the fees pursuant to such agreement amounted to
$2,459,507.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), 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, MetLife 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. Total shareholder service costs are
allocated to each fund in the same ratios as the transfer agent costs. During
the six months ended September 30, 2004, the amount of such expenses allocated
to the fund was $278,047.
The fund has entered into an arrangement with its custodian whereby credits
realized as a result of directed brokerage commissions, were used to reduce a
portion of the fund's expenses. During the six months ended September 30, 2004,
the funds custodian fees were reduced by $137 under this arrangement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$21,381 during the six months ended September 30, 2004.
The fund has agreed to pay the Adviser for certain administrative costs incurred
in providing other assistance and services to the fund. The fee was based on a
fixed amount that has been allocated equally among the State Street Research
funds. During the six months ended September 30, 2004, the amount of such
expenses was $57,442.
Note 3
For the six months ended September 30, 2004, purchases and sales of securities,
exclusive of short-term obligations, aggregated $607,745,049, and $576,514,625,
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 0.05% of average daily net assets for Class A shares and
0.75% of average daily net assets for Class B(1), Class B and Class C shares.
Currently, the annual service and distribution fees paid by Class B shares have
been voluntarily waived to 0.00%. The fund expects this waiver to continue,
although there is no guarantee that it will. The Distributor uses such payments
for personal services and/or the maintenance of shareholder accounts, to
reimburse securities dealers for distribution and marketing services, to furnish
ongoing assistance to investors and to defray a portion of its distribution and
marketing expenses. For the six months ended September 30, 2004, fees pursuant
to such plans amounted to $553,606, $679,300, and $240,986 for Class A, Class
B(1) and Class C shares, respectively. For Class A, Class B and Class C shares,
the payments are intended to reimburse the distributor for expenditures incurred
under the plan, and any unused payments are returnable to the fund. During the
six months ended September 30, 2004, the Distributor reimbursed a total of
$294,508 to Class B shares of the fund reflecting the estimated excess of
payments received over costs incurred under the plan. This amount is shown as
"Reimbursement of distribution fees" in the Statement of Operations. For Class
B(1), the payments compensate the distributor for services and expenditures
incurred under the plan, and none of the payments are returnable to the fund. As
of September 30, 2004, there were $3,625,865, $16,629 and $2,225,942 for Class
A, Class B, and Class C shares, respectively, of unreimbursed distribution and
shareholder servicing related expenses to be carried forward to future plan
years.
The fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of MetLife, earned initial sales charges aggregating
$1,416,764 and $5,829,512, respectively, on sales of Class A shares of the fund
during the six months ended September 30, 2004, and that MetLife Securities,
Inc. earned commissions aggregating $6,003,620 and $133,336 on sales of Class
B(1) and Class C shares, respectively, and the Distributor collected contingent
deferred sales charges aggregating $202,535, $424 and $6,810 on redemptions of
Class B(1), Class B and Class C shares, respectively, during the same period.
Note 5
MetLife announced that it has entered into an agreement to sell the Adviser as
part of a larger transaction to sell MetLife's asset management business to
BlackRock, Inc. ("BlackRock"). The acquisition by BlackRock of MetLife's asset
management business is expected to occur in the first quarter of 2005. At the
time of the closing, the advisory agreement between the fund and the Adviser and
the distribution agreement between the fund and the Distributor will be
terminated. BlackRock Advisors, Inc. and BlackRock Distributors, Inc., wholly
owned subsidiaries of BlackRock, will serve as investment adviser and
distributor, respectively.
A Special Meeting of Shareholders of the fund has been tentatively scheduled for
December 2004. At this meeting, shareholders of the fund will be asked to
consider and approve a plan of reorganization between the fund and the BlackRock
Balanced Portfolio. If the proposed reorganization is approved by shareholders
of the fund, the BlackRock Balanced Portfolio would acquire substantially all of
the assets and liabilities of the fund. In exchange, shareholders of the fund
would receive shares of the BlackRock Balanced Portfolio with an aggregate value
equivalent to the aggregate net asset value of their fund shares at the time of
the transaction. If the proposed reorganization is not approved by shareholders
of the fund, the Board of Trustees will need to consider other alternatives
relating to the management and operations of the fund, including without
limitations, seeking an alternative investment adviser for the fund or seeking
shareholder approval to liquidate the fund.*
* The foregoing is not an offer to sell, nor a solicitation of an offer to buy,
shares of any fund, nor is it a solicitation of any proxy.
State Street Research Asset Allocation Fund 21
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest at $0.001 par value per share. These transactions break down
by share class as follows:
Six months ended
September 30, 2004 Year ended
(unaudited) March 31, 2004
---------------------------------------------------------------
Class A Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
Shares sold 5,872,142 $ 61,202,918 9,195,420 $ 89,241,391
Issued upon reinvestment of:
Dividends from net investment income 261,214 2,737,273 462,905 4,546,908
Distribution from capital gains 381,072 3,856,443 -- --
Shares redeemed (3,241,214) (33,622,384) (7,153,346) (67,864,926)
---------- ------------- ---------- -------------
Net increase 3,273,214 $ 34,174,250 2,504,979 $ 25,923,373
========== ============= ========== =============
Class B(1) Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
Shares sold 1,753,514 $ 18,162,574 4,525,455 $ 43,919,902
Issued upon reinvestment of:
Dividends from net investment income 52,784 550,366 84,483 817,086
Distribution from capital gains 140,799 1,416,441 -- --
Shares redeemed (932,887) (9,620,506) (1,463,343) (14,138,963)
-------- ------------ ---------- -------------
Net increase 1,014,210 $ 10,508,875 3,146,595 $ 30,598,025
======== ============ ========== =============
Class B Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
Shares sold 127,271 $ 1,559,475 519,032 $ 5,085,516
Issued upon reinvestment of:
Dividends from net investment income 207,569 1,940,502 202,616 1,974,376
Distribution from capital gains 99,351 1,012,382 -- --
Shares redeemed (2,153,262) (22,374,148) (4,901,897) (47,731,472)
---------- ------------ ---------- ------------
Net decrease (1,719,071) $(17,861,789) (4,180,249) $(40,671,580)
========== ============ ========== ============
Class C Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
Shares sold 1,557,951 $ 16,188,229 1,980,006 $ 19,760,160
Issued upon reinvestment of:
Dividends from net investment income 19,558 205,311 23,301 225,953
Distribution from capital gains 45,876 463,806 -- --
Shares redeemed (356,867) (3,698,125) (392,657) (3,818,212)
-------- ------------ --------- ------------
Net increase 1,266,518 $13,159,221 1,610,650 $ 16,167,901
========= ============ ========= ============
Class S Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
Shares sold 200,488 $ 2,063,365 290,764 $ 2,764,953
Issued upon reinvestment of:
Dividends from net investment income 18,459 193,605 38,395 376,594
Distribution from capital gains 23,310 236,132 -- --
Shares redeemed (349,047) (3,640,220) (476,957) (4,549,408)
-------- ----------- -------- -----------
Net decrease (106,790) $(1,147,118) (147,798) $(1,407,861)
======== =========== ======== ===========
22
FINANCIAL
Highlights
For a share outstanding throughout each period:
Class A
------------------------------------------------
Six months ended Years ended March 31
September 30, 2004 ----------------------------
(unaudited)(a) 2004(a) 2003(a)(g)
------------------- ------------ ---------------
Net asset value, beginning of period ($) 10.72 8.18 10.19
----- ------ ------
Net investment income ($) 0.06 0.14 0.17
Net realized and unrealized gain (loss) on investments ($) (0.17) 2.55 ( 1.93)
------ ------ -------
Total from investment operations ($) (0.11) 2.69 ( 1.76)
------ ------ -------
Dividends from net investment income ($) (0.08) ( 0.15) ( 0.21)
Distributions from capital gains ($) (0.12) -- ( 0.04)
------ ------- -------
Total distributions ($) (0.20) ( 0.15) ( 0.25)
------ ------- -------
Net asset value, end of period ($) 10.41 10.72 8.18
====== ======= =======
Total return (%)(b) (0.94)(c) 32.94 (17.37)
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 380,823 357,100 252,069
Expense ratio (%) 1.41 (d) 1.45 1.43
Expense ratio after expense reductions (%) 1.41 (d) 1.45 1.42
Ratio of net investment income to average net assets (%) 1.10 (d) 1.43 1.92
Portfolio turnover rate (%) 90.99 215.62 180.68
Class A
-------------------------------------------------
Years ended March 31
-------------------------------------------------
2002(a)(f)(g) 2001(a)(g) 2000(a)(g)
------------------ --------------- --------------
Net asset value, beginning of period ($) 10.10 11.69 10.40
------ ------ ------
Net investment income ($) 0.20 0.28 0.24
Net realized and unrealized gain (loss) on investments ($) 0.60 ( 0.29) 1.48
------ ------- ------
Total from investment operations ($) 0.80 ( 0.01) 1.72
------ ------- ------
Dividends from net investment income ($) ( 0.22) ( 0.22) ( 0.22)
Distributions from capital gains ($) ( 0.49) ( 1.36) ( 0.21)
------- ------- -------
Total distributions ($) ( 0.71) ( 1.58) ( 0.43)
------- ------- -------
Net asset value, end of period ($) 10.19 10.10 11.69
======= ======= =======
Total return (%)(b) 8.15 0.29 16.88
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 320,614 272,813 304,400
Expense ratio (%) 1.41 1.46 1.30
Expense ratio after expense reductions (%) 1.40 1.44 1.29
Ratio of net investment income to average net assets (%) 1.95 2.61 2.23
Portfolio turnover rate (%) 185.79 180.98 122.57
Class B(1)
------------------------------------------------
Six months ended Years ended March 31
September 30, 2004 ----------------------------
(unaudited)(a) 2004(a) 2003(a)(g)
------------------- ------------ ---------------
Net asset value, beginning of period ($) 10.66 8.14 10.13
----- ------ ------
Net investment income ($) 0.02 0.07 0.11
Net realized and unrealized gain (loss) on investments ($) (0.16) 2.53 ( 1.91)
------ ------ -------
Total from investment operations ($) (0.14) 2.60 ( 1.80)
------ ------ -------
Dividends from net investment income ($) (0.04) ( 0.08) ( 0.15)
Distributions from capital gains ($) (0.12) -- ( 0.04)
------ ------- -------
Total distributions ($) (0.16) ( 0.08) ( 0.19)
------ ------- -------
Net asset value, end of period ($) 10.36 10.66 8.14
====== ======= =======
Total return (%)(b) (1.28)(c) 32.03 (17.91)
Ratios/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 139,761 133,083 75,963
Expense ratio (%) 2.11(d) 2.15 2.13
Expense ratio after expense reductions (%) 2.11(d) 2.15 2.12
Ratio of net investment income to average net assets (%) 0.39(d) 0.72 1.22
Portfolio turnover rate (%) 90.99 215.62 180.68
Class B(1)
-------------------------------------------------
Years ended March 31
-------------------------------------------------
2002(a)(f)(g) 2001(a)(g) 2000(a)(g)
------------------ --------------- --------------
Net asset value, beginning of period ($) 10.05 11.63 10.36
------ ------ ------
Net investment income ($) 0.12 0.19 0.17
Net realized and unrealized gain (loss) on investments ($) 0.60 ( 0.27) 1.45
------ ------- ------
Total from investment operations ($) 0.72 ( 0.08) 1.62
------ ------- ------
Dividends from net investment income ($) ( 0.15) ( 0.14) ( 0.14)
Distributions from capital gains ($) ( 0.49) ( 1.36) ( 0.21)
------- ------- -------
Total distributions ($) ( 0.64) ( 1.50) ( 0.35)
------- ------- -------
Net asset value, end of period ($) 10.13 10.05 11.63
======= ======= =======
Total return (%)(b) 7.30 ( 0.35) 15.93
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 81,440 56,543 36,045
Expense ratio (%) 2.11 2.19 2.05
Expense ratio after expense reductions (%) 2.10 2.17 2.04
Ratio of net investment income to average net assets (%) 1.25 1.86 1.48
Portfolio turnover rate (%) 185.79 180.98 122.57
Class B
-----------------------------------
Years ended
March 31
Six months ended ----------------
September 30, 2004 2004(a)(e)
(unaudited)(a)(e) ---------------
Net asset value, beginning of period ($) 10.78 8.16
----- ------
Net investment income ($) 0.10 0.24
Net realized and unrealized gain (loss) on investments ($) (0.15) 2.56
------ ------
Total from investment operations ($) (0.05) 2.80
------ ------
Dividends from net investment income ($) (0.24) ( 0.18)
Distributions from capital gains ($) (0.12) --
------ -------
Total distributions ($) (0.36) ( 0.18)
------ -------
Net asset value, end of period ($) 10.37 10.78
====== =======
Total return (%)(b) (0.50)(c) 34.53
Ratios/Supplemental Data:
- --------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 83,088 104,939
Expense ratio (%) 1.11(d) 1.15
Expense ratio after expense reductions (%) 1.11(d) 1.15
Ratio of net investment income to average net assets (%) 2.04(d) 2.55
Portfolio turnover rate (%) 90.99 215.62
Class B
-----------------------------------------------------------------
Years ended March 31
-----------------------------------------------------------------
2003(a)(g) 2002(a)(f)(g) 2001(a)(g) 2000(a)(g)
--------------- ------------------ --------------- --------------
Net asset value, beginning of period ($) 10.17 10.07 11.65 10.36
------ ------ ------ ------
Net investment income ($) 0.20 0.14 0.20 0.16
Net realized and unrealized gain (loss) on investments ($) ( 1.93) 0.60 ( 0.29) 1.47
------- ------ ------- ------
Total from investment operations ($) ( 1.73) 0.74 ( 0.09) 1.63
------- ------ ------- ------
Dividends from net investment income ($) ( 0.24) ( 0.15) ( 0.13) ( 0.13)
Distributions from capital gains ($) ( 0.04) ( 0.49) ( 1.36) ( 0.21)
------- ------- ------- -------
Total distributions ($) ( 0.28) ( 0.64) ( 1.49) ( 0.34)
------- ------- ------- -------
Net asset value, end of period ($) 8.16 10.17 10.07 11.65
======= ======= ======= =======
Total return (%)(b) (17.15) 7.56 ( 0.41) 15.98
Ratios/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 113,566 232,871 288,061 338,838
Expense ratio (%) 1.13 1.94 2.19 2.05
Expense ratio after expense reductions (%) 1.12 1.93 2.17 2.04
Ratio of net investment income to average net assets (%) 2.20 1.38 1.89 1.48
Portfolio turnover rate (%) 180.68 185.79 180.98 122.57
State Street Research Asset Allocation Fund 23
Class C
------------------------------------------------
Six months ended Years ended March 31
September 30, 2004 ----------------------------
(unaudited)(a) 2004(a) 2003(a)(g)
------------------- ------------ ---------------
Net asset value, beginning of period ($) 10.72 8.18 10.19
----- ------ ------
Net investment income ($) 0.02 0.07 0.11
Net realized and unrealized gain (loss) on Investments ($) (0.16) 2.55 ( 1.93)
------ ------ -------
Total from Investment operations ($) (0.14) 2.62 ( 1.82)
------ ------ -------
Dividends from net investment Income ($) (0.05) ( 0.08) ( 0.15)
Distributions from capital gains ($) (0.12) -- ( 0.04)
------ ------- -------
Total distributions ($) (0.17) ( 0.08) ( 0.19)
------ ------- -------
Net asset value, and of period ($) 10.41 10.72 8.18
====== ======= =======
Total return (%)(b) (1.35)(c) 32.14 (17.96)
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 54,200 42,262 19,079
Expense ratio (%) 2.11(d) 2.15 2.13
Expense ratio after expense deductions (%) 2.11(d) 2.15 2.12
Ratio of net investment income to average net assets (%) 0.40(d) 0.72 1.21
Portfolio turnover rate (%) 90.99 215.62 180.68
Class C
-------------------------------------------------
Years ended March 31
-------------------------------------------------
2002(a)(f)(g) 2001(a)(g) 2000(a)(g)
------------------ --------------- --------------
Net asset value, beginning of period ($) 10.10 11.67 10.38
------ ------ ------
Net investment income ($) 0.13 0.20 0.16
Net realized and unrealized gain (loss) on Investments ($) 0.59 ( 0.28) 1.47
------ ------- ------
Total from Investment operations ($) 0.72 ( 0.08) 1.63
------ ------- ------
Dividends from net investment Income ($) ( 0.14) ( 0.13) ( 0.13)
Distributions from capital gains ($) ( 0.49) ( 1.36) ( 0.21)
------- ------- -------
Total distributions ($) ( 0.63) ( 1.49) ( 0.34)
------- ------- -------
Net asset value, and of period ($) 10.19 10.10 11.67
======= ======= =======
Total return (%)(b) 7.31 ( 0.35) 15.93
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 13,226 12,687 17,093
Expense ratio (%) 2.11 2.19 2.05
Expense ratio after expense deductions (%) 2.10 2.17 2.04
Ratio of net investment income to average net assets (%) 1.26 1.89 1.47
Portfolio turnover rate (%) 185.79 180.98 122.57
Class S
------------------------------------------------
Six months ended Years ended March 31
September 30, 2004 ----------------------------
(unaudited)(a) 2004(a) 2003(a)(g)
------------------- ------------ ---------------
Net asset value, beginning of period ($) 10.72 8.18 10.19
----- ------ ------
Net investment income ($) 0.07 0.17 0.20
Net realized and unrealized gain (loss) on Investments ($) (0.15) 2.55 ( 1.93)
------ ------ -------
Total from investment operations ($) (0.08) 2.72 ( 1.73)
------ ------ -------
Dividends from net investment Income ($) (0.10) ( 0.18) ( 0.24)
Distributions from capital gains ($) (0.12) -- ( 0.04)
------ ------- -------
Total distributions ($) (0.22) ( 0.18) ( 0.28)
------ ------- -------
Net asset value, end of period ($) 10.42 10.72 8.18
====== ======= =======
Total return (%)(b) (0.80)(c) 33.46 (17.12)
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 20,250 21,989 17,992
Expense ratio (%) 1.11(d) 1.15 1.13
Expense ratio after expense reductions (%) 1.11(d) 1.15 1.12
Ratio of net investment income to average net assets (%) 1.40(d) 1.74 2.21
Portfolio turnover rate (%) 90.99 215.62 180.68
Class S
-------------------------------------------------
Years ended March 31
-------------------------------------------------
2002(a)(f)(g) 2001(a)(g) 2000(a)(g)
------------------ --------------- --------------
Net asset value, beginning of period ($) 10.10 11.69 10.40
------ ------ -------
Net investment income ($) 0.23 0.30 0.29
Net realized and unrealized gain (loss) on Investments ($) 0.60 ( 0.29) 1.46
------ ------- -------
Total from investment operations ($) 0.83 0.01 1.75
------ ------- -------
Dividends from net investment Income ($) ( 0.25) ( 0.24) ( 0.25)
Distributions from capital gains ($) ( 0.49) ( 1.36) ( 0.21)
------- ------- -------
Total distributions ($) ( 0.74) ( 1.60) ( 0.46)
------- ------- -------
Net asset value, end of period ($) 10.19 10.10 11.69
======= ======= =======
Total return (%)(b) 8.47 0.56 17.17
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 26,821 26,917 23,316
Expense ratio (%) 1.11 1.19 1.05
Expense ratio after expense reductions (%) 1.10 1.17 1.04
Ratio of net investment income to average net assets (%) 2.27 2.85 2.62
Portfolio turnover rate (%) 185.79 180.98 122.57
(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) During the periods ended March 31, 2004, and September 30, 2004, the
Distributor reimbursed Class B shares of the fund the estimated excess of
payments received over costs incurred under the 12B-1 plan. The effect of
this reimbursement was to increase net investment income per share $0.07
and $0.03, respectively, increase the total return 0.80% and 0.34%,
respectively, and increase the ratio of net investment income to average
net assets 0.80% and 0.65%, respectively.
(f) Effective April 1, 2001, the fund has adopted the provisions on the AICPA
Audit and Accounting Guide, Audit of Investment Companies and began
amortizing premium on all fixed income securities. The effect of this
change for the year ended March 31, 2002, was to decrease net investment
income per share by $0.01, increase net realized and unrealized gain per
share by $0.01, and decrease the ratio of net investment income in average
and assets by 0.13%. The statement of changes and financial highlights for
the period prior to April 1, 2001, have not been restated for this change
in policy.
(g) Audited by other auditors
24
TRUSTEES AND OFFICERS
State Street Research Income Trust
Name, Position(s) Term of Office
Address Held with and Length of
and Age(a) Fund Time Served(b)
- -------------------------------------------------------------------------------
Independent Trustees
Bruce R. Bond Trustee Since
(58) 1999
Peter S. Drotch Trustee Since
(62) 2004
Steve A. Garban Trustee Since
(67) 1997
Susan M. Phillips Trustee Since
(59) 1999
Toby Rosenblatt Trustee Since
(66) 1993
Michael S. Trustee Since
Scott Morton (67) 1987
- -------------------------------------------------------------------------------
Interested Trustees
Richard S. Davis(+) Trustee Since
(59) 2000
- -------------------------------------------------------------------------------
Officers
Donald G. DeVeuve Vice Since
(47) President 2001
C. Kim Goodwin Vice Since
(45) President 2002
John S. Lombardo Vice Since
(49) President 2001
Mark A. Marinella Vice Since
(46) President 2003
Elizabeth M. Vice Since
Westvold (44) President 2003
Douglas A. Romich Treasurer Since
(47) 2001
Number of Funds
Name, in Fund Complex
Address Principal Occupations Overseen by
and Age(a) During Past 5 Years Trustee/Officer(c)
Independent Trustees
- --------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Retired; formerly Chairman of the Board, Chief Executive Officer and 19
(58) President, PictureTel Corporation (video conferencing systems)
Peter S. Drotch Retired; formerly Partner, PricewaterhouseCoopers LLP 19
(62)
Steve A. Garban Retired; formerly Senior Vice President for Finance and Operations and 53
(67) Treasurer, The Pennsylvania State University
Susan M. Phillips Dean, School of Business and Public Management, George Washington 19
(59) University; formerly a member of the Board of Governors of the Federal
Reserve System; and Chairman and Commissioner of the Commodity Futures
Trading Commission
Toby Rosenblatt President, Founders Investments Ltd. (investments); President, Pacific Four 53
(66) Investments (investments); formerly President, The Glen Ellen Company
(private investment firm)
Michael S. Jay W. Forrester Professor of Management (Emeritus), Sloan School of 53
Scott Morton (67) Management, Massachusetts Institute of Technology
Interested Trustees
Richard S. Davis(+) Chairman of the Board, President and Chief Executive Officer of State Street 19
(59) Research & Management Company; formerly Senior Vice President, Fixed
Income Investments, Metropolitan Life Insurance Company
Officers
Donald G. DeVeuve Senior Vice President of State Street Research & Management Company; 6
(47) formerly Vice President, State Street Research & Management Company
C. Kim Goodwin Managing Director and Chief Investment Officer - Equities of State Street 18
(45) Research & Management Company; formerly Chief Investment Officer -
U.S. Growth Equities, American Century
John S. Lombardo Managing Director, Chief Financial Officer and Director of State Street 19
(49) Research & Management Company; formerly Executive Vice President, State
Street Research & Management Company; and Senior Vice President,
Product and Financial Management, MetLife Auto & Home
Mark A. Marinella Managing Director and Chief Investment Officer - Fixed Income of State 9
(46) Street Research & Management Company; formerly Executive Vice President
and Senior Vice President, State Street Research & Management Company;
and Chief Investment Officer and Head of Fixed Income, Columbia
Management Group
Elizabeth M. Managing Director of State Street Research & Management Company; 8
Westvold (44) formerly Senior Vice President, State Street Research & Management
Company
Douglas A. Romich Senior Vice President and Treasurer of State Street Research & Management 19
(47) Company; formerly Vice President and Assistant Treasurer, State Street
Research & Management Company
Name, Other
Address Directorships Held
and Age(a) by Trustee/Officer
- -------------------------------------------------------------------------------
Independent Trustees
Bruce R. Bond Avaya Inc.
(58)
Peter S. Drotch First Marblehead Corp.
(62)
Steve A. Garban Metropolitan Series Fund, Inc. and
(67) Metropolitan Series Fund II
Susan M. Phillips The Kroger Co.
(59)
Toby Rosenblatt A.P. Pharma, Inc.; Metropolitan Series
(66) Fund, Inc.; and Metropolitan Series
Fund II
Michael S. Metropolitan Series Fund, Inc. and
Scott Morton (67) Metropolitan Series Fund II
- -------------------------------------------------------------------------------
Interested Trustees
Richard S. Davis(+) None
(59)
- -------------------------------------------------------------------------------
Officers
Donald G. DeVeuve None
(47)
C. Kim Goodwin Akamai Technologies, Inc.
(45)
John S. Lombardo None
(49)
Mark A. Marinella None
(46)
Elizabeth M. None
Westvold (44)
Douglas A. Romich None
(47)
The fund's Statement of Additional Information includes additional information
about the fund's trustees, and is available without charge, by contacting State
Street Research, One Financial Center, Boston, Massachusetts 02111-2690, or by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637).
(a) The address of each person is c/o State Street Research & Management
Company, One Financial Center, Boston, MA 02111-2690.
(b) A Trustee serves until he or she retires, resigns or is removed as provided
in the master trust agreement of the respective Trust. Each Trust has
adopted a mandatory retirement age of 72. Each officer holds office until he
or she resigns, is removed or a successor is elected.
(c) Includes all series of 9 investment companies for which State Street
Research & Management Company serves as sole investment adviser and all
series of Metropolitan Series Fund, Inc. and Metropolitan Series Fund II.
The primary adviser to Metropolitan Series Fund, Inc. and Metropolitan
Series Fund II is MetLife Advisers, LLC, which has retained State Street
Research & Management Company as sub-adviser to certain series of
Metropolitan Series Fund, Inc.
(+) Mr. Davis is an "interested person" of the Trust under the Investment
Company Act of 1940 by reason of his affiliation with the Trust's Investment
Manager, State Street Research & Management Company, as noted.
State Street Research Asset Allocation Fund 25
[GRAPHIC]
STATE STREET RESEARCH
One Financial Center
Boston, MA 02111-2690
New accounts, mutual fund purchases,
exchanges and account information
Internet www.ssrfunds.com
E-mail info@ssrfunds.com
Phone 1-87-SSR-FUNDS (1-877-773-8637) toll-free, 7 days a week, 24 hours a
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1-888-638-3193
Fax 1-617-737-9722 (request confirmation number
first from the Service Center by calling 1-877-773-8637
Mail State Street Research Service Center
P.O. Box 8408, Boston, MA 02266-8408
Did You Know?
State Street Research offers electronic delivery of quarterly statements,
shareholder reports and fund prospectuses. If you elect this option, we will
send these materials to you via e-mail. To learn more, visit us on the Web at
www.ssrfunds.com and click on "Go to Your Account" or call us at 1-87-SSR-FUNDS
(1-877-773-8637).
Did you know that you can give a State Street Research mutual fund as a gift?
Call a service center representative at 1-87-SSR-FUNDS (1-877-773-8637), Monday
through Friday, 8am-6pm eastern time, to learn more.
[GRAPHIC]
for Excellence in
Shareholder Communications
[GRAPHIC]
for Excellence in Service
Investors should carefully consider the fund's investment objective, risks,
charges and expenses before investing. The fund's prospectus contains more
complete information on these and other matters. A prospectus for any State
Street Research fund is available through your financial professional, by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637) or by visiting our website at
www.ssrfunds.com. Please read the prospectus carefully before investing.
OverView
For more information on the products and services we offer, refer to OverView,
our quarterly shareholder newsletter.
Webcasts
For a professional perspective on the markets, the economy and timely investment
topics, tune in to a State Street Research webcast by visiting our website at
www.ssrfunds.com.
Complete Fund Listing
For a list of our funds, visit our website at www.ssrfunds.com under Research
Our Funds.
This report must be accompanied or preceded by a current prospectus. When used
as sales material after December 31, 2004, this report must be accompanied by a
current Quarterly Performance Update.
"State Street Research Proxy Voting Policies and Procedures"--which describes
how we vote proxies relating to portfolio securites-- is available upon request,
free of charge, by calling the State Street Research Service Center toll-free at
1-87-SSR-FUNDS (1-877-773-8637) or by accessing the U.S. Securities and Exchange
Commission website at www.sec.gov.
The DALBAR awards recognize quality shareholder service and quality shareholder
communications, 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 industrywide.
Member NASD, SIPC
(c)2004 State Street Research Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
www.ssrfunds.com
CONTROL NUMBER: (exp1105)SSR-LD AA-3720-1104
<Page>
[STATE STREET RESEARCH LOGO]
High Income Fund
September 30, 2004
Semiannual Report to Shareholders
Table of Contents
3 Performance Discussion
4 About Your Fund Expenses
5 Portfolio Holdings
9 Financial Statements
14 Financial Highlights
16 Trustees and Officers
FROM THE CHAIRMAN
State Street Research
The U.S. economy grew at a solid pace during the six-month period from April 1,
2004 to September 30, 2004. Gross Domestic Product (GDP), a common measure of
economic growth, rose at a pace of more than 3.5% for the first half of 2004.
Estimates for second half suggest that the pace of growth could have picked up
somewhat, as the US economy remains on solid ground.
Consumer confidence wavered early in the period as the number of new jobs added
to the economy fell below expectations. When the job picture brightened in April
and May, consumer confidence tracked higher. More than 1.2 million jobs were
added to the U.S. economy in the spring, and the quality of new jobs improved,
as reported by the U.S. Labor Department. However, caution returned on
disappointing jobs reports in July and August and consumer confidence pulled
back.
Yet, consumers continued to fuel the economy, pumping dollars into the retail
and housing markets. Sales of new and existing homes soared as homebuyers
anticipated higher mortgage rates ahead. Corporate profits continued to rise,
making it easier for companies to increase spending, especially on information
technology, electronic equipment and new jobs.
As the period wore on, it became clear that the days of record-low short-term
interest rates were coming to an end. In June, the Federal Reserve Board raised
the federal funds rate from 1.0% to 1.25%. The Fed raised this key short-term
rate to 1.5% in August and to 1.75% in September. These increases had little or
no impact on the financial markets because they had been widely anticipated and
because the Fed has signaled that it will take a measured approach to raising
rates as the economic recovery matures.
Stocks Stumble as Bonds Edge Higher
After a relatively positive start to the calendar year, a host of worries
stopped the major stock market indexes in their tracks. Investors grew more
cautious about interest rates, rising energy prices, the threat of terrorist
attacks and the outcome of the presidential election and stocks retreated. Value
stocks held up considerably better than growth stocks. The energy sector was the
stock market's strongest performer.
High-yield bonds continued to lead the bond market. Most other sectors of the
bond market eked out modest positive returns as the yield on the benchmark
10-year U.S. Treasury bond moved lower in the final months of the period. Yields
and bond prices move in opposite directions.
Looking Ahead
Any time the financial markets deliver negative returns, it is disheartening for
investors. However, the seeds of a new market rally are often sown in periods of
weakness and decline. With a diversified portfolio and a long-term perspective
on the markets, it is easier to weather periods of volatility--and more likely
that you may reap the potential benefits in better times. We urge you to talk to
your investment professional about your investment plan. And we look forward to
helping you achieve your long-term financial goals.
Sincerely,
/s/ Richard S. Davis
Richard S. Davis
Chairman
September 30, 2004
2
PERFORMANCE
Discussion as of September 30, 2004
How State Street Research High Income Fund Performed
State Street Research High Income Fund (Class A shares, without sales charge)
returned 3.53% for the six-month period ended September 30, 2004. That was
higher than its peer group, the Lipper High Current Yield Funds Average, which
was 3.43% for the period. However, the fund underperformed the CSFB Global High
Yield II Index, which returned 4.29% over the same period.
Performance
- ------------------------------------------------------------
Fund average annual total return as of 9/30/04
(does not reflect sales charge)
1 Year 5 Years 10 Years
Class A 11.45% 0.08% 4.01%
- --------------------------------------------------------
Class B(1) 10.83% -0.61% 3.25%
- --------------------------------------------------------
Class B (closed) 12.32% -0.34% 3.41%
- --------------------------------------------------------
Class C 10.77% -0.66% 3.24%
- --------------------------------------------------------
Class S 11.93% 0.37% 4.28%
- --------------------------------------------------------
Fund average annual total return as of 9/30/04
(at maximum applicable sales charge)
1 Year 5 Years 10 Years
Class A 6.43% -0.84% 3.53%
- --------------------------------------------------------
Class B(1) 5.83% -0.88% 3.25%
- --------------------------------------------------------
Class B (closed) 7.32% -0.61% 3.41%
- --------------------------------------------------------
Class C 9.77% -0.66% 3.24%
- --------------------------------------------------------
Class S 11.93% 0.37% 4.28%
- --------------------------------------------------------
Keep in mind that the performance data quoted represents past performance and is
no guarantee of future results. Current performance may be lower or higher than
the performance data quoted herein. For the most recent month-end performance
results, visit our website at www.ssrfunds.com. 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 returns shown do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
Average annual total return without sales charge does not reflect the maximum
applicable sales charges. If the applicable sales charges were deducted,
performance results would be lower.
Average annual total return at maximum applicable sales charge reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B(1) or B share
or 1% Class C share contingent deferred sales charge (CDSC) where applicable.
Performance for Class B(1) shares reflects Class B share performance through
December 31, 1998, and Class B(1) performance thereafter. If the returns for
Class B(1) shares had reflected their current service/ distribution (Rule 12b-1)
fees for the entire period, these returns would have been lower.
Class S shares, offered without sales charge, are available through certain
employee benefit plans and special programs.
The Lipper High Current Yield Funds Average shows the performance of a category
of mutual funds with similar goals. The Lipper average shows you how well the
fund has done compared to competing funds.
The CSFB Global High Yield II Index mirrors the public high-yield debt market,
representing a total of 250 different sectors within this market. The index is
unmanaged and does not take transaction charges into consideration. It is not
possible to invest directly in an index.
Reasons for the Fund's Performance
Early in the period, the high-yield sector underperformed Treasuries as mixed
economic news and increased geopolitical risk pressured the sector. However,
high-yield performance picked up in the second half of the period as the economy
put a "soft patch" behind it. High-yield led the fixed income markets for the
six-month reporting period.
The fund lost out on some performance because it had lower exposure to the
lowest-quality CCC-rated issues than its benchmark. CCC-rated issues
outperformed higher-rated, more stable issues during the period. However, this
disappointment was somewhat offset by strong performance from B-rated
securities, where the fund's exposure was higher than that of its benchmark.
An emphasis on securities in the chemical industry helped the fund's return
because chemical bonds were strong performers. Our decision to underweight the
utilities sector was also rewarded as the sector lagged during the period.
Looking Ahead
We continue to believe that the high-yield sector has the potential to generate
competitive returns relative to other fixed income alternatives. However, after
more than a year of strong price appreciation, the high-yield bond sector
appears to be at or near full value. In this environment, we believe that
security selection and risk avoidance will be key factors in performance.
A Word about Risk
The major risks of investing in high-yield, high-risk debt securities-- often
referred to as "junk bonds"--include the tendency for prices to fall when the
economy is sluggish or overall corporate earnings are weak. High-yield,
high-risk debt securities reflect a greater possibility that adverse changes in
an issuer's business or financial condition, or in general economic conditions,
may impair the issuer's ability to pay principal and interest on the securities.
The value of any bonds held by the fund is likely to decline when interest rates
rise; this risk is greater for bonds with longer maturities.
Quality Distribution (unaudited; as of 9/30/04)
- --------------------------------------------------
% of Fund
Net Assets
BBB 1%
- --------------------------------------------------
BB 23%
- --------------------------------------------------
B 63%
- --------------------------------------------------
CCC 9%
- --------------------------------------------------
Unrated 2%
- --------------------------------------------------
Cash 2%
- --------------------------------------------------
Quality Ratings based on those provided by Standard % Poor's Corp. and/or
equivalent ratings by Moody's Investors Services, Inc.
Because financial markets and mutual fund strategies are constantly evolving, it
is possible that the fund's holdings, market stance, outlook for various
industries or securities and other matters discussed in this report have changed
since this information was prepared. Portfolio changes should not be considered
recommendations for action by individual investors.
State Street Research High Income Fund 3
Summary Portfolio Schedule
- -------------------------------------------------------
Industries % of Fund Net Assets
Chemicals 8.1%
- -------------------------------------------------------
Paper & Packaging 7.8%
- -------------------------------------------------------
Manufacturing 7.3%
- -------------------------------------------------------
Health Care 6.3%
- -------------------------------------------------------
Industrial Machinery 6.0%
- -------------------------------------------------------
Consumer Products 5.5%
- -------------------------------------------------------
Transportation 5.4%
- -------------------------------------------------------
Casino 4.4%
- -------------------------------------------------------
Mobile Communications 4.3%
- -------------------------------------------------------
Retail 4.1%
- -------------------------------------------------------
Utility 4.0%
- -------------------------------------------------------
Exploration & Production 3.6%
- -------------------------------------------------------
Energy 3.3%
- -------------------------------------------------------
Oil & Gas 3.3%
- -------------------------------------------------------
Telecommunications 3.1%
- -------------------------------------------------------
Homebuilders 3.0%
- -------------------------------------------------------
Media 2.9%
- -------------------------------------------------------
Cable 2.8%
- -------------------------------------------------------
Aerospace/Defense 2.3%
- -------------------------------------------------------
Diversified Media 2.1%
- -------------------------------------------------------
Services 1.8%
- -------------------------------------------------------
Steel 1.7%
- -------------------------------------------------------
Supermarkets/Drug 1.0%
- -------------------------------------------------------
Airlines 0.8%
- -------------------------------------------------------
Food & Beverage 0.6%
- -------------------------------------------------------
Restaurants 0.6%
- -------------------------------------------------------
Finance/Mortgage 0.5%
- -------------------------------------------------------
Financial 0.5%
- -------------------------------------------------------
Hotels & Lodging 0.5%
- -------------------------------------------------------
Metals 0.5%
- -------------------------------------------------------
Net Cash 1.9%
- -------------------------------------------------------
Total 100.0%
Because of active management, there is no guarantee that the fund invests, or
will continue to invest, in the industries referenced.
About Your Fund Expenses
As a fund shareholder, you incur two types of costs: (1) Transaction costs,
which include sales charges, and (2) ongoing expenses, which include management
fees, service/distribution fees (12b-l) and "other" expenses. The examples below
illustrate the ongoing cost in dollars of investing in the fund and allow you to
compare these costs with the expenses of other funds. The examples are based on
a $1,000 investment at the beginning of the period and held for the entire
period from March 31, 2004 to September 30, 2004.
Actual Fund Return is based on the fund's actual return and expenses. To
estimate the ongoing expenses you paid during the entire period shown, simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number shown for your
fund under the column "Expenses Paid during the Period".
Hypothetical 5% Return is based on the fund's actual expense ratio and an
assumed rate of 5% per year before expenses. Please note that the return used is
not the fund's actual return; therefore, this information may not be used to
estimate your actual ending balance and expenses paid during the period. To
compare your fund's ongoing expenses with those of other funds, simply compare
this 5% hypothetical example with the 5% hypothetical examples shown in the
shareholder reports of other funds.
Beginning Ending Expenses
Account Account Paid Annualized
Six months ended Value Value during Expense
9/30/04 3/31/04 9/30/04 Period* Ratio
- ------------------------------------------------------------------------------------
Actual Fund Return
- ------------------------------------------------------------------------------------
Class A $1,000 $1,028.32 $ 7.11 1.40%
- ------------------------------------------------------------------------------------
Class B(1) $1,000 $1,021.68 $10.62 2.10%
- ------------------------------------------------------------------------------------
Class B (closed) $1,000 $1,037.48 $ 5.61 1.10%
- ------------------------------------------------------------------------------------
Class C $1,000 $1,018.52 $10.61 2.10%
- ------------------------------------------------------------------------------------
Class S $1,000 $1,031.81 $ 5.60 1.10%
- ------------------------------------------------------------------------------------
Hypothetical 5% Return
- ------------------------------------------------------------------------------------
Class A $1,000 $1,017.99 $ 7.07 1.40%
- ------------------------------------------------------------------------------------
Class B(1) $1,000 $1,014.49 $10.59 2.10%
- ------------------------------------------------------------------------------------
Class B (closed) $1,000 $1,019.49 $ 5.56 1.10%
- ------------------------------------------------------------------------------------
Class C $1,000 $1,014.48 $10.59 2.10%
- ------------------------------------------------------------------------------------
Class S $1,000 $1,019.49 $ 5.57 1.10%
* Expenses are equal to the fund's annualized expense ratio multiplied by the
average account value over the period, multiplied by the number of days in
the period and then divided by the number of days in the year.
Please note that the expenses shown in the table are meant to highlight and help
you compare ongoing costs only and do not reflect transactional expenses such as
sales charges, which would result in higher total expenses. It should also be
noted that, for certain funds, expenses have been subsidized or reduced through
expense offset arrangements, which reduces costs for shareholders. Generally,
the fund expects that the expense subsidy or expense offset arrangement will
continue although there is no guarantee that it will. Please see the fund's
prospectus for more information.
4
PORTFOLIO
Holdings
September 30, 2004 (unaudited)
Principal Maturity
Amount Date Value
- ----------------------------------------------------------------------------------------------
Bonds 98.1%
Aerospace/Defense 2.3%
Availl Inc. Sr. Note, 7.625% ..... $2,350,000 7/01/2011 $ 2,538,000
Hexcel Corp. Sr. Note, 9.875% .... 1,750,000 10/01/2008 1,960,000
Transdigm Inc. Sr. Note, 8.375% .. 2,400,000 7/15/2011 2,568,000
------------
7,066,000
------------
Airlines 0.8%
Continental Airlines Inc. Note,
7.37% .......................... 1,195,928 6/15/2017 938,028
Continental Airlines Inc. Note,
7.875% ......................... 1,749,137 7/02/2018 1,647,249
------------
2,585,277
------------
Cable 2.8%
Charter Communications Note,
8.00%+ ......................... 3,200,000 4/30/2012 3,192,000
CSC Holdings Inc. Sr. Note,
7.625% ......................... 1,750,000 4/01/2011 1,844,063
Insight Midwest Communications
Inc. Sr. Note, 9.75% ........... 1,750,000 10/01/2009 1,828,750
Videotron Ltee Inc. Sr. Note,
6.875% ......................... 1,750,000 1/15/2014 1,793,750
------------
8,658,563
------------
Casino 4.4%
Chumash Casino & Resort
Enterprise Inc. Note, 9.00%..... 1,475,000 7/15/2010 1,637,250
River Rock Entertainment
Authority Inc. Sr. Note,
9.75% .......................... 4,375,000 11/01/2011 4,604,687
Station Casinos Inc. Sr. Sub.
Note, 6.50% .................... 3,075,000 2/01/2014 3,128,813
Venetian Casino Resort LLC
Note, 11.00% ................... 3,600,000 6/15/2010 4,167,000
------------
13,537,750
------------
Chemicals 8.1%
BCP Caylux Holdings
Luxembourg Note, 9.625%+........ 3,000,000 6/15/2014 3,240,000
Equistar Chemical Co. Note,
10.125% ........................ 1,500,000 9/01/2008 1,691,250
Huntsman Advanced Materials
LLC Sr. Note, 11.00%+ .......... 1,175,000 7/15/2010 1,363,000
Huntsman ICI Chemicals LLC
Sr. Sub Note, 10.125%^ ......... 2,475,000 7/01/2009 2,598,750
ISP Chemco Inc. Sr. Sub. Note,
10.25% ......................... 4,000,000 7/01/2011 4,460,000
Lyondell Chemicals Co.
Sr. Note, 10.50%^ .............. 2,850,000 6/01/2013 3,291,750
Nalco Co. Sr. Note, 7.75% ........ 1,400,000 11/15/2011 1,484,000
Nalco Co. Sr. Sub Note,
8.875%^ ........................ 2,150,000 11/15/2013 2,311,250
Principal Maturity
Amount Date Value
- ----------------------------------------------------------------------------------------------
Chemicals (Continued)
UAP Holding Corp. Sr. Note,
0.00% to 1/14/2008,
10.75% from 1/15/2008 to
maturity*+ ..................... $3,000,000 7/15/2012 $ 2,295,000
United Agricultural Products
Inc. Sr. Note, 8.25%+ .......... 2,050,000 12/15/2011 2,214,000
------------
24,949,000
------------
Consumer Products 5.5%
American Achievement Corp.
Sr. Sub. Note, 8.25%+ .......... 1,700,000 4/01/2012 1,785,000
INVISTA, Inc. Note, 9.25%+ ....... 4,750,000 5/01/2012 5,070,625
Perry Ellis International Inc.
Note, 8.875% ................... 1,750,000 9/15/2013 1,855,000
Rayovac Corp. Sr. Sub. Note,
8.50% .......................... 2,300,000 10/01/2013 2,495,500
Russell Corp. Sr. Note, 9.25%..... 1,500,000 5/01/2010 1,627,500
Sealy Mattress Co. Sr. Sub.
Note, 8.25% .................... 2,550,000 6/15/2014 2,569,125
Warnaco Inc. Sr. Note,
8.875% ......................... 1,500,000 6/15/2013 1,668,750
------------
17,071,500
------------
Diversified Media 2.1%
Cinemark Inc. Sr. Note, 0.00%
to 3/14/09, 9.75% from
3/15/09 to maturity ............ 2,725,000 3/15/2014 1,873,438
Dex Media West LLC, 9.875%........ 2,198,000 8/15/2013 2,582,650
Warner Music Group,
7.375%+ ........................ 1,850,000 4/15/2014 1,914,750
------------
6,370,838
------------
Energy 3.3%
Foundation Coal Co. Note,
7.25%+ ......................... 1,850,000 8/01/2014 1,965,625
Hanover Compressor Co. Sr.
Note, 8.625% ................... 675,000 12/15/2010 732,375
Hanover Equipment Trust Note,
0.00% .......................... 2,425,000 3/31/2007 2,049,125
Peabody Energy Corp.,
6.875% ......................... 3,000,000 3/15/2013 3,240,000
Southern Star Cent Corp. Sr.
Note, 8.50% .................... 1,050,000 8/01/2010 1,144,500
Suburban Propane Partners LP
Sr. Note, 6.875% ............... 1,175,000 12/15/2013 1,210,250
------------
10,341,875
------------
Exploration & Production 3.6%
Chesapeake Energy Corp. Sr.
Note, 6.875% ................... 3,736,000 1/15/2016 3,904,120
El Paso Production Holding Co.
Sr. Note, 7.75% ................ 1,675,000 6/01/2013 1,679,187
Energy Partners Ltd. Sr. Note,
8.75% .......................... 1,650,000 8/01/2010 1,790,250
Exco Resources Inc. Note,
7.25% .......................... 3,500,000 1/15/2011 3,710,000
------------
11,083,557
------------
Finance/Mortgage 0.5%
Dow Jones Trust, 10.50%^+ ........ 1,500,000 12/29/2009 1,453,125
------------
Financial 0.5%
Dollar Financial Group Inc. Sr.
Note, 9.75% .................... 1,405,000 11/15/2011 1,489,300
------------
The notes are an integral part of the financial statements.
State Street Research High Income Fund 5
Principal Maturity
Amount Date Value
- ----------------------------------------------------------------------------------------------
Food & Beverage 0.6%
Del Monte Foods Co. Sr. Sub.
Note, 9.25% ................... $1,750,000 5/15/2011 $ 1,925,000
------------
Health Care 6.3%
Concentra Operating Corp. Sr.
Sub. Note, 9.125%+ ............ 500,000 6/01/2012 547,500
Concentra Operating Corp. Sr.
Sub. Note, 9.50% .............. 2,350,000 8/15/2010 2,596,750
IASIS Healthcare LLC, 8.75%+..... 2,575,000 6/15/2014 2,697,312
Kinetic Concepts Inc. Note,
7.375% ........................ 1,268,000 5/15/2013 1,331,400
MedQuest Inc. Note, 11.875%...... 2,250,000 8/15/2012 2,565,000
Senior Housing Properties Trust
Note, 8.625% .................. 1,825,000 1/15/2012 2,030,313
Tenet Healthcare Corp. Sr. Sub.
Note, 9.875%^+ ................ 1,800,000 7/01/2014 1,881,000
Tenet Healthcare Corp. Note,
6.375%^ ....................... 3,250,000 12/01/2011 2,916,875
Triad Hospitals Inc. Note,
7.00%^ ........................ 3,000,000 11/15/2013 3,052,500
------------
19,618,650
------------
Homebuilders 3.0%
Associated Materials Inc. Note,
0.00% to 2/28/09, 11.25%
from 3/1/09 to maturity+ ...... 2,975,000 3/01/2014 2,164,312
Associated Materials Inc. Sr.
Sub. Note, 9.75% .............. 475,000 4/15/2012 545,063
Meritage Corp. Note, 7.00% ...... 1,300,000 5/01/2014 1,332,500
PolyGem Industries Inc. Sr. Sub.
Note, 9.00%+ .................. 1,750,000 2/15/2012 1,745,625
Technical Olympic USA Inc.
Note, 7.50% ................... 2,025,000 3/15/2011 2,060,438
U.S. Concrete Inc. Sr. Sub.
Note, 8.375% .................. 1,500,000 4/01/2014 1,567,500
------------
9,415,438
------------
Hotels & Lodging 0.5%
Host Marriott Note LP Sr.,
7.125% ........................ 1,500,000 11/01/2013 1,575,000
------------
Industrial Machinery 6.0%
Ainsworth Lumber Co. Ltd.,
5.67%+ ........................ 3,000,000 10/30/2004 3,030,000
Alderwoods Group Inc. Sr.
Note, 7.75%+ .................. 875,000 9/15/2012 925,313
Allied Waste North America
Inc. Note, 6.375% ............. 1,325,000 4/15/2011 1,288,562
American Tower Corp. Note,
7.50%^ ........................ 5,025,000 5/01/2012 5,125,500
Blount Inc. Sr. Sub. Note,
8.875% ........................ 2,000,000 8/01/2012 2,125,000
Citizens Communications Co.
Note, 9.25% ................... 3,000,000 5/15/2011 3,300,000
Crystal U.S. Holdings Note,
0.00% to 9/30/2009,
10.50% from 10/01/2009
to maturity+ .................. 4,425,000 10/01/2014 2,643,937
------------
18,438,312
------------
Manufacturing 7.3%
EaglePicher Inc. Sr. Note,
9.75% ......................... 1,750,000 9/01/2013 1,785,000
Principal Maturity
Amount Date Value
- ----------------------------------------------------------------------------------------------
Manufacturing (Continued)
Norcraft Holdings LP, 0.00% to
8/31/2003, 9.75% from
9/01/2003 to maturity+ ........ $2,025,000 9/01/2008 $ 1,468,125
Norcross Safety Products LLC
Sr. Sub. Note, 9.875% ......... 1,750,000 8/15/2011 1,898,750
Rhodia, SA Sr. Note 10.25%^...... 3,000,000 6/01/2010 3,105,000
Terex Corp. Sr. Sub. Note, 9.25% 3,875,000 7/15/2011 4,340,000
TriMas Corp. Sr. Sub. Note,
9.875% ........................ 5,025,000 6/15/2012 5,213,437
Trinity Industries Inc. Sr. Note,
6.50% ......................... 3,100,000 3/15/2014 3,053,500
United Components Inc. Sr.
Sub. Note, 9.375% ............. 1,750,000 6/15/2013 1,885,625
------------
22,749,437
------------
Media 2.9%
Allbritton Communications Co.
Note, 7.75% ................... 2,225,000 12/15/2012 2,302,875
Sinclair Broadcast Group Inc.
Note, 8.00% ................... 2,075,000 3/15/2012 2,152,813
Superior Essex Communications
Corp. Note, 9.00%+ ............ 4,500,000 4/15/2012 4,500,000
------------
8,955,688
------------
Metals 0.5%
Alpha Natural Resources LLC
Note, 10.00%+ ................. 1,500,000 6/01/2012 1,653,750
------------
Mobile Communications 4.3%
Crown Castle International
Corp. Sr. Note, 7.50% ......... 5,250,000 12/01/2013 5,499,375
Nextel Communications Inc. Sr.
Note, 7.375%^ ................. 3,075,000 8/01/2015 3,305,625
Rogers Wireless Inc. Sr. Note,
6.375% ........................ 2,900,000 3/01/2014 2,668,000
Rogers Wireless Inc. Sr. Note,
9.625% ........................ 1,750,000 5/01/2011 1,951,250
------------
13,424,250
------------
Oil & Gas 3.3%
Encore Acquisition Co. Note,
6.25% ......................... 1,000,000 4/15/2014 1,000,000
Gulfmark Offshore Inc. Sr.
Note, 7.75%+ .................. 3,200,000 7/15/2014 3,240,000
Newfield Exploration Co. Sr.
Sub. Note, 6.625%+ ............ 2,950,000 9/01/2014 3,075,375
Parker Drilling Co. Note, 6.54%+ 3,000,000 12/01/2004 3,007,500
------------
10,322,875
------------
Paper & Packaging 7.8%
BWAY Corp. Sr. Sub. Note,
10.00% ........................ 1,075,000 10/15/2010 1,177,125
Charter Communications
Holdings Sr. Note, 10.25%...... 1,750,000 9/15/2010 1,787,188
Cenveo Inc. Sr. Sub. Note,
7.875% ........................ 3,500,000 12/01/2013 3,412,500
Dex Media Inc. Note, 9.875%...... 1,450,000 11/15/2013 1,062,125
Gaylord Entertainment Co.
Note, 8.00% ................... 2,775,000 11/15/2003 2,920,687
Graham Packaging Co. Sub.
Note, 8.50%+ .................. 875,000 10/15/2002 875,000
Graham Packaging Co. Sr.
Note, 9.875%+ ................. 1,975,000 10/15/2014 1,994,248
Greif Brothers Corp. Note,
8.875% ........................ 1,600,000 8/01/2012 1,784,000
6 The notes are an integral part of the financial statements.
Principal Maturity
Amount Date Value
- ----------------------------------------------------------------------------------------------
Paper & Packaging (Continued)
Intertape Polymer U.S. Inc. Sr.
Sub. Note, 8.50%+ ............. $1,875,000 8/01/2014 $ 1,893,750
Newark Group Inc. Sr. Sub.
Note, 9.75%+ .................. 1,700,000 3/15/2014 1,751,000
Owens Brockway Glass Inc. Sr.
Note, 8.25% ................... 2,025,000 5/15/2013 2,156,625
Owens Brockway Glass Inc.
Note, 8.875% .................. 2,100,000 2/15/2009 2,283,750
Solo Cup Co. Note, 8.50%^ ....... 1,125,000 2/15/2014 1,108,125
------------
24,206,123
------------
Restaurants 0.6%
O'Charley's Inc. Sr. Note, 9.00% 1,750,000 11/01/2013 1,837,500
------------
Retail 4.1%
Jean Coutu Group PJC Inc.,
7.625%+ ....................... 425,000 8/01/2012 432,437
Jean Coutu Group PJC Inc.,
8.50%+ ........................ 3,000,000 8/01/2014 2,977,500
Phillips Van Heusen Corp., Sr.
Note, 7.25% ................... 1,725,000 2/15/2011 1,794,000
Riddell Bell Holdings Inc. Sr.
Sub. Note, 8.375%+ ............ 1,500,000 10/01/2012 1,524,375
Saks Inc. Note, 7.00%^ .......... 2,849,000 12/01/2013 2,905,980
Tempur Pedic Inc. Sr. Note,
10.25% ........................ 1,365,000 8/15/2010 1,552,688
United Auto Group Inc. Note,
9.625% ........................ 1,425,000 3/15/2012 1,571,062
------------
12,758,042
------------
Services 1.8%
Interline Brands Inc. Note,
11.50% ........................ 1,400,000 5/15/2011 1,554,000
United Rentals North America
Inc. Sr. Sub. Note, 7.75% ..... 2,550,000 11/15/2013 2,390,625
Xerox Corp. Sr. Note, 6.875%..... 1,550,000 8/15/2011 1,619,750
------------
5,564,375
------------
Steel 1.7%
Earle M. Jorgensen Co. Note,
9.75% ......................... 2,200,000 6/01/2012 2,442,000
IPSCO Inc. Sr. Note, 8.75%^ ..... 2,350,000 6/01/2013 2,679,000
------------
5,121,000
------------
Supermarkets/Drug 1.0%
Stater Brothers Holdings Inc. Sr.
Note, 5.38%+ .................. 3,000,000 12/15/2004 3,045,000
------------
Telecommunications 3.1%
Eircom Funding Corp. Sr. Sub.
Note, 8.25%^ .................. 2,650,000 8/15/2013 2,901,750
Qwest Communications
International Inc. Note,
5.21%+ ........................ 3,000,000 11/15/2004 2,857,500
Qwest Corp., 7.875%+ ............ 1,275,000 9/01/2011 1,322,813
Western Wireless Corp. Sr.
Note, 9.25% ................... 2,375,000 7/15/2013 2,422,500
------------
9,504,563
------------
Transportation 5.4%
ArvinMeritor Inc. Note, 8.75%.... 825,000 3/01/2012 913,688
CSK Auto Inc. Note, 7.00% ....... 1,750,000 1/15/2014 1,693,125
Delco Remy International Inc.,
9.375%^ ....................... 1,550,000 4/15/2012 1,519,000
OMI Corp. Note, 7.625% .......... 5,100,000 12/01/2013 5,233,875
Stena Corp. AB Note, 9.625%...... 1,050,000 12/01/2012 1,172,062
Stena Corp. Note, 7.50% ......... 175,000 11/01/2013 175,219
Principal Maturity
Amount Date Value
- ----------------------------------------------------------------------------------------------
Transportation (Continued)
Tenneco Automotive Inc. Sr.
Note, 10.25% .................. $1,900,000 7/15/2013 $ 2,166,000
TRW Automotive Inc. Sr. Note,
9.375% ........................ 3,512,000 2/15/2013 4,012,460
------------
16,885,429
------------
Utility 4.0%
AES Corp. Note, 9.00% ........... 2,436,417 1/02/2017 2,740,969
AES Corp. Note, 8.75%+ .......... 1,200,000 5/15/2013 1,353,000
Calpine Generating Co. LLC
Note, 7.35%+ .................. 3,000,000 4/01/2010 2,850,000
NRG Energy Inc. Sr. Note,
8.00%+ ........................ 3,125,000 12/15/2013 3,347,656
Reliant Resources Inc. Sr. Note,
9.25%^ ........................ 1,900,000 7/15/2010 2,040,125
------------
12,331,750
------------
Total Bonds (Cost $290,353,026).. 303,938,967
------------
Shares
- ----------------------------------------------------------------------------------------------
Common Stocks & Other 0.0%
Freedom Pay Inc. Com. (acquired
3/29/00, cost $50,875)*++@............................. 3,459,874 34,599
Phase Metrics Inc. Cl. A Com. (acquired
1/23/98 through 6/9/98, cost
$11,424,092)*++@....................................... 842,908 118,007
Reunion Industries Inc. Com* ............................ 8,341 2,502
------------
Total Common Stocks & Other (Cost $11,320,055)........... 155,108
------------
Short-Term Investments 11.2%
State Street Navigator Securities
Lending Prime Portfolio ............................... 34,638,408 34,638,408
------------
Total Short-Term Investments (Cost $34,638,408) ......... 34,638,408
------------
Principal Maturity
Amount Date
- ----------------------------------------------------------------------------------------------
Commercial Paper 0.7%
UBS Finance Delaware LLC,
1.88% ................................ $2,184,000 10/1/2004 2,184,000
------------
Total Commercial Paper (Cost $2,184,000)................................. 2,184,000
------------
Total Investments (Cost $338,495,489) - 110.0%........................... 340,916,483
Cash - (10.0%) .......................................................... (31,013,619)
------------
Net Assets - 100.0% ..................................................... $309,902,864
============
KEY TO SYMBOLS
* Non-income-producing securities.
@ Security valued under consistently applied procedures established by the
Trustees.
++ Security restricted as to public resale. At September 30, 2004, there were no
outstanding unrestricted securities of the same class as those held. The
total cost and market value of restricted securities owned at September 30,
2004 were $11,474,967 and $152,606 (0.05% of net assets), respectively.
+ Security restricted in accordance with Rule 144A under the Securities Act of
1933, which allows for the resale of such securities among certain qualified
institutional buyers. The total cost and market value of Rule 144A securities
owned at September 30, 2004, were $81,760,877 and $83,297,153 (26.9% of net
assets), respectively.
^ All or a portion of this security is being held on loan. As of September 30,
2004, the value of securities loaned and the value of the collateral were
$33,960,405 and $34,638,408, respectively.
The notes are an integral part of the financial statements.
State Street Research High Income Fund 7
Federal Income Tax Information
At September 30, 2004, the net unrealized
appreciation of investments based on cost for federal
income tax purposes of $338,602,964 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $ 14,978,326
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value (12,664,807)
------------
$ 2,313,519
============
Futures contracts open at September 30, 2004 are as follows:
Number of Notional Expiration Unrealized
Type Contracts Amount Currency Month Depreciation
- ------------------------------------------------------------------------------------
10-Year
US Treasury
Notes Short (218) $(24,552,250) USD December 2004 $(253,390)
---------
$(253,390)
=========
8 The notes are an integral part of the financial statements.
FINANCIAL
Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
September 30, 2004 (unaudited)
Assets
Investments, at value (Cost $338,495,489) (Note 1) ........... $340,916,483
Interest receivable .......................................... 6,164,295
Receivable for securities sold ............................... 5,580,616
Receivable for fund shares sold .............................. 94,017
Receivable for variation margins ............................. 34,063
Other assets ................................................. 34,818
------------
352,824,292
------------
Liabilities
Payable for collateral received on securities loaned ......... 34,638,408
Payable for securities purchased ............................. 6,396,516
Accrued transfer agent and shareholder services .............. 442,298
Payable for fund shares redeemed ............................. 383,436
Payable to custodian ......................................... 228,163
Accrued management fee ....................................... 152,455
Accrued trustees' fees ....................................... 21,972
Other accrued expenses ....................................... 658,180
------------
42,921,428
------------
Net Assets ................................................... $309,902,864
============
Net Assets consist of:
Undistributed net investment income ........................ $ 3,309,815
Unrealized appreciation of investments ..................... 2,420,994
Unrealized depreciation of futures contracts ............... (253,390)
Accumulated net loss ....................................... (460,490,185)
Paid-in capital ............................................ 764,915,630
------------
$309,902,864
============
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Class Net Assets [divided by] Number of Shares = NAV
A $216,559,555 61,867,624 $3.50*
B(1) $ 38,243,040 11,063,893 $3.46**
B $ 38,717,621 11,058,314 $3.50**
C $ 10,901,694 3,137,364 $3.47**
S $ 5,480,954 1,584,385 $3.46
* Maximum offering price per share = $3.66 ($3.50 [divided by] 0.955)
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
Statement of Operations
- --------------------------------------------------------------------------------
For the six months ended September 30, 2004 (unaudited)
Investment Income
Interest (net of foreign taxes of $837) (Note 1) ............... $12,578,847
Securities lending income (Note 1) ............................. 36,010
Dividend income (Note 1) ....................................... 9,943
-----------
12,624,800
-----------
Expenses
Management fee (Note 2) ........................................ 950,244
Transfer agent and shareholder services (Note 2) ............... 499,702
Distribution and service fees -- Class A (Note 4) .............. 330,428
Distribution and service fees -- Class B(1) (Note 4) ........... 192,773
Distribution and service fees -- Class C (Note 4) .............. 54,889
Custodian fee .................................................. 85,095
Administration fee (Note 2) .................................... 46,299
Reports to shareholders ........................................ 40,077
Audit fee ...................................................... 17,202
Trustees' fees (Note 2) ........................................ 15,165
Legal fees ..................................................... 36,600
Miscellaneous .................................................. 47,421
-----------
2,315,895
-----------
10,308,905
-----------
Reimbursement of distribution fees (Note 4) .................... 271,424
-----------
Net investment income .......................................... 10,580,329
-----------
Realized and Unrealized Gain (Loss) on
Investments
Net realized gain on investments (Note 1 and Note 3) ........... 1,719,516
Net realized loss on futures contracts (Note 1) ................ (399,473)
-----------
Total net realized gain ........................................ 1,320,043
-----------
Change in unrealized depreciation of investments ............... (1,260,252)
Change in unrealized depreciation of futures contracts ......... (253,390)
-----------
Total change in unrealized depreciation ........................ (1,513,642)
-----------
Net loss on investments ........................................ (193,599)
-----------
Net increase in net assets resulting from operations ........... $10,386,730
===========
The notes are an integral part of the financial statements.
State Street Research High Income Fund 9
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Six months ended
September 30, 2004 Year ended
(unaudited) March 31, 2004
-------------------- ---------------
Increase (Decrease) In Net Assets
Operations:
Net investment income ................ $ 10,580,329 $ 24,629,217
Net increase from payment by
affiliate .......................... -- 9,052
Net realized gain on investments
and futures contracts .............. 1,320,043 7,641,051
Change in unrealized
appreciation (depreciation)
of investments ..................... (1,513,642) 21,979,994
------------ ------------
Net increase in net assets
resulting from operations .......... 10,386,730 54,259,314
------------ ------------
Dividends from net investment
income:
Class A ............................ (7,646,598) (17,101,624)
Class B(1) ......................... (1,224,636) (2,637,145)
Class B ............................ (1,516,398) (3,772,753)
Class C ............................ (346,076) (804,787)
Class S ............................ (196,554) (651,507)
------------ ------------
(10,930,262) (24,967,816)
------------ ------------
Net decrease from fund share
transactions (Note 6) .............. (27,965,129) (54,115,623)
------------ ------------
Total decrease in net assets ......... (28,508,661) (24,824,125)
Net Assets
Beginning of period .................. 338,411,525 363,235,650
------------ ------------
End of period (including
undistributed net investment
income of $3,309,815 and
$874,484) .......................... $309,902,864 $338,411,525
============ ============
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
September 30, 2004
Note 1
State Street Research High Income Fund is a series of State Street Research
Income Trust (the "Trust"), which is organized as a Massachusetts business trust
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
Asset Allocation Fund.
The investment objective of the fund is to seek, primarily, high current income
and, secondarily, capital appreciation, from investments in fixed income
securities. Under normal circumstances, the fund invests at least 80% of its net
assets in lower-quality securities, primarily "junk bonds". At the time of
purchase, these securities are rated within or below the BB or Ba major rating
categories (Standard & Poor's/Moody's), or are unrated but considered equivalent
by the investment manager. The fund may not invest more than 20% of its total
assets in securities rated in the CCC/Caa or lower rating categories or
equivalent at the time of purchase. Fixed income securities include bonds and
other debt-like instruments such as asset- or mortgage-backed securities, and
preferred stocks.
The fund offers five classes of shares. Class A shares are subject to an initial
sales charge of up to 4.50% and pay annual service and distribution fees equal
to 0.30% of average daily net assets. Class B(1) shares pay annual service and
distribution fees equal to 1.00% of average daily net assets and 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
offered only to current shareholders through reinvestment of dividends and
distributions or through exchanges from existing Class B accounts of State
Street Research funds . Currently, the annual service and distribution fees paid
by Class B shares have been voluntarily reduced to 0.00%. Class B shares
automatically convert into Class A shares at the end of eight years. 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
purchase. Class C shares also pay annual service and distribution fees equal to
1.00% of average daily net assets. Class S shares are only offered through
certain retirement accounts, advisory accounts of State Street Research &
Management Company (the "Adviser"), an investment management subsidiary of
MetLife, Inc. ("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 service or distribution 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. Income, expenses (other than service and distribution fees), and
realized and unrealized gains or losses on investments are allocated to each
class of shares based on its relative net assets. 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 accounting principles generally accepted in the United States of America.
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. If not valued by a pricing service, such
securities are valued at prices obtained from independent brokers. 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. In the event that the market quotations for a portfolio
instrument are not deemed to be readily available, the Investment Adviser's
Valuation Committee determines the fair
10 The notes are an integral part of the financial statements.
value for such portfolio instrument. The fair value of any such portfolio
instruments are determined based upon a consideration of all available facts and
information. The fair valuation of a restricted portfolio instrument reflects
the inherent worth of the portfolio instrument, without regard to the
restrictive feature, adjusted for any diminution in value resulting from the
restrictive feature. The Investment Adviser and the Custodian also monitor
domestic and foreign markets and news information for any developing events that
may have an impact on the valuation of portfolio instruments. Such monitoring
includes general market news and financial market information sources currently
utilized in making investment decisions, trading and investment personnel
located abroad, foreign regional brokers, and/or foreign custodians. The value
assigned to these securities is based upon available information at the time,
and does not necessarily represent the amount which might ultimately be realized
upon sale.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered. As part of the custodian contract
between the custodian bank and the fund, the custodian bank has a lien on the
securities of the fund to the extent permitted by the fund's investment
restriction to cover any advances made by the custodian bank for the settlement
of securities purchased by the fund. At September 30, 2004, the payable to the
custodian bank of $228,163 represents the amount due for cash advance for the
settlement of a security purchased.
C. Net Investment Income
Net investment income is determined daily and consists of interest and dividends
accrued and discount earned, less the estimated daily expenses of the fund.
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The fund is charged for expenses directly attributable to it,
while indirect expenses are allocated between both funds in the Trust.
D. Dividends
Dividends from net investment income are declared daily and paid or reinvested
monthly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gains distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. The difference is primarily
caused by differing treatment of accrued interest on defaulted bonds and premium
amortization on fixed income securities.
E. Federal Income Taxes
No provision for federal income taxes is necessary because the fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
At March 31, 2004, the fund had a net capital loss carryforward of $455,595,025
available, to the extent provided in regulations, to offset future capital
gains, if any, of which $3,347,001, $43,790,700, $69,423,365, $274,585,781 and
$64,448,178 expire on March 31, 2007, 2008, 2009, 2010 and 2011, respectively. A
portion of the losses expiring in 2007, 2008, 2009 and 2010, $3,347,001,
$5,252,309, $11,304,243 and $949,368, respectively, were acquired in connection
with the merger of State Street Research Strategic Income Fund. Future
utilization of these losses may be limited under current tax laws.
F. Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 these estimates.
G. Securities Lending
The fund may seek additional income by lending portfolio securities to qualified
institutions. The fund will receive cash or securities as collateral in an
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the fund could realize additional gains and losses. If
the borrower fails to return the securities and the value of the collateral has
declined during the term of the loan, the fund will bear the loss. At September
30, 2004, the value of the securities loaned and the value of collateral were
$33,960,405 and $34,638,408, respectively. During the six months ended September
30, 2004, income from securities lending amounted to $36,010 .
H. 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 future 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 has opened and
the value at the time it was closed.
The potential risk to the fund is that the change in value of futures contracts
may not correspond to the change in value of the hedged instruments. In
addition, losses may arise in changes from the value of the underlying
instruments, if there is an illiquid secondary market for the contracts, or if
the counterparty to the contract is unable to perform.
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 annually, 0.55% of the next $500 million, and 0.50% of any amount over $1
billion. In consideration of these fees, the Adviser furnishes the fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses of
management. During the six months ended September 30, 2004, the fees pursuant to
such agreement amounted to $950,244.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), 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, MetLife 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. Total shareholder service costs are
allocated to each fund in the same ratios as the transfer agent costs. During
the six months ended September 30, 2004, the amount of such expenses allocated
to the fund was $135,981.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$15,165 during the six months ended September 30, 2004.
The fund has agreed to pay the Adviser for certain administrative costs incurred
in providing other assistance and services to the fund. The fee was based on a
fixed amount that has been allocated equally among State Street Research funds.
During the six months ended September 30, 2004, the amount of such expenses was
$46,299.
Note 3
For the six months ended September 30, 2004, purchases and sales of securities,
exclusive of short-term obligations and U.S. government obligations, aggregated
$197,785,095 and $226,326,596, 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) and Class C shares. In addition, the fund pays annual distribution
fees of 0.05% of average daily net assets for Class A shares. The fund pays
annual distribution fees of 0.75% of average daily net assets for Class B(1) and
Class C shares. Currently, the annual service and distribution fees paid by
Class B shares have been voluntarily reduced to 0.00%. The fund expects this
waiver to continue, although there is no guarantee that it will. The Distributor
uses such payments for personal services
State Street Research High Income Fund 11
and/or the maintenance of shareholder accounts, to reimburse securities dealers
for distribution and marketing services, to furnish ongoing assistance to
investors and to defray a portion of its distribution and marketing expenses.
For the six months ended September 30, 2004, fees pursuant to such plans
amounted to $330,428, $192,773 and $54,889 for Class A, Class B(1) and Class C
shares, respectively. For Class A, Class B and Class C shares, the payments are
intended to reimburse the distributor for expenditures incurred under the plan,
and any unused payments are returnable to the fund. During the six months ended
September 30, 2004, the Distributor reimbursed a total of $271,424 to Class B
shares of the fund reflecting the estimated excess of payments received over
costs incurred under the plan. This amount is shown as "Reimbursement of
distribution fees" in the Statement of Operations. As of September 30, 2004,
there were $3,102,114, $12,867 and $2,440,763 for Class A, Class B(1) and Class
C, respectively, of unreimbursed distribution and shareholder servicing related
expenses to be carried forward to future plan years. For Class B(1) shares, the
payments compensate the distributor for services and expenditures incurred under
the plan, and none of the payments are returnable to the fund.
The fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of MetLife, earned initial sales charges aggregating
$270,005 and $1,653,913, respectively, on sales of Class A shares of the fund
during the period ended September 30, 2004, and that MetLife Securities, Inc.,
earned commissions aggregating $922,534 and $69,488 on sales of Class B(1) and
Class C shares, respectively, and the Distributor collected contingent deferred
sales charges aggregating $75,332, $166 and $2,628 on redemptions of Class B(1),
Class B and Class C shares, respectively, during the same period.
Note 5
MetLife announced that it has entered into an agreement to sell the Adviser as
part of a larger transaction to sell MetLife's asset management business to
BlackRock, Inc. ("BlackRock"). The acquisition by BlackRock of MetLife's asset
management business is expected to occur in the first quarter of 2005. At the
time of the closing, the advisory agreement between the fund and the Adviser and
the distribution agreement between the fund and the Distributor will be
terminated. BlackRock Advisors, Inc. and BlackRock Distributors, Inc., wholly
owned subsidiaries of BlackRock, will serve as investment adviser and
distributor, respectively.
A Special Meeting of Shareholders of the fund has been tentatively scheduled for
December 2004. At this meeting, shareholders of the fund will be asked to
consider and approve a plan of reorganization between the fund and the BlackRock
High Yield Bond Portfolio. If the proposed reorganization is approved by
shareholders of the fund, the BlackRock High Yield Bond Portfolio would acquire
substantially all of the assets and liabilities of the fund. In exchange,
shareholders of the fund would receive shares of the BlackRock High Yield Bond
Portfolio with an aggregate value equivalent to the aggregate net asset value of
their fund shares at the time of the transaction. If the proposed reorganization
is not approved by shareholders of the fund, the Board of Trustees will need to
consider other alternatives relating to the management and operations of the
fund, including without limitations, seeking an alternative investment adviser
for the fund or seeking shareholder approval to liquidate the fund.*
*The foregoing is not an offer to sell, nor a solicitation of an offer to buy,
shares of any fund, nor is it a solicitation of any proxy.
12
Note 6
The trustees have the authority to issue an unlimited number of shares of
beneficial interest at $0.001 par value per share.
These transactions break down by share class as follows:
Six months ended
September 30, 2004 Year ended
(unaudited) March 31, 2004
-----------------------------------------------------------------
Class A Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold 5,039,419 $ 17,324,685 67,387,812 $ 224,854,937
Issued upon reinvestment of dividends from net investment income 1,497,345 5,160,169 3,676,087 12,483,631
Shares redeemed (11,578,803) (39,716,771) (79,294,980) (265,525,730)
-------------- ------------- -------------- -------------
Net decrease (5,042,039) $ (17,231,917) (8,231,081) $ (28,187,162)
============== ============= ============== =============
Class B(1) Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold 623,834 $ 2,118,945 3,170,427 $ 10,621,570
Issued upon reinvestment of dividends from net investment income 235,578 801,981 538,601 1,757,195
Shares redeemed (1,618,758) (5,494,067) (3,025,254) (10,165,178)
-------------- ------------- -------------- -------------
Net increase (decrease) (759,346) $ (2,573,141) 683,774 $ 2,213,587
============== ============= ============== =============
Class B Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold 128,311 $ 441,150 539,828 $ 1,808,194
Issued upon reinvestment of dividends from net investment income 272,466 934,927 669,357 2,255,751
Shares redeemed (2,665,090) (9,131,332) (7,898,226) (26,666,918)
-------------- ------------- -------------- -------------
Net decrease (2,264,313) $ (7,755,255) (6,689,041) $ (22,602,973)
============== ============= ============== =============
Class C Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold 338,869 $ 1,154,706 1,299,737 $ 4,322,789
Issued upon reinvestment of dividends from net investment income 50,122 171,469 118,552 400,008
Shares redeemed (586,560) (2,008,602) (1,823,813) (6,108,148)
-------------- ------------- -------------- -------------
Net decrease (197,569) $ (682,427) (405,524) $ (1,385,351)
============== ============= ============== =============
Class S Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold 234,093 $ 786,711 4,344,157 $ 14,346,842
Issued upon reinvestment of dividends from net investment income 51,820 176,525 176,312 592,285
Shares redeemed (201,100) (685,625) (5,717,809) (19,092,851)
-------------- ------------- -------------- -------------
Net increase (decrease) 84,813 $ 277,611 (1,197,340) $ (4,153,724)
============== ============= ============== =============
13
FINANCIAL
Highlights
For a share outstanding throughout each period:
Class A
---------------------------------------------------------------------------------
Six months ended Years ended March 31
September 30, 2004 -------------------------------------------------------------
(unaudited)(a) 2004(a)(g) 2003(a)(f) 2002(a)(e)(f) 2001(a)(f) 2000(a)(f)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 3.50 3.23 3.31 3.48 5.05 5.65
------ ------ ----- ----- ------ -----
Net investment income ($) 0.11 0.24 0.25 0.23 0.43 0.52
Net realized and unrealized gain (loss) on
investments ($) 0.01 0.28 (0.07) (0.12) (1.57) (0.60)
------ ------ ----- ----- ------ -----
Total from investment operations ($) 0.12 0.52 0.18 0.11 (1.14) (0.08)
------ ------ ----- ----- ------ -----
Dividends from net investment income ($) (0.12) (0.25) (0.26) (0.28) (0.43) (0.52)
------ ------ ----- ----- ------ -----
Total distributions ($) (0.12) (0.25) (0.26) (0.28) (0.43) (0.52)
------ ------ ----- ----- ------ -----
Net asset value, end of period ($) 3.50 3.50 3.23 3.31 3.48 5.05
====== ====== ===== ===== ====== =====
Total return (%)(b) 3.53 (c) 16.42 6.02 3.33 (23.51) (1.65)
Ratios/supplemental data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 216,560 234,343 242,824 216,612 257,702 501,042
Expense ratio (%) 1.40 (d) 1.33 1.48 1.48 1.30 1.12
Expense ratio after expense reductions (%) 1.40 (d) 1.33 1.47 1.47 1.29 1.11
Ratio of net investment income to average net
assets (%) 6.58 (d) 7.12 7.92 6.83 10.15 9.50
Portfolio turnover rate (%) 64.17 121.54 98.71 80.07 52.96 50.49
Class B(1)
--------------------------------------------------------------------------------------
Six months ended Years ended March 31
September 30, 2004 ------------------------------------------------------------------
(unaudited)(a) 2004(a)(g) 2003(a)(f) 2002(a)(e)(f) 2001(a)(f) 2000(a)(f)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 3.46 3.20 3.28 3.45 5.01 5.62
------ ------ ----- ----- ----- -----
Net investment income ($) 0.10 0.22 0.22 0.20 0.40 0.47
Net realized and unrealized gain (loss) on
investments ($) 0.01 0.26 (0.06) (0.12) (1.55) (0.60)
------ ------ ----- ----- ----- -----
Total from investment operations ($) 0.11 0.48 0.16 0.08 (1.15) (0.13)
------ ------ ----- ----- ----- -----
Dividends from net investment income ($) (0.11) (0.22) (0.24) (0.25) (0.41) (0.48)
------ ------ ----- ----- ----- -----
Total distributions ($) (0.11) (0.22) (0.24) (0.25) (0.41) (0.48)
------ ------ ----- ----- ----- -----
Net asset value, end of period ($) 3.46 3.46 3.20 3.28 3.45 5.01
====== ====== ===== ===== ===== =====
Total return (%)(b) 3.22 (c) 15.47 5.36 2.65 24.03 (2.57)
Ratios/supplemental data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 38,243 40,911 35,593 23,728 24,472 36,038
Expense ratio (%) 2.10 (d) 2.03 2.18 2.18 2.00 1.87
Expense ratio after expense reductions (%) 2.10 (d) 2.03 2.17 2.17 1.99 1.86
Ratio of net investment income to average net
assets (%) 5.88 (d) 6.41 7.21 6.13 9.62 8.76
Portfolio turnover rate (%) 64.17 121.54 98.71 80.07 52.96 50.49
Class B
-------------------------------------------------------------------------------------
Six months ended Years ended March 31
September 30, 2004 ----------------------------------------------------------------
(unaudited)(a)(g)(h) 2004(a)(g)(h) 2003(a)(f) 2002(a)(e)(f) 2001(a)(f) 2000(a)(f)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 3.48 3.21 3.29 3.46 5.02 5.62
----- ------ ----- ----- ------ -----
Net investment income ($) 0.14 0.22 0.23 0.20 0.40 0.47
Net realized and unrealized gain (loss) on
investments ($) 0.01 0.27 (0.07) (0.12) (1.55) (0.59)
----- ------ ----- ----- ------ -----
Total from investment operations ($) 0.15 0.49 0.16 0.08 (1.15) (0.12)
----- ------ ----- ----- ------ -----
Dividends from net investment income ($) (0.13) (0.22) (0.24) (0.25) (0.41) (0.48)
----- ------ ----- ----- ------ -----
Total distributions ($) (0.13) (0.22) (0.24) (0.25) (0.41) (0.48)
----- ------ ----- ----- ------ -----
Net asset value, end of period ($) 3.50 3.48 3.21 3.29 3.46 5.02
===== ====== ===== ===== ====== =====
Total return (%)(b) 4.30 (c) 15.78 5.33 2.64 (23.98) (2.38)
Ratios/supplemental data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 38,718 46,365 64,182 74,004 109,691 230,786
Expense ratio (%) 1.10 (d) 2.03 2.18 2.18 2.00 1.87
Expense ratio after expense reductions (%) 1.10 (d) 2.03 2.17 2.17 1.99 1.86
Ratio of net investment income to average net
assets (%) 8.18 (d) 6.57 7.23 6.14 9.41 8.76
Portfolio turnover rate (%) 64.17 121.54 98.71 80.07 52.96 50.49
14 State Street Research High Income Fund
FINANCIAL
Highlights
Class C
---------------------------------------------------------------------------------------
Six months ended Years ended March 31
September 30, 2004 -------------------------------------------------------------------
(unaudited)(a) 2004(a)(g) 2003(a)(f) 2002(a)(e)(f) 2001(a)(f) 2000(a)(f)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 3.48 3.21 3.29 3.46 5.02 5.63
----- ------ ----- ----- ------ -----
Net investment income ($) 0.10 0.22 0.23 0.20 0.40 0.48
Net realized and unrealized gain (loss) on
investments ($) 0.00 0.27 (0.07) (0.12) (1.55) (0.61)
----- ------ ----- ----- ------ -----
Total from investment operations ($) 0.10 0.49 0.16 0.08 (1.15) (0.13)
----- ------ ----- ----- ------ -----
Dividends from net investment income ($) (0.11) (0.22) (0.24) (0.25) (0.41) (0.48)
----- ------ ----- ----- ------ -----
Total distributions ($) (0.11) (0.22) (0.24) (0.25) (0.41) (0.48)
----- ------ ----- ----- ------ -----
Net asset value, end of period ($) 3.47 3.48 3.21 3.29 3.46 5.02
===== ====== ===== ===== ====== =====
Total return (%)(b) 2.90 (c) 15.73 5.33 2.63 (23.98) (2.57)
Ratios/supplemental data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 10,902 11,598 12,008 8,616 11,896 26,154
Expense ratio (%) 2.10 (d) 2.03 2.18 2.18 2.00 1.87
Expense ratio after expense reductions (%) 2.10 (d) 2.03 2.17 2.17 1.99 1.86
Ratio of net investment income to average net
assets (%) 5.88 (d) 6.42 7.21 6.16 9.40 8.77
Portfolio turnover rate (%) 64.17 121.54 98.71 80.07 52.96 50.49
Class S
--------------------------------------------------------------------------------------
Six months ended Years ended March 31
September 30, 2004 ------------------------------------------------------------------
(unaudited)(a) 2004(a)(g) 2003(a)(f) 2002(a)(e)(f) 2001(a)(f) 2000(a)(f)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 3.46 3.20 3.28 3.46 5.01 5.61
----- ------ ----- ----- ------ -----
Net investment income ($) 0.12 0.25 0.25 0.24 0.41 0.53
Net realized and unrealized gain (loss) on
investments ($) 0.01 0.27 (0.06) (0.13) (1.51) (0.60)
----- ------ ----- ----- ------ -----
Total from investment operations ($) 0.13 0.52 0.19 0.11 (1.10) (0.07)
----- ------ ----- ----- ------ -----
Dividends from net investment income ($) (0.13) (0.26) (0.27) (0.29) (0.45) (0.53)
----- ------ ----- ----- ------ -----
Total distributions ($) (0.13) (0.26) (0.27) (0.29) (0.45) (0.53)
----- ------ ----- ----- ------ -----
Net asset value, end of period ($) 3.46 3.46 3.20 3.28 3.46 5.01
===== ====== ===== ===== ====== =====
Total return (%)(b) 3.73 (c) 16.61 6.40 3.36 (23.06) (1.41)
Ratios/supplemental data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 5,481 5,194 8,628 3,930 3,438 45,737
Expense ratio (%) 1.10 (d) 1.03 1.18 1.18 1.00 0.87
Expense ratio after expense reductions (%) 1.10 (d) 1.03 1.17 1.17 0.99 0.86
Ratio of net investment income to average net
assets (%) 6.88 (d) 7.43 7.92 7.20 10.40 9.81
Portfolio turnover rate (%) 64.17 121.54 98.71 80.07 52.96 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) Effective April 1, 2001, the fund has adopted the provisions of the AICPA
Audit and Accounting Guide, Audit of Investment Companies and began
amortizing premium on all fixed income securities. The effect of this change
for the year ended March 31, 2002, was to decrease net investment income per
share by $0.05, increase net realized and unrealized loss per share by
$0.05, and decrease the ratio of net investment income to average net assets
by 1.47%. The financial highlights for the period prior to April 1, 2001,
have not been restated for this change in policy.
(f) Audited by other auditors
(g) During the year ended March 31, 2004, the Distributor made restitution
payments to the fund as part of a settlement with NASD. These payments had
no effect on net investment income per share, total return and the ratio of
net investment income to average net assets.
(h) During the periods ended March 31, 2004, and September 30, 2004, the
Distributor reimbursed Class B shares of the fund the estimated excess of
payments received over costs incurred under the 12b-1 plan. The effect of
this reimbursement was to increase net investment income per share $0.00 and
$0.02, respectively, increase the total return 0.00% and 0.57%, respectively
and increase the ratio of net investment income to average net assets 0.12%
and 1.30%, respectively.
15
TRUSTEES AND OFFICERS
State Street Research Income Trust
Number of Funds
Name, Position(s) Term of Office in Fund Complex Other
Address Held with and Length of Principal Occupations Overseen by Directorships Held
and Age(a) Fund Time Served(b) During Past 5 Years Trustee/Officer(c) by Trustee/Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
Bruce R. Bond Trustee Since Retired; formerly Chairman of the Board, 19 Avaya Inc.
(58) 1999 Chief Executive Officer and President,
PictureTel Corporation (video
conferencing systems)
Peter S. Drotch Trustee Since Retired; formerly Partner, 19 First Marblehead
(62) 2004 PricewaterhouseCoopers LLP Corp.
Steve A. Garban Trustee Since Retired; formerly Senior Vice President 53 Metropolitan Series
(67) 1997 for Finance and Operations and Treasurer, Fund, Inc. and
The Pennsylvania State University Metropolitan Series
Fund II
Susan M. Phillips Trustee Since Dean, School of Business and Public 19 The Kroger Co.
(59) 1999 Management, George Washington University;
formerly a member of the Board of
Governors of the Federal Reserve
System; and Chairman and Commissioner
of the Commodity Futures Trading Commission
Toby Rosenblatt Trustee Since President, Founders Investments Ltd. 53 A.P. Pharma, Inc.;
(66) 1993 (investments); President, Pacific Four Metropolitan Series
Investments (investments); formerly Fund, Inc.; and
President, The Glen Ellen Company Metropolitan Series
(private investment firm) Fund II
Michael S. Trustee Since Jay W. Forrester Professor of Management 53 Metropolitan Series
Scott Morton (67) 1987 (Emeritus), Sloan School of Management, Fund, Inc. and
Massachusetts Institute of Technology Metropolitan Series
Fund II
Interested Trustees
Richard S. Davis(+) Trustee Since Chairman of the Board, President and 19 None
(59) 2000 Chief Executive Officer of State Street
Research & Management Company; formerly
Senior Vice President, Fixed Income
Investments, Metropolitan Life Insurance
Company
Officers
Donald G. DeVeuve Vice Since Senior Vice President of State Street 6 None
(47) President 2001 Research & Management Company; formerly
Vice President, State Street Research
& Management Company
C. Kim Goodwin Vice Since Managing Director and Chief Investment 18 Akamai
(45) President 2002 Officer - Equities of State Street Technologies, Inc.
Research & Management Company; formerly
Chief Investment Officer -
U.S. Growth Equities, American Century
John S. Lombardo Vice Since Managing Director, Chief Financial 19 None
(49) President 2001 Officer and Director of State Street
Research & Management Company; formerly
Executive Vice President, State Street
Research & Management Company; and
Senior Vice President, Product and
Financial Management, MetLife Auto & Home
Mark A. Marinella Vice Since Managing Director and Chief Investment 9 None
(46) President 2003 Officer - Fixed Income, of State
Street Research & Management Company;
formerly Executive Vice President and
Senior Vice President, State Street
Research & Management Company; and Chief
Investment Officer and Head of Fixed Income,
Columbia Management Group
Elizabeth M. Vice Since Managing Director of State Street Research 8 None
Westvold (44) President 2003 & Management Company; formerly Senior Vice
President, State Street Research &
Management Company
Douglas A. Romich Treasurer Since Senior Vice President and Treasurer of State 19 None
(47) 2001 Street Research & Management Company; formerly
Vice President and Assistant Treasurer,
State Street Research & Management Company
The fund's Statement of Additional Information includes additional information
about the fund's trustees, and is available without charge, by contacting State
Street Research, One Financial Center, Boston, Massachusetts 02111-2690, or by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637).
(a) The address of each person is c/o State Street Research & Management
Company, One Financial Center, Boston, MA 02111-2690.
(b) A Trustee serves until he or she retires, resigns or is removed as provided
in the master trust agreement of the respective Trust. Each Trust has
adopted a mandatory retirement age of 72. Each officer holds office until he
or she resigns, is removed or a successor is elected.
(c) Includes all series of 9 investment companies for which State Street
Research & Management Company serves as sole investment adviser and all
series of Metropolitan Series Fund, Inc. and Metropolitan Series Fund II.
The primary adviser to Metropolitan Series Fund, Inc. and Metropolitan
Series Fund II is MetLife Advisers, LLC, which has retained State Street
Research & Management Company as sub-adviser to certain series of
Metropolitan Series Fund, Inc.
(+) Mr. Davis is an "interested person" of the Trust under the Investment
Company Act of 1940 by reason of his affiliation with the Trust's Investment
Manager, State Street Research & Management Company, as noted.
16
-------------
PRST STD
[STATE STREET RESEARCH LOGO] U.S. POSTAGE
One Financial Center PAID
Boston, MA 02111-2690 PERMIT #6
HUDSON, MA
------------
New accounts, mutual fund purchases,
exchanges and account information
Internet www.ssrfunds.com
E-mail info@ssrfunds.com
Phone 1-87-SSR-FUNDS (1-877-773-8637),
toll-free, 7 days a week, 24 hours a day
Hearing-impaired: 1-800-676-7876
Chinese- and Spanish-speaking: 1-888-638-3193
Fax 1-617-737-9722 (request confirmation number
first from the Service Center by calling 1-877-773-8637)
Mail State Street Research Service Center
P.O. Box 8408, Boston, MA 02266-8408
Did You Know?
State Street Research offers electronic delivery of quarterly statements,
shareholder reports and fund prospectuses. If you elect this option, we will
send these materials to you via e-mail. To learn more, visit us on the Web at
www.ssrfunds.com and click on "Go to Your Account" or call us at 1-87-SSR-FUNDS
(1-877-773-8637).
Did you know that you can give a State Street Research mutual fund as a gift?
Call a service center representative at 1-87-SSR-FUNDS (1-877-773-8637), Monday
through Friday, 8am-6pm eastern time, to learn more.
Investors should carefully consider the fund's investment objective, risks,
charges and expenses before investing. The fund's prospectus contains more
complete information on these and other matters. A prospectus for any State
Street Research fund is available through your financial professional, by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637) or by visiting our website at
www.ssrfunds.com. Please read the prospectus carefully before investing.
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This report must be accompanied or preceded by a current prospectus. When used
as sales material after December 31, 2004, this report must be accompanied by a
current Quarterly Performance Update.
"State Street Research Proxy Voting Policies and Procedures"--which describes
how we vote proxies relating to portfolio securities--is available upon request,
free of charge, by calling the State Street Research Service Center toll-free at
1-87-SSR-FUNDS (1-877-773-8637) or by accessing the U.S. Securities and Exchange
Commission website at www.sec.gov.
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
industrywide.
Member NASD, SIPC
(C)2004 State Street Research Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
www.ssrfunds.com
CONTROL NUMBER:(exp1105)SSR-LD HI-2658-1104
<Page>
FORM N-CSR(2 OF 3)
ITEM 2: CODE OF ETHICS
Not applicable for the reporting period.
ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable for the reporting period.
ITEM 4: (PRINCIPAL ACCOUNTANT FEES AND SERVICES)
Not applicable for the reporting period.
ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6: SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES & PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES:
Not applicable.
ITEM 8: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 9: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Governance Committee will consider nominees recommended by
shareholders. Shareholders may submit recommendations to the attention
of the Secretary of the Trust, State Street Research & Management
Company, One Financial Center, 30th Floor, Boston, MA 02111.
ITEM 10: CONTROLS AND PROCEDURES
(a) The Registrant's principal executive and principal financial officers
have concluded, based on their evaluation of the Registrant's disclosure
controls and procedures as of a date within 90 days of the filing date
of this report, that the Registrant's disclosure controls and procedures
are reasonably designed to ensure that information required to be
disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the required time periods and that
information required to be disclosed by the Registrant in the reports
that it files or submits on Form N-CSR is accumulated and communicated
to the Registrant's management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions
regarding required disclosure.
(b) There were no changes in the Registrant's internal control over financial
reporting during the Registrant's second fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
internal control over financial reporting.
ITEM 11: EXHIBITS
(a)(1) Code of Ethics required to be disclosed under Item 2 of Form
N-CSR attached hereto as Exhibit 99.CODE ETH
(a)(2) Certification for each principal executive and principal
financial officer of the Registrant required by Rule 30a-2(a)
under the Investment Company Act of 1940, as amended
(17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.302CERT
(b) Certification required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) attached
hereto as Exhibit 99.906CERT
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
State Street Research Income Trust
By: /s/ Richard S. Davis
------------------------------------------------------
Richard S. Davis, President, Chairman and
Chief Executive Officer
Principal Executive Officer
Date December 7, 2004
------------------------------------------------------
<Page>
FORM N-CSR(3 OF 3)
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities, and on the
dates indicated.
By: /s/ Richard S. Davis
------------------------------------------------------
Richard S. Davis, President, Chairman and
Chief Executive Officer
Principal Executive Officer
Date December 7, 2004
------------------------
By: /s/ Douglas A. Romich
------------------------------------------------------
Douglas A. Romich, Treasurer
Principal Financial Officer
Date December 7, 2004
------------------------