[State Street Research Logo]
State Street Research
Exchange Fund
Annual Report
December 31, 1995
[Graphic of man walking up hill, at night, towards the stars]
What's Inside
From the Chairman:
1995: An outstanding
year for investors
Portfolio Manager's Review:
Strong stock market
propelled the Fund
Fund Information:
Facts and figures
Plus, Complete Portfolio Holdings and Financial Statements
<PAGE>
FROM THE CHAIRMAN
[Picture of Ralph F. Verni]
To our Shareholders
We have reluctantly bid farewell to 1995, an outstanding year for most of
our investors. Stocks and bonds achieved their best results in many years.
1995 offered a uniquely positive combination of moderate economic growth, low
inflation, falling interest rates, and strong corporate profits.
Looking ahead
We are cautiously optimistic about 1996. There are several positive signs.
Inflation and interest rates remain low and the economy may be able to
sustain modest growth. On January 31, the Federal Reserve lowered short-term
interest rates by one-quarter point. This was the Fed's second interest rate
cut in less than two months.
Benefits of professional management
1996 may be a year in which the benefits of professional management will be
more evident than ever. It can be reassuring to know that an experienced
portfolio manager is working on your behalf, paying close attention to market
conditions and economic indicators. We appreciate your trust.
Top-rated service
We work extremely hard to provide the highest-quality service to
shareholders. Recently, State Street Research received two prestigious awards
from Dalbar, an organization that rates mutual fund companies for their
service. We were one of only seven firms to receive the Dalbar Quality Tested
Service Seal, which recognizes leaders in all key service areas. Dalbar also
awarded us Dalbar Key Honors, recognizing our service quality in written and
telephone communications to shareholders.
Best wishes for a successful 1996.
Sincerely,
[Signature of Ralph F. Verni]
Ralph F. Verni
Chairman
January 31, 1996
(1) The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The index is unmanaged. Direct investment in the index is not
possible; results are for illustrative purposes only.
(2) Investment results are based on an assumed $10,000 investment. Also assumes
reinvestment of capital gain distributions and income dividends. No adjustment
has been made for income taxes payable by shareholders on income dividends or
capital gain distributions.
(3) All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in the
Fund will fluctuate and shares, when redeemed, may be worth more or less than
their original cost. All returns assume reinvestment of capital gain
distributions and income dividends.
(4) Cumulative total returns are not annualized, nor do they reflect sales
charges, which, if reflected, would reduce performance.
Please note that the discussion throughout this shareholder report is dated
as indicated and because of possible changes in viewpoint, data, and
transactions, should not be relied upon as being current thereafter.
Fund Information (all data are for periods ended December 31, 1995)
Total value of $10,000 invested on January 1, 1986 (2)
[Mountain Chart Data]
1/1/86 10000
12/86 11687
12/87 12348
12/88 14554
12/89 19517
12/90 18244
12/91 23713
12/92 25313
12/93 26549
12/94 27462
12/95 36921
SEC Average Annual Compound Rates
of Return(3)
Life of Fund
(since 10
12/17/76) Years 5 Years 1 Year
+13.16% +13.95% +15.14% +34.44%
Cumulative Total Returns(3,4)
Life of Fund
(since
12/17/76) 10 Years 5 Years 1 Year
+954.42% +269.21% +102.37% +34.44%
Top 5 Industry Positions
(by percentage of net assets)
Oil 8.8%
Food and
beverage 8.3%
Drugs 7.7%
Chemicals 7.5%
Aerospace 7.0%
Total: 39.3%
<PAGE>
PORTFOLIO MANAGER'S REVIEW
[Picture of Kennard "Pete" Woodworth]
Kennard "Pete"
Woodworth
Portfolio Manager
1995 was an outstanding year for the stock market, and Exchange Fund shared
in this good fortune. For the 12 months ended December 31, 1995, the Fund
provided a total return of +34.44%. The average total return
for 3,131 equity funds tracked by Lipper Analytical Services was +24.82%. The
Standard & Poor's 500 Index provided a return of +37.53%.(1)
We were very satisfied with Exchange Fund's performance in 1995.
Large-capitalization, quality stocks--the same type of stocks that make up
much of the Fund's portfolio--generally led the market in the past year.
Merger and acquisition activity also helped stocks' performance.
Exchange Fund's performance benefited from positions in several key areas.
Health-care stocks came back to life after two years of disappointment.
Technology stocks enjoyed their second year of strong performance. Oil and
aerospace stocks also performed quite well for the portfolio. Utilities and
insurance stocks underperformed.
Emphasis on income
We pay careful attention to the income provided by the Fund through its
quarterly dividends. We increased the quarterly dividend in 1995 from 60
cents to 70 cents per share. For the year, the Fund paid $3.80 per share in
dividends--the same amount as in 1994. We will continue to look for ways to
sustain an attractive level of dividend income.
Changes to the portfolio
We did not make any major shifts in portfolio structure. We sold two
long-term holdings--Kimberly Clark, the personal care company, and Citizens
Utilities, a telephone and cable television provider--because of increased
competition and unfavorable prospects in their primary businesses.
We added to positions in chemicals and retail stocks with mixed results. One
timely addition was Monsanto, a chemicals leader that introduced a number of
new products after years of research. We were disappointed by the performance
of Toys 'R Us, a position we increased significantly. Toys 'R Us suffered
from lower profits in the competitive retail environment.
1995 realized capital gains
In 1995, Exchange Fund realized taxable net long-term capital gains of
$11,627,351. Federal capital gains taxes of $4,069,573 were paid on behalf of
the Fund's shareholders. The balance was retained by the Fund.
In late January you received a 1995 IRS Form 2439. On your 1995 income tax
return, you should take a tax credit of $4.6373 per share and increase the
cost basis of your Fund shares by $8.6121 per share.
Outlook
Overall, we believe the prospects are favorable for Exchange Fund. There may
be uncertainty about stock market leadership in 1996, and Exchange Fund's
quality portfolio can be a reassuring approach in such a market. In addition,
interest rates and inflation remain low, which is favorable for stocks.
December 31, 1995
Top 10 Holdings
(by percentage of net assets)
1 Johnson & Johnson Health-care products company 5.0%
2 Raytheon Aerospace/defense firm 4.8%
3 Coca-Cola Beverage giant 3.8%
4 Merck Pharmaceuticals company 3.3%
5 Mobil Oil company 3.3%
6 General Electric Electrical equipment leader 3.2%
7 Capital Cities/ABC Media giant 3.1%
8 Exxon Oil company 2.9%
9 Hewlett-Packard Electronic equipment company 2.9%
10 General Re Reinsurance company 2.7%
These securities represent an aggregate of 35.0% of net assets. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities listed in this table or in the
text above.
Best and Worst Contributors to Performance
(January 1 through December 31, 1995)
Best [Graphic up arrow]
Johnson & Johnson
Health-care company provided strong earnings gains, new products
Raytheon
Strong earnings for aerospace company
Merck
New products and higher earnings for pharmaceuticals company
Worst [Graphic down arrow]
Dun & Bradstreet
Disappointing earnings for publisher
Toys 'R Us
Competitive retail environment hurt profits
Office Depot
Competitive computer market caused stock price to slide
2
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
Investment Portfolio
December 31, 1995
<TABLE>
<CAPTION>
Value
Shares (Note 1)
<S> <C> <C>
Common Stocks 100.5%
Basic Industries 17.0%
Chemical 7.5%
Ciba-Geigy AG ADR 86,900 $ 3,823,600
Dow Chemical Co. 60,000 4,222,500
E.I. du Pont de Nemours and Co. 68,500 4,786,438
Monsanto Co. 38,700 4,740,750
-----------
17,573,288
-----------
Electrical Equipment 4.2%
General Electric Co. 104,311 7,510,392
General Signal Corp. 70,372 2,278,293
-----------
9,788,685
-----------
Forest Product 0.8%
Georgia-Pacific Corp. 26,251 1,801,475
Machinery 3.2%
Caterpillar, Inc. 58,400 3,431,000
Millipore Corp. 99,400 4,087,825
-----------
7,518,825
-----------
Metal & Mining 1.3%
Nucor Corp. 51,600 2,947,650
-----------
Total Basic Industries 39,629,923
-----------
Consumer Cyclical 10.2%
Hotel & Restaurant 0.4%
Darden Restaurants, Inc. 69,200 821,750
-----------
Recreation 5.8%
Capital Cities/ABC, Inc. 59,356 7,323,046
Walt Disney Co. 50,000 2,950,000
Tele-Communications, Inc. Cl. A* 127,597 2,535,990
Tele-Communications, Inc. Liberty
Media Group Cl. A* 31,899 857,286
-----------
13,666,322
-----------
Retail Trade 4.0%
Dayton Hudson Corp. 50,184 3,763,800
Office Depot, Inc.* 46,600 920,350
Toys 'R Us, Inc.* 98,800 2,148,900
Wal-Mart Stores, Inc. 111,600 2,497,050
-----------
9,330,100
-----------
Total Consumer Cyclical 23,818,172
-----------
Consumer Staple 28.6%
Drug 7.7%
American Home Products Corp. 51,736 $ 5,018,392
Merck & Co., Inc. 117,259 7,709,779
Pfizer, Inc. 83,800 5,279,400
-----------
18,007,571
-----------
Food & Beverage 8.3%
Coca-Cola Co. 118,056 8,765,658
Anheuser-Busch, Inc. 56,300 3,765,063
Campbell Soup Co. 48,800 2,928,000
General Mills, Inc. 69,200 3,996,300
-----------
19,455,021
-----------
Hospital Supply 5.6%
Columbia/HCA Healthcare Corp. 24,700 1,253,525
Johnson & Johnson 136,496 11,687,470
-----------
12,940,995
-----------
Personal Care 4.8%
Gillette Co. 118,200 6,161,175
Procter & Gamble Co. 61,600 5,112,800
-----------
11,273,975
-----------
Tobacco 2.2%
Philip Morris Companies, Inc. 56,000 5,068,000
-----------
Total Consumer Staple 66,745,562
-----------
Energy 11.2%
Oil 8.8%
Amoco Corp. 71,032 5,105,425
Exxon Corp. 85,068 6,816,074
Mobil Corp. 68,400 7,660,800
Union Pacific Resources Group, Inc. 43,900 1,113,962
-----------
20,696,261
-----------
Oil Service 2.4%
Halliburton Co. 35,012 1,772,482
Schlumberger Ltd. 54,619 3,782,366
-----------
5,554,848
-----------
Total Energy 26,251,109
-----------
Finance 9.9%
Bank 2.2%
Banc One Corp. 50,820 1,918,455
-----------
BankAmerica Corp. 49,300 3,192,175
-----------
5,110,630
-----------
The accompanying notes are an integral part of the financial statements
3
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
Financial Service 4.0%
American Express Co. 141,591 $ 5,858,328
Federal National Mortgage Association 27,600 3,425,850
-----------
9,284,178
-----------
Insurance 3.7%
Equitable Companies, Inc. 95,000 2,280,000
General Re Corp. 40,941 6,345,855
-----------
8,625,855
-----------
Total Finance 23,020,663
-----------
Science & Technology 21.3%
Aerospace 7.0%
Boeing Co. 65,900 5,164,912
Raytheon Co. 235,400 11,122,650
-----------
16,287,562
-----------
Computer Software & Service 2.8%
First Data Corp. 32,669 2,184,739
Microsoft Corp.* 49,750 4,365,563
-----------
6,550,302
-----------
Electronic Components 1.6%
AMP, Inc. 96,000 3,684,000
-----------
Electronic Equipment 3.4%
L.M. Ericsson Telephone Co. Cl. B ADR 152,460 2,972,970
Motorola, Inc. 50,600 2,884,200
Perkin-Elmer Corp. 58,000 2,189,500
-----------
8,046,670
-----------
Office Equipment 6.5%
Hewlett-Packard Co. 80,000 6,700,000
International Business Machines Corp. 59,800 5,486,650
Xerox Corp. 21,800 2,986,600
-----------
15,173,250
-----------
Total Science & Technology 49,741,784
-----------
Utility 2.3%
Telephone 2.3%
AT&T Corp. 30,000 $ 1,942,500
Air Touch Communications, Inc.* 123,800 3,497,350
-----------
5,439,850
-----------
Total Utility 5,439,850
-----------
Total Common Stocks (Cost $94,079,093) 234,647,063
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity
Amount Date
<S> <C> <C> <C>
Commercial Paper 1.8%
Beneficial Corp., 5.92% $4,035,000 1/2/1996 4,035,000
------------
Total Commercial Paper (Cost $4,035,000) 4,035,000
------------
Total Investments (Cost $98,114,093)--102.3% 238,682,063
------------
Other Assets, Less Liabilities--(2.3)% (5,259,961)
------------
Net Assets--100.0% $233,422,102
============
Federal Income Tax Information:
At December 31, 1995, the net unrealized
appreciation of investments based on cost for
Federal income tax purposes of $84,571,971
was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
value over tax cost $155,282,441
Aggregate gross unrealized depreciation for all
investments in which there is an excess of
tax cost over value (1,172,349)
------------
$154,110,092
============
</TABLE>
* Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
The accompanying notes are an integral part of the financial statements
4
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
Statement of Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments, at value (Cost $98,114,093) (Note 1) $238,682,063
Receivable for securities sold 99,504
Dividends and interest receivable 335,615
------------
239,117,182
Liabilities
Federal income tax payable 4,069,573
Dividend payable 997,346
Accrued management fee (Note 2) 285,630
Capital gain distribution payable 156,686
Payable for fund shares redeemed 113,112
Payable to custodian 9,500
Accrued transfer agent and shareholder services (Note
2) 5,555
Accrued trustees' fees (Note 2) 5,061
Other accrued expenses 52,617
------------
5,695,080
------------
Net Assets $233,422,102
============
Net Assets consist of:
Undistributed net investment income $ 85,983
Unrealized appreciation of investments 140,567,970
Shares of beneficial interest (Note 4) 92,768,149
------------
$233,422,102
============
Net Asset Value per share
($233,422,102 / 879,362 shares of beneficial
interest) $ 265.44
======
</TABLE>
Statement of Operations
For the year ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $5,272 $ 4,319,102
Interest 148,684
-----------
4,467,786
Expenses
Management fee (Note 2) 1,078,699
Custodian fee 70,312
Trustees' fees (Note 2) 32,460
Audit fee 24,105
Transfer agent and shareholder services (Note 2) 16,777
Reports to shareholders 7,163
Legal fees 5,525
Miscellaneous 26,967
-----------
1,262,008
-----------
Net investment income 3,205,778
-----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 3) 26,724,341
Provision for federal income tax (4,069,573)
-----------
22,654,768
Net unrealized appreciation of investments 33,669,225
-----------
Net gain on investments 56,323,993
-----------
Net increase in net assets resulting from operations $59,529,771
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 3,205,778 $ 3,643,898
------------ ------------
Net realized gain on investments* 26,724,341 19,577,484
Provision for federal income tax (4,069,573) (4,654,368)
------------ ------------
22,654,768 14,923,116
------------ ------------
Net unrealized appreciation
(depreciation) of investments 33,669,225 (16,465,650)
------------ ------------
Net increase resulting from
operations 59,529,771 2,101,364
------------ ------------
Dividends from net investment
income (3,378,495) (3,661,288)
------------ ------------
Distribution from net realized
gains (236,946) --
------------ ------------
Share transactions:
Net asset value of shares issued in payment of:
Distribution from net realized
gains 80,260 --
Dividends from net investment
income 847,325 554,363
Cost of shares repurchased (18,569,970) (9,997,643)
------------ ------------
Net decrease from fund share
transactions (17,642,385) (9,443,280)
------------ ------------
Total increase (decrease) in net
assets 38,271,945 (11,003,204)
Net Assets
Beginning of year 195,150,157 206,153,361
------------ ------------
End of year (including
undistributed net investment
income of $85,983 and $258,700,
respectively) $233,422,102 $195,150,157
============ ============
Number of shares:
Issued upon reinvestment of:
Distribution from net realized
gains 302 --
Dividends from net investment
income 3,354 2,727
Repurchased (80,284) (48,387)
------------ ------------
Net decrease in fund shares (76,628) (45,660)
------------ ------------
* Net realized gain for Federal
income tax purposes
(Note 1) $ 11,864,297 $ 13,298,196
============ ============
</TABLE>
Notes to Financial Statements
December 31, 1995
Note 1
State Street Research Exchange Fund, formerly State Street Exchange Fund (the
"Fund"), is a series of State Street Research Exchange Trust, formerly State
Street Exchange Trust (the "Trust") which is a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Trust was organized in February,
1989 as a successor to State Street Exchange Fund, Inc., a Massachusetts
corporation. The Fund is presently the only series of the Trust.
The investment objective of the Fund is to provide long-term growth of
capital and, secondarily, long-term growth of income. In seeking to achieve
its investment objective, the Fund invests primarily in common stocks, or
securities convertible into common stocks, that have long- term growth
potential.
The following significant policies are consistently followed by the Fund in
preparing its financial statements, and such policies are in conformity with
generally accepted accounting principles for investment companies.
A. Investments in Securities
Values for listed securities represent the last sale 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 the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are
at the mean of the closing bid and asked quotations, except for securities
that may be restricted as to public resale, which are valued in accordance
with methods adopted by the Trustees. Security transactions are accounted for
on the trade date (date the order to buy or sell is executed), and dividends
declared but not received are accrued on the ex-dividend date. Interest
income is determined on the accrual basis. Realized gains and losses from
security transactions are reported on the basis of average cost of securities
delivered.
B. Federal Income Taxes
No provision for Federal income taxes is necessary with respect to net
investment income since the Fund has elected to qualify under Subchapter M of
the Internal Revenue Code and its policy is to distribute substantially all
of such income. It is also the intention of the Fund to distribute an amount
sufficient to avoid imposition of any Federal Excise Tax under Section 4982
of the Internal Revenue Code. The Fund retains and designates as
undistributed gains all of its taxable net long-term capital gains and pays
Federal income taxes thereon on behalf of the shareholders.
C. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized short-term capital gains, if any, are distributed
annually.
The accompanying notes are an integral part of the financial statements
6
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
NOTES (CONT'D)
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing
treatments for nontaxable redemptions in kind and the disposition of
securities that have different bases for financial reporting and tax
purposes. The permanent book and tax basis difference relating to shareholder
distributions will result in reclassifications to shares of beneficial
interest.
D. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into a contract that provides for an annual
fee equal to 0.50% of the Fund's average daily net assets. In consideration
of these fees, the Adviser furnishes the Fund with management, investment
advisory, statistical and research facilities and services. The Adviser also
pays all salaries, rent and certain other expenses of management. The fees of
the Trustees not currently affiliated with the Adviser amounted to $32,460
during the year ended December 31, 1995.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended December 31, 1995, the amount of
such expenses was $4,225.
Note 3
For the year ended December 31, 1995, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities, including
$18,117,874 representing redemptions in kind, aggregated $24,911,540 and
$48,670,480, respectively.
Note 4
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At December 31, 1995, the Adviser owned 13,766 shares of the Fund.
Financial Highlights
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 204.13 $ 205.81 $ 205.98 $ 198.84 $ 156.56
Net investment income 3.63 3.79 3.47 3.28 3.43
Net realized and unrealized gain (loss) on investments* 61.75 (1.67) (.24) 7.06 42.36
Dividends from net investment income (3.80) (3.80) (3.40) (3.20) (3.51)
Distribution from net realized gains (.27) -- -- -- --
------ ----- ----- ----- -------
Net asset value, end of year $ 265.44 $ 204.13 $ 205.81 $ 205.98 $ 198.84
====== ====== ====== ====== ======
Total return+ 34.44% 3.44% 4.88% 6.75% 29.97%
Net assets at end of year (000s) $233,422 $195,150 $206,153 $209,922 $211,721
Ratio of operating expenses to average net assets 0.58% 0.57% 0.62% 0.59% 0.60%
Ratio of net investment income to average net assets 1.49% 1.80% 1.65% 1.63% 1.89%
Portfolio turnover rate 11.67% 16.31% 22.10% 10.68% 8.21%
*After provision for Federal tax on retained capital
gains at end of year of $ 4.64 $ 4.88 $ 6.79 $ 2.94 $ .88
</TABLE>
+ Total return figures do not reflect any front-end or contingent deferred
sales charges.
7
<PAGE>
Report of Independent Accountants
To the Trustees of State Street Research Exchange Trust
(formerly State Street Exchange Trust) and
Shareholders of State Street Research Exchange Fund
(formerly State Street Exchange Fund):
We have audited the accompanying statement of assets and liabilities of State
Street Research Exchange Fund, formerly State Street Exchange Fund, including
the schedule of portfolio investments, as of December 31, 1995, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
State Street Research Exchange Fund as of December 31, 1995, the results of
its operations for the year then ended, the changes in its net assts for each
of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 2, 1996
8
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
Management's Discussion of Fund Performance
1995 was an outstanding year for the stock market, and Exchange Fund shared in
this good fortune. Large-capitalization, quality stocks--the same type of
stocks that make up much of the Fund's portfolio--generally led the market in
the past year. Stocks also benefited from significant merger and acquisition
activity.
Exchange Fund's performance benefited from positions in several key areas.
Health-care stocks came back to life after two years of disappointment.
Technology stocks enjoyed their second year of strong performance. Positions
in oil and aerospace stocks also performed quite well for the portfolio.
Utilities and insurance stocks underperformed for the Fund.
December 31, 1995
The Standard & Poor's 500 Composite index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The index is unmanaged and direct investment in the index is not
possible; results are for illustrative purposes only. All returns represent
past performance, which is no guarantee of future results. The investment
return and principal value of an investment made in the Fund will fluctuate
and shares, when redeemed, may be worth more or less than their original
cost. All returns assume reinvestment of capital gain distributions and
income dividends.
Comparison Of Change In Value Of A $10,000
Investment In Exchange Fund and The S&P 500
[Line Chart Data]
Average Annual Total Return
1 Year 5 Years 10 Years
+34.44% +15.14% +13.95
Exchange Fund S&P 500
1/86 10000 10000
12/86 11687 11867
12/87 12348 12490
12/88 14554 14558
12/89 19517 19163
12/90 18244 18567
12/91 23713 24212
12/92 25313 26054
12/93 26549 28674
12/94 27462 29051
12/95 36921 39955
9
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
Fund Information, Officers and Trustees of State Street Research Exchange Trust
Fund Information
State Street Research
Exchange Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Thomas P. Moore, Jr.
Vice President
Kennard Woodworth, Jr.
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of
the Board and Chief Executive
Officer, Raytheon Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel,
Choate, Hall & Stewart
10
<PAGE>
State Street Research Exchange Fund
One Financial Center
Boston, MA 02111
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[State Street Reasearch Logo]
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No 600
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective investors.
CONTROL NUMBER: 3006-960220(0397)SSR-LD
Cover Illustration by Dorothy Cullinan EX-400E-296
