<PAGE>
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STATE STREET RESEARCH
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EXCHANGE FUND
----------------
ANNUAL REPORT
December 31, 1999
--------------------
WHAT'S INSIDE
--------------------
FROM THE CHAIRMAN
Another good year for the
U.S. economy
PORTFOLIO MANAGER'S REVIEW
Another strong year for U.S. stocks
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
-------------------
[DALBAR LOGO]
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For Excellence
in
Service
[LOGO] STATE STREET RESEARCH
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
Another good year for the U.S. economy has extended America's cycle of
prosperity to nine consecutive years. Gross domestic product, a measure of goods
and services produced in the U.S., rose at an estimated annual rate of 4.0%.
Personal income has risen and consumer spending has been strong. Inflation
remained relatively low as productivity gains offset wage gains. However, the
Consumer Price Index moved up one full percentage point from 1.6% to 2.6%. The
Federal Reserve Board responded to these indicators of strength by raising
short-term interest rates by 3/4% in three 1/4% steps in the second half of the
year.
STOCKS
The U.S. stock market delivered another year of double-digit gains. The S&P 500
rose 21.0% during the 12-month period ended December 31, 1999.(1) However, S&P
500 technology stocks accounted for a disproportionate share of those gains.
Technology stocks in the S&P 500 gained 74.6%. Non- technology S&P 500 stocks
gained only 4.5%. The technology-heavy Nasdaq gained 85.6% for the year.
BONDS
The bond market was hurt by the Federal Reserve Board's interest-rate hikes and
by factors associated with Y2K. Fears that issuers would go to the market with
their debt issues early in the year drove yields up and bond prices down.
However, those fears were not realized, and the market began to close the yield
gap in the second half of the year. In this environment, mortgage bonds held up
better than government and corporate bonds. High yield bonds finished the year
ahead of other bond sectors, but with modest single-digit results.
INTERNATIONAL
Economic growth around the globe was better than expected. In Asia and certain
emerging markets, economies rebounded from last year's currency woes faster than
anticipated. Japan has shown the first signs of real progress in revitalizing
its economy in nearly a decade. That was reflected in strong stock market
performance for the year, especially among small Japanese companies. Europe
delivered generally favorable results as did the emerging markets of Latin
America.
OUTLOOK AND OPPORTUNITIES
As we enter the year 2000, many markets are poised for growth. However, there
are also areas, such as the technology sector in the U.S., where extraordinarily
high valuations suggest caution in the months ahead. Now is a good time to
consult your financial professional about the strategies that make sense for
your personal portfolio. And, as always, we thank you for investing with State
Street Research.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
December 31, 1999
(1) The S&P 500 (officially the "Standard and Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the index.
(2)Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gains
distributions and income dividends at net asset value.
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, 1999)
- ------------------------------------------------------------------------------
Total Value of $10,000 Invested on 12/31/89(2)
12/89 $10,000
12/90 9,348
12/91 12,150
12/92 12,907
12/93 13,603
12/94 14,071
12/95 18,918
12/96 23,847
12/97 31,409
12/98 40,232
12/99 47,712
AVERAGE ANNUAL TOTAL RETURN(2)
---------------------------------------------------------
LIFE OF FUND
(since 12/17/76) 10 YEARS 5 YEARS 1 YEAR
---------------------------------------------------------
15.29% 16.91% 27.66% 18.59%
---------------------------------------------------------
TOP 5 INDUSTRIES
(by percentage of net assets)
DRUGS & BIOTECHNOLOGY 13.6%
COMMUNICATIONS TECHNOLOGY 9.7%
MULTI-SECTOR 8.3%
OIL: INTEGRATED INTERNATIONAL 8.1%
RETAIL 7.7%
Total: 47.4%
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Exchange Fund: Another strong year for U.S. stocks
[Photo of Kennard "Pete" Woodworth]
Kennard "Pete"
Woodworth
Portfolio Manager
We spoke with Pete Woodworth, portfolio manager of State Street Research
Exchange Fund, about the Fund's performance for the year ended December 31, 1999
and his views on the period ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: It was a good year for the Fund, as it returned 18.59% for the 12 months
ended December 31, 1999. However, that was less than the Lipper Large-Cap Core
Funds Average, which returned 22.34%. The Fund also slightly underperformed the
S&P 500, which gained 21.03% for the same period.
Q: WHAT FACTORS HELPED EXCHANGE FUND'S PERFORMANCE IN 1999? A: Good stock
selection generated gains from sectors that were not necessarily the strongest
performers for the broader market. For example, financial services stocks were
hurt by rising interest rates. However, our investment in financial services
provider, American Express, generated attractive gains during the year. American
Express is a multinational company, and it benefited from the recovery of
economies outside the U.S. Likewise, consumer staples companies were not
generally strong in 1999. However, our investment in Procter & Gamble was
rewarded as the company's earnings improvement translated into a higher stock
price.
Q: WHAT FACTORS HURT PERFORMANCE?
A: Because technology stocks garnered a disproportionate share of the stock
market's gains during the year, the Fund's broad diversification strategy was a
negative factor. Our investments in producer durables, for example, lagged the
market during the period. And some of our large investments were adversely
affected by extraneous events. For example, litigation continues to cloud the
future for Phillip Morris, and Pfizer suffered as the result of political
rhetoric. However, we continue to own these stocks because we are confident that
they have future growth potential, and because our focus is long term.
Q: DID THE FUND INVEST IN TECHNOLOGY STOCKS?
A: Yes, technology is one of the Fund's largest positions. Two of the three top
performers were technology stocks: L.M. Ericsson, a Swedish company, which is a
leader in wireless technology; and Microsoft. Despite a negative initial court
ruling, Microsoft's stock price remained strong, and we believe that its leading
market position makes it an attractive long-term investment.
Q: HOW IS THE FUND POSITIONED GOING FORWARD?
A: We continue to own a diversified selection of high quality stocks that offer
long-term potential for growth and income. Our strategy is to buy stocks in
which we have a high degree of confidence and hold them. The largest
concentration of assets is in technology, health care and financial services.
Each of these sectors includes companies that are consistent with the Fund's
long-term, tax-sensitive approach.
Q: WHAT IS YOUR OUTLOOK FOR THE FUND?
A: Our outlook for the stock market is favorable for the year ahead. Some parts
of the global economy are recovering after a long run of poor performance. The
U.S. economy looks like it will remain healthy next year. We are optimistic
going forward.
December 31, 1999
- --------------------------------------------------------------------------------
TOP 10 STOCK POSITIONS
(by percentage of net assets)
1 EXXON MOBIL Oil 5.8%
2 LUCENT TECHNOLOGIES Telecommunications 5.6%
3 AMERICAN EXPRESS Financial services 4.9%
4 MICROSOFT Computer software & service 4.8%
5 DAYTON HUDSON Retail department stores 4.6%
6 IBM Computer systems 4.3%
7 L.M. ERICSSON TELEPHONE Electronic equipment 4.1%
8 GENERAL ELECTRIC Electrical equipment 3.7%
9 PFIZER Pharmaceuticals 3.4%
J WAL-MART Retail - discount 3.2%
These securities represent an aggregate of 44.4% of the portfolio. 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, 1999 through December 31, 1999)
BEST /\
- ----------------------------------------------------------------
L.M. ERICSSON TELEPHONE
This leader in wireless telephone continued to grow.
MICROSOFT
It continued very strong earnings growth.
AMERICAN EXPRESS
Recovering world economies benefited this investment.
WORST \/
- ----------------------------------------------------------------
PHILIP MORRIS
Adverse legal decisions affected performance.
RAYTHEON
Company failed to meet earnings expectations.
PFIZER
Drug stocks underperformed due to pressure within the Health Care Sector.
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
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INVESTMENT PORTFOLIO
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December 31, 1999
- ---------------------------------------------------------------------------
VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------------------
COMMON STOCKS 97.3%
AUTOMOBILES & TRANSPORTATION 2.6%
AUTOMOTIVE PARTS 0.3%
Delphi Automotive Systems Corp. ............... 104,839 $ 1,651,214
------------
AUTOMOBILES 2.3%
General Motors Corp. .......................... 150,000 10,903,125
------------
Total Automobiles & Transportation ............ 12,554,339
------------
CONSUMER DISCRETIONARY 9.7%
CONSUMER PRODUCTS 2.0%
Gillette Co. .................................. 236,400 9,736,725
------------
RETAIL 7.7%
Dayton Hudson Corp. ........................... 301,104 22,112,325
Wal-Mart Stores, Inc. ......................... 223,200 15,428,700
------------
37,541,025
------------
Total Consumer Discretionary .................. 47,277,750
------------
CONSUMER STAPLES 7.5%
BEVERAGES 2.9%
Anheuser-Busch Companies, Inc. ................ 112,600 7,980,525
Coca-Cola Co. ................................. 107,535 6,263,914
------------
14,244,439
------------
FOODS 1.0%
General Mills Inc. ............................ 138,400 4,947,800
------------
HOUSEHOLD PRODUCTS 2.8%
Procter & Gamble Co. .......................... 123,200 13,498,100
------------
TOBACCO 0.8%
Philip Morris Companies, Inc. ................. 160,300 3,716,956
------------
Total Consumer Staples ........................ 36,407,295
------------
FINANCIAL SERVICES 11.8%
BANKS & SAVINGS & LOAN 3.8%
Bank of America Corp. ......................... 154,802 7,769,125
Bank One Corp. ................................ 138,492 4,440,400
Chase Manhattan Corp. ......................... 83,152 6,459,871
------------
18,669,396
------------
FINANCIAL DATA PROCESSING SERVICES & SYSTEMS 1.7%
First Data Corp. .............................. 165,338 8,153,230
------------
MISCELLANEOUS FINANCIAL 6.3%
American Express Co. .......................... 141,591 23,539,504
Federal National Mortgage Association ......... 110,400 6,893,100
------------
30,432,604
------------
Total Financial Services ...................... 57,255,230
------------
HEALTH CARE 13.6%
DRUGS & BIOTECHNOLOGY 13.6%
American Home Products Corp. .................. 206,944 8,161,354
Johnson & Johnson ............................. 165,146 15,379,221
Merck & Company, Inc. ......................... 222,507 14,921,876
Novartis AG ADR ............................... 92,692 6,769,222
PE Corp.-Celera Genomics Group* ............... 29,000 4,321,000
Pfizer Inc. ................................... 502,800 16,309,575
------------
65,862,248
------------
Total Health Care ............................. 65,862,248
------------
INTEGRATED OILS 8.1%
INTEGRATED INTERNATIONAL 8.1%
BP Amoco PLC ADR .............................. 187,998 11,150,631
Exxon Mobil Corp. ............................. 349,759 28,177,460
------------
39,328,091
------------
Total Integrated Oils ......................... 39,328,091
------------
MATERIALS & PROCESSING 4.1%
CHEMICALS 3.4%
Dow Chemical Co. .............................. 55,244 7,381,979
E.I. Du Pont De Nemours & Co. ................. 137,000 9,024,875
------------
16,406,854
------------
DIVERSIFIED MANUFACTURING 0.6%
Georgia-Pacific Corp. ......................... 52,502 2,664,477
------------
FOREST PRODUCTS 0.1%
Georgia-Pacific Corp. Timber Group ............ 26,251 646,431
------------
Total Materials & Processing .................. 19,717,762
------------
OTHER 8.3%
MULTI-SECTOR 8.3%
Berkshire Hathaway Inc. Cl. B* ................ 4,298 7,865,340
General Electric Co. .......................... 114,990 17,794,703
Monsanto Co. .................................. 135,000 4,809,375
Raytheon Co. Cl. A ............................ 6,377 158,229
Raytheon Co. Cl. B ............................ 176,165 4,679,383
Tyco International Ltd. ....................... 125,720 4,887,365
------------
Total Other ................................... 40,194,395
------------
OTHER ENERGY 1.4%
OFFSHORE DRILLING 0.1%
Transocean Sedco Forex Inc.* .................. 21,148 712,439
------------
OIL WELL EQUIPMENT & SERVICES 1.3%
Schlumberger Ltd. ............................. 109,238 6,144,638
------------
Total Other Energy ............................ 6,857,077
------------
PRODUCER DURABLES 3.4%
AEROSPACE 1.1%
Boeing Co. .................................... 131,800 5,477,937
------------
MACHINERY 1.1%
Caterpillar Inc. .............................. 116,800 5,496,900
------------
PRODUCTION TECHNOLOGY EQUIPMENT 1.2%
Millipore Corp. ............................... 150,000 5,793,750
------------
Total Producer Durables ....................... 16,768,587
------------
TECHNOLOGY 23.6%
COMMUNICATIONS TECHNOLOGY 9.7%
L.M. Ericsson Telephone Co. ADR Cl. B ......... 304,920 20,029,433
Lucent Technologies Inc. ...................... 362,088 27,088,708
------------
47,118,141
------------
COMPUTER SOFTWARE 4.8%
Microsoft Corp.* .............................. 199,945 23,343,579
------------
COMPUTER TECHNOLOGY 6.2%
Hewlett-Packard Co. ........................... 78,000 8,887,125
International Business Machines Corp. ......... 195,022 21,062,376
------------
29,949,501
------------
ELECTRONICS 2.9%
PE Corp.-Biosystems Group ..................... 116,000 $ 13,956,250
------------
Total Technology .............................. 114,367,471
------------
UTILITIES 3.2%
TELECOMMUNICATIONS 3.2%
Vodafone AirTouch PLC ADR ..................... 309,500 15,320,250
------------
Total Utilities ............................... 15,320,250
------------
Total Common Stocks (Cost $98,575,802) ........ 471,910,495
------------
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PRINCIPAL MATURITY
AMOUNT DATE
- ---------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS 2.8%
Ford Motor Credit Co., 5.80% ..... $8,000,000 1/07/2000 7,992,267
General Electric Capital
Corp., 5.80% ................... 5,516,000 1/10/2000 5,516,000
------------
Total Short-Term Obligations
(Cost $13,508,267) .................................... 13,508,267
------------
Total Investments (Cost $112,084,069) - 100.1% .......... 485,418,762
Cash and Other Assets, Less Liabilities - (0.1)% ........ (257,425)
------------
Net Assets - 100.0% ..................................... $485,161,337
============
Federal Income Tax Information:
At December 31, 1999, the net unrealized appreciation
of investments based on cost for Federal income tax
purposes of $101,044,138 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost.......................................... $384,916,908
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ............................................ (542,284)
------------
$384,374,624
============
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* Non-income producing securities.
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------
December 31, 1999
ASSETS
Investments, at value (Cost $112,084,069) (Note 1) ...... $485,418,762
Cash .................................................... 14,769
Dividends and interest receivable ....................... 453,982
Other assets ............................................ 650
------------
485,888,163
LIABILITIES
Accrued management fee (Note 2) ......................... 589,533
Accrued trustees' fees (Note 2) ......................... 32,638
Payable for fund shares redeemed ........................ 4,512
Accrued transfer agent and shareholder services
(Note 2) .............................................. 4,171
Other accrued expenses .................................. 95,972
------------
726,826
------------
NET ASSETS $485,161,337
============
Net Assets consist of:
Undistributed net investment income ................... $ 7,383
Unrealized appreciation of investments ................ 373,334,693
Accumulated net realized loss ......................... (1,050,017)
Paid-in capital ....................................... 112,869,278
------------
$485,161,337
============
Net Asset Value per share
($485,161,337 / 786,574 shares) ....................... $616.80
=======
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
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STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------
For the year ended December 31, 1999
INVESTMENT INCOME
Dividends, net of foreign taxes of $53,011 .................. $ 5,615,779
Interest (Note 1) ........................................... 528,439
-----------
6,144,218
EXPENSES
Management fee (Note 2) ..................................... 2,317,805
Custodian fee ............................................... 91,918
Trustees' fees (Note 2) ..................................... 32,638
Legal fees .................................................. 32,285
Audit fee ................................................... 28,030
Reports to shareholders ..................................... 15,407
Transfer agent and shareholder services (Note 2) ............ 14,761
Miscellaneous ............................................... 12,610
-----------
2,545,454
Fees paid indirectly (Note 2) ............................... (624)
-----------
2,544,830
-----------
Net investment income ....................................... 3,599,388
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments (Notes 1 and 3) ............ 17,349,099
Net unrealized appreciation of investments .................. 57,361,552
-----------
Net gain on investments ..................................... 74,710,651
-----------
Net increase in net assets resulting from operations ........ $78,310,039
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
------------------------------
1998 1999
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ........................ $ 4,113,834 $ 3,599,388
------------- -------------
Net realized gain on investments ............. 23,963,046 17,349,099
Provision for federal income tax ............. (7,994,984) --
------------- -------------
15,968,062 17,349,099
------------- -------------
Net unrealized appreciation of investments ... 69,036,313 57,361,552
------------- -------------
Net increase resulting from operations ....... 89,118,209 78,310,039
------------- -------------
Dividends from net investment income ......... (4,113,379) (3,693,577)
------------- -------------
Share transactions:
Net asset value of shares issued
in payment of dividends .................... 623,531 695,523
Cost of shares repurchased ................... (2,724,029) (21,344,944)
------------- -------------
Net decrease from fund share transactions .... (2,100,498) (20,649,421)
------------- -------------
Total increase in net assets ................. 82,904,332 53,967,041
NET ASSETS
Beginning of year ............................ 348,289,964 431,194,296
------------- -------------
End of year (including undistributed net
investment income of $101,552 and $7,383,
respectively) .............................. $ 431,194,296 $ 485,161,337
============= =============
Number of shares:
Issued upon reinvestment of dividends ........ 1,261 1,181
Repurchased .................................. (5,833) (37,145)
------------- -------------
Net decrease in fund shares .................. (4,572) (35,964)
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
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NOTES TO FINANCIAL STATEMENTS
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December 31, 1999
NOTE 1
State Street Research Exchange Fund (the "Fund"), is a series of State Street
Research 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 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 maintains a policy 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. At December 31, 1999 the Fund had a
capital loss carryforward of $1,050,017 available, to the extent provided in
regulations, to offset future capital gains, if any, which expires on December
31, 2007.
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.
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 paid-in capital.
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.
E. 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. As of
December 31, 1999, there were no loaned securities. During the year ended
December 31, 1999, income from securities lending amounted to $4,750 and is
included in interest income.
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. During the year ended
December 31, 1999, the fees pursuant to such agreement amounted to $2,317,805.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended December 31, 1999, the amount of such
expenses was $6,640.
The Fund has entered into an agreement with its transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the Fund's expense. During the year ended December 31, 1999 the Fund's
transfer agent fees were reduced by $624 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$32,638 during the year ended December 31, 1999.
NOTE 3
For the year ended December 31, 1999, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities, including
$20,603,980 representing redemptions in kind, aggregated $4,692,128 and
$27,353,256, respectively.
NOTE 4
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 per value per share.
At December 31, 1999, the Adviser owned 13,766 shares of the Fund.
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 204.13 265.44 326.68 421.09 524.22
---------- ---------- ---------- ---------- ----------
Net investment income ($) 3.63 4.09 4.67 5.00 4.54
Net realized and unrealized gain on investments ($)* 61.75 61.76 94.39 103.13 92.69
---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS ($) 65.38 65.85 99.06 108.13 97.23
---------- ---------- ---------- ---------- ----------
Dividends from net investment income ($) (3.80) (4.10) (4.65) (5.00) (4.65)
Distributions from net realized gains ($) (0.27) (0.51) -- -- --
---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS ($) (4.07) (4.61) (4.65) (5.00) (4.65)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR ($) 265.44 326.68 421.09 524.22 616.80
========== ========== ========== ========== ==========
Total return (%) 34.44 26.06 31.71 28.09 18.59
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 233,422 276,724 348,290 431,194 485,161
Ratio of operating expenses to average net assets (%) 0.58 0.57 0.56 0.56 0.55
Ratio of operating expenses to average net assets
after expense reductions (%) 0.58 0.57 0.56 0.56 0.55
Ratio of net investment income to average net assets (%) 1.49 1.36 1.19 1.05 0.78
Portfolio turnover rate (%) 11.67 5.39 2.26 4.52 1.04
*After provision for Federal tax on retained
capital gains at end of year ($) 4.64 3.07 4.20 9.72 --
</TABLE>
<PAGE>
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REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF STATE STREET RESEARCH
EXCHANGE TRUST AND THE SHAREHOLDERS OF
STATE STREET RESEARCH EXCHANGE FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of State Street Research Exchange Fund
(a series of State Street Research Exchange Trust, hereafter referred to as the
"Trust") at December 31, 1999, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- -------------------------------------------------------------------------------
It was a good year for State Street Research Exchange Fund. The Fund returned
18.59% for the 12 months ended December 31, 1999. That was slightly less than
the S&P 500, which gained 21.03% for the period and the Lipper Large-Cap Core
Funds Average, which was 22.34%.
During the period, the Fund benefited from strong selection in technology, which
led the market during the year, and in financial services and consumer
nondurables, which were market laggards. In general, health care and consumer
durable stocks were a drag on the portfolio's performance.
The Fund invests in a diversified mix of high quality large-company stocks that
offer the potential for long-term growth and income. The manager has emphasized
investments in technology, health care and financial services on the belief that
these three sectors include a selection of companies that are consistent with
the Fund's buy and hold approach and tax sensitivity.
December 31, 1999
Keep in mind that past performance is no guarantee of future results. The Fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. The S&P 500 (officially
the "Standard and Poor's Stock Price Index") is an unmanaged index of 500 U.S.
stocks. The index does not take transaction charges into consideration. It is
not possible to invest directly in the index.
CHANGE IN VALUE OF $10,000
BASED ON THE S&P 500 COMPARED
TO CHANGE IN VALUE OF $10,000
INVESTED IN EXCHANGE FUND
- ---------------------------------------
Average Annual Total Return
- ----------------------------------------
1 Year 5 Years 10 Years
- ----------------------------------------
18.59% 27.66% 16.91%
- ----------------------------------------
Exchange Fund S&P 500
------------- -------
12/88 $10,000 $10,000
12/89 10,000 10,000
12/90 9,348 9,689
12/91 12,150 12,635
12/92 12,970 13,596
12/93 13,603 14,963
12/94 14,071 15,160
12/95 18,918 20,850
12/96 23,847 25,634
12/97 31,409 34,183
12/98 40,232 43,959
12/99 47,712 53,205
-- Exchange Fund -- S&P 500
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
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FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH EXCHANGE TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND INFORMATION OFFICERS TRUSTEES
<S> <C> <C>
STATE STREET RESEARCH RALPH F. VERNI RALPH F. VERNI
EXCHANGE FUND Chairman of the Board, Chairman of the Board,
One Financial Center President and President, Chief Executive
Boston, MA 02111 Chief Executive Officer Officer and Director,
State Street Research &
INVESTMENT ADVISER PETER C. BENNETT Management Company
State Street Research & Vice President
Management Company BRUCE R. BOND
One Financial Center JAMES M. WEISS Former Chairman of the Board,
Boston, MA 02111 Vice President Chief Executive Officer and
President,
DISTRIBUTOR KENNARD WOODWORTH, JR. PictureTel Corporation
State Street Research Vice President
Investment Services, Inc. STEVE A. GARBAN
One Financial Center GERARD P. MAUS Former Senior Vice President
Boston, MA 02111 Treasurer for Finance and Operations
and Treasurer, The Pennsylvania
SHAREHOLDER SERVICES JOSEPH W. CANAVAN State University
State Street Research Assistant Treasurer
Service Center MALCOLM T. HOPKINS
P.O. Box 8408 DOUGLAS A. ROMICH Former Vice Chairman of the
Boston, MA 02266-8408 Assistant Treasurer Board and Chief Financial
1-800-562-0032 Officer, St. Regis Corp.
FRANCIS J. MCNAMARA, III
CUSTODIAN Secretary and General Counsel DEAN O. MORTON
State Street Bank and Former Executive Vice President,
Trust Company DARMAN A. WING Chief Operating Officer and
225 Franklin Street Assistant Secretary and Director, Hewlett-Packard
Boston, MA 02110 Assistant General Counsel Company
LEGAL COUNSEL AMY L. SIMMONS SUSAN M. PHILLIPS
Goodwin, Procter & Hoar LLP Assistant Secretary Dean, School of Business and
Exchange Place Public Management, George
Boston, MA 02109 Washington University; former
Member of the Board of Governors
INDEPENDENT ACCOUNTANTS of the Federal Reserve System and
PricewaterhouseCoopers LLP Chairman and Commissioner of
160 Federal Street the Commodity Futures Trading
Boston, MA 02110 Commission
TOBY ROSENBLATT
President,
Founders Investments Ltd.
President,
The Glen Ellen Company
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
</TABLE>
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND ------------
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Canton, MA
Permit #313
------------
STATE STREET RESEARCH
[75 YEARS logo]
LASTING VALUE
- -------------
LEADING IDEAS
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032 or
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
[logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: (exp0201)SSR-LD EX-1225-0200
