STATE STREET RESEARCH CALIFORNIA TAX-FREE FUND
a series of
State Street Research Tax-Exempt Trust
One Financial Center
Boston, Massachusetts 02111
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
the State Street Research California Tax-Free Fund (the "California Tax-Free
Fund"), a series of State Street Research Tax-Exempt Trust (the "Trust"), to be
held at the offices of the Trust at One Financial Center, 31st Floor, Boston,
Massachusetts 02111 on December 12, 1995 at 2:00 p.m. local time.
At this important meeting you will be asked to consider and approve an
Agreement and Plan of Reorganization and Liquidation between the California
Tax-Free Fund and State Street Research Tax-Exempt Fund (the "Tax-Exempt Fund"),
another series of the Trust.
If the proposal is approved by the shareholders of the California Tax-Free
Fund, the Tax-Exempt Fund would acquire substantially all of the assets and
liabilities of the California Tax-Free Fund. As a result of this transaction,
you would receive, in exchange for your shares of the California Tax-Free Fund,
shares of the corresponding class of the Tax-Exempt Fund with an aggregate value
equivalent to the aggregate net asset value of your California Tax-Free Fund
investment at the time of the transaction. The transaction is conditioned upon
the receipt of an opinion of counsel to the effect that the transaction would be
free from federal income taxes to you and your Fund.
The Board of Trustees of the Trust has determined that the proposed
reorganization should provide benefits to shareholders of the California
Tax-Free Fund due to the enhanced economies of scale and more efficient
operations which are expected to result from combining funds with the same
investment manager, the same multiple class structure, the same sales load
structure and similar investment objectives and policies.
I thank you for your participation as a shareholder and urge you to please
exercise your right to vote by completing, dating and signing the enclosed proxy
card. A self-addressed, postage-paid envelope has been enclosed for your
convenience. We look forward to receiving your vote.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED NO LATER
THAN DECEMBER 8, 1995.
Instructions for shares held of record in the name of a nominee, such as a
broker-dealer, may be subject to earlier cut-off dates established by such
intermediaries to facilitate a timely response.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman of the Board,
President and Chief Executive Officer
October 16, 1995
<PAGE>
STATE STREET RESEARCH CALIFORNIA TAX-FREE FUND
a series of
State Street Research Tax-Exempt Trust
One Financial Center
Boston, Massachusetts 02111
---------------------------------
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
To Be Held On December 12, 1995
---------------------------------
A Special Meeting of Shareholders of State Street Research California
Tax-Free Fund (the "California Tax-Free Fund"), a portfolio series of State
Street Research Tax-Exempt Trust, a Massachusetts business trust (the "Trust"),
will be held at the offices of the Trust, One Financial Center, 31st Floor,
Boston, Massachusetts 02111, on December 12, 1995, at 2:00 p.m. local time
(the "Meeting") for the following purposes:
1. To consider and act upon an Agreement and Plan of Reorganization and
Liquidation providing for the transfer of the assets of the
California Tax-Free Fund (subject to its liabilities) to the State
Street Research Tax-Exempt Fund (the "Tax-Exempt Fund") in exchange
for Class A, Class B, Class C and Class D shares of the Tax-Exempt
Fund, the distribution of such shares to shareholders of the
California Tax-Free Fund and the subsequent liquidation and
dissolution of the California Tax-Free Fund; and
2. To consider and act upon any matter incidental to the foregoing and
to transact such other business as may properly come before the
Meeting and any adjournments thereof.
The close of business on October 13, 1995 has been fixed as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the Meeting and any adjournments thereof.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE
FUND. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DESIRE
TO VOTE IN PERSON AT THE MEETING, YOU MAY REVOKE YOUR PROXY.
By Order of the Trustees
FRANCIS J. MCNAMARA, III
Secretary
October 16, 1995
Date of Notice
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
Concerning the Acquisition of the Assets of
STATE STREET RESEARCH CALIFORNIA TAX-FREE FUND
By and in Exchange for Shares of
STATE STREET RESEARCH TAX-EXEMPT FUND
each a series of
State Street Research Tax-Exempt Trust
One Financial Center
Boston, Massachusetts 02111
(800) 562-0032
This Joint Proxy Statement/Prospectus relates to the proposed transfer of
the assets and liabilities of the State Street Research California Tax-Free Fund
(the "California Tax-Free Fund"), a series of the State Street Research
Tax-Exempt Trust (the "Trust"), a Massachusetts business trust, to the State
Street Research Tax-Exempt Fund (the "Tax-Exempt Fund"), another series of the
Trust, in exchange for Class A, Class B, Class C and Class D shares of
beneficial interest, $.001 par value per share, of the Tax-Exempt Fund
("Tax-Exempt Fund Shares"). Following such transfer, Tax-Exempt Fund Shares will
be distributed to shareholders of the California Tax-Free Fund in liquidation of
the California Tax-Free Fund, and the California Tax-Free Fund will be
dissolved. As a result of the proposed transaction, each shareholder will
receive in exchange for his or her shares of the California Tax-Free Fund shares
of the corresponding class of the Tax-Exempt Fund with an aggregate value equal
to the value of such shareholder's shares of the California Tax-Free Fund,
calculated as of the close of business on the business day immediately prior to
the exchange.
This Joint Proxy Statement/Prospectus is furnished to the shareholders of
the California Tax-Free Fund in connection with the solicitation of proxies by
and on behalf of the Trust's Board of Trustees to be used at a Special Meeting
of Shareholders of the California Tax-Free Fund to be held at the offices of the
Trust, One Financial Center, 31st Floor, Boston, Massachusetts 02111, at 2:00
p.m. local time on December 12, 1995 and at any adjournments thereof (the
"Meeting"). This document also serves as a Prospectus of the Tax-Exempt Fund and
covers the proposed issuance of Tax-Exempt Fund Shares. The California Tax-Free
Fund and the Tax-Exempt Fund may hereinafter be referred to collectively as the
"Funds"
<PAGE>
and individually as a "Fund." The Board of Trustees of the Trust may hereinafter
be referred to as the "Board of Trustees."
The investment objective of the Tax-Exempt Fund, a diversified series of
the Trust, an open-end management investment company, is to seek a high level of
interest income exempt from federal income taxes. In seeking to achieve its
investment objective, the Tax-Exempt Fund invests primarily in tax-exempt debt
obligations which the investment manager of the Fund believes will not involve
undue risk.
This Joint Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information that a shareholder of the
Tax-Exempt Fund and the California Tax-Free Fund should know before investing.
This Joint Proxy Statement/Prospectus is accompanied by the Prospectus of the
Tax-Exempt Fund dated May 1, 1995, which is incorporated by reference herein.
The Prospectus of the California Tax-Free Fund dated May 1, 1995 is incorporated
by reference herein. A Statement of Additional Information dated October 16,
1995 containing additional information relevant to the proposed transaction has
been filed with the Securities and Exchange Commission and is incorporated by
reference into this Joint Proxy Statement/Prospectus. A copy of such Statement
and a copy of the Prospectus of the California Tax-Free Fund may be obtained
without charge by writing to the Secretary, Tax-Exempt Trust Shareholder
Meeting, 31st Floor, One Financial Center, Boston, Massachusetts 02111.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
October 16, 1995
Date of Joint Proxy Statement/Prospectus
2
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY ................................................................... 4
RISK FACTORS .............................................................. 10
REASONS FOR THE REORGANIZATION ............................................ 11
INFORMATION ABOUT THE REORGANIZATION ...................................... 12
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES .......................... 16
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS ...................... 20
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES ........................... 22
FISCAL YEAR ............................................................... 22
PERFORMANCE ............................................................... 22
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS ............................. 23
MANAGEMENT ................................................................ 24
ADDITIONAL INFORMATION ABOUT THE FUNDS .................................... 25
VOTING INFORMATION ........................................................ 26
DISSENTERS' RIGHTS ........................................................ 27
EXPERTS ................................................................... 28
OTHER MATTERS ............................................................. 28
NO ANNUAL MEETING OF SHAREHOLDERS ......................................... 28
Exhibit A: Agreement and Plan of Reorganization and Liquidation ........... A-1
3
<PAGE>
SUMMARY
The following is a summary of certain information contained in or
incorporated by reference in this Joint Proxy Statement/Prospectus. This summary
is not intended to be a complete statement of all material features of the
proposed Reorganization (as hereinafter defined) and is qualified in its
entirety by reference to the full text of this Joint Proxy Statement/Prospectus
and the documents referred to herein.
Proposed Transaction. The Board of Trustees of the Trust has approved an
Agreement and Plan of Reorganization and Liquidation (the "Plan of
Reorganization") providing for the transfer of all of the assets of the
California Tax-Free Fund to the Tax-Exempt Fund (subject to the assumption by
the Tax-Exempt Fund of all of the liabilities of the California Tax-Free Fund
including those reflected on a statement of assets and liabilities of that Fund
as of the close of business on the Valuation Date, as hereinafter defined) in
exchange for Tax-Exempt Fund Shares at a closing to be held following the
satisfaction of the conditions to the Reorganization (the "Closing"). The
aggregate net asset value of full and fractional Tax-Exempt Fund Shares to be
issued to shareholders of the California Tax-Free Fund will equal the value of
the aggregate net assets of the California Tax-Free Fund as of the close of
business on the business day immediately prior to the Closing (the "Valuation
Date"). The number of Class A, Class B, Class C and Class D shares (which may
hereinafter be referred to collectively as the "shares" or individually as a
"share") to be issued to the California Tax-Free Fund will be determined by
dividing (a) the aggregate net assets attributable to each class of shares of
the California Tax-Free Fund by (b) the net asset value per Class A, Class B,
Class C and Class D share, respectively, of the Tax-Exempt Fund, each computed
as of the close of business on the Valuation Date. Tax-Exempt Fund Shares will
be distributed to shareholders of the California Tax-Free Fund in liquidation of
the California Tax-Free Fund, and the California Tax-Free Fund will be
dissolved. The proposed transaction described above is referred to in this Joint
Proxy Statement/Prospectus as the "Reorganization."
As a result of the Reorganization, each shareholder will receive, in
exchange for his or her shares of the California Tax-Free Fund, shares of the
corresponding class of the Tax-Exempt Fund with an aggregate value equal to the
value of such shareholder's shares of the California Tax-Free Fund, calculated
as of the close of business on the Valuation Date. For example, Class A
shareholders of the California Tax-Free Fund would receive Class A shares of the
Tax-Exempt Fund.
At or prior to the Closing, the California Tax-Free Fund shall declare a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to the California Tax-Free Fund's shareholders
all of the California Tax-Free Fund's investment company income for all taxable
years ending at or prior to the Closing (computed without regard to any
deduction for dividends paid) and all of its net capital gains realized (after
reduction for any capital loss carry-forward) in all taxable years ending at or
prior to the Closing. The Trustees, including the Trustees who are not
"interested persons" of the Trust as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), have determined that the interests of
existing shareholders of the California Tax-Free Fund and the Tax-Exempt Fund,
4
<PAGE>
respectively, will not be diluted as a result of the transactions contemplated
by the Reorganization and that the Reorganization would be in the best interests
of the shareholders of the California Tax-Free Fund and the Tax-Exempt Fund,
respectively. See "Information About the Reorganization."
The Trustees of the Trust recommend that the shareholders of the
California Tax-Free Fund vote FOR approval of the Plan of Reorganization.
Approval of the Plan of Reorganization by the shareholders of the
California Tax-Free Fund is a condition of the consummation of the
Reorganization. The affirmative vote of the holders of a majority of the
outstanding voting shares of such Fund (within the meaning of the 1940 Act),
voting together as a single class, is required to approve the Plan of
Reorganization on behalf of such Fund. A "majority" vote is defined in the 1940
Act as the vote of the holders of the lesser of (a) 67% or more of the voting
shares of the Fund, voting together as a single class, present at the Meeting,
if the holders of more than 50% of the outstanding voting shares are present or
represented by proxy, or (b) more than 50% of the outstanding voting shares of
the Fund, voting together as a single class. See "Voting Information."
Tax Consequences. Counsel to the Funds, Goodwin, Procter & Hoar, has
opined that, subject to customary assumptions and representations, upon
consummation of the Reorganization and the transfer of substantially all of the
assets of the California Tax-Free Fund to the Tax-Exempt Fund: (i) the transfer
of all the assets of the California Tax-Free Fund for Tax-Exempt Fund Shares and
the assumption by the Tax-Exempt Fund of all liabilities of the California
Tax-Free Fund will constitute a "reorganization" for federal income tax
purposes, and the California Tax-Free Fund and the Tax-Exempt Fund will each be
a "party to a reorganization" for federal income tax purposes; (ii) no gain or
loss will be recognized by the Tax-Exempt Fund or the California Tax-Free Fund
upon the transfer of the California Tax-Free Fund assets to the Tax-Exempt Fund
in exchange for Tax-Exempt Fund Shares; (iii) no gain or loss will be recognized
by shareholders of the California Tax-Free Fund upon the exchange of shares of
the California Tax-Free Fund for Tax-Exempt Fund Shares; (iv) the basis of
Tax-Exempt Fund Shares received by each California Tax-Free Fund shareholder
pursuant to the Reorganization will be the same as the basis of the California
Tax-Free Fund shares exchanged therefor; and (v) the basis of the California
Tax-Free Fund assets in the hands of the Tax-Exempt Fund will be the same as the
basis of such assets in the hands of the California Tax-Free Fund immediately
prior to the Reorganization. The receipt of such an opinion upon the Closing is
a condition to the Reorganization. See "Information About the Reorganization."
Investment Objectives and Policies. Unlike the California Tax-Free Fund,
the Tax-Exempt Fund does not include as an investment objective the earning of
interest income exempt from California State personal income taxes. In other
respects, however, the investment objectives, policies and restrictions of the
Funds are substantially similar. To the extent that there are other differences
in the policies and restrictions of the Funds, shareholders should consider such
differences. These differences are discussed below under "Comparison of
Investment Objectives and Policies."
5
<PAGE>
The investment objective of the California Tax-Free Fund is to seek a high
level of interest income exempt from federal income taxes and California State
personal income taxes. The Fund invests primarily in investment grade securities
issued by or on behalf of the State of California or its political subdivisions
and by other governmental entities. The California Tax-Free Fund may invest up
to 20% of the Fund's assets in securities rated below BBB by Standard & Poor's
Corporation ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"),
including securities rated as low as D by S&P or C by Moody's, or unrated
securities that the Investment Manager (as hereinafter defined) believes to be
of equivalent investment quality to comparably rated securities.
The investment objective of the Tax-Exempt Fund is to seek a high level of
interest income exempt from federal income taxes. The Fund invests primarily in
investment grade tax-exempt debt obligations. The Tax-Exempt Fund may invest up
to 20% of its assets in securities rated below BBB by S&P or Baa by Moody's,
including securities rated as low as D by S&P or C by Moody's, or unrated
securities that the Investment Manager (as hereinafter defined) believes to be
of equivalent investment quality to comparably rated securities.
Management and Other Service Providers. The business affairs of the Trust
are managed by its Board of Trustees. For each of the Funds, State Street
Research & Management Company (the "Investment Manager") serves as investment
adviser, State Street Research Investment Services, Inc. serves as distributor
(the "Distributor") and State Street Bank and Trust Company serves as custodian
and as transfer agent and dividend paying agent ("SSBT").
The Investment Manager and the Distributor are indirect wholly-owned
subsidiaries of Metropolitan Life Insurance Company ("Metropolitan Life"). SSBT
is not affiliated with the Investment Manager, the Distributor, Metropolitan
Life, the Trust or the Funds. See "Management."
6
<PAGE>
Advisory Fees and Expenses. The following tables summarize the shareholder
transaction expenses applicable to each Fund and the annual operating expenses
for the Funds on an individual basis and for the Tax-Exempt Fund on a pro forma
basis after giving effect to the Reorganization. This table is followed by an
example illustrating the effect of these expenses on a $1,000 investment in each
Fund.
Shareholder Transaction Expenses Applicable to Tax-Exempt Fund and California
Tax-Free Fund
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...... 4.5% None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable)................ None(2) 5% None 1%
Redemption Fees (as a percentage of amount
redeemed, if applicable)................. None None None None
Exchange Fees............................... None None None None
- --------------------
(1)Reduced sales charge purchase plans are available for Class A shares. The maximum 5% contingent deferred sales charge on Class B
shares applies to redemptions during the first year after purchase; the charge declines thereafter, and no contingent deferred
sales charge is imposed after the fifth year. Class D shares are subject to a 1% contingent deferred sales charge on any portion
of the purchase redeemed within one year of the sale. Long-term investors in a class of shares with a distribution fee may, over
a period of years, pay more than the economic equivalent of the maximum sales charge permissible under applicable rules.
(2)Purchases of Class A shares of $1 million or more are not subject to a sales charge. If such shares are redeemed within 12 months
of purchase, a contingent deferred sales charge of 1% will be applied to the redemption.
Table of Expenses of Tax-Exempt Fund (individually and on a pro forma basis) and California Tax-Free Fund
Tax-Exempt Fund California Tax-Free Fund (1)
Class A Class B Class C Class D Class A Class B Class C Class D
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management Fees............ 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%
12b-1 Fees................. 0.25% 1.00% None 1.00% 0.25% 1.00% None 1.00%
Other Expenses............. 0.36% 0.36% 0.36% 0.36% 0.90% 0.90% 0.90% 0.90%
Less Voluntary Reduction - - - - (0.60%) (0.60%) (0.60%) (0.60%)
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses 1.16% 1.91% 0.91% 1.91% 1.10% 1.85% 0.85% 1.85%
==== ==== ==== ==== ==== ==== ==== ====
Pro Forma Tax-Exempt Fund (2)
Class A Class B Class C Class D
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management Fees........... 0.55% 0.55% 0.55% 0.55%
12b-1 Fees................ 0.25% 1.00% None 1.00%
Other Expenses............ 0.36% 0.36% 0.36% 0.36%
Less Voluntary Reduction - - - -
----- ---- ---- ----
Total Fund Operating Expenses 1.16% 1.91% 0.91% 1.91%
===== ==== ==== ====
- ---------------------
(1) For the fiscal year ended December 31, 1994, Total Fund Operating Expenses of the California Tax-Free Fund with respect to the
average net assets of Class A, Class B, Class C and Class D shares, respectively, would have been 1.72%, 2.46%, 1.45% and 2.44%
in the absence of the voluntary assumption of fees or expenses by the Distributor and its affiliates. Such assumption of fees
or expenses, as a percentage of average net assets, amounted to 0.62%, 0.61%, 0.60% and 0.59% of the Class A, Class B, Class C
and Class D shares of the Fund, respectively. The amount of fees or expenses assumed during the fiscal year ended December 31,
1994 differed among classes because of fluctuations during the year in relative levels of assets in each class and in expenses
before reimbursement.
(2) Reflects the effect of proposed similar reorganizations of two other state-specific tax-free mutual funds into the
Tax-Exempt Fund to occur at about the same time as the proposed reorganization described herein.
7
<PAGE>
Example:
You would pay the following expenses on a $1,000 investment including, for Class
A shares, the maximum initial sales charge and assuming (1) 5% annual return and
(2) redemption of the entire investment at the end of each time period:
Tax-Exempt Fund California Tax-Free Fund
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------ -------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A shares................. $56 $80 $106 $180 $56 $78 $103 $173
Class B shares(1).............. $69 $90 $123 $204 $69 $88 $120 $197
Class C shares................. $ 9 $29 $ 50 $112 $ 9 $27 $47 $105
Class D shares................. $29 $60 $103 $223 $29 $58 $100 $217
Pro Forma Tax-Exempt Fund
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A shares................ $56 $80 $106 $180
Class B shares(1)............. $69 $90 $123 $204
Class C shares................ $ 9 $29 $ 50 $112
Class D shares................ $29 $60 $103 $223
You would pay the following expenses on the same investment, assuming no
redemption:
Tax-Exempt Fund California Tax-Free Fund
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- -------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class B (1)................ $19 $60 $103 $204 $19 $58 $100 $197
Class D .................. $19 $60 $103 $223 $19 $58 $100 $217
Pro Forma Tax-Exempt Fund
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B (1).............. $19 $60 $103 $204
Class D .................. $19 $60 $103 $223
- --------------------
(1) Ten-year figures assume conversion of Class B shares to Class A shares at the end of eight years.
The example should not be considered as a representation of past or future return or expenses. Actual return or expenses may be
greater or less than shown.
</TABLE>
Multiple Class Structure; Distribution Arrangements. Each Fund has
outstanding and offers four classes of shares, which may be purchased through
securities dealers which have entered into sales agreements with the Distributor
at the next determined net asset value per share plus, in the case of all
classes except the Class C shares, a sales charge which, at the election of the
investor, may be imposed (i) at the time of purchase (the Class A shares) or
(ii) on a deferred basis (the Class B and Class D shares). In the proposed
Reorganization, shareholders of the California Tax-Free Fund will receive the
corresponding class of shares of the Tax-Exempt Fund which they currently hold
in the California Tax-Free Fund. The Class A, Class B, Class C and Class D
shares of the Tax-Exempt Fund have identical arrangements with respect to the
imposition of initial and contingent deferred sales charges and distribution and
service fees as the comparable class of shares of the California Tax-Free Fund.
Because the Reorganization will be effected at net asset value without the
imposition of a sales charge, Tax-Exempt Fund Shares
8
<PAGE>
acquired by shareholders of the California Tax-Free Fund pursuant to the
proposed Reorganization would not be subject to any initial sales charge or
contingent deferred sales charge as a result of the Reorganization. However,
holders of the Tax-Exempt Fund Shares acquired as a result of the Reorganization
would continue to be subject to a contingent deferred sales charge upon
subsequent redemption to the same extent as if they had continued to hold their
shares of the California Tax-Free Fund. For purposes of computing the contingent
deferred sales charge that may be payable upon disposition of any acquired Class
A, Class B and Class D shares of the Tax-Exempt Fund, the holding period of the
redeemed shares is "tacked" to the holding period of the California Tax-Free
Fund. See "Comparative Information on Distribution Arrangements."
Dividends. The Funds have identical policies with regard to dividends and
distributions. Each Fund's policy is to declare a dividend each day in an amount
based on monthly projections of its future net investment income and will pay
such dividends monthly. Consequently, the amount of each daily dividend may
differ from actual net investment income as determined under generally accepted
accounting principles. Each daily dividend is payable to shareholders of record
at the time of its declaration (for this purpose, including only holders of
shares purchased for which payment has been received by the transfer agent and
excluding holders of shares redeemed on that day). After the closing of the
Reorganization, California Tax-Free Fund shareholders who currently have
dividends reinvested will continue to have dividends reinvested in the
Tax-Exempt Fund and those who currently have capital gains reinvested will
continue to have capital gains reinvested in the Tax-Exempt Fund. The number of
shares received in connection with any such reinvestment will be based upon the
net asset value per share of the applicable class of shares of the Tax-Exempt
Fund in effect on the record date. See "Comparative Information on Shareholder
Services."
Exchange Rights. Each Fund currently has identical exchange privileges.
Shareholders of the California Tax-Free Fund may exchange their shares for
shares of a corresponding class of shares, when available, of certain funds as
determined by the Distributor, at any time on the basis of the relative net
asset values of the respective shares to be exchanged, subject to compliance
with applicable securities laws. Shareholders of any other such fund may
similarly exchange their shares for shares of an available corresponding class
of the California Tax-Free Fund. See "Comparative Information on Shareholder
Services."
Redemption Procedures. Each Fund offers the same redemption features,
including the acceptance of redemption requests by mail, telephone and wire,
provided that applicable conditions are met. Any request to redeem shares of the
California Tax-Free Fund received and processed prior to the Reorganization will
be treated as a redemption of shares of the California Tax-Free Fund. Any
request to redeem shares received or processed after the Reorganization will be
treated as a request to redeem shares of the Tax-Exempt Fund. See "Comparative
Information on Shareholder Services."
Minimum Account Size. Each Fund reserves the right to redeem an account if
the aggregate value of the shares in such account is less than $1,500 for a
period of 60 days after
9
<PAGE>
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Currently, the maintenance fee is $18
annually. The Tax-Exempt Fund shareholder accounts established pursuant to the
Reorganization with a value of less than $1,500 will therefore be subject to
redemption upon 60 days' prior notice or the annual maintenance fee. During such
60-day period, a shareholder will have the option of avoiding such redemption or
maintenance fee by increasing the value of the account to $1,500 or more.
Certain Affiliations. To the extent that the Investment Manager and its
affiliates may own 5% or more of the California Tax-Free Fund, such Fund may be
deemed to be an "affiliated person," as defined in the 1940 Act, of the
Investment Manager or its affiliates. See "Information About the
Reorganization."
RISK FACTORS
The investment risks of both Funds are generally similar because of the
similarities of investment objectives and policies of the Funds. However, the
California Tax-Free Fund's ability to achieve its investment objective depends
on the ability of the issuers of California municipal obligations to meet their
continuing obligations for the payment of principal and interest, whereas the
Tax-Exempt Fund is subject to an investment restriction that prohibits more than
25% of the assets of the Fund from being invested in securities of issuers
conducting their principal activities in the same state. See "Comparison of
Investment Objectives and Policies." Such risks are more fully discussed under
the caption "The Fund's Investments" in the Prospectus of the Tax-Exempt Fund
enclosed with this Joint Proxy Statement/Prospectus and under the caption "The
Fund's Investments" in the Prospectus of the California Tax-Free Fund (available
upon request).
The Tax-Exempt Fund invests primarily in notes and bonds issued by or on
behalf of state and local governmental units. The California Tax-Free Fund
invests primarily in obligations issued by or on behalf of the State of
California, its political subdivisions, municipalities and public authorities
and by other governmental entities. In the case of each Fund, the value of such
investments will generally fluctuate inversely with changes in prevailing
interest rates. When interest rates increase, the value of debt securities and
shares of a Fund can be expected to decline.
There are risks in any investment program, and there is no assurance that
either Fund will achieve its investment objective. Tax-exempt bonds are subject
to relative degrees of credit risk and market volatility. Credit risk relates to
the issuer's (and any guarantor's) ability to make timely payments of principal
and interest. Market volatility relates to the changes in market price that
occur as a result of variations in the level of prevailing interest rates and
yield relationships between sectors in the tax-exempt bond market and other
market factors.
10
<PAGE>
REASONS FOR THE REORGANIZATION
In reaching the decision to recommend that the shareholders of the
California Tax-Free Fund vote to approve the Reorganization, the Board of
Trustees, including the Trustees who are not interested persons of the Trust,
concluded that the Reorganization would be in the best interests of the
respective Funds and that the interests of existing shareholders of the
respective Funds will not be diluted as a consequence thereof. In making this
determination, the Trustees considered a number of factors, including the
smaller size and higher gross expenses of the California Tax-Free Fund compared
to the Tax-Exempt Fund and the efficiencies resulting from combining the
operations of two separate funds with the same investment manager, the same
multiple class structure, the same sales load structure and similar investment
objectives and policies.
As reflected in the capitalization table in "Information About the
Reorganization--Capitalization" set forth below, the California Tax-Free Fund is
small in size. As a result, its gross expenses are relatively high and have been
subsidized by the Distributor since inception; see "Table of Expenses of
Tax-Exempt Fund (individually and on a pro forma basis) and California Tax-Free
Fund" set forth in the "Summary" above. The Distributor reserves the right to
discontinue at any time its voluntary subsidization of expenses of the
California Tax-Free Fund; consequently, such Fund's expenses could increase in
the future. On the other hand, the Tax-Exempt Fund has substantially more assets
and a lower, unsubsidized expense ratio. By combining the assets of the two
Funds, each Fund could, over time, possibly benefit from certain economies of
scale. In particular, greater portfolio diversification and more efficient
portfolio management could result from a larger asset base. Greater
diversification is expected to be beneficial to shareholders because it may
reduce the negative effect which the adverse performance of any one portfolio
security may have on the performance of the portfolio as a whole. Because each
Fund has the same investment adviser, custodian and distributor, combining the
Funds could, over time, produce administrative economies of scale, resulting in
net benefits to the Funds' shareholders. The Trustees considered, among other
things, the benefit to the Funds of elimination of duplication of services such
as producing separate prospectuses and shareholder reports.
The above-cited benefits offset, in whole or in part, the loss to the
shareholders of the California Tax-Free Fund of having a fund more devoted to
investments which produce income which is tax-exempt for both federal and
California income tax purposes, as compared to the Tax-Exempt Fund which
focuses primarily on securities exempt from federal income taxes. Income from
the Tax-Exempt Fund will be subject to more California State personal income
tax than the income from the California Tax-Free Fund.
The Board of Trustees of the Trust believes that the proposed
Reorganization is in the best interests of the shareholders of the California
Tax-Free Fund and recommend that shareholders of the California Tax-Free Fund
vote FOR the Reorganization.
11
<PAGE>
INFORMATION ABOUT THE REORGANIZATION
At a meeting held on August 2, 1995, the Board of Trustees of the
Trust approved the Plan of Reorganization substantially in the form set forth
as Exhibit A to this Joint Proxy Statement/Prospectus.
Plan of Reorganization. The Plan of Reorganization provides that, at the
Closing, the Tax-Exempt Fund will acquire all of the assets of the California
Tax-Free Fund (subject to the assumption by the Tax-Exempt Fund of all of the
liabilities of the California Tax-Free Fund including all liabilities reflected
on an unaudited statement of assets and liabilities) in exchange for Tax-Exempt
Fund Shares. The aggregate net asset value of full and fractional Tax-Exempt
Fund Shares to be issued to shareholders of the California Tax-Free Fund will
equal the value of the aggregate net assets of the California Tax-Free Fund as
of the close of business on the Valuation Date. The number of Class A, Class B,
Class C and Class D shares to be issued to the California Tax-Free Fund will be
determined by dividing (a) the aggregate net assets in each class of shares of
the California Tax-Free Fund by (b) the net asset value per Class A, Class B,
Class C and Class D share, respectively, of the Tax-Exempt Fund, each computed
as of the close of business on the Valuation Date. Portfolio securities of the
California Tax-Free Fund and the Tax-Exempt Fund will be valued in accordance
with the valuation practices of the Tax-Exempt Fund which are described under
the caption "Purchase of Shares" in the Tax-Exempt Fund Prospectus and which are
substantially identical to those of the California Tax-Free Fund.
The Tax-Exempt Fund will assume all liabilities, including all expenses,
costs, charges and reserves reflected on an unaudited statement of assets and
liabilities of the California Tax-Free Fund prepared as of the close of business
on the Valuation Date in accordance with generally accepted accounting
principles consistently applied from the prior audited period. Such statement of
assets and liabilities will reflect all liabilities known to the California
Tax-Free Fund and the Tax-Exempt Fund as of the date thereof. At or prior to the
Closing, the California Tax-Free Fund shall declare a dividend or dividends
which, together with all prior such dividends, shall have the effect of
distributing to the California Tax-Free Fund's shareholders all of the
California Tax-Free Fund's investment company income for all taxable years
ending at or prior to the Closing (computed without regard to any deduction for
dividends paid) and all of its net capital gains realized (after reduction for
any capital loss carry-forward) in all taxable years ending at or prior to the
Closing.
At or as soon as practicable after the Closing, the California Tax-Free
Fund will liquidate and distribute pro rata to its shareholders of record as of
the close of business on the Valuation Date the full and fractional Tax-Exempt
Fund Shares received by the California Tax-Free Fund. Such liquidation and
distribution will be accomplished by the establishment of shareholder accounts
on the share records of the Tax-Exempt Fund in the name of each such shareholder
of the California Tax-Free Fund, representing the respective pro rata number of
full and fractional Tax-Exempt Fund Shares due such shareholder. All of the
Tax-Exempt Fund's future
12
<PAGE>
distributions attributable to the shares issued in the Reorganization will be
paid to shareholders in cash or invested in additional shares of the Tax-Exempt
Fund at the price in effect as described in the Tax-Exempt Fund's Prospectus on
the respective payment dates in accordance with instructions previously given by
the shareholder to the California Tax-Free Fund's transfer agent. As of the
Closing, each outstanding certificate which, prior to the Closing, represented
shares of the California Tax-Free Fund will be deemed for all purposes to
evidence ownership of the number of Tax-Exempt Fund Shares issuable with respect
thereto pursuant to the Reorganization. After the Closing, certificates
originally representing shares of Class A or Class C of the California Tax-Free
Fund will be rendered null and void and nonnegotiable; upon special request and
surrender of such certificates to SSBT as transfer agent, holders of these
nonnegotiable certificates shall be entitled to receive certificates
representing the number of Tax-Exempt Fund Shares issuable with respect thereto.
All Class B and Class D shares of the Tax-Exempt Fund are held of record in book
entry form and no certificates for such shares will be issued.
Notwithstanding approval by shareholders of the California Tax-Free Fund,
the Plan of Reorganization may be terminated at any time prior to the
consummation of the Reorganization without liability on the part of either party
or its respective Trustees, officers or shareholders, by either party on written
notice to the other party if circumstances should develop that, in the opinion
of the Trust, make proceeding with the Reorganization inadvisable. The Plan of
Reorganization may be amended, waived or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust; provided, however,
that following the Meeting, no such amendment, waiver or supplement may have the
effect of changing the provision for determining the number of Tax-Exempt Fund
Shares to be issued to the California Tax-Free Fund shareholders to the
detriment of such shareholders without their further approval. The expenses
incurred in connection with entering into and carrying out the provisions of the
Plan of Reorganization, whether or not the Reorganization is consummated, will
be apportioned between Distributor and the Funds in a fair and equitable manner.
Description of Tax-Exempt Fund Shares. Full and fractional shares of the
Tax-Exempt Fund will be issued to the California Tax-Free Fund shareholders in
accordance with the procedures under the Plan of Reorganization as described
above. Each share will be fully paid and nonassessable by the Trust when issued
and transferable without restrictions and will have no preemptive or cumulative
voting rights and have only such conversion or exchange rights as the Board of
Trustees of the Trust may grant in its discretion.
Federal Income Tax Consequences. Counsel to the Funds, Goodwin, Procter &
Hoar, has opined that, subject to customary assumptions and representations, on
the basis of the existing provisions of the Internal Revenue Code (the "Code"),
the Treasury Regulations promulgated thereunder and current administrative and
judicial interpretations thereof, for federal income tax purposes: (i) the
transfer of all the assets of the California Tax-Free Fund in exchange for
Tax-Exempt Fund Shares and the assumption by the Tax-Exempt Fund of all
liabilities of the California Tax-Free Fund will constitute a "reorganization"
within the meaning of Section 368(a)(1)(C) of the Code, and the California
Tax-Free Fund and the Tax-Exempt Fund each will be a "party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain
13
<PAGE>
or loss will be recognized by the California Tax-Free Fund or the Tax-Exempt
Fund upon the transfer of the California Tax-Free Fund assets to the Tax-Exempt
Fund in exchange for Tax-Exempt Fund Shares; (iii) no gain or loss will be
recognized by shareholders of the California Tax-Free Fund upon the exchange of
the California Tax-Free Fund shares for Tax-Exempt Fund Shares; (iv) the basis
of Tax-Exempt Fund Shares received by each California Tax-Free Fund shareholder
pursuant to the Reorganization will be the same as the basis of the California
Tax-Free Fund shares exchanged therefor; (v) the basis of the California
Tax-Free Fund assets in the hands of the Tax-Exempt Fund will be the same as the
basis of such assets in the hands of the California Tax-Free Fund immediately
prior to the Reorganization. The receipt of such an opinion upon the Closing is
a condition to the consummation of the Reorganization. If the transfer of the
assets of the California Tax-Free Fund in exchange for Tax-Exempt Fund Shares
and the assumption by the Tax-Exempt Fund of the liabilities of the California
Tax-Free Fund do not constitute a tax-free reorganization, each California
Tax-Free Fund shareholder will recognize gain or loss equal to the difference
between the value of Tax-Exempt Fund Shares such shareholder acquires and the
tax basis of such shareholder's California Tax-Free Fund shares.
Shareholders of the Funds should consult their tax advisers regarding the
effect, if any, of the proposed Reorganization in light of their individual
circumstances. Since the foregoing discussion relates only to the federal income
tax consequences of the Reorganization, shareholders of the Funds should also
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
Capitalization. The following table sets forth the capitalization of the
California Tax-Free Fund and the Tax-Exempt Fund as of June 30, 1995, and on a
pro forma basis as of that date giving effect to the proposed acquisition of
assets at net asset value. The pro forma data reflects an exchange ratio of
1.0005, 1.0023, 1.0042 and 1.0029 for Class A, Class B, Class C and Class D
shares, respectively, of the Tax-Exempt Fund issued for each Class A, Class B,
Class C and Class D share, respectively, of the California Tax-Free Fund.
14
<PAGE>
California
Tax-Exempt Tax-Free Combined After
Fund Fund Reorganization (1)
Net assets (in millions)...... $272.3 $28.6 $328.8
Net asset value per share
Class A.................. $7.82 $7.82 $7.82
Class B.................. $7.81 $7.83 $7.81
Class C.................. $7.80 $7.83 $7.80
Class D.................. $7.81 $7.83 $7.81
Shares outstanding
Class A.................. 29,860,742 1,032,698 32,233,417
Class B.................. 4,779,340 444,447 6,256,343
Class C.................. 46,835 2,088,885 3,031,409
Class D.................. 144,825 89,776 547,027
- --------------
(1) Reflects the effect of proposed similar reorganizations of two
other state-specific tax-free mutual funds into the Tax-Exempt Fund to
occur at about the same time as the proposed reorganization described
herein. The combined assets as of June 30, 1995 of all three funds to be
reorganized into the Tax-Exempt Fund was $56.5 million.
The table set forth above should not be relied on to reflect the number of
shares to be received in the Reorganization; the actual number of shares to be
received will depend upon the net asset value and number of shares outstanding
of each Fund at the time of the Reorganization.
The following table sets forth the number of outstanding shares of
beneficial interest of each Fund as of June 30, 1995, and the approximate
percentages of the outstanding shares of each Fund that were beneficially owned
by the Investment Manager, the Distributor and Metropolitan Life, their indirect
parent. As a result of such ownership, the consummation of the Reorganization is
subject to the receipt of exemptive relief from the Securities and Exchange
Commission from certain provisions of the 1940 Act. An application for an
exemption has been filed that, if granted, would permit the Reorganization to be
completed as described in this Joint Proxy Statement/Prospectus. There can be no
assurance that the relief sought will be obtained, although the type of relief
sought has been obtained by others in similar situations. The Board of Trustees
of the Trust does not know of any other person who beneficially owned 5% or more
of the total outstanding shares of either Fund as of June 30, 1995. In addition,
as of such date, the Trustees and officers of the Trust as a group owned less
than 1% of the outstanding shares of each of the California Tax-Free Fund and
the Tax-Exempt Fund. The Investment Manager and its affiliates have indicated to
the Trust that with respect to their shares of the California Tax-Free Fund they
intend to vote for and against the proposal in the same relative proportion as
do the other shareholders of the California Tax-Free Fund who cast votes at the
Meeting.
15
<PAGE>
<TABLE>
<CAPTION>
Outstanding Shares Owned Outstanding Shares Owned Outstanding Shares Owned
by Metropolitan Life by the Distributor by the Investment Manager
Total Shares Number % of Total Number % of Total Number % of Total
Name of Fund Outstanding of Shares Outstanding of Shares Outstanding of Shares Outstanding
<S> <C> <C> <C> <C> <C> <C> <C>
California Tax-Free Fund 3,655,806 392,358 10.7 1 0.0 -- --
Tax-Exempt Fund 34,831,742 61,257 0.2 13,825 0.0 -- --
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
Information about the investment objectives and policies of the California
Tax-Free Fund and the Tax-Exempt Fund is summarized below. More complete
information regarding the same is set forth in the Prospectus of the Tax-Exempt
Fund dated May 1, 1995 which is incorporated by reference herein and enclosed
herewith, the Prospectus of the California Tax-Free Fund dated May 1, 1995 which
is incorporated by reference herein, and in the Statement of Additional
Information which has been filed with the Securities and Exchange Commission in
connection with the Reorganization. Shareholders should consult such
Prospectuses and the Statement of Additional Information for a more thorough
comparison.
Investment Objectives. The investment objective of the California Tax-Free
Fund is to seek a high level of interest income exempt from federal income taxes
and California State personal income taxes. The Fund invests primarily in
investment grade securities issued by or on behalf of the State of California or
its political subdivisions and by other governmental entities. The California
Tax-Free Fund may invest up to 20% of the Fund's assets in securities rated
below BBB by S&P or Baa by Moody's, including securities rated as low as D by
S&P or C by Moody's, or unrated securities that the Investment Manager believes
to be of equivalent investment quality to comparably rated securities.
The investment objective of the Tax-Exempt Fund is to seek a high level of
interest income exempt from federal income taxes. The Fund invests primarily in
investment grade tax-exempt debt obligations. The Fund may invest up to 20% of
the Fund's assets in securities rated below BBB by S&P or Baa by Moody's or
unrated securities that the Investment Manager believes to be of equivalent
investment quality to comparably rated securities.
There are differences in the investment objectives of the two Funds. Under
normal circumstances, substantially all of the dividends paid by the California
Tax-Free Fund are expected to be exempt from both federal and California State
personal income taxes; dividends paid by the Tax-Exempt Fund are generally
exempt only from federal income tax. The California Tax-Free
16
<PAGE>
Fund invests primarily in securities issued by or on behalf of the State of
California or its political subdivisions. The Tax-Exempt Fund's investment
objective, in contrast, does not obligate it to invest primarily in securities
issued by or on behalf of the State of California or its political subdivisions;
rather, it invests in securities issued by a variety of state and local
governmental units. Both Funds, however, generally invest in debt securities
with interest income exempt from federal income taxes, pursue substantially
similar strategies of achieving their investment objective and are subject to
similar investment restrictions.
Investment Restrictions. While the investment restrictions of the
California Tax-Free Fund are similar in certain respects to those of the
Tax-Exempt Fund, there are subtle differences. Set forth below is a summary of
the similarities of and differences between the existing investment restrictions
of the California Tax-Free Fund and the investment restrictions of the
Tax-Exempt Fund. The summary is qualified in its entirety by reference to and is
made subject to the complete text of the investment restrictions of each Fund,
which are set forth in the Statement of Additional Information. The investment
objective of each Fund and certain of the investment restrictions of each Fund
are deemed fundamental, which means that they may not be changed without the
approval of a majority of such Fund's outstanding voting securities (as defined
in the 1940 Act). Investment restrictions which are not deemed fundamental may
be changed by a Fund's Trustees without shareholder approval.
1. The Tax-Exempt Fund has a fundamental investment restriction which
prohibits the Fund from investing in a security if the transaction would
result in more than five percent of the Fund's total assets being invested
in any one issuer or if the transaction would result in the Fund's owning
more than ten percent of the voting securities of any one issuer (except
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or backed by the U.S. Government). The California
Tax-Free Fund has a fundamental investment restriction which prohibits the
Fund from investing in a security if the transaction would result in, with
respect to 75% of the Fund's total assets, more than five percent of the
Fund's total assets being invested in any one issuer or if the transaction
would result in the Fund's owning more than ten percent of the voting
securities of any one issuer (except securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities or backed by the
U.S. Government or to repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory
interpretations).
2. The Tax-Exempt Fund is subject to a fundamental restriction that prohibits
the purchase of securities of issuers that have been in continuous
operation for less than three years if such purchase would cause more than
five percent of the total assets of the Fund to be invested in the
securities of such issuers, unless such securities are rated BBB or higher
by S&P or Ba or higher by Moody's. These restrictions do not apply to
investments in securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities or backed by the U.S. Government. The
California Tax-Free Fund has a substantially similar restriction; however,
the Fund excludes from this restriction repurchase agreements involving
U.S. Government securities to the extent excludable under relevant
regulatory interpretations.
17
<PAGE>
3. Both Funds are subject to a fundamental investment restriction which
states that the Fund may not issue senior securities.
4. Both Funds have a fundamental investment restriction prohibiting
underwriting or participating in the marketing of securities of other
issuers. For each Fund, this restriction however, provides an exception
for such Fund if it were to purchase securities of other issuers for
investment, either from the issuers, persons in a control relationship
with the issuers or from underwriters of such securities. The applicable
restriction on the California Tax-Free Fund provides an exception in
circumstances where, in connection with the disposition of the Fund's
securities, the Fund may be deemed an underwriter under certain federal
securities laws.
5. Both Funds have a fundamental investment restriction prohibiting the
purchase or sale of fee simple interests in real estate. The California
Tax-Free Fund's restriction clarifies, however, that such Fund may
purchase and sell other interests in real estate including securities
which are secured by real estate or securities of companies which own or
invest or deal in real estate.
6. The Tax-Exempt Fund has a fundamental investment restriction prohibiting
the Fund from investing in commodities or commodity contracts, except that
the Fund may invest in financial futures contracts and options on futures
contracts. The California Tax-Free Fund is subject to a fundamental
investment restriction prohibiting it from investing in commodities or
commodity contracts in excess of ten percent of the Fund's total assets
(except for investments in futures contracts and options on futures
contracts on securities or securities indices).
7. Both Funds have fundamental investment restrictions prohibiting the Funds
from conducting arbitrage transactions (subject to certain exceptions such
as that the Fund may invest in futures and options for hedging purposes).
8. Both Funds are subject to substantially similar fundamental investment
restrictions which prohibit the lending of assets of the Funds, subject to
exceptions for the purchase of bonds, debentures, notes and similar
obligations (including repurchase agreements) in accordance with each
Fund's investment policies and objectives. In addition, the California
Tax-Free Fund may lend portfolio securities without violating this
restriction.
9. Both Funds have a fundamental investment restriction regarding illiquid
securities which states that the Fund may not invest more than ten percent
of its total assets in illiquid securities, including securities
restricted as to resale and repurchase agreements extending for more than
seven days and, in the case of the Tax-Exempt Fund, other securities which
are not readily marketable. The California Tax-Free Fund also includes
options not listed and traded on any national securities exchange in the
definition of illiquid securities. A current nonfundamental policy of the
California Tax-Free Fund prohibits the Fund from
18
<PAGE>
investing more than five percent of the Fund's total assets in restricted
securities, while the same prohibition is a fundamental investment
restriction of the Tax-Exempt Fund.
10. Both Funds have fundamental investment restrictions prohibiting them from
investing in interests in oil, gas or other mineral exploration or
development programs, subject to certain exceptions. The Tax-Exempt Fund
may invest in securities which are based, directly or indirectly, on the
credit of companies which invest in or sponsor such exploration programs.
The California Tax-Free Fund, on the other hand, may invest in securities
issued by companies which invest in or sponsor such exploration programs
and in securities indexed to the price of oil, gas or other minerals.
11. The California Tax-Free Fund is subject to a fundamental investment
restriction which prohibits the Fund from making an investment which would
cause more than 25% of the value of the Fund's total assets to be invested
in securities of issuers principally engaged in any one industry. This
restriction does not apply to investments in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
(including repurchase agreements involving U.S. Government securities to
the extent excludable under relevant regulatory interpretations). The
Tax-Exempt Fund does not have such a restriction.
12. The Tax-Exempt Fund is subject to a fundamental investment restriction
which prohibits the Fund from making an investment which would cause more
than 25% of the value of the Fund's total assets to be invested in
securities of issuers conducting their principal activities in the same
state. This restriction does not apply to investments in securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities
or backed by the U.S. Government. The California Tax-Free Fund does not
have such a restriction.
13. The Tax-Exempt Fund is subject to a fundamental investment restriction
that prohibits the borrowing of money (through reverse repurchase
agreements or otherwise) except for extraordinary and emergency purposes,
and then not in an amount in excess of ten percent of the value of its
total assets, provided that reverse repurchase agreements shall not exceed
five percent of its total assets and that additional investments will be
suspended during any period when borrowing exceeds five percent of total
assets. The California Tax-Free Fund has a fundamental investment
restriction stating that the Fund may not borrow money except for
borrowings from banks for extraordinary and emergency purposes, and then
not in an amount in excess of 25% of the value of its total assets, and
except insofar as reverse repurchase agreements may be regarded as
borrowing. In addition, as a matter of current operating, but not
fundamental, policy, the California Tax-Free Fund will not purchase
additional portfolio securities at any time when it has outstanding money
borrowings in excess of five percent of the Fund's total assets (taken at
current value).
14. Pursuant to a nonfundamental investment restriction, neither Fund may
purchase securities of any company in which any officer or Trustee of such
Fund or its investment adviser owns more than one half of one percent of
the outstanding securities, or in which all of the
19
<PAGE>
officers and Trustees of such Fund and its investment adviser, as a group,
own more than five percent of such securities.
15. Both Funds have a nonfundamental investment restriction stating that the
Fund may not hypothecate, mortgage or pledge any of its assets except to
secure permitted borrowings (and then, in the case of the Tax-Exempt Fund,
not in excess of ten percent of the Tax-Exempt Fund's assets). Under each
Fund's restriction, financial futures and options on financial futures are
not deemed to involve a pledge of assets.
16. Both Funds have a nonfundamental investment restriction stating that the
Fund may not invest in companies for the purpose of exercising control
over the management of such companies.
17. Pursuant to substantially similar nonfundamental investment restrictions,
each Fund may not invest in securities of any other investment company,
except in connection with a merger, consolidation or similar
reorganization, if such investment would represent more than three percent
of the outstanding voting stock of such other company or more than five
percent of the value of the total assets of the Fund, or if such
investments in the aggregate would exceed ten percent of the value of the
total assets of the Fund.
18. The California Tax-Free Fund has a nonfundamental investment restriction
prohibiting the Fund from purchasing securities on margin or making short
sales of securities or maintaining a short position, except for short
sales "against the box" (as a matter of current operating, but not
fundamental policies, the Fund will not make short sales or maintain a
short position unless not more than five percent of the Fund's net assets
(taken at current value) is held as collateral for such sales at any
time). Similarly, the Tax-Exempt Fund is subject to a nonfundamental
investment restriction barring it from purchasing securities on margin,
making short sales of securities or purchasing or dealing in puts, calls,
straddles or spreads with respect to any security, except in connection
with the purchase or writing of options, including options on financial
futures, and futures contracts.
19. The California Tax-Free Fund is subject to a nonfundamental investment
restriction prohibiting the Fund from investing in warrants which would
comprise more than five percent of the value of its total assets. Warrants
initially attached to securities and acquired by the Fund upon original
issuance thereof shall be deemed to be without value. The Tax-Exempt Fund
is not subject to such a restriction.
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS
Class A shares of each Fund are subject to (i) an initial sales charge of
up to 4.5% and (ii) an annual service fee of 0.25% of the average daily net
asset value of the Class A shares.
20
<PAGE>
Class B shares of each Fund are subject to (i) a contingent deferred sales
charge (declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees of
1% of the average daily net asset value of these shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses) at
the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares of each Fund are offered only to certain employee benefit
plans and large institutions. No sales charge is imposed at the time of purchase
or redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares of each Fund are subject to (i) a contingent deferred sales
charge of 1% if redeemed within one year following purchase and (ii) annual
distribution and service fees of 1% of the average daily net asset value of such
shares.
Because the Reorganization will be effected at net asset value without the
imposition of a sales charge, Tax-Exempt Fund Shares acquired by shareholders of
the California Tax-Free Fund pursuant to the proposed Reorganization would not
be subject to any initial sales charge or contingent deferred sales charge as a
result of the Reorganization. However, holders of the Tax-Exempt Fund Shares
acquired as a result of the Reorganization would continue to be subject to a
contingent deferred sales charge upon subsequent redemption to the same extent
as if they had continued to hold their shares of the California Tax-Free Fund.
Each Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations promulgated under the
1940 Act. Under the provisions of the Distribution Plan, the Fund makes payments
to the Distributor based on an annual percentage of the average daily value of
the net assets of each class of shares as follows:
Class of Shares
of Each Fund Service Fee Distribution Fee
------------ ----------- ----------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. In addition,
the Distributor generally pays an initial commission to dealers for the sale of
shares of each Fund with a portion of such commission representing payment for
personal services and/or the maintenance of shareholder accounts by such
dealers. Dealers who have sold Class A shares of each Fund are eligible for
further reimbursement commencing as of the time of such sale. Dealers who have
sold Class B and Class D shares of each Fund are eligible
21
<PAGE>
for further reimbursement after the first year during which such shares have
been held of record by such dealer as nominee for its clients (or by such
clients directly). Any service fees received by the Distributor and not
allocated to dealers may be applied by the Distributor in reduction of expenses
incurred by it directly for personal services and/or the maintenance of
shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any distribution
fees received by the Distributor and not allocated to dealers may be applied by
the Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by securities
dealers. Commissions and other cash and noncash incentives and payments to
dealers, to the extent payable out of the general profits, revenues or other
sources of the Distributor (including the advisory fees paid to affiliates by
the Fund), have also been authorized pursuant to the Distribution Plan.
Class A shares of the Funds may be purchased without a sales charge by
certain Trustees, directors, officers, employees, their relatives and other
persons directly or indirectly related to the Funds or affiliated entities.
Class A shares of the Funds may also be sold at a reduced sales charge or
without a sales charge pursuant to certain sponsored arrangements or managed
fee-based programs.
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES
Each Fund offers the same shareholder services, including the Open Account
System, reinvestment privileges, a systematic withdrawal plan, a dividend
allocation plan, telephone purchases, telephone exchanges, telephone redemptions
and access to the Investamatic Check Program, an automatic investment program.
Because each Fund currently offers the same shareholder services, after the
closing of the proposed Reorganization the same services will continue to be
available to the shareholders of the California Tax-Free Fund.
FISCAL YEAR
Both Funds operate on fiscal years ending December 31.
PERFORMANCE
Tax-Exempt Fund
The following is a discussion of the performance of the Tax-Exempt Fund
for the six months ended June 30, 1995 and the fiscal year ended December 31,
1994.
The six months ended June 30, 1995 were better than the year ended
December 31, 1994. The Fund had a positive return through the first half of
1995, although it trailed the average for its category because the portfolio was
conservatively positioned. The Fund had shortened its duration (a measure of a
fund's sensitivity to interest rate changes) to protect it if interest rates
increased, as had happened throughout 1994. When interest rates fell sharply
instead, the Fund did not enjoy the full benefit of the market rally.
The Fund has extended its duration slightly, which will help in an
environment of falling rates. In addition, the Fund has upgraded the quality of
bonds in the portfolio and increased the percentage of insured bonds. As of June
30, 1995, the bonds in the portfolio had an average credit quality of AA.
Average Annual Total Return for periods ended June 30, 1995:
Life of Fund
1 year 5 years (since 8/25/86)
- ------- ------ ------- ---------------
Class A +1.46% +6.21% +6.49%
Class B +0.32% +6.53% +6.84%
Class C +6.38% +7.25% +7.08%
Class D +4.32% +6.83% +6.84%
In 1994, the bond market was repeatedly buffeted by uncertainty over the
strength of the economy and the timing of the Fed's next rate increase. When the
municipal bond market declined sharply in February, March and April 1994, the
Fund attempted to reduce risk in the portfolio by replacing longer-term bonds
with less interest-rate-sensitive, shorter-term bonds. In some cases the Fund
sold bonds for losses and replaced them with higher-yielding, more defensive
bonds. The Fund also increased the quality of the portfolio, because higher
quality bonds tend to perform better in weak markets.
The portfolio holds a number of bonds from so-called "specialty
states"--states where there are tax incentives to buy in-state bonds or where
bonds tend to be in short supply. Typically, demand is fairly consistent for
such bonds, which can be advantageous in a bad market. Specialty states include
Massachusetts, North Carolina (which also offers very high quality), New York,
Ohio and Connecticut.
Comparison Of Change In Value Of A $10,000 Investment In Tax-Exempt Fund And
The Lehman Municipal Bond Index
State Street Research Tax-Exempt Fund - Class A
LINE CHART DATA
(INCEPTION VALUE = $9,550)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $ 9,550 $10,000
12/31/86 9,889 10,371
12/31/87 9,748 10,527
12/31/88 11,063 11,597
12/31/89 12,128 12,849
12/31/90 12,713 13,785
12/31/91 14,213 15,459
12/31/92 15,538 16,821
12/31/93 17,420 18,888
12/31/94 16,218 17,911
State Street Research Tax-Exempt Fund - Class B
LINE CHART DATA
(INCEPTION VALUE = $10,000)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $10,000 $10,000
12/31/86 10,355 10,371
12/31/87 10,208 10,527
12/31/88 11,585 11,597
12/31/89 12,699 12,849
12/31/90 13,313 13,785
12/31/91 14,883 15,459
12/31/92 16,270 16,821
12/31/93 18,165 18,888
12/31/94 16,786 17,911
State Street Research Tax-Exempt Fund - Class C
LINE CHART DATA
(INCEPTION VALUE = $10,000)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $10,000 $10,000
12/31/86 10,355 10,371
12/31/87 10,208 10,527
12/31/88 11,585 11,597
12/31/89 12,699 12,849
12/31/90 13,313 13,785
12/31/91 14,883 15,459
12/31/92 16,270 16,821
12/31/93 18,224 18,888
12/31/94 17,028 17,911
State Street Research Tax-Exempt Fund - Class D
LINE CHART DATA
(INCEPTION VALUE = $10,000)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $10,000 $10,000
12/31/86 10,355 10,371
12/31/87 10,208 10,527
12/31/88 11,585 11,597
12/31/89 12,699 12,849
12/31/90 13,313 13,785
12/31/91 14,883 15,459
12/31/92 16,270 16,821
12/31/93 18,163 18,888
12/31/94 16,784 17,911
All returns represent past performance, which is no guarantee of future results.
The investment return and principal value of an investment made in the
Tax-Exempt 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. In March 1992, the Tax-Exempt Fund changed
its investment objective to eliminate requirements that specify that a
percentage of the Tax-Exempt Fund be invested in certain rating categories.
Previously, it was required to invest 80% in securities rated A, BBB, BB or
better. Past performance, therefore, may not be indicative of future results.
Shares of the Tax-Exempt Fund had no class designations until June 7, 1993, when
designations were assigned based on the pricing and 12b-1 fees applicable to
shares sold thereafter. Performance data for a specified class include periods
prior to the adoption of class designations. "A" share returns for each of the
periods reflect the maximum 4.5% sales charge. "B" share returns for the 1- and
5-year periods reflect a 5% and a 2% contingent deferred sales charge,
respectively. "C" shares, offered without a sales charge, are available only to
certain employee benefit plans and large institutions. "D" share return for the
1-year period reflects a 1% contingent deferred sales charge. Performance for
"B" and "D" shares prior to June 7, 1993, reflects annual 12b-1 fees of 0.25%
and performance thereafter reflects annual 12b-1 fees of 1%, which will reduce
subsequent performance. The Lehman Muni Bond Index represents approximately
15,000 fixed-coupon, investment-grade municipal bonds. The index is unmanaged
and does not take sales charges into consideration. Direct investment in the
index is not possible; results are for illustrative purposes only.
Further information about each Fund's performance is contained in each
Fund's annual and semiannual reports, which may be obtained without charge by
writing to the Funds at One Financial Center, Boston, Massachusetts 02111, or
calling (800) 562-0032.
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COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS
General. The California Tax-Free Fund and the Tax-Exempt Fund are series
of the Trust which was established in 1985 under the laws of The Commonwealth of
Massachusetts. The California Tax-Free Fund commenced operations in 1989, and
the Tax-Exempt Fund commenced operations in 1986. Both Funds are governed by a
Second Amended and Restated Master Trust Agreement dated June 5, 1993, as
further amended thereafter. As a Massachusetts business trust, the Trust's
operations are governed by its Master Trust Agreement and applicable federal and
Massachusetts laws. The above-referenced Master Trust Agreement may hereinafter
be referred to as the "Master Trust Agreement."
Shares of the California Tax-Free Fund and the Tax-Exempt Fund. The
beneficial interests in each of the California Tax-Free Fund and the Tax-Exempt
Fund are represented by transferable shares, par value $.001 per share. The
Master Trust Agreement permits the Trustees to issue an unlimited number of
shares and to divide such shares into an unlimited number of series. As of the
date hereof, the Trust has five operating series: the California Tax-Free Fund,
the Tax-Exempt Fund, State Street Research New York Tax-Free Fund, State Street
Research Florida Tax-Free Fund and State Street Research Pennsylvania Tax-Free
Fund. Each share of any Trust series represents an equal proportionate interest
in the assets and liabilities, excluding differences in class expenses,
belonging to that series. As such, each share is entitled to dividends and
distributions out of the income (after expenses) belonging to that series as
declared by the Board of Trustees.
Voting Requirements. Generally, the provisions of the Master Trust
Agreement of the Trust may be amended at any time, so long as such amendment
does not adversely affect the rights of any shareholder with respect to which
such amendment is or purports to be applicable and so long as such amendment is
not in contravention of applicable law, by an instrument in writing signed by a
majority of the then Trustees (or by an officer of such Trust pursuant to the
vote of a majority of such Trustees). Generally, any amendment to the Trust's
Master Trust Agreement that adversely affects the rights of shareholders of one
or more series may be adopted by a majority of the then Trustees of the Trust
when authorized by shareholders holding a majority of the shares entitled to
vote.
Voting Rights. The Master Trust Agreement of the Trust provides that
special meetings of shareholders for any purpose requiring action by
shareholders under such Master Trust Agreement or the Trust's By-laws shall be
called upon the written request of holders of at least ten percent of the
outstanding shares of the Trust or, as the context may require, a series
thereof. The Master Trust Agreement of the Trust provides in general that
shareholders have the power to vote only on the following matters, each as more
fully described in such Master Trust Agreements: (i) the election or removal of
Trustees as provided in the Master Trust Agreement; (ii) with respect to certain
contracts, such as contracts for investment advisory or management services, to
the extent required as provided in the Master Trust Agreement as a whole; (iii)
with respect to any termination or reorganization of the Trust; (iv) an
amendment of the Master Trust Agreement as provided in the Master Trust
Agreement; (v) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought
23
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or maintained derivatively or as a class action on behalf of the Trust, any
Sub-Trust thereof or its stockholders; and (vi) with respect to such additional
matters relating to the Trust as may be required by the 1940 Act, the Master
Trust Agreement, the By-laws or any registration of the Trust with the
Securities and Exchange Commission (or any successor agency) or any state, or as
the Trustees may consider necessary or desirable. Certain of the foregoing
matters will involve separate votes of one or more series of a Trust, while
others will require a vote of the Trust's shareholders as a whole.
Shareholder Liability. Under Massachusetts law, shareholders of a
Massachusetts business trust could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the Master Trust
Agreement of the Trust disclaims shareholder liability for acts or obligations
of the Trust. The Master Trust Agreement of the Trust provides for
indemnification, under certain circumstances, out of Trust property for all
losses and expenses of any shareholder held personally liable by virtue of his
status as such, and not because of such shareholder's acts or omissions or for
some other reason, for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered by the Trust to be remote since it is limited to circumstances in
which a disclaimer is inoperative and the Trust itself would be unable to meet
its obligations.
Liability of Trustees and Officers. Under the Master Trust Agreement of
the Trust, Trustees and officers will be indemnified, under certain
circumstances, for all liabilities, including the expenses of litigation,
against them unless their conduct is determined to constitute willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties,
such determination to be based upon the outcome of a court action or
administrative proceeding or a reasonable determination, following a review of
the facts, by (a) a vote of a majority of a quorum of the Trustees who are
neither "interested persons" of the Trust as defined in the 1940 Act nor parties
to the proceeding or (b) an independent legal counsel in a written opinion. The
Trust may also advance money for these expenses provided that the Trustee or
officer undertakes to repay the Trust if his or her conduct is later determined
to preclude indemnification and certain other conditions are met. It should be
noted that it is the view of the staff of the Securities and Exchange Commission
that to the extent that any provisions such as those described above are
inconsistent with the 1940 Act including Section 17 thereof, the provisions of
the 1940 Act are preemptive.
The foregoing is only a summary of certain of the provisions of the
Trust's Master Trust Agreement and By-laws. Shareholders should refer directly
to the provisions of the Master Trust Agreement and By-laws for their full text.
MANAGEMENT
The investment manager for each of the Funds is State Street Research &
Management Company. The Investment Manager is charged with the overall
responsibility for managing the investments and business affairs of the Funds,
subject to the authority of the Board of Trustees. As
24
<PAGE>
of June 30, 1995, the Investment Manager had assets of approximately $26.2
billion under management.
The portfolio manager for the Tax-Exempt Fund is Susan W. Drake. Ms. Drake
has managed the Tax-Exempt Fund since 1990. Ms. Drake's principal occupation
currently is Vice President of State Street Research & Management Company.
During the past five years, she has also served as a securities analyst for
State Street Research & Management Company.
The portfolio manager for the California Tax-Free Fund is Paul J. Clifford.
Mr. Clifford has managed the California Tax-Free Fund since 1993. Mr. Clifford's
principal occupation currently is Vice President of State Street Research &
Management Company. During the past five years, he has also served as a
securities analyst for State Street Research & Management Company.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Information about the Tax-Exempt Fund is included in its current
Prospectus dated May 1, 1995, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Tax-Exempt
Fund is included in the Fund's Statement of Additional Information dated May 1,
1995. This Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated by reference herein.
Copies of this Statement may be obtained without charge by writing to State
Street Research Tax-Exempt Fund, One Financial Center, Boston, Massachusetts
02111, or by calling (800) 562-0032.
Information about the California Tax-Free Fund is included in its current
Prospectus dated May 1, 1995, which is incorporated by reference herein.
Additional information about the California Tax-Free Fund is included in the
Fund's Statement of Additional Information dated May 1, 1995. This Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated by reference herein. Copies of this Statement may
be obtained without charge by writing to State Street Research California
Tax-Free Fund, One Financial Center, Boston, Massachusetts 02111 or by calling
(800) 562-0032.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith
files proxy material, reports and other information with the Securities and
Exchange Commission. These reports can be inspected and copied at the Public
Reference Facilities maintained by the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the
following regional offices: New York Regional Office, 75 Park Place, Room 1228,
New York, NY 10007; and Chicago Regional Office, Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago IL 60661. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington DC 20549 at prescribed rates.
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<PAGE>
VOTING INFORMATION
Any shareholder who has given a proxy has the right to revoke it at any
time prior to its exercise by attending the Meeting and voting his or her shares
in person or by submitting a written notice of revocation or a later-dated proxy
to the Trust at the address of the Trust set forth on the cover page of this
Joint Proxy Statement/Prospectus prior to the date of the Meeting. Shareholders
of record of the California Tax-Free Fund at the close of business on October
13, 1995 (the "Record Date") will be entitled to notice of, and to vote at, the
Meeting of the Fund or to vote at any adjournments thereof. This Joint Proxy
Statement/Prospectus, proxies and accompanying Notice of Meeting were first sent
or given to shareholders of the Funds on or about October 20, 1995.
As of the Record Date, there were approximately 973,060, 418,355,
1,944,200 and 90,989 issued and outstanding Class A, Class B, Class C and Class
D shares, respectively, of the California Tax-Free Fund. Each share of such Fund
is entitled to one vote, with a proportionate vote for each fractional share.
If the enclosed proxy is properly executed and returned in time to be
voted at the Meeting, the shares represented thereby will be voted in accordance
with the instructions on the proxy. Unless instructions to the contrary are
marked thereon, the proxy will be voted for the proposal described herein and,
in the discretion of the persons named herein as proxies, to take such further
action as they may determine appropriate in connection with any other matter
which may properly come before the Meeting or any adjournments thereof. The
Board of Trustees does not currently know of any matter to be considered at the
Meeting other than the proposal to approve the Plan of Reorganization.
The affirmative vote of the holders of a majority of the outstanding
voting shares of the California Tax-Free Fund (within the meaning of the 1940
Act), voting together as a single class, is required to approve the Plan of
Reorganization on behalf of such Fund. Under the 1940 Act, the vote of a
majority of the outstanding voting shares means the vote of the lesser of (a)
67% or more of the voting shares of a Fund, voting together as a single class,
present at the Meeting, if the holders of more than 50% of the outstanding
voting shares are present or represented by proxy, or (b) more than 50% of the
outstanding voting shares of a Fund, voting together as a single class. Approval
of the Plan of Reorganization by the shareholders of the California Tax-Free
Fund is a condition of the consummation of the Reorganization. If the
Reorganization is not approved, the Trustees of the Trust will continue the
management of the California Tax-Free Fund and the Tax-Exempt Fund,
respectively, and may consider other alternatives in the best interests of each
Fund's shareholders.
The holders of a majority of the shares entitled to vote of the California
Tax-Free Fund outstanding at the close of business on the Record Date present in
person or represented by proxy constitute a quorum for the Meeting; however, as
noted above, the affirmative vote of a majority of the voting shares of such
Fund, voting together as a single class (within the meaning of the 1940 Act) is
required to approve the Reorganization. In the event a quorum is not present at
the Meeting or in the event a quorum is present at the Meeting but sufficient
votes to approve the Plan of Reorganization are not received, the persons named
as proxies may propose one or more adjournments, without further notice to
26
<PAGE>
shareholders, of the Meeting to permit further solicitation of proxies provided
such persons determine, after consideration of all relevant factors, including
the nature of the proposal, the percentage of votes then cast, the percentage of
negative votes then cast, the nature of the proposed solicitation activities and
the nature of the reasons for such further solicitation, that an adjournment and
additional solicitation is reasonable and in the interests of shareholders.
For purposes of determining the presence of a quorum for transacting
business at the Meeting and for determining whether sufficient votes have been
received for approval of the proposal to be acted upon at the Meeting,
abstentions and broker "non-votes" (that is, proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote shares on a particular matter with
respect to which the brokers or nominees do not have discretionary power) will
be treated as shares that are present at the Meeting, but which have not been
voted. For this reason, abstentions and broker non-votes will assist the
California Tax-Free Fund in obtaining a quorum, but both have the practical
effect of a "no" vote for purposes of obtaining the requisite vote for approval
of the proposals to be acted upon at the Meeting.
Expenses of the Reorganization will be apportioned between the Distributor
and the Funds in a fair and equitable manner. Expenses will be allocated to the
Tax-Exempt Fund and the California Tax-Free Fund in an appropriate manner on the
basis of identifiable direct costs or otherwise on the basis of relative net
assets and the Distributor will assume one-half of each Fund's expenses. Such
expenses include costs of preparing, printing and mailing the enclosed proxy,
accompanying notice and Joint Proxy Statement/Prospectus and all other costs in
connection with solicitation of proxies, including any additional solicitation
by letter, telephone or telegraph. In addition to solicitation of proxies by
mail, officers of the Trust and officers and regular employees of the Investment
Manager, affiliates of the Investment Manager, or other representatives of the
Trust may also solicit proxies by telephone or telegram or in person. A proxy
solicitation firm may also be retained to assist in any special, personal
solicitation of proxies. The costs of retaining such a firm is not expected to
exceed $12,000.
THE TRUSTEES OF THE TRUST, INCLUDING THE INDEPENDENT TRUSTEES OF THE
TRUST, RECOMMEND APPROVAL OF THE PLAN OF REORGANIZATION.
DISSENTERS' RIGHTS
Neither the Master Trust Agreement of the Trust nor Massachusetts law
grants the shareholders of the California Tax-Free Fund any rights in the nature
of dissenters' rights of appraisal with respect to any action upon which such
shareholders may be entitled to vote; however, the normal right of mutual fund
shareholders to redeem their shares is not affected by the proposed
Reorganization.
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<PAGE>
EXPERTS
The financial statements of the Tax-Exempt Fund and the California
Tax-Free Fund for the fiscal year ended December 31, 1994 included in each
Fund's Statement of Additional Information have been incorporated herein by
reference in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing. Certain legal matters with respect to the issuance of the shares of
the Trust will be passed upon by Goodwin, Procter & Hoar, Boston, Massachusetts.
OTHER MATTERS
The Board of Trustees does not intend to present any other business at the
Meeting, nor are they aware that any shareholder intends to do so. If, however,
any other matters are properly brought before the Meeting, the persons named in
the accompanying proxy will vote thereon in accordance with their judgment.
NO ANNUAL MEETING OF SHAREHOLDERS
There will be no annual or further special meetings of shareholders of the
Funds unless required by applicable law or called by the Trustees of such Fund
in their discretion. In accordance with the 1940 Act, or under the Trust's
Master Trust Agreement, as amended, any Trustee may be removed (i) by a written
instrument, signed by at least two-thirds of the number of Trustees in office
immediately prior to such removal, specifying the date upon which such removal
shall become effective; (ii) by a vote of shareholders holding not less than
two-thirds of the shares of the Trust then outstanding, cast in person or by
proxy at a meeting called for the purpose or (iii) by a written declaration
signed by shareholders holding not less than two-thirds of the shares then
outstanding and filed with the Trust's custodian. Shareholders holding 10% or
more of the shares of the Trust then outstanding can require that the Trustees
call a meeting of shareholders for the purpose of voting on the removal of one
or more Trustees. In addition, if ten or more shareholders who have been such
for at least six months and who hold in the aggregate shares with a net asset
value of at least $25,000 or at least 1% of the outstanding Fund shares, inform
the Trustees that they wish to communicate with other shareholders, the Trustees
will either give such shareholders access to the shareholder list or inform them
of the cost involved if the Fund forwards material to shareholders on their
behalf. If the Trustees object to mailing such materials, they must inform the
Securities and Exchange Commission and thereafter comply with the requirements
of the 1940 Act.
Shareholders wishing to submit proposals for inclusion in a proxy
statement for a subsequent shareholder meeting should send their written
proposals to the Secretary of the State Street Research Tax-Exempt Trust, One
Financial Center, 31st Floor, Boston, Massachusetts 02111. Shareholder proposals
should be received in a reasonable time before the solicitation is made.
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WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE FILL IN, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS NECESSARY IF IT IS MAILED IN THE UNITED STATES.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of
October 13, 1995 by and between State Street Research Tax-Exempt Trust, a
Massachusetts business trust (the "Tax-Exempt Trust"), on behalf of the State
Street Research California Tax-Free Fund series of the Tax-Exempt Trust (the
"California Tax-Free Fund") and the Tax-Exempt Trust on behalf of the State
Street Research Tax-Exempt Fund series of the Tax-Exempt Trust (the "Tax-Exempt
Fund").
W I T N E S S E T H:
WHEREAS, the Tax-Exempt Trust is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended, such reorganization to consist of the
transfer of all of the assets of the California Tax-Free Fund in exchange solely
for Class A, Class B, Class C and Class D shares of beneficial interest, $.001
par value per share, of the Tax-Exempt Fund ("Tax-Exempt Fund Shares") and the
assumption by the Tax-Exempt Fund of all of the liabilities of the California
Tax-Free Fund and the distribution, after the Closing hereinafter referred to,
of Tax-Exempt Fund Shares to the shareholders of the California Tax-Free Fund in
liquidation of the California Tax-Free Fund, all upon the terms and conditions
hereinafter set forth in this Agreement (collectively, the "Reorganization");
and
WHEREAS, the Trustees of the Tax-Exempt Trust, including a majority of the
Trustees and the Trustees who are not interested persons, have determined that
participating in the transactions contemplated by this Agreement is in the best
interests of each of the Funds.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
1. Transfer of Assets. Subject to the terms and conditions set forth
herein, at the closing provided for in Section 5 (herein referred to as the
"Closing") the Tax-Exempt Trust on behalf of the California Tax-Free Fund shall
transfer all of the assets of the California Tax-Free Fund, and assign all
Assumed Liabilities (as hereinafter defined) to the Tax-Exempt Fund, and the
Tax-Exempt Trust on behalf of the Tax-Exempt Fund shall acquire all such assets,
and shall assume all such Assumed Liabilities (as hereinafter defined), upon
delivery to the Tax-Exempt Trust on behalf of the California Tax-Free Fund of
Tax-Exempt Fund Shares having a net asset value equal to the value of the net
assets of the California Tax-Free Fund transferred (the "New Shares"). "Assumed
Liabilities" shall mean all liabilities, including all expenses, costs, charges
and reserves reflected in an unaudited statement of assets and liabilities of
the California Tax-Free Fund as of the close of business on the Valuation Date
(as hereinafter defined), determined in accordance with generally accepted
accounting principles consistently applied from the prior audited period. The
net asset value of the New Shares and the value of the net assets of the
California Tax-Free Fund to be transferred shall be determined as of the close
of regular trading on the New York Stock Exchange on the business day next
preceding the Closing (the "Valuation Date") using the valuation procedures set
forth in the then current prospectus and statement
A-1
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of additional information of the Tax-Exempt Fund. All Assumed Liabilities of the
California Tax-Free Fund, to the extent that they exist at or after the Closing,
shall after the Closing attach to the Tax-Exempt Fund and may be enforced
against the Tax-Exempt Fund to the same extent as if the same had been incurred
by the Tax-Exempt Fund.
2. Liquidation of the California Tax-Free Fund. At or as soon as
practicable after the Closing, the California Tax-Free Fund will be liquidated
and the New Shares delivered to the Tax-Exempt Trust on behalf of the California
Tax-Free Fund will be distributed to shareholders of the California Tax-Free
Fund, each shareholder to receive the number of New Shares of the corresponding
class and equal to the pro rata portion of shares of beneficial interest of the
California Tax-Free Fund held by such shareholder as of the close of business on
the Valuation Date. Such liquidation and distribution will be accompanied by the
establishment of an open account on the share records of the Tax-Exempt Fund in
the name of each shareholder of the California Tax-Free Fund and representing
the respective pro rata number of New Shares due such shareholder. As soon as
practicable after the Closing, the Tax-Exempt Trust shall file on behalf of the
California Tax-Free Fund such instruments of dissolution, if any, as are
necessary to effect the dissolution of the California Tax-Free Fund and shall
take all other steps necessary to effect a complete liquidation and dissolution
of the California Tax-Free Fund. As of the Closing, each outstanding certificate
which, prior to the Closing, represented shares of the California Tax-Free Fund
will be deemed for all purposes to evidence ownership of the number of
Tax-Exempt Fund Shares issuable with respect thereto pursuant to the
Reorganization. After the Closing, certificates originally representing shares
of Class A or Class C of the California Tax-Free Fund will be rendered null and
void and nonnegotiable; upon special request and surrender of such certificates
to State Street Bank and Trust Company as transfer agent, holders of these
nonnegotiable certificates shall be entitled to receive certificates
representing the number of Tax-Exempt Fund Shares issuable with respect thereto.
All Class B and Class D shares of record of the Tax-Exempt Fund are held in book
entry form and no certificates for such shares will be issued.
3. Representations and Warranties.
a. The Tax-Exempt Trust, on behalf of the California Tax-Free Fund,
hereby represents and warrants to the Tax-Exempt Fund as follows:
(i) the Tax-Exempt Trust is duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has full power and authority to conduct its business
as presently conducted;
(ii) the Tax-Exempt Trust has full power and authority to
execute, deliver and carry out the terms of this Agreement on behalf of
the California Tax-Free Fund;
(iii) the execution and delivery of this Agreement on behalf
of the California Tax-Free Fund and the consummation of the transactions
contemplated hereby are duly authorized and no other proceedings on the
part of the Tax-Exempt Trust or the shareholders of the California
Tax-Free Fund (other than as contemplated in Section 4(h)) are necessary
to authorize this Agreement and the transactions contemplated hereby;
(iv) this Agreement has been duly executed by the Tax-Exempt
Trust on behalf of the California Tax-Free Fund and constitutes its valid
and binding obligation, enforceable in accordance with its terms, subject
to applicable bankruptcy, reorganization, insolvency, moratorium and other
rights affecting creditors' rights generally, and general equitable
principles;
A-2
<PAGE>
(v) neither the execution and delivery of this Agreement by the
Tax-Exempt Trust on behalf of the California Tax-Free Fund, nor the
consummation by the Tax-Exempt Trust on behalf of the California Tax-Free
Fund of the transactions contemplated hereby will conflict with, result in
a breach or violation of or constitute (or with notice, lapse of time or
both constitute) a breach of or default under, the Master Trust Agreement
or By-Laws of the Tax-Exempt Trust, or any statute, regulation, order,
judgment or decree, or any instrument, contract or other agreement to
which the Tax-Exempt Trust is a party or by which the Tax-Exempt Trust or
any of its assets is subject or bound; and
(vi) no authorization, consent or approval of any governmental
or other public body or authority or any other party is necessary for the
execution and delivery of this Agreement by the Tax-Exempt Trust on behalf
of the California Tax-Free Fund or the consummation of any transactions
contemplated hereby by the Tax-Exempt Trust, other than as shall be
obtained at or prior to the Closing.
(b) The Tax-Exempt Trust, on behalf of the Tax-Exempt Fund, hereby
represents and warrants to the California Tax-Free Fund as follows:
(i) The Tax-Exempt Trust is duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has full power and authority to conduct its business
as presently conducted;
(ii) The Tax-Exempt Trust has full power and authority to
execute, deliver and carry out the terms of this Agreement on behalf of
the Tax-Exempt Fund;
(iii) the execution and delivery of this Agreement on behalf
of the Tax-Exempt Fund and the consummation of the transactions
contemplated hereby are duly authorized and no other proceedings on the
part of the Tax-Exempt Trust or the shareholders of the Tax-Exempt Fund
are necessary to authorize this Agreement and the transactions
contemplated hereby;
(iv) this Agreement has been duly executed by the Tax-Exempt
Trust on behalf of the Tax-Exempt Fund and constitutes its valid and
binding obligation, enforceable in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and other
rights affecting creditors' rights generally, and general equitable
principles;
(v) neither the execution and delivery of this Agreement by the
Tax-Exempt Trust on behalf of the Tax-Exempt Fund, nor the consummation by
the Tax-Exempt Trust on behalf of the Tax-Exempt Fund of the transaction
contemplated hereby will conflict with, result in a breach or violation of
or constitute (or with notice, lapse of time or both constitute) a breach
of or default under, the Master Trust Agreement or By-Laws of the
Tax-Exempt Trust, or any statute, regulation, order, judgment or decree,
or any instrument, contract or other agreement to which the Tax-Exempt
Trust is a party or by which the Tax-Exempt Trust or any of its assets is
subject or bound; and
A-3
<PAGE>
(vi) no authorization, consent or approval of any
governmental or other public body or authority or any other party is
necessary for the execution and delivery of this Agreement by the
Tax-Exempt Trust on behalf of the Tax-Exempt Fund or the consummation
of any transactions contemplated hereby by the Tax-Exempt Trust, other
than as shall be obtained at or prior to the Closing.
4. Conditions Precedent. The obligations of the Tax-Exempt Trust on
behalf of the California Tax-Free Fund and the Tax-Exempt Trust on behalf of the
Tax-Exempt Fund to effectuate the plan of reorganization and liquidation
hereunder shall be subject to the satisfaction of the following conditions:
(a) At or immediately prior to the Closing, the Tax-Exempt Trust
shall have declared and paid a dividend or dividends which, together with all
previous such dividends, shall have the effect of distributing to the
shareholders of the California Tax-Free Fund all of such Fund's investment
company taxable income for taxable years ending at or prior to the Closing
(computed without regard to any deduction for dividends paid) and all of its net
capital gain, if any, realized in taxable years ending at or prior to the
Closing (after reduction for any capital loss carry-forward).
(b) A registration statement of the Tax-Exempt Fund on Form N-14
under the Securities Act of 1933, as amended (the "Securities Act"), registering
the New Shares under the Securities Act, and such amendment or amendments
thereto as are determined by the Board of Trustees of the Tax-Exempt Trust to be
necessary and appropriate to effect such registration of the New Shares (the
"Registration Statement"), shall have been filed with the Commission and the
Registration Statement shall have become effective, and no stop-order suspending
the effectiveness of such Registration Statement shall have been issued, and no
proceeding for that purpose shall have been initiated or threatened by the
Commission (and not withdrawn or terminated);
(c) The New Shares shall have been duly qualified for offering
to the public in all states in which such qualification is required for
consummation of the transactions contemplated hereunder;
(d) All representations and warranties of the Tax-Exempt Trust on
behalf of the California Tax-Free Fund contained in this Agreement shall be true
and correct in all material respects as of the date hereof and as of the
Closing, with the same force and effect as if then made, and the Tax-Exempt
Trust on behalf of the Tax-Exempt Fund shall have received a certificate of an
officer of the Tax-Exempt Trust acting on behalf of the California Tax-Free Fund
to that effect in form and substance reasonably satisfactory to the Tax-Exempt
Trust on behalf of the Tax-Exempt Fund;
(e) All representations and warranties of the Tax-Exempt Trust on
behalf of the Tax-Exempt Fund contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of the Closing,
with the same force and effect as if then made, and the Tax-Exempt Trust on
behalf of the California Tax-Free Fund shall have received a certificate of an
officer of the Tax-Exempt Trust acting on behalf of the Tax-Exempt Fund to that
effect in form and substance reasonably satisfactory to the Tax-Exempt Trust on
behalf of the California Tax-Free Fund;
(f) The Tax-Exempt Trust on behalf of the California Tax-Free Fund
and the Tax-Exempt Trust on behalf of the Tax-Exempt Fund shall have received an
opinion from Goodwin, Procter & Hoar regarding tax matters in connection with
the Reorganization;
A-4
<PAGE>
(g) The Tax-Exempt Trust on behalf of the Tax-Exempt Fund shall have
received an agreed upon procedures report, in accordance with established
accounting standards for such reports, of Price Waterhouse LLP, auditors for the
Tax-Exempt Trust, as to the unaudited statement of assets and liabilities
described in Section 1 of this Agreement; and
(h) A vote approving this Agreement and the Reorganization
contemplated hereby shall have been adopted by at least a majority of the
outstanding voting Class A, Class B, Class C and Class D shares of beneficial
interest of the California Tax-Free Fund (within the meaning of the 1940 Act),
voting together as a single class, entitled to vote at the special meeting of
shareholders of the California Tax-Free Fund duly called for such purpose.
(i) The Funds shall have received from the Commission an order
approving the Funds' application pursuant to Section 17(b) of the 1940 Act for
an order exempting the Reorganization from Section 17(a) of the 1940 Act and
pursuant to Rule 17d-1 under the 1940 Act for an order exempting the
Reorganization from Section 17(d) of the1940 Act and Rule 17d-1 thereunder.
5. Closing. The Closing shall be held at the offices of the Tax-Exempt
Trust and shall occur (a) immediately prior to the opening of business on the
first Monday following receipt of all necessary regulatory approvals and the
final adjournment of the meeting of shareholders of the California Tax-Free Fund
at which this Agreement is considered or (b) such later time as the parties may
agree. All acts taking place at the Closing shall be deemed to take place
simultaneously unless otherwise provided. At, or as soon as may be practicable
following the Closing, the Tax-Exempt Fund shall distribute the New Shares to
the California Tax-Free Fund Record Holders (as herein defined) by instructing
the Tax-Exempt Fund to register the appropriate number of New Shares in the
names of the California Tax-Free Fund's shareholders and the Tax-Exempt Fund
agrees promptly to comply with said instruction. The shareholders of record of
the California Tax-Free Fund as of the close of business on the Valuation Date
shall be certified by the Tax-Exempt Trust's transfer agent (the "California
Tax-Free Fund Record Holders").
6. Expenses. The expenses incurred in connection with the transactions
contemplated by this Agreement, whether or not the transactions contemplated
hereby are consummated, will be apportioned between State Street Research
Investment Services, Inc. (the "Distributor"), the distributor for each of the
Funds, and the Funds in a fair and equitable manner. Expenses will be allocated
to the Tax-Exempt Fund and the California Tax-Free Fund in an appropriate manner
on the basis of identifiable direct costs or otherwise on the basis of relative
net assets and the Distributor will assume one-half of each Fund's expenses.
Such expenses include, without limitation, (i) expenses incurred in connection
with the entering into and the carrying out of the provisions of this Agreement;
(ii) expenses associated with the preparation and filing of the registration
statement on Form N-14 contemplated hereby; (iii) registration or qualification
fees and expenses of preparing and filing such forms as are necessary to qualify
the New Shares under applicable blue sky laws; (iv) postage; (v) printing; (vi)
accounting fees; (vii) legal fees; and (viii) solicitation costs of the
transaction.
7. Termination. This Agreement and the transactions contemplated hereby
may be terminated and abandoned by resolution of the Board of Trustees of the
Tax-Exempt Trust, at any time prior to the Closing, if circumstances should
develop that, in the opinion of the Board of Trustees, in its sole discretion,
make proceeding with this Agreement inadvisable. In the event of any such
termination, there shall be no liability for damages on the part of either the
California Tax-Free Fund or the Tax-Exempt Fund, or their respective trustees or
officers, to the other party or its trustees or officers.
A-5
<PAGE>
8. Amendments. This Agreement may be amended, waived or
supplemented in such manner as may be mutually agreed upon in writing by the
authorized officers of the Tax-Exempt Trust acting on behalf of the
California Tax-Free Fund and by the authorized officers of the Tax-Exempt
Trust acting on behalf of the Tax-Exempt Fund; provided, however, that
following the meeting of the California Tax-Free Fund shareholders called by
the Tax-Exempt Trust pursuant to Section 4(h) of this Agreement, no such
amendment, waiver or supplement may have the effect of changing the
provisions for determining the number of Tax-Exempt Fund Shares to be issued
to the California Tax-Free Fund shareholders under this Agreement to the
detriment of such shareholders without their further approval.
9. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts, except as to
matters of conflicts of laws.
10. Further Assurances. The Tax-Exempt Trust shall take such further
action, prior to, at, and after the Closing, as may be necessary or desirable
and proper to consummate the transactions contemplated hereby.
11. Limitations of Liability. The term "Tax-Exempt Trust" means and
refers to the trustees from time to time serving under the Master Trust
Agreement of the Tax-Exempt Trust, as the same may subsequently thereto have
been, or subsequently hereto be, amended. It is expressly agreed that the
obligations of the Tax-Exempt Trust hereunder shall not be binding upon any of
the Trustees, shareholders, nominees, officers, agents or employees of the
Tax-Exempt Trust, personally, but bind only the assets and property of the
California Tax-Free Fund series of the Tax-Exempt Trust and the Tax-Exempt Fund
series of the Tax-Exempt Trust, as the case may be, as provided in the Master
Trust Agreement of the Tax-Exempt Trust. The execution and delivery of this
Agreement have been authorized by the Trustees of the Tax-Exempt Trust and
signed by an authorized officer of the Tax-Exempt Trust, acting as such, and
neither such authorization nor such execution and delivery shall be deemed to
have been made individually or to impose any personal liability, but shall bind
only the trust property of the Tax-Exempt Trust as provided in its Master Trust
Agreement. The Master Trust Agreement of the Tax-Exempt Trust provides, and it
is expressly agreed, that each Sub-Trust of the Tax-Exempt Trust shall be
charged with the liabilities in respect of that Sub-Trust and all expenses,
costs, charges or reserves belonging to that Sub-Trust.
A-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above by their duly authorized
representatives.
STATE STREET RESEARCH TAX-EXEMPT TRUST, on
behalf of its State Street Research
California Tax-Free Fund series
Attest:
By:
/s/ Francis J. McNamara, III /s/ Gerard P. Maus
- ---------------------------- ----------------------------
Francis J. McNamara, III Gerard P. Maus
Secretary Treasurer
ATTEST: STATE STREET RESEARCH TAX-EXEMPT TRUST,
on behalf of its State Street Research
Tax-Exempt Fund series
By:
/s/ Francis J. McNamara, III /s/ Ralph F. Verni
- ---------------------------- ------------------------------
Francis J. McNamara, III Ralph F. Verni
Secretary Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
STATE STREET RESEARCH FLORIDA TAX-FREE FUND
a series of
State Street Research Tax-Exempt Trust
One Financial Center
Boston, Massachusetts 02111
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
the State Street Research Florida Tax-Free Fund (the "Florida Tax-Free Fund"), a
series of State Street Research Tax-Exempt Trust (the "Trust"), to be held at
the offices of the Trust at One Financial Center, 31st Floor, Boston,
Massachusetts 02111 on December 12, 1995 at 3:00 p.m. local time.
At this important meeting you will be asked to consider and approve an
Agreement and Plan of Reorganization and Liquidation between the Florida
Tax-Free Fund and State Street Research Tax-Exempt Fund (the "Tax-Exempt Fund"),
another series of the Trust.
If the proposal is approved by the shareholders of the Florida Tax-Free
Fund, the Tax-Exempt Fund would acquire substantially all of the assets and
liabilities of the Florida Tax-Free Fund. As a result of this transaction, you
would receive, in exchange for your shares of the Florida Tax-Free Fund, shares
of the corresponding class of the Tax-Exempt Fund with an aggregate value
equivalent to the aggregate net asset value of your Florida Tax-Free Fund
investment at the time of the transaction. The transaction is conditioned upon
the receipt of an opinion of counsel to the effect that the transaction would be
free from federal income taxes to you and your Fund.
The Board of Trustees of the Trust has determined that the proposed
reorganization should provide benefits to shareholders of the Florida Tax-Free
Fund due to the enhanced economies of scale and more efficient operations which
are expected to result from combining funds with the same investment manager,
the same multiple class structure, the same sales load structure and similar
investment objectives and policies.
I thank you for your participation as a shareholder and urge you to please
exercise your right to vote by completing, dating and signing the enclosed proxy
card. A self-addressed, postage-paid envelope has been enclosed for your
convenience. We look forward to receiving your vote.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED NO LATER
THAN DECEMBER 8, 1995.
Instructions for shares held of record in the name of a nominee, such as a
broker-dealer, may be subject to earlier cut-off dates established by such
intermediaries to facilitate a timely response.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman of the Board, President
and Chief Executive Officer
October 16, 1995
<PAGE>
STATE STREET RESEARCH FLORIDA TAX-FREE FUND
a series of
State Street Research Tax-Exempt Trust
One Financial Center
Boston, Massachusetts 02111
---------------------------------
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
To Be Held On December 12, 1995
---------------------------------
A Special Meeting of Shareholders of State Street Research Florida
Tax-Free Fund (the "Florida Tax-Free Fund"), a portfolio series of State Street
Research Tax-Exempt Trust, a Massachusetts business trust (the "Trust"), will be
held at the offices of the Trust, One Financial Center, 31st Floor, Boston,
Massachusetts 02111, on December 12, 1995, at 3:00 p.m. local time (the
"Meeting") for the following purposes:
1. To consider and act upon an Agreement and Plan of Reorganization and
Liquidation providing for the transfer of the assets of the Florida
Tax-Free Fund (subject to its liabilities) to the State Street
Research Tax-Exempt Fund (the "Tax-Exempt Fund") in exchange for
Class A, Class B, Class C and Class D shares of the Tax-Exempt Fund,
the distribution of such shares to shareholders of the Florida
Tax-Free Fund and the subsequent liquidation and dissolution of the
Florida Tax-Free Fund; and
2. To consider and act upon any matter incidental to the foregoing and
to transact such other business as may properly come before the
Meeting and any adjournments thereof.
The close of business on October 13, 1995 has been fixed as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the Meeting and any adjournments thereof.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE
FUND. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DESIRE
TO VOTE IN PERSON AT THE MEETING, YOU MAY REVOKE YOUR PROXY.
By Order of the Trustees
FRANCIS J. MCNAMARA, III
Secretary
October 16, 1995
Date of Notice
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
Concerning the Acquisition of the Assets of
STATE STREET RESEARCH FLORIDA TAX-FREE FUND
By and in Exchange for Shares of
STATE STREET RESEARCH TAX-EXEMPT FUND
each a series of
State Street Research Tax-Exempt Trust
One Financial Center
Boston, Massachusetts 02111
(800) 562-0032
This Joint Proxy Statement/Prospectus relates to the proposed transfer of
the assets and liabilities of the State Street Research Florida Tax-Free Fund
(the "Florida Tax-Free Fund"), a series of the State Street Research Tax-Exempt
Trust (the "Trust"), a Massachusetts business trust, to the State Street
Research Tax-Exempt Fund (the "Tax-Exempt Fund"), another series of the Trust,
in exchange for Class A, Class B, Class C and Class D shares of beneficial
interest, $.001 par value per share, of the Tax-Exempt Fund ("Tax-Exempt Fund
Shares"). Following such transfer, Tax-Exempt Fund Shares will be distributed to
shareholders of the Florida Tax-Free Fund in liquidation of the Florida Tax-Free
Fund, and the Florida Tax-Free Fund will be dissolved. As a result of the
proposed transaction, each shareholder will receive in exchange for his or her
shares of the Florida Tax-Free Fund shares of the corresponding class of the
Tax-Exempt Fund with an aggregate value equal to the value of such shareholder's
shares of the Florida Tax-Free Fund, calculated as of the close of business on
the business day immediately prior to the exchange.
This Joint Proxy Statement/Prospectus is furnished to the shareholders of
the Florida Tax-Free Fund in connection with the solicitation of proxies by and
on behalf of the Trust's Board of Trustees to be used at a Special Meeting of
Shareholders of the Florida Tax-Free Fund to be held at the offices of the
Trust, One Financial Center, 31st Floor, Boston, Massachusetts 02111, at 3:00
p.m. local time on December 12, 1995 and at any adjournments thereof (the
"Meeting"). This document also serves as a Prospectus of the Tax-Exempt Fund and
covers the proposed issuance of Tax-Exempt Fund Shares. The Florida Tax-Free
Fund and the Tax-Exempt Fund may hereinafter be referred to collectively as the
"Funds" and individually as a "Fund." The Board of Trustees of the Trust may
hereinafter be referred to as the "Board of Trustees."
<PAGE>
The investment objective of the Tax-Exempt Fund, a diversified series of
the Trust, an open-end management investment company, is to seek a high level of
interest income exempt from federal income taxes. In seeking to achieve its
investment objective, the Tax-Exempt Fund invests primarily in tax-exempt debt
obligations which the investment manager of the Fund believes will not involve
undue risk.
This Joint Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information that a shareholder of the
Tax-Exempt Fund and the Florida Tax-Free Fund should know before investing. This
Joint Proxy Statement/Prospectus is accompanied by the Prospectus of the
Tax-Exempt Fund dated May 1, 1995, which is incorporated by reference herein.
The Prospectus of the Florida Tax-Free Fund dated May 1, 1995 is incorporated by
reference herein. A Statement of Additional Information dated October 16, 1995
containing additional information relevant to the proposed transaction has been
filed with the Securities and Exchange Commission and is incorporated by
reference into this Joint Proxy Statement/Prospectus. A copy of such Statement
and a copy of the Prospectus of the Florida Tax-Free Fund may be obtained
without charge by writing to the Secretary, Tax-Exempt Trust Shareholder
Meeting, 31st Floor, One Financial Center, Boston, Massachusetts 02111.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
October 16, 1995
Date of Joint Proxy Statement/Prospectus
2
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY ................................................................... 4
RISK FACTORS .............................................................. 10
REASONS FOR THE REORGANIZATION ............................................ 11
INFORMATION ABOUT THE REORGANIZATION ...................................... 12
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES .......................... 16
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS ...................... 20
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES ........................... 22
FISCAL YEAR ............................................................... 22
PERFORMANCE ............................................................... 22
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS ............................. 23
MANAGEMENT ................................................................ 24
ADDITIONAL INFORMATION ABOUT THE FUNDS .................................... 25
VOTING INFORMATION ........................................................ 26
DISSENTERS' RIGHTS ........................................................ 27
EXPERTS ................................................................... 28
OTHER MATTERS ............................................................. 28
NO ANNUAL MEETING OF SHAREHOLDERS ......................................... 28
Exhibit A: Agreement and Plan of Reorganization and Liquidation ........... A-1
3
<PAGE>
SUMMARY
The following is a summary of certain information contained in or
incorporated by reference in this Joint Proxy Statement/Prospectus. This summary
is not intended to be a complete statement of all material features of the
proposed Reorganization (as hereinafter defined) and is qualified in its
entirety by reference to the full text of this Joint Proxy Statement/Prospectus
and the documents referred to herein.
Proposed Transaction. The Board of Trustees of the Trust has approved an
Agreement and Plan of Reorganization and Liquidation (the "Plan of
Reorganization") providing for the transfer of all of the assets of the Florida
Tax-Free Fund to the Tax-Exempt Fund (subject to the assumption by the
Tax-Exempt Fund of all of the liabilities of the Florida Tax-Free Fund including
those reflected on a statement of assets and liabilities of that Fund as of the
close of business on the Valuation Date, as hereinafter defined) in exchange for
Tax-Exempt Fund Shares at a closing to be held following the satisfaction of the
conditions to the Reorganization (the "Closing"). The aggregate net asset value
of full and fractional Tax-Exempt Fund Shares to be issued to shareholders of
the Florida Tax-Free Fund will equal the value of the aggregate net assets of
the Florida Tax-Free Fund as of the close of business on the business day
immediately prior to the Closing (the "Valuation Date"). The number of Class A,
Class B, Class C and Class D shares (which may hereinafter be referred to
collectively as the "shares" or individually as a "share") to be issued to the
Florida Tax-Free Fund will be determined by dividing (a) the aggregate net
assets attributable to each class of shares of the Florida Tax-Free Fund by (b)
the net asset value per Class A, Class B, Class C and Class D share,
respectively, of the Tax-Exempt Fund, each computed as of the close of business
on the Valuation Date. Tax-Exempt Fund Shares will be distributed to
shareholders of the Florida Tax-Free Fund in liquidation of the Florida Tax-Free
Fund, and the Florida Tax-Free Fund will be dissolved. The proposed transaction
described above is referred to in this Joint Proxy Statement/Prospectus as the
"Reorganization."
As a result of the Reorganization, each shareholder will receive, in
exchange for his or her shares of the Florida Tax-Free Fund, shares of the
corresponding class of the Tax-Exempt Fund with an aggregate value equal to the
value of such shareholder's shares of the Florida Tax-Free Fund, calculated as
of the close of business on the Valuation Date. For example, Class A
shareholders of the Florida Tax-Free Fund would receive Class A shares of the
Tax-Exempt Fund.
At or prior to the Closing, the Florida Tax-Free Fund shall declare a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to the Florida Tax-Free Fund's shareholders all
of the Florida Tax-Free Fund's investment company income for all taxable years
ending at or prior to the Closing (computed without regard to any deduction for
dividends paid) and all of its net capital gains realized (after reduction for
any capital loss carry-forward) in all taxable years ending at or prior to the
Closing. The Trustees, including the Trustees who are not "interested persons"
of the Trust as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), have determined that the interests of existing shareholders of the
Florida Tax-Free Fund and the Tax-Exempt Fund,
4
<PAGE>
respectively, will not be diluted as a result of the transactions contemplated
by the Reorganization and that the Reorganization would be in the best interests
of the shareholders of the Florida Tax-Free Fund and the Tax-Exempt Fund,
respectively. See "Information About the Reorganization."
The Trustees of the Trust recommend that the shareholders of the Florida
Tax-Free Fund vote FOR approval of the Plan of Reorganization.
Approval of the Plan of Reorganization by the shareholders of the Florida
Tax-Free Fund is a condition of the consummation of the Reorganization. The
affirmative vote of the holders of a majority of the outstanding voting shares
of such Fund (within the meaning of the 1940 Act), voting together as a single
class, is required to approve the Plan of Reorganization on behalf of such Fund.
A "majority" vote is defined in the 1940 Act as the vote of the holders of the
lesser of (a) 67% or more of the voting shares of the Fund, voting together as a
single class, present at the Meeting, if the holders of more than 50% of the
outstanding voting shares are present or represented by proxy, or (b) more than
50% of the outstanding voting shares of the Fund, voting together as a single
class. See "Voting Information."
Tax Consequences. Counsel to the Funds, Goodwin, Procter & Hoar, has
opined that, subject to customary assumptions and representations, upon
consummation of the Reorganization and the transfer of substantially all of the
assets of the Florida Tax-Free Fund to the Tax-Exempt Fund: (i) the transfer of
all the assets of the Florida Tax-Free Fund for Tax-Exempt Fund Shares and the
assumption by the Tax-Exempt Fund of all liabilities of the Florida Tax-Free
Fund will constitute a "reorganization" for federal income tax purposes, and the
Florida Tax-Free Fund and the Tax-Exempt Fund will each be a "party to a
reorganization" for federal income tax purposes; (ii) no gain or loss will be
recognized by the Tax-Exempt Fund or the Florida Tax-Free Fund upon the transfer
of the Florida Tax-Free Fund assets to the Tax-Exempt Fund in exchange for
Tax-Exempt Fund Shares; (iii) no gain or loss will be recognized by shareholders
of the Florida Tax-Free Fund upon the exchange of shares of the Florida Tax-Free
Fund for Tax-Exempt Fund Shares; (iv) the basis of Tax-Exempt Fund Shares
received by each Florida Tax-Free Fund shareholder pursuant to the
Reorganization will be the same as the basis of the Florida Tax-Free Fund shares
exchanged therefor; and (v) the basis of the Florida Tax-Free Fund assets in the
hands of the Tax-Exempt Fund will be the same as the basis of such assets in the
hands of the Florida Tax-Free Fund immediately prior to the Reorganization. The
receipt of such an opinion upon the Closing is a condition to the
Reorganization. See "Information About the Reorganization."
Investment Objectives and Policies. Unlike the Florida Tax-Free Fund, the
Tax-Exempt Fund does not seek to be predominantly invested in assets which are
exempt from Florida State taxes on intangible personal property. In other
respects, however, the investment objectives, policies and restrictions of the
Funds are substantially similar. To the extent that there are other differences
in the policies and restrictions of the Funds, shareholders should consider such
differences. These differences are discussed below under "Comparison of
Investment Objectives and Policies."
5
<PAGE>
The investment objective of the Florida Tax-Free Fund is to seek a high
level of interest income exempt from federal income taxes. Also, the Florida
Tax-Free Fund invests in assets which are expected to be exempt from Florida
State taxes on intangible personal property. The Fund invests primarily in
investment grade securities issued by or on behalf of the State of Florida or
its political subdivisions and by other governmental entities. The Florida
Tax-Free Fund may invest up to 25% of it's assets in securities rated BB to CC
by Standard & Poor's Corporation ("S&P") or Ba to Ca by Moody's Investors
Service, Inc. ("Moody's") or unrated securities that the Investment Manager (as
hereinafter defined) believes to be of equivalent investment quality to
comparably rated securities. During the current year, the Investment Manager (as
hereinafter defined) does not anticipate that the Fund will invest more than 5%
of its net assets in securities rated BB or lower by S&P or Ba or lower by
Moody's or in unrated securities of similar investment quality.
The investment objective of the Tax-Exempt Fund is to seek a high level of
interest income exempt from federal income taxes. The Fund invests primarily in
investment grade tax-exempt debt obligations. The Tax-Exempt Fund may invest up
to 20% of the Fund's assets in securities rated below BBB by S&P or Baa by
Moody's, including securities rated as low as D by S&P or C by Moody's, or
unrated securities that the Investment Manager (as hereinafter defined) believes
to be of equivalent investment quality to comparably rated securities.
Management and Other Service Providers. The business affairs of the Trust
are managed by its Board of Trustees. For each of the Funds, State Street
Research & Management Company (the "Investment Manager") serves as investment
adviser, State Street Research Investment Services, Inc. serves as distributor
(the "Distributor") and State Street Bank and Trust Company serves as custodian
and as transfer agent and dividend paying agent ("SSBT").
The Investment Manager and the Distributor are indirect wholly-owned
subsidiaries of Metropolitan Life Insurance Company ("Metropolitan Life"). SSBT
is not affiliated with the Investment Manager, the Distributor, Metropolitan
Life, the Trust or the Funds. See "Management."
6
<PAGE>
Advisory Fees and Expenses. The following tables summarize the shareholder
transaction expenses applicable to each Fund and the annual operating expenses
for the Funds on an individual basis and for the Tax-Exempt Fund on a pro forma
basis after giving effect to the Reorganization. This table is followed by an
example illustrating the effect of these expenses on a $1,000 investment in each
Fund.
Shareholder Transaction Expenses Applicable to Tax-Exempt Fund and Florida
Tax-Free Fund
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...... 4.5% None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable)................ None(2) 5% None 1%
Redemption Fees (as a percentage of amount
redeemed, if applicable)................. None None None None
Exchange Fees............................... None None None None
</TABLE>
- --------------------
(1)Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
thereafter, and no contingent deferred sales charge is imposed after the
fifth year. Class D shares are subject to a 1% contingent deferred sales
charge on any portion of the purchase redeemed within one year of the sale.
Long-term investors in a class of shares with a distribution fee may, over a
period of years, pay more than the economic equivalent of the maximum sales
charge permissible under applicable rules.
(2)Purchases of Class A shares of $1 million or more are not subject to a sales
charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption.
Table of Expenses of Tax-Exempt Fund (individually and on a pro forma basis)
and Florida Tax-Free Fund
<TABLE>
<CAPTION>
Tax-Exempt Fund Florida Tax-Free Fund (1)
Class A Class B Class C Class D Class A Class B Class C Class D
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management Fees............ 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%
12b-1 Fees................. 0.25% 1.00% None 1.00% 0.25% 1.00% None 1.00%
Other Expenses............. 0.36% 0.36% 0.36% 0.36% 1.52% 1.52% 1.52% 1.52%
Less Voluntary Reduction - - - - (1.82%) (1.82%) (1.82%) (1.82%)
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses 1.16% 1.91% 0.91% 1.91% 0.50% 1.25% 0.25% 1.25%
==== ==== ==== ==== ==== ==== ==== ====
Pro Forma Tax-Exempt Fund (2)
Class A Class B Class C Class D
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management Fees........... 0.55% 0.55% 0.55% 0.55%
12b-1 Fees................ 0.25% 1.00% None 1.00%
Other Expenses............ 0.36% 0.36% 0.36% 0.36%
Less Voluntary Reduction - - - -
----- ---- ---- ----
Total Fund Operating Expenses 1.16% 1.91% 0.91% 1.91%
===== ==== ==== ====
- ---------------------
</TABLE>
(1) For the fiscal year ended December 31, 1994, Total Fund Operating Expenses
of the Florida Tax-Free Fund with respect to the average net assets of Class A,
Class B, Class C and Class D shares, respectively, would have been 2.32%, 3.05%,
2.11% and 3.09% in the absence of the voluntary assumption of fees or expenses
by the Distributor and its affiliates. Such assumption of fees or expenses, as
a percentage of average net assets, amounted to 1.82%, 1.80%, 1.86% and 1.84% of
the Class A, Class B, Class C and Class D shares of the Fund, respectively. The
amount of fees or expenses assumed during the fiscal year ended December 31,
1994 differed among classes because of fluctuations during the year in relative
levels of assets in each class and in expenses before reimbursement.
(2) Reflects the effect of proposed similar reorganizations of two other
state-specific tax-free mutual funds into the Tax-Exempt Fund to occur at about
the same time as the proposed reorganization described herein.
7
<PAGE>
Example:
You would pay the following expenses on a $1,000 investment including, for Class
A shares, the maximum initial sales charge and assuming (1) 5% annual return and
(2) redemption of the entire investment at the end of each time period:
<TABLE>
<CAPTION>
Tax-Exempt Fund Florida Tax-Free Fund
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A shares................. $56 $80 $106 $180 $50 $60 $72 $105
Class B shares(1).............. $69 $90 $123 $204 $63 $70 $89 $130
Class C shares................. $ 9 $29 $ 50 $112 $ 3 $8 $14 $32
Class D shares................. $29 $60 $103 $223 $23 $40 $69 $151
Pro Forma Tax-Exempt Fund
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A shares................ $56 $80 $106 $180
Class B shares(1)............. $69 $90 $123 $204
Class C shares................ $ 9 $29 $ 50 $112
Class D shares................ $29 $60 $103 $223
You would pay the following expenses on the same investment, assuming no
redemption:
Tax-Exempt Fund Florida Tax-Free Fund
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- ------- -------- ------ ------- ------- --------
Class B (1)................ $19 $60 $103 $204 $13 $40 $69 $130
Class D .................. $19 $60 $103 $223 $13 $40 $69 $151
Pro Forma Tax-Exempt Fund
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class B (1)................ $19 $60 $103 $204
Class D .................. $19 $60 $103 $223
- --------------------
</TABLE>
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than shown.
Multiple Class Structure; Distribution Arrangements. Each Fund has
outstanding and offers four classes of shares, which may be purchased through
securities dealers which have entered into sales agreements with the Distributor
at the next determined net asset value per share plus, in the case of all
classes except the Class C shares, a sales charge which, at the election of the
investor, may be imposed (i) at the time of purchase (the Class A shares) or
(ii) on a deferred basis (the Class B and Class D shares). In the proposed
Reorganization, shareholders of the Florida Tax-Free Fund will receive the
corresponding class of shares of the Tax-Exempt Fund which they currently hold
in the Florida Tax-Free Fund. The Class A, Class B, Class C and Class D shares
of the Tax-Exempt Fund have identical arrangements with respect to the
imposition of initial and contingent deferred sales charges and distribution and
service fees as the comparable class of shares of the Florida Tax-Free Fund.
Because the Reorganization will be effected at net asset value without the
imposition of a sales charge, Tax-Exempt Fund Shares
8
<PAGE>
acquired by shareholders of the Florida Tax-Free Fund pursuant to the proposed
Reorganization would not be subject to any initial sales charge or contingent
deferred sales charge as a result of the Reorganization. However, holders of the
Tax-Exempt Fund Shares acquired as a result of the Reorganization would continue
to be subject to a contingent deferred sales charge upon subsequent redemption
to the same extent as if they had continued to hold their shares of the Florida
Tax-Free Fund. For purposes of computing the contingent deferred sales charge
that may be payable upon disposition of any acquired Class A, Class B and Class
D shares of the Tax-Exempt Fund, the holding period of the redeemed shares is
"tacked" to the holding period of the Florida Tax-Free Fund. See "Comparative
Information on Distribution Arrangements."
Dividends. The Funds have identical policies with regard to dividends and
distributions. Each Fund's policy is to declare a dividend each day in an amount
based on monthly projections of its future net investment income and will pay
such dividends monthly. Consequently, the amount of each daily dividend may
differ from actual net investment income as determined under generally accepted
accounting principles. Each daily dividend is payable to shareholders of record
at the time of its declaration (for this purpose, including only holders of
shares purchased for which payment has been received by the transfer agent and
excluding holders of shares redeemed on that day). After the closing of the
Reorganization, Florida Tax-Free Fund shareholders who currently have dividends
reinvested will continue to have dividends reinvested in the Tax-Exempt Fund and
those who currently have capital gains reinvested will continue to have capital
gains reinvested in the Tax-Exempt Fund. The number of shares received in
connection with any such reinvestment will be based upon the net asset value per
share of the applicable class of shares of the Tax-Exempt Fund in effect on the
record date. See "Comparative Information on Shareholder Services."
Exchange Rights. Each Fund currently has identical exchange privileges.
Shareholders of the Florida Tax-Free Fund may exchange their shares for shares
of a corresponding class of shares, when available, of certain funds as
determined by the Distributor, at any time on the basis of the relative net
asset values of the respective shares to be exchanged, subject to compliance
with applicable securities laws. Shareholders of any other such fund may
similarly exchange their shares for shares of an available corresponding class
of the Florida Tax-Free Fund. See "Comparative Information on Shareholder
Services."
Redemption Procedures. Each Fund offers the same redemption features,
including the acceptance of redemption requests by mail, telephone and wire,
provided that applicable conditions are met. Any request to redeem shares of the
Florida Tax-Free Fund received and processed prior to the Reorganization will be
treated as a redemption of shares of the Florida Tax-Free Fund. Any request to
redeem shares received or processed after the Reorganization will be treated as
a request to redeem shares of the Tax-Exempt Fund. See "Comparative Information
on Shareholder Services."
Minimum Account Size. Each Fund reserves the right to redeem an account if
the aggregate value of the shares in such account is less than $1,500 for a
period of 60 days after notice is mailed to the applicable shareholder, or to
impose a maintenance fee on such account
9
<PAGE>
after 60 days' notice. Currently, the maintenance fee is $18 annually. The
Tax-Exempt Fund shareholder accounts established pursuant to the Reorganization
with a value of less than $1,500 will therefore be subject to redemption upon 60
days' prior notice or the annual maintenance fee. During such 60-day period, a
shareholder will have the option of avoiding such redemption or maintenance fee
by increasing the value of the account to $1,500 or more.
Certain Affiliations. To the extent that the Investment Manager and its
affiliates may own 5% or more of the Florida Tax-Free Fund, such Fund may be
deemed to be an "affiliated person," as defined in the 1940 Act, of the
Investment Manager or its affiliates. See "Information About the
Reorganization."
RISK FACTORS
The investment risks of both Funds are generally similar because of the
similarities of investment objectives and policies of the Funds. However, the
Florida Tax-Free Fund's ability to achieve its investment objective depends on
the ability of the issuers of Florida municipal obligations to meet their
continuing obligations for the payment of principal and interest, whereas the
Tax-Exempt Fund is subject to an investment restriction that prohibits more than
25% of the assets of the Fund from being invested in securities of issuers
conducting their principal activities in the same state. See "Comparison of
Investment Objectives and Policies." Such risks are more fully discussed under
the caption "The Fund's Investments" in the Prospectus of the Tax-Exempt Fund
enclosed with this Joint Proxy Statement/Prospectus and under the caption "The
Funds' Investments" in the Prospectus of the Florida Tax-Free Fund (available
upon request).
The Tax-Exempt Fund invests primarily in notes and bonds issued by or on
behalf of state and local governmental units. The Florida Tax-Free Fund invests
primarily in obligations issued by or on behalf of the State of Florida, its
political subdivisions, municipalities and public authorities and by other
governmental entities. In the case of each Fund, the value of such investments
will generally fluctuate inversely with changes in prevailing interest rates.
When interest rates increase, the value of debt securities and shares of a Fund
can be expected to decline.
There are risks in any investment program, and there is no assurance that
either Fund will achieve its investment objective. Tax-exempt bonds are subject
to relative degrees of credit risk and market volatility. Credit risk relates to
the issuer's (and any guarantor's) ability to make timely payments of principal
and interest. Market volatility relates to the changes in market price that
occur as a result of variations in the level of prevailing interest rates and
yield relationships between sectors in the tax-exempt bond market and other
market factors.
10
<PAGE>
REASONS FOR THE REORGANIZATION
In reaching the decision to recommend that the shareholders of the Florida
Tax-Free Fund vote to approve the Reorganization, the Board of Trustees,
including the Trustees who are not interested persons of the Trust, concluded
that the Reorganization would be in the best interests of the respective Funds
and that the interests of existing shareholders of the respective Funds will not
be diluted as a consequence thereof. In making this determination, the Trustees
considered a number of factors, including the smaller size and higher gross
expenses of the Florida Tax-Free Fund compared to the Tax-Exempt Fund and the
efficiencies resulting from combining the operations of two separate funds with
the same investment manager, the same multiple class structure, the same sales
load structure and similar investment objectives and policies.
As reflected in the capitalization table in "Information About the
Reorganization--Capitalization" set forth below, the Florida Tax-Free Fund is
small in size. As a result, its gross expenses are relatively high and have been
subsidized by the Distributor since inception; see "Table of Expenses of
Tax-Exempt Fund (individually and on a pro forma basis) and Florida Tax-Free
Fund" set forth in the "Summary" above. The Distributor reserves the right to
discontinue at any time its voluntary subsidization of expenses of the Florida
Tax-Free Fund; consequently, such Fund's expenses could increase in the future.
On the other hand, the Tax-Exempt Fund has substantially more assets and a
lower, unsubsidized expense ratio. By combining the assets of the two Funds,
each Fund could, over time, possibly benefit from certain economies of scale. In
particular, greater portfolio diversification and more efficient portfolio
management could result from a larger asset base. Greater diversification is
expected to be beneficial to shareholders because it may reduce the negative
effect which the adverse performance of any one portfolio security may have on
the performance of the portfolio as a whole. Because each Fund has the same
investment adviser, custodian and distributor, combining the Funds could, over
time, produce administrative economies of scale, resulting in net benefits to
the Funds' shareholders. The Trustees considered, among other things, the
benefit to the Funds of elimination of duplication of services such as producing
separate prospectuses and shareholder reports.
The above-cited benefits offset, in whole or in part, the loss to the
shareholders of the Florida Tax-Free Fund of having a fund more devoted to
investments which is tax-exempt for both federal income and Florida intangible
personal property tax purposes, as compared to the Tax-Exempt Fund which focuses
primarily on securities exempt from federal income taxes. Assets of the
Tax-Exempt Fund will be subject to more Florida State intangible personal
property tax than the assets of the Florida Tax-Free Fund.
The Board of Trustees of the Trust believes that the proposed
Reorganization is in the best interests of the shareholders of the Florida
Tax-Free Fund and recommend that shareholders of the Florida Tax-Free Fund vote
FOR the Reorganization.
11
<PAGE>
INFORMATION ABOUT THE REORGANIZATION
At a meeting held on August 2, 1995, the Board of Trustees of the Trust
approved the Plan of Reorganization substantially in the form set forth as
Exhibit A to this Joint Proxy Statement/Prospectus.
Plan of Reorganization. The Plan of Reorganization provides that, at the
Closing, the Tax-Exempt Fund will acquire all of the assets of the Florida
Tax-Free Fund (subject to the assumption by the Tax-Exempt Fund of all of the
liabilities of the Florida Tax-Free Fund including all liabilities reflected on
an unaudited statement of assets and liabilities) in exchange for Tax-Exempt
Fund Shares. The aggregate net asset value of full and fractional Tax-Exempt
Fund Shares to be issued to shareholders of the Florida Tax-Free Fund will equal
the value of the aggregate net assets of the Florida Tax-Free Fund as of the
close of business on the Valuation Date. The number of Class A, Class B, Class C
and Class D shares to be issued to the Florida Tax-Free Fund will be determined
by dividing (a) the aggregate net assets in each class of shares of the Florida
Tax-Free Fund by (b) the net asset value per Class A, Class B, Class C and Class
D share, respectively, of the Tax-Exempt Fund, each computed as of the close of
business on the Valuation Date. Portfolio securities of the Florida Tax-Free
Fund and the Tax-Exempt Fund will be valued in accordance with the valuation
practices of the Tax-Exempt Fund which are described under the caption "Purchase
of Shares" in the Tax-Exempt Fund Prospectus and which are substantially
identical to those of the Florida Tax-Free Fund.
The Tax-Exempt Fund will assume all liabilities, including all expenses,
costs, charges and reserves reflected on an unaudited statement of assets and
liabilities of the Florida Tax-Free Fund prepared as of the close of business on
the Valuation Date in accordance with generally accepted accounting principles
consistently applied from the prior audited period. Such statement of assets and
liabilities will reflect all liabilities known to the Florida Tax-Free Fund and
the Tax-Exempt Fund as of the date thereof. At or prior to the Closing, the
Florida Tax-Free Fund shall declare a dividend or dividends which, together with
all prior such dividends, shall have the effect of distributing to the Florida
Tax-Free Fund's shareholders all of the Florida Tax-Free Fund's investment
company income for all taxable years ending at or prior to the Closing (computed
without regard to any deduction for dividends paid) and all of its net capital
gains realized (after reduction for any capital loss carry-forward) in all
taxable years ending at or prior to the Closing.
At or as soon as practicable after the Closing, the Florida Tax-Free Fund
will liquidate and distribute pro rata to its shareholders of record as of the
close of business on the Valuation Date the full and fractional Tax-Exempt Fund
Shares received by the Florida Tax-Free Fund. Such liquidation and distribution
will be accomplished by the establishment of shareholder accounts on the share
records of the Tax-Exempt Fund in the name of each such shareholder of the
Florida Tax-Free Fund, representing the respective pro rata number of full and
fractional Tax-Exempt Fund Shares due such shareholder. All of the Tax-Exempt
Fund's future
12
<PAGE>
distributions attributable to the shares issued in the Reorganization will be
paid to shareholders in cash or invested in additional shares of the Tax-Exempt
Fund at the price in effect as described in the Tax-Exempt Fund's Prospectus on
the respective payment dates in accordance with instructions previously given by
the shareholder to the Florida Tax-Free Fund's transfer agent. As of the
Closing, each outstanding certificate which, prior to the Closing, represented
shares of the Florida Tax-Free Fund will be deemed for all purposes to evidence
ownership of the number of Tax-Exempt Fund Shares issuable with respect thereto
pursuant to the Reorganization. After the Closing, certificates originally
representing shares of Class A or Class C of the Florida Tax-Free Fund will be
rendered null and void and nonnegotiable; upon special request and surrender of
such certificates to SSBT as transfer agent, holders of these nonnegotiable
certificates shall be entitled to receive certificates representing the number
of Tax-Exempt Fund Shares issuable with respect thereto. All Class B and Class D
shares of record of the Tax-Exempt Fund are held in book entry form and no
certificates for such shares will be issued.
Notwithstanding approval by shareholders of the Florida Tax-Free Fund, the
Plan of Reorganization may be terminated at any time prior to the consummation
of the Reorganization without liability on the part of either party or its
respective Trustees, officers or shareholders, by either party on written notice
to the other party if circumstances should develop that, in the opinion of the
Trust, make proceeding with the Reorganization inadvisable. The Plan of
Reorganization may be amended, waived or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust; provided, however,
that following the Meeting, no such amendment, waiver or supplement may have the
effect of changing the provision for determining the number of Tax-Exempt Fund
Shares to be issued to the Florida Tax-Free Fund shareholders to the detriment
of such shareholders without their further approval. The expenses incurred in
connection with entering into and carrying out the provisions of the Plan of
Reorganization, whether or not the Reorganization is consummated, will be
apportioned between Distributor and the Funds in a fair and equitable manner.
Description of Tax-Exempt Fund Shares. Full and fractional shares of the
Tax-Exempt Fund will be issued to the Florida Tax-Free Fund shareholders in
accordance with the procedures under the Plan of Reorganization as described
above. Each share will be fully paid and nonassessable by the Trust when issued
and transferable without restrictions and will have no preemptive or cumulative
voting rights and have only such conversion or exchange rights as the Board of
Trustees of the Trust may grant in its discretion.
Federal Income Tax Consequences. Counsel to the Funds, Goodwin, Procter &
Hoar, has opined that, subject to customary assumptions and representations, on
the basis of the existing provisions of the Internal Revenue Code (the "Code"),
the Treasury Regulations promulgated thereunder and current administrative and
judicial interpretations thereof, for federal income tax purposes: (i) the
transfer of all the assets of the Florida Tax-Free Fund in exchange for
Tax-Exempt Fund Shares and the assumption by the Tax-Exempt Fund of all
liabilities of the Florida Tax-Free Fund will constitute a "reorganization"
within the meaning of Section 368(a)(1)(C) of the Code, and the Florida Tax-Free
Fund and the Tax-Exempt Fund each will be a "party to a reorganization" within
the meaning of Section 368(b) of the Code; (ii) no gain or
13
<PAGE>
loss will be recognized by the Florida Tax-Free Fund or the Tax-Exempt Fund upon
the transfer of the Florida Tax-Free Fund assets to the Tax-Exempt Fund in
exchange for Tax-Exempt Fund Shares; (iii) no gain or loss will be recognized by
shareholders of the Florida Tax-Free Fund upon the exchange of the Florida
Tax-Free Fund shares for Tax-Exempt Fund Shares; (iv) the basis of Tax-Exempt
Fund Shares received by each Florida Tax-Free Fund shareholder pursuant to the
Reorganization will be the same as the basis of the Florida Tax-Free Fund shares
exchanged therefor; (v) the basis of the Florida Tax-Free Fund assets in the
hands of the Tax-Exempt Fund will be the same as the basis of such assets in the
hands of the Florida Tax-Free Fund immediately prior to the Reorganization. The
receipt of such an opinion upon the Closing is a condition to the consummation
of the Reorganization. If the transfer of the assets of the Florida Tax-Free
Fund in exchange for Tax-Exempt Fund Shares and the assumption by the Tax-Exempt
Fund of the liabilities of the Florida Tax-Free Fund do not constitute a
tax-free reorganization, each Florida Tax-Free Fund shareholder will recognize
gain or loss equal to the difference between the value of Tax-Exempt Fund Shares
such shareholder acquires and the tax basis of such shareholder's Florida
Tax-Free Fund shares.
Shareholders of the Funds should consult their tax advisers regarding the
effect, if any, of the proposed Reorganization in light of their individual
circumstances. Since the foregoing discussion relates only to the federal income
tax consequences of the Reorganization, shareholders of the Funds should also
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
Capitalization. The following table sets forth the capitalization of the
Florida Tax-Free Fund and the Tax-Exempt Fund as of June 30, 1995, and on a pro
forma basis as of that date giving effect to the proposed acquisition of assets
at net asset value. The pro forma data reflects an exchange ratio of 1.2021,
1.2029, 1.2057 and 1.2032 for Class A, Class B, Class C and Class D shares,
respectively, of the Tax-Exempt Fund issued for each Class A, Class B, Class C
and Class D share, respectively, of the Florida Tax-Free Fund.
14
<PAGE>
Florida
Tax-Exempt Tax-Free Combined After
Fund Fund Reorganization (1)
--------- -------- -----------------
Net assets (in millions)...... $272.3 $11.2 $328.5
Net asset value per share
Class A.................. $7.82 $9.40 $7.82
Class B.................. $7.81 $9.39 $7.81
Class C.................. $7.80 $9.40 $7.80
Class D.................. $7.81 $9.40 $7.81
Shares outstanding
Class A.................. 29,860,742 353,718 32,233,417
Class B.................. 4,779,340 330,494 6,256,344
Class C.................. 46,835 368,120 3,031,409
Class D.................. 144,825 138,585 547,027
- --------------
(1) Reflects the effect of proposed similar reorganizations of two
other state-specific tax-free mutual funds into the Tax-Exempt Fund to
occur at about the same time as the proposed reorganization described
herein. The combined assets as of June 30, 1995 of all three funds to be
reorganized into the Tax-Exempt Fund was $56.5 million.
The table set forth above should not be relied on to reflect the number of
shares to be received in the Reorganization; the actual number of shares to be
received will depend upon the net asset value and number of shares outstanding
of each Fund at the time of the Reorganization.
The following table sets forth the number of outstanding shares of
beneficial interest of each Fund as of June 30, 1995, and the approximate
percentages of the outstanding shares of each Fund that were beneficially owned
by the Investment Manager, the Distributor and Metropolitan Life, their indirect
parent. As a result of such ownership, the consummation of the Reorganization is
subject to the receipt of exemptive relief from the Securities and Exchange
Commission from certain provisions of the 1940 Act. An application for an
exemption has been filed that, if granted, would permit the Reorganization to be
completed as described in this Joint Proxy Statement/Prospectus. There can be no
assurance that the relief sought will be obtained, although the type of relief
sought has been obtained by others in similar situations. The Board of Trustees
of the Trust does not know of any other person who beneficially owned 5% or more
of the total outstanding shares of either Fund as of June 30, 1995. In addition,
as of such date, the Trustees and officers of the Trust as a group owned less
than 1% of the outstanding shares of each of the Florida Tax-Free Fund and the
Tax-Exempt Fund. The Investment Manager and its affiliates have indicated to the
Trust that with respect to their shares of the Florida Tax-Free Fund they intend
to vote for and against the proposal in the same relative proportion as do the
other shareholders of the Florida Tax-Free Fund who cast votes at the Meeting.
15
<PAGE>
<TABLE>
<CAPTION>
Outstanding Shares Owned Outstanding Shares Owned Outstanding Shares Owned
by Metropolitan Life by the Distributor by the Investment Manager
------------------------ ------------------------ -------------------------
Total Shares Number % of Total Number % of Total Number % of Total
Name of Fund Outstanding of Shares Outstanding of Shares Outstanding of Shares Outstanding
<S> <C> <C> <C> <C> <C> <C> <C>
Florida Tax-Free Fund 1,190,917 524,869 44.1 -- -- 4 0.0
Tax-Exempt Fund... 34,831,742 61,257 0.2 13,825 0.0 -- --
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
Information about the investment objectives and policies of the Florida
Tax-Free Fund and the Tax-Exempt Fund is summarized below. More complete
information regarding the same is set forth in the Prospectus of the Tax-Exempt
Fund dated May 1, 1995 which is incorporated by reference herein and enclosed
herewith, the Prospectus of the Florida Tax-Free Fund dated May 1, 1995 which is
incorporated by reference herein, and in the Statement of Additional Information
which has been filed with the Securities and Exchange Commission in connection
with the Reorganization. Shareholders should consult such Prospectuses and the
Statement of Additional Information for a more thorough comparison.
Investment Objectives. The investment objective of the Florida Tax-Free
Fund is to seek a high level of interest income exempt from federal income
taxes. Also the Fund invests in assets which are expected to be exempt from
Florida State taxes on intangible personal property. The Fund invests
primarily in investment grade securities issued by or on behalf of the State of
Florida or its political subdivisions and by other governmental entities. The
Florida Tax-Free Fund may invest up to 25% of the Fund's assets in securities
rated BB to CC by S&P or Ba to Ca by Moody's or unrated securities that the
Investment Manager believes to be of equivalent investment quality to comparably
rated securities. During the current year, the Investment Manager (as
hereinafter defined) does not anticipate that the Fund will invest more than 5%
of its net assets in securities rated BB or lower by S&P or Ba or lower by
Moody's or in unrated securities of similar investment quality.
The investment objective of the Tax-Exempt Fund is to seek a high level of
interest income exempt from federal income taxes. The Fund invests primarily in
investment grade tax-exempt debt obligations. The Fund may invest up to 20% of
the Fund's assets in securities rated below BBB by S&P or Baa by Moody's,
including securities rated as low as D by S&P or C by Moody's, or unrated
securities that the Investment Manager believes to be of equivalent investment
quality to comparably rated securities.
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There are differences in the investment objectives and policies of the two
Funds. Under normal circumstances, substantially all of the dividends paid by
the Florida Tax-Free Fund is expected to be exempt from both Federal income
taxes and substantially all its assets is expected to be exempt from Florida
State taxes on intangible personal property; dividends paid by the Tax-Exempt
Fund are generally exempt only from federal income taxes and its assets are not
exempt from Florida State taxes on intangible property. The Florida Tax-Free
Fund invests primarily in securities issued by or on behalf of the State of
Florida or its political subdivisions. The Tax-Exempt Fund's investment
objective, in contrast, does not obligate it to invest primarily in securities
issued by or on behalf of the State of Florida or its political subdivisions;
rather, it invests in securities issued by a variety of state and local
governmental units. Both Funds, however, generally invest in debt securities
with interest income exempt from federal income taxes, pursue substantially
similar strategies of achieving their investment objective and are subject to
similar investment restrictions.
Investment Restrictions. While the investment restrictions of the Florida
Tax-Free Fund are similar in certain respects to those of the Tax-Exempt Fund,
there are subtle differences. Set forth below is a summary of the similarities
of and differences between the existing investment restrictions of the Florida
Tax-Free Fund and the investment restrictions of the Tax-Exempt Fund. The
summary is qualified in its entirety by reference to and is made subject to the
complete text of the investment restrictions of each Fund, which are set forth
in the Statement of Additional Information. The investment objective of each
Fund and certain of the investment restrictions of each Fund are deemed
fundamental, which means that they may not be changed without the approval of a
majority of such Fund's outstanding voting securities (as defined in the 1940
Act). Investment restrictions which are not deemed fundamental may be changed by
a Fund's Trustees without shareholder approval.
1. The Tax-Exempt Fund has a fundamental investment restriction which
prohibits the Fund from investing in a security if the transaction would
result in more than five percent of the Fund's total assets being invested
in any one issuer or if the transaction would result in the Fund's owning
more than ten percent of the voting securities of any one issuer (except
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or backed by the U.S. Government). The Florida Tax-Free
Fund does not have such a restriction.
2. The Tax-Exempt Fund is subject to a fundamental restriction that prohibits
the purchase of securities of issuers that have been in continuous
operation for less than three years if such purchase would cause more than
five percent of the total assets of the Fund to be invested in the
securities of such issuers, unless such securities are rated BBB or higher
by S&P or Ba or higher by Moody's. These restrictions do not apply to
investments in securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities or backed by the U.S. Government. The
Florida Tax-Free Fund does not have such a restriction.
3. Both Funds are subject to a fundamental investment restriction which
states that the Fund may not issue senior securities.
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4. Both Funds have a fundamental investment restriction prohibiting
underwriting or participating in the marketing of securities of other
issuers. For each Fund, this restriction, however, provides an exception
for such Fund if it were to purchase securities of other issuers for
investment, either from the issuers, persons in a control relationship
with the issuers or from underwriters of such securities. The applicable
restriction on the Florida Tax-Free Fund provides an exception in
circumstances where, in connection with the disposition of the Fund's
securities, the Fund may be deemed an underwriter under certain federal
securities laws.
5. Both Funds have a fundamental investment restriction prohibiting the
purchase or sale of fee simple interests in real estate. The Florida
Tax-Free Fund's restriction clarifies, however, that such Fund may
purchase and sell other interests in real estate including securities
which are secured by real estate or securities of companies which own or
invest or deal in real estate.
6. The Tax-Exempt Fund has a fundamental investment restriction prohibiting
the Fund from investing in commodities or commodity contracts, except that
the Fund may invest in financial futures contracts and options on futures
contracts. The Florida Tax-Free Fund is subject to a fundamental
investment restriction prohibiting it from investing in commodities or
commodity contracts in excess of ten percent of the Fund's total assets
(except for investments in futures contracts and options on futures
contracts on securities or securities indices).
7. The Tax-Exempt Fund has a fundamental investment restriction prohibiting
the Fund from conducting arbitrage transactions (subject to certain
exceptions such as that the Fund may invest in futures and options for
hedging purposes). The Florida Tax-Free Fund has a nonfundamental
investment restriction against engaging in transactions in options except
in connection with options on securities, securities indices and
currencies, and options on futures on securities, securities indices and
currencies.
8. Both Funds are subject to substantially similar fundamental investment
restrictions which prohibit the lending of assets of the Funds, subject to
exceptions for the purchase of bonds, debentures, notes and similar
obligations (including repurchase agreements) in accordance with each
Fund's investment policies and objectives. In addition, the Florida
Tax-Free Fund may lend portfolio securities without violating this
restriction.
9. The Tax-Exempt Fund has a fundamental investment restriction regarding
illiquid securities which states that the Fund may not invest more than
ten percent of its total assets in illiquid securities, including
securities restricted as to resale and repurchase agreements extending for
more than seven days and other securities which are not readily
marketable. A current nonfundamental investment restriction of the Florida
Tax-Free Fund prohibits the purchase of any securities or the entering
into of a repurchase agreement if as a result more than 15% of the Fund's
total assets would be invested in securities that are not readily
marketable and
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repurchase agreements not entitling the holder to payment of principal
and interest within seven days.
10. The Tax-Exempt Fund has a fundamental investment restriction and the
Florida Tax-Free Fund has a non-fundamental investment restriction
prohibiting them from investing in interests in oil, gas or other mineral
exploration or development programs, subject to certain exceptions. The
Tax-Exempt Fund may invest in securities which are based, directly or
indirectly, on the credit of companies which invest in or sponsor such
exploration programs. The Florida Tax-Free Fund, on the other hand, may
invest in securities issued by companies which invest in or sponsor such
exploration programs and in securities indexed to the price of oil, gas or
other minerals.
11. The Florida Tax-Free Fund is subject to a fundamental investment
restriction which prohibits the Fund from making an investment which would
cause more than 25% of the value of the Fund's total assets to be invested
in securities issued in connection with the financing of projects with
similar characteristics. The Tax-Exempt Fund does not have such a
restriction.
12. The Tax-Exempt Fund is subject to a fundamental investment restriction
which prohibits the Fund from making an investment which would cause more
than 25% of the value of the Fund's total assets to be invested in
securities of issuers conducting their principal activities in the same
state. This restriction does not apply to investments in securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities
or backed by the U.S. Government. The Florida Tax-Free Fund does not have
such a restriction.
13. The Tax-Exempt Fund is subject to a fundamental investment restriction
that prohibits the borrowing of money (through reverse repurchase
agreements or otherwise) except for extraordinary and emergency purposes,
and then not in an amount in excess of ten percent of the value of its
total assets, provided that reverse repurchase agreements shall not exceed
five percent of its total assets and that additional investments will be
suspended during any period when borrowing exceeds five percent of total
assets. The Florida Tax-Free Fund has a fundamental investment restriction
stating that the Fund may not borrow money except for borrowings from
banks for extraordinary and emergency purposes, and then not in an amount
in excess of 25% of the value of its total assets, and except insofar as
reverse repurchase agreements may be regarded as borrowing.
14. Pursuant to a nonfundamental investment restriction, the Tax-Exempt Fund
may not purchase securities of any company in which any officer or Trustee
of the Fund or its investment adviser owns more than one half of one
percent of the outstanding securities, or in which all of the officers and
Trustees of the Fund and its investment adviser, as a group, own more than
five percent of such securities. The Florida Tax-Free Fund does not have
such an investment restriction.
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15. Both Funds have a nonfundamental investment restriction stating that the
Fund may not hypothecate, mortgage or pledge any of its assets except to
secure permitted borrowings (and then, in the case of the Tax-Exempt Fund,
not in excess of ten percent of the Tax-Exempt Fund's assets). Under each
Fund's restriction, financial futures, options on financial futures and
similar arrangements are not deemed to involve a pledge of assets.
16. Both Funds have a nonfundamental investment restriction stating that the
Fund may not invest in companies for the purpose of exercising control
over the management of such companies.
17. Pursuant to substantially similar nonfundamental investment restrictions,
each Fund may not invest in securities of any other investment company,
except in connection with a merger, consolidation or similar
reorganization, if such investment would represent more than three percent
of the outstanding voting stock of such other company or more than five
percent of the value of the total assets of the Fund, or if such
investments in the aggregate would exceed ten percent of the value of the
total assets of the Fund.
18. The Florida Tax-Free Fund has a nonfundamental investment restriction
prohibiting the Fund from purchasing securities on margin or making short
sales of securities or maintaining a short position, except for short
sales "against the box" (as a matter of current operating, but not
fundamental policies, the Fund will not make short sales or maintain a
short position unless not more than five percent of the Fund's net assets
(taken at current value) is held as collateral for such sales at any
time). Similarly, the Tax-Exempt Fund is subject to a nonfundamental
investment restriction barring it from purchasing securities on margin,
making short sales of securities or purchasing or dealing in puts, calls,
straddles or spreads with respect to any security, except in connection
with the purchase or writing of options, including options on financial
futures, and futures contracts.
19. The Florida Tax-Free Fund is subject to a nonfundamental investment
restriction prohibiting the Fund from investing in warrants which would
comprise more than five percent of the value of its net assets, provided
that warrants not listed on the New York or American Stock Exchanges shall
be further limited to two percent of its net assets. Warrants
initially attached to securities and acquired by the Fund upon original
issuance thereof shall be deemed to be without value. The Tax-Exempt Fund
is not subject to such a restriction.
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS
Class A shares of each Fund are subject to (i) an initial sales charge of
up to 4.5% and (ii) an annual service fee of 0.25% of the average daily net
asset value of the Class A shares.
Class B shares of each Fund are subject to (i) a contingent deferred sales
charge (declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees of
1% of the average daily net asset value of these
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<PAGE>
shares. Class B shares automatically convert into Class A shares (which pay
lower ongoing expenses) at the end of eight years after purchase. No contingent
deferred sales charge applies after the fifth year following the purchase of
Class B shares.
Class C shares of each Fund are offered only to certain employee benefit
plans and large institutions. No sales charge is imposed at the time of purchase
or redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares of each Fund are subject to (i) a contingent deferred sales
charge of 1% if redeemed within one year following purchase and (ii) annual
distribution and service fees of 1% of the average daily net asset value of such
shares.
Because the Reorganization will be effected at net asset value without the
imposition of a sales charge, Tax-Exempt Fund Shares acquired by shareholders of
the Florida Tax-Free Fund pursuant to the proposed Reorganization would not be
subject to any initial sales charge or contingent deferred sales charge as a
result of the Reorganization. However, holders of the Tax-Exempt Fund Shares
acquired as a result of the Reorganization would continue to be subject to a
contingent deferred sales charge upon subsequent redemption to the same extent
as if they had continued to hold their shares of the Florida Tax-Free Fund.
Each Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations promulgated under the
1940 Act. Under the provisions of the Distribution Plan, the Fund makes payments
to the Distributor based on an annual percentage of the average daily value of
the net assets of each class of shares as follows:
Class of Shares
of Each Fund Service Fee Distribution Fee
-------------- ----------- ----------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. In addition,
the Distributor generally pays an initial commission to dealers for the sale of
shares of each Fund with a portion of such commission representing payment for
personal services and/or the maintenance of shareholder accounts by such
dealers. Dealers who have sold Class A shares of each Fund are eligible for
further reimbursement commencing as of the time of such sale. Dealers who have
sold Class B and Class D shares of each Fund are eligible for further
reimbursement after the first year during which such shares have been held of
record by such dealer as nominee for its clients (or by such clients directly).
Any service fees received by the
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<PAGE>
Distributor and not allocated to dealers may be applied by the Distributor in
reduction of expenses incurred by it directly for personal services and/or the
maintenance of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any distribution
fees received by the Distributor and not allocated to dealers may be applied by
the Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by securities
dealers. Commissions and other cash and noncash incentives and payments to
dealers, to the extent payable out of the general profits, revenues or other
sources of the Distributor (including the advisory fees paid to affiliates by
the Fund), have also been authorized pursuant to the Distribution Plan.
Class A shares of the Funds may be purchased without a sales charge by
certain Trustees, directors, officers, employees, their relatives and other
persons directly or indirectly related to the Funds or affiliated entities.
Class A shares of the Funds may also be sold at a reduced sales charge or
without a sales charge pursuant to certain sponsored arrangements or managed
fee-based programs.
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES
Each Fund offers the same shareholder services, including the Open Account
System, reinvestment privileges, a systematic withdrawal plan, a dividend
allocation plan, telephone purchases, telephone exchanges, telephone redemptions
and access to the Investamatic Check Program, an automatic investment program.
Because each Fund currently offers the same shareholder services, after the
closing of the proposed Reorganization the same services will continue to be
available to the shareholders of the Florida Tax-Free Fund.
FISCAL YEAR
Both Funds operate on fiscal years ending December 31.
PERFORMANCE
Tax-Exempt Fund
The following is a discussion of the performance of the Tax-Exempt Fund
for the six months ended June 30, 1995 and the fiscal year ended December 31,
1994.
The six months ended June 30, 1995 were better than the year ended
December 31, 1994. The Fund had a positive return through the first half of
1995, although it trailed the average for its category because the portfolio was
conservatively positioned. The Fund had shortened its duration (a measure of a
fund's sensitivity to interest rate changes) to protect it if interest rates
increased, as had happened throughout 1994. When interest rates fell sharply
instead, the Fund did not enjoy the full benefit of the market rally.
The Fund has extended its duration slightly, which will help in an
environment of falling rates. In addition, the Fund has upgraded the quality of
bonds in the portfolio and increased the percentage of insured bonds. As of June
30, 1995, the bonds in the portfolio had an average credit quality of AA.
Average Annual Total Return for periods ended June 30, 1995:
Life of Fund
1 year 5 years (since 8/25/86)
- ------- ------ ------- ---------------
Class A +1.46% +6.21% +6.49%
Class B +0.32% +6.53% +6.84%
Class C +6.38% +7.25% +7.08%
Class D +4.32% +6.83% +6.84%
In 1994, the bond market was repeatedly buffeted by uncertainty over the
strength of the economy and the timing of the Fed's next rate increase. When the
municipal bond market declined sharply in February, March and April 1994, the
Fund attempted to reduce risk in the portfolio by replacing longer-term bonds
with less interest-rate-sensitive, shorter-term bonds. In some cases the Fund
sold bonds for losses and replaced them with higher-yielding, more defensive
bonds. The Fund also increased the quality of the portfolio, because higher
quality bonds tend to perform better in weak markets.
The portfolio holds a number of bonds from so-called "specialty
states"--states where there are tax incentives to buy in-state bonds or where
bonds tend to be in short supply. Typically, demand is fairly consistent for
such bonds, which can be advantageous in a bad market. Specialty states include
Massachusetts, North Carolina (which also offers very high quality), New York,
Ohio and Connecticut.
Comparison Of Change In Value Of A $10,000 Investment In Tax-Exempt Fund And
The Lehman Municipal Bond Index
State Street Research Tax-Exempt Fund - Class A
LINE CHART DATA
(INCEPTION VALUE = $9,550)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $ 9,550 $10,000
12/31/86 9,889 10,371
12/31/87 9,748 10,527
12/31/88 11,063 11,597
12/31/89 12,128 12,849
12/31/90 12,713 13,785
12/31/91 14,213 15,459
12/31/92 15,538 16,821
12/31/93 17,420 18,888
12/31/94 16,218 17,911
State Street Research Tax-Exempt Fund - Class B
LINE CHART DATA
(INCEPTION VALUE = $10,000)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $10,000 $10,000
12/31/86 10,355 10,371
12/31/87 10,208 10,527
12/31/88 11,585 11,597
12/31/89 12,699 12,849
12/31/90 13,313 13,785
12/31/91 14,883 15,459
12/31/92 16,270 16,821
12/31/93 18,165 18,888
12/31/94 16,786 17,911
State Street Research Tax-Exempt Fund - Class C
LINE CHART DATA
(INCEPTION VALUE = $10,000)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $10,000 $10,000
12/31/86 10,355 10,371
12/31/87 10,208 10,527
12/31/88 11,585 11,597
12/31/89 12,699 12,849
12/31/90 13,313 13,785
12/31/91 14,883 15,459
12/31/92 16,270 16,821
12/31/93 18,224 18,888
12/31/94 17,028 17,911
State Street Research Tax-Exempt Fund - Class D
LINE CHART DATA
(INCEPTION VALUE = $10,000)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $10,000 $10,000
12/31/86 10,355 10,371
12/31/87 10,208 10,527
12/31/88 11,585 11,597
12/31/89 12,699 12,849
12/31/90 13,313 13,785
12/31/91 14,883 15,459
12/31/92 16,270 16,821
12/31/93 18,163 18,888
12/31/94 16,784 17,911
All returns represent past performance, which is no guarantee of future results.
The investment return and principal value of an investment made in the
Tax-Exempt 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. In March 1992, the Tax-Exempt Fund changed
its investment objective to eliminate requirements that specify that a
percentage of the Tax-Exempt Fund be invested in certain rating categories.
Previously, it was required to invest 80% in securities rated A, BBB, BB or
better. Past performance, therefore, may not be indicative of future results.
Shares of the Tax-Exempt Fund had no class designations until June 7, 1993, when
designations were assigned based on the pricing and 12b-1 fees applicable to
shares sold thereafter. Performance data for a specified class include periods
prior to the adoption of class designations. "A" share returns for each of the
periods reflect the maximum 4.5% sales charge. "B" share returns for the 1- and
5-year periods reflect a 5% and a 2% contingent deferred sales charge,
respectively. "C" shares, offered without a sales charge, are available only to
certain employee benefit plans and large institutions. "D" share return for the
1-year period reflects a 1% contingent deferred sales charge. Performance for
"B" and "D" shares prior to June 7, 1993, reflects annual 12b-1 fees of 0.25%
and performance thereafter reflects annual 12b-1 fees of 1%, which will reduce
subsequent performance. The Lehman Muni Bond Index represents approximately
15,000 fixed-coupon, investment-grade municipal bonds. The index is unmanaged
and does not take sales charges into consideration. Direct investment in the
index is not possible; results are for illustrative purposes only.
Further information about each Fund's performance is contained in each
Fund's annual and semiannual reports, which may be obtained without charge by
writing to the Funds at One Financial Center, Boston, Massachusetts 02111, or
calling (800) 562-0032.
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COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS
General. The Florida Tax-Free Fund and the Tax-Exempt Fund are series of
the Trust which was established in 1985 under the laws of The Commonwealth of
Massachusetts. The Florida Tax-Free Fund commenced operations in 1993, and the
Tax-Exempt Fund commenced operations in 1986. Both Funds are governed by a
Second Amended and Restated Master Trust Agreement dated June 5, 1993, as
further amended thereafter. As a Massachusetts business trust, the Trust's
operations are governed by its Master Trust Agreement and applicable federal and
Massachusetts laws. The above-referenced Master Trust Agreement may hereinafter
be referred to as the "Master Trust Agreement."
Shares of the Florida Tax-Free Fund and the Tax-Exempt Fund. The
beneficial interests in each of the Florida Tax-Free Fund and the Tax-Exempt
Fund are represented by transferable shares, par value $.001 per share. The
Master Trust Agreement permits the Trustees to issue an unlimited number of
shares and to divide such shares into an unlimited number of series. As of the
date hereof, the Trust has five operating series: the Florida Tax-Free Fund, the
Tax-Exempt Fund, State Street Research New York Tax-Free Fund, State Street
Research California Tax-Free Fund and State Street Research Pennsylvania
Tax-Free Fund. Each share of any Trust series represents an equal proportionate
interest in the assets and liabilities, excluding differences in class expenses
belonging to that series. As such, each share is entitled to dividends and
distributions out of the income (after expenses) belonging to that series as
declared by the Board of Trustees.
Voting Requirements. Generally, the provisions of the Master Trust
Agreement of the Trust may be amended at any time, so long as such amendment
does not adversely affect the rights of any shareholder with respect to which
such amendment is or purports to be applicable and so long as such amendment is
not in contravention of applicable law, by an instrument in writing signed by a
majority of the then Trustees (or by an officer of such Trust pursuant to the
vote of a majority of such Trustees). Generally, any amendment to the Trust's
Master Trust Agreement that adversely affects the rights of shareholders of one
or more series may be adopted by a majority of the then Trustees of the Trust
when authorized by shareholders holding a majority of the shares entitled to
vote.
Voting Rights. The Master Trust Agreement of the Trust provides that
special meetings of shareholders for any purpose requiring action by
shareholders under such Master Trust Agreement or the Trust's By-laws shall be
called upon the written request of holders of at least ten percent of the
outstanding shares of the Trust or, as the context may require, a series
thereof. The Master Trust Agreement of the Trust provides in general that
shareholders have the power to vote only on the following matters, each as more
fully described in such Master Trust Agreements: (i) the election or removal of
Trustees as provided in the Master Trust Agreement; (ii) with respect to certain
contracts, such as contracts for investment advisory or management services, to
the extent required as provided in the Master Trust Agreement as a whole; (iii)
with respect to any termination or reorganization of the Trust; (iv) an
amendment of the Master Trust Agreement as provided in the Master Trust
Agreement; (v) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought
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<PAGE>
or maintained derivatively or as a class action on behalf of the Trust, any
Sub-Trust thereof or its stockholders; and (vi) with respect to such additional
matters relating to the Trust as may be required by the 1940 Act, the Master
Trust Agreement, the By-laws or any registration of the Trust with the
Securities and Exchange Commission (or any successor agency) or any state, or as
the Trustees may consider necessary or desirable. Certain of the foregoing
matters will involve separate votes of one or more series of a Trust, while
others will require a vote of the Trust's shareholders as a whole.
Shareholder Liability. Under Massachusetts law, shareholders of a
Massachusetts business trust could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the Master Trust
Agreement of the Trust disclaims shareholder liability for acts or obligations
of the Trust. The Master Trust Agreement of the Trust provides for
indemnification, under certain circumstances, out of Trust property for all
losses and expenses of any shareholder held personally liable by virtue of his
status as such, and not because of such shareholder's acts or omissions or for
some other reason, for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered by the Trust to be remote since it is limited to circumstances in
which a disclaimer is inoperative and the Trust itself would be unable to meet
its obligations.
Liability of Trustees and Officers. Under the Master Trust Agreement of
the Trust, Trustees and officers will be indemnified, under certain
circumstances, for all liabilities, including the expenses of litigation,
against them unless their conduct is determined to constitute willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties,
such determination to be based upon the outcome of a court action or
administrative proceeding or a reasonable determination, following a review of
the facts, by (a) a vote of a majority of a quorum of the Trustees who are
neither "interested persons" of the Trust as defined in the 1940 Act nor parties
to the proceeding or (b) an independent legal counsel in a written opinion. The
Trust may also advance money for these expenses provided that the Trustee or
officer undertakes to repay the Trust if his or her conduct is later determined
to preclude indemnification and certain other conditions are met. It should be
noted that it is the view of the staff of the Securities and Exchange Commission
that to the extent that any provisions such as those described above are
inconsistent with the 1940 Act including Section 17 thereof, the provisions of
the 1940 Act are preemptive.
The foregoing is only a summary of certain of the provisions of the
Trust's Master Trust Agreement and By-laws. Shareholders should refer directly
to the provisions of the Master Trust Agreement and By-laws for their full
terms.
MANAGEMENT
The investment manager for each of the Funds is State Street Research &
Management Company. The Investment Manager is charged with the overall
responsibility for managing the investments and business affairs of the Funds,
subject to the authority of the Board of Trustees. As
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<PAGE>
of June 30, 1995, the Investment Manager had assets of approximately $26.2
billion under management.
The portfolio manager for the Tax-Exempt Fund is Susan W. Drake. Ms. Drake
has managed the Tax-Exempt Fund since 1990. Ms. Drake's principal occupation
currently is Vice President of State Street Research & Management Company.
During the past five years, she has also served as a securities analyst for
State Street Research & Management Company.
The portfolio managers for the Florida Tax-Free Fund are Ms. Drake and Paul
J. Clifford. Ms. Drake and Mr. Clifford have managed the Florida Tax-Free Fund
since the commencement of operations in August 1993. Mr. Clifford's principal
occupation currently is Vice President of State Street Research & Management
Company. During the past five years, he has also served as a securities analyst
for State Street Research & Management Company.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Information about the Tax-Exempt Fund is included in its current
Prospectus dated May 1, 1995, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Tax-Exempt
Fund is included in the Fund's Statement of Additional Information dated May 1,
1995. This Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated by reference herein.
Copies of this Statement may be obtained without charge by writing to State
Street Research Tax-Exempt Fund, One Financial Center, Boston, Massachusetts
02111, or by calling (800) 562-0032.
Information about the Florida Tax-Free Fund is included in its current
Prospectus dated May 1, 1995, which is incorporated by reference herein.
Additional information about the Florida Tax-Free Fund is included in the Fund's
Statement of Additional Information dated May 1, 1995. This Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated by reference herein. Copies of this Statement may
be obtained without charge by writing to State Street Research Florida Tax-Free
Fund, One Financial Center, Boston, Massachusetts 02111 or by calling (800)
562-0032.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith
files proxy material, reports and other information with the Securities and
Exchange Commission. These reports can be inspected and copied at the Public
Reference Facilities maintained by the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the
following regional offices: New York Regional Office, 75 Park Place, Room 1228,
New York, NY 10007; and Chicago Regional Office, Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago IL 60661. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington DC 20549 at prescribed rates.
25
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VOTING INFORMATION
Any shareholder who has given a proxy has the right to revoke it at any
time prior to its exercise by attending the Meeting and voting his or her shares
in person or by submitting a written notice of revocation or a later-dated proxy
to the Trust at the address of the Trust set forth on the cover page of this
Joint Proxy Statement/Prospectus prior to the date of the Meeting. Shareholders
of record of the Florida Tax-Free Fund at the close of business on October 13,
1995 (the "Record Date") will be entitled to notice of, and to vote at, the
Meeting of the Fund or to vote at any adjournments thereof. This Joint Proxy
Statement/Prospectus, proxies and accompanying Notice of Meeting were first sent
or given to shareholders of the Funds on or about October 20, 1995.
As of the Record Date, there were approximately 321,266, 308,292, 368,129
and 140,191 issued and outstanding Class A, Class B, Class C and Class D shares,
respectively, of the Florida Tax-Free Fund. Each share of such Fund is entitled
to one vote, with a proportionate vote for each fractional share.
If the enclosed proxy is properly executed and returned in time to be
voted at the Meeting, the shares represented thereby will be voted in accordance
with the instructions on the proxy. Unless instructions to the contrary are
marked thereon, the proxy will be voted for the proposal described herein and,
in the discretion of the persons named herein as proxies, to take such further
action as they may determine appropriate in connection with any other matter
which may properly come before the Meeting or any adjournments thereof. The
Board of Trustees does not currently know of any matter to be considered at the
Meeting other than the proposal to approve the Plan of Reorganization.
The affirmative vote of the holders of a majority of the outstanding
voting shares of the Florida Tax-Free Fund (within the meaning of the 1940 Act),
voting together as a single class, is required to approve the Plan of
Reorganization on behalf of such Fund. Under the 1940 Act, the vote of a
majority of the outstanding voting shares means the vote of the lesser of (a)
67% or more of the voting shares of the Fund, voting together as a single class,
present at the Meeting, if the holders of more than 50% of the outstanding
voting shares are present or represented by proxy, or (b) more than 50% of the
outstanding voting shares of the Fund, voting together as a single class.
Approval of the Plan of Reorganization by the shareholders of the Florida
Tax-Free Fund is a condition of the consummation of the Reorganization. If the
Reorganization is not approved, the Trustees of the Trust will continue the
management of the Florida Tax-Free Fund and the Tax-Exempt Fund, respectively,
and may consider other alternatives in the best interests of each Fund's
shareholders.
The holders of a majority of the shares entitled to vote of the Florida
Tax-Free Fund outstanding at the close of business on the Record Date present in
person or represented by proxy constitute a quorum for the Meeting; however, as
noted above, the affirmative vote of a majority of the shares of such Fund,
voting together as a single class (within the meaning of the 1940 Act) is
required to approve the Reorganization. In the event a quorum is not present at
the Meeting or in the event a quorum is present at the Meeting but sufficient
votes to approve the Plan of Reorganization are not received, the persons named
as proxies may propose one or more adjournments without further notice to
26
<PAGE>
shareholders of the Meeting to permit further solicitation of proxies provided
such persons determine, after consideration of all relevant factors, including
the nature of the proposal, the percentage of votes then cast, the percentage of
negative votes then cast, the nature of the proposed solicitation activities and
the nature of the reasons for such further solicitation, that an adjournment and
additional solicitation is reasonable and in the interests of shareholders.
For purposes of determining the presence of a quorum for transacting
business at the Meeting and for determining whether sufficient votes have been
received for approval of the proposal to be acted upon at the Meeting,
abstentions and broker "non-votes" (that is, proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote shares on a particular matter with
respect to which the brokers or nominees do not have discretionary power) will
be treated as shares that are present at the Meeting, but which have not been
voted. For this reason, abstentions and broker non-votes will assist the Florida
Tax-Free Fund in obtaining a quorum, but both have the practical effect of a
"no" vote for purposes of obtaining the requisite vote for approval of the
proposals to be acted upon at the Meeting.
Expenses of the Reorganization will be apportioned between the Distributor
and the Funds in a fair and equitable manner. Expenses will be allocated to the
Tax-Exempt Fund and the Florida Tax-Free Fund in an appropriate manner on the
basis of identifiable direct costs or otherwise on the basis of relative net
assets and the Distributor will assume one-half of each Fund's expenses. Such
expenses include costs of preparing, printing and mailing the enclosed proxy,
accompanying notice and Joint Proxy Statement/Prospectus and all other costs in
connection with solicitation of proxies, including any additional solicitation
by letter, telephone or telegraph. In addition to solicitation of proxies by
mail, officers of the Trust and officers and regular employees of the Investment
Manager, affiliates of the Investment Manager, or other representatives of the
Trust may also solicit proxies by telephone or telegram or in person. A proxy
solicitation firm may also be retained to assist in any special, personal
solicitation of proxies. The costs of retaining such a firm is not expected to
exceed $12,000.
THE TRUSTEES OF THE TRUST, INCLUDING THE INDEPENDENT TRUSTEES OF THE
TRUST, RECOMMEND APPROVAL OF THE PLAN OF REORGANIZATION.
DISSENTERS' RIGHTS
Neither the Master Trust Agreement of the Trust nor Massachusetts law
grants the shareholders of the Florida Tax-Free Fund any rights in the nature of
dissenters' rights of appraisal with respect to any action upon which such
shareholders may be entitled to vote; however, the normal right of mutual fund
shareholders to redeem their shares is not affected by the proposed
Reorganization.
27
<PAGE>
EXPERTS
The financial statements of the Tax-Exempt Fund and the Florida Tax-Free
Fund for the fiscal year ended December 31, 1994 included in each Fund's
Statement of Additional Information have been incorporated herein by reference
in reliance on the reports of Price Waterhouse LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
Certain legal matters with respect to the issuance of the shares of the Trust
will be passed upon by Goodwin, Procter & Hoar, Boston, Massachusetts.
OTHER MATTERS
The Board of Trustees does not intend to present any other business at the
Meeting, nor are they aware that any shareholder intends to do so. If, however,
any other matters are properly brought before the Meeting, the persons named in
the accompanying proxy will vote thereon in accordance with their judgment.
NO ANNUAL MEETING OF SHAREHOLDERS
There will be no annual or further special meetings of shareholders of the
Funds unless required by applicable law or called by the Trustees of such Fund
in their discretion. In accordance with the 1940 Act, or under the Trust's
Master Trust Agreement, as amended, any Trustee may be removed (i) by a written
instrument, signed by at least two-thirds of the number of Trustees in office
immediately prior to such removal, specifying the date upon which such removal
shall become effective; (ii) by a vote of shareholders holding not less than
two-thirds of the shares of the Trust then outstanding, cast in person or by
proxy at a meeting called for the purpose or (iii) by a written declaration
signed by shareholders holding not less than two-thirds of the shares then
outstanding and filed with the Trust's custodian. Shareholders holding 10% or
more of the shares of the Trust then outstanding can require that the Trustees
call a meeting of shareholders for the purpose of voting on the removal of one
or more Trustees. In addition, if ten or more shareholders who have been such
for at least six months and who hold in the aggregate shares with a net asset
value of at least $25,000 or at least 1% of the outstanding Fund shares, inform
the Trustees that they wish to communicate with other shareholders, the Trustees
will either give such shareholders access to the shareholder list or inform them
of the cost involved if the Fund forwards material to shareholders on their
behalf. If the Trustees object to mailing such materials, they must inform the
Securities and Exchange Commission and thereafter comply with the requirements
of the 1940 Act.
Shareholders wishing to submit proposals for inclusion in a proxy
statement for a subsequent shareholder meeting should send their written
proposals to the Secretary of the State Street Research Tax-Exempt Trust, One
Financial Center, 31st Floor, Boston, Massachusetts 02111. Shareholder proposals
should be received in a reasonable time before the solicitation is made.
28
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE FILL IN, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS NECESSARY IF IT IS MAILED IN THE UNITED STATES.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of
October 13, 1995 by and between State Street Research Tax-Exempt Trust, a
Massachusetts business trust (the "Tax-Exempt Trust"), on behalf of the State
Street Research Florida Tax-Free Fund series of the Tax-Exempt Trust (the
"Florida Tax-Free Fund") and the Tax-Exempt Trust on behalf of the State Street
Research Tax-Exempt Fund series of the Tax-Exempt Trust (the "Tax-Exempt Fund").
W I T N E S S E T H:
WHEREAS, the Tax-Exempt Trust is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended, such reorganization to consist of the
transfer of all of the assets of the Florida Tax-Free Fund in exchange solely
for Class A, Class B, Class C and Class D shares of beneficial interest, $.001
par value per share, of the Tax-Exempt Fund ("Tax-Exempt Fund Shares") and the
assumption by the Tax-Exempt Fund of all of the stated liabilities of the
Florida Tax-Free Fund and the distribution, after the Closing hereinafter
referred to, of Tax-Exempt Fund Shares to the shareholders of the Florida
Tax-Free Fund in liquidation of the Florida Tax-Free Fund, all upon the terms
and conditions hereinafter set forth in this Agreement (collectively, the
"Reorganization"); and
WHEREAS, the Trustees of the Tax-Exempt Trust, including a majority of the
Trustees and the Trustees who are not interested persons, have determined that
participating in the transactions contemplated by this Agreement is in the best
interests of each of the Funds.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
1. Transfer of Assets. Subject to the terms and conditions set forth
herein, at the closing provided for in Section 5 (herein referred to as the
"Closing") the Tax-Exempt Trust on behalf of the Florida Tax-Free Fund shall
transfer all of the assets of the Florida Tax-Free Fund, and assign all Assumed
Liabilities (as hereinafter defined) to the Tax-Exempt Fund, and the Tax-Exempt
Trust on behalf of the Tax-Exempt Fund shall acquire all such assets, and shall
assume all such Assumed Liabilities (as hereinafter defined), upon delivery to
the Tax-Exempt Trust on behalf of the Florida Tax-Free Fund of Tax-Exempt Fund
Shares having a net asset value equal to the value of the net assets of the
Florida Tax-Free Fund transferred (the "New Shares"). "Assumed Liabilities"
shall mean all liabilities, including all expenses, costs, charges and reserves
reflected in an unaudited statement of assets and liabilities of the Florida
Tax-Free Fund as of the close of business on the Valuation Date (as hereinafter
defined), determined in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The net asset value of the
New Shares and the value of the net assets of the Florida Tax-Free Fund to be
transferred shall be determined as of the close of regular trading on the New
York Stock Exchange on the business day next preceding the Closing (the
"Valuation Date") using the valuation procedures set forth in the then current
prospectus and statement of additional information
A-1
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of the Tax-Exempt Fund. All Assumed Liabilities of the Florida Tax-Free Fund, to
the extent that they exist at or after the Closing, shall after the Closing
attach to the Tax-Exempt Fund and may be enforced against the Tax-Exempt Fund to
the same extent as if the same had been incurred by the Tax-Exempt Fund.
2. Liquidation of the Florida Tax-Free Fund. At or as soon as practicable
after the Closing, the Florida Tax-Free Fund will be liquidated and the New
Shares delivered to the Tax-Exempt Trust on behalf of the Florida Tax-Free Fund
will be distributed to shareholders of the Florida Tax-Free Fund, each
shareholder to receive the number of New Shares of the corresponding class and
equal to the pro rata portion of shares of beneficial interest of the Florida
Tax-Free Fund held by such shareholder as of the close of business on the
Valuation Date. Such liquidation and distribution will be accompanied by the
establishment of an open account on the share records of the Tax-Exempt Fund in
the name of each shareholder of the Florida Tax-Free Fund and representing the
respective pro rata number of New Shares due such shareholder. As soon as
practicable after the Closing, the Tax-Exempt Trust shall file on behalf of the
Florida Tax-Free Fund such instruments of dissolution, if any, as are necessary
to effect the dissolution of the Florida Tax-Free Fund and shall take all other
steps necessary to effect a complete liquidation and dissolution of the Florida
Tax-Free Fund. As of the Closing, each outstanding certificate which, prior to
the Closing, represented shares of the Florida Tax-Free Fund will be deemed for
all purposes to evidence ownership of the number of Tax-Exempt Fund Shares
issuable with respect thereto pursuant to the Reorganization. After the Closing,
certificates originally representing shares of Class A or Class C of the Florida
Tax-Free Fund will be rendered null and void and nonnegotiable; upon special
request and surrender of such certificates to State Street Bank and Trust
Company as transfer agent, holders of these nonnegotiable certificates shall be
entitled to receive certificates representing the number of Tax-Exempt Fund
Shares issuable with respect thereto. All Class B and Class D shares of record
of the Tax-Exempt Fund are held in book entry form and no certificates for such
shares will be issued.
3. Representations and Warranties.
(a) The Tax-Exempt Trust, on behalf of the Florida Tax-Free Fund,
hereby represents and warrants to the Tax-Exempt Fund as follows:
(i) the Tax-Exempt Trust is duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has full power and authority to conduct its business
as presently conducted;
(ii) the Tax-Exempt Trust has full power and authority to
execute, deliver and carry out the terms of this Agreement on behalf of
the Florida Tax-Free Fund;
(iii) the execution and delivery of this Agreement on behalf of
the Florida Tax-Free Fund and the consummation of the transactions
contemplated hereby are duly authorized and no other proceedings on the
part of the Tax-Exempt Trust or the shareholders of the Florida Tax-Free
Fund (other than as contemplated in Section 4(h)) are necessary to
authorize this Agreement and the transactions contemplated hereby;
(iv) this Agreement has been duly executed by the Tax-Exempt
Trust on behalf of the Florida Tax-Free Fund and constitutes its valid and
binding obligation, enforceable in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and other
rights affecting creditors' rights generally, and general equitable
principles;
A-2
<PAGE>
(v) neither the execution and delivery of this Agreement by the
Tax-Exempt Trust on behalf of the Florida Tax-Free Fund, nor the
consummation by the Tax-Exempt Trust on behalf of the Florida Tax-Free
Fund of the transactions contemplated hereby will conflict with, result in
a breach or violation of or constitute (or with notice, lapse of time or
both constitute) a breach of or default under, the Master Trust Agreement
or By-Laws of the Tax-Exempt Trust, or any statute, regulation, order,
judgment or decree, or any instrument, contract or other agreement to
which the Tax-Exempt Trust is a party or by which the Tax-Exempt Trust or
any of its assets is subject or bound; and
(vi) no authorization, consent or approval of any governmental
or other public body or authority or any other party is necessary for the
execution and delivery of this Agreement by the Tax-Exempt Trust on behalf
of the Florida Tax-Free Fund or the consummation of any transactions
contemplated hereby by the Tax-Exempt Trust, other than as shall be
obtained at or prior to the Closing.
(b) The Tax-Exempt Trust, on behalf of the Tax-Exempt Fund, hereby
represents and warrants to the Florida Tax-Free Fund as follows:
(i) The Tax-Exempt Trust is duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has full power and authority to conduct its business
as presently conducted;
(ii) The Tax-Exempt Trust has full power and authority to
execute, deliver and carry out the terms of this Agreement on behalf of
the Tax-Exempt Fund;
(iii) the execution and delivery of this Agreement on behalf of
the Tax-Exempt Fund and the consummation of the transactions contemplated
hereby are duly authorized and no other proceedings on the part of the
Tax-Exempt Trust or the shareholders of the Tax-Exempt Fund are necessary
to authorize this Agreement and the transactions contemplated hereby;
(iv) this Agreement has been duly executed by the Tax-Exempt
Trust on behalf of the Tax-Exempt Fund and constitutes its valid and
binding obligation, enforceable in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and other
rights affecting creditors' rights generally, and general equitable
principles;
(v) neither the execution and delivery of this Agreement by the
Tax-Exempt Trust on behalf of the Tax-Exempt Fund, nor the consummation by
the Tax-Exempt Trust on behalf of the Tax-Exempt Fund of the transaction
contemplated hereby will conflict with, result in a breach or violation of
or constitute (or with notice, lapse of time or both constitute) a breach
of or default under, the Master Trust Agreement or By-Laws of the
Tax-Exempt Trust, or any statute, regulation, order, judgment or decree,
or any instrument, contract or other agreement to which the Tax-Exempt
Trust is a party or by which the Tax-Exempt Trust or any of its assets is
subject or bound; and
A-3
<PAGE>
(vi) no authorization, consent or approval of any
governmental or other public body or authority or any other party is
necessary for the execution and delivery of this Agreement by the
Tax-Exempt Trust on behalf of the Tax-Exempt Fund or the consummation
of any transactions contemplated hereby by the Tax-Exempt Trust, other
than as shall be obtained at or prior to the Closing.
4. Conditions Precedent. The obligations of the Tax-Exempt Trust on
behalf of the Florida Tax-Free Fund and the Tax-Exempt Trust on behalf of the
Tax-Exempt Fund to effectuate the plan of reorganization and liquidation
hereunder shall be subject to the satisfaction of the following conditions:
(a) At or immediately prior to the Closing, the Tax-Exempt Trust
shall have declared and paid a dividend or dividends which, together with all
previous such dividends, shall have the effect of distributing to the
shareholders of the Florida Tax-Free Fund all of such Fund's investment company
taxable income for taxable years ending at or prior to the Closing (computed
without regard to any deduction for dividends paid) and all of its net capital
gain, if any, realized in taxable years ending at or prior to the Closing (after
reduction for any capital loss carry-forward).
(b) A registration statement of the Tax-Exempt Fund on Form N-14
under the Securities Act of 1933, as amended (the "Securities Act"), registering
the New Shares under the Securities Act, and such amendment or amendments
thereto as are determined by the Board of Trustees of the Tax-Exempt Trust to be
necessary and appropriate to effect such registration of the New Shares (the
"Registration Statement"), shall have been filed with the Commission and the
Registration Statement shall have become effective, and no stop-order suspending
the effectiveness of such Registration Statement shall have been issued, and no
proceeding for that purpose shall have been initiated or threatened by the
Commission (and not withdrawn or terminated);
(c) The New Shares shall have been duly qualified for offering
to the public in all states in which such qualification is required for
consummation of the transactions contemplated hereunder;
(d) All representations and warranties of the Tax-Exempt Trust on
behalf of the Florida Tax-Free Fund contained in this Agreement shall be true
and correct in all material respects as of the date hereof and as of the
Closing, with the same force and effect as if then made, and the Tax-Exempt
Trust on behalf of the Tax-Exempt Fund shall have received a certificate of an
officer of the Tax-Exempt Trust acting on behalf of the Florida Tax-Free Fund to
that effect in form and substance reasonably satisfactory to the Tax-Exempt
Trust on behalf of the Tax-Exempt Fund;
(e) All representations and warranties of the Tax-Exempt Trust on
behalf of the Tax-Exempt Fund contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of the Closing,
with the same force and effect as if then made, and the Tax-Exempt Trust on
behalf of the Florida Tax-Free Fund shall have received a certificate of an
officer of the Tax-Exempt Trust acting on behalf of the Tax-Exempt Fund to that
effect in form and substance reasonably satisfactory to the Tax-Exempt Trust on
behalf of the Florida Tax-Free Fund;
(f) The Tax-Exempt Trust on behalf of the Florida Tax-Free Fund and
the Tax-Exempt Trust on behalf of the Tax-Exempt Fund shall have received an
opinion from Goodwin, Procter & Hoar regarding tax matters in connection with
the Reorganization;
A-4
<PAGE>
(g) The Tax-Exempt Trust on behalf of the Tax-Exempt Fund shall have
received an agreed upon procedures report, in accordance with established
accounting standards for such reports, of Price Waterhouse LLP, auditors for the
Tax-Exempt Trust, as to the unaudited statement of assets and liabilities
described in Section 1 of this Agreement; and
(h) A vote approving this Agreement and the Reorganization
contemplated hereby shall have been adopted by at least a majority of the
outstanding voting Class A, Class B, Class C and Class D shares of beneficial
interest of the Florida Tax-Free Fund (within the meaning of the 1940 Act),
voting together as a single class, entitled to vote at the special meeting of
shareholders of the Florida Tax-Free Fund duly called for such purpose.
(i) The Funds shall have received from the Commission an order
approving the Funds' application pursuant to Section 17(b) of the 1940 Act for
an order exempting the Reorganization from Section 17(a) of the 1940 Act and
pursuant to Rule 17d-1 under the 1940 Act for an order exempting the
Reorganization from Section 17(d) of the1940 Act and Rule 17d-1 thereunder.
5. Closing. The Closing shall be held at the offices of the Tax-Exempt
Trust and shall occur (a) immediately prior to the opening of business on the
first Monday following receipt of all necessary regulatory approvals and the
final adjournment of the meeting of shareholders of the Florida Tax-Free Fund at
which this Agreement is considered or (b) such later time as the parties may
agree. All acts taking place at the Closing shall be deemed to take place
simultaneously unless otherwise provided. At, or as soon as may be practicable
following the Closing, the Tax-Exempt Fund shall distribute the New Shares to
the Florida Tax-Free Fund Record Holders (as herein defined) by instructing the
Tax-Exempt Fund to register the appropriate number of New Shares in the names of
the Florida Tax-Free Fund's shareholders and the Tax-Exempt Fund agrees promptly
to comply with said instruction. The shareholders of record of the Florida
Tax-Free Fund as of the close of business on the Valuation Date shall be
certified by the Tax-Exempt Trust's transfer agent (the "Florida Tax-Free Fund
Record Holders").
6. Expenses. The expenses incurred in connection with the transactions
contemplated by this Agreement, whether or not the transactions contemplated
hereby are consummated, will be apportioned between State Street Research
Investment Services, Inc. (the "Distributor"), the distributor for each of the
Funds, and the Funds in a fair and equitable manner. Expenses will be allocated
to the Tax-Exempt Fund and the Florida Tax-Free Fund on the basis of
identifiable directs costs or otherwise on the basis of relative net assets and
the Distributor will assume one half of each Fund's expenses. Such expenses
include, without limitation, (i) expenses incurred in connection with the
entering into and the carrying out of the provisions of this Agreement; (ii)
expenses associated with the preparation and filing of the registration
statement on Form N-14 contemplated hereby; (iii) registration or qualification
fees and expenses of preparing and filing such forms as are necessary to qualify
the New Shares under applicable blue sky laws; (iv) postage; (v) printing; (vi)
accounting fees; (vii) legal fees; and (viii) solicitation costs of the
transaction.
7. Termination. This Agreement and the transactions contemplated hereby
may be terminated and abandoned by resolution of the Board of Trustees of the
Tax-Exempt Trust, at any time prior to the Closing, if circumstances should
develop that, in the opinion of the Board of Trustees, in its sole discretion,
make proceeding with this Agreement inadvisable. In the event of any such
termination, there shall be no liability for damages on the part of either the
Florida Tax-Free Fund or the Tax-Exempt Fund, or their respective trustees or
officers, to the other party or its trustees or officers.
A-5
<PAGE>
8. Amendments. This Agreement may be amended, waived or
supplemented in such manner as may be mutually agreed upon in writing by the
authorized officers of the Tax-Exempt Trust acting on behalf of the Florida
Tax-Free Fund and by the authorized officers of the Tax-Exempt Trust acting
on behalf of the Tax-Exempt Fund; provided, however, that following the
meeting of the Florida Tax-Free Fund shareholders called by the Tax-Exempt
Trust pursuant to Section 4(h) of this Agreement, no such amendment, waiver
or supplement may have the effect of changing the provisions for determining
the number of Tax-Exempt Fund Shares to be issued to the Florida Tax-Free
Fund shareholders under this Agreement to the detriment of such shareholders
without their further approval.
9. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts, except as to
matters of conflicts of laws.
10. Further Assurances. The Tax-Exempt Trust shall take such further
action, prior to, at, and after the Closing, as may be necessary or desirable
and proper to consummate the transactions contemplated hereby.
11. Limitations of Liability. The term "Tax-Exempt Trust" means and
refers to the trustees from time to time serving under the Master Trust
Agreement of the Tax-Exempt Trust, as the same may subsequently thereto have
been, or subsequently hereto be, amended. It is expressly agreed that the
obligations of the Tax-Exempt Trust hereunder shall not be binding upon any of
the Trustees, shareholders, nominees, officers, agents or employees of the
Tax-Exempt Trust, personally, but bind only the assets and property of the
Florida Tax-Free Fund series of the Tax-Exempt Trust and the Tax-Exempt Fund
series of the Tax-Exempt Trust, as the case may be, as provided in the Master
Trust Agreement of the Tax-Exempt Trust. The execution and delivery of this
Agreement have been authorized by the Trustees of the Tax-Exempt Trust and
signed by an authorized officer of the Tax-Exempt Trust, acting as such, and
neither such authorization nor such execution and delivery shall be deemed to
have been made individually or to impose any personal liability, but shall bind
only the trust property of the Tax-Exempt Trust as provided in its Master Trust
Agreement. The Master Trust Agreement of the Tax-Exempt Trust provides, and it
is expressly agreed, that each Sub-Trust of the Tax-Exempt Trust shall be
charged with the liabilities in respect of that Sub-Trust and all expenses,
costs, charges or reserves belonging to that Sub-Trust.
A-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above by their duly authorized
representatives.
STATE STREET RESEARCH TAX-EXEMPT TRUST, on
behalf of its State Street Research Florida
Tax-Free Fund series
Attest:
By:
/s/ Francis J. McNamara, III /s/ Gerard P. Maus
- ---------------------------- ----------------------------
Francis J. McNamara, III Gerard P. Maus
Secretary Treasurer
ATTEST: STATE STREET RESEARCH TAX-EXEMPT TRUST,
on behalf of its State Street Research
Tax-Exempt Fund series
By:
/s/ Francis J. McNamara, III /s/ Ralph F. Verni
- ---------------------------- ------------------------------
Francis J. McNamara, III Ralph F. Verni
Secretary Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
STATE STREET RESEARCH PENNSYLVANIA TAX-FREE FUND
a series of
State Street Research Tax-Exempt Trust
One Financial Center
Boston, Massachusetts 02111
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
the State Street Research Pennsylvania Tax-Free Fund (the "Pennsylvania Tax-Free
Fund"), a series of State Street Research Tax-Exempt Trust (the "Trust"), to be
held at the offices of the Trust at One Financial Center, 31st Floor, Boston,
Massachusetts 02111 on December 12, 1995 at 4:00 p.m. local time.
At this important meeting you will be asked to consider and approve an
Agreement and Plan of Reorganization and Liquidation between the Pennsylvania
Tax-Free Fund and State Street Research Tax-Exempt Fund (the "Tax-Exempt Fund"),
another series of the Trust.
If the proposal is approved by the shareholders of the Pennsylvania
Tax-Free Fund, the Tax-Exempt Fund would acquire substantially all of the assets
and liabilities of the Pennsylvania Tax-Free Fund. As a result of this
transaction, you would receive, in exchange for your shares of the Pennsylvania
Tax-Free Fund, shares of the corresponding class of the Tax-Exempt Fund with an
aggregate value equivalent to the aggregate net asset value of your Pennsylvania
Tax-Free Fund investment at the time of the transaction. The transaction is
conditioned upon the receipt of an opinion of counsel to the effect that the
transaction would be free from federal income taxes to you and your Fund.
The Board of Trustees of the Trust has determined that the proposed
reorganization should provide benefits to shareholders of the Pennsylvania
Tax-Free Fund due to the enhanced economies of scale and more efficient
operations which are expected to result from combining funds with the same
investment manager, the same multiple class structure, the same sales load
structure and similar investment objectives and policies.
I thank you for your participation as a shareholder and urge you to please
exercise your right to vote by completing, dating and signing the enclosed proxy
card. A self-addressed, postage-paid envelope has been enclosed for your
convenience. We look forward to receiving your vote.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED NO LATER
THAN DECEMBER 8, 1995.
Instructions for shares held of record in the name of a nominee, such as a
broker-dealer, may be subject to earlier cut-off dates established by such
intermediaries to facilitate a timely response.
Sincerely,
/s/ Ralph F. Verni
October 16, 1995 Ralph F. Verni
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
STATE STREET RESEARCH PENNSYLVANIA TAX-FREE FUND
a series of
State Street Research Tax-Exempt Trust
One Financial Center
Boston, Massachusetts 02111
---------------------------------
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
To Be Held On December 12, 1995
---------------------------------
A Special Meeting of Shareholders of State Street Research Pennsylvania
Tax-Free Fund (the "Pennsylvania Tax-Free Fund"), a portfolio series of State
Street Research Tax-Exempt Trust, a Massachusetts business trust (the "Trust"),
will be held at the offices of the Trust, One Financial Center, 31st Floor,
Boston, Massachusetts 02111, on December 12, 1995, at 4:00 p.m. local time (the
"Meeting") for the following purposes:
1. To consider and act upon an Agreement and Plan of Reorganization and
Liquidation providing for the transfer of the assets of the
Pennsylvania Tax-Free Fund (subject to its liabilities) to the State
Street Research Tax-Exempt Fund (the "Tax-Exempt Fund") in exchange
for Class A, Class B, Class C and Class D shares of the Tax-Exempt
Fund, the distribution of such shares to shareholders of the
Pennsylvania Tax-Free Fund and the subsequent liquidation and
dissolution of the Pennsylvania Tax-Free Fund; and
2. To consider and act upon any matter incidental to the foregoing and
to transact such other business as may properly come before the
Meeting and any adjournments thereof.
The close of business on October 13, 1995 has been fixed as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the Meeting and any adjournments thereof.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE
FUND. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DESIRE
TO VOTE IN PERSON AT THE MEETING, YOU MAY REVOKE YOUR PROXY.
By Order of the Trustees
FRANCIS J. MCNAMARA, III
Secretary
October 16, 1995
Date of Notice
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
Concerning the Acquisition of the Assets of
STATE STREET RESEARCH PENNSYLVANIA TAX-FREE FUND
By and in Exchange for Shares of
STATE STREET RESEARCH TAX-EXEMPT FUND
each a series of
State Street Research Tax-Exempt Trust
One Financial Center
Boston, Massachusetts 02111
(800) 562-0032
This Joint Proxy Statement/Prospectus relates to the proposed transfer of
the assets and liabilities of the State Street Research Pennsylvania Tax-Free
Fund (the "Pennsylvania Tax-Free Fund"), a series of the State Street Research
Tax-Exempt Trust (the "Trust"), a Massachusetts business trust, to the State
Street Research Tax-Exempt Fund (the "Tax-Exempt Fund"), another series of the
Trust, in exchange for Class A, Class B, Class C and Class D shares of
beneficial interest, $.001 par value per share, of the Tax-Exempt Fund
("Tax-Exempt Fund Shares"). Following such transfer, Tax-Exempt Fund Shares will
be distributed to shareholders of the Pennsylvania Tax-Free Fund in liquidation
of the Pennsylvania Tax-Free Fund, and the Pennsylvania Tax-Free Fund will be
dissolved. As a result of the proposed transaction, each shareholder will
receive in exchange for his or her shares of the Pennsylvania Tax-Free Fund
shares of the corresponding class of the Tax-Exempt Fund with an aggregate value
equal to the value of such shareholder's shares of the Pennsylvania Tax-Free
Fund, calculated as of the close of business on the business day immediately
prior to the exchange.
This Joint Proxy Statement/Prospectus is furnished to the shareholders of
the Pennsylvania Tax-Free Fund in connection with the solicitation of proxies by
and on behalf of the Trust's Board of Trustees to be used at a Special Meeting
of Shareholders of the Pennsylvania Tax-Free Fund to be held at the offices of
the Trust, One Financial Center, 31st Floor, Boston, Massachusetts 02111, at
4:00 p.m. local time on December 12, 1995 and at any adjournments thereof (the
"Meeting"). This document also serves as a Prospectus of the Tax-Exempt Fund and
covers the proposed issuance of Tax-Exempt Fund Shares. The Pennsylvania
Tax-Free Fund and the Tax-Exempt Fund may hereinafter be referred to
<PAGE>
collectively as the "Funds" and individually as a "Fund." The Board of Trustees
of the Trust may hereinafter be referred to as the "Board of Trustees."
The investment objective of the Tax-Exempt Fund, a diversified series of
the Trust, an open-end management investment company, is to seek a high level of
interest income exempt from federal income taxes. In seeking to achieve its
investment objective, the Tax-Exempt Fund invests primarily in tax-exempt debt
obligations which the investment manager of the Fund believes will not involve
undue risk.
This Joint Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information that a shareholder of the
Tax-Exempt Fund and the Pennsylvania Tax-Free Fund should know before investing.
This Joint Proxy Statement/Prospectus is accompanied by the Prospectus of the
Tax-Exempt Fund dated May 1, 1995, which is incorporated by reference herein.
The Prospectus of the Pennsylvania Tax-Free Fund dated May 1, 1995 is
incorporated by reference herein. A Statement of Additional Information dated
October 16, 1995 containing additional information relevant to the proposed
transaction has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Joint Proxy Statement/Prospectus. A copy of
such Statement and a copy of the Prospectus of the Pennsylvania Tax-Free Fund
may be obtained without charge by writing to the Secretary, Tax-Exempt Trust
Shareholder Meeting, 31st Floor, One Financial Center, Boston, Massachusetts
02111.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
October 16, 1995
Date of Joint Proxy Statement/Prospectus
2
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY ................................................................... 4
RISK FACTORS .............................................................. 10
REASONS FOR THE REORGANIZATION ............................................ 11
INFORMATION ABOUT THE REORGANIZATION ...................................... 12
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES .......................... 16
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS ...................... 20
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES ........................... 22
FISCAL YEAR ............................................................... 22
PERFORMANCE ............................................................... 22
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS ............................. 22
MANAGEMENT ................................................................ 24
ADDITIONAL INFORMATION ABOUT THE FUNDS .................................... 25
VOTING INFORMATION ........................................................ 26
DISSENTERS' RIGHTS ........................................................ 27
EXPERTS ................................................................... 28
OTHER MATTERS ............................................................. 28
NO ANNUAL MEETING OF SHAREHOLDERS ......................................... 28
Exhibit A: Agreement and Plan of Reorganization and Liquidation ........... A-1
3
<PAGE>
SUMMARY
The following is a summary of certain information contained in or
incorporated by reference in this Joint Proxy Statement/Prospectus. This summary
is not intended to be a complete statement of all material features of the
proposed Reorganization (as hereinafter defined) and is qualified in its
entirety by reference to the full text of this Joint Proxy Statement/Prospectus
and the documents referred to herein.
Proposed Transaction. The Board of Trustees of the Trust has approved an
Agreement and Plan of Reorganization and Liquidation (the "Plan of
Reorganization") providing for the transfer of all of the assets of the
Pennsylvania Tax-Free Fund to the Tax-Exempt Fund (subject to the assumption by
the Tax-Exempt Fund of all of the liabilities of the Pennsylvania Tax-Free Fund
including those reflected on a statement of assets and liabilities of that Fund
as of the close of business on the Valuation Date, as hereinafter defined) in
exchange for Tax-Exempt Fund Shares at a closing to be held following the
satisfaction of the conditions to the Reorganization (the "Closing"). The
aggregate net asset value of full and fractional Tax-Exempt Fund Shares to be
issued to shareholders of the Pennsylvania Tax-Free Fund will equal the value of
the aggregate net assets of the Pennsylvania Tax-Free Fund as of the close of
business on the business day immediately prior to the Closing (the "Valuation
Date"). The number of Class A, Class B, Class C and Class D shares (which may
hereinafter be referred to collectively as the "shares" or individually as a
"share") to be issued to the Pennsylvania Tax-Free Fund will be determined by
dividing (a) the aggregate net assets attributable to each class of shares of
the Pennsylvania Tax-Free Fund by (b) the net asset value per Class A, Class B,
Class C and Class D share, respectively, of the Tax-Exempt Fund, each computed
as of the close of business on the Valuation Date. Tax-Exempt Fund Shares will
be distributed to shareholders of the Pennsylvania Tax-Free Fund in liquidation
of the Pennsylvania Tax-Free Fund, and the Pennsylvania Tax-Free Fund will be
dissolved. The proposed transaction described above is referred to in this Joint
Proxy Statement/Prospectus as the "Reorganization."
As a result of the Reorganization, each shareholder will receive, in
exchange for his or her shares of the Pennsylvania Tax-Free Fund, shares of the
corresponding class of the Tax-Exempt Fund with an aggregate value equal to the
value of such shareholder's shares of the Pennsylvania Tax-Free Fund, calculated
as of the close of business on the Valuation Date. For example, Class A
shareholders of the Pennsylvania Tax-Free Fund would receive Class A shares of
the Tax-Exempt Fund.
At or prior to the Closing, the Pennsylvania Tax-Free Fund shall declare a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to the Pennsylvania Tax-Free Fund's shareholders
all of the Pennsylvania Tax-Free Fund's investment company income for all
taxable years ending at or prior to the Closing (computed without regard to any
deduction for dividends paid) and all of its net capital gains realized (after
reduction for any capital loss carry-forward) in all taxable years ending at or
prior to the Closing. The Trustees, including the Trustees who are not
"interested persons" of the Trust as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), have determined
4
<PAGE>
that the interests of existing shareholders of the Pennsylvania Tax-Free Fund
and the Tax-Exempt Fund, respectively, will not be diluted as a result of the
transactions contemplated by the Reorganization and that the Reorganization
would be in the best interests of the shareholders of the Pennsylvania Tax-Free
Fund and the Tax-Exempt Fund, respectively. See "Information About the
Reorganization."
The Trustees of the Trust recommend that the shareholders of the
Pennsylvania Tax-Free Fund vote FOR approval of the Plan of Reorganization.
Approval of the Plan of Reorganization by the shareholders of the
Pennsylvania Tax-Free Fund is a condition of the consummation of the
Reorganization. The affirmative vote of the holders of a majority of the
outstanding voting shares of such Fund (within the meaning of the 1940 Act),
voting together as a single class, is required to approve the Plan of
Reorganization on behalf of such Fund. A "majority" vote is defined in the 1940
Act as the vote of the holders of the lesser of (a) 67% or more of the voting
shares of the Fund, voting together as a single class, present at the Meeting,
if the holders of more than 50% of the outstanding voting shares are present or
represented by proxy, or (b) more than 50% of the outstanding voting shares of
the Fund, voting together as a single class. See "Voting Information."
Tax Consequences. Counsel to the Funds, Goodwin, Procter & Hoar, has
opined that, subject to customary assumptions and representations, upon
consummation of the Reorganization and the transfer of substantially all of the
assets of the Pennsylvania Tax-Free Fund to the Tax-Exempt Fund: (i) the
transfer of all the assets of the Pennsylvania Tax-Free Fund for Tax-Exempt Fund
Shares and the assumption by the Tax-Exempt Fund of all liabilities of the
Pennsylvania Tax-Free Fund will constitute a "reorganization" for federal income
tax purposes, and the Pennsylvania Tax-Free Fund and the Tax-Exempt Fund will
each be a "party to a reorganization" for federal income tax purposes; (ii) no
gain or loss will be recognized by the Tax-Exempt Fund or the Pennsylvania
Tax-Free Fund upon the transfer of the Pennsylvania Tax-Free Fund assets to the
Tax-Exempt Fund in exchange for Tax-Exempt Fund Shares; (iii) no gain or loss
will be recognized by shareholders of the Pennsylvania Tax-Free Fund upon the
exchange of shares of the Pennsylvania Tax-Free Fund for Tax-Exempt Fund Shares;
(iv) the basis of Tax-Exempt Fund Shares received by each Pennsylvania Tax-Free
Fund shareholder pursuant to the Reorganization will be the same as the basis of
the Pennsylvania Tax-Free Fund shares exchanged therefor; and (v) the basis of
the Pennsylvania Tax-Free Fund assets in the hands of the Tax-Exempt Fund will
be the same as the basis of such assets in the hands of the Pennsylvania
Tax-Free Fund immediately prior to the Reorganization. The receipt of such an
opinion upon the Closing is a condition to the Reorganization. See "Information
About the Reorganization."
Investment Objectives and Policies. Unlike the Pennsylvania Tax-Free Fund,
the Tax-Exempt Fund does not include as an investment objective the earning of
interest income exempt from Pennsylvania State personal income taxes. In other
respects, however, the investment objectives, policies and restrictions of the
Funds are substantially similar. To the extent that there are other differences
in the policies and restrictions of the Funds, shareholders
5
<PAGE>
should consider such differences. These differences are discussed below under
"Comparison of Investment Objectives and Policies."
The investment objective of the Pennsylvania Tax-Free Fund is to seek a
high level of interest income exempt from federal income taxes and Pennsylvania
State personal income taxes. The Fund invests primarily in investment grade
securities issued by or on behalf of the State of Pennsylvania or its political
subdivisions and by other governmental entities. The Pennsylvania Tax-Free Fund
may invest up to 25% of its assets in securities rated BB to CC by Standard &
Poor's Corporation ("S&P") or Ba to Ca by Moody's Investors Service, Inc.
("Moody's") or unrated securities that the Investment Manager (as hereinafter
defined) believes to be of equivalent investment quality to comparably rated
securities. During the current year, the Investment Manager (as defined herein)
does not anticipate that the Fund will invest more than 5% of its net assets in
securities rated BB or lower by S&P or Ba or lower by Moody's or in unrated
securities of similar investment quality.
The investment objective of the Tax-Exempt Fund is to seek a high level of
interest income exempt from federal income taxes. The Fund invests primarily in
investment grade tax-exempt debt obligations. The Tax-Exempt Fund may invest up
to 20% of the Fund's assets in securities rated below BBB by S&P or Baa by
Moody's, including securities rated as low as D by S&P or C by Moody's, or
unrated securities that the Investment Manager (as hereinafter defined) believes
to be of equivalent investment quality to comparably rated securities.
Management and Other Service Providers. The business affairs of the Trust
are managed by its Board of Trustees. For each of the Funds, State Street
Research & Management Company (the "Investment Manager") serves as investment
adviser, State Street Research Investment Services, Inc. serves as distributor
(the "Distributor") and State Street Bank and Trust Company serves as custodian
and as transfer agent and dividend paying agent ("SSBT").
The Investment Manager and the Distributor are indirect wholly-owned
subsidiaries of Metropolitan Life Insurance Company ("Metropolitan Life"). SSBT
is not affiliated with the Investment Manager, the Distributor, Metropolitan
Life, the Trust or the Funds. See "Management."
6
<PAGE>
Advisory Fees and Expenses. The following tables summarize the shareholder
transaction expenses applicable to each Fund and the annual operating expenses
for the Funds on an individual basis and for the Tax-Exempt Fund on a pro forma
basis after giving effect to the Reorganization. This table is followed by an
example illustrating the effect of these expenses on a $1,000 investment in each
Fund.
Shareholder Transaction Expenses Applicable to Tax-Exempt Fund and
Pennsylvania Tax-Free Fund
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...... 4.5% None None None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering
price) None None None None
Maximum Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable)................ None(2) 5% None 1%
Redemption Fees (as a percentage of amount
redeemed, if applicable)................. None None None None
Exchange Fees............................... None None None None
- --------------------
(1) Reduced sales charge purchase plans are available for Class A shares. The maximum 5% contingent
deferred sales charge on Class B shares applies to redemptions during the first year after
purchase; the charge declines thereafter, and no contingent deferred sales charge is imposed
after the fifth year. Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. Long-term investors in a class of
shares with a distribution fee may, over a period of years, pay more than the economic
equivalent of the maximum sales charge permissible under applicable rules.
(2) Purchases of Class A shares of $1 million or more are not subject to a sales charge. If such
shares are redeemed within 12 months of purchase, a contingent deferred sales charge of 1% will
be applied to the redemption.
Table of Expenses of Tax-Exempt Fund (individually and on a pro forma basis) and Pennsylvania
Tax-Free Fund
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt Fund Pennsylvania Tax-Free Fund (1)
Class A Class B Class C Class D Class A Class B Class C Class D
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management Fees............ 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%
12b-1 Fees................. 0.25% 1.00% None 1.00% 0.25% 1.00% None 1.00%
Other Expenses............. 0.36% 0.36% 0.36% 0.36% 1.37% 1.37% 1.37% 1.37%
Less Voluntary Reduction - - - - (1.67%) (1.67%) (1.67%) (1.67%)
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses 1.16% 1.91% 0.91% 1.91% 0.50% 1.25% 0.25% 1.25%
==== ===== ==== ==== ==== ==== ==== ====
Pro Forma Tax-Exempt Fund (2)
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management Fees........... 0.55% 0.55% 0.55% 0.55%
12b-1 Fees................ 0.25% 1.00% None 1.00%
Other Expenses............ 0.36% 0.36% 0.36% 0.36%
Less Voluntary Reduction - - - -
----- ----- ----- -----
Total Fund Operating Expenses 1.16% 1.91% 0.91% 1.91%
===== ===== ===== =====
- ---------------------
(1) For the fiscal year ended December 31, 1994, Total Fund Operating Expenses of the
Pennsylvania Tax-Free Fund with respect to the average net assets of Class A, Class B,
Class C and Class D shares, respectively, would have been 2.17%, 2.94%, 1.97% and 2.95%
in the absence of the voluntary assumption of fees or expenses by the Distributor and
its affiliates. Such assumption of fees or expenses, as a percentage of average net assets,
amounted to 1.67%, 1.69%, 1.72% and 1.70% of the Class A, Class B, Class C and Class D
shares of the Fund, respectively. The amount of fees or expenses assumed during the fiscal
year ended December 31, 1994 differed among classes because of fluctuations during the year
in relative levels of assets in each class and in expenses before reimbursement.
(2) Reflects the effect of proposed similar reorganizations of two other state-specific
tax-free mutual funds into the Tax-Exempt Fund to occur at about the same time as the proposed
reorganization described herein.
</TABLE>
7
<PAGE>
Example:
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment including, for Class
A shares, the maximum initial sales charge and assuming (1) 5% annual return and
(2) redemption of the entire investment at the end of each time period:
Tax-Exempt Fund Pennsylvania Tax-Free Fund
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A shares................. $56 $80 $106 $180 $50 $60 $72 $105
Class B shares(1).............. $69 $90 $123 $204 $63 $70 $89 $130
Class C shares................. $ 9 $29 $ 50 $112 $ 3 $ 8 $14 $32
Class D shares................. $29 $60 $103 $223 $23 $40 $69 $151
Pro Forma Tax-Exempt Fund
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A shares................ $56 $80 $106 $180
Class B shares(1)............. $69 $90 $123 $204
Class C shares................ $ 9 $29 $ 50 $112
Class D shares................ $29 $60 $103 $223
You would pay the following expenses on the same investment, assuming no
redemption:
Tax-Exempt Fund Pennsylvania Tax-Free Fund
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B (1)................ $19 $60 $103 $204 $19 $58 $100 $197
Class D .................. $19 $60 $103 $223 $19 $58 $100 $217
Pro Forma Tax-Exempt Fund
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Class B (1)................ $19 $60 $103 $204
Class D .................. $19 $60 $103 $223
</TABLE>
- --------------------
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than shown.
Multiple Class Structure; Distribution Arrangements. Each Fund has
outstanding and offers four classes of shares, which may be purchased through
securities dealers which have entered into sales agreements with the Distributor
at the next determined net asset value per share plus, in the case of all
classes except the Class C shares, a sales charge which, at the election of the
investor, may be imposed (i) at the time of purchase (the Class A shares) or
(ii) on a deferred basis (the Class B and Class D shares). In the proposed
Reorganization, shareholders of the Pennsylvania Tax-Free Fund will receive the
corresponding class of shares of the Tax-Exempt Fund which they currently hold
in the Pennsylvania Tax-Free Fund. The Class A, Class B, Class C and Class D
shares of the Tax-Exempt Fund have identical arrangements with respect to the
imposition of initial and contingent deferred sales charges and distribution and
service fees as the comparable class of shares of the Pennsylvania Tax-Free
Fund. Because the Reorganization will be effected at net asset value without the
imposition of a sales charge, Tax-Exempt Fund
8
<PAGE>
Shares acquired by shareholders of the Pennsylvania Tax-Free Fund pursuant to
the proposed Reorganization would not be subject to any initial sales charge or
contingent deferred sales charge as a result of the Reorganization. However,
holders of the Tax-Exempt Fund Shares acquired as a result of the Reorganization
would continue to be subject to a contingent deferred sales charge upon
subsequent redemption to the same extent as if they had continued to hold their
shares of the Pennsylvania Tax-Free Fund. For purposes of computing the
contingent deferred sales charge that may be payable upon disposition of any
acquired Class A, Class B and Class D shares of the Tax-Exempt Fund, the holding
period of the redeemed shares is "tacked" to the holding period of the
Pennsylvania Tax-Free Fund. See "Comparative Information on Distribution
Arrangements."
Dividends. The Funds have identical policies with regard to dividends and
distributions. Each Fund's policy is to declare a dividend each day in an amount
based on monthly projections of its future net investment income and will pay
such dividends monthly. Consequently, the amount of each daily dividend may
differ from actual net investment income as determined under generally accepted
accounting principles. Each daily dividend is payable to shareholders of record
at the time of its declaration (for this purpose, including only holders of
shares purchased for which payment has been received by the transfer agent and
excluding holders of shares redeemed on that day). After the closing of the
Reorganization, Pennsylvania Tax-Free Fund shareholders who currently have
dividends reinvested will continue to have dividends reinvested in the
Tax-Exempt Fund and those who currently have capital gains reinvested will
continue to have capital gains reinvested in the Tax-Exempt Fund. The number of
shares received in connection with any such reinvestment will be based upon the
net asset value per share of the applicable class of shares of the Tax-Exempt
Fund in effect on the record date. See "Comparative Information on Shareholder
Services."
Exchange Rights. Each Fund currently has identical exchange privileges.
Shareholders of the Pennsylvania Tax-Free Fund may exchange their shares for
shares of a corresponding class of shares, when available, of certain funds as
determined by the Distributor, at any time on the basis of the relative net
asset values of the respective shares to be exchanged, subject to compliance
with applicable securities laws. Shareholders of any other such fund may
similarly exchange their shares for shares of an available corresponding class
of the Pennsylvania Tax-Free Fund. See "Comparative Information on Shareholder
Services."
Redemption Procedures. Each Fund offers the same redemption features,
including the acceptance of redemption requests by mail, telephone and wire,
provided that applicable conditions are met. Any request to redeem shares of the
Pennsylvania Tax-Free Fund received and processed prior to the Reorganization
will be treated as a redemption of shares of the Pennsylvania Tax-Free Fund. Any
request to redeem shares received or processed after the Reorganization will be
treated as a request to redeem shares of the Tax-Exempt Fund. See "Comparative
Information on Shareholder Services."
Minimum Account Size. Each Fund reserves the right to redeem an account if
the aggregate value of the shares in such account is less than $1,500 for a
period of 60 days after
9
<PAGE>
notice is mailed to the applicable shareholder, or to impose a maintenance fee
on such account after 60 days' notice. Currently, the maintenance fee is $18
annually. The Tax-Exempt Fund shareholder accounts established pursuant to the
Reorganization with a value of less than $1,500 will therefore be subject to
redemption upon 60 days' prior notice or the annual maintenance fee. During such
60-day period, a shareholder will have the option of avoiding such redemption or
maintenance fee by increasing the value of the account to $1,500 or more.
Certain Affiliations. To the extent that the Investment Manager and its
affiliates may own 5% or more of the Pennsylvania Tax-Free Fund, such Fund may
be deemed to be an "affiliated person," as defined in the 1940 Act, of the
Investment Manager or its affiliates. See "Information About the
Reorganization."
RISK FACTORS
The investment risks of both Funds are generally similar because of the
similarities of investment objectives and policies of the Funds. However, the
Pennsylvania Tax-Free Fund's ability to achieve its investment objective depends
on the ability of the issuers of Pennsylvania municipal obligations to meet
their continuing obligations for the payment of principal and interest, whereas
the Tax-Exempt Fund is subject to an investment restriction that prohibits more
than 25% of the assets of the Fund from being invested in securities of issuers
conducting their principal activities in the same state. See "Comparison of
Investment Objectives and Policies." Such risks are more fully discussed under
the caption "The Fund's Investments" in the Prospectus of the Tax-Exempt Fund
enclosed with this Joint Proxy Statement/Prospectus and under the caption "The
Funds' Investments" in the Prospectus of the Pennsylvania Tax-Free Fund
(available upon request).
The Tax-Exempt Fund invests primarily in notes and bonds issued by or on
behalf of state and local governmental units. The Pennsylvania Tax-Free Fund
invests primarily in obligations issued by or on behalf of the State of
Pennsylvania, its political subdivisions, municipalities and public authorities
and by other governmental entities. In the case of each Fund, the value of such
investments will generally fluctuate inversely with changes in prevailing
interest rates. When interest rates increase, the value of debt securities and
shares of a Fund can be expected to decline.
There are risks in any investment program, and there is no assurance that
either Fund will achieve its investment objective. Tax-exempt bonds are subject
to relative degrees of credit risk and market volatility. Credit risk relates to
the issuer's (and any guarantor's) ability to make timely payments of principal
and interest. Market volatility relates to the changes in market price that
occur as a result of variations in the level of prevailing interest rates and
yield relationships between sectors in the tax-exempt bond market and other
market factors.
10
<PAGE>
REASONS FOR THE REORGANIZATION
In reaching the decision to recommend that the shareholders of the
Pennsylvania Tax-Free Fund vote to approve the Reorganization, the Board of
Trustees, including the Trustees who are not interested persons of the Trust,
concluded that the Reorganization would be in the best interests of the
respective Funds and that the interests of existing shareholders of the
respective Funds will not be diluted as a consequence thereof. In making this
determination, the Trustees considered a number of factors, including the
smaller size and higher gross expenses of the Pennsylvania Tax-Free Fund
compared to the Tax-Exempt Fund and the efficiencies resulting from combining
the operations of two separate funds with the same investment manager, the same
multiple class structure, the same sales load structure and similar investment
objectives and policies.
As reflected in the capitalization table in "Information About the
Reorganization--Capitalization" set forth below, the Pennsylvania Tax-Free Fund
is small in size. As a result, its gross expenses are relatively high and have
been subsidized by the Distributor since inception; see "Table of Expenses of
Tax-Exempt Fund (individually and on a pro forma basis) and Pennsylvania
Tax-Free Fund" set forth in the "Summary" above. The Distributor reserves the
right to discontinue at any time its voluntary subsidization of expenses of the
Pennsylvania Tax-Free Fund; consequently, such Fund's expenses could increase in
the future. On the other hand, the Tax-Exempt Fund has substantially more assets
and a lower, unsubsidized expense ratio. By combining the assets of the two
Funds, each Fund could, over time, possibly benefit from certain economies of
scale. In particular, greater portfolio diversification and more efficient
portfolio management could result from a larger asset base. Greater
diversification is expected to be beneficial to shareholders because it may
reduce the negative effect which the adverse performance of any one portfolio
security may have on the performance of the portfolio as a whole. Because each
Fund has the same investment adviser, custodian and distributor, combining the
Funds could, over time, produce administrative economies of scale, resulting in
net benefits to the Funds' shareholders. The Trustees considered, among other
things, the benefit to the Funds of elimination of duplication of services such
as producing separate prospectuses and shareholder reports.
The above-cited benefits offset, in whole or in part, the loss to the
shareholders of the Pennsylvania Tax-Free Fund of having a fund more devoted to
investments which produce income which is tax-exempt for both federal and
Pennsylvania income tax purposes, as compared to the Tax-Exempt Fund which
focuses primarily on securities exempt from federal income taxes. Income from
the Tax-Exempt Fund will be subject to more Pennsylvania State personal income
tax than the income from the Pennsylvania Tax-Free Fund.
The Board of Trustees of the Trust believes that the proposed
Reorganization is in the best interests of the shareholders of the Pennsylvania
Tax-Free Fund and recommend that shareholders of the Pennsylvania Tax-Free Fund
vote FOR the Reorganization.
11
<PAGE>
INFORMATION ABOUT THE REORGANIZATION
At a meeting held on August 2, 1995, the Board of Trustees of the Trust
approved the Plan of Reorganization substantially in the form set forth as
Exhibit A to this Joint Proxy Statement/Prospectus.
Plan of Reorganization. The Plan of Reorganization provides that, at the
Closing, the Tax-Exempt Fund will acquire all of the assets of the Pennsylvania
Tax-Free Fund (subject to the assumption by the Tax-Exempt Fund of all of the
liabilities of the Pennsylvania Tax-Free Fund including all liabilities
reflected on an unaudited statement of assets and liabilities) in exchange for
Tax-Exempt Fund Shares. The aggregate net asset value of full and fractional
Tax-Exempt Fund Shares to be issued to shareholders of the Pennsylvania Tax-Free
Fund will equal the value of the aggregate net assets of the Pennsylvania
Tax-Free Fund as of the close of business on the Valuation Date. The number of
Class A, Class B, Class C and Class D shares to be issued to the Pennsylvania
Tax-Free Fund will be determined by dividing (a) the aggregate net assets in
each class of shares of the Pennsylvania Tax-Free Fund by (b) the net asset
value per Class A, Class B, Class C and Class D share, respectively, of the
Tax-Exempt Fund, each computed as of the close of business on the Valuation
Date. Portfolio securities of the Pennsylvania Tax-Free Fund and the Tax-Exempt
Fund will be valued in accordance with the valuation practices of the Tax-Exempt
Fund which are described under the caption "Purchase of Shares" in the
Tax-Exempt Fund Prospectus and which are substantially identical to those of the
Pennsylvania Tax-Free Fund.
The Tax-Exempt Fund will assume all liabilities, including all expenses,
costs, charges and reserves reflected on an unaudited statement of assets and
liabilities of the Pennsylvania Tax-Free Fund prepared as of the close of
business on the Valuation Date in accordance with generally accepted accounting
principles consistently applied from the prior audited period. Such statement of
assets and liabilities will reflect all liabilities known to the Pennsylvania
Tax-Free Fund and the Tax-Exempt Fund as of the date thereof. At or prior to the
Closing, the Pennsylvania Tax-Free Fund shall declare a dividend or dividends
which, together with all prior such dividends, shall have the effect of
distributing to the Pennsylvania Tax-Free Fund's shareholders all of the
Pennsylvania Tax-Free Fund's investment company income for all taxable years
ending at or prior to the Closing (computed without regard to any deduction for
dividends paid) and all of its net capital gains realized (after reduction for
any capital loss carry-forward) in all taxable years ending at or prior to the
Closing.
At or as soon as practicable after the Closing, the Pennsylvania Tax-Free
Fund will liquidate and distribute pro rata to its shareholders of record as of
the close of business on the Valuation Date the full and fractional Tax-Exempt
Fund Shares received by the Pennsylvania Tax-Free Fund. Such liquidation and
distribution will be accomplished by the establishment of shareholder accounts
on the share records of the Tax-Exempt Fund in the name of each such shareholder
of the Pennsylvania Tax-Free Fund, representing the respective pro rata number
of full and fractional Tax-Exempt Fund Shares due such shareholder. All of the
Tax-Exempt
12
<PAGE>
Fund's future distributions attributable to the shares issued in the
Reorganization will be paid to shareholders in cash or invested in additional
shares of the Tax-Exempt Fund at the price in effect as described in the
Tax-Exempt Fund's Prospectus on the respective payment dates in accordance with
instructions previously given by the shareholder to the Pennsylvania Tax-Free
Fund's transfer agent. As of the Closing, each outstanding certificate which,
prior to the Closing, represented shares of the Pennsylvania Tax-Free Fund will
be deemed for all purposes to evidence ownership of the number of Tax-Exempt
Fund Shares issuable with respect thereto pursuant to the Reorganization. After
the Closing, certificates originally representing shares of Class A or Class C
of the Pennsylvania Tax-Free Fund will be rendered null and void and
nonnegotiable; upon special request and surrender of such certificates to SSBT
as transfer agent, holders of these nonnegotiable certificates shall be entitled
to receive certificates representing the number of Tax-Exempt Fund Shares
issuable with respect thereto. All Class B and Class D shares of record of the
Tax-Exempt Fund are held in book entry form and no certificates for such shares
will be issued.
Notwithstanding approval by shareholders of the Pennsylvania Tax-Free
Fund, the Plan of Reorganization may be terminated at any time prior to the
consummation of the Reorganization without liability on the part of either party
or its respective Trustees, officers or shareholders, by either party on written
notice to the other party if circumstances should develop that, in the opinion
of the Trust, make proceeding with the Reorganization inadvisable. The Plan of
Reorganization may be amended, waived or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust; provided, however,
that following the Meeting, no such amendment, waiver or supplement may have the
effect of changing the provision for determining the number of Tax-Exempt Fund
Shares to be issued to the Pennsylvania Tax-Free Fund shareholders to the
detriment of such shareholders without their further approval. The expenses
incurred in connection with entering into and carrying out the provisions of the
Plan of Reorganization, whether or not the Reorganization is consummated, will
be apportioned between Distributor and the Funds in a fair and equitable manner.
Description of Tax-Exempt Fund Shares. Full and fractional shares of the
Tax-Exempt Fund will be issued to the Pennsylvania Tax-Free Fund shareholders in
accordance with the procedures under the Plan of Reorganization as described
above. Each share will be fully paid and nonassessable by the Trust when issued
and transferable without restrictions and will have no preemptive or cumulative
voting rights and have only such conversion or exchange rights as the Board of
Trustees of the Trust may grant in its discretion.
Federal Income Tax Consequences. Counsel to the Funds, Goodwin, Procter &
Hoar, has opined that, subject to customary assumptions and representations, on
the basis of the existing provisions of the Internal Revenue Code (the "Code"),
the Treasury Regulations promulgated thereunder and current administrative and
judicial interpretations thereof, for federal income tax purposes: (i) the
transfer of all the assets of the Pennsylvania Tax-Free Fund in exchange for
Tax-Exempt Fund Shares and the assumption by the Tax-Exempt Fund of all
liabilities of the Pennsylvania Tax-Free Fund will constitute a "reorganization"
within the meaning of Section 368(a)(1)(C) of the Code, and the Pennsylvania
Tax-Free Fund and the
13
<PAGE>
Tax-Exempt Fund each will be a "party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Pennsylvania Tax-Free Fund or the Tax-Exempt Fund upon the transfer of the
Pennsylvania Tax-Free Fund assets to the Tax-Exempt Fund in exchange for
Tax-Exempt Fund Shares; (iii) no gain or loss will be recognized by shareholders
of the Pennsylvania Tax-Free Fund upon the exchange of the Pennsylvania Tax-Free
Fund shares for Tax-Exempt Fund Shares; (iv) the basis of Tax-Exempt Fund Shares
received by each Pennsylvania Tax-Free Fund shareholder pursuant to the
Reorganization will be the same as the basis of the Pennsylvania Tax-Free Fund
shares exchanged therefor; (v) the basis of the Pennsylvania Tax-Free Fund
assets in the hands of the Tax-Exempt Fund will be the same as the basis of such
assets in the hands of the Pennsylvania Tax-Free Fund immediately prior to the
Reorganization. The receipt of such an opinion upon the Closing is a condition
to the consummation of the Reorganization. If the transfer of the assets of the
Pennsylvania Tax-Free Fund in exchange for Tax-Exempt Fund Shares and the
assumption by the Tax-Exempt Fund of the liabilities of the Pennsylvania
Tax-Free Fund do not constitute a tax-free reorganization, each Pennsylvania
Tax-Free Fund shareholder will recognize gain or loss equal to the difference
between the value of Tax-Exempt Fund Shares such shareholder acquires and the
tax basis of such shareholder's Pennsylvania Tax-Free Fund shares.
Shareholders of the Funds should consult their tax advisers regarding the
effect, if any, of the proposed Reorganization in light of their individual
circumstances. Since the foregoing discussion relates only to the federal income
tax consequences of the Reorganization, shareholders of the Funds should also
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
Capitalization. The following table sets forth the capitalization of the
Pennsylvania Tax-Free Fund and the Tax-Exempt Fund as of June 30, 1995, and on a
pro forma basis as of that date giving effect to the proposed acquisition of
assets at net asset value. The pro forma data reflects an exchange ratio of
1.1994, 1.2005, 1.2032 and 1.2008 for Class A, Class B, Class C and Class D
shares, respectively, of the Tax-Exempt Fund issued for each Class A, Class B,
Class C and Class D share, respectively, of the Pennsylvania Tax-Free Fund.
14
<PAGE>
Pennsylvania
Tax-Exempt Tax-Free Combined After
Fund Fund Reorganization (1)
Net assets (in millions)....... $272.3 $16.7 $328.8
Net asset value per share
Class A.................. $7.82 $9.38 $7.82
Class B.................. $7.81 $9.38 $7.81
Class C.................. $7.80 $9.39 $7.80
Class D.................. $7.81 $9.38 $7.81
Shares outstanding
Class A.................. 29,860,742 762,257 32,233,417
Class B.................. 4,779,340 528,091 6,256,343
Class C.................. 46,835 368,283 3,031,409
Class D.................. 144,825 121,100 547,027
- --------------
(1) Reflects the effect of proposed similar reorganizations of two
other state-specific tax-free mutual funds into the Tax-Exempt Fund to
occur at about the same time as the proposed reorganization described
herein. The combined assets as of June 30, 1995 of all three funds to be
reorganized into the Tax-Exempt Fund was $56.5 million.
The table set forth above should not be relied on to reflect the number of
shares to be received in the Reorganization; the actual number of shares to be
received will depend upon the net asset value and number of shares outstanding
of each Fund at the time of the Reorganization.
The following table sets forth the number of outstanding shares of
beneficial interest of each Fund as of June 30, 1995, and the approximate
percentages of the outstanding shares of each Fund that were beneficially owned
by the Investment Manager, the Distributor and Metropolitan Life, their indirect
parent. As a result of such ownership, the consummation of the Reorganization is
subject to the receipt of the exemptive relief from the Securities and Exchange
Commission from certain provisions of the 1940 Act. An application for an
exemption has been filed that, if granted, would permit the Reorganization to be
completed as described in this Joint Proxy Statement/Prospectus. There can be no
assurance that the relief sought will be obtained, although the type of relief
sought has been obtained by others in similar situations. The Board of Trustees
of the Trust does not know of any other person who beneficially owned 5% or more
of the total outstanding shares of either Fund as of June 30, 1995. In addition,
as of such date, the Trustees and officers of the Trust as a group owned less
than 1% of the outstanding shares of each of the Pennsylvania Tax-Free Fund and
the Tax-Exempt Fund. The Investment Manager and its affiliates have indicated to
the Trust that with respect to their shares of the Pennsylvania Tax-Free Fund
they intend to vote for and against the proposal in the same relative proportion
as do the other shareholders of the Pennsylvania Tax-Free Fund who cast votes at
the Meeting.
15
<PAGE>
<TABLE>
<CAPTION>
Outstanding Shares Owned Outstanding Shares Owned Outstanding Shares Owned
by Metropolitan Life by the Distributor by the Investment Manager
------------------------ ------------------------ -------------------------
Total Shares Number % of Total Number % of Total Number % of Total
Name of Fund Outstanding of Shares Outstanding of Shares Outstanding of Shares Outstanding
<S> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania Tax-Free Fund 1,833,731 524,054 28.6 -- -- 4 0.0
Tax-Exempt Fund 34,831,742 61,257 0.2 13,825 0.0 -- --
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
Information about the investment objectives and policies of the
Pennsylvania Tax-Free Fund and the Tax-Exempt Fund is summarized below. More
complete information regarding the same is set forth in the Prospectus of the
Tax-Exempt Fund dated May 1, 1995 which is incorporated by reference herein and
enclosed herewith, the Prospectus of the Pennsylvania Tax-Free Fund dated May 1,
1995 which is incorporated by reference herein, and in the Statement of
Additional Information which has been filed with the Securities and Exchange
Commission in connection with the Reorganization. Shareholders should consult
such Prospectuses and the Statement of Additional Information for a more
thorough comparison.
Investment Objectives. The investment objective of the Pennsylvania
Tax-Free Fund is to seek a high level of interest income exempt from federal
income taxes and Pennsylvania State personal income taxes. The Fund invests
primarily in investment grade securities issued by or on behalf of the State of
Pennsylvania or its political subdivisions and by other governmental entities.
The Pennsylvania Tax-Free Fund may invest up to 25% of the Fund's assets in
securities rated BB to CC by S&P or Ba to Ca by Moody's or unrated securities
that the Investment Manager believes to be of equivalent investment quality to
comparably rated securities. During the current year, the Investment Manager (as
defined herein) does not anticipate that the Fund will invest more than 5% of
its net assets in securities rated BB or lower by S&P or Ba or lower by Moody's
or in unrated securities of similar investment quality.
The investment objective of the Tax-Exempt Fund is to seek a high level of
interest income exempt from federal income taxes. The Fund invests primarily in
investment grade tax-exempt debt obligations. The Fund may invest up to 20% of
the Fund's assets in securities rated below BBB by S&P or Baa by Moody's,
including securities rated as low as D by S&P or C by Moody's, or unrated
securities that the Investment Manager believes to be of equivalent investment
quality to comparably rated securities.
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<PAGE>
There are differences in the investment objectives of the two Funds. Under
normal circumstances, substantially all of the dividends paid by the
Pennsylvania Tax-Free Fund are expected to be exempt from both federal and
Pennsylvania State personal income taxes; dividends paid by the Tax-Exempt Fund
are generally exempt only from federal income tax. The Pennsylvania Tax-Free
Fund invests primarily in securities issued by or on behalf of the State of
Pennsylvania or its political subdivisions. The Tax-Exempt Fund's investment
objective, in contrast, does not obligate it to invest primarily in securities
issued by or on behalf of the State of Pennsylvania or its political
subdivisions; rather, it invests in securities issued by a variety of state and
local governmental units. Both Funds, however, generally invest in debt
securities with interest income exempt from federal income taxes, pursue
substantially similar strategies of achieving their investment objective and are
subject to similar investment restrictions.
Investment Restrictions. While the investment restrictions of the
Pennsylvania Tax-Free Fund are similar in certain respects to those of the
Tax-Exempt Fund, there are subtle differences. Set forth below is a summary of
the similarities of and differences between the existing investment restrictions
of the Pennsylvania Tax-Free Fund and the investment restrictions of the
Tax-Exempt Fund. The summary is qualified in its entirety by reference to and is
made subject to the complete text of the investment restrictions of each Fund,
which are set forth in the Statement of Additional Information. The investment
objective of each Fund and certain of the investment restrictions of each Fund
are deemed fundamental, which means that they may not be changed without the
approval of a majority of such Fund's outstanding voting securities (as defined
in the 1940 Act). Investment restrictions which are not deemed fundamental may
be changed by a Fund's Trustees without shareholder approval.
1. The Tax-Exempt Fund has a fundamental investment restriction which
prohibits the Fund from investing in a security if the transaction would
result in more than five percent of the Fund's total assets being invested
in any one issuer or if the transaction would result in the Fund's owning
more than ten percent of the voting securities of any one issuer (except
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or backed by the U.S. Government). The Pennsylvania
Tax-Free Fund does not have such a restriction.
2. The Tax-Exempt Fund is subject to a fundamental restriction that prohibits
the purchase of securities of issuers that have been in continuous
operation for less than three years if such purchase would cause more than
five percent of the total assets of the Fund to be invested in the
securities of such issuers, unless such securities are rated BBB or higher
by S&P or Ba or higher by Moody's. These restrictions do not apply to
investments in securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities or backed by the U.S. Government. The
Pennsylvania Tax-Free Fund does not have such a restriction.
3. Both Funds are subject to a fundamental investment restriction which
states that the Fund may not issue senior securities.
17
<PAGE>
4. Both Funds have a fundamental investment restriction prohibiting
underwriting or participating in the marketing of securities of other
issuers. For each Fund, this restriction, however, provides an exception
for such Fund if it were to purchase securities of other issuers for
investment, either from the issuers, persons in a control relationship
with the issuers or from underwriters of such securities. The applicable
restriction on the Pennsylvania Tax-Free Fund provides an exception in
circumstances where, in connection with the disposition of the Fund's
securities, the Fund may be deemed an underwriter under certain federal
securities laws.
5. Both Funds have a fundamental investment restriction prohibiting the
purchase or sale of fee simple interests in real estate. The Pennsylvania
Tax-Free Fund's restriction clarifies, however, that such Fund may
purchase and sell other interests in real estate including securities
which are secured by real estate or securities of companies which own or
invest or deal in real estate.
6. The Tax-Exempt Fund has a fundamental investment restriction prohibiting
the Fund from investing in commodities or commodity contracts, except that
the Fund may invest in financial futures contracts and options on futures
contracts. The Pennsylvania Tax-Free Fund is subject to a fundamental
investment restriction prohibiting it from investing in commodities or
commodity contracts in excess of ten percent of the Fund's total assets
(except for investments in futures contracts and options on futures
contracts on securities or securities indices).
7. The Tax-Exempt Fund has a fundamental investment restriction prohibiting
the Fund from conducting arbitrage transactions (subject to certain
exceptions such as that the Fund may invest in futures and options for
hedging purposes). The Pennsylvania Tax-Free Fund has a nonfundamental
investment restriction against engaging in transactions in options except
in connection with options on securities, securities indices and
currencies, and options on futures on securities, securities indices and
currencies.
8. Both Funds are subject to substantially similar fundamental investment
restrictions which prohibit the lending of assets of the Funds, subject to
exceptions for the purchase of bonds, debentures, notes and similar
obligations (including repurchase agreements) in accordance with each
Fund's investment policies and objectives. In addition, the Pennsylvania
Tax-Free Fund may lend portfolio securities without violating this
restriction.
9. The Tax-Exempt Fund has a fundamental investment restriction regarding
illiquid securities which states that the Fund may not invest more than
ten percent of its total assets in illiquid securities, including
securities restricted as to resale and repurchase agreements extending for
more than seven days and other securities which are not readily
marketable. A current nonfundamental investment restriction of the
Pennsylvania Tax-Free Fund prohibits the purchase of any securities or the
entering into of a repurchase agreement if as a result more than 15% of
the Fund's total assets would be invested in securities that are not
readily marketable and repurchase agreements not entitling the holder to
payment of principal and interest within seven days.
18
<PAGE>
10. The Tax-Exempt Fund has a fundamental investment restriction and the
Pennsylvania Tax-Free Fund has a nonfundamental investment restriction
prohibiting them from investing in interests in oil, gas or other mineral
exploration or development programs, subject to certain exceptions. The
Tax-Exempt Fund may invest in securities which are based, directly or
indirectly, on the credit of companies which invest in or sponsor such
exploration programs. The Pennsylvania Tax-Free Fund, on the other hand,
may invest in securities issued by companies which invest in or sponsor
such exploration programs and in securities indexed to the price of oil,
gas or other minerals.
11. The Pennsylvania Tax-Free Fund is subject to a fundamental investment
restriction which prohibits the Fund from making an investment which would
cause more than 25% of the value of the Fund's total assets to be invested
in securities issued in connection with the financing of projects with
similar characteristics. The Tax-Exempt Fund does not have such a
restriction.
12. The Tax-Exempt Fund is subject to a fundamental investment restriction
which prohibits the Fund from making an investment which would cause more
than 25% of the value of the Fund's total assets to be invested in
securities of issuers conducting their principal activities in the same
state. This restriction does not apply to investments in securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities
or backed by the U.S. Government. The Pennsylvania Tax-Free Fund does not
have such a restriction.
13. The Tax-Exempt Fund is subject to a fundamental investment restriction
that prohibits the borrowing of money (through reverse repurchase
agreements or otherwise) except for extraordinary and emergency purposes,
and then not in an amount in excess of ten percent of the value of its
total assets, provided that reverse repurchase agreements shall not exceed
five percent of its total assets and that additional investments will be
suspended during any period when borrowing exceeds five percent of total
assets. The Pennsylvania Tax-Free Fund has a fundamental investment
restriction stating that the Fund may not borrow money except for
borrowings from banks for extraordinary and emergency purposes, and then
not in an amount in excess of 25% of the value of its total assets, and
except insofar as reverse repurchase agreements may be regarded as
borrowing.
14. Pursuant to a nonfundamental investment restriction, the Tax-Exempt Fund
may not purchase securities of any company in which any officer or Trustee
of the Fund or its investment adviser owns more than one half of one
percent of the outstanding securities, or in which all of the officers and
Trustees of the Fund and its investment adviser, as a group, own more than
five percent of such securities. The Pennsylvania Tax-Free Fund does not
have such an investment restriction.
19
<PAGE>
15. Both Funds have a nonfundamental investment restriction stating that the
Fund may not hypothecate, mortgage or pledge any of its assets except to
secure permitted borrowings (and then, in the case of the Tax-Exempt Fund,
not in excess of ten percent of the Tax-Exempt Fund's assets). Under each
Fund's restriction, financial futures, options on financial futures and
similar arrangements are not deemed to involve a pledge of assets.
16. Both Funds have a nonfundamental investment restriction stating that the
Fund may not invest in companies for the purpose of exercising control
over the management of such companies.
17. Pursuant to substantially similar nonfundamental investment restrictions,
each Fund may not invest in securities of any other investment company,
except in connection with a merger, consolidation or similar
reorganization, if such investment would represent more than three percent
of the outstanding voting stock of such other company or more than five
percent of the value of the total assets of the Fund, or if such
investments in the aggregate would exceed ten percent of the value of the
total assets of the Fund.
18. The Pennsylvania Tax-Free Fund has a nonfundamental investment restriction
prohibiting the Fund from purchasing securities on margin or making short
sales of securities or maintaining a short position, except for short
sales "against the box" (as a matter of current operating, but not
fundamental policies, the Fund will not make short sales or maintain a
short position unless not more than five percent of the Fund's net assets
(taken at current value) is held as collateral for such sales at any
time). Similarly, the Tax-Exempt Fund is subject to a nonfundamental
investment restriction barring it from purchasing securities on margin,
making short sales of securities or purchasing or dealing in puts, calls,
straddles or spreads with respect to any security, except in connection
with the purchase or writing of options, including options on financial
futures, and futures contracts.
19. The Pennsylvania Tax-Free Fund is subject to a nonfundamental investment
restriction prohibiting the Fund from investing in warrants which would
comprise more than five percent of the value of its net assets, provided
that warrants not listed on the New York or American Stock Exchanges shall
be further limited to two percent of its net assets. Warrants initially
attached to securities and acquired by the Fund upon original issuance
thereof shall be deemed to be without value. The Tax-Exempt Fund is not
subject to such a restriction.
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS
Class A shares of each Fund are subject to (i) an initial sales charge of
up to 4.5% and (ii) an annual service fee of 0.25% of the average daily net
asset value of the Class A shares.
Class B shares of each Fund are subject to (i) a contingent deferred sales
charge (declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase
20
<PAGE>
and (ii) annual distribution and service fees of 1% of the average daily net
asset value of these shares. Class B shares automatically convert into Class A
shares (which pay lower ongoing expenses) at the end of eight years after
purchase. No contingent deferred sales charge applies after the fifth year
following the purchase of Class B shares.
Class C shares of each Fund are offered only to certain other employee
benefit plans and large institutions. No sales charge is imposed at the time of
purchase or redemption of Class C shares. Class C shares do not pay any
distribution or service fees.
Class D shares of each Fund are subject to (i) a contingent deferred sales
charge of 1% if redeemed within one year following purchase and (ii) annual
distribution and service fees of 1% of the average daily net asset value of such
shares.
Because the Reorganization will be effected at net asset value without the
imposition of a sales charge, Tax-Exempt Fund Shares acquired by shareholders of
the Pennsylvania Tax-Free Fund pursuant to the proposed Reorganization would not
be subject to any initial sales charge or contingent deferred sales charge as a
result of the Reorganization. However, holders of the Tax-Exempt Fund Shares
acquired as a result of the Reorganization would continue to be subject to a
contingent deferred sales charge upon subsequent redemption to the same extent
as if they had continued to hold their shares of the Pennsylvania Tax-Free Fund.
Each Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations promulgated under the
1940 Act. Under the provisions of the Distribution Plan, the Fund makes payments
to the Distributor based on an annual percentage of the average daily value of
the net assets of each class of shares as follows:
Class of Shares
of Each Fund Service Fee Distribution Fee
--------------- ----------- ----------------
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal services and/or the maintenance of shareholder accounts. In addition,
the Distributor generally pays an initial commission to dealers for the sale of
shares of each Fund with a portion of such commission representing payment for
personal services and/or the maintenance of shareholder accounts by such
dealers. Dealers who have sold Class A shares of each Fund are eligible for
further reimbursement commencing as of the time of such sale. Dealers who have
sold Class B and Class D shares of each Fund are eligible for further
reimbursement after the first year during which such shares have been held of
record by such dealer as nominee for its clients (or by such clients directly).
Any service fees received by the
21
<PAGE>
Distributor and not allocated to dealers may be applied by the Distributor in
reduction of expenses incurred by it directly for personal services and/or the
maintenance of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any distribution
fees received by the Distributor and not allocated to dealers may be applied by
the Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by securities
dealers. Commissions and other cash and noncash incentives and payments to
dealers, to the extent payable out of the general profits, revenues or other
sources of the Distributor (including the advisory fees paid to affiliates by
the Fund), have also been authorized pursuant to the Distribution Plan.
Class A shares of the Funds may be purchased without a sales charge by
certain Trustees, directors, officers, employees, their relatives and other
persons directly or indirectly related to the Funds or affiliated entities.
Class A shares of the Funds may also be sold at a reduced sales charge or
without a sales charge pursuant to certain sponsored arrangements or managed
fee-based programs.
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES
Each Fund offers the same shareholder services, including the Open Account
System, reinvestment privileges, a systematic withdrawal plan, a dividend
allocation plan, telephone purchases, telephone exchanges, telephone redemptions
and access to the Investamatic Check Program, an automatic investment program.
Because each Fund currently offers the same shareholder services, after the
closing of the proposed Reorganization the same services will continue to be
available to the shareholders of the Pennsylvania Tax-Free Fund.
FISCAL YEAR
Both Funds operate on fiscal years ending December 31.
PERFORMANCE
Tax-Exempt Fund
The following is a discussion of the performance of the Tax-Exempt Fund
for the six months ended June 30, 1995 and the fiscal year ended December 31,
1994.
The six months ended June 30, 1995 were better than the year ended
December 31, 1994. The Fund had a positive return through the first half of
1995, although it trailed the average for its category because the portfolio was
conservatively positioned. The Fund had shortened its duration (a measure of a
fund's sensitivity to interest rate changes) to protect it if interest rates
increased, as had happened throughout 1994. When interest rates fell sharply
instead, the Fund did not enjoy the full benefit of the market rally.
The Fund has extended its duration slightly, which will help in an
environment of falling rates. In addition, the Fund has upgraded the quality of
bonds in the portfolio and increased the percentage of insured bonds. As of June
30, 1995, the bonds in the portfoio had an average credit quality of AA.
Average Annual Total Return for periods ended June 30, 1995:
Life of Fund
1 year 5 years (since 8/25/86)
- ------- ------ ------- ---------------
Class A +1.46% +6.21% +6.49%
Class B +0.32% +6.53% +6.84%
Class C +6.38% +7.25% +7.08%
Class D +4.32% +6.83% +6.84%
In 1994, the bond market was repeatedly buffeted by uncertainty over the
strength of the economy and the timing of the Fed's next rate increase. When the
municipal bond market declined sharply in February, March and April 1994, the
Fund attempted to reduce risk in the portfolio by replacing longer-term bonds
with less interest-rate-sensitive, shorter-term bonds. In some cases the Fund
sold bonds for losses and replaced them with higher-yielding, more defensive
bonds. The Fund also increased the quality of the portfolio, because higher
quality bonds tend to perform better in weak markets.
The portfolio holds a number of bonds from so-called "specialty
states"--states where there are tax incentives to buy in-state bonds or where
bonds tend to be in short supply. Typically, demand is fairly consistent for
such bonds, which can be advantageous in a bad market. Specialty states include
Massachusetts, North Carolina (which also offers very high quality), New York,
Ohio and Connecticut.
Comparison Of Change In Value Of A $10,000 Investment In Tax-Exempt Fund And
The Lehman Municipal Bond Index
State Street Research Tax-Exempt Fund - Class A
LINE CHART DATA
(INCEPTION VALUE = $9,550)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $ 9,550 $10,000
12/31/86 9,889 10,371
12/31/87 9,748 10,527
12/31/88 11,063 11,597
12/31/89 12,128 12,849
12/31/90 12,713 13,785
12/31/91 14,213 15,459
12/31/92 15,538 16,821
12/31/93 17,420 18,888
12/31/94 16,218 17,911
State Street Research Tax-Exempt Fund - Class B
LINE CHART DATA
(INCEPTION VALUE = $10,000)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $10,000 $10,000
12/31/86 10,355 10,371
12/31/87 10,208 10,527
12/31/88 11,585 11,597
12/31/89 12,699 12,849
12/31/90 13,313 13,785
12/31/91 14,883 15,459
12/31/92 16,270 16,821
12/31/93 18,165 18,888
12/31/94 16,786 17,911
State Street Research Tax-Exempt Fund - Class C
LINE CHART DATA
(INCEPTION VALUE = $10,000)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $10,000 $10,000
12/31/86 10,355 10,371
12/31/87 10,208 10,527
12/31/88 11,585 11,597
12/31/89 12,699 12,849
12/31/90 13,313 13,785
12/31/91 14,883 15,459
12/31/92 16,270 16,821
12/31/93 18,224 18,888
12/31/94 17,028 17,911
State Street Research Tax-Exempt Fund - Class D
LINE CHART DATA
(INCEPTION VALUE = $10,000)
VALUE OF
ACCOUNT OF
VALUE OF LEHMAN MUNI BOND
ACCOUNT AT INDEX AT
DATE YEAR END YEAR END
8/25/86 $10,000 $10,000
12/31/86 10,355 10,371
12/31/87 10,208 10,527
12/31/88 11,585 11,597
12/31/89 12,699 12,849
12/31/90 13,313 13,785
12/31/91 14,883 15,459
12/31/92 16,270 16,821
12/31/93 18,163 18,888
12/31/94 16,784 17,911
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in the
Tax-Exempt 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. In March 1992, the Tax-Exempt Fund changed
its investment objective to eliminate requirements that specify that a
percentage of the Tax-Exempt Fund be invested in certain rating categories.
Previously, it was required to invest 80% in securities rated A, BBB, BB or
better. Past performance, therefore, may not be indicative of future results.
Shares of the Tax-Exempt Fund had no class designations until June 7, 1993, when
designations were assigned based on the pricing and 12b-1 fees applicable to
shares sold thereafter. Performance data for a specified class include periods
prior to the adoption of class designations. "A" share returns for each of the
periods reflect the maximum 4.5% sales charge. "B" share returns for the 1- and
5-year periods reflect a 5% and a 2% contingent deferred sales charge,
respectively. "C" shares, offered without a sales charge, are available only to
certain employee benefit plans and large institutions. "D" share return for the
1-year period reflects a 1% contingent deferred sales charge. Performance for
"B" and "D" shares prior to June 7, 1993, reflects annual 12b-1 fees of 0.25%
and performance thereafter reflects annual 12b-1 fees of 1%, which will reduce
subsequent performance. The Lehman Muni Bond Index represents approximately
15,000 fixed-coupon, investment-grade municipal bonds. The index is unmanaged
and does not take sales charges into consideration. Direct investment in the
index is not possible; results are for illustrative purposes only.
Further information about each Fund's performance is contained in each
Fund's annual and semiannual reports, which may be obtained without charge by
writing to the Funds at One Financial Center, Boston, Massachusetts 02111, or
calling (800) 562-0032.
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COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS
General. The Pennsylvania Tax-Free Fund and the Tax-Exempt Fund are series
of the Trust which was established in 1985 under the laws of The Commonwealth of
Massachusetts. The Pennsylvania Tax-Free Fund commenced operations in 1993, and
the Tax-Exempt Fund commenced operations in 1986. Both Funds are governed by a
Second Amended and Restated Master Trust Agreement dated June 5, 1993, as
further amended thereafter. As a Massachusetts business trust, the Trust's
operations are governed by its Master Trust Agreement and applicable federal and
Massachusetts laws. The above-referenced Master Trust Agreement may hereinafter
be referred to as the "Master Trust Agreement."
Shares of the Pennsylvania Tax-Free Fund and the Tax-Exempt Fund. The
beneficial interests in each of the Pennsylvania Tax-Free Fund and the
Tax-Exempt Fund are represented by transferable shares, par value $.001 per
share. The Master Trust Agreement permits the Trustees to issue an unlimited
number of shares and to divide such shares into an unlimited number of series.
As of the date hereof, the Trust has five operating series: the Pennsylvania
Tax-Free Fund, the Tax-Exempt Fund, State Street Research New York Tax-Free
Fund, State Street Research Florida Tax-Free Fund and State Street Research
California Tax-Free Fund. Each share of any Trust series represents an equal
proportionate interest in the assets and liabilities, excluding differences in
class expenses, belonging to that series. As such, each share is entitled to
dividends and distributions out of the income (after expenses) belonging to that
series as declared by the Board of Trustees.
Voting Requirements. Generally, the provisions of the Master Trust
Agreement of the Trust may be amended at any time, so long as such amendment
does not adversely affect the rights of any shareholder with respect to which
such amendment is or purports to be applicable and so long as such amendment is
not in contravention of applicable law, by an instrument in writing signed by a
majority of the then Trustees (or by an officer of such Trust pursuant to the
vote of a majority of such Trustees). Generally, any amendment to the Trust's
Master Trust Agreement that adversely affects the rights of shareholders of one
or more series may be adopted by a majority of the then Trustees of the Trust
when authorized by shareholders holding a majority of the shares entitled to
vote.
Voting Rights. The Master Trust Agreement of the Trust provides that
special meetings of shareholders for any purpose requiring action by
shareholders under such Master Trust Agreement or the Trust's By-laws shall be
called upon the written request of holders of at least ten percent of the
outstanding shares of the Trust or, as the context may require, a series
thereof. The Master Trust Agreement of the Trust provides in general that
shareholders have the power to vote only on the following matters, each as more
fully described in such Master Trust Agreements: (i) the election or removal of
Trustees as provided in the Master Trust Agreement; (ii) with respect to certain
contracts, such as contracts for investment advisory or management services, to
the extent required as provided in the Master Trust Agreement as a whole; (iii)
with respect to any termination or reorganization of the Trust; (iv) an
amendment of the Master Trust Agreement as provided in the Master Trust
Agreement; (v) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust, any Sub-Trust thereof or its stockholders; and (vi) with
respect to such additional matters relating to the Trust as may be
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<PAGE>
required by the 1940 Act, the Master Trust Agreement, the By-laws or any
registration of the Trust with the Securities and Exchange Commission (or any
successor agency) or any state, or as the Trustees may consider necessary or
desirable. Certain of the foregoing matters will involve separate votes of one
or more series of a Trust, while others will require a vote of the Trust's
shareholders as a whole.
Shareholder Liability. Under Massachusetts law, shareholders of a
Massachusetts business trust could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the Master Trust
Agreement of the Trust disclaims shareholder liability for acts or obligations
of the Trust. The Master Trust Agreement of the Trust provides for
indemnification, under certain circumstances, out of Trust property for all
losses and expenses of any shareholder held personally liable by virtue of his
status as such, and not because of such shareholder's acts or omissions or for
some other reason, for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered by the Trust to be remote since it is limited to circumstances in
which a disclaimer is inoperative and the Trust itself would be unable to meet
its obligations.
Liability of Trustees and Officers. Under the Master Trust Agreement of
the Trust, Trustees and officers will be indemnified, under certain
circumstances, for all liabilities, including the expenses of litigation,
against them unless their conduct is determined to constitute willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties,
such determination to be based upon the outcome of a court action or
administrative proceeding or a reasonable determination, following a review of
the facts, by (a) a vote of a majority of a quorum of the Trustees who are
neither "interested persons" of the Trust as defined in the 1940 Act nor parties
to the proceeding or (b) an independent legal counsel in a written opinion. The
Trust may also advance money for these expenses provided that the Trustee or
officer undertakes to repay the Trust if his or her conduct is later determined
to preclude indemnification and certain other conditions are met. It should be
noted that it is the view of the staff of the Securities and Exchange Commission
that to the extent that any provisions such as those described above are
inconsistent with the 1940 Act including Section 17 thereof, the provisions of
the 1940 Act are preemptive.
The foregoing is only a summary of certain of the provisions of the
Trust's Master Trust Agreement and By-laws. Shareholders should refer directly
to the provisions of the Master Trust Agreement and By-laws for their full text.
MANAGEMENT
The investment manager for each of the Funds is State Street Research &
Management Company. The Investment Manager is charged with the overall
responsibility for managing the investments and business affairs of the Funds,
subject to the authority of the Board of Trustees. As of June 30, 1995, the
Investment Manager had assets of approximately $26.2 billion under management.
24
<PAGE>
The portfolio manager for the Tax-Exempt Fund is Susan W. Drake. Ms.
Drake has managed the Tax-Exempt Fund since 1990. Ms. Drake's principal
occupation currently is Vice President of State Street Research & Management
Company. During the past five years, she has also served as a securities analyst
for State Street Research & Management Company.
The portfolio managers for the Pennsylvania Tax-Free Fund are Ms. Drake
and Paul J. Clifford. Ms. Drake and Mr. Clifford have managed the Pennsylvania
Tax-Free Fund since the commencement of operations in August 1993. Mr.
Clifford's principal occupation currently is Vice President of State Street
Research & Management Company. During the past five years, he has also served as
a securities analyst for State Street Research & Management Company.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Information about the Tax-Exempt Fund is included in its current
Prospectus dated May 1, 1995, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Tax-Exempt
Fund is included in the Fund's Statement of Additional Information dated May 1,
1995. This Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated by reference herein.
Copies of this Statement may be obtained without charge by writing to State
Street Research Tax-Exempt Fund, One Financial Center, Boston, Massachusetts
02111, or by calling (800) 562-0032.
Information about the Pennsylvania Tax-Free Fund is included in its
current Prospectus dated May 1, 1995, which is incorporated by reference herein.
Additional information about the Pennsylvania Tax-Free Fund is included in the
Fund's Statement of Additional Information dated May 1, 1995. This Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated by reference herein. Copies of this Statement may
be obtained without charge by writing to State Street Research Pennsylvania
Tax-Free Fund, One Financial Center, Boston, Massachusetts 02111 or by calling
(800) 562-0032.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, and in accordance therewith
files proxy material, reports and other information with the Securities and
Exchange Commission. These reports can be inspected and copied at the Public
Reference Facilities maintained by the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the
following regional offices: New York Regional Office, 75 Park Place, Room 1228,
New York, NY 10007; and Chicago Regional Office, Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago IL 60661. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington DC 20549 at prescribed rates.
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VOTING INFORMATION
Any shareholder who has given a proxy has the right to revoke it at any
time prior to its exercise by attending the Meeting and voting his or her shares
in person or by submitting a written notice of revocation or a later-dated proxy
to the Trust at the address of the Trust set forth on the cover page of this
Joint Proxy Statement/Prospectus prior to the date of the Meeting. Shareholders
of record of the Pennsylvania Tax-Free Fund at the close of business on October
13, 1995 (the "Record Date") will be entitled to notice of, and to vote at, the
Meeting of the Fund or to vote at any adjournments thereof. This Joint Proxy
Statement/Prospectus, proxies and accompanying Notice of Meeting were first sent
or given to shareholders of the Funds on or about October 20, 1995.
As of the Record Date, there were approximately 766,850, 510,793, 368,303
and 109,573 issued and outstanding Class A, Class B, Class C and Class D shares,
respectively, of the Pennsylvania Tax-Free Fund. Each share of such Fund is
entitled to one vote, with a proportionate vote for each fractional share.
If the enclosed proxy is properly executed and returned in time to be
voted at the Meeting, the shares represented thereby will be voted in accordance
with the instructions on the proxy. Unless instructions to the contrary are
marked thereon, the proxy will be voted for the proposal described herein and,
in the discretion of the persons named herein as proxies, to take such further
action as they may determine appropriate in connection with any other matter
which may properly come before the Meeting or any adjournments thereof. The
Board of Trustees does not currently know of any matter to be considered at the
Meeting other than the proposal to approve the Plan of Reorganization.
The affirmative vote of the holders of a majority of the outstanding
voting shares of the Pennsylvania Tax-Free Fund (within the meaning of the 1940
Act), voting together as a single class, is required to approve the Plan of
Reorganization on behalf of such Fund. Under the 1940 Act, the vote of a
majority of the outstanding voting shares means the vote of the lesser of (a)
67% or more of the voting shares of the Fund, voting together as a single class,
present at the Meeting, if the holders of more than 50% of the outstanding
voting shares are present or represented by proxy, or (b) more than 50% of the
outstanding voting shares of the Fund, voting together as a single class.
Approval of the Plan of Reorganization by the shareholders of the Pennsylvania
Tax-Free Fund is a condition of the consummation of the Reorganization. If the
Reorganization is not approved, the Trustees of the Trust will continue the
management of the Pennsylvania Tax-Free Fund and the Tax-Exempt Fund,
respectively, and may consider other alternatives in the best interests of each
Fund's shareholders.
The holders of a majority of the shares entitled to vote of the
Pennsylvania Tax-Free Fund outstanding at the close of business on the Record
Date present in person or represented by proxy constitute a quorum for the
Meeting; however, as noted above, the affirmative vote of a majority of the
voting shares of such Fund, voting together as a single class (within the
meaning of the 1940 Act) is required to approve the Reorganization. In the event
a quorum is not present at the Meeting or in the event a quorum is present at
the Meeting but sufficient votes to approve the Plan of Reorganization are not
received, the persons named as proxies may propose one or more adjournments,
without further notice to shareholders, of the Meeting
26
<PAGE>
to permit further solicitation of proxies provided such persons determine, after
consideration of all relevant factors, including the nature of the proposal, the
percentage of votes then cast, the percentage of negative votes then cast, the
nature of the proposed solicitation activities and the nature of the reasons for
such further solicitation, that an adjournment and additional solicitation is
reasonable and in the interests of shareholders.
For purposes of determining the presence of a quorum for transacting
business at the Meeting and for determining whether sufficient votes have been
received for approval of the proposal to be acted upon at the Meeting,
abstentions and broker "non-votes" (that is, proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote shares on a particular matter with
respect to which the brokers or nominees do not have discretionary power) will
be treated as shares that are present at the Meeting, but which have not been
voted. For this reason, abstentions and broker non-votes will assist the
Pennsylvania Tax-Free Fund in obtaining a quorum, but both have the practical
effect of a "no" vote for purposes of obtaining the requisite vote for approval
of the proposals to be acted upon at the Meeting.
Expenses of the Reorganization will be apportioned between the Distributor
and the Funds in a fair and equitable manner. Expenses will be allocated to the
Tax-Exempt Fund and the Pennsylvania Tax-Free Fund in an appropriate manner on
the basis of identifiable direct costs or otherwise on the basis of relative net
assets and the Distributor will assume one-half of each Fund's assets. Such
expenses include costs of preparing, printing and mailing the enclosed proxy,
accompanying notice and Joint Proxy Statement/Prospectus and all other costs in
connection with solicitation of proxies, including any additional solicitation
by letter, telephone or telegraph. In addition to solicitation of proxies by
mail, officers of the Trust and officers and regular employees of the Investment
Manager, affiliates of the Investment Manager, or other representatives of the
Trust may also solicit proxies by telephone or telegram or in person. A proxy
solicitation firm may also be retained to assist in any special, personal
solicitation of proxies. The costs of retaining such a firm is not expected to
exceed $12,000.
THE TRUSTEES OF THE TRUST, INCLUDING THE INDEPENDENT TRUSTEES OF THE
TRUST, RECOMMEND APPROVAL OF THE PLAN OF REORGANIZATION.
DISSENTERS' RIGHTS
Neither the Master Trust Agreement of the Trust nor Massachusetts law
grants the shareholders of the Pennsylvania Tax-Free Fund any rights in the
nature of dissenters' rights of appraisal with respect to any action upon which
such shareholders may be entitled to vote; however, the normal right of mutual
fund shareholders to redeem their shares is not affected by the proposed
Reorganization.
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EXPERTS
The financial statements of the Tax-Exempt Fund and the Pennsylvania
Tax-Free Fund for the fiscal year ended December 31, 1994 included in each
Fund's Statement of Additional Information have been incorporated herein by
reference in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing. Certain legal matters with respect to the issuance of the shares of
the Trust will be passed upon by Goodwin, Procter & Hoar, Boston, Massachusetts.
OTHER MATTERS
The Board of Trustees does not intend to present any other business at the
Meeting, nor are they aware that any shareholder intends to do so. If, however,
any other matters are properly brought before the Meeting, the persons named in
the accompanying proxy will vote thereon in accordance with their judgment.
NO ANNUAL MEETING OF SHAREHOLDERS
There will be no annual or further special meetings of shareholders of the
Funds unless required by applicable law or called by the Trustees of such Fund
in their discretion. In accordance with the 1940 Act, or under the Trust's
Master Trust Agreement, as amended, any Trustee may be removed (i) by a written
instrument, signed by at least two-thirds of the number of Trustees in office
immediately prior to such removal, specifying the date upon which such removal
shall become effective; (ii) by a vote of shareholders holding not less than
two-thirds of the shares of the Trust then outstanding, cast in person or by
proxy at a meeting called for the purpose or (iii) by a written declaration
signed by shareholders holding not less than two-thirds of the shares then
outstanding and filed with the Trust's custodian. Shareholders holding 10% or
more of the shares of the Trust then outstanding can require that the Trustees
call a meeting of shareholders for the purpose of voting on the removal of one
or more Trustees. In addition, if ten or more shareholders who have been such
for at least six months and who hold in the aggregate shares with a net asset
value of at least $25,000 or at least 1% of the outstanding Fund shares, inform
the Trustees that they wish to communicate with other shareholders, the Trustees
will either give such shareholders access to the shareholder list or inform them
of the cost involved if the Fund forwards material to shareholders on their
behalf. If the Trustees object to mailing such materials, they must inform the
Securities and Exchange Commission and thereafter comply with the requirements
of the 1940 Act.
Shareholders wishing to submit proposals for inclusion in a proxy
statement for a subsequent shareholder meeting should send their written
proposals to the Secretary of the State Street Research Tax-Exempt Trust, One
Financial Center, 31st Floor, Boston, Massachusetts 02111. Shareholder proposals
should be received in a reasonable time before the solicitation is made.
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WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE FILL IN, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS NECESSARY IF IT IS MAILED IN THE UNITED STATES.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of
October 13, 1995 by and between State Street Research Tax-Exempt Trust, a
Massachusetts business trust (the "Tax-Exempt Trust"), on behalf of the State
Street Research Pennsylvania Tax-Free Fund series of the Tax-Exempt Trust (the
"Pennsylvania Tax-Free Fund") and the Tax-Exempt Trust on behalf of the State
Street Research Tax-Exempt Fund series of the Tax-Exempt Trust (the "Tax-Exempt
Fund").
W I T N E S S E T H:
WHEREAS, the Tax-Exempt Trust is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended, such reorganization to consist of the
transfer of all of the assets of the Pennsylvania Tax-Free Fund in exchange
solely for Class A, Class B, Class C and Class D shares of beneficial interest,
$.001 par value per share, of the Tax-Exempt Fund ("Tax-Exempt Fund Shares") and
the assumption by the Tax-Exempt Fund of all of the liabilities of the
Pennsylvania Tax-Free Fund and the distribution, after the Closing hereinafter
referred to, of Tax-Exempt Fund Shares to the shareholders of the Pennsylvania
Tax-Free Fund in liquidation of the Pennsylvania Tax-Free Fund, all upon the
terms and conditions hereinafter set forth in this Agreement (collectively, the
"Reorganization"); and
WHEREAS, the Trustees of the Tax-Exempt Trust, including a majority of the
Trustees and the Trustees who are not interested persons, have determined that
participating in the transactions contemplated by this Agreement is in the best
interests of each of the Funds.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
1. Transfer of Assets. Subject to the terms and conditions set forth
herein, at the closing provided for in Section 5 (herein referred to as the
"Closing") the Tax-Exempt Trust on behalf of the Pennsylvania Tax-Free Fund
shall transfer all of the assets of the Pennsylvania Tax-Free Fund, and assign
all Assumed Liabilities (as hereinafter defined) to the Tax-Exempt Fund, and the
Tax-Exempt Trust on behalf of the Tax-Exempt Fund shall acquire all such assets,
and shall assume all such Assumed Liabilities (as hereinafter defined), upon
delivery to the Tax-Exempt Trust on behalf of the Pennsylvania Tax-Free Fund of
Tax-Exempt Fund Shares having a net asset value equal to the value of the net
assets of the Pennsylvania Tax-Free Fund transferred (the "New Shares").
"Assumed Liabilities" shall mean all liabilities, including all expenses, costs,
charges and reserves reflected in an unaudited statement of assets and
liabilities of the Pennsylvania Tax-Free Fund as of the close of business on the
Valuation Date (as hereinafter defined), determined in accordance with generally
accepted accounting principles consistently applied from the prior audited
period. The net asset value of the New Shares and the value of the net assets of
the Pennsylvania Tax-Free Fund to be transferred shall be determined as of the
close of regular trading on the New York Stock Exchange on the business day next
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preceding the Closing (the "Valuation Date") using the valuation procedures set
forth in the then current prospectus and statement of additional information of
the Tax-Exempt Fund. All Assumed Liabilities of the Pennsylvania Tax-Free Fund,
to the extent that they exist at or after the Closing, shall after the Closing
attach to the Tax-Exempt Fund and may be enforced against the Tax-Exempt Fund to
the same extent as if the same had been incurred by the Tax-Exempt Fund.
2. Liquidation of the Pennsylvania Tax-Free Fund. At or as soon as
practicable after the Closing, the Pennsylvania Tax-Free Fund will be liquidated
and the New Shares delivered to the Tax-Exempt Trust on behalf of the
Pennsylvania Tax-Free Fund will be distributed to shareholders of the
Pennsylvania Tax-Free Fund, each shareholder to receive the number of New Shares
of the corresponding class and equal to the pro rata portion of shares of
beneficial interest of the Pennsylvania Tax-Free Fund held by such shareholder
as of the close of business on the Valuation Date. Such liquidation and
distribution will be accompanied by the establishment of an open account on the
share records of the Tax-Exempt Fund in the name of each shareholder of the
Pennsylvania Tax-Free Fund and representing the respective pro rata number of
New Shares due such shareholder. As soon as practicable after the Closing, the
Tax-Exempt Trust shall file on behalf of the Pennsylvania Tax-Free Fund such
instruments of dissolution, if any, as are necessary to effect the dissolution
of the Pennsylvania Tax-Free Fund and shall take all other steps necessary to
effect a complete liquidation and dissolution of the Pennsylvania Tax-Free Fund.
As of the Closing, each outstanding certificate which, prior to the Closing,
represented shares of the Pennsylvania Tax-Free Fund will be deemed for all
purposes to evidence ownership of the number of Tax-Exempt Fund Shares issuable
with respect thereto pursuant to the Reorganization. After the Closing,
certificates originally representing shares of Class A or Class C of the
Pennsylvania Tax-Free Fund will be rendered null and void and nonnegotiable;
upon special request and surrender of such certificates to State Street Bank and
Trust Company as transfer agent, holders of these nonnegotiable certificates
shall be entitled to receive certificates representing the number of Tax-Exempt
Fund Shares issuable with respect thereto. All Class B and Class D shares of
record of the Tax-Exempt Fund are held in book entry form and no certificates
for such shares will be issued.
3. Representations and Warranties.
(a) The Tax-Exempt Trust, on behalf of the Pennsylvania Tax-Free
Fund, hereby represents and warrants to the Tax-Exempt Fund as follows:
(i) the Tax-Exempt Trust is duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has full power and authority to conduct its business
as presently conducted;
(ii) the Tax-Exempt Trust has full power and authority to
execute, deliver and carry out the terms of this Agreement on behalf of
the Pennsylvania Tax-Free Fund;
(iii) the execution and delivery of this Agreement on behalf of
the Pennsylvania Tax-Free Fund and the consummation of the transactions
contemplated hereby are duly authorized and no other proceedings on the
part of the Tax-Exempt Trust or the shareholders of the Pennsylvania
Tax-Free Fund (other than as contemplated in Section 4(h)) are necessary
to authorize this Agreement and the transactions contemplated hereby;
A-2
<PAGE>
(iv) this Agreement has been duly executed by the Tax-Exempt
Trust on behalf of the Pennsylvania Tax-Free Fund and constitutes its
valid and binding obligation, enforceable in accordance with its terms,
subject to applicable bankruptcy, reorganization, insolvency, moratorium
and other rights affecting creditors' rights generally, and general
equitable principles;
(v) neither the execution and delivery of this Agreement by the
Tax-Exempt Trust on behalf of the Pennsylvania Tax-Free Fund, nor the
consummation by the Tax-Exempt Trust on behalf of the Pennsylvania
Tax-Free Fund of the transactions contemplated hereby will conflict with,
result in a breach or violation of or constitute (or with notice, lapse of
time or both constitute) a breach of or default under, the Master Trust
Agreement or By-Laws of the Tax-Exempt Trust, or any statute, regulation,
order, judgment or decree, or any instrument, contract or other agreement
to which the Tax-Exempt Trust is a party or by which the Tax-Exempt Trust
or any of its assets is subject or bound; and
(vi) no authorization, consent or approval of any governmental
or other public body or authority or any other party is necessary for the
execution and delivery of this Agreement by the Tax-Exempt Trust on behalf
of the Pennsylvania Tax-Free Fund or the consummation of any transactions
contemplated hereby by the Tax-Exempt Trust, other than as shall be
obtained at or prior to the Closing.
(b) The Tax-Exempt Trust, on behalf of the Tax-Exempt Fund, hereby
represents and warrants to the Pennsylvania Tax-Free Fund as follows:
(i) The Tax-Exempt Trust is duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has full power and authority to conduct its business
as presently conducted;
(ii) The Tax-Exempt Trust has full power and authority to
execute, deliver and carry out the terms of this Agreement on behalf of
the Tax-Exempt Fund;
(iii) the execution and delivery of this Agreement on behalf of
the Tax-Exempt Fund and the consummation of the transactions contemplated
hereby are duly authorized and no other proceedings on the part of the
Tax-Exempt Trust or the shareholders of the Tax-Exempt Fund are necessary
to authorize this Agreement and the transactions contemplated hereby;
(iv) this Agreement has been duly executed by the Tax-Exempt
Trust on behalf of the Tax-Exempt Fund and constitutes its valid and
binding obligation, enforceable in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and other
rights affecting creditors' rights generally, and general equitable
principles;
(v) neither the execution and delivery of this Agreement by the
Tax-Exempt Trust on behalf of the Tax-Exempt Fund, nor the consummation by
the Tax-Exempt Trust on behalf of the Tax-Exempt Fund of the transaction
contemplated hereby will conflict with, result in a breach or violation of
or constitute (or with notice, lapse of time or both constitute) a breach
of or default under, the Master Trust Agreement or By-Laws of the
A-3
<PAGE>
Tax-Exempt Trust, or any statute, regulation, order, judgment or decree,
or any instrument, contract or other agreement to which the Tax-Exempt
Trust is a party or by which the Tax-Exempt Trust or any of its assets is
subject or bound; and
(vi) no authorization, consent or approval of any
governmental or other public body or authority or any other party is
necessary for the execution and delivery of this Agreement by the
Tax-Exempt Trust on behalf of the Tax-Exempt Fund or the consummation
of any transactions contemplated hereby by the Tax-Exempt Trust, other
than as shall be obtained at or prior to the Closing.
4. Conditions Precedent. The obligations of the Tax-Exempt Trust on
behalf of the Pennsylvania Tax-Free Fund and the Tax-Exempt Trust on behalf of
the Tax-Exempt Fund to effectuate the plan of reorganization and liquidation
hereunder shall be subject to the satisfaction of the following conditions:
(a) At or immediately prior to the Closing, the Tax-Exempt Trust
shall have declared and paid a dividend or dividends which, together with all
previous such dividends, shall have the effect of distributing to the
shareholders of the Pennsylvania Tax-Free Fund all of such Fund's investment
company taxable income for taxable years ending at or prior to the Closing
(computed without regard to any deduction for dividends paid) and all of its net
capital gain, if any, realized in taxable years ending at or prior to the
Closing (after reduction for any capital loss carry-forward).
(b) A registration statement of the Tax-Exempt Fund on Form N-14
under the Securities Act of 1933, as amended (the "Securities Act"), registering
the New Shares under the Securities Act, and such amendment or amendments
thereto as are determined by the Board of Trustees of the Tax-Exempt Trust to be
necessary and appropriate to effect such registration of the New Shares (the
"Registration Statement"), shall have been filed with the Commission and the
Registration Statement shall have become effective, and no stop-order suspending
the effectiveness of such Registration Statement shall have been issued, and no
proceeding for that purpose shall have been initiated or threatened by the
Commission (and not withdrawn or terminated);
(c) The New Shares shall have been duly qualified for offering
to the public in all states in which such qualification is required for
consummation of the transactions contemplated hereunder;
(d) All representations and warranties of the Tax-Exempt Trust on
behalf of the Pennsylvania Tax-Free Fund contained in this Agreement shall be
true and correct in all material respects as of the date hereof and as of the
Closing, with the same force and effect as if then made, and the Tax-Exempt
Trust on behalf of the Tax-Exempt Fund shall have received a certificate of an
officer of the Tax-Exempt Trust acting on behalf of the Pennsylvania Tax-Free
Fund to that effect in form and substance reasonably satisfactory to the
Tax-Exempt Trust on behalf of the Tax-Exempt Fund;
(e) All representations and warranties of the Tax-Exempt Trust on
behalf of the Tax-Exempt Fund contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of the Closing,
with the same force and effect as if then made, and the Tax-Exempt Trust on
behalf of the Pennsylvania Tax-Free Fund shall have received a certificate of an
officer of the Tax-Exempt Trust acting on behalf of the Tax-Exempt Fund to that
A-4
<PAGE>
effect in form and substance reasonably satisfactory to the Tax-Exempt Trust on
behalf of the Pennsylvania Tax-Free Fund;
(f) The Tax-Exempt Trust on behalf of the Pennsylvania Tax-Free Fund
and the Tax-Exempt Trust on behalf of the Tax-Exempt Fund shall have received an
opinion from Goodwin, Procter & Hoar regarding tax matters in connection with
the Reorganization;
(g) The Tax-Exempt Trust on behalf of the Tax-Exempt Fund shall have
received an agreed upon procedures report, in accordance with established
accounting standards for such reports, of Price Waterhouse LLP, auditors for the
Tax-Exempt Trust, as to the unaudited statement of assets and liabilities
described in Section 1 of this Agreement; and
(h) A vote approving this Agreement and the Reorganization
contemplated hereby shall have been adopted by at least a majority of the
outstanding Class A, Class B, Class C and Class D shares of beneficial interest
of the Pennsylvania Tax-Free Fund (within the meaning of the 1940 Act), voting
together as a single class, entitled to vote at the special meeting of
shareholders of the Pennsylvania Tax-Free Fund duly called for such purpose.
(i) The Funds shall have received from the Commission an order
approving the Funds' application pursuant to Section 17(b) of the 1940 Act for
an order exempting the Reorganization from Section 17(a) of the 1940 Act and
pursuant to Rule 17d-1 under the 1940 Act for an order exempting the
Reorganization from Section 17(d) of the1940 Act and Rule 17d-1 thereunder.
5. Closing. The Closing shall be held at the offices of the Tax-Exempt
Trust and shall occur (a) immediately prior to the opening of business on the
first Monday following receipt of all necessary regulatory approvals and the
final adjournment of the meeting of shareholders of the Pennsylvania Tax-Free
Fund at which this Agreement is considered or (b) such later time as the parties
may agree. All acts taking place at the Closing shall be deemed to take place
simultaneously unless otherwise provided. At, or as soon as may be practicable
following the Closing, the Tax-Exempt Fund shall distribute the New Shares to
the Pennsylvania Tax-Free Fund Record Holders (as herein defined) by instructing
the Tax-Exempt Fund to register the appropriate number of New Shares in the
names of the Pennsylvania Tax-Free Fund's shareholders and the Tax-Exempt Fund
agrees promptly to comply with said instruction. The shareholders of record of
the Pennsylvania Tax-Free Fund as of the close of business on the Valuation Date
shall be certified by the Tax-Exempt Trust's transfer agent (the "Pennsylvania
Tax-Free Fund Record Holders").
6. Expenses. The expenses incurred in connection with the transactions
contemplated by this Agreement, whether or not the transactions contemplated
hereby are consummated, will be apportioned between State Street Research
Investment Services, Inc.(the "Distributor"), the distributor for each of the
Funds, and the Funds in a fair and equitable manner. Expenses will be allocated
to the Tax-Exempt Fund and the Pennsylvania Tax-Free Fund in an appropriate
manner on the basis of identifiable direct costs or otherwise on the basis of
relative net assets and the Distributor will assume one-half of each Fund's
expenses. Such expenses include, without limitation, (i) expenses incurred in
connection with the entering into and the carrying out of the provisions of this
Agreement; (ii) expenses associated with the preparation and filing of the
registration statement on Form N-14 contemplated hereby; (iii) registration or
qualification fees and expenses of preparing and filing such forms as are
necessary to qualify the New Shares under applicable blue sky laws; (iv)
postage; (v) printing; (vi) accounting fees; (vii) legal fees; and (viii)
solicitation costs of the transaction.
A-5
<PAGE>
7. Termination. This Agreement and the transactions contemplated hereby
may be terminated and abandoned by resolution of the Board of Trustees of the
Tax-Exempt Trust, at any time prior to the Closing, if circumstances should
develop that, in the opinion of the Board of Trustees, in its sole discretion,
make proceeding with this Agreement inadvisable. In the event of any such
termination, there shall be no liability for damages on the part of either the
Pennsylvania Tax-Free Fund or the Tax-Exempt Fund, or their respective trustees
or officers, to the other party or its trustees or officers.
8. Amendments. This Agreement may be amended, waived or
supplemented in such manner as may be mutually agreed upon in writing by the
authorized officers of the Tax-Exempt Trust acting on behalf of the
Pennsylvania Tax-Free Fund and by the authorized officers of the Tax-Exempt
Trust acting on behalf of the Tax-Exempt Fund; provided, however, that
following the meeting of the Pennsylvania Tax-Free Fund shareholders called
by the Tax-Exempt Trust pursuant to Section 4(h) of this Agreement, no such
amendment, waiver or supplement may have the effect of changing the
provisions for determining the number of Tax-Exempt Fund Shares to be issued
to the Pennsylvania Tax-Free Fund shareholders under this Agreement to the
detriment of such shareholders without their further approval.
9. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts, except as to
matters of conflicts of laws.
10. Further Assurances. The Tax-Exempt Trust shall take such further
action, prior to, at, and after the Closing, as may be necessary or desirable
and proper to consummate the transactions contemplated hereby.
11. Limitations of Liability. The term "Tax-Exempt Trust" means and refers
to the trustees from time to time serving under the Master Trust Agreement of
the Tax-Exempt Trust, as the same may subsequently thereto have been, or
subsequently hereto be, amended. It is expressly agreed that the obligations of
the Tax-Exempt Trust hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Tax-Exempt Trust,
personally, but bind only the assets and property of the Pennsylvania Tax-Free
Fund series of the Tax-Exempt Trust and the Tax-Exempt Fund series of the
Tax-Exempt Trust, as the case may be, as provided in the Master Trust Agreement
of the Tax-Exempt Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Tax-Exempt Trust and signed by an authorized
officer of the Tax-Exempt Trust, acting as such, and neither such authorization
nor such execution and delivery shall be deemed to have been made individually
or to impose any personal liability, but shall bind only the trust property of
the Tax-Exempt Trust as provided in its Master Trust Agreement. The Master Trust
Agreement of the Tax-Exempt Trust provides, and it is expressly agreed, that
each Sub-Trust of the Tax-Exempt Trust shall be charged with the liabilities in
respect of that Sub-Trust and all expenses, costs, charges or reserves belonging
to that Sub-Trust.
A-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above by their duly authorized
representatives.
STATE STREET RESEARCH TAX-EXEMPT TRUST, on
behalf of its State Street Research
Pennsylvania Tax-Free Fund series
Attest:
By:
/s/ Francis J. McNamara, III /s/ Gerard P. Maus
- ---------------------------- ----------------------------
Francis J. McNamara, III Gerard P. Maus
Secretary Treasurer
ATTEST: STATE STREET RESEARCH TAX-EXEMPT TRUST,
on behalf of its State Street Research
Tax-Exempt Fund series
By:
/s/ Francis J. McNamara, III /s/ Ralph F. Verni
- ---------------------------- ------------------------------
Francis J. McNamara, III Ralph F. Verni
Secretary Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
STATE STREET RESEARCH CALIFORNIA TAX-FREE FUND
a series of
STATE STREET RESEARCH TAX-EXEMPT TRUST
PROXY
Special Meeting of Shareholders - December 12, 1995
The undersigned hereby appoints Francis J. McNamara, III, Ralph F.
Verni and Darman A. Wing, and each of them, as proxies with full power of
substitution to act for and vote on behalf of the undersigned all shares of
State Street Research California Tax-Free Fund, a portfolio series of State
Street Research Tax-Exempt Trust, which the undersigned would be entitled to
vote if personally present at the Special Meeting of Shareholders of such Fund
to be held at the principal offices of the Trust, One Financial Center, 31st
Floor, Boston, Massachusetts 02111, at 2:00 local time on December 12, 1995, or
at any adjournments thereof, on the following items as set forth in the Notice
of Special Meeting of Shareholders and the accompanying Joint Proxy
Statement/Prospectus.
If a choice is specified for the proposal, this proxy will be voted as
indicated. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
In their discretion the proxies are authorized to vote upon such other business
as may properly come before the Meeting. The Board of Trustees recommends a vote
FOR the proposal.
The undersigned acknowledges receipt of the Notice of Special Meeting
and the accompanying Joint Proxy Statement/Prospectus dated October 16, 1995.
PLEASE INDICATE ANY CHANGE OF ADDRESS ON THE REVERSE SIDE. This proxy may be
revoked at any time prior to the exercise of the powers conferred thereby.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- -------------------------------------------------------------------------------
SEE REVERSE SIDE
- -------------------------------------------------------------------------------
1
<PAGE>
With respect to State Street Research California Tax-Free Fund (the "California
Tax-Free Fund"):
1. To approve an Agreement and Plan of Reorganization and Liquidation
providing for the transfer of the assets of the California Tax-Free
Fund (subject to its liabilities) to the State Street Research
Tax-Exempt Fund (the "Tax-Exempt Fund") in exchange for Class A, Class
B, Class C and Class D shares of the Tax-Exempt Fund, the distribution
of such shares to shareholders of the California Tax-Free Fund and the
subsequent liquidation and dissolution of the California Tax-Free Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE FOR [ ] MARK HERE IF [ ]
ADDRESS YOU PLAN TO
CHANGE AND ATTEND
NOTE AT LEFT MEETING
IT IS IMPORTANT THAT THIS PROXY BE SIGNED
AND RETURNED IN THE ENCLOSED ENVELOPE.
Note: Please date and sign exactly
as name or names appear hereon and
return in the enclosed envelope,
which requires no postage if mailed
in the United States. When signing
as attorney, executor, trustee,
guardian or officer of a corporation,
please give title as such.
Signature:_________________________ Date: ____________
Signature:_________________________ Date: ____________
197909.c1
2
<PAGE>
STATE STREET RESEARCH FLORIDA TAX-FREE FUND
a series of
STATE STREET RESEARCH TAX-EXEMPT TRUST
PROXY
Special Meeting of Shareholders - December 12, 1995
The undersigned hereby appoints Francis J. McNamara, III, Ralph F.
Verni and Darman A. Wing, and each of them, as proxies with full power of
substitution to act for and vote on behalf of the undersigned all shares of
State Street Research Florida Tax-Free Fund, a portfolio series of State Street
Research Tax-Exempt Trust, which the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders of such Fund to be
held at the principal offices of the Trust, One Financial Center, 31st Floor,
Boston, Massachusetts 02111, at 3:00 local time on December 12, 1995, or at any
adjournments thereof, on the following items as set forth in the Notice of
Special Meeting of Shareholders and the accompanying Joint Proxy
Statement/Prospectus.
If a choice is specified for the proposal, this proxy will be voted as
indicated. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
In their discretion the proxies are authorized to vote upon such other business
as may properly come before the Meeting. The Board of Trustees recommends a vote
FOR the proposal.
The undersigned acknowledges receipt of the Notice of Special Meeting
and the accompanying Joint Proxy Statement/Prospectus dated October 16, 1995.
PLEASE INDICATE ANY CHANGE OF ADDRESS ON THE REVERSE SIDE. This proxy may be
revoked at any time prior to the exercise of the powers conferred thereby.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- -------------------------------------------------------------------------------
SEE REVERSE SIDE
- -------------------------------------------------------------------------------
1
<PAGE>
With respect to State Street Research Florida Tax-Free Fund (the "Florida
Tax-Free Fund"):
1. To approve an Agreement and Plan of Reorganization and Liquidation
providing for the transfer of the assets of the Florida Tax-Free Fund
(subject to its liabilities) to the State Street Research Tax-Exempt
Fund (the "Tax-Exempt Fund") in exchange for Class A, Class B, Class C
and Class D shares of the Tax-Exempt Fund, the distribution of such
shares to shareholders of the Florida Tax-Free Fund and the subsequent
liquidation and dissolution of the Florida Tax-Free Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE FOR [ ] MARK HERE IF [ ]
ADDRESS YOU PLAN TO
CHANGE AND ATTEND
NOTE AT LEFT MEETING
IT IS IMPORTANT THAT THIS PROXY BE SIGNED
AND RETURNED IN THE ENCLOSED ENVELOPE.
Note: Please date and sign exactly
as name or names appear hereon and
return in the enclosed envelope,
which requires no postage if mailed
in the United States. When signing
as attorney, executor, trustee,
guardian or officer of a corporation,
please give title as such.
Signature:_________________________ Date: ____________
Signature:_________________________ Date: ____________
203922.c1
2
<PAGE>
STATE STREET RESEARCH PENNSYLVANIA TAX-FREE FUND
a series of
STATE STREET RESEARCH TAX-EXEMPT TRUST
PROXY
Special Meeting of Shareholders - December 12, 1995
The undersigned hereby appoints Francis J. McNamara, III, Ralph F.
Verni and Darman A. Wing, and each of them, as proxies with full power of
substitution to act for and vote on behalf of the undersigned all shares of
State Street Research Pennsylvania Tax-Free Fund, a portfolio series of State
Street Research Tax-Exempt Trust, which the undersigned would be entitled to
vote if personally present at the Special Meeting of Shareholders of such Fund
to be held at the principal offices of the Trust, One Financial Center, 31st
Floor, Boston, Massachusetts 02111, at 4:00 local time on December 12, 1995, or
at any adjournments thereof, on the following items as set forth in the Notice
of Special Meeting of Shareholders and the accompanying Joint Proxy
Statement/Prospectus.
If a choice is specified for the proposal, this proxy will be voted as
indicated. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
In their discretion the proxies are authorized to vote upon such other business
as may properly come before the Meeting. The Board of Trustees recommends a vote
FOR the proposal.
The undersigned acknowledges receipt of the Notice of Special Meeting
and the accompanying Joint Proxy Statement/Prospectus dated October 16, 1995.
PLEASE INDICATE ANY CHANGE OF ADDRESS ON THE REVERSE SIDE. This proxy may be
revoked at any time prior to the exercise of the powers conferred thereby.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- -------------------------------------------------------------------------------
SEE REVERSE SIDE
- -------------------------------------------------------------------------------
1
<PAGE>
With respect to State Street Research Pennsylvania Tax-Free Fund (the
"Pennsylvania Tax-Free Fund"):
1. To approve an Agreement and Plan of Reorganization and Liquidation
providing for the transfer of the assets of the Pennsylvania Tax-Free
Fund (subject to its liabilities) to the State Street Research
Tax-Exempt Fund (the "Tax-Exempt Fund") in exchange for Class A, Class
B, Class C and Class D shares of the Tax-Exempt Fund, the distribution
of such shares to shareholders of the Pennsylvania Tax-Free Fund and
the subsequent liquidation and dissolution of the Pennsylvania Tax-Free
Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE FOR [ ] MARK HERE IF [ ]
ADDRESS YOU PLAN TO
CHANGE AND ATTEND
NOTE AT LEFT MEETING
IT IS IMPORTANT THAT THIS PROXY BE SIGNED
AND RETURNED IN THE ENCLOSED ENVELOPE.
Note: Please date and sign exactly
as name or names appear hereon and
return in the enclosed envelope,
which requires no postage if mailed
in the United States. When signing
as attorney, executor, trustee,
guardian or officer of a corporation,
please give title as such.
Signature:_________________________ Date: ____________
Signature:_________________________ Date: ____________
203925.c1
2
