[front cover]
[State Street logo]
STATE STREET RESEARCH
NEW YORK TAX-FREE FUND
ANNUAL REPORT
December 31, 1995
WHAT'S INSIDE
From the Chairman:
1995: An outstanding
year for investors
Portfolio Manager's Review:
A strong year for
municipal bonds
Fund Information:
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
<PAGE>
FROM THE CHAIRMAN
[photo of Ralph F. Verni]
To Our Shareholders:
We have reluctantly bid farewell to 1995, an outstanding year for most of our
investors. Stocks and bonds achieved their best results in many years. 1995
offered a uniquely positive combination of moderate economic growth, low
inflation, falling interest rates, and strong corporate profits.
Looking ahead
We are cautiously optimistic about 1996. There are several positive signs.
Inflation and interest rates remain low and the economy may be able to
sustain modest growth. On January 31, the Federal Reserve lowered short-term
interest rates by one-quarter point. This was the Fed's second interest-rate
cut in less than two months.
Benefits of professional management
1996 may be a year in which the benefits of professional management will be
more evident than ever. It can be reassuring to know that an experienced
portfolio manager is working on your behalf, paying close attention to market
conditions and economic indicators. We appreciate your trust.
Top-rated service
We work extremely hard to provide the highest-quality service to
shareholders. Recently, State Street Research received two prestigious awards
from Dalbar, an organization that rates mutual fund companies for their
service. We were one of only seven firms to receive the Dalbar Quality Tested
Service Seal, which recognizes leaders in all key service areas. Dalbar also
awarded us Dalbar Key Honors, recognizing our service quality in written and
telephone communications to shareholders.
Best wishes for a successful 1996.
Sincerely,
/s/Ralph F. Verni
Ralph F. Verni
Chairman
January 31, 1996
(1)+14.26% for Class B shares; +15.37% for Class C shares; +14.25% for Class
D shares.
(2)Investment results are based on an assumed $10,000 investment at "A" share
maximum sales charge of 4.5%; thus, the net amount invested was $9,550. Also
assumes reinvestment of capital gain distributions and income dividends. No
adjustment has been made for income taxes payable by shareholders on income
dividends or capital gain distributions.
(3)All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate, and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Performance for a class includes periods
prior to the adoption of class designations. "C" shares, offered without a
sales charge, are available only to certain employee benefit plans and
institutions. Performance prior to class designations in 1993 does not
reflect annual 12b-1 fees of .25% for "A" shares and 1% for "B" or "D"
shares, which will reduce subsequent performance.
(4)Performance reflects up to maximum 4.5% front-end or 5% contingent
deferred sales charges.
(5)Cumulative total returns are not annualized, nor do they reflect sales
charges, which, if reflected, would reduce performance.
(6)A small portion of the Fund's income may be subject to federal, state and
local tax and/or alternative minimum tax; investors should consult their tax
adviser.
Please note that the discussion throughout this shareholder report is dated
as indicated and because of possible changes in viewpoint, data, and
transactions, should not be relied upon as being current thereafter.
FUND INFORMATION (all data are for periods ended December 31, 1995)
Total value of $10,000 invested at Fund's inception(2)
(Class A shares, at maximum applicable sales charge)
[typeset representation of mountain chart]
7/5/89 9550
12/89 9715
12/90 10037
12/91 11431
12/92 12470
12/93 14114
12/94 13262
12/95 15266
[end mountain chart]
SEC Average Annual Compound Rates of Return
(at maximum applicable sales charge)(3,4)
Life of Fund
(since 7/5/89) 5 years 1 year
- -------- --------------- ------------ --------------
Class A +6.72%/+6.15% +7.74%/+7.38% +9.93%/+9.65%
- -------- ------------- ---------- ------------
Class B +7.16%/+6.59% +8.03%/+7.66% +9.26%/+8.97%
- -------- ------------- ---------- ------------
Class C +7.60%/+7.04% +8.90%/+8.54% +15.37%/+15.08%
- -------- ------------- ---------- ------------
Class D +7.16%/+6.59% +8.32%/+7.95% +13.25%/+12.96%
- -------- ------------- ---------- ------------
Cumulative Total Returns
(do not reflect sales charge)(3,5)
Life of Fund
(since 7/5/89) 5 years 1 year
- -------- --------------- ------------ --------------
Class A +59.85%/+54.31% +52.09%/+49.47% +15.11%/+14.82%
- -------- ------------- ---------- ------------
Class B +56.82%/+51.39% +49.21%/+46.63% +14.26%/+13.97%
- -------- ------------- ---------- ------------
Class C +61.04%/+55.54% +53.22%/+50.65% +15.37%/+15.08%
- -------- ------------- ---------- ------------
Class D +56.78%/+51.35% +49.17%/+46.59% +14.25%/+13.96%
- -------- ------------- ---------- ------------
Taxable
Equivalent
Yield
(36% federal
SEC Yield(6) tax bracket)
======== ============= ==============
Class A 4.34%/4.19% 6.78%/6.55%
- -------- ----------- -------------
Class B 3.81%/3.64% 5.95%/5.69%
- -------- ----------- -------------
Class C 4.79%/4.63% 7.48%/7.23%
- -------- ----------- -------------
Class D 3.80%/3.64% 5.94%/5.69%
- -------- ----------- -------------
SEC yield is calculated according to Securities and Exchange Commission
requirements and is based on the net investment income produced for the 30
days ended December 31, 1995. Performance results for the Fund are increased
by the Distributor's voluntary reduction of Fund fees and expenses. In the
previous charts, this first figure reflects expense reduction; the second
shows what results would have been without expense reduction.
<PAGE>
PORTFOLIO MANAGER'S REVIEW
[photo of Paul J. Clifford, Jr.]
Paul J. Clifford, Jr.
Portfolio Manager
Investors in New York Tax-Free Fund were well rewarded in 1995. The Fund rode
the wave of bond market strength, posting attractive returns for the past 12
months. Class A shares of the Fund offered a total return of +15.11% (does
not reflect sales charge).(1) The Fund underperformed its peer category,
Lipper Analytical Services New York Municipal Debt Funds, which provided an
average total return of +16.73% (does not reflect sales charge).
Economic environment helped Fund performance
Throughout 1995, slowing economies both here and overseas, low inflation, and
declining interest rates created a very favorable environment for bond
investing. Yields on long-term U.S. Treasury bonds fell two full percentage
points--a dramatic decline--and bond prices rose. In an effort to keep the
economy from slowing too much, the Federal Reserve Board made two
interest-rate cuts in the final two quarters of the year, which also helped
fuel the bond rally. These factors were instrumental in helping your Fund's
performance.
Municipal bonds experienced their strongest returns since 1986, but didn't
perform quite as well as Treasury bonds, partly because of investors'
concerns over proposed tax reforms.
Management strategy
With a bond fund, one of our most important management decisions is how to
position the fund for changing interest rates. We do this by changing the
fund's duration, which is a measure of a bond fund's sensitivity to the
movement of interest rates. Funds with longer durations perform better in an
environment of falling interest rates. When rates are rising, it is better to
have a shorter duration.
After 1994's rising interest rates, we entered 1995 with a shorter duration
for New York Tax-Free Fund than the market average. As the year progressed
and it became clear the bond market rally was not a short-term trend, we
looked to lengthen the Fund's duration. Because New York municipal bonds were
in short supply in 1995, we were not able to extend duration as much as we
wanted, which negatively affected the Fund's performance.
High-quality portfolio
New York Tax-Free Fund continues to target high-quality bonds. As of December
31, 1995, the bonds in the Fund's portfolio had an average quality of A+.
Insured bonds made up 22% of the portfolio's holdings.
Your Fund's yield
1995's strong performance and decline in interest rates caused New York
Tax-Free Fund's net asset value to rise and its yield to fall. The Fund's
dividend did not change in 1995. However, we were forced to reduce the Fund's
dividend in January (payable in February) by 0.2 cents per share.
Looking ahead
We view the municipal bond market with cautious optimism. There has been no
indication that inflation is on the rise, and interest rates remain low. When
you factor in the effects of taxes, municipal bond yields are very attractive
relative to taxable bond yields. Municipal bonds also offer excellent value
relative to U.S. Treasury bonds.
December 31, 1995
Bond Quality Ratings
(by percentage of net assets)
[typeset representation of pie chart]
A 15%
AA 16%
AAA 26%
BBB 35%
Not rated 8%
[end pie chart]
Quality ratings based on those provided by Standard & Poor's Corp. and/or
equivalent ratings by Moody's Investors Service, Inc.
Top 5 sectors
(by percentage of net assets)
[typeset representation of bar chart]
Lease revenue bonds 22.9%
General obligation bonds 22.6%
Water/sewer bonds 8.8%
Pre-refunded bonds 6.6%
Industrial development and
pollution control bonds 5.9%
Total 66.8%
[end bar chart]
2
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
Investment Portfolio
- -------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------- ---------- ---------- ------------
Principal Maturity Value
Amount Date (Note 1)
- -------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
MUNICIPAL BONDS 101.2%
General Obligation 22.6%
The City of New York, General Obligation Bonds,
Fiscal 1992 Series H, 7.00% $1,500,000 2/01/2005 $ 1,605,270
City of New York, General Obligation Bonds, Fiscal
1995 Series F, 6.375% 2,000,000 2/15/2006 2,083,780
City of Niagara Falls, Niagara County, New York,
Water Treatment Plant Bonds, 1994 (AMT), MBIA
Insured, 8.50% 1,000,000 11/01/2006 1,303,480
County of Onondaga, New York, General Improvement
(Serial) Bonds, 1992, 5.70% 2,000,000 4/01/2007 2,154,800
City of Syracuse, Onondaga County, New York,
Public Improvement Refunding Bonds, Series 1993 A,
5.125% 1,750,000 2/15/2009 1,794,485
State of New York, General Obligation Refunding
Bonds, Series C, 5.25%* 2,750,000 10/01/2012 2,704,652
Town of Brookhaven, Suffolk County, New York,
Public Improvement Bonds, Serial 1995, FGIC
Insured, 5.50% 1,000,000 10/01/2012 1,022,920
City of New York, General Obligation Bonds, Fiscal
1996 Series G, 5.75%+ 2,000,000 2/01/2014 1,966,820
County of Nassau, New York, General Obligation
Refunding Bonds, Series G, MBIA Insured, 5.45% 1,140,000 1/15/2015 1,144,001
Commonwealth of Puerto Rico, General Obligation
Public Improvement Refunding Bonds, Series 1995A,
MBIA Insured, 5.65% 1,000,000 7/01/2015 1,049,680
------------
16,829,888
------------
Certificates of Participation 1.8%
City of Syracuse, New York, (Syracuse Hancock
International Airport), Certificates of
Participation, Series 1992, Subject to AMT, 6.60% $1,185,000 1/01/2006 $ 1,323,278
------------
College & University 5.4%
Dormitory Authority of the State of New York,
Canisius College, Revenue Bonds, Series 1995,
CapMAC Insured, 5.55% 1,550,000 7/01/2014 563,239
Dormitory Authority of the State of New York,
University of Rochester, Strong Memorial Hospital,
Revenue Bonds, Series 1994, MBIA Insured, 5.50% 1,500,000 7/01/2021 1,510,680
Dormitory Authority of the State of New York,
Vassar College, Revenue Bonds, 5.00%+ 2,000,000 7/01/2025 1,925,400
------------
3,999,319
------------
Escrowed Bonds 1.3%
Dormitory Authority of the State of New York,
Judicial Facilities Lease Revenue Bonds, (Suffolk
County Issue) Series 1986, 7.375% 755,000 7/01/2016 943,901
------------
Hospital/Health Care 1.6%
New York State Medical Care Facilities Finance
Agency, Mental Health Services Facilities
Improvement Revenue Bonds, 1990 Series A, 7.75% 230,000 8/15/2010 258,548
New York State Medical Care Facilities Finance
Agency, Mental Health Facilities Revenue Bonds,
1993 Series F, FGIC Insured, 5.25% 1,000,000 2/15/2019 978,970
------------
1,237,518
------------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------- ---------- ---------- ------------
Principal Maturity Value
Amount Date (Note 1)
- -------------------------------------------------- ---------- ---------- ------------
Industrial Development & Pollution Control 5.9%
Herkimer County Industrial Development Agency,
Industrial Development Revenue Bonds, (Burrows
Paper Corporation Solid Waste Disposal Facility),
Series 1993, Subject to AMT, 8.00% $4,000,000 1/01/2009 $ 4,376,320
------------
Lease Revenue 22.9%
Dormitory Authority of the State of New York,
Judicial Facilities Lease Revenue Bonds, (Suffolk
County Issue), Series 1991A, 9.25% 1,500,000 4/15/2006 1,678,725
Dormitory Authority of the State of New York,
State University Educational Facilities, Revenue
Bonds, Series A, 6.50% 2,500,000 5/15/2006 2,747,125
City University of the State of New York (John Jay
College of Criminal Justice) Project Refunding
Bonds, 6.00%+ 1,000,000 8/15/2006 1,047,920
Puerto Rico Public Buildings Authority, Public
Education and Health Facilities Refunding Bonds,
Series M, 5.60% 2,000,000 7/01/2008 2,076,540
Lyons Community Health Initiatives Corp., Facility
Revenue Bonds, Series 1994, 6.55% 500,000 9/01/2009 540,190
New York State Thruway Authority, Service Contract
Revenue Bonds, 6.25% 1,000,000 4/01/2014 1,046,770
Dormitory Authority of the State of New York, City
University Series A, 5.625% 2,500,000 7/01/2016 2,519,700
New York State Urban Development Corp., Project
Revenue Bonds, (Clarkson University Center for
Advanced Materials Processing Loan), 1995
Refunding Series, 5.50% $1,000,000 1/01/2020 $ 988,180
New York State Urban Development Corp., State
Facilities Refunding Project Revenue Bonds, 1995
Refunding Series, 5.70% 3,300,000 4/01/2020 3,351,942
Lyons Community Health Initiatives Corp., (New
York), Facility Revenue Bonds, Series 1994, 6.80% 1,000,000 9/01/2024 1,091,580
------------
17,088,672
------------
Life Care 3.4%
Orange County Industrial Development Agency, (The
Glen Arden, Inc. Project), Life Care Community
Revenue Bonds, Series 1994, 8.25% 1,000,000 1/01/2002 1,038,210
Tompkins County Industrial Development Agency,
Life Care Community Revenue Bonds, 1994 (Kendal at
Ithaca, Inc. Project), 7.70% 1,430,000 6/01/2011 1,487,014
------------
2,525,224
------------
Multi-Family Housing 1.4%
New York State Housing Finance Agency,
Multi-Family Housing Revenue Bonds, (Secured
Mortgage Program), 1992 Series F, Subject to AMT,
6.625% 1,000,000 8/15/2012 1,064,230
------------
Power 2.8%
Power Authority of the State of New York, General
Purpose Bonds, Series W, 6.50% 1,850,000 1/01/2008 2,114,199
------------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
- -------------------------------------------------- ---------- ---------- ------------
Principal Maturity Value
Amount Date (Note 1)
- -------------------------------------------------- ---------- ---------- ------------
Pre-Refunded Bonds 6.6%
City of Syracuse, Onondaga County, New York,
Public Improvement Bonds, 1991, Pre-Refunded to
2/15/2001 @ 102, 6.70% $ 500,000 2/15/2006 $ 562,575
Grand Central District Management Association,
Inc., Grand Central Business Improvement District,
Capital Improvement Bonds, Series 1992,
Pre-Refunded to 1/01/2002 @ 102, 6.50% 1,000,000 1/01/2010 1,127,780
Dormitory Authority of the State of New York,
State University Educational Facilities, Revenue
Bonds, Series 1990A, Pre-Refunded to 5/15/2000 @
102, 7.70% 600,000 5/15/2012 694,206
New York City Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Fiscal 1991
Series C, FGIC Insured, Pre-Refunded to
6/15/2001 @ 101.5, 7.00% 600,000 6/15/2016 686,622
County of Suffolk, New York, General Obligations,
MBIA Insured, 1990 Series B, Pre-Refunded to
4/01/2000 @ 102, 7.10% 425,000 4/01/2018 480,407
Orangetown Housing Authority, (Rockland County,
New York), Housing Facilities Revenue Bonds
(Orangetown Senior Housing Center-1990 Series),
Pre-Refunded to 10/1/2000 @ 102, 7.50% 400,000 10/01/2020 462,748
Town of Clifton Park Water Authority, (New York),
Water System Revenue Bonds, 1991 Series A, FGIC
Insured, Pre-Refunded to 10/1/2001 @ 102, 6.375% $ 800,000 10/01/2026 $ 905,680
------------
4,920,018
------------
Public Facilities 3.4%
Puerto Rico Public Buildings Authority, Government
Facilities Revenue Bonds, Series A, AMBAC Insured,
5.50% 2,500,000 7/01/2021 2,519,050
------------
Single-Family Housing 3.0%
State of New York Mortgage Agency, Homeowner
Mortgage Revenue Bonds, Series 45, 7.20% 2,000,000 10/01/2017 2,203,500
------------
Special/Sales Tax Revenue 5.0%
New York Local Government Assistance Corp., (A
Public Benefit Corporation of the State of New
York), Series 1993 E Refunding Bonds, 6.00% 2,500,000 4/01/2014 2,702,800
New York Local Government Assistance Corp., (A
Public Benefit Corporation of the State of New
York), Series 1995A Tax Revenue Bonds, 6.00% 1,000,000 4/01/2024 1,033,780
------------
3,736,580
------------
Toll Roads/Turnpike Authorities 2.7%
Port Authority of New York and New Jersey
Consolidated Bonds, Series 100, 5.75% 2,000,000 12/15/2020 2,040,280
------------
Transit/Highway 2.6%
New York State Thruway Authority, General Revenue
Bonds, Series B, MBIA Insured, 5.00% 2,000,000 1/01/2014 1,930,940
------------
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------- ---------- ---------- ------------
Principal Maturity Value
Amount Date (Note 1)
- -------------------------------------------------- ---------- ---------- ------------
Water & Sewer 8.8%
New York State Environmental Facilities
Corporation, State Water Pollution Control,
Revolving Fund Revenue Bonds, Series 1994 D,
(Pooled Loan Issue), 6.70% $2,000,000 11/15/2009 $ 2,326,300
Commonwealth of Puerto Rico, Aqueduct and Sewer
Authority, General Revenue Bonds, 6.25% 1,000,000 7/01/2013 1,085,920
Town of Clifton Park Water Authority, (New York),
Water System Revenue Bonds, MBIA Insured, 5.00% 1,240,000 10/01/2014 1,210,426
Suffolk County Water Authority, New York, Water
System Revenue Bonds, Series 1994, MBIA Insured,
5.00% 1,000,000 6/01/2015 975,690
Commonwealth of Puerto Rico, Aqueduct and Sewer
Authority, General Revenue Bonds, 5.00% 1,000,000 7/01/2015 952,130
6,550,466
------------
Total Municipal Bonds (Cost $71,213,740) 75,403,383
------------
SHORT-TERM OBLIGATIONS 3.9%
New York State Job Development Authority, General
Revenue Bonds, Series B, 5.00%* 100,000 3/01/2005++ 100,000
Metropolitan Nashville, Tennessee, Airport
Authority Special Facilities General Revenue
Bonds, 4.30%* 1,700,000 10/01/2012++ 1,700,000
Lone Star, Texas, Airport Improvement Authority,
(American Airlines Inc. Project), 4.30%* 100,000 12/01/2014++ 100,000
Lone Star, Texas, Airport Improvement Authority,
(American Airlines Inc. Project), 3.95%* $ 200,000 12/01/2014++ $ 200,000
Babylon, New York, Industrial Development Agency,
(Ogden Martin Systems of Babylon Project), General
Revenue Bonds 3.95%* 500,000 12/01/2024++ 500,000
Los Angeles, California, Regional Airports
Improvement Corp., General Revenue Bonds, Series
1985, 4.30%* 200,000 12/01/2025++ 200,000
Delaware State Economic Development Authority,
General Revenue Bonds, 3.40%* 100,000 10/01/2029++ 100,000
------------
Total Short-Term Obligations (Cost $2,900,000) 2,900,000
------------
Total Investments (Cost $74,113,740)--105.1% 78,303,383
Cash and Other Assets, Less Liabilities--(5.1)% (3,769,047)
------------
Net Assets--100% $74,534,336
============
Federal Income Tax Information:
At December 31, 1995, the net unrealized appreciation of investments based on
cost for Federal income tax purposes of $74,113,740 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is
an excess of value over tax cost $ 4,199,282
Aggregate gross unrealized depreciation for all investments in which there is
an excess of tax cost over value (9,639)
------------
$ 4,189,643
============
</TABLE>
- -------------------------------------------------------------------------------
++Interest rates on these obligations may reset daily.
+The delivery and payment of this security is beyond the normal settlement
time of three business days after the trade date. The purchase price and
interest rate are fixed at the trade date although interest is not earned
until settlement date.
*This security is being used to collateralize the delayed delivery purchase
noted above. The total market value of segregated securities is $5,604,652.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1995
Assets
Investments, at value (Cost $74,113,740) (Note 1) $78,303,383
Cash 83,562
Interest receivable 1,322,896
Receivable from Distributor (Note 3) 9,806
Other assets 30
----------
79,719,677
Liabilities
Payable for securities purchased 4,867,533
Dividends payable 71,349
Payable for fund shares redeemed 68,228
Accrued transfer agent and shareholder services
(Note 2) 46,436
Accrued management fee (Note 2) 34,478
Accrued distribution and service fees (Note 5) 17,308
Accrued trustees' fees (Note 2) 5,072
Other accrued expenses 74,937
----------
5,185,341
----------
Net Assets $74,534,336
==========
Net Assets consist of:
Undistributed net investment income $ 59,442
Unrealized appreciation of investments 4,189,643
Accumulated net realized loss (701,193)
Shares of beneficial interest 70,986,444
----------
$74,534,336
==========
Net Asset Value and redemption price per share of
Class A shares ($20,043,063 / 2,436,321 shares
of beneficial interest) $8.23
==========
Maximum Offering Price per share of Class A shares
($8.23 / .955) $8.62
==========
Net Asset Value and offering price per share of
Class B shares ($15,083,560 / 1,833,374 shares
of beneficial interest)* $8.23
==========
Net Asset Value, offering price and redemption
price per share of Class C shares ($38,756,979 /
4,705,972 shares of beneficial interest) $8.24
==========
Net Asset Value and offering price per share of
Class D shares ($650,734 / 79,033 shares of
beneficial interest)* $8.23
==========
*Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the year ended December 31, 1995
Investment Income
Interest $ 4,538,455
Expenses
Management fee (Note 2) 404,069
Transfer agent and shareholder services (Note 2) 172,919
Custodian fee 105,157
Reports to shareholders 41,544
Audit fee 20,211
Registration fees 15,350
Trustees' fees (Note 2) 12,892
Service fee--Class A (Note 5) 48,470
Distribution and service fees--Class B (Note 5) 132,971
Distribution and service fees--Class D (Note 5) 7,444
Legal fees 752
Miscellaneous 8,537
----------
970,316
Expenses borne by the Distributor (Note 3) (156,963)
----------
813,353
----------
Net investment income 3,725,102
----------
Realized and Unrealized Gain (Loss) on Investments
and Futures Contracts
Net realized gain on investments (Notes 1 and 4) 2,467,652
Net realized loss on futures contracts (Note 1) (5,636)
----------
Total net realized gain 2,462,016
Net unrealized appreciation of investments 4,123,535
----------
Net gain on investments and futures contracts 6,585,551
----------
Net increase in net assets resulting from
operations $10,310,653
==========
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
Year ended December 31
--------------------------
1995 1994
- ---------------------------------------- ---------- ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 3,725,102 $ 3,954,491
Net realized gain (loss) on investments
and futures contracts* 2,462,016 (3,161,667)
Net unrealized appreciation
(depreciation) of investments 4,123,535 (5,773,470)
-------- ----------
Net increase (decrease) resulting from
operations 10,310,653 (4,980,646)
-------- ----------
Dividends from net investment income:
Class A (1,009,558) (895,478)
Class B (589,598) (441,657)
Class C (2,182,901) (2,488,395)
Class D (33,292) (34,740)
-------- ----------
(3,815,349) (3,860,270)
-------- ----------
Distribution from net realized gains:
Class A -- (19,501)
Class B -- (12,917)
Class C -- (42,991)
Class D -- (854)
-------- ----------
-- (76,263)
-------- ----------
Net increase (decrease) from fund share
transactions (Note 7) (3,830,608) 709,765
-------- ----------
Total increase (decrease) in net assets 2,664,696 (8,207,414)
Net Assets
Beginning of year 71,869,640 80,077,054
-------- ----------
End of year (including undistributed net
investment income of $59,442 and
$141,050, respectively) $74,534,336 $71,869,640
======== ==========
*Net realized gain (loss) for Federal
income tax purposes (Note 1) $ 1,435,929 $(2,135,580)
======== ==========
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1995
Note 1
State Street Research New York Tax-Free Fund (the "Fund"), is a series of
State Street Research Tax-Exempt Trust (the "Trust"), formerly MetLife-State
Street Tax-Exempt Trust, which was organized as a Massachusetts business
trust in December, 1985 and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Fund
commenced operations in July, 1989. Two series of the Trust are publicly
offered: State Street Research New York Tax-Free Fund and State Street
Research Tax-Exempt Fund.
The investment objective of the Fund is to seek a high level of interest
income exempt from federal income taxes and New York State and New York City
personal income taxes. To achieve its investment objective, the Fund intends
to invest primarily in securities which are issued by or on behalf of New
York State or its political subdivisions and by other governmental entities.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and pay a service fee equal to 0.25% of
average daily net assets. Investments of $1 million or more in Class A
shares, which are not subject to any initial sales charge, are subject to a
1.00% contingent deferred sales charge if redeemed within one year of
purchase. Class B shares are subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase and pay annual
distribution and service fees of 1.00%. Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight
years after the issuance of the Class B shares. Class C shares are only
offered 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
are subject to a contingent deferred sales charge of 1.00% on any shares
redeemed within one year of their purchase. Class D shares also pay annual
distribution and service fees of 1.00%. The Fund's expenses are borne
pro-rata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the Plan of
Distribution, related specifically to that class. The Trustees declared
separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Tax-exempt securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term obligations are valued at
amortized cost. Other securities, if any, are valued at their fair value as
determined in accordance with established methods consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
8
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
NOTES (cont'd)
- -------------------------------------------------------------------------------
C. Net Investment Income
Net investment income is determined daily and consists of interest accrued
and discount earned, less amortization of premium and the estimated daily
expenses of the Fund. Interest income is accrued daily as earned. The Fund is
charged for expenses directly attributable to it, while indirect expenses are
allocated between both funds in the Trust.
D. Dividends
Dividends are declared daily by the Fund based upon projected net investment
income and paid or reinvested monthly. Net realized capital gains, if any,
are distributed annually, unless additional distributions are required for
compliance with applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods. At December 31, 1995, the
Fund had a capital loss carryforward of $701,193 available, to the extent
provided in regulations, to offset future capital gains, if any, which
expires on December 31, 2002.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through December 31, 1994 the Fund incurred net capital losses of $1,026,087
and has deferred and treated such losses as arising in the fiscal year ended
December 31, 1995.
F. Futures Contracts
The Fund may enter into futures contracts as a hedge against unfavorable
market conditions and to enhance income. The Fund will not purchase any
futures contract if, after such purchase, more than one-third of net assets
would be represented by long futures contracts. The Fund will limit its risks
by entering into a futures position only if it appears to be a liquid
investment.
Upon entering into a futures contract, the Fund deposits with the selling
broker sufficient cash or U.S. Government securities to meet the minimum
"initial margin" requirements. Thereafter, the Fund receives from or pays to
the broker cash or U.S. Government securities equal to the daily fluctuation
in value of the contract ("variation margin"), which is recorded as
unrealized gain or loss. When the contract is closed, the Fund records a
realized gain or loss equal to the differences between the value of the
contract at the time it was opened and the value at the time it was closed.
G. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.55% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended December 31, 1995, the fees pursuant to
such agreement amounted to $404,069.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended December 31, 1995 the amount of
such expenses was $36,119.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $12,892 during the year ended December 31, 1995.
Note 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended December 31, 1995, the amount of such expenses
assumed by the Distributor and its affiliates was $156,963.
Note 4
For the year ended December 31, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $79,486,594 and $82,408,125,
respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class D shares. In
addition, the Fund pays annual distribution fees of 0.75% of average daily
net assets for Class B and Class D shares. The Distributor uses such payments
for personal services and/or the maintenance of shareholder accounts, to
reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the year ended December 31, 1995,
fees pursuant to such plan amounted to $48,470, $132,971 and $7,444 for Class
A, Class B and Class D, respectively.
9
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $15,287 and $113,598, respectively, on sales of Class A shares of
the Fund during the year ended December 31, 1995, and that MetLife
Securities, Inc. earned commissions aggregating $102,365 on sales of Class B
shares, and that the Distributor collected contingent deferred sales charges
aggregating $109,751 and $5 on redemptions of Class B and Class D shares,
respectively, during the same period.
Note 6
Under normal circumstances at least 80% of the Fund's net assets will be
invested in New York Municipal Obligations. New York State and New York City
face potential economic problems due to various financial, social, economic
and political factors which could seriously affect their ability to meet
continuing obligations for principal and interest payments. Also, the Fund is
able to invest up to 25% of total assets in a single industry. Accordingly,
the Fund's investments may be subject to greater risk than those in a fund
with more restrictive concentration limits.
At December 31, 1995, investments totalling 12.9% of the Fund's net assets
were insured as to the timely payment of principal and interest by Municipal
Bond Investors Assurance Corp. (MBIA).
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At December 31, 1995,
Metropolitan owned 61,186 Class A shares and 61,186 Class D shares and the
Distributor owned one Class C share of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------
1995 1994
----------------------- ----------------------------
Class A Shares Amount Shares Amount
- ------------------------------------- -------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Shares sold 659,418 $ 5,224,381 1,289,154 $ 10,313,220
Issued upon reinvestment of:
Distribution from net realized gains -- -- 2,365 17,808
Dividends from net investment income 102,754 817,666 84,420 662,001
Shares repurchased (745,045) (5,906,953) (756,289) (5,929,186)
------ --------- -------- ------------
Net increase 17,127 $ 135,094 619,650 $ 5,063,843
====== ========= ======== ============
Class B Shares Amount Shares Amount
- ------------------------------------- ------ --------- -------- ------------
Shares sold 412,260 $ 2,896,528 885,313 $ 7,083,969
Issued upon reinvestment of:
Distribution from net realized gains -- -- 1,577 11,857
Dividends from net investment income 58,893 434,274 32,680 258,543
Shares repurchased (249,652) (1,557,767) (204,942) (1,640,186)
------ --------- -------- ------------
Net increase 221,501 $ 1,773,035 714,628 $ 5,714,183
====== ========= ======== ============
Class C Shares Amount Shares Amount
- ------------------------------------- ------ --------- -------- ------------
Shares sold 24,846 $ 199,861 44,692 $ 369,145
Issued upon reinvestment of:
Distribution from net realized gains -- -- 5,159 38,844
Dividends from net investment income 208,442 1,655,838 226,396 1,765,589
Shares repurchased (934,625) (7,406,811) (1,563,955) (12,288,139)
------ --------- -------- ------------
Net decrease (701,337) $(5,551,112) (1,287,708) $(10,114,561)
====== ========= ======== ============
Class D Shares Amount Shares Amount
- ------------------------------------- ------ --------- -------- ------------
Shares sold 4,415 $ 35,225 14,755 $ 119,504
Issued upon reinvestment of:
Distribution from net realized gains -- -- 99 745
Dividends from net investment income 880 6,996 1,427 11,193
Shares repurchased (28,950) (229,846) (10,858) (85,142)
------ --------- -------- ------------
Net increase (decrease) (23,655) $ (187,625) 5,423 $ 46,300
====== ========= ======== ============
</TABLE>
10
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Class B
--------------------------- -----------------------------
Year ended December 31 Year ended December 31
--------------------------- -----------------------------
1995 1994 1993** 1995 1994 1993**
-------------------------------------------- ------ ------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.53 $8.43 $8.20 $7.53 $8.43 $8.20
Net investment income* .40 .40 .22 .34 .34 .19
Net realized and unrealized gain (loss)
on investments .71 (.90) .25 .71 (.90) .25
Dividends from net investment income (.41) (.39) (.22) (.35) (.33) (.19)
Distributions from net realized gains -- (.01) (.02) -- (.01) (.02)
---- ----- ---- ---- ----- ------
Net asset value, end of year $8.23 $7.53 $8.43 $8.23 $7.53 $8.43
==== ===== ==== ==== ===== ======
Total return 15.11%+ (6.04)%+ 5.79%+++ 14.26%+ (6.74)%+ 5.35%+++
Net assets at end of year (000s) $20,043 $18,214 $15,175 $15,084 $12,131 $7,567
Ratio of operating expenses to average net
assets* 1.10% 1.10% 1.10%++ 1.85% 1.85% 1.85%++
Ratio of net investment income to average
net assets* 5.07% 5.07% 4.68%++ 4.32% 4.34% 3.93%++
Portfolio turnover rate 109.74% 64.80% 33.11% 109.74% 64.80% 33.11%
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $.02 $.03 $.01 $.02 $.03 $.01
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------
Year ended December 31
----------------------------------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------- ------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $7.54 $8.44 $7.84 $7.61 $7.11
Net investment income* .42 .42 .42 .44 .45
Net realized and unrealized gain
(loss) on investments .71 (.90) .62 .23 .51
Dividends from net investment income (.43) (.41) (.42) (.44) (.46)
Distributions from net
realized gains -- (.01) (.02) -- --
---- -------- -------- -------- ----------
Net asset value, end of year $8.24 $7.54 $8.44 $7.84 $7.61
==== ======== ======== ======== ==========
Total return 15.37%+ (5.79)%+ 13.46%+ 9.08%+ 13.88%+
Net assets at end of year (000s) $38,757 $40,750 $56,515 $41,558 $21,512
Ratio of operating expenses to average
net assets* 0.85% 0.85% 0.85% 0.85% 0.85%
Ratio of net investment income to
average net assets* 5.33% 5.29% 5.10% 5.71% 6.21%
Portfolio turnover rate 109.74% 64.80% 33.11% 29.39% 30.24%
*Reflects voluntary assumption of fees
or expenses per share in each year
(Note 3). $.02 $.03 $.01 $.02 $.05
</TABLE>
<TABLE>
<CAPTION>
Class D
----------------------------------
Year ended December 31
----------------------------------
1995 1994 1993**
- -------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net asset value,
beginning of year $7.53 $8.44 $8.20
Net investment income* .35 .34 .19
Net realized and unrealized gain
(loss) on investments .70 (.91) .25
Dividends from net investment income (.35) (.33) (.18)
Distributions from net
realized gains -- (.01) (.02)
---- -------- --------
Net asset value, end of year $8.23 $7.53 $8.44
==== ======== ========
Total return 14.25%+ (6.86)%+ 5.46%+++
Net assets at end of year (000s) $651 $774 $821
Ratio of operating expenses to average
net assets* 1.85% 1.85% 1.85%++
Ratio of net investment income to
average net assets* 4.35% 4.31% 3.94%++
Portfolio turnover rate 109.74% 64.80% 33.11%
*Reflects voluntary assumption of fees
or expenses per share in each year
(Note 3). $.02 $.03 $.01
</TABLE>
- -------------------------------------------------------------------------------
**June 7, 1993 (commencement of share class designations) to December 31,
1993.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
11
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Trustees of State Street Research
Tax-Exempt Trust and the Shareholders of
State Street Research New York Tax-Free Fund
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research New
York Tax-Free Fund (a series of State Street Research Tax-Exempt Trust,
hereafter referred to as the "Trust") at December 31, 1995, and the results
of its operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards with
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 2, 1996
12
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- -------------------------------------------------------------------------------
Throughout 1995, the slowing economy, low inflation, and declining interest
rates created a very favorable environment for bond investing. In 1995,
municipal bonds experienced their strongest returns since 1986, which helped
buoy New York Tax-Free Fund's returns.
In an effort to keep the economy from slowing too much, the Federal Reserve
Board made two interest-rate cuts in the final two quarters of the year,
which also helped fuel the bond rally. These factors were instrumental in
helping the Fund's performance.
The Fund entered 1995 with a shorter duration than the market average and
looked to lengthen the duration to take advantage of the falling
interest-rate environment. The low supply of New York municipal bonds slowed
Fund efforts to lengthen the duration, negatively affecting the Fund's
performance.
December 31, 1995
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Performance results for the Fund are
increased by the Distributor's voluntary reduction of Fund fees and expenses.
In the charts at the right, this first figure reflects expense reduction; the
second shows what results would have been without subsidization. Performance
for a class includes periods prior to the adoption of class designations.
Performance reflects up to maximum 4.5% front-end or 5% contingent deferred
sales charges. Performance prior to class designations in 1993 does not
reflect annual 12b-1 fees of .25% for "A" shares and 1% for "B" and "D"
shares, which will reduce subsequent performance. "C" shares, offered without
a sales charge, are available only to certain employee benefit plans and
institutions. The Lehman Municipal 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.
Comparison Of Change In Value Of A $10,000
Investment In New York Tax-Free Fund and
The Lehman Municipal Bond Index
[typeset versions of 4 line charts]
Class A Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+9.93%/+9.65% +7.74%/+7.38% +6.72%/+6.15%
-------------------------------------------------------
Lehman
New York Municipal
Tax-Free Bond
Fund Index
7/89 9550 10000
12/89 9714 10391
12/90 10036 11148
12/91 11428 12502
12/92 12465 13604
12/93 14108 15275
12/94 13256 14485
12/95 15259 17014
Class B Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+9.26%/+8.97% +8.03%/+7.66% +7.16%/+6.59%
-------------------------------------------------------
Lehman
New York Municipal
Tax-Free Bond
Fund Index
7/89 10000 10000
12/89 10172 10391
12/90 10509 11148
12/91 11967 12502
12/92 13052 13604
12/93 14710 15275
12/94 13719 14485
12/95 15675 17014
Class C Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+15.37%/+15.08% +8.90%/+8.54% +7.60%/+7.04%
-------------------------------------------------------
Lehman
New York Municipal
Tax-Free Bond
Fund Index
7/89 10000 10000
12/89 10172 10391
12/90 10509 11148
12/91 11967 12502
12/92 13052 13604
12/93 14810 15275
12/94 13952 14485
12/95 16097 17014
Class D Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+13.25%/+12.96% +8.32%/+7.95% +7.16%/+6.59%
-------------------------------------------------------
Lehman
New York Municipal
Tax-Free Bond
Fund Index
7/89 10000 10000
12/89 10172 10391
12/90 10509 11148
12/91 11967 12502
12/92 13052 13604
12/93 14726 15275
12/94 13717 14485
12/95 15671 17014
[end line charts]
13
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
Fund Information, Officers and Trustees of State Street Research Tax-Exempt
Trust
- -------------------------------------------------------------------------------
Fund Information
State Street Research
New York Tax-Free Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Paul J. Clifford, Jr.
Vice President
John H. Kallis
Vice President
Thomas A. Shively
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of
the Board and Chief Executive
Officer, Raytheon Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School
of Management, Massachusetts
Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel,
Choate, Hall & Stewart
14
<PAGE>
[back cover]
State Street Research Bulk Rate
New York-Tax Free Fund U.S. Postage
One Financial Center PAID
Boston, MA 02111 Brockton, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[State Street logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective investors.
CONTROL NUMBER: 2966-960216(0397)SSR-LD
Cover Illustration by Dorothy Cullinan
NYTF-927D-296
<PAGE>
[front cover]
[State Street logo] STATE STREET RESEARCH
STATE STREET RESEARCH
TAX-EXEMPT FUND
ANNUAL REPORT
December 31, 1995
[photo of child with building blocks]
WHAT'S INSIDE
From the Chairman:
1995: An outstanding
year for investors
Portfolio Manager's Review:
A strong year for
municipal bonds
Fund Information:
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
<PAGE>
FROM THE CHAIRMAN
[photo of Ralph F. Verni]
To Our Shareholders:
We have reluctantly bid farewell to 1995, an outstanding year for most of our
investors. Stocks and bonds achieved their best results in many years. 1995
offered a uniquely positive combination of moderate economic growth, low
inflation, falling interest rates, and strong corporate profits.
Looking ahead
We are cautiously optimistic about 1996. There are several positive signs.
Inflation and interest rates remain low and the economy may be able to
sustain modest growth. On January 31, the Federal Reserve lowered short-term
interest rates by one-quarter point. This was the Fed's second rate cut in
less than two months.
Benefits of professional management
1996 may be a year in which the benefits of professional management will be
more evident than ever. It can be reassuring to know that an experienced
portfolio manager is working on your behalf, paying close attention to market
conditions and economic indicators. We appreciate your trust.
Top-rated service
We work extremely hard to provide the highest-quality service to
shareholders. Recently, State Street Research received two prestigious awards
from Dalbar, an organization that rates mutual fund companies for their
service. We were one of only seven firms to receive the Dalbar Quality Tested
Service Seal, which recognizes leaders in all key service areas. Dalbar also
awarded us Dalbar Key Honors, recognizing our service quality in written and
telephone communications to shareholders.
Best wishes for a successful 1996.
Sincerely,
/s/Ralph F. Verni
Ralph F. Verni
Chairman
January 31, 1996
(1)+15.72% for Class B shares; +16.76% for Class C shares; +15.58% for Class
D shares.
(2)Investment results are based on an assumed $10,000 investment at "A" share
maximum sales charge of 4.5%; thus, the net amount invested was $9,550. Also
assumes reinvestment of capital gain distributions and income dividends. No
adjustment has been made for income taxes payable by shareholders on income
dividends or capital gain distributions.
(3)All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. In March 1992, the Fund changed its
investment objective to eliminate requirements that a percentage of the 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. Performance for a class
includes periods prior to the adoption of class designations. "C" shares,
offered without a sales charge, are available only to certain employee
benefit plans and institutions. Performance for "B" and "D" shares prior to
class designations in 1993 reflects annual 12b-1 fees of .25%, and
performance thereafter reflects 12b-1 fees of 1%, which will reduce
subsequent performance.
(4)Performance reflects up to maximum 4.5% front- end or 5% contingent
deferred sales charges.
(5)Cumulative total returns are not annualized, nor do they reflect sales
charges, which, if reflected, would reduce performance.
Please note that the discussion throughout this shareholder report is dated
as indicated and because of possible changes in viewpoint, data, and
transactions, should not be relied upon as being current thereafter.
FUND INFORMATION (all data are for periods ended December 31, 1995)
Total value of $10,000 invested at Fund's inception(2)
(Class A shares, at maximum applicable sales charge)
SEC Average Annual Compound Rates of Return
(at maximum applicable sales charge)(3,4)
- -------- --------------- ------- ---------
Life of Fund
(since 8/25/86) 5 years 1 year
- -------- --------------- ------- ---------
Class A +7.04% +7.27% +11.33%
- -------- ------------- ------ -------
Class B +7.35% +7.55% +10.72%
- -------- ------------- ------ -------
Class C +7.62% +8.35% +16.76%
- -------- ------------- ------ -------
Class D +7.34% +7.82% +14.58%
- -------- ------------- ------ -------
Cumulative Total Returns
(does not reflect sales charge)(3,5)
- -------- --------------- ------- ---------
Life of Fund
(since 8/25/86) 5 years 1 year
- -------- --------------- ------- ---------
Class A +98.06% +48.76% +16.58%
- -------- ------------- ------ -------
Class B +94.33% +45.96% +15.72%
- -------- ------------- ------ -------
Class C +98.90% +49.39% +16.76%
- -------- ------------- ------ -------
Class D +94.07% +45.76% +15.58%
- -------- ------------- ------ -------
Taxable
Equivalent
Yield
(36% federal
SEC Yield tax bracket)
- -------- ------ ----------
Class A 4.32% 6.75%
- -------- ------ ----------
Class B 3.78% 5.91%
- -------- ------ ----------
Class C 4.80% 7.50%
- -------- ------ ----------
Class D 3.79% 5.92%
- -------- ------ ----------
SEC yield is calculated according to Securities and Exchange Commission
requirements and is based on the net investment income produced for the 30
days ended December 31, 1995. A small portion of the Fund's income may be
subject to state and local tax; investors should consult their tax adviser.
<PAGE>
PORTFOLIO MANAGER'S REVIEW
[photo of Paul J. Clifford, Jr.]
Paul J. Clifford, Jr.
Portfolio Manager
Paul J. Clifford, Jr. became portfolio manager for State Street Research
Tax-Exempt Fund in January 1996. Paul has 11 years of investment experience
and also manages State Street Research New York Tax-Free Fund.
Investors in Tax-Exempt Fund were well rewarded in 1995. The Fund rode the
wave of bond market strength, posting attractive returns for the past 12
months. Class A shares of the Fund offered a total return of +16.58% (does
not reflect sales charge).(1) The Fund slightly underperformed its peer
category, Lipper Analytical Services Municipal Debt Funds, which provided an
average total return of +16.84% (does not reflect sales charge).
Economic environment helped Fund performance
Throughout 1995, slowing economies here and overseas, low inflation, and
declining interest rates created a very favorable environment for bond
investing. Yields on long-term U.S. Treasury bonds fell two full percentage
points--a dramatic decline--and bond prices rose. In an effort to keep the
economy from slowing too much, the Federal Reserve Board made two
interest-rate cuts in the second half of the year, which helped fuel the bond
rally.
Municipal bonds experienced their strongest returns since 1986, but didn't
perform quite as well as Treasury bonds, partly because of investors'
concerns over proposed tax reforms.
Management strategy
One of our most important management decisions is how to position the Fund
for changing interest rates. We do this by changing the Fund's duration,
which is a measure of a bond fund's sensitivity to the movement of interest
rates. Funds with longer durations perform better in an environment of
falling interest rates. When rates are rising, it is better to have a shorter
duration.
After 1994's rising interest rates, Tax-Exempt Fund entered 1995 with a
shorter duration than the market average. When it became clear the bond
market rally was not a short-term trend, we gradually lengthened the Fund's
duration. This helped the Fund take better advantage of the falling
interest-rate environment.
Another component of our strategy was to emphasize states whose bonds
demonstrated relatively high demand and low supply. We maintained a strong
overweighting in California bonds, which performed well.
High-quality portfolio
The average quality of the bonds in the Fund's portfolio was AA, as measured
by Moody's and Standard & Poor's. Since the difference between yields offered
by higher- and lower-quality bonds remains narrow, we are maintaining an
emphasis on high-quality bonds.
Your Fund's yield
1995's strong performance and decline in interest rates caused Tax-Exempt
Fund's net asset value to rise and its yield to fall. The Fund's dividend did
not change in 1995. However, if interest rates continue to decline, it may
become necessary to reduce the Fund's dividend.
Looking ahead
We view the municipal bond market with cautious optimism. Inflation is low,
and interest rates remain low. When you factor in the effects of taxes,
municipal bond yields are very attractive relative to taxable bond yields.
Municipal bonds also offer excellent value relative to U.S. Treasury bonds.
December 31, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Bond Quality Ratings
(by percentage of net assets)
[typeset representation of pie chart]
AAA 36%
AA 33%
A 14%
BBB 12%
Not rated 5%
[end pie chart]
Quality ratings based on those provided
by Standard & Poor's Corp. and/or equivalent
ratings by Moody's Investors Service, Inc.
Top 5 State Representations
(by percentage of net assets)
[typeset representation of bar chart]
California 17.1%
Florida 13.5%
Georgia 10.4%
New York 10.0%
North Carolina 8.5%
Total: 59.5%
[end bar chart]
Top 5 Sectors
(by percentage of net assets)
[typeset representation of bar chart]
Power bonds 16.4%
Water/sewer bonds 13.7%
State general
obligation bonds 9.7%
County general
obligation bonds 7.4%
College revenue
bonds 7.3%
Total: 54.5%
[end bar chart]
2
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
---------------------------------------------- ---------- --------- --------------
Principal Maturity Value
Amount Date (Note 1)
<S> <C> <C> <C>
- ---------------------------------------------- -------- ------- ------------
MUNICIPAL BONDS 100.2%
California 17.1%
Orange County Local Transportation Authority,
California, Measure M Sales Tax Revenue Bonds,
Second Senior Bonds, Series 1992, FGIC Insured
6.00% $ 500,000 2/15/2007 $ 532,540
Redevelopment Agency of the City of San Jose,
Merged Area Redevelopment Project, Tax
Allocation Bonds, MBIA Insured, Series 1993,
6.00% 1,000,000 8/01/2007 1,094,400
South Orange County Public Financing
Authority, Special Tax Revenue Bonds, 1994
Series B (Junior Lien Bonds), 7.00% 500,000 9/01/2007 508,245
City of Duarte, California, Certificates of
Participation, (Hope National Medical Center),
6.00% 500,000 4/01/2008 505,950
State Public Works Board of the State of
California, Lease Revenue Refunding Bonds,
(The Regents of the University of California),
1993 Series A, (Various University of
California Projects), 5.40% 2,000,000 6/01/2008 2,008,860
State of California, Various Purpose General
Obligation Bonds, 7.00% 300,000 8/01/2008 353,643
Santa Clara County Financing Authority, (VMC
Facility Replacement Project), 1994 Series A
Bonds, AMBAC Insured, 7.75% 1,000,000 11/15/2008 1,256,340
South Orange County Public Financing
Authority, Special Tax Revenue Bonds, 1994
Series B (Junior Lien Bonds), 7.00% 1,000,000 9/01/2009 1,012,500
California (cont'd)
Foothill/Eastern Transportation Corridor
Agency, Series 1995A Senior Lien Convertible
Capital Appreciation Bonds, 0.00% $1,695,000 1/01/2010 $ 1,001,185
Southern California Public Power Authority,
San Juan Project, Series A, MBIA Insured,
5.375% 4,790,000 1/01/2011 4,842,690
California Housing Finance Agency, Home
Mortgage Revenue Bonds, 1991 Series G, Subject
to AMT, 6.95% 260,000 8/01/2011 280,805
Sacramento Power Authority, Cogeneration
Project Revenue Bonds, 1995 Series, 6.50% 1,300,000 7/01/2014 1,371,084
California Housing Finance Agency, Home
Mortgage Revenue Bonds, 1994 Series G, 7.20% 1,500,000 8/01/2014 1,637,265
Rancho California Water District Financing
Authority, Revenue Refunding Bonds, AMBAC
Insured, Series 1994, 5.00% 4,000,000 8/15/2014 3,872,640
City of Stockton, Revenue Certificates of
Participation, 1995 Series A, (Wastewater
Treatment Plant Expansion), FGIC Insured,
6.70% 1,000,000 9/01/2014 1,125,960
California Educational Facilities Authority,
Series 1994 Revenue Bonds (Southwestern
University Project), 6.60% 1,000,000 11/01/2014 1,095,020
County of Madera, California, Certificates
of Participation, (Valley Children's Hospital
Project), Series 1995, MBIA Insured, 6.50% 1,000,000 3/15/2015 1,140,750
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ---------------------------------------------- ---------- --------- --------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------- -------- ------- ------------
California (cont'd)
California Pollution Control Financing
Authority, Pollution Control Revenue Bonds,
(San Diego Gas & Electric Company), 1991
Series A, Subject to AMT, 6.80% $ 600,000 6/01/2015 $ 693,870
Roseville Joint Union High School District,
1992 General Obligation Bonds, Series B, FGIC
Insured, 0.00% 1,000,000 8/01/2015 337,920
California Educational Facilities Authority,
Revenue Bonds (University of Redlands), Series
1995, 5.875% 1,815,000 10/01/2015 1,874,695
State of California, Various Purpose General
Obligation Bonds, 5.25% 1,000,000 10/01/2015 983,020
Santa Monica-Malibu Unified School District,
Los Angeles County, California, General
Obligation Bonds, Series 1993, (Public School
Facilities Reconstruction Projects), 5.50% 5,000,000 8/01/2018 5,003,400
Fresno Sewer Revenue Bonds, Series A-1, AMBAC
Insured, 5.25% 5,100,000 9/01/2019 5,085,873
State Public Works Board of the State of
California, Lease Revenue Bonds, (Department
of Justice Building), 1995 Series A, FSA
Insured, 5.625% 1,000,000 5/01/2020 1,004,480
East Bay Municipal Utility District Water
System, Revenue Refunding Bonds, Series 1993,
MBIA Insured, 5.00% 2,000,000 6/01/2021 1,897,940
San Francisco City & County Sewer and Water
Revenue Refunding Bonds, FGIC Insured, 5.375% 2,395,000 10/01/2022 2,379,648
California (cont'd)
State of California, Department of Water
Resources, Central Valley Project, Water
System Revenue Bonds, Series O, 5.00% $1,000,000 12/01/2022 $ 959,960
University of California, Board of Regents,
Refunding Revenue Bonds, (Multiple Purpose
Projects), Series C, AMBAC Insured, 5.00% 5,000,000 9/01/2023 4,734,650
Long Beach, California Harbor Revenue Bonds,
Series 1995, Subject to AMT, MBIA Insured,
5.25% 1,000,000 5/15/2025 960,900
Public Facilities Financing Authority of the
City of San Diego, Sewer Revenue Bonds, Series
1995, FGIC Insured, 5.00% 1,000,000 5/15/2025 952,650
San Joaquin Hills Transportation Corridor
Agency, (Orange County, California), Senior
Lien Toll Road Revenue Bonds, 7.00% 1,000,000 1/01/2030 1,066,560
California Housing Finance Agency, Home
Mortgage Revenue Bonds, 1990 Series D, Subject
to AMT, 7.875% 20,000 8/01/2031 21,395
Foothill/Eastern Transportation Corridor
Agency, Toll Road Revenue Bonds Series 1995A
Senior Lien, 5.00% 6,165,000 1/01/2035 5,239,942
--------------
56,836,780
--------------
Connecticut 3.2%
State of Connecticut, Clean Water Fund Revenue
Bonds, 1991 Series, 7.00% 1,000,000 1/01/2011 1,124,750
State of Connecticut, Special Tax Obligation
Bonds, Transportation Infrastructure Purposes,
1991 Series A, 6.50% 1,500,000 10/01/2012 1,725,195
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- -------------------------------------------------------------------------------
- ---------------------------------------------- ---------- --------- --------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------- -------- ------- ------------
Connecticut (cont'd)
Connecticut Development Authority, Pollution
Control Refunding Bonds, (Pfizer Inc.
Project--1982 Series), 6.55% $ 2,500,000 2/15/2013 $ 2,767,050
State of Connecticut Health and Educational
Facilities Authority, Revenue Bonds,
Quinnipiac College Issue, Series D, 6.00% 5,000,000 7/01/2013 4,883,650
--------------
10,500,645
--------------
Florida 13.5%
Escambia County, Florida, Road Improvement
Revenue Bonds, Series 1993A, 5.00% 500,000 1/01/2000 505,580
Investment Portfolio (cont'd) The School Board
of Dade County, Florida, Certificates of
Participation, Series 1994A, MBIA Insured,
5.00% 500,000 5/01/2001 517,190
East County Water Control District, Water
Management Consolidated Refunding Bonds,
Series 1994, (Lee and Hendry Counties,
Florida), Series 1994, AGIC Insured, 5.375% 500,000 11/01/2001 526,085
Certificates of Participation, (School Board
of Hillsborough County, Florida, Master Lease
Program), Series 1994, MBIA Insured, 5.30% 500,000 7/01/2002 526,900
Dade County, Florida, Aviation Revenue
Refunding Bonds, Series 1994B (Non-AMT), 6.00% 500,000 10/01/2002 546,800
City of Titusville, Florida, Water and Sewer
Revenue Bonds, Series 1994, MBIA Insured,
5.20% 500,000 10/01/2002 530,260
Florida (cont'd)
St. Johns County Industrial Development
Authority, Industrial Development Revenue
Bonds, Series 1993A, (Vicar's Landing
Project), 6.20% $ 500,000 2/15/2003 $ 512,650
Dade County, Florida, Special Obligation
Bonds, (Courthouse Center Project), Series
1994, 5.75% 500,000 4/01/2003 528,725
Certificates of Participation, Series 1994B,
The School Board of Seminole County, Florida,
MBIA Insured, 6.00% 500,000 7/01/2003 553,270
Certificates of Participation, Series 1994A,
The School Board of Seminole County, Florida,
MBIA Insured, 5.50% 500,000 7/01/2003 539,740
Charlotte County, Florida, Utility System
Revenue Bonds, Series 1994, FGIC Insured,
6.00% 500,000 10/01/2003 550,590
Palm Beach County, Florida General Obligation
Bonds, Series 1994, 7.00% 250,000 12/01/2004 296,855
Florida Housing Finance Agency, Single Family
Mortgage Revenue Refunding Bonds, 1994 Series
A (Non-AMT), 5.75% 515,000 1/01/2005 536,635
Florida State Board of Education, Public
Education Capital Outlay Bonds, 1994 Series B,
5.625% 500,000 6/01/2005 534,815
Hillsborough County, Florida, Capital
Improvement Bonds, FGIC Insured, 6.00% 500,000 8/01/2005 550,260
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ---------------------------------------------- ---------- --------- --------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------- -------- ------- ------------
Florida (cont'd)
Collier County Health Facilities Authority,
Health Facility Refunding Revenue Bonds, (The
Moorings Inc. Project), Series 1994, 6.00% $ 500,000 12/01/2005 $ 521,975
The School District of Dade County, Florida,
General Obligation School Bonds, Series 1995,
MBIA Insured, 5.10% 750,000 8/01/2006 774,742
Orange County, Florida, Public Service Tax
Revenue Bonds Series 1995, FGIC Insured, 5.90% 500,000 10/01/2012 532,230
Orlando Utilities Commission, Water and
Electric Subordinated Revenue Bonds, Series C,
6.75% 8,950,000 10/01/2017 10,703,484
Florida State Board of Education, Public
Education Capital Outlay Bonds, 1993 Series D,
5.125% 5,820,000 6/01/2018 5,687,013
Reedy Creek, Improvement District, (Florida),
(Located in Orange and Osceola Counties),
Utilities Revenue Improvement and Refunding
Bonds, Series 1994-1, MBIA Insured, 5.00% 5,000,000 10/01/2019 4,811,350
Martin County, Florida, Pollution Control
Revenue Refunding Bonds, (Florida Power &
Light Company Project), Series 1990, MBIA
Insured, 7.30% 1,250,000 7/01/2020 1,399,963
State of Florida Department of Transportation,
Turnpike Revenue Bonds, Series 1995A, FGIC
Insured, 5.50% 1,000,000 7/01/2021 1,007,920
Florida (cont'd)
Jacksonville Electric Authority,
(Jacksonville, Florida), Revenue Refunding
Bonds, Bulk Power-Scherer 4 Project A, 5.25% $3,000,000 10/01/2021 $ 2,949,810
Vero Beach, Florida, Electric Power & Light,
Revenue Refunding Bonds, Series A, MBIA
Insured, 5.375% 5,000,000 12/01/2021 5,005,400
Florida State Board of Education, Public
Education Refunding Bonds, Series D, 5.125% 2,750,000 6/01/2022 2,662,880
Orlando Utilities Commission, Water and
Electric Subordinated Revenue Bonds, Series
1989C, Pre-Refunded to 10/1/99 @ 102, 7.00%* 1,000,000 10/01/2023 1,116,740
--------------
44,929,862
--------------
Georgia 10.4%
State of Georgia, General Obligation Bonds,
Series 1992B, 6.25% 4,300,000 3/01/2011 4,831,867
State of Georgia, General Obligation Bonds,
Series 1994D, 6.70% 5,000,000 8/01/2009 5,857,200
State of Georgia, General Obligation Bonds,
Series 1994E, 6.75% 1,000,000 12/01/2012 1,189,200
Cherokee County, Georgia, School System,
General Obligation Bonds, AMBAC Insured,
5.375% 4,000,000 2/01/2014 4,051,040
Metro Atlanta Rapid Transit Authority, 2nd
Indenture, Series A, AMBAC Insured, 5.125% 2,000,000 7/01/2018 1,944,060
Metro Atlanta Rapid Transit Authority, 2nd
Indenture, Series A, AMBAC Insured, 5.125% 3,000,000 7/01/2019 2,914,200
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- -------------------------------------------------------------------------------
- ---------------------------------------------- ---------- --------- --------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------- -------- ------- ------------
Georgia (cont'd)
DeKalb County, Georgia, General Obligation
Refunding Bonds, 5.25% $5,000,000 1/01/2020 $ 4,966,250
Fulton County, Georgia, School District,
General Obligation School Bonds, Series 1993,
5.625% 3,870,000 1/01/2021 3,933,545
DeKalb County, Georgia, Water & Sewer Revenue
Refunding Bonds, Series 1993, 5.25% 5,000,000 10/01/2023 4,927,700
--------------
34,615,062
--------------
Hawaii 0.7%
State of Hawaii, General Obligation Bonds of
1991, Series BT, 6.125%* 2,000,000 2/01/2010 2,180,860
--------------
Illinois 1.1%
City of Chicago, Illinois, Gas Supply Revenue
Bonds, 1985 Series B (The Peoples Gas Light
and Coke Company Project), 7.50% 3,300,000 3/01/2015 3,714,117
--------------
Kansas 0.3%
State of Kansas, Department of Transportation,
Highway Revenue Bonds, Series 1992,
Pre-Refunded to 3/1/2002 @ 102, 6.50% 1,000,000 3/01/2008 1,121,660
--------------
Maryland 1.7%
Howard County, Maryland, Multifamily Mortgage
Refunding Bonds, Series 1994, (Chase Glen
Project), Mandatory Put 7/1/2004 @ 100, 7.00% 5,000,000 7/01/2024 5,489,150
--------------
Massachusetts 7.2%
Massachusetts Industrial Finance Agency, First
Mortgage Refunding Bonds, (Brookhaven
Retirement Community, Lexington--1994 Issue),
Series A, 6.75% 4,500,000 1/01/2001 4,639,770
Massachusets (cont'd)
Massachusetts Industrial Finance Agency, First
Mortgage Revenue Bonds, (Berkshire Retirement
Community, Lenox--1994 Issue), Series A,
6.375% $1,500,000 7/01/2005 $ 1,512,180
The Commonwealth of Massachusetts General
Obligation Refunding Bonds, Series 1995A,
AMBAC Insured, 5.00% 3,500,000 7/01/2010 3,464,405
Massachusetts State Water Resource Authority,
General Revenue Bonds, 1993 Series C, 6.00% 6,155,000 12/01/2011 6,718,059
Massachusetts Health and Educational
Facilities Authority, Refunding Bonds,
Massachusetts General Hospital Issue, Series
F, AMBAC Insured, 6.25% 3,000,000 7/01/2012 3,356,580
Massachusetts Bay Transportation Authority,
General Transportation System Bonds, 1994
Series A Refunding Bonds, 7.00% 3,385,000 3/01/2014 4,046,057
--------------
23,737,051
--------------
Nebraska 3.2%
Omaha Public Power District (Nebraska),
Electric System Revenue Bonds, 1992, Series B,
6.20% 4,700,000 2/01/2017 5,245,623
Nebraska Public Power District, Power Supply
System Revenue Bonds, 1995 Series A, MBIA
Insured, 5.25% 5,475,000 1/01/2022 5,391,014
--------------
10,636,637
--------------
New Hampshire 2.1%
New Hampshire Higher Educational and Health
Facilities Authority, First Mortgage Revenue
Bonds, RiverMead at Peterborough Issue, Series
1994, 7.375% 7,000,000 7/01/2000 7,067,060
--------------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ---------------------------------------------- ---------- --------- --------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------- -------- ------- ------------
New Jersey 0.3%
New Jersey Educational Facilities Authority,
Seton Hall University Project Revenue Bonds,
1991 Series D, 7.00% $ 1,000,000 7/01/2021 $ 1,094,580
--------------
New York 10.0%
State of New York, Serial Bonds, 5.50% 4,000,000 3/01/2011 4,068,160
Triborough Bridge & Tunnel Authority, General
Purpose Revenue Bonds, Series Y, 6.00% 5,000,000 1/01/2012 5,442,100
The City of New York, General Obligation
Refunding Bonds, Fiscal 1991 Series B, 7.75% 3,990,000 2/01/2012 4,432,092
State of New York, Serial Bonds, 5.625% 2,000,000 6/15/2012 2,032,900
New York State Thruway Authority, General
Revenue Bonds, Series B, MBIA Insured, 5.00% 5,000,000 1/01/2014 4,827,350
New York Local Government Assistance Corp., (A
Public Benefit Corporation of the State of New
York), Series 1993E Refunding Bonds, 5.00% 9,500,000 4/01/2021 8,978,735
Niagara Falls, New York, Bridge & Toll
Commission, FGIC Insured, 5.25% 3,400,000 10/01/2015 3,412,172
--------------
33,193,509
--------------
North Carolina 8.5%
North Carolina Municipal Power Agency Number
1, Catawba Electric Revenue Bonds, Series
1992, MBIA Insured, 7.25% 5,000,000 1/01/2007 5,970,550
County of Durham, North Carolina, Certificates
of Participation, (1991 Jail Facilities and
Computer Equipment Financing Project), 6.625% 1,850,000 5/01/2014 2,010,950
North Carolina (cont'd)
North Carolina, Eastern Municipal Power
Agency, Power System Revenue Bonds, Refunding
Series 1991A, 6.50% $10,525,000 1/01/2018 $12,616,633
North Carolina Housing Finance Agency,
Multifamily Revenue Refunding Bonds, (1992
Refunding Bond Resolution), Series B, 6.90% 6,990,000 7/01/2024 7,521,031
--------------
28,119,164
--------------
Ohio 2.9%
Hamilton County, Ohio, Sewer System
Improvement and Refunding Revenue Bonds, 1991
Series A, (The Metropolitan Sewer District of
Greater Cincinnati), Pre-Refunded to 6/1/2001
@ 102, 6.70%* 2,000,000 12/01/2013 2,261,100
City of Cleveland, Ohio, Public Power System
Improvement First Mortgage Revenue Refunding
Bonds, Series 1991 B, 7.00% 7,000,000 11/15/2017 7,508,340
--------------
9,769,440
--------------
Oregon 0.3%
State of Oregon, Housing, Educational and
Cultural Facilities Authority, Revenue Bonds,
(Reed College Project), 1991 Series A, 6.75%* 1,000,000 7/01/2021 1,134,530
--------------
Pennsylvania 4.7%
Scranton-Lackawanna Health and Welfare
Authority, Revenue Bonds, Series A of 1994,
(Allied Services Rehabilitation Hospitals
Project), 6.60% 500,000 7/15/2000 516,565
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------- ------- --------- ------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------- ------- --------- ------------
<S> <C> <C> <C>
Pennsylvania (cont'd)
Pennsylvania Housing Finance Agency, Single Family
Mortgage Revenue Bonds, Series 1994-41B (AMT), 5.50% $ 410,000 4/01/2001 $ 419,123
City of Bethlehem, Lehigh and Northampton Counties,
Pennsylvania, General Obligation Bonds, Series A of
1992, MBIA Insured, 6.00% 600,000 6/01/2001 645,750
Allegheny County Sanitary Authority, Allegheny
County, Pennsylvania, Sewer Revenue Bonds, Series B
of 1994, MBIA Insured, 5.25% 500,000 12/01/2001 521,085
Commonwealth of Pennsylvania, General Obligation
Bonds, Second Series of 1994, (Refunding and
Projects), MBIA Insured, 5.00% 500,000 6/15/2002 515,260
Pennsylvania Housing Finance Agency, Single Family
Mortgage Revenue Bonds, Series 1994-39B (AMT), 6.00% 360,000 4/01/2003 376,938
Montgomery County Industrial Development Authority,
Health Facilities Revenue Bonds, Series of 1993,
(ECRI Project), 6.40% 855,000 6/01/2003 887,037
Pennsylvania Housing Finance Agency, Single Family
Mortgage Revenue Bonds, Series 1994-39B (AMT), 6.00% 375,000 10/01/2003 393,637
Delaware County Industrial Development Authority,
Revenue Bonds, Series of 1994, (Martins Run), 5.75% 500,000 12/15/2003 495,900
Pennsylvania (cont'd)
Montgomery County Higher Education and Health
Authority, Pennsylvania, Northwestern Corp., 6.50% $1,140,000 6/01/2004 $ 1,232,032
Pennsylvania Intergovernmental Cooperation
Authority, Special Tax Revenue Refunding Bonds,
(City of Philadelphia Funding Program), Series of
1994, FGIC Insured, 7.00% 500,000 6/15/2004 574,510
Pennsylvania Convention Center Authority, Refunding
Revenue Bonds, 1994 Series A, 6.25% 1,000,000 9/01/2004 1,065,190
Southeastern Pennsylvania Transportation Authority,
Special Revenue Bonds, Series of 1995A, FGIC
Insured, 6.50% 200,000 3/01/2005 225,098
Pennsylvania Housing Finance Agency, Single Family
Mortgage Revenue Bonds, Series 1994-38 (Non-AMT),
5.50% 330,000 4/01/2005 333,782
County of Bucks, Pennsylvania, General Obligation
Bonds, Series of 1995, 7.00% 500,000 5/01/2005 593,460
The School District of Philadelphia, Pennsylvania,
General Obligation Refunding Bonds, Series A of
1995, AMBAC Insured, 6.25% 500,000 9/01/2005 555,480
Monroeville, Pennsylvania, Hospital Authority,
Hospital Refunding Bonds, Forbes Health System,
5.75% 500,000 10/01/2005 506,270
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ---------------------------------------------------- ------- --------- ------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------- ------- --------- ------------
Pennsylvania (cont'd)
Bradford Area School District, McKean County,
Pennsylvania, General Obligation Bonds, Series of
1995, FGIC Insured, 5.00% $ 500,000 10/01/2005 $ 513,155
Pennsylvania Higher Educational Facilities
Authority, (Commonwealth of Pennsylvania), (RIDC
Regional Growth-Carnegie), Revenue Bonds, 6.00% 350,000 11/01/2005 390,114
Bucks County Water and Sewer Authority, Bucks
County, Pennsylvania, Collection Sewer System Sewer
Revenue Bonds, Series of 1994, FGIC Insured, 6.15% 455,000 12/01/2005 489,070
Delaware County Authority, (Commonwealth of
Pennsylvania), (Villanova University), Revenue
Bonds, Series of 1995, AMBAC Insured, 5.25% 500,000 8/01/2006 515,535
Bethlehem Authority, Northampton and Lehigh
Counties, Pennsylvania, Water Revenue Refunding
Bonds, Series of 1994, MBIA Insured, 4.75% 500,000 11/15/2006 492,470
County of Cambria, Pennsylvania, General Obligation
Bonds, Series of 1994, FGIC Insured, 5.875% 500,000 8/15/2008 534,815
County of Allegheny, Pennsylvania, General
Obligation Bonds, Series C-44, FGIC Insured, 5.30% 435,000 6/01/2010 439,794
Pennsylvania Higher Educational Facilities
Authority, (Commonwealth of Pennsylvania),
(University of Pennsylvania), Revenue Bonds, Series
A, 5.60% 250,000 9/01/2010 260,582
Pennsylvania (cont'd)
Pennsylvania Economic Development Financing
Authority, Resource Recovery Revenue Bonds, (Colver
Project), Series 1994D, 7.05% $1,000,000 12/01/2010 $ 1,076,450
Montgomery County Industrial Development Authority,
Pollution Control Revenue Refunding Bonds, 1991
Series A, (Philadelphia Electric Co. Project),
Subject to AMT, 7.60% 1,000,000 4/01/2021 1,094,090
------------
15,663,192
------------
Puerto Rico 1.0%
Puerto Rico Municipal Finance Agency Series A, FSA
Insured, 5.30% 500,000 7/01/2002 525,455
Puerto Rico Highway and Transportation Authority,
Highway Revenue Refunding Bonds, Series V, FSA
Insured, 6.375% 500,000 7/01/2008 554,305
Puerto Rico Public Buildings Authority, Government
Facilities Revenue Bonds, Series A, AMBAC Insured,
6.25% 1,000,000 7/01/2010 1,129,990
Puerto Rico Electric Power Authority, Refunding
Revenue Bonds, Series Z, 5.25% 1,000,000 7/01/2021 965,930
------------
3,175,680
------------
Tennessee 3.2%
City of Memphis, Tennessee, Electric System Revenue
Refunding Bonds, Series of 1992, 6.00% 2,250,000 1/01/2006 2,501,955
City of Memphis, Tennessee, Water Division Revenue
Refunding Bonds, Series of 1992-A, 6.00% 3,000,000 1/01/2012 3,196,680
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- -------------------------------------------------------------------------------
- ---------------------------------------------------- ------- --------- ------------
Principal Maturity Value
Amount Date (Note 1)
- ---------------------------------------------------- ------- --------- ------------
Tennessee (cont'd)
The Metropolitan Government of Nashville and
Davidson County (Tennessee), Water and Sewer
Refunding Bonds, Series 1993, FGIC Insured, 5.20% $5,000,000 1/01/2013 $ 5,062,000
------------
10,760,635
------------
Texas 4.6%
City of Austin, Texas, Combined Utility Systems
Revenue Refunding Bonds, Series 1993, 5.80% 2,000,000 11/15/2006 2,201,460
Texas Turnpike Authority, Dallas North Tollway
System Revenue Refunding Bonds, Series 1996, FGIC
Insured, 6.50%+ 5,100,000 1/01/2009 5,465,976
Texas Municipal Power Agency, Refunding Revenue
Bonds, Series 1991A, AMBAC Insured, 6.75% 1,000,000 9/01/2012 1,110,830
Harris County, Texas, General Obligation, Unlimited
Tax, Refunding and Toll Road Subordinate Lien
Revenue Bonds, Series 1991, 6.75% 5,750,000 8/01/2014 6,321,550
------------
15,099,816
------------
Virginia 2.8%
The Rector and Visitors of the University of
Virginia, General Revenue Pledge Bonds, Series
1993B, 5.375% 3,250,000 6/01/2014 3,291,698
Virginia Public School Authority, School Financing
Bonds (1991 Resolution) Series 1995C, 5.00% 6,030,000 8/01/2015 5,897,159
------------
9,188,857
------------
Wisconsin 1.4%
Wisconsin Housing and Economic Development
Authority, Home Ownership Revenue Bonds, 1992 Series
2, Subject to AMT, 6.875% $4,250,000 9/01/2024 $ 4,523,615
------------
Total Municipal Bonds and Investments (Cost $313,871,284)--100.2% 332,551,902
Other Assets, Less Liabilities--(0.2)% (525,699)
------------
Net Assets--100.0% $332,026,203
============
</TABLE>
Federal Income Tax Information:
At December 31, 1995, the net unrealized
appreciation of investments based on cost for
Federal income tax purposes of $313,871,284 was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $18,792,088
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value (111,470)
----------
$18,680,618
==========
+ The delivery and payment of this security is beyond the normal settlement
time of three business days after the trade date. The purchase price and
interest rate are fixed at the trade date although interest is not earned
until settlement date.
* This security is being used to collateralize the delayed delivery purchase
noted above. The total market value of segregated securities is $6,693,230.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1995
Assets
Investments, at value (Cost $313,871,284) (Note 1) $332,551,902
Interest receivable 7,132,956
Receivable for fund shares sold 25,759
Receivable for securities sold 20,000
Other assets 64,266
-----------
339,794,883
Liabilities
Payable for securities purchased 5,977,581
Payable to custodian 419,883
Dividends payable 344,860
Payable for fund shares redeemed 262,175
Accrued transfer agent and shareholder services
(Note 2) 251,279
Accrued management fee (Note 2) 154,507
Accrued distribution and service fees (Note 4) 100,767
Accrued trustees' fees (Note 2) 23,838
Other accrued expenses 233,790
-----------
7,768,680
-----------
Net Assets $332,026,203
===========
Net Assets consist of:
Undistributed net investment income $ 286,673
Unrealized appreciation of investments 18,680,618
Accumulated net realized loss (2,635,682)
Shares of beneficial interest 315,694,594
-----------
$332,026,203
===========
Net Asset Value and redemption price per share of
Class A shares ($253,401,991 / 30,689,939 shares
of beneficial interest) $8.26
===========
Maximum Offering Price per share of Class A shares
($8.26 / .955) $8.65
===========
Net Asset Value and offering price per share of
Class B shares ($51,827,043 / 6,277,911 shares
of beneficial interest)* $8.26
===========
Net Asset Value, offering price and redemption
price per share of Class C shares ($22,614,311 /
2,745,656 shares of beneficial interest) $8.24
===========
Net Asset Value and offering price per share of
Class D shares ($4,182,858 / 507,065 shares of
beneficial interest)* $8.25
===========
*Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the year ended December 31, 1995
Investment Income
Interest $16,829,328
Expenses
Management fee (Note 2) 1,523,237
Transfer agent and shareholder services (Note 2) 537,740
Custodian fee 141,763
Reports to shareholders 76,625
Registration fees 49,625
Audit fee 35,285
Trustees' fees (Note 2) 30,683
Service fee--Class A (Note 4) 591,340
Distribution and service fees--Class B (Note 4) 379,969
Distribution and service fees--Class D (Note 4) 12,037
Legal fees 8,533
Miscellaneous 23,545
----------
3,410,382
----------
Net investment income 13,418,946
----------
Realized and Unrealized Gain (Loss) on
Investments and Futures Contracts
Net realized gain on investments (Notes 1 and 3) 8,386,787
Net realized loss on futures contracts (Note 1) (2,991)
----------
Total net realized gain 8,383,796
Net unrealized appreciation of investments (Note 5) 20,715,649
----------
Net gain on investments and futures contracts 29,099,445
----------
Net increase in net assets resulting from operations $42,518,391
==========
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------
Year ended December 31
----------------------------
1995 1994
- ------------------------------------ ----------- -------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 13,418,946 $ 15,317,645
Net realized gain (loss) on
investments and futures contracts* 8,383,796 (9,547,878)
Net unrealized appreciation
(depreciation) of investments 20,715,649 (28,974,700)
--------- -----------
Net increase (decrease) resulting
from operations 42,518,391 (23,204,933)
--------- -----------
Dividends from net investment
income:
Class A (12,265,000) (13,276,823)
Class B (1,664,544) (1,437,982)
Class C (63,631) (21,125)
Class D (52,929) (42,707)
--------- -----------
(14,046,104) (14,778,637)
--------- -----------
Distribution from net realized
gains:
Class A -- (379,796)
Class B -- (58,307)
Class C -- (535)
Class D -- (1,436)
--------- -----------
-- (440,074)
--------- -----------
Net increase (decrease) from fund
share transactions (Note 7) 28,826,529 (18,980,504)
--------- -----------
Total increase (decrease) in net
assets 57,298,816 (57,404,148)
Net Assets
Beginning of year 274,727,387 332,131,535
--------- -----------
End of year (including undistributed
net investment income of $286,673
and $880,566, respectively) $332,026,203 $274,727,387
========= ===========
*Net realized gain (loss) for
Federal income tax
purposes (Note 1) $ 7,274,722 $ (8,429,917)
========= ===========
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1995
Note 1
State Street Research Tax-Exempt Fund (the "Fund"), formerly MetLife-State
Street Tax-Exempt Fund, is a series of State Street Research Tax-Exempt Trust
(the "Trust"), formerly MetLife-State Street Tax-Exempt Trust, which was
organized as a Massachusetts business trust in December, 1985 and is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund commenced operations in
August, 1986. Two series of the Trust are publicly offered: State Street
Research Tax-Exempt Fund and State Street Research New York Tax-Free Fund.
The investment objective of the Fund is to seek a high level of interest
income exempt from federal income taxes. In seeking to achieve its investment
objective, the Fund invests primarily in tax-exempt debt obligations which
the investment manager believes will not involve undue risk.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and pay a service fee equal to 0.25% of
average daily net assets. Investments of $1 million or more in Class A
shares, which are not subject to any initial sales charge, are subject to a
1.00% contingent deferred sales charge if redeemed within one year of
purchase. Class B shares are subject to a contingent deferred sales charge on
certain redemptions made within five years of purchase and pay annual
distribution and service fees of 1.00%. Class B shares automatically convert
into Class A shares (which pay lower ongoing expenses) at the end of eight
years after the issuance of the Class B shares. Class C shares are only
offered 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
are subject to a contingent deferred sales charge of 1.00% on any shares
redeemed within one year of their purchase. Class D shares also pay annual
distribution and service fees of 1.00%. The Fund's expenses are borne
pro-rata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the Plan of
Distribution, related specifically to that class. The Trustees declare
separate dividends on each class of shares.
The following significant accounting policies are consistently followed by
the Fund in preparing its financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Investment Valuation
Tax-exempt securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term obligations are valued at
amortized cost. Other securities, if any, are valued at their fair value as
determined in accordance with established methods consistently applied.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis
of identified cost of securities delivered.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
C. Net Investment Income
Net investment income is determined daily and consists of interest accrued
and discount earned, less amortization of premium and the estimated daily
expenses of the Fund. Interest income is accrued daily as earned. The Fund is
charged for expenses directly attributable to it, while indirect expenses are
allocated between both funds in the Trust.
D. Dividends
Dividends are declared daily by the Fund based upon projected net investment
income and paid or reinvested monthly. Net realized capital gains, if any,
are distributed annually, unless additional distributions are required for
compliance with applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
E. Federal Income Taxes
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods. At December 31, 1995, the
Fund had a capital loss carryforward of $1,155,195 available, to the extent
provided in regulations, to offset future capital gains, if any, which
expires on December 31, 2002. In addition, as part of the transaction
described in Note 5, the Fund acquired from State Street Research California
Tax-Free Fund, State Street Research Florida Tax-Free Fund and State Street
Research Pennsylvania Tax-Free Fund a capital loss carryforward of
$1,246,007, of which $937,929 and $308,078 expires on December 31, 2001 and
2002, respectively. The Fund's use of such capital loss carryforward may be
limited under current tax laws.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through December 31, 1994 the Fund incurred net capital losses of $737,762
and has deferred and treated such losses as arising in the fiscal year ended
December 31, 1995.
F. Futures Contracts
The Fund may enter into futures contracts as a hedge against unfavorable
market conditions and to enhance income. The Fund will not purchase any
futures contract if, after such purchase, more than one-third of net assets
would be represented by long futures contracts. The Fund will limit its risks
by entering into a futures position only if it appears to be a liquid
investment.
Upon entering into a futures contract, the Fund deposits with the selling
broker sufficient cash or U.S. Government securities to meet the minimum
"initial margin" requirements. Thereafter, the Fund receives from or pays to
the broker cash or U.S. Government securities equal to the daily fluctuation
in value of the contract ("variation margin"), which is recorded as
unrealized gain or loss. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
G. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.55% of the Fund's average daily net
assets. In consideration of these fees, the Adviser furnishes the Fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended December 31, 1995, the fees pursuant to
such agreement amounted to $1,523,237.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended December 31, 1995, the amount of
such expenses was $104,948.
The fees of the Trustees not currently affiliated with the Adviser amounted
to $30,683 during the year ended December 31, 1995.
Note 3
For the year ended December 31, 1995, purchases and sales of securities,
exclusive of short-term obligations, aggregated $264,609,685 and
$277,637,906, respectively.
Note 4
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund pays annual service fees to the Distributor at a rate of 0.25% of
average daily net assets for Class A, Class B and Class D shares. In
addition, the Fund pays annual distribution fees of 0.75% of average daily
net assets for Class B and Class D shares. The Distributor uses such payments
for personal services and/or the maintenance of shareholder accounts, to
reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the year ended December 31, 1995,
fees pursuant to such plan amounted to $591,340, $379,969 and $12,037 for
Class A, Class B and Class D, respectively.
14
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
NOTES (cont'd)
- -------------------------------------------------------------------------------
Note 4 (cont'd)
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $74,456 and $505,190, respectively, on sales of Class A shares of
the Fund during the year ended December 31, 1995, and that MetLife
Securities, Inc. earned commissions aggregating $261,685 on sales of Class B
shares, and the Distributor collected contingent deferred sales charges
aggregating $417,782 and $36 on redemptions of Class B and Class D shares,
respectively, during the same period.
Note 5
On December 15, 1995, the Fund acquired the assets and liabilities of State
Street Research California Tax-Free Fund, State Street Research Florida
Tax-Free Fund and State Street Research Pennsylvania Tax-Free Fund (the
"Acquired Funds") in exchange for shares of each class of the Fund. The
acquisition was accounted for as a tax-free exchange of 2,085,788 Class A
shares, 1,364,200 Class B shares, 2,727,678 Class C shares and 375,835 Class
D shares of the Fund for the net assets of the Acquired Funds which amounted
to $17,040,955, $11,146,276, $22,230,046 and $3,067,368 for Class A, Class B,
Class C and Class D shares, respectively. The net assets of the Acquired
Funds included $2,518,588 of unrealized appreciation at the close of business
on December 15, 1995. The net assets of the Fund immediately after the
acquisition were $329,021,552.
Note 6
At December 31, 1995, investments totalling 12.5% and 10.2% of the Fund's net
assets were insured as to the timely payment of principal and interest by
Municipal Bond Investors Assurance Corp. (MBIA) and AMBAC Indemnity Corp.
(AMBAC), respectively.
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At December 31, 1995,
Metropolitan owned 184,018 Class A, 122,995 Class B, 1,133,487 Class C and
245,390 Class D shares and the Distributor owned 13,825 Class A shares and
one Class C share of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------------
1995 1994
------------------------- -----------------------------
Class A Shares Amount Shares Amount
- ------------------------------------ ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 4,674,154 $ 37,484,244 4,795,156 $ 38,277,992
Issued upon reinvestment of:
Dividends from net investment
income 1,134,792 8,963,324 1,261,918 9,851,273
Distribution from net realized
gains -- -- 43,200 322,270
Shares repurchased (7,024,141) (55,275,274) (10,125,093) (79,111,629)
-------- --------- --------- ------------
Net decrease (1,215,195) $ (8,827,706) (4,024,819) $(30,660,094)
======== ========= ========= ============
Class B Shares Amount Shares Amount
- ------------------------------------ -------- --------- --------- ------------
Shares sold 2,374,570 $ 19,127,552 2,332,039 $ 18,581,303
Issued upon reinvestment of:
Dividends from net investment
income 164,613 1,301,099 148,150 1,150,376
Distribution from net realized
gains -- -- 6,731 50,145
Shares repurchased (999,139) (7,870,018) (1,035,950) (7,990,693)
-------- --------- --------- ------------
Net increase 1,540,044 $ 12,558,633 1,450,970 $ 11,791,131
======== ========= ========= ============
Class C Shares Amount Shares Amount
- ------------------------------------ -------- --------- --------- ------------
Shares sold 2,740,046 $ 22,327,564 10,183 $ 81,311
Issued upon reinvestment of:
Dividends from net investment
income 4,806 38,781 2,602 20,345
Distribution from net realized
gains -- -- 72 535
Shares repurchased (43,984) (354,433) (24,703) (192,917)
-------- --------- --------- ------------
Net increase (decrease) 2,700,868 $ 22,011,912 (11,846) $ (90,726)
======== ========= ========= ============
Class D Shares Amount Shares Amount
- ------------------------------------ -------- --------- --------- ------------
Shares sold 417,377 $ 3,395,688 36,875 $ 296,347
Issued upon reinvestment of:
Dividends from net investment
income 2,759 21,771 1,725 13,235
Distribution from net realized
gains -- -- 180 1,341
Shares repurchased (41,573) (333,769) (42,597) (331,738)
-------- --------- --------- ------------
Net increase (decrease) 378,563 $ 3,083,690 (3,817) $ (20,815)
======== ========= ========= ============
</TABLE>
15
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------
Year ended December 31
-----------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 7.46 $ 8.43 $ 7.94 $ 7.69 $ 7.30
Net investment income .39 .40 .40 .43 .44
Net realized and unrealized gain (loss) on
investments .82 (.98) .54 .27 .39
Dividends from net investment income (.41) (.38) (.39) (.43) (.44)
Distributions from net realized gains -- (.01) (.06) (.02) --
----- ----- ----- ----- -------
Net asset value, end of year $ 8.26 $ 7.46 $ 8.43 $ 7.94 $ 7.69
===== ===== ===== ===== =======
Total return 16.58%+ (6.90)%+ 12.11%+ 9.34%+ 11.81%+
Net assets at end of year (000s) $253,402 $238,097 $302,845 $203,312 $118,157
Ratio of operating expenses to average net assets 1.13% 1.20% 1.20% 1.20% 1.25%
Ratio of net investment income to average net
assets** 4.95% 5.07% 4.85% 5.48% 6.00%
Portfolio turnover rate 97.32% 78.63% 36.16% 27.44% 81.75%
</TABLE>
<TABLE>
<CAPTION>
Class B Class C
------------------------------ ----------------------------------
Year ended December 31 Year ended December 31
------------------------------ ----------------------------------
1995 1994 1993* 1995 1994 1993*
- --------------------------------- ------ -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 7.46 $ 8.43 $ 8.25 $ 7.45 $ 8.41 $ 8.25
Net investment income .33 .34 .19 .40 .42 .23
Net realized and unrealized gain
(loss) on investments .82 (.97) .24 .81 (.96) .22
Dividends from net investment
income (.35) (.33) (.19) (.42) (.41) (.23)
Distributions from net realized
gains -- (.01) (.06) -- (.01) (.06)
---- ------- ------- ------- ------- --------
Net asset value, end of year $ 8.26 $ 7.46 $ 8.43 $ 8.24 $ 7.45 $ 8.41
==== ======= ======= ======= ======= ========
Total return 15.72%+ (7.59)%+ 5.20%+++ 16.76%+ (6.56)%+ 5.54%+++
Net assets at end of year (000s) $51,827 $35,338 $27,695 $22,614 $334 $477
Ratio of operating expenses to
average net assets 1.88% 1.95% 1.95%++ 0.88% 0.95% 0.96%++
Ratio of net investment income to
average net assets** 4.19% 4.35% 3.93%++ 4.85% 5.26% 4.92%++
Portfolio turnover rate 97.32% 78.63% 36.16% 97.32% 78.63% 36.16%
</TABLE>
<TABLE>
<CAPTION>
Class D
----------------------------------
Year ended December 31
----------------------------------
1995 1994 1993*
--------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
Net asset value, beginning of year $ 7.46 $ 8.43 $ 8.25
Net investment income .33 .34 .19
Net realized and unrealized gain (loss)
on investments .81 (.97) .23
Dividends from net investment income (.35) (.33) (.18)
Distributions from net realized gains -- (.01) (.06)
------- ------- --------
Net asset value, end of year $ 8.25 $ 7.46 $ 8.43
======= ======= ========
Total return 15.58%+ (7.59)%+ 5.19%+++
Net assets at end of year (000s) $4,183 $958 $1,115
Ratio of operating expenses to average
net assets 1.88% 1.95% 1.99%++
Ratio of net investment income to
average net assets** 4.13% 4.31% 3.92%++
Portfolio turnover rate 97.32% 78.63% 36.16%
</TABLE>
*June 7, 1993 (commencement of share class designations) to December 31,
1993.
**The ratio of net investment income to average net assets differs among
classes by amounts other than the difference in expense ratios because of
fluctuations during the year in relative levels of assets in each class
and in interest income earned.
++Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
16
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Trustees of State Street Research
Tax-Exempt Trust and the Shareholders of
State Street Research Tax-Exempt Fund
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of State Street Research
Tax-Exempt Fund (formerly MetLife-State Street Tax-Exempt Fund) (a series of
State Street Research Tax-Exempt Trust, hereafter referred to as the "Trust")
at December 31, 1995, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1995 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
February 2, 1996
17
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- -------------------------------------------------------------------------------
Throughout 1995, the slowing economy, low inflation, and declining interest
rates created a very favorable environment for bond investing. In 1995,
municipal bonds experienced their strongest returns since 1986, which helped
buoy Tax-Exempt Fund's returns.
In an effort to keep the economy from slowing too much, the Federal Reserve
Board made two interest-rate cuts in the second half of the year, which also
helped fuel the bond rally. These factors were instrumental in helping the
Fund's performance.
The Fund entered 1995 with a shorter duration than the market average. To
take advantage of the falling interest-rate environment, the Fund gradually
lengthened duration, which positively affected returns.
In selecting bonds for the portfolio, the Fund targeted states whose bonds
demonstrated high demand and low supply.
The Fund benefited from a strong overweighting in California bonds, which
performed well.
December 31, 1995
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. In March 1992, the Fund changed its
investment objective to eliminate requirements that a percentage of the 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. Performance for a class
includes periods prior to the adoption of class designations. Performance
reflects up to maximum 4.5% front-end or 5% contingent deferred sales
charges. Performance for "B" and "D" shares prior to class designations in
1993 reflects annual 12b-1 fees of .25%, and performance thereafter reflects
12b-1 fees of 1%, which will reduce subsequent performance. "C" shares,
offered without a sales charge, are available only to certain employee
benefit plans and institutions. The Lehman Municipal 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.
Comparison Of Change In Value Of A $10,000
Investment In Tax Exempt Fund and
the Lehman Municipal Bond Index
Class A Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+11.3% +7.27 +7.04%
-------------------------------------------------------
Lehman Municipal Tax-Exempt
Bond Index Fund
8/86 10000 9550
12/86 10371 9890
12/87 10527 9748
12/88 11597 11063
12/89 12849 12128
12/90 13785 12713
12/91 15459 14213
12/92 16821 15538
12/93 18888 17420
12/94 17911 16218
12/95 21038 18906
Class B Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+10.72 +7.55% +7.35%
-------------------------------------------------------
Lehman Municipal Tax-Exempt
Bond Index Fund
8/86 10000 10000
12/86 10371 10355
12/87 10527 10208
12/88 11597 11585
12/89 12849 12699
12/90 13785 13313
12/91 15459 14883
12/92 16821 16270
12/93 18888 18165
12/94 17911 16786
12/95 21038 19425
Class C Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+16.76% +8.35% +7.62%
-------------------------------------------------------
Lehman Municipal Tax-Exempt
Bond Index Fund
8/86 10000 10000
12/86 10371 10355
12/87 10527 10208
12/88 11597 11585
12/89 12849 12699
12/90 13785 13313
12/91 15459 14883
12/92 16821 16270
12/93 18888 18224
12/94 17911 17028
12/95 21038 19882
Class D Shares
Average Annual Total Return
-------------------------------------------------------
1 Year 5 Years Life of Fund
-------------------------------------------------------
+14.58% +7.82% +7.34%
-------------------------------------------------------
Lehman Municipal Tax-Exempt
Bond Index Fund
8/86 10000 10000
12/86 10371 10355
12/87 10527 10208
12/88 11597 11585
12/89 12849 12699
12/90 13785 13313
12/91 15459 14883
12/92 16821 16270
12/93 18888 18163
12/94 17911 16784
12/95 21038 19399
[end line charts]
18
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- -------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH TAX-EXEMPT
TRUST
- -------------------------------------------------------------------------------
Fund Information
State Street Research
Tax-Exempt Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
Officers
Ralph F. Verni
Chairman of the Board,
President and Chief
Executive Officer
Paul J. Clifford, Jr.
Vice President
John H. Kallis
Vice President
Thomas A. Shively
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A.Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of
the Board and Chief Executive
Officer, Raytheon Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School
of Management, Massachusetts
Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel,
Choate, Hall & Stewart
19
<PAGE>
[back cover]
State Street Research Tax-Exempt Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Brockton, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[State Street logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective
investors.
CONTROL NUMBER: 2965-960216(0397)SSR-LD
Cover Illustration by Dorothy Cullinan
TE-929D-296
