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This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Tax-Exempt Fund
prospectus. When used after March 31, 1997, this report must be accompanied
by a current Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: 3734-970225(0398)SSR-LD
Cover Illustration by Dorothy Cullinan TE-929D-297IB
<PAGE>
[State Street Research logo]
State Street Research
Tax-Exempt Fund
Annual Report
December 31, 1996
[Illustration of person building with blocks]
- ----------------------------------
What's Inside
- ----------------------------------
From the Chairman
Positive performance from
bonds and stocks
Portfolio Manager's Review
Municipal bonds rally in
second half of 1996
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
- -----------------------------------DALBAR AWARD---------------------------------
Quality
Tested Service
1 9 9 5
Dalbar
Honors Commitment To:
Investors
For Excellence
in
Shareholder Service
<PAGE>
From the Chairman
To Our Shareholders:
[Photo of Ralph F. Verni]
1996 was another year of positive returns for many investors. For much of the
past year, there were strong corporate profits, low inflation and
steady-but-slow economic growth. Bond investors saw the Lehman Brothers
Aggregate Bond Index gain +3.63% and Municipal Bond Index gain +4.43% for the 12
months ended December 31, 1996. In the stock market, the Dow Jones Industrial
Average broke the 6000 point barrier in October, and the Standard & Poor's 500
Composite Index was up +22.95% for the same time period.(1)
Bonds
High-yield bonds were steady performers throughout the year, benefiting from the
stronger than expected economy, which never overheated enough to precipitate any
action by the Federal Reserve. After stumbling early in the year, higher-quality
bonds rallied through the summer and fall, before losing momentum late in the
fourth quarter. In 1997, bonds should continue to take their cue from the
economy and the Fed.
Stocks
Most of the gains in the stock market in 1996 were concentrated in the largest
companies and industry giants. Two steep corrections, one in July and one in
December, caused an abundance of investor concern, which resulted in a lopsided
recovery that mainly benefited only larger stocks. Our analysts believe that
1997 may be a year in which the smaller companies, many of which have not been
able to keep pace with the larger names, may see better results.
Tax-Time Reminder
In closing, I'd like to remind State Street Research investors of our extended
call-in hours for tax time. Starting March 1 and continuing through April 15,
1997, Shareholder Services representatives will be available from 8:00 a.m.
until 8:00 p.m., and on Saturdays from 10:00 a.m. until 2:00 p.m. Call them with
your account and tax-related questions during these extended hours.
Thank you for investing in State Street Research Tax-Exempt Fund.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
January 31, 1997
(1) The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
(2) +2.15% for Class B shares; +3.30% for Class C shares; +2.28% for Class D
shares.
(3) 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.
(4) 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 specify 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 may
include periods prior to the adoption of class designations in 1993, which
resulted in new or increased 12b-1 fees of up to 1% per class thereafter and
which will reduce subsequent performance. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions.
(5) Performance reflects maximum 4.5% "A" share front-end sales charge or 5% "B"
share or 1% "D" share contingent deferred sales charges where applicable.
(6) 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, 1996)
- ------------------------------------------------------------------------------
Total Value of $10,000 Invested on 1/1/87(3)
(Class A shares, at maximum applicable sales charge)
[DESCRIPTION OF MOUNTAIN CHART]
12/86 9550
12/87 9414
12/88 10684
12/89 11712
12/90 12278
12/91 13726
12/92 15006
12/93 16823
12/94 15662
12/95 18259
12/96 18794
SEC Average Annual Compound
Rates of Return
(at maximum applicable sales charge)(4),(5)
- -------------------------------------------
10 Years 5 Years 1 Year
- -------------------------------------------
Class A +6.51% +5.51% -1.70%
------------------------------------------
Class B +6.72% +5.60% -2.76%
------------------------------------------
Class C +7.09% +6.65% +3.30%
------------------------------------------
Class D +6.72% +5.92% +1.30%
------------------------------------------
Cumulative Total Returns
(do not reflect sales charge)(4),(6)
- ------------------------------------------
10 Years 5 Years 1 Year
- ------------------------------------------
Class A +96.87% +36.95% +2.93%
- ------------------------------------------
Class B +91.69% +33.35% +2.15%
- ------------------------------------------
Class C +98.42% +38.03% +3.30%
- ------------------------------------------
Class D +91.68% +33.34% +2.28%
- ------------------------------------------
Taxable
Equivalent
Yield
(36% federal
SEC Yield tax bracket)
- ---------------------------------------
Class A 4.66% 7.28%
- ---------------------------------------
Class B 4.13% 6.45%
- ---------------------------------------
Class C 5.12% 8.00%
- ---------------------------------------
Class D 4.14% 6.47%
- ---------------------------------------
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, 1996. 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]
Paul J. Clifford, Jr.
Portfolio Manager
The following is a discussion with portfolio manager Paul Clifford. Paul has 12
years of investment experience and has managed mutual funds at State Street
Research since 1993.
Q: What was the investment environment like for municipal bonds over the past
twelve months?
A: The investment environment had a negative tone early in 1996 and improved
steadily in the second half of the year. In the first quarter, municipal bond
prices experienced volatility, due to uncertainty about the economy's strength
and concerns about the possibility of tax reform. By mid-year, the bond market
minimized the impact of these issues and the municipal bond market regained
stability. Eventually, prices gained a positive momentum and municipal bonds
outperformed U.S. Treasuries in the second half of 1996.
Two other factors characterized the municipal bond market in 1996. Demand was
strong from insurance companies who were sizable, steady buyers of municipal
bonds with 10- to 20-year maturities. Also, approximately 46% of all new issues
came with AAA insurance. This caused yields of bonds rated AA and below to fall
relative to AAA insured bonds, as investors diversified into other credit
sectors and sought additional yield.
Despite the market's impressive turnaround in the second half of the year, the
volatility in the early part of 1996 negatively affected the municipal bond
market's twelve-month performance, resulting in annual total returns for the
tax-exempt sector that were low by historical standards.
Q: How was the performance of the Fund during this time?
A: Class A shares of the Fund had a total return of +2.93% for the twelve months
ended December 31, 1996 (does not reflect sales charge).2 The Fund
underperformed Lipper Analytical Services' General Municipal Debt Funds
category, which had a total return of +3.30% (does not reflect sales charge) for
the same time period. As of December 31, 1996, the Fund's average quality was
Aa3/AA and its duration stood at 8.1 years. During the final six months of the
year, Fund performance improved markedly relative to its peer group. Six-month
total return ended December 31, 1996 for "A" shares of the Fund was +5.28; for
the Lipper category, +4.73% (does not reflect sales charge).
Q: What strategies accounted for the Fund's improved performance over the
second half of 1996?
A: We shortened the Fund's duration, reduced holdings in AAA insured bonds
and increased the Fund's position in higher-yielding bonds. Duration measures
a portfolio's sensitivity to interest-rate changes. A longer duration is more
sensitive to interest-rate changes than a shorter duration.
We also increased the Fund's holdings in securities rated in the BBB category.
This change prepared the portfolio for a strategy that emphasized individual
bond selection rather than duration in determining total return. We believe this
will increase the Fund's stability over the long run.
We reduced the Fund's holdings in AAA insured bonds from 36% on December 31,
1995 to 21% on December 31, 1996 and increased its position in higher-yielding
municipal bonds from approximately 5% to approximately 20% over the same time
period. These bonds generated a higher level of current income and offered an
improvement in the Fund's potential for price appreciation.
Q: What is your outlook for municipal bonds over the next six months?
A: We expect the municipal bond market to be relatively stable in the near
term. We look for moderate economic growth and contained inflation to provide
a positive backdrop for bonds.
We think Tax-Exempt Fund is in position for such an investment climate. We
will continue to emphasize individual credit selection to maximize income and
potential for capital appreciation.
December 31, 1996
- ---------------------------------Pie Chart--------------------------------------
Bond Quality by Rating Category
(by percentage of portfolio)
AAA 21%
AA 27%
A 13%
BBB 21%
-B 5%
Not rated 13%
Quality ratings based on those provided
by Standard & Poor's Corp. and/or equivalent
ratings by Moody's Investors Service, Inc.
- --------------------------------------------------------------------------------
- ---------------------------------Bar Chart--------------------------------------
Top 5 State Representations
(by percentage of net assets)
California 13.8%
Florida 10.1%
Texas 9.1%
Massachusetts 7.9%
New York 7.7%
Total: 48.6%
- --------------------------------------------------------------------------------
- ---------------------------------Bar Chart--------------------------------------
Top 5 Sectors
(by percentage of net assets)
Power bonds 11.0%
Water/sewer bonds 9.1%
Industrial development revenue/
pollution control revenue bonds 7.9%
Transit/highway revenue bonds 7.4%
Life care bonds 7.1%
Total: 42.5%
- --------------------------------------------------------------------------------
2
<PAGE>
State Street Research Tax-Exempt Fund
- -----------------------------------------------------------------------------
Investment Portfolio
- -----------------------------------------------------------------------------
December 31, 1996
- -----------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- -----------------------------------------------------------------------------
MUNICIPAL BONDS 100.0%
Arizona 1.6%
Salt River Project Agricultural
Improvement and Power District,
Arizona, Salt River Project
Electric System Refunding Revenue
Bonds, 1993 Series C, 5.00% $5,000,000 1/01/2016 $ 4,713,250
------------
California 13.8%
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 1,089,000
South Orange County Public Financing
Authority, Special Tax Revenue
Bonds, 1994 Series B (Junior Lien
Bonds), 7.00% 500,000 9/01/2007 508,275
City of Duarte, California,
Certificates of Participation,
(Hope National Medical Center),
6.00% 500,000 4/01/2008 506,095
Santa Clara County Financing
Authority, (VMC Facility
Replacement Project), 1994 Series
A Bonds, AMBAC Insured, 7.75% 1,000,000 11/15/2008 1,242,660
South Orange County Public Financing
Authority, Special Tax Revenue
Bonds, 1994 Series B (Junior Lien
Bonds), 7.00% 1,000,000 9/01/2009 1,010,090
Foothill/Eastern Transportation
Corridor Agency, Series 1995A
Senior Lien Convertible Capital
Appreciation Bonds, 0.00% 1,695,000 1/01/2010 1,101,818
California Housing Finance Agency,
Home Mortgage Revenue Bonds, 1991
Series G, Subject to AMT, 6.95% 260,000 8/01/2011 275,839
Port Hueneme Redevelopment Agency,
Central Community Project, 1993
Tax Allocation Refunding Bonds,
AMBAC Insured, 5.50% 1,800,000 5/01/2014 1,817,910
California (cont'd)
California Pollution Control
Financing Authority, Pollution
Control Refunding Revenue Bonds,
(San Diego Gas & Electric
Company), 1996 Series A, 5.90% $2,000,000 6/01/2014 $ 2,100,220
Sacramento Power Authority,
Cogeneration Project Revenue
Bonds, (Procter & Gamble Project),
1995 Series, 6.50% 1,300,000 7/01/2014 1,359,293
California Housing Finance Agency,
Home Mortgage Revenue Bonds, 1994
Series G, 7.20% 1,500,000 8/01/2014 1,592,490
Rancho California Water District
Financing Authority, Revenue
Refunding Bonds, AMBAC Insured,
Series 1994, 5.00% 4,000,000 8/15/2014 3,793,280
City of Stockton, Revenue
Certificates of Participation,
1995 Series A, (Wastewater
Treatment Plant Expansion), FGIC
Insured, 6.70% 1,000,000 9/01/2014 1,109,800
California Educational Facilities
Authority, Series 1994 Revenue
Bonds (Southwestern University,
Project), MBIA Insured, 6.60% 1,000,000 11/01/2014 1,065,310
County of Madera, California,
Certificates of Participation,
(Valley Children's Hospital
Project), Series 1995, MBIA
Insured, 6.50% 1,000,000 3/15/2015 1,118,880
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 679,014
Roseville Joint Union High School
District, 1992 General Obligation
Bonds, Series B, FGIC Insured,
0.00% 1,000,000 8/01/2015 348,370
Fresno Sewer Revenue Bonds, Series
A-1, AMBAC Insured, 5.25% 5,100,000 9/01/2019 4,961,331
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
California (cont'd)
Central Coast Water Authority,
Refunding Revenue Bonds, (State
Water Project Regional
Facilities), Series 1996A, AMBAC
Insured, 5.00% $2,000,000 10/01/2022 $ 1,847,500
The Metropolitan Water District of
Southern California, Water Revenue
Bonds, 1996 Series C, 5.00% 5,000,000 7/01/2027 4,597,800
San Joaquin Hills Transportation
Corridor Agency, (Orange County,
California), Senior Lien Toll Road
Revenue Bonds, 7.00% 1,000,000 1/01/2030 1,074,680
Foothill/Eastern Transportation
Corridor Agency, Toll Road Revenue
Bonds Series 1995A Senior Lien,
6.50% 6,000,000 1/01/2032 6,273,240
------------
39,472,895
------------
Colorado 4.2%
City and County of Denver, Colorado,
Department of Aviation, Airport
System Revenue Bonds, Series
1996C, MBIA Insured, Subject to
AMT, 5.50% 1,500,000 11/15/2013 1,478,820
City and County of Denver, Colorado,
Department of Aviation, Airport
System Revenue Bonds, Series
1996B, MBIA Insured, Subject to
AMT, 5.75% 3,500,000 11/15/2015 3,505,670
Arapahoe County, Colorado, Public
Highway Authority, Capital
Improvement Trust Fund, Highway
Revenue, Bonds (E-470 Project),
7.00% 5,000,000 8/31/2026 5,519,950
Colorado Housing and Finance
Authority, Single Family Program
Senior and Subordinate Bonds, 1996
Series B, 7.45% 1,500,000 11/01/2027 1,680,375
------------
12,184,815
------------
Connecticut 3.4%
State of Connecticut, Clean Water
Fund Revenue Bonds, 1991 Series,
7.00% $1,000,000 1/01/2011 $ 1,108,970
State of Connecticut, Special Tax
Obligation Bonds, Transportation
Infrastructure Purposes, 1991
Series A, 6.50% 1,500,000 10/01/2012 1,678,365
Connecticut Development Authority,
Pollution Control Refunding Bonds,
(Pfizer Inc. Project-1982 Series),
6.55% 2,500,000 2/15/2013 2,720,200
State of Connecticut Health and
Educational Facilities Authority,
Revenue Bonds, Quinnipiac College,
Issue, Series D, 6.00% 4,465,000 7/01/2023 4,282,337
-----------
9,789,872
-----------
Florida 10.1%
St. Johns County Industrial
Development Authority, Industrial
Development Revenue Bonds, Series
1993A, (Vicar's Landing Project),
6.20% 500,000 2/15/2003 514,780
Collier County Health Facilities
Authority, Health Facility
Refunding Revenue Bonds, (The
Moorings, Inc. Project), Series
1994, 6.00% 500,000 12/01/2005 514,545
Orlando Utilities Commission, Water
and Electric Subordinated Revenue
Bonds, Series D, 6.75% 8,950,000 10/01/2017 10,457,627
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 1,367,438
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 1,089,420
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Florida (cont'd)
Orange County, Florida, Health
Facilities Authority, First
Mortgage Revenue Bonds, Series
1996, (Orlando Lutheran Towers,
Inc.), 8.75% $5,000,000 7/01/2026 $ 5,248,200
Volusia County Educational Facility
Authority, Educational Facilities
Revenue Bonds, (Embry-Riddle
Aeronautical University Project),
Series 1996A, 6.125% 5,000,000 10/15/2026 5,081,200
Northern Palm Beach County, Florida,
Improvement District, Water
Control and Improvement Bonds,
Unit of Development No. 9A, Series
1996A, 7.30% 3,000,000 8/01/2027 3,056,040
Housing Authority of Lee County,
Florida, Single Family Mortgage
Revenue Bonds, (Multi-County
Program), Series 1996A, Subseries
2, Subject to AMT, 7.50% 1,500,000 9/01/2027 1,667,670
-----------
28,996,920
-----------
Georgia 3.9%
State of Georgia, General Obligation
Bonds, Series 1992B, 6.25% 4,300,000 3/01/2011 4,761,691
State of Georgia, General Obligation
Bonds, Series 1994E, 6.75% 1,000,000 12/01/2012 1,163,870
Metropolitan Atlanta Rapid Transit
Authority, Georgia, Sales Tax
Revenue Bonds, Refunding Series P,
AMBAC Insured, 6.25% 4,700,000 7/01/2020 5,208,023
------------
11,133,584
------------
Hawaii 2.6%
State of Hawaii, General Obligation
Bonds of 1991, Series BT, 6.125%* 2,000,000 2/01/2010 2,140,080
Hawaii (cont'd)
State of Hawaii, Airports System
Revenue Bonds, Second Series of
1991, MBIA Insured, Subject to
AMT, 7.00% $5,000,000 7/01/2018 $ 5,418,650
------------
7,558,730
------------
Illinois 2.0%
City of Chicago, Illinois, Gas
Supply Revenue Bonds, 1985 Series
B (The Peoples Gas Light and Coke
Company Project), 7.50% 3,500,000 3/01/2015 3,804,360
City of Chicago, Illinois, Midway
Airport Revenue Bonds, Series B,
MBIA Insured, Subject to AMT,
5.625% 2,000,000 1/01/2029 1,915,720
------------
5,720,080
------------
Kansas 0.4%
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 1,099,600
------------
Maryland 1.9%
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 5,397,850
------------
Massachusetts 7.9%
Massachusetts Industrial Finance
Agency, First Mortgage Revenue
Bonds, (Brookhaven Retirement
Community, Lexington-1994 Issue),
Series A, 6.75% 4,500,000 1/01/2001 4,718,475
Massachusetts Industrial Finance
Agency, First Mortgage Revenue
Bonds, (Berkshire Retirement
Community, Lenox- 1994 Issue)
Series A, 6.375% 1,500,000 7/01/2005 1,526,985
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Massachusetts (cont'd)
The Commonwealth of Massachusetts,
General Obligation Refunding
Bonds, 1995 Series A, AMBAC
Insured, 5.00% $4,000,000 7/01/2011 $ 3,871,800
Massachusetts State Water Resources
Authority, General Revenue Bonds,
1993 Series C, 6.00% 6,155,000 12/01/2011 6,542,334
Massachusetts Bay Transportation
Authority, General Transportation
System Bonds, 1994 Series A
Refunding Bonds, 7.00% 3,385,000 3/01/2014 3,998,125
Massachusetts Housing Finance
Agency, Single Family Housing
Revenue Bonds, Series 34, MBIA
Insured, Subject to AMT, 6.25% 2,000,000 12/01/2015 2,032,460
------------
22,690,179
------------
Minnesota 0.7%
Minnesota Housing Finance Authority,
Single Family Mortgage Bonds, 1994
Series E, 5.90% 2,100,000 7/01/2025 2,123,646
------------
Mississipi 0.7%
Claiborne County, Mississippi,
Pollution Control Revenue Bonds,
(Middle South Energy, Inc.
Project), Series B, 8.25% 1,750,000 6/01/2014 1,893,360
------------
Nevada 2.6%
North Las Vegas, Nevada, Local
Special Improvements District No.
707, 7.10% 2,500,000 6/01/2016 2,548,675
State of Nevada, General Obligation
(Limited Tax) Bonds, Nevada
Municipal Bond Bank Project Nos.
49 and 50, Series November 1,
1995A, FGIC Insured, 5.50% 5,000,000 11/01/2025 4,935,450
------------
7,484,125
------------
New Hampshire 4.2%
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 $ 7,182,280
New Hampshire Higher Educational and
Health Facilities Authority
Revenue Bonds, Dartmouth College
Issue, Series 1993, 5.375% 5,000,000 6/01/2023 4,832,150
------------
12,014,430
------------
New Jersey 2.0%
New Jersey Transportation Trust Fund
Authority, Transportation System
Bonds, 1996 Series B, 5.00% 5,000,000 6/15/2017 4,666,150
New Jersey Educational Facilities
Authority, Seton Hall University
Project Revenue Bonds, 1991 Series
D, 7.00% 1,000,000 7/01/2021 1,053,060
------------
5,719,210
------------
New Mexico 0.9%
City of Farmington, New Mexico,
Pollution Control Revenue
Refunding Bonds, (Public Service
Company of New Mexico San Juan
Project), 1996 Series B, 6.30% 2,500,000 12/01/2016 2,514,350
------------
New York 7.7%
The Port Authority of New York and
New Jersey, Special Project Bonds,
Series 4, KIAC Partners Project,
Subject to AMT, 6.75% 5,000,000 10/01/2011 5,163,050
City of New York, General Obligation
Refunding Bonds, Fiscal 1991
Series B, 7.75% 3,990,000 2/01/2012 4,489,907
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
New York (cont'd)
New York Local Government Assistance
Corp., (A Public Benefit
Corporation of the State of New
York), Series 1993E Refunding
Bonds, 6.00% $5,000,000 4/01/2014 $ 5,380,050
Metropolitan Transportation
Authority, Transit Facilities
Revenue Bonds, Series K, 6.625% 2,000,000 7/01/2014 2,222,900
Dormitory Authority of the State of
New York, Department of Health of
the State of New York, Revenue
Bonds, Series 1996, 5.75% 5,000,000 7/01/2017 4,842,200
------------
22,098,107
------------
North Carolina 6.4%
North Carolina Municipal Power
Agency Number 1, Catawba Electric
Revenue Bonds, Series 1992, MBIA
Insured, 7.25% 5,000,000 1/01/2007 5,858,650
County of Durham, North Carolina,
Certificates of Participation,
(1991 Jail Facilities and Computer
Equipment Financing Project),
6.625% 2,065,000 5/01/2014 2,200,485
Board of Governors of The University
of North Carolina, University of
North Carolina Hospitals at Chapel
Hill, Revenue Bonds, Series 1996,
5.25% 3,000,000 2/15/2019 2,856,660
North Carolina Housing Finance
Agency, Multifamily Revenue
Refunding Bonds, (1992 Refunding
Bond Resolution), Series B, 6.90% 6,990,000 7/01/2024 7,403,668
------------
18,319,463
------------
Ohio 5.2%
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 $ 2,215,200
County of Miami, Ohio, Hospital
Facilities Revenue Refunding and
Improvement Bonds, Series 1996A,
(Upper Valley Medical Center),
6.25% 2,500,000 5/15/2016 2,503,775
City of Cleveland, Ohio, Various
Purpose General Obligation Bonds,
Series 1996, AMBAC Insured, 5.50% 2,250,000 9/01/2016 2,263,275
City of Cleveland, Ohio, Public
Power System Improvement First
Mortgage Revenue Refunding Bonds,
Series 1991 B, 7.00% 7,000,000 11/15/2017 7,910,980
------------
14,893,230
------------
Oregon 0.4%
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 1,109,010
------------
Pennsylvania 2.8%
Scranton-Lackawanna Health and
Welfare Authority, Revenue Bonds,
Series A of 1994, (Allied Services
Rehabilitation Hospitals Project),
6.60% 500,000 7/15/2000 510,695
Montgomery County Industrial
Development Authority, Health
Facilities Revenue Bonds, Series
of 1993, (ECRI Project), 6.40% 770,000 6/01/2003 794,771
Delaware County Industrial
Development Authority, Revenue
Bonds, Series of 1994, (Martins
Run), 5.75% 500,000 12/15/2003 497,720
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Pennsylvania (cont'd)
Montgomery County Higher Education
and Health Authority,
Pennsylvania, Northwestern Corp.,
6.50% $1,140,000 6/01/2004 $ 1,213,234
Monroeville, Pennsylvania, Hospital
Authority, Hospital Refunding
Bonds, Forbes Health System, 5.75% 500,000 10/01/2005 508,530
Pennsylvania Economic Development
Financing Authority, Resource
Recovery Revenue Bonds,
(Northampton Generating Project),
Series 1994A, 6.40% 2,500,000 1/01/2009 2,481,400
Pennslyvania Economic Development
Financing Authority, Resource
Recovery Revenue Bonds, (Colver
Project), Series 1994D, 7.05% 1,000,000 12/01/2010 1,048,540
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 1,074,890
------------
8,129,780
------------
Tennessee 1.9%
City of Memphis, Tennessee, Electric
System Revenue Refunding Bonds,
Series of 1992, 6.00% 2,250,000 1/01/2006 2,440,057
City of Memphis, Tennessee, Water
Division Revenue Refunding Bonds,
Series of 1992-A, 6.00% 3,000,000 1/01/2012 3,142,530
------------
5,582,587
------------
Texas 9.1%
City of Austin, Texas, Combined
Utility Systems Revenue Refunding
Bonds, Series 1993, 5.80% 2,000,000 11/15/2006 2,136,040
Texas (cont'd)
Texas Turnpike Authority, Dallas
North Tollway System Revenue
Refunding Bonds, Series 1996, FGIC
Insured, 6.50%+ $5,100,000 1/01/2009 $ 5,595,006
Texas Municipal Power Agency,
Refunding Revenue Bonds, Series
1991A, AMBAC Insured, 6.75% 1,000,000 9/01/2012 1,079,850
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 6,238,175
Dallas-Fort Worth International
Airport, Facility Improvement
Corporation, American Airlines,
Inc. Revenue Bonds, Series 1990,
7.50% 5,250,000 11/01/2025 5,624,377
AllianceAirport Authority, Inc.,
Special Facilities Revenue Bonds,
Series 1990, (American Airlines,
Inc. Project), 7.50% 5,000,000 12/01/2029 5,361,800
------------
26,035,248
------------
Utah 0.9%
Intermountain Power Agency, Utah,
Power Supply Revenue Refunding
Bonds, 1996 Series A, MBIA
Insured, 6.15% 2,500,000 7/01/2014 2,630,450
------------
Vermont 0.5%
Vermont Educational and Health
Buildings Financing Agency,
Revenue Bonds, (Middlebury College
Project), Series 1996, 5.375% 1,500,000 11/01/2026 1,424,175
------------
Washington 0.7%
Washington Public Power Supply
System, Nuclear Project No. 1,
Refunding Revenue Bonds, Series
1996A, 5.70% 2,000,000 7/01/2012 2,015,060
------------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
- ------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ------------------------------------------------------------------------------
Wisconsin 1.5%
Wisconsin Housing and Economic
Development Authority, Home
Ownership Revenue Bonds, 1992
Series 2, Subject to AMT,
6.875% $4,250,000 9/01/2024 $ 4,453,320
------------
Total Municipal Bonds (Cost $273,381,058) 287,197,326
------------
SHORT-TERM OBLIGATIONS--0.2%
State of Massachusetts, Series
B, 4.80% 500,000 1/02/1997++ 500,000
------------
Total Short-Term Obligations (Cost $500,000) 500,000
------------
Total Investments (Cost $273,881,058)--100.2% 287,697,326
Cash and Other Assets, Less Liabilities--(0.2%) (702,017)
------------
Net Assets--100.0% $286,995,309
============
Federal Income Tax Information:
AtDecember 31, 1996, the net unrealized appreciation of investments based on
cost for Federal income tax purposes of $273,881,058 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value
over tax cost $ 13,843,652
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax
cost over value (27,384)
------------
$ 13,816,268
============
- ------------------------------------------------------------------------------
++ Interest rate on this obligation 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 $6,553,710.
- -----------------------------------------------------------------------------
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
December 31, 1996
Assets
Investments, at value (Cost $273,881,058) (Note 1) $287,697,326
Cash 74,621
Interest receivable 6,074,632
Receivable for fund shares sold 95,933
Other assets 247
-------------
293,942,759
Liabilities
Payable for securities purchased 5,977,581
Dividends payable 308,558
Payable for fund shares redeemed 160,302
Accrued transfer agent and shareholder services
(Note 2) 144,621
Accrued management fee (Note 2) 135,117
Accrued distribution and service fees (Note 4) 93,462
Accrued trustees' fees (Note 2) 31,133
Other accrued expenses 96,676
-------------
6,947,450
-------------
Net Assets $286,995,309
=============
Net Assets consist of:
Undistributed net investment income $ 118,283
Unrealized appreciation of investments 13,816,268
Accumulated net realized loss (4,469,908)
Shares of beneficial interest 277,530,666
-------------
$286,995,309
=============
Net Asset Value and redemption price per share
of Class A shares ($223,406,716 / 27,564,079
shares of beneficial interest) $8.10
=============
Maximum Offering Price per share of Class A shares
($8.10 / .955) $8.48
=============
Net Asset Value and offering price per share of
Class B shares ($51,710,259 / 6,380,372 shares
of beneficial interest)* $8.10
=============
Net Asset Value, offering price and redemption
price per share of Class C shares
($8,989,569 / 1,111,576 shares of beneficial
interest) $8.09
=============
Net Asset Value and offering price per share of
Class D shares ($2,888,765 / 356,711 shares
of beneficial interest)* $8.10
=============
-----------------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
- -----------------------------------------------------------------------------
Statement of Operations
- -----------------------------------------------------------------------------
For the year ended December 31, 1996
Investment Income
Interest $17,719,764
Expenses
Management fee (Note 2) 1,665,478
Transfer agent and shareholder services (Note 2) 356,505
Custodian fee 147,365
Reports to shareholders 60,745
Trustees' fees (Note 2) 44,545
Registration fees 24,206
Service fee--Class A (Note 4) 582,391
Distribution and service fees--Class B (Note 4) 515,242
Distribution and service fees--Class D (Note 4) 26,190
Audit fee 18,191
Legal fees 16,836
Miscellaneous 43,193
-----------
3,500,887
-----------
Net investment income 14,218,877
-----------
Realized and Unrealized Gain (Loss) on Investments
and Futures Contracts
Net realized loss on investments (Notes 1 and 3) (2,797,711)
Net realized gain on futures contracts (Note 1) 963,485
-----------
Total net realized loss (1,834,226)
Net unrealized depreciation of investments (4,864,350)
-----------
Net loss on investments and futures contracts (6,698,576)
-----------
Net increase in net assets resulting from operations $ 7,520,301
===========
- -----------------------------------------------------------------------------
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------
Year ended December 31
---------------------------------
1996 1995
- -----------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 14,218,877 $ 13,418,946
Net realized gain (loss) on investments
and futures contracts* (1,834,226) 8,383,796
Net unrealized appreciation (depreciation)
of investments (4,864,350) 20,715,649
-------------- --------------
Net increase resulting from operations 7,520,301 42,518,391
-------------- --------------
Dividends from net investment income:
Class A (11,329,888) (12,265,000)
Class B (2,112,558) (1,664,544)
Class C (810,073) (63,631)
Class D (108,938) (52,929)
-------------- --------------
(14,361,457) (14,046,104)
-------------- --------------
Net increase (decrease) from fund share
transactions (Note 6) (38,189,738) 28,826,529
-------------- --------------
Total increase (decrease) in net assets (45,030,894) 57,298,816
Net Assets
Beginning of year 332,026,203 274,727,387
-------------- --------------
End of year (including undistributed net
investment income of $118,283 and
$286,673, respectively) $286,995,309 $332,026,203
============== ==============
* Net realized gain (loss) for Federal
income tax purposes (Note 1) $ (1,738,904) $ 7,274,722
============== ==============
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
State Street Research Tax-Exempt Fund
- -----------------------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------------------
December 31, 1996
Note 1
State Street Research Tax-Exempt Fund (the "Fund"), is a series of State Street
Research Tax-Exempt Trust (the "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. 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.
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, 1996, the Fund had a capital
loss carryforward of $3,135,166 available, to the extent provided in
regulations, to offset future capital gains, if any, of which $1,396,262 and
$1,738,904 expires on December 31, 2002 and 2004, respectively. 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 $1,111,197, of which $803,119 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.
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.
11
<PAGE>
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, 1996, the fees pursuant to such agreement
amounted to $1,665,478.
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, 1996, the amount of such
expenses was $80,602.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$44,545 during the year ended December 31, 1996.
Note 3
For the year ended December 31, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $377,616,831 and $415,192,668,
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 or servicing 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, 1996, fees pursuant to such plan amounted to
$582,391, $515,242 and $26,190 for Class A, Class B and Class D shares,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $70,079 and $467,370, respectively, on sales of Class A shares of
the Fund during the year ended December 31, 1996, and that MetLife Securities,
Inc. earned commissions aggregating $315,859 on sales of Class B shares, and the
Distributor collected contingent deferred sales charges aggregating $183,514 and
$2,346 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.
12
<PAGE>
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At December 31, 1996, 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
-----------------------------------------------------------
1996 1995
---------------------------- ----------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,002,670 $ 23,933,082 4,674,154 $ 37,484,244
Issued upon reinvestment of
dividends 1,019,921 8,152,263 1,134,792 8,963,324
Shares repurchased (7,148,451) (57,087,469) (7,024,141) (55,275,274)
---------- ------------ ---------- ------------
Net decrease (3,125,860) $(25,002,124) (1,215,195) $ (8,827,706)
========== ============ ========== ============
Class B Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
Shares sold 1,380,510 $ 11,106,098 2,374,570 $ 19,127,552
Issued upon reinvestment of
dividends 183,701 1,368,769 164,613 1,301,099
Shares repurchased (1,461,750) (11,643,649) (999,139) (7,870,018)
---------- ------------ ---------- ------------
Net increase 102,461 $ 831,218 1,540,044 $ 12,558,633
========== ============ ========== ============
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
Shares sold 573,749 $ 4,662,961 2,740,046 $ 22,327,564
Issued upon reinvestment of
dividends 49,208 392,454 4,806 38,781
Shares repurchased (2,257,037) (17,834,280) (43,984) (354,433)
---------- ------------ ---------- ------------
Net increase (decrease) (1,634,080) $(12,778,865) 2,700,868 $ 22,011,912
========== ============ ========== ============
Class D Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
Shares sold 252,936 $ 2,023,533 417,377 $ 3,395,688
Issued upon reinvestment of
dividends 5,443 44,400 2,759 21,771
Shares repurchased (408,733) (3,307,900) (41,573) (333,769)
---------- ------------ ---------- ------------
Net increase (decrease) (150,354) $ (1,239,967) 378,563 $ 3,083,690
========== ============ ========== ============
</TABLE>
13
<PAGE>
State Street Research Tax-Exempt Fund
- ------------------------------------------------------------------------------
Financial Highlights
- ------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year ended December 31
-------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.26 $ 7.46 $ 8.43 $ 7.94 $ 7.69
Net investment income 0.39 0.39 0.40 0.40 0.43
Net realized and unrealized gain (loss)
on investments and futures contracts (0.16) 0.82 (0.98) 0.54 0.27
Dividends from net investment income (0.39) (0.41) (0.38) (0.39) (0.43)
Distributions from net realized gains -- -- (0.01) (0.06) (0.02)
------- ------ ------ ------ ------
Net asset value, end of year $ 8.10 $ 8.26 $ 7.46 $ 8.43 $ 7.94
======= ====== ====== ====== ======
Total return 2.93%+ 16.58%+ (6.90)%+ 12.11%+ 9.34%+
Net assets at end of year (000s) $223,407 $253,402 $238,097 $302,845 $203,312
Ratio of operating expenses to average
net assets 1.04% 1.13% 1.20% 1.20% 1.20%
Ratio of net investment income to average
net assets** 4.82% 4.95% 5.07% 4.85% 5.48%
Portfolio turnover rate 125.24% 97.32% 78.63% 36.16% 27.44%
</TABLE>
<TABLE>
<CAPTION>
Class B
-----------------------------------------
Year ended December 31
-----------------------------------------
1996 1995 1994 1993*
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.26 $ 7.46 $ 8.43 $ 8.25
Net investment income 0.32 0.33 0.34 0.19
Net realized and unrealized gain (loss)
on investments and futures contracts (0.15) 0.82 (0.97) 0.24
Dividends from net investment income (0.33) (0.35) (0.33) (0.19)
Distributions from net realized gains -- -- (0.01) (0.06)
------- ------ ------ ------
Net asset value, end of year $ 8.10 $ 8.26 $ 7.46 $ 8.43
======= ====== ====== ======
Total return 2.15%+ 15.72%+ (7.59)%+ 5.20%+++
Net assets at end of year (000s) $51,710 $51,827 $35,338 $27,695
Ratio of operating expenses to average
net assets 1.79% 1.88% 1.95% 1.95%++
Ratio of net investment income to average
net assets** 4.07% 4.19% 4.35% 3.93%++
Portfolio turnover rate 125.24% 97.32% 78.63% 36.16%
</TABLE>
<TABLE>
<CAPTION>
Class C
-------------------------------------------
Year ended December 31
-------------------------------------------
1996 1995 1994 1993*
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.24 $ 7.45 $ 8.41 $ 8.25
Net investment income 0.39 0.40 0.42 0.23
Net realized and unrealized gain (loss)
on investments and futures contracts (0.13) 0.81 (0.96) 0.22
Dividends from net investment income (0.41) (0.42) (0.41) (0.23)
Distributions from net realized gains -- -- (0.01) (0.06)
------ ------ ------ ------
Net asset value, end of year $ 8.09 $ 8.24 $ 7.45 $ 8.41
====== ====== ====== ======
Total return 3.30%+ 16.76%+ (6.56)%+ 5.54%+++
Net assets at end of year (000s) $8,990 $22,614 $334 $477
Ratio of operating expenses to
average net assets 0.79% 0.88% 0.95% 0.96%++
Ratio of net investment income to
average net assets** 5.04% 4.85% 5.26% 4.92%++
Portfolio turnover rate 125.24% 97.32% 78.63% 36.16%
</TABLE>
<TABLE>
<CAPTION>
Class D
------------------------------------------
Year ended December 31
------------------------------------------
1996 1995 1994 1993*
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.25 $ 7.46 $ 8.43 $ 8.25
Net investment income 0.32 0.33 0.34 0.19
Net realized and unrealized gain (loss)
on investments and futures contracts (0.14) 0.81 (0.97) 0.23
Dividends from net investment income (0.33) (0.35) (0.33) (0.18)
Distributions from net realized gains -- -- (0.01) (0.06)
------- ------ ------ ------
Net asset value, end of year $ 8.10 $ 8.25 $ 7.46 $ 8.43
======= ====== ====== ======
Total return 2.28%+ 15.58%+ (7.59)%+ 5.19%+++
Net assets at end of year (000s) $2,889 $4,183 $958 $1,115
Ratio of operating expenses to
average net assets 1.79% 1.88% 1.95% 1.99%++
Ratio of net investment income to
average net assets** 4.06% 4.13% 4.31% 3.92%++
Portfolio turnover rate 125.24% 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
r+eflect any front-end or contingent deferred sales charges.
14
<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 (a series of State Street Research Tax-Exempt Trust, hereafter referred to
as the "Trust") at December 31, 1996, 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, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 5, 1997
15
<PAGE>
State Street Research Tax-Exempt Fund
- ------------------------------------------------------------------------------
Management's Discussion of Fund Performance
- ------------------------------------------------------------------------------
The investment environment for municipal bonds had a negative tone early in 1996
and improved steadily in the second half of the year, a trend reflected in the
performance of State Street Research Tax-Exempt Fund.
The Fund underperformed the average total return for Lipper Analytical Services'
General Municipal Debt Funds category for the 12 months ended December 31, 1996.
However, during the final six months of the year, the Fund outperformed its peer
group.
Fund management improved performance by shortening the Fund's duration when
necessary, reducing holdings in AAA insured bonds and increasing the Fund's
position in higher-yielding issues. Fund management also increased the Fund's
holdings in securities rated in the AA, A and BBB categories.
Despite the turnaround of both the market and the Fund in the second half of the
year, the volatility in the early part of 1996 negatively affected the municipal
bond market's twelve- month performance, resulting in annual total returns for
the tax-exempt sector that were low by historical standards.
December 31, 1996
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 specify 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 may include periods prior
to the adoption of class designations in 1993, which resulted in new or
increased 12b-1 fees of up to 1% per class thereafter and which will reduce
subsequent performance. "C" shares, offered without a sales charge, are
available only to certain employee benefit plans and large institutions.
Performance reflects maximum 4.5% "A" share front-end sales charge or 5% "B"
share or 1% "D" share contingent deferred sales charges where applicable. The
Lehman Brothers Municipal Bond Index is a commonly used measure of bond market
performance. 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.
Change In Value Of $10,000 Based On The
Lehman Municipal Bond Index Compared To
Change In Value Of $10,000 Invested
In Tax-Exempt Fund
Class A Shares
Average Annual Total Return
1 Year 5 Years 10 Years
- -1.70% +5.51% +6.51%
9550 10000
9414 10151
10684 11183
11712 12389
12278 13292
13726 14906
15006 16220
16823 18212
15662 17271
18259 20285
18794 21184
[Line Chart]
Class B Shares
Average Annual Total Return
1 Year 5 Years 10 Years
- -2.76% +5.60% +6.72%
10000 10000
9858 10151
11188 11183
12264 12389
12856 13292
14373 14906
15713 16220
17543 18212
16211 17271
18759 20285
19162 21184
[Line Chart]
Class C Shares
Average Annual Total Return
1 Year 5 Years 10 Years
+3.30% +6.65% +7.09%
10000 10000
9858 10151
11188 11183
12264 12389
12856 13292
14373 14906
15713 16220
17600 18212
16445 17271
19200 20285
19835 21184
[Line Chart]
Class D Shares
Average Annual Total Return
1 Year 5 Years 10 Years
+1.30% +5.92% +6.72%
10000 10000
9858 10151
11188 11183
12264 12389
12856 13292
14383 14906
15713 16220
17541 18212
16209 17271
18734 20285
19161 21184
[Line Chart]
- -Tax-Exempt Fund -----Lehman Municipal Bond Index
16
<PAGE>
State Street Research Tax-Exempt Fund
- ------------------------------------------------------------------------------
Report on Special Meeting of Shareholders
- ------------------------------------------------------------------------------
A Special Meeting of Shareholders of the State Street Research Tax-Exempt
Fund ("Fund"), along with shareholders of other series of State Street
Research Tax-Exempt Trust ("Meeting"), was convened on April 19, 1996. The
results of the Meeting are set forth below.
-----------------------------------------------------------------------------
Votes (millions of shares)
-------------------------
For Withheld
------- -----------
1. The following persons were elected as Trustees:
Edward M. Lamont ............................... 25.9 1.0
Robert A. Lawrence ............................. 25.9 1.0
Dean O. Morton .................................. 25.9 1.0
Thomas L. Phillips ............................. 25.9 1.0
Toby Rosenblatt ................................. 25.9 1.0
Michael S. Scott Morton ......................... 25.9 1.0
Ralph F. Verni .................................. 25.8 1.1
Jeptha H. Wade .................................. 25.9 1.0
-----------------------------------------------------------------------------
Votes (millions
of shares)
-----------------------
For Against Abstain
----- ------- -------
2. The Fund's following investment policies were
reclassified from fundamental to nonfundamental:
a. The policy regarding investments in securities of
companies with less than three (3) years' continuous
operation .......................................... 17.5 1.6 2.9
b. The policy regarding investments in illiquid
securities. ........................................ 17.4 1.7 3.0
3. The Fund's fundamental policy regarding investments
in commodities and commodity contracts was amended. . 17.5 1.6 3.0
4. The Fund's fundamental policy on lending was amended
to clarify the permissibility of securities lending. 17.3 1.8 2.9
5. The Fund's fundamental policies regarding
diversification of investments were amended ......... 17.9 1.3 2.8
6. The Master Trust Agreement was amended to permit the
Trustees to reorganize, merge or liquidate a fund
without prior shareholder approval. ................. 20.0 3.7 3.3
7. The Master Trust Agreement was amended to eliminate
specified time permitted between the record date and
any shareholders meeting. .......................... 21.2 2.5 3.2
17
<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 LLP
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
Steve A. Garban
Retired; formerly Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial Officer,
St. Regis Corp.
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
18
<PAGE>
[BACK COVER]
State Street Research
New York Tax-Free Fund
One Financial Center
Boston, MA 02111
Bulk Rate
U.S. Postage
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 Research logo]
This report is prepared for the general information of current shareholders.
When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research New York Tax-Free
Fund prospectus. When used after March 31, 1997, this report must be accompanied
by a current Quarterly Performance Update.
Portfolio changes should not be considered recommendations for action by
individual investors.
The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was not
industry-wide.
CONTROL NUMBER: 3732-970225(0398)SSR-LD
Cover Illustration by Dorothy Cullinan NYTF-927D-297IBS
<PAGE>
[State Street Research logo]
State Street Research
New York Tax-Free Fund
Annual Report
December 31, 1996
[Illustration of person building blocks]
- ----------------------------------
What's Inside
- ----------------------------------
From the Chairman
Positive performance from
bonds and stocks
Portfolio Manager's Review
Municipal bonds rally in
second half of 1996
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
- -----------------------------------DALBAR AWARD---------------------------------
Quality
Tested Service
1 9 9 5
Dalbar
Honors Commitment To:
Investors
For Excellence
in
Shareholder Service
<PAGE>
From the Chairman
To Our Shareholders:
[photo of Ralph F. Verni]
1996 was another year of positive returns for many investors. For much of the
past year, there were strong corporate profits, low inflation and
steady-but-slow economic growth. Bond investors saw the Lehman Brothers
Aggregate Bond Index gain +3.63% and Municipal Bond Index gain +4.43% for the 12
months ended December 31, 1996. In the stock market, the Dow Jones Industrial
Average broke the 6000 point barrier in October, and the Standard & Poor's 500
Composite Index was up +22.95% for the same time period.1
Bonds
High-yield bonds were steady performers throughout the year, benefiting from the
stronger than expected economy, which never overheated enough to precipitate any
action by the Federal Reserve. After stumbling early in the year, higher-quality
bonds rallied through the summer and fall, before losing momentum late in the
fourth quarter. In 1997, bonds should continue to take their cue from the
economy and the Fed.
Stocks
Most of the gains in the stock market in 1996 were concentrated in the largest
companies and industry giants. Two steep corrections, one in July and one in
December, caused an abundance of investor concern, which resulted in a lopsided
recovery that mainly benefited only larger stocks. Our analysts believe that
1997 may be a year in which the smaller companies, many of which have not been
able to keep pace with the larger names, may see better results.
Tax-Time Reminder
In closing, I'd like to remind State Street Research investors of our extended
call-in hours for tax time. Starting March 1 and continuing through April 15,
1997, Shareholder Services representatives will be available from 8:00 a.m.
until 8:00 p.m., and on Saturdays from 10:00 a.m. until 2:00 p.m. Call them with
your account and tax-related questions during these extended hours.
Thank you for investing in State Street Research New York Tax-Free Fund.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
January 31, 1997
(1) The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The Lehman Brothers Aggregate Bond and Municipal Bond Indexes are
commonly used measures of bond market performance. The indices are unmanaged and
do not take sales charges into consideration. Direct investment in the indices
is not possible; results are for illustrative purposes only.
(2)+2.91% for Class B shares; +3.93% for Class C shares; +2.90% for Class D
shares.
(3)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.
(4)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 may include periods
prior to the adoption of class designations in 1993, which resulted in new or
increased 12b-1 fees of up to 1% per class thereafter and which will reduce
subsequent performance. "C" shares, offered without a sales charge, are
available only to certain employee benefit plans and large institutions.
(5)Performance reflects maximum 4.5% "A" share front-end sales charge or 5% "B"
share or 1% "D" share contingent deferred sales charges where applicable.
6Cumulative total returns are not annualized, nor do they reflect sales charges,
which, if reflected, would reduce performance.
(7)Performance results for the Fund are increased by the voluntary reduction of
Fund fees and expenses. In the charts below, the first figure reflects expense
reduction; the second shows what results would have been without subsidization.
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, 1996)
- ------------------------------------------------------------------------------
Total Value of $10,000 Invested at Fund's Inception on 7/5/89(3) (Class A
shares, at maximum applicable sales charge)
[DESCRIPTION OF MOUNTAIN CHART]
7/5/89 9550
12/89 9714
12/90 10036
12/91 11428
12/92 12465
12/93 14108
12/94 13256
12/95 15259
12/96 15820
SEC Average Annual Compound Rates of Return (at maximum applicable sales
charge)(4),(5),(7)
- ----------------------------------------------------------------
Life of Fund 5 Years 1 Year
- ----------------------------------------------------------------
Class A +6.31%/+5.78% +5.74%/+5.47% -0.99%/-1.23%
- ----------------------------------------------------------------
Class B +6.58%/+6.05% +5.84%/+5.56% -2.03%/-2.29%
- ----------------------------------------------------------------
Class C +7.10%/+6.58% +6.93%/+6.67% +3.93%/+3.67%
- ----------------------------------------------------------------
Class D +6.58%/+6.05% +6.15%/+5.87% +1.91%/+1.66%
- ----------------------------------------------------------------
Cumulative Total Returns
(do not reflect sales charge)(4),(6),(7)
- ----------------------------------------------------------------
Life of Fund 5 Years 1 Year
- ----------------------------------------------------------------
Class A +65.73%/+59.59% +38.46%/+36.66% +3.68%/+3.42%
- ----------------------------------------------------------------
Class B +61.38%/+55.40% +34.82%/+33.07% +2.91%/+2.65%
- ----------------------------------------------------------------
Class C +67.36%/+61.25% +39.82%/+38.08% +3.93%/+3.67%
- ----------------------------------------------------------------
Class D +61.33%/+55.35% +34.78%/+33.03% +2.90%/+2.65%
- ----------------------------------------------------------------
Taxable
Equivalent
Yield
(36% federal
SEC Yield(7) tax bracket)
- -------------------------------------------
Class A 4.53%/4.38% 7.08%/6.84%
- -------------------------------------------
Class B 4.00%/3.84% 6.25%/6.00%
- -------------------------------------------
Class C 4.99%/4.83% 7.80%/7.55%
- -------------------------------------------
Class D 3.99%/3.84% 6.23%/6.00%
- -------------------------------------------
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, 1996. 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
The following is a discussion with portfolio manager Paul Clifford. Paul has 12
years of investment experience and has managed mutual funds at State Street
Research since 1993.
Q: What was the environment like for New York municipal bonds last year?
A: New York municipal bonds experienced volatility in the first half of 1996,
regained stability by mid-year and developed positive momentum in the second
half of the year. The environment was shaped by the same factors that affected
the national market. Early in 1996, interest rates fluctuated as the national
economy grew stronger than expected, raising concerns about future inflation.
Further, municipal investors braced for the national elections and the
possibility of tax reform.
As we approached mid-year, the bond market minimized the impact of these issues,
as enactment of tax reform became less likely, and later when the national
elections resulted in few surprises. Economic growth was moderate and inflation
remained well contained.
New York's political climate continued to be dynamic. Although there always is
speculation about the state's budget, it came in close to estimates and the
process caused few disruptions. The supply of New York municipal bonds remained
heavy. Typically, these issues are met with steady demand, but the heavy supply
occasionally provided some higher, more-attractive yields.
Q: How did the Fund perform over the past twelve months?
A: The Fund's Class A shares generated a total return of +3.68% for the year
ended December 31, 1996 (does not reflect sales charge).2 The Fund outperformed
the average for the 96 fund classes in its peer category, Lipper Analytical
Services' New York Municipal Debt Funds, which provided a total return of +3.15%
for the same time period (does not reflect sales charge).
Q: What strategies did you use to enhance the Fund's performance?
A: We actively managed the Fund's duration and sought value primarily in
non-insured bonds. Duration measures a portfolio's sensitivity to interest-rate
changes. A longer duration is more sensitive to interest-rate changes than a
shorter duration. The Fund's duration was short in the beginning of the year,
when interest rates were volatile. We then extended duration mid- year, when
prices became more stable. As of December 31, 1996, the Fund's duration was 8.2
years.
Because AAA insured bonds have become less attractive, we have limited their
position in the portfolio. Investors turned from insured bonds and sought higher
yields by investing in non-insured bonds. This drove the yields of non-insured
bonds lower--and prices higher--relative to those of insured bonds.
Q: What is your outlook for the New York municipal bond market over the next
six months?
A: We expect to see a continuation of many of the trends that were in place
during the second half of 1996. We look for moderate economic growth and little
change in inflation in the U.S. to provide a positive backdrop for bonds in
general. We will continue to seek those situations that we believe will offer
the best combination of income and price appreciation.
December 31, 1996
- ---------------------------------Pie Chart--------------------------------------
Bond Quality by Rating Category
(by percentage of portfolio)
AAA 27%
AA 19%
A 16%
BBB 23%
Not rated 15%
Quality ratings based on those provided
by Standard & Poor's Corp. and/or equivalent
ratings by Moody's Investors Service, Inc.
- --------------------------------------------------------------------------------
- ---------------------------------Bar Chart--------------------------------------
Top 5 Sectors
(by percentage of net assets)
Lease revenue bonds 13.6%
Water/sewer bonds 11.0%
City and local general
obligation bonds 10.6%
College and university
revenue bonds 7.1%
Prerefunded bonds 6.7%
Total: 49.0%
- --------------------------------------------------------------------------------
2
<PAGE>
State Street Research New York Tax-Free Fund
- ------------------------------------------------------------------------------
Investment Portfolio
- ------------------------------------------------------------------------------
December 31, 1996
--------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------
MUNICIPAL BONDS 98.0%
General Obligation 20.5%
The City of New York, General
Obligation Bonds, Fiscal
1992 Series H, 7.00% $1,500,000 2/01/2005 $ 1,619,520
City of New York, General
Obligation Bonds, Fiscal
1995 Series F, 6.375% 2,000,000 2/15/2006 2,106,340
County of Onondaga, New York,
General Improvement (Serial)
Bonds, 1992, 5.70% 2,000,000 4/01/2007 2,132,380
City of Syracuse, Onondaga
County, New York, Public
Improvement Refunding Bonds,
Series 1993 A, 5.125% 1,750,000 2/15/2009 1,742,877
Commonwealth of Puerto Rico,
General Obligation Public
Improvement Refunding Bonds,
Series 1995, MBIA Insured,
6.25% 1,000,000 7/01/2012 1,102,850
State of New York, General
Obligation Refunding Bonds,
Series A, 5.25% 1,500,000 7/15/2014 1,445,070
County of Nassau, New York,
General Obligation Refunding
Bonds, Series G, MBIA
Insured, 5.45% 1,140,000 1/15/2015 1,129,649
County of Monroe, New York,
Public Improvement Refunding
Bonds, Series A, 6.00% 1,250,000 3/01/2015 1,332,988
Commonwealth of Puerto Rico,
General Obligation Public
Improvement Refunding Bonds,
Series 1995A, MBIA Insured,
5.65% 1,000,000 7/01/2015 1,038,510
Municipal Assistance Corp.
for the City of Troy, (A
Public Benefit Corp. of the
State of New York), General
Resolution Bonds, Series
1996A Bonds, MBIA Insured,
5.00% 1,000,000 1/15/2016 938,090
------------
14,588,274
------------
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 $ 1,293,416
------------
College & University 7.1%
Dormitory Authority of the
State of New York, Mt. Sinai
School of Medicine, Series
B, MBIA Insured, 5.70% 1,450,000 7/01/2011 1,496,255
Dormitory Authority of the
State of New York, Canisius
College, Revenue Bonds,
Series 1995, CapMAC Insured,
0.00% 1,550,000 7/01/2013 608,762
Dormitory Authority of the
State of New York, City
University System
Consolidated, Series A,
AMBAC Insured, 5.625% 1,000,000 7/01/2016 1,022,040
Dormitory Authority of the
State of New York, City
University System
Consolidated, Third General
Resolution, Revenue Bonds,
Series 1995 1, AMBAC
Insured, 5.375% 2,000,000 7/01/2025 1,941,820
------------
5,068,877
------------
Escrowed Bonds 1.8%
Dormitory Authority of the
State of New York, Judicial
Facilities Lease Revenue
Bonds, (Suffolk, County
Issue) Series 1986, 7.375% 1,110,000 7/01/2016 1,311,021
------------
Hospital/Health Care 2.5%
Dormitory Authority of the
State of New York, Nyack
Hospital Revenue Bonds,
Series 1996, 6.00% 1,500,000 7/01/2006 1,527,105
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Hospital/Health Care (cont'd)
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 $ 252,207
------------
1,779,312
------------
Industrial Development & Pollution Control 6.0%
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 4,279,920
------------
Lease Revenue 13.6%
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 1,666,200
Lyons Community Health
Initiatives Corp., Facility
Revenue Bonds, Series 1994,
6.55% 470,000 9/01/2009 498,223
New York State Environmental
Facilities Corporation,
Riverbank State Park Special
Obligation Refunding Revenue
Bonds, 1996 Series, AMBAC
Insured, 6.25% 1,000,000 4/01/2012 1,097,250
New York State Thruway
Authority, Local Highway and
Bridge Service Contract
Bonds, Series 1994, MBIA
Insured, 5.875% 2,000,000 4/01/2014 2,001,900
Lease Revenue (cont'd)
New York State Thruway
Authority, Service Contract
Revenue Bonds, 6.25% $1,000,000 4/01/2014 $ 1,028,810
Dormitory Authority of the
State of New York, State
University Educational
Facilities, Revenue Bonds,
Series 1993 A, 5.50% 2,500,000 5/15/2019 2,379,450
Lyons Community Health
Initiatives Corp., (New
York), Facility Revenue
Bonds, Series 1994, 6.80% 940,000 9/01/2024 1,003,629
------------
9,675,462
------------
Life Care 6.5%
Orange County Industrial
Development Agency, (The
Glen Arden Inc. Project),
Life Care Community Revenue
Bonds, Series 1994, 8.25% 2,000,000 1/01/2002 2,072,440
Tompkins County Industrial
Development Agency, Life
Care Community Revenue
Bonds, 1994 (Kendal at
Ithaca Inc., Project), 7.70% 1,430,000 6/01/2011 1,492,634
Tompkins County Industrial
Development Agency, Life
Care Community Revenue
Bonds, 1994 (Kendal at
Ithaca Inc., Project),
7.875% 1,000,000 6/01/2024 1,032,370
------------
4,597,444
------------
Multi-Family Housing 1.5%
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 1,047,420
------------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Power 3.7%
Power Authority of the State
of New York, General Purpose
Bonds, Series W, 6.50% $2,350,000 1/01/2008 $ 2,628,287
------------
Pre-Refunded Bonds 6.7%
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 549,140
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 1,102,090
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 673,512
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 668,424
County of Suffolk, New York,
General Obligation, MBIA
Insured, 1990 Series B,
Pre-Refunded to, 4/01/2000 @
102, 7.10% 425,000 4/01/2018 467,959
Pre-Refunded Bonds (cont'd)
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 $ 449,787
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 885,272
------------
4,796,184
------------
Single-Family Housing 5.2%
State of New York Mortgage
Agency, Homeowner Mortgage
Revenue Bonds, Series 45,
7.20% 2,000,000 10/01/2017 2,140,640
State of New York Mortgage
Agency, Homeowner Mortgage
Revenue Bonds, Series 55,
5.95% 1,550,000 10/01/2017 1,559,920
------------
3,700,560
-------------
Special/Sales Tax Revenue 1.4%
New York Local Government
Assistance Corp., (A Public
Benefit Corporation of the
State of New York), Series
1996A Tax Revenue Bonds,
5.375% 1,000,000 4/01/2019 964,100
------------
Structured Financings 2.2%
The Port Authority of New
York and New Jersey, Special
Project Bonds, Series 4,
KIAC Partners Project,
Subject to AMT, 6.75% 1,500,000 10/01/2011 1,548,915
------------
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Toll Roads/Turnpike Authorities 6.5%
Triborough Bridge and Tunnel
Authority, General Purpose
Revenue Bonds, Series 1994
A, 6.00% $2,500,000 1/01/2010 $ 2,711,750
New York State Thruway
Authority, General Revenue
Bonds, Series B, MBIA
Insured, 5.00% 2,000,000 1/01/2014 1,909,620
------------
4,621,370
------------
Water & Sewer 11.0%
City of Niagara Falls,
Niagara County, New York,
Water Treatment Plant Bonds,
1994 (AMT), MBIA Insured,
8.50% 1,000,000 11/01/2006 1,275,130
New York City Municipal Water
Finance Authority, Water and
Sewer System Revenue Bonds,
Fiscal 1993, Series A, 6.00% 3,000,000 6/15/2009 3,252,120
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 2,231,820
Commonwealth of Puerto Rico,
Aqueduct and Sewer
Authority, General Revenue
Bonds, 6.25% 1,000,000 7/01/2012 1,090,620
------------
7,849,690
------------
Total Municipal Bonds (Cost $66,469,062) 69,750,252
------------
SHORT-TERM OBLIGATIONS 1.7%
North Central Texas Health
Facility Development Bonds,
1.70% $ 200,000 7/10/1996++ $ 200,000
New York State Energy
Research and Development
Authority, 3.50% 100,000 9/20/1996++ 100,000
Industrial Development
Corporation of Grapevine,
Texas, Revenue Bonds, 3.60% 100,000 12/01/2024++ 100,000
New York State Energy
Research and Development
Authority, 3.00% 800,000 6/15/2029++ 800,000
Total Short-Term Obligations (Cost $1,200,000) 1,200,000
------------
Total Investments (Cost $67,669,062)--99.7% 70,950,252
Other Assets, Less Liabilities--0.3% 181,362
------------
Net Assets--100.0% $71,131,614
============
Federal Income Tax Information:
At December 31, 1996, the net unrealized appreciation
of investments based on cost for Federal income tax
purposes of $67,669,062 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost $ 3,296,007
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value (14,817)
------------
$ 3,281,190
============
- ------------------------------------------------------------------------------
++Interest rates on these obligations may reset daily.
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, 1996
Assets
Investments, at value (Cost $67,669,062) (Note 1) $70,950,252
Interest receivable 1,425,488
Receivable for securities sold 100,286
Receivable for fund shares sold 17,168
Receivable from Distributor (Note 3) 9,053
Other assets 3,481
------------
72,505,728
Liabilities
Payable for securities purchased 1,096,669
Dividends payable 64,484
Accrued transfer agent and shareholder services (Note 2) 57,122
Accrued management fee (Note 2) 33,033
Payable to custodian 19,717
Accrued distribution and service fees (Note 5) 18,685
Payable for fund shares redeemed 13,807
Accrued trustees' fees (Note 2) 5,490
Other accrued expenses 65,107
------------
1,374,114
------------
Net Assets $71,131,614
============
Net Assets consist of:
Unrealized appreciation of investments $ 3,281,190
Accumulated net realized loss (665,078)
Shares of beneficial interest 68,515,502
------------
$71,131,614
============
Net Asset Value and redemption price per share of Class
A shares ($19,636,245 / 2,415,471 shares of beneficial
interest) $8.13
============
Maximum Offering Price per share of Class A shares
($8.13 / .955) $8.51
============
Net Asset Value and offering price per share of Class B
shares ($16,823,951 / 2,069,700 shares of beneficial
interest)* $8.13
============
Net Asset Value, offering price and redemption price per
share of Class C shares ($34,049,712 / 4,184,877
shares of beneficial interest) $8.14
============
Net Asset Value and offering price per share of Class D
shares ($621,706 / 76,431 shares of beneficial
interest)* $8.13
============
- ----------------------------------------------------------------------------
* 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, 1996
Investment Income
Interest $4,177,094
Expenses
Management fee (Note 2) 391,693
Transfer agent and shareholder services (Note 2) 145,713
Custodian fee 98,636
Reports to shareholders 30,555
Audit fee 20,719
Legal fees 16,881
Trustees' fees (Note 2) 16,044
Service fee--Class A (Note 5) 48,703
Distribution and service fees--Class B (Note 5) 155,239
Distribution and service fees--Class D (Note 5) 6,152
Miscellaneous 8,471
-----------
938,806
Expenses borne by the Distributor (Note 3) (120,150)
-----------
818,656
-----------
Net investment income 3,358,438
-----------
Realized and Unrealized Gain (Loss)
on Investments and Futures Contracts
Net realized loss on investments (Notes 1 and 4) (423,995)
Net realized gain on futures contracts (Note 1) 460,110
-----------
Total net realized gain 36,115
Net unrealized depreciation of investments (908,453)
-----------
Net loss on investments and futures contracts (872,338)
-----------
Net increase in net assets resulting from operations $2,486,100
===========
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
-----------------------------------
1996 1995
- ------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 3,358,438 $ 3,725,102
Net realized gain on
investments and futures
contracts* 36,115 2,462,016
Net unrealized appreciation
(depreciation) of investments (908,453) 4,123,535
----------- ----------
Net increase resulting from
operations 2,486,100 10,310,653
----------- ----------
Dividends from net investment income:
Class A (943,352) (1,009,558)
Class B (635,153) (589,598)
Class C (1,809,871) (2,182,901)
Class D (25,084) (33,292)
----------- ----------
(3,413,460) (3,815,349)
----------- ----------
Net decrease from fund share
transactions (Note 7) (2,475,362) (3,830,608)
----------- ----------
Total increase (decrease) in
net assets (3,402,722) 2,664,696
Net Assets
Beginning of year 74,534,336 71,869,640
----------- ----------
End of year (including
undistributed net investment
income of $0 and $59,442,
respectively) $71,131,614 $74,534,336
=========== ==========
* Net realized gain for
Federal income tax purposes
(Note 1) $ 36,115 $ 1,435,929
=========== ==========
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
December 31, 1996
Note 1
State Street Research New York Tax-Free Fund (the "Fund"), is a series of State
Street Research Tax-Exempt Trust (the "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.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
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, 1996, the Fund had a capital
loss carryforward of $665,078 available, to the extent provided in regulations,
to offset future capital gains, if any, which expires on December 31, 2002.
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, 1996, the fees pursuant to such agreement
amounted to $391,693.
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, 1996 the amount of such
expenses was $25,922.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$16,044 during the year ended December 31, 1996.
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, 1996, the amount of such expenses assumed by the
Distributor and its affiliates was $120,150.
Note 4
For the year ended December 31, 1996, purchases and sales of securities,
exclusive of short-term obligations, aggregated $62,658,752 and $66,895,448,
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 or servicing 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, 1996, fees pursuant to such plan amounted to
$48,703, $155,239 and $6,152 for Class A, Class B and Class D shares,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $17,248 and $121,217, respectively, on sales of Class A shares of
the Fund during the year ended December 31, 1996, and that MetLife Securities,
Inc. earned commissions aggregating $125,593 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$38,918 on redemptions of Class B shares during the same period.
9
<PAGE>
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, 1996, investments totalling 16.0% 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, 1996,
Metropolitan owned 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
---------------------------------------------------------
1996 1995
---------------------------- ---------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 598,718 $ 4,808,712 659,418 $ 5,224,381
Issued upon reinvestment of dividends 93,925 754,768 102,754 817,666
Shares repurchased (713,493) (5,744,887) (745,045) (5,906,953)
-------- ----------- -------- -----------
Net increase (decrease) (20,850) $ (181,407) 17,127 $ 135,094
======== =========== ======== ===========
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
Shares sold 504,073 $ 4,044,795 412,260 $ 2,896,528
Issued upon reinvestment of dividends 61,038 490,585 58,893 434,274
Shares repurchased (328,785) (2,628,310) (249,652) (1,557,767)
-------- ----------- -------- -----------
Net increase 236,326 $ 1,907,070 221,501 $ 1,773,035
======== =========== ======== ===========
Class C Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
Shares sold 3,913 $ 31,610 24,846 $ 199,861
Issued upon reinvestment of dividends 169,712 1,369,640 208,442 1,655,838
Shares repurchased (694,720) (5,581,623) (934,625) (7,406,811)
-------- ----------- -------- -----------
Net decrease (521,095) $(4,180,373) (701,337) $(5,551,112)
======== =========== ======== ===========
Class D Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
Shares sold 2,131 $ 17,119 4,415 $ 35,225
Issued upon reinvestment of dividends 597 4,804 880 6,996
Shares repurchased (5,330) (42,575) (28,950) (229,846)
-------- ----------- -------- -----------
Net decrease (2,602) $ (20,652) (23,655) $ (187,625)
======== =========== ======== ===========
</TABLE>
10
<PAGE>
State Street Research New York Tax-Free Fund
- ------------------------------------------------------------------------------
Financial Highlights
- ------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-------------------------------------------
Year ended December 31
-------------------------------------------
1996 1995 1994 1993**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.23 $ 7.53 $ 8.43 $ 8.20
Net investment income* 0.38 0.40 0.40 0.22
Net realized and unrealized gain (loss) on investments
and futures contracts (0.09) 0.71 (0.90) 0.25
Dividends from net investment income (0.39) (0.41) (0.39) (0.22)
Distributions from net realized gains -- -- (0.01) (0.02)
------- ------- ------- -------
Net asset value, end of year $ 8.13 $ 8.23 $ 7.53 $ 8.43
======= ======= ======= =======
Total return 3.68%+ 15.11%+ (6.04)%+ 5.79%+++
Net assets at end of year (000s) $19,636 $20,043 $18,214 $15,175
Ratio of operating expenses to average net assets* 1.10% 1.10% 1.10% 1.10%++
Ratio of net investment income to average net assets* 4.76% 5.07% 5.07% 4.68%++
Portfolio turnover rate 89.14% 109.74% 64.80% 33.11%
* Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.01
</TABLE>
<TABLE>
<CAPTION>
Class B
-------------------------------------------
Year ended December 31
-------------------------------------------
1996 1995 1994 1993**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.23 $ 7.53 $ 8.43 $ 8.20
Net investment income* 0.32 0.34 0.34 0.19
Net realized and unrealized gain (loss) on investments
and futures contracts (0.09) 0.71 (0.90) 0.25
Dividends from net investment income (0.33) (0.35) (0.33) (0.19)
Distributions from net realized gains -- -- (0.01) (0.02)
------- ------- ------- ------
Net asset value, end of year $ 8.13 $ 8.23 $ 7.53 $ 8.43
======= ======= ======= ======
Total return 2.91%+ 14.26%+ (6.74)%+ 5.35%+++
Net assets at end of year (000s) $16,824 $15,084 $12,131 $7,567
Ratio of operating expenses to average net assets* 1.85% 1.85% 1.85% 1.85%++
Ratio of net investment income to average net assets* 4.01% 4.32% 4.34% 3.93%++
Portfolio turnover rate 89.14% 109.74% 64.80% 33.11%
* Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.01
</TABLE>
<TABLE>
<CAPTION>
Class C
------------------------------------------------------
Year ended December 31
------------------------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.24 $ 7.54 $ 8.44 $ 7.84 $ 7.61
Net investment income* 0.40 0.42 0.42 0.42 0.44
Net realized and unrealized gain (loss) on investments
and futures contracts (0.09) 0.71 (0.90) 0.62 0.23
Dividends from net investment income (0.41) (0.43) (0.41) (0.42) (0.44)
Distributions from net realized gains -- -- (0.01) (0.02) --
------- ------- ------- ------- -------
Net asset value, end of year $ 8.14 $ 8.24 $ 7.54 $ 8.44 $ 7.84
======= ======= ======= ======= =======
Total return 3.93%+ 15.37%+ (5.79)%+ 13.46%+ 9.08%+
Net assets at end of year (000s) $34,050 $38,757 $40,750 $56,515 $41,558
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* 5.01% 5.33% 5.29% 5.10% 5.71%
Portfolio turnover rate 89.14% 109.74% 64.80% 33.11% 29.39%
* Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.01 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
Class D
------------------------------------------
Year ended December 31
------------------------------------------
1996 1995 1994 1993**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.23 $ 7.53 $ 8.44 $ 8.20
Net investment income* 0.32 0.35 0.34 0.19
Net realized and unrealized gain (loss) on investments
and futures contracts (0.09) 0.70 (0.91) 0.25
Dividends from net investment income (0.33) (0.35) (0.33) (0.18)
Distributions from net realized gains -- -- (0.01) (0.02)
------ ------- ------ ------
Net asset value, end of year $ 8.13 $ 8.23 $ 7.53 $ 8.44
====== ======= ====== ======
Total return 2.90%+ 14.25%+ (6.86)%+ 5.46%+++
Net assets at end of year (000s) $622 $651 $774 $821
Ratio of operating expenses to average net assets* 1.85% 1.85% 1.85% 1.85%++
Ratio of net investment income to average net assets* 4.03% 4.35% 4.31% 3.94%++
Portfolio turnover rate 89.14% 109.74% 64.80% 33.11%
* Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) $ 0.01 $ 0.02 $ 0.03 $ 0.01
</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, 1996, 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, 1996 by correspondence with the custodian and brokers, and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 5, 1997
12
<PAGE>
State Street Research New York Tax-Free Fund
- ------------------------------------------------------------------------------
Management's Discussion of Fund Performance
- ------------------------------------------------------------------------------
New York municipal bonds experienced volatility in the first half of 1996,
regained stability by mid-year and developed a positive momentum in the second
half of the year, a trend reflected in the performance of State Street Research
New York Tax-Free Fund.
The Fund outperformed the average for its peer category, Lipper Analytical
Services' New York Municipal Debt Funds for the 12 months ended December 31,
1996.
Fund management worked to improve performance by adjusting the Fund's duration,
keeping it short in the beginning of the year, when interest rates were volatile
and extending the duration mid-year, when prices became more stable.
Because AAA insured bonds have become less attractive, Fund management limited
their position in the portfolio. Investors turned from insured bonds and sought
higher yields by investing in non-insured bonds. This drove the yields of
non-insured bonds lower--and prices higher--relative to those of insured bonds.
December 31, 1996
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 may include periods prior to the
adoption of class designations in 1993, which resulted in new or increased 12b-1
fees of up to 1% per class thereafter and which will reduce subsequent
performance. "C" shares, offered without a sales charge, are available only to
certain employee benefit plans and large institutions. Performance reflects
maximum 4.5% "A" share front-end sales charge or 5% "B" share or 1% "D" share
contingent deferred sales charges where applicable. The Lehman Brothers
Municipal Bond Index is a commonly used measure of bond market performance. 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. Performance results for the Fund are increased by the voluntary reduction
of Fund fees and expenses. In the above charts, this first figure reflects
expense reduction; the second shows what results would have been without
subsidization.
Change In Value Of $10,000 Based On
The Lehman Municipal Bond Index
Compared To Change In Value of $10,000
Invested In New York Tax-Free Fund
Class A Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
-0.99%/-1.23% +5.74%/+5.47% +6.31%/+5.78%
9550 9550
9714 10931
10036 11148
11428 12502
12465 13604
14108 15275
13256 14485
15259 17014
15820 17767
[line chart]
Class B Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
-2.03%/-2.29% +5.84%/+5.56% +6.58%/+6.05%
10000 10000
10172 10391
10509 11148
11967 12502
13052 13604
14710 15275
13719 14485
15675 17014
16131 17767
[line chart]
Class C Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+3.93%/+3.67% +6.93%/+6.67% +7.10%/+6.58%
10000 10000
10172 10391
10509 11148
11967 12502
13052 13604
14810 15275
13952 14485
16097 17014
16729 17767
[line chart]
Class D Shares
Average Annual Total Return
1 Year 5 Years Life of Fund
+1.91%/-1.66% +6.15%/+5.87% +6.58%/+6.05%
10000 10000
10172 10391
10509 11148
11967 12502
13052 13604
14726 15275
13717 14485
15671 17014
16126 17767
[line chart]
13
<PAGE>
State Street Research New York Tax-Free Fund
- ------------------------------------------------------------------------------
Report on Special Meeting of Shareholders
- ------------------------------------------------------------------------------
A Special Meeting of Shareholders of the State Street Research New York Tax-Free
Fund ("Fund"), along with shareholders of other series of State Street Research
Tax-Exempt Trust ("Meeting"), was convened on April 19, 1996.
The results of the Meeting are set forth below.
Votes (millions of
shares)
------------------
For Withheld
------- ---------
1. The following persons were elected as Trustees:
Edward M. Lamont 25.9 1.0
Robert A. Lawrence 25.9 1.0
Dean O. Morton 25.9 1.0
Thomas L. Phillips 25.9 1.0
Toby Rosenblatt 25.9 1.0
Michael S. Scott Morton 25.9 1.0
Ralph F. Verni 25.8 1.1
Jeptha H. Wade 25.9 1.0
<TABLE>
<CAPTION>
Votes (millions of
shares)
-----------------------
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
2. The Fund's following investment policies were
reclassified from fundamental to nonfundamental:
a. The policy regarding investments in securities
of companies with less than three (3) years'
continuous operation 3.8 0.5 0.5
b. The policy regarding investments in illiquid
securities. 3.8 0.5 0.6
3. The Fund's fundamental policy regarding
investments in commodities and commodity
contracts was amended. 3.8 0.5 0.6
4. The Fund's fundamental policies regarding
diversification of investments were amended 4.0 0.4 0.5
5. The Master Trust Agreement was amended to
permit the Trustees to reorganize, merge or
liquidate a fund without prior shareholder
approval. 20.0 3.7 3.3
6. The Master Trust Agreement was amended to
eliminate specified time permitted between
the record date and any shareholders meeting. 21.2 2.5 3.2
</TABLE>
14
<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 LLP
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
Steve A. Garban
Retired; formerly Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University
Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial Officer,
St. Regis Corp.
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
15
