STATE STREET RESEARCH
-----------------------------------
TAX-EXEMPT FUND
-----------------------------------
ANNUAL REPORT
December 31, 1998
----------------------------
WHAT'S INSIDE
----------------------------
From the Chairman
Financial markets delivered
strong gains in 1998
Portfolio Manager's Review
Another strong year
for municipal bonds
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar Key logo]
For Excellence
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
FROM THE CHAIRMAN
[photo of Ralph F. Verni]
Dear Shareholder:
In 1998, financial markets in the United States and most developed foreign
nations delivered strong gains. The U.S. economy boosted personal income and
kept unemployment low. Yet growth was moderate enough to hold inflation down to
a mere 1.5% for the year. During the summer, the collapse of Russia's currency
sent waves through the world's markets, but a fast-acting Federal Reserve Board
helped stem a crisis. Currencies continued to slump in many emerging markets. In
some, devaluation threatened, with Brazil in the hot seat at year-end.
Stocks
A steep U.S. stock market correction late in the summer was short-lived. Despite
signs of slower profit growth, the market staged a comeback in the fourth
quarter. Technology stocks and large company growth stocks were the strongest
performers, led by Internet stocks which delivered surprising gains. The S&P 500
was up by more than 20% for an unprecedented fourth consecutive year.(1)
However, gains were concentrated in a narrow band of stocks. The average stock
on the New York Stock Exchange actually lost ground for the year. And the stocks
of small and medium-sized companies continued to lag despite a fourth-quarter
comeback.
Bonds
Bonds benefited from the Federal Reserve Board's three quick interest rate cuts
in autumn. The yield on the bellwether 30-year U.S. Treasury bond fell below
5.0%, then rose slightly at year-end. Not surprisingly, U.S. Treasury bonds led
fixed income market performance for the year. Most other segments of the bond
market delivered attractive single-digit gains. High-yield bonds disappointed
investors, gaining only 0.6% as measured by the First Boston High Yield Index.
International
Foreign markets delivered mixed returns in 1998. In Europe, expectations for the
new common currency, the euro, ran high. Although this helped European markets,
they did better in the first half of the year than in the second. Most emerging
markets were hurt by currencies that continued to slump against the dollar, or
by fears of devaluation, which materialized in Russia, then threatened in
Brazil. Japan showed some willingness to address its lingering economic
problems. But the modest gains attributed to Japanese stocks owned by U.S.
investors were primarily the result of a weaker dollar.
Outlook and Opportunities
As investors, you may be asking where the opportunities are in a stock market
that has soared for the better part of a decade and a bond market where interest
rates are at or near historic lows. My reply: in diversification -- and in
markets that have been beaten down, such as small and mid-cap stocks, high-yield
bonds, and foreign markets. But every investor has individual goals. Now is a
good time to consult your financial professional. And as always, thank you for
your confidence in State Street Research funds.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
December 31, 1998
(1)The S&P 500 (officially the "Standard and Poor's 500 Composite Stock Price
Index" is an unmanaged index of 500 U.S. stocks. The index does not take
transaction charges into consideration. It is not possible to invest directly in
the index.
(2)5.01% for Class B shares; 5.14% for Class C shares; 6.07% for Class S shares.
(3)Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable.
(4)Class S shares, offered without a sales charge, are available through certain
employee benefit plans and special programs.
(5)The fund's returns include performance before the creation of share classes.
If this performance reflected the share classes' current 12b-1 fees, the fund's
returns may have been lower.
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.
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FUND INFORMATION (all data are for periods ended December 31, 1998)
- --------------------------------------------------------------------------------
Total Value of $10,000 Invested on 12/31/88(3)
(Class A shares, at maximum applicable sales charge)
[mountain chart data begins]
<TABLE>
<S> <C>
"12/88" 9550
"12/89" 10469
"12/90" 10974
"12/91" 12269
"12/92" 13412
"12/93" 15037
"12/94" 14000
"12/95" 16321
"12/96" 16799
"12/97" 18508
"12/98" 19580
</TABLE>
[mountain chart data ends]
Average Annual Total Return
(at maximum applicable sales charge)(3,4,5)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of Fund
(Since 8/25/86) 10 Years 5 Years 1 Year
----------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Class A 6.85% 6.95% 4.45% 1.03%
- -------------------------------------------------------------------
Class B 6.89% 7.00% 4.30% 0.01%
- -------------------------------------------------------------------
Class C 6.89% 7.00% 4.64% 4.14%
- -------------------------------------------------------------------
Class S 7.35% 7.57% 5.69% 6.07%
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Taxable
Equivalent
Yield
(36% federal
Yield tax bracket)
- ---------------------------------------
<S> <C> <C>
Class A 4.21% 6.58%
- ---------------------------------------
Class B 3.65% 5.70%
- ---------------------------------------
Class C 3.58% 5.59%
- ---------------------------------------
Class S 4.66% 7.28%
- ---------------------------------------
</TABLE>
Yield is based on the net investment income for the 30 days ended December 31,
1998. 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
Tax-Exempt Fund: Another solid year for municipal bonds
[photo of Paul J. Clifford, Jr.]
Paul J. Clifford, Jr.
Portfolio Manager
We spoke with Paul Clifford, portfolio manager of State Street Research
Tax-Exempt Fund, about the Fund's performance for the year ended December 31,
1998 and his views on the period ahead.
Q: How did the Fund perform last year?
A: It was a good year for the Fund relative to its peer group. Class A shares
returned 5.79% for the 12 months ended December 31, 1998 [does not reflect sales
charge].(2) That was higher than the Lipper average general municipal debt fund,
which returned 5.32%. The Fund underperformed the Lehman Brothers Municipal Bond
Index, which gained 6.48% for the same period.
Q: Why did the Fund outperform its peer municipal bond funds?
A: We made three key decisions that worked in the Fund's favor. First, we
lengthened the duration of the Fund based on the outlook of State Street
Research fixed income group. Duration is a measure of the Fund's sensitivity to
changes in interest rates. What's more, the timing of our decision to lengthen
duration was fortuitous: we lengthened ahead of the decline in interest rates.
Second, we made a decision early in the year to increase the credit quality of
the portfolio. The yield premium for lesser-quality bonds had declined
substantially, making valuations less compelling. Third, we focused on the
structure of our bonds, examining each opportunity for the optimal combination
of maturity, price, and call features.
Q: What changes did you make to the composition of the portfolio during the
year?
A: We added investments in education, and we increased our exposure to insured
bonds. That's not surprising in light of our emphasis on quality. It also
reflects a trend in our market: In the past five years, the percentage of bonds
that are insured with AAA ratings has grown from 34% to 55%. Insurance premiums
have come down, and yields have become increasingly competitive.
We also reduced our exposure to health care bonds and turned cautious on utility
bonds, where an evolving regulatory environment has induced uncertainty.
Overall, however, we kept the turnover of the Fund quite low for the year.
Q: What is your outlook for municipal bonds in the period ahead?
A: We believe that slowing global economic growth could continue to affect the
U.S. economy. As a result, we believe that interest rates could come down even
further. Right now the municipal market is inexpensive compared to the U.S.
Treasury market.
December 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bond Quality Ratings*
(by percentage of long-term investments)
[pie chart data begins]
A 4%
BBB 31%
BB 10%
AAA 35%
AA 20%
[pie chart data ends]
As rated by Standard & Poor's Corporation or Moody's Investors Service, Inc.
*17% of the above bonds were unrated and included among relevant rating
categories as determined by the Fund's Manager.
Top 5 State Representations
(by percentage of net assets)
[bar chart data begins]
California 15.3%
Florida 12.2%
New York 8.9%
Pennsylvania 6.5%
Texas 6.5%
Total: 49.4%
[bar chart data ends]
Top 5 Sectors
(by percentage of net assets)
[bar chart data begins]
College and university 12.1%
Special sales tax 9.7%
Transit/highway 7.4%
State general
obligation 7.3%
County general
obligation 7.1%
Total: 43.6%
[bar chart data ends]
2
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS 103.0%
Alabama 1.3%
Birmingham Airport Authority,
Alabama, Airport Revenue
Refunding Bonds, Series 1999,
Subject to AMT, AMBAC
Insured, 5.25%+ ...................... $1,075,000 7/01/2007 $ 1,108,389
Alabama Public School and
College Authority, Capital
Improvement Bonds, Series
1998, FSA Insured, 4.25% ............. 3,000,000 11/01/2018 2,711,910
-----------
3,820,299
-----------
California 15.3%
Santa Clara County Financing
Authority, (VMC Facility
Replacement Project), 1994
Series A Bonds, AMBAC
Insured, 7.75% ....................... 1,000,000 11/15/2008 1,285,950
Foothill/Eastern Transportation
Corridor Agency, Series 1995A
Senior Lien Convertible Capital
Appreciation Bonds, 0.00% ............ 1,695,000 1/01/2010 1,396,663
Port Hueneme Redevelopment
Agency, Central Community
Project, 1993 Tax Allocation
Refunding Bonds, AMBAC
Insured, 5.50% ....................... 1,800,000 5/01/2014 1,978,668
California Pollution Control
Financing Authority, Pollution
Control Refunding Revenue
Bonds, (San Diego Gas &
Electric Company), 1996
Series A, 5.90% ...................... 2,200,000 6/01/2014 2,481,776
Sacramento Power Authority,
Cogeneration Project Revenue
Bonds, (Procter & Gamble
Project), 1995 Series, 6.50% ......... 1,300,000 7/01/2014 1,504,165
California Housing Finance
Agency, Home Mortgage
Revenue Bonds, 1994 Series G,
7.20% ................................ 1,500,000 8/01/2014 1,630,185
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
City of Stockton, Revenue
Certificates of Participation,
1995 Series A, (Wastewater
Treatment Plant Expansion),
FGIC Insured, 6.70% .................. $1,000,000 9/01/2014 $ 1,159,600
California Educational Facilities
Authority, Series 1994 Revenue
Bonds, (Southwestern
University Project), Series 1995,
MBIA Insured, 6.60% .................. 1,000,000 11/01/2014 1,131,730
County of Madera, California,
Certificates of Participation,
(Valley Childrens Hospital
Project), Series 1995, MBIA
Insured, 6.50% ....................... 1,000,000 3/15/2015 1,198,580
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 733,590
Roseville Joint Union High
School District, 1992 General
Obligation Bonds, Series B,
FGIC Insured, 0.00% .................. 1,000,000 8/01/2015 445,490
Foothill/Eastern Transportation
Corridor Agency, Toll Road
Revenue Bonds Series 1995 A
(Fixed Rate), Capital
Appreciation Bonds, Senior Lien
Series A, 0.00% ...................... 5,000,000 1/01/2019 1,747,400
San Joaquin Hills
Transportation Corridor Agency,
Toll Road Refunding Revenue
Bonds, Series 1997A,
Convertible Capital
Appreciation Bonds, MBIA
Insured, 0.00% ....................... 5,000,000 1/15/2019 3,492,650
City of Long Beach, California,
Harbor Revenue Refunding
Bonds, Series 1998A, Subject
to AMT, FGIC Insured, 6.00% .......... 4,000,000 5/15/2019 4,540,200
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California (cont'd)
Fresno Sewer Revenue Bonds,
Series A-1, AMBAC Insured,
5.25% ............................... $5,100,000 9/01/2019 $5,377,644
County of Sacramento, Laguna
Creek Ranch/Elliott Ranch
Community Facilities District
No.1, Improvement Area No. 2
Special Tax Refunding Bonds,
(Elliott Ranch), 6.30% .............. 3,000,000 9/01/2021 3,151,770
Anaheim Public Financing
Authority, Lease Revenue
Bonds, (Anaheim Public
Improvement Project),
Subordinate 1997 Series C
Capital Appreciation Bonds,
FSA Insured, 0.00% .................. 3,125,000 9/01/2025 797,563
City of Davis, Public Facilities
Financing Authority, Local
Agency Revenue Bonds, 1997
Series A, 6.60% ..................... 1,500,000 9/01/2025 1,580,805
San Joaquin Hills
Transportation Corridor Agency,
(Orange County, California),
Senior Lien Toll Road Revenue
Bonds, 7.00% ........................ 950,000 1/01/2030 1,079,713
Foothill/Eastern Transportation
Corridor Agency, Toll Road
Revenue Bonds Series 1995A
Senior Lien, 6.50% .................. 6,000,000 1/01/2032 6,732,360
----------
43,446,502
----------
Colorado 5.1%
Larimer County, Colorado,
Single Family Mortgage
Revenue Bonds, (Larimer
County and Weld County,
Program), 1984 Series A,
0.00% ............................... 3,000,000 8/01/2015 1,329,990
E-470 Public Highway Authority,
Senior Revenue Bonds, Series
1997B, (Capital Appreciation
Bonds), MBIA Insured, 0.00% ......... 5,000,000 9/01/2016 2,083,850
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Eaglebend Affordable Housing
Corporation, Multifamily
Housing Project Revenue
Refunding Bonds, Series
1997A, 6.45% ........................ $2,000,000 7/01/2021 $2,123,660
Colorado Housing and Finance
Authority, Single Family
Program, 1997 Series B-2
Senior Bonds (AMT), 7.00% ........... 1,165,000 5/01/2026 1,297,274
Arapahoe County, Colorado,
Public Highway Authority,
Capital Improvement Trust
Fund, Highway Revenue Bonds
(E-470 Project), Pre-Refunded to
8/31/2005 @ 103, MBIA
Insured, 7.00%* ..................... 5,000,000 8/31/2026 5,967,200
Colorado Housing and Finance
Authority, Single Family
Program, 1996 Series B-2
Senior Bonds, 7.45% ................. 1,500,000 11/01/2027 1,676,175
----------
14,478,149
----------
Connecticut 5.7%
State of Connecticut, Special
Tax Obligation Bonds,
Transportation Infrastructure
Purposes, 1991 Series A,
6.50% ............................... 1,500,000 10/01/2012 1,804,755
Connecticut Development
Authority, Pollution Control
Refunding Bonds, (Pfizer Inc.
Project-1982 Series), 6.55% ......... 2,500,000 2/15/2013 2,743,025
State of Connecticut Health
and Educational Facilities
Authority, Revenue Bonds,
University of Hartford Issue,
Series D, 6.80% ..................... 5,000,000 7/01/2022 5,288,000
State of Connecticut Health
and Educational Facilities
Authority, Revenue Bonds,
Quinnipiac College Issue,
Series D, 6.00% ..................... 4,465,000 7/01/2023 4,622,257
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Connecticut (cont'd)
Connecticut Development
Authority, Aquarium Project
Revenue Bonds, (Mystic
Marinelife Aquarium Project-
1997 Series A), 7.00% ................. $1,700,000 12/01/2027 $1,816,212
----------
16,274,249
----------
District of Columbia 1.1%
District of Columbia, (The
Howard University Issue),
Revenue Refunding Bonds,
Series 1998, MBIA Insured,
5.50% ................................. 2,815,000 10/01/2017 3,027,476
----------
Florida 12.2%
Grand Haven Community
Development District (Flagler
County, Florida), Special
Assessment Bonds, Series
1997 A, 6.30% ......................... 2,455,000 5/01/2002 2,516,596
Heritage Harbor Development
District, (Hillsborough County,
Florida), Special Assessment
Revenue Bonds, Series 1997B,
6.00% ................................. 1,350,000 5/01/2003 1,360,057
Bayside Improvement
Community Development
District, (Lee County, Florida),
Capital Improvement, Revenue
Bonds, Series 1998A, 5.95% ............ 1,000,000 5/01/2008 1,014,900
Leon County, Florida, Capital
Improvement Revenue
Refunding Bonds, Series 1998B,
AMBAC Insured, 5.25%+ ................. 2,595,000 10/01/2012 2,754,644
Orlando Utilities Commission,
Water and Electric
Subordinated Revenue Bonds,
Series D, 6.75% ....................... 5,000,000 10/01/2017 6,097,250
Bayside Improvement
Community Development
District, (Lee County, Florida),
Capital Improvement, Revenue
Bonds, Series 1998A, 6.30% ............ 980,000 5/01/2018 1,004,608
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Grand Haven Community
Development District (Flagler
County, Florida), Special
Assessment Bonds, Series
1997 B, 6.90% ......................... $ 750,000 5/01/2019 $ 791,243
North Springs Improvement
District, (Broward County,
Florida), Special Assessment
Bonds, Series 1997, (Heron Bay
Project), 7.00% ....................... 745,000 5/01/2019 766,970
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 1,334,013
City of Orlando, Florida, Special
Assessment Revenue Bonds,
(Conroy Road Interchange
Project), Series 1998A, 5.80% ......... 1,000,000 5/01/2026 1,001,550
Orange County, Florida, Health
Facilities Authority, First
Mortgage Revenue Bonds,
Series 1996, (Orlando Lutheran
Towers, Inc.), 8.75% .................. 5,000,000 7/01/2026 5,842,750
Volusia County Educational
Facility Authority, Educational
Facilities Revenue Bonds,
(Embry-Riddle Aeronautical
University Project), Series
1996A, 6.125% ......................... 5,000,000 10/15/2026 5,409,500
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 3,307,410
Housing Authority of Lee
County, Florida, Single Family
Mortgage Revenue Bonds,
(Multi-County Program), Series
1996A, Subseries 2, Subject to
AMT, 7.50% ............................ 1,265,000 9/01/2027 1,434,624
----------
34,636,115
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Georgia 5.9%
Geo. L Smith ll Georgia World
Congress Center Authority,
Refunding Revenue Bonds,
(Domed Stadium Project),
Series 2000, Subject to AMT,
MBIA Insured, 6.00%+ .............. $1,000,000 7/01/2008 $ 1,085,020
State of Georgia, General
Obligation Bonds, Series
1992B, 6.25% ...................... 4,300,000 3/01/2011 5,064,583
State of Georgia, General
Obligation Bonds, Series
1994E, 6.75% ...................... 1,000,000 12/01/2012 1,238,850
Metropolitan Atlanta Rapid
Transit Authority, Georgia,
Sales Tax Revenue Bonds,
Refunding Series P, AMBAC
Insured, 6.25% .................... 4,700,000 7/01/2020 5,565,129
State of Georgia, Local
Government Certificates
Participation, Grantor Trust,
Series A, MBIA Insured, 4.75%...... 4,000,000 6/01/2028 3,876,600
----------
16,830,182
----------
Hawaii 0.1%
City and County of Honolulu,
Hawaii, Wastewater System
Revenue Bonds, (Second Bond
Resolution), Junior Series 1998,
FGIC Insured, 0.00% ............... 1,000,000 7/01/2019 355,690
----------
Illinois 0.4%
City of Chicago, Collateralized
Single Family Mortgage
Revenue Bonds, Series
1997-B, 6.95% ..................... 1,135,000 9/01/2028 1,266,717
----------
Maine 1.5%
Finance Authority of Maine,
Revenue Obligation Securities,
(Huntington Common Project),
Series 1997A, 7.50% ............... 4,000,000 9/01/2027 4,368,320
----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maryland 2.7%
Howard County, Maryland,
Multifamily Mortgage
Refunding Bonds, Series 1994,
(Chase Glen Project),
Mandatory Put 7/1/2004 @
100, 7.00% ........................ $5,000,000 7/01/2024 $ 5,560,000
Frederick County, Maryland,
Special Obligation Bonds,
(Urbana Community
Development Authority), Series
1998, 6.625% ...................... 2,000,000 7/01/2025 2,033,040
----------
7,593,040
----------
Massachusetts 4.5%
Massachusetts Industrial
Finance Agency, First Mortgage
Revenue Bonds, (Brookhaven
Retirement Community,
Lexington-1994 Issue),
Series A, 6.75% ................... 4,500,000 1/01/2001 4,679,010
Massachusetts Industrial
Finance Agency, First Mortgage
Revenue Bonds, (Berkshire
Retirement Community, Lenox-
1994 Issue), Series A, 6.375%...... 1,500,000 7/01/2005 1,613,040
Massachusetts Bay
Transportation Authority,
General Transportation System
Bonds, 1994 Series A,
Refunding Bonds, 7.00% ............ 3,385,000 3/01/2014 4,230,268
Massachusetts Industrial
Finance Agency, (Marina Bay
LLC Project-1997 Issue), 7.50%..... 2,000,000 12/01/2027 2,122,880
----------
12,645,198
----------
Michigan 2.6%
State Building Authority, State
of Michigan, 1997 Revenue
Bonds, Series II (Facilities
Program), AMBAC Insured,
0.00% ............................. 2,000,000 10/15/2011 1,114,500
State Building Authority, State
of Michigan, 1997 Revenue
Bonds, Series II (Facilities
Program), AMBAC Insured,
0.00% ............................. 1,940,000 10/15/2012 1,032,701
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michigan (cont'd)
State of Michigan, Refunding
Bonds, Trunk Line, Series A,
5.25% ............................... $2,000,000 11/01/2014 $ 2,123,960
School District of the City of
Detroit, Wayne County,
Michigan, School Building and
Site Improvement, Refunding
Bonds, (Unlimited Tax General
Obligation), Series 1998C, FGIC
Insured, 5.25% ...................... 1,000,000 5/01/2016 1,042,850
Michigan Strategic Fund,
Limited Obligation Refunding
Revenue Bonds, (The Detroit
Edison Company, Pollution
Control Bonds Project),
Collateralized Series 1999A,
MBIA Insured, 5.55%+ ................ 2,000,000 9/01/2029 2,032,600
----------
7,346,611
----------
Minnesota 0.8%
Minnesota Housing Finance
Authority, Single Family
Mortgage Bonds, 1994
Series E, 5.90% ..................... 2,085,000 7/01/2025 2,183,537
----------
Nevada 3.6%
Clark County School District,
Nevada, General Obligation
(Limited Tax), Building and
Renovation Bonds, Series
1997B, FGIC Insured, 5.25% .......... 5,045,000 6/15/2017 5,150,239
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 5,169,600
----------
10,319,839
----------
New Hampshire 2.2%
New Hampshire Higher
Educational and Health
Facilities Authority, Revenue
Bonds, Dartmouth College
Issue, Series 1993, 5.375% .......... 5,000,000 6/01/2023 5,148,300
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Hampshire Higher
Educational and Health
Facilities Authority, Revenue
Bonds, New Hampshire College
Issue, Series 1997, 6.375% .......... $1,000,000 1/01/2027 $ 1,054,750
----------
6,203,050
----------
New Jersey 2.5%
State of New Jersey
Educational Facilities Authority,
(Seton Hall University Project),
Revenue, Refunding Bonds,
1999 Refunding Series, AMBAC
Insured, 5.25%+ ..................... 1,000,000 7/01/2008 1,059,760
New Jersey Transportation
Trust Fund Authority,
Transportation System Bonds,
1996 Series B, 5.00% ................ 5,000,000 6/15/2017 5,052,550
New Jersey Educational
Facilities Authority, Seton Hall
University Project Revenue
Bonds, 1991 Series D, 7.00% ......... 1,000,000 7/01/2021 1,060,270
----------
7,172,580
----------
New Mexico 2.0%
Dona Ana County, New
Mexico, Gross Receipts Tax
Refunding and Improvement
Revenue Bonds, Subordinate,
Series 1998, AMBAC Insured,
5.50% ............................... 1,200,000 6/01/2016 1,293,852
City of Farmington, New
Mexico, Pollution Control
Revenue Refunding Bonds,
1997 Series D, (Public Service
Company of New Mexico San
Juan Project), 6.375% ............... 4,000,000 4/01/2022 4,274,000
----------
5,567,852
----------
New York 8.9%
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 5,602,850
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York (cont'd)
The City of New York, New
York, General Obligation Bonds,
Fiscal 1992 Series B, 7.75% ....... $3,990,000 2/01/2012 $ 4,495,732
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 5,742,450
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 5,311,550
Metropolitan Transportation
Authority, (New York),
Dedicated Tax Fund Bonds,
Series 1998A, FGIC Insured,
4.50% ............................. 2,000,000 4/01/2018 1,884,280
Port Authority of New York and
New Jersey, Special Project
Bonds, Series 6, JFK
International Air Terminal LLC
Project, Subject to AMT, MBIA
Insured, 5.75% .................... 2,000,000 12/01/2022 2,143,920
----------
25,180,782
----------
North Carolina 1.9%
North Carolina Housing Finance
Agency, Multifamily Revenue
Refunding Bonds, (1992
Refunding Bond Resolution),
Series B, 6.90% ................... 5,000,000 7/01/2024 5,369,650
----------
Ohio 0.9%
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 2,677,050
----------
Oklahoma 1.1%
Tulsa Industrial Authority,
Revenue and Refunding Bonds,
(The University of Tulsa), Series
1996A, MBIA Insured, 5.00% ........ 3,000,000 10/01/2022 2,975,070
----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania 6.5%
Montgomery County Industrial
Development Authority, Health
Facilities Revenue Bonds,
Series of 1993, (ECRI Project),
6.40% ............................. $ 580,000 6/01/2003 $ 608,432
Montgomery County Higher
Education and Health Authority,
Pennsylvania, Northwestern
Corp., 6.50% ...................... 1,140,000 6/01/2004 1,270,860
Northampton County,
Pennsylvania, Higher Education
Authority, University Revenue
Bonds, Series A of 1999,
(Lehigh University), 5.25%+ ....... 3,335,000 11/15/2008 3,584,425
Pennsylvania Economic
Development Financing
Authority, Resource Recovery
Revenue Bonds, (Northampton
Generating Project), Series
1994A, 6.40% ...................... 2,500,000 1/01/2009 2,652,825
Pennsylvania Economic
Development Financing
Authority, Resource Recovery
Revenue Bonds, (Colver
Project), Series 1994D, Subject
to AMT, 7.05% ..................... 1,000,000 12/01/2010 1,108,240
Allegheny County, Pennsylvania,
Hospital Development
Authority, Health Center
Revenue Bonds, Series 1998A,
(UPMC Health System), MBIA
Insured, 4.50% .................... 2,255,000 8/01/2015 2,138,664
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 1,081,240
Philadelphia Authority for
Industrial Development,
Commercial Development
Revenue Refunding Bonds,
(Doubletree Guest Suites
Project), Series 1997A, 6.50% ..... 3,000,000 10/01/2027 3,191,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania (cont'd)
Pennsylvania Economic
Development Financing
Authority, (Northwestern
Human Services, Inc. Project),
Revenue Bonds, 1998 Series A,
5.25% ................................ $3,000,000 6/01/2028 $ 2,878,470
----------
18,514,406
----------
Puerto Rico 2.0%
Commonwealth of Puerto Rico,
General Obligation Public
Improvement Refunding Bonds,
Series 1998, 0.00% ................... 2,000,000 7/01/2015 886,020
Commonwealth of Puerto Rico,
Electric Power Authority, Power
Revenue Bonds, Series DD,
FSA Insured, 4.50% ................... 5,000,000 7/01/2019 4,768,100
----------
5,654,120
----------
Tennessee 2.0%
City of Memphis, Tennessee,
Electric System Revenue
Refunding Bonds, Series of
1992, 6.00% .......................... 2,250,000 1/01/2006 2,501,640
City of Memphis, Tennessee,
Water Division Revenue
Refunding Bonds, Series of
1992-A, 6.00% ........................ 3,000,000 1/01/2012 3,207,420
----------
5,709,060
----------
Texas 6.5%
Texas Municipal Power Agency,
Refunding Revenue Bonds,
Series 1991A, AMBAC Insured,
6.75% ................................ 1,000,000 9/01/2012 1,084,120
Cypress-Fairbanks Independent
School District, (A political
subdivision of Harris County,
Texas), Unlimited Tax Refunding
Bonds, Series 1993A, 0.00% ........... 3,500,000 2/15/2013 1,782,550
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas Public Finance Authority,
State of Texas, General
Obligation Refunding Bonds,
Series 1998B, 0.00% .................. $3,000,000 10/01/2013 $ 1,497,720
Amarillo, Texas, Health
Facilities Corporation, Hospital
Revenue Bonds, (Baptist St.
Anthony's, Hospital Corporation
Project), Series 1998, FSA
Insured, 5.50% ....................... 2,830,000 1/01/2014 3,046,240
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 6,280,553
Texas Public Finance Authority,
State of Texas General
Obligation Refunding Bonds,
Series 1997, 0.00% ................... 5,000,000 10/01/2014 2,352,200
Denison Hospital Authority,
Hospital Revenue Bonds,
(Texoma Medical Center, Inc.
Project), Series 1997, 6.125% ........ 1,000,000 8/15/2017 1,017,630
City of San Antonio, Texas,
Electric and Gas Systems
Revenue Refunding Bonds,
Series 1998A, 4.50% .................. 1,500,000 2/01/2021 1,400,385
----------
18,461,398
----------
Utah 1.0%
Intermountain Power Agency,
Utah, Power Supply Revenue
Refunding Bonds, 1996 Series
A, MBIA Insured, 6.15% ............... 2,500,000 7/01/2014 2,740,225
----------
Virginia 1.1%
Chesapeake Bay Bridge and
Tunnel District, Virginia,
General Resolution Revenue
Bonds, Refunding, Series 1998,
MBIA Insured, 5.50% .................. 3,000,000 7/01/2025 3,256,020
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Wisconsin 1.6%
Wisconsin Housing and
Economic Development
Authority, Home Ownership
Revenue Bonds, 1992 Series 2,
Subject to AMT, 6.875% ......... $4,160,000 9/01/2024 $ 4,413,469
------------
Total Municipal Bonds (Cost $268,768,427)....................... 292,486,656
------------
SHORT-TERM OBLIGATIONS 0.4%
Long Island Power Authority,
New York, Electric System
General Revenue Bonds, Series
1998A, 3.15% ................... 1,000,000 5/01/2033++ 1,000,000
------------
Total Short-Term Obligations (Cost $1,000,000).................. 1,000,000
------------
Total Investments (Cost $269,768,427)--103.4%................... 293,486,656
Cash and Other Assets, Less Liabilities--(3.4%) ................ (9,574,491)
------------
Net Assets--100.0% ............................................. $283,912,165
============
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Federal Income Tax Information:
At December 31, 1998, the net unrealized
appreciation of investments based on cost for
Federal income tax purposes of $269,768,427 was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost .................................. $23,790,234
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ................................ (72,005)
-----------
$23,718,229
===========
</TABLE>
- --------------------------------------------------------------------------------
++ Interest rate on this obligation may reset daily.
+ The delivery and payment of this security is beyond the normal settlement
time. 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 pur-chase
noted above. The total market value of segregated securities is $12,247,753.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $269,768,427) (Note 1)................. $293,486,656
Cash .............................................................. 8,275
Interest receivable ............................................... 4,833,295
Receivable for securities sold .................................... 3,051,120
Receivable for fund shares sold ................................... 137,300
Other assets ...................................................... 46,373
------------
301,563,019
Liabilities
Payable for securities purchased .................................. 16,817,517
Dividends payable ................................................. 314,794
Accrued transfer agent and shareholder services
(Note 2) ........................................................ 161,132
Accrued management fee (Note 2) ................................... 132,591
Accrued distribution and service fees (Note 4) .................... 100,471
Accrued trustees' fees (Note 2) ................................... 39,645
Payable for fund shares redeemed .................................. 24,630
Other accrued expenses ............................................ 60,074
------------
17,650,854
------------
Net Assets $283,912,165
============
Net Assets consist of:
Undistributed net investment income .............................. $ 137,940
Unrealized appreciation of investments ........................... 23,718,229
Accumulated net realized loss .................................... (146,169)
Paid-in capital .................................................. 260,202,165
------------
$283,912,165
============
Net Asset Value and redemption price per share of
Class A shares ($205,772,879 [divided by] 24,085,262 shares)..... $8.54
=====
Maximum Offering Price per share of Class A shares
($8.54 [divided by] .955)........................................ $8.94
=====
Net Asset Value and offering price per share of Class
B shares ($63,444,661 [divided by] 7,427,938 shares)*............ $8.54
=====
Net Asset Value and offering price per share of Class
C shares ($3,981,571 [divided by] 466,312 shares)*............... $8.54
=====
Net Asset Value, offering price and redemption price
per share of Class S shares ($10,713,054 [divided by]
1,256,960 shares) ............................................... $8.52
=====
</TABLE>
* Redemption price per share for Class B and Class C is equal to net asset value
less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended December 31, 1998
<TABLE>
<S> <C>
Investment Income
Interest ..................................................... $15,828,476
Expenses
Management fee (Note 2) ...................................... 1,527,580
Transfer agent and shareholder services (Note 2) ............. 342,615
Custodian fee ................................................ 141,775
Registration fees ............................................ 40,292
Trustees' fees (Note 2) ...................................... 36,639
Audit fee .................................................... 36,027
Service fee-Class A (Note 4) ................................. 515,943
Distribution and service fees-Class B (Note 4) ............... 579,441
Distribution and service fees-Class C (Note 4) ............... 31,024
Legal fees ................................................... 11,445
Reports to shareholders ...................................... 10,362
Miscellaneous ................................................ 15,557
-----------
3,288,700
Fees paid indirectly (Note 2) ................................ (36,420)
-----------
3,252,280
-----------
Net investment income ........................................ 12,576,196
-----------
Realized and Unrealized Gain (Loss) on
Investments and Futures Contracts
Net realized gain on investments (Notes 1 and 3) ............. 2,171,733
Net realized loss on futures contracts (Note 1) .............. (266,300)
-----------
Total net realized gain ..................................... 1,905,433
Net unrealized appreciation of investments ................... 983,601
-----------
Net gain on investments and futures contracts ................ 2,889,034
-----------
Net increase in net assets resulting from operations ......... $15,465,230
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------
1997 1998
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ......... $ 13,086,223 $ 12,576,196
Net realized gain on
investments and futures
contracts ................... 3,784,103 1,905,433
Net unrealized appreciation of
investments ................. 8,918,360 983,601
------------ ------------
Net increase resulting from
operations................... 25,788,686 15,465,230
------------ ------------
Dividends from net
investment income:
Class A ...................... (10,117,491) (9,924,767)
Class B ...................... (2,053,700) (2,352,161)
Class C ...................... (116,036) (125,835)
Class S ...................... (427,971) (522,957)
------------ ------------
(12,715,198) (12,925,720)
------------ ------------
Distribution from net realized
gains:
Class A ...................... -- (994,207)
Class B ...................... -- (303,093)
Class C ...................... -- (18,821)
Class S ...................... -- (51,520)
------------ ------------
-- (1,367,641)
------------ ------------
Net increase (decrease) from
fund share transactions
(Note 6) .................... (24,771,115) 7,442,614
------------ ------------
Total increase (decrease) in
net assets .................. (11,697,627) 8,614,483
Net Assets
Beginning of year ............. 286,995,309 275,297,682
------------ ------------
End of year (including
undistributed net
investment income of
$487,464 and $137,940,
respectively) ............... $275,297,682 $283,912,165
============ ============
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1998
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. The Trust consists presently of two
separate funds: 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. Effective January 1, 1999, the Fund
began offering Class B(1) shares which are subject to a contingent deferred
sales charges on certain redemptions made within six years. Class C shares are
subject to a contingent deferred sales charge of 1.00% on any shares redeemed
within one year of their purchase. Class C shares also pay annual distribution
and service fees of 1.00%. Class S shares are only offered through certain
retirement accounts, advisory accounts of State Street Research & Management
Company (the "Adviser"), an indirect wholly owned subsidiary of Metropolitan
Life Insurance Company ("Metropolitan"), and special programs. No sales charge
is imposed at the time of purchase or redemption of Class S shares. Class S
shares do not pay any distribution or service fees. The Fund's expenses are
borne pro-rata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the Plan of Distribution,
related specifically to that class. The Trustees declare separate dividends on
each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. Investment Valuation
Tax-exempt securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term obligations are valued at amortized
cost. Other securities, if any, are valued at their fair value as determined in
accordance with established methods consistently applied.
B. Security
Transactions Security transactions are accounted for on the trade date (date the
order to buy or sell is executed). Realized gains or losses are reported on the
basis of identified cost of securities delivered.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
C. Net Investment Income
Net investment income is determined daily and consists of interest accrued and
discount earned, less amortization of premium and the estimated daily expenses
of the Fund. Interest income is accrued daily as earned. The Fund is charged for
expenses directly attributable to it, while indirect expenses are allocated
between both funds in the Trust.
D. Dividends
Dividends are declared daily by the Fund based upon projected net investment
income and paid or reinvested monthly. Net realized capital gains, if any, are
distributed annually, unless additional distributions are required for
compliance with applicable tax regulations. For the year ended December 31,
1998, the Fund has designated as long-term $1,173,629 of the distributions from
net realized gains.
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.
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.
H. Securities Lending
The Fund may seek additional income by lending portfolio securities to qualified
institutions. The Fund will receive cash or securities as collateral in an
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. If the borrower fails to return the securities
and the value of the collateral has declined during the term of the loan, the
Fund will bear the loss. During the year ended December 31, 1998, there were no
loaned securities.
Note 2
The Trust and the Adviser 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, 1998, the fees pursuant to such
agreement amounted to $1,527,580.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended December 31, 1998, the amount of such
expenses was $115,280.
The Fund has entered into an arrangement with its transfer agent whereby credits
realized as a result of invested cash balances were used to reduce a portion of
the Fund's expense. During the year ended December 31, 1998 the Fund's transfer
agent fees were reduced by $36,420 under this arrangement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$36,639 during the year ended December 31, 1998.
Note 3
For the year ended December 31, 1998, purchases and sales of securities,
exclusive of short-term obligations, aggregated $108,615,904 and $103,250,685,
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 C shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class C 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, 1998, fees pursuant to such plan amounted to
$515,943, $579,441 and $31,024 for Class A, Class B and Class C 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 $68,263 and $428,743, respectively, on sales of Class A shares of
the Fund during the year ended December 31, 1998, and that MetLife Securities,
Inc. earned commissions aggregating $392,902 on sales of Class B shares, and the
Distributor collected contingent deferred sales charges aggregating $89,197 and
$1,045 on redemptions of Class B and Class C shares, respectively, during the
same period.
13
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 5
At December 31, 1998, investments totalling 13.6% 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 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------------------------------
1997 1998
---------------------------------- --------------------------------
Class A Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 2,065,831 $ 16,933,303 2,384,602 $ 20,322,663
Issued upon reinvestment of:
Dividends from net investment income ......... 893,473 7,340,108 843,691 7,195,609
Distribution from net realized gains ......... -- -- 98,948 847,986
Shares repurchased ............................ (5,888,583) (48,161,322) (3,876,779) (33,042,697)
---------- ------------ ---------- ------------
Net decrease .................................. (2,929,279) $(23,887,911) (549,538) $ (4,676,439)
========== ============ ========== ============
Class B Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Shares sold ................................... 1,029,241 $ 8,463,587 1,950,304 $ 16,635,836
Issued upon reinvestment of:
Dividends from net investment income ......... 187,485 1,540,633 203,518 1,735,440
Distribution from net realized gains ......... -- -- 29,605 253,723
Shares repurchased ............................ (1,237,297) (10,121,203) (1,115,290) (9,508,658)
---------- ------------ ---------- ------------
Net increase (decrease) ....................... (20,571) $ (116,983) 1,068,137 $ 9,116,341
========== ============ ========== ============
Class C Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Shares sold ................................... 154,375 $ 1,262,199 334,346 $ 2,880,497
Issued upon reinvestment of:
Dividends from net investment income ......... 7,270 59,643 7,520 64,226
Distribution from net realized gains ......... -- -- 1,512 12,962
Shares repurchased ............................ (184,791) (1,511,144) (210,631) (1,802,314)
---------- ------------ ---------- ------------
Net increase (decrease) ....................... (23,146) $ (189,302) 132,747 $ 1,155,371
========== ============ ========== ============
Class S Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
Shares sold ................................... 67,784 $ 567,802 574,641 $ 4,884,889
Issued upon reinvestment of:
Dividends from net investment income ......... 34,030 279,608 30,944 263,059
Distribution from net realized gains ......... -- -- 3,380 28,899
Shares repurchased ............................ (174,445) (1,424,329) (390,950) (3,329,506)
---------- ------------ ---------- ------------
Net increase (decrease) ....................... (72,631) $ (576,919) 218,015 $ 1,847,341
========== ============ ========== ============
</TABLE>
14
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Years ended December 31
-----------------------------------------------------------
1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.43 7.46 8.26 8.10 8.51
----- ----- ------ ----- -----
Net investment income ($) 0.40 0.39 0.39 0.40 0.40
Net realized and unrealized gain (loss) on
investments and futures contracts ($) (0.98) 0.82 (0.16) 0.40 0.08
------ ----- ------- ----- -----
Total from investment operations ($) (0.58) 1.21 0.23 0.80 0.48
------ ----- ------- ----- -----
Dividends from net investment income ($) (0.38) (0.41) (0.39) (0.39) (0.41)
Distributions from net realized gains ($) (0.01) -- -- -- (0.04)
------ ------ ------- ------ ------
Total distributions ($) (0.39) (0.41) (0.39) (0.39) (0.45)
------ ------ ------- ------ ------
Net asset value, end of year ($) 7.46 8.26 8.10 8.51 8.54
====== ====== ======= ====== ======
Total return(a) (%) (6.90) 16.58 2.93 10.17 5.79
Ratios/supplemental data:
Net assets at end of year ($ thousands) 238,097 253,402 223,407 209,552 205,773
Ratio of operating expenses to average net
assets (%) 1.20 1.13 1.04 1.08 1.03
Ratio of net investment income to average net
assets (%) 5.07 4.95 4.82 4.91 4.69
Portfolio turnover rate (%) 78.63 97.32 125.24 60.48 36.22
<CAPTION>
Class B
-----------------------------------------------------
Years ended December 31
-----------------------------------------------------
1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.43 7.46 8.26 8.10 8.51
----- ----- ------ ----- -----
Net investment income ($) 0.34 0.33 0.32 0.34 0.34
Net realized and unrealized gain (loss) on
investments and futures contracts ($) (0.97) 0.82 (0.15) 0.40 0.08
------ ----- ------- ----- -----
Total from investment operations ($) (0.63) 1.15 0.17 0.74 0.42
------ ----- ------- ----- -----
Dividends from net investment income ($) (0.33) (0.35) (0.33) (0.33) (0.35)
Distributions from net realized gains ($) (0.01) -- -- -- (0.04)
------ ------ ------- ------ ------
Total distributions ($) (0.34) (0.35) (0.33) (0.33) (0.39)
------ ------ ------- ------ ------
Net asset value, end of year ($) 7.46 8.26 8.10 8.51 8.54
====== ====== ======= ====== ======
Total return(a) (%) (7.59) 15.72 2.15 9.35 5.01
Ratios/supplemental data:
Net assets at end of year ($ thousands) 35,338 51,827 51,710 54,093 63,445
Ratio of operating expenses to average net
assets (%) 1.95 1.88 1.79 1.83 1.78
Ratio of net investment income to average net
assets (%) 4.35 4.19 4.07 4.15 3.93
Portfolio turnover rate (%) 78.63 97.32 125.24 60.48 36.22
</TABLE>
<TABLE>
<CAPTION>
Class C
-------------------------------------------------
Years ended December 31
-------------------------------------------------
1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.43 7.46 8.25 8.10 8.50
----- ----- ------ ----- -----
Net investment income ($) 0.34 0.33 0.32 0.34 0.33
Net realized and unrealized gain (loss) on
investments and futures contracts ($) (0.97) 0.81 (0.14) 0.39 0.10
----- ----- ------ ----- -----
Total from investment operations ($) (0.63) 1.14 0.18 0.73 0.43
----- ----- ------ ----- -----
Dividends from net investment income ($) (0.33) (0.35) (0.33) (0.33) (0.35)
Distributions from net realized gains ($) (0.01) -- -- -- (0.04)
----- ----- ------ ----- -----
Total distributions ($) (0.34) (0.35) (0.33) (0.33) (0.39)
----- ----- ------ ----- -----
Net asset value, end of year ($) 7.46 8.25 8.10 8.50 8.54
===== ===== ====== ===== =====
Total return(a) (%) (7.59) 15.58 2.28 9.23 5.14
Ratios/supplemental data:
Net assets at end of year ($ thousands) 958 4,183 2,889 2,836 3,982
Ratio of operating expenses to to average net
assets (%) 1.95 1.88 1.79 1.83 1.78
Ratio of net investment income to average net
assets (%) 4.31 4.13 4.06 4.16 3.86
Portfolio turnover rate (%) 78.63 97.32 125.24 60.48 36.22
<CAPTION>
Class S
--------------------------------------------------
Years ended December 31
--------------------------------------------------
1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.41 7.45 8.24 8.09 8.49
----- ------ ------ ----- ------
Net investment income ($) 0.42 0.40 0.39 0.42 0.42
Net realized and unrealized gain (loss) on
investments and futures contracts ($) (0.96) 0.81 (0.13) 0.39 0.08
----- ------ ------ ----- ------
Total from investment operations ($) (0.54) 1.21 0.26 0.81 0.50
----- ------ ------ ----- ------
Dividends from net investment income ($) (0.41) (0.42) (0.41) (0.41) (0.43)
Distributions from net realized gains ($) (0.01) -- -- -- (0.04)
----- ------ ------ ----- ------
Total distributions ($) (0.42) (0.42) (0.41) (0.41) (0.47)
----- ------ ------ ----- ------
Net asset value, end of year ($) 7.45 8.24 8.09 8.49 8.52
===== ====== ====== ===== ======
Total return(a) (%) (6.56) 16.76 3.30 10.33 6.07
Ratios/supplemental data:
Net assets at end of year ($ thousands) 334 22,614 8,990 8,817 10,713
Ratio of operating expenses to to average net
assets (%) 0.95 0.88 0.79 0.83 0.78
Ratio of net investment income to average net
assets (%) 5.26 4.85 5.04 5.15 4.93
Portfolio turnover rate (%) 78.63 97.32 125.24 60.48 36.22
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Does not reflect any front-end or contingent deferred sales charges.
15
<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, 1998, 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, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
16
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Tax-Exempt Fund had a strong year. Class A shares returned
5.79% [does not reflect sales charge] for the 12 months ended December 31, 1998.
This total return performance was higher than that of the average general
municipal debt fund tracked by Lipper Analytical Services, which returned 5.32%
for the same period. The Lehman Brothers Municipal Bond Index gained 6.48% for
the same period.
The Fund currently invests in tax-exempt debt obligations with an emphasis on
research to maximize return and manage risk.
The manager added value by lengthening the Fund's duration, raising the Fund's
overall quality, and focusing on the structure of each bond added to the
portfolio. Turnover was low, and few major changes were made to the portfolio
for the year.
December 31, 1998
Keep in mind that past performance is no guarantee of future results. The fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable. The fund's
returns include performance before the creation of share classes. If this
performance reflected the share classes' current 12b-1 fees, the fund's returns
may have been lower. Class S shares, offered without a sales charge, are
available only through certain employee benefit plans and special programs. The
Lehman Brothers Municipal Bond Index is comprised of 8,000 fixed-rate
investment-grade municipal bonds, all from issues larger than $50 million and
with maturities greater than two years. 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
[line chart data for Class A Shares begins]
Class A Shares
<TABLE>
<CAPTION>
- ---------------------------------
Average Annual Total Return
- ---------------------------------
1 Year 5 Years 10 Years
- ---------------------------------
<S> <C> <C>
1.03% 4.45% 6.95%
- ---------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt Fund Lehman Municipal Bond Index
<S> <C> <C>
12/88 9550 10000
12/89 10469 11079
12/90 10974 11886
12/91 12269 13329
12/92 13412 14504
12/93 15037 16286
12/94 14000 15444
12/95 16321 18140
12/96 16799 18943
12/97 18508 20685
12/98 19580 22025
</TABLE>
[line chart data for Class A Shares ends]
[line chart data for Class B Shares begins]
Class B Shares
<TABLE>
<CAPTION>
- --------------------------------
Average Annual Total Return
- --------------------------------
1 Year 5 Years 10 Years
- --------------------------------
<S> <C> <C>
0.01% 4.30% 7.00%
- --------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt Fund Lehman Municipal Bond Index
<S> <C> <C>
12/88 10000 10000
12/89 10962 11079
12/90 11491 11886
12/91 12847 13239
12/92 14044 14504
12/93 15680 16286
12/94 14490 15444
12/95 16768 18140
12/96 17128 18943
12/97 18730 20685
12/98 19668 22025
</TABLE>
[line chart data for Class B Shares ends]
[line chart data for Class C Shares begins]
Class C Shares
<TABLE>
<CAPTION>
- --------------------------------
Average Annual Total Return
- --------------------------------
1 Year 5 Years 10 Years
- --------------------------------
<S> <C> <C>
4.14% 4.64% 7.00%
- --------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt Fund Lehman Municipal Bond Index
<S> <C> <C>
12/88 10000 10000
12/89 10962 11079
12/90 11941 11886
12/91 12847 13329
12/92 14044 14504
12/93 15679 16286
12/94 14488 15444
12/95 16745 18140
12/96 17127 18943
12/97 18707 20685
12/98 19668 22025
</TABLE>
[line chart data for Class C Shares ends]
[line chart data for Class S Shares begins]
Class S Shares
<TABLE>
<CAPTION>
- --------------------------------
Average Annual Total Return
- --------------------------------
1 Year 5 Years 10 Years
- --------------------------------
<S> <C> <C>
6.07% 5.69% 7.57%
- --------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt Fund Lehman Municipal Bond Index
<S> <C> <C>
12/88 10000 10000
12/89 10962 11079
12/90 11491 11866
12/91 12847 13329
12/92 14044 14504
12/93 15731 16286
12/94 14699 15444
12/95 17162 18140
12/96 17729 18943
12/97 19561 20685
12/98 20749 22025
</TABLE>
[line chart data for Class S Shares ends]
17
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH TAX-EXEMPT
TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Information Officers Trustees
<S> <C> <C>
State Street Research Ralph F. Verni Ralph F. Verni
Tax-Exempt Fund Chairman of the Board, Chairman of the Board,
One Financial Center President and President, Chief Executive
Boston, MA 02111 Chief Executive Officer Officer and Director,
State Street Research &
Investment Adviser Paul J. Clifford, Jr. Management Company
State Street Research & Vice President
Management Company Steve A. Garban
One Financial Center John H. Kallis Former Senior Vice President
Boston, MA 02111 Vice President for Finance and Operations
and Treasurer, The Pennsylvania
Distributor Thomas A. Shively State University
State Street Research Vice President
Investment Services, Inc. Malcolm T. Hopkins
One Financial Center Gerard P. Maus Former Vice Chairman of the
Boston, MA 02111 Treasurer Board and Chief Financial
Officer, St. Regis Corp.
Shareholder Services Joseph W. Canavan
State Street Research Assistant Treasurer Edward M. Lamont
Service Center Formerly in banking (with an
P.O. Box 8408 Douglas A. Romich affiliate of J.P. Morgan & Co.
Boston, MA 02266-8408 Assistant Treasurer in New York);
1-800-562-0032 presently engaged in private
Francis J. McNamara, III investments and civic affairs
Custodian Secretary and General Counsel
State Street Bank and Robert A. Lawrence
Trust Company Darman A. Wing Former Partner, Saltonstall & Co.
225 Franklin Street Assistant Secretary and
Boston, MA 02110 Assistant General Counsel Dean O. Morton
Former Executive Vice President,
Legal Counsel Amy L. Simmons Chief Operating Officer and
Goodwin, Procter & Hoar LLP Assistant Secretary Director, Hewlett-Packard Company
Exchange Place
Boston, MA 02109 Susan M. Phillips
Dean, School of Business and
Independent Accountants Public Management, George
PricewaterhouseCoopers LLP Washington University; former
160 Federal Street Member of the Board of Governors
Boston, MA 02110 of the Federal Reserve System and
Chairman and Commissioner of
the Commodity Futures Trading
Commission
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
</TABLE>
18
<PAGE>
---------------
State Street Research Tax-Exempt Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Permit #20
Holliston, MA
01746
---------------
Questions? Comments?
Call us at 1-800-562-0032, or
[hearing-impaired 1-800-676-7876]
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[State Street Research logo]
This report is prepared for the general information of current shareholders.
When used as supplemental sales literature, this publication must be preceded or
accompanied by a current State Street Research Tax-Exempt Fund prospectus. The
prospectus contains more complete information, including sales charges and
expenses. Please read the prospectus carefully before investing.
When used after March 31, 1999, 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: (exp0200)SSR-LD TE-393D-0299
<PAGE>
STATE STREET RESEARCH
--------------------------------
NEW YORK TAX-FREE FUND
--------------------------------
ANNUAL REPORT
December 31, 1998
--------------------------
WHAT'S INSIDE
--------------------------
From the Chairman
Financial markets delivered
strong gains in 1998
Portfolio Manager's Review
Another strong year
for municipal bonds
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar Key logo]
For Excellence
in
Shareholder Service
STATE STREET RESEARCH FUNDS
<PAGE>
FROM THE CHAIRMAN
[photo of Ralph F. Verni]
Dear Shareholder:
In 1998, financial markets in the United States and most developed foreign
nations delivered strong gains. The U.S. economy boosted personal income and
kept unemployment low. Yet growth was moderate enough to hold inflation down to
a mere 1.5% for the year. During the summer, the collapse of Russia's currency
sent waves through the world's markets, but a fast-acting Federal Reserve Board
helped stem a crisis. Currencies continued to slump in many emerging markets. In
some, devaluation threatened, with Brazil in the hot seat at year-end.
Stocks
A steep U.S. stock market correction late in the summer was short-lived. Despite
signs of slower profit growth, the market staged a comeback in the fourth
quarter. Technology stocks and large company growth stocks were the strongest
performers, led by Internet stocks which delivered surprising gains. The S&P 500
was up by more than 20% for an unprecedented fourth consecutive year.(1)
However, gains were concentrated in a narrow band of stocks. The average stock
on the New York Stock Exchange actually lost ground for the year. And the stocks
of small and medium-sized companies continued to lag despite a fourth-quarter
comeback.
Bonds
Bonds benefited from the Federal Reserve Board's three quick interest rate cuts
in autumn. The yield on the bellwether 30-year U.S. Treasury bond fell below
5.0%, then rose slightly at year-end. Not surprisingly, U.S. Treasury bonds led
fixed income market performance for the year. Most other segments of the bond
market delivered attractive single-digit gains. High-yield bonds disappointed
investors, gaining only 0.6% as measured by the First Boston High Yield Index.
International
Foreign markets delivered mixed returns in 1998. In Europe, expectations for the
new common currency, the euro, ran high. Although this helped European markets,
they did better in the first half of the year than in the second. Most emerging
markets were hurt by currencies that continued to slump against the dollar, or
by fears of devaluation, which materialized in Russia, then threatened in
Brazil. Japan showed some willingness to address its lingering economic
problems. But the modest gains attributed to Japanese stocks owned by U.S.
investors were primarily the result of a weaker dollar.
Outlook and Opportunities
As investors, you may be asking where the opportunities are in a stock market
that has soared for the better part of a decade and a bond market where interest
rates are at or near historic lows. My reply: in diversification -- and in
markets that have been beaten down, such as small and mid-cap stocks, high-yield
bonds, and foreign markets. But every investor has individual goals. Now is a
good time to consult your financial professional. And as always, thank you for
your confidence in State Street Research funds.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
December 31, 1998
(1)The S&P 500 (officially the "Standard and Poor's 500 Composite Stock Price
Index") is an unmanaged index of 500 U.S. stocks. The index does not take
transaction charges into consideration. It is not possible to invest directly in
the index.
(2)5.14% for Class B shares; 5.01% for Class C shares; 6.18% for Class S shares.
(3)Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable.
(4)Class S shares, offered without a sales charge, are available through certain
employee bene-fit plans and special programs.
(5)The fund's returns include performance before the creation of share classes.
If this performance reflected the share classes' current 12b-1 fees, the fund's
returns may have been lower.
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, 1998)
- --------------------------------------------------------------------------------
Total Value of $10,000 Invested at Fund's
Inception on 7/5/89(3)
(Class A shares, at maximum applicable sales charge)
[mountain chart data begins]
<TABLE>
<S> <C>
7/89 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
12/97 17279
12/98 18303
</TABLE>
[mountain chart data ends]
Average Annual Total Return
(at maximum applicable sales charge)(3,4,5)
=====================================================
<TABLE>
<CAPTION>
Life of Fund
(since 7/5/89) 5 Years 1 Year
- -----------------------------------------------------
<S> <C> <C> <C>
Class A 6.57% 4.38% 1.16%
- -----------------------------------------------------
Class B 6.62% 4.22% 0.14%
- -----------------------------------------------------
Class C 6.62% 4.53% 4.01%
- -----------------------------------------------------
Class S 7.25% 5.60% 6.18%
=====================================================
</TABLE>
Performance results for the Fund are increased by the voluntary reduction of
Fund fees and expenses; without subsidization, performance would have been
lower.
<TABLE>
<CAPTION>
Taxable
Equivalent
Yield
(36% federal
Yield tax bracket)
=======================================
<S> <C> <C>
Class A 3.85% 6.02%
- ---------------------------------------
Class B 3.27% 5.11%
- ---------------------------------------
Class C 3.41% 5.33%
- ---------------------------------------
Class S 4.27% 6.67%
=======================================
</TABLE>
Yield is based on net investment income for the 30 days ended December 31, 1998.
While a substantial portion of income will be exempt from federal income tax,
investors may be subject to alternative minimum tax and income may be subject to
state or local tax. Investors should consult their tax adviser.
<PAGE>
PORTFOLIO MANAGER'S REVIEW
New York Tax-Free Fund: Another solid year for municipal bonds
[photo of Paul Clifford]
Paul Clifford
Portfolio Manager
We spoke with Paul Clifford, portfolio manager of State Street Research New York
Tax-Free Fund, about the Fund's performance for the year ended December 31, 1998
and his views on the period ahead.
Q: How did the Fund perform last year?
A: It was a good year for the Fund. Class A shares returned 5.92% for the 12
months ended December 31, 1998 [does not reflect sales charge].(2) That was
higher than the Lipper average New York municipal debt fund, which returned
5.64%. The Fund underperformed the Lehman Brothers Municipal Bond Index, which
gained 6.48% for the same period.
Q: Why did the Fund outperform other New York municipal bond funds?
A: We made three key decisions that worked in the Fund's favor. First, we
lengthened the duration of the Fund based on the outlook of State Street
Research fixed income group. Duration is a measure of the Fund's sensitivity to
changes in interest rates. What's more, the timing of our decision to lengthen
duration was fortuitous: we lengthened ahead of the decline in interest rates.
Second, we made a decision early in the year to increase the credit quality of
the portfolio. The yield premium for lesser-quality bonds had declined
substantially, making valuations less compelling. Third, we focused on the
structure of our bonds, examining each opportunity for the optimal combination
of maturity, price, and call features.
Q: What changes did you make to the composition of the portfolio during the
year?
A: We added investments in education, and we increased our exposure to insured
bonds. That's not surprising in light of our emphasis on quality. It also
reflects a trend in our market: In the past five years, the percentage of bonds
that are insured with AAA ratings has grown from 34% to 55%. Insurance premiums
have come down, and yields have become increasingly competitive.
We also reduced our exposure to health care bonds and turned cautious on utility
bonds, where an evolving regulatory environment has induced uncertainty.
Overall, however, we kept the turnover of the Fund quite low for the year.
Q: What is your outlook for New York bonds in the period ahead?
A: We believe that slowing global economic growth could continue to affect the
U.S. economy and that eventually it will be felt in New York state as well. As a
result, we believe that interest rates could come down even further. Right now
the municipal market is inexpensive compared to the U.S. Treasury market.
December 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bond Quality Ratings*
(by percentage of long-term investments)
[pie chart data begins]
AA 18%
A 20%
BBB 13%
BB 8%
AAA 41%
[pie chart data ends]
As rated by Standard & Poor's Corporation or Moody's Investors Service, Inc.
*11% of the above bonds were unrated and included among relevant rating
categories as determined by the Fund's manager.
Top 5 Sectors
(by percentage of net assets)
[bar chart data begins]
General obligation 19.6%
College and university 12.4%
Lease 8.8%
Power 8.7%
Water/sewer 8.0%
Total: 57.5%
[bar chart data ends]
2
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS 101.1%
General Obligation 19.6%
City of New York, General
Obligation Bonds, Fiscal 1992
Series H, 7.00% ...................... $ 185,000 2/01/2005 $ 203,276
City of New York, General
Obligation Bonds, Fiscal 1995
Series F, 6.375% ..................... 1,910,000 2/15/2006 2,139,926
County of Onondaga, New
York, General Improvement
(Serial) Bonds, 1992, 5.70%* ......... 2,000,000 4/01/2007 2,223,100
County of Nassau, New York,
General Obligation Refunding
Bonds, Series G, MBIA
Insured, 5.45% ....................... 1,000,000 1/15/2015 1,079,070
Commonwealth of Puerto
Rico, General Obligation
Public Improvement Refunding
Bonds, Series 1995A, MBIA
Insured, 5.65% ....................... 1,000,000 7/01/2015 1,121,640
Commonwealth of Puerto
Rico, General Obligation
Public Improvement Refunding
Bonds, Series 1998, 0.00% ............ 1,000,000 7/01/2015 443,010
County of Monroe, New York,
Public Improvement Refunding
Bonds, Series A, 6.00% ............... 1,535,000 3/01/2017 1,746,354
Commonwealth of Puerto Rico
Public Improvement Refunding
Bonds, Series 1999 (General
Obligation Bonds), 5.25% ............. 2,350,000 7/01/2017 2,458,006
City of New York, General
Obligation Refunding Bonds,
Series H, 6.00% ...................... 1,500,000 8/01/2017 1,642,935
County of Orange, New York,
Various Purposes Serial
Bonds-1997, 5.125% ................... 1,000,000 9/01/2019 1,015,120
-----------
14,072,437
-----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Airport 1.5%
Port Authority of New York
and New Jersey, Special
Project Bonds, Series 6, JFK
International Air Terminal LLC
Project, MBIA Insured, Subject
to AMT, 5.75% ........................ $1,000,000 12/01/2022 $ 1,071,960
-----------
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 1,283,912
-----------
College & University 12.4%
Dormitory Authority of the
State of New York, Mt. Sinai
School of Medicine, Series B,
MBIA Insured, 5.70% .................. 1,000,000 7/01/2011 1,114,680
Dormitory Authority of the
State of New York, Canisius
College, Revenue Bonds,
Series 1995, CapMAC Insured,
0.00% ................................ 1,550,000 7/01/2013 777,480
Dormitory Authority of the
State of New York,
Montefiore Medical Center,
FHA-Insured Mortgage
Hospital Revenue Bonds,
Series 1996, AMBAC Insured,
5.25% ................................ 2,000,000 2/01/2015 2,059,860
Dormitory Authority of the
State of New York, City
University System
Consolidated, Series A,
AMBAC Insured, 5.625% ................ 1,000,000 7/01/2016 1,103,140
Dormitory Authority of the
State of New York, Insured
Revenue Bonds, (853 Schools
Program Issue), The Center for
Developmental Disabilities,
Inc., Series 1997A, AMBAC
Insured, 5.00% ....................... 1,000,000 7/01/2017 1,000,800
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
College & University (cont'd)
Dormitory Authority of the
State of New York, State
University Athletic Facility,
Revenue Bonds, 1998 Issue,
MBIA Insured, 4.50% ........................... $1,000,000 7/01/2021 $ 931,650
Dormitory Authority of the
State of New York,
Rockefeller University,
Revenue Bonds, Series 1998,
4.75% ......................................... 2,000,000 7/01/2037 1,892,140
-----------
8,879,750
-----------
Hospital/Health Care 5.1%
Dormitory Authority of the
State of New York, Nyack
Hospital Revenue Bonds,
Series 1996, 6.00% ............................ 1,500,000 7/01/2006 1,611,090
Dormitory Authority of the
State of New York, Mental
Health Services Facilities
Improvement Revenue Bonds,
Series 1997B, 5.50% ........................... 1,000,000 8/15/2017 1,041,660
Oswego County Industrial
Development Agency,
(Oswego New York), Civic
Facility Revenue Bonds, Series
1997A, (FHA Insured
Mortgage-Seneca Hill Manor
Inc. Project), 5.65% .......................... 1,000,000 8/01/2037 1,034,550
-----------
3,687,300
-----------
Industrial Development & Pollution Control 1.8%
City of New York, Industrial
Development Agency, Special
Facility Revenue Bonds, 1997
Northwest Airlines, Inc.
Project, 6.00% ................................ 1,245,000 6/01/2027 1,282,798
-----------
Lease 8.8%
Lyons Community Health
Initatives Corp., Facility
Revenue Bonds, Series 1994,
6.55% ......................................... 470,000 9/01/2009 516,225
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 $ 2,674,950
Lyons Community Health
Initiatives Corp., (New York),
Facility Revenue Bonds, Series
1994, 6.80% ................................... 940,000 9/01/2024 1,039,508
State of New York, Urban
Development Corporation,
Correctional Capital Facilities,
Series 6, FSA Insured,
5.375% ........................................ 2,000,000 1/01/2025 2,055,200
-----------
6,285,883
-----------
Life Care 5.0%
Tompkins County Industrial
Development Agency, Life
Care Community Revenue
Bonds, 1994 (Kendal at Ithaca
Inc., Project), 7.70% ......................... 1,430,000 6/01/2011 1,530,429
Tompkins County Industrial
Development Agency, Life
Care Community Revenue
Bonds, 1994 (Kendal at Ithaca
Inc., Project), 7.875% ........................ 1,000,000 6/01/2024 1,076,870
Orange County Industrial
Development Agency, Life
Care Community Revenue
Bonds, (The Glen Arden, Inc.
Project), Series 1998, 5.70% .................. 1,000,000 1/01/2028 994,370
-----------
3,601,669
-----------
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 1,072,850
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Power 8.7%
Power Authority of the State
of New York, General Purpose
Bonds, Series W, 6.50% ........... $1,150,000 1/01/2008 $ 1,332,643
Puerto Rico Electric Power
Authority, Power Revenue
Refunding Bonds, Series FF,
MBIA Insured, 5.25%+ ............. 1,000,000 7/01/2009 1,083,900
Long Island Power Authority,
Electric System General
Revenue Bonds, Series 1998A,
FSA Insured, 0.00% ............... 2,000,000 12/01/2017 780,560
Puerto Rico Electric Power
Authority, Power Revenue
Bonds, Series DD, FSA
Insured, 4.50% ................... 1,000,000 7/01/2019 953,620
Long Island Power Authority,
(New York), Electric System
General Revenue Bonds,
Series 1998A, 5.25% .............. 2,075,000 12/01/2026 2,083,736
-----------
6,234,459
-----------
Pre-Refunded Bonds 4.7%
City of New York, General
Obligation Bonds, Fiscal 1992,
Current Interest Bonds, Series
H, Pre-Refunded to 2/1/2002
@ 101.5%, 7.00% .................. 265,000 2/01/2005 293,289
Grand Central District
Management Association,
Inc., Grand Central Business
Improvement District, Capital
Improvement Bonds, Series
1992, Pre-Refunded to
1/1/2002 @ 102, 6.50% ............ 1,000,000 1/01/2010 1,094,900
New York State Thruway
Authority, Service Contract
Revenue Bonds, Pre-Refunded
to 4/1/2005 @ 102, 6.25% ......... 1,000,000 4/01/2014 1,132,710
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 $ 886,448
-----------
3,407,347
-----------
Resource Recovery/Solid Waste 1.4%
Dutchess County Resource
Recovery Agency, (New York),
Solid Waste System Revenue
Bonds, Tax Exempt Forward
Series 1999 A, MBIA Insured,
5.35%+ ........................... 1,000,000 1/01/2012 1,038,950
-----------
Single-Family Housing 5.3%
State of New York Mortgage
Agency, Homeowner
Mortgage Revenue Bonds,
Series 45, 7.20% ................. 2,000,000 10/01/2017 2,182,720
State of New York Mortgage
Agency, Homeowner
Mortgage Revenue Bonds,
Series 55, 5.95% ................. 1,550,000 10/01/2017 1,634,258
-----------
3,816,978
-----------
Structured Financings 6.1%
Port Authority of New York
and New Jersey, Special
Project Bonds, Series 4, KIAC
Partners Project, Subject to
AMT, 6.75% ....................... 3,000,000 10/01/2011 3,361,710
Suffolk County Industrial
Development Agency, 1998
Industrial Development
Revenue Bonds, (Nissequogue
Cogen Partners Facility),
Subject to AMT, 5.50% ............ 1,000,000 1/01/2023 1,002,600
-----------
4,364,310
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Toll Roads/Turnpike Authorities 1.4%
New York State Thruway
Authority, Local Highway and
Bridge Service Contract
Bonds, Series 1997, 5.00% ............................................ $1,000,000 4/01/2017 $ 980,000
-----------
Transit/Highway 8.0%
Triborough Bridge and Tunnel
Authority, General Purpose
Revenue Bonds, Series 1994
A, 6.00% ............................................................. 2,500,000 1/01/2010 2,852,525
Metropolitan Transportation
Authority, (New York),
Dedicated Tax Fund Bonds,
Series 1998A, FGIC Insured,
4.50% ................................................................ 1,000,000 4/01/2018 942,140
Metropolitan Transportation
Authority, (New York),
Commuter Facilities Revenue
Bonds, Series 1998B, FGIC
Insured, 4.75% ....................................................... 2,000,000 7/01/2026 1,914,200
-----------
5,708,865
-----------
Water & Sewer 8.0%
City of Niagara Falls, Niagara
County, New York, Water
Treatment Plant Bonds, 1994
(AMT), MBIA Insured, 8.50% ........................................... 1,000,000 11/01/2006 1,283,220
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 2,304,320
Commonwealth of Puerto
Rico, Aqueduct and Sewer
Authority, General Revenue
Bonds, 6.25% ......................................................... 1,000,000 7/01/2012 1,167,740
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York City Municipal
Water Finance Authority,
Water and Sewer System
Revenue Bonds, Fiscal 1998
Series B, FGIC Insured,
5.125% ............................................................... $1,000,000 6/15/2030 $ 1,006,290
-----------
5,761,570
-----------
Total Municipal Bonds and Investments
(Cost $66,915,000)--101.1%.................................................................................... 72,551,038
Cash and Other Assets, Less Liabilities--(1.1%) ............................................................... (820,124)
-----------
Net Assets--100.0% ............................................................................................ $71,730,914
===========
Federal Income Tax Information:
At December 31, 1998, the net unrealized
appreciation of investments based on cost for Federal
income tax purposes of $66,915,000 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ...................................................................................................... $5,667,578
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ................................................................................................... (31,540)
----------
$5,636,038
==========
</TABLE>
- --------------------------------------------------------------------------------
+ The delivery and payment of this security is beyond the normal settlement
time. 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 $2,223,100.
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, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $66,915,000) (Note 1)..................... $72,551,038
Cash ................................................................. 185,776
Interest receivable .................................................. 1,206,206
Receivable for fund shares sold ...................................... 74,961
Receivable from Distributor (Note 3) ................................. 9,381
Other assets ......................................................... 4,990
-----------
74,032,352
Liabilities
Payable for securities purchased ..................................... 2,044,210
Dividends payable .................................................... 65,891
Accrued transfer agent and shareholder services
(Note 2) ........................................................... 61,961
Accrued management fee (Note 2) ...................................... 33,496
Accrued distribution and service fees (Note 5) ....................... 21,883
Accrued trustees' fees (Note 2) ...................................... 17,387
Payable for fund shares redeemed ..................................... 8,580
Other accrued expenses ............................................... 48,030
-----------
2,301,438
-----------
Net Assets $71,730,914
===========
Net Assets consist of:
Undistributed net investment income ................................. $ 7,643
Unrealized appreciation of investments .............................. 5,636,038
Accumulated net realized gain ....................................... 215,917
Paid-in capital ..................................................... 65,871,316
-----------
$71,730,914
===========
Net Asset Value and redemption price per share of
Class A shares ($21,831,323 [divided by] 2,562,679 shares) ......... $8.52
=====
Maximum Offering Price per share of Class A shares
($8.52 [divided by] .955)........................................... $8.92
=====
Net Asset Value and offering price per share of Class
B shares ($19,272,628 [divided by] 2,262,594 shares)* .............. $8.52
=====
Net Asset Value and offering price per share of Class
C shares ($1,121,901 [divided by] 131,635 shares)* ................. $8.52
=====
Net Asset Value, offering price and redemption price
per share of Class S shares ($29,505,062 [divided by]
3,459,975 shares) .................................................. $8.53
=====
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended December 31, 1998
<TABLE>
<S> <C>
Investment Income
Interest ............................................................ $3,973,873
Expenses
Management fee (Note 2) ............................................. 386,106
Transfer agent and shareholder services (Note 2) .................... 122,773
Custodian fee ....................................................... 100,695
Legal fees .......................................................... 24,421
Audit fee ........................................................... 21,893
Trustees' fees (Note 2) ............................................. 18,667
Reports to shareholders ............................................. 17,838
Registration fees ................................................... 9,557
Service fee--Class A (Note 5) ....................................... 52,247
Distribution and service fees--Class B (Note 5) ..................... 181,161
Distribution and service fees--Class C (Note 5) ..................... 9,175
Miscellaneous ....................................................... 3,685
----------
948,218
Expenses borne by the Distributor (Note 3) .......................... (94,339)
Fees paid indirectly (Note 2) ....................................... (12,467)
----------
841,412
----------
Net investment income ............................................... 3,132,461
----------
Realized and Unrealized Gain (Loss)
on Investments and Futures Contracts
Net realized gain on investments (Notes 1 and 4) .................... 803,059
Net realized loss on futures contracts (Note 1) ..................... (104,172)
----------
Total net realized gain ........................................... 698,887
Net unrealized appreciation of investments .......................... 38,972
----------
Net gain on investments and futures contracts ....................... 737,859
----------
Net increase in net assets resulting from operations ................ $3,870,320
==========
</TABLE>
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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------
1997 1998
- ---------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ......... $ 3,344,097 $ 3,132,461
Net realized gain on
investments and futures
contracts ................... 532,092 698,887
Net unrealized appreciation of
investments ................. 2,315,876 38,972
----------- -----------
Net increase resulting from
operations................... 6,192,065 3,870,320
----------- -----------
Dividends from net
investment income:
Class A ..................... (937,424) (979,607)
Class B ..................... (668,573) (713,178)
Class C ..................... (28,327) (35,961)
Class S ..................... (1,615,010) (1,490,835)
----------- -----------
(3,249,334) (3,219,581)
----------- -----------
Distribution from net
realized gains:
Class A ..................... -- (106,242)
Class B ..................... -- (93,678)
Class C ..................... -- (5,564)
Class S ..................... -- (144,500)
----------- -----------
-- (349,984)
----------- -----------
Net increase (decrease) from
fund share transactions
(Note 8) .................... (3,890,647) 1,246,461
----------- -----------
Total increase (decrease) in
net assets .................. (947,916) 1,547,216
Net Assets
Beginning of year ............. 71,131,614 70,183,698
----------- -----------
End of year (including
undistributed net
investment income of
$94,763 and $7,643,
respectively) ............... $70,183,698 $71,730,914
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1998
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. The Trust
consists presently of two separate funds: 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. 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. Effective January 1,
1999, the Fund began offering Class B(1) shares which are subject to a
contingent deferred sales charge on certain redemptions made within six years.
Class C shares are subject to a contingent deferred sales charge of 1.00% on
any shares redeemed within one year of their purchase. Class C shares also pay
annual distribution and service fees of 1.00%. Class S shares are only offered
through certain retirement accounts, advisory accounts of State Street Research
& Management Company (the "Adviser"), an indirect wholly owned subsidiary of
Metropolitan Life Insurance Company ("Metropolitan"), and special programs. No
sales charge is imposed at the time of purchase or redemption of Class S
shares. Class S shares do not pay any distribution or service fees. 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.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
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. For the year ended December 31,
1998, the Fund has designated as long-term $349,984 of the distributions from
net realized gains.
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.
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 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.
H. Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. If the borrower fails to return the
securities and the value of the collateral has declined during the term of the
loan, the Fund will bear the loss. During the year ended December 31, 1998,
there were no loaned securities.
Note 2
The Trust and the Adviser 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, 1998, the fees
pursuant to such agreement amounted to $386,106.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended December 31, 1998, the amount of such
expenses was $34,940.
The Fund has entered into an arrangement with its transfer agent whereby
credits realized as a result of uninvested cash balances were used to reduce a
portion of the Fund's expense. During the year ended December 31, 1998 the
Fund's transfer agent fees were reduced by $12,467 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$18,667 during the year ended December 31, 1998.
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, 1998, the amount of such expenses assumed by
the Distributor and its affiliates was $94,339.
Note 4
For the year ended December 31, 1998, purchases and sales of securities,
exclusive of short-term obligations, aggregated $24,984,042 and $23,141,209,
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 C shares. In addition,
the Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class C 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, 1998, fees
pursuant to such plan amounted to $52,247, $181,161 and $9,175 for Class A,
Class B and Class C shares, respectively.
9
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 5 (cont'd)
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $15,690 and $108,886, respectively, on sales of Class A shares of
the Fund during the year ended December 31, 1998, and that MetLife Securities,
Inc. earned commissions aggregating $145,513 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$49,228 on redemptions of Class B shares during the same period.
Note 6
Under normal circumstances at least 80% of the Fund's net assets will be
invested in New York Municipal Obligations. New York State and New York City
face potential economic problems due to various financial, social, economic and
political factors which could seriously affect their ability to meet continuing
obligations for principal and interest payments. Also, the Fund is able to
invest up to 25% of total assets in a single industry. Accordingly, the Fund's
investments may be subject to greater risk than those in a fund with more
restrictive concentration limits.
Note 7
At December 31, 1998, investments totalling 12.2% of the Fund's net assets were
insured as to the timely payment of principal and interest by Municipal Bond
Investors Assurance Corp. (MBIA).
Note 8
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At December 31, 1998, the
Distributor owned 59,032 Class C shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------------------------------
1997 1998
-------------------------- --------------------------
Class A Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold .................................... 582,598 $ 4,780,960 657,773 $ 5,590,343
Issued upon reinvestment of:
Dividends from net investment income ......... 90,168 742,070 89,437 761,215
Distribution from net realized gains ......... -- -- 11,045 94,432
Shares repurchased ............................. (707,169) (5,809,807) (576,644) (4,906,505)
-------- ------------ -------- ------------
Net increase (decrease) ........................ (34,403) $ (286,777) 181,611 $ 1,539,485
======== ============ ======== ============
Class B Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 368,649 $ 3,022,966 565,686 $ 4,819,374
Issued upon reinvestment of:
Dividends from net investment income ......... 60,770 499,904 56,661 482,197
Distribution from net realized gains ......... -- -- 10,549 90,200
Shares repurchased ............................. (444,087) (3,640,568) (425,334) (3,613,742)
-------- ------------ -------- ------------
Net increase (decrease) ........................ (14,668) $ (117,698) 207,562 $ 1,778,029
======== ============ ======== ============
Class C Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 21,486 $ 177,283 45,289 $ 387,831
Issued upon reinvestment of:
Dividends from net investment income ......... 789 6,513 751 6,390
Distribution from net realized gains ......... -- -- 480 4,110
Shares repurchased ............................. (3,813) (31,241) (9,778) (83,337)
-------- ------------ -------- ------------
Net increase ................................... 18,462 $ 152,555 36,742 $ 314,994
======== ============ ======== ============
Class S Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------
Shares sold .................................... 30,543 $ 251,985 68,935 $ 586,385
Issued upon reinvestment of:
Dividends from net investment income ......... 147,584 1,215,141 118,453 1,008,891
Distribution from net realized gains ......... -- -- 14,819 126,851
Shares repurchased ............................. (621,522) (5,105,853) (483,714) (4,108,174)
-------- ------------ -------- ------------
Net decrease ................................... (443,395) $ (3,638,727) (281,507) $ (2,386,047)
======== ============ ======== ============
</TABLE>
10
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
Years ended December 31
--------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.43 7.53 8.23 8.13 8.48
----- ------ ----- ------ ------
Net investment income ($)* 0.40 0.40 0.38 0.39 0.39
Net realized and unrealized gain (loss) on investments
and futures contracts ($) (0.90) 0.71 (0.09) 0.35 0.09
----- ------ ----- ------ ------
Total from investment operations ($) (0.50) 1.11 0.29 0.74 0.48
----- ------ ----- ------ ------
Dividends from net investment income ($) (0.39) (0.41) (0.39) (0.39) (0.40)
Distributions from net realized gains ($) (0.01) -- -- -- (0.04)
----- ------ ----- ------ ------
Total distributions ($) (0.40) (0.41) (0.39) (0.39) (0.44)
----- ------ ----- ------ ------
Net asset value, end of year ($) 7.53 8.23 8.13 8.48 8.52
===== ====== ====== ====== ======
Total return(a) (%) (6.04) 15.11 3.68 9.22 5.92
Ratios/supplemental data:
Net assets at end of year ($ thousands) 18,214 20,043 19,636 20,193 21,831
Ratio of operating expenses to average net assets (%)* 1.10 1.10 1.10 1.10 1.12
Ratio of net investment income to average net assets (%)* 5.07 5.07 4.76 4.88 4.55
Portfolio turnover rate (%) 64.80 109.74 89.14 50.92 32.86
* Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.03 0.02 0.01 0.01 0.01
<CAPTION>
Class B
--------------------------------------------------
Years ended December 31
--------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.43 7.53 8.23 8.13 8.48
----- ------ ----- ------ ------
Net investment income ($)* 0.34 0.34 0.32 0.33 0.32
Net realized and unrealized gain (loss) on investments
and futures contracts ($) (0.90) 0.71 (0.09) 0.35 0.10
----- ------ ----- ------ ------
Total from investment operations ($) (0.56) 1.05 0.23 0.68 0.42
----- ------ ----- ------ ------
Dividends from net investment income ($) (0.33) (0.35) (0.33) (0.33) (0.34)
Distributions from net realized gains ($) (0.01) -- -- -- (0.04)
----- ------ ----- ------ ------
Total distributions ($) (0.34) (0.35) (0.33) (0.33) (0.38)
----- ------ ----- ------ ------
Net asset value, end of year ($) 7.53 8.23 8.13 8.48 8.52
===== ====== ====== ====== ======
Total return(a) (%) (6.74) 14.26 2.91 8.41 5.14
Ratios/supplemental data:
Net assets at end of year ($ thousands) 12,131 15,084 19,824 17,426 19,273
Ratio of operating expenses to average net assets (%)* 1.85 1.85 1.85 1.85 1.87
Ratio of net investment income to average net assets (%)* 4.34 4.32 4.01 4.12 3.81
Portfolio turnover rate (%) 64.80 109.74 89.14 50.92 32.86
* Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.03 0.02 0.01 0.01 0.01
</TABLE>
<TABLE>
<CAPTION>
Class C
--------------------------------------------------
Years ended December 31
--------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.44 7.53 8.23 8.13 8.49
----- ------ ----- ------ ------
Net investment income ($)* 0.34 0.35 0.32 0.34 0.32
Net realized and unrealized gain (loss) on investments
and futures contracts ($) (0.91) 0.70 (0.09) 0.35 0.09
----- ------ ----- ------ ------
Total from investment operations ($) (0.57) 1.05 0.23 0.69 0.41
----- ------ ----- ------ ------
Dividends from net investment income ($) (0.33) (0.35) (0.33) (0.33) (0.34)
Distributions from net realized gains ($) (0.01) -- -- -- (0.04)
----- ------ ----- ------ ------
Total distributions ($) (0.34) (0.35) (0.33) (0.33) (0.38)
----- ------ ----- ------ ------
Net asset value, end of year ($) 7.53 8.23 8.13 8.49 8.52
===== ====== ===== ====== ======
Total return(a) (%) (6.86) 14.25 2.90 8.53 5.01
Ratios/supplemental data:
Net assets at end of year ($ thousands) 774 651 622 805 1,122
Ratio of operating expenses to average net assets (%)* 1.85 1.85 1.85 1.85 1.87
Ratio of net investment income to average net assets (%)* 4.31 4.35 4.03 4.11 3.80
Portfolio turnover rate (%) 64.80 109.74 89.14 50.92 32.86
* Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.03 0.02 0.01 0.01 0.01
<CAPTION>
Class S
--------------------------------------------------
Years ended December 31
--------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.44 7.54 8.24 8.14 8.49
------ ------ ----- ----- ------
Net investment income ($)* 0.42 0.42 0.40 0.43 0.41
Net realized and unrealized gain (loss) on investments
and futures contracts ($) (0.90) 0.71 (0.09) 0.33 0.09
------ ------ ------ ----- ------
Total from investment operations ($) (0.48) 1.13 0.31 0.76 0.50
------ ------ ------ ----- ------
Dividends from net investment income ($) (0.41) (0.43) (0.41) (0.41) (0.42)
Distributions from net realized gains ($) (0.01) -- -- -- (0.04)
------ ------ ------ ------ ------
Total distributions ($) (0.42) (0.43) (0.41) (0.41) (0.46)
------ ------ ------ ------ ------
Net asset value, end of year ($) 7.54 8.24 8.14 8.49 8.53
====== ====== ====== ====== ======
Total return(a) (%) (5.79) 15.37 3.93 9.48 6.18
Ratios/supplemental data:
Net assets at end of year ($ thousands) 40,750 38,757 34,050 31,759 29,505
Ratio of operating expenses to average net assets (%)* 0.85 0.85 0.85 0.85 0.87
Ratio of net investment income to average net assets (%)* 5.29 5.33 5.01 5.13 4.81
Portfolio turnover rate (%) 64.80 109.74 89.14 50.92 32.86
* Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.03 0.02 0.01 0.01 0.01
</TABLE>
- --------------------------------------------------------------------------------
(a) 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, 1998, 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, 1998 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
12
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research New York Tax-Free Fund had a strong year. Class A shares
returned 5.92% [does not reflect sales charge] for the 12 months ended December
31, 1998. This total return performance was higher than that of the average New
York municipal debt fund tracked by Lipper Analytical Services, which returned
5.64% for the same period. The Lehman Brothers Municipal Bond Index gained
6.48% for the same period.
The Fund currently invests in tax-exempt debt obligations issued by or on
behalf of New York state, New York City or the political subdivisions and other
governmental agencies of either jurisdiction.
The manager added value by lengthening the Fund's duration, by raising the
Fund's overall quality, and by focusing on the structure of each bond added to
the portfolio. Turnover was low, and few major changes were made to the
portfolio for the year.
December 31, 1998
Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable. The fund's
returns include performance before the creation of share classes. If this
performance reflected the share classes' current 12b-1 fees, the fund's returns
may have been lower. Class S shares, offered without a sales charge, are
available only through certain employee benefit plans and special programs. The
Lehman Brothers Municipal Bond Index is comprised of 8,000 fixed-rate
investment-grade municipal bonds, all from issues larger than $50 million and
with maturities greater than two years. 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;
without subsidization, performance would have been lower.
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
<TABLE>
<CAPTION>
- ----------------------------------
Average Annual Total Return
- ----------------------------------
1 Year 5 Years Life of Fund
- ----------------------------------
<S> <C> <C>
1.16% 4.38% 6.57%
- ----------------------------------
</TABLE>
[line chart data for Class A Shares begins]
<TABLE>
<CAPTION>
New York Lehman
Tax-Free Municipal
Fund Bond Index
<S> <C> <C>
7/89 9550 10000
12/89 9714 10391
12/90 10036 11148
12/91 11428 12502
12/92 12465 13604
12/93 14108 15275
12/94 13256 14485
12/95 15259 17014
12/96 15820 17767
12/97 17279 19400
12/98 18303 20657
</TABLE>
[line chart data for Class A Shares ends]
Class B Shares
<TABLE>
<CAPTION>
- ----------------------------------
Average Annual Total Return
- ----------------------------------
1 Year 5 Years Life of Fund
- ----------------------------------
<S> <C> <C>
0.14% 4.22% 6.62%
- ----------------------------------
</TABLE>
[line chart data for Class B Shares begins]
<TABLE>
<CAPTION>
New York Lehman
Tax-Free Municipal
Fund Bond Index
<S> <C> <C>
7/89 10000 10000
12/89 10172 10391
12/90 10509 11148
12/91 11967 12502
12/92 13052 13604
12/93 14710 15275
12/94 13719 14485
12/95 15675 17014
12/96 16131 17767
12/97 17487 19400
12/98 18386 20657
</TABLE>
[line chart data for Class B Shares ends]
Class C Shares
<TABLE>
<CAPTION>
- ----------------------------------
Average Annual Total Return
- ----------------------------------
1 Year 5 Years Life of Fund
- ----------------------------------
<S> <C> <C>
4.01% 4.53% 6.62%
- ----------------------------------
</TABLE>
[line chart data for Class C Shares begins]
<TABLE>
<CAPTION>
New York Lehman
Tax-Free Municipal
Fund Bond Index
<S> <C> <C>
7/89 10000 10000
12/89 10172 10391
12/90 10509 11148
12/91 11967 12502
12/92 13052 13604
12/93 14726 15275
12/94 13717 14485
12/95 15671 17014
12/96 16126 17767
12/97 17502 19400
12/98 18378 20657
</TABLE>
[line chart data for Class C Shares ends]
Class S Shares
<TABLE>
<CAPTION>
- ----------------------------------
Average Annual Total Return
- ----------------------------------
1 Year 5 Years Life of Fund
- ----------------------------------
<S> <C> <C>
6.18% 5.60% 7.25%
- ----------------------------------
</TABLE>
[line chart data for Class S Shares begins]
<TABLE>
<CAPTION>
New York Lehman
Tax-Free Municipal
Fund Bond Index
<S> <C> <C>
7/89 10000 10000
12/89 10172 10391
12/90 10509 11148
12/91 11967 12502
12/92 13052 13604
12/93 14810 15275
12/94 13952 14485
12/95 16097 17014
12/96 16729 17767
12/97 18315 19400
12/98 19447 20657
</TABLE>
[line chart data for Class S Shares ends]
13
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH TAX-EXEMPT
TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Information Officers Trustees
<S> <C> <C>
State Street Research Ralph F. Verni Ralph F. Verni
New York Tax-Free Fund Chairman of the Board, Chairman of the Board,
One Financial Center President and President, Chief Executive
Boston, MA 02111 Chief Executive Officer Officer and Director,
State Street Research &
Investment Adviser Paul J. Clifford, Jr. Management Company
State Street Research & Vice President
Management Company Steve A. Garban
One Financial Center John H. Kallis Former Senior Vice President
Boston, MA 02111 Vice President for Finance and Operations and
Treasurer, The Pennsylvania
Distributor Thomas A. Shively State University
State Street Research Vice President
Investment Services, Inc. Malcolm T. Hopkins
One Financial Center Gerard P. Maus Former Vice Chairman of the
Boston, MA 02111 Treasurer Board and Chief Financial
Officer, St. Regis Corp.
Shareholder Services Joseph W. Canavan
State Street Research Assistant Treasurer Edward M. Lamont
Service Center Formerly in banking
P.O. Box 8408 Douglas A. Romich (with an affiliate of
Boston, MA 02266-8408 Assistant Treasurer J.P. Morgan & Co. New York);
1-800-562-0032 presently engaged in private
Francis J. McNamara, III investments and civic affairs
Custodian Secretary and General Counsel
State Street Bank and Robert A. Lawrence
Trust Company Darman A. Wing Former Partner, Saltonstall & Co.
225 Franklin Street Assistant Secretary and
Boston, MA 02110 Assistant General Counsel Dean O. Morton
Former Executive Vice President
Legal Counsel Amy L. Simmons Chief Operating Officer
Goodwin, Procter & Hoar LLP Assistant Secretary and Director, Hewlett-Packard
Exchange Place Company
Boston, MA 02109
Susan M. Phillips
Independent Accountants Dean, School of Business and
PricewaterhouseCoopers LLP Public Management, George
160 Federal Street Washington University; former
Boston, MA 02110 Member of the Board of Governors
of the Federal Reserve System and
Chairman and Commissioner of
the Commodity Futures Trading
Commission
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
</TABLE>
14
<PAGE>
---------------
State Street Research New York Tax-Free Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Permit #20
Holliston, MA
01746
---------------
Question? Comments?
Call us at 1-800-562-0032
[hearing-impaired 1-800-676-7876]
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[STATE STREET RESEARCH LOGO]
This report is prepared for the general information of current shareholders.
When used as supplemental sales literature, this publication must be preceded or
accompanied by a current State Street Research New York Tax-Free Fund
prospectus. The prospectus contains more complete information, including sales
charges and expenses. Please read the prospectus carefully before investing.
When used after March 31, 1999, 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: (exp0200)SSR-LD NYTF-395D-0299
