<PAGE>
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STATE STREET RESEARCH
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TAX-EXEMPT FUND
---------------
ANNUAL REPORT
December 31, 1999
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WHAT'S INSIDE
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` FROM THE CHAIRMAN
Another good year for the
U.S. economy
PORTFOLIO MANAGER'S REVIEW
A challenging environment for
municipal bonds
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
---------------------------
DALBAR
HONORS COMMITMENT TO:
FINANCIAL INTERMEDIARIES
1999
---------------------------
For Excellence
in
Service
[LOGO] STATE STREET RESEARCH
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
Another good year for the U.S. economy has extended America's cycle of
prosperity to nine consecutive years. Gross domestic product, a measure of goods
and services produced in the U.S., rose at an estimated annual rate of 4.0%.
Personal income has risen and consumer spending has been strong. Inflation
remained relatively low as productivity gains offset wage gains. However, the
Consumer Price Index moved up one full percentage point from 1.6% to 2.6%. The
Federal Reserve Board responded to these indicators of strength by raising
short-term interest rates by 3/4% in three 1/4% steps in the second half of the
year.
STOCKS
The U.S. stock market delivered another year of double-digit gains. The S&P
500(1) rose 21.0% during the 12-month period ended December 31, 1999. However,
S&P 500 technology stocks accounted for a disproportionate share of those gains.
Technology stocks in the S&P 500 gained 74.6%. Non- technology S&P 500 stocks
gained only 4.5%. The technology-heavy Nasdaq gained 85.6% for the year.
BONDS
The bond market was hurt by the Federal Reserve Board's interest-rate hikes and
by factors associated with Y2K. Fears that issuers would go to the market with
their debt issues early in the year drove yields up and bond prices down.
However, those fears were not realized, and the market began to close the yield
gap in the second half of the year. In this environment, mortgage bonds held up
better than government and corporate bonds. High yield bonds finished the year
ahead of other bond sectors, but with modest single-digit results.
INTERNATIONAL
Economic growth around the globe was better than expected. In Asia and certain
emerging markets, economies rebounded from last year's currency woes faster than
anticipated. Japan has shown the first signs of real progress in revitalizing
its economy in nearly a decade. That was reflected in strong stock market
performance for the year, especially among small Japanese companies. Europe
delivered generally favorable results as did the emerging markets of Latin
America.
OUTLOOK AND OPPORTUNITIES
As we enter the year 2000, many markets are poised for growth. However, there
are also areas, such as the technology sector in the U.S., where extraordinarily
high valuations suggest caution in the months ahead. Now is a good time to
consult your financial professional about the strategies that make sense for
your personal portfolio.
And, as always, we thank you for investing in State Street Research.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
December 31, 1999
(1) The S&P 500 (officially the "Standard and Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The Lehman Brothers Municipal Bond Index
is comprised of 8,000 fixed-rate investment grade municipal bonds, all from
issuers larger than $50 million and with maturities greater than two years. The
indices do not take transaction charges into consideration. It is not possible
to invest directly in the indices.
(2)-5.05% for Class B(1) shares; -5.05% for Class B shares; -5.04% for Class C
shares; -4.11% 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 rein- vestment of capital
gains 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(1)
or 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, 1999)
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Total Value of $10,000 Invested on 12/31/89(3)
(Class A shares, at maximum applicable sales charge)
12/89 $ 9,550
12/90 10,011
12/91 11,192
12/92 12,236
12/93 13,718
12/94 12,772
12/95 14,889
12/96 15,325
12/97 16,884
12/98 17,862
12/99 17,086
AVERAGE ANNUAL TOTAL RETURNS
(at maximum applicable sales charge)(3)(4)(5)
- --------------------------------------------------------
10 YEARS 5 YEARS 1 YEAR
- --------------------------------------------------------
Class A 5.50% 5.02% -8.65%
- --------------------------------------------------------
Class B(1) 5.47% 4.88% -9.61%
- --------------------------------------------------------
Class B 5.47% 4.88% -9.62%
- --------------------------------------------------------
Class C 5.47% 5.21% -5.96%
- --------------------------------------------------------
Class S 6.14% 6.24% -4.11%
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TAXABLE
EQUIVALENT YIELD
(36% federal
YIELD tax bracket)
- ----------------------------------------------------
Class A 4.67% 7.30%
- ----------------------------------------------------
Class B(1) 4.13% 6.45%
- ----------------------------------------------------
Class B 4.13% 6.45%
- ----------------------------------------------------
Class C 4.13% 6.45%
- ----------------------------------------------------
Class S 5.14% 8.03%
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Yield is based on the net investment income for the
30 days ended December 31, 1999. 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: A challenging environment for municipal bonds
[Photo of Paul Clifford]
Paul Clifford
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,
1999 and his views on the period ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: It was a disappointing year for the municipal bond market and also for the
Fund. Class A shares returned -4.34% for the 12 months ended December 31, 1999
[does not reflect sales charge](2). That was better than the Lipper General
Municipal Debt Fund Average, which returned -4.63%. However, the Fund
underperformed the Lehman Brothers Municipal Bond Index(1), which returned
- -2.06% for the same period.
Q: WHAT FACTORS HURT PERFORMANCE IN 1999?
A: During the first five months of the year we lengthened the Fund's duration.
(Duration is a measure of a fund's sensitivity to changing interest rates.) When
interest rates decline, longer duration can help return. However, when interest
rates rise -- as they did in 1999 -- it hurts all bond funds, but particularly a
fund with longer duration.
Q: WHY DID YOU LENGTHEN DURATION?
A: At the beginning of 1999, our view was that interest rates were positioned to
decline. However, higher-than- expected economic growth put the Federal Reserve
Board on guard about inflation, and interest rates moved up, not down.
Q: BESIDES INTEREST RATES, WHAT OTHER FACTORS AFFECTED THE MUNICIPAL BOND
MARKET?
A: In general, municipal bond funds were hurt by a poor technical environment.
In other words, there were too many sellers and too few buyers during most of
the year. Liquidity in the market was poor overall as cash flowed out of many
municipal bond funds and into other areas of the market where investors were
attracted to higher returns.
Q: DID YOU SHIFT YOUR STRATEGY AS THE ENVIRONMENT CHANGED?
A: Yes. As it became apparent that the economy was getting stronger, not weaker,
we shortened the Fund's duration. We also improved the portfolio's liquidity --
we sold some of the Fund's less liquid market discount bonds -- at mid-year.
This was due to our concern about the market's liquidity as we closed in on the
end of the year and Y2K-related issues.
Q: WHAT FACTORS HELPED PERFORMANCE DURING THE YEAR?
A: Shorter duration helped the Fund in the second half. Plus, our credit
research helped us identify opportunities that delivered attractive gains. For
example, we invested in the pre-refunded and housing sectors, in California
state securities, and also in certain high-yield municipal bonds. Two of the
Fund's top performers -- North Carolina housing bonds and Foothill California
Toll Road revenue bonds -- enjoyed improving credit fundamentals and that
boosted their market values.
Q: HOW HAVE YOU POSITIONED THE PORTFOLIO FOR THE PERIOD AHEAD?
A: We believe the economy is still very strong. That could force the Federal
Reserve Board to raise interest rates more aggressively in the year ahead than
they did in 1999. As a result, we remain duration neutral. In other words, we
are neither short nor long compared to other, similar funds. We will continue to
seek opportunities with strong credit fundamentals and good liquidity.
December 31, 1999
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BOND QUALITY RATINGS*
(by percentage of long-term investments)
A 5%
AA 18%
AAA 29%
BB 10%
BBB 38%
As rated by Standard & Poor's Corporation or Moody's Investors Service, Inc.
*23.1% of the above bonds were not rated but were included among relevant
rating categories as determined by the Fund's Manager.
TOP 5 STATE REPRESENTATIONS TOP 5 SECTORS
(by percentage of net assets) (by percentage of net assets)
CALIFORNIA 18.5% PRE-REFUNDED 10.5%
FLORIDA 11.9% SPECIAL/SALES TAX 10.3%
NEW YORK 8.8% COLLEGE AND UNIVERSITY 7.7%
CONNECTICUT 6.4% LIFE CARE 7.2%
GEORGIA 5.6% TRANSIT/HIGHWAY 6.9%
Total: 51.2% Total: 42.6%
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
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INVESTMENT PORTFOLIO
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December 31, 1999
<TABLE>
<CAPTION>
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PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
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<S> <C> <C> <C>
MUNICIPAL BONDS 98.3%
CALIFORNIA 18.5%
Santa Clara County Financing Authority, (VMC
Facility Replacement Project), 1994 Series A Bonds,
AMBAC Insured, 7.75% . $ 1,000,000 11/15/2008 $ 1,186,950
Foothill/Eastern Transportation Corridor Agency,
Series 1995A Senior Lien Convertible Capital
Appreciation Bonds, 0.00% ......................... 1,695,000 1/01/2010 1,370,899
Port Hueneme Redevelopment Agency, Central
Community Project, 1993 Tax Allocation Refunding
Bonds, AMBAC Insured, 5.50% ....................... 1,800,000 5/01/2014 1,801,620
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 2,264,526
Sacramento Power Authority, Cogeneration Project
Revenue Bonds, (Procter & Gamble Project), 1995
Series, 6.50% ..................................... 1,300,000 7/01/2014 1,420,952
California Housing Finance Agency, Home Mortgage
Revenue Bonds, 1994 Series G, 7.20% ............... 1,500,000 8/01/2014 1,567,545
California Educational Facilities Authority, Series
1994 Revenue Bonds, (Southwestern University
Project), Series 1995, 6.60% ...................... 1,000,000 11/01/2014 1,063,960
County of Madera, California, Certificates of
Participation, (Valley Childrens Hospital Project),
Series 1995, MBIA Insured, 6.50% .................. 1,000,000 3/15/2015 1,087,950
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 663,768
Roseville Joint Union High School District, 1992
General Obligation Bonds, Series B, FGIC Insured,
0.00% ............................................. 1,000,000 8/01/2015 403,740
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 1,594,550
San Joaquin Hills Transportation Corridor Agency,
Toll Road Refunding Revenue Bonds, Series 1997A,
Convertible Capital Appreciation Bonds, 0.00% ..... 5,000,000 1/15/2019 3,090,550
City of Long Beach, California, Harbor Revenue
Refunding Bonds, Series 1998A, Subject to AMT, FGIC
Insured, 6.00% .................................... 4,000,000 5/15/2019 3,990,560
Redevelopment Agency of the City of Pittsburg,
California, Los Medanos Community Development
Project, Tax Allocation Bonds, Series 1999, AMBAC
Insured, 0.00% .................................... 2,000,000 8/01/2019 605,380
Fresno Sewer Revenue Bonds, Series A-1, AMBAC
Insured, 5.25% .................................... 5,100,000 9/01/2019 4,689,093
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 2,830,920
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 639,563
City of Davis, Public Facilities Financing
Authority, Local Agency Revenue Bonds, 1997 Series
A, 6.60% .......................................... 1,500,000 9/01/2025 1,472,565
Sacramento, California, City Financing Authority,
Senior Revenue Bonds, (Sacramento Convention Center
Hotel Project), 1999 Series A, 6.25% .............. 5,000,000 1/01/2030 4,590,500
San Joaquin Hills Transportation Corridor Agency,
(Orange County, California), Senior Lien Toll Road
Revenue Bonds, 7.00% .............................. 950,000 1/01/2030 1,029,572
Foothill/Eastern Transportation Corridor Agency,
Toll Road Revenue Bonds, Series 1995A Senior Lien,
Pre-Refunding to 1/01/2007 @ 96.22, 6.50% ......... 6,000,000 1/01/2032 6,554,880
Foothill/Eastern Transportation Corridor Agency,
Toll Road Refunding Revenue Bonds, Series 1999,
MBIA Insured, 5.75% 1,000,000 1/15/2040 889,650
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44,809,693
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COLORADO 4.9%
Metropolitan Football Stadium District, Sales Tax
Revenue Bonds, Series 1999A, MBIA Insured, 0.00% .. 500,000 1/01/2012 255,475
E-470 Public Highway Authority, Senior Revenue
Bonds, Series 1997B, (Capital Appreciation Bonds),
MBIA Insured, 0.00% ............................... 5,000,000 9/01/2016 1,811,400
Eaglebend Affordable Housing Corporation,
Multifamily Housing Project Revenue Refunding
Bonds, Series 1997A, 6.45% ........................ 2,000,000 7/01/2021 1,928,040
Colorado Housing and Finance Authority, Single
Family Program, 1997 Series B-2 Senior Bonds,
Subject to AMT, 7.00% ............................. 1,085,000 5/01/2026 1,152,661
Arapahoe County, Colorado, Public Highway
Authority, Capital Improvement Trust Fund Highway
Revenue Bonds (E-470 Project), Pre-Refunded to 8/
31/2005 @ 103, 7.00% .............................. 5,000,000 8/31/2026 5,629,500
Colorado Housing and Finance Authority, Single
Family Program, 1996 Series B-2 Senior Bonds, 7.45% 1,135,000 11/01/2027 1,197,039
------------
11,974,115
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CONNECTICUT 6.4%
State of Connecticut, Special Tax Obligation Bonds,
Transportation Infrastructure Purposes, 1991 Series
A, 6.50% .......................................... 1,500,000 10/01/2012 1,656,240
Connecticut Development Authority, Pollution
Control Refunding Bonds, (Pfizer Inc. Project -
1982 Series), 6.55% ............................... 2,500,000 2/15/2013 2,647,250
State of Connecticut Health and Educational
Facilities Authority, Revenue Bonds, University of
Hartford Issue, Series D, 6.80% ................... 5,000,000 7/01/2022 5,003,750
State of Connecticut Health and Educational
Facilities Authority, Revenue Bonds, Quinnipiac
College Issue, Series D, 6.00% .................... 1,465,000 7/01/2023 1,394,270
State of Connecticut Health and Educational
Facilities Authority, Revenue Bonds, Quinnipiac
College Issue, Series D, Pre-Refunded to 7/1/2023 @
98.25, 6.00% ...................................... 3,000,000 7/01/2023 3,168,180
Connecticut Development Authority, Aquarium Project
Revenue Bonds, (Mystic Marinelife Aquarium Project
- - 1997 Series A), 7.00% ........................... 1,700,000 12/01/2027 1,689,528
------------
15,559,218
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FLORIDA 11.9%
Grand Haven Community Development District (Flagler
County, Florida), Special Assessment Bonds, Series
1997 A, 6.30% ..................................... 2,240,000 5/01/2002 2,247,414
Heritage Harbor Development District, (Hillsborough
County, Florida), Special Assessment Revenue Bonds,
Series 1997B, 6.00% ............................... 1,220,000 5/01/2003 1,205,116
Bayside Improvement Community Development District,
(Lee County, Florida), Capital Improvement Revenue
Bonds, Series 1998A, 5.95% ........................ 910,000 5/01/2008 873,609
Orlando Utilities Commission, Water and Electric
Subordinated Revenue Bonds, Series D, 6.75% ....... 5,000,000 10/01/2017 5,492,650
Bayside Improvement Community Development District,
(Lee County, Florida), Capital Improvement Revenue
Bonds, Series 1998A, 6.30% ........................ 980,000 5/01/2018 916,359
Grand Haven Community Development District (Flagler
County, Florida), Special Assessment Bonds, Series
1997 B, 6.90% 750,000 5/01/2019 755,617
North Springs Improvement District, (Broward
County, Florida), Special Assessment Bonds, Series
1997, (Heron Bay Project), 7.00% .................. 745,000 5/01/2019 750,491
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 1,290,437
Orange County, Florida, Health Facilities
Authority, First Mortgage Revenue Bonds, Series
1996, (Orlando Lutheran Towers, Inc.), 8.75% ...... 5,000,000 7/01/2026 5,338,450
Volusia County Educational Facility Authority,
Educational Facilities Revenue Bonds, (Embry-Riddle
Aeronautical University Project), Series 1996A,
6.125% ............................................ 5,000,000 10/15/2026 4,868,000
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 3,145,590
Housing Authority of Lee County, Florida, Single
Family Mortgage Revenue Bonds, (Multi-County
Program), Series 1996A, Subseries 2, Subject to
AMT, 7.50% ........................................ 1,080,000 9/01/2027 1,171,552
Northern Palm Beach County, Florida, Improvement
District, Water Control and Improvement Bonds, Unit
of Development No. 9B, Series 1999, 6.00% ......... 750,000 8/01/2029 689,048
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28,744,333
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GEORGIA 5.6%
George 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 1,018,610
State of Georgia, General Obligation Bonds, Series
1992B, 6.25%* ..................................... 4,300,000 3/01/2011 4,670,574
State of Georgia, General Obligation Bonds, Series
1994E, 6.75% ...................................... 1,000,000 12/01/2012 1,132,230
Municipal Electric Authority of Georgia, Project
One Subordinated Bonds, Series 1998A, MBIA Insured,
5.25% ............................................. 2,000,000 1/01/2014 1,925,200
Metropolitan Atlanta Rapid Transit Authority,
Georgia, Sales Tax Revenue Bonds, Refunding Series
P, AMBAC Insured, 6.25% ........................... 4,700,000 7/01/2020 4,882,689
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13,629,303
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ILLINOIS 0.5%
City of Chicago, Collateralized Single Family
Mortgage Revenue Bonds, Series 1997-B, Subject to
AMT, 6.95% ........................................ 1,115,000 9/01/2028 1,158,117
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INDIANA 0.5%
Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series 1993A, AMBAC Insured, 0.00% . 3,500,000 6/01/2018 1,127,525
------------
KENTUCKY 0.8%
County of Jefferson, Kentucky, Student Housing
Industrial Building Revenue Bonds, (Collegiate
Housing Foundation - University of Louisville
Project), Series 1999A, 7.125% .................... 2,000,000 9/01/2029 1,957,500
------------
MAINE 1.6%
Finance Authority of Maine, Revenue Obligation
Securities, (Huntington Common Project), Series
1997A, 7.50% ...................................... 4,000,000 9/01/2027 3,886,120
------------
MARYLAND 3.8%
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 5,339,700
Frederick County, Maryland, Special Obligation
Bonds, (Urbana Community Development Authority),
Series 1998, 6.625% ............................... 2,000,000 7/01/2025 1,838,320
County of Anne Arundel, Maryland, Special
Obligation Revenue Bonds, (Arundel Mills Project),
7.10% ............................................. 2,000,000 7/01/2029 1,965,100
------------
9,143,120
------------
MASSACHUSETTS 4.9%
Massachusetts Industrial Finance Agency, First
Mortgage Revenue Bonds, (Brookhaven Retirement
Community, Lexington - 1994 Issue), Series A,
6.75% ............................................. 4,500,000 1/01/2001 4,546,080
Massachusetts Industrial Finance Agency, First
Mortgage Revenue Bonds, (Berkshire Retirement
Community, Lenox - 1994 Issue) Series A, 6.375% ... 1,500,000 7/01/2005 1,506,510
Massachusetts Bay Transportation Authority, General
Transportation System Bonds, 1994 Series A,
Refunding Bonds, 7.00% ............................ 3,385,000 3/01/2014 3,808,836
Massachusetts Industrial Finance Agency, (Marina
Bay LLC Project - 1997 Issue), 7.50% .............. 2,000,000 12/01/2027 1,995,140
------------
11,856,566
------------
MICHIGAN 0.8%
State Building Authority, State of Michigan, 1997
Revenue Bonds, Series II (Facilities Program),
AMBAC Insured, 0.00% .............................. 2,000,000 10/15/2011 1,044,780
State Building Authority, State of Michigan, 1997
Revenue Bonds, Series II (Facilities Program),
AMBAC Insured, 0.00% .............................. 1,940,000 10/15/2012 948,408
------------
1,993,188
------------
MINNESOTA 0.7%
Minnesota Housing Finance Authority, Single Family
Mortgage Bonds, 1994 Series E, 5.90% .............. 1,740,000 7/01/2025 1,704,069
------------
NEVADA 3.8%
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 4,623,742
State of Nevada, General Obligation (Limited Tax)
Bonds, Nevada Municipal Bond Bank Project Nos. 49
and 50, Series November 1, 1995A, FGIC Insured,
5.50% ............................................. 5,000,000 11/01/2025 4,605,850
------------
9,229,592
------------
NEW HAMPSHIRE 2.3%
New Hampshire Higher Educational and Health
Facilities Authority, Revenue Bonds, Dartmouth
College Issue, Series 1993, 5.375% ................ 5,000,000 6/01/2023 4,627,150
New Hampshire Higher Educational and Health
Facilities Authority, Revenue Bonds, New Hampshire
College Issue, Series 1997, 6.375% ................ 1,000,000 1/01/2027 913,630
------------
5,540,780
------------
NEW JERSEY 2.1%
New Jersey Transportation Trust Fund Authority,
Transportation System Bonds, 1996 Series B, 5.00% . 5,000,000 6/15/2017 4,453,700
New Jersey Educational Facilities Authority, Seton
Hall University Project Revenue Bonds, 1991 Series,
Project D, 7.00% .................................. 630,000 7/01/2021 656,794
------------
5,110,494
------------
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 1,163,388
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 3,685,920
------------
4,849,308
------------
NEW YORK 8.8%
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 5,165,750
The City of New York, New York, General Obligation
Bonds, Fiscal 1992 Series B, 7.75% ................ 3,000,000 2/01/2012 3,221,220
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 5,184,250
Dormitory Authority of the State of New York,
Department of Health of the State of New York,
Revenue Bonds, Series 1996, 5.75% ................. 5,000,000 7/01/2017 4,849,950
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 1,904,620
County of Suffolk, New York, Industrial Development
Agency, Civic Facility Revenue Bonds, Series 1999A,
(The Southampton Hospital Association Civic
Facility), 7.25% .................................. 1,000,000 1/01/2030 937,670
------------
21,263,460
------------
NORTH CAROLINA 2.8%
North Carolina Eastern Municipal Power Agency,
Power System Revenue Bonds, Series 1999D, 6.70% ... 1,500,000 1/01/2019 1,484,115
North Carolina Housing Finance Agency, Multifamily
Revenue Refunding Bonds, (1992 Refunding Bond
Resolution), Series B, 6.90% ...................... 5,000,000 7/01/2024 5,248,100
------------
6,732,215
------------
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 2,293,750
------------
PENNSYLVANIA 5.2%
Montgomery County Industrial Development Authority,
Health Facilities Revenue Bonds, Series of 1993,
(ECRI Project), 6.40% ............................. 480,000 6/01/2003 483,307
Montgomery County Higher Education
and Health Authority, Pennsylvania, Northwestern
Corp., 6.50% ...................................... 1,140,000 6/01/2004 1,212,812
Pennsylvania Economic Development Financing
Authority, Resource Recovery Revenue Bonds,
(Northampton Generating Project), Series 1994A,
6.40% ............................................. 2,500,000 1/01/2009 2,478,125
Pennsylvania Economic Development Financing
Authority, Resource Recovery Revenue Bonds, (Colver
Project), Series 1994D, Subject to AMT, 7.05% ..... 1,000,000 12/01/2010 1,020,120
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 1,887,457
Philadelphia Authority for Industrial Development,
Commercial Development Revenue Refunding Bonds,
(Doubletree Guest Suites Project), Series 1997A,
0.00% ............................................. 3,000,000 10/01/2027 2,883,870
Pennsylvania Economic Development Financing
Authority, (Northwestern Human Services, Inc.
Project), Revenue Bonds, 1998 Series A, 5.25% ..... 3,000,000 6/01/2028 2,533,620
------------
12,499,311
------------
PUERTO RICO 1.1%
Puerto Rico Highway and Transportation Authority,
Transportation Revenue Bonds, (Series A), AMBAC
Insured, 0.00% .................................... 1,765,000 7/01/2016 676,630
Commonwealth of Puerto Rico, Public Improvement
Refunding Bonds, Series 1999, (General Obligation
Bonds), 5.25% 2,000,000 7/01/2017 1,875,920
------------
2,552,550
------------
TENNESSEE 2.3%
City of Memphis, Tennessee, Electric System Revenue
Refunding Bonds, Series of 1992, 6.00% ............ 2,250,000 1/01/2006 2,368,755
City of Memphis, Tennessee, Water Division Revenue
Refunding Bonds, Series of 1992-A, Pre-Refunded to
1/01/2012 @ 95.75, 6.00% .......................... 3,000,000 1/01/2012 3,129,660
------------
5,498,415
------------
TEXAS 5.0%
Texas Municipal Power Agency, Refunding Revenue
Bonds, Series 1991A, AMBAC Insured, 6.75% ......... 1,000,000 9/01/2012 1,047,610
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 2,778,579
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 6,053,945
Texas Public Finance Authority, State of Texas
General Obligation Refunding Bonds, Series 1997,
0.00% ............................................. 5,000,000 10/01/2014 2,116,050
------------
11,996,184
------------
UTAH 1.1%
Intermountain Power Agency, Utah, Power Supply
Revenue Refunding Bonds,
1996 Series A, 6.15% .............................. 2,500,000 7/01/2014 2,564,725
------------
Total Municipal Bonds (Cost $235,474,106) ............................................... 237,673,651
------------
SHORT-TERM OBLIGATIONS 0.5%
North Central Texas Health Facility Development
Corporation, Hospital Revenue Bonds, (Presbyterian
Medical Center Project), Series 1985C, 3.95% ...... $ 1,100,000 12/15/2015(+) $ 1,100,000
------------
Total Short-Term Obligations (Cost $1,100,000) .......................................... 1,100,000
------------
Total Investments (Cost $236,574,106) - 98.8% ........................................... 238,773,651
Cash and Other Assets, Less Liabilities - 1.2% .......................................... 2,979,403
------------
Net Assets - 100.0% ..................................................................... $241,753,054
============
Federal Income Tax Information:
At December 31, 1999, the net unrealized appreciation of investments based on cost for
Federal income tax purposes of $236,574,106 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of
value over tax cost ...................................................................... $ 6,583,311
Aggregate gross unrealized depreciation for all investments in which there is an excess of
tax cost over value ...................................................................... (4,383,766)
------------
$ 2,199,545
============
- -----------------------------------------------------------------------------------------------------------------
(+) 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.
* A portion of this security is being used to collateralize the delayed delivery purchase noted above. The total market
value of segregated securities is $1,086,180.
</TABLE>
The accomapnying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $236,574,106) (Note 1) ........... $238,773,651
Cash ......................................................... 128,220
Interest receivable .......................................... 4,671,584
Receivable for fund shares sold .............................. 87,359
Receivable for securities sold ............................... 5,116
Other assets ................................................. 19,018
------------
243,684,948
LIABILITIES
Payable for securities purchased ............................. 1,049,565
Dividends payable ............................................ 274,942
Payable for fund shares redeemed ............................. 196,065
Accrued management fee (Note 2) .............................. 114,781
Accrued transfer agent and shareholder services
(Note 2) ................................................... 101,075
Accrued distribution and service fees (Note 4) ............... 87,970
Accrued trustees' fees (Note 2) .............................. 16,458
Other accrued expenses ....................................... 91,038
------------
1,931,894
------------
NET ASSETS $241,753,054
============
Net Assets consist of:
Unrealized appreciation of investments ..................... $ 2,199,545
Accumulated net realized loss .............................. (3,164,842)
Paid-in capital ............................................ 242,718,351
------------
$241,753,054
============
Net Asset Value and redemption price per share of
Class A shares ($174,255,905 / 22,357,729 shares) .......... $7.79
=====
Maximum Offering Price per share of Class A shares
($7.79 / .955) ....... $8.16
=====
Net Asset Value and offering price per share of
Class B(1) shares ($7,428,033 / 953,803 shares)* ........... $7.79
=====
Net Asset Value and offering price per share of
Class B shares ($49,002,055 / 6,288,880 shares)* ........... $7.79
=====
Net Asset Value and offering price per share of
Class C shares ($2,046,098 / 262,624 shares)* .............. $7.79
=====
Net Asset Value, offering price and redemption price per
share of Class S shares ($9,020,963 / 1,160,460 shares) .... $7.77
=====
- ----------------------------------------------------------------------------
*Redemption price per share for Class B(1), Class B and Class C is equal to
net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended December 31, 1999
INVESTMENT INCOME
Interest ..................................................... $ 15,752,209
EXPENSES
Management fee (Note 2) ...................................... 1,498,106
Transfer agent and shareholder services (Note 2) ............. 612,451
Custodian fee ................................................ 149,069
Registration fees ............................................ 72,680
Reports to shareholders ...................................... 54,376
Legal fees ................................................... 34,527
Service fee - Class A (Note 4) ............................... 493,398
Distribution and service fees - Class B(1) (Note 4) .......... 48,593
Distribution and service fees - Class B (Note 4) ............. 568,851
Distribution and service fees - Class C (Note 4) ............. 27,497
Trustees' fees (Note 2) ...................................... 16,458
Audit fee .................................................... 14,047
Miscellaneous ................................................ 10,490
------------
3,600,543
Fees paid indirectly (Note 2) ................................ (15,963)
------------
3,584,580
------------
Net investment income ........................................ 12,167,629
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (Notes 1 and 3) ............. (2,872,611)
Net unrealized depreciation of investments ................... (21,518,684)
------------
Net loss on investments ...................................... (24,391,295)
------------
Net decrease in net assets resulting from operations ......... $(12,223,666)
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1998 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ....................................... $ 12,576,196 $ 12,167,629
Net realized gain (loss) on investments ..................... 1,905,433 (2,872,611)
Net unrealized appreciation (depreciation) of investments ... 983,601 (21,518,684)
------------- -------------
Net increase (decrease) resulting from operations ........... 15,465,230 (12,223,666)
------------- -------------
Dividends from net investment income:
Class A ................................................... (9,924,767) (9,253,146)
Class B(1) ................................................ -- (192,041)
Class B ................................................... (2,352,161) (2,240,643)
Class C ................................................... (125,835) (109,322)
Class S ................................................... (522,957) (521,744)
------------- -------------
(12,925,720) (12,316,896)
------------- -------------
Distributions from net realized gains:
Class A ................................................... (994,207) (107,548)
Class B(1) ................................................ -- (1,482)
Class B ................................................... (303,093) (31,516)
Class C ................................................... (18,821) (1,853)
Class S ................................................... (51,520) (5,672)
------------- -------------
(1,367,641) (148,071)
------------- -------------
Net increase (decrease) from fund share transactions (Note 5) 7,442,614 (17,470,478)
------------- -------------
Total increase (decrease) in net assets ..................... 8,614,483 (42,159,111)
NET ASSETS
Beginning of year ........................................... 275,297,682 283,912,165
------------- -------------
End of year (including undistributed net investment income of
$137,940 and $0, respectively) ............................ $ 283,912,165 $ 241,753,054
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1999
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 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 five classes of shares. Class A shares are subject to an initial
sales charge of up to 4.50% and an annual service fee equal to 0.25% of average
daily net assets. On January 1, 1999, the Fund began offering Class B(1) shares
and continued offering Class B shares but only to current shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of State Street Research funds. Class B(1) and Class B pay
annual distribution and service fees of 1.00% and both classes automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years. Class B(1) shares are subject to a contingent deferred sales charge
on certain redemptions made within six years of purchase. Class B shares are
subject to a contingent deferred sales charge on certain redemptions made within
five years of purchase. 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 plans of distribution, related specifically to that class. The
Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. INVESTMENT VALUATION
Tax-exempt securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term obligations are valued at amortized
cost. Other securities, if any, are valued at their fair value as determined in
accordance with established methods consistently applied.
B. SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
C. NET INVESTMENT INCOME
Net investment income is determined daily and consists of interest accrued and
discount earned, less amortization of premium and the estimated daily expenses
of the Fund. Interest income is accrued daily as earned. The Fund is charged for
expenses directly attributable to it, while indirect expenses are allocated
between both funds in the Trust.
D. DIVIDENDS
Dividends are declared daily by the Fund based upon projected net investment
income and paid or reinvested monthly. Net realized capital gains, if any, are
distributed annually, unless additional distributions are required for
compliance with applicable tax regulations. For the year ended December 31,
1999, the Fund has designated as long-term $133,630 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. At December 31, 1999, the Fund had a capital
loss carryforward of $2,354,630 available, to the extent provided in
regulations, to offset future capital gains, if any, which expires on December
31, 2007.
In order to meet certain excise tax distribution requirements under Section 4982
of the Internal Revenue Code, the Fund is required to measure and distribute
annually, if necessary, net capital gains realized during a twelve- month period
ending October 31. In this connection, the Fund is permitted to defer into its
next fiscal year any net capital losses incurred between each November 1 and the
end of its fiscal year. From November 1, 1999 through December 31, 1999, the
Fund incurred net capital losses of approximately $521,000 and it intends to
defer and treat such losses as arising in the fiscal year ended December 31,
2000.
F. 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.
G. 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, 1999, 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, 1999, the fees pursuant to such
agreement amounted to $1,498,106.
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, 1999, the amount of such
expenses was $197,791.
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, 1999 the Fund's transfer
agent fees were reduced by $15,963 under this arrangement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$16,458 during the year ended December 31, 1999.
NOTE 3
For the year ended December 31, 1999, purchases and sales of securities,
exclusive of short-term obligations, aggregated $67,651,765 and $98,851,505,
respectively.
NOTE 4
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Under the plans, 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(1), 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(1), 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, 1999, fees
pursuant to such plans amounted to $493,398, $48,593, $568,851 and $27,497 for
Class A, Class B(1), 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 $101,969 and $332,107, respectively, on sales of Class A shares of
the Fund during the year ended December 31, 1999, and that MetLife Securities,
Inc. earned commissions aggregating $182,705 and $10,153 on sales of Class B
(1), and Class B shares, and the Distributor collected contingent deferred sales
charges aggregating $20,853, $86,755 and $1,429 on redemptions of Class B(1),
Class B and Class C shares, respectively, during the same period.
NOTE 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At December 31, 1999,
Metropolitan owned 58,578 Class B(1) shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------
1998 1999
---------------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 2,384,602 $ 20,322,663 2,784,790 $ 23,319,872
Issued upon reinvestment of:
Dividends from net investment
income ..................... 843,691 7,195,609 829,824 6,823,439
Distributions from net
realized gains ............. 98,948 847,986 10,798 91,782
Shares redeemed ............... (3,876,779) (33,042,697) (5,352,945) (43,867,939)
------------ ------------ ------------ ------------
Net decrease .................. (549,538) $ (4,676,439) (1,727,533) $(13,632,846)
============ ============ ============ ============
<CAPTION>
CLASS B(1) SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
Shares sold ................... -- $ -- 1,082,836 $ 9,016,561
Issued upon reinvestment of:
Dividend from net investment
income ..................... -- -- 15,240 123,875
Distribution from net
realized gains ............. -- -- 162 1,378
Shares redeemed ............... -- -- (144,435) (1,172,529)
------------ ------------ ------------ ------------
Net increase .................. -- $ -- 953,803 $ 7,969,285
============ ============ ============ ============
<CAPTION>
CLASS B SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 1,950,304 $ 16,635,836 318,951 $ 2,618,460
Issued upon reinvestment of:
Dividends from net investment
income ..................... 203,518 1,735,440 203,563 1,672,239
Distributions from net
realized gains ............. 29,605 253,723 3,151 26,778
Shares redeemed ............... (1,115,290) (9,508,658) (1,664,723) (13,675,975)
------------ ------------ ------------ ------------
Net increase (decrease) ....... 1,068,137 $ 9,116,341 (1,139,058) $ (9,358,498)
============ ============ ============ ============
<CAPTION>
CLASS C SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 334,346 $ 2,880,497 95,110 $ 775,305
Issued upon reinvestment of:
Dividends from net investment
income ..................... 7,520 64,226 7,913 65,644
Distributions from net
realized gains ............. 1,512 12,962 143 1,217
Shares redeemed ............... (210,631) (1,802,314) (306,854) (2,544,914)
------------ ------------ ------------ ------------
Net increase (decrease) ....... 132,747 $ 1,155,371 (203,688) $ (1,702,748)
============ ============ ============ ============
<CAPTION>
CLASS S SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................... 574,641 $ 4,884,889 555,027 $ 4,645,771
Issued upon reinvestment:
Dividends from net investment
income ..................... 30,944 263,059 30,227 248,226
Distributions from net
realized gains ............. 3,380 28,899 365 3,097
Shares redeemed ............... (390,950) (3,329,506) (682,119) (5,642,765)
------------ ------------ ------------ ------------
Net increase (decrease) ....... 218,015 $ 1,847,341 (96,500) $ (745,671)
============ ============ ============ ============
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
CLASS A
-------------------------------------------------------------------
YEARS ENDED DECEMBER 31
-------------------------------------------------------------------
1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 7.46 8.26 8.10 8.51 8.54
---------- ---------- ---------- ---------- ----------
Net investment income ($) 0.39 0.39 0.40 0.40 0.39
Net realized and unrealized gain (loss) on
investments and futures contracts ($) 0.82 (0.16) 0.40 0.08 (0.75)
---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS ($) 1.21 0.23 0.80 0.48 (0.36)
---------- ---------- ---------- ---------- ----------
Dividends from net investment income ($) (0.41) (0.39) (0.39) (0.41) (0.39)
Distributions from net realized gains ($) -- -- -- (0.04) (0.00)
---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS ($) (0.41) (0.39) (0.39) (0.45) (0.39)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR ($) 8.26 8.10 8.51 8.54 7.79
========== ========== ========== ========== ==========
Total return (%)(a) 16.58 2.93 10.17 5.79 (4.34)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 253,402 223,407 209,552 205,773 174,256
Ratio of operating expenses to average net
assets (%) 1.13 1.04 1.08 1.03 1.15
Ratio of operating expenses to average net
assets after expense reduction (%) 1.13 1.04 1.08 1.02 1.15
Ratio of net investment income to average net
assets (%) 4.95 4.82 4.91 4.69 4.64
Portfolio turnover rate (%) 97.32 125.24 60.48 36.22 24.60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS B(1)
-------------------
PERIOD ENDED
DECEMBER 31, 1999(B)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 8.54
--------
Net investment income ($) 0.32
Net realized and unrealized loss on investments and futures contracts ($) (0.74)
--------
TOTAL FROM INVESTMENT OPERATIONS ($) (0.42)
--------
Dividends from net investment income ($) (0.33)
Distribution from net realized gains ($) (0.00)
--------
TOTAL DISTRIBUTIONS ($) (0.33)
--------
NET ASSET VALUE, END OF PERIOD ($) 7.79
========
Total return (%)(a) (5.05)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 7,428
Ratio of operating expenses to average net assets (%) 1.90
Ratio of operating expenses to average net assets after expense reduction (%) 1.90
Ratio of net investment income to average net assets (%) 3.89
Portfolio turnover rate (%) 24.60
- ----------------------------------------------------------------------------------------------------------------------------
(a) Does not reflect any front-end or contingent deferred sales charges.
(b) January 1, 1999 (commencement of shares class) to December 31, 1999.
</TABLE>
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
CLASS B
-----------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------
1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 7.46 8.26 8.10 8.51 8.54
---- ---- ---- ---- ----
Net investment income ($) 0.33 0.32 0.34 0.34 0.32
Net realized and unrealized gain (loss) on
investments and futures contracts ($) 0.82 (0.15) 0.40 0.08 (0.74)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.15 0.17 0.74 0.42 (0.42)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.35) (0.33) (0.33) (0.35) (0.33)
Distributions from net realized gains ($) -- -- -- (0.04) (0.00)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.35) (0.33) (0.33) (0.39) (0.33)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 8.26 8.10 8.51 8.54 7.79
==== ==== ==== ==== ====
Total return (%)(a) 15.72 2.15 9.35 5.01 (5.05)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 51,827 51,710 54,093 63,445 49,002
Ratio of operating expenses to average net
assets (%) 1.88 1.79 1.83 1.78 1.90
Ratio of operating expenses to average net
assets after expense reduction (%) 1.88 1.79 1.83 1.77 1.90
Ratio of net investment income to average net
assets (%) 4.19 4.07 4.15 3.93 3.88
Portfolio turnover rate (%) 97.32 125.24 60.48 36.22 24.60
<CAPTION>
CLASS C
-----------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 7.46 8.25 8.10 8.50 8.54
---- ---- ---- ---- ----
Net investment income ($) 0.33 0.32 0.34 0.33 0.32
Net realized and unrealized gain (loss) on
investments and futures contracts ($) 0.81 (0.14) 0.39 0.10 (0.74)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.14 0.18 0.73 0.43 (0.42)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.35) (0.33) (0.33) (0.35) (0.33)
Distributions from net realized gains ($) -- -- -- (0.04) (0.00)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.35) (0.33) (0.33) (0.39) (0.33)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 8.25 8.10 8.50 8.54 7.79
==== ==== ==== ==== ====
Total return (%)(a) 15.58 2.28 9.23 5.14 (5.04)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 4,183 2,889 2,836 3,982 2,046
Ratio of operating expense to average net
assets (%) 1.88 1.79 1.83 1.78 1.90
Ratio of operating expense to average net
assets after expense reduction (%) 1.88 1.79 1.83 1.77 1.90
Ratio of net investment income to average net
assets (%) 4.13 4.06 4.16 3.86 3.88
Portfolio turnover rate (%) 97.32 125.24 60.48 36.22 24.60
- ------------------------------------------------------------------------------------------------------------------------------
(a) Does not reflect any front-end or contingent deferred sales charges.
STATE STREET RESEARCH TAX-EXEMPT FUND
<CAPTION>
CLASS S
-----------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 7.45 8.24 8.09 8.49 8.52
---- ---- ---- ---- ----
Net investment income ($) 0.40 0.39 0.42 0.42 0.40
Net realized and unrealized gain (loss) on
investments and futures contracts ($) 0.81 (0.13) 0.39 0.08 (0.74)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.21 0.26 0.81 0.50 (0.34)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.42) (0.41) (0.41) (0.43) (0.41)
Distributions from net realized gains ($) -- -- -- (0.04) (0.00)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.42) (0.41) (0.41) (0.47) (0.41)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 8.24 8.09 8.49 8.52 7.77
==== ==== ==== ==== ====
Total return (%)(a) 16.76 3.30 10.33 6.07 (4.11)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 22,614 8,990 8,817 10,713 9,021
Ratio of operating expenses to average net
assets (%) 0.88 0.79 0.83 0.78 0.90
Ratio of operating expenses to average net
assets after expense reduction (%) 0.88 0.79 0.83 0.77 0.90
Ratio of net investment income to average net
assets (%) 4.85 5.04 5.15 4.93 4.88
Portfolio turnover rate (%) 97.32 125.24 60.48 36.22 24.60
- ------------------------------------------------------------------------------------------------------------------------------
(a) Does not reflect any front-end or contingent deferred sales charges.
</TABLE>
<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, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Tax-Exempt Fund had a challenging year. Class A shares
returned -4.34% for the 12 months ended December 31, 1999 [does not reflect
sales charge]. That was better than the Lipper General Municipal Debt Fund
Average, which lost -4.63%. However, the Fund underperformed the Lehman Brothers
Municipal Bond Index, which returned -2.06% for the same period.
The Fund invests in tax-exempt debt obligations with an emphasis on research to
maximize return and manage risk.
The manager's decision to lengthen duration hurt performance relative to the
Fund's peer group. However, performance was aided by security selection. Credit
research helped the manager identify segments of the market where fundamentals
were improving.
December 31, 1999
Keep in mind that past performance is no guarantee of future results. The Fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gains
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(1) share or
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 BROTHERS MUNICIPAL BOND INDEX COMPARED TO
CHANGE IN VALUE OF $10,000 INVESTED
IN TAX-EXEMPT FUND
Class A
Tax-Exempt Lehman Brothers
Fund Municipal Bond Index
---- --------------------
12/88 $ 9,550 $10,000
12/89 9,550 10,000
12/90 10,011 10,729
12/91 11,192 12,031
12/92 12,236 13,092
12/93 13,718 14,700
12/94 12,772 13,940
12/95 14,889 16,374
12/96 15,325 17,099
12/97 16,884 18,671
12/98 17,862 19,880
12/99 17,086 19,472
Class B(1)
Tax-Exempt Lehman Brothers
Fund Municipal Bond Index
---- --------------------
12/88 $10,000 $10,000
12/89 10,000 10,000
12/90 10,483 10,729
12/91 11,720 12,031
12/92 12,812 13,092
12/93 14,305 14,700
12/94 13,219 13,940
12/95 15,296 16,374
12/96 15,625 17,099
12/97 17,086 18,671
12/98 17,944 19,880
12/99 17,036 19,472
Class B
Tax-Exempt Lehman Brothers
Fund Municipal Bond Index
---- --------------------
12/88 $10,000 $10,000
12/89 10,000 10,000
12/90 10,483 10,729
12/91 11,720 12,031
12/92 12,812 13,092
12/93 14,305 14,700
12/94 13,219 13,940
12/95 15,296 16,374
12/96 15,625 17,099
12/97 17,086 18,671
12/98 17,944 19,880
12/99 17,036 19,472
Class C
Tax-Exempt Lehman Brothers
Fund Municipal Bond Index
---- --------------------
12/88 $10,000 $10,000
12/89 10,000 10,000
12/90 10,483 10,729
12/91 11,720 12,031
12/92 12,812 13,092
12/93 14,303 14,700
12/94 13,217 13,940
12/95 15,276 16,374
12/96 15,624 17,099
12/97 17,066 18,671
12/98 17,942 19,880
12/99 17,037 19,472
Class S
Tax-Exempt Lehman Brothers
Fund Municipal Bond Index
---- --------------------
12/88 $10,000 $10,000
12/89 10,000 10,000
12/90 10,483 10,729
12/91 11,720 12,031
12/92 12,812 13,092
12/93 14,351 14,700
12/94 13,219 13,409
12/95 15,656 16,374
12/96 16,173 17,099
12/97 17,845 18,671
12/98 18,929 19,880
12/99 18,150 19,472
-- Tax-Exempt Fund -- Lehman Brothers Municipal Bond Index
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH TAX-EXEMPT TRUST
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FUND INFORMATION OFFICERS TRUSTEES
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 BRUCE R. BOND
One Financial Center JOHN H. KALLIS Former Chairman of the Board,
Boston, MA 02111 Vice President Chief Executive Officer and
President, PictureTel Corporation
DISTRIBUTOR THOMAS A. SHIVELY
State Street Research Vice President STEVE A. GARBAN
Investment Services, Inc. Former Senior Vice President
One Financial Center GERARD P. MAUS for Finance and Operations and
Boston, MA 02111 Treasurer Treasurer, The Pennsylvania
State University
SHAREHOLDER SERVICES JOSEPH W. CANAVAN
State Street Research Assistant Treasurer MALCOLM T. HOPKINS
Service Center Former Vice Chairman of the
P.O. Box 8408 DOUGLAS A. ROMICH Board and Chief Financial
Boston, MA 02266-8408 Assistant Treasurer Officer, St. Regis Corp.
1-800-562-0032
FRANCIS J. MCNAMARA, III DEAN O. MORTON
CUSTODIAN Secretary and General Counsel Former Executive Vice President,
State Street Bank and Chief Operating Officer
Trust Company DARMAN A. WING and Director, Hewlett-Packard
225 Franklin Street Assistant Secretary and Company
Boston, MA 02110 Assistant General Counsel
SUSAN M. PHILLIPS
LEGAL COUNSEL AMY L. SIMMONS Dean, School of Business and
Goodwin, Procter & Hoar LLP Assistant Secretary Public Management, George
Exchange Place Washington University; former
Boston, MA 02109 Member of the Board of Governors
of the Federal Reserve System and
INDEPENDENT ACCOUNTANTS Chairman and Commissioner of
PricewaterhouseCoopers LLP the Commodity Futures Trading
160 Federal Street Commission
Boston, MA 02110
TOBY ROSENBLATT
President,
Founders Investments Ltd.
President,
The Glen Ellen Company
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
</TABLE>
<PAGE>
STATE STREET RESEARCH TAX-EXEMPT FUND ------------
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Canton, MA
Permit #313
------------
STATE STREET RESEARCH
[75 YEARS logo]
LASTING VALUE
- -------------
LEADING IDEAS
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032 or
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
[logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
This publication must be preceded or accompanied by a current State Street
Research Tax-Exempt Fund prospectus.
When used after March 31, 2000, 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: (exp0201)SSR-LD TE-1222-0200
<PAGE>
- -------------------------------------------------------------------------------
STATE STREET RESEARCH
- -------------------------------------------------------------------------------
NEW YORK TAX-FREE FUND
----------------------
ANNUAL REPORT
December 31, 1999
--------------------
WHAT'S INSIDE
--------------------
` FROM THE CHAIRMAN
Another good year for the
U.S. economy
PORTFOLIO MANAGER'S REVIEW
A challenging environment for
municipal bonds
FUND INFORMATION
Facts and figures
PLUS, COMPLETE PORTFOLIO HOLDINGS
AND FINANCIAL STATEMENTS
------------------------
DALBAR
HONORS COMMITMENT TO:
FINANCIAL INTERMEDIARIES
1999
------------------------
For Excellence
in
Service
[LOGO] STATE STREET RESEARCH
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
DEAR SHAREHOLDER:
Another good year for the U.S. economy has extended America's cycle of
prosperity to nine consecutive years. Gross domestic product, a measure of goods
and services produced in the U.S., rose at an estimated annual rate of 4.0%.
Personal income has risen and consumer spending has been strong. Inflation
remained relatively low as productivity gains offset wage gains. However, the
Consumer Price Index moved up one full percentage point from 1.6% to 2.6%. The
Federal Reserve Board responded to these indicators of strength by raising
short-term interest rates by 3/4% in three 1/4% steps in the second half of the
year.
STOCKS
The U.S. stock market delivered another year of double-digit gains. The S&P
500(1) rose 21.0% during the 12-month period ended December 31, 1999. However,
S&P 500 technology stocks accounted for a disproportionate share of those gains.
Technology stocks in the S&P 500 gained 74.6%. Non- technology S&P 500 stocks
gained only 4.5%. The technology-heavy Nasdaq gained 85.6% for the year.
BONDS
The bond market was hurt by the Federal Reserve Board's interest-rate hikes and
by factors associated with Y2K. Fears that issuers would go to the market with
their debt issues early in the year drove yields up and bond prices down.
However, those fears were not realized, and the market began to close the yield
gap in the second half of the year. In this environment, mortgage bonds held up
better than government and corporate bonds. High yield bonds finished the year
ahead of other bond sectors, but with modest single-digit results.
INTERNATIONAL
Economic growth around the globe was better than expected. In Asia and certain
emerging markets, economies rebounded from last year's currency woes faster than
anticipated. Japan has shown the first signs of real progress in revitalizing
its economy in nearly a decade. That was reflected in strong stock market
performance for the year, especially among small Japanese companies. Europe
delivered generally favorable results as did the emerging markets of Latin
America.
OUTLOOK AND OPPORTUNITIES
As we enter the year 2000, many markets are poised for growth. However, there
are also areas, such as the technology sector in the U.S., where extraordinarily
high valuations suggest caution in the months ahead. Now is a good time to
consult your financial professional about the strategies that make sense for
your personal portfolio.
And, as always, we thank you for investing in State Street Research.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
December 31, 1999
(1) The S&P 500 (officially the "Standard and Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The Lehman Brothers Municipal Bond Index
is comprised of 8,000 fixed-rate investment grade municipal bonds, all from
issuers larger than $50 million and with maturities greater than two years. The
indices do not take transaction charges into consideration. It is not possible
to invest directly in the indices.
(2)-5.58% for Class B(1) shares; -5.58% for Class B shares; -5.46% for Class C
shares; -4.63% 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 rein- vestment of capital
gains 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(1)
or 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.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended December 31, 1999)
- --------------------------------------------------------------------------------
Total Value of $10,000 Invested on 12/31/89(3)
(Class A shares, at maximum applicable sales charge)
12/89 $ 9,550
12/90 9,866
12/91 11,235
12/92 12,254
12/93 13,869
12/94 13,032
12/95 15,001
12/96 15,552
12/97 16,987
12/98 17,993
12/99 17,116
AVERAGE ANNUAL TOTAL RETURNS
(at maximum applicable sales charge)(3)(4)(5)
- --------------------------------------------------------
10 YEARS 5 YEARS 1 YEAR
- --------------------------------------------------------
Class A 5.52% 4.64% - 9.15%
- --------------------------------------------------------
Class B(1) 5.49% 4.49% -10.11%
- --------------------------------------------------------
Class B 5.49% 4.49% -10.11%
- --------------------------------------------------------
Class C 5.50% 4.84% - 6.37%
- --------------------------------------------------------
Class S 6.19% 5.86% - 4.63%
- --------------------------------------------------------
Performance results for the Fund are increased by the voluntary reduction of
Fund fees and expenses; without subsidization, performance would have been
lower.
TAXABLE
EQUIVALENT YIELD
(36% federal
YIELD tax bracket)
- -----------------------------------------------------
Class A 4.68% 7.31%
- -----------------------------------------------------
Class B(1) 4.13% 6.45%
- -----------------------------------------------------
Class B 4.13% 6.45%
- -----------------------------------------------------
Class C 4.13% 6.45%
- -----------------------------------------------------
Class S 5.14% 8.03%
- -----------------------------------------------------
Yield is based on net investment income for the 30 days ended December 31, 1999.
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
New York Tax-Free Fund: A challenging environment 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, 1999
and his views on the period ahead.
Q: HOW DID THE FUND PERFORM LAST YEAR?
A: It was a disappointing year for the Fund. Class A shares returned -4.87% for
the 12 months ended December 31, 1999 [does not reflect sales charge].(2) That
was slightly better than the Lipper New York Municipal Debt Funds Average, which
returned -4.89%. However, the Fund underperformed the Lehman Brothers Municipal
Bond Index(1), which returned -2.06% for the same period.
Q: WHAT FACTORS HURT PERFORMANCE IN 1999?
A: During the first five months of the year we lengthened the Fund's duration.
(Duration is a measure of a fund's sensitivity to changing interest rates.) When
interest rates decline, longer duration can help return. However, when interest
rates rise - as they did in 1999 -- it hurts all bond funds, but particularly a
fund with longer duration.
Q: WHY DID YOU LENGTHEN DURATION?
A: At the beginning of 1999, our view was that interest rates were positioned to
decline. However, higher-than- expected economic growth put the Federal Reserve
Board on guard about inflation, and interest rates moved up, not down.
Q: BESIDES INTEREST RATES, WHAT OTHER FACTORS AFFECTED THE MUNICIPAL BOND
MARKET?
A: In general, New York municipal bond funds were hurt by a poor technical
environment. In other words, there were too many sellers and too few buyers
during most of the year. Liquidity in the market was poor overall as cash flowed
out of many municipal bond funds and into other areas of the market where
investors were attracted to higher returns.
Q: DID YOU SHIFT YOUR STRATEGY AS THE ENVIRONMENT CHANGED?
A: Yes. As it became apparent that the economy was getting stronger, not weaker,
we shortened the Fund's duration. We also improved the portfolio's liquidity -
we sold some of the Fund's less liquid market discount bonds - at mid-year. This
was due to our concern about the market's liquidity as we closed in on the end
of the year.
Q: WHAT FACTORS HELPED PERFORMANCE DURING THE YEAR?
A: Shorter duration helped the Fund in the second half of the year. Plus, our
credit research helped us identify opportunities that delivered attractive
gains. For example, we invested in New York state mortgage revenue bonds, which
delivered strong performance. The Fund also benefited from its investment in
Syracuse, New York airport bonds. Their credit fundamentals improved over the
year, raising the value of our investment.
Q: HOW HAVE YOU POSITIONED THE PORTFOLIO FOR THE PERIOD AHEAD?
A: We believe the U.S. and New York state economies are still very strong. That
could force the Federal Reserve Board to raise interest rates more aggressively
in the year ahead than they did in 1999. As a result, we remain duration
neutral. In other words, we are neither short nor long compared to other,
similar funds. We will continue to seek opportunities with strong credit
fundamentals and good liquidity.
December 31, 1999
- ------------------------------------------------------------------------------
BOND QUALITY RATINGS*
(by percentage of long-term investments)
AAA 38%
AA 15%
A 18%
BBB 20%
BB 9%
As rated by Standard & Poor's Corporation or Moody's Investors Service, Inc.
*17% of the above bonds were not rated but were included among relevant rating
categories as determined by the Fund's manager.
TOP 5 SECTORS
(by percentage of net assets)
GENERAL OBLIGATION 15.9%
LEASE 13.1%
LIFE CARE 8.9%
WATER & SEWER 7.8%
COLLEGE & UNIVERSITY 7.2%
Total: 52.9%
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS 98.3%
GENERAL OBLIGATION 15.9%
<S> <C> <C> <C>
City of New York, General Obligation Bonds, Fiscal
1995 Series F, 6.375% .............................. $ 815,000 2/15/2006 $ 864,837
County of Onondaga, New York, General Improvement
(Serial) Bonds, 1992, 5.70% ........................ 2,000,000 4/01/2007 2,081,520
Commonwealth of Puerto Rico, General Obligation
Public Improvement Refunding Bonds, Series 1998, 5.25% 1,000,000 7/01/2012 982,930
County of Nassau, New York, General Obligation
Refunding Bonds, Series G, MBIA Insured, 5.45% ..... 1,000,000 1/15/2015 971,040
Commonwealth of Puerto Rico, General Obligation
Public Improvement Refunding Bonds, Series 1995A,
MBIA Insured, 5.65% ................................ 1,000,000 7/01/2015 1,006,160
County of Monroe, New York, Public Improvement
Refunding Bonds, Series A, 6.00% ................... 1,535,000 3/01/2017 1,578,057
Commonwealth of Puerto Rico, General Obligation
Refunding Bonds, Series 1999, MBIA Insured, 0.00% .. 1,000,000 7/01/2017 358,650
City of New York, General Obligation Refunding
Bonds, Series H, 6.00% ............................. 1,500,000 8/01/2017 1,498,305
County of Orange, New York, Various Purposes Serial
Bonds-1997, 5.125% ................................. 1,000,000 9/01/2019 892,300
-----------
10,233,799
-----------
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 952,310
-----------
CERTIFICATES OF PARTICIPATION 1.9%
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 1,236,903
-----------
COLLEGE & UNIVERSITY 7.2%
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 1,028,880
Dormitory Authority of the State of New York,
Canisius College, Revenue Bonds, Series 1995, CapMAC
Insured, 0.00% ..................................... 1,550,000 7/01/2013 718,673
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 1,865,620
Dormitory Authority of the State of New York, City
University System Consolidated, Series A, AMBAC
Insured, 5.625% .................................... 1,000,000 7/01/2016 990,990
-----------
4,604,163
-----------
HOSPITAL/HEALTH CARE 6.8%
Dormitory Authority of the State of New York, Nyack
Hospital Revenue Bonds, Series 1996, 6.00% ......... 1,500,000 7/01/2006 1,507,980
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 944,980
County of Suffolk, New York, Industrial Development
Agency, Civic Facility Revenue Bonds, Series 1999A,
(The Southampton Hospital Association Civic
Facility), 7.25% ................................... 2,000,000 1/01/2030 1,875,340
-----------
4,328,300
-----------
INDUSTRIAL DEVELOPMENT & POLLUTION CONTROL 3.1%
City of New York, Industrial Development Agency,
Special Facility Revenue Bonds, 1997 Northwest
Airlines, Inc. Project, 6.00% ...................... 1,245,000 6/01/2027 1,113,404
City of New York, Industrial Development Agency,
Revenue Bonds, (Brooklyn Navy Yard Cogeneration
Partners, L.P. Project), Series 1997, Subject to
AMT, 5.65% ......................................... 1,000,000 10/01/2028 863,350
-----------
1,976,754
-----------
LEASE 13.1%
Lyons Community Health Initatives Corp., Facility
Revenue Bonds, Series 1994, 6.55% .................. 470,000 9/01/2009 479,066
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 2,333,400
Lyons Community Health Initiatives Corp., (New
York), Facility Revenue Bonds,
Series 1994, 6.80% ................................. 940,000 9/01/2024 960,013
State of New York, Urban Development Corporation,
Correctional Capital Facilities, Series 6, FSA
Insured, 5.375% .................................... 2,000,000 1/01/2025 1,810,500
State of New York, Urban Development Corporation,
Corporate Purpose Subordinate Lien Bonds, 5.60% .... 1,000,000 7/01/2026 921,200
The Trust for Cultural Resources of the City of New
York, Revenue Bonds, Series 1999A, (American Museum
of Natural History), AMBAC Insured, 5.75% .......... 2,000,000 7/01/2029 1,907,360
-----------
8,411,539
-----------
LIFE CARE 8.9%
Tompkins County Industrial Development Agency, Life
Care Community Revenue Bonds, 1994 (Kendal at Ithaca
Inc., Project), 7.70% .............................. 1,430,000 6/01/2011 1,495,136
City of Mount Vernon, New York, Industrial
Development Agency, Civic Facility Revenue Bonds,
Series 1999, (Wartburg Senior Housing Incorporated/
Meadowview at the Wartburg Civic Facility), 6.15% .. 1,000,000 6/01/2019 902,610
County of Suffolk, New York, Industrial Development
Agency, Continuing Care Retirement Community, First
Mortgage Fixed Rate Revenue Bonds, (Jefferson's
Ferry Project-Series 1999A), 7.20% ................. 1,500,000 11/01/2019 1,464,270
Tompkins County Industrial Development Agency, Life
Care Community Revenue Bonds, 1994 (Kendal at Ithaca
Inc., Project), 7.875% ............................. 1,000,000 6/01/2024 1,044,190
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 815,320
-----------
5,721,526
-----------
MULTI-FAMILY HOUSING 1.6%
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 1,036,990
-----------
POWER 6.4%
Power Authority of the State of New York, General
Purpose Bonds, Series W, 6.50% ..................... 1,150,000 1/01/2008 1,246,324
Long Island Power Authority, Electric System General
Revenue Bonds,
Series 1999A, AMBAC Insured, 5.50% ................. 2,000,000 12/01/2011 2,015,540
Long Island Power Authority, Electric System General
Revenue Bonds, Series 1998A, FSA Insured, 0.00% .... 2,000,000 12/01/2014 844,320
-----------
4,106,184
-----------
PRE-REFUNDED BONDS 6.5%
City of New York, General Obligation Bonds, Fiscal
1995 Series F, Pre-Refunded to 2/15/2005 @ 101,
6.375% ............................................. 1,095,000 2/15/2006 1,173,676
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 1,053,590
New York State Thruway Authority, Service Contract
Revenue Bonds, Pre-Refunded to 4/1/2005 @ 102, 6.25%
. .................................................. 1,000,000 4/01/2014 1,075,220
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 849,784
-----------
4,152,270
-----------
SINGLE-FAMILY HOUSING 5.7%
State of New York Mortgage Agency, Homeowner
Mortgage Revenue Bonds, Series 45, 7.20% ........... 2,000,000 10/01/2017 2,096,060
State of New York Mortgage Agency, Homeowner
Mortgage Revenue Bonds, Series 55, 5.95% ........... 1,550,000 10/01/2017 1,553,828
-----------
3,649,888
-----------
SPECIAL/SALES TAX 1.5%
Virgin Islands Public Finance Authority, Revenue
Bonds, (Virgin Islands Gross Receipts Taxes Loan
Note), Series 1999A, 6.375% ........................ 1,000,000 10/01/2019 976,320
-----------
STRUCTURED FINANCINGS 4.8%
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 3,099,450
-----------
TOLL ROADS/TURNPIKE AUTHORITIES 1.5%
New York State Thruway Authority, Local Highway and
Bridge Service Contract Bonds, Series 1999, 5.75% .. 1,000,000 4/01/2019 942,240
-----------
TRANSIT/HIGHWAY 4.1%
Triborough Bridge and Tunnel Authority, General
Purpose Revenue Bonds,
Series 1994 A, 6.00% ............................... 2,500,000 1/01/2010 2,648,275
-----------
WATER & SEWER 7.8%
City of Niagara Falls, Niagara County, New York,
Water Treatment Plant Bonds, Series 1994, MBIA
Insured, Subject to AMT, 8.50% ..................... 1,000,000 11/01/2006 1,188,650
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 2,185,500
Commonwealth of Puerto Rico, Aqueduct and Sewer
Authority, General Revenue Bonds, 6.25% ............ 1,525,000 7/01/2012 1,635,898
-----------
5,010,048
-----------
Total Municipal Bonds (Cost $62,571,594) ........... 63,086,959
-----------
SHORT-TERM OBLIGATIONS 0.6%
Lone Star Airport Improvement Authority, Inc.,
Multiple Mode Demand Revenue Bonds, (American
Airlines, Inc. Project), Series A-2, 4.80% ......... 300,000 12/01/2014(+) 300,000
State of New York, Job Development Authority, Series
A-1, 5.00% ......................................... 100,000 3/01/2005(+) 100,000
-----------
Total Short-Term Obligations (Cost $400,000) ....... 400,000
-----------
Total Investments (Cost $62,971,594) - 98.9% ....... 63,486,959
Cash and Other Assets, Less Liabilities - 1.1% ..... 735,376
-----------
Net Assets - 100.0% ................................ $64,222,335
===========
Federal Income Tax Information:
At December 31, 1999, the net unrealized appreciation of investments
based on cost for Federal income tax purposes of $62,971,594 was
as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost .......................................... $ 1,493,740
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value .......................................... (978,375)
-----------
$ 515,365
===========
- -----------------------------------------------------------------------------------------------------------
(+) Interest rates on these obligations may reset daily.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1999
Assets
Investments, at value (Cost $62,971,594) (Note 1)............. $63,486,959
Cash.......................................................... 41,160
Receivable for securities sold................................ 2,021,460
Interest receivable........................................... 1,141,376
Receivable from Distributor (Note 3).......................... 21,655
Receivable for fund shares sold............................... 7,710
Other assets.................................................. 8,544
-------------
66,728,864
Liabilities
Payable for securities purchased.............................. 2,083,640
Payable for fund shares redeemed.............................. 216,496
Dividends payable............................................. 49,962
Accrued transfer agent and shareholder services (Note 2)...... 42,651
Accrued management fee (Note 2)............................... 30,285
Accrued distribution and service fees (Note 5)................ 20,787
Accrued trustees' fees (Note 2)............................... 18,615
Other accrued expenses........................................ 44,093
-------------
2,506,529
-------------
Net Assets.................................................... $64,222,335
-------------
Net Assets consist of:
Undistributed net investment income........................... $47,470
Unrealized appreciation of investments........................ 515,365
Accumulated net realized loss................................. (1,436,741)
Paid-in capital............................................... 65,096,241
-------------
$ 64,222,335
Net Asset Value and redemption price per share of
Class A shares ($20,157,964 / 2,611,174 shares)............ $7.72
Maximum Offering Price per share of
Class A shares ($7.72 / .955).............................. $8.08
Net Asset Value and offering price per share of
Class B(1) shares ($3,797,155 / 492,004 shares)*........... $7.72
Net Asset Value and offering price per share of
Class B shares ($14,957,488 / 1,937,627 shares)*........... $7.72
Net Asset Value and offering price per share of
Class C shares ($731,198 / 94,640 shares)*.................. $7.73
Net Asset Value, offering price and redemption price
per share of Class S shares ($24,578,530 / 3,180,202 shares). $7.73
- --------------------------------------------------------------------------------
* Redemption price per share for Class B(1), Class B and Class C is equal
to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended December 31, 1999
INVESTMENT INCOME
Interest .................................................... $ 3,888,018
EXPENSES
Management fee (Note 2) ..................................... 379,165
Transfer agent and shareholder services (Note 2) ............ 141,551
Custodian fee ............................................... 100,740
Legal fees .................................................. 24,820
Audit fee ................................................... 20,805
Trustees' fees (Note 2) ..................................... 18,615
Registration fees ........................................... 10,950
Reports to shareholders ..................................... 9,490
Service fee-Class A (Note 5) ................................ 53,142
Distribution and service fees-Class B(1) (Note 5) ........... 22,209
Distribution and service fees-Class B (Note 5) .............. 171,089
Distribution and service fees-Class C (Note 5) .............. 8,883
Miscellaneous ............................................... 3,285
------------
964,744
Expenses borne by the Distributor (Note 3) .................. (118,819)
Fees paid indirectly (Note 2) ............................... (4,676)
------------
841,249
------------
Net investment income ....................................... 3,046,769
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES CONTRACTS
Net realized loss on investments (Notes 1 and 4) ............ (1,427,749)
Net realized gain on futures contracts (Note 1) ............. 41,200
------------
Total net realized loss ................................... (1,386,549)
Net unrealized depreciation of investments .................. (5,120,673)
------------
Net loss on investments and futures contracts ............... (6,507,222)
------------
Net decrease in net assets resulting from operations ........ $ (3,460,453)
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
----------------------------
1998 1999
- --------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income .................... $ 3,132,461 $ 3,046,769
Net realized gain (loss) on investments
and futures contracts .................. 698,887 (1,386,549)
Net unrealized appreciation (depreciation)
of investments ......................... 38,972 (5,120,673)
------------ ------------
Net increase (decrease) resulting from
operations ............................. 3,870,320 (3,460,453)
------------ ------------
Dividends from net investment income:
Class A ................................ (979,607) (954,320)
Class B(1) ............................. -- (83,476)
Class B ................................ (713,178) (638,590)
Class C ................................ (35,961) (32,711)
Class S ................................ (1,490,835) (1,299,386)
------------ ------------
(3,219,581) (3,008,483)
------------ ------------
Distributions from net realized gains:
Class A ................................ (106,242) (81,525)
Class B(1) ............................. -- (3,858)
Class B ................................ (93,678) (68,596)
Class C ................................ (5,564) (4,565)
Class S ................................ (144,500) (108,103)
------------ ------------
(349,984) (266,647)
------------ ------------
Net increase (decrease) from fund share
transactions (Note 7) .................. 1,246,461 (772,996)
------------ ------------
Total increase (decrease) in net assets .. 1,547,216 (7,508,579)
NET ASSETS
Beginning of year ........................ 70,183,698 71,730,914
------------ ------------
End of year (including undistributed net
investment income of $7,643 and
$47,470, respectively) ................. $ 71,730,914 $ 64,222,335
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1999
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 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 five classes of shares. Class A shares are subject to an initial
sales charge of up to 4.50% and an annual service fee equal to 0.25% of average
daily net assets. On January 1, 1999, the Fund began offering Class B(1) shares
and continued offering Class B shares but only to current shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of State Street Research funds. Class B(1) and Class B pay
annual distribution and service fees of 1.00% and both classes automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years. Class B(1) shares are subject to a contingent deferred sales charge
on certain redemptions made within six years of purchase. Class B shares are
subject to a contingent deferred sales charge on certain redemptions made within
five years of purchase. 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 plans of distribution, related specifically to that class. The
Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
Fund in preparing its financial statements, and such policies are in conformity
with generally accepted accounting principles for investment companies.
A. INVESTMENT VALUATION
Tax-exempt securities are valued by a pricing service, which utilizes market
transactions, quotations from dealers, and various relationships among
securities in determining value. Short-term obligations are valued at amortized
cost. Other securities, if any, are valued at their fair value as determined in
accordance with established methods consistently applied.
B. SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
C. NET INVESTMENT INCOME
Net investment income is determined daily and consists of interest accrued and
discount earned, less amortization of premium and the estimated daily expenses
of the Fund. Interest income is accrued daily as earned. The Fund is charged for
expenses directly attributable to it, while indirect expenses are allocated
between both funds in the Trust.
D. DIVIDENDS
Dividends are declared daily by the Fund based upon projected net investment
income and paid or reinvested monthly. Net realized capital gains, if any, are
distributed annually, unless additional distributions are required for
compliance with applicable tax regulations. For the year ended December 31,
1999, the Fund has designated as long-term all 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. At December 31, 1999, the Fund had a capital
loss carryforward of $1,037,719 available, to the extent provided in
regulations, to offset future capital gains, if any, which expires on December
31, 2007.
In order to meet certain excise tax distribution requirements under Section 4982
of the Internal Revenue Code, the Fund is required to measure and distribute
annually, if necessary, net capital gains realized during a twelve- month period
ending October 31. In this connection, the Fund is permitted to defer into its
next fiscal year any net capital losses incurred between each November 1 and the
end of its fiscal year. From November 1, 1999 through December 31, 1999, the
Fund incurred net capital losses of approximately $354,000 and it intends to
defer and treat such losses as arising in the fiscal year ended December 31,
2000.
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, 1999, 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, 1999, the fees pursuant to such
agreement amounted to $379,165.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended December 31, 1999, the amount of such
expenses was $45,439.
The Fund has entered into an agreement with its transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the Fund's expense. During the year ended December 31, 1999 the Fund's
transfer agent fees were reduced by $4,676 under this agreement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$18,615 during the year ended December 31, 1999.
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, 1999, the amount of such expenses assumed by the
Distributor and its affiliates was $118,819.
NOTE 4
For the year ended December 31, 1999, purchases and sales of securities,
exclusive of short-term obligations, aggregated $29,653,477 and $32,677,975,
respectively.
NOTE 5
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Under the plans, 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(1), 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(1), 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, 1999, fees
pursuant to such plans amounted to $53,142, $22,209, $171,089 and $8,883 for
Class A, Class B(1), 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 $20,025 and $66,228, respectively, on sales of Class A shares of the
Fund during the year ended December 31, 1999, and that MetLife Securities, Inc.
earned commissions aggregating $98,210 and $3,233 on sales of Class B(1) and
Class B shares, and that the Distributor collected contingent deferred sales
charges aggregating $260, $37,088 and $98 on redemptions of Class B(1), Class B
and Class C shares, respectively, during the same period.
NOTE 6
Under normal circumstances at least 80% of the Fund's net assets will be
invested in New York Municipal Obligations. New York State and New York City
face potential economic problems due to various financial, social, economic and
political factors which could seriously affect their ability to meet continuing
obligations for principal and interest payments. Also, the Fund is able to
invest up to 25% of total assets in a single industry. Accordingly, the Fund's
investments may be subject to greater risk than those in a fund with more
restrictive concentration limits.
NOTE 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At December 31, 1999, the
Adviser owned 59,032 Class C shares and Metropolitan owned 58,907 Class B(1)
shares of the Fund.
These transactions break down by share class as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............................. 657,773 $ 5,590,343 520,708 $ 4,275,370
Issued upon reinvestment of:
Dividends from net investment income 89,437 761,215 89,495 727,617
Distributions from net realized gains 11,045 94,432 8,418 71,053
Shares redeemed ......................... (576,644) (4,906,505) (570,126) (4,668,864)
----------- ----------- ----------- -----------
Net increase ............................ 181,611 $ 1,539,485 48,495 $ 405,176
=========== =========== =========== ===========
<CAPTION>
CLASS B(1) SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............................. -- -- 491,240 $ 4,036,956
Issued upon reinvestment of:
Dividends from net investment income -- -- 6,654 52,914
Distribution from net realized gains -- -- 405 3,418
Shares redeemed ......................... -- -- (6,295) (50,855)
----------- ----------- ----------- -----------
Net increase ............................ -- -- 492,004 $ 4,042,433
=========== =========== =========== ===========
<CAPTION>
CLASS B SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............................. 565,686 $ 4,819,374 68,160 $ 552,939
Issued upon reinvestment of:
Dividends from net investment income 56,661 482,197 60,019 488,846
Distributions from net realized gains 10,549 90,200 7,405 62,502
Shares redeemed ......................... (425,334) (3,613,742) (460,551) (3,763,001)
----------- ----------- ----------- -----------
Net increase (decrease) ................. 207,562 $ 1,778,029 (324,967) $(2,658,714)
=========== =========== =========== ===========
<CAPTION>
CLASS C SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............................. 45,289 $ 387,831 30,640 $ 260,382
Issued upon reinvestment of:
Dividends from net investment income 751 6,390 1,013 8,249
Distributions from net realized gains 480 4,110 207 1,749
Shares redeemed ......................... (9,778) (83,337) (68,855) (580,972)
----------- ----------- ----------- -----------
Net increase (decrease) ................. 36,742 $ 314,994 (36,995) $ (310,592)
=========== =========== =========== ===========
<CAPTION>
CLASS S SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............................. 68,935 $ 586,385 40,975 $ 329,645
Issued upon reinvestment of:
Dividends from net investment income 118,453 1,008,891 116,896 952,492
Distributions from net realized gains 14,819 126,851 11,241 94,986
Shares redeemed ......................... (483,714) (4,108,174) (448,885) (3,628,422)
----------- ----------- ----------- -----------
Net decrease ............................ (281,507) $(2,386,047) (279,773) $(2,251,299)
=========== =========== =========== ===========
</TABLE>
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------
1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 7.53 8.23 8.13 8.48 8.52
---- ---- ---- ---- ----
Net investment income ($)* 0.40 0.38 0.39 0.39 0.40
Net realized and unrealized gain (loss) on
investments and futures contracts ($) 0.71 (0.09) 0.35 0.09 (0.77)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.11 0.29 0.74 0.48 (0.37)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.41) (0.39) (0.39) (0.40) (0.40)
Distributions from net realized gains ($) -- -- -- (0.04) (0.03)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.41) (0.39) (0.39) (0.44) (0.43)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 8.23 8.13 8.48 8.52 7.72
==== ==== ==== ==== ====
Total return(a) (%) 15.11 3.68 9.22 5.92 (4.87)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 20,043 19,636 20,193 21,831 20,158
Ratio of operating expenses to average net
assets (%)* 1.10 1.10 1.10 1.12 1.11
Ratio of operating expenses to average net
assets after expense reductions (%)* 1.10 1.10 1.10 1.10 1.10
Ratio of net investment income to average net
assets (%)* 5.07 4.76 4.88 4.55 4.54
Portfolio turnover rate (%) 109.74 89.14 50.92 32.86 43.02
*Reflects voluntary reduction of expenses per
share of these amounts (Note 3) ($) 0.02 0.01 0.01 0.01 0.02
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS B(1)
-------------------
PERIOD ENDED
DECEMBER 31, 1999(B)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 8.52
----
Net investment income ($)* 0.34
Net realized and unrealized loss on investments and futures contracts ($) (0.77)
----
TOTAL FROM INVESTMENT OPERATIONS ($) (0.43)
----
Dividend from net investment income ($) (0.34)
Distribution from net realized gains ($) (0.03)
----
TOTAL DISTRIBUTIONS ($) (0.37)
----
NET ASSET VALUE, END OF PERIOD ($) 7.72
====
Total return(a) (%) (5.58)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period ($ thousands) 3,797
Ratio of operating expenses to average net assets (%)* 1.86
Ratio of operating expenses to average net assets after expense reductions (%)* 1.85
Ratio of net investment income to average net assets (%)* 3.88
Portfolio turnover rate (%) 43.02
*Reflects voluntary reduction of expenses per share of these amounts (Note 3) ($) 0.02
- ------------------------------------------------------------------------------------------------------------------------------
(a) Does not reflect any front-end or contingent deferred sales charges. Total return would be lower if the Distributor and
its affiliates had not voluntarily reduced a portion of the Fund's expenses.
(b) January 1, 1999 (commencement of shares class) to December 31, 1999.
</TABLE>
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (cont'd)
- -------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------
1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 7.53 8.23 8.13 8.48 8.52
---- ---- ---- ---- ----
Net investment income ($)* 0.34 0.32 0.33 0.32 0.34
Net realized and unrealized gain (loss) on
investments and futures contracts ($) 0.71 (0.09) 0.35 0.10 (0.77)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.05 0.23 0.68 0.42 (0.43)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.35) (0.33) (0.33) (0.34) (0.34)
Distributions from net realized gains ($) -- -- -- (0.04) (0.03)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.35) (0.33) (0.33) (0.38) (0.37)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 8.23 8.13 8.48 8.52 7.72
==== ==== ==== ==== ====
Total return(a) (%) 14.26 2.91 8.41 5.14 (5.58)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 15,084 16,824 17,426 19,273 14,957
Ratio of operating expenses to average net
assets (%)* 1.85 1.85 1.85 1.87 1.86
Ratio of operating expenses to average net
assets after expense reductions (%)* 1.85 1.85 1.85 1.85 1.85
Ratio of net investment income to average net
assets (%)* 4.32 4.01 4.12 3.81 3.78
Portfolio turnover rate (%) 109.74 89.14 50.92 32.86 43.02
*Reflects voluntary reduction of expenses per
share of these amounts (Note 3) ($) 0.02 0.01 0.01 0.01 0.02
<CAPTION>
CLASS C
---------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------
1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 7.53 8.23 8.13 8.49 8.52
---- ---- ---- ---- ----
Net investment income ($)* 0.35 0.32 0.34 0.32 0.35
Net realized and unrealized gain (loss) on
investments and futures contracts ($) 0.70 (0.09) 0.35 0.09 (0.77)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.05 0.23 0.69 0.41 (0.42)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.35) (0.33) (0.33) (0.34) (0.34)
Distributions from net realized gains ($) -- -- -- (0.04) (0.03)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.35) (0.33) (0.33) (0.38) (0.37)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 8.23 8.13 8.49 8.52 7.73
==== ==== ==== ==== ====
Total return(a) (%) 14.25 2.90 8.53 5.01 (5.46)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 651 622 805 1,122 731
Ratio of operating expenses to average
net assets (%)* 1.85 1.85 1.85 1.87 1.86
Ratio of operating expenses to average net assets
after expense reductions (%)* 1.85 1.85 1.85 1.85 1.85
Ratio of net investment income to average net
assets (%)* 4.35 4.03 4.11 3.80 3.78
Portfolio turnover rate (%) 109.74 89.14 50.92 32.86 43.02
*Reflects voluntary reduction of expenses per
share of these amounts (Note 3) ($) 0.02 0.01 0.01 0.01 0.02
- -------------------------------------------------------------------------------------------------------------------------------
(a) Does not reflect any front-end or contingent deferred sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily reduced a portion of the Fund's expenses.
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
<CAPTION>
CLASS S
---------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------
1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 7.54 8.24 8.14 8.49 8.53
---- ---- ---- ---- ----
Net investment income ($)* 0.42 0.40 0.43 0.41 0.42
Net realized and unrealized gain (loss) on
investments and futures contracts ($) 0.71 (0.09) 0.33 0.09 (0.77)
---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.13 0.31 0.76 0.50 (0.35)
---- ---- ---- ---- ----
Dividends from net investment income ($) (0.43) (0.41) (0.41) (0.42) (0.42)
Distributions from net realized gains ($) -- -- -- (0.04) (0.03)
---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS ($) (0.43) (0.41) (0.41) (0.46) (0.45)
---- ---- ---- ---- ----
NET ASSET VALUE, END OF YEAR ($) 8.24 8.14 8.49 8.53 7.73
==== ==== ==== ==== ====
Total return(a) (%) 15.37 3.93 9.48 6.18 (4.63)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($ thousands) 38,757 34,050 31,759 29,505 27,579
Ratio of operating expenses to average net assets(%)* 0.85 0.85 0.85 0.87 0.86
Ratio of operating expenses to average net assets
after expense reductions (%)* 0.85 0.85 0.85 0.85 0.85
Ratio of net investment income to average net
assets (%)* 5.33 5.01 5.13 4.81 4.79
Portfolio turnover rate (%) 109.74 89.14 50.92 32.86 43.02
*Reflects voluntary reduction of expenses per
share of these amounts (Note 3) ($) 0.02 0.01 0.01 0.01 0.02
- ------------------------------------------------------------------------------------------------------------------------------
(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 reduced a portion of the Fund's expenses.
</TABLE>
<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, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research New York Tax-Free Fund had a challenging year. Class A
shares returned -4.87% for the 12 months ended December 31, 1999 [does not
reflect sales charge]. That was slightly better than the Lipper New York
Municipal Debt Funds Average, which returned -4.89%. However, the fund
underperformed the Lehman Brothers Municipal Bond Index, which lost -2.06% for
the same period.
The Fund invests in New York state and city tax-exempt debt obligations with an
emphasis on research to maximize return and manage risk.
The manager's decision to lengthen duration hurt performance relative to the
indices. However, performance was aided by security selection. Credit research
helped the manager identify segments of the New York market where fundamentals
were improving.
December 31, 1999
Keep in mind that past performance is no guarantee of future results. The Fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gains
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(1) share or
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 BROTHERS MUNICIPAL BOND INDEX
COMPARED TO CHANGE IN VALUE OF $10,000 INVESTED IN NEW YORK TAX-FREE FUND
Class A
New York Lehman Brothers
Tax-Free Fund Municipal Bond Index
------------- --------------------
12/88 $ 9,550 $10,000
12/89 9,550 10,000
12/90 9,866 10,729
12/91 11,235 12,031
12/92 12,254 13,092
12/93 13,869 14,700
12/94 13,032 13,940
12/95 15,000 16,374
12/96 15,552 17,099
12/97 16,987 18,671
12/98 17,993 19,880
12/99 17,116 19,472
Class B(1)
New York Lehman Brothers
Tax-Free Fund Municipal Bond Index
------------- --------------------
12/88 $10,000 $10,000
12/89 10,000 10,000
12/90 10,331 10,729
12/91 11,765 12,031
12/92 12,832 13,092
12/93 14,462 14,700
12/94 13,487 13,940
12/95 15,410 16,374
12/96 15,858 17,099
12/97 17,191 18,671
12/98 18,075 19,880
12/99 17,066 19,472
Class B
New York Lehman Brothers
Tax-Free Fund Municipal Bond Index
------------- --------------------
12/88 $10,000 $10,000
12/89 10,000 10,000
12/90 10,331 10,729
12/91 11,765 12,031
12/92 12,832 13,092
12/93 14,462 14,700
12/94 13,487 13,940
12/95 15,410 16,374
12/96 15,858 17,099
12/97 17,191 18,671
12/98 18,075 19,880
12/99 17,066 19,472
Class C
New York Lehman Brothers
Tax-Free Fund Municipal Bond Index
------------- --------------------
12/88 $10,000 $10,000
12/89 10,000 10,000
12/90 10,331 10,729
12/91 11,765 12,031
12/92 12,832 13,092
12/93 14,477 14,700
12/94 13,485 13,940
12/95 15,406 16,374
12/96 15,853 17,099
12/97 17,206 18,671
12/98 18,068 19,880
12/99 17,080 19,472
Class S
New York Lehman Brothers
Tax-Free Fund Municipal Bond Index
------------- --------------------
12/88 $10,000 $10,000
12/89 10,000 10,000
12/90 10,331 10,729
12/91 11,765 12,031
12/92 12,832 13,092
12/93 14,559 14,700
12/94 13,716 13,940
12/95 15,824 16,374
12/96 16,446 17,099
12/97 18,005 18,671
12/98 19,118 19,880
12/99 18,232 19,472
-- New York Tax-Free Fund -- Lehman Brothers Municipal Bond Index
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH TAX-EXEMPT TRUST
- ------------------------------------------------------------------------------------------------------------
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 BRUCE R. BOND
One Financial Center JOHN H. KALLIS Former Chairman of the Board,
Boston, MA 02111 Vice President Chief Executive Officer and
President, PictureTel Corporation
DISTRIBUTOR THOMAS A. SHIVELY
State Street Research Vice President STEVE A. GARBAN
Investment Services, Inc. Former Senior Vice President
One Financial Center GERARD P. MAUS for Finance and Operations and
Boston, MA 02111 Treasurer Treasurer, The Pennsylvania
State University
SHAREHOLDER SERVICES JOSEPH W. CANAVAN
State Street Research Assistant Treasurer MALCOLM T. HOPKINS
Service Center Former Vice Chairman of the
P.O. Box 8408 DOUGLAS A. ROMICH Board and Chief Financial
Boston, MA 02266-8408 Assistant Treasurer Officer, St. Regis Corp.
1-800-562-0032
FRANCIS J. MCNAMARA, III DEAN O. MORTON
CUSTODIAN Secretary and General Counsel Former Executive Vice President,
State Street Bank and Chief Operating Officer
Trust Company DARMAN A. WING and Director, Hewlett-Packard
225 Franklin Street Assistant Secretary and Company
Boston, MA 02110 Assistant General Counsel
SUSAN M. PHILLIPS
LEGAL COUNSEL AMY L. SIMMONS Dean, School of Business and
Goodwin, Procter & Hoar LLP Assistant Secretary Public Management, George
Exchange Place Washington University; former
Boston, MA 02109 Member of the Board of Governors
of the Federal Reserve System and
INDEPENDENT ACCOUNTANTS Chairman and Commissioner of
PricewaterhouseCoopers LLP the Commodity Futures Trading
160 Federal Street Commission
Boston, MA 02110
TOBY ROSENBLATT
President,
Founders Investments Ltd.
President,
The Glen Ellen Company
MICHAEL S. SCOTT MORTON
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
</TABLE>
<PAGE>
STATE STREET RESEARCH NEW YORK TAX-FREE FUND ------------
One Financial Center Bulk Rate
Boston, MA 02111 U.S. Postage
PAID
Canton, MA
Permit #313
------------
STATE STREET RESEARCH
[75 YEARS logo]
LASTING VALUE
- -------------
LEADING IDEAS
QUESTIONS? COMMENTS?
CALL us at 1-800-562-0032 or
[hearing-impaired 1-800-676-7876]
[Chinese and Spanish-speaking 1-888-638-3193]
E-MAIL us at:
[email protected]
INTERNET site:
www.ssrfunds.com
WRITE us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
[logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders.
This publication must be preceded or accompanied by a current State Street
Research New York Tax-Free Fund prospectus.
When used after March 31, 2000, 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: (exp0201)SSR-LD NYTF-1223-0200
