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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4256
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State Street Research Exchange Trust
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, MA 02111
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(Address of principal executive offices) (Zip code)
Richard S. Davis, President and Chief Executive Officer
State Street Research & Management Company
One Financial Center, Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 617-357-1200
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Date of fiscal year end: 12/31/04
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Date of reporting period: 1/1/04 - 12/31/04
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
ITEM 1 (REPORT TO SHAREHOLDERS): The Annual Report is attached.
[LOGO] STATE STREET RESEARCH
Innovative Ideas, Disciplined Investing.(TM)
[GRAPHIC OMITTED]
Exchange Fund
December 31, 2004
Annual Report to Shareholders
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PERFORMANCE
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Discussion as of December 31, 2004
How State Street Research Exchange Fund Performed
State Street Research Exchange Fund returned 7.63% for the 12-month period
ended December 31, 2004. That was less than the S&P 500 Index's return of
10.88% over the same period. However, the fund performed in line with the
Exchange Fund Average, which was 7.79% for the period.
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Performance:
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Fund average annual total return as of 12/31/04
1 Year 5 Years 10 Years
7.63% -1.90% 11.89%
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S&P 500 Index as of 12/31/04
1 Year 5 Years 10 Years
10.88% -2.30% 12.07%
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$10,000 Over 10 Years
[DATA BELOW IS REPRESENTED BY A MOUNTAIN CHART IN THE ORIGINAL REPORT]
SSR Exchange S&P 500
Fund Index
------------ -------
$10,000 $10,000
1995 13,444 13,757
1996 16,948 16,916
1997 22,322 22,562
1998 28,592 29,010
1999 33,908 35,115
2000 32,508 31,924
2001 29,142 28,130
2002 23,670 21,916
2003 28,614 28,204
2004 30,796 31,268
Keep in mind that the performance data quoted represents past performance and is
no guarantee of future results. Current performance may be lower or higher than
the performance data quoted herein. For the most recent month-end performance
results, visit our website at www.ssrfunds.com. 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. The returns shown do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
Average annual total return represents the rate one would have to earn each year
of a given time period in order to end up with the fund's actual cumulative
return for those years. The chart labeled $10,000 Over 10 Years measures the
growth of a lump sum invested (less applicable maximum sales charge, if any)
over a ten-year period, and compares the performance to an index.
The S&P 500 Index (officially the "Standard & Poor's 500 Composite Stock Price
Index") is an unmanaged index of 500 U.S. stocks. The index does not take
transaction charges into consideration. It is not possible to invest directly in
an index.
The Exchange Fund Average is an average created by State Street Research using
data provided by Lipper, Inc. The average consists of funds with similar goals
and shows you how well the fund has done compared to competing funds.
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Reasons for the Fund's Performance
In the early part of 2004, the equity markets essentially moved sideways in
light trading as concerns about the election, spiking oil prices and interest
rate increases kept investors on the sidelines. But a decisive presidential
victory for George W. Bush proved to be a springboard for investors. The equity
markets took off in the fourth quarter of 2004 and focused on strong corporate
profits and company fundamentals. In this environment, strong stock selection
in the financial services, consumer discretionary and producer durables sectors
aided performance. In addition, overweight positions in energy and integrated
oils benefited the fund. Energy stocks capitalized on elevated commodity prices
during the year. SLM, Target and ExxonMobil were especially strong contributors
to returns.
In contrast, the portfolio's exposure to autos & transportation, consumer
staples and health care was detrimental to returns. Coca-Cola, Altria and Wyeth
were notable detractors from performance.
A Word about Risk
The major risks of stock investing include sudden and unpredictable drops in
value and periods of lackluster performance. The fund may invest in companies
with some international business, and also may invest in foreign companies;
therefore, the fund is subject to the risks associated with international
investing, such as changes in exchange rates, and different government
regulations, economic conditions and accounting standards.
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Summary Portfolio Schedule
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Industries % of Fund Net Assets
Financial Services 19.8%
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Health Care 16.4%
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Technology 14.6%
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Consumer Staples 11.4%
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Consumer Discretionary 8.7%
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Integrated Oils 8.2%
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Other 7.8%
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Producer Durables 5.6%
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Utilities 2.8%
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Other Energy 2.7%
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Automobiles & Transportation 1.5%
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Net Cash 0.5%
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Total 100.0%
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Because financial markets and mutual fund strategies are constantly evolving,
it is possible that the fund's holdings, market stance, outlook for various
industries or securities and other matters discussed in this report have
changed since this information was prepared. Portfolio changes should not be
considered recommendations for action by individual investors.
2
About Your Fund Expenses
As a fund shareholder, you incur ongoing expenses, which include management fees
and "other" expenses. The examples below illustrate the ongoing cost in dollars
of investing in the fund and allow you to compare these costs with the expenses
of other funds. The examples are based on a $1,000 investment at the beginning
of the period and held for the entire period from June 30, 2004, to December 31,
2004.
Actual Fund Return is based on the fund's actual return and expenses. To
estimate the ongoing expenses you paid during the entire period shown, simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number shown for your
fund under the column "Expenses Paid during the Period."
Hypothetical 5% Return is based on the fund's actual expense ratio and an
assumed rate of 5% per year before expenses. Please note that the return used is
not the fund's actual return; therefore, this information may not be used to
estimate your actual ending balance and expenses paid during the period. To
compare your fund's ongoing expenses with those of other funds, simply compare
this 5% hypothetical example with the 5% hypothetical examples shown in the
share holder reports of other funds.
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Beginning Ending Expenses
Account Account Paid Annualized
Six months ended Value Value during Expense
12/31/04 6/30/04 12/31/04 Period* Ratio
- --------------------------------------------------------------------------------
Actual Fund Return $1,000 $1,043.62 $3.27 0.63%
- --------------------------------------------------------------------------------
Hypothetical 5% Return $1,000 $1,021.80 $3.23 0.63%
* Expenses are equal to the fund's annualized expense ratio multiplied by the
average account value over the period, multiplied by the number of days in the
period and then divided by the number of days in the year.
- --------------------------------------------------------------------------------
Please note that the expenses shown in the table are meant to highlight and
help you compare ongoing costs only.
State Street Research Exchange Fund 3
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PORTFOLIO
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Holdings
December 31, 2004
Issuer Shares Value
- ---------------------------------------------------------------------------------------------------------------
Common Stocks 99.5%
Automobiles & Transportation 1.5%
Automobiles 1.5%
General Motors Corp. ..................................................... 112,800 $ 4,518,768
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Total Automobiles & Transportation ............................................................. 4,518,768
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Consumer Discretionary 8.7%
Retail 8.7%
Target Corp. ............................................................. 273,222 14,188,418
Wal-Mart Stores Inc. ..................................................... 223,200 11,789,424
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Total Consumer Discretionary ................................................................... 25,977,842
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Consumer Staples 11.4%
Beverages 4.5%
Anheuser-Busch Inc. ...................................................... 192,315 9,756,140
Coca-Cola Co. ............................................................ 87,735 3,652,408
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13,408,548
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Foods 0.8%
General Mills Inc. ....................................................... 47,792 2,375,740
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Household Products 4.5%
Procter & Gamble Co. ..................................................... 246,400 13,571,712
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Tobacco 1.6%
Altria Group Inc. ........................................................ 77,000 4,704,700
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Total Consumer Staples ......................................................................... 34,060,700
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Financial Services 19.8%
Banks & Savings & Loan 1.6%
JPMorgan Chase & Co. ..................................................... 124,728 4,865,639
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Financial Data Processing Services & Systems 3.8%
First Data Corp. ......................................................... 266,480 11,336,059
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Insurance 2.4%
American International Group Inc. ........................................ 106,800 7,013,556
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Miscellaneous Financial 12.0%
American Express Co. ..................................................... 305,626 17,228,138
Federal National Mortgage Association 88,105 6,273,957
SLM Corp. ................................................................ 233,200 12,450,548
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35,952,643
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Total Financial Services ....................................................................... 59,167,897
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Health Care 16.4%
Drugs & Biotechnology 15.2%
AstraZeneca PLC ADR ...................................................... 76,000 2,765,640
Johnson & Johnson Inc. ................................................... 124,195 7,876,447
Merck & Co. Inc. ......................................................... 83,999 2,699,728
Millipore Corp.* ......................................................... 150,000 7,471,500
Novartis AG ADR .......................................................... 185,384 9,369,307
Pfizer Inc. .............................................................. 338,942 9,114,151
Wyeth .................................................................... 145,544 6,198,719
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45,495,492
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Issuer Shares Value
- ---------------------------------------------------------------------------------------------------------------
Health Care Services 0.2%
Medco Health Solutions Inc.* ............................................. 11,124 $ 462,758
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Hospital Supply 1.0%
Medtronic Inc. ........................................................... 60,000 2,980,200
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Total Health Care .............................................................................. 48,938,450
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Integrated Oils 8.2%
Integrated International 8.2%
BP PLC ADR ............................................................... 147,629 8,621,534
ExxonMobil Corp. ......................................................... 312,469 16,017,161
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Total Integrated Oils .......................................................................... 24,638,695
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Other 7.8%
Multi-Sector 7.8%
Berkshire Hathaway Inc. Cl. B* ........................................... 3,687 10,825,032
General Electric Co. ..................................................... 344,970 12,591,405
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Total Other .................................................................................... 23,416,437
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Other Energy 2.7%
Offshore Drilling 0.3%
Transocean Inc. .......................................................... 21,148 896,464
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Oil Well Equipment & Services 2.4%
Schlumberger Ltd. ........................................................ 109,238 7,313,484
------------
Total Other Energy ............................................................................. 8,209,948
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Producer Durables 5.6%
Aerospace 2.3%
Boeing Co. ............................................................... 131,800 6,823,286
------------
Industrial Products 0.2%
Agilent Technologies Inc.* ............................................... 29,749 716,951
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Machinery 3.1%
Caterpillar Inc. ......................................................... 93,884 9,154,629
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Total Producer Durables ........................................................................ 16,694,866
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Technology 14.6%
Computer Software 3.6%
Microsoft Corp. .......................................................... 399,890 10,681,062
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Computer Technology 7.9%
Dell Inc.* ............................................................... 170,500 7,184,870
Hewlett-Packard Co. ...................................................... 349,270 7,324,192
International Business
Machines Corp. ........................................................... 92,371 9,105,933
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23,614,995
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Electronics 1.6%
General Dynamics Corp. ................................................... 46,500 4,863,900
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Electronics: Semiconductors/Components 1.5%
Intel Corp. .............................................................. 200,000 4,678,000
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Total Technology ............................................................................... 43,837,957
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Utilities 2.8%
Telecommunications 2.8%
Vodafone Group PLC ADR ................................................... 309,500 8,474,110
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Total Utilities ................................................................................ 8,474,110
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Total Common Stocks (Cost $97,864,605) ......................................................... 297,935,670
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4 The notes are an integral part of the financial statements.
State Street Research Exchange Fund
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FINANCIAL
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Statements
Maturity Principal
Issuer Date Amount Value
- ----------------------------------------------------------
Commercial Paper 1.6%
BP Amoco Capital PLC,
2.23% ............. 1/05/2005 $4,636,000 $ 4,634,851
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Total Commercial Paper (Cost $4,634,851) .... 4,634,851
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% of
Net Assets
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Summary of Portfolio Assets
Investments (Cost $102,499,456) ......... 101.1% $302,570,521
Other Assets, Less Liabilities .......... ( 1.1)% (3,218,600)
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Net Assets .............................. 100.0% $299,351,921
===== ============
KEY TO SYMBOLS
* Denotes a security which has not paid a dividend during the last year.
ADR Stands for American Depositary Receipt.
Federal Income Tax Information
At December 31, 2004, the net unrealized
appreciation of investments based on cost for federal
income tax purposes of $95,067,040 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $209,561,749
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value (2,058,268)
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$207,503,481
============
Statement of Assets and Liabilities
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December 31, 2004
Assets
Investments, at value (Cost $102,499,456) (Note 1) ......... $302,570,521
Dividends receivable ....................................... 368,632
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302,939,153
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Liabilities
Payable to custodian ....................................... 3,406,638
Accrued management fee ..................................... 115,407
Accrued administration fee ................................. 9,980
Accrued transfer agent and shareholder services ............ 4,068
Accrued trustees' fees ..................................... 1,198
Other accrued expenses ..................................... 49,941
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3,587,232
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Net Assets ................................................. $299,351,921
============
Net Assets consist of:
Undistributed net investment income ...................... $ 61,022
Unrealized appreciation of investments ................... 200,071,065
Accumulated net realized loss ............................ (7,883,083)
Paid-in capital .......................................... 107,102,917
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$299,351,921
============
Net Asset Value per share
($299,351,921 [divided by] 574,868 shares) ............... $ 520.73
============
The notes are an integral part of the financial statements. 5
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FINANCIAL
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Statements
Statement of Operations
- --------------------------------------------------------------------------------
For the year ended December 31, 2004
Investment Income
Dividends, net of foreign taxes of $79,760 (Note 1) .......... $ 6,253,377
Interest (Note 1) ............................................ 38,550
Securities lending income (Note 1) ........................... 2,665
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6,294,592
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Expenses
Management fee (Note 2) ...................................... 1,515,452
Administration fee (Note 2) .................................. 108,870
Custodian fee ................................................ 93,500
Audit fee .................................................... 33,762
Trustees' fees (Note 2) ...................................... 25,445
Legal fees ................................................... 19,259
Transfer agent and shareholder services (Note 2) ............. 11,810
Reports to Shareholders ...................................... 9,300
Miscellaneous ................................................ 28,638
-----------
1,846,036
-----------
Net investment income ........................................ 4,448,556
-----------
Realized and Unrealized Gain (Loss) on
Investments
Net increase from payment by affiliate (Note 2) .............. 98,840
Net realized gain on investments (Notes 1 and 3) ............. 26,685,441
Change in unrealized appreciation of investments ............. (9,213,483)
-----------
Net gain on investments ...................................... 17,570,798
-----------
Net increase in net assets resulting from operations ......... $22,019,354
===========
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Years ended December 31
----------------------------------
2004 2003
---------------- ---------------
Increase (Decrease) In Net Assets
Operations:
Net investment income ............... $ 4,448,556 $ 3,407,737
Net increase from payment
by affiliate ...................... 98,840 --
Net realized gain on
investments ....................... 26,685,441 12,250,545
Change in unrealized
appreciation (depreciation)
of investments .................... (9,213,483) 39,112,155
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Net increase resulting
from operations ................... 22,019,354 54,770,437
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Dividends from net investment
income ............................ (4,387,534) (3,497,110)
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Share transactions:
Net asset value of shares
issued in payment of
dividends ......................... 911,070 627,059
Cost of shares repurchased .......... (28,889,729) (10,704,806)
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Net decrease from fund share
transactions (Note 4) ............. (27,978,659) (10,077,747)
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Total increase (decrease)
in net assets ..................... (10,346,839) 41,195,580
Net Assets
Beginning of year ................... 309,698,760 268,503,180
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End of year (including
undistributed net investment
income of $61,022 and $0,
respectively) ..................... $299,351,921 $309,698,760
============= =============
Number of shares:
Issued upon reinvestment
of dividends ...................... 1,790 1,360
Repurchased ......................... (57,683) (23,879)
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Net decrease in fund shares ......... (55,893) (22,519)
============= =============
6 The notes are an integral part of the financial statements.
State Street Research Exchange Fund
Notes to Financial Statements
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December 31, 2004
Note 1
State Street Research Exchange Fund is a series of State Street Research
Exchange Trust (the "Trust"), which is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company. The fund is presently the only
series of the Trust.
The investment objective of the fund is to provide long-term growth of capital
and consequent long-term growth of income. In seeking to achieve its investment
objective, the fund invests primarily in common stocks, or securities
convertible into common stocks, that have long-term growth potential.
The following significant accounting policies are consistently followed by the
fund in preparing its financial statements, and such policies are in conformity
with accounting principles generally accepted in the United States of America.
A. Investment Valuation
Values for listed equity securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("Nasdaq") system are valued at closing prices
supplied through such system. If not quoted on the Nasdaq system, such
securities are valued at prices obtained from independent brokers. In the
absence of recorded sales, valuations are at the mean of the closing bid and
asked quotations. Short-term securities maturing within sixty days are valued
at amortized cost. Other securities, if any, are valued at their fair value as
determined in good faith under consistently applied procedures established by
and under the supervision of the Trustees. In the event that the market
quotations for a portfolio instrument are not deemed to be readily available,
the Adviser's Valuation Committee determines the fair value for such portfolio
instrument. The fair value of any such portfolio instruments are determined
based upon a consideration of all available facts and information. The fair
valuation of a restricted portfolio instrument reflects the inherent worth of
the portfolio instrument, without regard to the restrictive feature, adjusted
for any diminution in value resulting from the restrictive feature. The Adviser
and the custodian also monitor domestic and foreign markets and news
information for any developing events that may have an impact on the valuation
of portfolio instruments. Such monitoring includes general market news and
financial market information sources currently utilized in making investment
decisions, trading and investment personnel located abroad, foreign regional
brokers, and/or foreign custodians. The value assigned to these securities is
based upon available information at the time, and does not necessarily
represent the amount which might ultimately be realized upon sale.
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. As part of the custodian contract
between the custodian bank and the fund, the custodian bank has a lien on the
securities of the fund to the extent permitted by the fund's investment
restriction to cover any advances made by the custodian bank for the settlement
of securities purchased by the fund. At December 31, 2004, the payable to the
custodian bank of $3,406,638 represents the amount due for cash advance for the
settlement of securities purchased.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of the
fund. Interest income is accrued daily as earned. Dividend income is accrued on
the ex-dividend date.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized short-term capital gains, if any, are distributed
annually.
Income dividends and capital gains distributions are determined in accordance
with federal income tax regulations which may differ from accounting principles
generally accepted in the United States of America. The difference is primarily
due to differing treatments for non-taxable redemptions in kind and the
disposition of securities that have different bases for financial reporting and
tax purposes. The permanent book and tax basis difference relating to
shareholder distributions will result in reclassifications to paid-in-capital.
The fund has designated $4,387,534 as ordinary income dividends.
E. Federal Income Taxes
No provision for federal income taxes is necessary with respect to net
investment income because the fund has elected to qualify under Subchapter M of
the Internal Revenue Code and its policy is to distribute substantially all of
such income within the prescribed time periods. The fund retains and designates
as undistributed gains all of its taxable net long-term capital gains and pays
federal income taxes thereon on behalf of the shareholders.
At December 31, 2004, the fund had a capital loss carryforward of $7,883,083
available, to the extent provided in regulations, to offset future capital
gains, if any, of which $770,500 and $7,112,583 expire on December 31, 2009 and
2010, respectively.
To the extent book/tax differences are permanent in nature, such amounts are
reclassified within the capital accounts based on federal tax basis treatment.
The fund reclassified for book purposes amounts arising from permanent book/tax
differences primarily relating to differing treatments for non-taxable
redemptions in kind and the disposition of securities that have different bases
for financial reporting and tax purposes. At December 31, 2004, the components
of distributable earnings on a tax basis differ from the amounts reflected in
the Statement of Assets and Liabilities by temporary book/tax differences
largely arising from capital loss carryforwards. At December 31, 2004, the tax
basis distributable earnings were $61,022 in undistributed ordinary income, $0
in undistributed short-term capital gains and $0 in undistributed long-term
gains.
F. Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 these
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. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains and
losses. 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. At December 31, 2004, there were no loaned securities. During the year
ended December 31, 2004, income from securities lending amounted to $2,665.
Note 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.50% of the fund's average 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, 2004, the fees pursuant to
such agreement amounted to $1,515,452.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), provides certain shareholder services to the fund such as
responding to inquiries and instructions from investors with respect to
redemption of shares of the fund. Total shareholder service costs are allocated
to each fund in the same ratios as the transfer agent costs. During the year
ended December 31, 2004, the amount of such expenses allocated to the fund was
$3,897.
7
The fees of the Trustees not currently affiliated with the Adviser amounted to
$25,445 during the year ended December 31, 2004.
The fund has agreed to pay the Adviser for certain administrative costs incurred
in providing other assistance and services to the fund. The fee was based on a
fixed amount that has been allocated equally among the State Street Research
funds. During the year ended December 31, 2004, the amount of such expenses was
$108,870.
During the year ended December 31, 2004, the Adviser conducted an internal
review regarding the use of fund brokerage commissions in consideration of the
distribution of shares. In connection with this review, the Adviser determined
to reimburse the fund the entire amount of any such identified brokerage
commissions, and reviewed this matter with the Board of Trustees of the fund.
This amount is shown in the total amount of $98,840 as "Net increase from
payment by affiliate" on the Statement of Operations.
Note 3
For the year ended December 31, 2004, exclusive of short-term investments and
U.S. government obligations, purchases and sales of securities, including
$26,348,500 representing redemptions in kinds, aggregated $11,928,358 and
$38,197,200, respectively.
Note 4
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest at $0.001 par value per share. At December 31, 2004, the
Adviser held 13,766 shares of the fund.
Note 5
As of the close of business on January 28, 2005, BlackRock Exchange Portfolio
("the BlackRock Fund"), a newly created series of the BlackRock Funds, will
acquire all of the assets and assume all of the certain stated liabilities of
the fund.
8 State Street Research Exchange Fund
- -----------
FINANCIAL
- -----------
Highlights
For a share outstanding throughout each year:
Years ended December 31
------------------------------------------------------------------
2004(a) 2003 2002(b) 2001(b) 2000(b)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 490.99 411.01 511.71 575.76 616.80
-------- -------- -------- ------- -------
Net investment income ($) 7.61 5.40 4.74 4.22 4.75
Net realized and unrealized gain (loss) on investments ($)* 29.63 80.08 (100.64) (64.02) (41.19)
-------- -------- -------- ------- -------
Total from investment operations ($) 37.24 85.48 (95.90) (59.80) (36.44)
-------- -------- -------- ------- -------
Dividends from net investment income ($) (7.50) (5.50) (4.80) (4.25) (4.60)
-------- -------- -------- ------- -------
Total distributions ($) (7.50) (5.50) (4.80) (4.25) (4.60)
-------- -------- -------- ------- -------
Net asset value, end of year ($) 520.73 490.99 411.01 511.71 575.76
======== ======== ======== ======= =======
Total return (%) 7.63 20.89 (18.78) (10.35) (4.13)
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 299,352 309,699 268,503 367,640 437,804
Expense ratio (%) 0.61 0.59 0.60 0.57 0.55
Expense ratio after expense reductions (%) 0.61 0.59 0.60 0.57 0.55
Ratio of net investment income to average net assets (%) 1.47 1.20 1.00 0.81 0.78
Portfolio turnover rate (%) 3.96 5.47 3.32 1.44 10.51
*After provision for federal tax on retained capital gains at
end of year -- -- -- -- 11.01
(a) During the year ended December 31, 2004, the adviser reimbursed the fund as
part of an internal review regarding the use of fund brokerage
commissions. These payments increased net realized and unrealized gain on
investments per share by $0.17, and increased total return by 0.04%.
(b) Audited by other auditors
9
- -------------
REPORT OF
- -------------
Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders
of State Street Research Exchange Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio holdings, of State Street Research Exchange Fund (the "Fund"), a
series of State Street Research Exchange Trust, as of December 31, 2004, and
the related statement of operations for the year then ended, and the statement
of changes in net assets, and the financial highlights for each of the two
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the years in the
three-year period ended December 31, 2002, were audited by other auditors whose
report dated February 12, 2003, expressed an unqualified opinion on such
financial highlights.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of December 31, 2004, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for each
of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 28, 2005
10 State Street Research Exchange Fund
- ---------------
REPORT ON
- ---------------
Special Meeting of Shareholders
A Special Meeting of Shareholders of State Street Research Exchange Fund, a
series of State Street Research Exchange Trust, was convened on December 27,
2004 ("Meeting"). The results of the Meeting are set forth below.
Votes (thousands of shares)
---------------------------------
Action on Proposal For Against Abstain
- ------------------------------------------------------------------------------------------------------------------------
To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets and certain stated liabilities of State Street
Research Exchange Fund, a series of State Street Research Exchange Trust,
by the BlackRock Exchange Portfolio, a series of BlackRock Funds .................. 381.0 17.0 3.8
11
- -------------------------
TRUSTEES AND OFFICERS
- -------------------------
State Street Research Exchange Trust
Number of Funds
Name, Position(s) Term of Office in Fund Complex Other
Address Held with and Length of Principal Occupations Overseen by Directorships Held
and Age(a) Fund Time Served(b) During Past 5 Years Trustee/Officer(c) by Trustee/Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
Bruce R. Bond Trustee Since Retired; formerly Chairman of the Board, 18 Avaya Inc.
58) 1999 Chief Executive Officer and President,
PictureTel Corporation (video
conferencing systems)
- ------------------------------------------------------------------------------------------------------------------------------------
Peter S. Drotch Trustee Since Retired; formerly Partner, 18 First Marblehead
(62) 2004 PricewaterhouseCoopers LLP Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Since Retired; formerly Senior Vice President 52 Metropolitan
(67) 1997 for Finance and Operations and Series Fund, Inc.
Treasurer, The Pennsylvania State and Metropolitan
University Series Fund II
- ------------------------------------------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Since Dean, School of Business and Public 18 The Kroger Co.
(60) 1998 Management, George Washington
University; formerly a member of the
Board of Governors of the Federal
Reserve System; and Chairman and
Commissioner of the Commodity Futures
Trading Commission
- ------------------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since President, Founders Investments Ltd. 52 A.P. Pharma, Inc.;
(66) 1994 (investments); President, Pacific Four Metropolitan
Investments (investments); formerly Series Fund, Inc.;
President, The Glen Ellen Company and Metropolitan
(private investment firm) Series Fund II
- ------------------------------------------------------------------------------------------------------------------------------------
Michael S. Trustee Since Jay W. Forrester Professor of Management 52 Metropolitan
Scott Morton (67) 1989 (Emeritus), Sloan School of Management, Series Fund, Inc.
Massachusetts Institute of Technology and Metropolitan
Series Fund II
- ------------------------------------------------------------------------------------------------------------------------------------
Interested Trustees
Richard S. Davis(+) Trustee Since Chairman of the Board, President and 18 None
(59) 2000 Chief Executive Officer of State Street
Research & Management Company; formerly
Senior Vice President, Fixed Income
Investments, Metropolitan Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Officers
Edward Dowd Vice Since Vice President of State Street Research 6 None
(37) President 2003 & Management Company; formerly Vice
President, Independence Investment LLC
and equity research associate,
Donaldson, Lufkin and Jenrette
- ------------------------------------------------------------------------------------------------------------------------------------
C. Kim Goodwin Vice Since Managing Director and Chief Investment 17 Akamai
(45) President 2002 Officer - Equities of State Street Technologies, Inc.
Research & Management Company; formerly
Chief Investment Officer - U.S. Growth
Equities, American Century
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey Lindsey Vice Since Managing Director of State Street 6 None
(42) President 2003 Research & Management Company; formerly
Managing Director and Senior Vice
President, Putnam Investments
- ------------------------------------------------------------------------------------------------------------------------------------
John S. Lombardo Vice Since Managing Director, Chief Financial 18 None
(50) President 2001 Officer and Director of State Street
Research & Management Company; formerly
Executive Vice President, State Street
Research & Management Company; and
Senior Vice President, Product and
Financial Management, MetLife Auto &
Home
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas A. Romich Treasurer Since Senior Vice President and Treasurer of 18 None
(47) 2001 State Street Research & Management
Company; formerly Vice President and
Assistant Treasurer, State Street
Research & Management Company
- ------------------------------------------------------------------------------------------------------------------------------------
The fund's Statement of Additional Information includes additional information
about the fund's trustees, and is available without charge, by contacting State
Street Research, One Financial Center, Boston, Massachusetts 02111-2690, or by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637).
(a) The address of each person is c/o State Street Research & Management
Company, One Financial Center, Boston, MA 02111-2690.
(b) A Trustee serves until he or she retires, resigns or is removed as provided
in the master trust agreement of the respective Trust. Each Trust has
adopted a mandatory retirement age of 72. Each officer holds office until
he or she resigns, is removed or a successor is elected.
(c) Includes all series of 9 investment companies for which State Street
Research & Management Company serves as sole investment advisor and all
series of Metropolitan Series Fund, Inc. and Metropolitan Series Fund II.
The primary advisor to Metropolitan Series Fund, Inc. and Metropolitan
Series Fund II is MetLife Advisers, LLC, which has retained State Street
Research & Management Company as sub-advisor to certain series of
Metropolitan Series Fund, Inc.
(+) Mr. Davis is an "interested person" of the Trust under the Investment
Company Act of 1940 by reason of his affiliation with the Trust's
Investment Manager, State Street Research & Management Company, as noted.
The Officers and Trustees set forth above were the officers and trustees of the
Fund as of December 31, 2004. As described elsewhere in the report, the Fund
was reorganized into a Series of BlackRock Funds, which has a different set of
officers and directors.
12 State Street Research Exchange Fund
[LOGO] STATE STREET RESEARCH ------------
PRSRT STD
One Financial Center U.S. POSTAGE
Boston, MA 02111-2690 PAID
PERMIT #6
HUDSON, MA
------------
- --------------------------------------------------------------------------------
"State Street Research Proxy Voting Policies and Procedures"--which describes
how we vote proxies relating to portfolio securities--is available upon request,
free of charge, by calling 1-877-773-8637 or accessing the U.S. Securities and
Exchange Commission website at www.sec.gov.
Member NASD, SIPC
(C)2005 State Street Research Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
www.ssrfunds.com
CONTROL NUMBER:(exp0206)SSR-LD EX-1225-0205
- --------------------------------------------------------------------------------
<Page>
FORM N-CSR(2 OF 3)
ITEM 2: CODE OF ETHICS
(a) The Registrant has, as of the end of the period covered by this
report, adopted a code of ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in the instructions to Form N-CSR
that applies to the Registrant's principal executive officer,
principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of
whether these individuals are employed by the Registrant or a third
party.
(b) Omitted
(c) During the period covered by this report, there were not any amendments
to the provisions of the code of ethics adopted in 2(a) above.
(d) During the period covered by this report, there were not any waivers or
implicit waivers to a provision of the code of ethics adopted in 2(a)
above.
(e) Not applicable.
(f) Not applicable.
ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant's Board of Trustees has determined that Steve A. Garban,
a member of the Registrant's Board of Trustees and Audit Committee,
qualifies as an "audit committee financial expert" as such term is
defined in the instructions to Form N-CSR. Mr. Garban is "independent",
as defined in the instructions to Form N-CSR.
ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES
<Table>
<Caption>
(a) Audit Fee
Fiscal year ended December 31, 2003 $22,000
Fiscal year ended December 31, 2004 $24,500
(b) Audit-Related Fees - Represents fees for assurance and related services
related to the audit of the registrant's financial statements.
Fiscal year ended December 31, 2003 $0
Fiscal year ended December 31, 2004 $0
(c) Tax Fees - Represents fees for professional services rendered by the
principal accountant for tax compliance, tax provision review, and the
tax return preparation.
Fiscal year ended December 31, 2003 $2,600
Fiscal year ended December 31, 2004 $3,000
(d) All other fees - Represents fees paid to Deloitte & Touche LLP to provide a
special review of late trading, market timing and related issues concerning
the Registrant.
Fiscal year ended December 31, 2003 $0
Fiscal year ended December 31, 2004 $14,000
</Table>
The Registrant's independent accountants, Deloitte & Touche LLP, did not
bill fees for audit-related, tax, or other non-audit services that required
pre-approval by the Audit Committee pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X during the Registrant's last two fiscal years.
(e)(1) The Audit Committee has determined that all work performed for the
Registrant by Deloitte & Touche LLP will be pre-approved by the full Audit
Committee and, therefore, has not adopted pre-approval procedures.
(2) None.
(f) Not applicable.
(g) Non-Audit Fees - Represents fees for audit-related, tax and other
non-audit services rendered by the principal accountant to the Registrant,
the Registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides ongoing
services to the Registrant.
Fiscal Year Ended October 31, 2003 $ 2,600
Fiscal Year Ended October 31, 2004 $63,000
(h) The Audit Committee of the Registrant has considered whether the
non-audit services that were rendered by the Registrant's principal
accountant to the Registrant's investment adviser (not including any
subadviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the Registrant and
that were not pre-approved by the Audit Committee are compatible with
maintaining the principal accountant's independence.
ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6: SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES & PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 8: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 9: SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS
The Governance Committee will consider nominees recommended by
shareholders. Shareholders may submit recommendations to the
attention of the Secretary of the Trust, State Street Research
& Management Company, One Financial Center, 30th Floor, Boston
MA 02111.
ITEM 10: CONTROLS AND PROCEDURES
(a) The Registrant's principal executive and principal financial officers
have concluded, based on their evaluation of the Registrant's disclosure
controls and procedures as of a date within 90 days of the filing date
of this report, that the Registrant's disclosure controls and procedures
are reasonably designed to ensure that information required to be
disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the required time periods and that
information required to be disclosed by the Registrant in the reports
that it files or submits on Form N-CSR is accumulated and communicated
to the Registrant's management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions
regarding required disclosure.
(b) There were no changes in the Registrant's internal control over financial
reporting during the Registrant's second fiscal half-year that have
materially affected, or are reasonably likely to materially affect, the
internal control over financial reporting.
ITEM 11: EXHIBITS
(a)(1) Code of Ethics required to be disclosed under Item 2 of Form
N-CSR attached hereto as Exhibit 99.CODE ETH
(a)(2) Certification for each principal executive and principal
financial officer of the Registrant required by Rule 30a-2(a)
under the Investment Company Act of 1940, as amended
(17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.302CERT
(b) Certification required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) attached
hereto as Exhibit 99.906CERT
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
State Street Research Exchange Trust
By: /s/ Richard S. Davis
------------------------------------------------------
Richard S. Davis, President, Chairman and
Chief Executive Officer
Principal Executive Officer
Date February 28, 2005
------------------------------------------------------
<Page>
FORM N-CSR(3 OF 3)
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities, and on the
dates indicated.
By: /s/ Richard S. Davis
------------------------------------------------------
Richard S. Davis, President, Chairman and
Chief Executive Officer
Principal Executive Officer
Date February 28, 2005
------------------------
By: /s/ Douglas A. Romich
------------------------------------------------------
Douglas A. Romich, Treasurer
Principal Financial Officer
Date February 28, 2005
------------------------