[cover]
[State Street Research logo]
State Street Research
Small Capitalization Value Fund
Annual Report
September 30, 1996
[graphic--person climbing toward stars]
What's Inside
From the Chairman
1996: A good year
for small-cap stocks
Portfolio Manager's Review
The Fund as
performance leader
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar logo]
Quality
Tested Service
1995
Dalbar
Honors Commitment To
Investors
For Excellence
in
Shareholder Service
<PAGE>
From The Chairman
[photo of Ralph F. Verni]
To Our Shareholders:
1996 is shaping up to be another year of above-average stock market
performance. This has contributed a tremendous first full year of performance
for investors in Small Capitalization Value Fund. We think the outlook is
very favorable for small-cap stocks. The small company sector offers some of
the most appealing values of the stock market.
During the past twelve months, the economy has continued to strengthen,
presenting several investing challenges. First, interest rates crept upward
creating a more expensive environment for companies to operate in and causing
stock prices to fall. Second, technology stocks took a beating after a series
of disappointing earnings reports in late 1996 and again this past July.
Because Small Capitalization Value Fund had a rather small position in the
technology sector, the Fund was able to brush off these negatives and surpass
its competitors.
In its 20 months since inception, Small Capitalization Value Fund has
positioned itself as a leader in its category thanks to the hard work and
dedication of portfolio manager Rudy Kluiber. Rudy, like all our State Street
Research portfolio managers, has spent hours each day pouring over investment
opportunities, meeting with companies and traveling around the country to see
firsthand whether or not a company is a good value and worthy of being in the
Fund's portfolio.
Sincerely,
/s/Ralph F. Verni
Ralph F. Verni
Chairman
October 31, 1996
(1)The Standard & Poor's Composite Index (S&P 500) includes 500 widely traded
common stocks and is a commonly used measure of U.S. stock market
performance. The Russell 2000 Value Index is a commonly used index of small
company stock performance. The indexes are unmanaged and do not take sales
charges into account. Direct investment in the indexes is not possible;
results are for illustrative purposes only. The Lipper Small Company Growth
Funds category comprises 350 funds and performance does not take sales
charges into consideration.
(2) +42.52% for Class B shares; +43.95% for Class C shares; +42.52% for Class
D shares.
(3) All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Performance results for the Fund are
increased by the Distributor's voluntary reduction of Fund fees and expenses.
The first figure reflects expense reduction; the second shows results without
subsidization.
(4) Performance reflects maximum 4.5% "A" share front-end sales charge, or 5%
"B" share or 1% "D" share contingent deferred sales charges where applicable.
"C" shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions.
(5) Cumulative total returns are not annualized, nor do they reflect sales
charges, which, if reflected, would reduce performance.
Please note that the discussion throughout this shareholder report is dated
as indicated and, because of possible changes in viewpoint, data and
transactions, should not be relied upon as being current thereafter.
- -----------------------------------------------------------------------------
Fund Information (all data are for periods ended September 30, 1996)
- -----------------------------------------------------------------------------
Small Capitalization Value Fund performance
versus benchmarks(1)
Total returns for one year ended September 30, 1996
[bar chart]
State Street Research Small Capitalization Value Fund-A Shares 43.63%
Average for Lipper Small Company Growth Funds 18.40%
Russell 2000 Value Index 13.48%
[end of bar chart]
SEC Average Annual Compound
Rates of Return
(at maximum applicable sales charge)(3),(4)
Life of Fund
(since 2/13/95) 1 Year
----------------------------------------------------------
Class A +33.28%/+31.28% +37.16%/+35.00%
----------------------------------------------------------
Class B +34.04%/+31.55% +37.52%/+35.26%
----------------------------------------------------------
Class C +37.43%/+34.89% +43.95%/+41.68%
----------------------------------------------------------
Class D +35.56%/+33.03% +41.52%/+39.26%
----------------------------------------------------------
Cumulative Total Returns
(do not reflect sales charge)(3),(5)
Life of Fund
(since 2/13/95) 1 Year
- -----------------------------------------------------------
Class A +67.39%/+63.30% +43.63%/+41.36%
- -----------------------------------------------------------
Class B +65.35%/+60.47% +42.52%/+40.26%
- -----------------------------------------------------------
Class C +68.06%/+63.02% +43.95%/+41.68%
- -----------------------------------------------------------
Class D +65.35%/+60.37% +42.52%/+40.26%
- -----------------------------------------------------------
Top 5 Industries
(by percentage of net assets)
[bar chart]
Business service 15.2%
Metal & mining 10.8%
Building 8.5%
Automotive 8.0%
Machinery 5.6%
Total 48.1%
[end of bar chart]
<PAGE>
Portfolio Manager's Review
[photo]
Rudy K. Kluiber
Portfolio Manager
Small Capitalization Value Fund finished its first full year of performance
on September 30, 1996. The Fund had an outstanding year with Class A shares
of the Fund providing a total return of +43.63% (does not reflect sales
charge).(2)
The Fund outperformed its peers as compared to the +18.40% average annual
return for Lipper Analytical Services' Small Company Growth Funds category
(does not include sales charge) and the +20.32% average annual return for the
S&P 500 for the same time period.(1)
Our Approach
We look at stocks on an individual basis using our fundamental value-based
approach. In the portfolio, we have undervalued companies, at-value companies
and overvalued companies. Our ideal scenario is to buy a company when it's
undervalued and then sell it when it starts to become overvalued.
Throughout the small-cap sector, we've seen an increase in consolidations and
takeovers. This has affected our portfolio, particularly the business service
and metal and mining sectors, with varying results.
Business Service
Our holdings in this sector benefitted from the consolidation taking place
within the industry. We've built the portfolio using our traditional
bottom-up approach to stock selection, choosing securities individually.
During the past twelve months, the companies in this sector have generally
offered good values and generated consistent cash flows. Companies such as
Protection One, a home security firm, and Staffing Resources, a temporary
personnel provider and one of the Fund's top ten holdings, have done very
well. Others such as Data Documents and Triad Systems haven't performed as
well due to flat cash flows.
Metal and Mining
We've reduced our position in this sector for two reasons: some securities,
having reached price objectives, became overvalued, while others didn't
perform as we expected. We like this sector because it offers opportunities
across a very broad range of companies. While this is a diverse group, the
companies in this sector have one thing in common: takeovers. A reason for
these takeovers was the need to consolidate a very competitive marketplace.
Over the past year, approximately ten companies in the portfolio were
acquired, creating a performance boost for the Fund, and providing the Fund
with an increased cash position and opportunities to invest in other
alternatives. Sometimes we choose to keep the new stock, if the stock's
outlook is favorable and it qualifies as a small-cap value stock. Otherwise,
we sell the stock.
What's Ahead
Small Capitalization Value Fund has remained consistently ahead of its
competitors. We will practice the same principles which have worked so well
for us this past year: looking at scores of new public offerings to see which
of them offer the value we seek for the Fund, continuing to maintain
positions in companies that are undervalued or fairly valued, and finding
companies with the potential to reward investors.
September 30, 1996
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Top 10 Holdings
by percentage of net assets
1 Carbide/Graphite Group Graphite electrode company 3.0%
2 Federal-Mogul Auto supply company 1.8%
3 Albacus Direct Business service company 1.8%
4 Invivo Hospital supply company 1.8%
5 Atwod Oceanics Oil service company 1.7%
6 Nortek Building company 1.6%
7 Webco Industries Steel tubing company 1.6%
8 TransTexas Gas Natural gas company 1.6%
9 Staffmark Temporary personnel provider 1.5%
10 Staffing Resources Temporary personnel provider 1.5%
These securities represent an aggregate of 17.9% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities listed in this table or in the
text above.
Best and Worst Contributors to Performance
(October 1, 1995 through September 30, 1996)
Best [triangle up]
Lewis Galoob Toys
Great turnaround story and new products
Masland
Good cash flow and products made this a positive acquisition for Lear.
Protection One
Positive cash flow and recurring revenues.
Worst [triangle down]
Easco
Aluminum company continued to have problems integrating acquisitions.
Katz Media Group
Cash flow problems plagued this media rep firm.
Continental Can
Management problems and a difficult industry hindered this company.
2
<PAGE>
State Street Research Small Capitalization Value Fund
Investment Portfolio
September 30, 1996
Value
Shares (Note 1)
--------------------------------------------------- -------------
COMMON STOCKS 98.4%
Basic Industries 26.6%
Chemical 2.9%
Applied Extrusion Technologies Inc.* 3,000 $ 27,375
Cambrex Corp. 2,250 76,219
McWhorter Technologies Inc.* 2,000 39,000
Mississippi Chemical Corp. 4,500 105,187
Triple S Plastics Inc.* 3,000 16,125
-------------
263,906
-------------
Diversified 4.0%
Alltrista Corp.* 1,000 21,250
Apogee Enterprises Inc. 500 17,500
Commercial Intertech Corp. 3,500 40,250
Noel Group Inc.* 15,000 114,375
Photran Corp.* 6,000 36,750
Quixote Corp. 10,000 75,000
Triton Group Ltd. 5,600 3,850
Zero Corp. 3,300 62,700
-------------
371,675
-------------
Electrical Equipment 1.4%
Keystone Consolidated Industries Inc.* 11,198 92,379
TB Wood's Corp. 4,000 34,000
-------------
126,379
-------------
Forest Product 1.3%
Gaylord Container Corp. Wts.* 13,500 98,719
Greenstone Industrial Inc.* 5,000 23,750
-------------
122,469
-------------
Machinery 5.6%
Arden Industrial Products Inc.* 8,000 39,000
Cuno Inc.* 3,500 54,250
Gelman Sciences Inc.* 1,500 42,188
Greenfield Industrial Inc. 1,500 36,000
Hardinge Inc. 1,000 24,000
Inter-City Products Corp.* 10,000 30,000
Memtec Ltd. ADR* 1,500 42,000
Penn Engineering & Manufacturing Corp. 3,500 61,250
Pfeiffer Vacuum Technology AG* 7,500 115,312
Rofin-Sinar Technologies Inc.* 5,000 54,375
Specialty Equipment Companies Inc.* 1,000 13,250
-------------
511,625
-------------
Metal & Mining 10.8%
Carbide / Graphite Group Inc.* 15,000 $ 275,625
Chase Brass Industries Inc.* 6,000 104,250
Easco Inc. 15,000 75,000
Encore Wire Corp.* 1,000 14,625
Interlake Corp.* 15,000 65,625
Maxxam Inc.* 1,000 44,250
N.N. Ball and Roller Inc. 3,000 42,000
Sinter Metals Inc. Cl. A* 5,000 100,000
Sunshine Mining Co. 22,310 25,099
Webco Industries Inc.* 25,000 146,875
Wyman-Gordon Co.* 4,500 102,937
-------------
996,286
-------------
Railroad 0.6%
Genesee & Wyoming Inc. Cl. A* 800 21,800
Westinghouse Air Brake Co. 3,000 33,750
-------------
55,550
-------------
Total Basic Industries 2,447,890
-------------
Consumer Cyclical 29.6%
Automotive 8.0%
Borg Warner Automotive Inc. 3,000 106,500
Defiance Inc. 20,000 130,000
Dura Automotive Systems Inc. Cl. A* 200 3,725
Exide Corp. 3,500 90,563
Federal-Mogul Corp. 8,000 169,000
Motorcar Parts & Accessories Inc.* 2,000 26,500
Strattec Security Corp.* 1,000 14,500
TransPro Inc. 10,000 80,000
Wescast Industries Inc. Cl. A 6,000 114,000
-------------
734,788
-------------
Building 8.5%
Belmont Homes Inc.* 3,000 75,750
Cameron Ashley Inc.* 8,500 107,312
Castle & Cooke Inc.* 4,500 74,250
Centex Construction Products Inc. 7,500 120,000
Dayton Superior Corp. Cl. A* 5,000 61,875
Falcon Building Products Inc. Cl. A* 7,200 93,600
Miles Homes Inc.* 10,000 17,500
Nortek Inc.* 11,000 151,250
Simpson Manufacturing Inc.* 4,000 80,000
-------------
781,537
-------------
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
State Street Research Small Capitalization Value Fund
Value
Shares (Note 1)
------------------------------------------- -------- -------------
Hotel & Restaurant 1.1%
Primadonna Resorts Inc.* 5,500 $ 100,375
-------------
Recreation 5.4%
All American Communications Inc. Cl. B* 8,000 68,000
AMC Entertainment Inc.* 1,500 23,437
Bacou USA Inc.* 3,500 59,500
Cineplex Odeon Corp.* 44,300 66,450
Granite Broadcasting Co.* 5,000 71,250
HMG Worldwide Corp.* 27,000 33,750
Rockshox Inc.* 7,000 105,000
Safety 1st, Inc.* 1,500 13,313
Silver King Communications Inc.* 1,400 32,900
Steinway Musical Instruments Inc.* 1,500 25,125
-------------
498,725
-------------
Retail Trade 5.0%
99 Cents Only Stores Co.* 4,000 56,000
Cole National Corp. Cl. A* 4,500 104,062
Finlay Enterprises Inc.* 4,000 50,000
Hanover Direct Inc.* 30,200 28,313
Krause's Furniture Inc.* 24,200 30,250
Little Switzerland Inc.* 16,000 69,000
TBC Corp.* 7,000 44,625
York Group Inc.* 5,000 80,000
-------------
462,250
-------------
Textile & Apparel 1.6%
Chic by H.I.S. Inc.* 19,000 83,125
Marisa Christina Inc.* 5,500 50,875
Tag Heuer International SA ADR* 600 11,850
-------------
145,850
-------------
Total Consumer Cyclical 2,723,525
-------------
Consumer Staple 25.0%
Business Service 15.2%
Abacus Direct Corp.* 8,000 168,000
American Residential Services Inc.* 5,000 95,625
Carriage Services Inc. Cl. A* 4,200 80,850
Data Documents Inc.* 11,000 119,625
Lamar Advertising Co. Cl. A* 3,000 124,500
Protection One Inc.* 6,000 75,750
Rental Service Corp.* 4,500 97,313
RMH Teleservices Inc.* 6,000 88,500
Scanforms Inc.* 700 3,806
Staffing Resources Inc.* 6,500 139,750
Staffmark Inc.* 9,900 139,837
Business Service (cont'd)
Strayer Education Inc.* 4,000 $ 65,500
Triad Systems Corp.* 16,000 86,000
Universal Outdoor Holdings Inc.* 3,000 108,000
-------------
1,393,056
-------------
Container 2.6%
Continental Can Company Inc.* 3,000 38,250
Lufkin Industries Inc. 2,000 41,500
Rock-Tenn Co. Cl. A 2,500 50,625
U.S. Can Corp.* 6,500 104,813
-------------
235,188
-------------
Drug 0.8%
ImmuLogic Pharmaceutical Corp.* 5,000 40,625
Martek Biosciences Corp.* 1,500 37,500
-------------
78,125
-------------
Food & Beverage 1.3%
Garden Fresh Restaurant Corp* 2,000 19,500
Northland Cranberries Inc. Cl. A 4,000 68,000
Robert Mondavi Corp. Cl. A* 1,000 32,750
-------------
120,250
-------------
Hospital Supply 4.1%
Arrow International Inc. 1,000 34,500
Fusion Medical Technologies Inc.* 9,000 90,000
General Surgical Innovations Inc.* 3,000 33,000
Imagyn Medical Inc.* 3,000 32,250
Invivo Corp.* 16,000 168,000
Sunrise Medical Inc.* 1,000 15,875
-------------
373,625
-------------
Printing & Publishing 0.2%
Katz Media Group Inc.* 2,000 17,750
-------------
Tobacco 0.8%
Dimon Inc. 3,000 57,375
Schweitzer-Mauduit International Inc. 500 16,750
-------------
74,125
-------------
Total Consumer Staple 2,292,119
-------------
Energy 7.0%
Oil 3.2%
Crystal Oil Co.* 3,800 136,800
Gerrity Oil & Gas Corp. Cv. Pfd. 8,000 112,000
Optima Petroleum Corp.* 15,000 49,688
-------------
298,488
-------------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
State Street Research Small Capitalization Value Fund
Investment Portfolio (cont'd)
Value
Shares (Note 1)
------------------------------------------- -------- -------------
Oil Service 3.8%
Atwood Oceanics Inc.* 3,600 $ 158,400
Ensco International Inc.* 1,087 35,327
Patterson Energy, Inc.* 4,332 75,810
Timber/Sharp Drilling Inc.* 7,000 77,875
-------------
347,412
-------------
Total Energy 645,900
-------------
Finance 3.9%
Bank 1.1%
AMBANC Holding Co. Inc.* 6,000 63,375
Ambase Corp.* 10,000 17,300
Meritor Savings Bank* 10,000 17,188
-------------
97,863
-------------
Financial Service 2.8%
First Enterprise Financial Group* 5,000 50,000
Gentra Inc.* 12,000 17,267
Hawthorne Financial Corp.* 10,000 72,500
Midland Financial Group Inc. 2,000 19,000
Union Acceptance Corp. Cl. A* 2,000 38,500
Willis Lease Finance Corp.* 6,800 62,900
-------------
260,167
-------------
Total Finance 358,030
-------------
Science & Technology 4.1%
Computer Software & Service 3.5%
AlphaNet Solutions Inc.* 2,000 19,000
Computervision Corp.* 6,000 52,500
Dataware Technologies Inc.* 3,000 11,250
Document Sciences Corp.* 3,000 37,875
Information Storage Devices Inc.* 3,000 21,000
MAI Systems Corp.* 4,000 34,000
Phoenix International Inc.* 4,000 70,000
Technology Modeling Associates Inc.* 3,500 45,500
Walsh International Inc.* 3,000 30,000
-------------
321,125
-------------
Electronic Components 0.6%
Augat Inc. 2,500 53,125
-------------
Electronic Equipment 0.0%
Advanced Fibre Communications, Inc.* 100 2,500
-------------
Total Science & Technology 376,750
-------------
Utility 2.2%
Natural Gas 1.6%
TransTexas Gas Corp.* 12,500 $ 143,750
-------------
Telephone 0.6%
Lightbridge Inc.* 5,000 58,750
-------------
Total Utility 202,500
-------------
Total Common Stocks (Cost $7,735,340) 9,046,714
-------------
Principal Maturity
Amount Date
--------------------------------- ----------- ------------- -------------
SHORT-TERM OBLIGATIONS 1.5%
Ford Motor Credit Co., 5.15% $136,000 10/02/1996 136,000
-------------
Total Short-Term Obligations (Cost $136,000) 136,000
-------------
Total Investments (Cost $7,871,340)--99.9% 9,182,714
Cash and Other Assets, Less Liabilities--0.1% 8,928
-------------
Net Assets--100.0% $9,191,642
=============
Federal Income Tax Information:
At September 30, 1996, the net unrealized appreciation of
investments based on cost for Federal income tax purposes
of $7,871,340 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost $1,748,030
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value (436,656)
-------------
$1,311,374
=============
- --------------------------------------------------------------------------
* Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of
foreign securities.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
State Street Research Small Capitalization Value Fund
Statement of Assets and Liabilities
September 30, 1996
Assets
Investments, at value (Cost $7,871,340) (Note 1) $9,182,714
Cash 135,942
Receivable for securities sold 333,231
Receivable from Distributor (Note 3) 27,999
Dividends and interest receivable 928
Deferred organization costs and other assets (Note 1) 37,660
-------------
9,718,474
Liabilities
Payable for securities purchased 456,605
Accrued transfer agent and shareholder services (Note 2) 19,066
Accrued management fee (Note 2) 5,897
Accrued trustees' fees (Note 2) 4,952
Accrued distribution and service fees (Note 5) 452
Other accrued expenses 39,860
-------------
526,832
-------------
Net Assets $9,191,642
=============
Net Assets consist of:
Unrealized appreciation of investments $1,311,374
Accumulated net realized gain 1,928,878
Shares of beneficial interest 5,951,390
-------------
$9,191,642
=============
Net Asset Value and redemption price per share of Class A
shares ($1,109,903 / 73,305 shares of beneficial
interest) $15.14
=============
Maximum Offering Price per share of Class A shares
($15.14 / .955) $15.85
=============
Net Asset Value and offering price per share of Class B
shares ($165,044 / 10,991 shares of beneficial
interest)* $15.02
=============
Net Asset Value, offering price and redemption price per
share of Class C shares ($7,751,651 / 510,530 shares of
beneficial interest) $15.18
=============
Net Asset Value and offering price per share of Class D
shares ($165,044 / 10,991 shares of beneficial
interest)* $15.02
=============
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
Statement of Operations
For the year ended September 30, 1996
Investment Income
Dividends, net of foreign taxes of $72 $ 55,733
Interest 4,549
------------
60,282
Expenses
Management fee (Note 2) 62,107
Custodian fee 75,663
Transfer agent and shareholder services (Note 2) 44,793
Registration fees 23,046
Audit fee 15,343
Amortization of organization costs (Note 1) 14,595
Reports to shareholders 13,510
Trustees' fees (Note 2) 11,049
Legal fees 7,376
Service fee--Class A (Note 5) 7,456
Distribution and service fees--Class B (Note 5) 1,357
Distribution and service fees--Class D (Note 5) 1,357
Miscellaneous 8,396
------------
286,048
Expenses borne by the Distributor (Note 3) (187,754)
------------
98,294
------------
Net investment loss (38,012)
------------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 3) 1,978,638
Net unrealized appreciation of investments 774,969
------------
Net gain on investments 2,753,607
------------
Net increase in net assets resulting from operations $2,715,595
============
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
State Street Research Small Capitalization Value Fund
Statement of Changes in Net Assets
February 13, 1995
(Commencement of
Year ended Operations) to
September 30, 1996 September 30, 1995
- ------------------------- ------------------- --------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) $ (38,012) $ 36,497
Net realized gain on
investments* 1,978,638 275,486
Net unrealized
appreciation of
investments 774,969 536,405
Net increase resulting
from operations 2,715,595 848,388
Dividend from net
investment income:
Class A (46,536) --
Class B (430) --
Class C (1,112) --
Class D (430) --
----------- -----------
(48,508) --
----------- -----------
Distribution from net
realized gains:
Class A (259,563) --
Class B (5,268) --
Class C (5,268) --
Class D (5,268) --
----------- -----------
(275,367) --
----------- -----------
Net increase from fund
share transactions
(Note 6) 668,649 5,282,885
----------- -----------
Total increase in net
assets 3,060,369 6,131,273
Net Assets
Beginning of year 6,131,273 --
----------- -----------
End of year (including
undistributed net
investment income of $0
and $36,497,
respectively) $9,191,642 $6,131,273
=========== ===========
* Net realized gain for
Federal income tax
purposes (Note 1) $1,940,770 $ 275,486
=========== ===========
The accompanying notes are an integral part of the financial statements.
Notes to Financial Statements
September 30, 1996
Note 1
State Street Research Small Capitalization Value Fund (the "Fund"), is a
series of State Street Research Capital Trust (the "Trust"), which is a
Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
The Trust was organized in November, 1988 as a successor to State Street
Capital Fund, Inc., a Massachusetts corporation. The Trust consists presently
of three separate funds: State Street Research Small Capitalization Value
Fund, State Street Research Small Capitalization Growth Fund and State Street
Research Capital Fund.
The investment objective of the Fund is to provide high total return
consisting principally of capital appreciation. In seeking to achieve its
investment objective, the Fund invests primarily in the equity securities of
small capitalization companies which are trading at prices believed to be
below the true values of such securities.
The Fund is authorized to issue four classes of shares. At the present time,
only Class A shares are generally available for purchase. Class B, Class C
and Class D shares are not being offered at this time. Class A shares are
subject to an initial sales charge of up to 4.50% and pay an annual service
fee equal to 0.25% of average daily net assets. Class B shares are subject to
a contingent deferred sales charge on certain redemptions made within five
years of purchase and pay annual distribution and service fees of 1.00%.
Class B shares automatically convert into Class A shares (which pay lower
ongoing expenses) at the end of eight years after the issuance of the Class B
shares. Class C shares are only offered to certain employee benefit plans and
large institutions. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant 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. Investments in Securities
Values for listed securities represent the last sale 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 the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are
at the mean of the closing bid and asked quotations, except for certain
securities that may be restricted as to public resale, which are valued in
accordance with methods adopted by the Trustees. Security transactions are
7
<PAGE>
State Street Research Small Capitalization Value Fund
accounted for on the trade date (date the order to buy or sell is executed),
and dividends declared but not received are accrued on the ex-dividend date.
Interest income is determined on the accrual basis. Realized gains and losses
from security transactions are reported on the basis of identified cost of
securities delivered for both financial reporting and Federal income tax
purposes.
B. Federal Income Taxes
No provision for Federal income taxes is necessary since the Fund intends 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,
if any, within the prescribed time periods.
C. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
D. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
E. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees at an annual rate of 0.85% 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. The fees of the Trustees not currently affiliated with the
Adviser amounted to $11,049 during the year ended September 30, 1996.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended September 30, 1996, the amount of
such expenses was $7,786.
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 September 30, 1996, the amount of such expenses
assumed by the Distributor and its affiliates was $187,754.
Note 4
For the year ended September 30, 1996, exclusive of short-term investments
and U.S. Government obligations, purchases and sales of securities aggregated
$9,307,923 and $9,060,535, respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
pays annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
services and/or the maintenance or servicing of shareholder accounts, to
reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the year ended September 30, 1996,
fees pursuant to such plan amounted to $7,456, $1,357 and $1,357 for Class A,
Class B and Class D, respectively.
8
<PAGE>
State Street Research Small Capitalization Value Fund
Notes (Cont'd)
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At September 30, 1996, the
Adviser owned one share of each of Class A, Class B, Class C and Class D
shares and Metropolitan owned 15,453 Class A shares, 10,968 Class B shares,
510,124 Class C shares and 10,968 Class D shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
February 13, 1995
(Commencement
Year ended of Operations) to
September 30, 1996 September 30, 1995
---------------------------- ------------------------
Class A Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 32,682 $ 424,234 519,451 $4,982,255
Issued upon reinvestment of:
Distribution from net realized gains 24,487 259,562 -- --
Dividend from net investment income 211 2,242 -- --
Shares repurchased (503,526) (5,963,085) -- --
------------ --------------- --------- -------------
Net increase (decrease) (446,146) $(5,277,047) 519,451 $4,982,255
============ =============== ========= =============
Class B Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------
Shares sold -- $ -- 10,493 $ 100,210
Issued upon reinvestment of distribution
from net realized gains 498 5,265 -- --
------------ --------------- --------- -------------
Net increase 498 $ 5,265 10,493 $ 100,210
============ =============== ========= =============
Class C Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------
Shares sold 499,540 $ 5,929,901 10,493 $ 100,210
Issued upon reinvestment of distribution
from net realized gains 497 5,265 -- --
------------ --------------- --------- -------------
Net increase 500,037 $ 5,935,166 10,493 $ 100,210
============ =============== ========= =============
Class D Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------
Shares sold -- $ -- 10,493 $ 100,210
Issued upon reinvestment of distribution
from net realized gains 498 5,265 -- --
------------ --------------- --------- -------------
Net increase 498 $ 5,265 10,493 $ 100,210
============ =============== ========= =============
</TABLE>
9
<PAGE>
State Street Research Small Capitalization Value Fund
Financial Highlights
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------- ----------------------------------------
February 13, 1995 February 13, 1995
(Commencement (Commencement
Year ended of Operations) to Year ended of Operations) to
September 30, 1996** September 30, 1995 September 30, 1996** September 30, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.13 $ 9.55 $11.08 $ 9.55
Net investment income (loss)* (0.06) 0.07 (0.17) 0.02
Net realized and unrealized gain on
investments 4.66 1.51 4.65 1.51
Dividend from net investment income (0.09) -- (0.04) --
Distribution from net realized gains (0.50) -- (0.50) --
-------------------- ------------------ -------------------- ------------------
Net asset value, end of year $15.14 $11.13 $15.02 $11.08
==================== ================== ==================== ==================
Total return 43.63%+ 16.54%+++ 42.52%+ 16.02%+++
Net assets at end of year (000s) $1,110 $5,782 $165 $116
Ratio of operating expenses to average
net assets* 1.45% 1.45%++ 2.20% 2.20%++
Ratio of net investment income (loss) to
average net assets* (0.56)% 1.05%++ (1.38)% 0.32%++
Portfolio turnover rate 124.79% 47.34% 124.79% 47.34%
Average commission rate@ $.0174 -- $.0174 --
*Reflects voluntary assumption of fees
or expenses per share in each
year (Note 3). $0.32 $0.15 $0.32 $0.15
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
---------------------------------------- ----------------------------------------
February 13, 1995 February 13, 1995
(Commencement (Commencement
Year ended of Operations) to Year ended of Operations) to
September 30, 1996** September 30, 1995 September 30, 1996** September 30, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.15 $ 9.55 $11.08 $ 9.55
Net investment income (loss)* (0.06) 0.09 (0.17) 0.02
Net realized and unrealized gain on
investments 4.70 1.51 4.65 1.51
Dividend from net investment income (0.11) -- (0.04) --
Distribution from net realized gains (0.50) -- (0.50) --
-------------------- ------------------ -------------------- ------------------
Net asset value, end of year $15.18 $11.15 $15.02 $11.08
==================== ================== ==================== ==================
Total return 43.95%+ 16.75%+++ 42.52%+ 16.02%+++
Net assets at end of year (000s) $7,752 $117 $165 $116
Ratio of operating expenses to average
net assets* 1.20% 1.20%++ 2.20% 2.20%++
Ratio of net investment income (loss) to
average net assets* (0.43)% 1.32%++ (1.38)% 0.32%++
Portfolio turnover rate 124.79% 47.34% 124.79% 47.34%
Average commission rate@ $.0174 -- $.0174 --
*Reflects voluntary assumption of fees
or expenses per share in each
year (Note 3). $0.32 $0.15 $0.32 $0.15
</TABLE>
++ Annualized.
** Per-share figures have been calculated using the average shares method.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
@ For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate per share paid for
security trades.
10
<PAGE>
Report of Independent Accountants
To the Trustees of State Street Research
Capital Trust and Shareholders of
State Street Research Small Capitalization Value Fund
We have audited the accompanying statement of assets and liabilities of State
Street Research Small Capitalization Value Fund, including the schedule of
portfolio investments, as of September 30, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
and the financial highlights for the year then ended and the period February
13, 1995 (commencement of operations) to September 30, 1995. 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.
We conducted our audits in accordance with generally accepted auditing
standards. 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
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1996, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. 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
State Street Research Small Capitalization Value Fund as of September 30,
1996, the results of its operations for the year then ended, the changes in
its net assets and the financial highlights for the year then ended and the
period February 13, 1995 (commencement of operations) to September 30, 1995,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 8, 1996
11
<PAGE>
State Street Research Small Capitalization Value Fund
Management's Discussion of Fund Performance
Small Capitalization Value Fund finished its first full year of performance
on September 30, 1996. For the past twelve months, Class A shares of the Fund
provided a total return of +43.63% (does not reflect sales charge). The
Lipper Analytical Services' Small Company Growth Funds category finished up
18.40% (does not include sales charge), just behind the S&P 500 which was up
20.32% for the same time period.
The small-cap sector has been noticeably affected by consolidations and
takeovers. This has impacted our portfolio, particularly the business service
and metal and mining sectors, with varying results. Our increased exposure in
the business service sector was due mainly to the consolidations taking place
within the industry. During the past twelve months, the companies in this
sector have generally produced good values and consistent cash flows.
We reduced our position in the metal and mining sector for two reasons. Some
securities reached price objectives, while others didn't perform as we
expected. Over the past year, approximately ten companies in the portfolio
were acquired, creating a performance boost for the Fund, and providing the
Fund with an increased cash position and opportunities to invest in other
alternatives.
September 30, 1996
The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The 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. All returns represent past performance, which
is no guarantee of future results. The investment return and principal value
of an investment made in the Fund will fluctuate and shares, when redeemed,
may be worth more or less than their original cost. All returns assume
reinvestment of capital gain distributions and income dividends. Performance
reflects maximum 4.5% "A" share front-end sales charge or 5% "B" share or 1%
"D" share contingent deferred sales charges, where applicable. "C" shares,
offered without a sales charge, are available only to certain employee
benefit plans and large institutions. Performance results for the Fund are
increased by the Distributor's voluntary reduction of Fund fees and expenses.
The first figure reflects expense reduction; the second shows what results
would have been without subsidization.
Change in Value of $10,000 Based on
the S&P 500 Compared to Change in Value
of $10,000 Invested in the Fund
**********line graphs*********
Class A Shares
Average Annual Total Return
1 Year Life of Fund
+37.16%/+35.00% +33.28%/+31.28%
Small Capitalization Value Fund S&P 500
2/13/95 9550 10000
9/30/95 11130 12425
9/30/96 15986 14949
Class B Shares
Average Annual Total Return
1 Year Life of Fund
+37.52%/+35.26% +34.04%/+31.55%
Small Capitalization Value Fund S&P 500
2/13/95 10000 10000
9/30/95 11602 12425
9/30/96 16135 14949
Class C Shares
Average Annual Total Return
1 Year Life of Fund
+43.95%/+41.68% +37.43%/+34.89%
Small Capitalization Value Fund S&P 500
2/13/95 10000 10000
9/30/95 11675 12425
9/30/96 16806 14949
Class D Shares
Average Annual Total Return
1 Year Life of Fund
+41.52%/+39.26% +35.56%/+33.03%
Small Capitalization Value Fund S&P 500
2/13/95 10000 10000
9/30/95 11602 12425
9/30/96 16535 14949
12
<PAGE>
State Street Research Small Capitalization Value Fund
Fund Information, Officers and Trustees of State Street Research Capital
Trust
Fund Information
State Street Research
Small Capitalization
Value Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Jesus A. Cabrera
Vice President
Rudolph K. Kluiber
Vice President
Frederick R. Kobrick
Vice President
James M. Weiss
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
ean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of
the Board and Chief Executive
Officer, Raytheon Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel,
Choate, Hall & Stewart
13
<PAGE>
[back cover]
State Street Research
Small Capitalization Value Fund
One Financial Center
Boston, MA 02111
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[tower logo] STATE STREET RESEARCH
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective investors.
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: 3510-961125(1297)SSR-LD
Cover Illustration by Dorothy Cullinan
SCV-339E-1196
<PAGE>
[STATE STREET LOGO]
STATE STREET RESEARCH
SMALL CAPITALIZATION GROWTH FUND
ANNUAL REPORT
September 30, 1996
WHAT'S INSIDE
From the Chairman:
Strong results for the
stock market
Portfolio Manager's Review:
Solid returns for small
stocks
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings and Financial Statements
[DALBAR GRAPHIC]
For Excellence
in
Shareholder Service
<PAGE>
FROM THE CHAIRMAN
To Our Shareholders:
1996 is shaping up to be another year of above-average stock market
performance. Even after the healthy results for Fund investors in the past
year, we think the outlook is very favorable for small-cap stocks. We believe
the small-company sector of the stock market offers some of today's most
appealing values.
This year has offered greater investing challenges than 1995 did, for two
reasons. First, interest rates crept upward again. Higher interest rates make
it more expensive for companies to operate, and stock prices often fall as a
result. Second, technology stocks declined sharply on two separate occasions:
the last three months of 1995 and mid-1996. Because Small Capitalization
Growth Fund had smaller positions in interest-rate-sensitive and technology
stocks, the Fund was largely able to shrug off these events.
For much of the past year, there were strong corporate profits, low inflation
and steady-but-slow economic growth. The stock and bond markets were unduly
influenced over the past few months by news on the economy, employment and
what the Federal Reserve might do. Contradictions over the direction of the
economy caused rallies some days and declines on others. But, again, the
stock market maintained an advancing trend, with many market averages hitting
record highs in October.
In closing, I would like to note that Small Capitalization Growth Fund just
completed its third year, and the Fund seems to have found its stride. After
a disappointing first year, the Fund has posted two consecutive years of
solid performance for investors.
Thank you for investing in State Street Research Small Capitalization Growth
Fund.
Sincerely,
[Signature]
Ralph F. Verni
Chairman
October 31, 1996
1 +15.97% for Class B shares; +17.09% for Class C shares; +15.87% for Class D
shares.
2 The Russell 2000 Growth Index is a commonly used measure of U.S. small-
capitalization stock performance. The index is unmanaged and does not take
sales charges into consideration. Direct investment in the index is not
possible; results are for illustrative purposes only. The Lipper Small
Company Growth Fund category includes 350 funds and does not reflect sales
charges.
3 Investment result is based on a $10,000 investment in Class A shares at the
maximum sales charge of 4.5% with reinvestment of capital gain distributions
and income dividends. No adjustment has been made for income taxes payable by
shareholders on income dividends or capital gain distributions.
4 All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. Performance for a class includes periods
prior to the adoption of class designations in 1994. "C" shares, offered
without a sales charge, are available only to certain employee benefit plans
and large institutions. Performance prior to class designations does not
reflect annual 12b-1 fees of .25% for "A" shares and 1% for "B" and "D"
shares, which will reduce subsequent performance. Performance results for the
Fund are increased by the Distributor's voluntary reduction of Fund fees and
expenses. The first figure reflects expense reduction; the second shows what
results would have been without subsidization.
5 Performance reflects maximum 4.5% "A" share front-end sales charge, or 5%
"B" share or 1% "D" share contingent deferred sales charges, where
applicable.
6 Cumulative total returns are not annualized, nor do they reflect sales
charges, which, if reflected, would reduce performance.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
Fund Information (all data are for periods ended September 30, 1996)
Total value of $10,000 invested at Fund's inception(3)
(Class A shares, at maximum applicable sales charge)
[DATA FOR MOUNTAIN CHART]
10/93 9550
12/93 9430
3/94 9040
6/94 8040
9/94 8560
12/94 8080
3/95 8230
6/95 8760
9/95 9690
12/95 9400
3/96 9830
6/96 11050
9/96 11330
SEC Average Annual Total Returns for periods ended September 30, 1996(4,5)
(at maximum applicable sales charge)
Life of Fund
(since
10/4/93) 1 year
- ---------- -------------- --------------
Class A +4.26%/+3.75% +11.66%/+11.22%
- ---------- -------------- --------------
Class B +4.27%/+3.74% +10.97%/+10.50%
- ---------- -------------- --------------
Class C +6.22%/+5.67% +17.09%/+16.63%
- ---------- -------------- --------------
Class D +5.15%/+4.63% +14.87%/+14.40%
- ---------- -------------- --------------
Cumulative Total Returns
(do not reflect sales charge)(4,6)
Life of Fund
(since 10/4/93) 1 year
- ---------- --------------- ----------------
Class A +18.64%/+16.90% +16.92%/+16.46%
- ---------- --------------- ----------------
Class B +16.34%/+14.62% +15.97%/+15.50%
- ---------- --------------- ----------------
Class C +19.79%/+17.96% +17.09%/+16.63%
- ---------- --------------- ----------------
Class D +16.23%/+14.51% +15.87%/+15.40%
- ---------- --------------- ----------------
Top 5 Industry Positions
(by percentage of net assets)
Computer software & service 14.0%
Hospital supply 12.1%
Business service 10.1%
Retail 6.2%
Oil 5.0%
Total: 47.4%
<PAGE>
PORTFOLIO MANAGER'S REVIEW
The past year was favorable for State Street Research Small Capitalization
Growth Fund. Class A shares of the Fund provided a total return of +16.92%
(does not reflect sales charges) for the 12 months ended September 30, 1996.(1)
The Russell 2000 Growth Index, a benchmark for small-cap stock performance,
provided a return of +12.61% over the same time period.(2) Small Capitalization
Growth Fund underperformed the +18.40% average return for the Lipper
Analytical Services Small Company Growth Fund category, however, because of a
decline in late 1995.(2) Through the first nine months of 1996, however, the
Fund outperformed its Lipper category.
Management Approach
State Street Research uses a research-driven investment process that we
believe is particularly well suited to small-company stocks. Using the
resources of our team of in-house research analysts, we consider a wide range
of factors when selecting small-company stocks: earnings growth, cash flow,
competitive position, management and business strategy, and new and
innovative products and services.
We also diversify the Fund extensively, holding approximately 120
small-company stocks at the end of September. If you look through the Fund's
investment portfolio (it begins on page 3), you will undoubtedly see names
you don't recognize. Small-company stocks are seldom household names, but our
hope is that they will become tomorrow's success stories.
Current Strategy
There is a widely held belief that small-company stock funds tend to
emphasize investments in "high-flying" technology stocks. That's not the case
with State Street Research Small Capitalization Growth Fund. In fact, we have
been underweighted in technology stocks because they haven't offered
attractive enough values. This underweighting paid off, as technology stocks
experienced two significant declines in the past 12 months.
We've found consumer stocks to offer a better outlook and value.
Collectively, consumer stocks, in industries including retail, recreation,
business services and others, total more than 43% of the portfolio. In
particular, we have looked for stocks that are not directly affected by the
level of consumer spending. An example is the Fund's largest holding, Atlas
Air (1.9% of net assets), which specializes in highly efficient and
cost-effective cargo transportation between airports.
Energy stocks have had a dynamic impact on Small Capitalization Growth Fund's
performance. Generally, we have invested in oil and gas exploration and
production companies that combine attractive valuations and high growth
rates. Our largest energy holding is Nuevo Energy (1.7% of net assets), an
independent oil and gas exploration firm whose strength is identifying new
producing properties. The long-term supply of oil and gas is low compared to
long-term demand, plus technological advances are helping these companies
produce more cheaply.
September 30, 1996
Positive Outlook
We believe the outlook for small-company stocks remains positive. Small
stocks are attractively valued in light of their growth prospects. Plus, they
should continue to benefit from the current moderate growth, low inflation
environment. We will continue to sort through the thousands of small-company
stocks in the market, selecting the ones we believe offer the best growth
potential for our investors.
Top 10 Stock Positions
(by percentage of net assets)
1 Atlas Air Air cargo company 1.9%
2 Global DirectMail Direct mail marketer 1.9%
3 Nuevo Energy Oil and gas exploration firm 1.7%
4 NAC Re Reinsurance company 1.6%
5 HA-LO Industries Specialty advertising firm 1.6%
6 Biovail Health care company 1.6%
7 US Filter Industrial product supplier 1.5%
8 Cambrex Chemical company 1.4%
9 Personnel Group of America Temporary service provider 1.4%
10 Tel-Save Holdings Telecommunications company 1.4%
These securities represent an aggregate of 16.0% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities listed in this table or in the
text above.
Best and Worst Contributors to Performance
(October 1, 1995 through September 30, 1996)
Best [arrow up]
Global DirectMail
Saw continued earnings/revenue growth due to industry growth and
consolidation.
SystemSoft
Enjoyed explosive earnings and revenue growth from new product.
Swift Energy
Benefited from strong increase in reserve base and higher oil prices.
Worst [arrow down]
Softkey International
Weak earnings hurt CD-ROM maker.
Hyperion Software
Competitive pressures caused revenue and earnings declines.
Intersolv
Software company suffered from earnings disappointment.
2
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
INVESTMENT PORTFOLIO
September 30, 1996
Value
Shares (Note 1)
------------------------------------------------------ -----------
COMMON STOCKS 89.5%
Basic Industries 6.9%
Chemical 2.3%
Cambrex Corp. 25,750 $ 872,281
General Chemical Group Inc. 26,900 534,638
-----------
1,406,919
-----------
Forest Product 0.7%
Buckeye Cellulose Corp.* 15,900 413,400
-----------
Machinery 1.4%
US Filter Corp.* 26,400 900,900
-----------
Metal & Mining 2.2%
Carbide / Graphite Group Inc.* 22,300 409,763
Oregon Metallurgical Corp.* 10,100 328,250
Wyman-Gordon Co.* 26,100 597,037
-----------
1,335,050
-----------
Railroad 0.3%
Genesee & Wyoming Inc. Cl. A* 6,400 174,400
-----------
Total Basic Industries 4,230,669
-----------
Consumer Cyclical 15.5%
Airline 1.9%
Atlas Air Inc.* 27,500 1,175,625
-----------
Automotive 0.9%
Dura Automotive Systems Inc. Cl. A* 1,100 20,488
Lear Corp.* 15,200 501,600
-----------
522,088
-----------
Hotel & Restaurant 1.8%
Outback Steakhouse Inc.* 7,950 191,794
Primadonna Resorts Inc.* 25,200 459,900
Station Casinos Inc.* 38,000 456,000
-----------
1,107,694
-----------
Recreation 4.2%
American Radio Systems Corp. Cl. A* 14,700 547,575
Anchor Gaming* 7,000 435,750
Argyle Television Inc. Cl. A* 11,900 334,687
Cox Radio Inc. Cl. A* 2,400 52,800
EZ Communications Inc.* 4,200 184,800
Lewis Galoob Toys Inc.* 11,600 339,300
Ortel Corp.* 14,700 352,800
Silver King Communications Inc.* 13,500 317,250
-----------
2,564,962
-----------
Retail Trade 6.2%
Abercrombie & Fitch Co. Cl. A* 2,000 $ 49,000
CUC International Inc.* 18,007 718,029
Global DirectMail Corp.* 24,100 1,150,775
Gymboree Corp.* 10,000 303,750
Loehmann's, Inc.* 17,500 469,219
MSC Industrial Direct Inc. Cl. A* 9,200 327,750
Renters Choice Inc.* 15,700 294,375
Viking Office Products Inc.* 16,200 486,000
-----------
3,798,898
-----------
Textile & Apparel 0.5%
Authentic Fitness Corp. 27,600 338,100
-----------
Total Consumer Cyclical 9,507,367
-----------
Consumer Staple 28.1%
Business Service 10.1%
American Pad & Paper Co.* 28,000 595,000
ATC Communications Group Inc.* 37,200 651,000
Career Horizons Inc.* 12,700 493,712
Carriage Services Inc. Cl. A* 32,000 616,000
Commodore Applied Technologies Inc.* 33,300 220,613
Commodore Applied Technologies Inc. Wts.* 33,300 58,275
HA-LO Industries, Inc.* 33,250 964,250
National Media Corp.* 18,000 267,750
Personnel Group of America Inc.* 33,100 860,600
PIA Merchandising Services Inc.* 8,400 107,100
Right Management Consultants Inc.* 9,350 226,738
Strategic Distribution Inc.* 64,900 328,556
Technology Solutions Co.* 23,400 816,075
-----------
6,205,669
-----------
Drug 2.0%
Biovail Corp. International* 26,700 954,525
CytoTherapeutics, Inc.* 34,600 294,100
-----------
1,248,625
-----------
Hospital Supply 12.1%
American Medical Response, Inc.* 16,800 604,800
Atria Communities Inc.* 39,200 490,000
Cytyc Corp.* 6,500 97,500
General Surgical Innovations Inc.* 14,000 154,000
Genesis Health Ventures Inc.* 23,200 652,500
Healthdyne Technologies Inc.* 60,500 506,687
Imagyn Medical Inc.* 49,900 536,425
Karrington Health Inc.* 22,400 291,200
Lincare Holdings Inc.* 19,200 768,000
Mariner Health Group Inc.* 29,100 447,413
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
Value
Shares (Note 1)
------------------------------------------------------ -----------
Hospital Supply (cont'd)
MIM Corp.* 36,800 $ 533,600
Physio-Control International Corp.* 16,500 416,625
Respironics Inc.* 20,000 485,000
Rotech Medical Corp.* 24,200 399,300
Rural / Metro Corp.* 11,300 412,450
Ultra-Fem Inc.* 27,200 629,000
-----------
7,424,500
-----------
Personal Care 1.0%
Gargoyles Inc.* 500 10,625
U.S.A. Detergents Inc.* 14,300 568,425
-----------
579,050
-----------
Printing & Publishing 1.9%
Heritage Media Corp. Cl. A* 22,400 422,800
Providence Journal Co. Cl. A* 24,100 707,937
-----------
1,130,737
-----------
Tobacco 1.0%
Schweitzer-Mauduit International Inc. 18,000 603,000
-----------
Total Consumer Staple 17,191,581
-----------
Energy 5.9%
Oil 5.0%
Abacan Resources Corp.* 101,000 694,375
Global Natural Resources Inc.* 29,000 503,875
Nuevo Energy Co.* 25,900 1,052,187
Plains Resources Inc.* 20,600 285,825
Ranger Oil Ltd.* 65,100 488,250
-----------
3,024,512
-----------
Oil Service 0.9%
Atwood Oceanics Inc.* 4,200 184,800
Dreco Energy Services Ltd. Cl. A* 15,500 377,813
-----------
562,613
-----------
Total Energy 3,587,125
-----------
Finance 6.6%
Bank 0.3%
Bank United Corp. Cl. A* 6,800 169,150
-----------
Financial Service 2.0%
Alex Brown Inc. 8,100 468,787
CMAC Investment Corp.* 7,400 469,900
RAC Financial Group Inc.* 7,300 333,063
-----------
1,271,750
-----------
Insurance 4.3%
American Travellers Corp.* 13,650 $ 452,156
Delphi Financial Group Inc.* 12,600 352,800
Executive Risk Inc.* 8,000 308,000
Mutual Risk Management Ltd. 18,666 541,314
NAC Re Corp. 27,100 975,600
-----------
2,629,870
-----------
Total Finance 4,070,770
-----------
Science & Technology 21.0%
Computer Software & Service 14.0%
ACT Networks Inc.* 9,600 268,800
Applied Graphics Technologies, Inc.* 21,500 319,813
Avant! Corp.* 18,100 543,000
Cerner Corp.* 24,400 378,200
Datastream Systems Inc.* 9,700 293,425
Desktop Data Inc.* 11,800 342,200
Diana Corp.* 7,875 322,875
Integrated Measurement Systems Inc.* 25,900 427,350
Manugistics Group Inc.* 7,400 297,850
National Processing Inc.* 37,000 721,500
Object Design Inc.* 30,500 491,812
Optical Data Systems Inc.* 31,800 540,600
Planning Sciences International PLC ADR* 10,900 160,775
Siebel Systems Inc.* 5,200 216,450
Software 2000 Inc.* 37,000 360,750
SPSS Inc.* 18,100 502,275
SystemSoft Corp.* 16,100 551,425
Ultratech Stepper Inc.* 22,500 424,687
Vantive Corp.* 1,300 84,175
VideoServer Inc.* 18,900 656,775
Wang Laboratories Inc.* 34,300 668,850
-----------
8,573,587
-----------
Electronic Components 4.5%
Augat Inc. 21,700 461,125
DuPont Photomasks Inc.* 13,200 369,600
Encad Inc.* 11,600 485,750
VLSI Technology Inc.* 35,700 580,125
Xicor Inc.* 27,300 317,363
Zebra Technologies Corp. Cl. A* 22,200 568,875
-----------
2,782,838
-----------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
INVESTMENT PORTFOLIO (cont'd)
Value
Shares (Note 1)
------------------------------------------------------ -----------
Electronic Equipment 1.0%
Advanced Fibre Communications, Inc.* 400 $ 10,000
Berg Electronics Corp.* 21,300 580,425
--------------
590,425
--------------
Office Equipment 1.5%
FileNet Corp.* 26,600 678,300
HMT Technology Corp.* 12,200 265,350
--------------
943,650
--------------
Total Science & Technology 12,890,500
--------------
Utility 5.5%
Natural Gas 0.8%
KCS Energy Inc. 12,900 459,562
--------------
Telephone 4.7%
Allen Group Inc. 25,800 477,300
Geotek Communications Inc.* 63,000 527,625
LCC International Inc. Cl. A* 15,000 273,750
Midcom Communications Inc.* 18,000 247,500
Tel-Save Holdings Inc.* 29,500 848,125
Trescom International Inc.* 40,200 522,600
--------------
2,896,900
--------------
Total Utility 3,356,462
--------------
Total Common Stocks (Cost $45,857,378) 54,834,474
--------------
Principal Maturity
Amount Date
-------------------------------- ------------ ------------- -------------
SHORT-TERM OBLIGATIONS 9.2%
American Express Credit Corp.,
5.00% $ 399,000 10/02/1996 399,000
Chevron Oil Finance Co., 5.28% 2,724,000 10/02/1996 2,724,000
Ford Motor Credit Co., 5.36% 2,487,000 10/04/1996 2,487,000
-------------
Total Short-Term Obligations (Cost $5,610,000) 5,610,000
-------------
Total Investments (Cost $51,467,378)--98.7% 60,444,474
Cash and Other Assets, Less Liabilities--1.3% 815,337
-------------
Net Assets--100.0% $61,259,811
=============
Federal Income Tax Information:
At September 30, 1996, the net unrealized
appreciation of investments based on cost
for Federal income tax purposes of
$51,475,689 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of value over tax cost $12,408,345
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value (3,439,560)
--------------
$ 8,968,785
==============
* Nonincome-producing securities
ADR stands for American Depository Receipt, representing ownership of foreign
securities.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
Assets
Investments, at value (Cost $51,467,378) (Note 1) $60,444,474
Cash 637
Receivable for securities sold 2,203,549
Dividends and interest receivable 7,438
Receivable from Distributor (Note 3) 3,892
Deferred organization costs and other assets (Note 1) 13,139
------------
62,673,129
Liabilities
Payable for securities purchased 1,104,607
Payable for fund shares redeemed 111,396
Accrued transfer agent and shareholder services (Note 2) 64,079
Accrued management fee (Note 2) 34,767
Accrued distribution and service fees (Note 5) 25,184
Accrued trustees' fees (Note 2) 11,017
Other accrued expenses 62,268
------------
1,413,318
------------
Net Assets $61,259,811
============
Net Assets consist of:
Unrealized appreciation of investments $ 8,977,096
Accumulated net realized gain 4,184,442
Shares of beneficial interest 48,098,273
------------
$61,259,811
============
Net Asset Value and redemption price per share of Class
A shares ($19,790,701 / 1,747,342 shares of beneficial
interest) $11.33
============
Maximum Offering Price per share of Class A shares
($11.33 / .955) $11.86
============
Net Asset Value and offering price per share of
Class B shares ($23,655,788 / 2,129,754 shares of
beneficial interest)* $11.11
============
Net Asset Value, offering price and redemption price per
share of Class C shares ($13,310,681 / 1,163,690
shares of beneficial interest) $11.44
============
Net Asset Value and offering price per share of
Class D shares ($4,502,641 / 405,535 shares
of beneficial interest)* $11.10
============
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
STATEMENT OF OPERATIONS
For the year ended September 30, 1996
Investment Income
Interest $ 158,590
Dividends, net of foreign taxes of $1,429 72,828
-------------
231,418
Expenses
Management fee (Note 2) 443,318
Transfer agent and shareholder services (Note 2) 187,322
Custodian fee 116,800
Reports to shareholders 59,081
Service fee-Class A (Note 5) 47,741
Distribution and service fees-Class B (Note 5) 231,925
Distribution and service fees-Class D (Note 5) 51,143
Registration fees 20,997
Audit fee 19,441
Trustees' fees (Note 2) 15,525
Legal fees 3,230
Amortization of organization costs (Note 1) 6,555
Miscellaneous 11,243
-------------
1,214,321
Expenses borne by the Distributor (Note 3) (233,264)
-------------
981,057
-------------
Net investment loss (749,639)
-------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on investments (Notes 1 and 3) 11,088,837
Net unrealized depreciation of investments (2,000,953)
-------------
Net gain on investments 9,087,884
-------------
Net increase in net assets resulting from
operations $ 8,338,245
=============
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
Year ended September 30
---------------------------
1996 1995
------------------------------- ------------- -------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $ (749,639) $ (872,119)
Net realized gain (loss) on
investments* 11,088,837 (3,364,808)
Net unrealized appreciation
(depreciation) of investments (2,000,953) 11,482,443
------------- -------------
Net increase resulting from
operations 8,338,245 7,245,516
------------- -------------
Net decrease from fund share
transactions (Note 6) (14,818,177) (7,844,245)
------------- -------------
Total decrease in net assets (6,479,932) (598,729)
Net Assets
Beginning of year 67,739,743 68,338,472
------------- -------------
End of year $ 61,259,811 $67,739,743
============= =============
* Net realized gain (loss) for
Federal income tax purposes
(Note 1) $ 7,630,937 $(2,682,827)
============= =============
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
Note 1
State Street Research Small Capitalization Growth Fund (the "Fund"), is
a series of State Street Research Capital Trust (the "Trust"), which is a
Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
The Trust was organized in November, 1988 as a successor to State Street
Capital Fund, Inc., a Massachusetts corporation. The Trust consists presently
of three separate funds: State Street Research Small Capitalization Growth
Fund, State Street Research Capital Fund and State Street Research Small
Capitalization Value Fund.
The investment objective of the Fund is to provide growth of capital. In
seeking to achieve its investment objective, the Fund invests primarily in
the equity securities of emerging growth and small capitalization companies.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and pay an annual service fee equal to
0.25% of average daily net assets. Class B shares are subject to a contingent
deferred sales charge on certain redemptions made within five years of
purchase and pay annual distribution and service fees of 1.00%. Class B
shares automatically convert into Class A shares (which pay lower ongoing
expenses) at the end of eight years after the issuance of the Class B shares.
Class C shares are only offered to certain employee benefit plans and large
institutions. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant 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. Investments in Securities
Values for listed securities represent the last sale 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 the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are
at the mean of the closing bid and asked quotations, except for certain
securities that may be restricted as to public resale, which are valued in
accordance with methods adopted by the Trustees. Security transactions are
accounted for on the trade date (date the order to buy or sell is executed),
and dividends declared but not received are accrued on the ex-dividend date.
Interest income is determined on the accrual basis. Realized gains and losses
from security transactions are reported on the basis of identified cost of
securities delivered for both financial reporting and Federal income tax
purposes.
7
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
B. Federal Income Taxes
No provision for Federal income taxes is necessary since the Fund intends 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,
if any, within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1994
through September 30, 1995, the Fund incurred net capital losses of
$3,462,622 and has deferred and treated such losses as arising in the fiscal
year ended September 30, 1996.
C. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
D. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a
period of five years.
E. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees equal to 1/16 of 1% (3/4 of 1% on an annual basis) of 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. The fees of the Trustees not currently affiliated with the Adviser
amounted to $15,525 during the year ended September 30, 1996.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance
of the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through
or under which shares of the Fund may be purchased. During the year ended
September 30, 1996, the amount of such shareholder servicing and account
maintenance expenses was $55,149.
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 September 30, 1996, the amount of such expenses
assumed by the Distributor and its affiliates was $233,264.
Note 4
For the year ended September 30, 1996, exclusive of short-term investments
and U.S. Government obligations, purchases and sales of securities aggregated
$88,838,934 and $107,714,541, respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
pays annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
services and/or the maintenance or servicing of shareholder accounts, to
reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the year ended September 30, 1996,
fees pursuant to such plan amounted to $47,741, $231,925 and $51,143 for
Class A, Class B and Class D, respectively.
The Fund has been informed that the Distributor and MetLife
Securities, Inc., a wholly owned subsidiary of Metropolitan, earned initial
sales charges aggregating $2,120 and $8,348, respectively, on sales of Class
A shares of the Fund during the year ended September 30, 1996, and that
MetLife Securities, Inc. earned commissions aggregating $7,991 on sales of
Class B shares, and that the Distributor collected contingent deferred sales
charges aggregating $81,122 and $264 on redemptions of Class B and Class D
shares, respectively, during the same period.
8
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
NOTES (cont'd)
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At September 30, 1996, the
Adviser owned one Class C share of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended September 30
---------------------------------------------------
1996 1995
------------------------- -------------------------
Class A Shares Amount Shares Amount
- -------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold 163,674 $ 1,606,790 585,876 $ 4,916,956
Shares redeemed (632,394) (6,137,327) (937,567) (7,864,550)
------------ ------------ ------------ ------------
Net decrease (468,720) $(4,530,537) (351,691) $(2,947,594)
============ ============ ============ ============
Class B Shares Amount Shares Amount
- -------------------------- ------------ ------------ ------------ ------------
Shares sold 84,647 $ 831,719 477,595 $ 3,977,732
Shares redeemed (721,298) (6,831,042) (1,148,744) (9,420,297)
------------ ------------ ------------ ------------
Net decrease (636,651) $(5,999,323) (671,149) $(5,442,565)
============ ============ ============ ============
Class C Shares Amount Shares Amount
- -------------------------- ------------ ------------ ------------ ------------
Shares sold 490,032 $ 5,072,988 836,117 $ 7,366,455
Shares redeemed (593,777) (5,912,012) (386,614) (3,415,989)
------------ ------------ ------------ ------------
Net increase (decrease) (103,745) $ (839,024) 449,503 $ 3,950,466
============ ============ ============ ============
Class D Shares Amount Shares Amount
- -------------------------- ------------ ------------ ------------ ------------
Shares sold 14,475 $ 143,867 85,008 $ 686,924
Shares redeemed (380,626) (3,593,160) (490,937) (4,091,476)
------------ ------------ ------------ ------------
Net decrease (366,151) $(3,449,293) (405,929) $(3,404,552)
============ ============ ============ ============
</TABLE>
9
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------- --------------------------------------
Year ended September 30 Year ended September 30
-------------------------------------- --------------------------------------
1996**** 1995**** 1994** 1996**** 1995**** 1994**
- --------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 9.69 $ 8.56 $ 9.45 $ 9.58 $ 8.52 $ 9.45
Net investment loss* (0.09) (0.08) (0.02) (0.17) (0.14) (0.06)
Net realized and unrealized
gain (loss) on
investments 1.73 1.21 (0.87) 1.70 1.20 (0.87)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of
year $ 11.33 $ 9.69 $ 8.56 $ 11.11 $ 9.58 $ 8.52
============ ============ ============ ============ ============ ============
Total return 16.92%+ 13.20%+ (9.42)%+++ 15.97%+ 12.44%+ (9.84)%+++
Net assets at end of year
(000s) $19,791 $21,480 $21,986 $23,656 $26,489 $29,287
Ratio of operating expenses
to average net assets* 1.35% 1.35% 1.35%++ 2.10% 2.10% 2.10%++
Ratio of net investment
loss to average net
assets* (0.96)% (0.93)% (0.58)%++ (1.71)% (1.67)% (1.32)%++
Portfolio turnover rate 155.85% 178.60% 83.61% 155.85% 178.60% 83.61%
Average commission rate@ $ .0159 -- -- $ .0159 -- --
*Reflects voluntary
assumption of fees or
expenses per share in
each year (Note 3). $ 0.04 $ 0.06 $ 0.02 $ 0.04 $ 0.06 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
-------------------------------------- --------------------------------------
Year ended September 30 Year ended September 30
-------------------------------------- --------------------------------------
1996**** 1995**** 1994*** 1996**** 1995**** 1994**
- --------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 9.77 $ 8.60 $ 9.55 $ 9.58 $ 8.52 $ 9.45
Net investment loss* (0.07) (0.06) (0.06) (0.16) (0.14) (0.06)
Net realized and unrealized
gain (loss) on
investments 1.74 1.23 (0.89) 1.68 1.20 (0.87)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value, end of
year $ 11.44 $ 9.77 $ 8.60 $ 11.10 $ 9.58 $ 8.52
============ ============ ============ ============ ============ ============
Total return 17.09%+ 13.60%+ (9.95)%+++ 15.87%+ 12.44%+ (9.84)%+++
Net assets at end of year
(000s) $13,311 $12,380 $7,033 $ 4,503 $ 7,391 $10,032
Ratio of operating expenses
to average net assets* 1.10% 1.10% 1.10%++ 2.10% 2.10% 2.10%++
Ratio of net investment
loss to average net
assets* (0.71)% (0.71)% (0.68)%++ (1.71)% (1.67)% (1.32)%++
Portfolio turnover rate 155.85% 178.60% 83.61% 155.85% 178.60% 83.61%
Average commission rate@ $ .0159 -- -- $ .0159 -- --
*Reflects voluntary
assumption of fees or
expenses per share in
each year (Note 3). $ 0.04 $ 0.06 $ 0.04 $ 0.04 $ 0.06 $ 0.02
</TABLE>
++ Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily assumed a portion of the Fund's expenses.
** February 1, 1994 (commencement of share class designations) to September
30, 1994.
*** October 4, 1993 (commencement of operations) to September 30, 1994.
****Per-share figures have been calculated using the average shares method.
@ For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate per share paid for
security trades.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of State Street Research
Capital Trust and Shareholders of
State Street Research Small Capitalization Growth Fund
We have audited the accompanying statement of assets and liabilities of State
Street Research Small Capitalization Growth Fund, including the schedule of
portfolio investments, as of September 30, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express and opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require than 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
examining, on a test basis, evidence supporting the amounts and disclosure in
the financial statements. Our procedures included confirmation of securities
owned as of September 30, 1996, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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
State Street Research Small Capitalization Growth Fund as of September 30,
1996, the results of its operations for the year then ended, the changes in
its net asset for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 8, 1996
11
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
MANAGEMENTS DISCUSSION OF FUND PERFORMANCE
The past year was good for State Street Research Small Capitalization Growth
Fund. The Fund outperformed the Russell 2000 Growth Index, a benchmark for
small-cap stock performance, for the 12 months ended September 30, 1996.
Small Capitalization Growth Fund underperformed the average return for the
Lipper Analytical Services Small Company Growth Fund category.
Small Capitalization Growth Fund was underweighted in technology stocks in
the past year, which helped Fund performance, as technology stocks
experienced two significant declines in the past 12 months.
Collectively, consumer stocks, in industries including retail, recreation,
business services and others, totaled more than 43% of the portfolio. These
sectors offered good value.
Energy stocks had a strong impact on Small Capitalization Growth Fund's
performance. Generally, the Fund invested in oil and gas exploration and
production companies with rapidly accelerating cash flow. The long-term
supply of oil and gas is low compared to long-term demand, plus technological
advances are helping these companies produce more cheaply. Energy stocks,
which are not widely followed by Wall Street, have offered a combination of
attractive valuations and high growth rates.
September 30, 1996
The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded stocks and is a commonly used measure of U.S. stock market
performance. The index is unmanaged and does not take sales charges into
consideration. Direct investment in the index is not possible; results are
for illustrative purposes only. All returns represent past performance, which
is no guarantee of future results. The investment return and principal value
of an investment made in the Fund will fluctuate and shares, when redeemed,
may be worth more or less than their original cost. All returns assume
reinvestment of capital gain distributions and income dividends. Performance
for a class includes periods prior to the adoption of class designations in
1994. "C" shares, offered without a sales charge, are available only to
certain employee benefit plans and large institutions. Performance prior to
class designations does not reflect annual 12b-1 fees of .25% for "A" shares
and 1% for "B" and "D" shares, which will reduce subsequent performance.
Performance reflects maximum 4.5% "A" share front-end sales charge, or 5% "B"
share or 1% "D" share contingent deferred sales charges. The first figure
reflects expense reduction; the second shows what results would have been
without subsidization.
Change In Value Of $10,000 Based on the S&P 500 Compared to Change In Value
Of $10,000 Invested In Small Capitalization Growth Fund
[DATA FOR LINE CHARTS]
Class A Shares
Average Annual Total Return
1 Year Life of Fund
+11.66%/+11.22% +4.26%/+3.75%
10/4/93 9550 10000
9/30/94 8560 10368
9/30/95 9690 13448
9/30/96 11330 16181
Class B Shares
Average Annual Total Return
1 Year Life of Fund
+10.97%/+10.50% +4.27%/+3.74%
10/4/93 10000 10000
9/30/94 8921 10368
9/30/95 9631 13448
9/30/96 11334 16181
Class C Shares
Average Annual Total Return
1 Year Life of Fund
+17.09%/+16.63% +6.22%/+5.67%
10/4/93 10000 10000
9/30/94 9005 10368
9/30/95 10230 13448
9/30/96 11979 16181
Class D Shares
Average Annual Total Return
1 Year Life of Fund
+14.87%/+14.40% +5.15%/+4.63%
10/4/93 10000 10000
9/30/94 8921 10368
9/30/95 10031 13448
9/30/96 11623 16181
12
<PAGE>
STATE STREET RESEARCH SMALL CAPITALIZATION GROWTH FUND
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH CAPITAL TRUST
Fund Information
State Street Research
Small Capitalization
Growth Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Jesus A. Cabrera
Vice President
Rudolph K. Kluiber
Vice President
Frederick R. Kobrick
Vice President
James M. Weiss
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of
the Board and Chief Executive
Officer, Raytheon Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel, Choate, Hall & Stewart
13
<PAGE>
State Street Research
Small Capitalization Growth Fund
One Financial Center
Boston, MA 02111
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[STATE STREET LOGO]
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective 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: 3508-961125(1297)SSR-LD
Cover Illustration by Dorothy Cullinan SCG-085E-1196
<PAGE>
[cover]
[State Street Research logo]
State Street Research
Capital Fund
Annual Report
September 30, 1996
[graphic--person climbing toward stars]
What's Inside
From the Chairman
1996: A more challenging
investment environment
Portfolio Manager's Review
Long-term performance
on track
Fund Information
Facts and Figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar logo]
Quality
Tested Service
1995
Dalbar
Honors Commitment To:
Investors
For Excellence
in
Shareholder Service
<PAGE>
From the Chairman
To Our Shareholders:
[Photo of Ralph F. Verni]
1996 is shaping up to be another year of above-average stock market
performance. State Street Research Capital Fund portfolio manager Fred
Kobrick and I think the outlook for emerging growth and small- and medium-cap
stocks is favorable going forward. And compared to larger stocks, small- and
medium-cap stocks offer some of the most compelling values.
This year has offered more investing challenges than 1995 did for two
reasons. First, interest rates crept upward again. Higher interest rates make
it more expensive for companies to operate, and stock prices often fall as a
result. Second, on two separate occasions, we saw sharp declines--
corrections--that primarily affected smaller stocks like the ones Capital
Fund invests in.
For much of the past year, there were strong corporate profits, low inflation
and steady-but-slow economic growth. The stock and bond markets were unduly
influenced over the past few months by news on the economy, employment and
what the Federal Reserve might do. Contradictions as to which direction the
economy was headed caused rallies on some days and declines on others. But,
again, the stock market showed a trend of advancement, with the Dow breaking
the 6000 point barrier in the first week of October 1996.
In closing, I'd like to say as an overseer of this Fund that we have a great
team at work here: Fred Kobrick's many years of experience and investment
disciplines combined with State Street Research's research capabilities give
Capital Fund investors the needed advantage in today's markets.
Thank you for investing in State Street Research Capital Fund.
Sincerely,
/s/Ralph F. Verni
Ralph F. Verni
Chairman
October 31, 1996
(1)+9.33% for Class B shares; +10.41% for Class C shares; +9.23% for Class D
shares.
(2)Investment results are based on an assumed $10,000 investment at "A" share
maximum sales charge of 4.5%; thus, the net amount invested was $9,550. Also
assumes capital gain distributions accepted in shares and income dividends
invested at net asset value. No adjustment has been made for income taxes
payable by shareholders on income dividends or capital gain distributions.
(3)All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. During the periods prior to 1993 that
shares were not offered to the general public, the Fund was not subject to
the cash inflows and higher level of redemptions and expenses that have
occurred during the Fund's current, continuous public offering. Performance
for a class includes periods prior to the adoption of class designations. "C"
shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions. Performance prior to 1993
class designations does not reflect annual 12b-1 fees of .25% for "A" shares
and 1% for "B" and "D" shares, which will reduce subsequent performance.
(4)Performance reflects maximum 4.5% "A" share front-end sales charge or 5%
"B" share or 1% "D" share contingent deferred sales charges, where
applicable.
(5)Cumulative total returns are not annualized, nor do they reflect sales
charges, which, if reflected, would reduce performance.
Please note that the discussion throughout this shareholder report is dated
as indicated and, because of possible changes in viewpoint, date and
transactions, should not be relied upon as being current thereafter.
Fund Information (all data are for periods ended September 30, 1996)
Total value of $10,000 invested on October 1, 1986(2)
(Class A shares, at maximum applicable sales charge)
[plot points for mountain chart]
<TABLE>
<S> <C>
10/86 9550
9/87 13622
9/88 11720
9/89 15697
9/90 12430
9/91 19126
9/92 20529
9/93 31824
9/94 32622
9/95 44677
9/96 49197
</TABLE>
[end of plot points for mountain chart]
SEC Average Annual Compound
Rates of Return
(at maximum applicable sales charge)(3),(4)
<TABLE>
<CAPTION>
10 Years 5 Years 1 Year
<S> <C> <C> <C>
------------------------------------------
Class A +17.27% +19.69% +5.16%
------------------------------------------
Class B +17.54% +20.04% +4.33%
------------------------------------------
Class C +17.95% +21.09% +10.41%
------------------------------------------
Class D +17.55% +20.26% +8.23%
------------------------------------------
</TABLE>
Cumulative Total Returns
(do not reflect sales charge)(3),(5)
<TABLE>
<CAPTION>
10 Years 5 Years 1 Year
<S> <C> <C> <C>
- ---------------------------------------------
Class A +415.16% +157.22% +10.12%
- ---------------------------------------------
Class B +403.13% +151.22% +9.33%
- ---------------------------------------------
Class C +421.34% +160.31% +10.41%
- ---------------------------------------------
Class D +403.84% +151.57% +9.23%
- ---------------------------------------------
</TABLE>
Top 5 Industries
(by percentage of net assets)
[bar chart]
Retail trade 14.2%
Computer software & service 12.3%
Hotel & restaurants 10.7%
Business service 7.8%
Recreation 6.4%
Total 51.4%
[end of bar chart]
<PAGE>
Portfolio Manager's Review
The following is a discussion with portfolio manager Fred Kobrick. Fred has
25 years of investment experience and is the lead portfolio manager for the
Equity Group's Aggressive Growth Team.
[Photo of Fred Kobrick, Portfolio Manager]
Q: How did the Fund perform over the past 12 months?
A: Performance was mixed, but the one-year returns don't tell the whole
story. Class A shares of the Fund provided a total return of +10.12% for the
year ended September 30, 1996 (does not reflect sales charge).(1) Over the past
12 months, the Fund underperformed the +16.01% average total return for the
175 funds in the Lipper Capital Appreciation Funds category (does not reflect
sales charges).
I should note that these return figures illustrate the impact of the ups and
downs that occurred in the market over the past twelve months, which
presented us with a more challenging investment environment. Capital Fund
proved to be a much stronger performer in the second half of the period,
beating the average total return for its Lipper category for the six months
ended September 30, 1996. The Fund also outperformed the category
year-to-date and for the longer-term 3-, 5- and 10-year periods ended
September 30, 1996.
Q: What contributed to Fund performance?
A: Some of the Fund's short-term underperformance can be attributed to a
couple of significant occurrences in the stock market in the past year: In
the fall of 1995, technology stocks experienced a steep decline. And in July
of this year, we experienced a stock market correction led by a sell-off in
smaller, more aggressive growth stocks.
We made strong recoveries following both events by doing our homework and
making good choices in a variety of industry sectors, most notably, retail,
computer software and service, business service, and hotel and restaurant
stocks.
Q: What adjustments did you make to the portfolio during the past 12 months?
A: We made a number of changes to the Fund. Last year at this time we had
7.8% of the portfolio invested in retail stocks. We have added to this,
taking a position in well-known European apparel designer Gucci Group. Retail
made up 14.2% of the portfolio as of September 30, 1996. Our focus in this
area has been on firms that design their own apparel and offer retail
locations.
At the beginning of the period we had a substantial portion of the portfolio
in technology stocks spread over a number of industries. We pared this
position down and focused our holdings in computer software and service,
primarily sticking to companies offering products to increase productivity.
As of September 30, 1996, software and service stocks represented 12.3% and
electronic components represented 5.8% of the portfolio.
We have also added to hotel and restaurant stocks over the past 12 months to
the benefit of the portfolio. Reservation service provider HFS and hotel
chain Extended Stay America represent the largest holdings in this area.
Q: What is your investment strategy going forward?
A: The stock market has been up and down in 1996, with an overall upward
trend. I think the corrections we've seen have been beneficial, as they have
taken some of the speculation out of the market and presented us with good
buying opportunities. We'll continue to rely on our fundamental research to
help us uncover companies--small or large--that present a good value or offer
strong growth potential. Bottom-up, company-by-company stock selection has
been a mainstay of our method and will continue to be so.
September 30, 1996
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<S> <C> <C>
1 HFS Hotel reservation service 4.8%
2 Republic Industries Waste management company 4.3%
3 Gucci Apparel designer/manufacturer 3.1%
4 Extended Stay America Extended-stay lodging facilities firm 2.3%
5 HBO & Co. Hospital information systems firm 2.0%
6 MedPartners Multistate HMO services company 1.9%
7 Sunglass Hut Specialty retailer 1.8%
8 Sanmina Manufacturer of electronic circuit boards 1.8%
9 Home Depot Home-supply retail giant 1.8%
10 Sun Microsystems Networked workstations company 1.7%
</TABLE>
These securities represent an aggregate of 25.5% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities listed in this table or in the
text above.
Best and Worst Contributors to Performance
(October 1, 1995 through September 30, 1996)
Best [up arrow]
HFS
Expansion into real estate markets helped this reservation service provider.
Gucci
Market-share gains boosted the profits of this specialty retailer.
Republic Industries
Consolidation of its industries raised the profitability for this waste
management company.
Worst [down arrow]
Sunglass Hut
Reduced shopping mall traffic hurt retailer's earnings.
Nokia
Weak earnings reports drove down the stock price of this cellular phone
maker.
Softkey International
Company's aggressive expansion made many investors nervous.
2
<PAGE>
State Street Research Capital Fund
Investment Portfolio
September 30, 1996
Value
Shares (Note 1)
--------------------------------------------- --------- -----------------
COMMON STOCKS 97.6%
Basic Industries 2.1%
Chemical 0.5%
Rhone-Poulenc SA ADR* 126,700 $ 3,547,600
-----------------
Diversified 0.4%
AlliedSignal Inc. 50,500 3,326,688
-----------------
Machinery 1.0%
Thermo Fibergen Inc. Unit* 66,800 843,350
Wolverine Tube Inc.* 150,000 6,450,000
-----------------
7,293,350
-----------------
Metal & Mining 0.2%
Oregon Metallurgical Corp.* 37,200 1,209,000
-----------------
Total Basic Industries 15,376,638
-----------------
Consumer Cyclical 36.0%
Automotive 0.6%
Danaher Corp. 24,800 1,026,100
Dura Automotive Systems Inc.* 12,000 223,500
Penske Motorsports Inc.* 12,500 439,062
Team Rental Group, Inc. Cl. A* 126,000 2,394,000
-----------------
4,082,662
-----------------
Hotel & Restaurant 10.7%
Extended Stay America Inc.* 797,400 16,346,700
HFS Inc.* 522,700 34,955,562
Lone Star Steakhouse & Saloon Inc.* 60,100 1,829,294
Mirage Resorts Inc.* 150,900 3,866,813
Planet Hollywood International, Inc. Cl. A* 15,100 422,800
Rainforest Cafe Inc.* 120,150 3,724,650
Renaissance Hotel Group NV* 42,600 852,000
Sun International Hotels Ltd.* 87,800 4,499,750
Trump Hotels & Casino Resorts Inc.* 485,600 11,290,200
-----------------
77,787,769
-----------------
Recreation 6.4%
Action Performance Companies Inc.* 25,300 325,738
American Radio Systems Corp. Cl. A* 131,200 4,887,200
Ascent Entertainment Group Inc.* 126,200 2,997,250
Chancellor Broadcasting Co. Cl. A* 38,000 1,577,000
Clear Channel Communications Inc.* 105,300 9,319,050
Cox Radio Inc. Cl. A* 28,400 624,800
Evergreen Media Corp. Cl. A 367,650 11,489,062
Gemstar Group Ltd.* 58,300 1,719,850
Golden Bear Golf, Inc. Cl. A* 49,500 977,625
Lin Television Corp.* 89,100 3,653,100
Marker International Inc.* 83,000 809,250
Oakley Inc.* 188,100 7,994,250
Silver King Communications Inc.* 17,000 399,500
-----------------
46,773,675
-----------------
Retail Trade 14.2%
Abercrombie & Fitch Co. Cl. A* 16,400 $ 401,800
Borders Group Inc.* 169,500 6,313,875
BT Office Products International Inc.* 172,900 2,355,763
Corporate Express Inc.* 255,000 9,913,125
Federated Department Stores Inc.* 182,300 6,107,050
Gucci Group NV* 307,300 22,279,250
Home Depot Inc. 225,600 12,831,000
Industrie Natuzzi SPA ADR 37,200 1,729,800
J.C. Penney Inc. 60,400 3,269,150
Just For Feet Inc.* 138,050 6,919,756
Loehmann's, Inc.* 10,800 289,575
Melville Corp. 183,100 8,079,287
Micro Warehouse Inc.* 59,600 1,534,700
Saks Holdings Inc.* 139,100 4,868,500
Staples Inc.* 134,250 2,978,672
Sunglass Hut International Inc.* 821,300 13,089,469
-----------------
102,960,772
-----------------
Textile & Apparel 4.1%
Authentic Fitness Corp. 30,500 373,625
Designer Holdings Ltd.* 17,000 444,125
Fila Holdings SPA ADR 81,000 7,786,125
Men's Wearhouse, Inc.* 388,225 9,705,625
Nautica Enterprises Inc.* 171,900 5,543,775
Tag Heuer International SA ADR* 91,400 1,805,150
Tommy Hilfiger Corp.* 71,000 4,206,750
-----------------
29,865,175
-----------------
Total Consumer Cyclical 261,470,053
-----------------
Consumer Staple 19.3%
Business Service 7.8%
Apache Medical Systems Inc.* 51,600 696,600
HBO & Co. 220,600 14,725,050
Metromail Corp.* 28,900 624,963
Outdoor Systems Inc.* 34,000 1,598,000
Republic Industries Inc.* 704,100 20,418,900
Republic Industries Inc.++* 395,000 11,012,837
Teletech Holdings Inc.* 120,200 4,387,300
Universal Outdoor Holdings Inc.* 79,200 2,851,200
Xeikon NV ADR* 17,500 175,273
-----------------
56,490,123
-----------------
Drug 1.7%
Applied Analytical Industries Inc.* 8,300 188,825
Cephalon Inc.* 143,500 3,461,937
Entremed Inc.* 93,900 1,525,875
Express Scripts Inc. Cl. A* 34,500 1,250,625
Liposome Company, Inc.* 246,800 4,658,350
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
State Street Research Capital Fund
Value
Shares (Note 1)
--------------------------------------------- --------- -----------------
Drug (cont'd)
Magainin Pharmaceuticals Inc.* 67,200 $ 789,600
Matrix Pharmaceuticals Inc.* 37,300 298,400
Myriad Genetics Inc.* 13,100 334,050
-----------------
12,507,662
-----------------
Food & Beverage 2.6%
Pete's Brewing Co.* 8,300 64,325
Starbucks Corp.* 298,200 9,840,600
Boston Beer Company, Inc. Cl. A* 4,100 79,437
Boston Chicken Inc.* 251,800 8,875,950
-----------------
18,860,312
-----------------
Hospital Supply 5.8%
CardioThoracic Systems Inc.* 17,700 360,638
Guidant Corp. 59,500 3,287,375
MedPartners Inc.* 601,483 13,683,738
Medtronic Inc. 46,600 2,988,225
Neopath Inc.* 128,700 2,477,475
Oxford Health Plans Inc.* 116,200 5,780,950
PacifiCare Health Systems, Inc. Cl. B* 77,200 6,677,800
United Healthcare Corp. 175,400 7,301,025
-----------------
42,557,226
-----------------
Personal Care 0.3%
Gargoyles Inc.* 24,800 527,000
Polymer Group Inc.* 99,000 1,386,000
-----------------
1,913,000
-----------------
Printing & Publishing 1.0%
CKS Group Inc.* 4,100 96,863
Hollinger International Inc. Cl. A* 380,800 4,284,000
Hollinger International, Inc. Cv. Pfd. 171,400 1,906,825
World Color Press Inc.* 46,400 1,032,400
-----------------
7,320,088
-----------------
Tobacco 0.1%
Consolidated Cigar Holdings Inc. Cl. A* 24,400 747,250
-----------------
Total Consumer Staple 140,395,661
-----------------
Energy 5.5%
Oil 2.8%
Chesapeake Energy Corp. 25,000 1,565,625
Noble Affiliates Inc. 216,700 9,155,575
Total SA Cl. B ADR 250,500 9,800,812
-----------------
20,522,012
-----------------
Oil Service 2.7%
Ensco International Inc.* 103,500 3,363,750
Newpark Resources, Inc.* 39,500 1,436,813
Oil Service (cont'd)
Noble Drilling Corp.* 407,200 $ 6,158,900
Reading & Bates Corp.* 130,100 3,528,962
Rowan Companies, Inc.* 197,200 3,672,850
Varco International Inc.* 58,300 1,027,538
-----------------
19,188,813
-----------------
Total Energy 39,710,825
-----------------
Finance 4.8%
Bank 1.5%
Bank United Corp. Cl. A* 38,000 945,250
Citicorp 107,300 9,724,062
-----------------
10,669,312
-----------------
Financial Service 2.4%
Associates First Capital Corp. Cl. A 91,700 3,759,700
E*Trade Group Inc.* 73,400 967,962
First USA Paymentech Inc.* 6,900 280,313
Green Tree Financial Corp. 100,600 3,948,550
Hambrecht & Quist Group Inc.* 23,800 461,125
Money Store Inc. 166,500 4,412,250
Starwood Lodging Trust 88,000 3,685,000
-----------------
17,514,900
-----------------
Insurance 0.9%
Everest Reinsurance Holdings Inc. 220,400 5,454,900
W.R. Berkley Corp. 21,900 1,001,925
-----------------
6,456,825
-----------------
Total Finance 34,641,037
-----------------
Science & Technology 26.4%
Aerospace 1.4%
Boeing Co. 105,500 9,969,750
-----------------
Computer Software & Service 12.3%
Ascend Communications Inc.* 124,300 8,219,337
Aware Inc.* 31,500 531,563
C/Net, Inc.* 6,200 116,250
Cascade Communications Corp.* 58,600 4,775,900
CCC Information Services Group Inc.* 27,100 569,100
Check Point Software Technologies Ltd.* 32,600 1,100,250
CheckFree Corp.* 13,300 266,000
Cisco Systems Inc.* 162,900 10,109,981
Compuserve Corp.* 29,400 396,900
Computer Associates International Inc. 58,500 3,495,375
Dassault Systemes SA ADR* 19,900 833,312
Datastream Systems Inc.* 72,300 2,187,075
Excalibur Technologies Corp.* 5,200 88,400
Fore Systems Inc.* 137,400 5,684,925
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
State Street Research Capital Fund
Investment Portfolio (cont'd)
Value
Shares (Note 1)
--------------------------------------------- --------- -----------------
Computer Software & Service (cont'd)
Geoworks* 199,800 $ 5,194,800
International Network Services* 6,100 214,263
Microsoft Corp.* 78,300 10,325,812
OneWave Inc.* 177,700 2,687,712
Open Market Inc.* 9,100 131,950
Open Text Corp.* 193,800 1,162,800
OpenVision Technologies Inc.* 23,400 216,450
Parametric Technology Corp.* 137,400 6,784,125
SS&C Technologies Inc.* 7,500 75,938
Synopsys Inc.* 89,800 4,142,025
Triple P NV* 105,800 416,588
Westell Technologies Cl. A* 161,100 7,128,675
Western Digital Corp.* 129,800 5,208,225
Wind River Systems Inc.* 103,800 4,593,150
Xionics Document Technologies, Inc.* 23,900 358,500
Xylan Corp.* 24,700 1,339,975
Yahoo!, Inc.* 56,200 1,194,250
-----------------
89,549,606
-----------------
Electronic Components 5.8%
Affymetrix Inc.* 5,300 92,750
CHS Electronics Inc.* 43,600 594,050
Cymer Inc.* 10,500 186,375
Intel Corp. 79,400 7,577,738
Micron Technology Inc. 320,700 9,781,350
Sanmina Corp.* 319,800 12,871,950
Texas Instruments Inc. 204,700 11,284,087
-----------------
42,388,300
-----------------
Electronic Equipment 2.3%
Advanced Fibre Communications, Inc.* 5,600 140,000
Lucent Technologies Inc.* 261,000 11,973,375
Octel Communications Corp.* 134,800 3,909,200
Thermo Optek Corp.* 37,000 536,500
-----------------
16,559,075
-----------------
Office Equipment 4.6%
3Com Corp.* 142,400 8,552,900
Hewlett-Packard Co. 144,500 7,044,375
Orckit Communications Ltd.* 44,700 821,363
Sun Microsystems Inc.* 194,600 12,089,525
U.S. Robotics Corp.* 77,800 5,027,825
-----------------
33,535,988
-----------------
Total Science & Technology 192,002,719
-----------------
Utility 3.5%
Natural Gas 0.5%
Calpine Corp.* 211,500 $ 3,384,000
-----------------
Telephone 3.0%
ADC Telecommunications Inc.* 104,700 6,700,800
Brooks Fiber Properties Inc.* 19,900 572,125
Excel Communications, Inc.* 16,500 521,813
McLeod, Inc.* 41,500 1,369,500
Newbridge Networks Corp.* 24,800 1,581,000
Omnipoint Corp.* 67,900 1,977,587
Telefonica del Peru SA Cl. B ADR 325,000 7,434,375
Teleport Communications Group, Inc. Cl. A* 83,200 1,965,600
-----------------
22,122,800
-----------------
Total Utility 25,506,800
-----------------
Total Common Stocks (Cost $575,296,004) 709,103,733
-----------------
Principal Maturity
Amount Date
------------------------------- -------------- ------------- ---------------
SHORT-TERM OBLIGATIONS 3.1%
Associates Corp. of North
America, 5.25% $15,294,000 10/01/1996 15,294,000
Ford Motor Credit Co., 5.36% 1,828,000 10/02/1996 1,828,000
Ford Motor Credit Co., 5.25% 4,929,000 10/03/1996 4,929,000
---------------
Total Short-Term Obligations (Cost $22,051,000) 22,051,000
---------------
Total Investments (Cost $597,347,004)--100.7% 731,154,733
Cash and Other Assets, Less Liabilities--(0.7%) (4,854,999)
---------------
Net Assets--100.0% $726,299,734
===============
Federal Income Tax Information:
At September 30, 1996, the net unrealized appreciation of
investments based on cost for Federal income tax purposes
of $598,142,139 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $147,862,860
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value (14,850,266)
---------------
$133,012,594
===============
* Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of
foreign securities.
++ Security valued under consistently applied procedures established by the
Trustees. Security restricted as to public resale. The total cost and
market value of restricted securities owned at September 30, 1996 were
$7,998,750 and $11,012,837 (1.52% of net assets), respectively.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
State Street Research Capital Fund
Statement of Assets and Liabilities
September 30, 1996
Assets
Investments, at value (Cost $597,347,004) (Note
1) $731,154,733
Cash 174
Receivable for securities sold 12,823,082
Receivable for fund shares sold 3,193,991
Dividends and interest receivable 179,790
Other assets 27,541
---------------
747,379,311
Liabilities
Payable for securities purchased 19,251,692
Payable for fund shares redeemed 590,906
Accrued transfer agent and shareholder services
(Note 2) 235,645
Accrued management fee (Note 2) 405,478
Accrued distribution and service fees (Note 4) 450,860
Accrued trustees' fees (Note 2) 7,502
Other accrued expenses 137,494
---------------
21,079,577
---------------
Net Assets $726,299,734
===============
Net Assets consist of:
Unrealized appreciation of investments $133,807,729
Accumulated net realized loss (2,079,183)
Shares of beneficial interest 594,571,188
---------------
$726,299,734
===============
Net Asset Value and redemption price per share
of Class A shares ($114,247,043 / 8,300,931
shares of beneficial interest) $13.76
===============
Maximum Offering Price per share of Class A
shares ($13.76 / .955) $14.41
===============
Net Asset Value and offering price per share of
Class B shares ($386,899,013 / 28,872,901
shares of beneficial interest)* $13.40
===============
Net Asset Value, offering price and redemption
price per share of Class C shares ($34,834,999
/ 2,499,112 shares of beneficial interest) $13.94
===============
Net Asset Value and offering price per share of
Class D shares ($190,318,679 / 14,180,375
shares of beneficial interest)* $13.42
===============
-------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net
asset value less any applicable contingent deferred sales charge.
Statement of Operations
For the year ended September 30, 1996
Investment Income
Dividends, net of foreign taxes of $63,219 $ 2,227,719
Interest 2,525,316
--------------
4,753,035
Expenses
Management fee (Note 2) 4,024,320
Transfer agent and shareholder services (Note 2) 805,247
Custodian fee 180,669
Reports to shareholders 138,308
Distribution fee--Class A (Note 4) 202,813
Distribution and service fees--Class B (Note 4) 2,822,104
Distribution and service fees--Class D (Note 4) 1,387,708
Registration fees 180,166
Audit fee 28,368
Trustees' fees (Note 2) 30,194
Legal fees 20,268
Miscellaneous 34,999
--------------
9,855,164
--------------
Net investment loss (5,102,129)
--------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized loss on investments (Notes 1 and 3) (2,073,183)
Net unrealized appreciation of investments 70,731,585
--------------
Net gain on investments 68,658,402
--------------
Net increase in net assets resulting from operations $63,556,273
==============
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
State Street Research Capital Fund
Statement of Changes in Net Assets
Year ended September 30
-------------------------------
1996 1995
-------------------------------------------------------- ---------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $ (5,102,129) $ (2,022,509)
Net realized gain (loss) on investments* (2,073,183) 32,914,544
Net unrealized appreciation of
investments 70,731,585 52,115,081
--------------- ---------------
Net increase resulting from operations 63,556,273 83,007,116
--------------- ---------------
Distributions from net realized gains:
Class A (4,170,914) (92,618)
Class B (15,632,187) (320,406)
Class C (3,556,781) (93,107)
Class D (7,349,181) (164,154)
--------------- ---------------
(30,709,063) (670,285)
--------------- ---------------
Net increase from fund share transactions
(Note 5) 291,406,436 164,713,294
--------------- ---------------
Total increase in net assets 324,253,646 247,050,125
Net Assets
Beginning of year 402,046,088 154,995,963
--------------- ---------------
End of year $726,299,734 $402,046,088
=============== ===============
*Net realized gain (loss) for Federal
income tax purposes (Note 1) $ (928,280) $ 32,687,493
=============== ===============
Notes to Financial Statements
September 30, 1996
Note 1
State Street Research Capital Fund (the "Fund"), is a series of State Street
Research Capital Trust (the "Trust"), which is a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust was organized
in November, 1988 as a successor to State Street Capital Fund, Inc., a
Massachusetts corporation. The Trust consists presently of three separate
funds: State Street Research Capital Fund, State Street Research Small
Capitalization Growth Fund and State Street Research Small Capitalization
Value Fund.
The investment objective of the Fund is to seek maximum capital appreciation
by investing primarily in common stocks of emerging growth companies and of
companies considered to be undervalued special situations, as determined by
the Fund's investment manager.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and pay an annual service fee equal to
0.25% of average daily net assets. Class B shares are subject to a contingent
deferred sales charge on certain redemptions made within five years of
purchase and pay annual distribution and service fees of 1.00%. Class B
shares automatically convert into Class A shares (which pay lower ongoing
expenses) at the end of eight years after the issuance of the Class B shares.
Class C shares are only offered to certain employee benefit plans and large
institutions. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase.
Class D shares also pay annual distribution and service fees of 1.00%. The
Fund's expenses are borne pro-rata by each class, except that each class
bears expenses, and has exclusive voting rights with respect to provisions of
the Plan of Distribution, related specifically to that class. The Trustees
declare separate dividends on each class of shares.
The following significant 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. Investments in Securities
Values for listed securities represent the last sale 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 the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are
at the mean of the closing bid and asked quotations, except for certain
securities that may be restricted as to public resale, which are valued in
accordance with methods adopted by the Trustees. Security transactions are
accounted for on the trade date (date the order to buy or sell is executed),
and dividends declared but not received are accrued on the ex-dividend date.
Interest income is determined on the accrual basis. Realized gains and losses
from security transactions are reported on the basis of identified cost of
securities delivered for both financial reporting and Federal income tax
purposes.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
State Street Research Capital Fund
B. Federal Income Taxes
No provision for Federal income taxes is necessary since 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 September 30, 1996, the Fund
had a capital loss carryforward of $928,280 available, to the extent provided
in regulations, to offset future capital gains, if any, which expires on
September 30, 2004.
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, 1995
through September 30, 1996, the Fund incurred net capital losses of
approximately $356,000 and intends to defer and treat such losses as arising
in the fiscal year ended September 30, 1997.
C. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
D. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser
earns monthly fees equal to 1/16 of 1% (3/4 of 1% on an annual basis) of
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. The fees of the Trustees not
currently affiliated with the Adviser amounted to $30,194 during the year
ended September 30, 1996.
State Street Research Shareholder Services, a division of State Street
Research Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase
and redemption of shares of the Fund. During the year ended September 30,
1996, the amount of such expenses was $459,704.
Note 3
For the year ended September 30, 1996, exclusive of short-term investments
and U.S. Government obligations, purchases and sales of securities aggregated
$1,345,994,338 and $1,070,302,394, respectively.
Note 4
The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund
pays annual service fees to the Distributor at a rate of 0.25% of average
daily net assets for Class A, Class B and Class D shares. In addition, the
Fund pays annual distribution fees of 0.75% of average daily net assets for
Class B and Class D shares. The Distributor uses such payments for personal
services and/or the maintenance or servicing of shareholder accounts, to
reimburse securities dealers for distribution and marketing services, to
furnish ongoing assistance to investors and to defray a portion of its
distribution and marketing expenses. For the year ended September 30, 1996,
fees pursuant to such plan amounted to $202,813, $2,822,104 and $1,387,708
for Class A, Class B and Class D, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc.,
a wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $188,067 and $295,942, respectively, on sales of Class A shares
of the Fund during the year ended September 30, 1996, and that MetLife
Securities, Inc. earned commissions aggregating $678,831 on sales of Class B
shares, and that the Distributor collected contingent deferred sales charges
of $312,620 and $29,193 on redemptions of Class B and Class D shares,
respectively, during the same period.
8
<PAGE>
State Street Research Capital Fund
Notes (cont'd)
Note 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended September 30
--------------------------------------------------------------
1996 1995
------------------------------- ------------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,999,832 $ 62,467,171 2,826,294 $ 32,048,209
Issued upon reinvestment of distributions from net
realized gains 302,993 3,738,939 8,771 82,615
Shares repurchased (1,085,442) (13,577,652) (756,484) (8,537,685)
-------------- ---------------- -------------- ---------------
Net increase 4,217,383 $ 52,628,458 2,078,581 $ 23,593,139
============== ================ ============== ===============
Class B Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------
Shares sold 14,984,596 $183,598,870 9,420,000 $106,150,791
Issued upon reinvestment of distributions from net
realized gains 1,171,523 14,187,153 31,685 294,989
Shares repurchased (2,587,886) (31,537,100) (1,616,639) (17,716,667)
-------------- ---------------- -------------- ---------------
Net increase 13,568,233 $166,248,923 7,835,046 $ 88,729,113
============== ================ ============== ===============
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------
Shares sold 822,474 $ 10,670,766 1,284,385 $ 16,174,374
Issued upon reinvestment of distributions from net
realized gains 267,147 3,331,325 8,899 84,452
Shares repurchased (2,072,769) (26,820,873) (211,276) (2,192,278)
-------------- ---------------- -------------- ---------------
Net increase (decrease) (983,148) $(12,818,782) 1,082,008 $ 14,066,548
============== ================ ============== ===============
Class D Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------
Shares sold 7,893,265 $ 96,528,582 4,045,991 $ 46,180,380
Issued upon reinvestment of distributions from net
realized gains 561,501 6,811,002 16,713 155,761
Shares repurchased (1,469,595) (17,991,747) (710,067) (8,011,647)
-------------- ---------------- -------------- ---------------
Net increase 6,985,171 $ 85,347,837 3,352,637 $ 38,324,494
============== ================ ============== ===============
</TABLE>
9
<PAGE>
State Street Research Capital Fund
Financial Highlights
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------
February 17, 1993
(Commencement
Year ended September 30 of Share Class
-------------------------------- Designations) to
1996** 1995** 1994 September 30, 1993
----------------------------------------------------- --------- --------- --------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $13.53 $ 9.92 $ 10.43 $ 8.03
Net investment loss (0.05) (0.04) (0.04) (0.03)
Net realized and unrealized gain on
investments 1.30 3.69 0.28 2.43
Distributions from net realized gains (1.02) (0.04) (0.75) --
----------- --------- --------- --------------------
Net asset value, end of year $13.76 $13.53 $ 9.92 $10.43
=========== ========= ========= ====================
Total return 10.12%+ 36.95%+ 2.51%+ 24.61%+++
Net assets at end of year (000s) $114,247 $55,250 $19,891 $7,251
Ratio of expenses to average net assets 1.26% 1.33% 1.41% 2.43%++
Ratio of net investment loss to average
net assets (0.39)% (0.34)% (0.55)% (1.43)%++
Portfolio turnover rate 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0278 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class B
------------------------------------------------------
March 15, 1993
(Commencement
Year ended September 30 of Share Class
--------------------------------- Designations) to
1996** 1995** 1994 September 30, 1993
----------------------------------------------------- ----------- --------- --------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 13.29 $ 9.82 $ 10.40 $ 8.68
Net investment loss (0.14) (0.12) (0.08) (0.04)
Net realized and unrealized gain on
investments 1.27 3.63 0.25 1.76
Distributions from net realized gains (1.02) (0.04) (0.75) --
----------- ----------- --------- --------------------
Net asset value, end of year $ 13.40 $ 13.29 $ 9.82 $ 10.40
=========== =========== ========= ====================
Total return 9.33%+ 35.90%+ 1.79%+ 19.82%+++
Net assets at end of year (000s) $386,899 $203,446 $73,354 $16,044
Ratio of expenses to average net assets 2.01% 2.08% 2.16% 3.16%++
Ratio of net investment loss to average
net assets (1.13)% (1.10)% (1.28)% (2.15%)++
Portfolio turnover rate 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $ 0.0278 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------
Year ended September 30
-----------------------------------------------------
1996** 1995** 1994 1993 1992
------------------------------------------ --------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.66 $ 9.99 $10.46 $ 7.96 $7.74
Net investment loss (0.01) (0.01) (0.03) (0.06) (0.06)
Net realized and unrealized gain on
investments 1.31 3.72 0.31 3.90 0.63
Distributions from net realized gains (1.02) (0.04) (0.75) (1.34) (0.35)
------- ------- ------- ------- -------
Net asset value, end of year $13.94 $13.66 $ 9.99 $10.46 $7.96
======= ======= ======= ======= =======
Total return 10.41%+ 37.30%+ 2.91%+ 55.46%+ 7.34%+
Net assets at end of year (000s) $34,835 $47,553 $23,967 $18,342 $11,654
Ratio of expenses to average net assets 1.01% 1.08% 1.16% 2.11% 1.54%
Ratio of net investment loss to average
net assets (0.08)% (0.07)% (0.32)% (1.30)% (0.86)%
Portfolio turnover rate 215.07% 214.59% 167.08% 129.57% 124.94%
Average commission rate@ $0.0278 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class D
-----------------------------------------------------
March 15, 1993
(Commencement
Year ended September 30 of Share Class
-------------------------------- Designations) to
1996** 1995** 1994 September 30, 1993
----------------------------------------------------- --------- --------- --------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $13.31 $ 9.83 $10.39 $ 8.68
Net investment loss (0.14) (0.12) (0.09) (0.04)
Net realized and unrealized gain on
investments 1.27 3.64 0.28 1.75
Distributions from net realized gains (1.02) (0.04) (0.75) --
----------- ----------- --------- --------------------
Net asset value, end of year $13.42 $13.31 $ 9.83 $10.39
=========== =========== ========= ====================
Total return 9.23%+ 36.07%+ 2.00%+ 19.70%+++
Net assets at end of year (000s) $190,319 $95,797 $37,783 $5,011
Ratio of expenses to average net assets 2.01% 2.08% 2.16% 3.16%++
Ratio of net investment loss to average
net assets (1.13)% (1.09)% (1.28%) (2.16)%++
Portfolio turnover rate 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0278 -- - --
------------------------------------------------------------------------------------------------
</TABLE>
++ Annualized
** Per-share figures have been calculated using the average shares method.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges.
+++ Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charges.
@ For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate per share paid for
security trades.
10
<PAGE>
Report of Independent Accountants
To the Trustees of State Street Research
Capital Trust and Shareholders of
State Street Research Capital Fund
We have audited the accompanying statement of assets and liabilities of State
Street Research Capital Fund, including the schedule of portfolio
investments, as of September 30, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated therein. 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.
We conducted our audits in accordance with generally accepted auditing
standards. 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
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1996, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. 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
State Street Research Capital Fund as of September 30, 1996, the results of
its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 8, 1996
11
<PAGE>
State Street Research Capital Fund
Management's Discussion of Fund Performance
Capital Fund's short-term performance was hindered somewhat by the decline in
technology stocks in the fall of 1995 as well as by the July 1996 correction,
which was led by a sell-off in smaller, more aggressive growth stocks. The
Fund's performance rebounded following both events.
The Fund benefited from holdings in a number of industry sectors, most
notably, retail, computer software and service, business service, and hotel
and restaurant stocks. Capital Fund underperformed its peer group, but proved
to be a stronger performer in the second half of the period, beating the
average total return for its Lipper category.
Fund management made a number of changes to the Fund, including reducing its
overall position in technology stocks but focusing holdings in the area of
computer software and service. As of September 30, 1996, software and service
stocks represented 12.3% of the portfolio.
Capital Fund's management added to the Fund's position in retail and business
service stocks. Retail, as of September 30, 1996, made up 14.2% of the
portfolio. Business service stocks accounted for another 7.8% of the
portfolio.
Fund management also added to the portfolio's hotel and restaurant stocks,
which represented 10.7% of the portfolio as of September 30, 1996.
September 30, 1996
All returns represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment made in
the Fund will fluctuate and shares, when redeemed, may be worth more or less
than their original cost. All returns assume reinvestment of capital gain
distributions and income dividends. During the periods prior to 1993 that
shares were not offered to the general public, the Fund was not subject to
the cash inflows and higher level of redemptions and expenses that have
occurred during the Fund's current, continuous public offering. Performance
for a class includes periods prior to the adoption of class designations. "C"
shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions. Performance prior to 1993
class designations does not reflect annual 12b-1 fees of .25% for "A" shares
and 1% for "B" and "D" shares, which will reduce subsequent performance.
Performance reflects maximum 4.5% "A" share front-end sales charge or 5% "B"
share or 1% "D" share contingent deferred sales charges, where applicable.
The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely
traded common stocks and is a commonly used measure of U.S. stock market
performance. The 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 S&P 500 Compared To Change
In Value of $10,000 Invested In Capital Fund
[plot points for line chart]
Class A Shares
Average Annual Total Return
1 Year 5 Years 10 Years
+5.16% +19.69% +17.27%
9/86 9550 10000
9/87 13622 14342
9/88 11720 12565
9/89 15697 16706
9/90 12430 15162
9/91 19126 19876
9/92 20529 22071
9/93 31824 24933
9/94 32622 25850
9/95 44677 33529
9/96 49197 40343
[end of plot points for line chart]
[plot points for line chart]
Class B Shares
Average Annual Total Return
1 Year 5 Years 10 Years
+4.33% +20.04% +17.54%
9/86 10000 10000
9/87 14263 14342
9/88 12272 12565
9/89 16436 16706
9/90 13015 15162
9/91 20028 19876
9/92 21497 22071
9/93 33266 24933
9/94 33862 25850
9/95 46018 33529
9/96 50313 40343
[end of plot points for line chart]
[plot points for line chart]
Class C Shares
Average Annual Total Return
1 Year 5 Years 10 Years
+10.41% +21.09% +17.95%
9/86 10000 10000
9/87 14263 14342
9/88 12272 12565
9/89 16436 16706
9/90 13015 15162
9/91 20028 19876
9/92 21497 22071
9/93 33420 24933
9/94 34392 25850
9/95 47219 33529
9/96 52134 40343
[end of plot points for line chart]
[plot points for line chart]
Class D Shares
Average Annual Total Return
1 Year 5 Years 10 Years
+8.23% +20.26% +17.55%
9/86 10000 10000
9/87 14263 14342
9/88 12272 12565
9/89 16436 16706
9/90 13015 15162
9/91 20028 19876
9/92 21497 22071
9/93 33234 24933
9/94 33898 25850
9/95 46125 33529
9/96 50384 40343
[end of plot points for line chart]
[solid line] Capital Fund
[dotted line] S&S 500
12
<PAGE>
State Street Research Capital Fund
Fund Information, Officers and Trustees of State Street Research Capital
Trust
Fund Information
State Street Research
Capital Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
1-800-562-0032
Custodian
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
Officers
Ralph F. Verni
Chairman of the Board,
President and
Chief Executive Officer
Peter C. Bennett
Vice President
Jesus A. Cabrera
Vice President
Rudolph K. Kluiber
Vice President
Frederick R. Kobrick
Vice President
James M. Weiss
Vice President
Gerard P. Maus
Treasurer
Joseph W. Canavan
Assistant Treasurer
Douglas A. Romich
Assistant Treasurer
Francis J. McNamara, III
Secretary and General Counsel
Darman A. Wing
Assistant Secretary and
Assistant General Counsel
Amy L. Simmons
Assistant Secretary
Trustees
Ralph F. Verni
Chairman of the Board,
President, Chief Executive
Officer and Director,
State Street Research &
Management Company
Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Partner, Saltonstall & Co.
Dean O. Morton
Retired; formerly Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Thomas L. Phillips
Retired; formerly Chairman of the
Board and Chief Executive
Officer, Raytheon Company
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
Jeptha H. Wade
Retired; formerly Of Counsel,
Choate, Hall & Stewart
13
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[back cover]
State Street Research Capital Fund
One Financial Center
Boston, MA 02111
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 600
Questions? Comments?
Call us at 1-800-562-0032,
or write us at:
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
[tower logo] STATE STREET RESEARCH
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.
This report is prepared for the general information of current shareholders
only. It is not authorized for use as sales material with prospective investors.
CONTROL NUMBER: 3507-961122(1297)SSR-LD
Cover Illustration by Dorothy Cullinan
CF-866D-1196
