STATE STREET RESEARCH CAPITAL TRUST, N-30D, 1997-12-04

STATE STREET RESEARCH CAPITAL TRUST
N-30D, 1997-12-04

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[FRONT COVER]

STATE STREET RESEARCH
CAPITAL FUND

ANNUAL REPORT

September 30, 1997

WHAT'S INSIDE

From the Chairman

An exciting year
to be an investor

Portfolio Manager's Review

Six challenging months,
six strong months

Fund Information

Facts and Figures

Plus, Complete Portfolio Holdings
and Financial Statements

[DALBAR LOGO]

For Excellence
in
Shareholder Service

STATE STREET RESEARCH FUNDS

<PAGE>

FROM THE CHAIRMAN

[PHOTO OF CHAIRMAN]

Dear Shareholder:

In the past 12 months, both stock and bond investors have reaped the rewards of
a very favorable financial environment. The nation's economy continued to expand
at a moderate, but healthy pace. Inflation and interest rates remain low.
Employment is high, personal income has increased and Americans are the most
confident they have been in close to 30 years. And although history teaches us
that a convergence of so many positive factors is rare, no major concerns appear
to threaten the current economy or the financial markets.

Stocks

Common stocks continued to post extraordinary returns as corporate profits rose
for a sixth consecutive year, and investors continued to add money to equity
mutual funds at a record pace. The U.S. stock market rose 40.43%, as measured
by the S&P 500(1), during the year ended September 30, 1997. Small stocks, as
measured by the Russell 2000, were up 31.42%(1). Outside the U.S. investment
performance was mixed as markets in Europe and Latin America posted strong
gains in local currency, while key stock markets in Southeast Asia were
extremely weak, the result of currency devaluations and excessive optimism.

Bonds

Bonds lagged stocks for the year, but most segments of the bond market
delivered respectable gains. The yield on the 30-year Treasury bond ended the
period at 6.41% after spiking above 7.0% in April, the weakest month of the
year for both stocks and bonds. The Lehman Brothers Aggregate Bond Index, a
common benchmark for bond market performance, gained 9.71%(1). Corporate bonds
were strong performers, especially lower-rated high-yield bonds, which returned
15.73%, according to the First Boston High Yield Index(1).

What's Ahead

While the environment for financial assets remains positive, it may not be
realistic to expect the stock market to deliver another year of double digit
returns. Inflation remains low, and reports of corporate profits suggest that
disappointments are beginning to outnumber surprises.

However, we believe that there are certain basic principles that can help to
keep you focused on your long-term goals: Think long term. Maintain a
diversified portfolio. Discipline yourself to stay with your investment
program. If you have questions or concerns about your investments, review them
with your financial professional. And, thank you for investing with State
Street Research.
Sincerely,

[Signature of Ralph F. Verni]

Ralph F. Verni
Chairman
September 30, 1997

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.

(1) The Standard & Poor's 500 Composite Index (S&P 500) is a market-value
weighted index composed of 500 widely held common stocks. The Lehman Brothers
Aggregate Bond Index is a market value weighted index of fixed-rate debt issues,
including U.S. treasury, agency and corporate bond issues, and mortgage-backed
securities. The Russell 2000 Index is a weighted index comprised of the 2000
smallest stocks within the Russell 3000 Index (a weighted index of the 3000
largest capitalized U.S. companies). The First Boston High Yield Index is a
commonly used measure of high yield bond performance. The indices are unmanaged
and do not take transaction charges into consideration. Direct investment in
the indices is not possible, results are for illustrative purposes only.

(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
reflects 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.

(3) +6.27% for Class B shares; +7.32% for Class C shares; +6.26% for Class D
shares.

(4) +23.40% for Class B shares; +23.94% for Class C shares; +23.36% for Class D
shares.

(5) 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 of the Fund were not offered to the general public, the Fund was not
subject to the cash inflows and higher 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 in 1993,
which resulted in new or increased 12b-1 fees of up to 1% per class thereafter
and which will reduce subsequent performance. "C" shares, offered without a
sales charge, are available only to certain employee benefit plans and large
institutions.

(6) Performance reflects up to maximum 4.5% "A" share front-end sales charge, or
5% "B" share or 1% "D" share contingent deferred, sales charges, where
applicable.

(7) Cumulative total returns are not annualized, nor do they reflect sales
charges, which, if reflected, would reduce performance.

Total value of $10,000 invested on October 1, 1987(2)
(Class A shares, at maximum applicable sales charge)

9/87 9,500
9/88 8,217
9/89 11,005
9/90 8,714
9/91 13,409
9/92 14,393
9/93 22,312
9/94 22,817
9/95 31,323
9/96 24,492
9/97 36,949

SEC Average Annual Compound Rates of Return
(at maximum applicable sales charge)(5,6)

<TABLE>
<CAPTION>
- --------------------------------------------
10 Years 5 Years 1 Year
- --------------------------------------------
<S> <C> <C> <C>
Class A +13.96% +19.64% +2.30%
- --------------------------------------------
Class B +14.13% +19.80% +1.27%
- --------------------------------------------
Class C +14.65% +21.08% +7.32%
- --------------------------------------------
Class D +14.14% +20.02% +5.26%
- --------------------------------------------
</TABLE>

Cumulative Total Returns
(do not reflect sales charge)(5,7)

<TABLE>
<CAPTION>
- --------------------------------------------
10 Years 5 Years 1 Year
- --------------------------------------------
<S> <C> <C> <C>
Class A +286.90% +156.71% +7.12%
- --------------------------------------------
Class B +274.85% +148.72% +6.27%
- --------------------------------------------
Class C +292.26% +160.27% +7.32%
- --------------------------------------------
Class D +275.35% +149.05% +6.26%
- --------------------------------------------
</TABLE>

<PAGE>

PORTFOLIO MANAGER'S REVIEW
Capital Fund: Six Challenging Months, Six Strong Months

[Photo of Peter Bennett}
Peter Bennett
Portfolio Manager

We spoke with Peter Bennett, portfolio manager of State Street Research Capital
Fund, about the year ended September 30, 1997 and his views on the period ahead.
Bennett assumed responsibilities for the portfolio in August, 1997.

Q: How did the Fund perform last year?

A: It was a difficult year for the Fund. Class A shares returned +7.12% for the
12 months ended September 30, 1997 [without sales charge].(3) That was
substantially less than the S&P 500, which returned +40.43%(1) over the same
period and the average capital appreciation fund, which returned 27.47% as
reported by Lipper Analytical Services.

Q: What accounted for the Fund's weak performance?

A: First, it was heavily invested in the stocks of small to medium-sized
companies at a time when large company stocks were leading the market. Second,
the Fund had a significant exposure to the science and technology sector during
a period when that sector was quite volatile. And while some of the Fund's best
performers were in this sector, their contribution to the portfolio's gains was
more than offset by losses in other sector holdings. Third, because the Fund's
turnover was higher than normal, transaction costs were a further drag on
performance.

However, the Fund's woes were concentrated in the first half of the year.
Performance improved steadily through the second half. In fact, during the last
six months of the year, total return for Class A shares was 23.87%(4), just
short of the average capital appreciation fund which gained +29.11%, according
to Lipper.

Q: What happened in the second half of the year to help turn performance
around?

A: Investors reacted to a strong dollar, a lower capital gains tax, and
disappointing earnings reports from several large companies, by moving money
from large cap stocks to small and mid-cap stocks. The shift in market
sentiment benefited the Fund, which has a heavy exposure to small and mid-cap
stocks.

Q: Three of the Fund's largest holdings--HFS, Republic Industries, and U.S.
Office Products--share a common theme: all have played a major role in the
consolidation in their respective industries. How have they performed so far?

A: Not as well as we had hoped. However, performance has improved, and we
remain confident that these three offer significant potential. While the market
was dominated by companies that were big, simple to understand, and global;
investors shied away from companies like these three because of their
complexity and because they are often difficult to analyze. HFS is a
hospitality franchiser. They have assembled ownership of a number of different
hotel chains through a fairly aggressive acquisition program, and they
franchise to individual owners. Republic Industries is consolidating the retail
auto market, buying up individual franchises and opening their own superstores
called AutoNation. U.S. Office Products has been an aggressive consolidator of
office products stores. All three companies are aggressive and
acquisition-oriented, with strong, visible management.

Q: Peter, you took over management of the Fund late in the year. What's your
strategy going forward?

A: I hope to bring the Fund's turnover down by focusing more on its core
holdings, companies such as Compaq Computer and Motorola. These companies tend
to be leaders in their respective businesses, well managed, and have had strong
profitability and above-average earnings growth. This is an aggressive fund,
and we will continue to manage it for maximum capital appreciation. With the
help of our in-house research staff, we will be looking for and owning
companies that can demonstrate earnings growth that is well above average. I
expect the factors that are driving the domestic stock market--a healthy
economy, low interest rates and a confident consumer--to continue for some time
to come. In general, the environment is very favorable for the kind of
growth-oriented stocks this fund owns.

September 30, 1997

Top 10 Stock Positions
(by percentage of net assets)

1 HFS Hotel services 4.3%
2 Republic Industries Automotive rentals & equipment 3.9%
3 U.S. Office Products Retail office supplies 2.5%
4 Advanced Fibre Communications
Telecommunications equipment 2.4%
5 Caribiner Corporate communications 2.3%
6 COMPAQ Computer Personal computers 2.1%
7 Texas Instruments Electronic components 2.0%
8 Sanmina Circuit boards 2.0%
9 America Online Internet software 1.9%
10 Jones Apparel Group Apparel 1.9%

These securities represent an aggregate of 25.3% 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.

[GRAPHIC OMITTED]

Top 5 Industries
(by percentage of net assets)

Business Service 14.3%
Electronic Compenents 12.9%
Electronic Equipment 9.7%
Computer Software 8.3%
Hotel & Restaurant 6.9%
Total 52.1%

Best and Worst Contributors to Performance
(October 1, 1996 through September 30, 1997)

Best
Sanmina
Benefitted from outsourcing in the electronics business.

Advanced Fibre Communications
Has strong position in the use of fiber optics in communications.

Republic Industries
Helped by automobile dealership consolidations.

Worst
Ascend Communications
Impacted by a slowdown in growth.

Sunglass Hut
Hurt by slowing demand and an inventory correction.

Trump Hotels & Casino Resorts
Suffered from the prospect of increased competition in Atlantic City.

2
<PAGE>

STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
September 30, 1997

<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 99.5%
Basic Industries 2.3%
Machinery 1.7%
Terex Corp.* ........................... 252,200 $ 5,233,150
Tyco International Ltd. ............... 208,900 17,142,856
------------
22,376,006
------------
Metal & Mining 0.6%
Chicago Bridge & Iron Co. NV ......... 275,400 5,714,550
Ispat International NV Cl. A* ......... 75,200 2,152,600
------------
7,867,150
------------
Total Basic Industries ........................... 30,243,156
-------------
Consumer Cyclical 22.0%
Automotive 1.4%
Budget Group Inc. Cl. A* ............... 426,700 14,081,100
Danaher Corp. ........................... 96,000 5,568,000
------------
19,649,100
------------
Hotel & Restaurant 6.9%
Apple South Inc. ........................ 130,900 2,519,825
Extended Stay America Inc.* ............ 885,000 13,275,000
Four Seasons Hotels Inc. ............... 62,900 2,578,900
HFS Inc.* .............................. 768,200 57,182,887
Interstate Hotels Co.* .................. 310,200 10,120,275
Trump Hotels & Casino Resorts Inc.* ... 704,600 7,266,188
------------
92,943,075
------------
Recreation 5.6%
Action Performance Companies Inc.* ... 279,700 8,146,262
Ascent Entertainment Group Inc.* ...... 200,000 2,300,000
Chancellor Media Corp.* ............... 146,700 7,720,088
Florida Panthers Holdings Inc. Cl. A* 521,900 12,297,269
International Game Technology Inc. ...... 570,000 12,967,500
Oakley Inc.* ........................... 912,700 9,811,525
Ticketmaster Group Inc.* ............... 315,300 7,330,725
Westinghouse Electric Corp. ............ 526,500 14,248,406
------------
74,821,775
------------
Retail Trade 5.4%
Abercrombie & Fitch Co. Cl. A* ......... 80,900 2,123,625
Borders Group Inc.* ..................... 532,700 14,649,250
CVS Corp. .............................. 42,600 2,422,875
Jones Apparel Group Inc.* ............... 469,600 25,358,400
Linens 'n Things Inc.* .................. 292,100 9,785,350
Proffitts Inc.* ........................ 197,200 11,684,100
RDO Equipment Co. Cl. A* ............... 74,900 1,722,700
Sunglass Hut International Inc.* ...... 606,500 4,700,375
------------
72,446,675
------------

- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
<S> <C> <C>
Textile & Apparel 2.7%
Men's Wearhouse, Inc.* .................. 614,775 $ 22,900,369
Timberland Co. Cl. A* .................. 162,400 12,951,400
------------
35,851,769
------------
Total Consumer Cyclical ............... 295,712,394
------------
Consumer Staple 24.0%
Business Service 14.3%
Caribiner International Inc.* ......... 756,400 30,823,300
Creative Technology Ltd.* ............... 938,600 23,992,962
HBO & Co. .............................. 338,600 12,782,150
Outdoor Systems Inc.* .................. 341,775 8,971,594
Republic Industries Inc.* ............... 1,610,800 53,055,725
Snyder Communications Inc.* ............ 459,200 12,628,000
U.S. Office Products Co.* ............... 937,900 33,060,975
Universal Outdoor Holdings Inc.* ...... 343,000 12,862,500
USA Waste Services Inc.* ............... 97,400 3,883,825
------------
192,061,031
------------
Drug 3.2%
Eli Lilly & Co. ........................ 154,100 18,559,419
Schering-Plough Corp. .................. 216,100 11,129,150
Warner-Lambert Co. ..................... 98,000 13,223,875
------------
42,912,444
------------
Food & Beverage 0.7%
Peapod Inc.* ........................... 195,300 2,441,250
Starbucks Corp.* ........................ 182,200 7,618,237
------------
10,059,487
------------
Hospital Supply 3.2%
Aetna Inc. .............................. 101,600 8,274,050
Boston Scientific Corp.* ............... 233,600 12,891,800
Tenet Healthcare Corp.* ............... 347,700 10,126,763
Trigon Healthcare Inc.* ............... 477,000 11,835,562
------------
43,128,175
------------
Personal Care 0.9%
Avon Products Inc. ..................... 192,900 11,959,800
------------
Printing & Publishing 0.7%
Big Flower Press Holdings Inc.* ...... 74,600 1,729,788
Valassis Communications Inc.* ......... 237,000 7,554,375
------------
9,284,163
------------
Tobacco 1.0%
Philip Morris Companies, Inc. ......... 317,100 13,179,469
------------
Total Consumer Staple .................. 322,584,569
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
3
<PAGE>

STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------
<S> <C> <C>
Energy 3.1%
Oil Service 3.1%
Diamond Offshore Drilling Inc.* ......... 126,800 $ 6,997,775
Ensco International Inc. .................. 178,600 7,043,537
Newpark Resources Inc.* .................. 106,800 4,198,575
Schlumberger Ltd. ........................ 154,000 12,964,875
Varco International Inc.* ............... 82,500 4,001,250
Weatherford Enterra Inc.* ............... 118,000 6,290,875
--------------
41,496,887
--------------
Total Energy .................................... 41,496,887
--------------
Finance 9.5%
Bank 4.3%
Bank United Corp. Cl. A .................. 227,000 10,044,750
BankAmerica Corp. ........................ 259,800 19,046,587
Citicorp ................................. 73,200 9,804,225
H.F. Ahmanson & Co. ..................... 166,000 9,430,875
NationsBank Corp. ........................ 150,000 9,281,250
--------------
57,607,687
--------------
Financial Service 1.4%
Merrill Lynch & Company Inc. ............ 247,700 18,376,244
--------------
Insurance 3.8%
Ace Ltd. ................................. 138,100 12,981,400
Hartford Financial Services Group, Inc. 81,100 6,979,669
Provident Companies, Inc. ............... 161,100 11,266,931
Travelers Group Inc. ..................... 292,500 19,963,125
--------------
51,191,125
--------------
Total Finance ................................. 127,175,056
--------------
Science & Technology 38.6%
Aerospace 0.9%
Boeing Co. .............................. 234,600 12,771,038
--------------
Computer Software & Service 8.3%
America Online Inc.* ..................... 336,900 25,414,894
Ascend Communications Inc.* ............ 174,200 5,639,725
Computer Associates International Inc. ... 310,900 22,326,506
EMC Corp.* .............................. 193,800 11,313,075
Geoworks* ................................. 214,100 3,505,888
McAfee Associates Inc.* .................. 214,800 11,384,400
Microsoft Corp.* ........................ 107,900 14,276,519
P-Com, Inc.* .............................. 313,000 7,492,437
Westell Technologies, Inc. Cl. A* ...... 193,100 4,284,406
Xilinx Inc.* .............................. 107,800 5,457,375
--------------
111,095,225
--------------

- ---------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------
<S> <C> <C>
Electronic Components 12.9%
Altera Corp.* ........................... 416,400 $ 21,340,500
Analog Devices Inc.* ..................... 298,600 10,003,100
Atmel Corp.* .............................. 283,600 10,333,675
CHS Electronics Inc.* ..................... 640,950 17,546,006
Intel Corp. .............................. 205,700 18,988,681
Kulicke & Soffa Industries Inc.* ......... 372,800 17,265,300
Lattice Semiconductor Corp.* ............ 117,600 7,658,700
LSI Logic Corp.* ........................ 420,700 13,514,988
Microchip Technology Inc.* ............... 98,300 4,438,859
Sanmina Corp.* ........................... 304,000 26,315,000
Texas Instruments Inc. .................. 195,200 26,376,400
--------------
173,781,209
--------------
Electronic Equipment 9.7%
Advanced Fibre Communications, Inc.* ... 774,000 31,734,000
Applied Materials Inc.* .................. 202,400 19,278,600
ASM Lithography Holdings NV* ............ 128,900 12,728,875
KLA-Tencor Corp.* ........................ 202,600 13,688,162
Motorola Inc. ........................... 334,400 24,035,000
Qwest Communications International Inc.* 44,900 2,071,013
Tellabs Inc.* ........................... 171,000 8,806,500
Teradyne Inc.* ........................... 322,900 17,376,056
--------------
129,718,206
--------------
Office Equipment 6.8%
Compaq Computer Corp.* .................. 385,200 28,793,700
Dell Computer Corp.* ..................... 146,000 14,143,750
Diebold Inc. .............................. 109,100 5,168,613
Hewlett-Packard Co. ..................... 350,700 24,395,569
Sun Microsystems Inc.* .................. 410,200 19,202,487
--------------
91,704,119
--------------
Total Science & Technology ............... 519,069,797
--------------
Total Common Stocks (Cost $986,944,517) ... 1,336,281,859
--------------
</TABLE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 0.7%
Chevron Oil Finance Co.,
6.00% ............... $9,880,000 10/01/1997 9,880,000
--------------
Total Short-Term Obligations (Cost $9,880,000) ... 9,880,000
--------------
Total Investments (Cost $996,824,517)--100.2% ... 1,346,161,859
Cash and Other Assets, Less Liabilities--(0.2%) (2,964,219)
--------------
Net Assets--100.0% .............................. $1,343,197,640
==============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

STATE STREET RESEARCH CAPITAL FUND
- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
September 30, 1997

<TABLE>
<S> <C>
Federal Income Tax Information:

At September 30, 1997, the net unrealized
appreciation of investments based on cost for
for federal income tax purposes of $9,9,303,261 was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $373,298,404
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
over value (26,439,806)
-------------
$ 346,858,598
=============
</TABLE>

- -------------------------------------
* Nonincome-producing securities

ADR stands for American Depositary Receipt, representing ownership of
foreign securities.

- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
September 30, 1997

<TABLE>
<S> <C>
Assets
Investments, at value (Cost $996,824,517)(Note 1) ............ $1,346,161,859
Cash ......................................................... 218
Receivable for securities sold .............................. 3,678,217
Receivable for fund shares sold .............................. 779,668
Dividends and interest receivable ........................... 497,568
Other assets ................................................ 72,077
--------------
1,351,189,607
Liabilities
Payable for fund shares redeemed ........................... 5,363,416
Accrued management fee (Note 2) .............................. 841,559
Accrued transfer agent and shareholder services
(Note 2) ................................................... 809,106
Accrued distribution and service fees (Note 4) ............... 677,778
Accrued trustees' fees (Note 2) .............................. 27,781
Other accrued expenses ....................................... 272,327
--------------
7,991,967
--------------
Net Assets $1,343,197,640
==============
Net Assets consist of:
Unrealized appreciation of investments ..................... $ 349,337,342
Accumulated net realized gain .............................. 8,511,656
Shares of beneficial interest .............................. 985,348,642
--------------
$1,343,197,640
==============
Net Asset Value and redemption price per share of
Class A shares ($470,976,964 [divided by] 31,944,062 shares
of beneficial interest) .................................... $14.74
======
Maximum Offering Price per share of Class A shares
($14.74 [divided by] .955) ................................. $15.43
======
Net Asset Value and offering price per share of Class
B shares ($562,392,009 [divided by] 39,506,904 shares of
beneficial interest)* ....................................... $14.24
======
Net Asset Value, offering price and redemption price
per share of Class C shares ($189,777,868 [divided by]
12,682,096 shares of beneficial interest) .................. $14.96
======
Net Asset Value and offering price per share of Class
D shares ($120,050,799 [divided by] 8,418,494 shares of
beneficial interest)* ....................................... $14.26
======
</TABLE>

- -------------------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.

The accompanying notes are an integral part of the financial statements.

<PAGE>

STATE STREET RESEARCH CAPITAL FUND

- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the year ended September 30, 1997

<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $23,175 ............ $ 3,023,118
Interest ............................................. 1,999,857
------------
5,022,975
Expenses
Management fee (Note 2) .............................. 5,786,403
Transfer agent and shareholder services (Note 2) ...... 1,218,977
Service fee--Class A (Note 4) ........................ 378,641
Distribution and service fees--Class B (Note 4) ...... 3,983,871
Distribution and service fees--Class D (Note 4) ...... 1,695,482
Custodian fee ....................................... 213,923
Reports to shareholders .............................. 132,102
Registration fees .................................... 74,821
Trustees' fees (Note 2) .............................. 33,811
Audit fee ............................................. 25,909
Legal fees .......................................... 14,421
Miscellaneous ....................................... 31,620
------------
13,589,981
------------
Net investment loss ................................. (8,567,006)
------------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 3) ...... 11,938,430
Net unrealized appreciation of investments (Note 5) ... 91,743,820
------------
Net gain on investments .............................. 103,682,250
------------
Net increase in net assets resulting from operations $ 95,115,244
============
</TABLE>

- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year ended September 30
----------------------------------
1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ............ $ (8,567,006) $ (5,102,129)
Net realized gain (loss) on
investments .................. 11,938,430 (2,073,183)
Net unrealized appreciation of
investments .................. 91,743,820 70,731,585
--------------- -------------
Net increase resulting from
operations .................. 95,115,244 63,556,273
--------------- -------------
Distribution from net realized gains:
Class A ........................ -- (4,170,914)
Class B ........................ -- (15,632,187)
Class C ........................ -- (3,556,781)
Class D ........................ -- (7,349,181)
--------------- -------------
-- (30,709,063)
--------------- -------------
Net increase from fund share
transactions (Note 6) ......... 521,782,662 291,406,436
--------------- -------------
Total increase in net assets ... 616,897,906 324,253,646
Net Assets
Beginning of year ............... 726,299,734 402,046,088
--------------- -------------
End of year ..................... $ 1,343,197,640 $ 726,299,734
=============== =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1997

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 Emerging
Growth Fund and State Street Research Aurora 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.

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.

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 $355,768
and has deferred and treated such losses as arising in the fiscal year ended
September 30, 1997.

C. Dividends

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 at an annual rate of 0.75% of the Fund's average daily net assets.
In consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the year ended September 30, 1997, the fees pursuant to such agreement
amounted to $5,786,403.

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, 1997, the amount of such expenses was $623,372.

The fees of the Trustees not currently affiliated with the Adviser amounted to
$33,811 during the year ended September 30, 1997.

<PAGE>

STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

Note 3

For the year ended September 30, 1997, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities aggregated
$1,749,341,564 and $1,915,835,515, 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, 1997, fees pursuant to such plan
amounted to $378,641, $3,983,871 and $1,695,482 for Class A, Class B and Class
D shares, respectively.

The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $106,989 and $341,138, respectively, on sales of Class A shares of
the Fund during the year ended September 30, 1997, and that MetLife Securities,
Inc. earned commissions aggregating $1,016,713 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $983,625
and $47,574 on redemptions of Class B and Class D shares, respectively, during
the same period.

Note 5

On August 15, 1997, the Fund acquired the assets and liabilities of State
Street Research Capital Appreciation Fund ("Capital Appreciation Fund") in
exchange for shares of each class of the Fund. The acquisition was accounted
for as a tax-free exchange of 26,138,898 Class A shares, 14,162,121 Class B
shares, 10,217,407 Class C shares and 361,359 Class D shares of the Fund for
the net assets of Capital Appreciation Fund which amounted to $353,659,292,
$185,240,546, $140,284,992 and $4,733,802 for Class A, Class B, Class C and
Class D shares, respectively. The net assets of Capital Appreciation Fund
included $123,785,793 of unrealized appreciation at the close of business on
August 15, 1997. The net assets of the Fund immediately after the acquisition
were $1,337,213,570.

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, 1997, the Distributor owned 6,133 Class A shares of the Fund.

Share transactions were as follows:

<TABLE>
<CAPTION>
Year ended September 30
-----------------------------
1997
-----------------------------
Class A Shares Amount
- ------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold ...................................................... 3,871,815 $ 51,103,143
Issued in connection with acquisition of Capital Appreciation Fund 26,138,898 353,659,292
Issued upon reinvestment of distribution from net realized gains -- --
Shares repurchased ............................................. (6,367,582) (84,655,673)
------------ ---------------
Net increase ................................................... 23,643,131 $ 320,106,762
============ ==============
Class B Shares Amount
- ------------------------------------------------------------------- ------------ --------------
Shares sold ...................................................... 6,813,680 $ 86,756,398
Issued in connection with acquisition of Capital Appreciation Fund 14,162,121 185,240,546
Issued upon reinvestment of distribution from net realized gains -- --
Shares repurchased ............................................. (10,341,798) (133,779,126)
------------ --------------
Net increase ................................................... 10,634,003 $ 138,217,818
============ ==============
Class C Shares Amount
- ------------------------------------------------------------------- ------------ --------------
Shares sold ...................................................... 1,093,116 $ 14,973,137
Issued in connection with acquisition of Capital Appreciation Fund 10,217,407 140,284,992
Issued upon reinvestment of distribution from net realized gains -- --
Shares repurchased ............................................. (1,127,539) (15,594,561)
------------ --------------
Net increase (decrease) .......................................... 10,182,984 $ 139,663,568
============ ==============
Class D Shares Amount
- ------------------------------------------------------------------- ------------ --------------
Shares sold ...................................................... 3,002,442 $ 38,095,940
Issued in connection with acquisition of Capital Appreciation Fund 361,359 4,733,802
Issued upon reinvestment of distribution from net realized gains -- --
Shares repurchased ............................................. (9,125,682) (119,035,228)
------------ --------------
Net increase (decrease) .......................................... (5,761,881) $ (76,205,486)
============ ==============

<CAPTION>
Year ended September 30
----------------------------
1996
----------------------------
Class A Shares Amount
- ------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
Shares sold ...................................................... 4,999,832 $ 62,467,171
Issued in connection with acquisition of Capital Appreciation Fund -- --
Issued upon reinvestment of distribution from net realized gains 302,993 3,738,939
Shares repurchased ............................................. (1,085,442) (13,577,652)
---------- ------------
Net increase ................................................... 4,217,383 $ 52,628,458
========== ============
Class B Shares Amount
- ------------------------------------------------------------------- ---------- -------------
Shares sold ...................................................... 14,984,596 $183,598,870
Issued in connection with acquisition of Capital Appreciation Fund -- --
Issued upon reinvestment of distribution from net realized gains 1,171,523 14,187,153
Shares repurchased ............................................. (2,587,886) (31,537,100)
---------- ------------
Net increase ................................................... 13,568,233 $166,248,923
========== ============
Class C Shares Amount
- ------------------------------------------------------------------- ---------- ------------
Shares sold ...................................................... 822,474 $ 10,670,766
Issued in connection with acquisition of Capital Appreciation Fund -- --
Issued upon reinvestment of distribution from net realized gains 267,147 3,331,325
Shares repurchased ............................................. (2,072,769) (26,820,873)
---------- ------------
Net increase (decrease) .......................................... (983,148) $(12,818,782)
========== ============
Class D Shares Amount
- ------------------------------------------------------------------- ---------- -----------
Shares sold ...................................................... 7,893,265 $96,528,582
Issued in connection with acquisition of Capital Appreciation Fund -- --
Issued upon reinvestment of distribution from net realized gains 561,501 6,811,002
Shares repurchased ............................................. (1,469,595) (17,991,747)
---------- -----------
Net increase (decrease) .......................................... 6,985,171 $85,347,837
========== ===========
</TABLE>

8
<PAGE>

STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

For a share outstanding throughout each year:

<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Year ended September 30
---------------------------------------------------------------------------
1997* 1996* 1995* 1994 1993**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.76 $13.53 $9.92 $10.43 $8.03
------ ------ ----- ------ -----
Net investment loss (0.08) (0.05) (0.04) (0.04) (0.03)
Net realized and unrealized
gain on investments 1.06 1.30 3.69 0.28 2.43
------ ------ ----- ------ -----
Total from investment
operations 0.98 1.25 3.65 0.24 2.40
------ ------ ----- ------ -----
Distributions from net
realized gains -- (1.02) (0.04) (0.75) --
------ ------ ----- ------ -----
Total distributions -- (1.02) (0.04) (0.75) --
------ ------ ----- ------ -----
Net asset value, end of
year $14.74 $13.76 $13.53 $9.92 $10.43
====== ====== ====== ===== ======
Total return 7.12%+ 10.12%+ 36.95%+ 2.51%+ 24.61%++
Net assets at end of year
(000s) $470,977 $114,247 $55,250 $19,891 $7,251
Ratio of operating expenses
to average net assets 1.21% 1.26% 1.33% 1.41% 2.43%[dbldag]
Ratio of net investment loss
to average net assets (0.60)% (0.39)% (0.34)% (0.55)% (1.43)%[dbldag]
Portfolio turnover rate 230.66% 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0337 $0.0278 -- -- --

<CAPTION>
Class B
---------------------------------------------------------------------------
Year ended September 30
---------------------------------------------------------------------------
1997* 1996* 1995* 1994 1993**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.40 $13.29 $9.82 $10.40 $8.68
------ ------ ----- ------ -----
Net investment loss (0.17) (0.14) (0.12) (0.08) (0.04)
Net realized and unrealized
gain on investments 1.01 1.27 3.63 0.25 1.76
------ ------ ----- ------ -----
Total from investment
operations 0.84 1.13 3.51 0.17 1.72
------ ------ ----- ------ -----
Distributions from net
realized gains -- (1.02) (0.04) (0.75) --
------ ------ ----- ------ -----
Total distributions -- (1.02) (0.04) (0.75) --
Net asset value, end of
year $14.24 $13.40 $13.29 $9.82 $10.40
====== ====== ====== ===== ======
Total return 6.27%+ 9.33%+ 35.90%+ 1.79%+ 19.82%++
Net assets at end of year
(000s) $562,392 $386,899 $203,446 $73,354 $16,044
Ratio of operating expenses
to average net assets 1.98% 2.01% 2.08% 2.16% 3.16%[dbldag]
Ratio of net investment loss
to average net assets (1.32)% (1.13)% (1.10)% (1.28)% (2.15)%[dbldag]
Portfolio turnover rate 230.66% 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0337 $0.0278 -- -- --
</TABLE>

<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------------
Year ended September 30
---------------------------------------------------------------------------
1997* 1996* 1995* 1994 1993**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.94 $13.66 $9.99 $10.46 $7.96
------ ------ ----- ------ -----
Net investment loss (0.05) (0.01) (0.01) (0.03) (0.06)
Net realized and unrealized
gain on investments 1.07 1.31 3.72 0.31 3.90
------ ------ ----- ------ -----
Total from investment
operations 1.02 1.30 3.71 0.28 3.84
------ ------ ----- ------ -----
Distributions from net
realized gains -- (1.02) ( 0.04) (0.75) (1.34)
------ ------ ----- ------ -----
Total distributions -- (1.02) ( 0.04) (0.75) (1.34)
------ ------ ----- ------ -----
Net asset value, end of
year $14.96 $13.94 $13.66 $9.99 $10.46
====== ====== ====== ===== ======
Total return 7.32%+ 10.41%+ 37.30%+ 2.91%+ 55.46%+
Net assets at end of year
(000s) $189,778 $34,835 $47,553 $23,967 $18,342
Ratio of operating expenses
to average net assets 0.96% 1.01% 1.08% 1.16% 2.11%
Ratio of net investment loss
to average net assets (0.37)% (0.08)% (0.07)% (0.32)% (1.30)%
Portfolio turnover rate 230.66% 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0337 $0.0278 -- -- --

<CAPTION>
Class D
-------------------------------------------------------------------------------
Year ended September 30
-------------------------------------------------------------------------------
1997* 1996* 1995* 1994 1993***
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.42 $13.31 $9.83 $10.39 $8.68
Net investment loss (0.17) (0.14) (0.12) (0.09) (0.04)
Net realized and unrealized
gain on investments 1.01 1.27 3.64 0.28 1.75
Total from investment
operations 0.84 1.13 3.52 0.19 1.71
Distributions from net
realized gains -- (1.02) (0.04) (0.75) --
Total distributions -- (1.02) (0.04) (0.75) --
Net asset value, end of
year $14.26 $13.42 $13.31 $9.83 $10.39
Total return 6.26%+ 9.23%+ 36.07%+ 2.00%+ 19.70%++
Net assets at end of year
(000s) $120,051 $190,319 $95,797 $37,783 $5,011
Ratio of operating expenses
to average net assets 1.98% 2.01% 2.08% 2.16% 3.16%[dbldag]
Ratio of net investment loss
to average net assets (1.30)% (1.13)% (1.09)% (1.28)% (2.16)%[dbldag]
Portfolio turnover rate 230.66% 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0337 $0.0278 -- -- --

- --------------------------------------------------------------------------------
[dbldag] Annualized
* Per-share figures have been calculated using the average shares method.
** February 17, 1993 (commencement of share class designations) to September 30, 1993.
*** March 15, 1993 (commencement of share class designations) to September 30, 1993.
+ 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 f
Front-end or contingent deferred sales charges.
@ Average commission rate per share paid for security trades beginning with the fiscal year ended September 30, 1996.
</TABLE>

<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, 1997, 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 herein. 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, 1997, 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, 1997, 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 7, 1997

10
<PAGE>

STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------

Capital Fund had a difficult year. Class A shares of the Fund returned +7.12%
[without sales charge] to investors for the 12 months ended September 30, 1997.
This total return performance was less than that of the average capital
appreciation fund tracked by Lipper Analytical Services, which returned +27.47%
for the same period. The S&P 500 Composite Index was up 40.43%. However,
performance picked up in the second half of the year. During the last six
months, total return for Class A shares was 23.87%, just short of the average
capital appreciation fund which gained +29.11%, according to Lipper.

The Fund invests primarily in emerging growth stocks and undervalued special
situation stocks.

The Fund's emphasis on small and mid-cap stocks during a period that generally
favored large-cap stocks hurt the Fund's performance. However, as the market
began to rotate away from large caps and to recognize some of the smaller and
mid-size stocks owned by the Fund, performance picked up significantly.

Investments in basic industries such as chemicals and metal & mining were cut
back during the last six months, along with airlines, retail and oil companies.
Additions were made to the Fund's science and technology positions after the
sector had come down some, and to business services, the Fund's largest single
industry at 14.3%. The Fund's investment in recreation companies was also
increased.

September 30, 1997

The Standard & Poor's 500 Composite Index (S&P 500) is a market-value weighted
index composed of 500 widely held common stocks. 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. During the
periods prior to 1993 that shares of the Fund were not offered to the general
public, the Fund was not subject to the cash inflows and higher 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 in 1993, which resulted in new or increased 12b-1 fees of up
to 1% per class thereafter and which will reduce subsequent performance. 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 charge.
"C" shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions.

Change in Value of
$10,000 Based on the S&P 500
Compared to Change in Value of $10,000
Invested in the Fund

Class A Shares

Average Annual Total Return
1 Year 5 Years 10 Years
2.30% 19.64% 13.96%

Capital Fund S&P 500
9/87 9,500 10,000
9/88 8,217 8,761
9/89 11,005 11,648
9/90 8,714 10,571
9/91 13,409 13,858
9/92 14,393 15,389
9/93 22,312 17,384
9/94 22,781 18,024
9/95 31,323 23,378
9/96 34,492 28,129
9/97 36,949 39,500

Class B Shares

Average Annual Total Return
1 Year 5 Years 10 Years
1.27% 19.80% 14.13%

Capital Fund S&P 500
9/87 10,000 10,000
9/88 8,217 8,761
9/89 11,005 11,648
9/90 8,714 10,571
9/91 13,409 13,858
9/92 14,393 15,389
9/93 22,273 17,384
9/94 22,672 18,024
9/95 30,811 23,378
9/96 33,687 28,129
9/97 37,485 39,500

Class C Shares

Average Annual Total Return
1 Year 5 Years 10 Years
7.32% 21.04% 14.65%

Capital Fund S&P 500
9/87 10,000 10,000
9/88 8,217 8,761
9/89 11,005 11,648
9/90 8,714 10,571
9/91 13,409 13,858
9/92 14,393 15,389
9/93 22,403 17,384
9/94 23,604 18,024
9/95 31,225 23,387
9/96 33,254 28,129
9/97 39,226 39,500

Class D Shares

Average Annual Total Return
1 Year 5 Years 10 Years
5.26% 20.02% 14.14%

Capital Fund S&P 500
9/87 10,000 10,000
9/88 8,217 8,761
9/89 11,005 11,648
9/90 8,714 10,571
9/91 13,409 13,858
9/92 14,393 15,389
9/93 22,252 17,384
9/94 22,697 18,024
9/95 30,883 23,378
9/96 35,324 28,129
9/97 37,535 39,500

11
<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

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

Steve A. Garban
Retired; formerly Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University

Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial Officer,
St. Regis Corp.

Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs

Robert A. Lawrence
Associate, 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

<PAGE>

State Street Research Capital Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Randolph, MA
Questions? Comments? Permit No. 600

Call us at 1-800-562-0032, or
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408 or
E-Mail us at:
[email protected]

[STATE STREET RESEARCH logo]

This report is prepared for the general information of current shareholders.

When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Capital Fund
prospectus. When used after December 31, 1997, this report must be accompanied
by a current Quarterly Performance Update.

Portfolio changes should not be considered recommendations for action by
individual investors.

The Dalbar awards recognize quality shareholder service and should not be
considered a rating of fund performance. The survey included mutual fund
complexes that volunteered or were otherwise selected to participate and was
not industry-wide.

CONTROL NUMBER: 4412-971120(1298)SSR-LD CF-866D-1197IBSRN

<PAGE>

[FRONT COVER]

STATE STREET RESEARCH
EMERGING GROWTH FUND

ANNUAL REPORT

September 30, 1997

WHAT'S INSIDE

From the Chairman

An exciting
year for investors

Portfolio Manager's Review

Small caps are back

Fund Information

Facts and figures

Plus, Complete Portfolio Holdings
and Financial Statements

[DALBAR LOGO]

For Excellence
in
Shareholder Service

STATE STREET RESEARCH FUNDS

<PAGE>

FROM THE CHAIRMAN

[PHOTO OF CHAIRMAN]

Dear Shareholder:

In the past 12 months, both stock and bond investors have reaped the rewards of
a very favorable financial environment. The nation's economy continued to expand
at a moderate, but healthy pace. Inflation and interest rates remain low.
Employment is high, personal income has increased, and Americans are the most
confident they have been in close to 30 years. And although history teaches us
that a convergence of so many positive factors is rare, no major concerns appear
to threaten the current economy or the financial markets.

Stocks

Common stocks continued to post extraordinary returns as corporate profits rose
for a sixth consecutive year, and investors continued to add money to equity
mutual funds at a record pace. The U.S. stock market rose 40.43%, as measured by
the S&P 500(1), during the year ended September 30, 1997. Small stocks, as
measured by the Russell 2000, were up 31.42%(1). Outside the U.S. investment
performance was mixed as markets in Europe and Latin America posted strong gains
in local currency, while key stock markets in Southeast Asia were extremely
weak, the result of currency devaluations and excessive optimism.

Bonds

Bonds lagged stocks for the year, but most segments of the bond market delivered
respectable gains. The yield on the 30-year Treasury bond ended the period at
6.41% after spiking above 7.00% in April, the weakest month of the year for both
stocks and bonds. The Lehman Brothers Aggregate Bond Index, a common benchmark
for bond market performance, gained 9.71%(1). Corporate bonds were strong
performers, especially lower-rated high-yield bonds, which returned 15.73%,
according to the First Boston High Yield Index(1).

What's Ahead

However, we believe that there are certain basic principles that can help to
keep you focused on your long-term goals: Think long term. Maintain a
diversified portfolio. Discipline yourself to stay with your investment program.
If you have questions or concerns about your investments, review them with your
financial professional. And, thank you for investing with State Street Research.

Sincerely,

[Signature of Ralph F. Verni]

Ralph F. Verni
Chairman
September 30, 1997

Because the Fund invests in emerging growth and special situation companies, an
investment in the Fund may involve greater-than-average risk and above-average
price fluctuations. Small-company stocks are more volatile than large-company
stocks. 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.

(1) The Standard & Poor's 500 Composite Index (S&P 500) is a market-value
weighted index composed of 500 widely held common stocks. The Lehman Brothers
Aggregate Bond Index is a market value weighted index of fixed-rate debt issues,
including U.S. treasury, agency and corporate bond issues, and mortgage-backed
securities. The Russell 2000 Index is a weighted index comprised of the 2000
smallest stocks within the Russell 3000 Index (a weighted index of the 3000
largest capitalized U.S. companies). The Russell 2000 Growth Index contains
those securities within the Russell 2000 Index with a greater than average
growth orientation. The First Boston High Yield Index is a commonly used measure
of high yield bond performance. The indices are unmanaged and do not take
transaction charges into consideration. Direct investment in the indices is not
possible; results are for illustrative purposes only.

(3) +46.91% for Class B shares; +48.34% for Class C shares; +47.15% for Class D
shares.

(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, which resulted in new or
increased 12b-1 fees of up to 1% per class thereafter and which will reduce
subsequent performance. "C" shares, offered without a sales charge, are
available only to certain employee benefit plans and large institutions.

(5) Performance reflects up to 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.

Total value of $10,000 invested at Fund's inception(2)
(Class A shares, at maximum applicable sales charge)

[Mountain chart]

9550
8560
9690
11330
16769

[End chart]

SEC Average Annual Compound Rates of Return
(at maximum applicable sales charge)(4,5)

<TABLE>
<CAPTION>
- ---------------------------------------------------
Life of Fund
(since 10/4/93) 3 years 1 year
- ---------------------------------------------------
<S> <C> <C> <C>
Class A +13.82% +23.22% +41.34%
- ---------------------------------------------------
Class B +13.85% +23.54% +41.91%
- ---------------------------------------------------
Class C +15.48% +25.43% +48.34%
- ---------------------------------------------------
Class D +14.38% +24.23% +46.15%
- ---------------------------------------------------
</TABLE>

Cumulative Total Returns
(do not reflect sales charge)(4,6)

<TABLE>
<CAPTION>
- ---------------------------------------------------
Life of Fund
(since 10/4/93) 3 years 1 year
- ---------------------------------------------------
<S> <C> <C> <C>
Class A +75.59% +95.89% +48.00%
- ---------------------------------------------------
Class B +70.90% +91.56% +46.91%
- ---------------------------------------------------
Class C +77.70% +97.33% +48.34%
- ---------------------------------------------------
Class D +71.03% +91.71% +47.15%
- ---------------------------------------------------
</TABLE>

Performance results for the Fund are increased by the voluntary reduction of
Fund fees and expenses. Without subsidization, performance would have been
lower. Total value of $10,000 invested at Fund's inception2 (Class A shares, at
maximum applicable sales charge)

<PAGE>

PORTFOLIO MANAGER'S REVIEW
Emerging Growth Fund: Small Caps Are Back

[Photo of J.C. Cabrera]
J.C. Cabrera
Portfolio Manager

We spoke with J.C. Cabrera, portfolio manager of State Street Research Emerging
Growth Fund, about the year ended September 30, 1997 and his views on the period
ahead. Cabrera assumed responsibilities for the Fund in August, 1997.

Q: How did the Fund perform last year?

A: It was an excellent year for the Fund.

Class A shares gained 48.00% [without sales charge](3) for the 12 months ended
September 30, 1997. That was well above the Russell 2000 Growth Index, a
commonly quoted measure of small company stock performance, which rose 23.26%
over the same period. The Fund handily beat the average small company fund,
which rose 29.79% for the year, according to Lipper Analytical Services.

Q: What accounted for the Fund's strong performance?

A: In general, the Fund benefited because small company stocks finally got a
boost after trailing large company stocks in the first half of the year. But
stock selection, especially among consumer companies, was the primary driver of
performance. In fact, you might say the Fund turned in superior performance
despite its over representation of consumer stocks and relative
underrepresentation of science and technology stocks, one of the market's
strongest sectors during the period.

Q: Why did the Fund's large investment in consumer companies work so well?

A: We looked for a number of key qualities--attractive stock prices relative to
profitability, good sales and earnings growth, and the ability to execute a good
concept. For example, the Fund's biggest investment was in Caribiner. This
company, which is not exactly a household name, develops and executes
educational and marketing programs and large meetings for major American
corporations. Caribiner has increased revenues and earnings, and the stock price
doubled in the past year.

Another of the Fund's largest holdings, Steiner Leisure, has built its business
as an outsourcer for other companies. Steiner runs spas and health clubs,
primarily for leisure ships. As this economy has raised personal income and
consumer confidence, the number of passengers on cruise ships has grown, and the
company has been able to ride the trend to higher sales and profits.

Q: Were there any disappointments along the way?

A: When you are investing in small companies, there are bound to be
disappointments. Extended Stay America is one that comes to mind. Here's a
company that targets business professionals who are relocating or on an extended
assignment that makes a hotel room impractical. The company has grown rapidly.
It's actually ahead of its own estimates for generating profits. However, the
stock hasn't delivered comparable returns. We continue to own it because we
believe that when investors start looking around for stocks that still offer
some value at today's prices, Extended Stay America is the kind of company they
may discover.

Q: You took over the Fund near the end of the fiscal year. What changes have you
made or plan to make?

A: I plan on reducing the Fund's exposure to consumer companies. Although many
of these stocks have done well, I believe it's a prudent move. I will consider
adding to the Fund's investment in science and technology stocks. Although these
stocks have already had a great run, I believe that there are still
opportunities to find value, especially among software companies and
semiconductor capital equipment manufacturers. That's where I'll be focusing.

Q: What is your outlook for small company stocks?

A: It's positive. I believe that the market has begun to recognize the potential
of small company stocks now that large company stocks are beginning to have
trouble delivering another year of double digit earnings growth. And because
large companies typically derive a big percentage of their revenues from foreign
markets, they've been hit hard by a strong dollar and weakness in Southeast
Asia. In that context, small company stocks look quite attractive.

Another positive factor is the recent cut in the capital gains tax. Although
investors often take advantage of the opportunity to take profits in the period
immediately following a tax cut, historically it has been a positive factor for
small, growth-oriented companies as time goes on.

September 30, 1997

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Top 10 Stock Positions
(by percentage of net assets)

1 Caribiner Corporate communications 3.3%
2 Cooper Medical products 3.2%
3 U.S. Office Products Retail office supplies 2.8%
4 US Filter Water treatment systems 2.5%
5 Winsloew Furniture Office furnishings 2.2%
6 Timberland Footwear and apparel 2.0%
7 Steiner Leisure Commercial services 1.8%
8 Brooks Automation Electric products 1.7%
9 Spectrian Wireless equipment 1.7%
10 Applied Graphics Data processing/management 1.7%

These securities represent an aggregate of 22.9% 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.

[GRAPHIC OMITTED]

Top 5 Industries
(by percentage of net assets)

Business Service 12.1%
Retail Trade 11.6%
Electronic Components 8.5%
Computer Software 6.2%
Electronic Equipment 6.0%
Total: 44.4%

Best and Worst Contributors to Performance
(October 1, 1996 through September 30, 1997)

Best
- --------------------------------------------
Cooper
Improved profitability.
Caribiner
Strong revenue and earnings growth.
Applied Graphics
Strong revenue and earnings growth.

Worst
- --------------------------------------------
Quickturn Design
Earnings disappointment.
MIM
Disappointing fundamentals.
Geoworks
Deteriorating growth.

2
<PAGE>

STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
September 30, 1997

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 92.8%
Basic Industries 10.3%
Electrical Equipment 3.4%
Aavid Thermal Technologies Inc.* ......... 40,700 $ 1,226,087
Aztec Manufacturing Co. .................. 60,000 1,290,000
Essex International Inc.* ............... 13,300 512,050
------------
3,028,137
------------
Machinery 4.8%
Elamex SA de CV* ........................ 67,200 730,800
Terex Corp.* ........................... 64,200 1,332,150
US Filter Corp.* ........................ 52,000 2,239,250
------------
4,302,200
------------
Metal & Mining 1.6%
Chicago Bridge & Iron Co. NV ............ 30,800 639,100
Wyman-Gordon Co.* ........................ 29,300 769,125
------------
1,408,225
------------
Truckers 0.5%
CNF Transportation Inc. .................. 10,400 453,050
------------
Total Basic Industries ........................... 9,191,612
------------
Consumer Cyclical 23.6%
Automotive 0.4%
Budget Group Inc. Cl. A* ............... 11,800 389,400
------------
Hotel & Restaurant 2.9%
Apple South Inc. ........................ 34,200 658,350
Extended Stay America Inc.* ............ 35,300 529,500
Fine Host Corp.* ........................ 24,500 949,375
Interstate Hotels Co.* .................. 14,500 473,063
------------
2,610,288
------------
Recreation 4.3%
Action Performance Companies Inc.* ...... 24,500 713,562
HSN Inc.* .............................. 20,600 836,875
International Game Technology Inc. ...... 30,600 696,150
Steiner Leisure Ltd.* .................. 43,000 1,580,250
------------
3,826,837
------------
Retail Trade 11.6%
Abercrombie & Fitch Co. Cl. A* ......... 34,000 892,500
Ames Department Stores Inc.* ............ 62,500 937,500
Borders Group Inc.* ..................... 29,500 811,250
Brylane Inc.* ........................... 18,700 857,863
InaCom Corp.* ........................... 17,200 639,625
Jones Apparel Group Inc.* ............... 15,000 810,000
Linens 'n Things Inc.* .................. 13,400 448,900

- ---------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------
<S> <C> <C>
Retail Trade (cont'd)
Micro Warehouse Inc.* .................. 39,900 $ 872,812
Proffitts Inc.* ........................ 15,000 888,750
RDO Equipment Co. Cl. A* ............... 33,400 768,200
Talbots Inc. ........................... 15,600 445,575
Winsloew Furniture Inc.* ............... 127,200 1,971,600
------------
10,344,575
------------
Textile & Apparel 4.4%
Men's Wearhouse, Inc.* .................. 21,800 812,050
Paul Harris Stores Inc.* ............... 50,000 1,381,250
Timberland Co. Cl. A* .................. 22,300 1,778,425
------------
3,971,725
------------
Total Consumer Cyclical .................. 21,142,825
------------
Consumer Staple 24.6%
Business Service 12.1%
American Eco Corp* ..................... 16,400 213,200
Aris Corp.* .............................. 11,100 235,875
Avis Rent A Car, Inc.* .................. 11,600 276,950
Caribiner International Inc.* ............ 72,500 2,954,375
Carriage Services, Inc. Cl. A* ......... 25,100 439,250
Hall, Kinion & Associates Inc.* ......... 5,500 116,188
HBO & Co. .............................. 20,800 785,200
Microage Inc.* ........................... 21,300 617,700
Norrell Corp. ........................... 18,900 649,687
Snyder Communications Inc.* ............ 44,900 1,234,750
U.S. Office Products Co.* ............... 72,000 2,538,000
Universal Outdoor Holdings Inc.* ......... 20,400 765,000
------------
10,826,175
------------
Drug 2.9%
BioVail Corp.* ........................... 27,900 810,844
Chirex Inc.* ........................... 45,300 1,155,150
Columbia Laboratories Inc.* ............ 35,600 658,600
------------
2,624,594
------------
Hospital Supply 3.4%
Henry Schein Inc.* ..................... 11,600 414,700
National Surgery Centers Inc.* ......... 29,200 635,100
Sierra Health Services Inc.* ............ 20,000 732,500
Trigon Healthcare Inc.* .................. 52,300 1,297,694
------------
3,079,994
------------
Personal Care 4.5%
Cooper Companies Inc.* .................. 77,200 2,837,100
Wesley Jessen VisionCare Inc.* ......... 40,900 1,155,425
------------
3,992,525
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
3
<PAGE>

STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
Printing & Publishing 1.7%
Hollinger International, Inc. Cl. A ......... 52,400 $ 700,850
Valassis Communications Inc.* ............... 24,900 793,687
------------
1,494,537
------------
Total Consumer Staple .............................. 22,017,825
------------
Energy 2.5%
Oil 2.5%
Gulf Indonesia Resources Ltd.* ............ 12,100 269,225
KCS Energy Inc. ........................... 28,900 852,550
Maxx Petroleum Ltd.* ........................ 99,100 215,115
Post Energy Corp.* ........................ 26,800 85,323
Seagull Energy Corp.* ..................... 31,700 808,350
------------
2,230,563
------------
Total Energy ....................................... 2,230,563
------------
Finance 9.8%
Bank 3.1%
Bank United Corp. Cl. A ..................... 17,600 778,800
Commercial Federal Corp. .................. 14,700 692,738
North Fork Bancorporation Inc.* ............ 20,800 603,200
Sovereign Bancorp Inc. ..................... 41,160 720,300
------------
2,795,038
------------
Financial Service 3.5%
Granite Financial Inc.* ..................... 30,900 355,350
Healthcare Financial Partners Inc.* ......... 45,800 1,414,075
Medallion Financial Corp. .................. 33,300 724,275
MoneyGram Payment Systems Inc.* ............ 38,200 685,212
------------
3,178,912
------------
Insurance 3.2%
Chartwell Re Corp. ........................ 19,400 688,700
Delphi Financial Group Inc. Cl. A ......... 12,852 551,833
E.W. Blanch Holdings Inc.* .................. 30,000 928,125
Mutual Risk Management Ltd. ............... 13,266 674,078
------------
2,842,736
------------
Total Finance ....................................... 8,816,686
------------
Science & Technology 21.4%
Aerospace 0.7%
Gulfstream Aerospace Corp.* ............... 20,200 585,800
------------
Computer Software & Service 6.2%
Advantage Learning Systems Inc.* ............ 3,500 88,375
Applied Graphics Technologies, Inc.* ...... 26,700 1,501,875
Aspen Technology Inc.* ..................... 14,700 516,338
Box Hill Systems Corp.* ..................... 13,900 243,250

- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
Computer Software & Service (cont'd)
Crystal Systems Solutions Ltd.* ............ 24,400 $ 652,700
Diamond Multimedia Systems Inc.* ............ 41,400 507,150
J.D. Edwards & Co.* ........................ 10,400 348,400
Network Solutions Inc. Cl. A* ............... 3,600 78,300
P-Com, Inc.* .............................. 16,800 402,150
QAD Inc.* ................................. 34,300 638,837
Standard Microsystems Corp.* ............... 15,600 268,125
Viasoft Inc.* .............................. 5,100 252,450
------------
5,497,950
------------
Electronic Components 8.5%
CHS Electronics Inc.* ..................... 39,450 1,079,944
Dynatech Corp.* ........................... 18,300 751,444
Kulicke & Soffa Industries Inc.* ............ 15,900 736,369
Microchip Technology Inc.* .................. 24,700 1,115,359
Qlogic Corp.* .............................. 25,000 1,046,875
Sanmina Corp.* .............................. 9,800 848,312
SBS Technologies Inc.* ..................... 39,900 952,612
TriQuint Semiconductors Inc.* ............... 19,700 717,819
World Access Inc.* ........................ 12,100 393,250
------------
7,641,984
------------
Electronic Equipment 6.0%
Advanced Fibre Communications, Inc.* ...... 10,400 426,400
Aeroflex Inc.* .............................. 100,200 1,014,525
Brooks Automation Inc.* ..................... 40,400 1,550,350
EIS International Inc.* ..................... 35,000 280,000
Silicon Valley Group Inc.* .................. 17,100 608,119
Spectrian Corp.* ........................... 23,600 1,513,350
------------
5,392,744
------------
Total Science & Technology .................. 19,118,478
------------
Utility 0.6%
Telephone 0.6%
Bell Canada International Inc* ............ 8,700 164,213
NEXTLINK Communications Inc. Cl. A* ......... 15,100 362,400
------------
526,613
------------
Total Utility .............................. 526,613
------------
Total Common Stocks (Cost $61,413,529) ...... 83,044,602
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
4
<PAGE>

STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
------------ ------------ ------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 6.2%
Chevron Oil Finance Co., 5.58% . $ 778,000 10/01/1997 $ 778,000
Ford Motor Credit Co., 5.56% ...... 1,737,000 10/01/1997 1,737,000
General Electric Capital Corp.,
5.73% ........................... 1,964,000 10/02/1997 1,964,000
General Electric Capital Corp.,
5.57% ........................... 1,036,000 10/07/1997 1,036,000
------------
Total Short-Term Obligations (Cost $5,515,000) ............ 5,515,000
------------
REPURCHASE AGREEMENTS 0.3%
State Street Bank and Trust
Company, dated 9/30/97,
repurchase proceeds $272,032,
collateralized by $280,000 U.S.
Treasury Bill, 4.25%, due
11/13/97, Market Value
$278,354 ........................ 272,000 10/01/1997 272,000
------------
Total Repurchase Agreements (Cost $272,000) ............... 272,000
------------
Total Investments (Cost $67,200,529)--99.3% ............... 88,831,602
Cash and Other Assets, Less Liabilities--0.7% ............ 593,562
------------
Net Assets--100.0% ....................................... $89,425,164
============
Federal Income Tax Information:
At September 30, 1997, the net unrealized appreciation
of investments based on cost for Federal income tax
purposes of $67,227,172 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ................................................ $21,947,790
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .............................................. (343,360)
------------
$21,604,430
============
</TABLE>

- --------------------------------------------------------------------------------
* Nonincome-producing securities.

ADR stands for American Depositary Receipt, representing ownership of
foreign securities.

- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1997

<TABLE>
<S> <C>
Assets
Investments, at value (Cost $67,200,529) (Note 1) ............ $88,831,602
Cash ......................................................... 115
Receivable for securities sold .............................. 2,562,989
Receivable for fund shares sold .............................. 528,043
Receivable from Distributor (Note 3) ........................ 14,476
Dividends and interest receivable ........................... 10,474
Deferred organization costs and other assets (Note 1) ......... 23,918
------------
91,971,617
Liabilities
Payable for securities purchased .............................. 2,260,501
Payable for fund shares redeemed .............................. 53,747
Accrued management fee (Note 2) .............................. 52,187
Accrued transfer agent and shareholder services
(Note 2) ................................................... 47,409
Accrued distribution and service fees (Note 5) ............... 43,761
Accrued trustees' fees (Note 2) .............................. 9,017
Other accrued expenses ....................................... 79,831
------------
2,546,453
------------
Net Assets $89,425,164
============
Net Assets consist of:
Unrealized appreciation of investments ..................... $21,631,073
Accumulated net realized gain .............................. 13,593,174
Shares of beneficial interest .............................. 54,200,917
------------
$89,425,164
============
Net Asset Value and redemption price per share of
Class A shares ($34,445,976 [divided by] 2,218,121 shares of
beneficial interest) ....................................... $ 15.53
============
Maximum Offering Price per share of Class A shares
($15.53 [divided by] .955) ................................. $ 16.26
============
Net Asset Value and offering price per share of
Class B shares ($40,511,543 [divided by] 2,684,484 shares of
beneficial interest)* ....................................... $ 15.09
============
Net Asset Value, offering price and redemption price
per share of Class C shares ($7,007,912 [divided by] 445,503
shares of beneficial interest) .............................. $ 15.73
============
Net Asset Value and offering price per share of
Class D shares ($7,459,733 [divided by] 494,177 shares
of beneficial interest)* .................................... $ 15.10
============
</TABLE>

- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset value
less any applicable contingent deferred sales charge.

The accompanying notes are an integral part of the financial statements.
5
<PAGE>

STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended September 30, 1997

<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $924 .................. $ 132,030
Interest ................................................ 302,291
-----------
434,321
Expenses
Management fee (Note 2) ................................. 461,544
Transfer agent and shareholder services (Note 2) ...... 142,385
Custodian fee .......................................... 112,722
Service fee--Class A (Note 5) ........................... 56,810
Distribution and service fees--Class B (Note 5) ......... 265,078
Distribution and service fees--Class D (Note 5) ......... 48,253
Reports to shareholders ................................. 43,935
Registration fees ....................................... 43,581
Audit fee ............................................. 20,267
Trustees' fees (Note 2) ................................. 14,921
Legal fees ............................................. 7,646
Amortization of organization costs (Note 1) ............ 6,555
Miscellaneous .......................................... 11,480
-----------
1,235,177
Expenses borne by the Distributor (Note 3) ............ (185,818)
-----------
1,049,359
-----------
Net investment loss .................................... (615,038)
-----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) ...... 14,594,498
Net unrealized appreciation of investments ............ 12,653,977
-----------
Net gain on investments ................................. 27,248,475
-----------
Net increase in net assets resulting from operations . $26,633,437
===========
</TABLE>

- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended September 30
--------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ......... $ (615,038) $ (749,639)
Net realized gain on
investments ............... 14,594,498 11,088,837
Net unrealized appreciation
(depreciation) of
investments ............... 12,653,977 (2,000,953)
------------ -------------
Net increase resulting from
operations ............... 26,633,437 8,338,245
------------ -------------
Distribution from net realized
gains:
Class A .................. (1,462,798) --
Class B .................. (1,761,067) --
Class C .................. (1,026,873) --
Class D .................. (320,673) --
------------ -------------
(4,571,411) --
------------ -------------
Net increase (decrease) from
fund share transactions
(Note 7) .................. 6,103,327 (14,818,177)
------------ -------------
Total increase (decrease) in
net assets ............... 28,165,353 (6,479,932)
Net Assets
Beginning of year ......... 61,259,811 67,739,743
------------ -------------
End of year ............... $89,425,164 $ 61,259,811
============ =============
</TABLE>

The accompanying notes are an integral part of the financial statements.
6
<PAGE>

STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1997

Note 1
State Street Research Emerging Growth Fund, formerly 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 Emerging
Growth Fund, State Street Research Capital Fund and State Street Research Aurora
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.

A. Investments in Securities

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. For the year ended September 30, 1997, the Fund has
designated as long-term $3,902,152 of the distributions from net realized gains.

Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.

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

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, 1997, the amount of such shareholder servicing and account maintenance
expenses was $49,427.

7
<PAGE>

STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

The fees of the Trustees not currently affiliated with the Adviser amounted to
$14,921 during the year ended September 30, 1997.

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, 1997, the amount of such expenses assumed by the
Distributor and its affiliates was $185,818.

Note 4

For the year ended September 30, 1997, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities aggregated
$165,211,838 and $164,782,304, 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, 1997, fees pursuant to such plan amounted to
$56,810, $265,078 and $48,253 for Class A, Class B and Class D shares,
respectively.

The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $13,429 and $40,039, respectively, on sales of Class A shares of the
Fund during the year ended September 30, 1997, and that MetLife Securities, Inc.
earned commissions aggregating $108,768 on sales of Class B shares, and that the
Distributor collected contingent deferred sales charges aggregating $69,904 and
$163 on redemptions of Class B and Class D shares, respectively, during the same
period.

Note 6

The Trustees declared a distribution of all capital gains realized during the
year ended September 30, 1997 (approximately $1.68 short-term and $.59 long-term
per share), payable October 31, 1997 to shareholders of record on October 30,
1997.

Note 7

The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At September 30, 1997, the
Adviser owned one Class C share of the Fund.

Share transactions were as follows:

<TABLE>
<CAPTION>
Year ended September 30
-----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................... 736,606 $ 9,356,719 163,674 $ 1,606,790
Issued upon reinvestment of distribution from net realized gains 133,558 1,418,423 -- --
Shares redeemed ................................................ (399,385) (4,800,572) (632,394) (6,137,327)
----------- ------------- --------- ------------
Net increase (decrease) ....................................... 470,779 $ 5,974,570 (468,720) $ (4,530,537)
=========== ============= ========= ============

Class B Shares Amount Shares Amount
- ----------------------------------------------------------------- ----------- ------------- -------- ------------
Shares sold ................................................... 916,437 $ 11,267,074 84,647 $ 831,719
Issued upon reinvestment of distribution from net realized gains 157,306 1,632,835 -- --
Shares redeemed ................................................ (519,013) (5,932,931) (721,298) (6,831,042)
----------- ------------- --------- ------------
Net increase (decrease) ....................................... 554,730 $ 6,966,978 (636,651) $ (5,999,323)
=========== ============= ========= ============

Class C Shares Amount Shares Amount
- ----------------------------------------------------------------- ----------- ------------- -------- ------------
Shares sold ................................................... 315,695 $ 3,716,288 490,032 $ 5,072,988
Issued upon reinvestment of distribution from net realized gains 95,612 1,026,868 -- --
Shares redeemed ................................................ (1,129,494) (12,739,878) (593,777) (5,912,012)
----------- ------------- --------- ------------
Net decrease ................................................... (718,187) $ (7,996,722) (103,745) $ (839,024)
=========== ============= ========= ============

Class D Shares Amount Shares Amount
- ----------------------------------------------------------------- ----------- ------------- --------- ------------
Shares sold ................................................... 146,268 $ 1,835,625 14,475 $ 143,867
Issued upon reinvestment of distribution from net realized gains 29,013 300,866 -- --
Shares redeemed ................................................ (86,639) (977,990) (380,626) (3,593,160)
----------- ------------- --------- ------------
Net increase (decrease) ....................................... 88,642 $ 1,158,501 (366,151) $ (3,449,293)
=========== ============= ========= ============
</TABLE>

8
<PAGE>

STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

For a share outstanding throughout each year:

<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Year ended September 30
------------------------------------------------------
1997**** 1996**** 1995**** 1994**
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.33 $9.69 $8.56 $9.45
Net investment loss* (0.08) (0.09) (0.08) (0.02)
Net realized and unrealized gain (loss) on
investments 5.13 1.73 1.21 (0.87)
------- ----- ------- -----
Total from investment operations 5.05 1.64 1.13 (0.89)
------- ----- ------- -----
Distribution from net realized gains (0.85) -- -- --
------- ----- ------- -----
Total distributions (0.85) -- -- --
------- ----- ------- -----
Net asset value, end of year $ 15.53 $11.33 $9.69 $8.56
======= ====== ======= =====
Total return 48.00%+ 16.92%+ 13.20%+ (9.42)%++
Net assets at end of year (000s) $34,446 $19,791 $21,480 $21,986
Ratio of operating expenses to average
net assets* 1.35% 1.35% 1.35% 1.35%[dbldag]
Ratio of net investment loss to average
net assets* (0.64)% (0.96)% (0.93)% (0.58)%[dbldag]
Portfolio turnover rate 273.33% 155.85% 178.60% 83.61%
Average commission rate@ $0.0201 $0.0159 -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) $0.04 $0.04 $0.06 $0.02

<CAPTION>
Class B
----------------------------------------------------------------
Year ended September 30
----------------------------------------------------------------
1997**** 1996**** 1995**** 1994**
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.11 $9.58 $8.52 $9.45
Net investment loss* (0.16) (0.17) (0.14) (0.06)
Net realized and unrealized gain (loss) on
investments 4.99 1.70 1.20 (0.87)
---- ---- ---- -----

Total from investment operations 4.83 1.53 1.06 (0.93)
---- ---- ---- -----

Distribution from net realized gains (0.85) -- -- --
----- ---- ---- -----

Total distributions (0.85) -- -- --
----- ---- ---- -----
Net asset value, end of year $15.09 $11.11 $9.58 $8.52
====== ====== ===== =====
Total return 46.91%+ 15.97%+ 12.44%+ (9.84)%++
Net assets at end of year (000s) $40,512 $23,656 $26,489 $29,287
Ratio of operating expenses to average
net assets* 2.10% 2.10% 2.10% 2.10%[dbldag]
Ratio of net investment loss to average
net assets* (1.40)% (1.71)% (1.67)% (1.32)%[dbldag]
Portfolio turnover rate 273.33% 155.85% 178.60% 83.61%
Average commission rate@ $0.0201 $0.0159 -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) $0.03 $0.04 $0.06 $0.02
</TABLE>

<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------
Year ended September 30
----------------------------------------------------------------
1997**** 1996**** 1995**** 1994***
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.44 $9.77 $8.60 $9.55
Net investment loss* (0.04) (0.07) (0.06) (0.06)
Net realized and unrealized gain (loss) on
investments 5.18 1.74 1.23 (0.89)
---- ---- ---- -----

Total from investment operations 5.14 1.67 1.17 (0.95)
---- ---- ---- -----

Distribution from net realized gains (0.85) -- -- --
----- ---- ---- -----

Total distributions (0.85) -- -- --
----- ---- ---- ------

Net asset value, end of year $15.73 $11.44 $9.77 $8.60
====== ====== ===== =====

Total return 48.34%+ 17.09%+ 13.60%+ (9.95)%++
Net assets at end of year (000s) $7,008 $13,311 $12,380 $7,033
Ratio of operating expenses to average
net assets* 1.10% 1.10% 1.10% 1.10%[dbldag]
Ratio of net investment loss to average
net assets* (0.39)% (0.71)% (0.71)% (0.68)%[dbldag]
Portfolio turnover rate 273.33% 155.85% 178.60% 83.61%
Average commission rate@ $0.0201 $0.0159 -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $0.03 $0.04 $0.06 $0.04

<CAPTION>
Class D
----------------------------------------------------------------
Year ended September 30
----------------------------------------------------------------
1997**** 1996**** 1995**** 1994**
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.10 $9.58 $8.52 $ 9.45
Net investment loss* (0.16) (0.16) (0.14) (0.06)
Net realized and unrealized gain (loss) on
investments 5.01 1.68 1.20 (0.87)
---- ---- ---- -----

Total from investment operations 4.85 1.52 1.06 (0.93)
---- ---- ---- -----

Distribution from net realized gains (0.85) -- -- --
----- ---- ---- ----

Total distributions (0.85) -- -- --
----- ---- ---- ----

Net asset value, end of year $15.10 $11.10 $9.58 $8.52

Total return 47.15%+ 15.87%+ 12.44%+ (9.84)%++
Net assets at end of year (000s) $7,460 $4,503 $7,391 $10,032
Ratio of operating expenses to average
net assets* 2.10% 2.10% 2.10% 2.10%[dbldag]
Ratio of net investment loss to average
net assets* (1.41)% (1.71)% (1.67)% (1.32)%[dbldag]
Portfolio turnover rate 273.33% 155.85% 178.60% 83.61%
Average commission rate@ $0.0201 $0.0159 -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $0.03 $0.04 $0.06 $0.02
</TABLE>

- --------------------------------------------------------------------------------
[dbldag] 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.

@ Average commission rate per share paid for security trades beginning with the
fiscal year ended September 30, 1996.

9
<PAGE>

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Trustees of State Street Research Capital Trust and Shareholders of State
Street Research Emerging Growth Fund (Formerly State Street Research Small
Capitalization Growth Fund):

We have audited the accompanying statement of assets and liabilities of State
Street Research Emerging Growth Fund, formerly State Street Research Small
Capitalization Growth Fund, including the schedule of portfolio investments, as
of September 30, 1997, 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, 1997, 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 Emerging Growth Fund as of September 30, 1997, 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 7, 1997

10
<PAGE>

STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------

Emerging Growth Fund provided shareholders with outstanding performance during
the year. For the 12 months ended September 30, 1997 Class A shares returned
+48.00% [without sales charge]. The fund outperformed the average small company
growth fund, which was up 29.79%, according to Lipper Analytical Services.

The Fund invests primarily in emerging growth companies and small companies.

Performance varied over the course of the year, somewhat in line with the
market. The first quarter was positive. However, any gains for small company
stocks were erased in the second quarter, as the stock market fell and small
company stocks lost approximately 10%, on average. Science and technology was
one of the weakest sectors in the second quarter decline, but it also led the
advance late in the spring.

The Fund missed out on the science and technology rebound, because it was
underweighted in that sector and overweighted in consumer companies. However,
strong stock selection among consumer companies was the key to the Fund's
outperformance. Management focused on consumer companies with attractive
valuations, proven management and sales growth potential.

September 30, 1997

The Standard & Poor's 500 Composite Index (S&P 500) is a market-value weighted
index composed of 500 widely held common stocks. 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, which resulted in new or increased 12b-1 fees of up to 1%
per class thereafter and 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. "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; without
subsidization, performance would have been lower.

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 charts]

Class A Shares

Average Annual Total Return
1 Year 3 Years Life of Fund
41.34% 23.22% 13.82%

Emerging Growth Fund S&P 500
10/93 9550 10000
9/94 8560 10368
9/95 9690 13448
9/96 11330 16181
9/97 16769 22722

Class B Shares

Average Annual Total Return
1 Year 3 Years Life of Fund
41.91% 23.54% 13.85%

Emerging Growth Fund S&P 500
10/93 10000 10000
9/94 8921 10368
9/95 9631 13448
9/96 11334 16181
9/97 16790 22722

Class C Shares

Average Annual Total Return
1 Year 3 Years Life of Fund
48.34% 25.43% 15.48%

Emerging Growth Fund S&P 500
10/93 10000 10000
9/94 9005 10368
9/95 10230 13448
9/96 11979 16181
9/97 17770 22722

Class D Shares

Average Annual Total Return
1 Year 3 Years Life of Fund
46.15% 24.23% 14.38%
Emerging Growth Fund S&P 500
10/93 10000 10000
9/94 8921 10368
9/95 10031 13448
9/96 11623 16181
9/97 17103 22722

11
<PAGE>

STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH CAPITAL TRUST
- --------------------------------------------------------------------------------

Fund Information

State Street Research
Emerging 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

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

Steve A. Garban
Retired; formerly Senior Vice President for Finance and Operations and
Treasurer, The Pennsylvania State University

Malcolm T. Hopkins
Former Vice Chairman of the Board and Chief Financial
Officer, St. Regis Corp.

Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs

Robert A. Lawrence
Associate, 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

<PAGE>

State Street Research Emerging Growth Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Randolph, MA
Questions? Comments? Permit No. 600

Call us at 1-800-562-0032, or
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408 or
E-Mail us at:
[email protected]

[STATE STREET RESEARCH logo]

This report is prepared for the general information of current shareholders.

When used in the general solicitation of investors, this report must be
accompanied by a current State Street Research Emerging Growth Fund prospectus.
When used after December 31, 1997, this report must be accompanied by a current
Quarterly Performance Update.

Portfolio changes should not be considered recommendations for action by
individual investors.

CONTROL NUMBER: 4411-971120(1298)SSR-LD SCG-085E-1197IBSRN

<PAGE>

[FRONT COVER]

STATE STREET RESEARCH
AURORA FUND

ANNUAL REPORT

September 30, 1997

WHAT'S INSIDE

From the Chairman

An exciting year
to be an investor

Portfolio Manager's Review

Another strong year

Fund Information

Facts and Figures

Plus, Complete Portfolio Holdings
and Financial Statements

[DALBAR LOGO]

For Excellence
in
Shareholder Service

STATE STREET RESEARCH FUNDS
<PAGE>

FROM THE CHAIRMAN

[PHOTO OF CHAIRMAN]

Dear Shareholder:

Stocks

Common stocks continued to post extraordinary returns as corporate profits rose
for a sixth consecutive year, and investors continued to add money to equity
mutual funds at a record pace. The U.S. stock market rose 40.43%, as measured by
the S&P 500(1), during the year ended September 30, 1997. Small stocks, as
measured by the Russell 2000, were up 31.42%(1). Outside the U.S. investment
performance was mixed as markets in Europe and Latin America posted strong gains
in local currency, while key stock markets in Southeast Asia were extremely
weak, the result of currency devaluations and excessive optimism.

Bonds

Bonds lagged stocks for the year, but most segments of the bond market delivered
respectable gains. The yield on the 30-year Treasury bond ended the period at
6.41% after spiking above 7.0% in April, the weakest month of the year for both
stocks and bonds. The Lehman Brothers Aggregate Bond Index, a common benchmark
for bond market performance, gained 9.71%(1). Corporate bonds were strong
performers, especially lower-rated high-yield bonds, which returned 15.73%,
according to the First Boston High Yield Index(1).

What's Ahead

However, we believe that there are certain basic principles that can help to
keep you focused on your long-term goals: Think long term. Maintain a
diversified portfolio. Discipline yourself to stay with your investment program.
If you have questions or concerns about your investments, review them with your
investment professional. And, thank you for investing with State Street
Research.

Sincerely,

[Signature of Ralph F. Verni]

Ralph F. Verni
Chairman
September 30, 1997

Because the Fund invests in special situation companies, an investment in the
Fund may involve greater-than-average risk and above average price fluctuation.
Small company stocks are more volatile than large company stocks.

(1) The Standard & Poor's 500 Composite Index (S&P 500) is a market-value
weighted index composed of 500 widely held common stocks. The Lehman Brothers
Aggregate Bond Index is a market value weighted index of fixed-rate debt issues,
including U.S. treasury, agency and corporate bond issues, and mortgage-backed
securities. The Russell 2000 Index is a weighted index comprised of the 2000
smallest stocks within the Russell 3000 Index (a weighted index of the 3000
largest capitalized U.S. companies). The Russell 2000 Value Index contains those
securities within the Russell 2000 Index with a less than average growth
orientation. The First Boston High Yield Index is a commonly used measure of
high yield bond performance. The indices are unmanaged and do not take
transaction charges into consideration. Direct investment in the indices is not
possible, results are for illustrative purposes only.

(3) +71.34% for Class B shares; +73.10% for Class C shares; +71.26% for Class D
shares.

(5) Performance reflects up to 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.

- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended September 30, 1997)
- --------------------------------------------------------------------------------
Total value of $10,000 invested at Fund's inception(2)
(Class A shares, at maximum applicable sales charge)

[Mountain Chart]

2/95 9,550
9/95 11,130
9/96 15,986
9/97 27,606

SEC Average Annual Compound Rates of Return
(at maximum applicable sales charge)(4),(5)

<TABLE>
<CAPTION>
Life of Fund
(Since 2/13/95) 1 Year
- ----------------------------------------
<S> <C> <C>
Class A +47.06% +64.92%
- ----------------------------------------
Class B +47.92% +66.34%
- ----------------------------------------
Class C +50.02% +73.10%
- ----------------------------------------
Class D +48.29% +70.26%
- ----------------------------------------
</TABLE>

Cumulative Total Returns
(do not reflect sales charge)(4),(6)

<TABLE>
<CAPTION>
Life of Fund
(Since 2/13/95) 1 Year
- ----------------------------------------
<S> <C> <C>
Class A 189.07% +72.70%
- ----------------------------------------
Class B 183.32% +71.34%
- ----------------------------------------
Class C 190.92% +73.10%
- ----------------------------------------
Class D 183.18% +71.26%
- ----------------------------------------
</TABLE>

Performance results for the Fund are increased by the voluntary reduction of
Fund fees and expenses. Without subsidization, performance would have been
lower.

<PAGE>

PORTFOLIO MANAGER'S REVIEW
Aurora Fund: Another Strong Year

[Photo of Rudy Kluiber]

Rudy Kluiber
Portfolio Manager

Rudy Kluiber, portfolio manager of State Street Research Aurora Fund, comments
on the year ended September 30, 1997 and his strategy for the year ahead.

Q: How did the Fund perform last year?

A: The Fund had a strong year. Class A shares gained 72.70% [without sales
charge] for the 12 months ended September 30, 19973. That was well above the
Russell 2000 Value Index, which gained 42.54% for the same period. And, it
significantly outperformed the average small company fund, which gained 29.79%,
according to Lipper Analytical Services. The Fund was the top fund tracked in
the Lipper small cap fund category.*

Q: What accounts for the Fund's strong performance?

A: Bottom up stock selection. I look for companies that are relatively
inexpensive compared to the market. But inexpensive isn't enough. I'm attracted
to companies that have the potential to achieve significant gains in more ways
than one--cutting costs, introducing new products, hiring a new management team,
having an acquisition strategy or a stock buyback campaign.

Q: Science and technology was one of the strongest segments of the market last
year, yet you have only a modest weighting in that sector. Why?

A: I have no particular bias toward any sector. If you look at the portfolio,
you'll find machinery, business services, automotive, metals and mining and
railroad companies as well as companies that compete in the hotel and energy
service sectors. Regardless of the sector, I look at companies one at a time.
First, I try to determine how much the Fund could lose if we invest. We want to
guard the downside and avoid stocks with the potential to blow up. I also
estimate the upside potential of every stock I buy.

Q: The Fund's assets have grown substantially over the year. How have you put
so much new cash to work?

A: My goal is to keep the portfolio fully invested in stocks. As of September
30, the Fund's cash position is higher than I would like it to be. But in a
roaring bull market, it is more difficult to find good values and attractive
stocks. I look for companies that meet my criteria. I'm more comfortable holding
a higher cash position than investing in companies that fall short of my
investment criteria.

Q: Has the size of the average company in the portfolio changed over the year?

A: It's gone up some because, by definition, many of the stocks I own are worth
more today. However, the Fund is still focused on small companies. The average
market capitalization is $300 million. That's on the small end of the range for
many small company funds.

Q: What is your strategy for the period ahead?

A: Regardless of the market or the economy, I will continue to look for
attractively-priced stocks that may be out of favor with investors but also have
the potential for significant appreciation.

September 30, 1997

*Lipper Analytical Services, Inc. ranked the Fund's Class A, B, C and D shares
2, 3, 1 and 4, out of 433 fund classes for the twelve months ended September 30,
1997. Rankings do not reflect sales charges and are based on total return. All
classes of the Fund have a common portfolio.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Top 10 Stock Positions
(by percentage of net assets)
1 Exide Battery company 3.7%
2 Memtec Filtration systems 2.1%
3 Excel Industries Automotive systems 1.7%
4 Wyman-Gordon Aerospace components 1.6%
5 American Media Publishing 1.5%
6 Mississippi Chemical Fertilizer manufacturer 1.2%
7 Coherent Laser systems 1.2%
8 Tokheim Gas pumps 1.2%
9 OMI Shipping company 1.2%
10 Steinway Musical instruments 1.1%

These securities represent an aggregate of 16.5% 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.

[BAR CHART]

Top 5 Industries
(by percentage of net assets)

Machinery 7.8%
Automotive 7.8%
Business Service 6.1%
Metal & Mining 4.7%
Electronic Components 3.8%
Total: 30.2%

Best and Worst Contributors to Performance
(October 1, 1996 through September 30, 1997)

Best

Memtec Buyout bid from US Filter.

Tokheim
Continued operational turnaround.

TMBR/Sharp Drilling Strong industry fundamentals.

Worst

Invivo
Difficult product introduction.

Mississippi Chemical
Cost price squeeze.

Simpson
Timing of stock purchase.

2
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
September 30, 1997

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 73.5%
Basic Industries 19.4%
Chemical 1.7%
Amcol International Corp.* ............ 10,000 $ 207,500
Cambrex Corp. ........................... 6,450 300,731
Hawkins Chemical Inc. .................. 25,100 244,725
Lilly Industrial Inc. Cl. A ............ 73,500 1,543,500
McWhorter Technologies Inc.* ............ 2,000 50,250
Mississippi Chemical Corp. ............ 301,600 5,881,200
------------
8,227,906
------------
Diversified 0.9%
Commercial Intertech Corp. ............ 82,800 1,511,100
Noel Group Inc. ........................ 102,000 404,813
Quixote Corp. ........................... 10,000 88,750
Recoton Corp.* ........................ 102,900 1,466,325
Titan International Inc. ............... 30,000 600,000
Zero Corp. .............................. 3,300 93,431
------------
4,164,419
------------
Electrical Equipment 0.8%
AFC Cable Systems Inc.* ............... 2,000 71,000
Asia Pacific Wire & Cable Corp. Ltd.* ... 102,000 1,153,875
Channell Commercial Corp.* ............ 50,000 706,250
Compass Plastics & Technologies Inc.* ... 96,200 877,825
Hughes Supply Inc. ..................... 12,000 362,250
LSI Industries Inc. ..................... 2,000 31,500
Methode Electronics Inc. Cl. A ......... 17,000 437,750
Overland Data Inc.* ..................... 25,000 195,312
T. B. Woods Corp. ..................... 9,000 164,250
------------
4,000,012
------------
Forest Product 0.2%
Gaylord Container Corp Cl. A* ......... 40,000 340,000
Gaylord Container Corp. Wts.* ......... 200 1,762
Morgan Products Ltd.* .................. 50,500 337,719
------------
679,481
------------
Machinery 7.8%
ADE Corp.* .............................. 7,000 280,875
CTB International Corp.* ............... 42,000 661,500
DT Industries Inc. ..................... 30,000 990,000
Gleason Corp.* ........................ 16,000 440,000
Greenfield Industrial Inc. ............ 10,000 287,500
Hanover Compressor Co.* ............... 28,400 695,800
ICF Kaiser International Inc.* ......... 260,000 682,500
Instron Corp. ........................... 43,100 813,513
Intermet Corp. ........................ 174,700 3,057,250

- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Machinery (cont'd)
International Comfort Products Inc.* ... 76,300 $ 538,869
ITEQ Inc.* .............................. 48,200 671,788
JLK Direct Distribution Inc. Cl. A* ... 7,600 227,525
Keystone Automotive Industries Inc.* ... 33,000 697,125
Memtec Ltd. ADR ........................ 293,700 10,095,937
Miller Industries Inc.* ............... 30,000 358,125
OmniQuip International Inc.* ............ 16,000 294,000
Penn Engineering & Manufacturing Corp. 101,700 2,834,887
Pfeiffer Vacuum Technology AG ADR* ...... 3,600 111,600
Rofin-Sinar Technologies Inc.* ......... 3,000 50,250
Specialty Equipment Companies Inc.* ... 6,000 100,500
Sun Hydraulics Inc. ..................... 9,000 112,500
Thermadyne Holdings Corp.* ............ 62,500 1,875,000
Tokheim Corp.* ........................ 344,300 5,680,950
Varlen Corp. ........................... 48,000 1,896,000
Wolverine Tube Inc.* .................. 112,600 3,532,825
------------
36,986,819
------------
Metal & Mining 4.7%
Carbide / Graphite Group Inc.* ......... 48,000 1,632,000
Chase Industries Inc.* .................. 53,400 1,535,250
Citation Corp.* ........................ 1,000 19,250
Commonwealth Industries Inc. ............ 161,000 3,099,250
Easco Inc. .............................. 61,700 755,825
Global Industrial Technologies Inc.* ... 110,000 2,275,625
Huntco Inc. Cl. A ..................... 13,000 186,062
Interlake Corp.* ........................ 25,000 160,938
Keystone Consolidated Industries Inc.* 10,197 142,758
Metals USA Inc.* ........................ 28,000 432,250
N.N. Ball and Roller Inc. ............... 32,300 371,450
NS Group Inc.* ........................ 60,000 1,942,500
Ryerson Tull Inc. Cl. A* ............... 96,700 1,565,331
Shaw Group Inc.* ........................ 3,000 65,813
Special Metals Corp.* .................. 23,400 438,750
Webco Industries Inc.* .................. 49,500 396,000
Wyman-Gordon Co.* ..................... 285,200 7,486,500
------------
22,505,552
------------
Railroad 2.9%
ABC Rail Products Corp.* ............... 22,000 401,500
Genesee & Wyoming Inc. Cl. A* ......... 89,100 2,817,787
Johnstown America Industries Inc.* ...... 114,000 976,125
OMI Corp. .............................. 445,000 5,562,500
RailTex Inc.* ........................... 38,000 646,000
Tranz Rail Holdings Ltd. ADR ............ 206,000 3,399,000
------------
13,802,912
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
3
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Truckers 0.4%
Central Transport Rental Group PLC ADR* 1,321,800 $ 908,738
Smithway Motor Xpress Corp. Cl. A* ...... 20,000 280,000
Trailer Bridge Inc.* .................. 54,900 727,425
------------
1,916,163
------------
Total Basic Industries ........................... 92,283,264
------------
Consumer Cyclical 18.8%
Airline 0.4%
America West Holding Corp. Cl. B* ...... 100,000 1,456,250
Ryanair Holdings PLC ADR* ............... 9,900 297,464
------------
1,753,714
------------
Automotive 7.8%
Aftermarket Technology Corp.* ......... 5,000 118,750
Borg-Warner Automotive Inc. ............ 50,000 2,843,750
Collins & Aikman Corp.* ............... 40,000 440,000
Control Devices Inc.* .................. 102,100 1,531,500
Defiance Inc. ........................... 132,000 957,000
Excel Industries Inc. .................. 407,600 8,126,525
Exide Corp. ........................... 767,100 17,403,581
Federal-Mogul Corp. ..................... 3,000 111,375
Lund International Holdings Inc.* ...... 21,000 296,625
Motorcar Parts & Accessories Inc.* ...... 4,000 80,750
Simpson Industries Inc. ............... 338,000 3,908,125
Strattec Security Corp.* ............... 1,000 27,813
TransPro Inc. ........................... 88,700 964,612
Wescast Industries Inc. Cl. A ......... 5,000 166,016
------------
36,976,422
------------
Building 2.9%
Belmont Homes Inc.* ..................... 3,000 24,188
Cameron Ashley Inc.* .................. 7,000 127,750
Castle & Cooke Inc.* .................. 28,000 549,500
Centex Construction Products Inc. ...... 14,500 429,563
Dal-Tile International Inc.* ............ 43,000 645,000
Dayton Superior Corp. Cl. A* ............ 18,000 342,000
Hospitality Worldwide Services Inc.* ... 20,000 262,500
Interface Inc. Cl. A .................. 85,000 2,475,625
Kevco Inc.* ........................... 181,900 2,251,012
Morrison Knudsen Corp.* ............... 25,000 303,125
Nobility Homes Inc.* .................. 5,000 66,250
Nortek Inc.* ........................... 84,800 2,199,500
Shelby Williams Industries Inc. ......... 20,000 396,250
Simpson Manufacturing Inc.* ............ 4,000 167,500
Stimsonite Corp.* ..................... 80,000 520,000
Triangle Pacific Corp.* ............... 88,000 3,058,000
------------
13,817,763
------------

Value
Shares (Note 1)
----------- -------------
Hotel & Restaurant 1.5%
Casino America Inc.* .................. 7,000 $ 24,281
Il Fornaio Corp.* ..................... 24,000 366,000
Primadonna Resorts Inc.* ............... 207,000 3,726,000
Silverleaf Resorts Inc.* ............... 45,000 1,029,375
Station Casinos Inc.* .................. 49,000 398,125
Total Entertainment Restaurant Corp.* ... 20,000 157,500
Trendwest Resorts Inc.* ............... 48,000 1,128,000
Trump Hotels & Casino Resorts Inc.* ... 20,000 206,250
Vistana Inc.* ........................... 15,000 322,500
------------
7,358,031
------------
Photography 0.1%
CPI Corp. .............................. 14,600 372,300
------------
Recreation 2.3%
Alliance Gaming Corp.* .................. 30,000 198,750
AMC Entertainment Inc.* ............... 1,000 19,875
Bacou USA Inc.* ........................ 56,500 988,750
Cineplex Odeon Corp.* .................. 20,000 36,250
HMG Worldwide Corp.* .................. 22,000 26,125
HSN Inc.* .............................. 1,000 40,625
Lewis Galoob Toys Inc.* ............... 26,000 383,500
Panavision Inc.* ........................ 43,200 901,800
Polaris Industries Inc. ............... 45,000 1,324,687
Racing Champions Corp.* ............... 5,000 59,375
Rawlings Sporting Goods Co.* ............ 96,700 954,913
Rockshox Inc.* ........................ 1,000 14,250
Safety First Inc.* ..................... 500 2,656
Steinway Musical Instruments Inc.* ...... 216,700 5,200,800
Sturm Ruger & Company Inc. ............ 48,000 909,000
Travel Services International Inc.* ... 1,400 29,050
------------
11,090,406
------------
Retail Trade 2.6%
Acorn Products Inc.* .................. 53,800 860,800
Big Dog Holdings Inc.* .................. 22,000 308,000
Chromcraft Revington Inc.* ............ 200 6,125
Cole National Corp. Cl. A* ............ 63,000 2,618,437
DSI Toys Inc.* ........................ 55,000 515,625
Finlay Enterprises Inc.* ............... 10,000 192,500
Footstar Inc.* ........................ 43,700 1,177,169
Friedman's Inc Cl. A* .................. 37,200 627,750
Hanover Direct Inc.* .................. 20,000 33,750
Hibbett Sporting Goods Inc.* ............ 3,000 83,625
Krause's Furniture Inc.* ............... 9,200 26,163
Little Switzerland Inc.* ............... 8,000 53,000
Mark Brothers Jewelers Inc.* ............ 150,000 2,100,000
RDO Equipment Co. Cl. A* ............... 73,100 1,681,300
Stage Stores Inc.* ..................... 22,000 948,750
</TABLE>

The accompanying notes are an integral part of the financial statements.
4
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------

- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Retail Trade (cont'd)
TBC Corp.* .............................. 40,000 $ 377,500
Winsloew Furniture Inc.* ............... 20,000 310,000
York Group Inc. ........................ 4,000 87,000
Zale Corp.* ........................... 8,500 220,469
------------
12,227,963
------------
Textile & Apparel 1.2%
Chic By HIS Inc.* ..................... 36,000 254,250
Childrens Place Retail Stores Inc.* ... 47,000 681,500
Hirsch International Corp. Cl. A* ...... 47,700 843,694
Marisa Christina Inc.* .................. 10,000 70,000
Novel Denim Holdings Ltd.* ............ 12,600 340,200
Oshkosh B' Gosh Inc. Cl. A ............ 79,300 2,071,712
Tefron Ltd.* ........................... 73,300 1,466,000
------------
5,727,356
------------
Total Consumer Cyclical ........................ 89,323,955
------------
Consumer Staple 15.3%
Business Service 6.1%
Amerco* ................................. 148,700 4,535,350
American Pad & Paper Co.* ............... 20,000 248,750
American Residential Services Inc.* ... 63,000 1,106,437
Aris Corp.* ........................... 1,100 23,375
BioReliance Corp.* ..................... 37,200 976,500
Bridgestreet Accommodations Inc.* ...... 34,000 391,000
Carriage Services, Inc. Cl. A* ......... 14,000 245,000
Comfort Systems USA Inc.* ............... 89,000 1,702,125
CorporateFamily Solutions Inc.* ......... 18,900 318,938
Data Documents Inc.* .................. 127,900 2,701,887
Edutrek International Inc. Cl. A* ...... 29,100 774,787
Envirosource Inc.* ..................... 271,200 694,950
Firearms Training Systems Inc. Cl. A* ... 310,000 1,937,500
Hagler Bailly Inc.* ..................... 12,000 304,500
Industrial Distribution Group Inc.* ... 24,300 510,300
Integrated Systems Consulting Group* ... 37,000 420,875
International Total Services Inc.* ...... 180,400 2,751,100
Jackson Hewitt Inc.* .................. 44,000 1,683,000
Kendle International Inc.* ............ 63,600 1,192,500
Lamar Advertising Co. Cl. A* ............ 2,700 82,688
Melita International Corp.* ............ 30,000 352,500
OrthAlliance Inc. Cl. A* ............... 9,700 143,075
Pameco Corp.* ........................... 11,100 197,025
Pierce Leahy Corp.* ..................... 45,000 1,220,625
ProBusiness Services Inc.* ............ 6,900 131,963
ProMedCo Management Co.* ............... 70,000 735,000
Protection One Inc.* .................. 47,000 860,687
RCM Technologies Inc.* .................. 35,500 572,438

- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Business Service (cont'd)
Right Management Consultants Inc.* ...... 70,900 $ 726,725
Staffing Resources Inc.* ............... 6,500 58,500
Todd-AO Corp. ........................... 13,500 150,188
Vestcom International Inc.* ............ 37,100 742,000
Waste Industries Inc.* .................. 15,500 371,031
Waterlink Inc.* ........................ 10,000 187,500
------------
29,050,819
------------
Container 1.3%
Bway Corp.* ........................... 9,000 191,250
Gundle/SLT Environmental Inc.* ......... 88,100 495,562
Home Products International Inc.* ...... 38,000 555,750
Intertape Polymer Group Inc. ............ 24,000 582,000
Ivex Packaging Corp.* .................. 110,200 1,763,200
Rock Tennessee Co. Cl. A ............... 36,950 736,691
Sealright Company Inc.* ............... 3,000 39,375
Shorewood Packaging Corp.* ............ 65,000 1,551,875
Silgan Holdings Inc.* .................. 6,000 240,000
U.S. Can Corp.* ........................ 12,900 214,463
------------
6,370,166
------------
Drug 0.2%
Chirex Inc.* ........................... 20,000 510,000
ImmuLogic Pharmaceutical Corp.* ......... 22,000 72,875
Martek Biosciences Corp.* ............... 14,000 210,000
Unigene Labs Inc.* ..................... 15,000 57,188
------------
850,063
------------
Food & Beverage 0.8%
Authentic Specialty Foods Inc.* ......... 140,000 1,347,500
BJ's Wholesale Club Inc.* ............... 23,000 671,313
Coca-Cola Bottling Co. .................. 2,500 143,750
Darling International Inc.* ............ 23,600 678,500
Garden Fresh Restaurant Corp.* ......... 7,000 103,250
Northland Cranberries Inc. Cl. A ...... 15,000 281,250
Robert Mondavi Corp. Cl. A* ............ 1,000 54,750
Star Buffet Inc.* ..................... 27,400 431,550
------------
3,711,863
------------
Hospital Supply 1.4%
Arrow International Inc. ............... 20,000 662,500
Centennial Healthcare Corp.* ............ 21,000 483,000
Circon Corp.* ........................... 20,000 312,500
CN Biosciences Inc.* .................. 33,000 775,500
Fusion Medical Technologies Inc.* ...... 3,000 15,750
General Surgical Innovations Inc.* ...... 1,500 6,188
Healthplan Services Corp. ............... 20,794 439,273
Hyseq Inc.* ........................... 13,000 258,375
Invivo Corp.* ........................... 165,000 1,144,687
</TABLE>

The accompanying notes are an integral part of the financial statements.
5
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Hospital Supply (cont'd)
Lunar Corp.* ........................... 70,000 $ 1,338,750
SeaMed Corp.* ........................... 11,000 204,875
Sunrise Medical Inc.* .................. 1,000 15,625
Trigon Healthcare Inc.* ............... 20,000 496,250
Urohealth Systems Inc. Cl. A* ......... 25,200 144,900
Vista Medical Technologies Inc.* ...... 39,000 580,125
------------
6,878,298
------------
Personal Care 1.3%
Bush Boake Allen Inc.* .................. 35,000 1,163,750
Carson Inc. Cl. A* ..................... 45,000 486,562
Castle Dental Centers Inc.* ............ 8,100 113,400
Cooper Companies Inc.* .................. 1,000 36,750
First Brands Corp. ..................... 80,000 2,140,000
Monarch Dental Corp.* .................. 35,000 752,500
Ocular Sciences Inc.* .................. 32,000 740,000
Polymer Group Inc.* ..................... 50,000 643,750
------------
6,076,712
------------
Printing & Publishing 2.8%
American Media Inc. Cl. A* ............ 845,200 7,184,200
Central Newspapers Inc. Cl. A ......... 3,000 222,750
Hollinger International, Inc. Cv. Pfd. 175,000 2,154,687
Journal Register Co.* .................. 16,900 331,663
Katz Media Group Inc.* .................. 52,000 533,000
McClatchy Newspapers Inc. Cl. A ......... 23,000 790,625
Pulitzer Publishing Co. ............... 31,200 1,762,800
Valassis Communications Inc.* ......... 14,000 446,250
------------
13,425,975
------------
Tobacco 1.4%
800-JR. CIGAR Inc.* ..................... 35,500 1,242,500
Dimon Inc. .............................. 82,000 2,050,000
Standard Commercial Corp.* ............ 198,140 3,343,612
------------
6,636,112
------------
Total Consumer Staple ........................ 73,000,008
------------
Energy 5.0%
Oil 1.3%
Crystal Oil Co.* ........................ 3,800 147,488
KCS Energy Inc. ........................ 105,000 3,097,500
National Energy Group Inc. Cl. A* ...... 100,000 550,000
Nuevo Energy Co.* ..................... 18,000 861,750
Pease Oil & Gas Co.* .................. 100,000 303,125
Probe Exploration Inc.* ............... 280,500 1,187,312
------------
6,147,175
------------

- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Oil Service 3.7%
American Oilfield Divers Inc.* ......... 335,200 $ 5,174,650
Atwood Oceanics Inc.* .................. 28,100 3,164,762
Cal Dive International Inc.* ............ 3,100 115,475
Daniel Industries Inc. .................. 30,000 583,125
Friede Goldman International Inc.* ...... 18,300 1,098,000
Gulfmark Offshore Inc.* ............... 28,000 966,000
Patterson Energy, Inc.* ............... 17,464 914,677
Stolt Comex Seaway SA* .................. 4,000 250,250
TMBR / Sharp Drilling Inc.* ............ 132,600 3,580,200
UNIFAB International Inc.* ............ 7,800 255,450
UTI Energy Corp.* ..................... 39,300 1,552,350
------------
17,654,939
------------
Total Energy ........................... 23,802,114
------------
Finance 3.4%
Bank 0.7%
AMBANC Holding Co. Inc. ............... 6,000 96,750
Ambase Corp.* ........................... 5,000 14,650
Bank of the Ozarks Inc.* ............... 41,400 812,475
First International Bancorp Inc.* ...... 7,000 125,563
ITLA Capital Corp.* ..................... 4,000 81,000
Life Financial Corp.* .................. 91,000 1,672,125
Meritor Savings Bank* .................. 60,000 157,500
Net.B@nk Inc.* ........................ 18,600 197,625
Prime Bancshares Inc.* .................. 9,700 184,300
------------
3,341,988
------------
Financial Service 2.3%
Alliance Global Environment Fund Inc. ... 10,000 188,438
American Capital Strategies Ltd.* ...... 106,800 2,136,000
CCA Prison Realty Trust ............... 26,500 1,000,375
Delta Financial Corp.* .................. 47,000 948,812
Gentra Inc.* ........................... 12,000 37,423
Granite Financial Inc.* ............... 63,200 726,800
LaSalle Partners Inc.* .................. 1,600 56,000
Matrix Capital Corp.* .................. 5,000 81,875
Mego Financial Corp.* .................. 18,200 81,900
MoneyGram Payment Systems Inc.* ......... 6,000 107,625
New Century Financial Corp.* ............ 60,000 1,023,750
Security Capital Group Inc. Cl. B* ...... 97,700 3,358,437
SL Green Realty Corp.* .................. 30,600 791,775
Triad Park LLC* ........................ 10,000 12,600
Willis Lease Finance Corp.* ............ 6,000 138,750
------------
10,690,560
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
6
<PAGE>

- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Insurance 0.4%
Foremost Corp. ........................... 35,000 $ 2,065,000
-------------
Total Finance ................................. 16,097,548
--------------
Science & Technology 10.8%
Aerospace 0.8%
Curtiss-Wright Corp. ..................... 30,000 2,321,250
Doncasters PLC ADR* ..................... 22,900 687,000
First Aviation Services Inc.* ............ 35,000 293,125
Rohr Industries Inc.* .................. 14,000 433,125
-------------
3,734,500
-------------
Computer Software & Service 3.0%
Advantage Learning Systems Inc.* ......... 17,800 449,450
Bell & Howell Co.* ..................... 45,000 1,459,687
Best Software Inc.* ..................... 127,200 1,704,114
Box Hill Systems Corp.* .................. 61,800 1,081,500
Computervision Corp.* .................. 3,000 11,063
Corsair Communications Inc.* ............ 10,200 215,475
DRS Technologies Inc.* .................. 36,500 529,250
H.T.E. Inc.* ........................... 127,700 1,931,462
Information Management Associates Inc.* 83,900 1,027,775
Information Storage Devices Inc.* ...... 3,000 33,750
InTEST Corp.* ........................... 66,000 1,122,000
J.D. Edwards & Co.* ..................... 51,800 1,735,300
Larscom Inc. Cl. A* ..................... 1,100 11,138
Network Solutions Inc. Cl. A* ............ 17,900 389,325
Pegasus Systems Inc.* .................. 42,000 761,250
Phoenix International Inc.* ............ 4,000 95,500
Puma Technology Inc.* .................. 97,500 609,375
QAD Inc.* .............................. 37,000 689,125
SeaChange International Inc.* ............ 100 1,475
Template Software Inc.* .................. 11,000 143,000
TSI International Software Ltd.* ......... 13,000 172,250
Walsh International Inc.* ............... 17,000 212,500
-------------
14,385,764
-------------
Electronic Components 3.8%
Apex PC Solutions Inc.* .................. 13,000 492,375
BEI Electronics Inc. ..................... 165,000 2,598,750
DeCrane Aircraft Holdings Inc.* ......... 74,000 1,359,750
Denison International PLC ADR* ......... 253,200 ,889,925
Electro Scientific Industries Inc.* ...... 5,000 305,000
Fusion Systems Corp.* .................. 1,000 875
Galileo Technology Ltd.* ............... 9,000 297,000
Innova Corp.* ........................... 3,300 77,963
Optek Technology Inc.* .................. 182,600 3,446,575

- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Electronic Components (cont'd)
Peak International Ltd.* ............... 41,000 $ 978,875
Power-One Inc.* ........................ 68,000 952,000
Reliability Inc.* ........................ 33,000 1,427,250
Reptron Electronics Inc.* ............... 65,000 1,190,312
Richey Electronics Inc.* ............... 10,000 102,500
-------------
18,119,150
-------------
Electronic Equipment 2.7%
Aehr Test Systems Inc.* .................. 4,800 84,900
Brooks Automation Inc.* .................. 25,400 974,725
Coherent Inc.* ........................... 104,000 5,759,000
Detection Systems Inc.* .................. 112,400 2,318,250
FARO Technologies Inc.* .................. 63,400 1,038,175
Flir Systems Inc.* ..................... 7,500 149,063
Instrumentation Laboratories SPA ADR* ... 40,000 112,500
Mackie Designs Inc.* ..................... 15,000 142,500
Magnetic Technologies Corp.* ............ 70,000 334,687
Novametrix Medical Systems Inc.* ......... 45,000 452,812
Pioneer-Standard Electronics Inc. ...... 17,000 292,188
Plantronics Inc.* ........................ 16,000 604,000
Positron Fiber Systems Corp. Cl. A* ...... 31,300 322,781
Silicon Valley Group Inc.* ............... 1,000 35,563
-------------
12,621,144
-------------
Office Equipment 0.5%
Davel Communications Group* ............ 8,000 184,000
ErgoBilt Inc.* ........................... 45,000 447,187
Exabyte Corp.* ........................... 128,000 1,408,000
Laser Power Corp.* ..................... 42,000 304,500
-------------
2,343,687
-------------
Total Science & Technology ............ 51,204,245
-------------
Utility 0.8%
Natural Gas 0.2%
Continental Natural Gas Inc.* ............ 32,700 392,400
TransTexas Gas Corp.* .................. 32,500 520,000
-------------
912,400
-------------
Telephone 0.6%
Bell Canada International Inc* ......... 45,500 858,812
NACT Telecommunications Inc.* ............ 25,000 395,313
NEXTLINK Communications Inc. Cl. A* ...... 75,600 1,814,400
-------------
3,068,525
-------------
Total Utility ........................... 3,980,925
-------------
Total Common Stocks (Cost $290,434,166) 349,692,059
-------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
7
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 0.1%
System Software Associates
Inc. Cv. Sub. Note, 7.00% ...... $ 300,000 9/15/2002 $ 332,250
-------------
Total Fixed Income Securities (Cost $300,000) ............... 332,250
-------------
SHORT-TERM OBLIGATIONS 28.5%
American Express Credit Corp.,
5.60% ........................... 6,600,000 10/01/1997 6,600,000
American Express Credit Corp.,
5.54% ........................... 5,454,000 10/07/1997 5,454,000
American Express Credit Corp.,
5.50% ........................... 10,000,000 10/10/1997 10,000,000
Bell Atlantic Financial Services
Inc., 5.52% ..................... 5,511,000 10/06/1997 5,506,775
Beneficial Corp., 5.52% ......... 8,069,000 10/24/1997 8,069,000
Commercial Credit Co., 5.50% . 19,460,000 10/03/1997 19,460,000
Ford Motor Credit Co., 5.51% . 5,000,000 10/06/1997 5,000,000
Ford Motor Credit Co., 5.52% . 6,000,000 10/07/1997 6,000,000
Ford Motor Credit Co., 5.51% . 9,000,000 10/15/1997 9,000,000
General Electric Capital Corp.,
5.52% ........................... 9,806,000 10/20/1997 9,806,000
General Electric Capital Corp.,
5.53% ........................... 6,857,000 10/24/1997 6,857,000
Household Finance Corp.,
5.51% ........................... 14,033,000 10/08/1997 14,033,000
John Deere Capital Corp.,
5.51% ........................... 8,521,000 10/02/1997 8,521,000
John Deere Capital Corp.,
5.49% ........................... 8,514,000 10/09/1997 8,514,000
Toys R Us Inc., 5.48% ............ 2,885,000 10/10/1997 2,881,047
Walt Disney Co., 5.47% ............ 10,000,000 10/02/1997 9,998,481
-------------
Total Short-Term Obligations (Cost $135,700,303) ............ 135,700,303
-------------
Total Investments (Cost $426,434,469)--102.1% ............... 485,724,612
Cash and Other Assets, Less Liabilities--(2.1%) ............ (10,270,000)
-------------
Net Assets--100.0% .......................................... $ 475,454,612
=============
</TABLE>

<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Federal Income Tax Information:
At September 30 1997, the net unrealized appreciation
of investments based on cost for Federal income tax
purposes of $426,523,579 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $ 61,386,319

Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over valu (2,185,286)
------------
$ 59,201,033
============
</TABLE>

- -------------------------------------------------------------------------------
*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.
8
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1997

<TABLE>
<S> <C>
Assets
Investments, at value (Cost $426,434,469) (Note 1) ............ $485,724,612
Cash ......................................................... 81,486
Receivable for fund shares sold .............................. 10,491,205
Receivable for securities sold ................................. 409,114
Dividends and interest receivable .............................. 271,527
Deferred organization costs and other assets (Note 1) 37,004
-------------
497,014,948
Liabilities
Payable for securities purchased .............................. 20,687,805
Accrued management fee (Note 2) .............................. 278,020
Payable for fund shares redeemed .............................. 263,692
Accrued distribution and service fees (Note 5) ............... 236,922
Accrued transfer agent and shareholder services
(Note 2) ................................................... 11,230
Accrued trustees' fees (Note 2) .............................. 9,275
Other accrued expenses ....................................... 73,392
-------------
21,560,336
-------------
Net Assets $475,454,612
=============
Net Assets consist of:
Unrealized appreciation of investments ........................ $ 59,290,143
Accumulated net realized gain ................................. 4,156,803
Shares of beneficial interest ................................. 412,007,666
-------------
$475,454,612
=============
Net Asset Value and redemption price per share of
Class A shares ($157,853,458 [divided by] 7,621,324 shares of
beneficial interest) ....................................... $20.71
======
Maximum Offering Price per share of Class A shares
($20.71 [divided by] .955) .................................... $21.69
======
Net Asset Value and offering price per share of Class
B shares $235,938,105 [divided by] 11,606,420 shares of
beneficial interest)* ....................................... $20.33
======
Net Asset Value, offering price and redemption price
per share of Class C shares ($14,542,027 [divided by]
697,968 shares of beneficial interest) ...................... $20.83
======
Net Asset Value and offering price per share of Class
D shares ($67,121,022 [divided by] 3,302,603 shares of
beneficial interest)* ....................................... $20.32
======
</TABLE>

- -------------------------------------
* 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, 1997
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $101 .................. $ 212,366
Interest ................................................ 1,052,808
-----------
1,265,174
Expenses
Management fee (Note 2) ................................. 726,266
Custodian fee .......................................... 121,027
Transfer agent and shareholder services (Note 2) ...... 55,656
Service fee--Class A (Note 5) ........................... 64,258
Distribution and service fees--Class B (Note 5) ......... 384,579
Distribution and service fees--Class D (Note 5) ......... 112,831
Registration fees ....................................... 88,786
Reports to shareholders ................................. 18,630
Trustees' fees (Note 2) ................................. 17,094
Audit fee ............................................. 16,698
Amortization of organization costs (Note 1) ............ 14,595
Legal fees ............................................. 6,906
Miscellaneous .......................................... 6,613
-----------
1,633,939
Expenses borne by the Distributor (Note 3) ............ (135,389)
-----------
1,498,550
-----------
Net investment loss .................................... (233,376)
-----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) ...... 4,589,402
Net unrealized appreciation of investments ............ 57,978,769
-----------
Net gain on investments ................................. 62,568,171
-----------
Net increase in net assets resulting from operations . $62,334,795
===========
</TABLE>

The accompanying notes are an integral part of the financial statements.
9
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year ended September 30
------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ............ $ (233,376) $ (38,012)
Net realized gain on investments 4,589,402 1,978,638
Net unrealized appreciation of
investments .................. 57,978,769 774,969
------------ ----------
Net increase resulting from
operations .................. 62,334,795 2,715,595
------------ ----------
Dividend from net investment income:
Class A ........................ -- (46,536)
Class B ........................ -- (430)
Class C ........................ -- (1,112)
Class D ........................ -- (430)
------------ ----------
-- (48,508)
------------ ----------
Distributions from net realized gains:
Class A ........................ (275,192) (259,563)
Class B ........................ (38,226) (5,268)
Class C ........................ (1,776,578) (5,268)
Class D ........................ (38,226) (5,268)
------------ ----------
(2,128,222) (275,367)
------------ ----------
Net increase from fund share
transactions (Note 7) ......... 406,056,397 668,649
------------ ----------
Total increase in net assets ... 466,262,970 3,060,369
Net Assets
Beginning of year ............... 9,191,642 6,131,273
------------ ----------
End of year ..................... $475,454,612 $9,191,642
============ ==========
</TABLE>

- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1997

Note 1
State Street Research Aurora Fund, formerly 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 Aurora
Fund, State Street Research Emerging 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. Effective November 5,
1997, the Fund discontinued offering all four classes of shares. Class A share
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 the 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 declared
separate dividends on each class of shares.

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. Securities transactions are

The accompanying notes are an integral part of the financial statements.
10
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------

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 period.

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. For the year ended September 30, 1997, the Fund has
designated as long-term $290,046 of the distributions from net realized gains.

Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.

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.
During the year ended September 30, 1997, the fees pursuant to such agreement
amounted to $726,266.

State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), and 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, 1997, the amount of such
expenses was $39,592.

The fees of the Trustees not currently affiliated with the Adviser amounted to
$17,094 during the year ended September 30, 1997.

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, 1997, the amount of such expenses assumed by the
Distributor and its affiliates was $135,389.

Note 4
For the year ended September 30, 1997, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities aggregated
$297,321,594 and $19,001,368, 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, 1997, fees pursuant to such plan amounted to
$64,258, $384,579, and $112,831 for Class A, Class B and Class D shares,
respectively.

The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $314,023 and $312,224, respectively, on sales of Class A shares of
the Fund during the year ended September 30, 1997, and that MetLife Securities,
Inc. earned commissions aggregating $784,669 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$8,896 and $3,376 on redemptions of Class B and Class D shares, respectively,
during the same period.

Note 6
The Trustees declared a distribution of all capital gains realized during the
year ended September 30, 1997, (approximately $.13 short-term and $.02 long-term
per share), payable October 31, 1997 to shareholders of record on October 30,
1997.

11
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At September 30, 1997, the
Adviser owned one share of each of Class A, Class B, Class C and Class D shares
and Metropolitan owned 19,510 Class A shares, 13,884 Class B shares, 636,481
Class C shares and 13,884 Class D shares of the Fund.

Share transactions were as follows:

<TABLE>
<CAPTION>
Year ended September 30
-------------------------------
1997
-------------------------------
Class A Shares Amount
- ------------------------------------------------------------------------ -------------- ----------------
<S> <C> <C>
Shares sold ......................................................... 7,718,462 $141,142,332
Issued upon reinvestment of:
Distributions from net realized gains .............................. 20,767 275,171
Dividend from net investment income ................................. -- --
Shares repurchased ................................................... (191,210) (3,448,807)
---------- ------------
Net increase (decrease) ............................................. 7,548,019 $137,968,696
========== ============
Class B Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... 11,670,966 $208,229,024
Issued upon reinvestment of distributions from net realized gains ...... 2,920 38,204
Shares repurchased ................................................... (78,457) (1,385,012)
---------- ------------
Net increase ......................................................... 11,595,429 $206,882,216
========== ============
Class C Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... 68,257 $ 1,187,984
Issued upon reinvestment of distributions from net realized gains ...... 133,575 1,776,556
Shares repurchased ................................................... (14,394) (233,957)
---------- ------------
Net increase ......................................................... 187,438 $ 2,730,583
========== ============
Class D Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... 3,388,937 $ 60,155,313
Issued upon reinvestment of distributions from net realized gains ...... 2,921 38,204
Shares repurchased ................................................... (100,246) (1,718,615)
---------- ------------
Net increase ......................................................... 3,291,612 $ 58,474,902
========== ============

<CAPTION>
1996
-----------------------------
Class A Shares Amount
- ------------------------------------------------------------------------ ------------- ---------------
<S> <C> <C>
Shares sold ......................................................... 32,682 $ 424,234
Issued upon reinvestment of:
Distributions 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)
========= ============
Class B Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... -- $ --
Issued upon reinvestment of distributions from net realized gains ...... 498 5,265
Shares repurchased ................................................... -- --
--------- ------------
Net increase ......................................................... 498 $ 5,265
========= ============
Class C Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... 499,540 $ 5,929,901
Issued upon reinvestment of distributions from net realized gains ...... 497 5,265
Shares repurchased ................................................... -- --
--------- ------------
Net increase ......................................................... 500,037 $ 5,935,166
========= ============
Class D Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... -- $ --
Issued upon reinvestment of distributions from net realized gains ...... 498 5,265
Shares repurchased ................................................... -- --
--------- ------------
Net increase ......................................................... 498 $ 5,265
========= ============
</TABLE>

12
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

For a share outstanding throughout each year:

<TABLE>
<CAPTION>
Class A
---------------------------------------------
Year ended September 30
---------------------------------------------
1997** 1996** 1995***
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 15.14 $ 11.13 $ 9.55
------------ ------------ ------------
Net investment income (loss)* 0.03 (0.06) 0.07
Net realized and unrealized gain on investments 9.02 4.66 1.51
------------ ------------ ------------
Total from investment operations 9.05 4.60 1.58
------------ ------------ ------------
Dividend from net investment income -- (0.09) --
Distributions from net realized gains (3.48) (0.50) --
------------ ------------ ------------
Total distributions (3.48) (0.59) --
------------ ------------ ------------
Net asset value, end of year $ 20.71 $ 15.14 $ 11.13
============ ============ ============
Total return 72.70%+ 43.63%+ 16.54%++
Net assets at end of year (000s) $ 157,853 $ 1,110 $ 5,782
Ratio of operating expenses to average net assets* 1.34% 1.45% 1.45%#
Ratio of net investment income (loss) to average net assets* 0.17% (0.56)% 1.05%#
Portfolio turnover rate 25.03% 124.79% 47.34%
Average commission rate @ $ 0.0154 $ 0.0174 --
*Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) $ 0.02 $ 0.32 $ 0.15

<CAPTION>
Class B
---------------------------------------------
Year ended September 30
---------------------------------------------
1997** 1996** 1995***
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 15.02 $ 11.08 $ 9.55
------------ ------------ ------------
Net investment income (loss)* (0.09) (0.17) 0.02
Net realized and unrealized gain on investments 8.88 4.65 .51
------------ ------------ ------------
Total from investment operations 8.79 4.48 1.53
------------ ------------ ------------
Dividend from net investment income -- (0.04) --
Distributions from net realized gains (3.48) (0.50) --
------------ ------------ ------------
Total distributions (3.48) (0.54) --
------------ ------------ ------------
Net asset value, end of year $ 20.33 $ 15.02 $ 11.08
============ ============ ============
Total return 71.34%+ 42.52%+ 16.02%++
Net assets at end of year (000s) $ 235,938 $ 165 $ 116
Ratio of operating expenses to average net assets* 2.08% 2.20% 2.20%#
Ratio of net investment income (loss) to average net assets* (0.55)% (1.38)% 0.32%#
Portfolio turnover rate 25.03% 124.79% 47.34%
Average commission rate @ $ 0.0154 $ 0.0174 --
*Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) $ 0.01 $ 0.32 $ 0.15
</TABLE>

<TABLE>
<CAPTION>
Class C
---------------------------------------------
Year ended September 30
---------------------------------------------
1997** 1996** 1995***
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 15.18 $ 11.15 $ 9.55
------------ ------------ ------------
Net investment income (loss) (0.00) (0.06) 0.09
Net realized and unrealized gain on investments 9.13 4.70 1.51
------------ ------------ ------------
Total from investment operations 9.13 4.64 1.60
------------ ------------ ------------
Dividend from net investment income -- (0.11) --
Distributions from net realized gains (3.48) (0.50) --
------------ ------------ ------------
Total distributions (3.48) (0.61) --
------------ ------------ ------------
Net asset value, end of year $ 20.83 $ 15.18 $ 11.15
============ ============ ============
Total return 73.10%+ 43.95%+ 16.75%+
Net assets at end of year (000s) $ 14,542 $ 7,752 $ 117
Ratio of operating expenses to average net assets* 1.16% 1.20% 1.20%#
Ratio of net investment income (loss) to average net assets* (0.02)% (0.43)% 1.32%#
Portfolio turnover rate 25.03% 124.79% 47.34%
Average commission rate @ $ 0.0154 $ 0.0174 --
*Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) . $ 0.12 $ 0.32 $ 0.15

<CAPTION>
Class D
---------------------------------------------
Year ended September 30
---------------------------------------------
1997** 1996** 1995***
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 15.02 $ 11.08 $ 9.55
------------ ------------ ------------
Net investment income (loss) (0.09) (0.17) 0.02
Net realized and unrealized gain on investments 8.87 4.65 1.51
------------ ------------ ------------
Total from investment operations 8.78 4.48 1.53
------------ ------------ ------------
Dividend from net investment income -- (0.04) --
Distributions from net realized gains (3.48) (0.50) --
------------ ------------ ------------
Total distributions (3.48) (0.54) --
------------ ------------ ------------
Net asset value, end of year $ 20.32 $ 15.02 $ 11.08
============ ============ ============
Total return 71.26%+ 42.52%+ 16.02%++
Net assets at end of year (000s) $ 67,121 $ 165 $ 116
Ratio of operating expenses to average net assets* 2.09% 2.20% 2.20%#
Ratio of net investment income (loss) to average net assets* (0.58)% (1.38)% 0.32%#
Portfolio turnover rate 25.03% 124.79% 47.34%
Average commission rate @ $ 0.0154 $ 0.0174 --
*Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) . $ 0.01 $ 0.32 $ 0.15
</TABLE>

- --------------------------------------------------------------------------------
# Annualized.
** Per-share figures have been calculated using the average shares
method.
*** February 13, 1995 (commencement of operations) to September 30, 1995.
+ 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'
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.
@ Average commission rate per share paid for security trades beginning
with the fiscal year ended September 30, 1996.

13
<PAGE>

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Trustees of State Street Research Capital Trust and Shareholders of State
Street Research Aurora Fund (formerly State Street Research Small Capitalization
Value Fund):

We have audited the accompanying statement of assets and liabilities of State
Street Research Aurora Fund, formerly State Street Research Small Capitalization
Value Fund, including the schedule of portfolio investments, as of September 30,
1997, 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, 1997, 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 Aurora Fund as of September 30, 1997, 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 7, 1997

14
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------

Aurora Fund provided shareholders with superior returns for the year ending
September 30, 1997. Class A shares returned +72.70% [without sales charge]. That
was significantly higher than its peer group, the Lipper small company fund
average, which was up 29.79%. It was also well above the Fund's benchmark, the
Russell 2000 Value Index, which gained 42.54% for the period.

Aurora Fund seeks high total return primarily through capital appreciation by
investing in small companies that are undervalued or special situations. The
manager's strategy is to look for a combination of relatively low valuation and
aggressive upside potential. Company visits, when possible, and communication
with management are the manager's primary research tools.

In general, large company stocks outperformed small company stocks during the
first half of the year. Small stocks came back stronger in the second half of
the year. The Fund benefited from stock selection in a wide range of sectors and
the manager's emphasis on his largest positions. Of the approximately 300 stocks
in the portfolio, the top 10 holdings account for 17% of the Fund's assets.

The Fund ended the year with 26% in cash, the result of an extraordinary inflow
of assets near the end of the period.

September 30, 1997

The Standard & Poor's 500 Composite Index (S&P 500) is a market-value weighted
index composed of 500 widely held common stocks. The Russell 2000 Value Index
contains those securities within the Russell 2000 Index with a less than average
growth orientation. 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 charge. "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 voluntary reduction of Fund fees and
expenses; without subsidization, performance would have been lower.

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 charts]

Class A Shares

Average Annual Total Return
1 Year Life of Fund
64.92% 47.06%

Aurora Fund S&P 500
2/95 9,550 10,000
9/95 11,130 12,425
9/96 15,986 14,949
9/97 27,606 20,993

Class B Shares

Average Annual Total Return
1 Year Life of Fund
66.34% 47.92%

Aurora Fund S&P 500
2/95 10,000 10,000
9.95 11,602 12,425
9/96 16,135 14,949
9/97 28,032 20,993

Class C Shares

Average Annual Total Return
1 Year Life of Fund
73.10% 50.02%

Aurora Fund S&P 500
2/95 10,000 10,000
9/95 11,675 12,425
9/96 16,806 14,949
9/97 29,092 20,993

Class D Shares

Average Annual Total Return
1 Year Life of Fund
70.26% 48.29%

Aurora Fund S&P 500
2/95 10,000 10,000
9/95 11,602 12,425
9/96 16,535 14,949
9/97 28,318 20,993

================================================

15
<PAGE>

STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH CAPITAL TRUST
- --------------------------------------------------------------------------------

Fund Information

State Street Research
Aurora 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

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

Steve A. Garban
Retired; formerly Senior Vice
President for Finance and
Operations and Treasurer, The
Pennsylvania State University

Malcolm T. Hopkins
Former Vice Chairman of the
Board and Chief Financial Officer,
St. Regis Corp.

Edward M. Lamont
Formerly in banking
(Morgan Guaranty Trust
Company of New York);
presently engaged in private
investments and civic affairs

Robert A. Lawrence
Associate, 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

<PAGE>

State Street Research Aurora Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Randolph, MA
Questions? Comments? Permit No. 600

Call us at 1-800-562-0032, or
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408 or
E-Mail us at:
[email protected]

[STATE STREET RESEARCH logo]

This report is prepared for the general information of current shareholders.

When used in the general solicitation of investors, this report must be
accompanied or preceded by a current State Street Research Aurora Fund
prospectus. When used after December 31, 1997, this report must be accompanied
by a current Quarterly Performance Update.

Portfolio changes should not be considered recommendations for action by
individual investors.

CONTROL NUMBER: 4442-971119(1298)SSR-LD SCV-339E-1197IBSRN