[Front cover]
STATE STREET RESEARCH
---------------------
CAPITAL FUND
---------------------
ANNUAL REPORT
September 30, 1998
- ---------------------
WHAT'S INSIDE
- ---------------------
From the Chairman
From good news
to mixed results
Portfolio Manager's Review
Uphill challenge for
mid-cap stocks
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar award]
- ---------------------
DALBAR
Honors Commitment to:
Investors 1997
For Excellence
in
Shareholder Service
- ---------------------
[end Dalbar award]
State Street Research Funds
<PAGE>
FROM THE CHAIRMAN
[photo of Ralph F. Verni]
Dear Shareholder:
After nearly four years of uninterrupted good news, the third quarter produced
mixed results for investors. Most economic data remain positive: Inflation was
low. Personal income has risen, and unemployment was steady at about 4.5%.
However, consumer confidence has slipped slightly. The stock market has lost
ground. Investors are worried about future corporate earnings.
Stocks
Pessimism about profits sent stocks down during the third quarter. Financial
stocks were among the hardest hit, as announcements were made that big U.S.
financial institutions expect losses from loans to foreign markets. Technology
companies also lost ground as lower demand from Asia hurt some of the biggest
competitors. All major market indices were down for the quarter, and some
segments of the market--notably, small company stocks--have registered double
digit losses for the year so far.
Bonds
On the positive side, bond investors had something to cheer about. Treasury
bonds soared as the Federal Reserve Board's one-quarter percent cut in the
federal funds rate sent the yield on the bellwether long-term Treasury bond
down below 5.0% for the first time ever. High-yield bonds and mortgage-backed
securities failed to participate in the rally.
International
Warnings that economic growth has slowed around the world, plus specific
concerns over Asia's woes, continued to bring returns down on most major
foreign exchanges. Even Europe, which had delivered strong gains in the first
half of the year, felt the effects of Russia's currency problems and Japan's
recession. As interest rates converge anticipating the euro common currency in
1999, Spain and Italy appear to be in the best position to grow, and Germany
and France are the most likely to suffer.
Outlook and Opportunities
As investors, you may be asking where the opportunities are in this rocky
market. My reply: In diversification--and in markets that have been beaten
down, such as small-cap and mid-cap stocks. But every investor is different.
Now is a good time to talk to your financial professional about your
investments. And as always, thank you for your confidence in State Street
Research Funds.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
September 30, 1998
(1)The Russell Mid-Cap Growth Index contains only those stocks within the
Russell Mid-Cap Index (a mid-size company index) that show above-average growth.
The index does not take transaction charges into consideration. It is not
possible to invest directly in the index.
(2)Investment results are based on an assumed $10,000 investment at Class 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)-18.78% for Class B shares; -18.76% for Class C shares; -17.94% for Class S
shares.
(4)Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Perfor-mance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable. The fund's
returns include performance from before the creation of share classes. If this
performance reflected the share classes' current 12b-1 fees, the fund's returns
may have been lower.
(5)Class S shares, offered without a sales charge, are available only through
certain employee benefit plans and special programs.
(6)Before November 1, 1997, Class C shares were designated Class D, and Class S
shares were desig-nated Class C.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended September 30, 1998)
- --------------------------------------------------------------------------------
Total value of $10,000 invested on September 30, 1988(2)
(Class A shares, at maximum applicable sales charge)
[mountain chart]
<TABLE>
<S> <C>
9/88 9550
9/89 12791
9/90 10128
9/91 15585
9/92 16729
9/93 25932
9/94 26583
9/95 36406
9/96 40089
9/97 42944
9/98 35154
</TABLE>
[end mountain chart]
Average Annual Total Return
(at maximum applicable sales charge)(4,5,6)
<TABLE>
<CAPTION>
Life of Fund
(since 3/25/84) 10 Years 5 Years 1 Year
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 13.69% 13.40% 5.30% -21.82%
- ---------------------------------------------------------------------
Class B 13.74% 13.47% 5.15% -22.80%
- ---------------------------------------------------------------------
Class C 13.76% 13.49% 5.53% -19.56%
- ---------------------------------------------------------------------
Class S 14.18% 14.10% 6.56% -17.94%
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
PORTFOLIO MANAGER'S REVIEW
Capital Fund: Uphill challenge for mid-cap stocks
We spoke with Richard Jodka, portfolio manager of State Street Research Capital
Fund, about performance for the year ended September 30, 1998, and his views on
the period ahead.
[photo of Richard Jokda]
Richard Jokda
Portfolio Manager
Q: How did the Fund perform for the year?
A: It was a difficult year for the Fund. Class A shares returned -18.14% for the
12 months ended September 30, 1998 [does not reflect sales charge].3 That was
less than the average capital appreciation fund, which returned -8.08%, as
reported by Lipper Analytical Services, Inc. The Fund also underperformed the
Russell Mid-Cap Growth Index, which returned -9.37% for the same period.1
Q: What factors hurt the Fund's performance?
A: Continued weakness in foreign economies and fears that a slowdown in the
U.S. would hurt smaller companies sent investors looking for safety in the
stocks of larger companies. In fact, the market for small and mid-cap stocks
has been one of the worst in history--at least in relative terms. That provides
little comfort to our shareholders for the period we have just been through.
However, I believe that we have arrived at a point where there are outstanding
opportunities in the mid-cap sector. Certainly, the mid-cap sector of the
market has never been cheaper in the 32 years that statistics have been kept.
Q: How did the Fund's largest investments fare during the period?
A: The results were mixed. There were disappointments among some of our largest
holdings, such as Cendant and Advanced Fibre Communications. On the other hand,
America Online, another one of the Fund's largest positions, has continued to
be a strong performer.
Q: Have you made any structural changes to the portfolio since you took over as
manager last January?
A: Yes. Working within the Fund's established guidelines, we have focused more
on the mid-cap sector, primarily because we think it offers outstanding growth
opportunities in the U.S. We also cut back on the Fund's heavy emphasis on
technology stocks and added investments in the consumer and health care
sectors. During the year, much of the Fund's activity was related to
restructuring.
Q: How do you assess the potential of the stocks currently in the portfolio?
A: We believe we own a strong list of companies. As part of our restructuring,
we've emphasized domestic companies with the potential to continue to grow
through an economic downturn. CVS, the drug retailer, is a good example: even
if the economy weakens, we believe most people will continue to fill their
prescriptions. Harley-Davidson is another stock that we continue to own.
Historically, the company has performed well through changing economic cycles.
In fact, many of the companies in the portfolio have been overachievers in
terms of earnings growth, and we believe they have the potential to continue
growing. Recently, the market has not accorded them the prices we believe they
deserve, but we think that could change.
Q: What is your outlook for mid-cap stocks going forward?
A: I am generally cautious about the economic outlook for the U.S. With
relatively low inflation and no real pricing power, I think it will be
difficult for most companies to increase sales and earnings without selling
more units, whether it's computers or toothpaste or automobiles. In a
competitive world, it's hard to do both and maintain your profit margins. Our
strategy is to look for companies that can do both.
September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<S> <C> <C>
1 America Online Internet software 2.5%
2 Clear Channel Communications TV/radio stations 2.3%
3 Valassis Communications Consumer promotion
products 2.2%
4 Waste Management Collection/disposal services 2.1%
5 Qwest Communications Telecommunications 2.1%
6 CVS Drug retailing 2.1%
7 J.D. Edwards Resource planning software 2.1%
8 Lincare Holdings Respiratory services 2.0%
9 Anadarko Petroleum Oil & gas exploration 2.0%
10 News Corp International media company 1.9%
</TABLE>
These securities represent an aggregate of 21.3% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities or industries listed in this table
or in the text above.
Top 5 Industries
(by percentage of net assets)
[bar chart]
<TABLE>
<S> <C>
Retail Trade 14.5%
Recreation 13.9%
Computer Software 12.6%
Business Service 11.1%
Hospital Supply 9.1%
</TABLE>
Total: 61.2%
Best and Worst Contributors to Performance
(October 1, 1997 through September 30, 1998)
Best [arrow pointing up]
- ------------------------------------------
America Online
Leading position in rapid growth of Internet.
U.S. Office Products
Consolidation of office products industry.
Worst [arrow pointing down]
- ---------------------------------------
Cendant
Allegedly had fraudulent accounting.
Iomega
Poor competitive position.
Sirrom Capital
Hurt by credit crunch, IPO market collapse.
2
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
September 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Value
Shares (Note 1)
- --------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 94.1%
Basic Industries 0.4%
Diversified 0.4%
AptarGroup Inc. ..................... 154,800 $ 3,521,700
------------
Machinery 0.0%
Terex Corp.* ........................ 8,700 129,956
------------
Total Basic Industries ............................. 3,651,656
------------
Consumer Cyclical 37.3%
Automotive 4.5%
Budget Group Inc. Cl. A* ............ 589,900 13,457,094
Danaher Corp. ....................... 457,600 13,728,000
Magna International, Inc. Cl. A ..... 198,900 11,561,062
------------
38,746,156
------------
Hotel & Restaurant 3.2%
CKE Restaurants Inc. ................ 231,500 6,887,125
Extended Stay America Inc.* ......... 753,300 6,026,400
Mirage Resorts Inc.* ................ 839,100 14,054,925
------------
26,968,450
------------
Recreation 13.9%
American Tower Corp. Cl. A* ......... 471,200 12,015,600
Chancellor Media Corp. .............. 293,400 9,792,225
Clear Channel Communications Inc.* .. 407,620 19,361,950
Florida Panthers Holdings Inc. Cl. A* 271,800 2,938,837
Harley-Davidson Inc. ................ 495,000 14,540,625
International Game Technology Inc. .. 700,500 13,003,031
News Corp. Ltd. ADR ................. 639,600 16,389,750
Royal Caribbean Cruises Ltd. ........ 321,200 8,531,875
U.S.A. Networks Inc.* ............... 518,927 10,086,644
Univision Communications Inc. Cl. A* 388,400 11,554,900
------------
118,215,437
------------
Retail Trade 14.5%
Abercrombie & Fitch Co. Cl. A* ...... 180,342 7,935,048
Borders Group Inc.* ................. 156,300 3,477,675
Cendant Corp.* ...................... 1,007,361 11,710,572
Cintas Corp. ........................ 95,300 4,776,913
CVS Corp. ........................... 408,600 17,901,787
Family Dollar Stores Inc. ........... 726,200 11,437,650
Fred Meyer Inc.* .................... 413,700 16,082,587
Jones Apparel Group Inc.* ........... 389,700 8,938,744
Linens 'n Things Inc.* .............. 545,400 14,998,500
Office Depot Inc.* .................. 181,000 4,061,188
Saks Inc.* .......................... 523,000 11,734,812
Staples Inc.* ....................... 247,700 7,276,188
Steelcase Inc. Cl. A ................ 208,100 3,693,775
------------
124,025,439
------------
Textile & Apparel 1.2%
Men's Wearhouse, Inc.* .............. 611,512 $ 10,548,582
------------
Total Consumer Cyclical ............................ 318,504,064
------------
Consumer Staple 23.5%
Business Service 11.1%
Apollo Group Inc. Cl. A* ............ 438,200 12,214,825
Central Parking Corp. ............... 221,700 11,168,137
CSG Systems International Inc.* ..... 192,000 8,496,000
HBO & Co. ........................... 562,200 16,233,525
Outdoor Systems Inc.* ............... 742,993 14,488,363
Republic Industries Inc.* ........... 374,400 5,452,200
Waste Management Inc. ............... 380,800 18,302,200
Young & Rubicam Inc.* ............... 281,900 7,998,913
------------
94,354,163
------------
Hospital Supply 9.1%
Boston Scientific Corp.* ............ 174,900 8,985,488
Health Management Associates, Inc. Cl. A 692,350 12,635,387
Lincare Holdings Inc.* .............. 450,000 17,437,500
Sybron International Corp.* ......... 684,400 13,089,150
Tenet Healthcare Corp. .............. 440,800 12,673,000
Total Renal Care Holdings Inc.* ..... 517,800 12,427,200
------------
77,247,725
------------
Printing & Publishing 3.3%
Capstar Broadcasting Corp. Cl. A* ... 635,300 9,807,444
Valassis Communications Inc. ........ 464,600 18,584,000
------------
28,391,444
------------
Total Consumer Staple .............................. 199,993,332
------------
Energy 3.7%
Oil 3.7%
Anadarko Petroleum Corp. ............ 436,200 17,148,112
Burlington Resources Inc. ........... 378,900 14,161,388
------------
Total Energy ....................................... 31,309,500
------------
Finance 8.9%
Bank 2.1%
Bank United Corp. Cl. A ............. 298,200 10,679,287
TCF Financial Corp. ................. 379,800 7,548,525
------------
18,227,812
------------
Financial Service 1.8%
Heller Financial Inc. Cl. A* ........ 631,000 15,144,000
------------
</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>
Insurance 5.0%
Ace Ltd. ............................ 468,300 $ 14,049,000
Provident Companies, Inc. ........... 428,600 14,465,250
UNUM Corp. .......................... 280,100 13,917,469
------------
42,431,719
------------
Total Finance ...................................... 75,803,531
------------
Science & Technology 18.2%
Aerospace 0.8%
Gulfstream Aerospace Corp.* ......... 166,000 6,681,500
------------
Computer Software & Service 12.6%
America Online Inc.* ................ 190,000 21,137,500
Ascend Communications Inc.* ......... 331,700 15,092,350
Concord EFS Inc.* ................... 536,800 13,856,150
Fiserv Inc.* ........................ 347,150 15,990,597
i2 Technologies Inc.* ............... 211,600 3,002,075
J.D. Edwards & Co.* ................. 366,300 17,582,400
Network Associates Inc.* ............ 245,600 8,718,800
Nova Corp.* ......................... 401,200 12,311,825
------------
107,691,697
------------
Electronic Components 2.0%
Altera Corp.* ....................... 294,200 10,333,775
Micron Technology Inc.* ............. 216,200 6,580,588
------------
16,914,363
------------
Electronic Equipment 2.5%
Sterling Commerce Inc.* ............. 409,000 14,161,625
Tellabs Inc.* ....................... 171,000 6,807,937
------------
20,969,562
------------
Office Equipment 0.3%
Gateway 2000 Inc.* .................. 55,100 2,872,088
------------
Total Science & Technology ......................... 155,129,210
------------
Utility 2.1%
Telephone 2.1%
Qwest Communications International Inc.* 573,498 17,957,656
------------
Total Utility ...................................... 17,957,656
------------
Total Common Stocks (Cost $755,816,670)............. 802,348,949
------------
SHORT-TERM INVESTMENTS 4.4%
AIM Liquid Assets Portfolio ......... 37,503,853 37,503,853
------------
Total Short-Term Investments (Cost $37,503,853)..... 37,503,853
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 4.9%
General Electric Capital Corp.,
5.54% ....................... $10,000,000 10/01/1998 $ 10,000,000
General Electric Capital Corp.,
5.25% ....................... 1,896,000 10/05/1998 1,896,000
Household Finance Corp.,
5.30% ....................... 20,102,000 10/08/1998 20,102,000
John Deere Capital Corp.,
5.53% ....................... 10,000,000 10/05/1998 10,000,000
------------
Total Commercial Paper (Cost $41,998,000) ................. 41,998,000
------------
Total Investments (Cost $835,318,523)--103.4% ............. 881,850,802
Cash and Other Assets, Less Liabilities--(3.4)% ........... (28,964,775)
------------
Net Assets--100.0% ........................................ $852,886,027
============
</TABLE>
<TABLE>
<S> <C>
Federal Income Tax Information:
At September 30, 1998, the net unrealized appreciation
of investments based on cost for Federal income tax
purposes of $835,401,978 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost .... $112,789,947
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value .... (66,341,123)
------------
$46,448,824
============
</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.
4
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $835,318,523) (Note 1) ........... $881,850,802
Cash ......................................................... 916
Receivable for securities sold ............................... 14,303,152
Dividends and interest receivable ............................ 255,070
Receivable for fund shares sold .............................. 249,157
Other assets ................................................. 46,819
------------
896,705,916
Liabilities
Payable for collateral received on securities loaned ......... 37,503,853
Payable for securities purchased ............................. 2,462,183
Payable for fund shares redeemed ............................. 1,680,876
Accrued transfer agent and shareholder services
(Note 2) ................................................... 1,050,392
Accrued management fee (Note 2) .............................. 529,276
Accrued distribution and service fees (Note 4) ............... 426,495
Accrued trustees' fees (Note 2) .............................. 29,259
Other accrued expenses ....................................... 137,555
------------
43,819,889
------------
Net Assets $852,886,027
============
Net Assets consist of:
Unrealized appreciation of investments ...................... $ 46,532,279
Accumulated net realized gain .............................. 93,139,266
Paid-in capital ............................................ 713,214,482
------------
$852,886,027
============
Net Asset Value and redemption price per share of
Class A shares ($319,013,609 [divided by] 26,700,533 shares) $11.95
======
Maximum Offering Price per share of Class A shares
($11.95 [divided by] .955) ................................. $12.51
======
Net Asset Value and offering price per share of Class
B shares ($365,546,691 [divided by] 31,939,415 shares)* .... $11.45
======
Net Asset Value and offering price per share of Class
C shares ($55,208,036 [divided by] 4,814,806 shares)* ...... $11.47
======
Net Asset Value, offering price and redemption price
per share of Class S shares ($113,117,691 [divided by]
9,304,490 shares) .......................................... $12.16
======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended September 30, 1998
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $25,836 ............... $ 3,465,656
Interest (Note 1) ........................................ 2,246,324
-------------
5,711,980
Expenses
Management fee (Note 2) .................................. 8,487,275
Transfer agent and shareholder services (Note 2) ......... 3,528,417
Service fee--Class A (Note 4) ............................ 1,032,553
Distribution and service fees--Class B (Note 4) .......... 4,811,732
Distribution and service fees--Class C (Note 4) .......... 831,301
Reports to shareholders .................................. 260,892
Registration fees ........................................ 249,772
Custodian fee ............................................ 239,702
Audit fee ................................................ 45,648
Trustees' fees (Note 2) .................................. 38,528
Legal fees ............................................... 2,699
Miscellaneous ............................................ 40,922
-------------
19,569,441
-------------
Net investment loss ...................................... (13,857,461)
-------------
Realized and Unrealized Gain (Loss) on
Investments
Net realized gain on investments (Notes 1 and 3) ......... 109,471,374
Net unrealized depreciation of investments ............... (302,805,063)
-------------
Net loss on investments .................................. (193,333,689)
-------------
Net decrease in net assets resulting from operations $(207,191,150)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended September 30
--------------------------------------
1997 1998
------------------ -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ..................... $ (8,567,006) $ (13,857,461)
Net realized gain on investments 11,938,430 109,471,374
Net unrealized appreciation
(depreciation) of investments ......... 91,743,820 (302,805,063)
-------------- --------------
Net increase (decrease) resulting
from operations ....................... 95,115,244 (207,191,150)
-------------- --------------
Distribution from net realized
gains:
Class A ................................ -- (3,841,210)
Class B ................................ -- (4,724,072)
Class C ................................ -- (889,094)
Class S ................................ -- (1,541,241)
-------------- --------------
-- (10,995,617)
-------------- --------------
Net increase (decrease) from
fund share transactions
(Note 6) .............................. 521,782,662 (272,124,846)
-------------- --------------
Total increase (decrease) in net
assets ................................ 616,897,906 (490,311,613)
Net Assets
Beginning of year ....................... 726,299,734 1,343,197,640
-------------- --------------
End of year ............................. $1,343,197,640 $ 852,886,027
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1998
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 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. Before November 1, 1997, Class C shares
were designated Class D and Class S shares were designated Class C. 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 subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase. Class
C shares also pay annual distribution and service fees of 1.00%. Class S shares
are only offered through certain retirement accounts, advisory accounts of
State Street Research & Management Company (the "Adviser"), an indirect wholly
owned subsidiary of Metropolitan Life Insurance Company ("Metropolitan"), and
special programs. No sales charge is imposed at the time of purchase or
redemption of Class S shares. Class S shares do not pay any distribution or
service fees. The Fund's expenses are borne pro-rata by each class, except that
each class bears expenses, and has exclusive voting rights with respect to
provisions of the Plan of Distribution, related specifically to that class. The
Trustees declare separate dividends on each class of shares.
The following significant 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
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
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.
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, 1998, the Fund has
designated as long-term $10,995,617 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. 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.
E. Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. At September 30, 1998, the value of the securities loaned and the value
of collateral were $120,657,938 and $129,765,213 (including $37,503,853 of cash
collateral), respectively. During the year ended September 30, 1998, income
from securities lending amounted to $343,650 and is included in interest
income.
Note 2
Prior to August 1, 1998, the Adviser earned monthly fees at an annual rate of
0.75% of the Fund's average daily net assets. Effective August 1, 1998 the
management fee is 0.75% of the first $500 million of net assets, annually,
0.70% of the next $500 million, and 0.65% of any amount over $1 billion. 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, 1998, the fees pursuant to such agreement
amounted to $8,487,275.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. 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, 1998, the amount of such expenses was $1,132,965.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$38,528 during the year ended September 30, 1998.
Note 3
For the year ended September 30, 1998, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities aggregated
$940,372,436 and $1,280,972,714, 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 C shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class C shares. The Distributor uses such payments for personal services and/or
the maintenance or servicing of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing assistance
to investors and to defray a portion of its distribution and marketing
expenses. For the year ended September 30, 1998, fees pursuant to such plan
amounted to $1,032,553, $4,811,732 and $831,301 for Class A, Class B and Class
C shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $89,146 and $566,658, respectively, on sales of Class A shares of
the Fund during the year ended September 30, 1998, and that MetLife Securities,
Inc. earned commissions aggregating $962,443 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $987,982
and $11,026 on redemptions of Class B and Class C shares, respectively, during
the same period.
Note 5
The Trustees declared a distribution of capital gains to shareholders of record
on November 6, 1998, payable on November 9, 1998. This distribution was
comprised of approximately $.34 per share from short-term capital gains and
$.98 per share from long-term capital gains.
7
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years ended September 30
--------------------------------------------------------------
1997 1998
------------------------------ ---------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ....................................................... 3,871,815 $ 51,103,143 3,863,891 $ 54,005,266
Issued in connection with acquisition of Capital Appreciation Fund 26,138,898 353,659,292 -- --
Issued upon reinvestment of distribution from net realized gains .. -- -- 290,200 3,744,989
Shares repurchased ................................................ (6,367,582) (84,655,673) (9,397,620) (131,768,041)
----------- ------------- ---------- -------------
Net increase (decrease) ........................................... 23,643,131 $ 320,106,762 (5,243,529) $ (74,017,786)
=========== ============= ========== =============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ....................................................... 6,813,680 $ 86,756,398 3,798,453 $ 52,088,872
Issued in connection with acquisition of Capital Appreciation Fund 14,162,121 185,240,546 -- --
Issued upon reinvestment of distribution from net realized gains .. -- -- 363,257 4,523,184
Shares repurchased ................................................ (10,341,798) (133,779,126) (11,729,199) (158,398,285)
----------- ------------- ----------- -------------
Net increase (decrease) ........................................... 10,634,003 $ 138,217,818 (7,567,489) $(101,786,229)
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
Class C (Formerly Class D) Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ....................................................... 3,002,442 $ 38,095,940 1,281,510 $ 18,048,769
Issued in connection with acquisition of Capital Appreciation Fund 361,359 4,733,802 -- --
Issued upon reinvestment of distribution from net realized gains .. -- -- 65,127 810,829
Shares repurchased ................................................ (9,125,682) (119,035,228) (4,950,325) (67,907,840)
---------- ------------- ---------- ------------
Net decrease ...................................................... (5,761,881) $ (76,205,486) (3,603,688) $(49,048,242)
========== ============= ========== ============
</TABLE>
<TABLE>
<CAPTION>
Class S (Formerly Class C) Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ....................................................... 1,093,116 $ 14,973,137 4,001,288 $ 57,553,551
Issued in connection with acquisition of Capital Appreciation Fund 10,217,407 140,284,992 -- --
Issued upon reinvestment of distribution from net realized gains .. -- -- 115,761 1,516,467
Shares repurchased ................................................ (1,127,539) (15,594,561) (7,494,655) (106,342,607)
---------- ------------ ---------- -------------
Net increase (decrease) ........................................... 10,182,984 $139,663,568 (3,377,606) $ (47,272,589)
========== ============ ========== =============
</TABLE>
8
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Years ended September 30
----------------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.43 9.92 13.53 13.76 14.74
------- ------- ------- ------- -------
Net investment loss ($) (0.04) (0.04) (0.05) (0.08) (0.12)
Net realized and unrealized gain (loss) on investments ($) 0.28 3.69 1.30 1.06 (2.54)
------- ------- ------- ------- -------
Total from investment operations ($) 0.24 3.65 1.25 0.98 (2.66)
------- ------- ------- ------- -------
Distributions from net realized gains ($) (0.75) (0.04) (1.02) -- (0.13)
------- ------- ------- ------- -------
Total distributions ($) (0.75) (0.04) (1.02) -- (0.13)
------- ------- ------- ------- -------
Net asset value, end of year ($) 9.92 13.53 13.76 14.74 11.95
======= ======= ======= ======= =======
Total return(2) (%) 2.51 36.95 10.12 7.12 (18.14)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 19,891 55,250 114,247 470,977 319,014
Ratio of operating expenses to average net assets (%) 1.41 1.33 1.26 1.21 1.39
Ratio of net investment loss to average net assets (%) (0.55) (0.34) (0.39) (0.60) (0.88)
Portfolio turnover rate (%) 167.08 214.59 215.07 230.66 86.34
</TABLE>
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------
Years ended September 30
---------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.40 9.82 13.29 13.40 14.24
------- ------- ------- ------- -------
Net investment loss ($) (0.08) (0.12) (0.14) (0.17) (0.22)
Net realized and unrealized gain (loss) on investments ($) 0.25 3.63 1.27 1.01 (2.44)
------- ------- ------- ------- -------
Total from investment operations ($) 0.17 3.51 1.13 0.84 (2.66)
------- ------- ------- ------- -------
Distributions from net realized gains ($) (0.75) (0.04) (1.02) -- (0.13)
------- ------- ------- ------- -------
Total distributions ($) (0.75) (0.04) (1.02) -- (0.13)
------- ------- ------- ------- -------
Net asset value, end of year ($) 9.82 13.29 13.40 14.24 11.45
======= ======= ======= ======= =======
Total return(2) (%) 1.79 35.90 9.33 6.27 (18.78)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 73,354 203,446 386,899 562,392 365,547
Ratio of operating expenses to average net assets (%) 2.16 2.08 2.01 1.98 2.13
Ratio of net investment loss to average net assets (%) (1.28) (1.10) (1.13) (1.32) (1.63)
Portfolio turnover rate (%) 167.08 214.59 215.07 230.66 86.34
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per-share figures have been calculated using the average shares method.
(2) Does not reflect any front-end or contingent deferred sales charges.
9
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C (Formerly Class D)
----------------------------------------------------------------
Years ended September 30
----------------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.39 9.83 13.31 13.42 14.26
------- ------- ------- ------- -------
Net investment loss ($) (0.09) (0.12) (0.14) (0.17) (0.22)
Net realized and unrealized gain (loss) on investments ($) 0.28 3.64 1.27 1.01 (2.44)
------- ------- ------- ------- -------
Total from investment operations ($) 0.19 3.52 1.13 0.84 (2.66)
------- ------- ------- ------- -------
Distributions from net realized gains ($) (0.75) (0.04) (1.02) -- (0.13)
------- ------- ------- ------- -------
Total distributions ($) (0.75) (0.04) (1.02) -- (0.13)
------- ------- ------- ------- -------
Net asset value, end of year ($) 9.83 13.31 13.42 14.26 11.47
======= ======= ======= ======= =======
Total return(2) (%) 2.00 36.07 9.23 6.26 (18.76)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 37,783 95,797 190,319 120,051 55,208
Ratio of operating expenses to average net assets (%) 2.16 2.08 2.01 1.98 2.13
Ratio of net investment loss to average net assets (%) (1.28) (1.09) (1.13) (1.30) (1.63)
Portfolio turnover rate (%) 167.08 214.59 215.07 230.66 86.34
</TABLE>
<TABLE>
<CAPTION>
Class S (Formerly Class C)
----------------------------------------------------------------
Years ended September 30
----------------------------------------------------------------
1994 1995(1) 1996(1) 1997(1) 1998(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.46 9.99 13.66 13.94 14.96
------- ------- ------- ------- -------
Net investment loss ($) (0.03) (0.01) (0.01) (0.05) (0.09)
Net realized and unrealized gain (loss) on investments ($) 0.31 3.72 1.31 1.07 (2.58)
------- ------- ------- ------- -------
Total from investment operations ($) 0.28 3.71 1.30 1.02 (2.67)
------- ------- ------- ------- -------
Distributions from net realized gains ($) (0.75) (0.04) (1.02) -- (0.13)
------- ------- ------- ------- -------
Total distributions ($) (0.75) (0.04) (1.02) -- (0.13)
------- ------- ------- ------- -------
Net asset value, end of year ($) 9.99 13.66 13.94 14.96 12.16
======= ======= ======= ======= =======
Total return(2) (%) 2.91 37.30 10.41 7.32 (17.94)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 23,967 47,553 34,835 189,778 113,118
Ratio of operating expenses to average net assets (%) 1.16 1.08 1.01 0.96 1.14
Ratio of net investment loss to average net assets (%) (0.32) (0.07) (0.08) (0.37) (0.63)
Portfolio turnover rate (%) 167.08 214.59 215.07 230.66 86.34
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per-share figures have been calculated using the average shares method.
(2) Does not reflect any front-end or contingent deferred sales charges.
10
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Capital Trust and
the Shareholders of State Street Research Capital Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of State Street Research Capital Fund
(a series of State Street Research Capital Trust, hereafter referred to as the
"Trust") at September 30, 1998, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 6, 1998
11
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Capital Fund had a difficult year. The Fund's Class A
shares returned -18.14% for the twelve months ended September 30, 1998 [without
sales charge]. The Fund underperformed the average capital appreciation fund,
which returned -8.08%, as reported by Lipper Analytical Services, Inc. The Fund
also underperformed the Russell Midcap Growth Index, which returned -9.37% for
the same period.
During the period, the Fund was hurt by the market's clear preference for large
company stocks over the mid-cap companies that the Fund invests in. Economic
weakness in Asia and fears of a slowdown in the U.S. hurt small and mid-cap
companies almost across the board.
During the period, the Fund was restructured with an emphasis on mid-cap
stocks. The Fund increased investments in consumer and health care companies
and reduced the exposure to technology stocks. While this strategy offers
opportunities going forward, it was a factor in the Fund's underperformance
during the period.
September 30, 1998
Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable. The fund's
returns include performance from before the creation of share classes. If this
performance reflected the share classes' current 12b-1 fees, the fund's returns
may have been lower. Class S shares, offered without a sales charge, are
available only through certain employee benefit plans and special programs. The
S&P 500 (officially the "Standard and Poor's 500 Composite Stock Price Index")
is an unmanaged index of 500 U.S. stocks. The Russell Mid-Cap Growth Index
contains only those stocks within the Russell Mid-Cap Index (a mid-size company
index) that show above-average growth. The indices do not take transaction
charges into consideration. It is not possible to invest directly in the
indices. Before November 1, 1997, Class C shares were designated Class D, and
Class S shares were designated Class C.
Change in Value of
$10,000 Based on the S&P 500
and Russell Mid-Cap Growth Index
Compared to Change in Value of $10,000
Invested in the Fund
[line charts]
Class A Shares
Average Annual Total Return
- -------------------------------
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
<S> <C> <C>
- -------------------------------
- -21.82% 5.30% 13.40%
- -------------------------------
</TABLE>
<TABLE>
<CAPTION>
Russell
Capital Mid-Cap
Fund S&P 500 Growth Index
---- ------- ------------
<S> <C> <C> <C>
9/88 9550 10000 10000
9/89 12791 13295 13153
9/90 10128 12067 11051
9/91 15585 15819 16454
9/92 16729 17565 17972
9/93 25932 19843 21608
9/94 26583 20573 22132
9/95 36406 26685 28697
9/96 40089 32108 33384
9/97 42944 45087 43280
9/98 35154 49182 39225
</TABLE>
Class B Shares
Average Annual Total Return
- -------------------------------
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
<S> <C> <C>
- -------------------------------
- -22.80% 5.15% 13.47%
- -------------------------------
</TABLE>
<TABLE>
<CAPTION>
Russell
Capital Mid-Cap
Fund S&P 500 Growth Index
---- ------- ------------
<S> <C> <C> <C>
9/88 10000 10000 10000
9/89 13393 13295 13153
9/90 10606 12067 11051
9/91 16320 15819 16454
9/92 17517 17565 17972
9/93 27107 19843 21608
9/94 27593 20573 22132
9/95 37499 26685 28697
9/96 40998 32108 33384
9/97 43568 45087 43280
9/98 35385 49182 39225
</TABLE>
Class C Shares
Average Annual Total Return
- -------------------------------
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
<S> <C> <C>
- -------------------------------
- -19.56% 5.53% 13.49%
- -------------------------------
</TABLE>
<TABLE>
<CAPTION>
Russell
Capital Mid-Cap
Fund S&P 500 Growth Index
---- ------- ------------
<S> <C> <C> <C>
9/88 10000 10000 10000
9/89 13393 13295 13153
9/90 10606 12067 11051
9/91 16320 15819 16454
9/92 17517 17565 17972
9/93 27081 19843 21608
9/94 27622 20573 22132
9/95 37585 26685 28697
9/96 41056 32108 33384
9/97 43626 45087 43280
9/98 35444 49182 39225
</TABLE>
Class D Shares
Average Annual Total Return
- -------------------------------
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
<S> <C> <C>
- -------------------------------
- -17.94% 6.56% 14.10%
- -------------------------------
</TABLE>
<TABLE>
<CAPTION>
Russell
Capital Mid-Cap
Fund S&P 500 Growth Index
---- ------- ------------
<S> <C> <C> <C>
9/88 10000 10000 10000
9/89 13393 13295 13153
9/90 10606 12067 11051
9/91 16320 15819 16454
9/92 17517 17565 17972
9/93 27265 19843 21608
9/94 28726 20573 22132
9/95 38002 26685 28697
9/96 40471 32108 33384
9/97 42299 45087 43280
9/98 37412 49182 39225
</TABLE>
[end line charts]
12
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
FUND INFORMATION, OFFICERS AND TRUSTEES OF STATE STREET RESEARCH CAPITAL TRUST
- --------------------------------------------------------------------------------
Fund Information
State Street Research
Capital Fund
One Financial Center
Boston, MA 02111
Investment Adviser
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
Distributor
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
Shareholder Services
State Street Research
Service Center
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
Independent Accountants
PricewaterhouseCoopers LLP
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
Lawrence J. Haverty, Jr.
Vice President
Richard J. Jodka
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
Former 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
(with an affiliate of
J.P. Morgan & Co. in New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Former Partner, Saltonstall & Co.
Dean O. Morton
Former Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and
Public Management, George
Washington University; former
Member of the Board of Governors
of the Federal Reserve System and
Chairman and Commissioner of
the Commodity Futures Trading
Commission
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts
Institute of Technology
13
<PAGE>
[blank]
<PAGE>
[back cover]
State Street Research Capital Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Permit #20
Holliston, MA
01746
Questions? Comments?
Call us at 1-800-562-0032 or
[hearing-impaired 1-800-676-7876]
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[State Street Research logo]
This report is prepared for the general information of current shareholders.
When used 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, 1998, 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: (exp1199)SSR-LD CF-866D-1098
<PAGE>
STATE STREET RESEARCH
---------------------
EMERGING GROWTH FUND
---------------------
ANNUAL REPORT
September 30, 1998
- ---------------------
WHAT'S INSIDE
- ---------------------
From the Chairman
From good news
to mixed results
Portfolio Manager's Review
A difficult year for
small company stocks
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar award]
- ---------------------
DALBAR
Honors Commitment to:
Investors 1997
For Excellence
in
Shareholder Service
- ---------------------
[end Dalbar award]
State Street Research Funds
<PAGE>
FROM THE CHAIRMAN
[Photo of Ralph F. Verni]
Dear Shareholder:
After nearly four years of uninterrupted good news, the third quarter produced
mixed results for investors. Most economic data remain positive: Inflation was
low. Personal income has risen, and unemployment was steady at about 4.5%.
However, consumer confidence has slipped slightly. The stock market has lost
ground. Investors worried about future corporate earnings.
Stocks
Pessimism about profits sent stocks down during the third quarter. Financial
stocks were among the hardest hit, as announcements were made that big U.S.
financial institutions expect losses from loans to foreign markets. Technology
companies also lost ground as lower demand from Asia hurt some of the biggest
competitors. All major market indices were down for the quarter, and some
segments of the market--notably, small company stocks--have registered double
digit losses for the year so far.
Bonds
On the positive side, bond investors had something to cheer about. Treasury
bonds soared as the Federal Reserve Board's one-quarter percent cut in the
federal funds rate sent the yield on the bellwether long-term Treasury bond down
below 5.0%. High-yield bonds and mortgage-backed securities failed to
participate in the rally.
International
Indications that economic growth has slowed around the world, plus specific
concerns over Asia's woes, continued to bring returns down on most major foreign
exchanges. Even Europe, which had delivered strong gains in the first half of
the year, felt the effects of Russia's currency problems and Japan's recession.
As interest rates converge anticipating the euro common currency in 1999, Spain
and Italy appear to be in the best position to grow, and Germany and France are
the most likely to suffer.
Outlook and Opportunities
As investors, you may be asking where the opportunities are in this rocky
market. My reply: In diversification--and in markets that have been beaten down,
such as small-cap and mid-cap stocks. But every investor is different. Now is a
good time to talk to your financial professional about your investments. And as
always, thank you for your confidence in State Street Research Funds.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
September 30, 1998
(1)Investment results are based on an assumed $10,000 investment at Class 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.
(2)-30.56% for Class B shares; -30.52% for Class C shares; -29.83% for Class S
shares.
(3)The Russell 2000 Growth Index contains only those stocks within the complete
Russell 2000 Index (a small company index) that show above-average growth. The
index does not take transaction charges into consideration. It is not possible
to invest directly in the index.
(4)Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Perfor-mance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable. The fund's
returns include performance from before the creation of share classes. If this
performance reflected the share classes' current 12b-1 fees, the fund's returns
may have been lower.
(5)Class S shares, offered without a sales charge, are available only through
certain employee benefit plans and special programs.
(6)Before November 1, 1997, Class C shares were designated Class D, and Class S
shares were desig-nated Class C.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended September 30, 1998)
- --------------------------------------------------------------------------------
Total value of $10,000 invested at Fund's inception(1)
(Class A shares, at maximum applicable sales charge)
[mountain chart]
<TABLE>
<S> <C>
10/93 9550
9/94 8560
9/95 9690
9/96 11330
9/97 16769
9/98 11742
</TABLE>
[end mountain chart]
Average Annual Total Return
(at maximum applicable sales charge)(4,5,6)
<TABLE>
<CAPTION>
Life of Fund
(since 10/4/93) 1 Year
- -----------------------------------------
<S> <C> <C>
Class A 3.27% -33.13%
- -----------------------------------------
Class B 3.18% -33.37%
- -----------------------------------------
Class C 3.51% -31.09%
- -----------------------------------------
Class S 4.52% -29.83%
- -----------------------------------------
</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
Emerging Growth Fund: A difficult year for small company stocks
[photo: J.C. Cabrera]
J.C. Cabrera
Portfolio Manager
We spoke with J.C. Cabrera, portfolio manager of State Street Research Emerging
Growth Fund, about performance for the year ended September 30, 1998 and his
views on the period ahead.
Q: How did the Fund perform during the fiscal year?
A: It was a difficult year for the Fund and for small company stocks, in
general. Class A shares returned -29.97% for the 12 months ended September 30,
1998 [does not reflect sales charge].2 That was below the average small-cap
fund, which returned -20.60%, as reported by Lipper Analytical Services, Inc.
The Fund also underperformed the Russell 2000 Growth Index, which returned
- -24.83% for the same period.(3)
Q: Why did small company stocks perform so poorly during the year?
A: The year actually got off to a strong start for small company stocks. The
economy was healthy, and inflation was low. Many small companies delivered good
earnings growth. However, as we moved into the second half of the year, concerns
over the deterioration of foreign economies --as well as the economic growth
rate here at home-- unsettled investor confidence. For the most part, only the
largest, blue-chip companies with strong brand recognition managed gains. Many
small companies continued to deliver good earnings, but that wasn't enough to
attract investors back to this segment of the market.
Q: What accounted for the Fund's underperformance relative to its peer group?
A: The Fund was hurt by its investments in sectors that are closely tied to the
fate of the economy, such as energy, capital equipment companies, and
technology. Fears that an impending slowdown would affect sales and earnings
growth hurt the capital equipment sector. Declining oil prices brought energy
stocks down. And technology stocks lost ground as several large companies failed
to deliver on their projected earnings. The Fund had little exposure to Internet
stocks, one area where prices continued to climb.
Q: Have you made any significant changes to the portfolio?
A: No. We are holding true to our strategy. Although the environment has been
difficult, we remain confident in the companies that are represented in the
portfolio. We continue to emphasize healthcare, where our confidence is strong
and earnings growth continues to be promising. Our largest healthcare holdings
are Total Renal Care and Biovail, two companies that have consistently met
earnings expectations. Among the Fund's top performers were companies that
provide waste management services, and we have also maintained our investments
in that sector.
Q: What do you think it will take to turn small-cap stocks around?
A: That's a good question, but the answer is unclear. We believe the market will
recognize the fundamental strength of the better, small companies, and that our
consistent investment strategy will be rewarded. Clearly the continued
uncertainty over the direction of the U.S. economy-- and the impact of weakness
in foreign economies--has made investors cautious. The best evidence of that is
how quick the market has been to punish companies that are unable to meet their
earnings expectations. That's why we look for companies that we believe have the
ability to continue to meet their earnings targets despite a slower economy.
Q: What is your outlook?
A: We believe that the slowdown in foreign economies could result in a slowdown
in the U.S. economy. We are monitoring consumer confidence and spending because
we believe consumers continue to be a key factor in economic growth here at
home. We are cautious and believe it is likely that we will continue to see a
good measure of economic confusion and volatility in the markets in the period
ahead.
September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<S> <C>
1 Total Renal Care Dialysis centers 5.6%
2 Biovail Pharmaceuticals 2.9%
3 Intelligent Polymers Drug delivery systems 2.6%
4 SLI Miniature lighting 2.6%
5 Aeroflex Electronics 2.3%
6 Nova Bank card processing 2.2%
7 Wesley Jessen VisionCare Contact lens
products 1.3%
8 Remec Defense systems equipment 1.2%
9 Steiner Leisure Spa/cruise services, products 1.1%
10 Young & Rubicam Marketing communications 1.1%
</TABLE>
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 or industries listed in this table or
in the text above.
Top 5 Industries (by percentage of net assets)
[bar chart]
Top 5 Industries
<TABLE>
<S> <C>
Computer Software & Service 14.1%
Drug 9.6%
Hospital Supply 8.2%
Business Service 7.7%
Electronic Equipment 6.7%
</TABLE>
[end bar chart]
Total: 46.3%
Best and Worst Contributors to Performance
(October 1, 1997 through September 30, 1998)
Best [arrow pointing up]
- ----------------------------------
Steiner Leisure
Strong fundamental performance; expansion in cruise industry.
Abercrombie & Fitch
Strong retail sales and earnings growth.
Worst [arrow pointing down]
- --------------------------------
Remec, Radiant Systems, ITEQ
Announced disappointing earnings.
2
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
September 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 88.9%
Basic Industries 4.0%
Electrical Equipment 0.6%
Aztec Manufacturing Co. .................................................. 60,000 $ 536,250
----------
Machinery 1.5%
ITEQ Inc.* ............................................................... 203,600 674,425
Terex Corp.* ............................................................. 45,500 679,656
----------
1,354,081
----------
Metal & Mining 1.5%
General Cable Corp. ...................................................... 17,700 327,450
Wyman-Gordon Co.* ........................................................ 69,600 1,000,500
----------
1,327,950
----------
Truckers 0.4%
CNF Transportation Inc. .................................................. 11,800 343,675
----------
Total Basic Industries .................................................................. 3,561,956
----------
Consumer Cyclical 13.9%
Automotive 0.6%
Teleflex Inc. ............................................................ 15,400 539,000
----------
Hotel & Restaurant 0.9%
CKE Restaurants Inc. ..................................................... 18,000 535,500
Servico Inc.* ............................................................ 31,500 236,250
----------
771,750
----------
Recreation 4.4%
Cinar Films Inc. Cl. B* .................................................. 45,100 808,981
Clear Channel Communications Inc.* ....................................... 18,236 866,210
International Game Technology Inc. ....................................... 17,200 319,275
Royal Olympic Cruise Lines Inc.* ......................................... 21,400 141,106
Steiner Leisure Ltd.* .................................................... 65,425 1,022,266
U.S.A. Networks Inc.* .................................................... 41,200 800,825
----------
3,958,663
----------
Retail Trade 6.1%
Abercrombie & Fitch Co. Cl. A* ........................................... 10,600 466,400
Barbeques Galore Ltd. ADR ................................................ 72,700 327,150
Blyth Industries Inc.* ................................................... 17,300 474,669
Borders Group Inc.* ...................................................... 20,800 462,800
CSK Auto Corp.* .......................................................... 20,300 461,825
Elder-Beerman Stores Corp.* .............................................. 28,500 495,187
Jones Apparel Group Inc.* ................................................ 30,900 708,769
Linens 'n Things Inc.* ................................................... 30,900 849,750
Saks Inc.* ............................................................... 33,500 751,656
Stride Rite Corp. ........................................................ 52,600 430,663
----------
5,428,869
----------
Textile & Apparel 1.9%
Gerber Childrenswear Inc.* ............................................... 34,600 274,638
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maxwell Shoe Inc. Cl. A* ................................................. 42,100 $ 499,937
Men's Wearhouse, Inc.* ................................................... 25,700 443,325
Timberland Co. Cl. A* .................................................... 13,400 489,100
----------
1,707,000
----------
Total Consumer Cyclical ................................................................. 12,405,282
----------
Consumer Staple 30.7%
Business Service 7.7%
American Eco Corp.* ...................................................... 64,300 146,684
Casella Waste Systems Inc. Cl. A* ........................................ 28,800 979,200
Covance Inc.* ............................................................ 37,600 975,250
Hagler Bailly Inc.* ...................................................... 44,200 861,900
Lamar Advertising Co. Cl. A* ............................................. 29,200 817,600
Metris Companies Inc.* ................................................... 6,000 279,750
Pacific Gateway Exchange Inc.* ........................................... 14,800 547,600
ProBusiness Services Inc.* ............................................... 18,000 612,000
Staff Leasing Inc.* ...................................................... 19,500 343,688
Waddell & Reed Financial Inc. Cl. A ...................................... 13,400 254,600
Young & Rubicam Inc.* .................................................... 35,700 1,012,987
----------
6,831,259
----------
Container 0.7%
Trinity Industries Inc. .................................................. 18,800 609,825
----------
Drug 9.6%
Atrix Laboratories Inc.* ................................................. 38,700 488,588
Biovail Corp.* ........................................................... 95,600 2,575,225
Columbia Laboratories Inc.* .............................................. 35,600 133,500
Intelligent Polymers Ltd.* ............................................... 117,100 2,342,000
Kos Pharmaceuticals, Inc.* ............................................... 109,800 651,937
Pathogenesis Corp.* ...................................................... 30,300 1,011,262
PharmaPrint Inc.* ........................................................ 44,600 496,175
Spiros Development Corp.* ................................................ 71,400 874,650
----------
8,573,337
----------
Food & Beverage 0.5%
Golden State Vintners Inc. Cl. B* ........................................ 42,800 419,975
----------
Hospital Supply 8.2%
Aviron Corp.* ............................................................ 32,500 501,719
Healthsouth Corp.* ....................................................... 20,517 216,711
IMPATH Inc.* ............................................................. 25,300 752,675
NCS Healthcare Inc. Cl. A* ............................................... 49,000 863,625
Total Renal Care Holdings Inc.* .......................................... 209,400 5,025,600
----------
7,360,330
----------
Personal Care 2.1%
DeVry Inc.* .............................................................. 29,200 684,375
Wesley Jessen VisionCare Inc.* ........................................... 55,400 1,177,250
----------
1,861,625
----------
</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 1.9%
Capstar Broadcasting Corp. Cl. A* ........................................ 46,400 $ 716,300
Valassis Communications Inc. ............................................. 24,900 996,000
----------
1,712,300
----------
Total Consumer Staple ................................................................... 27,368,651
----------
Energy 4.7%
Oil 2.9%
Abacan Resource Corp.* ................................................... 397,200 86,888
Arakis Energy Corp.* ..................................................... 260,500 496,578
IRI International Corp.* ................................................. 42,300 208,856
KCS Energy Inc. .......................................................... 44,200 226,525
Maxx Petroleum Ltd.* ..................................................... 83,975 209,938
Post Energy Corp.* ....................................................... 180,000 584,090
Seagull Energy Corp.* .................................................... 31,700 390,306
Seven Seas Petroleum Inc.* ............................................... 33,500 347,562
----------
2,550,743
----------
Oil Service 1.8%
Atwood Oceanics Inc.* .................................................... 24,600 511,987
Cliffs Drilling Co.* ..................................................... 24,000 474,000
Transocean Offshore Inc. ................................................. 11,200 388,500
Willbros Group Inc.* ..................................................... 35,900 228,863
----------
1,603,350
----------
Total Energy ............................................................................ 4,154,093
----------
Finance 11.3%
Bank 2.0%
Bank United Corp. Cl. A .................................................. 17,600 630,300
Commercial Federal Corp. ................................................. 22,050 519,553
North Fork Bancorporation Inc. ........................................... 31,200 624,000
----------
1,773,853
----------
Financial Service 3.6%
CMAC Investment Corp. .................................................... 21,700 943,950
FirstPlus Financial Group Inc.* .......................................... 20,000 228,750
Heller Financial Inc. Cl. A* ............................................. 23,000 552,000
Knight/Trimark Group Cl. A* .............................................. 36,500 301,125
Medallion Financial Corp. ................................................ 15,900 250,425
T & W Financial Corp.* ................................................... 64,800 943,650
----------
3,219,900
----------
Insurance 5.7%
ARM Financial Group, Inc. Cl. A .......................................... 37,600 667,400
Capital Re Corp. ......................................................... 28,400 777,450
Chartwell Re Corp. ....................................................... 18,600 519,637
E.W. Blanch Holdings Inc. ................................................ 16,000 619,000
Horace Mann Educators Corp. .............................................. 13,000 390,000
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mutual Risk Management Ltd. .............................................. 20,632 $ 729,857
Orion Capital Corp. ...................................................... 10,500 374,719
Partnerre Ltd ............................................................ 11,800 472,738
Terra Nova Holdings Ltd Cl. A ............................................ 18,100 488,700
----------
5,039,501
----------
Total Finance ........................................................................... 10,033,254
----------
Science & Technology 23.5%
Computer Software & Service 14.1%
Broadcast Common Inc.* ................................................... 1,100 44,413
Check Point Software Technologies Ltd.* .................................. 38,800 771,150
Complete Business Solutions Inc.* ........................................ 12,200 350,750
Duane Reade Inc.* ........................................................ 8,300 314,881
Fore Systems Inc.* ....................................................... 31,400 522,025
Genesys Telecommunications, Inc.* ........................................ 30,500 566,156
i2 Technologies Inc.* .................................................... 20,200 286,588
International Telecomm Systems Inc.* ..................................... 25,100 727,900
J.D. Edwards & Co.* ...................................................... 7,700 369,600
JDA Software Group Inc.* ................................................. 15,600 215,475
META Group Inc.* ......................................................... 20,400 666,825
Microstrategy Inc. Cl. A* ................................................ 14,200 532,500
Nova Corp.* .............................................................. 63,897 1,960,824
Platinum Technology Inc.* ................................................ 23,400 421,200
Radiant Systems Inc.* .................................................... 91,200 701,100
Summitt Design Inc.* ..................................................... 31,900 227,288
Transition Systems Inc.* ................................................. 75,700 633,987
Ultimate Software Group Inc.* ............................................ 59,900 569,050
Verio Inc.* .............................................................. 29,800 737,550
Walker Interactive Systems, Inc.* ........................................ 93,300 813,459
Wind River Systems Inc.* ................................................. 16,700 789,075
Xylan Corp.* ............................................................. 25,900 343,175
----------
12,564,971
----------
Electronic Components 2.7%
Digital Microwave Corp.* ................................................. 70,900 217,131
ONIX Systems Inc.* ....................................................... 53,300 466,375
Remec Inc.* .............................................................. 129,700 1,033,547
RF Micro Devices Inc.* ................................................... 40,700 737,688
----------
2,454,741
----------
Electronic Equipment 6.7%
Advanced Fibre Communications, Inc.* ..................................... 31,000 213,125
Aeroflex Inc.* ........................................................... 209,100 2,064,862
L 3 Communications Holding Corp.* ........................................ 5,300 210,344
Pacific Aerospace & Electronics Inc.* .................................... 85,000 255,000
SLI Inc.* ................................................................ 150,300 2,320,256
Spectrian Corp.* ......................................................... 33,300 403,763
</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>
- ----------------------------------------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Equipment (cont'd)
Sterling Commerce Inc.* .................................................. 14,700 $ 508,987
----------
5,976,337
----------
Total Science & Technology ......................................................... 20,996,049
----------
Utility 0.8%
Natural Gas 0.8%
Calpine Corp.* ........................................................... 37,600 761,400
----------
Total Utility ...................................................................... 761,400
----------
Total Common Stocks (Cost $100,095,882)............................................. 79,280,685
----------
SHORT-TERM INVESTMENTS 4.1%
AIM Liquid Assets Portfolio .............................................. 3,642,694 3,642,694
----------
Total Short-Term Investments (Cost $3,642,694) ..................................... 3,642,694
----------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------- ----------- ------------
Principal Maturity
Amount Date
- ------------------------------------------------------- ----------- ------------
<S> <C> <C> <C>
COMMERCIAL PAPER 7.8%
American Express Credit Corp., 5.38% $1,062,000 10/1/1998 1,062,000
American Express Credit Corp., 5.50% 456,000 10/1/1998 456,000
American Express Credit Corp., 5.25% 2,326,000 10/9/1998 2,326,000
Federal Home Loan Mortgage Corp.,
5.15% .................................. 2,000,000 10/6/1998 1,998,570
General Electric Capital Corp., 5.50%..... 1,122,000 10/2/1998 1,122,000
---------
Total Commercial Paper (Cost $6,964,570).......................... 6,964,570
---------
Total Investments (Cost $110,703,146)--100.8%..................... 89,887,949
Cash and Other Assets, Less Liabilities--(0.8%) .................. (743,617)
----------
Net Assets--100.0% ............................................... $89,144,332
===========
</TABLE>
<TABLE>
<S> <C>
Federal Income Tax Information:
At September 30, 1998, the net unrealized depreciation
of investments based on cost for Federal income tax
purposes of $110,941,586 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost .... $ 5,892,499
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value .... (26,946,136)
------------
$(21,053,637)
============
</TABLE>
- --------------------------------------------------------------------------------
* Nonincome-producing securities
ADR stands for American Depository Receipt, representing ownership of foreign
securities.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $110,703,146) (Note 1).................... $ 89,887,949
Cash ................................................................. 39,387
Receivable for securities sold ....................................... 3,300,469
Receivable for fund shares sold ...................................... 163,742
Receivable from Distributor (Note 3) ................................. 58,572
Dividends and interest receivable .................................... 6,499
Deferred organization costs and other assets (Note 1) ................ 14,459
------------
93,471,077
Liabilities
Payable for collateral received on securities loaned ................. 3,642,694
Payable for fund shares redeemed ..................................... 223,923
Payable for securities purchased ..................................... 184,812
Accrued management fee (Note 2) ...................................... 55,165
Accrued distribution and service fees (Note 5) ....................... 50,244
Accrued transfer agent and shareholder services
(Note 2) ........................................................... 38,351
Accrued trustees' fees (Note 2) ...................................... 14,896
Other accrued expenses ............................................... 116,660
------------
4,326,745
------------
Net Assets $ 89,144,332
============
Net Assets consist of:
Unrealized depreciation of investments .............................. $(20,815,197)
Accumulated net realized gain ....................................... 3,515,228
Paid-in capital ..................................................... 106,444,301
------------
$ 89,144,332
============
Net Asset Value and redemption price per share of
Class A shares ($30,858,303 [divided by] 3,484,170 shares).......... $8.86
=====
Maximum Offering Price per share of Class A shares
($8.86 [divided by] .955)........................................... $9.28
=====
Net Asset Value and offering price per share of
Class B shares ($46,315,349 [divided by] 5,459,771 shares)*......... $8.48
=====
Net Asset Value and offering price per share of
Class C shares ($7,012,288 [divided by] 826,278 shares)*............ $8.49
=====
Net Asset Value, offering price and
redemption price per share of Class S
shares ($4,958,392 [divided by]
549,656 shares) .................................................... $9.02
=====
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset value
less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended September 30, 1998
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $1,030................ $ 194,678
Interest (Note 1) ....................................... 745,382
------------
940,060
Expenses
Management fee (Note 2) ................................. 784,289
Transfer agent and shareholder services (Note 2) ........ 246,611
Custodian fee ........................................... 121,596
Service fee-Class A (Note 5) ............................ 92,648
Distribution and service fees-Class B (Note 5) .......... 523,958
Distribution and service fees-Class C (Note 5) .......... 84,138
Registration fees ....................................... 56,137
Reports to shareholders ................................. 50,480
Audit fee ............................................... 24,827
Trustees' fees (Note 2) ................................. 18,804
Amortization of organization costs (Note 1) ............. 6,141
Legal fees .............................................. 2,191
Miscellaneous ........................................... 3,510
------------
2,015,330
Expenses borne by the Distributor (Note 3) .............. (164,484)
------------
1,850,846
------------
Net investment loss ..................................... (910,786)
------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments (Notes 1 and 4) ........ 6,291,426
Net unrealized depreciation of investments .............. (42,446,270)
------------
Net loss on investments ................................. (36,154,844)
------------
Net decrease in net assets resulting from operations..... $(37,065,630)
============
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended September 30
---------------------------------
1997 1998
-------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ................. $ (615,038) $ (910,786)
Net realized gain on
investments ....................... 14,594,498 6,291,426
Net unrealized appreciation
(depreciation) of
investments ....................... 12,653,977 (42,446,270)
----------- -----------
Net increase (decrease)
resulting from operations ......... 26,633,437 (37,065,630)
----------- -----------
Distributions from net realized gains:
Class A ............................ (1,462,798) (5,928,823)
Class B ............................ (1,761,067) (7,729,321)
Class C ............................ (320,673) (1,418,848)
Class S ............................ (1,026,873) (1,185,510)
----------- -----------
(4,571,411) (16,262,502)
----------- -----------
Net increase from fund share
transactions (Note 6) ............. 6,103,327 53,047,300
----------- -----------
Total increase (decrease) in
net assets ........................ 28,165,353 (280,832)
Net Assets
Beginning of year ................... 61,259,811 89,425,164
----------- -----------
End of year ......................... $89,425,164 $89,144,332
=========== ===========
</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, 1998
Note 1
State Street Research Emerging 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 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. Before November 1, 1997, Class C shares
were designated Class D and Class S shares were designated Class C. 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 subject to a contingent deferred sales charge of
1.00% on any shares redeemed within one year of their purchase. Class C shares
also pay annual distribution and service fees of 1.00%. Class S shares are only
offered through certain retirement accounts, advisory accounts of State Street
Research & Management Company (the "Adviser"), an indirect wholly owned
subsidiary of Metropolitan Life Insurance Company ("Metropolitan"), and special
programs. No sales charge is imposed at the time of purchase or redemption of
Class S shares. Class S shares do not pay any distribution or service fees. The
Fund's expenses are borne pro-rata by each class, except that each class bears
expenses, and has exclusive voting rights with respect to provisions of the Plan
of Distribution, related specifically to that class. The Trustees declare
separate dividends on each class of shares.
The following significant 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 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, 1998, the Fund has
designated as long-term $3,533,075 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.
F. Securities Lending
The Fund may seek additional income by lending portfolio securities to qualified
institutions. The Fund will receive cash or securities as collateral in an
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the Fund could realize additional gains and losses. If
the borrower fails to return the securities and the value of the collateral has
declined during the term of the loan, the Fund will bear the loss. At September
30, 1998, the value of the securities loaned and the value of collateral were
$16,121,003 and $16,716,560 (including $3,642,694 of cash collateral),
respectively. During the year ended September 30, 1998, income from securities
lending amounted to $194,112 and is included in interest income.
Note 2
The Trust and the Adviser have entered into an agreement under which the Adviser
earns monthly fees equal to 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, 1998, the fees pursuant to such agreement
amounted to $784,289.
7
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. 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, 1998, the amount of such shareholder servicing and account maintenance
expenses was $98,146.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$18,804 during the year ended September 30, 1998.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund. During
the year ended September 30, 1998, the amount of such expenses assumed by the
Distributor and its affiliates was $164,484.
Note 4
For the year ended September 30, 1998, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities aggregated
$127,023,111 and $94,632,184, 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 C shares. In addition, the Fund pays annual
distribution fees of 0.75% of average daily net assets for Class B and Class C
shares. The Distributor uses such payments for personal services and/or the
maintenance or servicing of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing assistance
to investors and to defray a portion of its distribution and marketing expenses.
For the year ended September 30, 1998, fees pursuant to such plan amounted to
$92,648, $523,958 and $84,138 for Class A, Class B and Class C respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $45,401 and $226,839, respectively, on sales of Class A shares of
the Fund during the year ended September 30, 1998, and that MetLife Securities,
Inc. earned commissions aggregating $683,332 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$81,822 and $1,186 on redemptions of Class B and Class C shares, respectively,
during the same period.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years ended September 30
------------------------------
1997
------------------------------
Class A Shares Amount
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold ...................................................... 736,606 $ 9,356,719
Issued upon reinvestment of distributions from net realized gains 133,558 1,418,423
Shares redeemed .................................................. (399,385) (4,800,572)
-------- -------------
Net increase ..................................................... 470,779 $ 5,974,570
======== =============
Class B Shares Amount
- ------------------------------------------------------------------------------------------------
Shares sold ...................................................... 916,437 $ 11,267,074
Issued upon reinvestment of distributions from net realized gains 157,306 1,632,835
Shares redeemed .................................................. (519,013) (5,932,931)
-------- -------------
Net increase ..................................................... 554,730 $ 6,966,978
======== =============
Class C (Formerly Class D) Shares Amount
- ------------------------------------------------------------------------------------------------
Shares sold ...................................................... 146,268 $ 1,835,625
Issued upon reinvestment of distributions from net realized gains 29,013 300,866
Shares redeemed .................................................. (86,639) (977,990)
-------- -------------
Net increase ..................................................... 88,642 $ 1,158,501
======== =============
Class S (Formerly Class C) Shares Amount
- ------------------------------------------------------------------------------------------------
Shares sold ...................................................... 315,695 $ 3,716,288
Issued upon reinvestment of distributions from net realized gains 95,612 1,026,868
Shares redeemed .................................................. (1,129,494) (12,739,878)
---------- -------------
Net increase (decrease) .......................................... (718,187) $ (7,996,722)
========== =============
<CAPTION>
Years ended September 30
--------------------------------
1998
--------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold ...................................................... 2,172,979 $ 25,345,033
Issued upon reinvestment of distributions from net realized gains 462,113 5,446,850
Shares redeemed .................................................. (1,369,043) (15,820,206)
---------- --------------
Net increase ..................................................... 1,266,049 $ 14,971,677
========== ==============
Class B Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold ...................................................... 3,332,103 $ 38,626,876
Issued upon reinvestment of distributions from net realized gains 522,996 5,952,742
Shares redeemed .................................................. (1,079,812) (11,853,802)
---------- --------------
Net increase ..................................................... 2,775,287 $ 32,725,816
========== ==============
Class C (Formerly Class D) Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold ...................................................... 712,013 $ 7,691,154
Issued upon reinvestment of distributions from net realized gains 74,509 848,275
Shares redeemed .................................................. (454,421) (4,481,663)
---------- --------------
Net increase ..................................................... 332,101 $ 4,057,766
========== ==============
Class S (Formerly Class C) Shares Amount
- --------------------------------------------------------------------------------------------------
Shares sold ...................................................... 254,611 $ 3,078,367
Issued upon reinvestment of distributions from net realized gains 98,988 1,185,510
Shares redeemed .................................................. (249,446) (2,971,836)
---------- --------------
Net increase (decrease) .......................................... 104,153 $ 1,292,041
========== ==============
</TABLE>
8
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------
Years ended September 30
---------------------------------------------------------
1994(2) 1995(1) 1996(1) 1997(1) 1998(1)
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.45 8.56 9.69 11.33 15.53
------ ------- ------- ------- -------
Net investment loss ($)* (0.02) (0.08) (0.09) (0.08) (0.05)
Net realized and unrealized gain (loss) on investments ($) (0.87) 1.21 1.73 5.13 (4.01)
------ ------- ------- ------- -------
Total from investment operations ($) (0.89) 1.13 1.64 5.05 (4.06)
------ ------- ------- ------- -------
Distribution from net realized gains ($) -- -- -- (0.85) (2.61)
------ ------- ------- ------- -------
Total distributions ($) -- -- -- (0.85) (2.61)
------ ------- ------- ------- -------
Net asset value, end of year ($) 8.56 9.69 11.33 15.53 8.86
====== ======= ======= ======= =======
Total return(4) (%) (9.42)(5) 13.20 16.92 48.00 (29.97)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 21,986 21,480 19,791 34,446 30,858
Ratio of operating expenses to average net assets (%)* 1.35(6) 1.35 1.35 1.35 1.35
Ratio of net investment loss to average net assets (%)* (0.58)(6) (0.93) (0.96) (0.64) (0.45)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33 98.30
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.02 0.06 0.04 0.04 0.02
</TABLE>
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------
Years ended September 30
---------------------------------------------------------
1994(2) 1995(1) 1996(1) 1997(1) 1998(1)
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.45 8.52 9.58 11.11 15.09
------ ------- ------- ------- -------
Net investment loss ($)* (0.06) (0.14) (0.17) (0.16) (0.14)
Net realized and unrealized gain (loss) on investments ($) (0.87) 1.20 1.70 4.99 (3.86)
------ ------- ------- ------- -------
Total from investment operations ($) (0.93) 1.06 1.53 4.83 (4.00)
------ ------- ------- ------- -------
Distribution from net realized gains ($) -- -- -- (0.85) (2.61)
------ ------- ------- ------- -------
Total distributions ($) -- -- -- (0.85) (2.61)
------ ------- ------- ------- -------
Net asset value, end of year ($) 8.52 9.58 11.11 15.09 8.48
====== ======= ======= ======= =======
Total return(4) (%) (9.84)(5) 12.44 15.97 46.91 (30.56)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 29,287 26,489 23,656 40,512 46,315
Ratio of operating expenses to average net assets (%)* 2.10(6) 2.10 2.10 2.10 2.10
Ratio of net investment loss to average net assets (%)* (1.32)(6) (1.67) (1.71) (1.40) (1.20)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33 98.30
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.02 0.06 0.04 0.03 0.02
</TABLE>
- --------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) February 1, 1994 (commencement of share class designations) to September 30,
1994
(3) October 4, 1993 (commencement of operations) to September 30, 1994.
(4) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily reduced a portion of the Fund's expenses.
(5) Not annualized.
(6) Annualized.
9
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C (Formerly Class D)
------------------------------------------------------
Years ended September 30
------------------------------------------------------
1994(2) 1995(1) 1996(1) 1997(1) 1998(1)
------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.45 8.52 9.58 11.10 15.10
------ ------- ------- ------- -------
Net investment loss ($)* (0.06) (0.14) (0.16) (0.16) (0.14)
Net realized and unrealized gain (loss) on investments ($) (0.87) 1.20 1.68 5.01 (3.86)
------ ------- ------- ------- -------
Total from investment operations ($) (0.93) 1.06 1.52 4.85 (4.00)
------ ------- ------- ------- -------
Distribution from net realized gains ($) -- -- -- (0.85) (2.61)
------ ------- ------- ------- -------
Total distributions ($) -- -- -- (0.85) (2.61)
------ ------- ------- ------- -------
Net asset value, end of year ($) 8.52 9.58 11.10 15.10 8.49
====== ======= ======= ======= =======
Total return(4) (%) (9.84)(5) 12.44 15.87 47.15 (30.52)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 10,032 7,391 4,503 7,460 7,012
Ratio of operating expenses to average net assets (%)* 2.10(6) 2.10 2.10 2.10 2.10
Ratio of net investment loss to average net assets (%)* (1.32)(6) (1.67) (1.71) (1.41) (1.20)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33 98.30
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.02 0.06 0.04 0.03 0.02
</TABLE>
<TABLE>
<CAPTION>
Class S (Formerly Class C)
--------------------------------------------------------
Years ended September 30
--------------------------------------------------------
1994(3) 1995(1) 1996(1) 1997(1) 1998(1)
------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 8.60 9.77 11.44 15.73
------ ------- ------- ------- -------
Net investment loss ($)* (0.06) (0.06) (0.07) (0.04) (0.02)
Net realized and unrealized gain (loss) on investments ($) (0.89) 1.23 1.74 5.18 (4.08)
------ ------- ------- ------- -------
Total from investment operations ($) (0.95) 1.17 1.67 5.14 (4.10)
------ ------- ------- ------- -------
Distribution from net realized gains ($) -- -- -- (0.85) (2.61)
------ ------- ------- ------- -------
Total distributions ($) -- -- -- (0.85) (2.61)
------ ------- ------- ------- -------
Net asset value, end of year ($) 8.60 9.77 11.44 15.73 9.02
====== ======= ======= ======= =======
Total return(4) (%) (9.95)(5) 13.60 17.09 48.34 (29.83)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 7,033 12,380 13,311 7,008 4,958
Ratio of operating expenses to average net assets (%)* 1.10(6) 1.10 1.10 1.10 1.10
Ratio of net investment loss to average net assets (%)* (0.68)(6) (0.71) (0.71) (0.39) (0.19)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33 98.30
*Reflects voluntary reduction of expenses per share of
these amounts (Note 3) ($) 0.04 0.06 0.04 0.03 0.02
</TABLE>
- --------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) February 1, 1994 (commencement of share class designations) to September 30,
1994
(3) October 4, 1993 (commencement of operations) to September 30, 1994.
(4) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily reduced a portion of the Fund's expenses.
(5) Not annualized.
(6) Annualized.
10
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Capital Trust and the Shareholders of
State Street Research Emerging Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of State Street Research Emerging Growth Fund
(a series of State Street Research Capital Trust, hereafter referred to as the
"Trust") at September 30, 1998, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 6, 1998
11
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Emerging Growth Fund had a difficult year. The total
return for the Fund's Class A shares was -29.97% for the 12 months ended
September 30, 1998 [does not reflect sales charge]. The Fund underperformed the
average Lipper small-cap fund, which returned -20.60%. The Fund also
underperformed the Russell 2000 Growth Index, which returned -24.83% for the
same period.
Although the Fund got off to a strong start, it was hurt by the market's retreat
to large-company growth stocks during the second half of the year. Capital
equipment, energy, and technology stocks were among the Fund's weakest
performers. Each was hurt by weakness in foreign economies and fears that a
slowdown in the U.S. economy could fall disproportionately on small companies.
Consumer services companies were among the portfolio's best performers. The Fund
continues to invest in companies that have the potential to deliver earnings
growth in line with expectations. Healthcare remains the Fund's largest sector
holding.
September 30, 1998
Keep in mind that past performance is no guarantee of future results. The fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable. The fund's
returns include performance from before the creation of share classes. If this
performance reflected the share classes' current 12b-1 fees, the fund's returns
may have been lower. Class S shares, offered without a sales charge, are
available only through certain employee benefit plans and special programs. The
S&P 500 (officially the "Standard and Poor's 500 Composite Stock Price Index")
is an unmanaged index of 500 U.S. stocks. The Russell 2000 Growth Index contains
only those stocks within the complete Russell 2000 Index (a small company index)
that show above-average growth. The indices do not take transaction charges into
consideration. It is not possible to invest directly in the indices. Before
November 1, 1997, Class C shares were designated Class D, and Class S shares
were designated Class C.
Change in Value of
$10,000 Based on the S&P 500
and Russell 2000 Growth Index
Compared to Change in Value of $10,000
Invested in the Fund
Class A Shares
Average Annual Total Return
- ---------------------------
<TABLE>
<CAPTION>
1 Year Life of Fund
- ---------------------------
<S> <C>
-33.13% 3.27%
- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
Emerging Russell
Growth Fund S&P 500 2000
----------- ------- ------
<S> <C> <C> <C>
10/93 9550 10000 10000
9/94 8560 10368 10088
9/95 9690 13448 12930
9/96 11330 16181 14561
9/97 16769 22722 17961
9/98 11742 24785 13501
</TABLE>
Class B Shares
Average Annual Total Return
- ---------------------------
<TABLE>
<CAPTION>
1 Year Life of Fund
- ---------------------------
<S> <C>
-33.37% 3.18%
- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
Emerging Russell
Growth Fund S&P 500 2000
----------- ------- ------
<S> <C> <C> <C>
10/93 10000 10000 10000
9/94 8921 10368 10088
9/95 10031 13448 12930
9/96 11634 16181 14561
9/97 16790 22722 17961
9/98 11690 24785 13501
</TABLE>
Class C Shares
Average Annual Total Return
- ---------------------------
<TABLE>
<CAPTION>
1 Year Life of Fund
- ---------------------------
<S> <C>
-31.09% 3.51%
- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
Emerging Russell
Growth Fund S&P 500 2000
----------- ------- ------
<S> <C> <C> <C>
10/93 10000 10000 10000
9/94 8921 10368 10088
9/95 10031 13448 12930
9/96 11623 16181 14561
9/97 17103 22722 17961
9/98 11883 24785 13501
</TABLE>
Class S Shares
Average Annual Total Return
- ---------------------------
<TABLE>
<CAPTION>
1 Year Life of Fund
- ---------------------------
<S> <C>
-29.83% 4.52%
- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
Emerging Russell
Growth Fund S&P 500 2000
----------- ------- ------
<S> <C> <C> <C>
10/93 10000 10000 10000
9/94 9005 10368 10088
9/95 10230 13448 12930
9/96 11979 16181 14561
9/97 17770 22722 17961
9/98 12470 24785 13501
</TABLE>
12
<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
Service Center
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
Independent Accountants
PricewaterhouseCoopers LLP
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
Lawrence H. Haverty, Jr.
Vice President
Richard J. Jodka
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
Former 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
(with an affiliate of
J.P. Morgan & Co. in New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Former Partner, Saltonstall & Co.
Dean O. Morton
Former Executive
Vice President, Chief
Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and Public Management, George Washington University;
former Member of the Board of Governors of the Federal Reserve System and
Chairman and Commissioner of the Commodity Futures Trading Commission
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts Institute of Technology
13
<PAGE>
[BLANK]
<PAGE>
[back cover]
State Street Research Emerging Growth Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Permit #20
Holliston, MA
01746
Questions? Comments?
Call us at 1-800-562-0032
[hearing-impaired 1-800-676-7876]
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408, or
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[State Street Research logo]
This report is prepared for the general information of current shareholders.
When used 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, 1998, 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: (exp1199)SSR-LD SCG-085E-1098
<PAGE>
[front cover]
STATE STREET RESEARCH
---------------------
AURORA FUND
---------------------
ANNUAL REPORT
September 30, 1998
- ---------------------
WHAT'S INSIDE
- ---------------------
From the Chairman
From good news
to mixed results
Portfolio Manager's Review
A challenging year for
small company stocks
Fund Information
Facts and figures
Plus, Complete Portfolio Holdings
and Financial Statements
[Dalbar award]
- ---------------------
DALBAR
Honors Commitment to:
Investors 1997
For Excellence
in
Shareholder Service
- ---------------------
[end Dalbar award]
State Street Research Funds
<PAGE>
FROM THE CHAIRMAN
[photo: Ralph F. Verni]
Dear Shareholder:
After nearly four years of uninterrupted good news, the third quarter produced
mixed results for investors. Most economic data remain positive: Inflation was
low. Personal income has risen, and unemployment was steady at about 4.5%.
However, consumer confidence has slipped slightly. The stock market has lost
ground. Investors are worried about future corporate earnings.
Stocks
Pessimism about profits sent stocks down during the third quarter. Financial
stocks were among the hardest hit, as announcements were made that big U.S.
financial institutions expect losses from loans to foreign markets. Technology
companies also lost ground as lower demand from Asia hurt some of the biggest
competitors. All major market indices were down for the quarter, and some
segments of the market--notably, small company stocks--have registered double
digit losses for the year so far.
Bonds
On the positive side, bond investors had something to cheer about. Treasury
bonds soared as the Federal Reserve Board's one-quarter percent cut in the
federal funds rate sent the yield on the bellwether long-term Treasury bond
down below 5.0% for the first time ever. High-yield bonds and mortgage-backed
securities failed to participate in the rally.
International
Warnings that economic growth has slowed around the world, plus specific
concerns over Asia's woes, continued to bring returns down on most major
foreign exchanges. Even Europe, which has delivered strong gains in the first
half of the year, felt the effects of Russia's currency problems and Japan's
recession. As interest rates converge anticipating the euro common currency in
1999, Spain and Italy appear to be in the best position to grow, and Germany
and France are the most likely to suffer.
Outlook and Opportunities
As investors, you may be asking where the opportunities are in this rocky
market. My reply: In diversification--and in markets that have been beaten
down, such as small-cap and mid-cap stocks. But every investor is different.
Now is a good time to talk to your financial professional about your
investments. And as always, thank you for your confidence in State Street
Research Funds.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman
September 30, 1998
(1)Investment results are based on an assumed $10,000 investment at Class 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.
(2)-24.98% for Class B shares; -25.00% for Class C shares; -24.23% for Class S
shares.
(3)The Russell 2000 Value Index is a weighted index comprised of only those
stocks within the complete Russell 2000 Index (a small company index) that show
below-average growth. The index does not take transaction charges into
consideration. It is not possible to invest directly in the index.
(4)Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable.
(5)Class S shares, offered without a sales charge, are available only through
certain employee benefit plans and special programs.
(6)Before November 1, 1997, Class C shares were designated Class D, and Class S
shares were designated Class C.
Please note that the discussion throughout this shareholder report is dated as
indicated and, because of possible changes in viewpoint, data and transactions,
should not be relied upon as being current thereafter.
- --------------------------------------------------------------------------------
FUND INFORMATION (all data are for periods ended September 30, 1998)
- --------------------------------------------------------------------------------
Total value of $10,000 invested at Fund's inception(1)
(Class A shares, at maximum applicable sales charge)
[mountain chart]
<TABLE>
<S> <C>
2/95 9550
9/95 11130
9/96 15986
9/97 27606
9/98 20864
</TABLE>
[end mountain chart]
Average Annual Total Return
(at maximum applicable sales charge)(4,5,6)
<TABLE>
<CAPTION>
=======================================================
Life of Fund
(since 2/13/95) 3 Years 1 Year
- -------------------------------------------------------
<S> <C> <C> <C>
Class A 22.44% 21.42% -27.82%
- -------------------------------------------------------
Class B 22.58% 21.69% -28.69%
- -------------------------------------------------------
Class C 23.04% 22.33% -25.74%
- -------------------------------------------------------
Class S 24.30% 23.59% -24.23%
=======================================================
</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: A challenging year for small company stocks
[photo: Rudy Kluiber]
Rudy Kluiber
Portfolio Manager
We spoke with Rudy Kluiber, portfolio manager of State Street Research Aurora
Fund about performance for the fiscal year ended September 30, 1998 and his
views on the period ahead.
Q: How did the Fund perform during the past 12 months?
A: It was a challenging year for the Fund, and for small company stocks, in
general. Class A shares lost -24.42% for the year ended September 30, 1998 [does
not include sales charge.]2 That was below the average Lipper Small-Cap Fund,
which lost -20.60%. The Fund also underperformed the Russell 2000 Value Index,
which lost -12.79% for the same period.(3)
Q: What contributed to the Fund's weak performance?
A: The volatile equity market continued to favor growth stocks representing the
largest blue-chip companies. Our investments lost ground in virtually all
sectors and industries. Also, the Fund's investments in basic industrial
companies with exposure to Asia hurt performance.
Q: What industries were represented in the portfolio during the year?
A: We emphasized investments in automotive products, business services,
chemicals, machinery, and metals and mining. We also owned a significant
position in science and technology stocks. In all, the Fund owns about 260
stocks.
Q: The Fund ended the year with a relatively high position in cash and
short-term securities. How did that fit into your strategy?
A: We raised cash to provide flexibility in light of the market's heightened
volatility near the end of the period. Now, we plan to put the cash back to
work with a focus on value.
Q: What qualities do you look for in a company?
A: I am attracted to companies that demonstrate the potential to achieve
significant gains in more ways than one. For example, if a company looks like
it could improve by cutting costs, I would be looking for some additional
advantage, such as new products, new management, an acquisition or stock
buy-back. I try to look at companies one at a time.
Q: What do you think it will take to get investors interested in small company
stocks once again?
A: It's hard to say what will bring investors back to this segment of the
market and the value style of stock selection. The small cap sector has
underperformed the market for quite a while now. The valuation gap between
small and large-company stocks is about as wide as it has ever been.
Q: What's your outlook for the period ahead?
A: I'm cautious. It's still unclear as to how long and how far the effects of
Asia's economic crisis will continue to be felt in the U.S. I'm also mindful
that many stocks remain at or near relatively high valuations, given earnings
prospects for the year ahead. However, I will continue to seek opportunities
among attractively priced small company stocks.
September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Stock Positions
(by percentage of net assets)
<TABLE>
<CAPTION>
<S> <C> <C>
1 Exide Batteries 3.2%
2 CORE Capital Mortgage finance 2.7%
3 Simpson Industries Automotive parts 2.0%
4 Imation Data storage 2.0%
5 Wyman-Gordon Aerospace components 2.0%
6 Ryerson Tull Steel service center 1.8%
7 Entertainment Properties REIT 1.8%
8 Cambrex Specialty chemicals 1.8%
9 Steinway Musical instruments 1.6%
10 American Media Publishing 1.5%
</TABLE>
These securities represent an aggregate of 20.4% of the portfolio. Because of
active management, there is no guarantee that the Fund currently invests, or
will continue to invest, in the securities or industries listed in this table
or in the text above.
[bar chart]
Top 5 Industries
(by percentage of net assets)
<TABLE>
<S> <C>
Automotive 9.0%
Business Service 8.3%
Chemical 8.1%
Machinery 7.3%
Metal & Mining 6.5%
</TABLE>
Total: 39.2%
[end bar chart]
Best and Worst Contributors to Performance
(October 1, 1997 through September 30, 1998)
Best [arrow pointing up]
- ----------------------------------
Memtec
Corporate acquisition
Ceanic
Corporate acquisition
Triangle Pacific
Corporate acquisition
Worst [arrow pointing down]
- --------------------------------
BMC Industries
Asian competition
CORE Capital
Turmoil in mortgage market
Maxx Petroleum
Declining oil prices
2
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
September 30, 1998
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------------- ---------------
<S> <C> <C>
COMMON STOCKS 86.4%
Basic Industries 26.7%
Chemical 8.1%
Agrium Inc. .................................... 255,900 $ 2,175,150
Amcol International Corp. ...................... 30,000 341,250
American Pacific Corp.* ........................ 350,400 2,803,200
BetzDearborn Inc. .............................. 10,000 691,250
Cambrex Corp. .................................. 292,900 6,901,456
CuraGen Corp.* ................................. 80,000 480,000
Geon Co. ....................................... 175,000 3,106,250
Hawkins Chemical Inc.* ......................... 40,100 401,000
Lilly Industrial Inc. Cl. A .................... 193,500 3,410,438
M.A. Hanna Co. ................................. 10,000 112,500
Mississippi Chemical Corp. ..................... 435,700 5,282,862
Octel Corp.* ................................... 10,000 137,500
Stepan Chemical Co.* ........................... 211,900 5,734,544
-----------
31,577,400
-----------
Diversified 1.6%
Apogee Enterprises Inc. ........................ 60,000 735,000
Commercial Intertech Corp. ..................... 92,800 1,711,000
Lindberg Corp. ................................. 58,600 739,825
Noel Group Inc.* ............................... 102,000 133,875
Recoton Corp.* ................................. 92,000 1,794,000
Titan International Inc. ....................... 40,200 447,225
Whittaker Corp. ................................ 30,000 444,375
-----------
6,005,300
-----------
Electrical Equipment 0.4%
Asia Pacific Wire & Cable Corp. Ltd.* .......... 72,000 139,500
Channell Commercial Corp.* ..................... 165,000 1,381,875
Vari-Lite International Inc.* .................. 60,000 165,000
-----------
1,686,375
-----------
Forest Product 0.0%
Morgan Products Ltd.* .......................... 30,500 80,063
-----------
Machinery 7.3%
Cascade Corp. .................................. 20,000 266,250
CTB International Corp.* ....................... 42,000 288,750
Gleason Corp. .................................. 20,300 326,069
Hanover Compressor Co.* ........................ 58,400 1,412,550
Howmet International Inc.* ..................... 206,900 2,405,213
Instron Corp. .................................. 73,700 1,041,013
Intermet Corp. ................................. 242,700 3,079,256
JLG Industries Inc. ............................ 13,600 216,750
Middleby Corp.* ................................ 129,100 508,331
Miller Industries Inc.* ........................ 30,000 138,750
Penn Engineering & Manufacturing Corp. ......... 154,700 3,064,994
Specialty Equipment Companies Inc.* ............ 293,000 5,823,375
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------------- ---------------
<S> <C> <C>
Sun Hydraulics Inc. ............................ 19,000 $ 182,875
Thermadyne Holdings Corp.* ..................... 13,599 320,426
Tokheim Corp.* ................................. 340,000 2,465,000
Varlen Corp. ................................... 65,000 1,803,750
Wolverine Tube Inc.* ........................... 242,600 5,109,762
-----------
28,453,114
-----------
Metal & Mining 6.5%
Carbide/Graphite Group Inc.* ................... 70,000 778,750
Chase Industries Inc.* ......................... 80,100 1,136,419
Commonwealth Industries Inc. ................... 70,000 568,750
Easco Inc. ..................................... 61,700 547,587
Global Industrial Technologies Inc.* ........... 217,500 1,522,500
Hawk Corp. Cl. A* .............................. 145,200 1,397,550
Ladish Inc.* ................................... 349,400 3,079,087
N.N. Ball & Roller Inc. ........................ 122,300 978,400
Ryerson Tull Inc. Cl. A* ....................... 528,000 6,963,000
Special Metals Corp.* .......................... 33,400 346,525
Webco Industries Inc.* ......................... 49,500 349,594
Wyman-Gordon Co.* .............................. 530,000 7,618,750
-----------
25,286,912
-----------
Railroad 2.1%
ABC Rail Products Corp.* ....................... 74,000 1,184,000
Genesee & Wyoming Inc. Cl. A* .................. 215,800 2,832,375
Johnstown America Industries Inc.* ............. 114,000 1,624,500
Marine Transport Corp.* ........................ 49,500 108,281
OMI Corp.* ..................................... 250,000 1,015,625
Tranz Rail Holdings Ltd. ADR ................... 383,600 1,534,400
-----------
8,299,181
-----------
Truckers 0.7%
C.H. Robinson Worldwide ........................ 37,300 750,663
Jevic Transportation Inc.* ..................... 235,900 1,680,787
Trailer Bridge Inc.* ........................... 30,000 67,500
-----------
2,498,950
-----------
Total Basic Industries ......................................... 103,887,295
-----------
Consumer Cyclical 21.3%
Airline 0.4%
America West Holdings Corp. Cl. B* ............. 125,000 1,562,500
-----------
Automotive 9.0%
Aftermarket Technology Corp.* .................. 8,200 90,200
Borg-Warner Automotive Inc. .................... 55,000 2,038,437
Control Devices Inc. ........................... 257,500 2,961,250
Defiance Inc. .................................. 132,000 990,000
Excel Industries Inc. .......................... 372,500 4,656,250
Exide Corp.@ ................................... 1,081,300 12,434,950
Gencorp Inc. ................................... 25,000 481,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------------- --------------
<S> <C> <C>
Automotive (cont'd)
Group 1 Automotive Inc.* ........................ 112,200 $ 1,683,000
Lund International Holdings Inc.* ............... 21,000 136,500
Motorcar Parts & Accessories Inc.* .............. 39,000 453,375
Simpson Industries Inc. ......................... 778,700 7,835,669
Stoneridge Inc.* ................................ 39,500 639,406
TransPro Inc. ................................... 138,700 693,500
-----------
35,093,787
-----------
Building 2.9%
Bluegreen Corp.* ................................ 30,000 225,000
Cameron Ashley Inc.* ............................ 7,000 78,313
Castle & Cooke Inc.* ............................ 77,400 1,161,000
Centex Construction Products Inc. ............... 14,500 494,812
Dayton Superior Corp. Cl. A* .................... 17,700 311,962
Interface Inc. Cl. A ............................ 150,000 1,800,000
Kevco Inc.* ..................................... 172,000 3,106,750
Nortek Inc.* .................................... 126,500 3,447,125
Stimsonite Corp.* ............................... 134,500 697,719
-----------
11,322,681
-----------
Hotel & Restaurant 0.7%
Primadonna Resorts Inc.* ........................ 361,500 2,779,031
-----------
Photography 2.4%
CPI Corp. ....................................... 54,600 1,293,338
Imation Corp.* .................................. 421,800 7,803,300
-----------
9,096,638
-----------
Recreation 3.1%
Alliance Gaming Corp.* .......................... 135,000 345,937
Bacou USA Inc.* ................................. 40,000 690,000
Championship Auto Racing Teams, Inc.* ........... 35,000 855,312
HMG Worldwide Corp.* ............................ 17,000 21,250
K2 Inc. ......................................... 15,000 265,313
Rawlings Sporting Goods Co.* .................... 104,200 1,146,200
Rockshox Inc.* .................................. 71,000 186,375
Steinway Musical Instruments Inc.* .............. 281,500 6,193,000
Sturm Ruger & Company Inc. ...................... 125,000 1,953,125
West Coast Entertainment Corp.* ................. 390,000 316,875
-----------
11,973,387
-----------
Retail Trade 1.9%
Barbeques Galore Ltd. ADR ....................... 125,400 564,300
Burlington Coat Factory Warehouse Corp. ......... 55,000 811,250
Cole National Corp. Cl. A* ...................... 64,000 1,332,000
EKCO Group Inc.* ................................ 10,000 35,000
Finlay Enterprises Inc.* ........................ 86,300 722,763
Gymboree Corp.* ................................. 1,000 7,500
Mark Brothers Jewelers Inc.* .................... 150,000 2,006,250
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------------- --------------
<S> <C> <C>
Meadowcraft Inc.* ............................... 51,000 $ 513,188
RDO Equipment Co. Cl. A* ........................ 94,600 857,312
Steelcase Inc. Cl. A ............................ 24,600 436,650
TBC Corp.* ...................................... 38,000 228,000
-----------
7,514,213
-----------
Textile & Apparel 0.9%
Carlyle Industries Inc.* ........................ 110,939 58,936
Hirsch International Corp. Cl. A* ............... 305,000 781,563
Ithaca Industries Inc.* ......................... 60,000 135,000
Oshkosh B Gosh Inc. Cl. A ....................... 120,000 2,490,000
-----------
3,465,499
-----------
Total Consumer Cyclical ......................................... 82,807,736
-----------
Consumer Staple 20.9%
Business Service 8.3%
Amerco* ......................................... 198,700 5,066,850
Beacon Capital Partners Inc.*+ .................. 120,000 2,400,000
BioReliance Corp.* .............................. 133,300 1,399,650
Career Blazers Inc.* ............................ 6,500 45,500
Casella Waste Systems Inc. Cl. A* ............... 39,000 1,326,000
CORE Capital Inc. Cl. A Cv. Pfd.*+ .............. 300,000 10,653,000
DIANON Systems Inc.* ............................ 79,000 483,875
Dollar Thrifty Automotive Group, Inc.* .......... 83,800 974,175
Edutrek International Inc. Cl. A* ............... 20,000 140,000
Envirosource Inc. ............................... 54,957 446,526
Fair, Issac & Company Inc. ...................... 10,000 333,750
Firearms Training Systems Inc. Cl. A* ........... 205,000 140,938
Integrated Systems Consulting Group* ............ 57,000 612,750
International Total Services Inc.* .............. 105,000 590,625
Lydall Inc.* .................................... 62,000 635,500
Marquee Group Inc.* ............................. 430,000 1,236,250
Pierce Leahy Corp.* ............................. 43,000 908,375
Protection One Inc.* ............................ 47,000 458,250
Provant Inc.* ................................... 15,000 223,125
Right Management Consultants Inc.* .............. 122,700 1,487,737
Ritchie Brothers Auctioneers Inc.* .............. 85,000 1,880,625
Todd-AO Corp. ................................... 45,000 331,875
Vestcom International Inc.* ..................... 30,000 277,500
-----------
32,052,876
-----------
Container 1.9%
ACX Technologies Inc.* .......................... 20,000 257,500
Bway Corp.* ..................................... 9,000 114,188
Gundle/SLT Environmental Inc.* .................. 88,100 289,083
Home Products International Inc.* ............... 48,000 408,000
Intertape Polymer Group Inc. .................... 40,000 725,000
Ivex Packaging Corp.* ........................... 110,200 1,597,900
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------------- ---------------
<S> <C> <C>
Container (cont'd)
Rock-Tenn Co. Cl. A ............................ 78,150 $ 864,534
Shorewood Packaging Corp.* ..................... 97,500 1,316,250
U.S. Can Corp.* ................................ 117,900 1,724,287
-----------
7,296,742
-----------
Drug 1.9%
Jean Coutu Group Inc * ......................... 150,000 2,340,293
Mycogen Corp.* ................................. 137,500 3,832,812
Nutraceutical International Corp.* ............. 32,000 226,000
Pathogenesis Corp.* ............................ 30,000 1,001,250
-----------
7,400,355
-----------
Food & Beverage 2.1%
Beringer Wine Estates Holdings, Inc. Cl. B*..... 20,000 766,250
BJ's Wholesale Club Inc.* ...................... 20,000 735,000
Coca-Cola Bottling Co. ......................... 2,500 150,000
Corn Products International Inc. ............... 30,000 757,500
Darling International Inc.* .................... 113,100 395,850
Hussmann International Inc. .................... 30,000 425,625
International Home Foods Inc.* ................. 50,000 675,000
Keebler Foods Co.* ............................. 45,000 1,170,000
Robert Mondavi Corp. Cl. A* .................... 20,000 446,250
Zapata Corp. ................................... 80,000 775,000
Golden State Vintners Inc. Cl. B * ............. 177,700 1,743,681
-----------
8,040,156
-----------
Hospital Supply 1.2%
Arrow International Inc. ....................... 10,000 278,750
Circon Corp.* .................................. 15,000 146,250
CN Biosciences Inc.* ........................... 33,000 808,500
Invivo Corp.*@ ................................. 170,000 2,252,500
Lunar Corp.* ................................... 100,000 1,100,000
SeaMed Corp.* .................................. 11,000 154,000
-----------
4,740,000
-----------
Personal Care 1.8%
Bush Boake Allen Inc.* ......................... 153,500 4,106,125
First Brands Corp. ............................. 80,000 1,745,000
Polymer Group Inc.* ............................ 150,000 1,181,250
-----------
7,032,375
-----------
Printing & Publishing 2.8%
American Media Inc. Cl. A* ..................... 1,078,700 6,000,269
Hollinger International, Inc. Cl. A ............ 163,760 2,354,050
Houghton Mifflin Co. ........................... 20,000 620,000
Pulitzer Publishing Co. ........................ 24,200 1,914,825
-----------
10,889,144
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------------- ---------------
<S> <C> <C>
Tobacco 0.9%
800-JR CIGAR Inc.* ............................. 20,000 $ 222,500
Dimon Inc. ..................................... 177,000 1,869,563
Standard Commercial Corp. ...................... 198,140 1,473,666
-----------
3,565,729
-----------
Total Consumer Staple ........................................... 81,017,377
-----------
Energy 1.1%
Oil 0.5%
Crystal Oil Co.* ............................... 3,800 148,200
Maxx Petroleum Ltd.* ........................... 475,000 1,187,500
Probe Exploration Inc.*+ ....................... 277,800 500,803
-----------
1,836,503
-----------
Oil Service 0.6%
Atwood Oceanics Inc.* .......................... 20,000 416,250
Fred Olsen Energy ASA ADR* ..................... 54,100 417,054
Stolt Comex Seaway SA* ......................... 48,000 462,000
Stolt Comex Seaway SA Cl. A* ................... 24,000 207,000
TMBR/Sharp Drilling Inc.* ...................... 132,600 812,175
Transcoastal Marine Services Inc.* ............. 5,500 29,906
Willbros Group Inc.* ........................... 28,100 179,138
-----------
2,523,523
-----------
Total Energy .................................................... 4,360,026
-----------
Finance 4.7%
Bank 0.7%
AMBANC Holding Co. Inc. ........................ 6,000 78,000
Ambase Corp.* .................................. 5,000 11,050
Bank of the Ozarks Inc. ........................ 16,700 400,800
Bay State Bancorp Inc.* ........................ 10,000 222,500
EFC Bancorp Inc.* .............................. 20,000 210,000
First International Bancorp Inc. ............... 7,000 66,500
Life Financial Corp.* .......................... 50,000 253,125
Meritor Savings Bank* .......................... 60,000 146,250
PBOC Holdings Inc.* ............................ 102,900 1,131,900
-----------
2,520,125
-----------
Financial Service 3.2%
CIT Group Inc. Cl. A ........................... 80,000 2,050,000
Delta Financial Corp.* ......................... 100,000 681,250
Entertainment Properties Trust ................. 373,500 6,909,750
Gilman & Ciocia Inc.* .......................... 40,000 251,250
Heller Financial Inc. Cl. A* ................... 58,300 1,399,200
Imperial Credit Commercial Mortgage
Investment Corp.* ........................... 10,000 97,500
Linc Capital Inc.* ............................. 60,000 577,500
Mego Financial Corp.* .......................... 48,200 37,656
Tower Realty Trust Inc. ........................ 30,000 596,250
-----------
12,600,356
-----------
</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>
Insurance 0.8%
Foremost Corp. ................................... 119,400 $ 2,186,513
PAULA Financial .................................. 108,800 1,047,200
-----------
3,233,713
-----------
Total Finance .................................................. 18,354,194
-----------
Science & Technology 11.6%
Aerospace 1.3%
Curtiss-Wright Corp. ............................. 100,000 3,968,750
Doncasters PLC ADR* .............................. 51,100 568,487
Fairchild Corp. Cl. A* ........................... 35,100 495,788
First Aviation Services Inc.* .................... 30,000 146,250
-----------
5,179,275
-----------
Computer Software & Service 4.5%
Bell & Howell Co.* ............................... 215,500 5,589,531
Best Software Inc.* .............................. 135,000 3,240,000
Box Hill Systems Corp.* .......................... 30,000 264,375
BrightStar Information Technology Group Inc.*..... 35,000 214,375
DRS Technologies Inc.* ........................... 56,500 547,344
Eidos PLC ADR* ................................... 45,000 514,687
H.T.E. Inc.* ..................................... 179,000 2,192,750
InTEST Corp.* .................................... 68,200 272,800
J.D. Edwards & Co.* .............................. 51,800 2,486,400
Ontrack Data International Inc.* ................. 40,000 290,000
Unigraphics Solutions Inc. Cl. A* ................ 10,000 94,375
Verio Inc.* ...................................... 75,000 1,856,250
-----------
17,562,887
-----------
Electronic Components 3.1%
BEI Electronics Inc.* ............................ 215,000 430,000
BEI Technologies Inc. ............................ 340,000 2,528,750
BMC Industries Inc. .............................. 70,000 420,000
Cypress Semiconductor Corp.* ..................... 20,000 175,000
Denison International PLC ADR* ................... 261,700 3,925,500
Electro Scientific Industries Inc.* .............. 5,000 79,375
Fusion Systems Corp.* ............................ 1,000 31
II Vi Inc.* ...................................... 45,500 344,094
Kemet Corp.* ..................................... 21,800 242,525
Optek Technology Inc.* ........................... 180,800 3,209,200
Peak International Ltd.* ......................... 10,000 82,500
Power-One Inc.* .................................. 47,500 350,313
Reptron Electronics Inc.* ........................ 30,000 153,750
-----------
11,941,038
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
--------------- -------------
<S> <C> <C>
Electronic Equipment 2.0%
Brooks Automation Inc.* .......................... 5,000 $ 49,688
Coherent Inc.* ................................... 430,000 4,017,812
Detection Systems Inc.* .......................... 30,000 309,375
FARO Technologies Inc.* .......................... 30,000 94,688
General Scanning Inc.* ........................... 112,300 617,650
Helix Technology Corp. ........................... 1,000 9,875
Igen International, Inc.* ........................ 35,000 988,750
Instrumentation Laboratories SPA ADR* ............ 40,000 55,000
Lam Research Corp.* .............................. 1,000 10,000
Mackie Designs Inc.* ............................. 15,000 97,500
Novametrix Medical Systems Inc.* ................. 123,000 622,688
Plantronics Inc.* ................................ 15,000 722,812
Silicon Valley Group Inc.* ....................... 1,000 8,000
-----------
7,603,838
-----------
Office Equipment 0.7%
CompX International Inc. Cl. A* .................. 23,500 405,375
Davel Communications Group* ...................... 8,000 98,000
Exabyte Corp.* ................................... 318,000 2,067,000
-----------
2,570,375
-----------
Total Science & Technology ....................................... 44,857,413
-----------
Utility 0.1%
Telephone 0.1%
Peoples Telephone Co.* ........................... 170,000 446,250
PhoneTel Technologies Inc.* ...................... 200,000 18,750
-----------
465,000
-----------
Total Utility .................................................... 465,000
-----------
Total Common Stocks (Cost $416,598,730)........................... 335,749,041
-----------
SHORT-TERM INVESTMENTS 3.5%
AIM Liquid Assets Portfolio ...................... 13,893,476 13,893,476
-----------
Total Short-Term Investments (Cost $13,893,476) .................. 13,893,476
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
September 30, 1998
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
------------- ------------ ---------------
<S> <C> <C> <C>
COMMERCIAL PAPER 14.1%
American Express Credit Corp.,
5.38% ............................ $9,369,000 10/01/1998 $ 9,369,000
American Express Credit Corp.,
5.51% ............................ 5,229,000 10/05/1998 5,229,000
Associates Corp. of North
America, 5.45% ................... 6,043,000 10/06/1998 6,043,000
CIT Group Holdings Inc., 5.25% ..... 4,164,000 10/08/1998 4,164,000
Ford Motor Credit Co., 5.15% ....... 10,432,000 10/13/1998 10,432,000
General Electric Capital Corp.,
5.20% ............................ 472,000 10/05/1998 472,000
Household Finance Corp., 5.54%...... 9,341,000 10/02/1998 9,341,000
Household Finance Corp., 5.53%...... 9,652,000 10/08/1998 9,652,000
------------
Total Commercial Paper (Cost $54,702,000).................... 54,702,000
------------
Total Investments (Cost $485,194,206)--104.0%................ $404,344,517
Cash and Other Assets, Less Liabilities--(4.0%) ............. (15,708,944)
------------
Net Assets--100.0% .......................................... $388,635,573
============
</TABLE>
Federal Income Tax Information:
<TABLE>
<S> <C>
At September 30, 1998, the net unrealized depreciation
of investments based on cost for Federal income tax
purposes of $485,411,839 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost .......................................... $ 23,812,777
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................ (104,880,099)
------------
$(81,067,322)
============
</TABLE>
- --------------------------------------------------------------------------------
*Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
+Security restricted in accordance with Rule 144A under the Securities Act of
1933, which allows for the resale of such securities among certain qualified
buyers. The total cost and market value of Rule 144A securities owned at
September 30, 1998 were $16,314,535 and $13,553,803 (3.49% of net assets),
respectively.
@Represents an affiliated issuer in which the Fund owns at least 5% of the
issuer's outstanding voting securities. Transactions during the year ended
September 30, 1998 were as follows:
<TABLE>
<CAPTION>
Affiliated Cost of Cost of Dividend Market
Issuer Purchases Sales Income Value
- -------------- ------------ ----------- ---------- --------------
<S> <C> <C> <C> <C>
Exide Corp. $5,899,969 $ -- $73,420 $12,434,950
Invivo Corp. 289,708 377,980 -- 2,252,500
---------- -------- ------- -----------
$6,189,677 $377,980 $73,420 $14,687,450
========== ======== ======= ===========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $485,194,206) (Note 1) ................ $404,344,517
Cash .............................................................. 829
Dividends and interest receivable ................................. 686,421
Receivable for fund shares sold ................................... 247,692
Receivable for securities sold .................................... 145,772
Deferred organization costs (Note 1) .............................. 22,041
------------
405,447,272
Liabilities
Payable for collateral received on securities loaned .............. 13,893,476
Payable for fund shares redeemed .................................. 1,344,677
Payable for securities purchased .................................. 613,068
Accrued transfer agent and shareholder services
(Note 2) ........................................................ 286,638
Accrued management fee (Note 2) ................................... 278,846
Accrued distribution and service fees (Note 4) .................... 253,821
Accrued trustees' fees (Note 2) ................................... 28,672
Other accrued expenses ............................................ 112,501
------------
16,811,699
------------
Net Assets $388,635,573
============
Net Assets consist of:
Unrealized depreciation of investments ........................... $(80,849,689)
Accumulated net realized loss .................................... (2,062,592)
Paid-in capital .................................................. 471,547,854
------------
$388,635,573
============
Net Asset Value and redemption price per share of
Class A shares ($115,973,193 [divided by] 7,494,241 shares) ..... $15.47
======
Maximum Offering Price per share of Class A shares
($15.47 [divided by] .955) ...................................... $16.20
======
Net Asset Value and offering price per share of Class
B shares ($210,408,210 [divided by] 13,959,855 shares)* ......... $15.07
======
Net Asset Value and offering price per share of Class
C shares ($61,503,882 [divided by] 4,082,629 shares)* ........... $15.06
======
Net Asset Value, offering price and redemption price
per share of Class S shares ($750,288 [divided by] 48,090
shares) ......................................................... $15.60
======
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class C is equal to net asset value
less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended September 30, 1998
<TABLE>
<S> <C>
Investment Income
Dividends (including $73,420 received from affiliated
issuers), net of foreign taxes of $16,884 .............. $ 4,606,325
Interest (Note 1) ........................................ 3,934,750
-------------
8,541,075
Expenses
Management fee (Note 2) .................................. 4,919,113
Transfer agent and shareholder services (Note 2) ......... 1,100,050
Service fee-Class A (Note 4) ............................. 471,627
Distribution and service fees-Class B (Note 4) ........... 2,986,138
Distribution and service fees-Class C (Note 4) ........... 885,771
Custodian fee ............................................ 276,550
Registration fees ........................................ 193,339
Reports to shareholders .................................. 61,748
Trustees' fees (Note 2) .................................. 41,372
Audit fee ................................................ 22,031
Amortization of organization costs (Note 1) .............. 14,538
Legal fees ............................................... 2,293
Miscellaneous ............................................ 4,369
-------------
10,978,939
-------------
Net investment loss ...................................... (2,437,864)
-------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments (including $1,809 on
sales of affiliated issuers) (Notes 1 and 3) ........... 3,061,152
Net unrealized depreciation of investments ............... (140,139,832)
-------------
Net loss on investments .................................. (137,078,680)
-------------
Net decrease in net assets resulting from operations $(139,516,544)
=============
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended September 30
-----------------------------------
1997 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ................. $ (233,376) $ (2,437,864)
Net realized gain on investments 4,589,402 3,061,152
Net unrealized appreciation
(depreciation) of investments ..... 57,978,769 (140,139,832)
------------ ------------
Net increase (decrease) resulting
from operations ................... 62,334,795 (139,516,544)
------------ ------------
Distributions from net realized
gains:
Class A ............................ (275,192) (2,244,173)
Class B ............................ (38,226) (3,454,508)
Class C ............................ (38,226) (1,036,520)
Class S ............................ (1,776,578) (107,482)
------------ ------------
(2,128,222) (6,842,683)
------------ ------------
Net increase from fund share
transactions (Note 5) ............. 406,056,397 59,540,188
------------ ------------
Total increase (decrease) in net
assets ............................ 466,262,970 (86,819,039)
Net Assets
Beginning of year ................... 9,191,642 475,454,612
------------ ------------
End of year ......................... $475,454,612 $388,635,573
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1998
Note 1
State Street Research Aurora 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 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. For the period November
5, 1997 to September 30, 1998, the Fund discontinued offering all four classes
of shares. Before November 1, 1997, Class C shares were designated Class D and
Class S shares were designated Class C. 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 the eight years after the issuance of the Class B shares. Class C
shares are subject to a contingent deferred sales charge of 1.00% on any shares
redeemed within one year of their purchase. Class C shares also pay annual
distribution and service fees of 1.00%. Class S shares are only offered through
certain retirement accounts, advisory accounts of State Street Research &
Management Company (the "Adviser"), an indirect wholly owned subsidiary of
Metropolitan Life Insurance Company ("Metropolitan"), and special programs. No
sales charge is imposed at the time of purchase or redemption of Class S
shares. Class S shares do not pay any distribution or service fees. The Fund's
expenses are borne pro rata by each class, except that each class bears
expenses, and has exclusive voting rights with respect to provisions of the
Plan of Distribution, related specifically to that class. The Trustees declare
separate dividends on each class of shares.
The following significant 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. Securities 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 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.
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. The Fund intends to
defer approximately $1,845,000 of losses incurred from November 1, 1997 to
September 30, 1998 and treat as arising in the fiscal year ended September 30,
1999.
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, 1998, the Fund has
designated as long-term $569,118 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.
F. Securities Lending
The Fund may seek additional income by lending portfolio securities to
qualified institutions. The Fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the Fund could realize additional gains
9
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
and losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the Fund will bear the
loss. At September 30, 1998, the value of the securities loaned and the value
of collateral were $20,751,793 and $21,621,199 (including $13,893,476 of cash
collateral), respectively. During the year ended September 30, 1998, income
from securities lending amounted to $331,680 and is included in interest
income.
Note 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.85% 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, 1998, the fees
pursuant to such agreement amounted to $4,919,113.
State Street Research Service Center, 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, 1998, the amount of
such expenses was $499,255.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$41,372 during the year ended September 30, 1998.
Note 3
For the year ended September 30, 1998, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities aggregated
$463,220,485 and $340,361,373, 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 C shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class C shares. The Distributor uses such payments for personal services and/or
the maintenance or servicing of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing assistance
to investors and to defray a portion of its distribution and marketing
expenses. For the year ended September 30, 1998, fees pursuant to such plan
amounted to $471,627, $2,986,138, and $885,771 for Class A, Class B and Class C
shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $229,788 and $221,417, respectively, on sales of Class A shares of
the Fund during the year ended September 30, 1998, and that MetLife Securities,
Inc. earned commissions aggregating $690,407 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$702,451 and $39,391 on redemptions of Class B and Class C shares,
respectively, during the same period.
Note 5
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
Share transactions were as follows:
<TABLE>
<CAPTION>
Years 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
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 (Formerly 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
========== ============
Class S (Formerly 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 (decrease) .................................................. 187,438 $ 2,730,583
========== ============
<CAPTION>
Years ended September 30
---------------------------------
1998
---------------------------------
Class A Shares Amount
- -------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Shares sold .............................................................. 5,381,653 $ 109,833,386
Issued upon reinvestment of distributions from net realized gains ........ 97,354 1,913,445
Shares repurchased ....................................................... (5,606,090) (109,702,637)
---------- --------------
Net increase (decrease) .................................................. (127,083) $ 2,044,194
========== ==============
Class B Shares Amount
- --------------------------------------------------------------------------- ---------- --------------
Shares sold .............................................................. 5,637,518 $ 114,054,313
Issued upon reinvestment of distributions from net realized gains ........ 119,083 2,282,631
Shares repurchased ....................................................... (3,403,166) (63,417,674)
---------- --------------
Net increase ............................................................. 2,353,435 $ 52,919,270
========== ==============
Class C (Formerly Class D) Shares Amount
- --------------------------------------------------------------------------- ---------- --------------
Shares sold .............................................................. 2,088,859 $ 42,044,189
Issued upon reinvestment of distributions from net realized gains ........ 31,557 603,253
Shares repurchased ....................................................... (1,340,390) (25,018,589)
---------- --------------
Net increase ............................................................. 780,026 $ 17,628,853
========== ==============
Class S (Formerly Class C) Shares Amount
- --------------------------------------------------------------------------- ---------- --------------
Shares sold .............................................................. 9,023 $ 187,858
Issued upon reinvestment of distributions from net realized gains ........ 5,331 107,482
Shares repurchased ....................................................... (664,232) (13,347,469)
---------- --------------
Net increase (decrease) .................................................. (649,878) $ (13,052,129)
========== ==============
</TABLE>
10
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
------------------------------------------------
Years ended September 30
------------------------------------------------
1995(2) 1996(1) 1997(1) 1998(1)
-------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.13 15.14 20.71
------ ------- ------- -------
Net investment income (loss) ($)* 0.07 (0.06) 0.03 0.02
Net realized and unrealized gain (loss) on investments ($) 1.51 4.66 9.02 (5.03)
------ ------- ------- -------
Total from investment operations ($) 1.58 4.60 9.05 (5.01)
------ ------- ------- -------
Dividend from net investment income ($) -- (0.09) -- --
Distributions from net realized gains ($) -- (0.50) (3.48) (0.23)
------ ------- ------- -------
Total distributions ($) -- (0.59) (3.48) (0.23)
------ ------- ------- -------
Net asset value, end of year ($) 11.13 15.14 20.71 15.47
====== ======= ======= =======
Total return(3) (%) 16.54(4) 43.63 72.70 (24.42)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 5,782 1,110 157,853 115,973
Ratio of operating expenses to average net assets (%)* 1.45(5) 1.45 1.34 1.39
Ratio of net investment income (loss) to average net
assets (%)* 1.05(5) (0.56) 0.17 0.09
Portfolio turnover rate (%) 47.34 124.79 25.03 67.80
*Reflects voluntary reduction of expenses per share of
these amounts ($) 0.15 0.32 0.02 --
<CAPTION>
Class B
-----------------------------------------------
Years ended September 30
-----------------------------------------------
1995(2) 1996(1) 1997(1) 1998(1)
-------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.08 15.02 20.33
------ ------- ------- -------
Net investment income (loss) ($)* 0.02 (0.17) (0.09) (0.13)
Net realized and unrealized gain (loss) on investments ($) 1.51 4.65 8.88 (4.90)
------ ------- ------- -------
Total from investment operations ($) 1.53 4.48 8.79 (5.03)
------ ------- ------- -------
Dividend from net investment income ($) -- (0.04) -- --
Distributions from net realized gains ($) -- (0.50) (3.48) (0.23)
------ ------- ------- -------
Total distributions ($) -- (0.54) (3.48) (0.23)
------ ------- ------- -------
Net asset value, end of year ($) 11.08 15.02 20.33 15.07
====== ======= ======= =======
Total return(3) (%) 16.02(4) 42.52 71.34 (24.98)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 116 165 235,938 210,408
Ratio of operating expenses to average net assets (%)* 2.20(5) 2.20 2.08 2.15
Ratio of net investment income (loss) to average net
assets (%)* 0.32(5) (1.38) (0.55) (0.68)
Portfolio turnover rate (%) 47.34 124.79 25.03 67.80
*Reflects voluntary reduction of expenses per share of
these amounts ($) 0.15 0.32 0.01 --
</TABLE>
<TABLE>
<CAPTION>
Class C (Formerly Class D)
-----------------------------------------------
Years ended September 30
-----------------------------------------------
1995(2) 1996(1) 1997(1) 1998(1)
-------------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.08 15.02 20.32
------ ------- ------- -------
Net investment income (loss) ($)* 0.02 (0.17) (0.09) (0.13)
Net realized and unrealized gain (loss) on investments ($) 1.51 4.65 8.87 (4.90)
------ ------- ------- -------
Total from investment operations ($) 1.53 4.48 8.78 (5.03)
------ ------- ------- -------
Dividend from net investment income ($) -- (0.04) -- --
Distributions from net realized gains ($) -- (0.50) (3.48) (0.23)
------ ------- ------- -------
Total distributions ($) -- (0.54) (3.48) (0.23)
------ ------- ------- -------
Net asset value, end of year ($) 11.08 15.02 20.32 15.06
====== ======= ======= =======
Total return(3) (%) 16.02(4) 42.52 71.26 (25.00)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 116 165 67,121 61,504
Ratio of operating expenses to average net assets (%)* 2.20(5) 2.20 2.09 2.15
Ratio of net investment income (loss) to average net
assets (%)* 0.32(5) (1.38) (0.58) (0.68)
Portfolio turnover rate (%) 47.34 124.79 25.03 67.80
*Reflects voluntary reduction of expenses per share of
these amounts ($) 0.15 0.32 0.01 --
<CAPTION>
Class S (Formerly Class C)
----------------------------------------------
Years ended September 30
----------------------------------------------
1995(2) 1996(1) 1997(1) 1998(1)
-------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.15 15.18 20.83
------ ------- ------- ------
Net investment income (loss) ($)* 0.09 (0.06) (0.00) 0.10
Net realized and unrealized gain (loss) on investments ($) 1.51 4.70 9.13 (5.10)
------ ------- ------- ------
Total from investment operations ($) 1.60 4.64 9.13 (5.00)
------ ------- ------- ------
Dividend from net investment income ($) -- (0.11) -- --
Distributions from net realized gains ($) -- (0.50) (3.48) (0.23)
------ ------- ------- ------
Total distributions ($) -- (0.61) (3.48) (0.23)
------ ------- ------- ------
Net asset value, end of year ($) 11.15 15.18 20.83 15.60
====== ======= ======= ======
Total return(3) (%) 16.75(4) 43.95 73.10 (24.23)
Ratios/supplemental data:
Net assets at end of year ($ thousands) 117 7,752 14,542 750
Ratio of operating expenses to average net assets (%)* 1.20(5) 1.20 1.16 1.04
Ratio of net investment income (loss) to average net
assets (%)* 1.32(5) (0.43) (0.02) 0.53
Portfolio turnover rate (%) 47.34 124.79 25.03 67.80
*Reflects voluntary reduction of expenses per share of
these amounts ($) 0.15 0.32 0.12 --
</TABLE>
- --------------------------------------------------------------------------------
(1) Per-share figures have been calculated using the average shares method.
(2) February 13, 1995 (commencement of operations) to September 30, 1995.
(3) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily reduced a portion of the Fund's expenses.
(4) Not annualized.
(5) Annualized.
11
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research
Capital Trust and the Shareholders of
State Street Research Aurora Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of State Street Research Aurora Fund
(a series of State Street Research Capital Trust, hereafter referred to as the
"Trust") at September 30, 1998, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 6, 1998
12
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
State Street Research Aurora Fund experienced a challenging year. The total
return for the Fund's Class A shares was -24.42% for the year ended September
30, 1998 [does not include sales charge.] The Fund underperformed the average
Lipper Small-Cap Fund, which lost -20.60%. The Fund also fell short of the
Russell 2000 Value Index, which lost -12.79% for the same period.
During the period the Fund suffered from a general downturn in small company
stocks. In addition, the Fund's exposure to basic industries that continued to
be affected by problems in Asia were a drag on performance. In fact, stock
selection hurt the Fund's performance.
Valuations on small company stocks are about as attractive as they have been in
the past 30 years. Although it is impossible to predict what it will take to
renew investor confidence in small company stocks, many good companies have the
potential to benefit when they do. The Fund ended the period with a high cash
position. We expect to put those assets to work buying stocks with attractive
valuations and performance potential, which should bring the cash position down
again.
September 30, 1998
Keep in mind that past performance is no guarantee of future results. The
Fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital gain
distributions and income dividends at net asset value. Performance reflects a
maximum 4.5% Class A share front-end sales charge, or 5% Class B share or 1%
Class C share contingent deferred sales charge, where applicable. Class S
shares, offered without a sales charge, are available only through certain
employee benefit plans and special programs. The S&P 500 (officially the
"Standard and Poor's 500 Composite Stock Price Index") is an unmanaged index of
500 U.S. stocks. The Russell 2000 Value Index contains only those stocks within
the complete Russell 2000 Index (a small company index) that show below-average
growth. The indices do not take transaction charges into consideration. It is
not possible to invest directly in the indices. Before November 1, 1997, Class
C shares were designated Class D, and Class S shares were designated Class C.
Change in Value of
$10,000 Based on the S&P 500
and the Russell 2000 Value Index
Compared to Change in Value of $10,000
Invested in the Fund
[line charts]
Class A Shares
Average Annual Total Return
- ---------------------------------
<TABLE>
<CAPTION>
1 Year 3 Years Life of Fund
<S> <C> <C>
- ---------------------------------
- -27.82% 21.42% 22.44%
- ---------------------------------
</TABLE>
<TABLE>
<CAPTION>
Russell
Aurora 2000
Fund S&P 500 Value Index
---- ------- -----------
<S> <C> <C> <C>
2/95 9550 10000 10000
9/95 11130 12425 12075
9/96 15986 14950 13703
9/97 27606 20994 19547
9/98 20864 22900 17047
</TABLE>
Average Annual Total Return
Class B Shares
Average Annual Total Return
- ---------------------------------
<TABLE>
<CAPTION>
1 Year 3 Years Life of Fund
<S> <C> <C>
- ---------------------------------
- -28.69% 21.69% 22.58%
- ---------------------------------
</TABLE>
<TABLE>
<CAPTION>
Russell
Aurora 2000
Fund S&P 500 Value Index
---- ------- -----------
<S> <C> <C> <C>
2/95 10000 10000 10000
9/95 11602 12425 12075
9/96 16535 14950 13703
9/97 28032 20994 19547
9/98 20953 22900 17047
</TABLE>
Class C Shares
Average Annual Total Return
- ---------------------------------
<TABLE>
<CAPTION>
1 Year 3 Years Life of Fund
<S> <C> <C>
- ---------------------------------
- -25.74% 22.33% 23.04%
- ---------------------------------
</TABLE>
<TABLE>
<CAPTION>
Russell
Aurora 2000
Fund S&P 500 Value Index
---- ------- -----------
<S> <C> <C> <C>
2/95 10000 10000 10000
9/95 11602 12425 12075
9/96 16535 14950 13703
9/97 28318 20994 19547
9/98 21239 22900 17047
</TABLE>
Class D Shares
Average Annual Total Return
- ---------------------------------
<TABLE>
<CAPTION>
1 Year 3 Years Life of Fund
<S> <C> <C>
- ---------------------------------
- -24.23% 23.59% 24.30%
- ---------------------------------
</TABLE>
<TABLE>
<CAPTION>
Russell
Aurora 2000
Fund S&P 500 Value Index
---- ------- -----------
<S> <C> <C> <C>
2/95 10000 10000 10000
9/95 11675 12425 12075
9/96 16806 14950 13703
9/97 29092 20994 19547
9/98 22042 22900 17047
</TABLE>
[end line charts]
13
<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
Service Center
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
Independent Accountants
PricewaterhouseCoopers LLP
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
Lawrence J. Haverty, Jr.
Vice President
Richard J. Jodka
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
Former 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
(with an affiliate of
J.P. Morgan & Co. in New York);
presently engaged in private
investments and civic affairs
Robert A. Lawrence
Former Partner, Saltonstall & Co.
Dean O. Morton
Former Executive Vice President, Chief Operating Officer and Director,
Hewlett-Packard Company
Susan M. Phillips
Dean, School of Business and
Public Management, George
Washington University; former
Member of the Board of Governors
of the Federal Reserve System and Chairman and Commissioner of the Commodity
Futures Trading Commission
Toby Rosenblatt
President,
The Glen Ellen Company
Vice President,
Founders Investments Ltd.
Michael S. Scott Morton
Jay W. Forrester Professor of
Management, Sloan School of
Management, Massachusetts Institute of Technology
14
<PAGE>
[back cover]
State Street Research Aurora Fund Bulk Rate
One Financial Center U.S. Postage
Boston, MA 02111 PAID
Permit #20
Holliston, MA
01746
Questions? Comments?
Call us at 1-800-562-0032 or
[hearing-impaired 1-800-676-7876]
Write us at:
State Street Research
Service Center
P.O. Box 8408
Boston, MA 02266-8408 or
E-mail us at:
[email protected]
Internet site:
www.ssrfunds.com
[State Street Research logo]
This report is prepared for the general information of current shareholders.
When used 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, 1998, 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: (exp1199)SSR-LD AR-339E-1098
