STATE STREET RESEARCH CAPITAL TRUST, 497, 1998-02-05

STATE STREET RESEARCH CAPITAL TRUST
497, 1998-02-05

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STATE STREET RESEARCH
Capital Fund

An aggressive growth fund investing in a broad range of stocks.

Prospectus
February 1, 1998

This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.

Although these securities have been registered with the Securities and Exchange
Commission, the commission has not judged them for investment merit and does not
guarantee the accuracy or adequacy of the information in this prospectus. Anyone
who informs you otherwise is committing a federal crime.

[Graphic of Boston's Custom House]
<PAGE>

Who May Want to Invest

State Street Research Capital Fund is designed for investors who seek one or
more of the following:

[bullet] an aggressive stock fund for a long-term goal
[bullet] a fund to complement a portfolio of more conservative investments
[bullet] a fund with the flexibility to emphasize different sizes of
companies during different markets

The fund is NOT appropriate for investors who:

[bullet] want to avoid high volatility or possible losses
[bullet] are making short-term investments
[bullet] are investing emergency reserve money
[bullet] are seeking regular income

The fund's shares will rise and fall in value. There is a risk that you could
lose money by investing in the fund.

The fund cannot be certain that it will achieve its goal.

Fund shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government entity or the FDIC.

<PAGE>

Contents 1

2 Capital Fund
The fund's goal and strategy, main risks, expenses and
performance, plus financial highlights

12 Your Account
Managing your State Street Research investments

12 Opening an Account
12 Choosing a Share Class
14 Sales Charges
16 Policies for Buying Shares
18 Policies for Selling Shares
20 Account Policies
21 Distributions and Taxes
23 Investor Services

24 Fund Details
The fund's business structure and dealer compensation, plus
additional policies

26 Other Securities and Risks
Information on additional portfolio securities and practices,
and the risks associated with them

Back Cover For Additional Information

<PAGE>

2 Capital Fund

[Chesspiece Graphic] Goal and Strategy

Fundamental Goal The fund seeks to provide maximum capital appreciation by
investing primarily in common and preferred stocks and convertible debt
securities of emerging growth companies and companies considered to be
undervalued special situations, as determined by the fund's investment manager.

Strategy Under normal market conditions, the fund invests at least 65% of total
assets in stocks and other securities as described above.

In selecting stocks, the fund combines elements of growth investing and value
investing, focusing its attention on companies of any size that appear to fall
into one or both of the following categories:

[bullet] less mature companies with the potential for rapid growth

[bullet] companies whose unusual circumstances have not been fully recognized
by the market

The fund uses research to identify potential investments, examining such
features as a firm's financial condition, business prospects, competitive
position and business strategy. The fund looks for companies that have good
current or prospective earnings, attractive valuations and strong management
teams. At different times, the fund may emphasize a particular size or type of
company.

<PAGE>

The fund reserves the right to invest up to 35% of total assets in other
securities. These may include other types of stocks, such as those of more
mature companies or so-called blue-chip companies. They may also include U.S.
government securities, as well as bonds rated investment-grade at the time of
purchase and their unrated equivalents.

The fund may adjust the composition of its portfolio as market conditions and
economic outlooks change. For more information about the fund's investments and
practices, see page 26.

[sidebar text]

[Magnifying Glass Graphic] Emerging Growth and Special Situation Companies

Over the long term, emerging growth stocks have generally offered greater risks
and greater rewards than the stock market as a whole.

During good economic periods, these companies have the potential to grow more
quickly than others because they are typically in growing industries and may
have innovative products or services and strong, entrepreneurial leaders. In
poor or uncertain economic periods, however, emerging growth stocks may tumble
as investors abandon them in search of companies with the resources and the
broad business lines to weather hard times.

Special situations are companies whose current status is strongly influenced by
events outside the normal course of business, such as a potential corporate
restructuring or a strategic business alliance. Stocks of these companies often
trade at what appears to be less than their true worth. The fund emphasizes
special situation stocks on the theory that they may be positioned to rise in
value in the near future as investors come to recognize that the company's
situation is improving.

[end of sidebar text]

<PAGE>
4 Capital Fund continued

[Traffic Sign Graphic] Portfolio Risks

Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.

Emerging growth stocks can be particularly sensitive to market movements,
because they may be thinly traded and their market prices tend to reflect future
expectations. With special situation stocks, the main risk is that they may not
achieve their expected value because events do not materialize as anticipated.
During times of high volatility, the fund may have difficulty finding buyers for
portfolio securities.

Because of these and other risks, the fund may underperform certain other stock
funds (such as index funds or those emphasizing dividend stocks) during periods
when emerging growth or special situation stocks are out of favor. The success
of the fund's investment strategy depends largely on the investment manager's
skill in assessing the potential of the stocks it buys.

The fund's management approach, which may include short-term trading, could
cause the fund's portfolio turnover rate to be above-average for a stock fund.
High turnover will increase the fund's brokerage costs and may increase your tax
liability.

Information on other securities and risks appears on page 26.

[Thinker Graphic] Investment Management

The fund's investment manager is State Street Research & Management Company. The
firm traces its heritage back to 1924 and the founding of one of America's first
mutual funds. Today the firm has more than $47 billion in assets under
management (as of December 31, 1997), including more than $14 billion in mutual
funds.

Richard J. Jodka has been responsible for the fund's day-to-day portfolio
management since February 1998. A senior vice president, he joined the firm in
1998 and has worked as an investment professional since 1968.

<PAGE>

Investor Expenses 5

Shareholder fees are paid directly by investors.

<TABLE>
<CAPTION>
Class descriptions begin on page 12
------------------------------------------------------
Shareholder Fees (% of offering price)(1) Class A Class B Class C(2) Class S(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum front-end sales charge 4.50 0.00 0.00 0.00
Maximum deferred sales charge 0.00(3) 5.00 1.00 0.00

Annual fund expenses are deducted from fund assets.

Annual Fund Expenses (% of average net assets) Class A Class B Class C Class S
- ----------------------------------------------------------------------------------------------------------
Management fee 0.75 0.75 0.75 0.75
Marketing/service (12b-1) fees(4) 0.25 1.00 1.00 0.00
Other expenses 0.23 0.23 0.23 0.23
---- ---- ---- ----
Total annual fund expenses 1.23 1.98 1.98 0.98
==== ==== ==== ====

Example Here is what you would pay if you invested $1,000 over the years
indicated. The example is for comparison only and does not represent the fund's
actual expenses, either past or future(5).

Year Class A Class B(6) Class C(6) Class S
- ----------------------------------------------------------------------------------------------------------
1 $57 $70/$20 $30/$20 $10
3 $82 $92/$62 $62/$62 $31
5 $110 $127/$107 $107/$107 $54
10 $187 $211/$211 $231/$231 $120
</TABLE>

(1) Not charged on reinvestments or exchanges.

(2) Before November 1, 1997, Class C shares were designated Class D and Class S
shares were designated Class C.

(3) Except for investments of $1 million or more; see page 14.

(4) For share classes that have 12b-1 fees, long-term shareholders may pay more
than the equivalent of the regulatory maximum sales charge.

(5) Example assumes dividend reinvestment, hypothetical 5% annual return,
maximum applicable sales charges and conversion of Class B shares to
Class A after eight years.

(6) The first number assumes you sold all your shares at the end of the period,
the second assumes you stayed in the fund.

<PAGE>

6 Financial Highlights

The information in these tables has been audited by Coopers & Lybrand L.L.P.,
the fund's independent accountants. The top section of each table shows
information for a single share of the fund. Total return figures assume
reinvestment of all distributions.

<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------------------
Class A 1993(1) 1994 1995(2) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.03 10.43 9.92 13.53 13.76
------ ------ ------ ------ ------
Net investment loss ($) (0.03) (0.04) (0.04) (0.05) (0.08)
Net realized and unrealized
gain on investments ($) 2.43 0.28 3.69 1.30 1.06
------ ------ ------ ------ ------
Total from investment operations ($) 2.40 0.24 3.65 1.25 0.98
------ ------ ------ ------ ------
Distributions from capital gains ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Total distributions ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Net asset value, end of year ($) 10.43 9.92 13.53 13.76 14.74
====== ====== ====== ====== ======
Total return (%)(3) 24.61(4) 2.51 36.95 10.12 7.12

Ratios/supplemental data:
Net assets at end of year ($ thousands) 7,251 19,891 55,250 114,247 470,977
Expense ratio (%) 2.43(5) 1.41 1.33 1.26 1.21
Ratio of net investment loss
to average net assets (%) (1.43)(5) (0.55) (0.34) (0.39) (0.60)
Portfolio turnover rate (%) 129.57 167.08 214.59 215.07 230.66
Average commission rate ($)(6) n/a n/a n/a 0.0278 0.0337
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------------------
Class B 1993(1) 1994 1995(2) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.68 10.40 9.82 13.29 13.40
------ ------ ------ ------ ------
Net investment loss ($) (0.04) (0.08) (0.12) (0.14) (0.17)
Net realized and unrealized
gain on investments ($) 1.76 0.25 3.63 1.27 1.01
------ ------ ------ ------ ------
Total from investment operations ($) 1.72 0.17 3.51 1.13 0.84
------ ------ ------ ------ ------
Distributions from capital gains ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Total distributions ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Net asset value, end of year ($) 10.40 9.82 13.29 13.40 14.24
====== ====== ====== ====== ======
Total return (%)(3) 19.82(4) 1.79 35.90 9.33 6.27

Ratios/supplemental data:
Net assets at end of year ($ thousands) 16,044 73,354 203,446 386,899 562,392
Expense ratio (%) 3.16(5) 2.16 2.08 2.01 1.98
Ratio of net investment loss
to average net assets (%) (2.15)(5) (1.28) (1.10) (1.13) (1.32)
Portfolio turnover rate (%) 129.57 167.08 214.59 215.07 230.66
Average commission rate ($)(6) n/a n/a n/a 0.0278 0.0337
</TABLE>

(1) Commencement of share class designations (February 17, 1993 for Class A,
March 15, 1993 for Class B) to September 30, 1993.

(2) Per-share figures have been calculated using the average shares method.

(3) Does not reflect any front-end or contingent deferred sales charges.

(4) Not annualized.

(5) Annualized.

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

<PAGE>

8 Financial Highlights continued

<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------------------
Class C (formerly Class D) 1993(1) 1994 1995(2) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.68 10.39 9.83 13.31 13.42
------ ------ ------ ------ ------
Net investment loss ($) (0.04) (0.09) (0.12) (0.14) (0.17)
Net realized and unrealized
gain on investments ($) 1.75 0.28 3.64 1.27 1.01
------ ------ ------ ------ ------
Total from investment operations ($) 1.71 0.19 3.52 1.13 0.84
------ ------ ------ ------ ------
Distributions from capital gains ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Total distributions ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Net asset value, end of year ($) 10.39 9.83 13.31 13.42 14.26
====== ====== ====== ====== ======
Total return (%)(3) 19.70(4) 2.00 36.07 9.23 6.26

Ratios/supplemental data:
Net assets at end of year ($ thousands) 5,011 37,783 95,797 190,319 120,051
Expense ratio (%) 3.16(5) 2.16 2.08 2.01 1.98
Ratio of net investment loss
to average net assets (%) (2.16)(5) (1.28) (1.09) (1.13) (1.30)
Portfolio turnover rate (%) 129.57 167.08 214.59 215.07 230.66
Average commission rate ($)(6) n/a n/a n/a 0.0278 0.0337
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Years ended September 30
-------------------------------------------------------------------------------------------
Class S (formerly Class C) 1988 1989 1990 1991 1992 1993 1994 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.99 5.00 6.72 5.03 7.74 7.96 10.46 9.99 13.66 13.94
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment loss ($) (0.01) (0.01) (0.03) (0.08) (0.06) (0.06) (0.03) (0.01) (0.01) (0.05)
Net realized and unrealized
gain (loss) on investments ($) (1.80) 1.73 (1.31) 2.79 0.63 3.90 0.31 3.72 1.31 1.07
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations ($) (1.81) 1.72 (1.34) 2.71 0.57 3.84 0.28 3.71 1.30 1.02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions from capital gains ($) (2.18) -- (0.35) -- (0.35) (1.34) (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ($) (2.18) -- (0.35) -- (0.35) (1.34) (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year ($) 5.00 6.72 5.03 7.74 7.96 10.46 9.99 13.66 13.94 14.96
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (%)(3) (13.96) 33.93 (20.81) 53.88 7.34 55.46 2.91 37.30 10.41 7.32

Ratios/supplemental data:
Net assets at end of year ($ thousands) 7,422 9,479 7,440 10,939 11,654 18,342 23,967 47,553 34,835 189,778
Expense ratio (%) 1.98 1.98 1.93 1.88 1.54 2.11 1.16 1.08 1.01 0.96
Ratio of net investment loss
to average net assets (%) (0.17) (0.14) (0.54) (1.14) (0.86) (1.30) (0.32) (0.07) (0.08) (0.37)
Portfolio turnover rate (%) 272.09 242.88 259.27 219.62 124.94 129.57 167.08 214.59 215.07 230.66
Average commission rate ($)(6) n/a n/a n/a n/a n/a n/a n/a n/a 0.0278 0.0337
</TABLE>

(1) March 15, 1993 (commencement of share class designation) to September 30,
1993.

(2) Per-share figures have been calculated using the average shares method.

(3) Does not reflect any front-end or contingent deferred sales charges.

(4) Not annualized.

(5) Annualized.

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

<PAGE>

10 Performance and Volatility

As of September 30, 1997
----------------------------
Average Annual Total Return(1) 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------
Class A (%) 2.30 19.64 13.96
Class B (%) 1.27 19.80 14.13
Class C (%) 5.26 20.02 14.14
Class S (%) 7.32 21.08 14.65
S&P 500 Index (%) 40.43 20.75 14.73
Lipper Capital Appreciation Funds Index (%) 25.12 18.19 12.31

[TABULAR REPRESENTATION OF BAR CHART]

Class A Year-by-Year Total Return(1) Years ended September 30
- -----------------------------------------------------------------
1988 (13.96)
1989 33.93
1990 (20.81)
1991 53.88
1992 7.34
1993 55.02
1994 2.51
1995 36.95
1996 10.12
1997 7.12

[footnote text]

(1) Fund returns include performance from before the creation of share classes
in 1993. Because Classes A, B and C involve higher marketing fees (as
described on page 5), performance since that time is somewhat lower for
these classes.

[end of footnote text]

<PAGE>

[sidebar text]

[Magnifying Glass Graphic] Understanding Performance and Volatility

The information on the opposite page is designed to show two aspects of the
fund's track record:

[bullet] Average annual total return is a measure of the fund's performance over
time. It is determined by taking the fund's performance over a given
period and expressing it as an average annual rate. Average annual
total return includes the effects of fund expenses and maximum sales
charges for each class, and assumes that you sold your shares at the
end of the period.

[bullet] The graph of year-by-year returns shows how volatile the fund has been:
how much the difference has been, historically, between its best years
and worst years. In general, funds with higher average annual total
returns will also have higher volatility. The graph includes the
effects of fund expenses, but not sales charges.

Also included are two independent measures of performance. The S&P 500
(officially, the "Standard & Poor's 500 Composite Stock Price Index") is an
unmanaged index of 500 domestic stocks. The Lipper Capital Appreciation Funds
Index shows the performance of a category of mutual funds with similar goals.
The Lipper index shows you how well the fund has done compared to competing
funds.

While the fund does not seek to match the returns or the volatility of the S&P
500 index, this index is a good indicator of general stock market performance
and can be used as a rough guide when gauging the return of this and other
investments. When making comparisons, keep in mind that neither the S&P 500 nor
the Lipper index includes the effects of sales charges. Also, even if your stock
portfolio were identical to the S&P 500, your returns would always be lower,
because the S&P 500 doesn't include brokerage and administrative expenses.

[end of sidebar text]

<PAGE>

12 Your Account

[Key Graphic] Opening an Account

If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.

If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.

To open an account without the help of a financial professional, please use the
instructions on these pages.

[Checklist Graphic] Choosing a Share Class

The fund offers four share classes, each with its own sales charge and expense
structure.

If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you

[sidebar text, bottom of page]

Class A -- Front Load

[bullet] Initial sales charge of 4.5% or less; schedule on page 14

[bullet] Lower sales charges for larger investments; see sidebar on facing page
and sales charge schedule

[bullet] Lower annual expenses than Class B or C shares due to lower
marketing/service (12b-1) fee of 0.25%

Class B -- Back Load

[bullet] No initial sales charge

[bullet] Deferred sales charge of 5% or less on shares you sell within five
years; schedule on page 14

[bullet] Annual marketing/service (12b-1) fee

[bullet] Automatic conversion to Class A shares after eight years, reducing
future annual expenses

Class C(1) -- Level Load

[bullet] No initial sales charge

[bullet] Deferred sales charge of 1%, paid if you sell shares within one year of
purchase

[bullet] Lower deferred sales charge than Class B shares

[bullet] Annual marketing/service (12b-1) fee

[bullet] No conversion to Class A shares after eight years, so annual expenses
do not decrease

(1) Before November 1, 1997, these were designated Class D.

[end of sidebar text]

<PAGE>

may want to consider Class B shares (if investing for at least five years) or
Class C shares (if investing for less than five years). If you are investing
through a special program, such as a large employer-sponsored retirement plan or
certain programs available through brokers, you may be eligible to purchase
Class S shares.

Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.

[sidebar text, bottom of page]

Class S(2) -- No Load

[bullet] No sales charges of any kind

[bullet] No marketing/service (12b-1) fees; annual expenses are lower than other
share classes

[bullet] Available through certain retirement accounts, advisory accounts of the
investment manager and special programs, including broker programs with
record-keeping and other services; these programs usually involve
special conditions and separate fees (contact your financial
professional for information)

(2) Before November 1, 1997, these were designated Class C.

[end of sidebar text, bottom of page]

[sidebar text]

[Magnifying Glass Graphic] Class A Sales Charge Reductions and Waivers

[bullet] Substantial investments receive lower sales charge rates; see
information on the following page.

[bullet] The "right of accumulation" allows you to include your existing State
Street Research investments (except Money Market Fund Class E shares)
as part of your current investment for sales charge purposes.

[bullet] A "letter of intent" allows you to count all investments in this or
other State Street Research funds over the next 13 months as if you
were making them all at once, for purposes of calculating sales
charges.

To take advantage of right of accumulation or letter of intent waivers,
consult your financial professional or State Street Research.

[end of sidebar text]

<PAGE>

14 Your Account continued

Sales Charges

Class A -- Front Load

when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- --------------------------------------------------------------
Up to $99,999 4.50 4.71
$100,000 - $249,999 3.50 3.63
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00 2.04
$1 million or more see next column

With Class A shares, you pay a sales charge only when you buy shares.

If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the previous page), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) if you sell any shares you have held for less than one
year. Policies regarding the calculation of the CDSC are the same as for Class
B.

Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (contact your financial
professional for information).

Class B -- Back Load

this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- -------------------------------------------------------------------
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year or later None

With Class B shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less, as described in the table above. Any shares
acquired through reinvestment are not subject to the CDSC. There is no CDSC on
exchanges into other State Street Research funds, and the

<PAGE>

date of your initial investment will continue to be used as the basis for CDSC
calculations when you exchange. To ensure that you pay the lowest CDSC possible,
the fund will always use the shares with the lowest CDSC to fill your sell
requests.

The CDSC is waived on shares sold for mandatory retirement distributions or
because of disability or death. Consult your financial professional or the State
Street Research Service Center.

Class B shares automatically convert to Class A shares after eight years,
lowering your annual expenses from that time on.

Class C (Formerly Class D) -- Level Load

With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. Policies
regarding the calculation of the CDSC are the same as for Class B.

Class C shares currently have the same annual expenses as Class B shares, but
never convert to Class A shares (with their lower annual expenses).

Class S (Formerly Class C) -- No Load

Class S shares have no sales charges or CDSC.

<PAGE>

16 Your Account continued

[Cash Register Graphic] Policies for Buying Shares

Once you have chosen a share class, the next step is to determine the amount you
want to invest.

Minimum Initial Investments:

[bullet] $1,000 for accounts that use the Investamatic program

[bullet] $2,000 for Individual Retirement Accounts

[bullet] $2,500 for all other accounts

Minimum Additional Investments:

[bullet] $50 for any account

Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.

Timing of Requests All requests received by State Street Research before 4:00
p.m. eastern time will be executed the same day, at that day's closing share
price. Orders received after 4:00 p.m. will be executed the following day, at
that day's closing share price.

Wire Transactions Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. To make a same-day wire investment, please notify State Street Research by
12:00 noon of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. Your bank may charge a fee for wiring money.

<PAGE>

Buying Shares 17
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[Graphic of Briefcase] Through a Contact your financial professional. Contact your financial professional.
Financial Professional

By Mail [Graphic of Mailbox] Make your check payable to "State Fill out the investment stub from an account
Street Research Funds." Forward the statement, or indicate the fund name and
check and your application to State account number on your check. Make your check
Street Research. payable to "State Street Research Funds."
Forward the check and stub to State Street
Research.

[Graphic of Federal Building] By Forward your application to State Call State Street Research to obtain a control
Federal Funds Wire Street Research, then call to obtain number. Instruct your bank to wire funds to:
an account number. Wire funds using [bullet] State Street Bank and Trust Company,
the instructions at right. Boston, MA
[bullet] ABA: 011000028
[bullet] BNF: fund name and share class you want
to buy
[bullet] AC: 99029761
[bullet] OBI: your name and your account number
[bullet] Control: the number given to you by
State Street Research

By Electronic Funds Transfer Verify that your bank is a member of the Call State Street Research to verify that the
(ACH) [Graphic of Electrical Plug] ACH (Automated Clearing House) system. necessary bank information is on file for your
Forward your application to State Street account. If it is, you may request a transfer
Research. Please be sure to include the with the same phone call. If not, please ask
appropriate bank information. Call State State Street Research to provide you with an EZ
Street Research to request a purchase. Trader application.

[Graphic of Calendar] By Forward your application, with all Call State Street Research to verify that
Investamatic appropriate sections completed, to State Investamatic is in place on your account, or to
Street Research, along with a check for request a form to add it. Investments are
your initial investment payable to "State automatic once Investamatic is in place.
Street Research Funds."

By Exchange [Graphic of Exchange] Call State Street Research or visit our Call State Street Research or visit our website.
website.

</TABLE>
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)

Internet www.ssrfunds.com

<PAGE>

18 Your Account continued

[Graphic of Receipt] Policies for Selling Shares

Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:

[bullet] you are selling more than $50,000 worth of shares

[bullet] the name or address on the account has changed within the last 30 days

[bullet] you want the proceeds to go to a name or address not on the account
registration

[bullet] you are transferring shares to an account with a different registration
or share class

[bullet] you are selling shares held in a corporate or fiduciary account; for
these accounts, additional documents are required:

corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing
document

To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.

Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.

Timing of Requests All requests received in good order by State Street Research
before 4:00 p.m. eastern time will be executed the same day, at that day's
closing share price. Requests received after 4:00 p.m. will be executed the
following day, at that day's closing share price.

Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.

Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.

<PAGE>
Selling Shares 19
<TABLE>
<CAPTION>
To Sell Some or All of Your Shares
<S> <C>
[Graphic of Briefcase] Through a Contact your financial professional.
Financial Professional

By Mail [Graphic of Mailbox] Send a letter of instruction, an endorsed stock power or share certificates (if
you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature guarantees
if required (see facing page).

[Graphic of Federal Building] By Check with State Street Research to make sure that wire redemption privileges are
Federal Funds Wire in place on your account. Once these privileges are established, you may place your
request to sell shares with State Street Research. Proceeds will be wired to your
pre-designated bank account. (See "Wire Transactions" on facing page.)

By Electronic Funds Transfer Check with State Street Research to make sure that the EZ Trader feature and a bank
(ACH) [Graphic of Electrical Plug] designation is in place on your account. Once one of these is established, you may
place your request to sell shares with State Street Research. Proceeds will be wired
to your pre-designated bank account.

[Graphic of Telephone] By Telephone As long as your request does not require a written request (see facing page),
you can sell shares by calling State Street Research. A check will be mailed to
you on the following business day.

By Exchange [Graphic of Exchange] Read the prospectus for the fund into which you are exchanging. Call State Street
Research or visit our website.

[Graphic of Calendar] By Systematic See plan information on page 23.
Withdrawal Plan
</TABLE>

State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)

Internet www.ssrfunds.com
<PAGE>

20 Your Account continued

[Graphic of Pages] Account Policies

The Fund's Business Hours

The fund is open the same days as the New York Stock Exchange (generally Monday
through Friday). Fund representatives are available from 8:00 a.m. to 6:00 p.m.
eastern time on these days.

Calculating Share Price The fund calculates its net asset value per share (NAV)
every business day at the close of regular trading on the New York Stock
Exchange (usually at 4:00 p.m. eastern time). Each class's share price is
calculated by dividing its net assets by the number of its shares outstanding.

Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests on your account by telephone. Your
broker can also use these privileges to request exchanges on your account. For
your protection, all telephone calls are recorded.

As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.

Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class as your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.

Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's

<PAGE>

exchange privilege and may refuse to accept any exchange request, particularly
those associated with "market timing" strategies.

For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.

Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or may deduct an annual maintenance fee (currently $18).

Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.

[Graphic of Uncle Sam] Distributions and Taxes

Income and Capital Gains Distributions The fund typically distributes any net
income and net capital gains to shareholders around the end of the fund's fiscal
year, which is September 30. To comply with tax regulations, the fund may also
pay an additional gains distribution in December.

You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.

<PAGE>

22 Your Account continued

[sidebar text]

[Magnifying Glass Graphic] Tax Considerations

Unless your investment is in a tax-deferred account, you may want to avoid:

[bullet] investing a large amount in the fund close to the end of its fiscal
year (if the fund makes a capital gains distribution, you will receive
some of your investment back as a taxable distribution)

[bullet] selling shares at a loss for tax purposes and investing in a
substantially identical investment within 30 days before or after that
sale (such a transaction is usually considered a "wash sale," and you
will not be allowed to claim a tax loss)

[end of sidebar text]

Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gain distributions you receive from the fund are taxable as
ordinary income. Distributions of other net capital gains are generally taxable
as capital gains. This is true no matter how long you have owned your shares and
whether you reinvest your distributions or take them in cash.

Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.

The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.

Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.

Backup Withholding By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.

<PAGE>

[Interlocked Hands Graphic] Investor Services

Investamatic Program Use Investamatic to set up regular automatic investments in
the fund from your bank account. You determine the frequency and amount of your
investments, and you can skip an investment with three days notice. Not
available with Class S shares.

Systematic Withdrawal Program This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 8% of your fund assets a year without incurring any
contingent deferred sales charges. Certain terms and minimums apply.

Dividend Allocation Plan This plan automatically invests your distributions from
the fund into another fund of your choice, without any fees or sales charges.

Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Program payments directly to your bank account.

State Street Research also offers a full range of prototype retirement plans for
individuals, sole proprietors, partnerships, corporations and employees. Call
1-800-562-0032 for information on retirement plans or any of the services
described above.

<PAGE>

24 Fund Details

[Graphic of Column] Business Structure

First registered with the SEC in 1984, the fund is a diversified series of State
Street Research Capital Trust, an open-end management investment company that is
organized as a Massachusetts business trust. A board of trustees representing
shareholder interests oversees the fund's operations, including the hiring of
the investment manager and other service providers.

The fund does not hold regular shareholder meetings, but may call meetings when
matters arise that require shareholder approval. These may include amendments to
the investment management agreement, the election of trustees or proposed
changes in the fund's fundamental goal, which cannot be changed without
shareholder approval.

The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.75% of fund assets, annually) as
compensation. The investment manager and the distributor are subsidiaries of
Metropolitan Life Insurance Company.

Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.

Investment Manager
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

Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110

<PAGE>

[Graphic of a Check] Dealer Compensation

Dealers who sell shares of the fund and perform services for fund investors
receive sales commissions and annual fees. These are paid by the fund's
distributor, using money from sales charges, marketing/service (12b-1) fees and
its other resources.

Maximum Dealer Compensation Class A Class B Class C Class S
- ------------------------------------------------------------------------------
Initial commission (%) -- 4.00 1.00 0.00
Investments up to $100,000 (%) 4.00 -- -- --
$100,000 - $249,999 (%) 3.00 -- -- --
$250,000 - $499,999 (%) 2.00 -- -- --
$500,000 - $999,999 (%) 1.75 -- -- --
First $1-3 million (%) 1.00(1) -- -- --
Next $2 million (%) 0.50(1) -- -- --
Next $1 and above (%) 0.25(1) -- -- --
Annual fee (%) 0.25 0.25 0.90 0.00

Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:

[bullet] The fund may vary its initial or additional investments in the case of
exchanges, reinvestments, periodic investment plans, retirement and
employee benefit plans, sponsored arrangements and other similar
programs.

[bullet] All orders to purchase shares are subject to acceptance by the fund.

[bullet] At any time, the fund may change or discontinue its sales charge
waivers and any of its order acceptance practices, and may suspend the
sale of its shares.

[bullet] To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to the State Street Research
Service Center promptly.

[bullet] Dealers may impose a transaction fee on the purchase or sale of shares
by shareholders.

[bullet] The distributor may pay its affiliate MetLife Securities, Inc.
additional compensation of up to 0.25% of certain sales or assets.

(1) If your broker declines this commission, the one-year CDSC on your
investment is waived.

<PAGE>

26 Other Securities and Risks

[Graphic of Securities Certificates] Other Securities and Risks

Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 2. Below are brief
descriptions of other securities and practices, along with their associated
risks. A table of limitations follows.

RESTRICTED AND ILLIQUID SECURITIES Any securities that are thinly traded or
whose resale is restricted can be difficult to sell at a desired time and price.
Some of these securities are new and complex, and trade only among institutions;
the markets for these securities are still developing, and may not function as
efficiently as established markets. Owning a large percentage of restricted and
illiquid securities could hamper the fund's ability to raise cash to meet
redemptions. Also, because there may not be an established market price for
these securities, the fund may have to estimate their value, which means that
their valuation (and, to a much smaller extent, the valuation of the fund) may
have a subjective element.

FOREIGN INVESTMENTS Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable information, and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. The fund may use foreign
currencies and related instruments to hedge its foreign investments.

<PAGE>

DERIVATIVES Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security or an index. The
fund may use derivatives for hedging (attempting to offset a potential loss in
one position by establishing an interest in an opposite position). The fund may
also use derivatives for speculation (investing for potential income or capital
gain).

While hedging can guard against potential risks, it adds to the fund's expenses
and can eliminate some opportunities for gains. There is also a risk that a
derivative intended as a hedge may not perform as expected.

The main risk with derivatives is that some types can amplify a gain or loss,
potentially earning or losing substantially more money than the actual cost of
the derivative.

With all derivatives, whether used for hedging or speculation, there is also the
risk that the counterparty may fail to honor its contract terms, causing a loss
for the fund.

SECURITIES LENDING The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting collateral it receives in
these transactions, the fund could magnify any gain or loss it realizes on the
underlying investment. If the borrower fails to return the securities and the
collateral is insufficient to cover the loss, the fund could lose money.

WHEN-ISSUED SECURITIES The fund may invest in securities prior to their date of
issue. These securities could fall in value by the time they are actually
issued, which may be any time from a few days to over a year.

REPURCHASE AGREEMENTS The fund may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the seller is
unable to honor its commitment to repurchase the securities, the fund could lose
money.

DEFENSIVE INVESTING During unusual market conditions, the fund may place up to
100% of total assets in cash or quality short-term debt securities.

<PAGE>

28 Other Securities and Risks continued

Investment Limitations

<TABLE>
<CAPTION>
Limitation at the time of investment
-------------------------------------
Practice % of total assets % of net assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investing in securities of any given issuer (other than the
U.S. government and its agencies)(1) 5(2) --
Investing in any given industry(1) 25 --
Lending securities 33 1/3 --
Lending money(1) Prohibited --
Repurchase agreements 30 --

Security
- ------------------------------------------------------------------------------------------------
Commodity futures contracts and options contracts
(for non-hedging purposes) -- 5(3)
Other options contracts (for non-hedging purposes) -- 5(3)
Swap arrangements -- 5
Illiquid securities -- 15(4)
Restricted securities 10(5) --
Foreign securities 35(6) --
</TABLE>

(1) Fundamental policy; may not be changed without shareholder approval.

(2) The fund is also prohibited from investing in more than 10% of any class
of an issuer's securities.

(3) Initial margin deposits plus premiums may not exceed 5% of the market value
of the fund's net assets in non-hedging transactions. No limits apply when
used in hedging strategies.

(4) Includes repurchase agreements extending over more than seven days.

(5) Does not include Rule 144A securities.

(6) Applies to all direct and indirect interests in securities of non-U.S.
issuers.

<PAGE>

Notes 29

<PAGE>

For Additional Information

You can obtain a free copy of the current annual/semiannual report or SAI
by contacting:

[State Street Research Logo]
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com

Or you can visit the SEC website at:
www.sec.gov

You can find additional information on the fund's structure and its performance
in the following documents:

Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.

Statement of Additional Information (SAI) A supplement to the prospectus, the
SAI contains further information about the fund and its investment limitations
and policies. It also includes the most recent annual report and the independent
accountants' report. A current SAI for this fund is on file with the Securities
and Exchange Commission and is incorporated by reference (is legally part of
this prospectus).

Control Number: 4553-980130(0299)SSR-LD

prospectus
CF-869E-298IBS

<PAGE>

STATE STREET RESEARCH
Emerging Growth Fund

An aggressive growth fund focusing on small emerging growth companies.

Prospectus
February 1, 1998

This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.

[Graphic of Boston's Custom House]

<PAGE>

Who May Want to Invest

State Street Research Emerging Growth Fund is designed for investors who seek
one or more of the following:

[bullet] an aggressive stock fund for a long-term goal
[bullet] a fund to complement a portfolio of more conservative investments
[bullet] a small company fund that emphasizes growth stocks over value stocks

The fund is NOT appropriate for investors who:

[bullet] want to avoid high volatility or possible losses
[bullet] are making short-term investments
[bullet] are investing emergency reserve money
[bullet] are seeking regular income

The fund's shares will rise and fall in value. There is a risk that you could
lose money by investing in the fund.

The fund cannot be certain that it will achieve its goal.

Fund shares are not bank deposits and are not guaranteed, endorsed or insured by
any financial institution, government entity or the FDIC.

<PAGE>

Contents 1

2 Emerging Growth Fund
The fund's goal and strategy, main risks, expenses and
performance, plus financial highlights

12 Your Account
Managing your State Street Research investments

12 Opening an Account
12 Choosing a Share Class
14 Sales Charges
16 Policies for Buying Shares
18 Policies for Selling Shares
20 Account Policies
21 Distributions and Taxes
23 Investor Services

24 Fund Details
The fund's business structure and dealer compensation, plus
additional policies

26 Other Securities and Risks
Information on additional portfolio securities and practices,
and the risks associated with them

Back Cover For Additional Information

<PAGE>

2 Emerging Growth Fund

[Chesspiece Graphic] Goal and Strategy

Fundamental Goal The fund seeks to provide growth of capital.

Strategy Under normal market conditions, the fund invests at least 65% of total
assets in emerging growth companies, with emphasis on small size companies.

The fund defines emerging growth companies as those that are less mature and
appear to have the potential for rapid growth. While the fund may invest in
emerging growth companies of any size, the fund generally expects to invest in
companies which are small at the time it first invests in them -- that is, not
larger than the stocks of the largest companies in the Russell 2000 Growth
Index. The fund's stock investments may include common and preferred stocks,
convertible securities and warrants.

In selecting stocks, the fund favors entrepreneurial companies that appear to be
reasonably valued. The fund uses research to identify attractive companies,
examining such features as a firm's financial condition, business prospects,
competitive position and business strategy. The fund looks for companies that
have good current or prospective earnings and strong management teams.

<PAGE>

The fund reserves the right to invest up to 35% of total assets in other
securities. These may include other types of stocks, such as value or dividend
stocks. They may also include bonds rated investment-grade at the time of
purchase and their unrated equivalents, as well as U.S. government securities.

The fund may adjust the composition of its portfolio as market conditions and
economic outlooks change. For more information about the fund's investments and
practices, see page 26.

[sidebar text]

[Magnifying Glass Graphic] Small Emerging Growth Companies

Over the long term, small emerging growth stocks have generally offered greater
risks and greater rewards than the stock market as a whole.

During good economic periods, these companies have the potential to grow more
quickly than others because they can be more nimble and focused and are
typically in growing industries. Small emerging growth companies often generate
enthusiasm among investors for their innovative products or services and strong,
entrepreneurial leaders. Because they are aiming for maximum growth, most of
these companies reinvest their earnings rather than pay dividends.

Poor or uncertain economic periods may cause the performance of small emerging
growth companies to reverse direction. These companies usually lack the
resources and the broad business lines to weather hard times, and their stock
prices may tumble as investors abandon them in search of less volatile
investments. Small emerging growth companies can also be more vulnerable to
business setbacks than larger companies.

[end of sidebar text]

<PAGE>

4 Emerging Growth Fund continued

[Traffic Sign Graphic] Portfolio Risks

Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.

Emerging growth stocks of any size often have an above-average sensitivity to
market movements because their market prices tend to reflect future
expectations. Small company stocks can be particularly sensitive, because they
may be thinly traded and can be subject to rapid changes in investor sentiment.
During times of high volatility, the fund may have difficulty finding buyers for
portfolio securities.

Because of these and other risks, the fund may underperform certain other stock
funds (those emphasizing value stocks or large company stocks, for example)
during periods when small company stocks or emerging growth stocks in general
are out of favor. The success of the fund's investment strategy depends largely
on the investment manager's skill in assessing the potential of the stocks it
buys.

Information on other securities and risks appears on page 26.

A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).

[Thinker Graphic] Investment Management

Jesus A. Cabrera has been responsible for the fund's day-to-day portfolio
management since August 1997, and also managed the fund in 1996 from August
through November. A vice president, he joined the firm in 1996 and has worked as
an investment professional since 1985.

<PAGE>

Investor Expenses 5

Shareholder fees are paid directly by investors.

<TABLE>
<CAPTION>
Class descriptions begin on page 12
-----------------------------------------------------------
Shareholder Fees (% of offering price)(1) Class A Class B Class C(2) Class S(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum front-end sales charge 4.50 0.00 0.00 0.00
Maximum deferred sales charge 0.00(3) 5.00 1.00 0.00

Annual fund expenses are deducted from fund assets.

Annual Fund Expenses (% of average net assets) Class A Class B Class C Class S
- ---------------------------------------------------------------------------------------------------------------------------
Management fee 0.75 0.75 0.75 0.75
Marketing/service (12b-1) fees(4) 0.25 1.00 1.00 0.00
Other expenses, after voluntary reduction(5) 0.35 0.35 0.35 0.35
---- ---- ---- ----
Total annual fund expenses, after voluntary reduction(5) 1.35 2.10 2.10 1.10
==== ==== ==== ====

Example Here is what you would pay if you invested $1,000 over the years
indicated. The example is for comparison only and does not represent the fund's
actual expenses, either past or future(6).

Year Class A Class B(7) Class C(7) Class S
- ---------------------------------------------------------------------------------------------------------------------------
1 $58 $71/$21 $31/$21 $11
3 $86 $96/$66 $66/$66 $35
5 $116 $133/$113 $113/$113 $61
10 $200 $224/$224 $243/$243 $134
</TABLE>

(1) Not charged on reinvestments or exchanges.

(2) Before November 1, 1997, Class C shares were designated Class D and Class S
shares were designated Class C.

(3) Except for investments of $1 million or more; see page 14.

(4) For share classes that have 12b-1 fees, long-term shareholders may pay more
than the equivalent of the regulatory maximum sales charge.

(5) Without reduction, other expenses would have been 0.65%, 0.65%, 0.65% and
0.66%, and total expenses would have been 1.65%, 2.40%, 2.40% and 1.41% for
Class A, B, C and S, respectively. If the subsidy is reduced or eliminated,
which could happen at any time, performance would be reduced accordingly.

(6) Example assumes dividend reinvestment, hypothetical 5% annual return,
maximum applicable sales charges and conversion of Class B shares to Class A
after eight years.

(7) The first number assumes you sold all your shares at the end of the period,
the second assumes you stayed in the fund.

<PAGE>

6 Financial Highlights

<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------
Class A 1994(1) 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.45 8.56 9.69 11.33
------ ------ ------ ------
Net investment loss ($)* (0.02) (0.08) (0.09) (0.08)
Net realized and unrealized
gain (loss) on investments ($) (0.87) 1.21 1.73 5.13
------ ------ ------ ------
Total from investment operations ($) (0.89) 1.13 1.64 5.05
------ ------ ------ ------
Distributions from capital gains ($) -- -- -- (0.85)
------ ------ ------ ------
Total distributions ($) -- -- -- (0.85)
------ ------ ------ ------
Net asset value, end of year ($) 8.56 9.69 11.33 15.53
====== ====== ====== ======
Total return (%)(3) (9.42)(4) 13.20 16.92 48.00

Ratios/supplemental data:
Net assets at end of year ($ thousands) 21,986 21,480 19,791 34,446
Expense ratio (%)* 1.35(5) 1.35 1.35 1.35
Ratio of net investment loss
to average net assets (%)* (0.58)(5) (0.93) (0.96) (0.64)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33
Average commission rate ($)(6) n/a n/a 0.0159 0.0201
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.02 0.06 0.04 0.04
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------
Class B 1994(1) 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.45 8.52 9.58 11.11
------ ------ ------ ------
Net investment loss ($)* (0.06) (0.14) (0.17) (0.16)
Net realized and unrealized
gain (loss) on investments ($) (0.87) 1.20 1.70 4.99
------ ------ ------ ------
Total from investment operations ($) (0.93) 1.06 1.53 4.83
------ ------ ------ ------
Distributions from capital gains ($) -- -- -- (0.85)
------ ------ ------ ------
Total distributions ($) -- -- -- (0.85)
------ ------ ------ ------
Net asset value, end of year ($) 8.52 9.58 11.11 15.09
====== ====== ====== ======
Total return (%)(3) (9.84)(4) 12.44 15.97 46.91

Ratios/supplemental data:
Net assets at end of year ($ thousands) 29,287 26,489 23,656 40,512
Expense ratio (%)* 2.10(5) 2.10 2.10 2.10
Ratio of net investment loss
to average net assets (%)* (1.32)(5) (1.67) (1.71) (1.40)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33
Average commission rate ($)(6) n/a n/a 0.0159 0.0201
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.02 0.06 0.04 0.03
</TABLE>

(1) February 1, 1994 (commencement of share class designations) to September
30, 1994.

(2) Per-share figures have been calculated using the average shares method.

(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 assumed a portion of the fund's expenses.

(4) Not annualized.

(5) Annualized.

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

<PAGE>

8 Financial Highlights continued

<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------
Class C (formerly Class D) 1994(1) 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.45 8.52 9.58 11.10
------ ------ ------ ------
Net investment loss ($)* (0.06) (0.14) (0.16) (0.16)
Net realized and unrealized
gain (loss) on investments ($) (0.87) 1.20 1.68 5.01
------ ------ ------ ------
Total from investment operations ($) (0.93) 1.06 1.52 4.85
------ ------ ------ ------
Distributions from capital gains ($) -- -- -- (0.85)
------ ------ ------ ------
Total distributions ($) -- -- -- (0.85)
------ ------ ------ ------
Net asset value, end of year ($) 8.52 9.58 11.10 15.10
====== ====== ====== ======
Total return (%)(3) (9.84)(4) 12.44 15.87 47.15

Ratios/supplemental data:
Net assets at end of year ($ thousands) 10,032 7,391 4,503 7,460
Expense ratio (%)* 2.10(5) 2.10 2.10 2.10
Ratio of net investment loss
to average net assets (%)* (1.32)(5) (1.67) (1.71) (1.41)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33
Average commission rate ($)(6) n/a n/a 0.0159 0.0201
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.02 0.06 0.04 0.03
</TABLE>

<PAGE>

9
<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------
Class S (formerly Class C) 1994(1) 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Net asset value, beginning of year ($) 9.55 8.60 9.77 11.44
------ ------ ------ ------
Net investment loss ($)* (0.06) (0.06) (0.07) (0.04)
Net realized and unrealized
gain (loss) on investments ($) (0.89) 1.23 1.74 5.18
------ ------ ------ ------
Total from investment operations ($) (0.95) 1.17 1.67 5.14
------ ------ ------ ------
Distributions from capital gains ($) -- -- -- (0.85)
------ ------ ------ ------
Total distributions ($) -- -- -- (0.85)
------ ------ ------ ------
Net asset value, end of year ($) 8.60 9.77 11.44 15.73
====== ====== ====== ======
Total return (%)(3) (9.95)(4) 13.60 17.09 48.34

Ratios/supplemental data:
Net assets at end of year ($ thousands) 7,033 12,380 13,311 7,008
Expense ratio (%)* 1.10(5) 1.10 1.10 1.10
Ratio of net investment loss
to average net assets (%)* (0.68)(5) (0.71) (0.71) (0.39)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33
Average commission rate ($)(6) n/a n/a 0.0159 0.0201
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.04 0.06 0.04 0.03
</TABLE>

(1) Commencement of share class designations (February 1, 1994 for Class C)
and commencement of operations (October 4, 1993 for Class S) to September
30, 1994.

(2) Per-share figures have been calculated using the average shares method.

(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 assumed a portion of the fund's expenses.

(4) Not annualized.

(5) Annualized.

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

<PAGE>

10 Performance and Volatility

As of September 30, 1997
-------------------------------------
Average Annual Total Return(1) 1 Year 3 Years Since Inception*
- --------------------------------------------------------------------------
Class A (%) 41.34 23.22 13.82
Class B (%) 41.91 23.54 13.85
Class C (%) 46.15 24.23 14.38
Class S (%) 48.34 25.43 15.48
Russell 2000 Growth Index (%) 23.26 21.17 15.74
S&P 500 Index (%) 40.43 29.89 22.77
Lipper Small Company Funds Index (%) 21.04 22.47 17.10

[TABULAR REPRESENTATION OF BAR CHART]

Class A Year-by-Year Total Return(1) Years ended September 30
- -----------------------------------------------------------------
1994* (10.37)
1995 13.20
1996 16.92
1997 48.00

* Since inception (10/4/93)

[footnote text]

(1) Fund returns include performance from before the creation of share classes
in 1994. Because Classes A, B and C involve higher marketing fees (as
described on page 5), performance since that time is somewhat lower for
these classes.

[end of footnote text]

<PAGE>

[sidebar text]

[Magnifying Glass Graphic] Understanding Performance and Volatility

The information on the opposite page is designed to show two aspects of the
fund's track record:

[bullet] Average annual total return is a measure of the fund's performance
over time. It is determined by taking the fund's performance over a
given period and expressing it as an average annual rate. Average
annual total return includes the effects of fund expenses and maximum
sales charges for each class, and assumes that you sold your shares at
the end of the period.

Also included are three independent measures of performance. Two are unmanaged
stock indices: the S&P 500 (officially, the "Standard & Poor's 500 Composite
Stock Price Index"), which includes 500 domestic stocks, and the Russell 2000
Growth Index, which contains only those stocks within the complete Russell 2000
Index (a small company index) that show above average growth. The Lipper Small
Company Funds Index shows the performance of a category of mutual funds with
similar goals. This index, which is also unmanaged, shows you how well the fund
has done compared to competing funds.

While the fund does not seek to match the returns or the volatility of any
index, these indices can be used as rough guides when gauging the return of this
and other investments. When making comparisons, keep in mind that none of the
indices includes the effects of sales charges. Also, even if your stock
portfolio were identical to the S&P 500 or the Russell 2000 Growth, your returns
would always be lower, because these indices don't include brokerage and
administrative expenses.

[end of sidebar text]

<PAGE>

12 Your Account

[Key Graphic] Opening an Account

If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.

If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.

To open an account without the help of a financial professional, please use the
instructions on these pages.

[Checklist Graphic] Choosing a Share Class

The fund offers four share classes, each with its own sales charge and expense
structure.

If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you

[sidebar text, bottom of page]

Class A -- Front Load

[bullet] Initial sales charge of 4.5% or less; schedule on page 14

[bullet] Lower sales charges for larger investments; see sidebar on facing page
and sales charge schedule

[bullet] Lower annual expenses than Class B or C shares due to lower
marketing/service (12b-1) fee of 0.25%

Class B -- Back Load

[bullet] No initial sales charge

[bullet] Deferred sales charge of 5% or less on shares you sell within five
years; schedule on page 14

[bullet] Annual marketing/service (12b-1) fee

[bullet] Automatic conversion to Class A shares after eight years, reducing
future annual expenses

Class C(1) -- Level Load

[bullet] No initial sales charge

[bullet] Deferred sales charge of 1%, paid if you sell shares within one year of
purchase

[bullet] Lower deferred sales charge than Class B shares

[bullet] Annual marketing/service (12b-1) fee

[bullet] No conversion to Class A shares after eight years, so annual expenses
do not decrease

(1) Before November 1, 1997, these were designated Class D.

[end of sidebar text]

<PAGE>

[sidebar text, bottom of page]

Class S(2) -- No Load

[bullet] No sales charges of any kind

[bullet] No marketing/service (12b-1) fees; annual expenses are lower than other
share classes

[bullet] Available through certain retirement accounts, advisory accounts of the
investment manager and special programs, including broker programs
with record keeping and other services; these programs usually involve
special conditions and separate fees (contact your financial
professional for information)

(2) Before November 1, 1997, these were designated Class C.

[end of sidebar text, bottom of page]

[sidebar text]

[Magnifying Glass Graphic] Class A Sales Charge Reductions and Waivers

[bullet] Substantial investments receive lower sales charge rates; see
information on the following page.

To take advantage of right of accumulation or letter of intent waivers, consult
your financial professional or State Street Research.

[end of sidebar text]

<PAGE>

14 Your Account continued

Sales Charges

Class A -- Front Load

when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- ------------------------------------------------------
Up to $99,999 4.50 4.71
$100,000 - $249,999 3.50 3.63
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00 2.04
$1 million or more see next column

With Class A shares, you pay a sales charge only when you buy shares.

Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (contact your financial
professional for information).

Class B -- Back Load

this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ---------------------------------------------------------------
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year or later None

<PAGE>

The CDSC is waived on shares sold for mandatory retirement distributions or
because of disability or death. Consult your financial professional or the State
Street Research Service Center.

Class B shares automatically convert to Class A shares after eight years,
lowering your annual expenses from that time on.

Class C (Formerly Class D) -- Level Load

Class C shares currently have the same annual expenses as Class B shares, but
never convert to Class A shares (with their lower annual expenses).

Class S (Formerly Class C) -- No Load

Class S shares have no sales charges or CDSC.

<PAGE>

16 Your Account continued

[Cash Register Graphic] Policies for Buying Shares

Once you have chosen a share class, the next step is to determine the amount you
want to invest.

Minimum Initial Investments:

[bullet] $1,000 for accounts that use the Investamatic program

[bullet] $2,000 for Individual Retirement Accounts

[bullet] $2,500 for all other accounts

Minimum Additional Investments:

[bullet] $50 for any account

Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.

<PAGE>

Buying Shares 17

<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[Graphic of Briefcase] Through a Contact your financial professional. Contact your financial professional.
Financial Professional