[LOGO] State Street Research [PHOTO]
Capital Fund
- --------------------------------------------------------------------------------
Annual Report to Shareholders
September 30, 1999
- -------------------------
In this Report
- -------------------------
Why this
Bull Market
Has Been a Bear for
Many Investors
[PHOTO]
plus
The U.S. Economy:
As Good as it Was, as Good as it Gets
Measuring Market Breadth
Fund Portfolio and Financials
<PAGE>
Contents
2 12 Month Review
A look at the fund and its market
environment over the past 12 months
6 Performance in Perspective
The most recent performance in the
context of the fund's track record
8 The Fund in Detail
Portfolio holdings, financials and notes
- --------------------------------------------------------------------------------
From the Chairman
75 Years Ago
State Street Research introduced one of the nation's first mutual funds and
pioneered management and research methods that have become industry standard
today. We were also one of the first firms to provide candid commentary on fund
performance. And in recent years, we have been recognized for our prospectus
simplification and plain English communications.
[PHOTO]
Ralph F. Verni
Our newly designed shareholder reports come out of that same tradition. We think
the educational format, lively graphics and plain English style will make it
easier for you to understand how your fund performed -- and why. We hope you
agree.
We're proud to celebrate 75 years of excellence. But as we get ready to turn the
calendar to the year 2000, our focus is on the future. With this report we are
pleased to announce the appointment of Cathy Dudley as new portfolio manager for
Capital Fund.
We thank you for your confidence.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman, State Street Research
September 30, 1999
- --------
12 Month Review Management's Discussion of Fund Performance Part 1
- --------
How State Street Research
Capital Fund Performed
In a year that was generally favorable for common stocks, the fund generated a
significant return for shareholders, gaining 26.75%.(1) However, that was lower
than the 37.19% return of the Russell mid-cap Growth Index(2).
Reasons for the Fund's Performance
The fund benefited from its investments in technology and consumer services
stocks during the period. The fund's investments in the lagging health care
services sector were a drag on performance. Finally, rising interest rates hurt
financial services stocks, although the fundamental business prospects for the
financial group remained solid.
Class A Shares(1)
[GRAPHIC]
26.75%
How the Fund is Positioned
for the Period Ahead
Going forward, we continue to focus on three industry sectors: consumer
discretionary, technology and financial services. We have concentrated
approximately 75% of the fund's assets in the different industries within these
three sectors because we believe they should continue to benefit from a strong
economy, high employment and rising discretionary income. We have underweighted
our investment in health care stocks as election year issues and proposed
legislation continue to cloud the sector's near-term prospects, but will revisit
the sector for companies with strong growth characteristics.
Our Outlook
As the U.S. economy continues to move ahead at a slow but steady pace and the
global economy appears poised for a rebound, we believe that earnings growth
should remain strong in the sectors that the fund has emphasized. Higher
interest rates could foil this outlook, but so far the Federal Reserve Board
seems inclined to manage rates with a careful hand.
Russell Mid-Cap
Growth Index(2)
[GRAPHIC]
37.19%
More Management's Discussion of Fund Performance on pages 6 and 7. |_|
We are optimistic that a robust U.S. economy and a confident, free-spending
American consumer have the potential to keep this market moving forward for
another year.
Because financial markets and mutual fund strategies are constantly evolving,
it's possible that the fund's holdings, market stance, outlook for various
industries or securities and other matters discussed in this report have changed
since this information was prepared. Portfolio changes should not be considered
recommendations for action by individual investors.
2 State Street Research Capital Fund
<PAGE>
------------------------------------------------------------------------
[PHOTO] The Fund at a Glance as of 9/30/99
------------------------------------------------------------------------
State Street Research Capital Fund is a stock fund with a growth
approach to mid-cap investing.
Total net assets: $781 million
Top 10 Holdings
Issuer/security % of fund assets
1 AMFM 3.4%
2 Clear Channel Communications 3.1%
3 Outdoor Systems 2.5%
4 Royal Caribbean Cruises 2.4%
5 Valassis Communications 2.4%
6 Sybron 2.3%
7 Concord Efs 2.3%
8 Altera 2.3%
9 Danaher 2.3%
10 Harley-Davidson 2.3%
Total 25.3%
See page 11 for more detail.
Top 5 Industries
% of fund assets
- -------------------------------------
Communications, Media
& Entertainment 10.1%
- -------------------------------------
- -------------------------------------
Retail 9.8%
- -------------------------------------
- -------------------------------------
Electronics: Semi-Conductor/
Components 8.6%
- -------------------------------------
- -------------------------------------
Financial Data Processing
Services & Systems 7.8%
- -------------------------------------
- -------------------------------------
Communications
Technology 7.6%
- -------------------------------------
Performance: Class A
Year ended 9/30/99: 26.75%(1)
Fund average annual total return(3)
1 Year 5 Years 10 Years
- ----------------------------------------
19.47% 9.58% 12.62%
See pages 6 and 7 for data on other share classes.
Russell Mid-Cap Growth Index(2)
1 Year 5 Years 10 Years
- ----------------------------------------
37.19% 19.45% 15.13%
Ticker Symbols
State Street Research Capital Fund Class A: SCFAX Class B(1): SCFPX*
Class B: SCFBX Class C: SCFDX Class S: SCFCX
As Good as it Was, as Good as it Gets
Add one more year to one of the most prosperous economic cycles of the century.
1998 ended with a burst of unexpected strength. And although the pace has slowed
just enough to keep inflation under control in 1999, the Federal Reserve Board
made good on its promise to continue to keep a lid on inflation for the future.
The Fed raised short-term interest rates twice between June and August.
But inflationary pressure has begun to mount. Soaring energy prices pushed the
Consumer Price Index up 2.3%, compared to 1.6% one year ago. Households continue
to spend more than they earn as home and auto sales remain robust. Consumer
confidence hit a record high in June, but fell during July, August and
September. For younger and less wealthy Americans, confidence has been on a
downward trend for some time.
Higher interest rates have hurt bonds more than stocks. Most bonds lost ground
as the yield on the 30-year U.S. Treasury benchmark rose above 6.0% in June and
stayed there until late in the period. The S&P 500(4), a broad measure of common
stock performance, rose 27.79%. However, a disproportionate share of the
market's gains belonged to large-company growth stocks. Outside the top 50
stocks, returns have been flat to down for the period. That means the average
investor is looking at a portfolio that is out of step with the S&P 500.
Inflationary Pressure
Has Started to Build
[The following table was represented as a bar chart in the printed material.]
Q4'98 1.6%
Q1'99 1.6%
Q2'99 2.1%
Q3'99 2.3%
Source: Haver Analytics. Bureau of Economic Analysis.
- --------------------------------------------------------------------------------
(1) Does not reflect sales charge.
(2) The Russell Mid-Cap Growth Index contains only those stocks within the
complete Russell Mid-Cap Index (a mid-sized 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.
(3) At maximum applicable sales charge.
(4) The S&P 500 (Officially the "Standard & Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the
index.
*Proposed
3
<PAGE>
[GRAPHIC] The Way We Think
Why this Bull Market
Has Been a Bear
for Many Investors
[GRAPHIC]
It's been another good year for stocks. But the markets' double digit gains have
not necessarily filtered down to the average investor. The reason? A phenomenon
called market breadth, a technical measure of how many stocks are participating
in the market's current trend. For the past year, market breadth has been
narrow, and that's generally bad.
Beyond the Box Scores
When market breadth is narrow, it means that only a handful of stocks have
shared in the biggest gains. For example, although the S&P 500, a broad measure
of common stock performance, gained 28.7% in 1998, the top 50 stocks in the
index were up 40.0%. Since January, the technology driven Nasdaq has risen a
stunning 25.24% while the average New York Stock Exchange stock has lost 20%.
When the top-performing group of stocks diverges sharply from the average, it
also puts pressure on mutual funds. Funds that owned a broad list of stocks, or
focused on value, or small- or mid-cap stocks, were left out of the party. Even
funds that owned big winners, such as Microsoft, Cisco and Intel, were destined
to lag unless they overweighted them. And most managers are reluctant to
concentrate their investments in any one small group of stocks because it can be
risky and less rewarding over the long term.
Narrow Markets Give Way
Historical data suggest that a narrow market trend is less sustainable than a
broad one. Narrow markets eventually give way. They either broaden to take other
stocks up with them, or they get pulled down under the weight of the rest of the
market.
And the type of investment that leads the market changes. For four years
[GRAPHIC] The Year's Hits & Misses [GRAPHIC]
- --------------------------------------------------------------------------------
Univision Communications
is the nation's largest producer of Hispanic programming for television. A
strong demographic story has helped the firm succeed in raising advertising
revenues from major American companies. The Hispanic market is the fastest
growing ethnic market in the U.S. The population is also younger and households
are larger than the national average. Univision Communications is the dominant
player in the Hispanic television market. Earnings have multiplied four-fold
over the past year, and we believe the company continues to have unrealized
growth potential. An outstanding performer, Univision Communications is the
twelfth largest holding in the fund.
J.D. Edwards & Co.
produces enterprise software designed to help mid-sized industrial companies
improve their manufacturing efficiencies. The stock was brought down earlier
this year, along with industry leaders SAP and Baan, two firms that focus on the
large-company segment of the market. The reason? As Y2K approaches, firms began
to balk at the massive spending and sweeping organizational changes associated
with major software conversions. Revenue and profit disappointments resulted,
and J.D. Edwards stock price collapsed. However, we continue to own the stock
because we believe the business is fundamentally sound and we are optimistic
that it will get back on track in the year ahead.
4 State Street Research Capital Fund
<PAGE>
running, large-company growth stocks have been the strongest performers [see
table]. However, between 1993-1994 the Morgan Stanley Capital International EAFE
Index(5), a broad measure of foreign stock market performance, topped the
charts. In 1991-1992, the Russell 2000 Index(6), which tracks the performance of
small stocks, was king of the hill. And in 1990, the last year the stock market
suffered a serious correction, bonds beat stocks.
Top Performing Indexes
1990 -- 1998
- --------------------------------------------------------------------------------
1990 Lehman Bros Aggregate Bond Index(7) 8.96%
- --------------------------------------------------------------------------------
1991 Russell 2000 Growth(8) 51.18%
- --------------------------------------------------------------------------------
1992 Russell 2000 Value 29.15%
- --------------------------------------------------------------------------------
1993 MSCI EAFE 32.57%
- --------------------------------------------------------------------------------
1994 MSCI EAFE 7.78%
- --------------------------------------------------------------------------------
1995 S&P 500/Barra Growth(9) 38.13%
- --------------------------------------------------------------------------------
1996 S&P 500/Barra Growth 23.97%
- --------------------------------------------------------------------------------
1997 S&P 500/Barra Growth 36.52%
- --------------------------------------------------------------------------------
1998 S&P 500/Barra Growth 42.16%
- --------------------------------------------------------------------------------
A Rare Divergence
In fact, the period between 1995-1999 has been an anomaly for the stock market.
The last time there was such a sharp divergence between the top and bottom of
the market was in 1972-1973, when investor attention focused on a narrow band of
stocks known as the "nifty fifty." However, the aftermath of that period was
devastating for some of the most popular stocks of the period, such as Polaroid,
Burroughs, and Emery Air Freight. It's hard to imagine some of today's high
flyers sharing a similar fate, but back then it was hard to imagine they
wouldn't keep going higher.
Lessons of the Past
The key lesson for investors today is that diversification still makes sense.
It doesn't necessarily result in top performance in the short term, but when the
market broadens, you'll already be on board.
A Closer Look [GRAPHIC]
Measuring
Market Breadth
In order to measure the underlying strength of the stock market, technicians
study the relationship between the number of stocks that have advanced versus
the number that have declined. They're also interested in how many stocks are
hitting new highs compared to those hitting new lows. The math is simple. They
subtract decliners from advancers and new lows from new highs and plot the
results on daily charts in order to create trend lines. When few stocks
participate in a trend or trendsetters cluster in a certain segment of the
market, market breadth is narrow and the trend is unconfirmed. When many stocks
are participating, market breadth is broad and the trend is considered strong
and sustainable.
What's Changed? State Street Research Capital Fund
- --------------------------------------------------------------------------------
Top Five Sectors % of Fund Assets
September 30, 1998
[The following table was represented as a pie chart in the printed material.]
Consumer Discretionary 42.7%
Financial Services 13.8%
Technology 12.4%
Health Care 11.0%
Other Energy 3.7%
September 30, 1999
[The following table was represented as a pie chart in the printed material.]
Consumer Discretionary 35.9%
Financial Services 9.6%
Technology 28.1%
Producer Durables 6.4%
Utilities 6.0%
- --------------------------------------------------------------------------------
(5) The Morgan Stanley EAFE Index comprises stocks from Europe, Australasia,
and the Far East. The index is unmanaged and does not take sales charges
into consideration. It is not possible to invest directly in the index.
(6) The Russell 2000 Index is an index of the 2000 smallest stocks within the
Russell 3000 Index. The index is unmanaged and does not take transaction
charges into consideration. It is not possible to invest directly in the
index.
(7) The Lehman Brothers Aggregate Bond Index comprises more than 5,000 taxable
government bonds, investment-grade corporate bonds, and mortgage backed
securities. The index does not take transaction charges into
consideration. It is not possible to invest directly in the index.
(8) 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.
(9) The S&P 500/Barra Growth Index contains growth companies with low
book-to-price ratios. It is the complementary part of the S&P 500/Barra
Value Index. The index does not take transaction charges into
consideration. It is not possible to invest directly in the index.
5
<PAGE>
[GRAPHIC]
- -----------
Performance in Perspective Management's Discussion of Fund Performance Part 2
- -----------
Performance Figures as of September 30, 1999
These two pages focus on the fund's long-term track record. While a mutual
fund's past performance is never a guarantee of future results, long-term
returns can serve as an important context for evaluating recent
performance.Three ways of measuring long-term performance are cumulative
returns, average annual returns and the change in dollar value over time of a
given investment. Information about these measures follows, while the share
class boxes contain the results of these measures for each share class.
Cumulative Total Return
This represents the total percentage you would have earned or lost if you had
invested a lump sum in the fund and left it there until the end of the period
indicated. Performance would be lower if sales charges were reflected.
Average Annual Total Return
Average annual total return percentage is the rate you would have had to earn
during each year of a given time period-- say, five years-- in order to end up
with the fund's actual cumulative return for those five years. In reality, of
course, fund performance varies from year to year. Because of this, a fund's
actual performance for a given year may be higher or lower than an average
annual performance figure.
$10,000 Over Ten Years
This example is similar to cumulative total return, but uses dollars rather than
percentages, and assumes that the lump sum you invested was $10,000. It also
compares fund performance to the performance of a market index.
- --------------------------------------------------------------------------------
Class A Front Load
- -------
o Initial sales charge of 5.75% or less, with lower sales charges for larger
investments (see a prospectus for details)
o Lower annual expenses than Class B(1) or Class C shares because of lower
service (12b-1) fee of 0.25%
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/25/84)
(does not reflect --------------------------------------------------
sales charge) 26.75% 67.63% 248.38% 756.27%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/25/84)
(at maximum applicable --------------------------------------------------
sales charge) 19.47% 9.58% 12.62% 14.39%
$10,000 Over Ten Years
[The following table was represented as a line graph in the printed material.]
Class A S & P 500 Russell Mid-Cap Growth Index
------- --------- ----------------------------
"89" 9425 10000 10000
"90" 7463 9076 8402
"91" 11484 11898 12510
"92" 12327 13212 13664
"93" 19109 14925 16428
"94" 19588 15474 16826
"95" 26826 20071 21818
"96" 29541 24149 25381
"97" 31644 33912 32905
"98" 25904 36992 29822
"99" 32835 47270 40913
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B(1) Back Load for accounts opened after 1/1/99
- ----------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/25/84)
(does not reflect -------------------------------------------------
sales charge) 25.74% 61.25% 232.20% 716.51%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/25/84)
(at maximum applicable -------------------------------------------------
sales charge) 20.74% 9.75% 12.76% 14.48%
$10,000 Over Ten Years
[The following table was represented as a line graph in the printed material.]
Class B(1) S & P 500 Russell Mid-Cap Growth Index
---------- --------- ----------------------------
"89" 10000 10000 10000
"90" 7919 9076 8402
"91" 12185 11898 12510
"92" 13079 13212 13664
"93" 20240 14925 16428
"94" 20602 15474 16826
"95" 27998 20071 21818
"96" 30611 24149 25381
"97" 32530 33912 32905
"98" 26420 36992 29822
"99" 33220 47270 40913
- --------------------------------------------------------------------------------
6 State Street Research Capital Fund
<PAGE>
- --------------------------------------------------------------------------------
Class B Back Load for accounts opened before 1/1/99
- -------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within five years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/25/84)
(does not reflect -------------------------------------------------
sales charge) 25.74% 61.25% 232.20% 716.51%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/25/84)
(at maximum applicable -------------------------------------------------
sales charge) 20.74% 9.75% 12.76% 14.48%
$10,000 Over Ten Years
[The following table was represented as a line graph in the printed material.]
Class B S & P 500 Russell Mid-Cap Growth Index
------- --------- ----------------------------
"89" 10000 10000 10000
"90" 7919 9076 8402
"91" 12185 11898 12510
"92" 13079 13212 13664
"93" 20240 14925 16428
"94" 20602 15474 16826
"95" 27998 20071 21818
"96" 30611 24149 25381
"97" 32530 33912 32905
"98" 26420 36992 29822
"99" 33220 47270 40913
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Level Load
- -------
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/25/84)
(does not reflect -------------------------------------------------
sales charge) 25.77% 61.39% 232.85% 718.11%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/25/84)
(at maximum applicable -------------------------------------------------
sales charge) 24.77% 10.05% 12.78% 14.49%
$10,000 Over Ten Years
[The following table was represented as a line graph in the printed material.]
Class C S & P 500 Russell Mid-Cap Growth Index
------- --------- ----------------------------
"89" 10000 10000 10000
"90" 7919 9076 8402
"91" 12185 11898 12510
"92" 13079 13212 13664
"93" 20220 14925 16428
"94" 20414 15474 16826
"95" 28063 20071 21818
"96" 30654 24149 25381
"97" 32573 33912 32905
"98" 26464 36992 29822
"99" 33285 47270 40913
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class S Special Programs
- -------
o Available through certain retirement accounts, advisory accounts of the
investment manager and other programs that usually involve special
conditions and separate fees (see a prospectus for details)
o No sales charges of any kind
o No distribution/service (12b-1) fees; annual expenses are lower than for
other share classes
Life of Fund
Cumulative Total Return 1 Year 5 Years 10 Years (3/25/84)
(does not reflect -------------------------------------------------
sales charge) 27.06% 69.61% 254.91% 772.34%
Life of Fund
Average Annual Total Return 1 Year 5 Years 10 Years (3/25/84)
(at maximum applicable -------------------------------------------------
sales charge) 27.06% 11.15% 13.50% 14.97%
$10,000 Over Ten Years
[The following table was represented as a line graph in the printed material.]
Class S S & P 500 Russell Mid-Cap Growth Index
------- --------- ----------------------------
"89" 10000 10000 10000
"90" 7919 9076 8402
"91" 12185 11898 12510
"92" 13079 13212 13664
"93" 20333 14925 16428
"94" 20925 15474 16826
"95" 28729 20071 21818
"96" 31719 24149 25381
"97" 34040 33912 32905
"98" 27934 36992 29822
"99" 35491 47270 40913
- --------------------------------------------------------------------------------
A Closer Look [GRAPHIC]
12b-1 fees
12b-1 fees are named after the SEC rule that permits them.
The fund pays 12b-1 fees to cover service and distribution costs. The fees cover
personal services and the maintenance of shareholder accounts.
The fees also cover selling and marketing expenditures for the sale of fund
shares.
The fund pays 12b-1 fees out of its assets, so shareholders see them as an
indirect charge rather than a direct charge.
All of the performance figures on these pages assume reinvestment of dividends
and distributions.
The average annual total returns for the fund also include the effects of any
fees and sales charges that would apply for each share class.
The S&P 500 (officially, the "Standard & Poor's 500 Stock Price Index") is an
unmanaged index of 500 U.S. stocks. The index does not take transaction charges
into consideration. It is not possible to invest directly in the index.
Keep in mind that past performance is no guarantee of future results. The fund's
share price and return will fluctuate and you may have a gain or loss when you
sell your shares.
Class B(1) was introduced January 1, 1999.
7
<PAGE>
[GRAPHIC]
- ------------------
The Fund in Detail
- --------
The following pages describe the fund in detail as of the date of this report.
They provide a "snapshot" of the fund's holdings at one moment in time (the
report date), describe the financial dimensions of its operations for the past
fiscal year and give a summary of operations on a per share basis for the past
five fiscal years. There's also an overview of the fund and its business
structure, as well as information on the accounting policies the fund uses in
arriving at the figures it presents here.
[PHOTO]
Together, the words and numbers in this section offer a comprehensive picture of
the fund and its recent activities. In fact, the text and notes on pages 9 to 22
are an integral part of the financial statements, which wouldn't be complete
without them.
For more information about the fund's strategies, risks and expenses, check the
fund's prospectus; you'll need to read it before making any investments. The
prospectus also has more details on the fund's share classes and its policies
for shareholder accounts. To get a copy of any State Street Research prospectus,
see the back cover of this report.
Keep in mind that in annual reports, the portfolio holdings and financial
statements are audited, while in semiannual reports they are unaudited.
8 State Street Research Capital Fund
<PAGE>
About the Fund
- --------------------------------------------------------------------------------
Business structure
State Street Research Capital Fund is a mutual fund. A mutual fund allows
shareholders to pool their assets for investment in a portfolio of securities.
This fund is a series of State Street Research Capital Trust, a Massachusetts
business trust and is an open-end management investment company.
Four entities administer the fund's main business functions:
o The board of trustees oversee the fund with its shareholders' interests in
mind and have ultimate responsibility for the fund's activities (see
inside back cover for trustee information).
o The investment manager, State Street Research & Management Company, is
responsible for the fund's investment and business activities and receives
the management fee as compensation.
o The distributor, State Street Research Investment Services, Inc., sells
shares of the fund, handles investor inquiries and transaction orders and
provides other shareholder services.
o The custodian, State Street Bank and Trust Company, holds fund securities,
provides data on their market value and handles related services.
The investment manager and the distributor are subsidiaries of Metropolitan Life
Insurance Company, better known as MetLife. State Street Bank and Trust Company
is not affiliated with MetLife (the similarity between its name and the names of
the investment manager and distributor is coincidental). A majority of the
trustees consists of people who are not affiliated with MetLife or any of its
subsidiaries. The distributor pays a portion of its fees to MetLife for services
it provides, including maintaining the accounts of some investors who hold
shares through their firm's employee benefit plans and other sponsored
arrangements.
Goal and strategy
The fund seeks to provide 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.
Share classes
The fund generally offers four share classes, each with its own sales charge and
expense structure. The fund also offers an additional class of shares (Class B)
but only to current Class B shareholders through reinvestment of dividends and
distributions or through exchanges from existing Class B accounts of other State
Street Research funds.
The text and notes are an integral part of the financial statements.
9
<PAGE>
The Fund's Accounting Policies
- --------------------------------------------------------------------------------
In keeping with accounting principles generally accepted in the United States,
the fund has used the following policies in preparing the portfolio holdings and
financial statements in this report:
The fund values all portfolio securities as of the date of this report (or, if
that day wasn't a business day, then the most recent business day). The fund
uses the following methods for determining the values of various types of
securities:
o Listed securities -- The fund uses the price of the last sale on a
national securities exchange that was quoted before the close of the
New York Stock Exchange.
o Over-the-counter securities -- The fund uses the closing prices
quoted on the Nasdaq system. If a security hasn't traded that day,
or if it is not quoted on the Nasdaq system, the value is set at
halfway between the closing bid and asked quotations.
o Securities maturing within sixty days -- The fund adjusts the value
of these securities daily, moving them closer to the amount due on
maturity as the maturity date approaches.
The fund accounts for each purchase and sale of portfolio securities on the
trade date. In calculating realized gains or losses, the fund takes as its cost
basis the identified cost of securities sold.
The fund records investment income from portfolio securities as follows:
o Interest -- The fund accrues interest daily as it earns it.
o Cash dividends -- The fund accrues these on the ex-dividend date.
The fund may seek additional income by lending portfolio securities to qualified
institutions. By reinvesting any cash collateral it receives in these
transactions, the fund could realize additional gains or loses. If the borrower
fails to return the securities and the collateral has declined in value, the
fund could lose money. The fund accounts for income from the lending of its
securities by including it in interest income. The fund distributes its net
earnings to its shareholders. The fund calculates these distributions using
federal income tax regulations. As a result, they may be different than if the
fund used generally accepted accounting principles. The fund distributes its
earnings on the following schedule:
o Dividends from net investment income -- The fund ordinarily declares
and pays these annually, if any.
o Net realized capital gains -- The fund distributes these annually,
if any, and may make an additional distribution if tax regulations
make it necessary.
If the fund has no earnings to distribute, it won't make a distribution.
The fund does not intend to pay federal income tax. This is because it intends
to be exempt from taxes under Subchapter M of the Internal Revenue Code, in part
because it makes distributions as described above.
The Fund pays expenses as follows:
o Expenses attributed to the fund -- The fund pays these directly.
Examples of these expenses include the management fee, transfer
agent fee, custodian fee and distribution and service fees.
o Expenses attributed to the trust of which the fund is a series--
These expenses are divided up among all funds in the trust. Each
fund pays a proportional share. Example of these expenses include
the legal fees and trustees fees.
The fund has used certain estimates and assumptions in preparing this report.
Although they are necessary in order to follow generally accepted accounting
principles, these estimates and assumptions affect several key areas, including
the reported amounts of assets and liabilities and income and expenses. Actual
results could differ from those estimates.
The fund's securities and investment practices carry certain risks.
The text and notes are an integral part of the financial statements.
10 State Street Research Capital Fund
<PAGE>
Portfolio Holdings September 30, 1999
- --------------------------------------------------------------------------------
The listings that begin on this page detail the fund's investment holdings as of
the report date. We have grouped the holdings by asset class and by smaller
sub-groups as well. For example, we have grouped this fund's stocks by sector of
the economy, and then by specific industry within each sector.
The solid colored circles (1) show the fund's ten largest holdings, with the
number in the circle showing where the holding ranks in the top ten.
- --------------------------------------------------------------------------------
Notes about specific elements of the financials are called out in boxes such as
this.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key to symbols
* Denotes a security which has not paid a dividend during the last year.
+ Denotes an American Depositary Receipt, a form of ownership of foreign
securities that is traded in the United States and denominated in U.S.
dollars.
- --------------------------------------------------------------------------------
Market
Issuer Shares Value
==========================================================================
Common Stocks 99.4% of net assets
Automobiles & Transportation
2.3% of net assets
==========================================================================
Miscellaneous Transportation 2.3%
--------------------------------------------------------------------------
(10) Harley-Davidson Inc. 350,400 $17,541,900
--------------------------------------------------------------------------
Motorcycles
Total Automobiles & Transportation 17,541,900
-----------
Consumer Discretionary 35.9% of net assets
==========================================================================
Advertising Agencies 6.8%
--------------------------------------------------------------------------
(3) Outdoor Systems Inc.* 553,293 19,780,225
--------------------------------------------------------------------------
Outdoor Advertising
--------------------------------------------------------------------------
(5) Valassis Communications Inc.* 428,300 18,818,431
--------------------------------------------------------------------------
Printing & Publishing
--------------------------------------------------------------------------
Young & Rubicam Inc. 330,500 14,542,000
--------------------------------------------------------------------------
53,140,656
-----------
Casinos/Gambling, Hotel/Motel 1.0%
--------------------------------------------------------------------------
Harrah's Entertainment Inc.* 279,000 7,742,250
-----------
Commercial Services 4.8%
--------------------------------------------------------------------------
America Online Inc.* 145,800 15,163,200
--------------------------------------------------------------------------
Cendant Corp.* 697,461 12,379,932
--------------------------------------------------------------------------
Central Parking Corp. 92,000 2,691,000
--------------------------------------------------------------------------
Cintas Corp. 109,900 6,353,594
--------------------------------------------------------------------------
Netzero Inc.* 23,200 603,200
--------------------------------------------------------------------------
37,190,926
-----------
Communications, Media & Entertainment 10.1%
--------------------------------------------------------------------------
(1) AMFM Inc.* 430,118 26,183,433
--------------------------------------------------------------------------
Broadcasting
--------------------------------------------------------------------------
(2) Clear Channel
Communications Inc.* 298,720 23,860,260
--------------------------------------------------------------------------
TV Radio Stations
--------------------------------------------------------------------------
Infinity Broadcasting
Corp. Cl. A* 168,600 4,942,088
--------------------------------------------------------------------------
Insight Communications Inc.* 81,000 2,318,625
--------------------------------------------------------------------------
SFX Entertainment, Inc. Cl. A* 154,200 4,703,100
--------------------------------------------------------------------------
Univision Communications Inc. Cl. A* 206,200 16,779,525
--------------------------------------------------------------------------
78,787,031
-----------
Consumer Electronics 0.3%
--------------------------------------------------------------------------
Electronic Arts Inc.* 26,400 1,939,854
-----------
The text and notes are an integral part of the financial statements.
11
<PAGE>
Portfolio Holdings September 30, 1999 CONTINUED
Market
Issuer Shares Value
==========================================================================
Leisure Time 2.4%
--------------------------------------------------------------------------
(4) Royal Caribbean Cruises Ltd. 421,400 $18,963,000
--------------------------------------------------------------------------
Recreation
Printing & Publishing 0.4%
--------------------------------------------------------------------------
Central Newspapers Inc. Cl. A 78,100 3,475,450
-----------
Restaurants 0.3%
--------------------------------------------------------------------------
Outback Steakhouse Inc.* 81,200 2,068,063
-----------
Retail 9.8%
--------------------------------------------------------------------------
Ann Taylor Stores Corp.* 56,300 2,301,263
--------------------------------------------------------------------------
Circuit City Stores Inc. 287,500 12,128,906
--------------------------------------------------------------------------
Family Dollar Stores Inc. 704,400 14,880,450
--------------------------------------------------------------------------
Jones Apparel Group Inc.* 538,378 15,478,367
--------------------------------------------------------------------------
Linens 'n Things Inc.* 333,700 11,262,375
--------------------------------------------------------------------------
Men's Wearhouse, Inc.* 252,012 5,418,258
--------------------------------------------------------------------------
USA Networks Inc.* 395,427 15,322,796
--------------------------------------------------------------------------
76,792,415
-----------
Total Consumer Discretionary 280,099,645
-----------
Consumer Staples 1.4% of net assets
==========================================================================
Drug & Grocery Store Chains 1.4%
--------------------------------------------------------------------------
CVS Corp. 274,000 11,182,625
-----------
Total Consumer Staples 11,182,625
-----------
Financial Services 9.6% of net assets
==========================================================================
Banks & Savings & Loan 1.1%
--------------------------------------------------------------------------
TCF Financial Corp. 294,300 8,405,944
-----------
Financial Data Processing Services & Systems 7.8%
--------------------------------------------------------------------------
Bisys Group Inc.* 131,800 6,182,244
--------------------------------------------------------------------------
(7) Concord EFS Inc.* 877,800 18,104,625
--------------------------------------------------------------------------
Financial Data Processing Services and Systems
--------------------------------------------------------------------------
Fiserv Inc.* 527,175 17,133,187
--------------------------------------------------------------------------
Nova Corp.* 151,200 3,780,000
--------------------------------------------------------------------------
Paychex Inc. 258,950 8,836,669
--------------------------------------------------------------------------
Sungard Data Systems Inc.* 271,200 7,135,950
--------------------------------------------------------------------------
61,172,675
-----------
Miscellaneous Financial 0.7%
--------------------------------------------------------------------------
Heller Financial Inc. Cl. A 250,300 5,631,750
-----------
Total Financial Services 75,210,369
-----------
Health Care 4.4% of net assets
==========================================================================
Drugs & Biotechnology 0.3%
--------------------------------------------------------------------------
Genetech Inc.* 14,500 2,121,531
-----------
Health Care Facilities 0.2%
--------------------------------------------------------------------------
Health Management
Associates, Inc. Cl. A* 207,750 1,532,156
-----------
Health Care Services 1.0%
--------------------------------------------------------------------------
Lincare Holdings Inc.* 292,300 7,791,622
-----------
Hospital Supply 2.9%
--------------------------------------------------------------------------
Biomet Inc. 171,300 4,507,332
--------------------------------------------------------------------------
(6) Sybron International Corp.* 681,600 18,318,000
--------------------------------------------------------------------------
Dental Laboratory Products
--------------------------------------------------------------------------
22,825,332
-----------
Total Health Care 34,270,641
-----------
Materials & Processing 0.8% of net assets
==========================================================================
Containers & Packaging 0.8%
--------------------------------------------------------------------------
Aptar Group Inc. 221,500 5,925,125
-----------
Total Materials & Processing 5,925,125
-----------
Other Energy 4.5% of net assets
==========================================================================
Oil & Gas Producers 2.0%
--------------------------------------------------------------------------
Apache Corp. 143,600 6,201,725
--------------------------------------------------------------------------
Burlington Resources Inc. 250,300 9,198,525
--------------------------------------------------------------------------
15,400,250
-----------
Oil Well Equipment & Services 2.5%
--------------------------------------------------------------------------
BJ Services Co.* 223,500 7,110,094
--------------------------------------------------------------------------
Noble Drilling Corp.* 322,500 7,054,687
--------------------------------------------------------------------------
Weatherford International Inc.* 183,000 5,856,000
--------------------------------------------------------------------------
20,020,781
--------------------------------------------------------------------------
Total Other Energy 35,421,031
-----------
Producer Durables 6.4% of net assets
==========================================================================
Miscellaneous Equipment 2.3%
--------------------------------------------------------------------------
(9) Danaher Corp. 334,100 17,602,894
--------------------------------------------------------------------------
Hand Tools, Auto Parts
Production Technology Equipment 3.1%
--------------------------------------------------------------------------
JDS Uniphase Corp.* 23,700 2,697,356
--------------------------------------------------------------------------
KLA-Tencor Corp.* 250,000 16,250,000
--------------------------------------------------------------------------
Lam Research Corp.* 44,900 2,738,900
--------------------------------------------------------------------------
Novellus Systems Inc.* 40,400 2,724,475
--------------------------------------------------------------------------
24,410,731
-----------
Telecommunications Equipment 1.0%
--------------------------------------------------------------------------
American Tower Corp. Cl. A* 412,300 8,065,619
-----------
Total Producer Durables 50,079,244
--------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
12 State Street Research Capital Fund
<PAGE>
Market
Issuer Shares Value
==========================================================================
Technology 28.1% of net assets
==========================================================================
Communications Technology 7.6%
--------------------------------------------------------------------------
ADC Telecommunications Inc.* 137,700 $5,774,794
--------------------------------------------------------------------------
Ciena Corp.* 57,900 2,063,070
--------------------------------------------------------------------------
Comverse Technology Inc.* 87,400 8,242,912
--------------------------------------------------------------------------
Covad Communications Group Inc.* 58,000 2,528,437
--------------------------------------------------------------------------
CSG Systems International Inc.* 636,100 17,433,116
--------------------------------------------------------------------------
General Instrument Corp.* 89,000 4,283,125
--------------------------------------------------------------------------
Inktomi Corp.* 30,600 3,672,956
--------------------------------------------------------------------------
Internap Network Services Corp.* 10,900 486,413
--------------------------------------------------------------------------
Juniper Networks Inc.* 14,500 2,653,500
--------------------------------------------------------------------------
Network Solutions Inc. Cl. A* 91,000 8,360,625
--------------------------------------------------------------------------
NorthPoint Communications
Group Inc.* 101,800 1,883,300
--------------------------------------------------------------------------
Paradyne Networks Inc.* 70,700 1,979,600
--------------------------------------------------------------------------
59,361,848
-----------
Computer Software 7.4%
--------------------------------------------------------------------------
BMC Software Inc.* 163,400 11,693,312
--------------------------------------------------------------------------
Citrix Systems Inc.* 181,300 11,229,269
--------------------------------------------------------------------------
Compuware Corp.* 322,900 8,415,581
--------------------------------------------------------------------------
i2 Technologies Inc.* 166,900 6,477,806
--------------------------------------------------------------------------
Intuit, Inc.* 69,800 6,118,406
--------------------------------------------------------------------------
J.D. Edwards & Co.* 100,800 2,088,450
--------------------------------------------------------------------------
Novell Inc.* 430,500 8,905,969
--------------------------------------------------------------------------
Red Hat, Inc.* 30,700 2,947,200
--------------------------------------------------------------------------
57,875,993
-----------
Computer Technology 2.3%
--------------------------------------------------------------------------
Gateway Inc.* 157,600 7,003,350
--------------------------------------------------------------------------
Network Appliance Inc.* 122,000 8,738,250
--------------------------------------------------------------------------
Synopsys Inc.* 32,600 1,830,694
--------------------------------------------------------------------------
17,572,294
-----------
Electronics 2.2%
--------------------------------------------------------------------------
DII Group Inc.* 46,800 1,646,775
--------------------------------------------------------------------------
General Dynamics Corp. 110,300 6,886,856
--------------------------------------------------------------------------
Solectron Corp.* 122,200 8,775,488
--------------------------------------------------------------------------
17,309,119
-----------
Electronics: Semi-Conductors/Components 8.6%
--------------------------------------------------------------------------
(8) Altera Corp.* 413,800 17,948,575
--------------------------------------------------------------------------
Electronic Components
--------------------------------------------------------------------------
Celestica Inc.* 156,200 7,712,375
--------------------------------------------------------------------------
Galileo Technology Ltd.* 250,600 6,265,000
--------------------------------------------------------------------------
Jabil Circuit Inc.* 40,300 1,994,850
--------------------------------------------------------------------------
Linear Technology Corp. 178,800 10,510,087
--------------------------------------------------------------------------
LSI Logic Corp.* 20,700 1,102,737
--------------------------------------------------------------------------
Maxim Integrated Products Inc.* 202,200 12,757,556
--------------------------------------------------------------------------
Vitesse Semiconductor Corp.* 94,500 8,067,937
--------------------------------------------------------------------------
Xilinx Inc.* 17,500 1,146,133
--------------------------------------------------------------------------
67,505,250
--------------------------------------------------------------------------
Total Technology 219,624,504
-----------
Utilities 6.0% of net assets
==========================================================================
Electrical 0.5%
--------------------------------------------------------------------------
Illinova Corp. 137,600 3,861,400
-----------
Telecommunications 5.5%
--------------------------------------------------------------------------
Colt Telecom Group PLC *+ 53,900 5,187,875
--------------------------------------------------------------------------
Focal Communications Corp.* 52,200 1,337,625
--------------------------------------------------------------------------
Gilat Satellite Networks Ltd.* 62,700 3,362,288
--------------------------------------------------------------------------
Intermedia Communications Inc.* 278,800 6,063,900
--------------------------------------------------------------------------
ITC Deltacom Inc.* 230,300 6,333,250
--------------------------------------------------------------------------
Qwest Communications
International Inc.* 572,596 16,927,369
--------------------------------------------------------------------------
Voicestream Wireless Corp.* 66,200 4,085,781
--------------------------------------------------------------------------
43,298,088
--------------------------------------------------------------------------
Total Utilities 47,159,488
--------------------------------------------------------------------------
Total Common Stocks 776,514,572
-----------
- --------------------------------------------------------------------------------
The fund paid a total of $549,200,758 for these securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
13
<PAGE>
Portfolio Holdings September 30, 1999 CONTINUED
<TABLE>
<CAPTION>
Market
Shares Value
========================================================================================================================
<S> <C> <C>
Short-Term Investments 3.0% of net assets
- ------------------------------------------------------------------------------------------------------------------------
AIM Liquid Assets Portfolio 23,889,812 $23,889,812
- ------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments 23,889,812
------------
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $23,889,812 for these securities.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Coupon Maturity Amount of
Rate Date Principal
========================================================================================================================
<S> <C> <C> <C> <C>
Commercial Paper 0.8% of net assets
- ------------------------------------------------------------------------------------------------------------------------
American Express Credit Corp. 5.57% 10/01/1999 $6,009,000 6,009,000
- ------------------------------------------------------------------------------------------------------------------------
Total Commercial Paper 6,009,000
------------
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $6,009,000 for these securities.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of
Net Assets
========================================================================================================================
<S> <C> <C>
Summary of Portfolio Assets
- ------------------------------------------------------------------------------------------------------------------------
Investments 103.2% $806,413,384
- ------------------------------------------------------------------------------------------------------------------------
Cash and Other Assets, Less Liabilities (3.2%) (25,335,265)
----- ------------
- ------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $781,078,119
===== ============
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $579,099,570 for these securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
14 State Street Research Capital Fund
<PAGE>
Federal Income Tax Information
At September 30, 1999, the net unrealized appreciation of investments based on
cost for Federal income tax purposes of $579,749,647 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $247,414,923
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (20,751,186)
------------
$226,663,737
============
The text and notes are an integral part of the financial statements.
15
<PAGE>
Statement of
Assets and Liabilities September 30, 1999
- --------------------------------------------------------------------------------
This is the fund's balance sheet as of the report date. It shows the fund's
assets, its liabilities and, by subtraction, its net assets. It also shows the
share price for each share class as of the report date.
Assets
Investments, at market value $806,413,384
- --------------------------------------------------------------------------------
The fund paid a total of $579,099,570 for these securities.
- --------------------------------------------------------------------------------
Cash 6,942
Receivable for securities sold 11,737,584
Receivable for fund shares sold 4,229,616
Dividends and interest receivable 107,108
Other assets 19,136
------------
822,513,770
Liabilities
Payable for collateral received on
securities loaned 23,889,812
Payable for securities purchased 14,017,076
Payable for fund shares redeemed 1,820,257
Accrued transfer agent and
shareholder services 635,225
Accrued management fee 484,534
Accrued distribution and service fees 382,002
Accrued trustees' fees 33,093
Other accrued expenses 173,652
------------
41,435,651
------------
Net Assets $781,078,119
============
Net Assets consist of:
Unrealized appreciation of investments $227,313,814
Accumulated net realized gain 45,511,935
Paid-in capital 508,252,370
------------
$781,078,119
============
- --------------------------------------------------------------------------------
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Net Assets / Number of Shares = NAV
A $321,667,466 23,585,676 $13.64*
B(1) $8,729,683 676,761 $12.90**
B $318,694,944 24,703,361 $12.90**
C $41,234,668 3,189,252 $12.93**
S $90,751,358 6,511,890 $13.94
* Maximum offering price per share $14.47
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
16 State Street Research Capital Fund
<PAGE>
Statement of
Operations For the year ended September 30, 1999
- --------------------------------------------------------------------------------
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
Dividends, net of foreign taxes $1,876,537
- --------------------------------------------------------------------------------
The fund paid foreign taxes of $42,155.
- --------------------------------------------------------------------------------
Interest 1,271,221
- --------------------------------------------------------------------------------
Includes $463,973 in income from the lending of portfolio securities. As of the
report date, the fund had a total of $55,915,528 of securities out on loan and
was holding a total of $55,663,625 (including $23,889,812 of cash collateral) in
collateral related to those loans.
- --------------------------------------------------------------------------------
------------
3,147,758
Expenses
Management fee 6,424,845
- --------------------------------------------------------------------------------
The management fee is 0.75% of the first $500 million of average net assets,
annually, 0.70% of the next $500 million, and 0.65% of any amount over $1
billion.
- --------------------------------------------------------------------------------
Transfer agent and shareholder services 3,001,971
- --------------------------------------------------------------------------------
Includes a total of $1,295,477 paid to the distributor for the services it
provided and to MetLife for similar services it provided, including maintaining
the accounts of some investors who hold shares through that firm's employee
benefit plans and other sponsored arrangements.
- --------------------------------------------------------------------------------
Service fee - Class A 878,289
Distribution and service fees - Class B(1) 38,310
Distribution and service fees - Class B 3,720,580
Distribution and service fees - Class C 504,008
- --------------------------------------------------------------------------------
Payments made to the distributor under the fund's 12b-1 plans. The fees cover
personal services and the maintenance of shareholder accounts. The fees also
cover distribution and marketing expenditures for the sale of fund shares.
- --------------------------------------------------------------------------------
Reports to shareholders 263,542
Custodian fee 220,471
Registration fees 64,303
Audit fee 33,936
Trustees' fees 33,093
- --------------------------------------------------------------------------------
Paid only to trustees who aren't currently affiliated with the adviser (the fund
doesn't pay trustees fees to affiliated trustees).
- --------------------------------------------------------------------------------
Legal fees 15,426
Miscellaneous 41,977
------------
15,240,751
Fees paid indirectly (113,029)
- --------------------------------------------------------------------------------
Represents transfer agent credits earned from uninvested cash balances and
directed brokerage credits used to reduce the custodian fee.
- --------------------------------------------------------------------------------
------------
15,127,722
------------
Net investment loss (11,979,964)
------------
Realized and Unrealized Gain
on Investments
Net realized gain on investments 45,443,247
- --------------------------------------------------------------------------------
To earn this, the fund sold $843,355,348 of securities. During this same period,
the fund also bought $591,281,609 worth of securities. These figures don't
include short-term obligations or U.S. government securities.
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 180,781,535
------------
Net gain on investments 226,224,782
------------
Net increase in net assets resulting
from operations $214,244,818
============
The text and notes are an integral part of the financial statements.
17
<PAGE>
Statement of
Changes in Net Assets
- --------------------------------------------------------------------------------
This shows how the fund's size changed over the report period, including changes
that resulted from investment performance as well as those that resulted from
shareholders buying and selling fund shares.
Years ended September 30
- --------------------------------------------------------------------------------
1998 1999
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $(13,857,461) $(11,979,964)
Net realized gain
on investments 109,471,374 45,443,247
Net unrealized appreciation
(depreciation) of
investments (302,805,063) 180,781,535
--------------------------------
Net increase (decrease)
resulting from operations (207,191,150) 214,244,818
--------------------------------
Distributions from net realized gains:
Class A (3,841,210) (34,950,690)
Class B (4,724,072) (41,134,345)
Class C (889,094) (5,936,698)
Class S (1,541,241) (11,198,919)
--------------------------------
(10,995,617) (93,220,652)
- --------------------------------------------------------------------------------
The fund has designated as long-term $69,377,697 of this amount.
- --------------------------------------------------------------------------------
--------------------------------
Net decrease from fund
share transactions (272,124,846) (192,832,074)
--------------------------------
Total decrease in net assets (490,311,613) (71,807,908)
--------------------------------
Net Assets
Beginning of year 1,343,197,640 852,886,027
--------------------------------
End of year $852,886,027 $781,078,119
================================
The text and notes are an integral part of the financial statements.
18 State Street Research Capital Fund
<PAGE>
- --------------------------------------------------------------------------------
These transactions break down by share class as follows:
<TABLE>
<CAPTION>
Years ended September 30
---------------------------------------------------------------
1998 1999
---------------------------------------------------------------
Class A Shares Amount Shares Amount
===========================================================================================================
<S> <C> <C> <C> <C>
Shares sold 3,863,891 $54,005,266 39,389,475 $529,187,418*
Issued upon reinvestment of
distributions from net realized gains 290,200 3,744,989 2,837,347 33,878,568
Shares redeemed (9,397,620) (131,768,041) (45,341,679) (609,290,036)
---------------------------------------------------------------
Net decrease (5,243,529) ($74,017,786) (3,114,857) ($46,224,050)
---------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Class B(1)(a) Shares Amount Shares Amount
===========================================================================================================
<S> <C> <C> <C> <C>
Shares sold -- -- 783,117 $10,186,480**
Shares redeemed -- -- (106,356) (1,413,615)***
---------------------------------------------------------------
Net increase -- -- 676,761 $8,772,865
---------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Class B Shares Amount Shares Amount
===========================================================================================================
<S> <C> <C> <C> <C>
Shares sold 3,798,453 $52,088,872 1,661,817 $20,500,970**
Issued upon reinvestment of
distributions from net realized gains 363,257 4,523,184 3,398,217 38,637,975
Shares redeemed (11,729,199) (158,398,285) (12,296,088) (155,311,696)***
---------------------------------------------------------------
Net decrease (7,567,489) ($101,786,229) (7,236,054) ($96,172,751)
---------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Class C Shares Amount Shares Amount
===========================================================================================================
<S> <C> <C> <C> <C>
Shares sold 1,281,510 $18,048,769 833,587 $11,510,962
Issued upon reinvestment of
distributions from net realized gains 65,127 810,829 471,367 5,373,580
Shares redeemed (4,950,325) (67,907,840) (2,930,508) (37,673,074)****
---------------------------------------------------------------
Net decrease (3,603,688) ($49,048,242) (1,625,554) ($20,788,532)
---------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Class S Shares Amount Shares Amount
===========================================================================================================
<S> <C> <C> <C> <C>
Shares sold 4,001,288 $57,553,551 2,251,900 $29,901,607
Issued upon reinvestment of
distributions from net realized gains 115,761 1,516,467 897,316 10,929,580
Shares redeemed (7,494,655) (106,342,607) (5,941,816) (79,250,793)
---------------------------------------------------------------
Net decrease (3,377,606) ($47,272,589) (2,792,600) ($38,419,606)
---------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The trustees have the authority to issue an unlimited number of fund
shares, with a $.001 par value per share.
* Includes $33,948 and $215,789 in sales charges collected by the
distributor and MetLife.
** Like all broker-dealers, MetLife received commissions that were calculated
as a percentage of these sales but the commissions of $187,228 and
$378,858 for Class B(1) and Class B, were paid by the distributor, not the
fund.
*** Includes $15,989 and $861,752 in deferred sales charges collected by the
distributor for Class B(1) and Class B.
**** Includes $3,455 in deferred sales charges collected by the distributor.
(a) January 1,1999 (commencement of share class) to September 30, 1999.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
19
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
These provide a summary of each share class's financial performance for the past
five fiscal years.
<TABLE>
<CAPTION>
Class A
================================================================
Years ended September 30
----------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.92 13.53 13.76 14.74 11.95
----- ----- ----- ----- -----
Net investment loss ($) (0.04) (0.05) (0.08) (0.12) (0.14)
Net realized and unrealized gain (loss)
on investments ($) 3.69 1.30 1.06 (2.54) 3.15
----- ----- ----- ----- -----
Total from investment operations ($) 3.65 1.25 0.98 (2.66) 3.01
----- ----- ----- ----- -----
Distributions from capital gains ($) (0.04) (1.02) -- (0.13) (1.32)
----- ----- ----- ----- -----
Total distributions ($) (0.04) (1.02) -- (0.13) (1.32)
----- ----- ----- ----- -----
Net asset value, end of year ($) 13.53 13.76 14.74 11.95 13.64
===== ===== ===== ===== =====
Total return (%)(b) 36.95 10.12 7.12 (18.14) 26.75
Ratios/Supplemental Data
=================================================================================================================
Net assets at end of year ($ thousands) 55,250 114,247 470,977 319,014 321,667
Expense ratio (%) 1.33 1.26 1.21 1.39 1.40
Expense ratio after expense reductions (%) 1.33 1.26 1.21 1.39 1.38
Ratio of net investment loss to
average net assets (%) (0.34) (0.39) (0.60) (0.88) (1.03)
Portfolio turnover rate (%) 214.59 215.07 230.66 86.34 68.03
</TABLE>
Class B(1)
-------------------------
Period ended September 30
-------------------------
Per Share Data 1999 (a)(c)
================================================================================
Net asset value, beginning of period ($) 13.17
-----
Net investment loss ($) (0.17)
Net realized and unrealized loss
on investments ($) (0.10)
-----
Total from investment operations ($) (0.27)
-----
Net asset value, end of period ($) 12.90
=====
Total return (%)(b) (2.05)(d)
Ratios/Supplemental Data
================================================================================
Net assets at end of period ($ thousands) 8,730
Expense ratio (%) 2.15(e)
Expense ratio after expense reductions (%) 2.13(e)
Ratio of net investment loss to
average net assets (%) (1.81)(e)
Portfolio turnover rate (%) 68.03
The text and notes are an integral part of the financial statements.
20 State Street Research Capital Fund
<PAGE>
<TABLE>
<CAPTION>
Class B
================================================================
Years ended September 30
----------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.82 13.29 13.40 14.24 11.45
----- ----- ----- ----- -----
Net investment loss ($) (0.12) (0.14) (0.17) (0.22) (0.22)
Net realized and unrealized gain (loss)
on investments ($) 3.63 1.27 1.01 (2.44) 2.99
----- ----- ----- ----- -----
Total from investment operations ($) 3.51 1.13 0.84 (2.66) 2.77
----- ----- ----- ----- -----
Distributions from capital gains ($) (0.04) (1.02) -- (0.13) (1.32)
----- ----- ----- ----- -----
Total distributions ($) (0.04) (1.02) -- (0.13) (1.32)
----- ----- ----- ----- -----
Net asset value, end of year ($) 13.29 13.40 14.24 11.45 12.90
===== ===== ===== ===== =====
Total return (%)(b) 35.90 9.33 6.27 (18.78) 25.74
Ratios/Supplemental Data
=================================================================================================================
Net assets at end of year ($ thousands) 203,446 386,899 562,392 365,547 318,695
Expense ratio (%) 2.08 2.01 1.98 2.13 2.15
Expense ratio after expense reductions (%) 2.08 2.01 1.98 2.13 2.13
Ratio of net investment loss to
average net assets (%) (1.10) (1.13) (1.32) (1.63) (1.77)
Portfolio turnover rate (%) 214.59 215.07 230.66 86.34 68.03
</TABLE>
<TABLE>
<CAPTION>
Class C
================================================================
Years ended September 30
----------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.83 13.31 13.42 14.26 11.47
----- ----- ----- ----- -----
Net investment loss ($) (0.12) (0.14) (0.17) (0.22) (0.22)
Net realized and unrealized gain (loss)
on investments ($) 3.64 1.27 1.01 (2.44) 3.00
----- ----- ----- ----- -----
Total from investment operations ($) 3.52 1.13 0.84 (2.66) 2.78
----- ----- ----- ----- -----
Distributions from capital gains ($) (0.04) (1.02) -- (0.13) (1.32)
----- ----- ----- ----- -----
Total distributions ($) (0.04) (1.02) -- (0.13) (1.32)
----- ----- ----- ----- -----
Net asset value, end of year ($) 13.31 13.42 14.26 11.47 12.93
===== ===== ===== ===== =====
Total return (%)(b) 36.07 9.23 6.26 (18.76) 25.77
Ratios/Supplemental Data
=================================================================================================================
Net assets at end of year ($ thousands) 95,797 190,319 120,051 55,208 41,235
Expense ratio (%) 2.08 2.01 1.98 2.13 2.15
Expense ratio after expense reductions (%) 2.08 2.01 1.98 2.13 2.13
Ratio of net investment loss to
average net assets (%) (1.09) (1.13) (1.30) (1.63) (1.77)
Portfolio turnover rate (%) 214.59 215.07 230.66 86.34 68.03
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) January 1, 1999 (commencement of share class) to September 30, 1999.
(d) Not annualized.
(e) Annualized.
The text and notes are an integral part of the financial statements.
21
<PAGE>
Financial Highlights CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class S
================================================================
Years ended September 30
----------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.99 13.66 13.94 14.96 12.16
----- ----- ----- ----- -----
Net investment loss ($) (0.01) (0.01) (0.05) (0.09) (0.10)
Net realized and unrealized gain (loss)
on investments ($) 3.72 1.31 1.07 (2.58) 3.20
----- ----- ----- ----- -----
Total from investment operations ($) 3.71 1.30 1.02 (2.67) 3.10
----- ----- ----- ----- -----
Distributions from capital gains ($) (0.04) (1.02) -- (0.13) (1.32)
----- ----- ----- ----- -----
Total distributions ($) (0.04) (1.02) -- (0.13) (1.32)
----- ----- ----- ----- -----
Net asset value, end of year ($) 13.66 13.94 14.96 12.16 13.94
===== ===== ===== ===== =====
Total return (%)(b) 37.30 10.41 7.32 (17.94) 27.06
Ratios/Supplemental Data
=================================================================================================================
Net assets at end of year ($ thousands) 47,553 34,835 189,778 113,118 90,751
Expense ratio (%) 1.08 1.01 0.96 1.14 1.15
Expense ratio after expense reductions (%) 1.08 1.01 0.96 1.14 1.13
Ratio of net investment loss to
average net assets (%) (0.07) (0.08) (0.37) (0.63) (0.77)
Portfolio turnover rate (%) 214.59 215.07 230.66 86.34 68.03
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
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 portfolio holdings, 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, 1999, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 5, 1999
The text and notes are an integral part of the financial statements.
22 State Street Research Capital Fund
<PAGE>
Board of Trustees
Ralph F. Verni
Chairman of the Board, President,
Chief Executive Officer and Director,
State Street Research & Management Company
Bruce R. Bond
Former Chairman of the Board,
Chief Executive Officer and President,
PictureTel Corporation
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.
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, Founders Investments Ltd.
President, The Glen Ellen Company
Michael S. Scott Morton
Jay W. Forrester Professor of Management,
Sloan School of Management,
Massachusetts Institute of Technology
State Street Research Capital Fund
- --------------------------------------------------------------------------------
Report on Special Meeting of Shareholders
A Special Meeting of Shareholders of the State Street Research Capital Fund
("Fund"), along with shareholders of other series of State Street Research
Capital Trust ("Trust"), was convened on April 6, 1999 ("Meeting"). The results
of the Meeting are set forth below.
Action on Proposal
The following persons were elected as Trustees:
Votes (millions of shares)
For Withheld
- --------------------------------------------------------------------------------
Bruce R. Bond 51.8 1.5
Steve A. Garban 51.8 1.5
Malcolm T. Hopkins 51.6 1.6
Susan M. Phillips 51.7 1.5
<PAGE>
[LOGO] STATE STREET RESEARCH
One Financial Center o Boston, MA 02111
Contact Information for
Investor Services
- --------------------------------------------------------------------------------
New accounts
[GRAPHIC] contact your financial
professional for assistance
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
Mutual fund purchases, exchanges, and
account information
[GRAPHIC] internet
www.ssrfunds.com
[GRAPHIC] e-mail
[email protected]
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] fax
1-617-737-9722
(request confirmation number
first from Service Center:
1-800-562-0032)
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
For 24-hour
Automated Access
to Your Account
[GRAPHIC] www.ssrfunds.com
[GRAPHIC] 1-800-562-0032
OverView
- --------------------------------------------------------------------------------
For more information on the products and services mentioned in OverView, our
shareholder newsletter, visit our Web site at www.ssrfunds.com
State Street Research
Spectrum of Funds
- --------------------------------------------------------------------------------
Aggressive
Growth Funds
Global Resources Fund
Emerging Growth Fund
Capital Fund
Aurora Fund
International Equity Fund
Growth Fund
Galileo Fund
Legacy Fund
Growth & Income Funds
Argo Fund
[GRAPHIC] Investment Trust
Alpha Fund
Strategic Growth & Income Fund
Strategic Income Plus Fund
Income Funds
High Income Fund
Strategic Income Fund
New York Tax-Free Fund
Tax-Exempt Fund
Government Income Fund
Money Market Fund
Conservative
State Street Research
- --------------------------------------------------------------------------------
FYI
o Since October, the State Street Research Capital Fund has a new portfolio
manager, Cathy Dudley.
o State Street Research has completed Y2K compliance testing. Visit our Web
site at www.ssrfunds.com to learn more.
o Did you know that you can give a State Street Research mutual fund as a
gift? Call a service center representative at 1-800-562-0032 to learn
more.
--------------------------------------------
[GRAPHIC]
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1998
--------------------------------------------
for Excellence in Shareholder Service
- --------------------------------------------------------------------------------
This report must be accompanied or preceded by a current State Street Research
Capital Fund prospectus. When used after December 31, 1999, this report must be
accompanied by a current Quarterly Performance Update.
To obtain a prospectus on any State Street Research Fund call 1-800-562-0032.
The prospectus contains more complete information, including sales charges and
expenses. Please read the prospectus carefully before investing or sending
money.
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:(exp1100)SSR-LD CF-412G-1199
<PAGE>
[LOGO] State Street Research [PHOTO]
Emerging Growth Fund
- --------------------------------------------------------------------------------
Annual Report to Shareholders
September 30, 1999
- -------------------------
In this Report
- -------------------------
Why this
Bull Market
Has Been a Bear for
Many Investors
[PHOTO]
plus
The U.S. Economy:
As Good as it Was, as Good as it Gets
Measuring Market Breadth
Fund Portfolio and Financials
<PAGE>
Contents
2 12 Months in Review
A look at the fund and its market
environment over the past 12 months
6 Performance in Perspective
The most recent performance in the
context of the fund's track record
8 The Fund in Detail
Portfolio holdings, financials and notes
- --------------------------------------------------------------------------------
From the Chairman
75 Years Ago
State Street Research introduced one of the nation's first mutual funds and
pioneered management and research methods that have become industry standard
today. We were also one of the first firms to provide candid commentary on fund
performance. And in recent years, we have been recognized for our prospectus
simplification and plain English communications.
[PHOTO]
Ralph F. Verni
Our newly designed shareholder reports come out of that same tradition. We think
the educational format, lively graphics and plain English style will make it
easier for you to understand how your fund performed -- and why. We hope you
agree.
We're proud to celebrate 75 years of excellence. But as we get ready to turn the
calendar to the year 2000, our focus is on the future. We thank you for your
confidence, and we look forward to continuing to help you work toward your
financial goals in the years ahead.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman, State Street Research
September 30, 1999
[GRAPHIC]
- --------
12 Month Review Management's Discussion of Fund Performance Part 1
- --------
How State Street Research
Emerging Growth Fund Performed
The environment for stocks was generally favorable throughout the year, which
helped the fund return 29.10%.(1) The performance was slightly lower than the
Russell 2000 Growth Index(2), which gained 32.63% over the same period.
Reasons for the Fund's Performance
The fund's significant investment in technology stocks contributed to its strong
performance during the year. In particular, the fund benefited by emphasizing
the rapidly growing Internet sector and Internet infrastructure-related stocks.
Health care delivered mixed results as one of the fund's best performers was
Biovail, a biotechnology company; and one of the worst performers was a medical
delivery firm, Total Renal Care, which suffered a series of earnings setbacks.
The fund's financial services stocks were hurt by rising interest rates and were
a drag on performance.
Class A Shares(1)
[Clip Art]
29.10%
How the Fund is Positioned
for the Period Ahead
We continue to favor rapidly growing companies with high quality management,
especially those in the consumer and technology sectors.
Our Outlook
The U.S. economy is in the ninth year of its current business cycle, and so far
conditions remain strong -- but not too strong. However, we will monitor the
situation, especially in regards to possible changes in interest rates. With a
recent track record of more positive earnings revisions and fewer negative
surprises, small company stocks offer strong growth prospects for the period
ahead.
Russell 2000
Growth Index(2)
[Clip Art]
32.63%
More Management's Discussion of Fund Performance on pages 6 and 7. |_|
We continue to favor rapidly growing companies with high quality management.
[PHOTO]
[PHOTO]
Jim Weiss
Tucker Walsh
Portfolio Managers,
State Street Research
Emerging Growth Fund
Because financial markets and mutual fund strategies are constantly evolving,
it's possible that the fund's holdings, market stance, outlook for various
industries or securities and other matters discussed in this report have changed
since this information was prepared. Portfolio changes should not be considered
recommendations for action by individual investors.
2 State Street Research Emerging Growth Fund
<PAGE>
------------------------------------------------------------------------
[PHOTO] The Fund at a Glance as of 9/30/99
------------------------------------------------------------------------
State Street Research Emerging Growth Fund is an aggressive growth fund
that focuses on small emerging growth companies.
Total net assets: $93 million
Top 10 Holdings
Issuer/security % of fund assets
1 Intelligent Polymers 5.1%
2 Biovail 4.0%
3 USA Networks 1.8%
4 Verio 1.8%
5 Abacus Direct 1.7%
6 Young & Rubicam 1.5%
7 Cinar Films 1.5%
8 Steiner Leisure 1.4%
9 Valassis Communications 1.4%
10 Network Solutions 1.4%
Total 21.6%
See page 11 for more detail.
Top 5 Industries
% of fund assets
- ------------------------------------------------
Communications Technology 13.5%
- ------------------------------------------------
- ------------------------------------------------
Commercial Services 13.4%
- ------------------------------------------------
- ------------------------------------------------
Retail 9.6%
- ------------------------------------------------
- ------------------------------------------------
Drugs & Biotechnology 9.1%
- ------------------------------------------------
- ------------------------------------------------
Communications, Media & Entertainment 4.7%
- ------------------------------------------------
Performance: Class A
Year ended 9/30/99: 29.10%(1)
Fund average annual total return(3, 5)
Life
of Fund
1 Year 3 Years 5 Years (10/4/93)
- ------------------------------------------------
21.67% 8.04% 10.79% 6.95%
See page 6 and 7 for data on other share classes.
Russell 2000 Growth Index(2)
Life
of Fund
1 Year 3 Years 5 Years (10/4/93)
- ------------------------------------------------
32.63% 7.14% 12.16% 10.21%
Ticker Symbols
State Street Research Emerging Growth Fund Class A: SCGAX Class B(1): SCGPX*
Class B: SCGBX Class C: SGCDX Class S: SGCCX*
- --------------------------------------------------------------------------------
As Good as it Was, as Good as it Gets
Add one more year to one of the most prosperous economic cycles of the century.
1998 ended with a burst of unexpected strength. And although the pace has slowed
just enough to keep inflation under control in 1999, the Federal Reserve Board
made good on its promise to continue to keep a lid on inflation for the future.
The Fed raised short-term interest rates twice between June and August.
But inflationary pressure has begun to mount. Soaring energy prices pushed the
Consumer Price Index up 2.3%, compared to 1.6% one year ago. Households continue
to spend more than they earn as home and auto sales remain robust. Consumer
confidence hit a record high in June, but fell during July, August and
September. For younger and less wealthy Americans, confidence has been on a
downward trend for some time.
Higher interest rates have hurt bonds more than stocks. Most bonds lost ground
as the yield on the 30-year U.S. Treasury benchmark rose above 6.0% in June and
stayed there until late in the period. The S&P 500(4), a broad measure of common
stock performance, rose 27.79%. However, a disproportionate share of the
market's gains belonged to large-company growth stocks. Outside the top 50
stocks, returns have been flat to down for the period. That means the average
investor is looking at a portfolio that is out of step with the S&P 500.
Inflationary Pressure
Has Started to Build
[The following table was represented as a bar chart in the printed materials.]
Q4 '98 1.6%
Q1 '99 1.6%
Q2 '99 2.1%
Q3 '99 2.3%
Source: Haver Analytics. Bureau of Economic Analysis.
- --------------------------------------------------------------------------------
(1) Does not reflect sales charge.
(2) 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 into the index.
(3) At maximum applicable sales charge.
(4) The S&P 500 (Officially the "Standard & Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly into the
index.
(5) Performance results for the fund are increased by the voluntary reduction
of fund fees and expenses; without subsidization, performance would have
been lower.
* Proposed
3
<PAGE>
[GRAPHIC] The Way We Think
Why this Bull Market
Has Been a Bear
for Many Investors
[GRAPHIC]
It's been another good year for stocks. But the markets' double digit gains have
not necessarily filtered down to the average investor. The reason? A phenomenon
called market breadth, a technical measure of how many stocks are participating
in the market's current trend. For the past year, market breadth has been
narrow, and that's generally bad.
Beyond the Box Scores
When market breadth is narrow, it means that only a handful of stocks have
shared in the biggest gains. For example, although the S&P 500, a broad measure
of common stock performance, gained 28.7% in 1998, the top 50 stocks in the
index were up 40.0%. Since January, the technology driven Nasdaq has risen a
stunning 25.24% while the average New York Stock Exchange stock has lost 20%.
When the top-performing group of stocks diverges sharply from the average, it
also puts pressure on mutual funds. Funds that owned a broad list of stocks, or
focused on value, or small- or mid-cap stocks, were left out of the party. Even
funds that owned big winners, such as Microsoft, Cisco and Intel, were destined
to lag unless they overweighted them. And most managers are reluctant to
concentrate their investments in any one small group of stocks because it can be
risky and less rewarding over the long term.
Narrow Markets Give Way
Historical data suggest that a narrow market trend is less sustainable than a
broad one. Narrow markets eventually give way. They either broaden to take other
stocks up with them, or they get pulled down under the weight of the rest of the
market.
And the type of investment that leads the market changes. For four years
[GRAPHIC] The Year's Hits & Misses [GRAPHIC]
- --------------------------------------------------------------------------------
Abacus Direct
provides purchase information to direct marketers. The company gathers data on
purchases from direct mail retailers then resells it to marketers seeking to
identify likely customers of their own products. We zeroed in on Abacus Direct
because it was part of the business services group, which we had identified
because of the group's predictable and highly visible earnings growth. We liked
Abacus because of its core business and the potential it offered for directing
marketing applications through the Internet. Our confidence was rewarded as the
stock price rose on its own merits following our purchase of the stock in
February. Then, it took off when Double Click, an online Internet advertising
company, made an offer to acquire it late in the period. We believe the
acquisition would create an attractive combined entity with significant future
growth potential, and we continue to own the stock.
Total Renal Care
is one of the leading providers of dialysis and related services for chronic
kidney failure. With a substantial market to pursue -- and a significant market
share -- the company looked attractive to us because of its track record of
strong earnings growth. However, a series of earnings disappointments have
raised questions about the company's financial controls and management
credibility. As a result, we are reevaluating our investment in the company. At
the end of the period, Total Renal Care represented less than 1% of the
portfolio. However, its declining stock price dealt a significant loss to the
fund's performance during the year.
- --------------------------------------------------------------------------------
4 State Street Research Emerging Growth Fund
<PAGE>
running, large-company growth stocks have been the strongest performers [see
table]. However, between 1993-1994 the Morgan Stanley Capital International EAFE
Index(6), a broad measure of foreign stock market performance, topped the
charts. In 1991-1992, the Russell 2000 Index(7), which tracks the performance of
small stocks, was king of the hill. And in 1990, the last year the stock market
suffered a serious correction, bonds beat stocks.
Top Performing Indexes
1990 -- 1998
- --------------------------------------------------------------------------------
1990 Lehman Bros Aggregate Bond Index(8) 8.96%
- --------------------------------------------------------------------------------
1991 Russell 2000 Growth(9) 51.18%
- --------------------------------------------------------------------------------
1992 Russell 2000 Value 29.15%
- --------------------------------------------------------------------------------
1993 MSCI EAFE 32.57%
- --------------------------------------------------------------------------------
1994 MSCI EAFE 7.78%
- --------------------------------------------------------------------------------
1995 S&P 500/BARRA Growth(10) 38.13%
- --------------------------------------------------------------------------------
1996 S&P 500/BARRA Growth 23.97%
- --------------------------------------------------------------------------------
1997 S&P 500/BARRA Growth 36.52%
- --------------------------------------------------------------------------------
1998 S&P 500/BARRA Growth 42.16%
- --------------------------------------------------------------------------------
A Rare Divergence
In fact, the period between 1995-1999 has been an anomaly for the stock market.
The last time there was such a sharp divergence between the top and bottom of
the market was in 1972-1973, when investor attention focused on a narrow band of
stocks known as the "nifty fifty." However, the aftermath of that period was
devastating for some of the most popular stocks of the period, such as Polaroid,
Burroughs and Emery Air Freight. It's hard to imagine some of today's high
flyers sharing a similar fate, but back then it was hard to imagine they
wouldn't keep going higher.
Lessons of the Past
The key lesson for investors today is that diversification still makes sense.
It doesn't necessarily result in top performance in the short term, but when the
market broadens, you'll already be on board.
A Closer Look [GRAPHIC]
Measuring Market Breadth
In order to measure the underlying strength of the stock market, technicians
study the relationship between the number of stocks that have advanced versus
the number that have declined. They're also interested in how many stocks are
hitting new highs compared to those hitting new lows. The math is simple. They
subtract decliners from advancers and new lows from new highs and plot the
results on daily charts in order to create trend lines. When few stocks
participate in a trend or trendsetters cluster in a certain segment of the
market, market breadth is narrow and the trend is unconfirmed. When many stocks
are participating, market breadth is broad and the trend is considered strong
and sustainable.
What's Changed? State Street Research Emerging Growth Fund
- --------------------------------------------------------------------------------
Top Five Sectors % of Fund Assets
September 30, 1998
[The following table was represented as a pie chart in the printed material.]
Other Energy 4.4%
Consumer Discretionary 23.2%
Health Care 20.5%
Technology 16.8%
Financial Services 14.1%
September 30, 1999
[The following table was represented as a pie chart in the printed material.]
Producer Durables 5.0%
Health Care 11.1%
Consumer Discretionary 33.8%
Financial Services 13.2%
Technology 23.0%
- --------------------------------------------------------------------------------
(6) The Morgan Stanley EAFE Index comprises stocks from Europe, Australasia,
and the Far East. The index is unmanaged and does not take sales charges
into consideration. It is not possible to invest directly in the index.
(7) The Russell 2000 Index is an index of the 2000 smallest stocks within the
Russell 3000 Index. The index is unmanaged and does not take transaction
charges into consideration. It is not possible to invest directly in the
index.
(8) The Lehman Brothers Aggregate Bond Index comprises more than 5,000 taxable
government bonds, investment-grade corporate bonds, and mortgage backed
securities. The index does not take transaction charges into
consideration. It is not possible to invest directly in the index.
(9) 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.
(10) The S&P 500/BARRA Growth Index contains growth companies with low
book-to-price ratios. It is the complementary part of the S&P 500/BARRA
Value Index. The index does not take transaction charges into
consideration. It is not possible to invest directly in the index.
5
<PAGE>
[GRAPHIC]
- -----------
Performance in Perspective Management's Discussion of Fund Performance Part 2
- -----------
Performance Figures as of September 30, 1999
These two pages focus on the fund's long-term track record. While a mutual
fund's past performance is never a guarantee of future results, long-term
returns can serve as an important context for evaluating recent performance.
Three ways of measuring long-term performance are cumulative returns, average
annual returns and the change in dollar value over time of a given investment.
Information about these measures follows, while the share class boxes contain
the results of these measures for each share class.
Cumulative Total Return
This represents the total percentage you would have earned or lost if you had
invested a lump sum in the fund and left it there until the end of the period
indicated. Performance would be lower if sales charges were reflected.
Average Annual Total Return
Average annual total return percentage is the rate you would have had to earn
during each year of a given time period -- say, five years -- in order to end up
with the fund's actual cumulative return for those five years. In reality, of
course, fund performance varies from year to year. Because of this, a fund's
actual performance for a given year may be higher or lower than an average
annual performance figure.
$10,000 Over Life of Fund
This example is similar to cumulative total return, but uses dollars rather than
percentages, and assumes that the lump sum you invested was $10,000. It also
compares fund performance to the performance of a market index.
- --------------------------------------------------------------------------------
Class A Front Load
- ---------------
o Initial sales charge of 5.75% or less, with lower sales charges for larger
investments (see a prospectus for details)
o Lower annual expenses than Class B(1) or Class C shares because of lower
service (12b-1) fee of 0.25%
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (10/4/93)
(does not reflect -----------------------------------------------------
sales charge) 29.10% 33.79% 77.09% 58.73%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (10/4/93)
(at maximum applicable ---------------------------------------------------
sales charge) 21.67% 8.04% 10.79% 6.95%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed manterial.]
Class A S & P 500 Russell 2000 Growth Index
------- --------- -------------------------
"93" 9425 10000 10000
"94" 7962 10368 10088
"95" 9013 13448 12930
"96" 10539 16181 14561
"97" 15598 22722 17961
"98" 10922 24785 13501
"99" 14961 31672 17905
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B(1) Back Load for accounts opened after 1/1/99
- ------------------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (10/4/93)
(does not reflect ----------------------------------------------
sales charge) 28.37% 30.96% 70.76% 52.35%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (10/4/93)
(at maximum applicable ----------------------------------------------
sales charge) 23.37% 8.61% 11.03% 7.16%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed manterial.]
Class B(1) S & P 500 Russell 2000 Growth Index
---------- --------- -------------------------
"93" 10000 10000 10000
"94" 8921 10368 10088
"95" 10031 13448 12930
"96" 11634 16181 14561
"97" 17090 22722 17961
"98" 11868 24785 13501
"99" 15135 31672 17905
- --------------------------------------------------------------------------------
6 State Street Research Emerging Growth Fund
<PAGE>
- --------------------------------------------------------------------------------
Class B Back Load for accounts opened before 1/1/99
- ---------------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within five years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (10/4/93)
(does not reflect ----------------------------------------------
sales charge) 28.37% 30.96% 70.76% 52.35%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (10/4/93)
(at maximum applicable ----------------------------------------------
sales charge) 23.37% 8.61% 11.03% 7.28%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed manterial.]
Class B S & P 500 Russell 2000 Growth Index
------- --------- -------------------------
"93" 10000 10000 10000
"94" 8921 10368 10088
"95" 10031 13448 12930
"96" 11634 16181 14561
"97" 17090 22722 17961
"98" 11868 24785 13501
"99" 15235 31672 17905
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Level Load
- ---------------
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (10/4/93)
(does not reflect ----------------------------------------------
sales charge) 28.21% 31.07% 70.77% 52.35%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (10/4/93)
(at maximum applicable ----------------------------------------------
sales charge) 27.21% 9.44% 11.30% 7.28%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed manterial.]
Class C S & P 500 Russell 2000 Growth Index
------- --------- -------------------------
"93" 10000 10000 10000
"94" 8921 10368 10088
"95" 10031 13448 12930
"96" 11623 16181 14561
"97" 17103 22722 17961
"98" 11883 24785 13501
"99" 15235 31672 17905
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class S Special Programs
- ---------------
o Available through certain retirement accounts, advisory accounts of the
investment manager and other programs that usually involve special
conditions and separate fees (see a prospectus for details)
o No sales charges of any kind
o No distribution/service (12b-1) fees; annual expenses are lower than for
other share classes
Life of Fund
Cumulative Total Return 1 Year 3 Years 5 Years (10/4/93)
(does not reflect ----------------------------------------------
sales charge) 29.59% 34.90% 79.45% 61.60%
Life of Fund
Average Annual Total Return 1 Year 3 Years 5 Years (10/4/93)
(at maximum applicable ----------------------------------------------
sales charge) 29.59% 10.49% 12.41% 8.34%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed manterial.]
Class S S & P 500 Russell 2000 Growth Index
------- --------- -------------------------
"93" 10000 10000 10000
"94" 9005 10368 10088
"95" 10230 13448 12930
"96" 11979 16181 14561
"97" 17770 22722 17961
"98" 12470 24785 13501
"99" 16160 31672 17905
- --------------------------------------------------------------------------------
A Closer Look [GRAPHIC]
12b-1 fees
12b-1 fees are named after the SEC rule that permits them.
The fund pays 12b-1 fees to cover service and distribution costs. The fees cover
personal services and the maintenance of shareholder accounts.
The fees also cover selling and marketing expenditures for the sale of fund
shares.
The fund pays 12b-1 fees out of its assets, so shareholders see them as an
indirect charge rather than a direct charge.
All of the performance figures on these pages assume reinvestment of dividends
and distributions.
The average annual total returns for the fund also include the effects of any
fees and sales charges that would apply for each share class.
The S&P 500 (officially, the "Standard & Poor's 500 Stock Price Index") is an
unmanaged index of 500 U.S. stocks. The index does not take transaction charges
into consideration. It is not possible to invest directly in the index.
Keep in mind that past performance is no guarantee of future results. The fund's
share price and return will fluctuate and you may have a gain or loss when you
sell your shares.
Class B(1) was introduced January 1, 1999.
7
<PAGE>
[GRAPHIC]
- --------
The Fund in Detail
- --------
The following pages describe the fund in detail as of the date of this report.
They provide a "snapshot" of the fund's holdings at one moment in time (the
report date), describe the financial dimensions of its operations for the past
fiscal year and give a summary of operations on a per share basis for the past
five fiscal years. There's also an overview of the fund and its business
structure, as well as information on the accounting policies the fund uses in
arriving at the figures it presents here.
[PHOTO]
Together, the words and numbers in this section offer a comprehensive picture of
the fund and its recent activities. In fact, the text and notes on pages 9 to 22
are an integral part of the financial statements, which wouldn't be complete
without them.
For more information about the fund's strategies, risks and expenses, check the
fund's prospectus; you'll need to read it before making any investments. The
prospectus also has more details on the fund's share classes and its policies
for shareholder accounts. To get a copy of any State Street Research prospectus,
see the back cover of this report.
Keep in mind that in annual reports, the portfolio holdings and financial
statements are audited, while in semiannual reports they are unaudited.
8 State Street Research Emerging Growth Fund
<PAGE>
About the Fund
- --------------------------------------------------------------------------------
Business structure
State Street Research Emerging Growth Fund is a mutual fund that allows
shareholders to pool their assets for investment in a portfolio of securities.
This fund is a series of State Street Research Capital Trust, a Massachusetts
business trust and is an open-end management investment company.
Four entities administer the fund's main business functions:
o The board of trustees oversee the fund with its shareholders' interests in
mind and have ultimate responsibility for the fund's activities (see
inside back cover for trustee information).
o The investment manager, State Street Research & Management Company, is
responsible for the fund's investment and business activities and receives
the management fee as compensation.
o The distributor, State Street Research Investment Services, Inc., sells
shares of the fund, handles investor inquiries and transaction orders and
provides other shareholder services.
o The custodian, State Street Bank and Trust Company, holds fund securities,
provides data on their market value and handles related services.
The investment manager and the distributor are subsidiaries of Metropolitan Life
Insurance Company, better known as MetLife. State Street Bank and Trust Company
is not affiliated with MetLife (the similarity between its name and the names of
the investment manager and distributor is coincidental). A majority of the
trustees consists of people who are not affiliated with MetLife or any of its
subsidiaries. The distributor pays a portion of its fees to MetLife for services
it provides, including maintaining the accounts of some investors who hold
shares through their firm's employee benefit plans and other sponsored
arrangements.
Goal and strategy
The fund seeks 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.
Share classes
The fund generally offers four share classes, each with its own sales charge and
expense structure. The fund also offers an additional class of shares (Class B)
but only to current Class B shareholders through reinvestment of dividends and
distributions or through exchanges from existing Class B accounts of other State
Street Research funds.
The text and notes are an integral part of the financial statements.
9
<PAGE>
The Fund's Accounting Policies
- --------------------------------------------------------------------------------
In keeping with accounting principles generally accepted in the United States,
the fund has used the following policies in preparing the portfolio holdings and
financial statements in this report:
The fund values all portfolio securities as of the date of this report (or, if
that day wasn't a business day, then the most recent business day). The fund
uses the following methods for determining the values of various types of
securities:
o Listed securities -- The fund uses the price of the last sale on a
national securities exchange that was quoted before the close of the
New York Stock Exchange.
o Over-the-counter securities -- The fund uses the closing prices
quoted on the Nasdaq system. If a security hasn't traded that day,
or if it is not quoted on the Nasdaq system, the value is set at
halfway between the closing bid and asked quotations.
o Securities maturing within sixty days -- The fund adjusts the value
of these securities daily, moving them closer to the amount due on
maturity as the maturity date approaches.
The fund accounts for each purchase and sale of portfolio securities on the
trade date. In calculating realized gains or losses, the fund takes as its cost
basis the identified cost of securities sold.
The fund records investment income from portfolio securities as follows:
o Interest -- The fund accrues interest daily as it earns it.
o Cash dividends -- The fund accrues these on the ex-dividend date.
The fund may seek additional income by lending portfolio securities to qualified
institutions. By reinvesting any cash collateral it receives in these
transactions, the fund could realize additional gains or losses. If the borrower
fails to return the securities and the collateral has declined in value, the
fund could lose money. The fund accounts for income from the lending of its
securities by including it in interest income.
The fund distributes its net earnings to its shareholders. The fund calculates
these distributions using federal income tax regulations. As a result, they may
be different than if the fund used generally accepted accounting principles. The
fund distributes its earnings on the following schedule:
o Dividends from net investment income -- The fund ordinarily declares
and pays these annually, if any.
o Net realized capital gains -- The fund distributes these annually,
if any, and may make an additional distribution if tax regulations
make it necessary.
If the fund has no earnings to distribute, it won't make a distribution.
The fund does not intend to pay federal income tax. This is because it intends
to be exempt from taxes under Subchapter M of the Internal Revenue Code, in part
because it makes distributions as described above.
The Fund pays expenses as follows:
o Expenses attributed to the fund -- The fund pays these directly.
Examples of these expenses include the management fee, transfer
agent fee, custodian fee and distribution and service fees.
o Expenses attributed to the trust of which the fund is a series --
These expenses are divided up among all funds in the trust. Each
fund pays a proportional share. Examples of these expenses include
the legal fees and trustees fees.
The fund has used certain estimates and assumptions in preparing this report.
Although they are necessary in order to follow generally accepted accounting
principles, these estimates and assumptions affect several key areas, including
the reported amounts of assets and liabilities and income and expenses. Actual
results could differ from those estimates.
The fund's securities and investment practices carry certain risks.
The text and notes are an integral part of the financial statements.
10 State Street Research Emerging Growth Fund
<PAGE>
Portfolio Holdings September 30, 1999
- --------------------------------------------------------------------------------
The listings that begin on this page detail the fund's investment holdings as of
the report date. We have grouped the holdings by asset class and by smaller
sub-groups as well. For example, we have grouped this fund's stocks by sector of
the economy, and then by specific industry within each sector.
The solid colored circles (1) show the fund's ten largest holdings, with the
number in the circle showing where the holding ranks in the top ten.
- --------------------------------------------------------------------------------
Notes about specific elements of the financials are called out in boxes such as
this.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY TO SYMBOLS
* Denotes a security which has not paid a dividend during the last year.
+ Denotes an American Depositary Receipt, a form of ownership of foreign
securities that is traded in the United States and denominated in U.S.
dollars.
------------------------------------------------------------------------
Market
Issuer Shares Value
------------------------------------------------------------------------
Common Stocks 96.5% of net assets
Automobiles & Transportation
0.7% of net assets
------------------------------------------------------------------------
Air Transport 0.4%
Mesa Air Group, Inc.* 65,400 $400,575
---------------
Automotive Parts 0.3%
Gentex Corp.* 12,300 254,072
---------------
Total Automobiles & Transportation 654,647
---------------
Consumer Discretionary 33.8% of net assets
------------------------------------------------------------------------
Advertising Agencies 3.8%
Lamar Advertising Co. Cl. A* 18,000 891,000
(9) Valassis Communications Inc.* 28,900 1,269,794
Printing and Publishing
(6) Young & Rubicam Inc. 31,800 1,399,200
Business Service
---------------
3,559,994
---------------
Commercial Services 13.4%
A.C. Nielson Corp.* 14,500 328,969
(5) Abacus Direct Corp.* 12,700 1,547,812
Oil & Gas Producers
Allied Waste Industries Inc.* 39,470 461,306
Cheap Tickets Inc.* 25,300 819,087
Commerce One Inc.* 1,200 117,263
Copart Inc.* 36,100 665,594
GoTo.com Inc.* 19,200 1,000,800
Innotrac Corp.* 25,600 457,600
Maximus Inc.* 19,300 577,794
Netzero Inc.* 2,700 70,200
ProBusiness Services Inc.* 25,700 690,687
QRS Corp.* 4,900 314,213
StarMedia Network, Inc.* 20,900 767,422
(8) Steiner Leisure Ltd.* 53,225 1,330,625
Recreation
USWeb Corp.* 19,800 679,387
VerticalNet Inc.* 15,600 577,200
Waste Connections Inc.* 26,500 544,906
Yahoo!, Inc.* 3,605 647,098
Ziff-Davis Inc.* 38,100 812,006
---------------
12,409,969
---------------
Communications, Media & Entertainment 4.7%
Acme Communications Inc.* 5,900 179,950
(7) Cinar Films Inc. Cl. B* 44,300 1,340,075
Recreation
Citadel Communications Corp.* 20,400 696,150
Hearst-Argyle Television Inc.* 18,800 404,200
The text and notes are an integral part of the financial statements.
11
<PAGE>
Portfolio Holdings September 30, 1999 CONTINUED
Market
Issuer Shares Value
--------------------------------------------------------------------------
Communications, Media &
Entertainment continued
Infinity Broadcasting Corp. Cl. A* 36,000 $1,055,250
Insight Communications Inc.* 5,800 166,025
Sinclair Broadcast Group Inc.* 45,300 410,531
TiVo Inc.* 1,700 50,894
-----------
4,303,075
-----------
Consumer Electronics 0.2%
Xoom.com Inc.* 3,100 153,838
-----------
Consumer Products 0.4%
Yankee Candle Company, Inc.* 19,800 382,387
-----------
Consumer Services 1.2%
Bright Horizons Family Solutions Corp.* 25,000 390,625
DeVry Inc.* 36,400 728,000
-----------
1,118,625
-----------
Printing & Publishing 0.5%
Hollinger International, Inc. Cl. A 37,000 439,375
-----------
Retail 9.6%
Aviation Sales Co.* 15,000 285,000
Barbeques Galore Ltd.*+ 70,500 493,500
CSK Auto Corp.* 33,000 719,812
David's Bridal Inc.* 66,000 490,875
Drugstore.com Inc.* 2,100 76,125
EMusic.com Inc.* 51,100 760,112
eTOYS, Inc.* 14,700 978,469
Global Imaging Systems, Inc.* 46,400 690,200
Jones Apparel Group Inc.* 34,300 986,125
Linens 'n Things Inc.* 13,700 462,375
Men's Wearhouse, Inc.* 19,700 423,550
Mp3.com Inc.* 1,200 45,075
Sharper Image Corp.* 37,400 411,400
Ticketmaster Online City
Search, Inc. Cl. B* 18,600 449,888
(3) USA Networks Inc.* 42,300 1,639,125
-----------
Recreation
8,911,631
-----------
Total Consumer Discretionary 31,278,894
-----------
Consumer Staples 0.9% of net assets
--------------------------------------------------------------------------
Drug & Grocery Store Chains 0.9%
Duane Reade Inc.* 27,900 840,487
-----------
Total Consumer Staples 840,487
-----------
Financial Services 13.2% of net assets
--------------------------------------------------------------------------
Banks & Savings & Loan 2.9%
City National Corp. 11,900 399,394
Commercial Federal Corp. 23,400 459,225
One Valley Bancorp, Inc. 9,500 327,750
Saint Paul Bancorp, Inc. 18,400 420,900
TCF Financial Corp. 14,400 411,300
Telebanc Financial Corp.* 28,900 664,700
-----------
2,683,269
-----------
Financial Data Processing Services & Systems 4.4%
Bisys Group Inc.* 8,000 375,250
Concord EFS Inc.* 29,400 606,375
NextCard Inc.* 43,300 1,060,850
Nova Corp.* 35,696 892,400
Profit Recovery Group International Inc.* 25,500 1,137,937
-----------
4,072,812
-----------
Insurance 1.0%
Mutual Risk Management Ltd. 18,132 222,117
Terra Nova Holdings Ltd. Cl. A 22,100 705,819
-----------
927,936
-----------
Miscellaneous Financial 3.4%
Digital Insight Corp.* 1,000 15,000
FiNet.com Corp.* 46,300 140,347
Heller Financial Inc. Cl. A 25,300 569,250
Metris Companies Inc. 18,000 529,875
Prism Financial Corp.* 40,400 404,000
Radian Group Inc. 15,600 669,825
Security First Technologies Corp.* 21,900 851,362
-----------
3,179,659
-----------
Rental & Leasing Services: Commercial 0.5%
United Rentals Inc.* 19,700 428,475
-----------
Securities Brokerage & Services 1.0%
Knight/Trimark Group, Inc. Cl. A* 32,000 948,000
-----------
Total Financial Services 12,240,151
-----------
Health Care 11.1% of net assets
--------------------------------------------------------------------------
Drugs & Biotechnology 9.1%
(2) Biovail Corp.* 72,000 3,654,000
Drug
(1) Intelligent Polymers Ltd.* 94,900 4,673,825
Drug
Spiros Development Corp.* 8,700 60,900
-----------
8,388,725
-----------
Health Care Facilities 0.7%
Total Renal Care Holdings Inc.* 80,800 600,950
-----------
Health Care Services 0.4%
Healtheon Corp.* 9,900 366,300
-----------
The text and notes are an integral part of the financial statements.
12 State Street Research Emerging Growth Fund
<PAGE>
Market
Issuer Shares Value
------------------------------------------------------------------------
Hospital Supply 0.9%
Wesley Jessen VisionCare Inc.* 28,100 $876,369
------------
Total Health Care 10,232,344
------------
Materials & Processing 0.7% of net assets
------------------------------------------------------------------------
Building & Construction 0.7%
SLI Inc.* 31,022 661,156
------------
Total Materials & Processing 661,156
------------
Other 0.6% of net assets
------------------------------------------------------------------------
Multi-Sector 0.6%
Teleflex Inc. 13,800 545,100
------------
Total Other 545,100
------------
Other Energy 4.5% of net asset
------------------------------------------------------------------------
Offshore Drilling 0.5%
Atwood Oceanics Inc.* 15,000 458,438
------------
Oil & Gas Producers 2.9%
Abacan Resource Corp.* 397,200 69,510
Louis Dreyfus Natural Gas Corp.* 21,600 463,050
Maxx Petroleum Ltd.* 117,375 469,500
Ocean Energy Inc.* 43,800 446,212
Plains Resources Inc.* 24,900 445,088
St. Mary Land & Exploration Co. 17,200 449,350
Talisman Energy Inc.* 13,150 393,678
------------
2,736,388
------------
Oil Well Equipment & Services 1.1%
Calpine Corp.* 11,700 995,231
------------
Total Other Energy 4,190,057
------------
Producer Durables 5.0% of net assets
------------------------------------------------------------------------
Aerospace 0.7%
Heico Corp. Cl. A 31,500 606,375
------------
Electronics: Industrial 0.7%
Mettler Toledo International Inc.* 22,100 654,712
------------
Machinery 0.6%
Helix Technology Corp. 16,000 532,000
------------
Production Technology Equipment 1.8%
Cymer Inc.* 19,800 686,812
Dupont Photomasks Inc.* 10,600 488,263
KLA-Tencor Corp.* 7,500 487,500
------------
1,662,575
------------
Telecommunications Equipment 1.2%
American Tower Corp. Cl. A* 28,000 $547,750
L-3 Communications Holding Corp.* 15,400 581,350
------------
1,129,100
------------
Total Producer Durables 4,584,762
------------
Technology 23.0% of net assets
------------------------------------------------------------------------
Communications Technology 13.5%
About.com Inc.* 4,200 237,300
Alteon Websystems, Inc.* 2,000 188,000
Ask Jeeves Inc.* 11,800 407,100
Ciena Corp.* 31,600 1,153,400
Clarent Corp.* 1,100 56,031
Copper Mountain Networks Inc.* 2,800 245,350
Covad Communications Group Inc.* 21,650 943,805
Critical Path Inc.* 1,700 68,584
Digital Microwave Corp.* 57,800 906,737
Extreme Networks Inc.* 8,800 557,150
Foundry Networks, Inc.* 3,900 491,400
Go2Net, Inc.* 9,600 621,600
Inktomi Corp.* 1,200 144,038
InterVU Inc.* 11,400 423,225
Liberate Technologies, Inc.* 23,200 977,300
Mapquest.com Inc.* 27,300 324,188
Metromedia Fiber Network Inc. Cl. A* 12,337 302,257
Mpath Interactive, Inc.* 35,500 408,250
NetSolve, Inc.* 2,500 44,375
(10) Network Solutions Inc. Cl. A* 13,600 1,249,500
Communications Technology
NorthPoint Communications Group Inc.* 18,800 347,800
Packeteer Inc.* 17,400 592,687
Redback Networks Inc.* 1,600 172,800
Remec Inc.* 67,500 928,125
Tibco Software Inc.* 14,200 427,331
Worldgate Communications Inc.* 9,500 217,313
------------
12,435,646
------------
Computer Software 3.5%
Answerthink Consulting Group, Inc.* 20,200 194,425
Cadence Design Systems Inc. * 48,400 641,300
Citrix Systems Inc.* 17,200 1,065,325
Interactive Pictures Corp.* 2,100 45,150
Kana Communications, Inc.* 2,500 124,687
Phone.com Inc.* 1,000 151,500
Transaction Systems Architects Inc.
Cl. A* 22,400 603,400
VeriSign Inc.* 4,200 447,300
------------
3,273,087
------------
The text and notes are an integral part of the financial statements.
13
<PAGE>
Portfolio Holdings September 30, 1999 CONTINUED
Market
Issuer Shares Value
--------------------------------------------------------------------------
Computer Technology 3.3%
Gadzoox Networks Inc.* 1,600 $86,200
Radiant Systems Inc.* 47,300 765,669
(4) Verio Inc.* 52,200 1,618,200
Software Services
Zebra Technologies Corp. Cl. A* 13,600 618,375
------------
3,088,444
------------
Electronics 1.0%
Aeroflex Inc.* 73,800 899,438
------------
Electronics: Semi-Conductors/Components 1.7%
Benchmark Electronics Inc.* 26,500 935,781
Cypress Semiconductor Corp.* 30,100 647,150
------------
1,582,931
------------
Total Technology 21,279,546
------------
Utilities 2.1% of net assets
--------------------------------------------------------------------------
Electrical 0.7%
Illinova Corp. 21,700 608,956
------------
Telecommunications 1.4%
AirGate PCS, Inc.* 4,900 121,888
RCN Corp.* 21,200 869,200
Time Warner Telecom Inc.* 15,500 323,562
------------
1,314,650
------------
Total Utilities 1,923,606
------------
Non-US Equities 0.9% of net assets
--------------------------------------------------------------------------
Gulfstream Resources Ltd. 140,000 219,152
Post Energy Corp.* 118,000 586,266
Total Non-US Equities 805,418
------------
Total Common Stocks 89,236,168
------------
- -----------------------------------------------------------------------------
The fund paid a total of $73,587,536 for these securities.
- -----------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
14 State Street Research Emerging Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments 4.2% of net assets
AIM Liquid Assets Portfolio 3,931,870 $3,931,870
-----------------
Total Short-Term Investments 3,931,870
-----------------
- --------------------------------------------------------------------------------
The fund paid a total of $3,931,870 for these securities.
- --------------------------------------------------------------------------------
<CAPTION>
Coupon Maturity Amount of
Rate Date Principal
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper 2.8% of net assets
American Express Credit Corp. 5.26% 10/01/1999 $752,000 752,000
Ford Motor Credit Co. 5.36% 10/04/1999 1,836,000 1,836,000
-----------------
Total Commercial Paper 2,588,000
-----------------
- --------------------------------------------------------------------------------
The fund paid a total of $2,588,000 for these securities.
- --------------------------------------------------------------------------------
% of
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of Portfolio Assets
Investments 103.5% $95,756,038
Cash and Other Assets, Less Liabilities (3.5%) (3,251,041)
---------------- -----------------
Net Assets 100.0% $92,504,997
================ =================
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $80,107,406 for these securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Federal Income Tax Information
At September 30, 1999, the net unrealized appreciation of
investments based on cost for Federal income tax purposes
of $79,182,034 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $26,835,842
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (10,261,838)
-----------
$16,574,004
===========
At September 30, 1999, the fund had a capital loss carryforward of $5,296,006,
which expires on September 30, 2007.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
15
<PAGE>
Statement of
Assets and Liabilities September 30, 1999
- --------------------------------------------------------------------------------
This is the fund's balance sheet as of the report date. It shows the fund's
assets, its liabilities and, by subtraction, its net assets. It also shows the
share price for each share class as of the report date.
Assets
Investments, at market value $95,756,038
- --------------------------------------------------------------------------------
The fund paid a total of $80,107,406 for these securities.
- --------------------------------------------------------------------------------
Cash 80,383
Receivable for fund shares sold 697,540
Receivable for securities sold 694,086
Receivable from distributor 181,182
Dividends and interest receivable 10,122
Other assets 14,614
------------
97,433,965
Liabilities
Payable for collateral received on 3,931,870
securities loaned
Payable for securities purchased 516,700
Payable for shares redeemed 165,141
Accrued management fee 119,256
Accrued transfer agent and shareholder services 82,138
Accrued distribution and service fees 53,046
Accrued trustees' fees 17,575
Other accrued expenses 43,242
------------
4,928,968
------------
Net Assets $92,504,997
============
Net Assets consist of:
Unrealized appreciation of investments $15,648,632
Accumulated net realized loss (11,050,577)
Paid-in capital 87,906,942
------------
$92,504,997
============
- --------------------------------------------------------------------------------
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Net Assets / Number of Shares = NAV
A $31,383,900 2,849,374 $11.01*
B(1) $3,766,757 360,068 $10.46**
B $44,376,795 4,240,791 $10.46**
C $6,545,283 625,455 $10.46**
S $6,432,262 571,021 $11.26
* Maximum offering price per share $11.68
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
16 State Street Research Emerging Growth Fund
<PAGE>
Statement of
Operations For the year ended September 30, 1999
- --------------------------------------------------------------------------------
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
Dividends, net of foreign taxes $141,509
- --------------------------------------------------------------------------------
The fund paid foreign taxes of $272.
- --------------------------------------------------------------------------------
Interest 435,597
- --------------------------------------------------------------------------------
Includes $302,506 in income from the lending of portfolio securities. As of the
report date, the fund had a total of $19,842,819 of securities out on loan and
was holding a total of $19,948,956 in collateral (including $3,931,870 of cash
collateral) related to those loans.
- --------------------------------------------------------------------------------
------------
577,106
Expenses
Management fee 724,723
- --------------------------------------------------------------------------------
The management fee is 0.75% of average net assets, annually.
- --------------------------------------------------------------------------------
Transfer agent and shareholder services 536,501
- --------------------------------------------------------------------------------
Includes a total of $163,528 paid to the distributor for the services it
provided and to MetLife for similar services it provided, including maintaining
the accounts of some investors who hold shares through that firm's employee
benefit plans and other sponsored arrangements.
- --------------------------------------------------------------------------------
Custodian fee 145,243
Service fee - Class A 81,642
Distribution and service fees - Class B(1) 16,764
Distribution and service fees - Class B 488,749
Distribution and service fees - Class C 72,918
- --------------------------------------------------------------------------------
Payments made to the distributor under the fund's 12b-1 plans. The fees cover
personal services and the maintenance of shareholder accounts. The fees also
cover distribution and marketing expenditures for the sale of fund shares.
- --------------------------------------------------------------------------------
Registration fees 59,879
Reports to shareholders 24,933
Legal fees 24,223
Audit fee 22,962
Trustees' fees 17,575
- --------------------------------------------------------------------------------
Paid only to trustees who aren't currently affiliated with the adviser (the fund
doesn't pay trustees fees to affiliated trustees).
- --------------------------------------------------------------------------------
Miscellaneous 5,267
------------
2,221,379
Expenses borne by the Distributor (480,847)
Fees paid indirectly (17,532)
- --------------------------------------------------------------------------------
Represents transfer agent credits earned from uninvested cash balances.
- --------------------------------------------------------------------------------
------------
1,723,000
------------
Net investment loss (1,145,894)
------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized loss on investments (10,832,312)
- --------------------------------------------------------------------------------
To earn this, the fund sold $104,420,755 of securities. During this same period,
the fund also bought $88,744,776 worth of securities. These figures don't
include short-term obligations or U.S. government securities.
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 36,463,829
------------
Net gain on investments 25,631,517
------------
Net increase in net assets resulting
from operations $24,485,623
============
The text and notes are an integral part of the financial statements.
17
<PAGE>
Statement of
Changes in Net Assets
- --------------------------------------------------------------------------------
This shows how the fund's size changed over the report period, including changes
that resulted from investment performance as well as those that resulted from
shareholders buying and selling fund shares.
Years ended September 30
- --------------------------------------------------------------------------------
1998 1999
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $(910,786) $(1,145,894)
Net realized gain (loss)
on investments 6,291,426 (10,832,312)
Net unrealized appreciation
(depreciation)
of investments (42,446,270) 36,463,829
--------------------------------
Net increase (decrease)
resulting from operations (37,065,630) 24,485,623
--------------------------------
Distributions from net realized gains:
Class A (5,928,823) (1,253,862)
Class B (7,729,321) (1,968,205)
Class C (1,418,848) (310,824)
Class S (1,185,510) (221,009)
--------------------------------
(16,262,502) (3,753,900)
- --------------------------------------------------------------------------------
The fund has designated as long-term all of this amount.
- --------------------------------------------------------------------------------
--------------------------------
Net increase (decrease) from
fund share transactions 53,047,300 (17,371,058)
--------------------------------
Total increase (decrease)
in net assets (280,832) 3,360,665
--------------------------------
Net Assets
Beginning of year 89,425,164 89,144,332
--------------------------------
End of year $89,144,332 $92,504,997
================================
The text and notes are an integral part of the financial statements.
18 State Street Research Emerging Growth Fund
<PAGE>
- --------------------------------------------------------------------------------
These transactions break down by share class as follows:
<TABLE>
<CAPTION>
Years ended September 30
-----------------------------------------------------------------------------
1998 1999
-----------------------------------------------------------------------------
Class A Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 2,172,979 $25,345,033 4,968,247 $49,800,390*
Issued upon reinvestment of
distributions from net realized gains 462,113 5,446,850 127,972 1,229,924
Shares redeemed (1,369,043) (15,820,206) (5,731,015) (57,731,106)
-----------------------------------------------------------------------------
Net increase (decrease) 1,266,049 $14,971,677 (634,796) ($6,700,792)
-----------------------------------------------------------------------------
<CAPTION>
Class B(1)(a) Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Shares sold -- -- 375,316 $3,852,387**
Shares redeemed -- -- (15,248) (154,780)***
-----------------------------------------------------------------------------
Net increase -- -- 360,068 $3,697,607
-----------------------------------------------------------------------------
<CAPTION>
Class B Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 3,332,103 $38,626,876 670,763 $6,311,001**
Issued upon reinvestment of
distributions from net realized gains 522,996 5,952,742 203,644 1,869,477
Shares redeemed (1,079,812) (11,853,802) (2,093,387) (20,576,063)***
-----------------------------------------------------------------------------
Net increase (decrease) 2,775,287 $32,725,816 (1,218,980) ($12,395,585)
-----------------------------------------------------------------------------
<CAPTION>
Class C Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 712,013 $7,691,154 1,655,582 $16,046,613
Issued upon reinvestment of
distributions from net realized gains 74,509 848,275 31,662 290,973
Shares redeemed (454,421) (4,481,663) (1,888,067) (18,492,709)****
-----------------------------------------------------------------------------
Net increase (decrease) 332,101 $4,057,766 (200,823) ($2,155,123)
-----------------------------------------------------------------------------
<CAPTION>
Class S Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 254,611 $3,078,367 237,974 $2,451,542
Issued upon reinvestment of
distributions from net realized gains 98,988 1,185,510 22,552 221,009
Shares redeemed (249,446) (2,971,836) (239,161) (2,489,716)
-----------------------------------------------------------------------------
Net increase 104,153 $1,292,041 21,365 $182,835
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The trustees have the authority to issue an unlimited number of fund
shares, with a $.001 par value per share.
* Includes $89,143 and $445,713 in sales charges collected by the
distributor and MetLife.
** Like all broker-dealers, MetLife received commissions that were calculated
as a percentage of these sales but the commissions of $54,396 and $111,642
for Class B(1) and Class B, were paid by the distributor, not the fund.
*** Includes $2,553 and $132,796 in deferred sales charges collected by the
distributor for Class B(1) and Class B.
**** Includes $1,812 in deferred sales charges collected by the distributor.
(a) January 1, 1999 (commencement of share class) to September 30, 1999.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
19
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
These provide a summary of each share class's financial performance for the past
five fiscal years.
<TABLE>
<CAPTION>
Class A
==========================================================================
Years ended September 30
--------------------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.56 9.69 11.33 15.53 8.86
--------- --------- --------- --------- ---------
Net investment loss ($)* (0.08) (0.09) (0.08) (0.05) (0.08)
Net realized and unrealized gain (loss)
on investments ($) 1.21 1.73 5.13 (4.01) 2.60
--------- --------- --------- --------- ---------
Total from investment operations ($) 1.13 1.64 5.05 (4.06) 2.52
--------- --------- --------- --------- ---------
Distributions from capital gains ($) -- -- (0.85) (2.61) (0.37)
--------- --------- --------- --------- ---------
Total distributions ($) -- -- (0.85) (2.61) (0.37)
--------- --------- --------- --------- ---------
Net asset value, end of year ($) 9.69 11.33 15.53 8.86 11.01
========= ========= ========= ========= =========
Total return (%)(b) 13.20 16.92 48.00 (29.97) 29.10
Ratios/Supplemental Data
====================================================================================================================================
Net assets at end of year ($ thousands) 21,480 19,791 34,446 30,858 31,384
Expense ratio (%) 1.35 1.35 1.35 1.35 1.37
Expense ratio after expense reductions (%)* 1.35 1.35 1.35 1.35 1.35
Ratio of net investment loss to
average net assets (%)* (0.93) (0.96) (0.64) (0.45) (0.75)
Portfolio turnover rate (%) 178.60 155.85 273.33 98.30 93.38
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.06 0.04 0.04 0.02 0.05
<CAPTION>
Class B(1)
=========================
Period ended September 30
-------------------------
Per Share Data 1999 (a)(c)
====================================================================================================================================
Net asset value, beginning of period ($) 10.22
------------
Net investment loss ($)* (0.12)
Net realized and unrealized gain
on investments ($) 0.36
------------
Total from investment operations ($) 0.24
------------
Net asset value, end of period ($) 10.46
============
Total return (%)(b) 2.35(d)
Ratios/Supplemental Data
====================================================================================================================================
Net assets at end of period ($ thousands) 3,767
Expense ratio (%) 2.12(e)
Expense ratio after expense reductions (%)* 2.10(e)
Ratio of net investment loss to
average net assets (%)* (1.59)(e)
Portfolio turnover rate (%) 93.38
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.05
</TABLE>
The text and notes are an integral part of the financial statements.
20 State Street Research Emerging Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Class B
==========================================================================
Years ended September 30
--------------------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.52 9.58 11.11 15.09 8.48
--------- --------- --------- --------- ---------
Net investment loss ($)* (0.14) (0.17) (0.16) (0.14) (0.15)
Net realized and unrealized gain (loss)
on investments ($) 1.20 1.70 4.99 (3.86) 2.50
--------- --------- --------- --------- ---------
Total from investment operations ($) 1.06 1.53 4.83 (4.00) 2.35
--------- --------- --------- --------- ---------
Distributions from capital gains ($) -- -- (0.85) (2.61) (0.37)
--------- --------- --------- --------- ---------
Total distributions ($) -- -- (0.85) (2.61) (0.37)
--------- --------- --------- --------- ---------
Net asset value, end of year ($) 9.58 11.11 15.09 8.48 10.46
========= ========= ========= ========= =========
Total return (%)(b) 12.44 15.97 46.91 (30.56) 28.37
Ratios/Supplemental Data
====================================================================================================================================
Net assets at end of year ($ thousands) 26,489 23,656 40,512 46,315 44,377
Expense ratio (%) 2.10 2.10 2.10 2.10 2.12
Expense ratio after expense reductions (%)* 2.10 2.10 2.10 2.10 2.10
Ratio of net investment loss to
average net assets (%)* (1.67) (1.71) (1.40) (1.20) (1.50)
Portfolio turnover rate (%) 178.60 155.85 273.33 98.30 93.38
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.06 0.04 0.03 0.02 0.05
<CAPTION>
Class C
=====================================================================
Years ended September 30
---------------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.52 9.58 11.10 15.10 8.49
-------- -------- -------- -------- --------
Net investment loss ($)* (0.14) (0.16) (0.16) (0.14) (0.15)
Net realized and unrealized gain (loss)
on investments ($) 1.20 1.68 5.01 (3.86) 2.49
-------- -------- -------- -------- --------
Total from investment operations ($) 1.06 1.52 4.85 (4.00) 2.34
-------- -------- -------- -------- --------
Distributions from capital gains ($) -- -- (0.85) (2.61) (0.37)
-------- -------- -------- -------- --------
Total distributions ($) -- -- (0.85) (2.61) (0.37)
-------- -------- -------- -------- --------
Net asset value, end of year ($) 9.58 11.10 15.10 8.49 10.46
======== ======== ======== ======== ========
Total return (%)(b) 12.44 15.87 47.15 (30.52) 28.21
Ratios/Supplemental Data
====================================================================================================================================
Net assets at end of year ($ thousands) 7,391 4,503 7,460 7,012 6,545
Expense ratio (%) 2.10 2.10 2.10 2.10 2.12
Expense ratio after expense reductions (%)* 2.10 2.10 2.10 2.10 2.10
Ratio of net investment loss to
average net assets (%)* (1.67) (1.71) (1.41) (1.20) (1.50)
Portfolio turnover rate (%) 178.60 155.85 273.33 98.30 93.38
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.06 0.04 0.03 0.02 0.05
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) January 1, 1999 (commencement of share class) to September 30, 1999.
(d) Not annualized.
(e) Annualized.
The text and notes are an integral part of the financial statements.
21
<PAGE>
Financial Highlights CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class S
===========================================================================
Years ended September 30
---------------------------------------------------------------------------
Per Share Data 1995 (a) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.60 9.77 11.44 15.73 9.02
--------- --------- --------- --------- ---------
Net investment loss ($)* (0.06) (0.07) (0.04) (0.02) (0.05)
Net realized and unrealized gain (loss)
on investments ($) 1.23 1.74 5.18 (4.08) 2.66
--------- --------- --------- --------- ---------
Total from investment operations ($) 1.17 1.67 5.14 (4.10) 2.61
--------- --------- --------- --------- ---------
Distributions from capital gains ($) -- -- (0.85) (2.61) (0.37)
--------- --------- --------- --------- ---------
Total distributions ($) -- -- (0.85) (2.61) (0.37)
--------- --------- --------- --------- ---------
Net asset value, end of year ($) 9.77 11.44 15.73 9.02 11.26
========= ========= ========= ========= =========
Total return (%)(b) 13.60 17.09 48.34 (29.83) 29.59
Ratios/Supplemental Data
====================================================================================================================================
Net assets at end of year ($ thousands) 12,380 13,311 7,008 4,958 6,432
Expense ratio (%) 1.10 1.10 1.10 1.10 1.12
Expense ratio after expense reductions (%)* 1.10 1.10 1.10 1.10 1.10
Ratio of net investment loss to
average net assets (%)* (0.71) (0.71) (0.39) (0.19) (0.51)
Portfolio turnover rate (%) 178.60 155.85 273.33 98.30 93.38
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.06 0.04 0.03 0.02 0.05
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
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 portfolio holdings, 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, 1999, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States.
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 auditing standards generally accepted in the United States, 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, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 5, 1999
The text and notes are an integral part of the financial statements.
22 State Street Research Emerging Growth Fund
<PAGE>
Board of Trustees
Ralph F. Verni
Chairman of the Board, President,
Chief Executive Officer and Director,
State Street Research & Management Company
Bruce R. Bond
Former Chairman of the Board,
Chief Executive Officer and President,
PictureTel Corporation
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.
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, Founders Investments Ltd.
President, The Glen Ellen Company
Michael S. Scott Morton
Jay W. Forrester Professor of Management,
Sloan School of Management,
Massachusetts Institute of Technology
State Street Research Emerging Growth Fund
- --------------------------------------------------------------------------------
Report on Special Meeting of Shareholders
A Special Meeting of Shareholders of the State Street Research Emerging Growth
Fund ("Fund"), along with shareholders of other series of State Street Research
Capital Trust ("Trust"), was convened on April 6, 1999 ("Meeting"). The results
of the Meeting are set forth below.
Action on Proposal
The following persons were elected as Trustees:
Votes (millions of shares)
For Withheld
- --------------------------------------------------------------------------------
Bruce R. Bond 51.8 1.5
Steve A. Garban 51.8 1.5
Malcolm T. Hopkins 51.6 1.6
Susan M. Phillips 51.7 1.5
23
<PAGE>
[LOGO] STATE STREET RESEARCH
One Financial Center o Boston, MA 02111
Contact Information for
Investor Services
- --------------------------------------------------------------------------------
New accounts
[GRAPHIC] contact your financial
professional for assistance
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
Mutual fund purchases, exchanges, and
account information
[GRAPHIC] internet
www.ssrfunds.com
[GRAPHIC] e-mail
[email protected]
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] fax
1-617-737-9722
(request confirmation number
first from Service Center:
1-800-562-0032)
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
For 24-hour
Automated Access
to Your Account
[GRAPHIC] www.ssrfunds.com
[GRAPHIC] 1-800-562-0032
OverView
- --------------------------------------------------------------------------------
For more information on the products and services mentioned in OverView, our
shareholder newsletter, visit our Web site at www.ssrfunds.com
State Street Research
Spectrum of Funds
- --------------------------------------------------------------------------------
Aggressive
Growth Funds
Global Resources Fund
Emerging Growth Fund
Capital Fund
Aurora Fund
International Equity Fund
Growth Fund
Galileo Fund
Legacy Fund
Growth & Income Funds
Argo Fund
[GRAPHIC] Investment Trust
Alpha Fund
Strategic Growth & Income Fund
Strategic Income Plus Fund
Income Funds
High Income Fund
Strategic Income Fund
New York Tax-Free Fund
Tax-Exempt Fund
Government Income Fund
Money Market Fund
Conservative
State Street Research
- --------------------------------------------------------------------------------
FYI
o Since October, the State Street Research Emerging Growth Fund has two new
portfolio managers, Tucker Walsh and Jim Weiss.
o State Street Research has completed Y2K compliance testing. Visit our Web
site at www.ssrfunds.com to learn more.
o Did you know that you can give a State Street Research mutual fund as a
gift? Call a service center representative at 1-800-562-0032 to learn
more.
--------------------------------------------
[GRAPHIC]
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1998
--------------------------------------------
for Excellence in Shareholder Service
- --------------------------------------------------------------------------------
This report must be accompanied or preceded by a current State Street Research
Emerging Growth Fund prospectus. When used after December 31, 1999, this report
must be accompanied by a current Quarterly Performance Update.
To obtain a prospectus on any State Street Research Fund call 1-800-562-0032.
The prospectus contains more complete information, including sales charges and
expenses. Please read the prospectus carefully before investing or sending
money.
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:(exp1100)SSR-LD
EM-417G-1199
<PAGE>
[LOGO] STATE STREET RESEARCH [PHOTO]
Aurora Fund
- --------------------------------------------------------------------------------
Annual Report to Shareholders
September 30, 1999
- -------------------------
In this Report
- -------------------------
Why this
Bull Market
Has Been a Bear for
Many Investors
[PHOTO]
plus
The U.S. Economy:
As Good as it Was, as Good as it Gets
Measuring Market Breadth
Fund Portfolio and Financials
<PAGE>
Contents
2 12 Month Review
A look at the fund and its market
environment over the past 12 months
6 Performance in Perspective
The most recent performance in the
context of the fund's track record
8 The Fund in Detail
Portfolio holdings, financials and notes
- --------------------------------------------------------------------------------
From the Chairman
75 Years Ago
State Street Research introduced one of the nation's first mutual funds and
pioneered management and research methods that have become industry standard
today. We were also one of the first firms to provide candid commentary on fund
performance. And in recent years, we have been recognized for our prospectus
simplification and plain English communications.
[PHOTO]
Ralph F. Verni
Our newly designed shareholder reports come out of that same tradition. We think
the educational format, lively graphics and plain English style will make it
easier for you to understand how your fund performed -- and why. We hope you
agree.
We're proud to celebrate 75 years of excellence. But as we get ready to turn the
calendar to the year 2000, our focus is on the future. We thank you for your
confidence, and we look forward to continuing to help you work toward your
financial goals in the years ahead.
Sincerely,
/s/ Ralph F. Verni
Ralph F. Verni
Chairman, State Street Research
September 30, 1999
[GRAPHIC]
- --------
12 Month Review Management's Discussion of Fund Performance Part 1
- --------
How State Street Research
Aurora Fund Performed
The environment for stocks was generally favorable throughout the year, which
helped the fund return 22.88%.(1) The fund outperformed its peer group, the
Lipper Small-Cap Value Fund Average, which returned 12.33% for the year. Also,
it significantly outperformed the Russell 2000 Value Index(2), which gained a
modest 5.83% for the period.
Reasons for the Fund's Performance
A significant portion of the fund's assets was concentrated in cyclical
industries. And although these stocks failed to keep up with areas of the market
associated with technology, which delivered spectacular gains for the year, they
did respectably well. The fund's investment in real estate investment trusts got
off to a strong start early in the year, but the group gave back most of its
gains as uncertainty about interest rates and the economy materialized later in
the period.
Class A Shares(1)
[GRAPHIC]
22.88%
How the Fund is Positioned
for the Period Ahead
We continue to focus on individual companies with little regard to the economy
or the markets. We search for relatively small companies that are selling at
reasonable prices and offer the opportunity for strong future gains.
Our Outlook
At least a third of the fund is invested in companies that are associated with
industrial materials, auto parts, chemicals, electronics and machinery. And
while these areas are not growing at the pace of hot industries such as
biotechnology and the Internet, we believe the companies we own represent good
value for the period ahead.
Russell 2000
Value Index(2)
[GRAPHIC]
5.83%
More Management's Discussion of Fund Performance on pages 6 and 7. |_|
We search for small companies selling at reasonable prices with the potential
for strong gains.
[PHOTO]
Rudy Kluiber
Portfolio Manager,
State Street Research
Aurora Fund
Because financial markets and mutual fund strategies are constantly evolving,
it's possible that the fund's holdings, market stance, outlook for various
industries or securities and other matters discussed in this report have changed
since this information was prepared. Portfolio changes should not be considered
recommendations for action by individual investors.
2 State Street Research Aurora Fund
<PAGE>
------------------------------------------------------------------------
[PHOTO] The Fund at a Glance as of 9/30/99
------------------------------------------------------------------------
State Street Research Aurora Fund is a stock fund with a value approach
to small company investing.
Total net assets: $434 million
Top 10 Holdings
Issuer/security % of fund assets
1 Wyman-Gordon 3.4%
2 Transportation Technologies 2.6%
3 Coherent 2.5%
4 Imation 2.5%
5 Simpson Industries 2.1%
6 Stepan Chemical 1.9%
7 Harrah's Entertainment 1.9%
8 Specialty Equipment Companies 1.8%
9 Steinway Musical Instruments 1.8%
10 Bell & Howell 1.7%
Total 22.2%
See page 11 for more detail.
Top 5 Industries
% of fund assets
- -------------------------------------
Miscellaneous Materials
& Processing 7.9%
- -------------------------------------
- -------------------------------------
Automotive Parts 7.3%
- -------------------------------------
- -------------------------------------
Chemicals 6.0%
- -------------------------------------
- -------------------------------------
Electronics 4.2%
- -------------------------------------
- -------------------------------------
Real Estate Investment Trusts 3.9%
- -------------------------------------
Performance: Class A
Year ended 9/30/99: 22.88%(1)
Fund average annual total return(3, 5)
Life of Fund
1 Year 3 Years (2/13/95)
- ----------------------------------------------
15.82% 14.77% 22.19%
See pages 6 and 7 for data on other share classes.
Russell 2000 Value Index(2)
Life of Fund
1 Year 3 Years (2/13/95)
- ----------------------------------------------
5.83% 9.60% 13.58%
Ticker Symbols
State Street Research Aurora Fund Class A: SSRAX Class B(1): SSRPX*
Class B: SSRBX Class C: SSRDX Class S: SSRCX
As Good as it Was, as Good as it Gets
Add one more year to one of the most prosperous economic cycles of the century.
1998 ended with a burst of unexpected strength. And although the pace has slowed
just enough to keep inflation under control in 1999, the Federal Reserve Board
made good on its promise to continue to keep a lid on inflation for the future.
The Fed raised short-term interest rates twice between June and August.
But inflationary pressure has begun to mount. Soaring energy prices pushed the
Consumer Price Index up 2.3%, compared to 1.6% one year ago. Households continue
to spend more than they earn as home and auto sales remain robust. Consumer
confidence hit a record high in June, but fell during July, August and
September. For younger and less wealthy Americans, confidence has been on a
downward trend for some time.
Higher interest rates have hurt bonds more than stocks. Most bonds lost ground
as the yield on the 30-year U.S. Treasury benchmark rose above 6.0% in June and
stayed there until late in the period. The S&P 500(4), a broad measure of common
stock performance, rose 27.79%. However, a disproportionate share of the
market's gains belonged to large-company growth stocks. Outside the top 50
stocks, returns have been flat to down for the period. That means the average
investor is looking at a portfolio that is out of step with the S&P 500.
Inflationary Pressure
Has Started to Build
[The following table was represented as a bar chart in the printed material.]
Q4'98 1.6%
Q1'99 1.6%
Q2'99 2.1%
Q3'99 2.3%
Source: Haver Analytics. Bureau of Economic Analysis.
- --------------------------------------------------------------------------------
(1) Does not reflect sales charge.
(2) 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 index does not take transaction charges into
consideration. It is not possible to invest directly in the index.
(3) At maximum applicable sales charge.
(4) The S&P 500 (Officially the "Standard & Poor's 500 Stock Price Index") is
an unmanaged index of 500 U.S. stocks. The index does not take transaction
charges into consideration. It is not possible to invest directly in the
index.
(5) Performance results for the fund are increased by the voluntary reduction
of fund fees and expenses; without subsidization, performance would have
been lower.
*Proposed
- --------------------------------------------------------------------------------
3
<PAGE>
[GRAPHIC] The Way We Think
Why this Bull Market
Has Been a Bear
for Many Investors
[GRAPHIC]
It's been another good year for stocks. But the markets' double digit gains have
not necessarily filtered down to the average investor. The reason? A phenomenon
called market breadth, a technical measure of how many stocks are participating
in the market's current trend. For the past year, market breadth has been
narrow, and that's generally bad.
Beyond the Box Scores
When market breadth is narrow it means that only a handful of stocks have shared
in the biggest gains. For example, although the S&P 500, a broad measure of
common stock performance, gained 28.7% in 1998, the top 50 stocks in the index
were up 40.0%. Since January, the technology driven Nasdaq has risen a stunning
25.24% while the average New York Stock Exchange stock has lost 20%.
When the top-performing group of stocks diverges sharply from the average, it
also puts pressure on mutual funds. Funds that owned a broad list of stocks, or
focused on value, or small- or mid-cap stocks, were left out of the party. Even
funds that owned big winners, such as Microsoft, Cisco and Intel, were destined
to lag unless they overweighted them. And most managers are reluctant to
concentrate their investments in any one small group of stocks because it can be
risky and less rewarding over the long term.
Narrow Markets Give Way
Historical data suggest that a narrow market trend is less sustainable than a
broad one. Narrow markets eventually give way. They either broaden to take other
stocks up with them, or they get pulled down under the weight of the rest of the
market.
And the type of investment that leads the market changes. For four years
[GRAPHIC] The Year's Hits & Misses [GRAPHIC]
- --------------------------------------------------------------------------------
Wyman-Gordon Company
is the dominant player in the market for forged aerospace components. We
invested in the Grafton, Massachusetts company after a series of internal
problems drove the company's stock price down from the high $20s to the low
single digits within a year. The depressed stock price, plus the company's
unique market position, also made Wyman-Gordon an attractive takeover candidate.
Recently, Precision Castparts, a maker of cast (versus forged) aerospace parts
made a bid to acquire the company at $20/share. It's an opportunity for
Precision to expand its market presence buying the leading franchise in forged
parts at a price that represents about 50% of the company's annual revenues.
Wyman-Gordon has made a significant contribution to the performance of State
Street Research Aurora Fund during the period.
Kevco, Inc.
distributes bathroom fixtures and hardware to makers of manufactured housing. We
were attracted to the company because it had a solid base of business and
because the market for manufactured housing was growing, the beneficiary of a
strong economy and low interest rates.
During the year Kevco acquired Patrick Industries, a competitor that offered the
potential to expand Kevco's market share. However, instead of producing a
desirable synergy, the acquisition was difficult for Kevco to assimilate. And
because it had financed the purchase with debt, the acquisition also weakened
its own financial position. Plus, the manufactured housing market contracted
during the year, which served to make a bad situation even worse. As a result,
we liquidated our interest in the company a loss.
4 State Street Research Aurora Fund
<PAGE>
running, large-company growth stocks have been the strongest performers [see
table]. However, between 1993-1994 the Morgan Stanley Capital International EAFE
Index(6), a broad measure of foreign stock market performance, topped the
charts. In 1991-1992, the Russell 2000 Index(7), which tracks the performance of
small stocks, was king of the hill. And in 1990, the last year the stock market
suffered a serious correction, bonds beat stocks.
Top Performing Indexes
1990 -- 1998
- --------------------------------------------------------------------------------
1990 Lehman Bros Aggregate Bond Index(8) 8.96%
- --------------------------------------------------------------------------------
1991 Russell 2000 Growth(9) 51.18%
- --------------------------------------------------------------------------------
1992 Russell 2000 Value 29.15%
- --------------------------------------------------------------------------------
1993 MSCI EAFE 32.57%
- --------------------------------------------------------------------------------
1994 MSCI EAFE 7.78%
- --------------------------------------------------------------------------------
1995 S&P 500/Barra Growth(10) 38.13%
- --------------------------------------------------------------------------------
1996 S&P 500/Barra Growth 23.97%
- --------------------------------------------------------------------------------
1997 S&P 500/Barra Growth 36.52%
- --------------------------------------------------------------------------------
1998 S&P 500/Barra Growth 42.16%
- --------------------------------------------------------------------------------
A Rare Divergence
In fact, the period between 1995-1999 has been an anomaly for the stock market.
The last time there was such a sharp divergence between the top and bottom of
the market was in 1972-1973, when investor attention focused on a narrow band of
stocks known as the "nifty fifty." However, the aftermath of that period was
devastating for some of the most popular stocks of the period, such as Polaroid,
Burroughs, and Emery Air Freight. It's hard to imagine some of today's high
flyers sharing a similar fate, but back then it was hard to imagine they
wouldn't keep going higher.
Lessons of the Past
The key lesson for investors today is that diversification still makes sense.
It doesn't necessarily result in top performance in the short term, but when the
market broadens, you'll already be on board.
A Closer Look [GRAPHIC]
Measuring
Market Breadth
In order to measure the underlying strength of the stock market, technicians
study the relationship between the number of stocks that have advanced versus
the number that have declined. They're also interested in how many stocks are
hitting new highs compared to those hitting new lows. The math is simple. They
subtract decliners from advancers and new lows from new highs and plot the
results on daily charts in order to create trend lines. When few stocks
participate in a trend or trendsetters cluster in a certain segment of the
market, market breadth is narrow and the trend is unconfirmed. When many stocks
are participating, market breadth is broad and the trend is considered strong
and sustainable.
What's Changed? State Street Research Aurora Fund
- --------------------------------------------------------------------------------
Top Five Sectors % of Fund Assets
September 30, 1998
[The following table was represented as a pie chart in the printed material.]
Materials & Processing 22.7%
Consumer Discretionary 17.0%
Automobiles & Transportation 12.1%
Technology 8.9%
Financial Services 8.5%
September 30, 1999
[The following table was represented as a pie chart in the printed material.]
Materials & Processing 20.3%
Consumer Discretionary 18.2%
Automobiles & Transportation 10.2%
Technology 11.7%
Producer Durables 9.5%
- --------------------------------------------------------------------------------
(6) The Morgan Stanley EAFE Index comprises stocks from Europe, Australasia,
and the Far East. The index is unmanaged and does not take sales charges
into consideration. It is not possible to invest directly in the index.
(7) The Russell 2000 Index is an index of the 2000 smallest stocks within the
Russell 3000 Index. The index is unmanaged and does not take transaction
charges into consideration. It is not possible to invest directly in the
index.
(8) The Lehman Brothers Aggregate Bond Index comprises more than 5,000 taxable
government bonds, investment-grade corporate bonds, and mortgage backed
securities. The index does not take transaction charges into
consideration. It is not possible to invest directly in the index.
(9) 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.
(10) The S&P 500/BARRA Growth Index contains growth companies with low
book-to-price ratios. It is the complementary part of the S&P 500/BARRA
Value Index. The index does not take transaction charges into
consideration. It is not possible to invest directly in the index.
5
<PAGE>
[GRAPHIC]
- -----------
Performance in Perspective Management's Discussion of Fund Performance Part 2
- -----------
Performance Figures as of September 30, 1999
These two pages focus on the fund's long-term track record. While a mutual
fund's past performance is never a guarantee of future results, long-term
returns can serve as an important context for evaluating recent performance.
Three ways of measuring long-term performance are cumulative returns, average
annual returns and the change in dollar value over time of a given investment.
Information about these measures follows, while the share class boxes contain
the results of these measures for each share class.
Cumulative Total Return
This represents the total percentage you would have earned or lost if you had
invested a lump sum in the fund and left it there until the end of the period
indicated. Performance would be lower if sales charges were reflected.
Average Annual Total Return
Average annual total return percentage is the rate you would have had to earn
during each year of a given time period-- say, five years-- in order to end up
with the fund's actual cumulative return for those five years. In reality, of
course, fund performance varies from year to year. Because of this, a fund's
actual performance for a given year may be higher or lower than an average
annual performance figure.
$10,000 Over Life of Fund
This example is similar to cumulative total return, but uses dollars rather than
percentages, and assumes that the lump sum you invested was $10,000. It also
compares fund performance to the performance of a market index.
- --------------------------------------------------------------------------------
Class A Front Load
- -------
o Initial sales charge of 5.75% or less, with lower sales charges for larger
investments (see a prospectus for details)
o Lower annual expenses than Class B(1) or Class C shares because of lower
service (12b-1) fee of 0.25%
Life of Fund
Cumulative Total Return 1 Year 3 Years (2/13/95)
(does not reflect ------------------------------------
sales charge) 22.88% 60.38% 168.46%
Life of Fund
Average Annual Total Return 1 Year 3 Years (2/13/95)
(at maximum applicable ------------------------------------
sales charge) 15.82% 14.77% 22.19%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed material.]
Class A S & P 500 Russell 2000 Value Index
------- --------- ------------------------
"95" 10539 12425 12075
"96" 14869 14950 13703
"97" 25678 20994 19547
"98" 19407 22900 17047
"99" 23848 29263 18041
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B(1) Back Load for accounts opened after 1/1/99
- ----------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within six years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 3 Years (2/13/95)
(does not reflect ------------------------------------
sales charge) 21.90% 56.68% 159.07%
Life of Fund
Average Annual Total Return 1 Year 3 Years (2/13/95)
(at maximum applicable ------------------------------------
sales charge) 16.90% 15.40% 22.61%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed material.]
Class B(1) S & P 500 Russell 2000 Value Index
---------- --------- ------------------------
"95" 11602 12425 12075
"96" 16535 14950 13703
"97" 28332 20994 19547
"98" 21253 22900 17047
"99" 25707 29263 18041
- --------------------------------------------------------------------------------
6 State Street Research Aurora Fund
<PAGE>
- --------------------------------------------------------------------------------
Class B Back Load for accounts opened before 1/1/99
- -------
o No initial sales charge
o Deferred sales charge of 5% or less on shares you sell within five years
o Annual distribution/service (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Life of Fund
Cumulative Total Return 1 Year 3 Years (2/13/95)
(does not reflect ------------------------------------
sales charge) 21.90% 56.68% 159.07%
Life of Fund
Average Annual Total Return 1 Year 3 Years (2/13/95)
(at maximum applicable ------------------------------------
sales charge) 16.90% 15.40% 22.61%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed material.]
Class B S & P 500 Russell 2000 Value Index
------- --------- ------------------------
"95" 11602 12425 12075
"96" 16535 14950 13703
"97" 28332 20994 19547
"98" 21253 22900 17047
"99" 25707 29263 18041
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Level Load
- -------
o No initial sales charge
o Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
o Lower deferred sales charge than Class B(1) shares
o Annual distribution/service (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Life of Fund
Cumulative Total Return 1 Year 3 Years (2/13/95)
(does not reflect ------------------------------------
sales charge) 21.98% 56.68% 159.07%
Life of Fund
Average Annual Total Return 1 Year 3 Years (2/13/95)
(at maximum applicable ------------------------------------
sales charge) 20.98% 16.15% 22.81%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed material.]
Class C S & P 500 Russell 2000 Value Index
------- --------- ------------------------
"95" 11602 12425 12075
"96" 16535 14950 13703
"97" 28318 20994 19547
"98" 21239 22900 17047
"99" 25907 29263 18041
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class S Special Programs
- -------
o Available through certain retirement accounts, advisory accounts of the
investment manager and other programs that usually involve special
conditions and separate fees (see a prospectus for details)
o No sales charges of any kind
o No distribution/service (12b-1) fees; annual expenses are lower than for
other share classes
Life of Fund
Cumulative Total Return 1 Year 3 Years (2/13/95)
(does not reflect ------------------------------------
sales charge) 23.21% 61.59% 171.57%
Life of Fund
Average Annual Total Return 1 Year 3 Years (2/13/95)
(at maximum applicable ------------------------------------
sales charge) 23.21% 17.35% 24.07%
$10,000 Over Life of Fund
[The following table was represented as a line graph in the printed material.]
Class S S & P 500 Russell 2000 Value Index
------- --------- ------------------------
"95" 11675 12425 12075
"96" 16806 14950 13703
"97" 29092 20994 19547
"98" 22042 22900 17047
"99" 27157 29263 18041
- --------------------------------------------------------------------------------
A Closer Look [GRAPHIC]
12b-1 fees
12b-1 fees are named after the SEC rule that permits them.
The fund pays 12b-1 fees to cover service and distribution costs. The fees cover
personal services and the maintenance of shareholder accounts.
The fees also cover selling and marketing expenditures for the sale of fund
shares.
The fund pays 12b-1 fees out of its assets, so shareholders see them as an
indirect charge rather than a direct charge.
All of the performance figures on these pages assume reinvestment of dividends
and distributions.
The average annual total returns for the fund also include the effects of any
fees and sales charges that would apply for each share class.
The S&P 500 (officially, the "Standard & Poor's 500 Stock Price Index") is an
unmanaged index of 500 U.S. stocks. The index does not take transaction charges
into consideration. It is not possible to invest directly in the index.
Keep in mind that past performance is no guarantee of future results. The fund's
share price and return will fluctuate and you may have a gain or loss when you
sell your shares.
Class B(1) was introduced January 1, 1999.
7
<PAGE>
[GRAPHIC]
- ------------------
The Fund in Detail
- --------
The following pages describe the fund in detail as of the date of this report.
They provide a "snapshot" of the fund's holdings at one moment in time (the
report date), describe the financial dimensions of its operations for the past
fiscal year and give a summary of operations on a per share basis for the past
five fiscal years. There's also an overview of the fund and its business
structure, as well as information on the accounting policies the fund uses in
arriving at the figures it presents here.
[PHOTO]
Together, the words and numbers in this section offer a comprehensive picture of
the fund and its recent activities. In fact, the text and notes on pages 9 to 24
are an integral part of the financial statements, which wouldn't be complete
without them.
For more information about the fund's strategies, risks and expenses, check the
fund's prospectus; you'll need to read it before making any investments. The
prospectus also has more details on the fund's share classes and its policies
for shareholder accounts. To get a copy of any State Street Research prospectus,
see the back cover of this report.
Keep in mind that in annual reports, the portfolio holdings and financial
statements are audited, while in semiannual reports they are unaudited.
8 State Street Research Aurora Fund
<PAGE>
About the Fund
- --------------------------------------------------------------------------------
Business structure
State Street Research Aurora Fund is a mutual fund. A mutual fund allows
shareholders to pool their assets for investment in a portfolio of securities.
This fund is a series of State Street Research Capital Trust, a Massachusetts
business trust and is an open-end management investment company.
Four entities administer the fund's main business functions:
o The board of trustees oversee the fund with its shareholders' interests in
mind and have ultimate responsibility for the fund's activities (see p.25
for trustee information).
o The investment manager, State Street Research & Management Company, is
responsible for the fund's investment and business activities and receives
the management fee as compensation.
o The distributor, State Street Research Investment Services, Inc., sells
shares of the fund, handles investor inquiries and transaction orders and
provides other shareholder services.
o The custodian, State Street Bank and Trust Company, holds fund securities,
provides data on their market value and handles related services.
The investment manager and the distributor are subsidiaries of Metropolitan Life
Insurance Company, better known as MetLife. State Street Bank and Trust Company
is not affiliated with MetLife (the similarity between its name and the names of
the investment manager and distributor is coincidental). A majority of the
trustees consists of people who are not affiliated with MetLife or any of its
subsidiaries. The distributor pays a portion of its fees to MetLife for services
it provides, including maintaining the accounts of some investors who hold
shares through their firm's employee benefit plans and other sponsored
arrangements.
Goal and strategy
The fund seeks to provide high total return, consisting principally of capital
appreciation. In seeking to achieve its objective, the fund searches for those
companies that appear to be trading below their true worth.
Share classes
The fund generally offers four share classes, each with its own sales charge and
expense structure. The fund also offers an additional class of shares (Class B)
but only to current Class B shareholders through reinvestment of dividends and
distributions or through exchanges from existing Class B accounts of other State
Street Research funds.
The text and notes are an integral part of the financial statements.
9
<PAGE>
The Fund's Accounting Policies
- --------------------------------------------------------------------------------
In keeping with accounting principles generally accepted in the United States,
the fund has used the following policies in preparing the portfolio holdings and
financial statements in this report:
The fund values all portfolio securities as of the date of this report (or, if
that day wasn't a business day, then the most recent business day). The fund
uses the following methods for determining the values of various types of
securities:
o Listed securities -- The fund uses the price of the last sale on a
national securities exchange that was quoted before the close of the
New York Stock Exchange.
o Over-the-counter securities -- The fund uses the closing prices
quoted on the Nasdaq system. If a security hasn't traded that day,
or if it is not quoted on the Nasdaq system, the value is set at
halfway between the closing bid and asked quotations.
o Securities maturing within sixty days -- The fund adjusts the value
of these securities daily, moving them closer to the amount due on
maturity as the maturity date approaches.
o Other securities -- The fund prices these securities at fair value
under procedures established and supervised by the trustees.
The fund accounts for each purchase and sale of portfolio securities on the
trade date. In calculating realized gains or losses, the fund takes as its cost
basis the identified cost of securities sold.
The fund records investment income from portfolio securities as follows:
o Interest -- The fund accrues interest daily as it earns it.
o Cash dividends -- The fund accrues these on the ex-dividend date.
The fund may seek additional income by lending portfolio securities to qualified
institutions. By reinvesting any cash collateral it receives in these
transactions, the fund could realize additional gains or losses. If the borrower
fails to return the securities and the collateral has declined in value, the
fund could lose money. The fund accounts for income from the lending of its
securities by including it in interest income.
The fund distributes its net earnings to its shareholders. The fund calculates
these distributions using federal income tax regulations. As a result, they may
be different than if the fund used generally accepted accounting principles. The
fund distributes its earnings on the following schedule:
o Dividends from net investment income -- The fund ordinarily declares
and pays these annually, if any.
o Net realized capital gains -- The fund distributes these annually,
if any, and may make an additional distribution if tax regulations
make it necessary.
If the fund has no earnings to distribute, it won't make a distribution.
The fund does not intend to pay federal income tax. This is because it intends
to be exempt from taxes under Subchapter M of the Internal Revenue Code, in part
because it makes distributions as described above.
The Fund pays expenses as follows:
o Expenses attributed to the fund -- The fund pays these directly.
Examples of these expenses include the management fee, transfer
agent fee, custodian fee and distribution and service fees.
o Expenses attributed to the trust of which the fund is a series --
These expenses are divided up among all funds in the trust. Each
fund pays a proportional share. Examples of these expenses include
the legal fees and trustees fees.
The fund has used certain estimates and assumptions in preparing this report.
Although they are necessary in order to follow generally accepted accounting
principles, these estimates and assumptions affect several key areas, including
the reported amounts of assets and liabilities and income and expenses. Actual
results could differ from those estimates.
The fund's securities and investment practices carry certain risks.
The text and notes are an integral part of the financial statements.
10 State Street Research Aurora Fund
<PAGE>
Portfolio Holdings September 30, 1999
- --------------------------------------------------------------------------------
The listings that begin on this page detail the fund's investment holdings as of
the report date. We have grouped the holdings by asset class and by smaller
sub-groups as well. For example, we have grouped this fund's stocks by sector of
the economy, and then by specific industry within each sector.
The solid colored circles (1) show the fund's ten largest holdings, with the
number in the circle showing where the holding ranks in the top ten.
- --------------------------------------------------------------------------------
Notes about specific elements of the financials are called out in boxes such as
this.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KEY TO SYMBOLS
* Denotes a security which has not paid a dividend during the last year.
+ Denotes an American Depositary Receipt, a form of ownership of foreign
securities that is traded in the United States and denominated in U.S.
dollars.
o Denotes a Rule 144A restricted security, meaning that it trades only among
certain qualified institutional buyers. As of the report date, the fund
had 1.77% of net assets in Rule 144A Securities.
|X| Denotes a security valued under procedures established by the trustees.
- --------------------------------------------------------------------------------
Market
Issuer Shares Value
==========================================================================
Common Stocks 89.7% of net assets
Automobiles & Transportation
10.2% of net assets
==========================================================================
Air Transport 1.0%
--------------------------------------------------------------------------
Airnet Systems Inc.* 120,000 $1,095,000
--------------------------------------------------------------------------
America West Holdings Corp. Cl. B* 70,000 1,211,875
--------------------------------------------------------------------------
Mesa Air Group, Inc.* 350,900 2,149,263
--------------------------------------------------------------------------
4,456,138
----------
Automotive Parts 7.3%
--------------------------------------------------------------------------
American Axle &
Manufacturing Holdings Inc.* 120,000 1,710,000
--------------------------------------------------------------------------
Borg-Warner Automotive Inc. 76,000 3,268,000
--------------------------------------------------------------------------
Dura Automotive Systems Inc.* 65,000 1,564,062
--------------------------------------------------------------------------
Exide Corp. 300,000 2,868,750
--------------------------------------------------------------------------
Federal-Mogul Corp. 50,200 1,383,637
--------------------------------------------------------------------------
(5) Simpson Industries Inc. 818,000 9,049,125
Automotive Parts
--------------------------------------------------------------------------
Stoneridge Inc.* 39,500 686,313
--------------------------------------------------------------------------
(2) Transportation Technologies
Industries, Inc.* 640,000 11,080,000
Transportation
--------------------------------------------------------------------------
31,609,887
----------
Miscellaneous Transportation 0.5%
--------------------------------------------------------------------------
Marine Transport Corp.* 49,500 148,500
--------------------------------------------------------------------------
OMI Corp.* 70,000 179,375
--------------------------------------------------------------------------
Trailer Bridge Inc.* 12,500 24,219
--------------------------------------------------------------------------
Tranz Rail Holdings Ltd.+ 330,000 1,691,250
--------------------------------------------------------------------------
2,043,344
----------
Railroad Equipment 0.6%
--------------------------------------------------------------------------
ABC Rail Products Corp.* 180,000 2,542,500
----------
Railroads 0.3%
--------------------------------------------------------------------------
Genesee & Wyoming Inc. Cl. A* 130,000 1,478,750
----------
Recreational Vehicles & Boats 0.2%
--------------------------------------------------------------------------
National R.V. Holdings, Inc.* 44,300 874,925
----------
Tires & Rubber 0.3%
--------------------------------------------------------------------------
Titan International Inc. 120,000 1,230,000
----------
Total Automobiles & Transportation 44,235,544
----------
The text and notes are an integral part of the financial statements.
11
<PAGE>
Portfolio Holdings September 30, 1999 CONTINUED
Market
Issuer Shares Value
==========================================================================
Consumer Discretionary 18.2% of net assets
==========================================================================
Advertising Agencies 0.5%
--------------------------------------------------------------------------
HA-LO Industries, Inc.* 190,000 $1,187,500
--------------------------------------------------------------------------
TMP Worldwide Inc.* 15,000 913,125
--------------------------------------------------------------------------
2,100,625
----------
Casinos/Gambling, Hotel/Motel 3.5%
--------------------------------------------------------------------------
Anchor Gaming* 20,000 1,190,000
--------------------------------------------------------------------------
Argosy Gaming Corp.* 50,000 662,500
--------------------------------------------------------------------------
(7) Harrah's Entertainment Inc.* 290,000 8,047,500
Casinos/Gambling
--------------------------------------------------------------------------
International Game
Technology Inc. 110,000 1,965,755
--------------------------------------------------------------------------
MGM Grand Inc.* 51,344 2,628,171
--------------------------------------------------------------------------
Players International, Inc.* 70,000 518,437
--------------------------------------------------------------------------
15,012,363
----------
Commercial Services 3.7%
--------------------------------------------------------------------------
(10) Bell & Howell Co.* 205,000 7,520,937
Computer Software & Service
--------------------------------------------------------------------------
InsWeb Corp.* 6,200 121,675
--------------------------------------------------------------------------
Korn / Ferry International* 30,000 691,875
--------------------------------------------------------------------------
Loislaw.com, Inc.* 48,400 701,800
--------------------------------------------------------------------------
Luminant Worldwide Corp.* 30,000 922,500
--------------------------------------------------------------------------
Obie Media Corp. 48,500 518,344
--------------------------------------------------------------------------
Pierce Leahy Corp.* 43,000 1,021,250
--------------------------------------------------------------------------
Protection One Inc.* 47,000 188,000
--------------------------------------------------------------------------
Right Management
Consultants Inc.* 100,000 1,125,000
--------------------------------------------------------------------------
Ritchie Brothers
Auctioneers Inc.* 70,000 2,660,000
--------------------------------------------------------------------------
StarMedia Network, Inc.* 10,000 367,187
--------------------------------------------------------------------------
Wink Communications, Inc.* 5,000 218,438
--------------------------------------------------------------------------
16,057,006
----------
Communications, Media & Entertainment 0.9%
--------------------------------------------------------------------------
Acme Communications Inc.* 28,400 866,200
--------------------------------------------------------------------------
Hearst Argyle Television Inc.* 39,667 852,840
--------------------------------------------------------------------------
Imax Corp.* 30,000 600,000
--------------------------------------------------------------------------
Salem Communications Corp. Cl. A* 55,000 1,402,500
--------------------------------------------------------------------------
TiVo Inc.* 7,900 236,506
--------------------------------------------------------------------------
Valley Media Inc.* 15,000 179,063
--------------------------------------------------------------------------
4,137,109
----------
Consumer Electronics 0.1%
--------------------------------------------------------------------------
Recoton Corp.* 35,000 236,250
----------
Consumer Products 0.2%
--------------------------------------------------------------------------
Bacou USA Inc.* 40,000 667,500
--------------------------------------------------------------------------
Day Runner Inc.* 18,800 157,450
--------------------------------------------------------------------------
824,950
----------
Consumer Services 1.5%
--------------------------------------------------------------------------
Amerco* 180,000 $5,141,250
--------------------------------------------------------------------------
Computer Learning Centers Inc.* 35,000 129,063
--------------------------------------------------------------------------
Dollar Thrifty Automotive
Group, Inc.* 65,000 1,344,687
--------------------------------------------------------------------------
6,615,000
----------
Household Furnishings 0.1%
--------------------------------------------------------------------------
Home Products International Inc.* 48,000 510,000
----------
Leisure Time 2.3%
--------------------------------------------------------------------------
Championship Auto Racing
Teams, Inc.* 40,000 1,040,000
--------------------------------------------------------------------------
Rawlings Sporting Goods Co.* 105,000 977,813
--------------------------------------------------------------------------
(9) Steinway Musical Instruments Inc.* 365,000 7,642,187
Musical Instruments
--------------------------------------------------------------------------
Sturm Ruger & Company Inc. 50,000 450,000
--------------------------------------------------------------------------
10,110,000
----------
Photography 0.4%
--------------------------------------------------------------------------
CPI Corp. 50,000 1,709,375
----------
Printing & Publishing 2.1%
--------------------------------------------------------------------------
Hollinger International, Inc. Cl. A 570,000 6,768,750
--------------------------------------------------------------------------
Merrill Corp. 60,000 1,194,375
--------------------------------------------------------------------------
Pulitzer Inc. 24,200 1,099,588
--------------------------------------------------------------------------
9,062,713
----------
Retail 2.5%
--------------------------------------------------------------------------
Barbeques Galore Ltd.*+ 75,000 525,000
--------------------------------------------------------------------------
BJ's Wholesale Club Inc.* 40,000 1,182,500
--------------------------------------------------------------------------
Burlington Coat Factory
Warehouse Corp.* 45,000 888,750
--------------------------------------------------------------------------
Cole National Corp. Cl. A* 50,000 384,375
--------------------------------------------------------------------------
Consolidated Stores Corp.* 100,000 2,206,250
--------------------------------------------------------------------------
EMusic.com Inc.* 38,700 575,662
--------------------------------------------------------------------------
Finlay Enterprises Inc.* 70,000 962,500
--------------------------------------------------------------------------
FreeShop.com, Inc.* 11,700 134,550
--------------------------------------------------------------------------
Hawkins Chemical Inc. 31,500 248,063
--------------------------------------------------------------------------
RDO Equipment Co. Cl. A* 50,000 331,250
--------------------------------------------------------------------------
Sharper Image Corp.* 40,000 440,000
--------------------------------------------------------------------------
West Coast Entertainment Corp.* 100,000 27,000
--------------------------------------------------------------------------
Whitehall Jewellers Inc.* 110,000 3,162,500
--------------------------------------------------------------------------
11,068,400
----------
Textile Apparel Manufacturers 0.4%
--------------------------------------------------------------------------
Oshkosh B' Gosh, Inc. Cl. A 110,000 1,756,563
----------
Total Consumer Discretionary 79,200,354
----------
The text and notes are an integral part of the financial statements.
12 State Street Research Aurora Fund
<PAGE>
Market
Issuer Shares Value
==========================================================================
Consumer Staples 1.5% of net assets
==========================================================================
Beverages 0.3%
--------------------------------------------------------------------------
Beringer Wine Estates
Holdings, Inc. Cl. B* 15,000 $615,937
--------------------------------------------------------------------------
Golden State Vintners Inc. Cl. B* 145,000 688,750
--------------------------------------------------------------------------
1,304,687
----------
Foods 1.0%
--------------------------------------------------------------------------
Bush Boake Allen Inc.* 110,000 2,901,250
--------------------------------------------------------------------------
Del Monte Foods Co.* 30,000 423,750
--------------------------------------------------------------------------
International Home Foods Inc.* 50,000 875,000
--------------------------------------------------------------------------
4,200,000
----------
Tobacco 0.2%
--------------------------------------------------------------------------
Dimon Inc. 140,000 542,500
--------------------------------------------------------------------------
Standard Commercial Corp. 91,200 364,800
--------------------------------------------------------------------------
907,300
----------
Total Consumer Staples 6,411,987
----------
Financial Services 9.0% of net assets
==========================================================================
Banks & Savings & Loan 1.1%
--------------------------------------------------------------------------
PBOC Holdings Inc.* 330,000 2,681,250
--------------------------------------------------------------------------
Richmond County Financial Corp. 80,000 1,505,000
--------------------------------------------------------------------------
Staten Islands Bancorp Inc. 50,000 940,625
--------------------------------------------------------------------------
5,126,875
----------
Financial Data Processing Services & Systems 1.0%
--------------------------------------------------------------------------
Fair, Issac & Company Inc. 45,400 1,274,038
--------------------------------------------------------------------------
International Telecommunication
Data Systems, Inc.* 360,000 3,037,500
--------------------------------------------------------------------------
4,311,538
----------
Insurance 0.9%
--------------------------------------------------------------------------
Foremost Corp. 129,400 3,105,600
--------------------------------------------------------------------------
PAULA Financial 132,400 819,225
--------------------------------------------------------------------------
3,924,825
----------
Miscellaneous Financial 1.9%
--------------------------------------------------------------------------
Capital Re Corp. 470,000 4,700,000
--------------------------------------------------------------------------
CIT Group Inc. Cl. A 80,000 1,645,000
--------------------------------------------------------------------------
Delta Financial Corp.* 70,000 350,000
--------------------------------------------------------------------------
Digital Insight Corp.* 4,800 72,000
--------------------------------------------------------------------------
Heller Financial Inc. Cl. A 58,300 1,311,750
--------------------------------------------------------------------------
HomeStore.com, Inc.* 5,000 208,437
--------------------------------------------------------------------------
8,287,187
----------
Real Estate Investment Trusts 3.9%
--------------------------------------------------------------------------
Beacon Capital Partners Inc.*o 120,000 $1,590,000
--------------------------------------------------------------------------
Core Capital Inc. Cl. A*|X| 300,000 4,167,000
--------------------------------------------------------------------------
Core Capital Inc. Series A Pfd.*o|X| 300,000 6,000,000
--------------------------------------------------------------------------
Entertainment Properties Trust 349,200 5,107,050
--------------------------------------------------------------------------
16,864,050
----------
Rental & Leasing Services: Commercial 0.1%
--------------------------------------------------------------------------
Linc Capital Inc.* 60,000 258,750
----------
Securities Brokerage & Services 0.1%
--------------------------------------------------------------------------
Gilman & Ciocia Inc.* 20,000 225,000
--------------------------------------------------------------------------
Noel Liquidating Trust Units*|X| 102,000 71,400
--------------------------------------------------------------------------
296,400
----------
Total Financial Services 39,069,625
----------
Health Care 2.2% of net assets
==========================================================================
Drugs & Biotechnology 1.0%
--------------------------------------------------------------------------
Aviron Corp.* 55,000 1,333,750
--------------------------------------------------------------------------
BioReliance Corp.* 50,000 312,500
--------------------------------------------------------------------------
Lunar Corp.* 107,500 806,250
--------------------------------------------------------------------------
Pathogenesis Corp.* 124,700 1,917,262
--------------------------------------------------------------------------
4,369,762
----------
Health Care Services 0.3%
--------------------------------------------------------------------------
DIANON Systems Inc.* 90,000 978,750
--------------------------------------------------------------------------
Provantage Health Services, Inc.* 28,200 290,813
--------------------------------------------------------------------------
1,269,563
----------
Hospital Supply 0.9%
--------------------------------------------------------------------------
CONMED Corp.* 30,000 735,000
--------------------------------------------------------------------------
Igen International, Inc.* 30,000 748,125
--------------------------------------------------------------------------
Invivo Corp.* 164,900 2,092,169
--------------------------------------------------------------------------
Novametrix Medical Systems Inc.* 110,000 385,000
--------------------------------------------------------------------------
3,960,294
----------
Total Health Care 9,599,619
----------
Materials & Processing 20.3% of net assets
==========================================================================
Agriculture 0.5%
--------------------------------------------------------------------------
Cadiz Inc.* 16,000 153,000
--------------------------------------------------------------------------
Corn Products International Inc. 30,000 913,125
--------------------------------------------------------------------------
Zapata Corp.* 260,000 1,300,000
--------------------------------------------------------------------------
2,366,125
----------
Building & Construction 1.6%
--------------------------------------------------------------------------
Centex Construction Products Inc. 14,500 538,313
--------------------------------------------------------------------------
Lennox International Inc. 124,200 1,925,100
--------------------------------------------------------------------------
Nortek Inc.* 126,500 4,316,812
--------------------------------------------------------------------------
6,780,225
----------
The text and notes are an integral part of the financial statements.
13
<PAGE>
Market
Issuer Shares Value
==========================================================================
Chemicals 6.0%
--------------------------------------------------------------------------
American Pacific Corp.* 413,200 $3,253,950
--------------------------------------------------------------------------
Cambrex Corp. 280,000 7,402,500
--------------------------------------------------------------------------
Carbide / Graphite Group, Inc.* 27,500 237,188
--------------------------------------------------------------------------
Geon Co. 147,000 3,785,250
--------------------------------------------------------------------------
Intertape Polymer Group Inc. 20,000 565,000
--------------------------------------------------------------------------
Lilly Industrial Inc. Cl. A 198,500 2,704,562
--------------------------------------------------------------------------
(6) Stepan Chemical Co. 355,000 8,098,437
Chemicals
--------------------------------------------------------------------------
26,046,887
----------
Containers & Packaging 0.9%
--------------------------------------------------------------------------
Ivex Packaging Corp.* 110,200 1,102,000
--------------------------------------------------------------------------
Shorewood Packaging Corp.* 90,000 1,220,625
--------------------------------------------------------------------------
U.S. Can Corp.* 85,000 1,737,188
--------------------------------------------------------------------------
4,059,813
----------
Fertilizers 1.7%
--------------------------------------------------------------------------
Agrium Inc. 560,000 5,565,000
--------------------------------------------------------------------------
Mississippi Chemical Corp. 280,000 1,960,000
--------------------------------------------------------------------------
7,525,000
----------
Miscellaneous Materials & Processing 7.9%
--------------------------------------------------------------------------
Chase Industries Inc.* 100,400 859,675
--------------------------------------------------------------------------
Hawk Corp. Cl. A* 330,000 1,732,500
--------------------------------------------------------------------------
Intermet Corp. 485,900 4,114,966
--------------------------------------------------------------------------
N.N. Ball & Roller Inc. 110,000 704,687
--------------------------------------------------------------------------
Penn Engineering & Manufacturing Corp. 160,000 3,930,000
--------------------------------------------------------------------------
Ryerson Tull, Inc. 210,000 4,856,250
--------------------------------------------------------------------------
TransPro Inc. 55,000 271,562
--------------------------------------------------------------------------
Webco Industries Inc.* 3,000 8,813
--------------------------------------------------------------------------
Wolverine Tube Inc.* 200,000 3,100,000
--------------------------------------------------------------------------
(1) Wyman-Gordon Co.* 780,000 14,576,250
Aerospace Components
--------------------------------------------------------------------------
34,154,703
----------
Non-Ferrous Metals 0.5%
--------------------------------------------------------------------------
Lindberg Corp. 100,000 912,500
--------------------------------------------------------------------------
Lydall Inc.* 45,000 464,063
--------------------------------------------------------------------------
Packaged Ice, Inc.* 180,000 607,500
--------------------------------------------------------------------------
1,984,063
----------
Paper & Forest Products 0.2%
--------------------------------------------------------------------------
Rock-Tenn Co. Cl. A 74,000 1,068,375
----------
Real Estate & Construction 0.3%
--------------------------------------------------------------------------
Castle & Cooke Inc.* 77,400 1,190,025
----------
Textile & Products 0.7%
--------------------------------------------------------------------------
Carlyle Industries Inc.* 110,939 90,138
--------------------------------------------------------------------------
Interface Inc. Cl. A 100,000 512,500
--------------------------------------------------------------------------
Polymer Group Inc.* 150,000 2,212,500
--------------------------------------------------------------------------
2,815,138
----------
Total Materials & Processing 87,990,354
----------
Other 2.5% of net assets
==========================================================================
Multi-Sector 2.5%
--------------------------------------------------------------------------
Commercial Intertech Corp. 92,800 $1,119,400
--------------------------------------------------------------------------
Gencorp Inc.* 60,000 1,098,750
--------------------------------------------------------------------------
Gentek, Inc. 54,800 623,350
--------------------------------------------------------------------------
Global Industrial
Technologies Inc.* 420,000 5,118,750
--------------------------------------------------------------------------
CBI Distribution Trust*|X| 102,000 44,625
--------------------------------------------------------------------------
Trinity Industries Inc. 90,000 2,778,750
--------------------------------------------------------------------------
Total Other 10,783,625
----------
Other Energy 2.7% of net assets
==========================================================================
Offshore Drilling 0.1%
--------------------------------------------------------------------------
TMBR / Sharp Drilling Inc.* 75,000 581,250
Oil & Gas Producers 2.4%
--------------------------------------------------------------------------
Cabot Oil & Gas Corp. Cl. A 55,000 948,750
--------------------------------------------------------------------------
Maxx Petroleum Ltd.* 475,000 1,875,084
--------------------------------------------------------------------------
Ocean Energy Inc.* 320,000 3,260,000
--------------------------------------------------------------------------
Ranger Oil Ltd.* 537,500 2,317,969
--------------------------------------------------------------------------
Titan Exploration Inc.* 389,300 1,922,169
--------------------------------------------------------------------------
10,323,972
----------
Oil Well Equipment & Services 0.2%
--------------------------------------------------------------------------
Stolt Comex Seaway SA* 48,000 543,000
--------------------------------------------------------------------------
Stolt Comex Seaway SA*+ 24,000 261,000
--------------------------------------------------------------------------
804,000
----------
Total Other Energy 11,709,222
----------
Producer Durables 9.5% of net assets
==========================================================================
Aerospace 1.6%
--------------------------------------------------------------------------
Curtiss-Wright Corp. 100,000 3,225,000
--------------------------------------------------------------------------
Doncasters PLC*+ 51,100 613,200
--------------------------------------------------------------------------
Ladish Inc.* 500,000 3,250,000
--------------------------------------------------------------------------
7,088,200
----------
Industrial Products 0.7%
--------------------------------------------------------------------------
Denison International PLC*+ 261,700 3,074,975
----------
Machine Tools 0.1%
--------------------------------------------------------------------------
Thermadyne Holdings Corp.* 13,599 305,978
----------
Machinery 3.8%
--------------------------------------------------------------------------
Candela Corp.* 40,000 425,000
--------------------------------------------------------------------------
CTB International Corp.* 70,000 476,875
--------------------------------------------------------------------------
Gleason Corp. 25,000 420,313
--------------------------------------------------------------------------
Howmet International Inc.* 206,900 2,896,600
--------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
14 State Street Research Aurora Fund
<PAGE>
Market
Issuer Shares Value
==========================================================================
JLG Industries Inc. 110,900 $1,684,294
--------------------------------------------------------------------------
(8) Specialty Equipment Companies Inc.* 310,000 7,827,500
Machinery
--------------------------------------------------------------------------
Tokheim Corp.* 305,000 2,725,937
--------------------------------------------------------------------------
16,456,519
-----------
Miscellaneous Producer Durables 0.5%
--------------------------------------------------------------------------
BE Aerospace Inc.* 170,000 2,029,375
-----------
Pollution Control & Environmental Services 0.0%
--------------------------------------------------------------------------
Darling International Inc.* 50,000 68,750
--------------------------------------------------------------------------
Gundle / SLT Environmental Inc.* 18,500 55,500
--------------------------------------------------------------------------
124,250
-----------
Production Technology Equipment 0.4%
--------------------------------------------------------------------------
Creo Products Inc.* 15,000 368,437
--------------------------------------------------------------------------
GSI Lumonics Inc.* 167,297 993,326
--------------------------------------------------------------------------
InTEST Corp.* 65,000 438,750
--------------------------------------------------------------------------
1,800,513
-----------
Telecommunications Equipment 2.4%
--------------------------------------------------------------------------
Asia Pacific Wire & Cable Corp. Ltd.* 15,000 57,187
--------------------------------------------------------------------------
Belden Inc. 230,000 4,715,000
--------------------------------------------------------------------------
L-3 Communications Holding Corp.* 135,000 5,096,250
--------------------------------------------------------------------------
Plantronics Inc.* 13,000 646,750
--------------------------------------------------------------------------
10,515,187
-----------
Total Producer Durables 41,394,997
-----------
Technology 11.7% of net assets
==========================================================================
Communications Technology 2.2%
--------------------------------------------------------------------------
Alteon Websystems, Inc.* 7,000 658,000
--------------------------------------------------------------------------
Foundry Networks, Inc.* 18,900 2,381,400
--------------------------------------------------------------------------
Inet Technologies, Inc.* 55,000 2,194,844
--------------------------------------------------------------------------
Internap Network Services Corp.* 9,500 423,937
--------------------------------------------------------------------------
ITXC Corp.* 20,000 636,250
--------------------------------------------------------------------------
Liberate Technologies, Inc.* 20,000 842,500
--------------------------------------------------------------------------
Mpath Interactive, Inc.* 15,000 172,500
--------------------------------------------------------------------------
NetSolve, Inc.* 11,700 207,675
--------------------------------------------------------------------------
Pairgain Technologies Inc.* 150,000 1,912,500
--------------------------------------------------------------------------
9,429,606
-----------
Computer Software 1.5%
--------------------------------------------------------------------------
Best Software Inc.* 100,000 1,975,000
--------------------------------------------------------------------------
Bluestone Software, Inc.* 19,500 450,937
--------------------------------------------------------------------------
Eidos PLC*+ 20,000 1,262,500
--------------------------------------------------------------------------
H.T.E. Inc.* 320,000 660,000
--------------------------------------------------------------------------
Kana Communications, Inc.* 10,000 498,750
--------------------------------------------------------------------------
Ontrack Data International Inc.* 15,000 82,969
--------------------------------------------------------------------------
Quotesmith.com, Inc.* 22,900 163,163
--------------------------------------------------------------------------
Red Hat, Inc.* 10,000 960,000
--------------------------------------------------------------------------
Vitria Technology, Inc.* 12,000 441,000
--------------------------------------------------------------------------
6,494,319
-----------
Computer Technology 3.2%
--------------------------------------------------------------------------
Exabyte Corp.* 290,000 $1,259,688
--------------------------------------------------------------------------
(4) Imation Corp.* 345,000 10,695,000
Data Storage
--------------------------------------------------------------------------
RADWARE Ltd.* 19,300 530,750
--------------------------------------------------------------------------
Verio Inc.* 50,000 1,550,000
--------------------------------------------------------------------------
14,035,438
-----------
Electronics 4.2%
--------------------------------------------------------------------------
BEI Technologies Inc. 420,000 5,092,500
--------------------------------------------------------------------------
BEI Electronics Inc.* 215,000 335,937
--------------------------------------------------------------------------
(3) Coherent Inc.* 490,000 10,933,125
Electronic Equipment
--------------------------------------------------------------------------
DRS Technologies Inc.* 56,500 565,000
--------------------------------------------------------------------------
II-VI, Inc.* 43,000 505,250
--------------------------------------------------------------------------
Primex Technologies, Inc. 10,000 197,500
--------------------------------------------------------------------------
Watkins-Johnson Co. 20,000 671,250
--------------------------------------------------------------------------
18,300,562
-----------
Electronics: Semi-Conductors/Components 0.6%
--------------------------------------------------------------------------
Channell Commercial Corp.* 170,000 1,721,250
--------------------------------------------------------------------------
Plexus Corp.* 35,000 1,071,875
--------------------------------------------------------------------------
2,793,125
-----------
Total Technology 51,053,050
-----------
Utilities 1.1% of net assets
==========================================================================
Gas Distribution 1.0%
--------------------------------------------------------------------------
Western Gas Resources Inc. 227,500 4,251,406
-----------
Telecommunications 0.1%
--------------------------------------------------------------------------
AirGate PCS, Inc.* 23,800 592,025
-----------
Total Utilities 4,843,431
-----------
Non-US Equities 0.8% of net assets
==========================================================================
--------------------------------------------------------------------------
Fred Olsen Energy ASA*+ 54,100 460,931
--------------------------------------------------------------------------
Jean Coutu Group Inc. Cl. A 150,000 3,021,847
--------------------------------------------------------------------------
Probe Exploration Inc.*o 277,800 87,917
-----------
Total Non-US Equities 3,570,695
--------------------------------------------------------------------------
Total Common Stocks 389,862,503
-----------
- --------------------------------------------------------------------------------
The fund paid a total of $392,551,313 for these securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
15
<PAGE>
Portfolio Holdings September 30, 1999 CONTINUED
<TABLE>
<CAPTION>
Market
Shares Value
========================================================================================================================
Short-Term Investments 3.7% of net assets
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Liquid Assets Portfolio 15,395,113 $15,395,113
------------
Total Short-Term Investments 15,395,113
============
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $15,395,113 for these securities.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Coupon Maturity Amount
Rate Date of Principal
========================================================================================================================
Commercial Paper 11.0% of net assets
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Express Credit Corp. 5.25% 10/01/1999 $7,826,000 7,826,000
- ------------------------------------------------------------------------------------------------------------------------
American Express Credit Corp. 5.35% 10/01/1999 7,000,000 7,000,000
- ------------------------------------------------------------------------------------------------------------------------
Bell Atlantic Network Funding Inc. 5.28% 10/05/1999 11,586,000 11,579,229
- ------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co. 5.36% 10/04/1999 2,559,000 2,559,000
- ------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co. 5.30% 10/08/1999 11,046,000 11,046,000
- ------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co. 5.29% 10/14/1999 5,842,000 5,842,000
- ------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp. 5.28% 10/05/1999 493,000 493,000
- ------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp. 5.31% 10/14/1999 1,366,000 1,366,000
------------
Total Commercial Paper 47,711,229
============
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $47,711,229 for these securities.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of
Net Assets
========================================================================================================================
Summary of Portfolio Assets
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments 104.4% $452,968,845
- ------------------------------------------------------------------------------------------------------------------------
Cash and Other Assets, Less Liabilities (4.4%) (18,479,824)
----- ------------
- ------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $434,489,021
===== ============
</TABLE>
- --------------------------------------------------------------------------------
The fund paid a total of $455,657,655 for these securities.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
16 State Street Research Aurora Fund
<PAGE>
Federal Income Tax Information
At September 30, 1999, the net unrealized depreciation of investments based on
cost for Federal income tax purposes of $456,620,979 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $57,149,742
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (60,801,876)
-----------
$(3,652,134)
===========
The text and notes are an integral part of the financial statements.
17
<PAGE>
Statement of
Assets and Liabilities September 30, 1999
- --------------------------------------------------------------------------------
This is the fund's balance sheet as of the report date. It shows the fund's
assets, its liabilities and, by subtraction, its net assets. It also shows the
share price for each share class as of the report date.
Assets
Investments, at market value $452,968,845
- --------------------------------------------------------------------------------
The fund paid a total of $455,657,655 for these securities.
- --------------------------------------------------------------------------------
Cash 2,263
Receivable for securities sold 7,937,490
Receivable for fund shares sold 1,087,473
Dividends and interest receivable 567,119
Deferred organization costs and other assets 25,052
------------
462,588,242
Liabilities
Payable for collateral received on
securities loaned 15,395,113
Payable for securities purchased 7,761,908
Payable for fund shares redeemed 4,050,172
Accrued management fee 309,392
Accrued distribution and service fees 269,926
Accrued transfer agent and shareholder services 155,297
Accrued trustees' fees 27,046
Other accrued expenses 130,367
------------
28,099,221
------------
Net Assets $434,489,021
============
Net Assets consist of:
Unrealized depreciation of investments $(2,688,810)
Accumulated net realized loss (218,619)
Paid-in capital 437,396,450
------------
$434,489,021
============
- --------------------------------------------------------------------------------
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Net Assets / Number of Shares = NAV
A $146,294,967 7,691,997 $19.02*
B(1) $20,418,653 1,110,678 $18.38**
B $198,782,786 10,812,893 $18.38**
C $67,815,803 3,689,940 $18.38**
S $1,176,812 61,194 $19.23
* Maximum offering price per share $20.18
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
18 State Street Research Aurora Fund
<PAGE>
Statement of
Operations For the year ended September 30, 1999
- --------------------------------------------------------------------------------
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
Dividends, net of foreign taxes $4,584,554
- --------------------------------------------------------------------------------
The fund paid foreign taxes of $31,425.
- --------------------------------------------------------------------------------
Interest 2,635,581
- --------------------------------------------------------------------------------
Includes $376,035 in income from the lending of portfolio securities. As of the
report date, the fund had a total of $25,279,066 of securities out on loan and
was holding a total of $25,644,496 in collateral (including $15,395,113 of cash
collateral) related to those loans.
- --------------------------------------------------------------------------------
-----------
7,220,135
Expenses
Management fee 3,516,380
- --------------------------------------------------------------------------------
The management fee is 0.85% of average net assets, annually.
- --------------------------------------------------------------------------------
Transfer agent and shareholder services 949,898
- --------------------------------------------------------------------------------
Includes a total of $502,055 paid to the distributor for the services it
provided and to MetLife for similar services it provided, including maintaining
the accounts of some investors who hold shares through that firm's employee
benefit plans and other sponsored arrangements.
- --------------------------------------------------------------------------------
Service fee-Class A 333,271
Distribution and service fees - Class B(1) 71,506
Distribution and service fees - Class B 2,069,460
Distribution and service fees - Class C 648,301
- --------------------------------------------------------------------------------
Payments made to the distributor under the fund's 12b-1 plans. The fees cover
personal services and the maintenance of shareholder accounts. The fees also
cover distribution and marketing expenditures for the sale of fund shares.
- --------------------------------------------------------------------------------
Custodian fee 172,797
Reports to shareholders 144,133
Registration fees 51,545
Legal fees 35,809
Audit fee 30,055
Trustees' fees 27,046
- --------------------------------------------------------------------------------
Paid only to trustees who aren't currently affiliated with the adviser (the fund
doesn't pay trustees fees to affiliated trustees).
- --------------------------------------------------------------------------------
Amortization of organization costs 14,538
- --------------------------------------------------------------------------------
Organization costs were capitalized and amortized straight-line over five years.
- --------------------------------------------------------------------------------
Miscellaneous 41,446
-----------
8,106,185
Fees paid indirectly (33,376)
- --------------------------------------------------------------------------------
Represents transfer agent credits earned from uninvested cash balances.
- --------------------------------------------------------------------------------
-----------
8,072,809
-----------
Net investment loss (852,674)
-----------
Realized and Unrealized Gain
on Investments
Net realized gain on investments 1,843,995
- --------------------------------------------------------------------------------
To earn this, the fund sold $269,509,295 of securities. During this same period,
the fund also bought $243,667,680 worth of securities. These figures don't
include short-term obligations or U.S. government securities.
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 78,160,879
-----------
Net gain on investments 80,004,874
-----------
Net increase in net assets resulting
from operations $79,152,200
===========
The text and notes are an integral part of the financial statements.
19
<PAGE>
Statement of
Changes in Net Assets
- --------------------------------------------------------------------------------
This shows how the fund's size changed over the report period, including changes
that resulted from investment performance as well as those that resulted from
shareholders buying and selling fund shares.
Years ended September 30
- --------------------------------------------------------------------------------
1998 1999
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $(2,437,864) $(852,674)
Net realized gain on
investments 3,061,152 1,843,995
Net unrealized appreciation
(depreciation) of investments (140,139,832) 78,160,879
-------------------------------
Net increase (decrease)
resulting from operations (139,516,544) 79,152,200
-------------------------------
Distribution from net realized gains:
Class A (2,244,173) --
Class B (3,454,508) --
Class C (1,036,520) --
Class S (107,482) --
-------------------------------
(6,842,683) --
-------------------------------
Net increase (decrease) from
fund share transactions 59,540,188 (33,298,752)
-------------------------------
Total increase (decrease)
in net assets (86,819,039) 45,853,448
-------------------------------
Net Assets
Beginning of year 475,454,612 388,635,573
-------------------------------
End of year $388,635,573 $434,489,021
===============================
The text and notes are an integral part of the financial statements.
20 State Street Research Aurora Fund
<PAGE>
- --------------------------------------------------------------------------------
These transactions break down by share class as follows:
<TABLE>
<CAPTION>
Years ended September 30
-------------------------------------------------------------
1998 1999
-------------------------------------------------------------
Class A Shares Amount Shares Amount
==========================================================================================================
<S> <C> <C> <C> <C>
Shares sold 5,381,653 $109,833,386 5,556,940 $95,959,404*
Issued upon reinvestment of
distributions from net realized gains 97,354 1,913,445 -- --
Shares redeemed (5,606,090) (109,702,637) (5,359,184) (91,802,702)
-------------------------------------------------------------
Net increase (decrease) (127,083) $2,044,194 197,756 $4,156,702
-------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Class B(1)(a) Shares Amount Shares Amount
==========================================================================================================
<S> <C> <C> <C> <C>
Shares sold -- -- 1,174,063 $20,609,640**
Shares redeemed -- -- (63,385) (1,087,830)***
-------------------------------------------------------------
Net increase -- -- 1,110,678 $19,521,810
-------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Class B Shares Amount Shares Amount
==========================================================================================================
<S> <C> <C> <C> <C>
Shares sold 5,637,518 $114,054,313 2,191,760 $34,769,493**
Issued upon reinvestment of
distributions from net realized gains 119,083 2,282,631 -- --
Shares redeemed (3,403,166) (63,417,674) (5,338,722) (86,005,542)***
-------------------------------------------------------------
Net increase (decrease) 2,353,435 $52,919,270 (3,146,962) ($51,236,049)
-------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Class C Shares Amount Shares Amount
==========================================================================================================
<S> <C> <C> <C> <C>
Shares sold 2,088,859 $42,044,189 1,879,939 $31,150,039
Issued upon reinvestment of
distributions from net realized gains 31,557 603,253 -- --
Shares redeemed (1,340,390) (25,018,589) (2,272,628) (36,944,284)****
-------------------------------------------------------------
Net increase (decrease) 780,026 $17,628,853 (392,689) ($5,794,245)
-------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Class S Shares Amount Shares Amount
==========================================================================================================
<S> <C> <C> <C> <C>
Shares sold 9,023 $187,858 57,888 $904,426
Issued upon reinvestment of
distributions from net realized gains 5,331 107,482 -- --
Shares redeemed (664,232) (13,347,469) (44,784) (851,396)
-------------------------------------------------------------
Net increase (decrease) (649,878) ($13,052,129) 13,104 $53,030
-------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The trustees have the authority to issue an unlimited number of fund
shares, with a $.001 par value per share.
* Includes $226,638 and $193,838 in sales charges collected by the
distributor and MetLife.
** Like all broker-dealers, MetLife received commissions that were calculated
as a percentage of these sales but the commissions of $119,330 and
$210,355 for Class B(1) and Class B, were paid by the distributor, not the
fund.
*** Includes $16,804 and $928,580 in deferred sales charges collected by the
distributor for Class B(1) and Class B.
**** Includes $15,346 in deferred sales charges collected by the distributor.
(a) January 1, 1999 (commencement of share class) to September 30, 1999.
- --------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
21
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
These provide a summary of each share class's financial performance for the past
five fiscal years.
<TABLE>
<CAPTION>
Class A
==================================================================
Years ended September 30
------------------------------------------------------------------
Per Share Data 1995 (c) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.13 15.14 20.71 15.47
----- ----- ----- ----- -----
Net investment income (loss) ($)* 0.07 (0.06) 0.03 0.02 0.05
Net realized and unrealized gain (loss)
on investments ($) 1.51 4.66 9.02 (5.03) 3.50
----- ----- ----- ----- -----
Total from investment operations ($) 1.58 4.60 9.05 (5.01) 3.55
----- ----- ----- ----- -----
Dividend from net investment income ($) -- (0.09) -- -- --
Distributions from capital gains ($) -- (0.50) (3.48) (0.23) --
----- ----- ----- ----- -----
Total distributions ($) -- (0.59) (3.48) (0.23) --
----- ----- ----- ----- -----
Net asset value, end of year ($) 11.13 15.14 20.71 15.47 19.02
===== ===== ===== ===== =====
Total return (%)(b) 16.54(e) 43.63 72.70 (24.42) 22.88
Ratios/Supplemental Data
====================================================================================================================
Net assets at end of year ($ thousands) 5,782 1,110 157,853 115,973 146,295
Expense ratio (%)* 1.45(f) 1.45 1.34 1.39 1.46
Expense ratio after expense reductions (%)* 1.45(f) 1.45 1.34 1.39 1.45
Ratio of net investment income (loss) to
average net assets (%)* 1.05(f) (0.56) 0.17 0.09 0.30
Portfolio turnover rate (%) 47.34 124.79 25.03 67.80 65.13
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.15 0.32 0.02 -- --
</TABLE>
Class B(1)
=========================
Period ended September 30
-------------------------
Per Share Data 1999 (a)(d)
================================================================================
Net asset value, beginning of period ($) 16.17
-----
Net investment loss ($) (0.03)
Net realized and unrealized gain
on investments ($) 2.24
-----
Total from investment operations ($) 2.21
-----
Net asset value, end of period ($) 18.38
=====
Total return (%)(b) 13.61(e)
Ratios/Supplemental Data
================================================================================
Net assets at end of period ($ thousands) 20,419
Expense ratio (%) 2.10(f)
Expense ratio after expense reductions (%) 2.09(f)
Ratio of net investment loss to
average net assets (%) (0.24)(f)
Portfolio turnover rate (%) 65.13
The text and notes are an integral part of the financial statements.
22 State Street Research Aurora Fund
<PAGE>
<TABLE>
<CAPTION>
Class B
==================================================================
Years ended September 30
------------------------------------------------------------------
Per Share Data 1995 (c) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.08 15.02 20.33 15.07
----- ----- ----- ----- -----
Net investment income (loss) ($)* 0.02 (0.17) (0.09) (0.13) (0.08)
Net realized and unrealized gain (loss)
on investments ($) 1.51 4.65 8.88 (4.90) 3.39
----- ----- ----- ----- -----
Total from investment operations ($) 1.53 4.48 8.79 (5.03) 3.31
----- ----- ----- ----- -----
Dividend from net investment income ($) -- (0.04) -- -- --
Distributions from capital gains ($) -- (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 18.38
===== ===== ===== ===== =====
Total return (%)(b) 16.02(e) 42.52 71.34 (24.98) 21.90
Ratios/Supplemental Data
====================================================================================================================
Net assets at end of year ($ thousands) 116 165 235,938 210,408 198,783
Expense ratio (%)* 2.20(f) 2.20 2.08 2.15 2.21
Expense ratio after expense reductions (%)* 2.20(f) 2.20 2.08 2.15 2.20
Ratio of net investment income (loss) to
average net assets (%)* 0.32(f) (1.38) (0.55) (0.68) (0.46)
Portfolio turnover rate (%) 47.34 124.79 25.03 67.80 65.13
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.15 0.32 0.01 -- --
</TABLE>
<TABLE>
<CAPTION>
Class C
==============================================================
Years ended September 30
--------------------------------------------------------------
Per Share Data 1995 (c) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.08 15.02 20.32 15.06
----- ----- ----- ----- -----
Net investment income (loss) ($)* 0.02 (0.17) (0.09) (0.13) (0.08)
Net realized and unrealized gain (loss)
on investments ($) 1.51 4.65 8.87 (4.90) 3.40
----- ----- ----- ----- -----
Total from investment operations ($) 1.53 4.48 8.78 (5.03) 3.32
----- ----- ----- ----- -----
Dividend from net investment income ($) -- (0.04) -- -- --
Distributions from capital gains ($) -- (0.50) (3.48) (0.23) --
----- ----- ----- ----- -----
Total distributions ($) -- (0.54) (3.48) (0.23) --
----- ----- ----- ----- -----
Net asset value, end of year ($) 11.08 15.02 20.32 15.06 18.38
===== ===== ===== ===== =====
Total return (%)(b) 16.02(e) 42.52 71.26 (25.00) 21.98
Ratios/Supplemental Data
===============================================================================================================
Net assets at end of year ($ thousands) 116 165 67,121 61,504 67,816
Expense ratio (%)* 2.20(f) 2.20 2.09 2.15 2.21
Expense ratio after expense reductions (%)* 2.20(f) 2.20 2.09 2.15 2.20
Ratio of net investment income (loss) to
average net assets (%)* 0.32(f) (1.38) (0.58) (0.68) (0.45)
Portfolio turnover rate (%) 47.34 124.79 25.03 67.80 65.13
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.15 0.32 0.01 -- --
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) February 13, 1995 (commencement of operations) to September 30, 1995.
(d) January 1, 1999 (commencement of share class) to September 30, 1999.
(e) Not annualized.
(f) Annualized.
The text and notes are an integral part of the financial statements.
23
<PAGE>
Financial Highlights CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class S
==============================================================
Years ended September 30
--------------------------------------------------------------
Per Share Data 1995 (c) 1996 (a) 1997 (a) 1998 (a) 1999 (a)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.15 15.18 20.83 15.60
----- ----- ----- ----- -----
Net investment income (loss) ($)* 0.09 (0.06) (0.00) 0.10 0.10
Net realized and unrealized gain (loss)
on investments ($) 1.51 4.70 9.13 (5.10) 3.53
----- ----- ----- ----- -----
Total from investment operations ($) 1.60 4.64 9.13 (5.00) 3.63
----- ----- ----- ----- -----
Dividend from net investment income ($) -- (0.11) -- -- --
Distributions from capital gains ($) -- (0.50) (3.48) (0.23) --
----- ----- ----- ----- -----
Total distributions ($) -- (0.61) (3.48) (0.23) --
----- ----- ----- ----- -----
Net asset value, end of year ($) 11.15 15.18 20.83 15.60 19.23
===== ===== ===== ===== =====
Total return (%)(b) 16.75(e) 43.95 73.10 (24.23) 23.21
Ratios/Supplemental Data
===============================================================================================================
Net assets at end of year ($ thousands) 117 7,752 14,542 750 1,177
Expense ratio (%)* 1.20(f) 1.20 1.16 1.04 1.21
Expense ratio after expense reductions (%)* 1.20(f) 1.20 1.16 1.04 1.20
Ratio of net investment income (loss) to
average net assets (%)* 1.32(f) (0.43) (0.02) 0.53 0.54
Portfolio turnover rate (%) 47.34 124.79 25.03 67.80 65.13
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.15 0.32 0.12 -- --
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) February 13, 1995 (commencement of operations) to September 30, 1995.
(d) January 1, 1999 (commencement of share class) to September 30, 1999.
(e) Not annualized.
(f) Annualized.
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 portfolio holdings, 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, 1999, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 5, 1999
The text and notes are an integral part of the financial statements.
24 State Street Research Aurora Fund
<PAGE>
Board of Trustees
Ralph F. Verni
Chairman of the Board, President,
Chief Executive Officer and Director,
State Street Research & Management Company
Bruce R. Bond
Former Chairman of the Board,
Chief Executive Officer and President,
PictureTel Corporation
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.
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, Founders Investments Ltd.
President, The Glen Ellen Company
Michael S. Scott Morton
Jay W. Forrester Professor of Management,
Sloan School of Management,
Massachusetts Institute of Technology
State Street Research Aurora Fund
- --------------------------------------------------------------------------------
Report on Special Meeting of Shareholders
A Special Meeting of Shareholders of the State Street Research Aurora Fund
("Fund"), along with shareholders of other series of State Street Research
Capital Trust ("Trust"), was convened on April 6, 1999 ("Meeting"). The results
of the Meeting are set forth below.
Action on Proposal
The following persons were elected as Trustees:
Votes (millions of shares)
For Withheld
- --------------------------------------------------------------------------------
Bruce R. Bond 51.8 1.5
Steve A. Garban 51.8 1.5
Malcolm T. Hopkins 51.6 1.6
Susan M. Phillips 51.7 1.5
25
<PAGE>
Glossary
12b-1 fees -- Fees paid from mutual fund assets for personal services and
for the maintenance of shareholder accounts and distribution and marketing
expenses. The fees are named after the SEC rule that permits them.
average shares method -- The practice of basing a fund's calculations for
a given period on the average number of shares that were outstanding
during that period.
Nasdaq -- The stock price quotation system operated by the National
Association of Securities Dealers. The Nasdaq system operates as a
clearing house for transaction data about stocks that are traded "over the
counter" around the U.S.
New York Stock Exchange -- The largest stock exchange in the United
States, and the place where many of the largest company stocks are listed.
Unlike the Nasdaq system, the NYSE is a physical exchange, with all
trading occurring on the exchange's trading floor on Wall Street.
Principal Amount -- With bonds and certain other debt securities, the
amount of the underlying principal of the security. When the security
matures, the issuer is obligated to repay this amount to the holder of the
security. Also called "face value" or "par value".
26 State Street Research Aurora Fund
<PAGE>
[LOGO] STATE STREET RESEARCH ------------
One Financial Center o Boston, MA 02111 Bulk Rate
U.S. Postage
PAID
Canton, MA
Permit #313
------------
Contact Information for
Investor Services
- --------------------------------------------------------------------------------
New accounts
[GRAPHIC] contact your financial
professional for assistance
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
Mutual fund purchases, exchanges, and
account information
[GRAPHIC] internet
www.ssrfunds.com
[GRAPHIC] e-mail
[email protected]
[GRAPHIC] phone
1-800-562-0032
Monday through Friday
8 am - 6 pm Eastern time
Hearing-impaired:
1-800-676-7876
Chinese and Spanish-speaking:
1-888-638-3193
[GRAPHIC] fax
1-617-737-9722
(request confirmation number
first from Service Center:
1-800-562-0032)
[GRAPHIC] mail
State Street Research Service Center
P.O. Box 8408
Boston, MA 02266-8408
For 24-hour
Automated Access
to Your Account
[GRAPHIC] www.ssrfunds.com
[GRAPHIC] 1-800-562-0032
OverView
- --------------------------------------------------------------------------------
For more information on the products and services mentioned in OverView, our
shareholder newsletter, visit our Web site at www.ssrfunds.com
State Street Research
Spectrum of Funds
- --------------------------------------------------------------------------------
Aggressive
Growth Funds
Global Resources Fund
Emerging Growth Fund
Capital Fund
Aurora Fund
International Equity Fund
Growth Fund
Galileo Fund
Legacy Fund
Growth & Income Funds
Argo Fund
[GRAPHIC] Investment Trust
Alpha Fund
Strategic Growth & Income Fund
Strategic Income Plus Fund
Income Funds
High Income Fund
Strategic Income Fund
New York Tax-Free Fund
Tax-Exempt Fund
Government Income Fund
Money Market Fund
Conservative
State Street Research
- --------------------------------------------------------------------------------
FYI
o State Street Research has completed Y2K compliance testing. Visit our Web
site at www.ssrfunds.com to learn more.
o Did you know that you can give a State Street Research mutual fund as a
gift? Call a service center representative at 1-800-562-0032 to learn
more.
o Rudy Kluiber, portfolio manager for State Street Research Aurora Fund, was
featured in the October 31, 1999 edition of the New York Times.
--------------------------------------------
[GRAPHIC]
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1998
--------------------------------------------
for Excellence in Shareholder Service
- --------------------------------------------------------------------------------
This report must be accompanied or preceded by a current State Street Research
Aurora Fund prospectus. When used after December 31, 1999, this report must be
accompanied by a current Quarterly Performance Update.
To obtain a prospectus on any State Street Research Fund call 1-800-562-0032.
The prospectus contains more complete information, including sales charges and
expenses. Please read the prospectus carefully before investing or sending
money.
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:(exp1100)SSR-LD AR-416G-1199
