[LOGO] STATE STREET RESEARCH
Mid-Cap Growth Fund
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Annual Report to Shareholders
September 30, 2000
In this Report Does Asset
Allocation Still
Make Sense?
[GRAPHIC]
plus
U.S. Economy Glides to a Slower Pace
Valuation and the Stock Market
Fund Portfolio and Financials
<PAGE>
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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
context of the fund's track record
8 The Fund in Detail
Portfolio holdings, financials and notes
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Introducing our new president
We are pleased to announce that Richard "Dick" S. Davis has joined State Street
Research & Management Company as President and Chief Executive Officer. Dick
comes to his new position from our parent company, MetLife, where he has served
as senior vice president of fixed income investments and was responsible for the
firm's $110 billion fixed income portfolio.
[PHOTO]
Richard S. Davis
Dick began his professional investment career 30 years ago at First Boston
Corporation. He spent eight years at J.P. Morgan Investment Management and J.P.
Morgan Securities, where he held positions in global fixed income sales
management, client sales and service, risk management and product development.
Dick holds a BA from Georgetown University and an MBA from Columbia University.
We are delighted to welcome a new leader with such an exceptional track record
and outstanding business acumen, and we look forward to hearing from Dick in the
months ahead.
[GRAPHIC]
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12 MONTH REVIEW Management's Discussion of Fund Performance Part 1
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How State Street Research
Mid-Cap Growth Fund Performed
State Street Research Mid-Cap Growth Fund delivered strong performance despite a
generally volatile stock market. The fund returned 54.91% for the 12-month
period ended September 30, 2000.(1) That was slightly less than the Russell
Midcap Growth Index, which returned 60.37% over the same period.(2)
Reasons for the Fund's Performance
Technology stocks drove the fund's performance early in the fiscal year, then
accounted for weaker performance in March as many leading-edge companies were
hurt badly by a correction. However, diversification was beneficial and helped
steady the fund's performance. Investments in health care, financial services
and energy helped performance. Telecommunications stocks were a drag on
performance in the final quarter. However, it remains one of the fund's areas of
focus, along with health care and technology, all of which continue to offer
long-term growth potential.
The fund completed a thorough restructuring early in the year, replacing many
large-cap holdings with mid-cap stocks that had higher growth potential. Strong
performance, higher transaction activity as a result of restructuring and the
migration of strong performers above mid-cap size limits (which necessitated
selling) all contributed to a high capital gains distribution for the year.
Looking Ahead
Despite uncertainties about economic growth, profits and a presidential
election, we believe that mid-cap growth stocks continue to enjoy a combination
of reasonable valuations, sound fundamentals and excellent growth potential.
These characteristics persist across a broad array of sectors and industry
groups.
Class A Shares(1)
54.91%% [UP ARROW]
"The fund completed
a thorough
restructuring early
in the year."
[PHOTO]
Catherine Dudley
Portfolio Manager,
State Street Research
Mid-Cap Growth Fund
Russell Midcap
Growth Index(2)
60.37% [UP ARROW]
More Management's Discussion of Fund Performance on pages 6 and 7.
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 Mid-Cap Growth Fund
<PAGE>
[GRAPHIC] The Fund at a Glance as of 9/30/00
State Street Research Mid-Cap Growth Fund: a stock fund with a growth approach
to mid cap investing.
Integrated Device Technology
The company benefited from a strong communications semiconductor product cycle,
strong earnings growth and an upward revision of long-term growth prospects. The
stock contributed strongly to fund performance. We trimmed our exposure as it
outgrew our market cap limits.
[GRAPHIC]
Hits & Misses
[GRAPHIC]
Entrust
This leader in Internet security surprised the market with lower than expected
earnings in the wake of slower market acceptance of its product and longer than
expected integration of merger activity. As a result, we sold the stock.
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Total Net Assets: $1.1 billion
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Top 10 Holdings
Issuer/Security % of fund assets
(1) Andrx 3.5%
(2) Genzyme 2.4%
(3) Integrated Device Technology 2.4%
(4) Bed Bath & Beyond 2.2%
(5) R&B Falcon 2.2%
(6) Redback Networks 2.1%
(7) Millipore 2.1%
(8) Mercury Interactive 2.1%
(9) Sandisk 2.1%
(10) Bea Systems 2.0%
Total 23.1%
See page 11 for more details.
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Performance: Class A
Fund Average Annual Total Returns as of 9/30/00 (at maximum applicable sales
charge)(3,4)
1 Year 5 Years 10 Years
-------------------------------
46.00% 12.31% 20.44%
Fund Average Annual Total Returns as of 9/30/00 (does not reflect sales
charge)(1,3)
1 Year 5 Years 10 Years
-------------------------------
54.91% 13.65% 21.16%
See pages 6 and 7 for data on other share classes.
Russell Midcap Growth Index
as of 9/30/00(2)
1 Year 5 Years 10 Years
-------------------------------
60.37% 24.63% 22.82%
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Top 5 Industries
% of fund assets
[THE FOLLOWING INFORMATION WAS REPRESENTED AS A BAR CHART IN THE PRINTED
MATERIAL]
September 30, 1999
Communications, Media & Entertainment 10.1%
Retail 9.8%
Electronics: Semiconductors/Components 8.6%
Financial Data Processing Services & Systems 7.8%
Communications Technology 7.6%
September 30, 2000
Computer Software 15.2%
Drugs & Biotechnology 13.0%
Communications Technology 10.2%
Electronics: Semiconductors/Components 8.8%
Retail 5.8%
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Ticker Symbols
State Street Research Mid-Cap Growth Fund
Class A: SCFAX Class B(1): SCFPX Class B: SCFBX Class C: SCFDX Class S: SCFCX
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1 Does not reflect sales charge.
2 The Russell Midcap Growth Index contains only those stocks within the
complete Russell Midcap 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 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. All returns assume reinvestment of capital
gains distributions and income dividends at net asset value.
4 Performance reflects a maximum 5.75% Class A front-end sales charge.
3
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[GRAPHIC] The Way We Think
Does Asset Allocation Still Make Sense?
It was probably one of the first lessons you learned about investing: don't put
all your eggs in one basket. Yet, over the past three years, if you had put all
your eggs in a big-growth technology basket, you could have hatched some
oversized returns. What does that say about the age-old notion that you should
divide your investment dollars among stocks, bonds and cash? That you should
keep some money invested in value as well as growth, in defensive as well as
aggressive stocks, and in small and mid caps as well as large caps?
If you did any--or all--of the above, your investment returns may not have
measured up to the performance of "big growth," and you may feel that asset
allocation let you down. But asset allocation isn't supposed to generate the
highest possible returns. It's a risk moderator, not a performance buster.
Here's how it can help:
Trends Fade
History shows that when investors load up their portfolios with "the next best
thing," it's easy to get burned. Remember the glory days of Polaroid and Xerox?
Maybe not. But that's the point. Both were "glamour" technology stocks of the
1960s, and neither regained its momentum after the bear market of the 1970s. And
gold?
When it skyrocketed in the mid-1970s, some people poured their life savings into
the sector before prices were cut in half. In the 1990s, there was a long list
of "phenomenon" investments: biotechnology, emerging markets and most recently
the Internet. If you diversify, you can get exposure to these sectors in
moderation as well as some downside protection when the market turns against
them. That strategy would have paid off handsomely this year as some of last
year's high fliers, such as wireless and the Internet, have come down to earth,
while stodgy groups such as energy, financials and health care have moved ahead.
U.S. Economy Glides to a Slower Pace
With interest rates on hold since May, it appears that the Federal Reserve has
managed to orchestrate a slowdown of the U.S. economy without harsh effects on
consumers, workers or the markets. As a result, the Fed has let rates stand in
its past two meetings. However, it continues to warn that it is not entirely
satisfied with the relatively high spending and rising prices in some sectors of
the economy, both of which could threaten higher inflation. Third quarter gross
domestic product (the nation's total output of goods and services) was
significantly lower than second quarter, 2.7% versus 5.6%.
More Share in Good Times
Prosperity has broadened its reach across the income spectrum. Poverty dropped
to a 20-year low last year. Real median household income rose to a record high
of $40,800 as personal income, in general, continued to climb. Consumer
confidence also remained high, which was somewhat surprising in light of soaring
energy prices. Most consumers are feeling the pinch at the pumps and see the
price hikes reflected in their utility bills. Yet, there is little evidence that
higher energy prices have filtered through to the broader economy. What's more,
inflation remained tame--though higher than a year ago--at 3.5%.
Financial Markets Reflect Uncertainty
The uneven performance by the U.S. stock market in the final quarter had less to
do with the economy than a string of disappointing announcements about sales and
earnings from new economy market leader Intel as well as some old stalwarts such
as Gillette, Procter & Gamble and Kodak. Yet, gains for the year were strong.
The S&P 500 returned 13.3% while the technology-heavy Nasdaq was up 34.0%.
Mid-cap value stocks gained ground against large cap stocks. Long-term U.S.
Treasury bonds were helped by optimism about the economic slowdown plus a
federal buyback of bonds. Foreign markets were generally disappointing. Canada
was the bright spot on the globe, as energy and telecommunication companies have
brought its stock market to life.
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Key Indicators Point to
Slower Growth
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New home sales [DOWN ARROW] fell 3.0%
Retail sales growth slowed [DOWN ARROW] from 6.5% to 3.5%
Corporate profit growth slowed [DOWN ARROW] from 4.8% to 3.0%
Jobless rate held steady at [LEFT AND RIGHT ARROWS] 4.0%
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But Pockets of Strength
Keep Fed on Vigil
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Consumer spending [DOWN ARROW] 4.5%
Consumer Price Index [DOWN ARROW] 3.5%
Personal income [DOWN ARROW] 4.0%
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U.S. Department of Commerce. Third Quarter 2000
4 State Street Research Mid-Cap Growth Fund
<PAGE>
Cycles Shift
Sometimes groups of stocks charge ahead because they offer something new--like
the Internet. But one of the strongest forces in the stock market is valuation
[see sidebar, on this page]: the measure of a stock's worth relative to the
market as a whole or to its industry group. History shows that valuation shifts
over time, and the markets follow. When investors believe that a company or an
industry is capable of generating superior profits for an extended period of
time, they bid up its stock price on that expectation. But investors find it
difficult to stop on a dime and tend to overdo a move in either direction. As
investors move a stock's price higher, it can become overvalued. If profit
growth slows, even a little, it can cause investors to rethink the price they
are willing to pay. Then, a stock's price may fall to the point where it becomes
undervalued.
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The Next Best Investment Thing?
TOP-PERFORMING EQUITY INVESTMENTS
1990-1999
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1990 Growth Large cap Biotechnology
1991 Growth Small cap Biotechnology
1992 Value Small cap Financials
1993 Growth Small cap Gold
1994 Growth Small cap Health Care
1995 Growth Large cap Technology
1996 Value Mid cap Energy
1997 Growth Large cap Financials
1998 Growth Large cap Wireless
Communications
1999 Growth Large cap Technology
2000 ytd* Value Mid cap Energy
Sources: Ibbotson, Frank Russell & Co., Standard & Poor's.
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This perfectly normal movement of the markets accounts for the fact that over
time, different types of stocks have captured the limelight [see table above].
It's impossible to guess which group is going to emerge as a winner in any given
year. The next best thing is to divide your investments so that you are there
when the cycle takes off. You don't have to worry about when to get out, because
rebalancing (the process of trimming your winners and adding to your losers to
keep your asset proportions constant) will help you maintain the amount of risk
that's right for you.
Dig Out of Diversification Deficit
Of course, rebalancing is also one of the hardest investment moves to make--it
feels counterintuitive to lighten up on the very investments that have helped
you and add to the ones that have disappointed. But if you started with a
portfolio divided 60/40 between stocks and bonds* at the beginning of 1997, your
mix would have shifted to 72/28 by the end of 1999. That would have given you
higher returns, but it also would have exposed you to a higher level of risk
than you started with.
There are two ways to rebalance: you can sell some of your top-performers and
add to your laggards, or you can direct your new investment dollars to the
portion of your portfolio that's fallen behind until you're back to your
original mix. If you're rebalancing a retirement account, you can take the first
approach with no tax consequences. In a taxable account, the second approach may
be more attractive because it will help you avoid taxable exchanges.
Think of asset allocation as a hedge against the market's changeability: You may
accept slightly lower performance when the market is dominated by a single
sector, but when the next "next best" investment comes along, diversification
will help keep your portfolio steady.
* Based on the S&P 500 and the Lehman Aggregate Bond Index, 1997-1999.
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[GRAPHIC] A Closer Look
Valuation and the stock market
Unlike items at the mall, where prices are clearly marked, a stock's price can
change second by second, depending on what the next buyer is willing to pay and
what the next seller is willing to accept. So how can an investor figure how
much a stock is really worth?
There are a variety of measures to get at a stock's valuation, most of which
involve comparing them to other stocks with similar characteristics or to the
market as a whole or to historical measures that set a standard for an industry.
"Usually investors are willing to pay some multiple for the growth rate of a
dollar of earnings over time," says Cathy Dudley, portfolio manager of State
Street Research Mid-Cap Growth Fund. "What we have seen over the last few years
is that investors have been willing to pay higher multiples." At some point,
says Cathy, investors are simply buying because the prices are moving higher,
which Cathy thinks is shortsighted.
Cathy says that one way to get at whether a stock is over, under or fairly
priced is to examine whether the risks have been appropriately factored into its
price. "If investors are only paying for the positive side and the risks do not
appear to have been priced in, that is when I tend to think a stock is
overpriced."
5
<PAGE>
[GRAPHIC]
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PERFORMANCE IN PERSPECTIVE Management's Discussion of Fund Performance Part 2
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Performance Figures as of September 30, 2000
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 of a given investment over time.
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 10 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.
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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/distribution (12b-1) fee of 0.30%
Cumulative Total Return 1 Year 5 Years 10 Years
(does not reflect -------------------------------------
sales charge) 54.91% 89.60% 581.50%
Average Annual Total Return 1 Year 5 Years 10 Years
(at maximum applicable -------------------------------------
sales charge) 46.00% 12.31% 20.44%
[THE FOLLOWING INFORMATION WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
$10,000 Over 10 years
Class A S & P 500 Russell Midcap Growth Index
"90" 9425 10000 10000
"91" 14503 13109 14889
"92" 15567 14557 16263
"93" 24131 16445 19552
"94" 24736 17050 20027
"95" 33877 22115 25968
"96" 37305 26608 30209
"97" 39962 37365 39164
"98" 32713 40759 35494
"99" 41465 52084 48695
"00" 64232 58994 78092
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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 service/distribution (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Cumulative Total Return 1 Year 5 Years 10 Years
(does not reflect ----------------------------------
sales charge) 53.90% 82.60% 545.62%
Average Annual Total Return 1 Year 5 Years 10 Years
(at maximum applicable ----------------------------------
sales charge) 48.90% 12.55% 20.50%
[THE FOLLOWING INFORMATION WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
$10,000 Over 10 years
Class B(1) S & P 500 Russell Midcap Growth Index
"90" 10000 10000 10000
"91" 15388 13109 14889
"92" 16517 14557 16263
"93" 25559 16445 19552
"94" 26017 17050 20027
"95" 35357 22115 25968
"96" 38657 26608 30209
"97" 41080 37365 39164
"98" 33364 40759 35494
"99" 41951 52084 48695
"00" 64562 58994 78092
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6 State Street Research Mid-Cap Growth Fund
<PAGE>
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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 service/distribution (12b-1) fee of 1.00%
o Automatic conversion to Class A shares after eight years, reducing future
annual expenses
Cumulative Total Return 1 Year 5 Years 10 Years
(does not reflect -----------------------------------
sales charge) 53.83% 82.52% 545.32%
Average Annual Total Return 1 Year 5 Years 10 Years
(at maximum applicable -----------------------------------
sales charge) 48.83% 12.54% 20.50%
[THE FOLLOWING INFORMATION WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
$10,000 Over 10 years
Class B S & P 500 Russell Midcap Growth Index
"90" 10000 10000 10000
"91" 15388 13109 14889
"92" 16517 14557 16263
"93" 25559 16445 19552
"94" 26017 17050 20027
"95" 35357 22115 25968
"96" 38657 26608 30209
"97" 41080 37365 39164
"98" 33364 40759 35494
"99" 41951 52084 48695
"00" 64532 58994 78092
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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 service/distribution (12b-1) fee of 1.00%
o No conversion to Class A shares after eight years, so annual expenses do
not decrease
Cumulative Total Return 1 Year 5 Years 10 Years
(does not reflect ----------------------------------
sales charge) 53.86% 82.49% 546.71%
Average Annual Total Return 1 Year 5 Years 10 Years
(at maximum applicable ----------------------------------
sales charge) 52.86% 12.78% 20.52%
[THE FOLLOWING INFORMATION WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
$10,000 Over 10 years
Class C S & P 500 Russell Midcap Growth Index
"90" 10000 10000 10000
"91" 15388 13109 14889
"92" 16517 14557 16263
"93" 25535 16445 19552
"94" 26045 17050 20027
"95" 35439 22115 25968
"96" 38711 26608 30209
"97" 41134 37365 39164
"98" 33420 40759 35494
"99" 42033 52084 48695
"00" 64671 58994 78092
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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 service/distribution (12b-1) fees; annual expenses are lower than for
other share classes
Cumulative Total Return 1 Year 5 Years 10 Years
(does not reflect ----------------------------------
sales charge) 55.32% 91.88% 596.14%
Average Annual Total Return 1 Year 5 Years 10 Years
(at maximum applicable ----------------------------------
sales charge) 55.32% 13.92% 21.41%
[THE FOLLOWING INFORMATION WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL]
$10,000 Over 10 years
Class S S & P 500 Russell Midcap Growth Index
"90" 10000 10000 10000
"91" 15388 13109 14889
"92" 16517 14557 16263
"93" 25667 16445 19552
"94" 26425 17050 20027
"95" 36280 22115 25968
"96" 40056 26608 30209
"97" 42987 37365 39164
"98" 35276 40759 35494
"99" 44820 52084 48695
"00" 69614 58994 78092
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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 "S&P 500 Composite 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.
The Russell Midcap(TM) Growth Index contains only those securities from the
Russell Midcap Index with a greater than average growth generation. The indices
do not take transaction charges into consideration. It is not possible to invest
directly in the indices.
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.
Performance for Class B(1) reflects Class B performance through December 31,
1998. Class B(1) was introduced January 1, 1999.
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.
7
<PAGE>
[GRAPHIC]
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The Fund in Detail
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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 Mid-Cap Growth Fund
<PAGE>
About the Fund
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Business structure
State Street Research Mid-CapGrowth 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 oversees the fund with its shareholders' interests
in mind and have ultimate responsibility for the fund's activities (see
back pages of report 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 MetLife, Inc.
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 long-term growth of capital. In seeking to achieve its
investment objective, the fund invests primarily in mid cap growth stocks.
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.
Class A shares are subject to an initial sales charge of up to 5.75%. From
October 1, 1999 to April 30, 2000 Class A shares paid a service fee equal to
0.25% of average daily net assets. Beginning May 1, 2000, Class A shares pay an
annual service and distribution fee equal to 0.30% of average daily net assets.
Class B(1) and Class B shares pay annual service and distribution fees of 1.00%.
Class B(1) and Class B shares automatically convert into Class A shares (which
pay lower ongoing expenses) at the end of eight years. Class B(1) and Class B
shares are subject to a contingent deferred sales charge on certain redemptions
made within six years and five years of purchase, respectively. Class C shares
are subject to a contingent deferred sales charge of 1.00% on any shares
redeemed within one year of their purchase, and also pay annual service and
distribution fees of 1.00%. Class S shares are only offered through certain
retirement accounts, advisory accounts of the investment manager, and special
programs. No sales charge is imposed at the time of purchase or redemption of
Class S shares. Class S shares do not pay any service or distribution fees.
The text and notes are an integral part of the financial statements.
9
<PAGE>
The Fund's Accounting Policies
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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 60 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. The fund will receive cash or securities as collateral in the
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the fund could realize additional gains 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 has
elected 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 text and notes are an integral part of the financial statements.
10 State Street Research Mid-Cap Growth Fund
<PAGE>
Portfolio Holdings September 30, 2000
--------------------------------------------------------------------------------
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 then by
specific industry.
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.
--------------------------------------------------------------------------------
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Common Stocks 96.9% of net assets
Consumer Discretionary 12.4% of net assets
--------------------------------------------------------------------------------
Advertising Agencies 1.6%
TMP Worldwide Inc.* 218,600 $17,597,300
-----------
Communications, Media & Entertainment 1.0%
U.S.A. Networks Inc.* 504,654 11,070,847
-----------
Consumer Electronics 3.0%
Electronic Arts Inc.* 269,700 13,316,438
Internap Network Services Corp.* 565,400 18,269,487
-----------
31,585,925
-----------
Restaurants 1.0%
Starbucks Corp.* 271,600 10,880,975
-----------
Retail 5.8%
Bed Bath & Beyond Inc.* 980,800 23,922,325(4)
Retail
Best Buy Company Inc.* 219,600 13,972,050
Family Dollar Stores Inc. 338,600 6,518,050
Staples Inc.* 728,400 10,334,175
Williams Sonoma Inc.* 208,700 7,252,325
-----------
61,998,925
-----------
Total Consumer Discretionary 133,133,972
-----------
Financial Services 8.8% of net assets
--------------------------------------------------------------------------------
Banks & Savings & Loan 0.6%
Investors Financial Services Co. 111,700 7,051,063
-----------
Financial Data Processing Services & Systems 1.2%
Concord EFS Inc.* 373,900 13,279,292
-----------
Insurance 4.4%
Ace Ltd. 427,300 16,771,525
Everest Reinsurance Group, Ltd. 202,500 10,023,750
Partnerre Ltd.* 172,500 8,182,969
Saint Paul Companies, Inc. 242,100 11,938,556
-----------
46,916,800
-----------
Miscellaneous Financial 2.6%
Bisys Group Inc.* 157,600 12,184,450
Providian Financial Corp. 120,700 15,328,900
-----------
27,513,350
-----------
Total Financial Services 94,760,505
-----------
The text and notes are an integral part of the financial statements.
11
<PAGE>
Portfolio Holdings September 30, 2000 CONTINUED
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Health Care 17.1% of net assets
--------------------------------------------------------------------------------
Drugs & Biotechnology 13.0%
ALZA Corp.* 226,300 $19,574,950
Andrx Corp.* 397,900 37,153,912 (1)
Biotechnology & Drugs
Biogen Inc.* 176,800 10,784,800
Genzyme Corp.* 379,600 25,895,837 (2)
Biotechnology
IVAX Corp.* 382,000 17,572,000
Medarex, Inc.* 116,600 13,678,638
Medimmune Inc.* 146,700 11,332,575
Sepracor Inc.* 33,200 4,073,225
-----------
140,065,937
-----------
Health Care Services 1.5%
Express Scripts Inc. Cl. A* 220,300 15,916,675
-----------
Hospital Supply 2.6%
Biomet Inc. 362,300 12,680,500
Stryker Corp. 350,500 15,049,594
-----------
27,730,094
-----------
Total Health Care 183,712,706
-----------
Integrated Oils 1.6% of net assets
--------------------------------------------------------------------------------
Integrated Domestic 1.6%
Kerr-McGee Corp. 266,300 17,642,375
-----------
Total Integrated Oils 17,642,375
-----------
Other Energy 7.5% of net assets
--------------------------------------------------------------------------------
Gas Pipelines 1.8%
EOG Resources Inc. 497,500 19,340,313
-----------
Offshore Drilling 2.2%
R&B Falcon Corp.* 833,000 23,219,875(5)
Oil Well Services & Equipment
-----------
Oil & Gas Producers 1.0%
Anadarko Petroleum Corp. 168,800 11,218,448
-----------
Oil Well Equipment & Services 2.5%
National Oilwell Inc.* 185,500 5,796,875
Noble Drilling Corp.* 412,900 20,748,225
-----------
26,545,100
-----------
Total Other Energy 80,323,736
-----------
Producer Durables 9.5% of net assets
--------------------------------------------------------------------------------
Miscellaneous Equipment 1.0%
Danaher Corp. 215,300 $10,711,175
-----------
Production Technology Equipment 4.0%
Millipore Corp. 468,100 22,673,594 (7)
Production Technology Equipment
Novellus Systems Inc.* 435,700 20,287,281
-----------
42,960,875
-----------
Telecommunications Equipment 4.5%
American Tower Corp. Cl. A* 319,900 12,056,231
Andrew Corp.* 373,500 9,781,031
Polycom Inc.* 176,200 11,799,894
Powerwave Technologies Inc.* 385,500 14,636,953
-----------
48,274,109
-----------
Total Producer Durables 101,946,159
-----------
Technology 38.7% of net assets
--------------------------------------------------------------------------------
Communications Technology 10.2%
3Com Corp.* 620,400 11,905,600
Aether Systems Inc.* 104,500 11,024,750
Extreme Networks Inc.* 86,300 9,881,350
Finisar Corp.* 302,800 14,647,950
Foundry Networks, Inc.* 184,100 12,323,194
Metromedia Fiber Network Inc. Cl. A* 402,400 9,783,350
New Focus Inc.* 154,800 12,238,875
Redback Networks Inc.* 140,300 23,000,431(6)
Networking Solutions
Spectrasite Holdings, Inc.* 253,600 4,707,450
-----------
109,512,950
-----------
Computer Software 15.2%
--------------------------------------------------------------------------------
Ariba Inc.* 105,300 15,085,870
Bea Systems Inc.* 277,000 21,571,375(10)
Computer Software
Macromedia Inc.* 134,200 10,845,038
Mercury Interactive Corp.* 141,500 22,180,125(8)
Software & Programming
Micromuse Inc.* 85,100 17,099,781
Peregrine Systems Inc.* 563,000 10,661,813
Phone.com Inc.* 150,900 17,146,012
Proxicom Inc.* 227,100 4,428,450
Qlogic Corp.* 178,300 15,690,400
Vignette Corp.* 482,300 14,408,713
Virginia Linux Systems Inc.* 304,600 14,087,750
-----------
163,205,327
-----------
Computer Technology 2.1%
Sandisk Corp.* 332,000 22,161,000 (9)
Computers
-----------
The text and notes are an integral part of the financial statements.
12 State Street Research Mid-Cap Growth Fund
<PAGE>
Market
Issuer Shares Value
-----------------------------------------------------------------------------
Electronics 2.4%
PE Biosystems Group Corp. 61,900 $7,211,350
Symbol Technologies Inc. 509,500 18,310,156
-------------
25,521,506
-------------
Electronics: Semiconductors/Components 8.8%
Cypress Semiconductor Corp.* 511,800 21,271,687
Integrated Device Technology Inc.* 282,300 25,548,150(3)
Semiconductors
Intersil Holding Corp. Cl. A* 396,000 19,750,500
Jabil Circuit Inc.* 186,300 10,572,525
Virata Corp.* 172,300 11,393,338
Vitesse Semiconductor Corp.* 63,000 5,603,063
-------------
94,139,263
-------------
Total Technology 414,540,046
-------------
Utilities 1.3% of net assets
-----------------------------------------------------------------------------
Electrical 0.2%
Southern Energy Inc.* 46,000 1,443,250
-------------
Telecommunications 1.1%
NEXTLINK Communications Inc. Cl. A* 339,500 11,946,156
-------------
Total Utilities 13,389,406
-------------
Total Common Stocks 1,039,448,905(a)
-------------
--------------------------------------------------------------------------------
(a) The fund paid a total of $870,762,222 for these securities.
--------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Market
Issuer Shares Value
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments 5.0% of net assets
AIM Liquid Assets Portfolio 53,334,098 $53,334,098
--------------
Total Short-Term Investments 53,334,098(1)
--------------
<CAPTION>
Coupon Maturity Amount of
Rate Date Principal
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper 4.2% of net assets
AIG Funding Inc. 6.52% 10/03/2000 $11,272,000 $11,267,917
American Express Credit Corp. 6.56% 10/02/2000 5,350,000 5,350,000
American Express Credit Corp. 6.55% 10/03/2000 18,885,000 18,885,000
DaimlerChrysler N.A. Holding Corp. 6.53% 10/03/2000 9,255,000 9,255,000
--------------
Total Commercial Paper 44,757,917(2)
--------------
<CAPTION>
% of
Net Assets
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Summary of Portfolio Assets
Investments 106.1% $1,137,540,920
Cash and Other Assets, Less Liabilities (6.1%) (64,924,939)
------- --------------
Net Assets 100.0% $1,072,615,981(3)
======= ==============
</TABLE>
--------------------------------------------------------------------------------
(1) The fund paid a total of $53,334,098 for these securities.
--------------------------------------------------------------------------------
(2) The fund paid a total of $44,757,917 for these securities.
--------------------------------------------------------------------------------
(3) The fund paid a total of $968,854,237 for these securities.
--------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
14 State Street Research Mid-Cap Growth Fund
<PAGE>
Federal Income Tax Information
At September 30, 2000, the net unrealized appreciation of investments based on
cost for Federal income tax purposes of $972,031,722 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $210,609,358
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (45,100,160)
------------
$165,509,198
============
The text and notes are an integral part of the financial statements.
15
<PAGE>
Statement of
Assets and Liabilities September 30, 2000
--------------------------------------------------------------------------------
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 $1,137,540,920(1)
Cash 52
Receivable for securities sold 42,027,409
Receivable for fund shares sold 813,435
Dividends and interest receivable 272,361
Other assets 17,864
--------------
1,180,672,041
Liabilities
Payable for collateral received on securities loaned 53,334,098
Payable for securities purchased 51,456,220
Payable for fund shares redeemed 1,298,985
Accrued transfer agent and shareholder services 651,358
Accrued management fee 609,387
Accrued distribution and service fees 501,080
Accrued trustees' fees 36,093
Other accrued expenses 168,839
--------------
108,056,060
--------------
Net Assets $1,072,615,981
==============
Net Assets consist of:
Unrealized appreciation of investments $168,686,683
Accumulated net realized gain 459,780,009
Paid-in capital 444,149,289(2)
--------------
$1,072,615,981
==============
--------------------------------------------------------------------------------
(1) The fund paid a total of $968,854,237 for these securities.
--------------------------------------------------------------------------------
(2) 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 $450,520,694 22,412,377 $20.10*
B(1) $37,063,246 1,968,576 $18.83**
B $411,583,496 21,870,272 $18.82**
C $51,721,291 2,741,089 $18.87**
S $121,727,254 5,902,973 $20.62
* Maximum offering price per share $21.33 ($20.10 / 0.9425)
** Redemption price per share for Class B(1), Class B and Class C is equal to
net asset value less any applicable contingent deferred sales charge.
--------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
16 State Street Research Mid-Cap Growth Fund
<PAGE>
Statement of
Operations For the year ended September 30, 2000
--------------------------------------------------------------------------------
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
Dividends $1,778,949
Interest 3,371,512(1)
------------
5,150,461
Expenses
Management fee 7,128,766(2)
Transfer agent and shareholder services 3,177,464(3)
Distribution and service fees - Class A 1,119,960(4)
Distribution and service fees - Class B(1) 209,590(4)
Distribution and service fees - Class B 3,894,305(4)
Distribution and service fees - Class C 489,871(4)
Custodian fee 243,168
Reports to shareholders 151,426
Registration fees 83,906
Trustees' fees 36,093(5)
Audit fee 33,705
Legal fees 14,690
Miscellaneous 59,478
------------
16,642,422
Fees paid indirectly (93,981)(6)
------------
16,548,441
------------
Net investment loss (11,397,980)
------------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain on investments 471,990,003(7)
Change in unrealized depreciation of foreign currency (58,627,131)
------------
Net gain on investments 413,362,872
------------
Net increase in net assets resulting
from operations $401,964,892
============
--------------------------------------------------------------------------------
(1) Includes $496,458 in income from the lending of portfolio securities. As
of the report date, the fund had a total of $58,923,731 of securities out
on loan and was holding a total of $61,115,761 (including $53,334,098 of
cash collateral) in collateral related to those loans.
--------------------------------------------------------------------------------
(2) 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.
--------------------------------------------------------------------------------
(3) Includes a total of $1,521,576 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.
--------------------------------------------------------------------------------
(4) 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.
--------------------------------------------------------------------------------
(5) Paid only to trustees who aren't currently affiliated with the adviser
(the fund doesn't pay trustees' fees to affiliated trustees).
--------------------------------------------------------------------------------
(6) Represents transfer agent credits earned from uninvested cash balances and
directed brokerage credits used to reduce the custodian fee.
--------------------------------------------------------------------------------
(7) To earn this, the fund sold $1,753,412,123 of securities. During this same
period, the fund also bought $1,602,983,583 worth of securities. These
figures don't include short-term obligations or U.S. government
securities.
--------------------------------------------------------------------------------
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
-------------------------------------------------------------------------
1999 2000
-------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $(11,979,964) $(11,397,980)
Net realized gain
on investments 45,443,247 471,990,003
Change in unrealized appreciation
(depreciation) of investments
and foreign currency 180,781,535 (58,627,131)
-------------------------------
Net increase resulting
from operations 214,244,818 401,964,892
-------------------------------
Distribution from capital gains:
Class A (34,950,690) (18,716,333)
Class B(1) -- (642,758)
Class B (41,134,345) (19,306,598)
Class C (5,936,698) (2,433,655)
Class S (11,198,919) (5,227,876)
-------------------------------
(93,220,652) (46,327,220)(1)
-------------------------------
Net decrease from fund
share transactions (192,832,074) (64,099,810)(2)
-------------------------------
Total increase (decrease)
in net assets (71,807,908) 291,537,862
-------------------------------
Net Assets
Beginning of year 852,886,027 781,078,119
-------------------------------
End of year $781,078,119 $1,072,615,981
===============================
--------------------------------------------------------------------------------
(1) The fund has designated as long-term all of this amount.
--------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
18 State Street Research Mid-Cap Growth Fund
<PAGE>
--------------------------------------------------------------------------------
(2) These transactions break down by share class as follows:
<TABLE>
<CAPTION>
Years ended September 30
--------------------------------------------------------------------------
1999 2000
--------------------------------------------------------------------------
Class A Shares Amount Shares Amount
===============================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 39,389,475 $529,187,418 6,802,987 $115,733,976*
Issued upon reinvestment of
distribution from capital gains 2,837,347 33,878,568 1,136,163 18,225,176
Shares redeemed (45,341,679) (609,290,036) (9,112,449) (155,131,940)
--------------------------------------------------------------------------
Net decrease (3,114,857) ($46,224,050) (1,173,299) ($21,172,788)
==========================================================================
<CAPTION>
Class B(1) Shares(a) Amount(a) Shares Amount
===============================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 783,117 $10,186,480 1,430,520 $24,710,004**
Issued upon reinvestment of
distribution from capital gains -- -- 40,788 601,180
Shares redeemed (106,356) (1,413,615) (179,493) (3,053,990)***
--------------------------------------------------------------------------
Net increase 676,761 $8,772,865 1,291,815 $22,257,194
==========================================================================
<CAPTION>
Class B Shares Amount Shares Amount
===============================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 1,661,817 $20,500,970 1,308,030 $22,612,055**
Issued upon reinvestment of
distribution from capital gains 3,398,217 38,637,975 1,209,097 18,257,330
Shares redeemed (12,296,088) (155,311,696) (5,350,216) (87,876,826)***
--------------------------------------------------------------------------
Net decrease (7,236,054) ($96,172,751) (2,833,089) ($47,007,441)
==========================================================================
<CAPTION>
Class C Shares Amount Shares Amount
===============================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 833,587 $11,510,962 138,864 $2,373,465**
Issued upon reinvestment of
distribution from capital gains 471,367 5,373,580 145,328 2,200,241
Shares redeemed (2,930,508) (37,673,074) (732,355) (11,933,887)****
--------------------------------------------------------------------------
Net decrease (1,625,554) ($20,788,532) (448,163) ($7,360,181)
==========================================================================
<CAPTION>
Class S Shares Amount Shares Amount
===============================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 2,251,900 $29,901,607 2,156,067 $40,290,794
Issued upon reinvestment of
distribution from capital gains 897,316 10,929,580 305,445 5,014,462
Shares redeemed (5,941,816) (79,250,793) (3,070,429) (56,121,850)
--------------------------------------------------------------------------
Net decrease (2,792,600) ($38,419,606) (608,917) ($10,816,594)
==========================================================================
</TABLE>
--------------------------------------------------------------------------------
The trustees have the authority to issue an unlimited number of shares of
beneficial interest, with a $0.001 par value per share.
* Includes $102,716 and $275,849 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 $284,140, $5,269,
and $268 for Class B(1), Class B and Class C, were paid by the
distributor, not the fund.
*** Includes $44,531 and $371,160 in deferred sales charges collected by the
distributor for Class B(1) and Class B.
**** Includes $266 in deferred sales charges collected by the distributor.
(a) January 1, 1999 (commencement of share class) to September 30, 1999.
--------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
19
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
These provide a summary of each share class's financial performance for the past
five fiscal years.
<TABLE>
<CAPTION>
Class A
===============================================================
Years ended September 30
---------------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 13.53 13.76 14.74 11.95 13.64
------- ------- ------- ------- -------
Net investment loss ($) (0.05) (0.08) (0.12) (0.14) (0.15)
Net realized and unrealized gain (loss)
on investments 1.30 1.06 (2.54) 3.15 7.44
------- ------- ------- ------- -------
Total from investment operations ($) 1.25 0.98 (2.66) 3.01 7.29
------- ------- ------- ------- -------
Distributions from capital gains ($) (1.02) -- (0.13) (1.32) (0.83)
------- ------- ------- ------- -------
Total distributions ($) (1.02) -- (0.13) (1.32) (0.83)
------- ------- ------- ------- -------
Net asset value, end of year ($) 13.76 14.74 11.95 13.64 20.10
======= ======= ======= ======= =======
Total return (%)(b) 10.12 7.12 (18.14) 26.75 54.91
Ratios/Supplemental Data
===============================================================================================================
Net assets at end of year ($ thousands) 114,247 470,977 319,014 321,667 450,521
Expense ratio (%) 1.26 1.21 1.39 1.40 1.38
Expense ratio after expense reductions (%) 1.26 1.21 1.39 1.38 1.37
Ratio of net investment loss
to average net assets (%) (0.39) (0.60) (0.88) (1.03) (0.85)
Portfolio turnover rate (%) 215.07 230.66 86.34 68.03 171.87
</TABLE>
Class B(1)
========================
Years ended September 30
------------------------
Per Share Data 1999(a)(c) 2000(a)
================================================================================
Net asset value, beginning of year ($) 13.17 12.90
----- ------
Net investment loss ($) (0.17) (0.26)
Net realized and unrealized gain (loss)
on investments ($) (0.10) 7.02
----- ------
Total from investment operations ($) (0.27) 6.76
----- ------
Distribution from capital gains ($) -- (0.83)
----- ------
Total distributions ($) -- (0.83)
----- ------
Net asset value, end of year ($) 12.90 18.83
===== ======
Total return (%)(b) (2.05)(d) 53.90
Ratios/Supplemental Data
================================================================================
Net assets at end of year ($ thousands) 8,730 37,063
Expense ratio (%) 2.15(e) 2.11
Expense ratio after expense reductions (%) 2.13(e) 2.10
Ratio of net investment loss to average net assets (%) (1.81)(e) (1.52)
Portfolio turnover rate (%) 68.03 171.87
The text and notes are an integral part of the financial statements.
20 State Street Research Mid-CapGrowth Fund
<PAGE>
Financial Highlights CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
===============================================================
Years ended September 30
---------------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 13.29 13.40 14.24 11.45 12.90
------- ------- ------- ------- -------
Net investment loss ($) (0.14) (0.17) (0.22) (0.22) (0.26)
Net realized and unrealized gain (loss)
on investments ($) 1.27 1.01 (2.44) 2.99 7.01
------- ------- ------- ------- -------
Total from investment operations ($) 1.13 0.84 (2.66) 2.77 6.75
------- ------- ------- ------- -------
Distributions from capital gains ($) (1.02) -- (0.13) (1.32) (0.83)
------- ------- ------- ------- -------
Total distributions ($) (1.02) -- (0.13) (1.32) (0.83)
------- ------- ------- ------- -------
Net asset value, end of year ($) 13.40 14.24 11.45 12.90 18.82
======= ======= ======= ======= =======
Total return (%)(b) 9.33 6.27 (18.78) 25.74 53.83
Ratios/Supplemental Data
===============================================================================================================
Net assets at end of year ($ thousands) 386,899 562,392 365,547 318,695 411,584
Expense ratio (%) 2.01 1.98 2.13 2.15 2.11
Expense ratio after expense reductions (%) 2.01 1.98 2.13 2.13 2.10
Ratio of net investment loss
to average net assets (%) (1.13) (1.32) (1.63) (1.77) (1.58)
Portfolio turnover rate (%) 215.07 230.66 86.34 68.03 171.87
</TABLE>
<TABLE>
<CAPTION>
Class C
===============================================================
Years ended September 30
---------------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 13.31 13.42 14.26 11.47 12.93
------- ------- ------ ------ ------
Net investment loss ($) (0.14) (0.17) (0.22) (0.22) (0.27)
Net realized and unrealized gain (loss)
on investments ($) 1.27 1.01 (2.44) 3.00 7.04
------- ------- ------ ------ ------
Total from investment operations ($) 1.13 0.84 (2.66) 2.78 6.77
------- ------- ------ ------ ------
Distributions from capital gains ($) (1.02) -- (0.13) (1.32) (0.83)
------- ------- ------ ------ ------
Total distributions ($) (1.02) -- (0.13) (1.32) (0.83)
------- ------- ------ ------ ------
Net asset value, end of year ($) 13.42 14.26 11.47 12.93 18.87
======= ======= ====== ====== ======
Total return (%)(b) 9.23 6.26 (18.76) 25.77 53.86
Ratios/Supplemental Data
===============================================================================================================
Net assets at end of year ($ thousands) 190,319 120,051 55,208 41,235 51,721
Expense ratio (%) 2.01 1.98 2.13 2.15 2.11
Expense ratio after expense reductions (%) 2.01 1.98 2.13 2.13 2.10
Ratio of net investment loss
to average net assets (%) (1.13) (1.30) (1.63) (1.77) (1.58)
Portfolio turnover rate (%) 215.07 230.66 86.34 68.03 171.87
</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 June 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 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 13.66 13.94 14.96 12.16 13.94
------ ------- ------- ------ -------
Net investment loss ($) (0.01) (0.05) (0.09) (0.10) (0.11)
Net realized and unrealized gain (loss)
on investments ($) 1.31 1.07 (2.58) 3.20 7.62
------ ------- ------- ------ -------
Total from investment operations ($) 1.30 1.02 (2.67) 3.10 7.51
------ ------- ------- ------ -------
Distributions from capital gains ($) (1.02) -- (0.13) (1.32) (0.83)
------ ------- ------- ------ -------
Total distributions ($) (1.02) -- (0.13) (1.32) (0.83)
------ ------- ------- ------ -------
Net asset value, end of year ($) 13.94 14.96 12.16 13.94 20.62
====== ======= ======= ====== =======
Total return (%)(b) 10.41 7.32 (17.94) 27.06 55.32
Ratios/Supplemental Data
===============================================================================================================
Net assets at end of year ($ thousands) 34,835 189,778 113,118 90,751 121,727
Expense ratio (%) 1.01 0.96 1.14 1.15 1.11
Expense ratio after expense reductions (%) 1.01 0.96 1.14 1.13 1.10
Ratio of net investment loss
to average net assets (%) (0.08) (0.37) (0.63) (0.77) (0.58)
Portfolio turnover rate (%) 215.07 230.66 86.34 68.03 171.87
</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.
The text and notes are an integral part of the financial statements.
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of State Street Research
Capital Trust and the Shareholders of
State Street Research Mid-CapGrowth 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 Mid-Cap Growth Fund (a
series of State Street Research Capital Trust, hereafter referred to as the
"Trust") at September 30, 2000, 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 of
America. 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 of
America, 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, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 15, 2000
22 State Street Research Mid-Cap Growth Fund
<PAGE>
Board of Trustees
Richard S. Davis
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
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
23
<PAGE>
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our shareholder newsletter, visit our
Web site at www.statestreetresearch.com
State Street Research
FYI
--------------------------------------------------------------------------------
Did you know that you can give a State Street Research mutual fund as a gift?
Call a service center representative toll-free at 1-87-SSR-FUNDS
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---------------------------
[LOGO]
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1999
---------------------------
for Excellence in Service
1 Formerly State Street Research Capital Fund.
2 An investment in the State Street Research Money Market Fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although the fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the fund.
--------------------------------------------------------------------------------
This report must be accompanied or preceded by a current State Street Research
Mid-Cap Growth Fund prospectus. When used after December 31, 2000 this report
must be accompanied by a current Quarterly Performance Update.
To obtain a prospectus of any State Street Research fund call 1-87-SSR-FUNDS
(1-877-773-8637). 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.
State Street Research
Spectrum of Funds
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income Growth & Income Growth
--------------------------------------------------------------------------------------------------
CONSERVATIVE AGGRESSIVE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
High Income Fund Argo Fund Global Resources Fund
Strategic Income Fund Investment Trust Emerging Growth Fund
New York Tax-Free Fund Alpha Fund Health Sciences Fund
Tax-Exempt Fund Strategic Growth & Income Fund Mid-Cap Growth Fund(1)
Government Income Fund Strategic Income Plus Fund Aurora Fund
Money Market Fund(2) Concentrated International Fund
International Equity Fund
Concentrated Growth Fund
Growth Fund
Galileo Fund
Legacy Fund
</TABLE>
(C)2000 State Street Research Investment Services, Inc.,
One Financial Center, Boston, MA 02111
Control Number:(exp1101)SSR-LD MG-2670-1100
<PAGE>
[LOGO] STATE STREET RESEARCH
Emerging Growth Fund
--------------------------------------------------------------------------------
Annual Report to Shareholders
September 30, 2000
In this Report Does Asset
Allocation Still
Make Sense?
[GRAPHIC]
plus
U.S. Economy Glides to a Slower Pace
Valuation and the Stock Market
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
context of the fund's track record
8 The Fund in Detail
Portfolio holdings, financials and notes
--------------------------------------------------------------------------------
Introducing our new president
We are pleased to announce that Richard "Dick" S. Davis has joined State Street
Research & Management Company as President and Chief Executive Officer. Dick
comes to his new position from our parent company, MetLife, where he has served
as senior vice president of fixed income investments and was responsible for the
firm's $110 billion fixed income portfolio.
[PHOTO]
Richard S. Davis
Dick began his professional investment career 30 years ago at First Boston
Corporation. He spent eight years at J.P. Morgan Investment Management and J.P.
Morgan Securities, where he held positions in global fixed income sales
management, client sales and service, risk management and product development.
Dick holds a BA from Georgetown University and an MBA from Columbia University.
We are delighted to welcome a new leader with such an exceptional track record
and outstanding business acumen, and we look forward to hearing from Dick in the
months ahead.
[GRAPHIC]
--------------------------------------------------------------------------------
12 MONTH REVIEW Management's Discussion of Fund Performance Part 1
--------------------------------------------------------------------------------
How State Street Research
Emerging Growth Fund Performed
In a market that was marked by wide swings in either direction, State Street
Research Emerging Growth Fund delivered strong performance. The fund returned
46.05% for the 12-month period ended September 30, 2000.(1) That was
significantly better than the Russell 2000 Growth Index, which returned 29.66%
over the same period.(2)
Reasons for the Fund's Outstanding Performance
Early in the period, the fund generated strong gains from technology stocks.
Then, we cut back on the fund's technology holdings where we believed valuations
had become extremely high. The move was well-timed; it allowed us to lock in
gains ahead of the March technology correction. We added to our investments in
oil service, consumer discretionary and, later in the year, to health care. And,
we made some meaningful investments in biotechnology, where we believe new
products have the potential to justify higher earnings expectations going
forward.
Stock selection helped boost results early in the year. However, the poor
liquidity in small-cap stocks was a damper on performance in the last half of
the year.
Looking Ahead
If the economy continues to slow, we believe that investors could look favorably
on small caps because of their faster growth rates and their attractive
valuations: small caps are the cheapest asset class right now. That's why we are
keeping a close eye on the economy and the interest rate picture and why we have
adopted a slightly more defensive posture. However, we have made no major sector
strategies, and we continue to rely primarily on stock-picking to drive
performance.
Class A Shares(1)
46.05% [UP ARROW]
"We continue to rely primarily on stock-picking to drive performance."
[PHOTO]
Tucker Walsh
Portfolio Manager,
State Street Research Emerging Growth Fund
Russell 2000
Growth Index(2)
29.66% [UP ARROW]
More Management's Discussion of Fund Performance on pages 6 and 7.
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>
[GRAPHIC] The Fund at a Glance as of 9/30/00
State Street Research Emerging Growth Fund: an aggressive growth fund focusing
on small emerging growth companies.
Aeroflex
This manufacturer of technology components and systems for defense was one of
the fund's best performers. We continue to hold the stock because it is a leader
in its niche market and it has considerable earnings growth potential.
[GRAPHIC]
Hits & Misses
[GRAPHIC]
InterWorld
After eight consecutive quarters of revenue growth, electronic-commerce software
provider InterWorld Corporation reported a slowdown that reflected softness in
the business-to-consumer sector. As a result, the company's third-quarter loss
was much greater than expected. We sold the stock.
--------------------------------------------------------------------------------
Total Net Assets: $153 million
--------------------------------------------------------------------------------
Top 10 Holdings
Issuer/Security % of fund assets
(1) Aeroflex 4.2%
(2) International Game Technology 4.0%
(3) MCK Communications 2.5%
(4) Acxiom 2.3%
(5) Priority Healthcare 2.1%
(6) Community Health Systems 2.0%
(7) World Wrestling Federation 1.9%
(8) AXT 1.9%
(9) Zoll Medical 1.8%
(10) Hotel Reservations Network 1.7%
Total 24.4%
See page 11 for more details.
--------------------------------------------------------------------------------
Performance: Class A
Fund Average Annual Total Returns
as of 9/30/00 (at maximum applicable sales charge)(3,4,5)
Life of Fund
1 Year 5 Years (10/4/93)
--------------------------------------------
37.65% 16.58% 11.82%
Fund Average Annual Total Returns
as of 9/30/00 (does not reflect sales charge)(1,3,5)
Life of Fund
1 Year 5 Years (10/4/93)
--------------------------------------------
46.05% 17.97% 12.77%
See pages 6 and 7 for data on other share classes.
Russell 2000 Growth Index as of 9/30/00(2)
Life of Fund
1 Year 5 Years (10/4/93)
--------------------------------------------
29.66% 12.42% 12.79%
--------------------------------------------------------------------------------
Top 5 Industries
% of fund assets
September 30, 1999 September 30, 2000
Communications Drugs &
Technology 13.5% Biotechnology 20.2%
Commercial Electronics:
Services 13.4% Semiconductors
Components 10.0%
Retail 9.6%
Computer Software 9.1%
Drugs &
Biotechnology 9.1% Communications
Technology 6.7%
Communications, Media
& Entertainment 4.7% Casinos/Gambling
Hotel/Motel 5.7%
--------------------------------------------------------------------------------
Ticker Symbols
State Street Research Emerging Growth Fund
Class A: SCGAX Class B(1): SCGPX* Class B: SCGBX Class C: SGCDX Class S: SGCCX*
--------------------------------------------------------------------------------
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 in the index.
3 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. All returns assume reinvestment of capital
gains distributions and income dividends at net asset value.
4 Performance reflects a maximum 5.75% Class A front-end sales charge.
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
Does Asset Allocation Still Make Sense?
It was probably one of the first lessons you learned about investing: don't put
all your eggs in one basket. Yet, over the past three years, if you had put all
your eggs in a big-growth technology basket, you could have hatched some
oversized returns. What does that say about the age-old notion that you should
divide your investment dollars among stocks, bonds and cash? That you should
keep some money invested in value as well as growth, in defensive as well as
aggressive stocks, and in small and mid caps as well as large caps?
If you did any--or all--of the above, your investment returns may not have
measured up to the performance of "big growth," and you may feel that asset
allocation let you down. But asset allocation isn't supposed to generate the
highest possible returns. It's a risk moderator, not a performance buster.
Here's how it can help:
Trends Fade
History shows that when investors load up their portfolios with "the next best
thing," it's easy to get burned. Remember the glory days of Polaroid and Xerox?
Maybe not. But that's the point. Both were "glamour" technology stocks of the
1960s, and neither regained its momentum after the bear market of the 1970s. And
gold?
When it skyrocketed in the mid-1970s, some people poured their life savings into
the sector before prices were cut in half. In the 1990s, there was a long list
of "phenomenon" investments: biotechnology, emerging markets and most recently
the Internet. If you diversify, you can get exposure to these sectors in
moderation as well as some downside protection when the market turns against
them. That strategy would have paid off handsomely this year as some of last
year's high fliers, such as wireless and the Internet, have come down to earth,
while stodgy groups such as energy, financials and health care have moved ahead.
U.S. Economy Glides to a Slower Pace
With interest rates on hold since May, it appears that the Federal Reserve has
managed to orchestrate a slowdown of the U.S. economy without harsh effects on
consumers, workers or the markets. As a result, the Fed has let rates stand in
its past two meetings. However, it continues to warn that it is not entirely
satisfied with the relatively high spending and rising prices in some sectors of
the economy, both of which could threaten higher inflation. Third quarter gross
domestic product (the nation's total output of goods and services) was
significantly lower than second quarter, 2.7% versus 5.6%.
More Share in Good Times
Prosperity has broadened its reach across the income spectrum. Poverty dropped
to a 20-year low last year. Real median household income rose to a record high
of $40,800 as personal income, in general, continued to climb. Consumer
confidence also remained high, which was somewhat surprising in light of soaring
energy prices. Most consumers are feeling the pinch at the pumps and see the
price hikes reflected in their utility bills. Yet, there is little evidence that
higher energy prices have filtered through to the broader economy. What's more,
inflation remained tame--though higher than a year ago--at 3.5%.
Financial Markets Reflect Uncertainty
The uneven performance by the U.S. stock market in the final quarter had less to
do with the economy than a string of disappointing announcements about sales and
earnings from new economy market leader Intel as well as some old stalwarts such
as Gillette, Procter & Gamble and Kodak. Yet, gains for the year were strong.
The S&P 500 returned 13.3% while the technology-heavy Nasdaq was up 34.0%.
Mid-cap value stocks gained ground against large caps. Long-term U.S. Treasury
bonds were helped by optimism about the economic slowdown plus a federal buyback
of bonds. Foreign markets were generally disappointing. Canada was the bright
spot on the globe, as energy and telecommunication companies have brought its
stock market to life.
--------------------------------------------------------------------------------
Key Indicators Point to
Slower Growth
New home sales [DOWN ARROW] fell 3.0%
Retail sales growth slowed [DOWN ARROW] from 6.5% to 3.5%
Corporate profit growth slowed [DOWN ARROW] from 4.8% to 3.0%
Jobless rate held steady at [LEFT AND RIGHT ARROWS] 4.0%
But Pockets of Strength
Keep Fed on Vigil
Consumer spending [UP ARROW] 4.5%
Consumer Price Index [UP ARROW] 3.5%
Personal income [UP ARROW] 4.0%
--------------------------------------------------------------------------------
U.S. Department of Commerce. Third Quarter 2000
4 State Street Research Emerging Growth Fund
<PAGE>
[GRAPHIC]
Cycles Shift
Sometimes groups of stocks charge ahead because they offer something new--like
the Internet. But one of the strongest forces in the stock market is valuation
[see sidebar, on this page]: the measure of a stock's worth relative to the
market as a whole or to its industry group. History shows that valuation shifts
over time, and the markets follow. When investors believe that a company or an
industry is capable of generating superior profits for an extended period of
time, they bid up its stock price on that expectation. But investors find it
difficult to stop on a dime and tend to overdo a move in either direction. As
investors move a stock's price higher, it can become overvalued. If profit
growth slows, even a little, it can cause investors to rethink the price they
are willing to pay. Then, a stock's price may fall to the point where it becomes
undervalued.
--------------------------------------------------------------------------------
The Next Best Investment Thing?
TOP-PERFORMING EQUITY INVESTMENTS
1990-1999
--------------------------------------------------------------------------------
1990 Growth Large cap Biotechnology
1991 Growth Small cap Biotechnology
1992 Value Small cap Financials
1993 Growth Small cap Gold
1994 Growth Small cap Health Care
1995 Growth Large cap Technology
1996 Value Mid cap Energy
1997 Growth Large cap Financials
1998 Growth Large cap Wireless
Communications
1999 Growth Large cap Technology
2000 ytd* Value Mid cap Energy
Sources: Ibbotson, Frank Russell & Co., Standard & Poor's.
--------------------------------------------------------------------------------
This perfectly normal movement of the markets accounts for the fact that over
time, different types of stocks have captured the limelight [see table above].
It's impossible to guess which group is going to emerge as a winner in any given
year. The next best thing is to divide your investments so that you are there
when the cycle takes off. You don't have to worry about when to get out, because
rebalancing (the process of trimming your winners and adding to your losers to
keep your asset proportions constant) will help you maintain the amount of risk
that's right for you.
Dig Out of Diversification Deficit
Of course, rebalancing is also one of the hardest investment moves to make--it
feels counterintuitive to lighten up on the very investments that have helped
you and add to the ones that have disappointed. But if you started with a
portfolio divided 60/40 between stocks and bonds* at the beginning of 1997, your
mix would have shifted to 72/28 by the end of 1999. That would have given you
higher returns, but it also would have exposed you to a higher level of risk
than you started with.
There are two ways to rebalance: you can sell some of your top-performers and
add to your laggards, or you can direct your new investment dollars to the
portion of your portfolio that's fallen behind until you're back to your
original mix. If you're rebalancing a retirement account, you can take the first
approach with no tax consequences. In a taxable account, the second approach may
be more attractive because it will help you avoid taxable exchanges.
Think of asset allocation as a hedge against the market's changeability: You may
accept slightly lower performance when the market is dominated by a single
sector, but when the next "next best" investment comes along, diversification
will help keep your portfolio steady.
* Based on the S&P 500 and the Lehman Aggregate Bond Index, 1997-1999.
--------------------------------------------------------------------------------
A Closer Look [GRAPHIC]
Valuation and the stock market
Unlike items at the mall, where prices are clearly marked, a stock's price can
change second by second, depending on what the next buyer is willing to pay and
what the next seller is willing to accept. So how can investors figure whether
they are paying too much or getting a bargain?
Investment professionals often try to get at a stock's valuation by looking at
its price/earnings ratio or p/e: company's stock price divided by its earnings
per share. A stock with a p/e that is higher than the market or the industry's
p/e is considered expensive. If it's lower, the stock is considered cheap.
But this traditional measure doesn't work as well when you're sizing up small
growth companies. "Many of the companies I follow have the potential for far
better earnings growth than large companies simply because they are growing off
a much smaller base," says Tucker Walsh, portfolio manager of State Street
Research Emerging Growth Fund. As a result, they command higher valuations.
What's more, earnings are not always a good measure for a company that is
investing heavily in sales, marketing, research and development. "I look for
companies with strong, identifiable franchises--market leaders that are
investing maintain or increase market share," says Walsh. "For a growth manager,
growth potential is always more important than price."
5
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE Management's Discussion of Fund Performance Part 2
--------------------------------------------------------------------------------
Performance Figures as of September 30, 2000
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 of a given investment over time.
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/distribution (12b-1) fee of 0.30%
Life of Fund
Cumulative Total Return 1 Year 5 Years (10/4/93)
(does not reflect --------------------------------------------
sales charge) 46.05% 128.48% 131.83%
Life of Fund
Average Annual Total Return 1 Year 5 Years (10/4/93)
(at maximum applicable ---------------------------------------------
sales charge) 37.65% 16.58% 11.82%
$10,000 Over Life of Fund
[The following information was depicted as a line chart in the printed
materials.]
Russell 2000
Class A S&P 500 Growth Index
------- ------- ------------
"93" 9425 10000 10000
"94" 8448 10368 10088
"95" 9563 13448 12930
"96" 11182 16181 14561
"97" 16549 22722 17961
"98" 11589 24785 13501
"99" 14728 31672 17905
"00" 21850 35874 23217
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 service/distribution (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 (10/4/93)
(does not reflect --------------------------------------------
sales charge) 45.03% 120.26% 120.95%
Life of Fund
Average Annual Total Return 1 Year 5 Years (10/4/93)
(at maximum applicable --------------------------------------------
sales charge) 40.03% 16.89% 12.00%
$10,000 Over Life of Fund
[The following information was depicted as a line chart in the printed
materials.]
Russell 2000
Class B(1) S&P 500 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
"00" 22095 35874 23217
--------------------------------------------------------------------------------
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 service/distribution (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 (10/4/93)
(does not reflect --------------------------------------------
sales charge) 44.93% 120.11% 120.80%
Life of Fund
Average Annual Total Return 1 Year 5 Years (10/4/93)
(at maximum applicable --------------------------------------------
sales charge) 39.93% 16.88% 11.99%
$10,000 Over Life of Fund
[The following information was depicted as a line chart in the printed
materials.]
Russell 2000
Class B S&P 500 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
"00" 22080 35874 23217
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 service/distribution (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 (10/4/93)
(does not reflect --------------------------------------------
sales charge) 45.03% 120.26% 120.95%
Life of Fund
Average Annual Total Return 1 Year 5 Years (10/4/93)
(at maximum applicable --------------------------------------------
sales charge) 44.03% 17.11% 12.00%
$10,000 Over Life of Fund
[The following information was depicted as a line chart in the printed
materials.]
Russell 2000
Class C S&P 500 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
"00" 22095 35874 23217
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 service/distribution (12b-1) fees; annual expenses are lower than for
other share classes
Life of Fund
Cumulative Total Return 1 Year 5 Years (10/4/93)
(does not reflect --------------------------------------------
sales charge) 46.36% 131.19% 136.51%
Life of Fund
Average Annual Total Return 1 Year 5 Years (10/4/93)
(at maximum applicable --------------------------------------------
sales charge) 46.36% 18.25% 13.09%
$10,000 Over Life of Fund
[The following information was depicted as a line chart in the printed
materials.]
Russell 2000
Class S S&P 500 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
"00" 23651 35874 23217
--------------------------------------------------------------------------------
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 Composite 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.
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.
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.
Because the fund invests in emerging growth and special situation companies, an
investment in the fund may involve greater-than-average risk and above average
price fluctuation. Small-company stocks are more volatile than large-company
stocks.
Performance for Class B(1) reflects Class B performance through December 31,
1998. 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 oversees the fund with its shareholders' interests
in mind and have ultimate responsibility for the fund's activities (see
back pages of report 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 MetLife, Inc.
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 by investing primarily in emerging
growth companies, with an emphasis on small size 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.
Class A shares are subject to an initial sales charge of up to 5.75%. From
October 1, 1999 to April 30, 2000 Class A shares paid a service fee equal to
0.25% of average daily net assets. Beginning May 1, 2000, Class A shares pay an
annual service and distribution fee equal to 0.30% of average daily net assets.
Class B(1) and Class B shares pay annual service and distribution fees of 1.00%.
Class B(1) and Class B shares automatically convert into Class A shares (which
pay lower ongoing expenses) at the end of eight years. Class B(1) and Class B
shares are subject to a contingent deferred sales charge on certain redemptions
made within six years and five years of purchase, respectively. Class C shares
are subject to a contingent deferred sales charge of 1.00% on any shares
redeemed within one year of their purchase, and also pay annual service and
distribution fees of 1.00%. Class S shares are only offered through certain
retirement accounts, advisory accounts of the investment manager, and special
programs. No sales charge is imposed at the time of purchase or redemption of
Class S shares. Class S shares do not pay any service or distribution fees.
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 60 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. The fund will receive cash or securities as collateral in the
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the fund could realize additional gains 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 has
elected 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 text and notes are an integral part of the financial statements.
10 State Street Research Emerging Growth Fund
<PAGE>
Portfolio Holdings September 30, 2000
--------------------------------------------------------------------------------
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 then by
specific industry.
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.
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Common Stocks 98.1% of net assets
Automobiles & Transportation 0.8% of net assets
--------------------------------------------------------------------------------
Automotive Parts 0.8%
Gentex Corp.* 51,000 $1,275,000
-----------
Total Automobiles & Transportation 1,275,000
-----------
Consumer Discretionary 16.8% of net assets
--------------------------------------------------------------------------------
Casinos/Gambling, Hotel/Motel 5.7%
Extended Stay America Inc.* 131,700 1,745,025
International Game Technology Inc.* 181,500 6,102,937(2)
Casinos/Gamblings
Station Casinos Inc.* 63,750 908,438
-----------
8,756,400
-----------
Commercial Services 2.4%
Corporate Executive .* 23,800 957,950
Hotel Reservations Network Inc. Cl. A* 73,000 2,673,625(10)
Hotels
-----------
3,631,575
-----------
Communications, Media & Entertainment 5.0%
Entravision Communications Corp.* 26,300 456,963
Hispanic Broadcasting Corp.* 28,000 780,500
TiVo Inc.* 126,600 2,452,875
U.S.A. Networks Inc.* 47,400 1,039,837
World Wrestling Federation 190,300 2,890,181
Entertainment Inc. Cl. A*
Entertainment
-----------
7,620,356
-----------
Consumer Products 1.0%
Oakley Inc.* 82,600 1,450,662
-----------
Consumer Services 0.5%
Bright Horizons Family Solutions Corp.* 29,400 751,538
Docent, Inc. 6,100 111,706
-----------
863,244
-----------
Leisure Time 0.4%
Bally Total Fitness Holding Corp.* 25,400 635,000
-----------
Retail 1.8%
Pier 1 Imports Inc. 68,700 931,744
Ticketmaster Online City Search, Inc. Cl. B* 108,700 1,841,106
-----------
2,772,850
-----------
Total Consumer Discretionary 25,730,087
-----------
The text and notes are an integral part of the financial statements.
11
<PAGE>
Portfolio Holdings September 30, 2000 CONTINUED
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Consumer Staples 0.9% of net assets
--------------------------------------------------------------------------------
Drug & Grocery Store Chains 0.9%
Duane Reade Inc.* 58,300 $1,413,775
-----------
Total Consumer Staples 1,413,775
-----------
Financial Services 4.7% of net assets
--------------------------------------------------------------------------------
Banks & Savings & Loan 1.0%
Investors Financial Services Co. 24,800 1,565,500
-----------
Insurance 2.3%
E.W. Blanch Holdings Inc. 43,200 896,400
Everest Re Group, Ltd. 17,300 856,350
Markel Corp.* 4,437 673,315
Partnerre Ltd.* 24,500 1,162,219
-----------
3,588,284
-----------
Miscellaneous Financial 1.4%
Metris Companies Inc. 34,350 1,356,825
Radian Group Inc. 10,400 702,000
-----------
2,058,825
-----------
Total Financial Services 7,212,609
-----------
Health Care 28.9% of net assets
--------------------------------------------------------------------------------
Drugs & Biotechnology 20.2%
Alpharma Inc. 31,000 1,894,875
Applied Molecular Evolution* 45,400 1,821,675
Barr Laboratories, Inc.* 33,200 2,201,575
BioMarin Pharmaceutical Inc.* 38,900 714,788
Biovail Corp.* 18,100 1,474,019
Cell Therapeutics, Inc.* 35,400 2,360,737
Cephalon Inc.* 20,200 979,700
Ciphergen Biosystems Inc.* 13,200 422,400
Deltagen Inc.* 36,400 1,126,125
Dyax Corp.* 29,700 1,299,375
Esperion Therapeutics Inc.* 68,300 1,178,175
Inhale Therapeutic Systems, Inc.* 22,100 1,245,887
Intermune Pharmaceuticals Inc.* 44,200 2,397,850
Lexicon Genetics Inc.* 82,700 2,615,387
Myriad Genetics Inc.* 9,200 791,200
Noven Pharmaceuticals Inc.* 35,200 1,504,800
Pain Therapeutics Inc.* 47,400 939,113
Priority Healthcare Corp.Cl. B* 42,600 3,248,250(5)
Health Care Services
Versicor Inc.* 101,400 1,521,000
XOMA Ltd.* 85,800 1,238,738
-----------
30,975,669
-----------
Health Care Services 3.5%
Caremark RX Inc.* 67,400 758,250
Community Health Systems Inc.* 97,500 3,132,187(6)
Health Care Services
Quorum Health Group Inc.* 116,900 1,519,700
-----------
5,410,137
-----------
Hospital Supply 4.9%
American Medical Systems Inc.* 150,400 2,350,000
Aradigm Corp.* 101,700 2,332,743
Cepheid, Inc.* 9,300 76,144
Zoll Medical Corp.* 56,000 2,730,000(9)
Medical Equipment & Supplies
-----------
7,488,887
-----------
Chemicals 0.3%
Wilson Great Batch Technology, Inc.* 18,700 427,763
-----------
Total Health Care 44,302,456
-----------
Materials & Processing 0.7% of net assets
--------------------------------------------------------------------------------
Agriculture 0.2%
Eden Bioscience Corp.* 10,500 346,500
-----------
Chemicals 0.5%
Valence Technology Inc.* 45,800 790,050
-----------
Total Materials & Processing 1,136,550
-----------
Other 0.6% of net assets
--------------------------------------------------------------------------------
Multi-Sector 0.6%
Teleflex Inc. 26,000 893,750
-----------
Total Other 893,750
-----------
Other Energy 4.5% of net assets
--------------------------------------------------------------------------------
Oil & Gas Producers 2.3%
Cabot Oil & Gas Corp. Cl.A 30,400 619,400
Cross Timbers Oil Co. 44,400 851,925
HS Resources, Inc.* 20,400 685,950
St. Mary Land & Exploration Co. 60,600 1,397,588
-----------
3,554,863
-----------
Oil Well Equipment & Services 2.2%
National Oilwell Inc.* 48,898 1,528,062
Veritas DGC Inc.* 64,500 1,866,469
-----------
3,394,531
-----------
Total Other Energy 6,949,394
-----------
The text and notes are an integral part of the financial statements.
12 State Street Research Emerging Growth Fund
<PAGE>
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Producer Durables 5.7% of net assets
--------------------------------------------------------------------------------
Electrical Equipment & Components 0.1%
Proton Energy Systems,Inc.* 6,900 $197,512
-----------
Production Technology Equipment 1.2%
Exfo Electro Optical Engineering Inc.* 12,700 553,244
Zygo Corp.* 14,400 1,252,800
-----------
1,806,044
-----------
Telecommunications Equipment 4.4%
American Tower Corp. Cl.A* 56,000 2,110,500
L-3 Communications Holding Inc.* 15,400 870,100
MCK Communications Inc.* 168,600 3,814,575(3)
Telecommunications
-----------
6,795,175
-----------
Total Producer Durables 8,798,731
-----------
Technology 32.6% of net assets
--------------------------------------------------------------------------------
Communications Technology 6.7%
Clarent Corp.* 23,800 937,125
Cosine Communications Inc.* 6,300 350,044
DMC Stratex Networks Inc.* 65,700 1,055,306
Elastic Networks Inc.* 6,100 85,019
Inrange Technologies Corp. Cl. B* 5,400 286,200
Natural Microsystems Corp.* 25,000 1,344,922
Netro Corp.* 28,600 1,694,550
Packeteer Inc.* 59,500 2,257,281
Spectrasite Holdings, Inc.* 111,200 2,064,150
TTM Technologies, Inc.* 8,500 199,750
-----------
10,274,347
-----------
Computer Software 9.1%
724 Solutions Inc. 19,300 916,750
Acxiom Corp.* 110,400 3,505,200(4)
Data Processing
Apropos Technology Inc.* 59,500 535,500
AvantGo, Inc.* 2,600 52,000
Click Commerce, Inc.* 46,500 1,987,875
E Piphany Inc.* 14,500 1,117,406
Excelon Corp.* 57,400 710,325
Kana Communications, Inc.* 72,000 1,602,000
Network Commerce Inc.* 115,000 643,281
OpenTV Corp.* 26,800 891,100
Sonicwall Inc.* 42,300 1,205,550
Vastera, Inc.* 32,900 723,800
-----------
13,890,787
-----------
Computer Technology 2.3%
Radiant Systems Inc.* 93,600 2,000,700
Zebra Technologies Corp. Cl. A* 32,000 1,538,000
-----------
3,538,700
-----------
Electronics 4.2%
Aeroflex Inc.* 133,625 6,497,516(1)
Electronics
-----------
Electronics: Semiconductors/Components 10.0%
Act Manufacturing Inc.* 22,400 1,181,600
Alpha Industries Inc.* 71,200 2,425,250
Artisan Components Inc.* 80,700 1,039,013
AXT Inc.* 68,100 2,847,431(8)
Semiconductors/Components
Caliper Technologies Corp.* 18,900 1,095,019
Cree Inc.* 9,000 1,046,250
Galileo Technology Ltd.* 77,000 2,444,750
Hi/Fn Inc.* 13,400 912,875
Sawtek Inc.* 58,700 2,260,867
-----------
15,253,055
-----------
Miscellaneous Technology 0.3%
Genomica Corp.* 25,600 497,600
-----------
Total Technology 49,952,005
-----------
Utilities 1.9% of net assets
--------------------------------------------------------------------------------
Electrical 0.1%
Southern Energy Inc.* 2,200 69,025
-----------
Telecommunications 1.8%
Air Gate PCS, Inc.* 30,800 1,382,150
Rural Cellular Corp. Cl. A* 13,600 926,500
Time Warner Telecom Inc. Cl. A* 10,700 516,944
-----------
2,825,594
-----------
Total Utilities 2,894,619
-----------
Total Common Stocks 150,558,976(a)
-----------
--------------------------------------------------------------------------------
(a) The fund paid a total of $128,964,759 for these securities.
--------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Market
Issuer Shares Value
------------------------------------------------------------------------------------------------------------------------------------
Short-Term Investments 4.8% of net assets
<S> <C> <C>
AIM Liquid Assets Portfolio 7,378,072 $7,378,072
------------
Total Short-Term Investments 7,378,072(1)
------------
<CAPTION>
Coupon Maturity Amount of
Rate Date Principal
------------------------------------------------------------------------------------------------------------------------------------
Commercial Paper 5.0% of net assets
<S> <C> <C> <C> <C>
American Express Credit Corp. 6.52% 10/02/2000 $2,000,000 $2,000,000
American Express Credit Corp. 6.56% 10/03/2000 4,045,000 4,045,000
Ford Motor Credit Co. 6.53% 10/05/2000 1,551,000 1,551,000
------------
Total Commercial Paper 7,596,000(2)
------------
<CAPTION>
% of
Net Assets
------------------------------------------------------------------------------------------------------------------------------------
Summary of Portfolio Assets
<S> <C> <C>
Investments 107.9% $165,533,048
Cash and Other Assets, Less Liabilities (7.9%) (12,057,430)
----- ------------
Net Assets 100.0% $153,475,618(3)
===== ============
-----------------------------------------------------------------
(1) The fund paid a total of $7,378,072 for these securities.
-----------------------------------------------------------------
(2) The fund paid a total of $7,596,000 for these securities.
-----------------------------------------------------------------
(3) The fund paid a total of $143,938,831 for these securities.
-------------------------------------------------------------------
</TABLE>
The text and notes are an integral part of the financial statements.
14 State Street Research Emerging Growth Fund
<PAGE>
Federal Income Tax Information
At September 30, 2000, the net unrealized appreciation of
investments based on cost for Federal income tax purposes of
$144,383,356 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of value over tax cost $32,443,215
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (11,293,523)
------------
$21,149,692
============
In order to meet certain excise tax distribution requirements under section 4982
of the Internal Revenue Code, the fund is required to measure and distribute
annually, if necessary, net capital gains realized during a 12-month period
ending October 31. In this connection, the fund is permitted to defer into its
next fiscal year any net capital losses incurred between each November 1 and the
end of its fiscal year. From November 1, 1998 through September 30, 1999, the
fund incurred net capital losses of $5,371,132 and has deferred and treated such
losses as arising in the fiscal year ended September 30, 2000.
The text and notes are an integral part of the financial statements.
15
<PAGE>
Statement of
Assets and Liabilities September 30, 2000
--------------------------------------------------------------------------------
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 $165,533,048(1)
Receivable for securities sold 4,396,473
Receivable from distributor 52,844
Receivable for fund shares sold 51,849
Dividends and interest receivable 4,215
Other assets 35,445
------------
170,073,874
Liabilities
Payable for securities purchased 8,430,393
Payable for collateral received on securities loaned 7,378,072
Payable for fund shares redeemed 267,427
Accrued transfer agent and shareholder services 160,670
Accrued management fee 91,511
Accrued distribution and service fees 91,500
Accrued trustees' fees 14,771
Other accrued expenses 163,912
------------
16,598,256
------------
Net Assets $153,475,618
============
Net Assets consist of:
Unrealized appreciation of investments $21,594,217
Accumulated net realized gain 21,578,231
Paid-in capital 110,303,170
------------
$153,475,618(2)
============
--------------------------------------------------------------------------------
(1) The fund paid a total of $143,938,831 for these securities.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(2)
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 $53,599,743 3,332,939 $16.08*
B(1) $16,554,235 1,091,590 $15.17**
B $65,495,805 4,321,204 $15.16**
C $9,081,670 598,671 $15.17**
S $8,744,165 530,443 $16.48
* Maximum offering price per share $17.06 ($16.08 / 0.9425)
** Redemption price per share for Class B(1), Class B and Class C is equal to
net asset value less any applicable contingent deferred sales charge.
--------------------------------------------------------------------------------
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, 2000
--------------------------------------------------------------------------------
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
Dividends, net of foreign taxes $134,280(1)
Interest 540,490(2)
------------
674,770
Expenses
Management fee 1,073,782(3)
Transfer agent and shareholder services 479,395(4)
Custodian fee 156,646
Distribution and service fees - Class A 132,735(5)
Distribution and service fees - Class B(1) 108,554(5)
Distribution and service fees - Class B 653,349(5)
Distribution and service fees - Class C 88,295(5)
Reports to shareholders 65,488
Registration fees 45,974
Audit fee 23,529
Trustees' fees 14,771(6)
Legal fees 11,902
Miscellaneous 38,255
------------
2,892,675
Expenses borne by the Distributor (320,829)(7)
Fees paid indirectly (14,032)(8)
------------
2,557,814
------------
Net investment loss (1,883,044)
------------
Realized and Unrealized Gain
on Investments
Net realized gain on investments 34,511,755(9)
Change in unrealized appreciation of investments 5,945,585
------------
Net gain on investments 40,457,340
------------
Net increase in net assets resulting
from operations $38,574,296
============
--------------------------------------------------------------------------------
(1) The fund paid foreign taxes of $35.
--------------------------------------------------------------------------------
(2) Includes $105,790 in income from the lending of portfolio securities. As
of the report date, the fund had a total of $18,687,041 of securities out
on loan and was holding a total of $19,357,650 in collateral (including
$7,378,072 of cash collateral) related to those loans.
--------------------------------------------------------------------------------
(3) The management fee is 0.75% of fund net assets, annually.
--------------------------------------------------------------------------------
(4) Includes a total of $211,085 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.
--------------------------------------------------------------------------------
(5) 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.
--------------------------------------------------------------------------------
(6) Paid only to trustees who aren't currently affiliated with the adviser
(the fund doesn't pay trustees' fees to affiliated trustees).
--------------------------------------------------------------------------------
(7) Represents the share of expenses that the fund's distributor and its
affiliates paid voluntarily.
--------------------------------------------------------------------------------
(8) Represents transfer agent credits earned from uninvested cash balances.
--------------------------------------------------------------------------------
(9) To earn this, the fund sold $294,658,438 of securities. During this same
period, the fund also bought $315,523,906 worth of securities. These
figures don't include short-term obligations or U.S. government
securities.
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
1999 2000
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment loss $(1,145,894) $(1,883,044)
Net realized gain (loss)
on investments (10,832,312) 34,511,755
Change in unrealized appreciation
of investments 36,463,829 5,945,585
-------------------------------
Net increase resulting
from operations 24,485,623 38,574,296
-------------------------------
Distribution from capital gains:
Class A (1,253,862) --
Class B (1,968,205) --
Class C (310,824) --
Class S (221,009) --
-------------------------------
(3,753,900) --
-------------------------------
Net increase (decrease) from
fund share transactions (17,371,058) 22,396,325(1)
-------------------------------
Total increase in net assets 3,360,665 60,970,621
-------------------------------
Net Assets
Beginning of year 89,144,332 92,504,997
-------------------------------
End of year $92,504,997 $153,475,618
===============================
The text and notes are an integral part of the financial statements.
18 State Street Research Emerging Growth Fund
<PAGE>
--------------------------------------------------------------------------------
(1) These transactions break down by share class as follows:
<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------------------------
1999 2000
------------------------------------------------------------------------
Class A Shares Amount Shares Amount
==================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 4,968,247 $49,800,390 3,552,896 $56,415,404*
Issued upon reinvestment of
distribution from capital gains 127,972 1,229,924 -- --
Shares redeemed (5,731,015) (57,731,106) (3,069,331) (47,930,819)
------------------------------------------------------------------------
Net increase (decrease) (634,796) ($6,700,792) 483,565 $8,484,585
========================================================================
<CAPTION>
Class B(1) Shares(a) Amount(a) Shares Amount
==================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 375,316 $3,852,387 900,955 $14,384,225**
Shares redeemed (15,248) (154,780) (169,433) (2,597,369)***
------------------------------------------------------------------------
Net increase 360,068 $3,697,607 731,522 $11,786,856
========================================================================
<CAPTION>
Class B Shares Amount Shares Amount
==================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 670,763 $6,311,001 1,155,030 $19,077,679**
Issued upon reinvestment of
distribution from capital gains 203,644 1,869,477 -- --
Shares redeemed (2,093,387) (20,576,063) (1,074,617) (15,974,844)***
------------------------------------------------------------------------
Net increase (decrease) (1,218,980) ($12,395,585) 80,413 $3,102,835
========================================================================
<CAPTION>
Class C Shares Amount Shares Amount
==================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 1,655,582 $16,046,613 494,961 $7,131,006
Issued upon reinvestment of
distribution from capital gains 31,662 290,973 -- --
Shares redeemed (1,888,067) (18,492,709) (521,745) (7,398,353)****
------------------------------------------------------------------------
Net decrease (200,823) ($2,155,123) (26,784) ($267,347)
========================================================================
<CAPTION>
Class S Shares Amount Shares Amount
==================================================================================================================
<S> <C> <C> <C> <C>
Shares sold 237,974 $2,451,542 567,570 $9,007,789
Issued upon reinvestment of
distribution from capital gains 22,552 221,009 -- --
Shares redeemed (239,161) (2,489,716) (608,148) (9,718,393)
------------------------------------------------------------------------
Net increase (decrease) 21,365 $182,835 (40,578) ($710,604)
========================================================================
</TABLE>
The trustees have the authority to issue an unlimited number of shares of
beneficial interest, with a $0.001 par value per share.
* Includes $38,748 and $112,581 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 $146,881 and $1,451
for Class B(1) and Class B, were paid by the distributor, not the fund.
*** Includes $28,447 and $102,467 in deferred sales charges collected by the
distributor for Class B(1) and Class B.
**** Includes $1,226 in deferred sales charges collected by the distributor.
(a) January 1, 1999 (commencement of share class) to September 30, 1999.
--------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
19
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
These provide a summary of each share class's financial performance, for the
past five fiscal years.
<TABLE>
<CAPTION>
Class A
============================================================================
Years ended September 30
----------------------------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.69 11.33 15.53 8.86 11.01
----- ----- ----- ----- -----
Net investment loss ($)* (0.09) (0.08) (0.05) (0.08) (0.14)
Net realized and unrealized gain (loss)
on investments ($) 1.73 5.13 (4.01) 2.60 5.21
----- ----- ----- ----- -----
Total from investment operations ($) 1.64 5.05 (4.06) 2.52 5.07
----- ----- ----- ----- -----
Distributions from capital gains ($) -- (0.85) (2.61) (0.37) --
----- ----- ----- ----- -----
Total distributions ($) -- (0.85) (2.61) (0.37) --
----- ----- ----- ----- -----
Net asset value, end of year ($) 11.33 15.53 8.86 11.01 16.08
===== ===== ===== ===== =====
Total return (%)(b) 16.92 48.00 (29.97) 29.10 46.05
Ratios/Supplemental Data
=============================================================================================================================
Net assets at end of year ($ thousands) 19,791 34,446 30,858 31,384 53,600
Expense ratio (%)* 1.35 1.35 1.35 1.37 1.38
Expense ratio after expense reductions (%)* 1.35 1.35 1.35 1.35 1.37
Ratio of net investment loss
to average net assets (%)* (0.96) (0.64) (0.45) (0.75) (0.90)
Portfolio turnover rate (%) 155.85 273.33 98.30 93.38 218.99
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.04 0.04 0.02 0.05 0.04
<CAPTION>
Class B(1)
====================================
Years ended September 30
------------------------------------
Per Share Data 1999(a)(c) 2000(a)
====================================================================================================================
<S> <C> <C>
Net asset value, beginning of year ($) 10.22 10.46
----- -----
Net investment loss ($)* (0.12) (0.24)
Net realized and unrealized gain
on investments ($) 0.36 4.95
----- -----
Total from investment operations ($) 0.24 4.71
----- -----
Net asset value, end of year ($) 10.46 15.17
===== =====
Total return (%)(b) 2.35(d) 45.03
Ratios/Supplemental Data
===================================================================================================================
Net assets at end of year ($ thousands) 3,767 16,554
Expense ratio (%)* 2.12(e) 2.11
Expense ratio after expense reductions (%)* 2.10(e) 2.10
Ratio of net investment loss to average net assets (%)* (1.59)(e) (1.59)
Portfolio turnover rate (%) 93.38 218.99
*Reflects voluntary reduction of expenses per share of these amounts ($) 0.05 0.03
</TABLE>
The text and notes are an integral part of the financial statements.
20 State Street Research Emerging Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Class B
=============================================================================
Years ended September 30
-----------------------------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.58 11.11 15.09 8.48 10.46
----- ----- ----- ----- -----
Net investment loss ($)* (0.17) (0.16) (0.14) (0.15) (0.24)
Net realized and unrealized gain (loss)
on investments ($) 1.70 4.99 (3.86) 2.50 4.94
----- ----- ----- ----- -----
Total from investment operations ($) 1.53 4.83 (4.00) 2.35 4.70
----- ----- ----- ----- -----
Distributions from capital gains ($) -- (0.85) (2.61) (0.37) --
----- ----- ----- ----- -----
Total distributions ($) -- (0.85) (2.61) (0.37) --
----- ----- ----- ----- -----
Net asset value, end of year ($) 11.11 15.09 8.48 10.46 15.16
===== ===== ===== ===== =====
Total return (%)(b) 15.97 46.91 (30.56) 28.37 44.93
Ratios/Supplemental Data
==============================================================================================================================
Net assets at end of year ($ thousands) 23,656 40,512 46,315 44,377 65,496
Expense ratio (%)* 2.10 2.10 2.10 2.12 2.11
Expense ratio after expense reductions (%)* 2.10 2.10 2.10 2.10 2.10
Ratio of net investment loss
to average net assets (%)* (1.71) (1.40) (1.20) (1.50) (1.64)
Portfolio turnover rate (%) 155.85 273.33 98.30 93.38 218.99
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.04 0.03 0.02 0.05 0.03
<CAPTION>
Class C
=============================================================================
Years ended September 30
-----------------------------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.58 11.10 15.10 8.49 10.46
----- ----- ----- ----- -----
Net investment loss ($)* (0.16) (0.16) (0.14) (0.15) (0.24)
Net realized and unrealized gain (loss)
on investments 1.68 5.01 (3.86) 2.49 4.95
----- ----- ----- ----- -----
Total from investment operations ($) 1.52 4.85 (4.00) 2.34 4.71
----- ----- ----- ----- -----
Distributions from capital gains ($) -- (0.85) (2.61) (0.37) --
----- ----- ----- ----- -----
Total distributions ($) -- (0.85) (2.61) (0.37) --
----- ----- ----- ----- -----
Net asset value, end of year ($) 11.10 15.10 8.49 10.46 15.17
===== ===== ===== ===== =====
Total return (%)(b) 15.87 47.15 (30.52) 28.21 45.03
Ratios/Supplemental Data
==============================================================================================================================
Net assets at end of year ($ thousands) 4,503 7,460 7,012 6,545 9,082
Expense ratio (%)* 2.10 2.10 2.10 2.12 2.11
Expense ratio after expense reductions (%)* 2.10 2.10 2.10 2.10 2.10
Ratio of net investment loss
to average net assets (%)* (1.71) (1.41) (1.20) (1.50) (1.63)
Portfolio turnover rate (%) 155.85 273.33 98.30 93.38 218.99
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.04 0.03 0.02 0.05 0.03
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges.
(c) January 1, 1999 (commencement of share class) to September 30, 1999.
(d) Not annualized.
(e) Annualized.
The text and notes are an integral part of the financial statements.
21
<PAGE>
Financial Highlights CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class S
=============================================================================
Years ended September 30
-----------------------------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.77 11.44 15.73 9.02 11.26
----- ----- ----- ----- -----
Net investment loss ($)* (0.07) (0.04) (0.02) (0.05) (0.10)
Net realized and unrealized gain (loss)
on investments 1.74 5.18 (4.08) 2.66 5.32
----- ----- ----- ----- -----
Total from investment operations ($) 1.67 5.14 (4.10) 2.61 5.22
----- ----- ----- ----- -----
Distributions from capital gains ($) -- (0.85) (2.61) (0.37) --
----- ----- ----- ----- -----
Total distributions ($) -- (0.85) (2.61) (0.37) --
----- ----- ----- ----- -----
Net asset value, end of year ($) 11.44 15.73 9.02 11.26 16.48
===== ===== ===== ===== =====
Total return (%)(b) 17.09 48.34 (29.83) 29.59 46.36
Ratios/Supplemental Data
==============================================================================================================================
Net assets at end of year ($ thousands) 13,311 7,008 4,958 6,432 8,744
Expense ratio (%)* 1.10 1.10 1.10 1.12 218.99
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) (0.39) (0.19) (0.51) (0.64)
Portfolio turnover rate (%) 155.85 273.33 98.30 93.38 219.00
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.04 0.03 0.02 0.05 0.04
</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.
The text and notes are an integral part of the financial statements.
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, 2000, 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 of
America. 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 of
America, 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, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 15, 2000
22 State Street Research Emerging Growth Fund
<PAGE>
Board of Trustees
Richard S. Davis
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
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
23
<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, mutual fund purchases, exchanges and account information
[INTERNET] internet
www.statestreetresearch.com
[COMPUTER] e-mail
[email protected]
[PHONE] phone
1-87-SSR-FUNDS (1-877-773-8637) 7 days a week, 24 hours a day
Hearing-impaired: 1-800-676-7876
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[FAX] fax
1-617-737-9722 (request confirmation number first from
Service Center by calling 1-87-SSR-FUNDS or 1-877-773-8637)
[MAILBOX] mail
State Street Research Service Center
P.O. Box 8408, Boston, MA 02266-8408
For 24-hour
Automated Access
to Your Account
[PHONE] 1-87-SSR-FUNDS
----------------
(1-877-773-8637)
www.statestreetresearch.com
OverView
--------------------------------------
For more information on the products
and services mentioned in OverView,
our shareholder newsletter, visit our
Web site at www.statestreetresearch.com
State Street Research
FYI
--------------------------------------------------------------------------------
Did you know that you can give a State Street Research mutual fund as a gift?
Call a service center representative at 1-87-SSR-FUNDS (1-877-773-8637), Monday
through Friday, 8am - 6pm Eastern Time, to learn more.
---------------------------
[LOGO]
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1999
---------------------------
for Excellence in Service
(1) Formerly State Street Research Capital Fund.
(2) An investment in the State Street Research Money Market Fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although the fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the fund.
--------------------------------------------------------------------------
This report must be accompanied or preceded by a current State Street
Research Aurora Fund prospectus. When used after December 31, 2000 this
report must be accompanied by a current Quarterly Performance Update.
To obtain a prospectus of any State Street Research fund call
1-87-SSR-FUNDS (1-877-773-8637). 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.
State Street Research
Spectrum of Funds
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income Growth & Income Growth
--------------------------------------------------------------------------------------------------
CONSERVATIVE AGGRESSIVE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
High Income Fund Argo Fund Global Resources Fund
Strategic Income Fund Investment Trust Emerging Growth Fund
New York Tax-Free Fund Alpha Fund Health Sciences Fund
Tax-Exempt Fund Strategic Growth & Income Fund Mid-Cap Growth Fund(1)
Government Income Fund Strategic Income Plus Fund Aurora Fund
Money Market Fund(2) Concentrated International Fund
International Equity Fund
Concentrated Growth Fund
Growth Fund
Galileo Fund
Legacy Fund
</TABLE>
(C) 2000 State Street Research Investment Services, Inc.,
One Financial Center, Boston, MA 02111
Control Number:(exp1101)SSR-LD EM-2656-1100
<PAGE>
[LOGO] STATE STREET RESEARCH
Aurora Fund
--------------------------------------------------------------------------------
Annual Report to Shareholders
September 30, 2000
In this Report
Does Asset Allocation Still Make Sense?
[GRAPHIC]
plus
U.S. Economy Glides to a Slower Pace
Valuation and the Stock Market
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
context of the fund's track record
8 The Fund in Detail
Portfolio holdings, financials and notes
--------------------------------------------------------------------------------
Introducing
our new president
We are pleased to announce that Richard "Dick" S. Davis has joined State Street
Research & Management Company as President and Chief Executive Officer. Dick
comes to his new position from our parent company, MetLife, where he has served
as senior vice president of fixed income investments and was responsible for the
firm's $110 billion fixed income portfolio.
[PHOTO]
Richard S. Davis
Dick began his professional investment career 30 years ago at First Boston
Corporation. He spent eight years at J.P. Morgan Investment Management and J.P.
Morgan Securities, where he held positions in global fixed income sales
management, client sales and service, risk management and product development.
Dick holds a BA from Georgetown University and an MBA from Columbia University.
We are delighted to welcome a new leader with such an exceptional track record
and outstanding business acumen, and we look forward to hearing from Dick in the
months ahead.
[GRAPHIC]
--------------------------------------------------------------------------------
12 MONTH REVIEW Management's Discussion of Fund Performance Part 1
--------------------------------------------------------------------------------
How State Street Research
Aurora Fund Performed
State Street Research Aurora Fund delivered strong performance as a result of
astute stock-picking combined with a more favorable environment for value stocks
during the year. The fund returned 53.45% for the 12-month period ended
September 30, 2000.(1) That was significantly better than both the Russell 2000
Value Index,(2) which returned 15.36% over the same period, as well as the
Lipper Small-Cap Value Funds Average, which returned 20.66%.
Reasons for the Fund's
Outstanding Performance
The fund's emphasis on old economy companies with growing sales and profits and
strong free cash flow generation helped the fund achieve its strong gains.
Investments in health care generated the best returns, along with financial
services, producer durables and utilities. Technology investments were a drag on
performance. Consumer discretionary stocks also posted negative returns. But
keep in mind that the fund's sector weightings are a by-product of bottom-up
stock selection and not an indication of deliberate sector strategies during the
period.
Looking Ahead
We believe the economy is slowing but healthy despite rising energy and labor
costs. In that environment, we will continue to invest in companies with strong
underlying business fundamentals. We continue to look for companies with strong
franchises, high quality management and multiple ways to achieve growth. With
attractive fundamentals and valuations, we believe the environment continues to
favor small-cap stocks.
Class A Shares(1)
[UP ARROW]
53.45%
"With attractive
fundamentals
and valuations,
we believe the
environment continues
to favor
small-cap stocks."
[PHOTO]
Rudolph Kluiber
Portfolio Manager,
State Street Research
Aurora Fund
Russell 2000
Value Index(2)
[UP ARROW]
15.36%
More Management's Discussion of Fund Performance on pages 6 and 7.
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>
[GRAPHIC] The Fund at a Glance as of 9/30/00
State Street Research Aurora Fund: a stock fund with a value approach to
small-cap investing.
Ranger Oil
An oil and natural gas exploration and production company, Ranger Oil was
one of the fund's most profitable positions and one of the largest sales for the
quarter. Ranger Oil was taken over by Canadian Natural Resources Limited, a
company that, with the acquisition, is beyond the fund's capitalization range.
[GRAPHIC]
Hits & Misses
[GRAPHIC]
Lear
Borg-Warner
These auto parts makers were weak performers during the third quarter, the
result of recession fears and concerns that competitive services on the Internet
could hurt profit margins. However, we continue to own the stocks because of
their attractive valuations relative to future business prospects.
--------------------------------------------------------------------------------
Total Net Assets: $1.1 billion
--------------------------------------------------------------------------------
Top 10 Holdings
Issuer/Security % of fund assets
(1) Borg-Warner Automotive 2.9%
(2) Harrah's Entertainment 2.9%
(3) Coherent 2.2%
(4) Ace 2.1%
(5) International Game Technology 2.0%
(6) Hollinger International 1.9%
(7) Anchor Gaming 1.9%
(8) Lear 1.8%
(9) Bell & Howell 1.7%
(10) Simpson 1.6%
Total 21.0%
See page 11 for more details.
--------------------------------------------------------------------------------
Performance: Class A
Fund Average Annual Total Returns
as of 9/30/00 (at maximum applicable sales charge)(3,4,5)
Life of Fund
1 Year 5 Years (2/13/95)
-----------------------------------
44.62% 27.21% 27.21%
Fund Average Annual Total Returns
as of 9/30/00 (does not reflect sales charge)(1,3,5)
Life of Fund
1 Year 5 Years (2/13/95)
-----------------------------------
53.45% 28.73% 28.56%
See pages 6 and 7 for data on other share classes.
Russell 2000 Value Index
as of 9/30/00(2)
Life of Fund
1 Year 5 Years (2/13/95)
-----------------------------------
15.36% 11.50% 13.90%
--------------------------------------------------------------------------------
Top 5 Industries
% of fund assets
September 30, 1999
Miscellaneous Materials & Processing 7.9%
Automotive Parts 7.3%
Chemicals 6.0%
Electronics 4.2%
Real Estate Investment Trusts 3.9%
September 30, 2000
Casinos/Gambling Hotel/Motel 9.4%
Automotive Parts 7.4%
Insurance 5.2%
Oil and Gas Producers 5.0%
Electronics 4.8%
--------------------------------------------------------------------------------
Ticker Symbols
State Street Research Aurora Fund
Class A: SSRAX Class B(1): SSRPX Class B: SSRBX Class C: SSRDX Class S: SSRCX*
--------------------------------------------------------------------------------
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 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. All returns assume reinvestment of capital
gains distributions and income dividends at net asset value.
4 Performance reflects a maximum 5.75% Class A front-end sales charge.
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
--------------------------------------------------------------------------------
Does Asset Allocation Still Make Sense?
It was probably one of the first lessons you learned about investing: don't put
all your eggs in one basket. Yet, over the past three years, if you had put all
your eggs in a big-growth technology basket, you could have hatched some
oversized returns. What does that say about the age-old notion that you should
divide your investment dollars among stocks, bonds and cash? That you should
keep some money invested in value as well as growth, in defensive as well as
aggressive stocks, and in small and mid caps as well as large caps?
If you did any--or all--of the above, your investment returns may not have
measured up to the performance of "big growth," and you may feel that asset
allocation let you down. But asset allocation isn't supposed to generate the
highest possible returns. It's a risk moderator, not a performance buster.
Here's how it can help:
Trends Fade
History shows that when investors load up their portfolios with "the next best
thing," it's easy to get burned. Remember the glory days of Polaroid and Xerox?
Maybe not. But that's the point. Both were "glamour" technology stocks of the
1960s, and neither regained its momentum after the bear market of the 1970s. And
gold?
When it skyrocketed in the mid-1970s, some people poured their life savings into
the sector before prices were cut in half. In the 1990s, there was a long list
of "phenomenon" investments: biotechnology, emerging markets and most recently
the Internet. If you diversify, you can get exposure to these sectors in
moderation as well as some downside protection when the market turns against
them. That strategy would have paid off handsomely this year as some of last
year's high fliers, such as wireless and the Internet, have come down to earth,
while stodgy groups such as energy, financials and health care have moved ahead.
U.S. Economy Glides to a Slower Pace
With interest rates on hold since May, it appears that the Federal Reserve has
managed to orchestrate a slowdown of the U.S. economy without harsh effects on
consumers, workers or the markets. As a result, the Fed has let rates stand in
its past two meetings. However, it continues to warn that it is not entirely
satisfied with the relatively high spending and rising prices in some sectors of
the economy, both of which could threaten higher inflation. Third quarter gross
domestic product (the nation's total output of goods and services) was
significantly lower than second quarter, 2.7% versus 5.6%.
More Share in Good Times
Prosperity has broadened its reach across the income spectrum. Poverty dropped
to a 20-year low last year. Real median household income rose to a record high
of $40,800 as personal income, in general, continued to climb. Consumer
confidence also remained high, which was somewhat surprising in light of soaring
energy prices. Most consumers are feeling the pinch at the pumps and see the
price hikes reflected in their utility bills. Yet, there is little evidence that
higher energy prices have filtered through to the broader economy. What's more,
inflation remained tame--though higher than a year ago--at 3.5%.
Financial Markets Reflect Uncertainty
The uneven performance by the U.S. stock market in the final quarter had less to
do with the economy than a string of disappointing announcements about sales and
earnings from new economy market leader Intel as well as some old stalwarts such
as Gillette, Procter & Gamble and Kodak. Yet, gains for the year were strong.
The S&P 500 returned 13.3% while the technology-heavy Nasdaq was up 34.0%.
Mid-cap value stocks gained ground against large caps. Long-term U.S. Treasury
bonds were helped by optimism about the economic slowdown plus a federal buyback
of bonds. Foreign markets were generally disappointing. Canada was the bright
spot on the globe, as energy and telecommunication companies have brought its
stock market to life.
--------------------------------------------------------------------------------
Key Indicators Point to
Slower Growth
New home sales [DOWN ARROW] fell 3.0%
Retail sales growth slowed [DOWN ARROW] from 6.5% to 3.5%
Corporate profit growth slowed [DOWN ARROW] from 4.8% to 3.0%
Jobless rate held steady at [LEFT AND RIGHT ARROWS] 4.0%
But Pockets of Strength
Keep Fed on Vigil
Consumer spending [UP ARROW] 4.5%
Consumer Price Index [UP ARROW] 3.5%
Personal income [UP ARROW] 4.0%
--------------------------------------------------------------------------------
U.S. Department of Commerce. Third Quarter 2000
4 State Street Research Aurora Fund
<PAGE>
[GRAPHIC]
Cycles Shift
Sometimes groups of stocks charge ahead because they offer something new--like
the Internet. But one of the strongest forces in the stock market is valuation
[see sidebar, on this page]: the measure of a stock's worth relative to the
market as a whole or to its industry group. History shows that valuation shifts
over time, and the markets follow. When investors believe that a company or an
industry is capable of generating superior profits for an extended period of
time, they bid up its stock price on that expectation. But investors find it
difficult to stop on a dime and tend to overdo a move in either direction. As
investors move a stock's price higher, it can become overvalued. If profit
growth slows, even a little, it can cause investors to rethink the price they
are willing to pay. Then, a stock's price may fall to the point where it becomes
undervalued.
--------------------------------------------------------------------------------
The Next Best Investment Thing?
TOP-PERFORMING EQUITY INVESTMENTS
1990-1999
--------------------------------------------------------------------------------
1990 Growth Large cap Biotechnology
1991 Growth Small cap Biotechnology
1992 Value Small cap Financials
1993 Growth Small cap Gold
1994 Growth Small cap Health Care
1995 Growth Large cap Technology
1996 Value Mid cap Energy
1997 Growth Large cap Financials
1998 Growth Large cap Wireless Communications
1999 Growth Large cap Technology
2000 ytd* Value Mid cap Energy
Sources: Ibbotson, Frank Russell & Co., Standard &Poor's.
--------------------------------------------------------------------------------
This perfectly normal movement of the markets accounts for the fact that over
time, different types of stocks have captured the limelight [see table above].
It's impossible to guess which group is going to emerge as a winner in any given
year. The next best thing is to divide your investments so that you are there
when the cycle takes off. You don't have to worry about when to get out, because
rebalancing (the process of trimming your winners and adding to your losers to
keep your asset proportions constant) will help you maintain the amount of risk
that's right for you.
Dig Out of Diversification Deficit
Of course, rebalancing is also one of the hardest investment moves to make--it
feels counterintuitive to lighten up on the very investments that have helped
you and add to the ones that have disappointed. But if you started with a
portfolio divided 60/40 between stocks and bonds* at the beginning of 1997, your
mix would have shifted to 72/28 by the end of 1999. That would have given you
higher returns, but it also would have exposed you to a higher level of risk
than you started with.
There are two ways to rebalance: you can sell some of your top-performers and
add to your laggards, or you can direct your new investment dollars to the
portion of your portfolio that's fallen behind until you're back to your
original mix. If you're rebalancing a retirement account, you can take the first
approach with no tax consequences. In a taxable account, the second approach may
be more attractive because it will help you avoid taxable exchanges.
Think of asset allocation as a hedge against the market's changeability: You may
accept slightly lower performance when the market is dominated by a single
sector, but when the next "next best" investment comes along, diversification
will help keep your portfolio steady.
--------------------------------------------------------------------------------
A Closer Look [GRAPHIC]
Valuation and the stock market
Unlike items at the mall, where prices are clearly marked, a stock's price can
change second by second, depending on what the next buyer is willing to pay and
what the next seller is willing to accept. So how can investors figure whether
they are paying too much or getting a bargain?
Investment professionals use a variety of measures to get at a stock's value,
most of which involve comparing them to stocks with similar characteristics or
to historical measures that set a standard for a company's industry. For
example, Rudy Kluiber, portfolio manager of State Street Research Aurora Fund,
uses a measure that he thinks works well with the kind of small industrial
companies he focuses on. First, he estimates a company's buy-out value, i.e.
what he figures private investors would be willing to pay for the company if it
were put up for sale--buildings and equipment, as well as future profits less
debts. Then, he divides that figure by the company's earnings, before certain
items are subtracted from them, to come up with a ratio that helps him determine
whether the company is value priced.
Of course, valuation is only one factor in Kluiber's decision to buy or sell a
stock. "I am always looking for multiple ways to win," says Kluiber, who logged
more than 100,000 miles last year talking to companies and visiting with
management face-to-face.
--------------------------------------------------------------------------------
* Based on the S&P 500 and the Lehman Aggregate Bond Index, 1997-1999.
5
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE Management's Discussion of Fund Performance Part 2
--------------------------------------------------------------------------------
Performance Figures as of September 30, 2000
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 of a given investment over time.
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/distribution (12b-1) fee of 0.30%
Life of Fund
Cumulative Total Return 1 Year 5 Years (2/13/95)
-----------------------------------
(does not reflect 53.45% 253.46% 311.94%
sales charge)
Life of Fund
Average Annual Total Return 1 Year 5 Years (2/13/95)
------------------------------------
(at maximum applicable 44.62% 27.21% 27.21%
sales charge)
[The following information was depicted as a line graph in the
printed material.]
$10,000 Over Life of Fund
Class A S & P 500 Russell 2000 Value Index
"95" 10984 12425 12075
"96" 15776 14950 13703
"97" 27245 20994 19547
"98" 20591 22900 17047
"99" 25302 29263 18041
"00" 38826 33146 20811
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 service/distribution (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 (2/13/95)
-----------------------------------
(does not reflect 52.37% 240.23% 294.74%
sales charge)
Life of Fund
Average Annual Total Return 1 Year 5 Years (2/13/95)
-----------------------------------
(at maximum applicable 47.37% 27.60% 27.53%
sales charge)
[The following information was depicted as a line graph in the
printed material.]
$10,000 Over Life of Fund
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" 25907 29263 18041
"00" 39374 33146 20811
--------------------------------------------------------------------------------
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 service/distribution (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 (2/13/95)
-----------------------------------
(does not reflect 52.37% 240.23% 294.74%
sales charge)
Life of Fund
Average Annual Total Return 1 Year 5 Years (2/13/95)
-----------------------------------
(at maximum applicable 47.37% 27.60% 27.59%
sales charge)
[The following information was depicted as a line graph in the
printed material.]
$10,000 Over Life of Fund
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" 25907 29263 18041
"00" 39474 33146 20811
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 service/distribution (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 (2/13/95)
-----------------------------------
(does not reflect 52.37% 240.23% 294.74%
sales charge)
Life of Fund
Average Annual Total Return 1 Year 5 Years (2/13/95)
-----------------------------------
(at maximum applicable 51.37% 27.75% 27.59%
sales charge)
[The following information was depicted as a line graph in the
printed material.]
$10,000 Over Life of Fund
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
"00" 39374 33146 20811
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 service/distribution (12b-1) fees; annual expenses are lower than for
other share classes
Life of Fund
Cumulative Total Return 1 Year 5 Years (2/13/95)
-----------------------------------
(does not reflect 54.32% 258.94% 319.08%
sales charge)
Life of Fund
Average Annual Total Return 1 Year 5 Years (2/13/95)
-----------------------------------
(at maximum applicable 54.32% 29.12% 28.95%
sales charge)
[The following information was depicted as a line graph in the
printed material.]
$10,000 Over Life of Fund
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
"00" 41908 33146 20811
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 "S&P 500 Composite 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.
The Russell 2000 Value Index contains only those stocks within the complete
Russell 2000Index (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.
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.
Performance for Class B(1) reflects Class B performance through December 31,
1998. 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 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 oversees the fund with its shareholders' interests
in mind and have ultimate responsibility for the fund's activities (see
back pages of report 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 MetLife, Inc.
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, by investing primarily in small company value stocks.
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.
Class A shares are subject to an initial sales charge of up to 5.75%. From
October 1, 1999 to April 30, 2000 Class A shares paid a service fee equal to
0.25% of average daily net assets. Beginning May 1, 2000, Class A shares pay an
annual service and distribution fee equal to 0.30% of average daily net assets.
Class B(1) and Class B shares pay annual service and distribution fees of 1.00%.
Class B(1) and Class B shares automatically convert into Class A shares (which
pay lower ongoing expenses) at the end of eight years. Class B(1) and Class B
shares are subject to a contingent deferred sales charge on certain redemptions
made within six years and five years of purchase, respectively. Class C shares
are subject to a contingent deferred sales charge of 1.00% on any shares
redeemed within one year of their purchase, and also pay annual service and
distribution fees of 1.00%. Class S shares are only offered through certain
retirement accounts, advisory accounts of the investment manager, and special
programs. No sales charge is imposed at the time of purchase or redemption of
Class S shares. Class S shares do not pay any service or distribution fees.
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 60 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. The fund will receive cash or securities as collateral in the
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it receives
in these transactions, the fund could realize additional gains 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 has
elected 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 text and notes are an integral part of the financial statements.
10 State Street Research Aurora Fund
<PAGE>
Portfolio Holdings September 30, 2000
--------------------------------------------------------------------------------
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 then by
specific industry.
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.
+ Denotes a Rule 144A restricted security, mean- ing that it trades only among
certain qualified institutional buyers. As of the report date, the fund had
0.12% of net assets in Rule 144A securities.
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Common Stocks 89.8% of net assets
Automobiles & Transportation 10.8% of net assets
--------------------------------------------------------------------------------
Air Transport 1.1%
Airnet Systems Inc.* 320,000 $1,460,000
America West Holdings Corp. Cl. B* 481,200 5,864,625
Mesa Air Group, Inc.* 980,000 5,359,375
-----------
12,684,000
-----------
Automotive Parts 7.4%
American Axle &
Manufacturing Holdings Inc.* 320,000 3,440,000
Borg-Warner Automotive Inc. 1,007,600 33,376,750(1)
Automotive Parts/Equipment
Dura Automotive Systems Inc.* 407,800 3,765,778
Federal-Mogul Corp. 50,000 271,875
Lear Corp.* 1,009,500 20,757,844(8)
Automotive Parts
Navistar International Corp.* 125,100 3,745,181
Simpson Industries Inc. 1,500,000 18,375,000(10)
Automotive Parts
Stoneridge Inc.* 39,500 380,188
-----------
84,112,616
-----------
Miscellaneous Transportation 0.3%
Grupo Aeroportuario del
Sureste S.A. de C.V.*# 70,800 1,075,275
OMI Corp.* 100,000 837,500
Tranz Rail Holdings Ltd.# 215,000 940,625
-----------
2,853,400
-----------
Railroad Equipment 1.3%
ABC-NACO Inc.* 510,000 2,677,500
Wabtec Corp. 1,170,000 11,846,250
-----------
14,523,750
-----------
Railroads 0.3%
Genesee & Wyoming Inc. Cl. A* 140,000 3,395,000
-----------
Tires & Rubber 0.4%
Titan International Inc. 842,800 4,846,100
-----------
Total Automobiles & Transportation 122,414,866
-----------
Consumer Discretionary 20.1% of net assets
--------------------------------------------------------------------------------
Advertising Agencies 0.2%
HA-LO Industries, Inc.* 130,000 520,000
Interep National Radio Sales, Inc. Cl. A* 380,000 1,187,500
-----------
1,707,500
-----------
The text and notes are an integral part of the financial statements.
11
<PAGE>
Portfolio Holdings September 30, 2000 CONTINUED
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Casinos/Gambling, Hotel/Motel 9.4%
Anchor Gaming* 270,000 $21,481,875(7)
Casinos/Gaming
Argosy Gaming Corp.* 825,400 14,960,375
Extended Stay America Inc.* 100,000 1,325,000
Harrah's Entertainment Inc.* 1,190,000 32,725,000(2)
Casinos/Gambling
International Game Technology Inc.* 657,200 22,098,350(5)
Casinos Services
Mandalay Resort Group* 400,000 10,250,000
MGM Grand Inc. 102,688 3,921,398
------------
106,761,998
------------
Commercial Services 3.1%
Bell & Howell Co.* 880,000 19,250,000(9)
Computer Software & Service
Evoke Communications Inc.* 20,000 131,250
Exult Inc.* 115,000 1,588,438
Fairmarket Inc.* 22,000 71,500
FreeShop.com, Inc.* 70,000 196,875
Getty Images Inc.* 40,000 1,217,500
Hotel Reservations Network Inc. Cl. A* 30,000 1,098,750
Iron Mountain Inc.* 47,300 1,750,100
LifeMinders, Inc.* 40,000 917,500
NCO Group Inc.* 260,000 3,087,500
Official Payments Corp.* 70,000 567,656
Right Management Consultants Inc.* 100,000 1,150,000
Ritchie Brothers Auctioneers Inc.* 40,000 855,000
Six Flags Inc.* 180,000 2,790,000
Zap.com Corp.* 5,378 7,563
------------
34,679,632
------------
Communications, Media & Entertainment 0.7%
Citadel Communications Corp.* 50,000 850,000
Cox Radio, Inc. Cl. A* 230,000 4,010,625
Entravision Communications Corp.* 130,000 2,258,750
Hearst Argyle Television Inc.* 39,667 793,340
Regent Communications Inc.* 10,000 55,625
Salem Communications Corp. Cl. A* 40,000 507,500
------------
8,475,840
------------
Consumer Products 0.1%
Bacou USA Inc.* 40,000 1,037,500
------------
Consumer Services 0.7%
Amerco* 165,000 3,227,812
Apollo Group Inc.* 20,800 423,800
Docent, Inc. 9,800 179,463
Dollar Thrifty Automotive Group, Inc.* 200,000 3,950,000
------------
7,781,075
------------
Household Furnishings 0.3%
Furniture Brands International, Inc.* 170,000 2,826,250
Home Products International Inc.* 30,000 46,875
------------
2,873,125
------------
Leisure Time 1.6%
Championship Auto Racing Teams, Inc.* 350,000 8,531,250
Head NV* 100,000 800,000
SCP Pool Corp.* 20,000 592,500
Steinway Musical Instruments Inc.* 484,900 8,455,444
------------
18,379,194
------------
Photography 0.1%
CPI Corp. 72,000 1,530,000
------------
Printing & Publishing 2.6%
A.H. Belo Corp. Cl. A 370,000 6,821,875
Hollinger International, Inc. Cl. A 1,303,700 21,836,975(6)
Publishing
Pulitzer Inc.* 24,200 1,039,390
------------
29,698,240
------------
Retail 1.0%
BJ's Wholesale Club Inc.* 40,000 1,365,000
Bradlees Inc.* 215,000 295,625
Consolidated Stores Corp.* 240,000 3,240,000
Ross Stores, Inc. 210,000 3,018,750
Whitehall Jewellers Inc.* 300,000 2,381,250
Wilsons The Leather Experts Inc.* 63,000 1,137,937
------------
11,438,562
------------
Textile Apparel Manufacturers 0.3%
Oshkosh B' Gosh, Inc. Cl. A 203,400 3,095,494
------------
Total Consumer Discretionary 227,458,160
------------
Consumer Staples 2.0% of net assets
--------------------------------------------------------------------------------
Beverages 0.6%
Beringer Wine Estates Holdings,
Inc. Cl. B* 130,000 7,223,125
------------
Foods 1.4%
Bush Boake Allen Inc.* 120,000 5,737,500
ConAgra Foods, Inc. 27,346 548,629
Keebler Foods Co. 220,000 9,240,000
------------
15,526,129
------------
Total Consumer Staples 22,749,254
------------
The text and notes are an integral part of the financial statements.
12 State Street Research Aurora Fund
<PAGE>
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Financial Services 11.4% of net assets
--------------------------------------------------------------------------------
Banks & Savings & Loan 2.8%
Astoria Financial Corp. 104,300 $4,028,587
Dime Bancorp, Inc. 367,100 7,915,594
PBOC Holdings Inc.* 634,300 5,391,550
Richmond County Financial Corp.* 316,500 7,655,344
Staten Islands Bancorp Inc. 299,300 5,986,000
-----------
30,977,075
-----------
Financial Data Processing Services & Systems 0.7%
eFunds Corp.* 22,500 165,937
Fair, Issac & Company Inc. 190,000 8,110,625
-----------
8,276,562
-----------
Insurance 5.2%
Ace Ltd. 620,000 24,335,000(4)
Insurance
Everest Re Group, Ltd. 261,000 12,919,500
Partnerre Ltd.* 146,400 6,944,850
Renaissance Re Holdings Ltd.* 234,100 14,967,769
-----------
59,167,119
-----------
Miscellaneous Financial 1.6%
Dun & Bradstreet Corp. 520,000 17,907,500
-----------
Real Estate Investment Trusts 1.1%
Anthracite Capital Inc. Pfd.* 300,000 6,000,000
Anthracite Capital, Inc. 370,000 3,029,375
Beacon Capital Partners Inc.*+ 120,000 1,365,000
Entertainment Properties Trust 200,000 2,125,000
-----------
12,519,375
-----------
Securities Brokerage & Services 0.0%
Noel Group Liquidating Trust* 102,000 43,350
-----------
Total Financial Services 128,890,981
-----------
Health Care 3.9% of net assets
--------------------------------------------------------------------------------
Drugs & Biotechnology 1.5%
3 Dimensional Pharmaceutical, Inc.* 20,000 720,000
Applied Molecular Evolution* 15,000 601,875
Arena Pharmaceuticals Inc.* 5,000 215,000
Arthrocare Corp.* 15,000 278,750
Aviron Corp.* 80,000 4,665,000
Biomarin Pharmaceutical Inc. 20,000 367,500
Cell Therapeutics, Inc.* 7,000 466,812
Durect Corp.* 43,800 657,000
Intermune Pharmaceuticals Inc.* 50,000 2,712,500
Protein Design Laboratories, Inc.* 5,000 602,500
Regeneration Technologies, Inc.* 84,400 696,300
SangStat Medical Corp.* 160,000 2,050,000
Versicor Inc.* 190,000 2,850,000
-----------
16,883,237
-----------
Health Care Facilities 0.2%
Renal Care Group, Inc.* 130,000 2,421,250
-----------
Health Care Services 0.6%
Community Health Systems Inc.* 115,000 3,694,375
DIANON Systems Inc.* 47,600 1,898,050
Hooper Holmes Inc. 100,000 951,000
-----------
6,543,425
-----------
Hospital Supply 1.5%
Aradigm Corp.* 300,000 6,881,250
Aspect Medical Systems, Inc.* 142,500 1,763,437
Bruker Daltonics Inc.* 35,000 1,553,125
Cepheid, Inc.* 40,000 327,500
Closure Medical Corp.* 20,000 503,750
CONMED Corp.* 67,500 923,906
Curon Medical Inc.* 110,400 1,269,600
Igen International, Inc.* 25,000 503,125
Illumina Inc.* 26,000 1,179,750
Invivo Corp.* 164,900 1,752,063
Rita Medical Systems, Inc.* 40,000 446,250
-----------
17,103,756
-----------
Chemicals 0.1%
Wilson Great Batch Technology, Inc.* 29,700 679,388
-----------
Total Health Care 43,631,056
-----------
The text and notes are an integral part of the financial statements.
13
<PAGE>
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Materials & Processing 8.8% of net assets
--------------------------------------------------------------------------------
Agriculture 0.9%
Cadiz Inc.* 28,000 $280,000
Corn Products International Inc. 280,000 6,370,000
Eden Bioscience Corp.* 17,000 561,000
Zapata Corp.* 1,100,000 3,162,500
-----------
10,373,500
-----------
Building & Construction 0.5%
Centex Construction Products Inc. 14,500 359,781
Elcor Corp. 250,000 3,625,000
Nortek Inc.* 126,500 2,213,750
-----------
6,198,531
-----------
Chemicals 4.2%
American Pacific Corp.* 600,000 3,712,500
Cabot Microelectronics Corp.* 80,000 3,840,000
Cambrex Corp. 330,000 12,210,000
Lilly Industrial Inc. Cl. A 380,000 11,210,000
Methanex Corp.* 859,400 4,350,712
Omnova Solutions Inc. 60,000 333,750
PolyOne Corp. 294,000 2,149,875
Stepan Chemical Co. 471,900 9,467,494
-----------
47,274,331
-----------
Containers & Packaging 0.7%
Ivex Packaging Corp.* 50,000 490,625
Packaging Corp. of America* 470,000 5,199,375
U.S. Can Corp.* 85,000 1,684,063
-----------
7,374,063
-----------
Fertilizers 1.1%
Agrium Inc. 1,260,000 12,915,000
-----------
Miscellaneous Materials & Processing 1.1%
Chase Industries Inc.* 115,200 993,600
Hawk Corp. Cl. A* 265,000 1,855,000
Intermet Corp. 200,000 1,450,000
NN, Inc. 95,000 855,000
Penn Engineering & Manufacturing Corp. 160,000 5,030,000
Wolverine Tube Inc.* 135,000 2,008,125
-----------
12,191,725
-----------
Non-Ferrous Metals 0.2%
Lindberg Corp. 210,000 1,601,250
Packaged Ice, Inc.* 158,500 435,875
-----------
2,037,125
-----------
Textile & Products 0.1%
Polymer Group Inc. 135,000 995,625
-----------
Total Materials & Processing 99,359,900
-----------
Other 0.5% of net assets
--------------------------------------------------------------------------------
Multi-Sector 0.5%
Gencorp Inc. 60,000 487,500
General Electric Co. 5,000 288,438
Gentek, Inc. 335,300 5,113,325
-----------
Total Other 5,889,263
-----------
Other Energy 6.4% of net assets
--------------------------------------------------------------------------------
Offshore Drilling 0.1%
TMBR / Sharp Drilling Inc.* 70,000 980,000
-----------
Oil & Gas Producers 5.0%
Basin Exploration Inc.* 646,000 12,597,000
Cabot Microelectronics Corp. Cl. A* 450,000 9,168,750
Canadian 88 Energy Corp.* 1,303,400 3,232,432
Chieftain International, Inc.* 50,000 1,034,375
Cross Timbers Oil Co. 210,000 4,029,375
HS Resources, Inc.* 176,800 5,944,900
Maxx Petroleum Ltd.* 400,000 1,625,000
Ocean Energy Inc.* 611,800 9,444,662
Plains Resources Inc.* 250,000 4,718,750
Pure Resources, Inc.* 201,907 4,277,905
-----------
56,073,149
-----------
Oil Well Equipment & Services 1.3%
Capstone Turbine Corp.* 5,000 346,250
Core Laboratories NV* 171,000 4,200,187
Hydril Co.* 54,900 1,248,975
NewPark Resources Inc.* 140,000 1,295,000
NRG Energy Inc.* 30,000 1,095,000
OSCA, Inc. Cl. A* 200,000 3,325,000
Patterson Energy, Inc.* 75,000 2,578,125
Stolt Comex Seaway SA*# 24,000 306,000
Stolt Comex Seaway SA* 48,300 718,463
-----------
15,113,000
-----------
Total Other Energy 72,166,149
-----------
Producer Durables 11.7% of net assets
--------------------------------------------------------------------------------
Aerospace 3.2%
Alliant Technology Systems, Inc.* 201,300 16,531,762
Curtiss-Wright Corp. 100,000 4,718,750
Doncasters PLC*# 162,000 3,280,500
Ladish Inc.* 592,000 7,770,000
Teledyne Technologies Inc.* 125,000 3,640,625
-----------
35,941,637
-----------
The text and notes are an integral part of the financial statements.
14 State Street Research Aurora Fund
<PAGE>
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Electrical Equipment & Components 0.1%
Proton Energy Systems, Inc.* 11,600 $332,050
Triumph Group, Inc.* 13,000 466,375
-----------
798,425
-----------
Industrial Products 1.1%
Active Power Inc.* 10,000 620,000
Denison International PLC*# 642,500 8,573,359
Osmonics, Inc.* 225,500 1,804,000
Veeco Instruments Inc.* 12,000 1,275,188
-----------
12,272,547
-----------
Machine Tools 0.0%
Thermadyne Holdings Corp.* 13,599 156,389
-----------
Machinery 2.1%
Applied Science & Technology, Inc.* 80,000 1,180,000
CTB International Corp.* 100,000 756,250
Cummins Engine Inc. 131,500 3,936,781
Helix Technology Corp.* 12,000 358,500
JLG Industries Inc. 710,000 8,653,125
Specialty Equipment Companies Inc.* 390,000 9,628,125
-----------
24,512,781
-----------
Miscellaneous Equipment 0.6%
Thomas & Betts Corp. 400,000 6,975,000
-----------
Miscellaneous Producer Durables 1.3%
BE Aerospace Inc.* 900,000 14,512,500
-----------
Office Furniture & Business Equipment 1.0%
MICROS Systems, Inc.* 508,000 7,651,750
Steelcase Inc. Cl. A 197,500 3,308,125
-----------
10,959,875
-----------
Production Technology Equipment 1.2%
August Technology Corp.* 105,000 1,391,250
Axcelis Technologies, Inc.* 53,000 629,375
Camtek Ltd.* 190,000 1,603,125
Entergris Inc.* 280,000 2,677,500
GSI Lumonics Inc.* 150,000 2,475,000
InTEST Corp.* 40,000 388,750
Kulicke & Soffa Industries, Inc.* 50,000 665,625
Mattson Technology Inc.* 60,000 892,500
Nova Measuring Instruments Ltd.* 240,000 2,400,000
Therma-Wave Inc.* 15,000 431,250
-----------
13,554,375
-----------
Telecommunications Equipment 1.1%
Belden Inc. 180,000 4,252,500
L-3 Communications Holding Inc.* 130,000 7,345,000
Peco II, Inc.* 6,000 280,875
Plantronics Inc.* 35,000 1,330,000
-----------
13,208,375
-----------
Communications Technology 0.0%
WJ Communications, Inc.* 5,000 185,000
-----------
Total Producer Durables 133,076,904
-----------
Technology 10.6% of net assets
--------------------------------------------------------------------------------
Communications Technology 1.2%
Accord Networks Ltd.* 130,000 1,267,500
ADC Telecommunications Inc.* 100,000 2,689,062
BreezeCom Ltd.* 20,000 658,750
Ceragon Networks Ltd.* 8,600 231,125
Cosine Communications Inc.* 6,600 366,713
Elastic Networks Inc.* 9,700 135,194
Foundry Networks, Inc.* 25,000 1,673,437
Inet Technologies, Inc.* 30,000 877,500
Inrange Technologies Corp. Cl. B* 6,200 328,600
O2Wireless Solutions, Inc.* 45,000 869,063
P-Com, Inc.* 50,000 331,250
Spectrasite Holdings, Inc.* 135,000 2,505,937
TTM Technologies, Inc.* 15,500 364,250
UTStarcom, Inc.* 80,000 1,675,000
-----------
13,973,381
-----------
Computer Software 1.3%
At Road, Inc.* 37,500 269,531
AvantGo, Inc.* 4,000 80,000
Avistar Communications Corp.* 88,900 600,075
CacheFlow Inc.* 6,600 943,800
Centra Software Inc.* 5,000 32,500
Click Commerce, Inc.* 5,000 213,750
Convergent Group Corp.* 123,000 584,250
DRS Technologies Inc.* 56,500 918,125
Electronics for Imaging, Inc.* 180,000 4,545,000
Extensity, Inc.* 10,000 210,000
GRIC Communications, Inc.* 26,000 188,500
H.T.E. Inc.* 7,700 10,106
Imanage Inc.* 45,000 360,000
Interland Inc.* 71,300 601,594
Intertrust Technologies Corp.* 20,000 241,250
Register.com, Inc.* 16,000 152,000
Software Technologies Corp.* 120,000 2,746,875
SynQuest, Inc.* 15,000 196,875
Talarian Corp.* 18,100 347,294
Vastera, Inc.* 30,500 671,000
Versata, Inc.* 24,000 636,000
VIA Networks Inc.* 23,200 223,300
-----------
14,771,825
-----------
The text and notes are an integral part of the financial statements.
15
<PAGE>
Market
Issuer Shares Value
--------------------------------------------------------------------------------
Computer Technology 1.4%
Corvis Corp.* 7,300 $445,642
Exabyte Corp.* 220,000 2,475,000
Hutchinson Technology Inc.* 370,000 7,793,125
Imation Corp.* 220,000 4,097,500
Mobility Electronics, Inc.* 40,000 365,000
Simple Technology, Inc.* 125,000 1,210,938
--------------
16,387,205
--------------
Electronics 4.8%
Argonaut Technologies Inc.* 25,000 464,063
BEI Electronics Inc.* 215,000 268,750
BEI Technologies Inc. 417,000 17,409,750
Coherent Inc.* 370,000 25,160,000(3)
Electronic Equipment
II-VI, Inc.* 60,000 1,120,312
Primex Technologies, Inc. 270,300 7,855,594
SMTC Corp.* 50,000 1,075,000
Spectrum Control Inc. Cl. A* 40,000 642,500
--------------
53,995,969
--------------
Electronics: Semiconductors/Components 1.8%
Advanced Power Technology, Inc.* 35,000 1,159,375
ASAT Holdings Ltd.*# 88,400 580,125
ASM International NV* 45,000 787,500
Benchmark Electronics Inc.* 42,000 2,184,000
Channell Commercial Corp.* 180,000 2,373,750
Chartered Semiconductor Manufacturing*# 5,000 303,438
ChipPAC, Inc. Cl. A* 50,000 593,750
Infineon Technologies AG*# 36,100 1,714,750
Intersil Holding Corp. Cl. A* 5,000 249,375
Metron Technology NV* 20,000 160,000
Nogatech Inc.* 37,500 318,750
O2Micro International Ltd.* 8,800 151,388
ON Semiconductor Corp.* 92,000 1,000,500
Pixelworks, Inc.* 95,000 4,530,312
Sawtek Inc.* 5,000 192,578
Silicon Image Inc.* 20,000 496,250
Tvia, Inc.* 170,000 3,049,375
Virage Logic Corp.* 26,000 427,375
--------------
20,272,591
--------------
Miscellaneous Technology 0.1%
Genomica Corp.* 37,300 725,019
--------------
Total Technology 120,125,990
--------------
Utilities 3.0% of net assets
--------------------------------------------------------------------------------
Electrical 1.2%
Southern Energy Inc.* 16,400 514,550
Western Resources Inc. 600,000 12,975,000
--------------
13,489,550
--------------
Gas Distribution 1.4%
Western Gas Resources Inc. 664,900 16,664,056
--------------
Telecommunications 0.4%
Alamosa PCS Holdings, Inc.* 30,000 485,625
Allied Riser Communications Corp.* 90,900 602,212
Carrier 1 International S.A.*# 20,000 145,000
PTEK Holdings, Inc.* 250,000 773,437
Tritel Inc. Cl. A* 15,000 214,688
Triton PCS Holdings Inc.* 23,600 649,000
UbiquiTel Inc.* 70,000 630,000
US Unwired Inc. Cl. A* 50,000 476,563
Z-tel Technologies, Inc.* 45,000 326,250
--------------
4,302,775
--------------
Total Utilities 34,456,381
--------------
Non-U.S. Equities 0.6% of net assets
--------------------------------------------------------------------------------
Coretec Inc.* 28,700 174,223
Canadian Natural Resources Ltd.* 69,411 2,325,268
Fred Olsen Energy ASA*# 54,100 447,255
Jean Coutu Group Inc. Cl. A* 300,000 3,811,451
--------------
Total Non-U.S. Equities 6,758,197
--------------
Total Common Stocks 1,016,977,100(a)
--------------
--------------------------------------------------------------------------------
(a) The fund paid a total of $837,721,588 for these securities.
--------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
16 State Street Research Aurora Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Issuer Shares Value
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments 2.9% of net assets
AIM Liquid Assets Portfolio 33,170,848 $33,170,848
--------------
Total Short-Term Investments 33,170,848(1)
--------------
<CAPTION>
Coupon Maturity Amount of
Rate Date Principal
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper 9.4% of net assets
American Express Credit Corp. 6.52% 10/02/2000 $6,446,000 $6,446,000
American Express Credit Corp. 6.53% 10/02/2000 15,415,000 15,415,000
American Express Credit Corp. 6.50% 10/03/2000 8,427,000 8,427,000
American Express Credit Corp. 6.56% 10/06/2000 11,104,000 11,104,000
DaimlerChrysler N.A. Holding Corp. 6.52% 10/06/2000 14,334,000 14,334,000
Merrill Lynch & Company Inc. 6.49% 10/03/2000 19,547,000 19,539,952
Verizon Network Funding Inc. 6.49% 10/11/2000 21,761,000 21,721,770
Wells Fargo Financial Inc. 6.50% 10/06/2000 10,000,000 10,000,000
--------------
Total Commercial Paper 106,987,722(2)
--------------
<CAPTION>
% of
Net Assets
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Summary of Portfolio Assets
Investments 102.1% $1,157,135,670
Cash and Other Assets, Less Liabilities (2.1%) (24,294,918)
------ --------------
Net Assets 100.0% $1,132,840,752(3)
====== ==============
--------------------------------------------------------------------------------
(1) The fund paid a total of $33,170,848 for these securities.
--------------------------------------------------------------------------------
(2) The fund paid a total of $106,987,722 for these securities.
--------------------------------------------------------------------------------
(3) The fund paid a total of $977,880,158 for these securities.
--------------------------------------------------------------------------------
Federal Income Tax Information
At September 30, 2000, the net unrealized appreciation of investments based on
cost for Federal income tax purposes of $978,135,348 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost $247,816,068
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value (68,815,746)
--------------
$179,000,322
==============
</TABLE>
In order to meet certain excise tax distribution requirements under Section 4982
of the Internal Revenue Code, the fund is required to measure and distribute
annually, if necessary, net capital gains realized during a 12-month period
ending October 31. In this connection, the fund is permitted to defer into its
next fiscal year any net capital losses incurred between each November 1 and the
end of its fiscal year. From November 1, 1999 through September 30, 2000, the
fund incurred net capital losses of $7,657,164 and has deferred and treated such
losses as arising in the fiscal year ended September 30, 2001.
The text and notes are an integral part of the financial statements.
17
<PAGE>
Statement of
Assets and Liabilities September 30, 2000
--------------------------------------------------------------------------------
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 $1,157,135,670(1)
Cash 363,828
Receivable for securities sold 7,425,442
Receivable for fund shares sold 23,006,417
Dividends and interest receivable 1,148,525
--------------
1,189,079,882
Liabilities
Payable for collateral received on securities loaned 33,170,848
Payable for securities purchased 14,840,196
Payable for fund shares redeemed 6,241,765
Accrued transfer agent and shareholder services 336,004
Accrued management fee 734,604
Accrued distribution and service fees 539,560
Accrued trustees' fees 27,389
Other accrued expenses 348,764
--------------
56,239,130
--------------
Net Assets $1,132,840,752
==============
Net Assets consist of:
Undistributed net investment income $30,098
Unrealized appreciation of investments 179,255,512
Accumulated net realized gain 99,234,002
Paid-in capital 854,321,140
--------------
$1,132,840,752(2)
==============
--------------------------------------------------------------------------------
(1) The fund paid a total of $977,880,158 for these securities.
--------------------------------------------------------------------------------
(2) 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 $552,365,384 18,933,587 $29.17*
B(1) $110,742,980 3,956,509 $27.99**
B $268,557,455 9,593,223 $27.99**
C $180,877,030 6,461,531 $27.99**
S $20,297,903 684,249 $29.66
* Maximum offering price per share $30.95 ($29.17 / 0.9425).
** Redemption price per share for Class B(1), Class B and Class C is equal to
net asset value less any applicable contingent deferred sales charge.
--------------------------------------------------------------------------------
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, 2000
--------------------------------------------------------------------------------
This shows what the fund earned and lost over the report period, and what its
expenses were.
Investment Income
Dividends, net of foreign taxes $7,185,929(1)
Interest 5,344,967(2)
-------------
12,530,896
Expenses
Management fee 5,842,991(3)
Transfer agent and shareholder services 1,150,039(4)
Distribution and service fees - Class A 805,374(5)
Distribution and service fees - Class B(1) 549,236(5)
Distribution and service fees - Class B 2,307,484(5)
Distribution and service fees - Class C 1,093,752(5)
Custodian fee 279,127
Registration fees 221,197
Reports to shareholders 188,142
Trustees' fees 27,389(6)
Audit fee 25,804
Legal fees 17,242
Amortization of organization costs 7,503(7)
Miscellaneous 29,770
-------------
12,545,050
Fees paid indirectly (27,602)(8)
-------------
12,517,448
-------------
Net investment income 13,448
-------------
Realized and Unrealized Gain
on Investments
Net realized gain on investments 99,469,272(9)
Change in unrealized appreciation of investments 181,944,322
-------------
Net gain on investments 281,413,594
-------------
Net increase in net assets resulting
from operations $281,427,042
=============
--------------------------------------------------------------------------------
(1) The fund paid foreign taxes of $26,210.
--------------------------------------------------------------------------------
(2) Includes $248,727 in income from the lending of portfolio securities. As of
the report date, the fund had a total of $38,122,581 of securities out on
loan and was holding a total of $38,206,396 in collateral (including
$33,170,848 of cash collateral) related to those loans.
--------------------------------------------------------------------------------
(3) The management fee is 0.85% of fund net assets, annually.
--------------------------------------------------------------------------------
(4) Includes a total of $747,376 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.
--------------------------------------------------------------------------------
(5) 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.
--------------------------------------------------------------------------------
(6) Paid only to trustees who aren't currently affiliated with the adviser (the
fund doesn't pay trustees' fees to affiliated trustees).
--------------------------------------------------------------------------------
(7) Organization costs were capitalized and amortized straight-line over five
years.
--------------------------------------------------------------------------------
(8) Represents transfer agent credits earned from uninvested cash balances.
--------------------------------------------------------------------------------
(9) To earn this, the fund sold $471,654,513 of securities. During this same
period, the fund also bought $817,389,796 worth of securities. These figures
don't include short-term obligations or U.S. government securities.
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
1999 2000
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations:
Net investment income (loss) $(852,674) $13,448
Net realized gain on investments 1,843,995 99,469,272
Change in unrealized appreciation
of investments 78,160,879 181,944,322
--------------------------------
Net increase resulting
from operations 79,152,200 281,427,042
--------------------------------
Net increase (decrease) from
fund share transactions (33,298,752) 416,924,689(1)
--------------------------------
Total increase in net assets 45,853,448 698,351,731
--------------------------------
Net Assets
Beginning of year 388,635,573 434,489,021
--------------------------------
End of year $434,489,021 $1,132,840,752(2)
================================
--------------------------------------------------------------------------------
(2) Includes undistributed net investment income of $0 and $30,098,
respectively.
--------------------------------------------------------------------------------
The text and notes are an integral part of the financial statements.
20 State Street Research Aurora Fund
<PAGE>
--------------------------------------------------------------------------------
(1) These transactions break down by share class as follows:
<TABLE>
<CAPTION>
Years ended September 30
----------------------------------------------------------------------
1999 2000
----------------------------------------------------------------------
Class A Shares Amount Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Shares sold 5,556,940 $95,959,404 15,555,491 $398,377,309*
Shares redeemed (5,359,184) (91,802,702) (4,313,901) (109,371,794)
----------------------------------------------------------------------
Net increase 197,756 $4,156,702 11,241,590 $289,005,515
======================================================================
<CAPTION>
Class B(1) Shares(a) Amount(a) Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Shares sold 1,174,063 $20,609,640 3,076,345 $73,765,167**
Shares redeemed (63,385) (1,087,830) (230,514) (5,411,060)***
----------------------------------------------------------------------
Net increase 1,110,678 $19,521,810 2,845,831 $68,354,107
======================================================================
<CAPTION>
Class B Shares Amount Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Shares sold 2,191,760 $34,769,493 890,297 $20,367,528**
Shares redeemed (5,338,722) (86,005,542) (2,109,967) (46,765,555)***
----------------------------------------------------------------------
Net decrease (3,146,962) ($51,236,049) (1,219,670) ($26,398,027)
======================================================================
<CAPTION>
Class C Shares Amount Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Shares sold 1,879,939 $31,150,039 3,564,189 $86,138,124**
Shares redeemed (2,272,628) (36,944,284) (792,598) (17,727,659)****
----------------------------------------------------------------------
Net increase (decrease) (392,689) ($5,794,245) 2,771,591 $68,410,465
======================================================================
<CAPTION>
Class S Shares Amount Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Shares sold 57,888 $904,426 635,503 $17,822,554
Shares redeemed (44,784) (851,396) (12,448) (269,925)
----------------------------------------------------------------------
Net increase 13,104 $53,030 623,055 $17,552,629
======================================================================
</TABLE>
The trustees have the authority to issue an unlimited number of shares of
beneficial interest, with a $0.001 par value per share.
* Includes $259,510 and $295,114 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 $418,145, $5,575,
and $1,294 for Class B(1), Class B and Class C, were paid by the
distributor, not the fund.
*** Includes $63,638 and $339,107 in deferred sales charges collected by the
distributor for Class B(1) and Class B.
**** Includes $6,210 in deferred sales charges collected by the distributor.
(a) January 1, 1999 (commencement of share class) to September 30, 1999.
The text and notes are an integral part of the financial statements.
21
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
These provide a summary of each share class's financial performance for the past
five fiscal years.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Years ended September 30
-------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
==================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.13 15.14 20.71 15.47 19.02
------- ------- ------- ------- -------
Net investment income (loss) ($)* (0.06) 0.03 0.02 0.05 0.10
Net realized and unrealized gain (loss)
on investments 4.66 9.02 (5.03) 3.50 10.05
------- ------- ------- ------- -------
Total from investment operations ($) 4.60 9.05 (5.01) 3.55 10.15
------- ------- ------- ------- -------
Dividend from net investment income ($) (0.09) -- -- -- --
Distributions from capital gains ($) (0.50) (3.48) (0.23) -- --
------- ------- ------- ------- -------
Total distributions ($) (0.59) (3.48) (0.23) -- --
------- ------- ------- ------- -------
Net asset value, end of year ($) 15.14 20.71 15.47 19.02 29.17
======= ======= ======= ======= =======
Total return (%)(b) 43.63 72.70 (24.42) 22.88 53.45
Ratios/Supplemental Data
==================================================================================================
Net assets at end of year ($ thousands) 1,110 157,853 115,973 146,295 552,365
Expense ratio (%)* 1.45 1.34 1.39 1.46 1.40
Expense ratio after expense reductions (%)* 1.45 1.34 1.39 1.45 1.40
Ratio of net investment income (loss)
to average net assets (%)* (0.56) 0.17 0.09 0.30 0.42
Portfolio turnover rate (%) 124.79 25.03 67.80 65.13 76.95
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.32 0.02 -- -- --
</TABLE>
Class B(1)
-------------------------
Years ended September 30
-------------------------
Per Share Data 1999(a)(c) 2000(a)
================================================================================
Net asset value, beginning of year ($) 16.17 18.38
------- -------
Net investment loss ($) (0.03) (0.07)
Net realized and unrealized gain
on investments ($) 2.24 9.68
------- -------
Total from investment operations ($) 2.21 9.61
------- -------
Net asset value, end of year ($) 18.38 27.99
======= =======
Total return (%)(b) 13.61(d) 52.37
Ratios/Supplemental Data
================================================================================
Net assets at end of year ($ thousands) 20,419 110,743
Expense ratio (%) 2.10(e) 2.13
Expense ratio after expense reductions (%) 2.09(e) 2.13
Ratio of net investment loss to average net assets (%) (0.24)(e) (0.29)
Portfolio turnover rate (%) 65.13 76.95
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 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
==================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.08 15.02 20.33 15.07 18.38
------- ------- ------- ------- -------
Net investment loss ($)* (0.17) (0.09) (0.13) (0.08) (0.07)
Net realized and unrealized gain (loss)
on investments 4.65 8.88 (4.90) 3.39 9.68
------- ------- ------- ------- -------
Total from investment operations ($) 4.48 8.79 (5.03) 3.31 9.61
------- ------- ------- ------- -------
Dividend from net investment income ($) (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 ($) 15.02 20.33 15.07 18.38 27.99
======= ======= ======= ======= =======
Total return (%)(b) 42.52 71.34 (24.98) 21.90 52.37
Ratios/Supplemental Data
==================================================================================================
Net assets at end of year ($ thousands) 165 235,938 210,408 198,783 268,557
Expense ratio (%)* 2.20 2.08 2.15 2.21 2.13
Expense ratio after expense reductions (%)* 2.20 2.08 2.15 2.20 2.13
Ratio of net investment loss
to average net assets (%)* (1.38) (0.55) (0.68) (0.46) (0.31)
Portfolio turnover rate (%) 124.79 25.03 67.80 65.13 76.95
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.32 0.01 -- -- --
<CAPTION>
Class C
-------------------------------------------------------
Years ended September 30
-------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
==================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.08 15.02 20.32 15.06 18.38
------- ------- ------- ------- -------
Net investment loss ($)* (0.17) (0.09) (0.13) (0.08) (0.07)
Net realized and unrealized gain (loss)
on investments 4.65 8.87 (4.90) 3.40 9.68
------- ------- ------- ------- -------
Total from investment operations ($) 4.48 8.78 (5.03) 3.32 9.61
------- ------- ------- ------- -------
Dividend from net investment income ($) (0.04) -- -- -- --
Distributions from capital gains ($) (0.50) (3.48) (0.23) -- --
------- ------- ------- ------- -------
Total distributions ($) (0.54) (3.48) (0.23) -- --
------- ------- ------- ------- -------
Net asset value, end of year ($) 15.02 20.32 15.06 18.38 27.99
======= ======= ======= ======= =======
Total return (%)(b) 42.52 71.26 (25.00) 21.98 52.37
Ratios/Supplemental Data
==================================================================================================
Net assets at end of year ($ thousands) 165 67,121 61,504 67,816 180,877
Expense ratio (%)* 2.20 2.09 2.15 2.21 2.13
Expense ratio after expense reductions (%)* 2.20 2.09 2.15 2.20 2.13
Ratio of net investment loss
to average net assets (%)* (1.38) (0.58) (0.68) (0.45) (0.30)
Portfolio turnover rate (%) 124.79 25.03 67.80 65.13 76.95
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.32 0.01 -- -- --
</TABLE>
(a) Per-share figures have been calculated using the average shares method.
(b) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the Distributor and its affiliates had not
voluntarily reduced the fund's expenses.
(c) January 1, 1999 (commencement of share class) to September 30, 1999.
(d) Not annualized.
(e) Annualized.
The text and notes are an integral part of the financial statements.
23
<PAGE>
Financial Highlights CONTINUED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class S
-------------------------------------------------------
Years ended September 30
-------------------------------------------------------
Per Share Data 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
==================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.15 15.18 20.83 15.60 19.23
------- ------- ------- ------- -------
Net investment income (loss) ($)* (0.06) (0.00) 0.10 0.10 0.12
Net realized and unrealized gain (loss)
on investments 4.70 9.13 (5.10) 3.53 10.31
------- ------- ------- ------- -------
Total from investment operations ($) 4.64 9.13 (5.00) 3.63 10.43
------- ------- ------- ------- -------
Dividend from net investment income ($) (0.11) -- -- -- --
Distributions from capital gains ($) (0.50) (3.48) (0.23) -- --
------- ------- ------- ------- -------
Total distributions ($) (0.61) (3.48) (0.23) -- --
------- ------- ------- ------- -------
Net asset value, end of year ($) 15.18 20.83 15.60 19.23 29.66
======= ======= ======= ======= =======
Total return (%)(b) 43.95 73.10 (24.23) 23.21 54.32
Ratios/Supplemental Data
==================================================================================================
Net assets at end of year ($ thousands) 7,752 14,542 750 1,177 20,298
Expense ratio (%)* 1.20 1.16 1.04 1.21 1.13
Expense ratio after expense reductions (%)* 1.20 1.16 1.04 1.20 1.13
Ratio of net investment income (loss)
to average net assets (%)* (0.43) (0.02) 0.53 0.54 0.63
Portfolio turnover rate (%) 124.79 25.03 67.80 65.13 76.95
*Reflects voluntary reduction of
expenses per share of these amounts ($) 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. Total
return would be lower if the Distributor and its affiliates had not
voluntarily reduced the fund's expenses.
The text and notes are an integral part of the financial statements.
<PAGE>
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Trustees of State Street Research
Capital Trust and the Shareholders of
State Street Research Aurora Fund:
In our opinion, the accompanying statement of assets and liabilities--including
the 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, 2000, 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 of America.
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 of America,
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, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 15, 2000
24 State Street Research Aurora Fund
<PAGE>
Board of Trustees
Richard S. Davis
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
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"), a series of State Street Research Capital Trust, was convened on
February 25, 2000, and continued thereafter ("Meeting"). The results of the
Meeting for Class B and Class B(1) shares are set forth below. The results for
Class A shares were previously reported in the annual report to shareholders for
the fiscal year ended March 31, 2000.
Votes (millions of shares)
Action on Proposal For Against Abstain
--------------------------------------------------------------------------------
Class B Shares
The Fund's current Rule 12b-1
Distribution Plan was amended
to increase the amount that may
be expended for the distribution
of Class A shares. 4.2 0.8 0.3
Class B(1) Shares
The Fund's current Rule 12b-1
Distribution Plan was amended
to increase the amount that may
be expended for the distribution
of Class A shares. 0.5 0.1 0.0
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.
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, mutual fund purchases, exchanges and account information
[INTERNET] internet
www.statestreetresearch.com
[COMPUTER] e-mail
[email protected]
[PHONE] phone
1-87-SSR-FUNDS (1-877-773-8637) 7 days a week, 24 hours a day
Hearing-impaired: 1-800-676-7876
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[FAX] fax
1-617-737-9722 (request confirmation number first from
Service Center by calling 1-87-SSR-FUNDS or 1-877-773-8637)
[MAILBOX] mail
State Street Research Service Center
P.O. Box 8408, Boston, MA 02266-8408
For 24-hour
Automated Access
to Your Account
[PHONE] 1-87-SSR-FUNDS
----------------
(1-877-773-8637)
www.statestreetresearch.com
OverView
--------------------------------------
For more information on the products
and services mentioned in OverView,
our shareholder newsletter, visit our
Web site at www.statestreetresearch.com
State Street Research
FYI
--------------------------------------------------------------------------------
Did you know that you can give a State Street Research mutual fund as a gift?
Call a service center representative toll-free at 1-87-SSR-FUNDS
(1-877-773-8637), Monday through Friday, 8am-6pm Eastern Time, to learn more.
---------------------------
[LOGO]
DALBAR
HONORS COMMITMENT TO:
INVESTORS
1999
---------------------------
for Excellence in Service
1 Formerly State Street Research Capital Fund.
2 An investment in the State Street Research Money Market Fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although the fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the fund.
--------------------------------------------------------------------------------
This report must be accompanied or preceded by a current State Street
Research Aurora Fund prospectus. When used after December 31, 2000 this
report must be accompanied by a current Quarterly Performance Update.
To obtain a prospectus of any State Street Research fund call
1-87-SSR-FUNDS (1-877-773-8637). 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.
State Street Research
Spectrum of Funds
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income Growth & Income Growth
--------------------------------------------------------------------------------------------------
CONSERVATIVE AGGRESSIVE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
High Income Fund Argo Fund Global Resources Fund
Strategic Income Fund Investment Trust Emerging Growth Fund
New York Tax-Free Fund Alpha Fund Health Sciences Fund
Tax-Exempt Fund Strategic Growth & Income Fund Mid-Cap Growth Fund(1)
Government Income Fund Strategic Income Plus Fund Aurora Fund
Money Market Fund(2) Concentrated International Fund
International Equity Fund
Concentrated Growth Fund
Growth Fund
Galileo Fund
Legacy Fund
</TABLE>
(C) 2000 State Street Research Investment Services, Inc.,
One Financial Center, Boston, MA 02111
Control Number:(exp1101)SSR-LD AR-2655-1100
