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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-3838
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State Street Research Capital Trust
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, MA 02111
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(Address of principal executive offices) (Zip code)
Francis J. McNamara, III, Secretary
State Street Research
One Financial Center, Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 617-357-1200
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Date of fiscal year end: 09/30/03
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Date of reporting period: 10/01/02 - 09/30/03
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
ITEM 1 (REPORT TO SHAREHOLDERS): The Annual Report is attached.
[BACKGROUND GRAPHIC]
[LOGO] STATE STREET RESEARCH
[PHOTO]
Mid-Cap Growth Fund
September 30, 2003
Annual Report to Shareholders
Table of Contents
3 Performance Discussion
6 Portfolio Holdings
8 Financial Statements
12 Financial Highlights
14 Independent Auditors' Report
15 Trustees and Officers
FROM THE CHAIRMAN
State Street Research
Optimism in the Economy
The uncertainty that plagued the markets early in the 12-month period ended
September 30, 2003, and gave way to optimism as economic news brightened. Low
short-term interest rates, a significant income tax cut and higher government
spending worked together to boost economic growth to its highest level in four
years. Housing sales remained strong, although auto sales slipped late in the
period. Corporate profits staged a solid rebound. Employment was the only
holdout, as the jobless rate remained stubbornly high.
A Weak Start, Then Stocks Move Higher
The economy's weak showing held stocks back early in the period as investors
backed away from risk in the buildup to war. However, in the second quarter of
2003 stocks began an impressive rally that continued until the last weeks of the
period. Technology stocks were the strongest performers. Consumer stocks also
gained ground as spending remained strong. In general, small- and mid-cap stocks
outperformed large-caps, and growth stocks significantly outpaced value.
Although all stock market indexes reported solid gains for the period, they were
trimmed somewhat in the final weeks of September after news that consumer
confidence had dropped.
Bonds Retreat in Second Half
As investors began to add risk back into their portfolios, lower-quality
segments of the bond market staged an impressive comeback. High-yield bonds and
emerging market bonds were the period's strongest performers. However, as
interest rates began to climb and as investors moved money into the stock
market, bonds gave back some of their gains in the second half of the period.
Mortgage bonds lagged as mortgage prepayment activity heated up in the spring.
Municipal bonds were hurt by concerns over state budget deficits and revenue
shortfalls.
Looking Ahead
A revival for riskier segments of both the stock and bond markets took many
investors by surprise over the past year. Yet, it provided an excellent reminder
that the best way to take advantage of the market's strongest gains is to own a
diversified portfolio of stocks and bonds. We hope you will take time to talk to
your financial advisor about diversification. And as always, we look forward to
helping you achieve your long-term financial goals with State Street Research
Funds.
Sincerely,
/s/ Richard S. Davis
Richard S. Davis
Chairman
September 30, 2003
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A Special Message on Recent News
Recent articles in the press have highlighted investigations into after-hours
trading and frequent-trading practices in the mutual fund industry. These are
serious matters, and we want to assure you that State Street Research is
committed to maintaining full compliance with all legal requirements and ethical
standards regarding these and other mutual fund trading practices. In fact, our
mutual fund trading processes are designed to prevent these types of activities
from taking place, and we are committed to maintaining their integrity. Our
trade processing procedures carefully track the forward-pricing requirements
contained in federal regulations and in our funds' prospectuses. We closely
monitor trading in our funds and take measures to prevent market timing whenever
it is identified. Furthermore, we do not enter into any special arrangements
that would permit investors to avoid the forward-pricing or market-timing
provisions of our prospectuses.
In recent weeks, we have carefully reviewed our trading policies, procedures and
operations. In addition, our firm recommended early on that the funds' Trustees
engage an independent accounting firm, which has been reviewing trading issues
on behalf of our funds' Audit Committee. While there is always more work that
can be done, I am pleased to report that we believe our processes are working
effectively, based on our preliminary findings. We understand that our
relationship with our shareholders is based on trust, and we are committed to
acting in the best interests of our shareholders at all times.
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2
PERFORMANCE
Discussion as of September 30, 2003
How State Street Research Mid-Cap Growth Fund Performed
State Street Research Mid-Cap Growth Fund returned 32.75% for the 12-month
period ended September 30, 2003.(1) That was below the Russell Midcap(R)
Growth Index, which returned 38.89% over the same period.(2) However, the fund
outperformed the Lipper Mid-Cap Growth Funds Average, which returned 27.72% over
the same period.(3)
Reasons for the Fund's Performance
Although the fund lagged its benchmark during the year, it posted attractive
gains. Stock selection in the Consumer Discretionary sector made the greatest
positive contribution to performance. CarMax, a used-car superstore chain, rose
as a result of strong sales and profits as well as gains in market share.
Apparel retailer Gap appreciated as new management slowed store expansion,
improved sales and cut costs. However, we sold the stock after the company
announced disappointing sales results. In the commercial services industry,
online retailer eBay and online travel service provider Expedia helped boost
returns.
The fund's Technology holdings also posted strong gains. National Semiconductor
and Cypress Semiconductor both outperformed during the tech rally, which was
fueled by an increased demand for personal computers and other high-tech
products. However, our underweight in this sector detracted from the fund's
relative performance as Technology made significant contributions to returns
within the Russell Midcap Growth Index.
Weak stock selection in Health Care, Financial Services and Energy further
detracted from the fund's performance. In Health Care, drug manufacturer
InterMune fell as investors expressed disappointment in weaker-than-expected
demand for the firm's flagship drug, Actimmune. Health insurance and services
provider Anthem declined as investors rotated out of defensive HMO names to
more aggressive areas of the market. Our emphasis on Energy stocks also hurt
performance. An unusually cool summer brought natural gas prices down and
inventories rose. Falling prices also led to earnings disappointments for oil
service companies.
Looking Ahead
Going forward, the fund remains heavily invested in Technology, Consumer
Discretionary and Health Care--its three largest positions. We have also
maintained our commitment to the Energy sector. Although it detracted from the
fund's return during this period, we believe that a favorable natural gas supply
and demand outlook should support higher prices over the long term.
Top 10 Holdings
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Issuer/Security % of fund net assets
1 Caremark Rx 2.2%
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2 InterActiveCorp 2.1%
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3 Staples 1.9%
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4 Cypress Semiconductor 1.8%
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5 International Game Technology 1.8%
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6 CarMax 1.7%
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7 National Semiconductor 1.7%
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8 Teva Pharmaceutical Industries 1.6%
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9 Investors Financial Services 1.6%
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10 Affiliated Computer Services 1.6%
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Total 18.0%
Performance: Class A
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Fund average annual total return as of 9/30/03(4)
(does not reflect sales charge)
1 Year 5 Years 10 Years
32.75% 0.90% 3.54%
- --------------------------------------------------------------------------------
Fund average annual total return as of 9/30/03(4,5)
(at maximum applicable sales charge)
1 Year 5 Years 10 Years
25.12% -0.29% 2.93%
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Russell Midcap Growth Index as of 9/30/03(2)
1 Year 5 Years 10 Years
38.89% 4.49% 8.50%
- --------------------------------------------------------------------------------
See pages 4 and 5 for additional performance data for Class A shares and for
performance data on other share classes.
Because financial markets and mutual fund strategies are constantly evolving, it
is 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.
(1) Class A shares; does not reflect sales charge.
(2) The Russell Midcap Growth Index contains those stocks within the complete
Russell Midcap[RegTM] Index (800 of the smallest securities in the Russell
1000[RegTM] Index) that show above-average growth. The index is unmanaged
and does not take transaction charges into consideration. It is not possible
to invest directly in the index.
(3) The Lipper Mid-Cap Growth Funds Average shows performance of a category of
mutual funds with similar goals. The Lipper average shows you how well the
fund has done compared with competing funds.
(4) Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain
or loss when you sell your shares. All returns assume reinvestment of
capital gains distributions and income dividends at net asset value. The
returns shown do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares. The fund
participated as a class member in a class-action lawsuit against Cendant
Corporation. Cendant agreed to pay $3 billion to class members to settle the
suit. The fund received a pro-rata portion of the settlement which helped
boost short-term returns. These returns are not typical and may not continue
in the future.
(5) Performance reflects a maximum 5.75% Class A share front-end sales charge.
State Street Research Mid-Cap Growth Fund 3
PERFORMANCE
Discussion as of September 30, 2003
These two pages focus on the fund's long-term track record. While a mutual
fund's past performance is not a guarantee of future results, long-term returns
can serve as an important context for evaluating recent performance. There are
three ways of measuring long-term performance: cumulative total returns, average
annual total returns and the change in dollar value over time of a given
investment. Information about these measures follows, while the share class
boxes contain the results of these measures for each share class.
Cumulative Total Return
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.
Average Annual Total Return
Represents the rate you would have had to earn during each year of a given time
period in order to end up with the fund's actual cumulative return for those
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
Similar to cumulative total return, but uses dollars rather than percentages,
and assumes that the lump sum you invested was $10,000 (less the applicable
maximum sales charge, if any) and compares fund performance to the performance
of a market index.
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Class A
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 32.75% 4.56% 41.57%
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Cumulative Total Return
(at maximum applicable sales charge) 25.12% -1.45% 33.59%
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Average Annual Total Return
(at maximum applicable sales charge) 25.12% -0.29% 2.93%
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$10,000 Over 10 Years
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class A ....... $ 9,425 9,661 13,232 14,570 15,608 12,777 16,195 25,087 12,585 10,063 13,359
Russell Mid-Cap
Growth Index .. $10,000 10,243 13,282 15,451 20,031 18,154 24,905 39,941 19,263 16,278 22,608
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B(1)
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 31.70% 0.91% 31.57%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 26.70% 0.12% 31.57%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 26.70% 0.02% 2.78%
- --------------------------------------------------------------------------------
$10,000 Over 10 Years
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class B(1) .... $10,000 10,179 13,833 15,124 16,072 13,054 16,413 25,260 12,568 10,002 13,157
Russell Mid-Cap
Growth Index .. $10,000 10,243 13,282 15,451 20,031 18,154 24,905 39,941 19,263 16,278 22,608
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
Class B (only available through exchanges from another Class B account)
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 33.05% 2.32% 33.40%
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Cumulative Total Return
(at maximum applicable sales charge) 28.05% 0.30% 33.40%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 28.05% 0.30% 2.92%
- --------------------------------------------------------------------------------
$10,000 Over 10 Years
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class B ....... $10,000 10,179 13,833 15,124 16,072 13,054 16,413 25,248 12,578 10,039 13,340
Russell Mid-Cap
Growth Index .. $10,000 10,243 13,282 15,451 20,031 18,154 24,905 39,941 19,263 16,278 22,608
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 31.90% 0.85% 31.84%
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Cumulative Total Return
(at maximum applicable sales charge) 30.90% 0.85% 31.84%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 30.90% 0.17% 2.80%
- --------------------------------------------------------------------------------
$10,000 Over 10 Years
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class C ....... $10,000 10,200 13,879 15,160 16,109 13,088 16,461 25,327 12,625 10,008 13,184
Russell Mid-Cap
Growth Index .. $10,000 10,243 13,282 15,451 20,031 18,154 24,905 39,941 19,263 16,278 22,608
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class S
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 33.33% 6.03% 45.49%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 33.33% 6.03% 45.49%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 33.33% 1.18% 3.82%
- --------------------------------------------------------------------------------
$10,000 Over 10 Years
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class S ....... $10,000 10,291 14,129 15,600 16,741 13,738 17,455 27,111 13,643 10,925 14,549
Russell Mid-Cap
Growth Index .. $10,000 10,243 13,282 15,451 20,031 18,154 24,905 39,941 19,263 16,278 22,608
- --------------------------------------------------------------------------------
Keep in mind that past performance is no guarantee of future results. The fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gains
distributions and income dividends at net asset value. Performance reflects a
maximum 5.75% Class A share front-end sales charge, or 5% Class B(1) or Class B
share or 1% Class C share contingent deferred sales charge, where applicable.
Performance for Class B(1) shares reflect Class B share performance through
December 31, 1998 and Class B(1) performance thereafter. If the returns for
Class B(1) shares had reflected their current service/distribution (Rule 12b-1)
fees for the entire period, these returns would have been lower. The returns
shown do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Class S shares, offered without
sales charge, are available through certain employee benefit plans and special
programs. The Russell Midcap Growth Index contains those stocks in the Russell
Midcap Index (800 of the smallest securities in the Russell 1000 Index) that
show above-average growth. The index is unmanaged and does not take transaction
charges into consideration. It is not possible to invest directly in the index.
The fund participated as a class member in a class-action lawsuit against
Cendant Corporation. Cendant agreed to pay $3 billion to class members to settle
the suit. The fund received a pro-rata portion of the settlement which helped
boost short-term returns. These returns are not typical and may not continue in
the future.
State Street Research Mid-Cap Growth Fund 5
PORTFOLIO
Holdings
September 30, 2003
Issuer Shares Value
- --------------------------------------------------------------------------------
Common Stocks 97.1%
Automobiles & Transportation 1.4%
Air Transport 1.4%
Expeditors International Inc. .................. 71,200 $ 2,449,992
Ryanair Holdings plc ADR* ...................... 63,600 2,575,800
-----------
Total Automobiles & Transportation ............................... 5,025,792
-----------
Consumer Discretionary 28.9%
Advertising Agencies 0.6%
Lamar Advertising Co. Cl. A* ................... 70,600 2,071,404
-----------
Casinos/Gambling, Hotel/Motel 2.9%
International Game Technology Inc. ............. 220,400 6,204,260
Mandalay Resort Group Inc. ..................... 103,100 4,083,791
-----------
10,288,051
-----------
Commercial Services 6.5%
ChoicePoint Inc.* .............................. 103,166 3,456,061
Corporate Executive Board Co.* ................. 97,300 4,568,235
E.W. Scripps Co. ............................... 23,500 1,999,850
InterActiveCorp.* .............................. 225,282 7,445,570
Manpower Inc. .................................. 138,000 5,119,800
-----------
22,589,516
-----------
Communications, Media & Entertainment 2.8%
General Motors Corp.* .......................... 205,900 2,946,429
Univision Communications Inc. Cl. A* ........... 153,000 4,885,290
Westwood One Inc.* ............................. 67,100 2,025,749
-----------
9,857,468
-----------
Consumer Electronics 1.4%
Yahoo!, Inc.* .................................. 135,800 4,804,604
-----------
Consumer Products 0.8%
Yankee Candle Company Inc.* .................... 108,700 2,769,676
-----------
Consumer Services 0.7%
Career Education Corp.* ........................ 51,600 2,337,480
-----------
Printing & Publishing 0.5%
Tribune Co. .................................... 39,700 1,822,230
-----------
Restaurants 1.8%
Brinker International Inc.* .................... 54,100 1,804,776
Darden Restaurants Inc. ........................ 85,100 1,616,900
Starbucks Corp.* ............................... 106,800 3,075,840
-----------
6,497,516
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Retail 10.9%
Bed Bath & Beyond Inc.* ........................ 88,626 3,383,741
Best Buy Company Inc.* ......................... 53,100 2,523,312
CarMax Inc.* ................................... 183,379 5,989,158
CDW Corp. ...................................... 84,300 4,867,482
Chicos FAS Inc.* ............................... 145,300 4,451,992
Family Dollar Stores Inc. ...................... 74,700 2,979,783
Staples Inc.* .................................. 280,848 6,670,140
Tiffany & Co. .................................. 58,400 2,180,072
Issuer Shares Value
- --------------------------------------------------------------------------------
Williams-Sonoma Inc.* ............................ 184,200 $ 4,969,716
------------
38,015,396
------------
Total Consumer Discretionary ..................................... 101,053,341
------------
Consumer Staples 1.5%
Beverages 0.9%
Pepsi Bottling Group Inc. ........................ 151,600 3,119,928
------------
Household Products 0.6%
Clorox Co. ....................................... 45,000 2,064,150
------------
Total Consumer Staples ........................................... 5,184,078
------------
Financial Services 9.2%
Banks & Savings & Loan 2.6%
Investors Financial Services Co. ................. 174,100 5,466,740
TCF Financial Corp. .............................. 77,200 3,701,740
------------
9,168,480
------------
Financial Data Processing Services & Systems 2.1%
Affiliated Computer Services Inc.* ............... 112,200 5,463,018
Fair, Issac & Company Inc. ....................... 30,500 1,798,280
------------
7,261,298
------------
Insurance 1.2%
RenaissanceRe Holdings Ltd. ...................... 92,000 4,197,960
------------
Miscellaneous Financial 0.7%
Willis Group Holdings Ltd. ....................... 83,500 2,567,625
------------
Securities Brokerage & Services 2.6%
Lehman Brothers Holdings Inc. .................... 67,400 4,655,992
T Rowe Price Group Inc. .......................... 104,200 4,299,292
------------
8,955,284
------------
Total Financial Services ......................................... 32,150,647
------------
Health Care 18.7%
Drugs & Biotechnology 10.5%
Allergan Inc. .................................... 66,600 5,243,418
Altana AG ADR .................................... 10,100 639,835
Biogen Inc.* ..................................... 64,400 2,462,012
BioVail Corp.* ................................... 35,900 1,333,685
CV Therapeutics Inc.* ............................ 99,100 2,180,200
Forest Laboratories Inc.* ........................ 58,000 2,984,100
Genzyme Corp.* ................................... 54,700 2,529,875
InterMune Inc.* .................................. 169,300 3,230,244
Medimmune Inc.* .................................. 120,000 3,961,200
Millennium Pharmaceuticals Inc.* ................. 117,600 1,809,864
Mylan Laboratories Inc. .......................... 115,900 4,479,535
Teva Pharmaceutical Industries Ltd. ADR .......... 99,800 5,703,570
------------
36,557,538
------------
Health Care Services 5.2%
Aetna Inc. ....................................... 51,500 3,143,045
Anthem Inc.* ..................................... 24,700 1,761,851
Caremark Rx Inc.* ................................ 336,800 7,611,680
Community Health Systems Inc.* ................... 181,800 3,945,060
Coventry Health Care Inc.* ....................... 35,000 1,845,900
------------
18,307,536
------------
Hospital Supply 3.0%
Dentsply International Inc. ...................... 82,900 3,717,236
Guidant Corp. .................................... 61,100 2,862,535
Zimmer Holdings Inc.* ............................ 72,383 3,988,303
------------
10,568,074
------------
Total Health Care ................................................ 65,433,148
------------
6 The notes are an integral part of the financial statements.
Issuer Shares Value
- --------------------------------------------------------------------------------
Materials & Processing 4.1%
Chemicals 1.3%
Eco Lab Inc. ................................. 173,900 $ 4,390,975
-----------
Containers & Packaging 1.0%
Sealed Air Corp.* ............................ 74,900 3,537,527
-----------
Fertilizers 0.7%
Potash Corp. ................................. 34,900 2,462,195
-----------
Gold & Precious Metals 1.1%
Newmont Mining Corp. ......................... 96,700 3,780,003
-----------
Total Materials & Processing ..................................... 14,170,700
-----------
Other 2.7%
Miscellaneous 2.7%
iShares Trust ................................ 58,000 3,818,720
Nasdaq 100 Shares* ........................... 171,232 5,551,320
-----------
Total Other ...................................................... 9,370,040
-----------
Other Energy 7.3%
Oil & Gas Producers 3.2%
Devon Energy Corp. ........................... 55,807 2,689,340
Newfield Exploration Co.* .................... 120,200 4,636,114
XTO Energy Inc. .............................. 178,200 3,740,418
-----------
11,065,872
-----------
Oil Well Equipment & Services 4.1%
BJ Services Co.* ............................. 61,500 2,101,455
Nabors Industries Ltd.* ...................... 69,500 2,589,570
Noble Corp.* ................................. 45,300 1,539,747
Patterson UTI Energy Inc.* ................... 118,400 3,205,088
Rowan Companies Inc.* ........................ 75,800 1,863,164
Weatherford International Ltd.* .............. 83,350 3,148,963
-----------
14,447,987
-----------
Total Other Energy ............................................... 25,513,859
-----------
Producer Durables 3.8%
Miscellaneous Equipment 0.7%
Pentair Inc. ................................. 64,700 2,579,589
-----------
Production Technology Equipment 2.7%
LAM Research Corp.* .......................... 215,000 4,762,250
Novellus Systems Inc.* ....................... 57,100 1,927,125
Teradyne Inc.* ............................... 147,500 2,743,500
-----------
9,432,875
-----------
Telecommunications Equipment 0.4%
American Tower Corp.*+ ....................... 118,100 1,198,715
-----------
Total Producer Durables .......................................... 13,211,179
-----------
Technology 18.9%
Communications Technology 2.2%
Adtran Inc. .................................. 66,200 4,050,116
Ciena Corp.* ................................. 260,400 1,538,964
UTStarcom Inc.* .............................. 61,100 1,943,591
-----------
7,532,671
-----------
Computer Software 6.7%
Adobe Systems Inc. ........................... 128,000 5,025,280
Amdocs Ltd.* ................................. 138,600 2,605,680
BEA Systems Inc.* ............................ 379,100 4,568,155
Ceridian Corp.* .............................. 98,100 1,826,622
Cognos Inc.* ................................. 114,500 3,551,790
Mercury Interactive Corp.* ................... 41,300 1,875,433
Veritas Software Co.* ........................ 128,000 4,019,200
-----------
23,472,160
-----------
Issuer Shares Value
- --------------------------------------------------------------------------------
Computer Technology 0.5%
Sandisk Corp.* ................................. 29,100 $ 1,854,834
------------
Electronics 2.0%
Amphenol Corp. Cl. A* .......................... 36,700 1,910,235
Sanmina-SCI Corp. .............................. 268,400 2,603,480
Vishay Intertechnology Inc.* ................... 147,400 2,582,448
------------
7,096,163
------------
Electronics: Semiconductors/Components 7.5%
Altera Corp.* .................................. 187,300 3,539,970
ATI Technologies Inc.* ......................... 148,100 2,199,285
Broadcom Corp. Cl. A* .......................... 142,700 3,798,674
Cypress Semiconductor Corp.* ................... 358,000 6,329,440
Jabil Circuit Inc.* ............................ 81,100 2,112,655
Microchip Technology Inc. ...................... 99,800 2,389,212
National Semiconductor Corp.* .................. 182,100 5,880,008
------------
26,249,244
------------
Total Technology ................................................. 66,205,072
------------
Utilities 0.6%
Telecommunications 0.6%
Sprint PCS Corp.* .............................. 384,900 2,205,477
------------
Total Utilities .................................................. 2,205,477
------------
Total Common Stocks (Cost $281,023,976) .......................... 339,523,333
------------
Short-Term Investments 10.1%
State Street Navigator Securities Lending
Prime Portfolio ................................... 35,360,449 35,360,449
----------
Total Short-Term Investments (Cost $35,360,449) .................. 35,360,449
----------
Maturity Amount of
Issuer Date Principal
- --------------------------------------------------------------------------------
Commercial Paper 2.7%
AIG Funding Inc., 1.08% ................. 10/01/2003 $4,067,000 4,067,000
AIG Funding Inc., 1.03% ................. 10/03/2003 3,610,000 3,609,794
American Express Credit
Corp., 1.02% ........................... 10/03/2003 152,000 151,991
Morgan Stanley Dean
Witter & Co., 1.04% .................... 10/03/2003 1,674,000 1,673,903
----------
Total Commercial Paper (Cost $9,502,688) ........................... 9,502,688
----------
% of
Net Assets
- --------------------------------------------------------------------------------
Summary of Portfolio Assets
Investments (Cost $325,887,113) ................. 110.0% 384,386,470)
Cash and Other Assets, Less Liabilities ......... (10.0%) (34,791,870)
----- -------------
Net Assets ...................................... 100.0% $ 349,594,600)
===== =============
KEY TO SYMBOLS
* Denotes a security which has not paid a dividend during the last year.
ADR Stands for American Depositary Receipt.
+ Denotes a Rule 144A restricted security, meaning that it trades only among
certain qualified institutional buyers. As of the report date, the fund had
0.10% of net assets in Rule 144A securities.
Federal Income Tax Information
At September 30, 2003, the net unrealized appreciation of
investments based on cost for federal income tax purposes of
$326,353,372 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost $65,935,760
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value (7,902,662)
-----------
$58,033,098
===========
The notes are an integral part of the financial statements.
State Street Research Mid-Cap Growth Fund 7
FINANCIAL
Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
September 30, 2003
Assets
Investments, at value (Cost $325,887,113) (Note 1)............ $384,386,470
Cash ......................................................... 2,038,103
Receivable for securities sold ............................... 1,551,265
Receivable for fund shares sold .............................. 115,083
Dividends receivable ......................................... 81,694
Other assets ................................................. 55,982
------------
388,228,597
------------
Liabilities
Payable for collateral received on securities loaned ......... 35,360,449
Payable for securities purchased ............................. 2,037,155
Payable for fund shares redeemed ............................. 301,020
Accrued transfer agent and shareholder services .............. 289,778
Accrued management fee ....................................... 268,889
Accrued distribution and service fees ........................ 81,228
Accrued trustees' fees ....................................... 29,859
Accrued administration fee ................................... 20,107
Other accrued expenses ....................................... 245,512
------------
38,633,997
------------
Net Assets ................................................... $349,594,600
============
Net Assets consist of:
Unrealized appreciation of investments ....................... $ 58,499,357
Accumulated net realized loss ................................ (356,265,476)
Paid-in capital .............................................. 647,360,719
------------
$349,594,600
============
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Class Net Assets / Number of Shares = NAV
A $179,519,207 33,555,763 $5.35*
B(1) $ 28,518,264 6,234,339 $4.57**
B $ 95,215,848 20,545,665 $4.63**
C $ 12,043,639 2,623,767 $4.59**
S $ 34,297,642 6,037,457 $5.68
* Maximum offering price per share = $5.68 ($5.35 [divided by] 0.9425)
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
Statement of Operations
- --------------------------------------------------------------------------------
For the year ended September 30, 2003
Investment Income
Dividends, net of foreign taxes of $9,563 (Note 1)............ $ 1,184,969
Interest (Note 1) ............................................ 304,815
-----------
1,489,784
-----------
Expenses
Management fee (Note 2) ...................................... 2,400,292
Transfer agent and shareholder services (Note 2) ............. 1,767,824
Custodian fee ................................................ 149,069
Reports to shareholders ...................................... 100,296
Administration fee ........................................... 77,616
Distribution and service fees - Class A (Note 4) ............. 472,838
Distribution and service fees - Class B(1) (Note 4) .......... 242,238
Distribution and service fees - Class C (Note 4) ............. 111,375
Audit fee .................................................... 36,365
Registration fees ............................................ 28,525
Trustees' fees (Note 2) ...................................... 24,542
Legal fees ................................................... 21,052
Miscellaneous ................................................ 33,681
-----------
5,465,713
Fees paid indirectly (Note 2) ................................ (16,842)
-----------
5,448,871
-----------
Net investment loss .......................................... (3,959,087)
-----------
Realized and Unrealized Gain (Loss) on
Investments
Net realized loss on investments (Notes 1 and 3) ............. (2,516,067)
Change in unrealized appreciation of investments ............. 96,745,512
-----------
Net gain on investments ...................................... 94,229,445
-----------
Net increase in net assets resulting from operations ......... $90,270,358
===========
8 The notes are an integral part of the financial statements.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Years ended
September 30
-------------------------------
2003 2002*
-------------------------------
Increase (Decrease) In Net Assets
Operations:
Net investment loss ........................ $ (3,959,087) $ (6,329,931)
Net realized loss on investments ........... (2,516,067) (92,837,818)
Change in unrealized appreciation of
investments ............................. 96,745,512 24,991,773
------------- -------------
Net increase (decrease) resulting from
operations .............................. 90,270,358 (74,175,976)
------------- -------------
Net decrease from fund share
transactions (Note 6) ................... (43,134,681) (73,285,726)
------------- -------------
Total increase (decrease) in net assets .... 47,135,677 (147,461,702)
============= =============
Net Assets
Beginning of year .......................... 302,458,923 449,920,625
------------- -------------
End of year ................................ $ 349,594,600 $ 302,458,923
============= =============
* Audited by other auditors
Notes to Financial Statements
- --------------------------------------------------------------------------------
September 30, 2003
Note 1
State Street Research Mid-Cap Growth Fund is a series of State Street Research
Capital Trust (the "Trust"), which is a Massachusetts business trust registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company.
The investment objective of the fund is to provide long-term growth of capital.
Under normal market conditions, the fund invests at least 80% of its net assets
in mid-cap stocks. These may include common and preferred stocks, convertible
securities and warrants.
The fund offers five classes of shares. Class A shares are subject to an initial
sales charge of up to 5.75% and pay annual service and distribution fees equal
to 0.30% of average daily net assets. Class B(1) shares pay annual service and
distribution fees equal to 1.00% of average daily net assets and 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 B shares are offered only to current shareholders
through reinvestment of dividends and distributions or through exchanges from
existing Class B accounts of State Street Research funds and also automatically
convert to Class A shares at the end of eight years. Class B shares may also be
subject to annual service and distribution fees equal to 1.00% of average daily
net assets. However, these fees are currently waived under the terms of the
distribution plan. Class C shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase. Class
C shares also pay annual service and distribution fees equal to 1.00% of average
daily net assets. Class S shares are only offered through certain retirement
accounts, advisory accounts of State Street Research & Management Company (the
"Adviser"), an investment management subsidiary of MetLife, Inc. ("MetLife"),
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 fund's expenses are borne prorata by each class, except
that each class bears expenses, and has exclusive voting rights with respect to
provisions of the plans of distribution, related specifically to that class. The
Trustees declare separate dividends on each class of shares.
The following significant accounting policies are consistently followed by the
fund in preparing its financial statements, and such policies are in conformity
with accounting principles generally accepted in the United States of America.
A. Investment Valuation
Values for listed equity securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("Nasdaq") system are valued at closing prices
supplied through such system. If not quoted on the Nasdaq system, such
securities are valued at prices obtained from independent brokers. In the
absence of recorded sales, valuations are at the mean of the closing bid and
asked quotations. Short-term securities maturing within sixty days are valued
at amortized cost. Other securities, if any, are valued at their fair value as
determined in good faith under consistently applied procedures established by
and under the supervision of the Trustees. If trading or events occurring in
other markets after the close of the principal market in which foreign
securities are traded, and before the close of business of the fund, are
expected to materially affect the value of these securities, then they are
valued at their fair value taking this trading or these events into account.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
The notes are an integral part of the financial statements.
State Street Research Mid-Cap Growth Fund 9
Notes (continued)
- --------------------------------------------------------------------------------
C. Net Investment Income
Net investment income is determined daily and consists of interest and dividends
accrued and discount earned, less the estimated daily expenses of the fund.
Interest income is accrued daily as earned. Dividend income is accrued on the
ex-dividend date. The fund is charged for expenses directly attributable to it,
while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
annually. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gains distributions are determined in accordance
with federal income tax regulations which may differ from accounting principles
generally accepted in the United States of America. The difference is primarily
due to differing treatments for wash sale deferrals.
E. Federal Income Taxes
No provision for federal income taxes is necessary because the fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
At September 30, 2003, the fund had a capital loss carryforward of $355,799,217
available, to the extent provided in regulations, to offset future capital
gains, if any, of which $21,447,854, 247,124,039, and 87,227,324 expire on
September 30, 2009, 2010 and 2011, respectively.
To the extent book/tax differences are permanent in nature, such amounts are
reclassified within the capital accounts based on federal tax basis treatment.
The fund reclassified for book purposes amounts arising from permanent book/tax
differences primarily relating to litigation settlements. At September 30, 2003,
the components of distributable earnings on a tax basis differ from the amounts
reflected in the Statement of Assets and Liabilities by temporary book/tax
differences largely arising from wash sales and post-October losses. At
September 30, 2003, the tax basis distributable earnings were $0 in
undistributed ordinary income, $0 in undistributed short-term capital gains and
$0 in undistributed long-term gains.
F. Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from these
estimates.
G. Securities Lending
The fund may seek additional income by lending portfolio securities to
qualified institutions. The fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the fund will bear the
loss. At September 30, 2003, the value of the securities loaned and the value
of collateral were $34,371,036 and $35,360,449 (consisting entirely of cash
collateral invested in State Street Navigator Securities Lending Prime
Portfolio), respectively. The collateral was marked to market the next business
day and made equal to at least 100% of the current market value of the loaned
securities and accrued interest. During the year ended September 30, 2003,
income from securities lending amounted to $88,825 and is included in interest
income.
Note 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.75% of the first $500 million
of average net assets, 0.70% of the next $500 million, and 0.65% of any amount
over $1 billion of average net assets. In consideration of these fees, the
Adviser furnishes the fund with management, investment advisory, statistical
and research facilities and services. The Adviser also pays all salaries, rent
and certain other expenses of management. During the year ended September 30,
2003, the fees pursuant to such agreement amounted to $2,400,292.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), provides certain shareholder services to the fund such as
responding to inquiries and instructions from investors with respect to the
purchase and redemption of shares of the fund. In addition, MetLife receives a
fee for maintenance of the accounts of certain shareholders who are participants
in sponsored arrangements, such as employee benefit plans, through or under
which shares of the fund may be purchased. Total shareholder service costs are
allocated to each fund in the same ratios as the transfer agent costs. During
the year ended September 30, 2003, the amount of such expenses allocated to the
fund was $698,086.
The fund has entered into an arrangement with its transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce a portion
of the fund's expense. During the year ended September 30, 2003, the fund's
transfer agent fees were reduced by $16,842 under this arrangement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$24,542 during the year ended September 30, 2003.
The fund has agreed to pay the Adviser for certain administrative costs
incurred in providing other assistance and services to the fund. The fee was
based on a fixed amount that has been allocated equally among the State Street
Research funds. During the year ended September 30, 2003, the amount of such
expenses was $77,616.
Note 3
For the year ended September 30, 2003, purchases and sales of securities,
exclusive of short-term obligations, aggregated $324,364,790, and $355,344,525,
respectively.
Note 4
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the plans, the fund pays annual service
fees to the Distributor at a rate of 0.25% of average daily net assets for Class
A, Class B(1), Class B and Class C shares. In addition, the fund pays annual
distribution fees of 0.05% of average daily net assets for Class A shares. The
fund pays annual distribution fees of 0.75% of average daily net assets for
Class B(1) and Class C shares. Currently, the annual service and distribution
fees paid by Class B shares have been voluntarily waived to 0.00%. The fund
expects this waiver to continue, although there is no guarantee that it will.
The Distributor uses such payments for personal services and/or the maintenance
of shareholder accounts, to reimburse securities dealers for distribution and
marketing services, to furnish ongoing assistance to investors and to defray a
portion of its distribution and marketing expenses. For the year ended September
30, 2003, fees pursuant to such plans amounted to $472,838, $242,238 and
$111,375 for Class A, Class B(1) and Class C shares, respectively. For Class A,
Class B and Class C shares, the payments are intended to reimburse the
distributor for expenditures incurred under the plan, and any unused payments
are returnable to the fund. As of September 30, 2003, there were $2,010,375 and
$1,693,357 for Class A and Class C shares, respectively, of unreimbursed
distribution and shareholder servicing related expenses to be carried forward to
future plan years. For Class B(1) shares, the payments compensate the
distributor for services and expenditures incurred under the plan, and none of
the payments are returnable to the fund.
The fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly-owned subsidiary of MetLife, earned initial sales charges aggregating
$51,162 and $138,463, respectively, on sales of Class A shares of the fund
during the year ended September 30, 2003, and that MetLife Securities, Inc.
earned commissions aggregating $126,661 and $507 on sales of Class B(1) and
Class C shares, and the Distributor collected contingent deferred sales charges
aggregating $52,712, $547 and $216 on redemptions of Class B(1), Class B and
Class C shares, respectively, during the same period.
10
Note 5
PricewaterhouseCoopers LLP resigned as the fund's independent accountants as of
April 25, 2003. The Trustees voted to appoint Deloitte & Touche LLP as the
fund's independent accountants for the fund's fiscal year ended September 30,
2003. During the previous two years, PricewaterhouseCoopers LLP's audit reports
contained no adverse opinion or disclaimer of opinion; nor were its reports
qualified or modified as to uncertainty, audit scope or accounting principle.
Further, in connection with its audits for the two previous fiscal years and
through April 25, 2003, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which if not
resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused it
to make reference to the disagreements in its report on the financial
statements for such years.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest at $0.001 par value per share.
These transactions break down by share class as follows:
Years ended September 30
------------------------------------------------------------
2003 2002*
------------------------------------------------------------
Class A Shares Amount Shares Amount
- -------------------------------------------------------------------------------------
Shares sold 10,362,428 $ 47,693,729 12,872,573 $ 68,780,491
Shares redeemed (12,783,402) (57,272,190) (16,997,725) (89,584,675)
----------- ------------ ----------- ------------
Net decrease (2,420,974) $ (9,578,461) (4,125,152) $(20,804,184)
=========== ============ =========== ============
Class B(1) Shares Amount Shares Amount
- -------------------------------------------------------------------------------------
Shares sold 1,604,810 $ 6,518,156 1,865,430 $ 8,577,447
Shares redeemed (1,808,414) (6,879,464) (1,407,386) (6,207,338)
----------- ------------ ----------- ------------
Net increase (decrease) (203,604) $ (361,308) 458,044 $ 2,370,109
=========== ============ =========== ============
Class B Shares Amount Shares Amount
- -------------------------------------------------------------------------------------
Shares sold 416,179 $ 1,648,440 727,648 $ 3,315,351
Shares redeemed (6,915,765) (27,246,929) (9,900,212) (44,833,459)
----------- ------------ ----------- ------------
Net decrease (6,499,586) $(25,598,489) (9,172,564) $(41,518,108)
=========== ============ =========== ============
Class C Shares Amount Shares Amount
- -------------------------------------------------------------------------------------
Shares sold 316,274 $ 1,309,387 211,840 $ 1,014,532
Shares redeemed (799,177) (3,109,189) (1,064,624) (4,952,964)
----------- ------------ ----------- ------------
Net decrease (482,903) $ (1,799,802) (852,784) $ (3,938,432)
=========== ============ =========== ============
Class S Shares Amount Shares Amount
- -------------------------------------------------------------------------------------
Shares sold 1,519,064 $ 7,703,821 1,361,310 $ 7,769,327
Shares redeemed (2,637,590) (13,500,442) (2,998,486) (17,164,438)
----------- ------------ ----------- ------------
Net decrease (1,118,526) $ (5,796,621) (1,637,176) $ (9,395,111)
=========== ============ =========== ============
* Audited by other auditors
State Street Research Mid-Cap Growth Fund 11
FINANCIAL
Highlights
For a share outstanding throughout each year:
Class A - Years ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(f)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 4.03 5.04 20.10 13.64 11.95
------- ------- ------- ------- -------
Net investment loss ($) (0.06) (0.07) (0.06) (0.15) (0.14)
Net realized and unrealized gain (loss) on investments ($) 1.38 (0.94) (6.47) 7.44 3.15
------- ------- ------- ------- -------
Total from investment operations ($) 1.32 (1.01) (6.53) 7.29 3.01
------- ------- ------- ------- -------
Distributions from capital gains ($) -- -- (8.53) (0.83) (1.32)
------- ------- ------- ------- -------
Total distributions ($) -- -- (8.53) (0.83) (1.32)
------- ------- ------- ------- -------
Net asset value, end of year ($) 5.35 4.03 5.04 20.10 13.64
======= ======= ======= ======= =======
Total return %(b) 32.75 (20.04) (49.83) 54.91 26.75
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 179,519 144,814 201,936 450,521 321,667
Expense ratio (%) 1.75 1.78 1.56 1.38 1.40
Expense ratio after expense reductions (%) 1.74 1.76 1.54 1.37 1.38
Ratio of net investment loss to average net assets (%) (1.36) (1.33) (0.73) (0.85) (1.03)
Portfolio turnover rate (%) 104.91 136.30 123.50 171.87 68.03
Class B(1) - Years ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(c)(f)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 3.47 4.36 18.83 12.90 13.17
------- ------- ------- ------- -------
Net investment loss ($) (0.09) (0.09) (0.09) (0.26) (0.17)
Net realized and unrealized gain (loss) on investments ($) 1.19 (0.80) (5.85) 7.02 (0.10)
------- ------- ------- ------- -------
Total from investment operations ($) 1.10 (0.89) (5.94) 6.76 (0.27)
------- ------- ------- ------- -------
Distributions from capital gains ($) -- -- (8.53) (0.83) --
------- ------- ------- ------- -------
Total distributions ($) -- -- (8.53) (0.83) --
------- ------- ------- ------- -------
Net asset value, end of year ($) 4.57 3.47 4.36 18.83 12.90
======= ======= ======= ======= =======
Total return %(b) 31.70 (20.41) (50.25) 53.90 (2.05)(d)
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 28,518 22,314 26,083 37,063 8,730
Expense ratio (%) 2.45 2.48 2.26 2.11 2.15(e)
Expense ratio after expense reductions (%) 2.44 2.46 2.24 2.10 2.13(e)
Ratio of net investment loss to average net assets (%) (2.17) (2.02) (1.43) (1.52) (1.81)(e)
Portfolio turnover rate (%) 104.91 136.30 123.50 171.87 68.03
Class B - Years ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(f)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 3.48 4.36 18.82 12.90 11.45
------- ------- ------- ------- -------
Net investment loss ($) (0.03) (0.07) (0.10) (0.26) (0.22)
Net realized and unrealized gain (loss) on investments ($) 1.18 (0.81) (5.83) 7.01 2.99
------- ------- ------- ------- -------
Total from investment operations ($) 1.15 (0.88) (5.93) 6.75 2.77
------- ------- ------- ------- -------
Distributions from capital gains ($) -- -- (8.53) (0.83) (1.32)
------- ------- ------- ------- -------
Total distributions ($) -- -- (8.53) (0.83) (1.32)
------- ------- ------- ------- -------
Net asset value, end of year ($) 4.63 3.48 4.36 18.82 12.90
======= ======= ======= ======= =======
Total return %(b) 33.05 (20.18) (50.18) 53.83 25.74
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 95,216 94,029 157,788 411,584 318,695
Expense ratio (%) 1.45 1.88 2.26 2.11 2.15
Expense ratio after expense reductions (%) 1.44 1.86 2.24 2.10 2.13
Ratio of net investment loss to average net assets (%) (0.83) (1.46) (1.44) (1.58) (1.77)
Portfolio turnover rate (%) 104.91 136.30 123.50 171.87 68.03
(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
(f) Audited by other auditors
12
Class C - Years ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(f)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 3.48 4.39 18.87 12.93 11.47
------ ------ ------ ------- ------
Net investment loss ($) (0.08) (0.09) (0.10) (0.27) (0.22)
Net realized and unrealized gain (loss) on investments ($) 1.19 (0.82) (5.85) 7.04 3.00
------ ------ ------ ------- ------
Total from investment operations ($) 1.11 (0.91) (5.95) 6.77 2.78
------ ------ ------ ------- ------
Distributions from capital gains ($) -- -- (8.53) (0.83) (1.32)
------ ------ ------ ------- ------
Total distributions ($) -- -- (8.53) (0.83) (1.32)
------ ------ ------ ------- ------
Net asset value, end of year ($) 4.59 3.48 4.39 18.87 12.93
====== ====== ====== ======= ======
Total return %(b) 31.90 (20.73) (50.15) 53.86 25.77
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 12,044 10,805 17,362 51,721 41,235
Expense ratio (%) 2.45 2.48 2.26 2.11 2.15
Expense ratio after expense reductions (%) 2.44 2.46 2.24 2.10 2.13
Ratio of net investment loss to average net assets (%) (2.00) (2.05) (1.44) (1.58) (1.77)
Portfolio turnover rate (%) 104.91 136.30 123.50 171.87 68.03
Class S - Years ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(f)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 4.26 5.32 20.62 13.94 12.16
------ ------ ------ ------- ------
Net investment loss ($) (0.04) (0.06) (0.04) (0.11) (0.10)
Net realized and unrealized gain (loss) on investments ($) 1.46 (1.00) (6.73) 7.62 3.20
------ ------ ------ ------- ------
Total from investment operations ($) 1.42 (1.06) (6.77) 7.51 3.10
------ ------ ------ ------- ------
Distributions from capital gains ($) -- -- (8.53) (0.83) (1.32)
------ ------ ------ ------- ------
Total distributions ($) -- -- (8.53) (0.83) (1.32)
------ ------ ------ ------- ------
Net asset value, end of year ($) 5.68 4.26 5.32 20.62 13.94
====== ====== ====== ======= ======
Total return %(b) 33.33 (19.92) (49.68) 55.32 27.06
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 34,298 30,497 46,751 121,727 90,751
Expense ratio (%) 1.45 1.48 1.26 1.11 1.15
Expense ratio after expense reductions (%) 1.44 1.46 1.24 1.10 1.13
Ratio of net investment loss to average net assets (%) (0.87) (1.05) (0.43) (0.58) (0.77)
Portfolio turnover rate (%) 104.91 136.30 123.50 171.87 68.03
The notes are an integral part of the financial statements.
State Street Research Mid-Cap Growth Fund 13
INDEPENDENT AUDITORS'
Report
To the Board of Trustees and Shareholders of
State Street Research Mid-Cap Growth Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio holdings, of State Street Research Mid-Cap Growth Fund (the
"Fund"), a series of State Street Research Capital Trust, as of September 30,
2003, and the related statement of operations, the statement of changes in net
assets, and the financial highlights for the year ended September 30, 2003.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended September 30, 2002, and the
financial highlights for each of the years in the four-year period ended
September 30, 2002, were audited by other auditors whose report dated November
8, 2002, expressed an unqualified opinion on such statement and financial
highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of September 30, 2003, and the results of its operations, the changes in
its net assets, and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 31, 2003
14
TRUSTEES AND OFFICERS
State Street Research Capital Trust
Name, Position(s) Term of Office
Address Held with and Length of Principal Occupations
and Age(a) Fund Time Served(b) During Past 5 Years
===================================================================================================
Independent Trustees
Bruce R. Bond Trustee Since Retired; formerly Chairman of the Board, Chief
(57) 1999 Executive Officer and President, PictureTel
Corporation (video conferencing systems)
- ---------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Since Retired; formerly Senior Vice President for
(66) 1997 Finance and Operations and Treasurer, The
Pennsylvania State University
- ---------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Since Retired; formerly Executive Vice President, Chief
(71) 1985 Operating Officer and Director, Hewlett-Packard
Company (computer manufacturer)
- ---------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Since Dean, School of Business and Public Management,
(58) 1998 George Washington University; formerly a member of
the Board of Governors of the Federal Reserve
System; and Chairman and Commissioner of the
Commodity Futures Trading Commission
- ---------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since President, Founders Investments Ltd.
(65) 1995 (investments); formerly President, The Glen Ellen
Company (private investment firm)
- ---------------------------------------------------------------------------------------------------
Michael S. Trustee Since Jay W. Forrester Professor of Management, Sloan
Scott Morton (66) 1987 School of Management, Massachusetts Institute of
Technology
- ---------------------------------------------------------------------------------------------------
James M. Storey Trustee Since Attorney; formerly Partner, Dechert (law firm)
(72) 2002
===================================================================================================
Interested Trustees
Richard S. Davis(+) Trustee Since Chairman of the Board, President and Chief
(58) 2000 Executive Officer of State Street Research &
Management Company; formerly Senior Vice
President, Fixed Income Investments, Metropolitan
Life Insurance Company
===================================================================================================
Officers
John F. Burbank Vice Since Managing Director of State Street Research &
(66) President 2001 Management Company; formerly Senior Vice
President, State Street Research & Management
Company
- ---------------------------------------------------------------------------------------------------
Caroline Evascu Vice Since Vice President of State Street Research &
(28) President 2003 Management Company; formerly Vice President and
senior analyst at SG Cowen Asset Management; and
research associate at Donaldson, Lufkin & Jenrette
- ---------------------------------------------------------------------------------------------------
C. Kim Goodwin Vice Since Managing Director and Chief Investment Officer -
(44) President 2002 Equities of State Street Research & Management
Company; formerly Chief Investment Officer - U.S.
Growth Equities, American Century
- ---------------------------------------------------------------------------------------------------
Paul Haagensen Vice Since Senior Vice President of State Street Research &
(57) President 2003 Management Company; formerly Portfolio Manager and
senior analyst at Putnam Investments
- ---------------------------------------------------------------------------------------------------
Eileen M. Leary Vice Since Senior Vice President of State Street Research &
(41) President 2002 Management Company; formerly Vice President, State
Street Research & Management Company
- ---------------------------------------------------------------------------------------------------
John S. Lombardo Vice Since Managing Director, Chief Financial Officer and
(48) President 2001 Director of State Street Research & Management
Company; formerly Executive Vice President, State
Street Research & Management Company; and Senior
Vice President, Product and Financial Management,
MetLife Auto & Home
- ---------------------------------------------------------------------------------------------------
Andrew Morey Vice Since Senior Vice President of State Street Research &
(34) President 2003 Management Company; formerly Vice President, State
Street Research & Management Company
- ---------------------------------------------------------------------------------------------------
Tucker Walsh Vice Since Managing Director of State Street Research &
(34) President 1999 Management Company; formerly Vice President and
analyst, State Street Research & Management
Company
- ---------------------------------------------------------------------------------------------------
Douglas A. Romich Treasurer Since Senior Vice President and Treasurer of State
(46) 2001 Street Research & Management Company; formerly
Vice President and Assistant Treasurer, State
Street Research & Management Company
- ---------------------------------------------------------------------------------------------------
Francis J. Secretary Since Managing Director, General Counsel and Secretary
McNamara, III (48) 1995 of State Street Research & Management Company;
formerly Executive Vice President, State Street
Research & Management Company
Number of Funds
Name, in Fund Complex Other
Address Overseen by Directorships Held
and Age(a) Trustee/Officer(c) by Trustee/Officer
================================================================================
Independent Trustees 19 Ceridian Corporation
Bruce R. Bond
(57)
- --------------------------------------------------------------------------------
Steve A. Garban 55 Metropolitan Series Fund, Inc.(d)
(66)
- --------------------------------------------------------------------------------
Dean O. Morton 55 The Clorox Company; KLA-Tencor
(71) Corporation; BEA Systems, Inc.;
Cepheid; Pharsight Corporation; and
Metropolitan Series Fund, Inc.(d)
- --------------------------------------------------------------------------------
Susan M. Phillips 19 The Kroger Co.
(58)
- --------------------------------------------------------------------------------
Toby Rosenblatt 55 A.P. Pharma, Inc.; and Metropolitan
(65) Series Fund, Inc.(d)
- --------------------------------------------------------------------------------
Michael S. 55 Metropolitan Series Fund, Inc.(d)
Scott Morton (66)
- --------------------------------------------------------------------------------
James M. Storey 19 SEI Investments Funds (consisting of
(72) 104 portfolios); and The
Massachusetts Health & Education
Tax-Exempt Trust
================================================================================
Interested Trustees
Richard S. Davis(+) 19 None
(58)
================================================================================
Officers
John F. Burbank 3 None
(66)
- --------------------------------------------------------------------------------
Caroline Evascu 3 None
(28)
- --------------------------------------------------------------------------------
C. Kim Goodwin 18 None
(44)
- --------------------------------------------------------------------------------
Paul Haagensen 3 None
(57)
- --------------------------------------------------------------------------------
Eileen M. Leary 3 None
(41)
- --------------------------------------------------------------------------------
John S. Lombardo 19 None
(48)
- --------------------------------------------------------------------------------
Andrew Morey 3 None
(34)
- --------------------------------------------------------------------------------
Tucker Walsh 3 None
(34)
- --------------------------------------------------------------------------------
Douglas A. Romich 19 None
(46)
- --------------------------------------------------------------------------------
Francis J. 19 None
McNamara, III (48)
The fund's Statement of Additional Information includes additional information
about the fund's trustees, and is available without charge, by contacting State
Street Research, One Financial Center, Boston, Massachusetts 02111-2690, or by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637).
(a) The address of each person is c/o State Street Research & Management
Company, One Financial Center, Boston, MA 02111-2690.
(b) A Trustee serves until he or she retires, resigns or is removed as provided
in the master trust agreement of the respective Trust. Each Trust has
adopted a mandatory retirement age of 72. Each officer holds office until he
or she resigns, is removed or a successor is elected.
(c) Includes all series of 9 investment companies for which State Street
Research & Management Company has served as sole investment adviser and all
series of Metropolitan Series Fund, Inc. The primary adviser to Metropolitan
Series Fund, Inc., is MetLife Advisers, LLC, which has retained State Street
Research & Management Company as sub-adviser to certain series of
Metropolitan Series Fund, Inc.
(d) Serves as Director of Metropolitan Series Fund, Inc., an investment company
comprising 36 separate portfolios.
(+) Mr. Davis is an "interested person" of the Trust under the Investment
Company Act of 1940 by reason of his affiliation with the Trust's Investment
Manager, State Street Research & Management Company, as noted.
15
[LOGO] STATE STREET RESEARCH
One Financial Center
Boston, MA 02111-2690
----------------
PRSRT STD
U.S. POSTAGE
PAID
PERMIT #6
HUDSON, MA
----------------
- --------------------------------------------------------------------------------
New accounts, mutual fund purchases, exchanges and account information
Internet www.ssrfunds.com
E-mail info@ssrfunds.com
Phone 1-87-SSR-FUNDS (1-877-773-8637),
toll-free, 7 days a week, 24 hours a day
Hearing-impaired: 1-800-676-7876
Chinese- and Spanish-speaking: 1-888-638-3193
Fax 1-617-737-9722 (request confirmation number
first from the Service Center by calling 1-877-773-8637)
Mail State Street Research Service Center
P.O. Box 8408, Boston, MA 02266-8408
- --------------------------------------------------------------------------------
Did You Know?
State Street Research offers electronic delivery of quarterly statements,
shareholder reports and fund prospectuses. If you elect this option, we will
send these materials to you via e-mail. To learn more, visit us on the Web at
www.ssrfunds.com and click on "Go to Your Account" or call us at 1-87-SSR-FUNDS
(1-877-773-8637).
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.
- --------------------------------------------------------------------------------
OverView
For more information on the products and services we offer, refer to OverView,
our quarterly shareholder newsletter.
Webcasts
For a professional perspective on the markets, the economy and timely investment
topics, tune in to a State Street Research webcast by visiting our website at
www.ssrfunds.com.
Complete Fund Listing
For a list of our funds, visit our website at www.ssrfunds.com under Research
Our Funds.
[GRAPHIC]
for Excellence in Shareholder Communications
[GRAPHIC]
for Excellence in Service
This report must be accompanied or preceded by a current prospectus. When used
as sales material after December 31, 2003, this report must be accompanied by a
current Quarterly Performance Update.
To obtain a prospectus for any State Street Research fund call 1-87-SSR-FUNDS
(1-877-773-8637) or by visiting our website at www.ssrfunds.com. 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 quality shareholder
communications, 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 industrywide.
Member NASD, SIPC
(C)2003 State Street Research Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
www.ssrfunds.com
CONTROL NUMBER:(exp1104)SSR-LD MG-2653-1103
[BACKGROUND GRAPHIC]
[LOGO] STATE STREET RESEARCH
[PHOTO]
Emerging Growth Fund
September 30, 2003
Annual Report to Shareholders
Table of Contents
3 Performance Discussion
6 Portfolio Holdings
8 Financial Statements
12 Financial Highlights
14 Independent Auditors' Report
15 Trustees and Officers
FROM THE CHAIRMAN
State Street Research
Optimism in the Economy
The uncertainty that plagued the markets early in the 12-month period ended
September 30, 2003, and gave way to optimism as economic news brightened. Low
short-term interest rates, a significant income tax cut and higher government
spending worked together to boost economic growth to its highest level in four
years. Housing sales remained strong, although auto sales slipped late in the
period. Corporate profits staged a solid rebound. Employment was the only
holdout, as the jobless rate remained stubbornly high.
A Weak Start, Then Stocks Move Higher
The economy's weak showing held stocks back early in the period as investors
backed away from risk in the buildup to war. However, in the second quarter of
2003 stocks began an impressive rally that continued until the last weeks of the
period. Technology stocks were the strongest performers. Consumer stocks also
gained ground as spending remained strong. In general, small- and mid-cap stocks
outperformed large-caps, and growth stocks significantly outpaced value.
Although all stock market indexes reported solid gains for the period, they were
trimmed somewhat in the final weeks of September after news that consumer
confidence had dropped.
Bonds Retreat in Second Half
As investors began to add risk back into their portfolios, lower-quality
segments of the bond market staged an impressive comeback. High-yield bonds and
emerging market bonds were the period's strongest performers. However, as
interest rates began to climb and as investors moved money into the stock
market, bonds gave back some of their gains in the second half of the period.
Mortgage bonds lagged as mortgage prepayment activity heated up in the spring.
Municipal bonds were hurt by concerns over state budget deficits and revenue
shortfalls.
Looking Ahead
A revival for riskier segments of both the stock and bond markets took many
investors by surprise over the past year. Yet, it provided an excellent reminder
that the best way to take advantage of the market's strongest gains is to own a
diversified portfolio of stocks and bonds. We hope you will take time to talk to
your financial advisor about diversification. And as always, we look forward to
helping you achieve your long-term financial goals with State Street Research
Funds.
Sincerely,
/s/ Richard S. Davis
Richard S. Davis
Chairman
September 30, 2003
- --------------------------------------------------------------------------------
A Special Message on Recent News
Recent articles in the press have highlighted investigations into after-hours
trading and frequent-trading practices in the mutual fund industry. These are
serious matters, and we want to assure you that State Street Research is
committed to maintaining full compliance with all legal requirements and ethical
standards regarding these and other mutual fund trading practices. In fact, our
mutual fund trading processes are designed to prevent these types of activities
from taking place, and we are committed to maintaining their integrity. Our
trade processing procedures carefully track the forward-pricing requirements
contained in federal regulations and in our funds' prospectuses. We closely
monitor trading in our funds and take measures to prevent market timing whenever
it is identified. Furthermore, we do not enter into any special arrangements
that would permit investors to avoid the forward-pricing or market-timing
provisions of our prospectuses.
In recent weeks, we have carefully reviewed our trading policies, procedures and
operations. In addition, our firm recommended early on that the funds' Trustees
engage an independent accounting firm, which has been reviewing trading issues
on behalf of our funds' Audit Committee. While there is always more work that
can be done, I am pleased to report that we believe our processes are working
effectively, based on our preliminary findings. We understand that our
relationship with our shareholders is based on trust, and we are committed to
acting in the best interests of our shareholders at all times.
- --------------------------------------------------------------------------------
2
PERFORMANCE
Discussion as of September 30, 2003
How State Street Research Emerging Growth Fund Performed
State Street Research Emerging Growth Fund returned 33.22% for the 12-month
period ended September 30, 2003.(1) That was below the Russell 2000[RegTM]
Growth Index, which returned 41.72% over the same period.(2) The fund also
underperformed the Lipper Small-Cap Growth Funds Average, which returned 34.03%
over the same period.(3)
Reasons for the Fund's Performance
The fund's strong absolute returns were driven by investments in a broad range
of industries and sectors. However, underweights in the strong-performing
Technology and Health Care sectors, as well as specific disappointments among
our Health Care holdings, accounted for the fund's underperformance compared to
its benchmark. The fund's investments in Consumer Discretionary stocks were a
plus for performance; however, we were overweight in the sector compared to the
index, and that was also a modest drag on the fund's return.
In Health Care, Province Healthcare, Priority Healthcare and CV Therapeutics
were disappointments. We sold our position in Province Healthcare. In Technology
our investment in SanDisk, which makes memory chips for consumer electronics,
made a strong contribution to return. The fund also benefited from owning
International Rectifier, National Semiconductor and Silicon Storage Technology.
In the Consumer Discretionary sector, our investments in online travel,
post-secondary education and gaming stocks provided strong returns. However, our
investments in casual dining restaurants, including The Cheesecake Factory and
O'Charley's, lagged as a slower economy depressed earnings. Cox Radio and Radio
One also detracted from returns.
Looking Ahead
As the year progressed, we became more optimistic about Technology stocks and
added new semiconductor holdings. However, at the period's end we remained
underweight in the sector. Within the Consumer Discretionary sector, we
maintained our exposure to gaming stocks and initiated a position in Mandalay
Bay. However, our stake in consumer-oriented stocks was slightly lower at the
end of the period because we sold or decreased our positions in strong
performers such as Ann Taylor and Michael's. We also reduced our exposure to
restaurant stocks and added Krispy Kreme to the portfolio.
Top 10 Holdings
- --------------------------------------------------------------------------------
Issuer/Security % of fund net assets
1 Alliance Gaming 3.3%
-------------------------------------------------
2 Caremark Rx 2.9%
-------------------------------------------------
3 ESCO Technologies 2.7%
-------------------------------------------------
4 Harman International 2.4%
-------------------------------------------------
5 Autobytel.com 2.4%
-------------------------------------------------
6 Sylvan Learning Systems 2.3%
-------------------------------------------------
7 Aeroflex 2.1%
-------------------------------------------------
8 Coventry Health Care 1.9%
-------------------------------------------------
9 International Rectifier 1.7%
-------------------------------------------------
10 American Medical Systems Holdings 1.6%
-------------------------------------------------
Total 23.3%
Performance: Class A
- --------------------------------------------------------------------------------
Fund average annual total return as of 9/30/03(4,6,7)
(does not reflect sales charge)
Life of Fund
1 Year 5 Years (10/4/93)
33.22% 10.54% 7.34%
- --------------------------------------------------------------------------------
Fund average annual total return as of 9/30/03(4,5,6,7)
(at maximum applicable sales charge)
Life of Fund
1 Year 5 Years (10/4/93)
25.56% 9.24% 6.70%
- --------------------------------------------------------------------------------
Russell 2000 Growth Index as of 9/30/03(2)
Life of Fund
1 Year 5 Years (10/4/93)
41.72% 2.75% 4.46%
- --------------------------------------------------------------------------------
See pages 4 and 5 for additional performance data for Class A shares and for
performance data on other share classes.
Because financial markets and mutual fund strategies are constantly evolving, it
is 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.
(1) Class A shares; does not reflect sales charge.
(2) The Russell 2000 Growth Index contains those stocks within the complete
Russell 2000 Index (a small-company index) that show above-average growth.
The index is unmanaged and does not take transaction charges into
consideration. It is not possible to invest directly in the index.
(3) The Lipper Small-Cap Growth Funds Average shows performance of a category of
mutual funds with similar goals. The Lipper average shows you how well the
fund has done compared with competing funds.
(4) Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain
or loss when you sell your shares. All returns assume reinvestment of
capital gains distributions and income dividends at net asset value. The
returns shown do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
(5) Performance reflects a maximum 5.75% Class A share front-end sales charge.
(6) Performance results for the fund are increased by the voluntary reduction of
fund fees and expenses; without subsidization, performance would have been
lower.
(7) Because the fund invests in emerging growth and special situation companies,
an investment in the fund may involve greater-than-average risk and
above-average price fluctuations. Small-company stocks are more volatile
than large-company stocks. Favorable investments in initial public offerings
("IPOs") have helped produce short-term returns in some periods that are not
typical and may not continue in the future.
State Street Research Emerging Growth Fund 3
PERFORMANCE
Discussion as of September 30, 2003
These two pages focus on the fund's long-term track record. While a mutual
fund's past performance is not a guarantee of future results, long-term returns
can serve as an important context for evaluating recent performance. There are
three ways of measuring long-term performance: cumulative total returns, average
annual total returns and the change in dollar value over time of a given
investment. Information about these measures follows, while the share class
boxes contain the results of these measures for each share class.
Cumulative Total Return
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.
Average Annual Total Return
Represents the rate you would have had to earn during each year of a given time
period in order to end up with the fund's actual cumulative return for those
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
Similar to cumulative total return, but uses dollars rather than percentages,
and assumes that the lump sum you invested was $10,000 (less the applicable
maximum sales charge, if any) and compares fund performance to the performance
of a market index.
- --------------------------------------------------------------------------------
Class A
Life of Fund
1 Year 5 Years (10/4/93)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 33.22% 65.06% 102.95%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 25.56% 55.57% 91.28%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 25.56% 9.24% 6.70%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class A ................. $ 9,425 8,448 9,563 11,182 16,549 11,589 14,961 21,850 15,263 14,358 19,128
Russell 2000 Growth Index $10,000 10,086 12,931 14,562 17,962 13,502 17,908 23,221 13,331 10,910 15,462
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B(1)
Life of Fund
1 Year 5 Years (10/4/93)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 32.25% 59.82% 89.68%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 27.25% 57.82% 89.68%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 27.25% 9.56% 6.61%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class B(1) .............. $10,000 8,921 10,031 11,634 17,090 11,868 15,235 22,095 15,360 14,342 18,968
Russell 2000 Growth Index $10,000 10,086 12,931 14,562 17,962 13,502 17,908 23,221 13,331 10,910 15,462
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
Class B (only available through exchanges from another Class B account)
Life of Fund
1 Year 5 Years (10/4/93)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 32.21% 60.00% 89.89%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 27.21% 58.00% 89.89%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 27.21% 9.58% 6.62%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class B ................. $10,000 8,921 10,031 11,634 17,090 11,868 15,235 22,080 15,363 14,363 18,989
Russell 2000 Growth Index $10,000 10,086 12,931 14,562 17,962 13,502 17,908 23,221 13,331 10,910 15,462
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C
Life of Fund
1 Year 5 Years (10/4/93)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 32.17% 59.93% 90.04%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 31.17% 59.93% 90.04%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 31.17% 9.85% 6.63%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class C ................. $10,000 8,921 10,031 11,623 17,103 11,883 15,235 22,095 15,278 14,378 19,004
Russell 2000 Growth Index $10,000 10,086 12,931 14,562 17,962 13,502 17,908 23,221 13,331 10,910 15,462
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class R
Life of Fund
1 Year 5 Years (10/4/93)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 32.99% 64.77% 102.60%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 32.99% 64.77% 102.60%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 32.99% 10.50% 7.32%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class R ................. $10,000 8,983 10,147 11,864 17,559 12,296 15,873 23,183 16,194 15,234 20,260
Russell 2000 Growth Index $10,000 10,086 12,931 14,562 17,962 13,502 17,908 23,221 13,331 10,910 15,462
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class S
Life of Fund
1 Year 5 Years (10/4/93)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 33.66% 67.78% 109.22%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 33.66% 67.78% 109.22%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 33.66% 10.90% 7.66%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Class S ................. $10,000 9,005 10,230 11,979 17,770 12,470 16,160 23,651 16,620 15,653 20,922
Russell 2000 Growth Index $10,000 10,086 12,931 14,562 17,962 13,502 17,908 23,221 13,331 10,910 15,462
- --------------------------------------------------------------------------------
Keep in mind that past performance is no guarantee of future results. The fund's
share price, yield and return will fluctuate, and you may have a gain or loss
when you sell your shares. All returns assume reinvestment of capital gains
distributions and income dividends at net asset value. Performance reflects a
maximum 5.75% Class A share front-end sales charge, or 5% Class B(1) or Class B
share or 1% Class C share contingent deferred sales charge, where applicable.
Performance for Class B(1) shares reflects Class B share performance through
December 31, 1998, and Class B(1) performance thereafter. Performance for Class
R shares reflects Class A share performance through April 2, 2003, and Class R
share performance thereafter. If the returns for Class B(1) and Class R shares
had reflected their current service/distribution (Rule 12b-1) fees for the
entire period, returns would have been lower. Class R and S shares, offered
without sales charge, are available through certain retirement plans and special
programs. The returns shown do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
Performance results for the fund are increased by the voluntary reduction of
fund fees and expenses; without subsidization, performance would have been
lower. Because the fund invests in emerging growth and special situation
companies, an investment in the fund may involve greater-than-average risk and
above-average price fluctuations. Small-company stocks are more volatile than
large-company stocks. Favorable investments in initial public offerings ("IPOs")
have helped produce short-term returns in some periods that are not typical and
may not continue in the future. The Russell 2000 Growth Index contains those
stocks within the complete Russell 2000[RegTM] Index (a small-company index)
that show above-average growth. The index is unmanaged and does not take
transaction charges into consideration. It is not possible to invest directly in
the index.
State Street Research Emerging Growth Fund 5
PORTFOLIO
Holdings
September 30, 2003
Issuer Shares Value
- --------------------------------------------------------------------------------
Common Stocks 97.9%
Automobiles & Transportation 2.9%
Air Transport 1.1%
JetBlue Airways Corp.* ......................... 32,600 $ 1,987,622
-----------
Automotive Parts 1.0%
Gentex Corp.* .................................. 51,200 1,783,808
-----------
Miscellaneous Transportation 0.8%
Tidewater Inc. ................................. 54,000 1,528,200
-----------
Total Automobiles & Transportation ............................. 5,299,630
-----------
Consumer Discretionary 32.1%
Casinos/Gambling, Hotel/Motel 3.9%
Boyd Gaming Corp. .............................. 135,400 2,066,204
International Game Technology Inc. ............. 68,700 1,933,905
Mandalay Resort Group Inc. ..................... 43,200 1,711,152
Station Casinos Inc. ........................... 42,100 1,288,260
-----------
6,999,521
-----------
Commercial Services 6.6%
Advisory Board Co.* ............................ 41,200 1,872,540
Ask Jeeves Inc.* ............................... 59,200 1,030,080
Autobytel.com Inc.* ............................ 450,642 4,290,112
InterActive Corp.* ............................. 77,852 2,573,008
Kroll Inc.* .................................... 119,800 2,228,280
-----------
11,994,020
-----------
Communications, Media & Entertainment 6.7%
Alliance Gaming Corp.* ......................... 297,800 6,039,384
Entravision Communications Corp.* .............. 240,100 2,280,950
Hollywood Entertainment Corp.* ................. 94,800 1,611,600
Radio One Inc. Cl. D* .......................... 147,700 2,120,972
-----------
12,052,906
-----------
Consumer Electronics 2.4%
Harman International Inc. ...................... 44,400 4,366,740
-----------
Consumer Services 4.2%
Career Education Corp.* ........................ 64,400 2,917,320
Education Management Corp.* .................... 10,400 599,768
Sylvan Learning Systems Inc.* .................. 150,500 4,105,640
-----------
7,622,728
-----------
Household Furnishings 0.7%
Kirklands Inc.* ................................ 81,900 1,312,857
-----------
Leisure Time 1.0%
Penn National Gaming Inc.* ..................... 86,900 1,852,708
-----------
Restaurants 1.7%
The Cheesecake Factory Inc.* ................... 52,300 1,891,691
Krispy Kreme Doughnuts Inc.* ................... 28,200 1,085,700
-----------
2,977,391
-----------
Issuer Shares Value
- --------------------------------------------------------------------------------
Retail 3.3%
Cache Inc.* .................................... 28,800 $ 587,520
Michaels Stores Inc. ........................... 42,500 1,732,300
Pier1 Imports Inc. ............................. 63,800 1,227,512
Priceline.com Inc.* ............................ 63,300 1,835,067
RedEnvelope Inc.* .............................. 35,610 498,540
-----------
5,880,939
-----------
Toys 1.6%
LeapFrog Enterprises Inc.* ..................... 76,100 2,891,800
-----------
Total Consumer Discretionary ................................... 57,951,610
-----------
Financial Services 8.9%
Banks & Savings & Loan 4.4%
East West Bancorp Inc. ......................... 34,500 1,474,875
Greater Bay Bancorp Inc. ....................... 54,100 1,125,280
Hudson River Bancorp Inc. ...................... 7,700 247,401
Independent Bank Corp. ......................... 2,278 58,340
New York Community Bancorp Inc. ................ 75,400 2,375,854
Southwest Bancorp of Texas Inc. ................ 34,600 1,263,246
Texas Capital Bancshares Inc.* ................. 108,900 1,330,758
-----------
7,875,754
-----------
Insurance 1.3%
WellChoice Inc.* ............................... 79,700 2,401,361
-----------
Miscellaneous Financial 0.6%
CapitalSource Inc.* ............................ 58,700 1,027,250
-----------
Securities Brokerage & Services 2.6%
Affiliated Managers Group Inc.* ................ 35,300 2,216,840
Jeffries Group Inc. ............................ 88,600 2,547,250
-----------
4,764,090
-----------
Total Financial Services ....................................... 16,068,455
-----------
Health Care 15.6%
Drugs & Biotechnology 3.9%
Alkermes Inc.* ................................. 108,900 1,494,108
Atrix Laboratories Inc.* ....................... 50,200 1,033,618
CV Therapeutics Inc.* .......................... 60,900 1,339,800
ICOS Corp.* .................................... 51,900 1,988,808
Martek Biosciences Corp.* ...................... 20,900 1,100,803
-----------
6,957,137
-----------
Health Care Services 6.0%
Caremark Rx Inc.* .............................. 233,400 5,274,840
Coventry Health Care Inc.* ..................... 66,300 3,496,662
Molina Healthcare Inc.* ........................ 37,600 1,043,400
Sierra Health Services Inc.* ................... 49,600 1,019,280
-----------
10,834,182
-----------
Hospital Supply 5.7%
American Medical Systems Holdings Inc.* ........ 137,000 2,972,900
Cyberonics Inc.* ............................... 59,800 1,845,428
Respironics Inc.* .............................. 60,400 2,523,512
TheraSense Inc.* ............................... 141,700 1,769,833
Zoll Medical Corp.* ............................ 37,700 1,208,285
-----------
10,319,958
-----------
Total Health Care .............................................. 28,111,277
-----------
6 The notes are an integral part of the financial statements.
Issuer Shares Value
- --------------------------------------------------------------------------------
Other Energy 3.8%
Oil & Gas Producers 1.0%
Newfield Exploration Co.* ........................ 45,700 $ 1,762,649
------------
Oil Well Equipment & Services 2.8%
Grant Prideco Inc.* .............................. 118,000 1,202,420
Key Energy Group Inc.* ........................... 160,100 1,544,965
Patterson UTI Energy Inc.* ....................... 42,900 1,161,303
Varco International Inc.* ........................ 75,000 1,268,250
------------
5,176,938
------------
Total Other Energy ............................................... 6,939,587
------------
Producer Durables 15.2%
Industrial Products 2.9%
Cuno Inc.* ....................................... 13,200 517,309
ESCO Technologies Inc.* .......................... 105,900 4,794,093
------------
5,311,402
------------
Machinery 1.0%
Helix Technology Corp. ........................... 104,100 1,704,117
------------
Production Technology Equipment 7.7%
ATMI Inc.* ....................................... 97,000 2,451,190
August Technology Corp.* ......................... 63,180 899,683
Axcelis Technologies Inc.* ....................... 298,200 2,463,132
Brooks Automation Inc.* .......................... 105,700 2,209,130
LAM Research Corp.* .............................. 67,500 1,495,125
Teradyne Inc.* ................................... 153,200 2,849,520
Varian Semiconductor Equipment Inc.* ............. 38,300 1,434,335
------------
13,802,115
------------
Telecommunications Equipment 3.6%
American Tower Corp.+ ............................ 167,100 1,696,065
Polycom Inc.* .................................... 169,500 2,815,395
SpectraLink Corp.* ............................... 107,800 2,013,704
------------
6,525,164
------------
Total Producer Durables ......................................... 27,342,798
------------
Technology 19.4%
Communications Technology 2.0%
Anaren Inc.* ..................................... 69,400 885,544
Avocent Corp.* ................................... 89,600 2,713,984
------------
3,599,528
------------
Computer Software 6.5%
Autodesk Inc. .................................... 123,400 2,100,268
eCollege Inc.@* .................................. 141,300 2,268,713
Embarcadero Technologies Inc.* ................... 190,800 1,915,632
Kronos Inc.* ..................................... 37,700 1,994,707
Opsware Inc.* .................................... 160,200 1,169,460
SafeNet Inc.* .................................... 61,200 2,211,156
------------
11,659,936
------------
Computer Technology 0.8%
SanDisk Corp.* ................................... 23,100 1,472,394
------------
Electronics 2.8%
Aeroflex Inc.* ................................... 425,600 3,766,560
Kemet Corp.* ..................................... 106,200 1,352,988
------------
5,119,548
------------
Issuer Shares Value
- --------------------------------------------------------------------------------
Electronics: Semiconductors/Components 7.3%
Artisan Components Inc.* ......................... 71,200 $ 1,196,872
ASM International Inc. NV* ....................... 88,300 1,302,425
Cypress Semiconductor Corp.* ..................... 73,700 1,303,016
Integrated Silicon Solution Inc.* ................ 118,600 1,180,070
International Rectifier Corp.* ................... 80,500 3,013,920
O2Micro International Ltd.* ...................... 171,800 2,482,510
Silicon Storage Technology Inc.* ................. 309,300 2,706,375
------------
13,185,188
------------
Total Technology ................................................ 35,036,594
------------
Total Common Stocks (Cost $150,749,444) ......................... 176,749,951
------------
Short-Term Investments 21.1%
State Street Navigator Securities Lending
Prime Portfolio ................................. 37,987,218 37,987,218
------------
Total Short Term Investments (cost 37,987,218) .................. 37,987,218
------------
Maturity Amount of
Issuer Date Principal
- --------------------------------------------------------------------------------
Commercial Paper 1.9%
Morgan Stanley
Dean Witter & Co., 1.04% .............. 10/01/2003 $3,474,000 3,474,000
----------
Total Commercial Paper (cost $3,474,000) ........................... 3,474,000
----------
% of
Net Assets
- --------------------------------------------------------------------------------
Summary of Portfolio Assets
Investments (Cost $192,210,662) ............. 120.9% 218,211,169
Other Assets, Less Liabilities .............. (20.9%) (37,753,134)
----- -------------
Net Assets .................................. 100.0% $ 180,458,035
===== =============
KEY TO SYMBOLS
* Denotes a security which has not paid a dividend during the last year.
@ Security valued under consistently applied procedures established by the
Trustees.
+ Denotes a Rule 144A restricted security, meaning that it trades only among
certain qualified institutional buyers. As of the report date, the fund had
0.94% of net assets in Rule 144A securities.
Federal Income Tax Information
At September 30, 2003, the net unrealized
appreciation of investments based on cost for federal
income tax purposes of $192,979,437 was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $29,636,102
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value (4,404,370)
-----------
$25,231,732
===========
The notes are an integral part of the financial statements.
State Street Research Emerging Growth Fund 7
FINANCIAL
Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
September 30, 2003
Assets
Investments, at value (Cost $192,210,662) (Note 1) .......... $ 218,211,169
Receivable for securities sold .............................. 2,013,396
Receivable for fund shares sold ............................. 2,387,187
Receivable from distributor ................................. 33,300
Divdends receivable ......................................... 7,620
Other assets ................................................ 29,376
-------------
222,682,048
-------------
Liabilities
Payable for collateral received on securities loaned ........ 37,987,218
Payable for securities purchased ............................ 2,668,733
Payable to custodian (Note 1) ............................... 856,794
Payable for fund shares redeemed ............................ 280,468
Accrued management fee ...................................... 116,223
Accrued transfer agent and shareholder services ............. 77,670
Accrued distribution and service fees ....................... 77,489
Accrued administration fee .................................. 22,119
Accrued trustees' fees ...................................... 3,910
Other accrued expenses ...................................... 133,389
-------------
42,224,013
-------------
Net Assets .................................................. $ 180,458,035
=============
Net Assets consist of:
Unrealized appreciation of investments ...................... $ 26,000,507
Accumulated net realized loss ............................... (18,944,416)
Paid-in capital ............................................. 173,401,944
-------------
$ 180,458,035
=============
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Class Net Assets / Number of Shares = NAV
A $117,571,227 10,112,394 $11.63*
B(1) $ 19,797,087 1,864,961 $10.62**
B $ 21,618,467 2,034,040 $10.63**
C $ 13,530,493 1,271,907 $10.64**
R $ 131,768 11,346 $11.61
S $ 7,808,993 645,079 $12.11
* Maximum offering price per share = $12.34 ($11.63 [divided by] 0.9425)
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
Statement of Operations
- --------------------------------------------------------------------------------
For the year ended September 30, 2003
Investment Income
Dividends (Note 1) .......................................... $ 208,199
Interest (Note 1) ........................................... 142,894
------------
351,093
------------
Expenses
Management fee (Note 2) ..................................... 857,754
Transfer agent and shareholder services (Note 2) ............ 549,615
Custodian fee ............................................... 118,430
Administration fee (Note 2) ................................. 89,672
Reports to shareholders ..................................... 2,514
Distribution and service fees - Class A (Note 5) ............ 192,554
Distribution and service fees - Class B(1) (Note 5) ......... 147,892
Distribution and service fees - Class B (Note 5) ............ 204,996
Distribution and service fees - Class C (Note 5) ............ 82,185
Distribution and service fees - Class R (Note 5) ............ 304
Registration fees ........................................... 42,416
Audit fee ................................................... 36,593
Trustees' fees (Note 2) ..................................... 16,865
Legal fees .................................................. 2,308
Miscellaneous ............................................... 11,068
------------
2,355,166
Expenses borne by the distributor (Note 3) .................. (469,197)
Fees paid indirectly (Note 2) ............................... (5,074)
------------
1,880,895
------------
Net investment loss ......................................... (1,529,802)
------------
Realized and Unrealized Gain on
Investments
Net realized gain on investments (Notes 1 and 4) ............ 2,300,598
Change in unrealized appreciation of investments ............ 31,784,757
------------
Net gain on investments ..................................... 34,085,355
------------
Net increase in net assets resulting from operations ........ $ 32,555,553
============
8 The notes are an integral part of the financial statements.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Years ended
September 30
-------------------------------
2003 2002*
-------------------------------
Increase (Decrease) In Net Assets
Operations:
Net investment loss ........................ $ (1,529,802) $ (1,357,076)
Net realized gain (loss) on investments .... 2,300,598 (8,624,322)
Change in unrealized appreciation of
investments ............................. 31,784,757 3,916,599
------------- -------------
Net increase (decrease) resulting from
operations .............................. 32,555,553 (6,064,799)
------------- -------------
Net increase (decrease) from fund
share transactions (Note 7) ............. 58,870,609 (4,847,629)
------------- -------------
Total increase (decrease) in net assets .... 91,426,162 (10,912,428)
Net Assets
Beginning of year .......................... 89,031,873 99,944,301
------------- -------------
End of year ................................ $ 180,458,035 $ 89,031,873
============= =============
* Audited by other auditors
Notes to Financial Statements
- --------------------------------------------------------------------------------
September 30, 2003
Note 1
State Street Research Emerging Growth Fund is a series of State Street Research
Capital Trust (the "Trust"), which was organized as a Massachusetts business
trust in November 1988 registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
The investment objective of the fund is to provide growth of capital. In seeking
to achieve its investment objective, the fund invests primarily in the equity
securities of emerging growth and small capitalization companies.
The fund offers six classes of shares. Class A shares are subject to an initial
sales charge of up to 5.75% and pay annual service and distribution fees equal
to 0.30% of average daily net assets. Class B(1) and Class B shares pay annual
service and distribution fees equal to 1.00% of average daily net assets and
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 B shares are offered only to
current shareholders through reinvestment of dividends and distributions or
through exchanges from existing Class B accounts of State Street Research funds.
Class C shares are subject to a contingent deferred sales charge of 1.00% on any
shares redeemed within one year of their purchase. Class C shares also pay
annual service and distribution fees equal to 1.00% of average daily net assets.
Class R shares are offered to retirement plans participating in certain
platforms sponsored by broker-dealers which may involve multiple fund families.
Class R shares pay a service and distribution fee of 0.50%. No sales charge is
imposed at the time of purchase or redemption of Class R shares. Class S shares
are only offered through certain retirement accounts, advisory accounts of State
Street Research & Management Company (the "Adviser"), an investment management
subsidiary of MetLife, Inc. ("MetLife"), 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 fund's expenses are
borne prorata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the plans of distribution,
related specifically to that class. The Trustees declare separate dividends on
each class of shares.
The following significant accounting policies are consistently followed by the
fund in preparing its financial statements, and such policies are in conformity
with accounting principles generally accepted in the United States of America.
A. Investment Valuation
Values for listed equity securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("Nasdaq") system are valued at closing prices
supplied through such system. If not quoted on the Nasdaq system, such
securities are valued at prices obtained from independent brokers. In the
absence of recorded sales, valuations are at the mean of the closing bid and
asked quotations. Short-term securities maturing within sixty days are valued
at amortized cost. Other securities, if any, are valued at their fair value as
determined in good faith under consistently applied procedures established by
and under the supervision of the Trustees. If trading or events occurring in
other markets after the close of the principal market in which foreign
securities are traded, and before the close of business of the fund, are
expected to materially affect the value of these securities, then they are
valued at their fair value taking this trading or these events into account.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
The notes are an integral part of the financial statements.
State Street Research Emerging Growth Fund 9
Notes (continued)
- --------------------------------------------------------------------------------
As part of the custodian contract between the custodian bank and the fund, the
custodian bank has a lien on the securities of the fund to the extent permitted
by the fund's investment restriction to cover any advances made by the
custodian bank for the settlement of securities purchased by the fund. At
September 30, 2003, the payable to the custodian bank of $856,794 represents
the amount due for cash advance for the settlement of a security purchased.
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of the
fund. Interest income is accrued daily as earned. Dividend income is accrued on
the ex-dividend date. The fund is charged for expenses directly attributable to
it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
annually. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gains distributions are determined in accordance
with federal income tax regulations which may differ from accounting principles
generally accepted in the United States of America. The difference is primarily
due to differing treatments for wash sale deferrals.
E. Federal Income Taxes
No provision for federal income taxes is necessary because the fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
At September 30, 2003, the fund had a capital loss carryforward of $16,878,454
available, to the extent provided in regulations, to offset future capital
gains, if any, of which, $3,427,141, $13,297,422, and $153,891 expire on
September 30, 2009, 2010, 2011, respectively.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 2001,
through September 30, 2002, the fund incurred net capital losses of
approximately $3,622,000 and has deferred and treated such losses as arising in
the fiscal year ended September 30, 2003. From November 1, 2002, through
September 30, 2003, the fund incurred net capital losses of approximately
$1,297,187 and intends to defer and treat such losses as arising in the fiscal
year ended September 30, 2004.
To the extent book/tax differences are permanent in nature, such amounts are
reclassified within the capital accounts based on federal tax basis treatment.
The fund reclassified for book purposes amounts arising from permanent book/tax
differences primarily relating to litigation settlements. At September 30,
2003, the components of distributable earnings on a tax basis differ from the
amounts reflected in the Statement of Assets and Liabilities by temporary
book/tax differences largely arising from wash sales and post-October losses.
At September 30, 2003, the tax basis distributable earnings were $0 in
undistributed ordinary income, $0 in undistributed short-term capital gains and
$0 in undistributed long-term gains.
F. Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from these
estimates.
G. Securities Lending
The fund may seek additional income by lending portfolio securities to
qualified institutions. The fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the fund will bear the
loss. At September 30, 2003, the value of the securities loaned and the value
of collateral were $36,858,399 and $37,987,218 (consisting entirely of cash
collateral invested in State Street Navigator Securities Lending Prime
Portfolio), respectively. The collateral was marked to market the next business
day and made equal to at least 100% of the current market value of the loaned
securities and accrued interest. During the year ended September 30, 2003,
income from securities lending amounted to $52,370 and is included in interest
income.
Note 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.75% of the fund's average net
assets. In consideration of these fees, the Adviser furnishes the fund with
management, investment advisory, statistical and research facilities and
services. The Adviser also pays all salaries, rent and certain other expenses
of management. During the year ended September 30, 2003, the fees pursuant to
such agreement amounted to $857,754.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), provides certain shareholder services to the fund such as
responding to inquiries and instructions from investors with respect to the
purchase and redemption of shares of the fund. In addition, MetLife receives a
fee for maintenance of the accounts of certain shareholders who are
participants in sponsored arrangements, such as employee benefit plans, through
or under which shares of the fund may be purchased. Total shareholder service
costs are allocated to each fund in the same ratios as the transfer agent
costs. During the year ended September 30, 2003, the amount of such expenses
allocated to the fund was $237,336.
The fund has entered into an arrangement with its transfer agent whereby
credits realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expense. During the year ended September 30, 2003, the
fund's transfer agent fees were reduced by $5,074 under this arrangement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$16,865 during the year ended September 30, 2003.
The fund has agreed to pay the Adviser for certain administrative costs
incurred in providing other assistance and services to the fund. The fee was
based on a fixed amount that has been allocated equally among the State Street
Research funds. During the year ended September 30, 2003, the amount of such
expenses was $89,672.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the fund.
During the year ended September 30, 2003, the amount of such expenses assumed
by the Distributor and its affiliates was $469,197.
Note 4
For the year ended September 30, 2003, purchases and sales of securities,
exclusive of short-term obligations, aggregated $241,328,767, and $182,749,099,
respectively.
Note 5
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the plans, the fund pays annual service
fees to the Distributor at a rate of 0.25% of average daily net assets for
Class A, Class B(1), Class B, Class C and Class R shares. In addition, the fund
pays annual distribution fees of 0.05% of average daily net assets for Class A
shares. The fund pays annual distribution fees of 0.75% of average daily net
assets for Class B(1), Class B and Class C shares and 0.25% of average net
assets for Class R shares. The Distributor uses such payments for personal
services and/or the maintenance of shareholder accounts, to reimburse
securities dealers for distribution and marketing services, to furnish ongoing
assistance to investors and to defray a portion of its distribution and
marketing expenses. For the year ended September 30, 2003,
10
fees pursuant to such plans amounted to $192,554, $147,892, $204,996, $82,185
and $304 for Class A, Class B(1), Class B, Class C and Class R shares,
respectively. For Class A, Class B and Class C shares, the payments are
intended to reimburse the distributor for expenditures incurred under the plan,
and any unused payments are returnable to the fund. As of September 30, 2003,
there were $1,310,716, $95,084 and $1,216,822 for Class A, B and Class C
shares, respectively, of unreimbursed distribution and shareholder servicing
related expenses to be carried forward to future plan years. For Class B(1) and
R shares, the payments compensate the distributor for services and expenditures
incurred under the plan, and none of the payments are returnable to the fund.
The fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly-owned subsidiary of MetLife, earned initial sales charges aggregating
$32,907 and $47,192, respectively, on sales of Class A shares of the fund
during the year ended September 30, 2003, and that MetLife Securities, Inc.
earned commissions aggregating $57,791 and $524 on sales of Class B(1) and
Class C shares, and the Distributor collected contingent deferred sales charges
aggregating $33,772, $6,796 and $1,127 on redemptions of Class B(1), Class B
and Class C shares, respectively, during the same period.
Note 6
PricewaterhouseCoopers LLP resigned as the fund's independent accountants as of
April 25, 2003. The Trustees voted to appoint Deloitte & Touche LLP as the
fund's independent accountants for the fund's fiscal year ended September 30,
2003. During the previous two years, PricewaterhouseCoopers LLP's audit reports
contained no adverse opinion or disclaimer of opinion; nor were its reports
qualified or modified as to uncertainty, audit scope or accounting principle.
Further, in connection with its audits for the two previous fiscal years and
through April 25, 2003, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which if not
resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused it
to make reference to the disagreements in its report on the financial
statements for such years.
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest at $0.001 par value per share. At September 30, 2003, the
Adviser held 11,338 Class R shares.
These transactions break down by share class as follows:
Years ended September 30
-------------------------------------------------------
2003 2002*
-------------------------------------------------------
Class A Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........... 12,559,523 $126,927,170 5,930,783 $ 61,427,485
Shares redeemed ....... (7,197,443) (69,515,792) (5,445,382) (55,869,175)
---------- ------------ ---------- ------------
Net increase .......... 5,362,080 $ 57,411,378 485,401 $ 5,558,310
========== ============ ========== ============
Class B(1) Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........... 683,689 $ 6,402,427 478,669 $ 4,634,686
Shares redeemed ....... (473,546) (4,009,539) (307,186) (2,857,508)
---------- ------------ ---------- ------------
Net increase .......... 210,143 $ 2,392,888 171,483 $ 1,777,178
========== ============ ========== ============
Class B Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........... 93,323 $ 904,460 127,430 $ 1,258,103
Shares redeemed ....... (848,937) (7,249,730) (1,588,051) (15,195,467)
---------- ------------ ---------- ------------
Net decrease .......... (755,614) $ (6,345,270) (1,460,621) $(13,937,364)
========== ============ ========== ============
Class C Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........... 761,479 $ 7,223,469 321,730 $ 3,179,152
Shares redeemed ....... (209,540) (1,831,112) (221,312) (2,114,963)
---------- ------------ ---------- ------------
Net increase .......... 551,939 $ 5,392,357 100,418 $ 1,064,189
========== ============ ========== ============
Class R Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........... 11,346 $ 100,075 -- $ --
---------- ------------ ---------- ------------
Net increase .......... 11,346 $ 100,075 -- $ --
========== ============ ========== ============
Class S Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares sold ........... 497,551 $ 5,435,719 527,195 $ 5,731,904
Shares redeemed ....... (520,322) (5,516,538) (463,656) (5,041,846)
---------- ------------ ---------- ------------
Net increase (decrease) (22,771) $ (80,819) 63,539 $ 690,058
========== ============ ========== ============
* Audited by other auditors
State Street Research Emerging Growth Fund 11
FINANCIAL
Highlights
For a share outstanding throughout each year:
Class A - Years Ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) 1999(a)(g)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 8.73 9.27 16.08 11.01 8.86
------- ------ ------ ------ ------
Net investment loss ($)* (0.11) (0.09) (0.08) (0.14) (0.08)
Net realized and unrealized gain (loss) on investments 3.01 (0.45) (4.45) 5.21 2.60
------- ------ ------ ------ ------
Total from investment operations ($) 2.90 (0.54) (4.53) 5.07 2.52
------- ------ ------ ------ ------
Distributions from capital gains ($) -- -- (2.28) -- (0.37
------- ------ ------ ------ ------
Total distributions ($) -- -- (2.28) -- (0.37
------- ------ ------ ------ ------
Net asset value, end of year ($) 11.63 8.73 9.27 16.08 11.01
======= ====== ====== ====== ======
Total return (%)(b) 33.22 (5.93) (30.22) 46.05 29.10
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 117,571 41,474 39,522 53,600 31,384
Expense ratio (%)* 1.40 1.42 1.44 1.38 1.37
Expense ratio after expense reductions (%)* 1.40 1.40 1.40 1.37 1.35
Ratio of net investment loss to average net assets (%)* (1.10) (0.90) (0.69) (0.90) (0.75)
Portfolio turnover rate (%) 166.71 167.69 281.64 218.99 93.38
*Reflects voluntary reduction of expenses of these amounts (%) 0.38 0.56 0.63 0.22 0.50
Class B(1) - Years Ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) 1999(a)(e)(g)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 8.03 8.60 15.17 10.46 10.22)
------ ------ ------ ------ -----
Net investment loss ($)* (0.16) (0.15) (0.15) (0.24) (0.12)
Net realized and unrealized gain (loss) on investments ($) 2.75 (0.42) (4.14) 4.95 0.36
------ ------ ------ ------ -----
Total from investment operations ($) 2.59 (0.57) (4.29) 4.71 0.24
------ ------ ------ ------ -----
Distributions from capital gains ($) -- -- (2.28) -- --
------ ------ ------ ------ -----
Total distributions ($) -- -- (2.28) -- --
------ ------ ------ ------ -----
Net asset value, end of year ($) 10.62 8.03 8.60 15.17 10.46
====== ====== ====== ====== =====
Total return (%)(b) 32.25 (6.63) (30.48) 45.03 2.35(c)
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 19,797 13,288 12,749 16,554 3,767
Expense ratio (%)* 2.10 2.12 2.14 2.11 2.12(d)
Expense ratio after expense reductions (%)* 2.10 2.10 2.10 2.10 2.10(d)
Ratio of net investment loss to average net assets (%)* (1.78) (1.60) (1.39) (1.59) (1.59)(d)
Portfolio turnover rate (%) 166.71 167.69 281.64) 218.99 93.38
*Reflects voluntary reduction of expenses of these amounts (%) 0.44 0.56 0.63 0.22 0.50(d)
Class B - Years Ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) 1999(a)(g)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 8.04) 8.60 15.16 10.46 8.48
------ ------ ------ ------ ------
Net investment loss ($)* (0.16) (0.16) (0.15) (0.24) (0.15)
Net realized and unrealized gain (loss) on investments ($) 2.75 (0.40) (4.13) 4.94 2.50
------ ------ ------ ------ ------
Total from investment operations ($) 2.59 (0.56) (4.28) 4.70 2.35
------ ------ ------ ------ ------
Distributions from capital gains ($) -- -- (2.28) -- (0.37)
------ ------ ------ ------ ------
Total distributions ($) -- -- (2.28) -- (0.37)
------ ------ ------ ------ ------
Net asset value, end of year ($) 10.63 8.04 8.60 15.16 10.46
====== ====== ====== ====== ======
Total return (%)(b) 32.21 (6.51) (30.42) 44.93 28.37
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 21,618 22,422 36,531 65,496 44,377
Expense ratio (%)* 2.10 2.12 2.14 2.11 2.12
Expense ratio after expense reductions (%)* 2.10 2.10 2.10 2.10 2.10
Ratio of net investment loss to average net assets (%)* (1.77) (1.61 (1.39) (1.64) (1.50)
Portfolio turnover rate (%) 166.71 167.69) 281.64 218.99 93.38
*Reflects voluntary reduction of expenses of these amounts (%) 0.47 0.58 0.63 0.22 0.50
12
Class C - Years Ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) 1999(a)(g)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 8.05 8.61 15.17 10.46 8.49
------ ------ ------ ------ -----
Net investment loss ($)* (0.16) (0.15) (0.15) (0.24) (0.15)
Net realized and unrealized gain (loss) on investments ($) 2.75 (0.41) (4.13) 4.95 2.49
------ ------ ------ ------ -----
Total from investment operations ($) 2.59 (0.56) (4.28) 4.71 2.34
------ ------ ------ ------ -----
Distributions from capital gains ($) -- -- (2.28) -- (0.37)
------ ------ ------ ------ -----
Total distributions ($) -- -- (2.28) -- (0.37)
------ ------ ------ ------ -----
Net asset value, end of year ($) 10.64 8.05 8.61 15.17 10.46
====== ====== ====== ====== =====
Total return (%)(b) 32.17 (6.50) (30.40) 45.03 28.21
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 13,530 5,794 5,332 9,082 6,545
Expense ratio (%)* 2.10 2.12 2.14 2.11 2.12
Expense ratio after expense reductions (%)* 2.10 2.10 2.10 2.10 2.10
Ratio of net investment loss to average net assets (%)* (1.79) (1.60) (1.39) (1.63) (1.50)
Portfolio turnover rate (%) 166.71 167.69 281.64 218.99 93.38
*Reflects voluntary reduction of expenses of these amounts (%) 0.41 0.56 0.63 0.22 0.50
Class R
----------
2003(a)(f)
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 8.82
------
Net investment loss ($)* (0.07)
Net realized and unrealized gain on investments ($) 2.86
------
Total from investment operations ($) 2.79
------
Net asset value, end of period ($) 11.61
======
Total return (%)(b) 31.63(c)
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 132
Expense ratio (%)* 1.60(d)
Expense ratio after expense reductions (%)* 1.60(d)
Ratio of net investment loss to average net assets (%)* (1.34)(d)
Portfolio turnover rate (%) 166.71
*Reflects voluntary reduction of expenses of these amounts (%) 0.24(d)
Class S - Years Ended September 30
-----------------------------------------------------------
2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) 1999(a)(g)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 9.06 9.62 16.48 11.26 9.02
------ ------ ------ ------ -----
Net investment loss ($)* (0.08) (0.06) (0.04) (0.10) (0.05)
Net realized and unrealized gain (loss) on investments ($) 3.13 (0.50) (4.54) 5.32 2.66
------ ------ ------ ------ -----
Total from investment operations ($) 3.05 (0.56) (4.58) 5.22 2.61
------ ------ ------ ------ -----
Distributions from capital gains ($) -- -- (2.28) -- (0.37)
------ ------ ------ ------ -----
Total distributions ($) -- -- (2.28) -- (0.37)
------ ------ ------ ------ -----
Net asset value, end of year ($) 12.11 9.06 9.62 16.48 11.26
====== ====== ====== ====== =====
Total return (%)(b) 33.66 (5.82) 29.73 46.36 29.59
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 7,809 6,054 5,810 8,744 6,432
Expense ratio (%)* 1.10 1.12 1.14 1.11 1.12
Expense ratio after expense reductions (%)* 1.10 1.10 1.10 1.10 1.10
Ratio of net investment loss to average net assets (%)* (0.78) (0.60) (0.39) (0.64) (0.51)
Portfolio turnover rate (%) 166.71 167.69 281.64 218.99 93.38
*Reflects voluntary reduction of expenses of these amounts (%) 0.45 0.57 0.63 0.22 0.50
(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
voluntarliy assumed a portion of the fund's expenses.
(c) Not annualized
(d) Annualized
(e) January 1, 1999 (commencement of share class) to March 31, 1999
(f) April 3, 2003 (commencement of share class) to September 30, 2003
(g) Audited by other auditors
State Street Research Emerging Growth Fund 13
INDEPENDENT AUDITORS'
Report
To the Board of Trustees and Shareholders
of State Street Research Emerging Growth Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio holdings, of State Street Research Emerging Growth Fund (the
"Fund"), a series of State Street Research Capital Trust, as of September 30,
2003, and the related statement of operations, the statement of changes in net
assets, and the financial highlights for the year ended September 30, 2003.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended September 30, 2002, and the
financial highlights for each of the years in the four-year period ended
September 30, 2002, were audited by other auditors whose report dated November
8, 2002, expressed an unqualified opinion on such statement and financial
highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of September 30, 2003, and the results of its operations, the changes in
its net assets, and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 31, 2003
14
TRUSTEES AND OFFICERS
State Street Research Capital Trust
Name, Position(s) Term of Office
Address Held with and Length of Principal Occupations
and Age(a) Fund Time Served(b) During Past 5 Years
===================================================================================================
Independent Trustees
Bruce R. Bond Trustee Since Retired; formerly Chairman of the Board, Chief
(57) 1999 Executive Officer and President, PictureTel
Corporation (video conferencing systems)
- ---------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Since Retired; formerly Senior Vice President for
(66) 1997 Finance and Operations and Treasurer, The
Pennsylvania State University
- ---------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Since Retired; formerly Executive Vice President, Chief
(71) 1985 Operating Officer and Director, Hewlett-Packard
Company (computer manufacturer)
- ---------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Since Dean, School of Business and Public Management,
(58) 1998 George Washington University; formerly a member of
the Board of Governors of the Federal Reserve
System; and Chairman and Commissioner of the
Commodity Futures Trading Commission
- ---------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since President, Founders Investments Ltd.
(65) 1995 (investments); formerly President, The Glen Ellen
Company (private investment firm)
- ---------------------------------------------------------------------------------------------------
Michael S. Trustee Since Jay W. Forrester Professor of Management, Sloan
Scott Morton (66) 1987 School of Management, Massachusetts Institute of
Technology
- ---------------------------------------------------------------------------------------------------
James M. Storey Trustee Since Attorney; formerly Partner, Dechert (law firm)
(72) 2002
===================================================================================================
Interested Trustees
Richard S. Davis(+) Trustee Since Chairman of the Board, President and Chief
(58) 2000 Executive Officer of State Street Research &
Management Company; formerly Senior Vice
President, Fixed Income Investments, Metropolitan
Life Insurance Company
===================================================================================================
Officers
John F. Burbank Vice Since Managing Director of State Street Research &
(66) President 2001 Management Company; formerly Senior Vice
President, State Street Research & Management
Company
- ---------------------------------------------------------------------------------------------------
Caroline Evascu Vice Since Vice President of State Street Research &
(28) President 2003 Management Company; formerly Vice President and
senior analyst at SG Cowen Asset Management; and
research associate at Donaldson, Lufkin & Jenrette
- ---------------------------------------------------------------------------------------------------
C. Kim Goodwin Vice Since Managing Director and Chief Investment Officer -
(44) President 2002 Equities of State Street Research & Management
Company; formerly Chief Investment Officer - U.S.
Growth Equities, American Century
- ---------------------------------------------------------------------------------------------------
Paul Haagensen Vice Since Senior Vice President of State Street Research &
(57) President 2003 Management Company; formerly Portfolio Manager and
senior analyst at Putnam Investments
- ---------------------------------------------------------------------------------------------------
Eileen M. Leary Vice Since Senior Vice President of State Street Research &
(41) President 2002 Management Company; formerly Vice President, State
Street Research & Management Company
- ---------------------------------------------------------------------------------------------------
John S. Lombardo Vice Since Managing Director, Chief Financial Officer and
(48) President 2001 Director of State Street Research & Management
Company; formerly Executive Vice President, State
Street Research & Management Company; and Senior
Vice President, Product and Financial Management,
MetLife Auto & Home
- ---------------------------------------------------------------------------------------------------
Andrew Morey Vice Since Senior Vice President of State Street Research &
(34) President 2003 Management Company; formerly Vice President, State
Street Research & Management Company
- ---------------------------------------------------------------------------------------------------
Tucker Walsh Vice Since Managing Director of State Street Research &
(34) President 1999 Management Company; formerly Vice President and
analyst, State Street Research & Management
Company
- ---------------------------------------------------------------------------------------------------
Douglas A. Romich Treasurer Since Senior Vice President and Treasurer of State
(46) 2001 Street Research & Management Company; formerly
Vice President and Assistant Treasurer, State
Street Research & Management Company
- ---------------------------------------------------------------------------------------------------
Francis J. Secretary Since Managing Director, General Counsel and Secretary
McNamara, III (48) 1995 of State Street Research & Management Company;
formerly Executive Vice President, State Street
Research & Management Company
Number of Funds
Name, in Fund Complex Other
Address Overseen by Directorships Held
and Age(a) Trustee/Officer(c) by Trustee/Officer
================================================================================
Independent Trustees 19 Ceridian Corporation
Bruce R. Bond
(57)
- --------------------------------------------------------------------------------
Steve A. Garban 55 Metropolitan Series Fund, Inc.(d)
(66)
- --------------------------------------------------------------------------------
Dean O. Morton 55 The Clorox Company; KLA-Tencor
(71) Corporation; BEA Systems, Inc.;
Cepheid; Pharsight Corporation; and
Metropolitan Series Fund, Inc.(d)
- --------------------------------------------------------------------------------
Susan M. Phillips 19 The Kroger Co.
(58)
- --------------------------------------------------------------------------------
Toby Rosenblatt 55 A.P. Pharma, Inc.; and Metropolitan
(65) Series Fund, Inc.(d)
- --------------------------------------------------------------------------------
Michael S. 55 Metropolitan Series Fund, Inc.(d)
Scott Morton (66)
- --------------------------------------------------------------------------------
James M. Storey 19 SEI Investments Funds (consisting of
(72) 104 portfolios); and The
Massachusetts Health & Education
Tax-Exempt Trust
================================================================================
Interested Trustees
Richard S. Davis(+) 19 None
(58)
================================================================================
Officers
John F. Burbank 3 None
(66)
- --------------------------------------------------------------------------------
Caroline Evascu 3 None
(28)
- --------------------------------------------------------------------------------
C. Kim Goodwin 18 None
(44)
- --------------------------------------------------------------------------------
Paul Haagensen 3 None
(57)
- --------------------------------------------------------------------------------
Eileen M. Leary 3 None
(41)
- --------------------------------------------------------------------------------
John S. Lombardo 19 None
(48)
- --------------------------------------------------------------------------------
Andrew Morey 3 None
(34)
- --------------------------------------------------------------------------------
Tucker Walsh 3 None
(34)
- --------------------------------------------------------------------------------
Douglas A. Romich 19 None
(46)
- --------------------------------------------------------------------------------
Francis J. 19 None
McNamara, III (48)
The fund's Statement of Additional Information includes additional information
about the fund's trustees, and is available without charge, by contacting State
Street Research, One Financial Center, Boston, Massachusetts 02111-2690, or by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637).
(a) The address of each person is c/o State Street Research & Management
Company, One Financial Center, Boston, MA 02111-2690.
(b) A Trustee serves until he or she retires, resigns or is removed as provided
in the master trust agreement of the respective Trust. Each Trust has
adopted a mandatory retirement age of 72. Each officer holds office until he
or she resigns, is removed or a successor is elected.
(c) Includes all series of 9 investment companies for which State Street
Research & Management Company has served as sole investment adviser and all
series of Metropolitan Series Fund, Inc. The primary adviser to Metropolitan
Series Fund, Inc., is MetLife Advisers, LLC, which has retained State Street
Research & Management Company as sub-adviser to certain series of
Metropolitan Series Fund, Inc.
(d) Serves as Director of Metropolitan Series Fund, Inc., an investment company
comprising 36 separate portfolios.
(+) Mr. Davis is an "interested person" of the Trust under the Investment
Company Act of 1940 by reason of his affiliation with the Trust's Investment
Manager, State Street Research & Management Company, as noted.
15
[LOGO] STATE STREET RESEARCH
One Financial Center
Boston, MA 02111-2690
----------------
PRSRT STD
U.S. POSTAGE
PAID
PERMIT #6
HUDSON, MA
----------------
- --------------------------------------------------------------------------------
New accounts, mutual fund purchases, exchanges and account information
Internet www.ssrfunds.com
E-mail info@ssrfunds.com
Phone 1-87-SSR-FUNDS (1-877-773-8637),
toll-free, 7 days a week, 24 hours a day
Hearing-impaired: 1-800-676-7876
Chinese- and Spanish-speaking: 1-888-638-3193
Fax 1-617-737-9722 (request confirmation number
first from the Service Center by calling 1-877-773-8637)
Mail State Street Research Service Center
P.O. Box 8408, Boston, MA 02266-8408
- --------------------------------------------------------------------------------
Did You Know?
State Street Research offers electronic delivery of quarterly statements,
shareholder reports and fund prospectuses. If you elect this option, we will
send these materials to you via e-mail. To learn more, visit us on the Web at
www.ssrfunds.com and click on "Go to Your Account" or call us at 1-87-SSR-FUNDS
(1-877-773-8637).
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.
- --------------------------------------------------------------------------------
OverView
For more information on the products and services we offer, refer to OverView,
our quarterly shareholder newsletter.
Webcasts
For a professional perspective on the markets, the economy and timely investment
topics, tune in to a State Street Research webcast by visiting our website at
www.ssrfunds.com.
Complete Fund Listing
For a list of our funds, visit our website at www.ssrfunds.com under Research
Our Funds.
[GRAPHIC]
for Excellence in Shareholder Communications
[GRAPHIC]
for Excellence in Service
This report must be accompanied or preceded by a current prospectus. When used
as sales material after December 31, 2003, this report must be accompanied by a
current Quarterly Performance Update.
To obtain a prospectus for any State Street Research fund call 1-87-SSR-FUNDS
(1-877-773-8637) or by visiting our website at www.ssrfunds.com. 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 quality shareholder
communications, 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 industrywide.
Member NASD, SIPC
(C)2003 State Street Research Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
www.ssrfunds.com
CONTROL NUMBER:(exp1104)SSR-LD
EM-2656-1103
[BACKGROUND GRAPHIC]
[LOGO] STATE STREET RESEARCH
[PHOTO]
Aurora Fund
September 30, 2003
Annual Report to Shareholders
Table of Contents
3 Performance Discussion
6 Portfolio Holdings
10 Financial Statements
14 Financial Highlights
16 Independent Auditors' Report
17 Trustees and Officers
FROM THE CHAIRMAN
State Street Research
Optimism in the Economy
The uncertainty that plagued the markets early in the 12-month period ended
September 30, 2003, and gave way to optimism as economic news brightened. Low
short-term interest rates, a significant income tax cut and higher government
spending worked together to boost economic growth to its highest level in four
years. Housing sales remained strong, although auto sales slipped late in the
period. Corporate profits staged a solid rebound. Employment was the only
holdout, as the jobless rate remained stubbornly high.
A Weak Start, Then Stocks Move Higher
The economy's weak showing held stocks back early in the period as investors
backed away from risk in the buildup to war. However, in the second quarter of
2003 stocks began an impressive rally that continued until the last weeks of the
period. Technology stocks were the strongest performers. Consumer stocks also
gained ground as spending remained strong. In general, small- and mid-cap stocks
outperformed large-caps, and growth stocks significantly outpaced value.
Although all stock market indexes reported solid gains for the period, they were
trimmed somewhat in the final weeks of September after news that consumer
confidence had dropped.
Bonds Retreat in Second Half
As investors began to add risk back into their portfolios, lower-quality
segments of the bond market staged an impressive comeback. High-yield bonds and
emerging market bonds were the period's strongest performers. However, as
interest rates began to climb and as investors moved money into the stock
market, bonds gave back some of their gains in the second half of the period.
Mortgage bonds lagged as mortgage prepayment activity heated up in the spring.
Municipal bonds were hurt by concerns over state budget deficits and revenue
shortfalls.
Looking Ahead
A revival for riskier segments of both the stock and bond markets took many
investors by surprise over the past year. Yet, it provided an excellent reminder
that the best way to take advantage of the market's strongest gains is to own a
diversified portfolio of stocks and bonds. We hope you will take time to talk to
your financial advisor about diversification. And as always, we look forward to
helping you achieve your long-term financial goals with State Street Research
Funds.
Sincerely,
/s/ Richard S. Davis
Richard S. Davis
Chairman
September 30, 2003
- --------------------------------------------------------------------------------
A Special Message on Recent News
Recent articles in the press have highlighted investigations into after-hours
trading and frequent-trading practices in the mutual fund industry. These are
serious matters, and we want to assure you that State Street Research is
committed to maintaining full compliance with all legal requirements and ethical
standards regarding these and other mutual fund trading practices. In fact, our
mutual fund trading processes are designed to prevent these types of activities
from taking place, and we are committed to maintaining their integrity. Our
trade processing procedures carefully track the forward-pricing requirements
contained in federal regulations and in our funds' prospectuses. We closely
monitor trading in our funds and take measures to prevent market timing whenever
it is identified. Furthermore, we do not enter into any special arrangements
that would permit investors to avoid the forward-pricing or market-timing
provisions of our prospectuses.
In recent weeks, we have carefully reviewed our trading policies, procedures and
operations. In addition, our firm recommended early on that the funds' Trustees
engage an independent accounting firm, which has been reviewing trading issues
on behalf of our funds' Audit Committee. While there is always more work that
can be done, I am pleased to report that we believe our processes are working
effectively, based on our preliminary findings. We understand that our
relationship with our shareholders is based on trust, and we are committed to
acting in the best interests of our shareholders at all times.
- --------------------------------------------------------------------------------
2
PERFORMANCE
Discussion as of September 30, 2003
How State Street Research Aurora Fund Performed
State Street Research Aurora Fund returned 32.90% for the 12-month period ended
September 30, 2003.(1) The fund outperformed the Russell 2000[RegTM] Value
Index, which returned 31.66% over the same period.(2) It also beat the Lipper
Small-Cap Value Funds Average, which was 30.21% over the same period.(3)
Reasons for the Fund's Performance
Good stock selection with an emphasis on cyclical stocks--especially
Automobiles & Transportation, Materials & Processing, Producer Durables and
Technology--was the primary reason for the fund's strong performance relative
to its benchmark during the year. The fund also benefited by underweighting
Financial Services and Utilities, which were disappointments during the period.
In Automobiles & Transportation, Mesa Air and Frontier Airlines delivered
strong gains. Both companies benefited from an upturn in business activity and,
indirectly, from the bankruptcy of United Airlines. In Technology, Cypress
Semiconductor and Benchmark Electronics rallied on news of increased technology
spending and better-than-expected earnings.
The fund's Health Care investments detracted from performance. Because we look
for companies that can generate cash flow, we were underweight in
biotechnology, a source of strong gains, especially during the first half of
the period. In general, we also underweighted pharmaceutical stocks, which,
along with biotechnology, drove returns within the Russell 2000 Value Index.
Stock selection in the Consumer Discretionary sector also detracted from the
fund's return. Within Consumer Discretionary, we lost ground with Reader's
Digest, which reported lower-than-expected earnings, and Argosy Gaming, which
was hurt by unfavorable tax legislation in Illinois. However, we retained the
positions in the fund as we continue to believe in the long-term prospects of
both companies.
Looking Ahead
We have positioned the fund to benefit from an improving U.S. economy--an
environment that has historically favored small-company stocks. Our bottom-up
investment process has uncovered attractive opportunities in the Consumer
Discretionary sector, especially restaurants and retail. We initiated positions
in CKE Restaurants and Payless ShoeSource and increased our position in Too, a
specialty retailer that sells apparel for young girls. We reduced our exposure
to Financial Services and Utilities because we believe that valuations have
reached historically high levels. Given that Financial Services only modestly
exceeded the return of the overall index in the third quarter, we believe that
investors may have begun to look elsewhere for opportunity and that the fund
will benefit from our decision to underweight the sector.
Top 10 Holdings
- --------------------------------------------------------------------------------
Issuer/Security % of fund net assets
1 Agrium 1.9%
-------------------------------------------
2 Technitrol 1.8%
-------------------------------------------
3 Reader's Digest Association 1.6%
-------------------------------------------
4 Veeco Instruments 1.5%
-------------------------------------------
5 Argosy Gaming 1.4%
-------------------------------------------
6 Wabtec 1.4%
-------------------------------------------
7 Phelps Dodge 1.2%
-------------------------------------------
8 Martin Marietta Materials 1.1%
-------------------------------------------
9 Cypress Semiconductor 1.1%
-------------------------------------------
10 Kemet 1.1%
-------------------------------------------
Total 14.1%
Performance: Class A
- --------------------------------------------------------------------------------
Fund average annual total return as of 9/30/03(4,6,7)
(does not reflect sales charge)
Life of Fund
1 Year 5 Years (2/13/95)
32.90% 17.99% 20.48%
- --------------------------------------------------------------------------------
Fund average annual total return as of 9/30/03(4,5,6,7)
(at maximum applicable sales charge)
Life of Fund
1 Year 5 Years (2/13/95)
25.26% 16.60% 19.65%
- --------------------------------------------------------------------------------
Russell 2000 Value Index as of 9/30/03(2)
Life of Fund
1 Year 5 Years (2/13/95)
31.66% 10.84% 11.29%
- --------------------------------------------------------------------------------
See pages 4 and 5 for additional performance data for Class A and for
performance data on other share classes.
Because financial markets and mutual fund strategies are constantly evolving,
it is 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.
(1) Class A shares; does not reflect sales charge.
(2) The Russell 2000 Value Index contains those stocks within the complete
Russell 2000[RegTM] Index (a small-company index) that show below-average
growth. The index is unmanaged and does not take transaction charges into
consideration. It is not possible to invest directly in the index.
(3) The Lipper Small-Cap Value Funds Average shows performance of a category of
mutual funds with similar goals. The Lipper average shows you how well the
fund has done compared with competing funds.
(4) Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a
gain or loss when you sell your shares. All returns assume reinvestment of
capital gains distributions and income dividends at net asset value. The
returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
(5) Performance reflects maximum 5.75% Class A share front-end sales charge.
(6) Performance results for the fund are increased by the voluntary reduction
of fund fees and expenses; without subsidization, performance would have
been lower.
(7) Because the fund invests in emerging growth and special situation
companies, an investment in the fund may involve greater-than-average risk
and above-average price fluctuations. Small-company stocks are more
volatile than large-company stocks. Favorable investments in initial public
offerings ("IPOs") have helped produce short-term returns in some periods
that are not typical and may not continue in the future.
State Street Research Aurora Fund 3
PERFORMANCE
Discussion as of September 30, 2003
These two pages focus on the fund's long-term track record. While a mutual
fund's past performance is not a guarantee of future results, long-term returns
can serve as an important context for evaluating recent performance. There are
three ways of measuring long-term performance: cumulative total returns,
average annual total returns and the change in dollar value over time of a
given investment. Information about these measures follows, while the share
class boxes contain the results of these measures for each share class.
Cumulative Total Return
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.
Average Annual Total Return
Represents the rate you would have had to earn during each year of a given time
period in order to end up with the fund's actual cumulative return for those
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
Similar to cumulative total return, but uses dollars rather than percentages,
and assumes that the lump sum you invested was $10,000 (less the applicable
maximum sales charge, if any) and compares fund performance to the performance
of a market index.
- --------------------------------------------------------------------------------
Class A
Life of Fund
1 Year 5 Years (2/13/95)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 32.90% 28.68% 399.59%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 25.26% 115.53% 370.87%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 25.26% 16.60% 19.65%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
2/95 9/95 9/96 9/97 9/98 9/99 9/00 9/01 9/02 9/03
Class A ........................... $ 9,425 10,984 15,776 27,245 20,591 25,302 38,826 38,447 35,430 47,087
Russell 2000 Value Index .......... $10,000 12,076 13,704 19,548 17,048 18,042 20,813 21,981 21,657 28,514
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B(1)
Life of Fund
1 Year 5 Years (2/13/95)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 31.96% 120.50% 368.62%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 26.96% 118.50% 368.62%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 26.96% 16.92% 19.59%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
2/95 9/95 9/96 9/97 9/98 9/99 9/00 9/01 9/02 9/03
Class B(1) ........................ $10,000 11,602 16,535 28,332 21,253 25,907 39,474 38,814 35,513 46,862
Russell 2000 Value Index .......... $10,000 12,076 13,704 19,548 17,048 18,042 20,813 21,981 21,657 28,514
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
Class B
Life of Fund
1 Year 5 Years (2/13/95)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 33.31% 124.21% 376.51%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 28.31% 122.21% 376.51%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 28.31% 17.31% 19.82%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
2/95 9/95 9/96 9/97 9/98 9/99 9/00 9/01 9/02 9/03
Class B ........................... $10,000 11,602 16,535 28,332 21,253 25,907 39,474 38,814 35,744 47,651
Russell 2000 Value Index ......... $10,000 12,076 13,704 19,548 17,048 18,042 20,813 21,981 21,657 28,514
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C
Life of Fund
1 Year 5 Years (2/13/95)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 31.97% 120.57% 368.47%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 30.97% 120.57% 368.47%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 30.97% 17.14% 19.58%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
2/95 9/95 9/96 9/97 9/98 9/99 9/00 9/01 9/02 9/03
Class C ........................... $10,000 11,602 16,535 28,318 21,239 25,907 39,474 38,815 35,498 46,847
Russell 2000 Value Index .......... $10,000 12,076 13,704 19,548 17,048 18,042 20,813 21,981 21,657 28,514
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class S
Life of Fund
1 Year 5 Years (2/13/95)
- --------------------------------------------------------------------------------
Cumulative Total Return
(does not reflect sales charge) 33.21% 132.94% 413.45%
- --------------------------------------------------------------------------------
Cumulative Total Return
(at maximum applicable sales charge) 33.21% 132.94% 413.45%
- --------------------------------------------------------------------------------
Average Annual Total Return
(at maximum applicable sales charge) 33.21% 18.43% 20.86%
- --------------------------------------------------------------------------------
$10,000 Over Life of Fund
(reflects maximum applicable sales charge)
[Data below is represented by a line chart in the original report]
2/95 9/95 9/96 9/97 9/98 9/99 9/00 9/01 9/02 9/03
Class S ........................... $10,000 11,675 16,806 29,092 22,042 27,157 41,908 41,638 38,545 51,345
Russell 2000 Value Index .......... $10,000 12,076 13,704 19,548 17,048 18,042 20,813 21,981 21,657 28,514
- --------------------------------------------------------------------------------
Keep in mind that past performance is no guarantee of future results. The
fund's share price, yield and return will fluctuate, and you may have a gain or
loss when you sell your shares. All returns assume reinvestment of capital
gains distributions and income dividends at net asset value. Performance
reflects a maximum 5.75% Class A share front-end sales charge, or 5% Class B(1)
or Class B share or 1% Class C share contingent deferred sales charge, where
applicable. Performance for Class B(1) shares reflects Class B share
performance through December 31, 1998, and Class B(1) performance thereafter.
If the returns for Class B(1) shares had reflected their current
service/distribution (Rule 12b-1) fees for the entire period, these returns
would have been lower. Class S shares, offered without sales charge, are
available through certain employee benefit plans and special programs. The
returns shown do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares. Performance results
for the fund are increased by the voluntary reduction of fund fees and
expenses; without subsidization, performance would have been lower. Because the
fund invests in emerging growth and special situation companies, an investment
in the fund may involve greater-than-average risk and above-average price
fluctuations. Small-company stocks are more volatile than large-company stocks.
Favorable investments in initial public offerings ("IPOs") have helped produce
short-term returns in some periods that are not typical and may not continue in
the future. The Russell 2000 Value Index contains those stocks within the
Russell 2000 Index (a small-company index) that show below-average growth. The
index is unmanaged and does not take transaction charges into consideration. It
is not possible to invest directly in the index.
State Street Research Aurora Fund 5
PORTFOLIO
Holdings
September 30, 2003
Issuer Shares Value
- -------------------------------------------------------------------------------------------------------------
Common Stocks 99.6%
Automobiles & Transportation 8.9%
Air Transport 3.3%
AAR Corp.* ............................................................. 2,100,700 $ 16,847,614
Alaska Air Group Inc.* ................................................. 720,900 20,055,438
EGL Inc.* .............................................................. 1,477,700 26,864,586
Frontier Airlines Inc.* ................................................ 848,000 13,958,080
Mesa Air Group Inc.* ................................................... 1,458,500 16,189,350
------------
93,915,068
------------
Automotive Parts 2.3%
American Axle & Manufacturing
Holdings Inc.* ....................................................... 467,800 13,837,524
Borg-Warner Automotive Inc. ............................................ 200,900 13,631,065
Navistar International Corp.* .......................................... 807,200 30,092,416
Wabash National Corp.* ................................................. 397,400 6,338,530
------------
63,899,535
------------
Miscellaneous Transportation 1.1%
Kirby Corp.* ........................................................... 246,400 7,071,680
OMI Corp.* ............................................................. 2,669,600 17,672,752
Teekay Shipping Corp. .................................................. 151,600 6,412,680
------------
31,157,112
------------
Railroad Equipment 1.4%
Wabtec Corp. ........................................................... 2,530,300 40,105,255
------------
Railroads 0.2%
RailAmerica Inc.* ...................................................... 732,800 6,302,080
------------
Tires & Rubber 0.5%
Cooper Tire & Rubber Co. ............................................... 848,100 13,459,347
------------
Truckers 0.1%
Marten Transport Ltd.* ................................................. 75,000 1,957,500
------------
Total Automobiles & Transportation .......................................................... 250,795,897
------------
Consumer Discretionary 19.8%
Advertising Agencies 0.3%
Valassis Communications Inc.* .......................................... 369,900 9,765,360
------------
Casinos/Gambling, Hotel/Motel 2.2%
Argosy Gaming Corp.* ................................................... 1,652,900 40,330,760
Boyd Gaming Corp. ...................................................... 549,500 8,385,370
International Game Technology Inc. ..................................... 434,100 12,219,915
------------
60,936,045
------------
Commercial Services 3.4%
Heidrick & Struggles International Inc.* ............................... 1,434,400 24,284,392
Pep Boys Inc. .......................................................... 684,900 10,478,970
ProQuest Co.* .......................................................... 432,700 11,380,010
Six Flags Inc.* ........................................................ 2,029,100 10,673,066
Steiner Leisure Ltd.* .................................................. 855,000 16,381,800
Tetra Tech Inc.* ....................................................... 749,000 14,912,590
Viad Corp. ............................................................. 341,200 8,147,856
------------
96,258,684
------------
Issuer Shares Value
- -------------------------------------------------------------------------------------------------------------
Communications, Media & Entertainment 0.7%
Entravision Communications Corp.* ...................................... 652,500 $ 6,198,750
Gray Television Inc. ................................................... 548,400 6,405,312
LIN TV Corp. Cl. A* .................................................... 393,300 8,361,558
------------
20,965,620
------------
Consumer Products 1.0%
Playtex Products Inc.* ................................................. 1,833,400 10,927,064
Tupperware Corp. ....................................................... 1,266,200 16,941,756
------------
27,868,820
------------
Consumer Services 1.4%
Dollar Thrifty Automotive Group Inc.* .................................. 718,900 16,333,408
SkillSoft plc ADR* ..................................................... 1,588,800 11,836,560
Stewart Enterprises Inc. Cl. A* ........................................ 3,134,900 11,912,620
------------
40,082,588
------------
Household Furnishings 0.7%
Furniture Brands International Inc.* ................................... 336,400 8,107,240
La-Z-Boy Inc. .......................................................... 550,400 12,218,880
------------
20,326,120
------------
Leisure Time 1.5%
Callaway Golf Co. ...................................................... 966,900 13,797,663
K2 Inc.* ............................................................... 769,300 11,424,105
Penn National Gaming Inc.* ............................................. 332,400 7,086,768
Steinway Musical Instruments Inc.* ..................................... 519,300 9,217,575
------------
41,526,111
------------
Printing & Publishing 3.0%
Bowne & Company Inc. ................................................... 365,400 5,462,730
Hollinger International Inc. ........................................... 1,247,700 15,409,095
Journal Register Co.* .................................................. 1,012,700 18,988,125
Reader's Digest Association Inc. Cl. A ................................. 3,188,200 44,602,918
------------
84,462,868
------------
Restaurants 1.2%
CKE Restaurants Inc.* .................................................. 1,136,400 7,329,780
Jack in the Box Inc.* .................................................. 104,300 1,856,540
O'Charley's Inc.* ...................................................... 372,000 5,516,760
Papa Johns International Inc.* ......................................... 154,600 3,835,626
Ruby Tuesday Inc. ...................................................... 282,900 6,820,719
Ryan's Family Steak Houses Inc.* ....................................... 704,400 9,009,276
------------
34,368,701
------------
Retail 4.3%
American Eagle Outfitters Inc.* ........................................ 468,900 6,967,854
Barnes & Noble Inc.* ................................................... 390,200 9,914,982
Brookstone Inc.* ....................................................... 549,450 10,895,593
Charming Shopper Inc.* ................................................. 1,908,200 10,895,822
Dillard's Inc. ......................................................... 565,000 7,898,700
Friedman's Inc. Cl. A .................................................. 452,400 6,310,980
Genesco Inc.* .......................................................... 391,500 6,287,490
Hancock Fabrics Inc. ................................................... 308,600 4,869,708
J. Jill Group Inc.* .................................................... 709,300 8,156,950
Linens 'n Things Inc.* ................................................. 270,800 6,439,624
Payless ShoeSource Inc.* ............................................... 971,700 12,573,798
Talbots Inc. ........................................................... 310,900 10,834,865
Too Inc.* .............................................................. 1,031,400 15,192,522
Tweeter Home Entertainment Group Inc.* ................................. 632,845 4,860,250
------------
122,099,138
------------
Shoes 0.1%
Stride Rite Corp. ...................................................... 160,400 1,732,320
------------
Textile Apparel Manufacturers 0.0%
Oshkosh B'Gosh Inc. Cl. A .............................................. 9,800 252,056
------------
Total Consumer Discretionary ................................................................. 560,644,431
------------
6 The notes are an integral part of the financial statements.
Issuer Shares Value
- -------------------------------------------------------------------------------------------------------------
Consumer Staples 2.6%
Drug & Grocery Store Chains 1.6%
Duane Reade Inc.* ........................................................ 917,100 $14,627,745
Longs Drug Stores Corp. .................................................. 770,900 15,518,217
Wild Oats Markets Inc.* .................................................. 1,431,600 15,647,388
-----------
45,793,350
-----------
Foods 1.0%
International Multifoods Corp.* .......................................... 317,900 7,422,965
Interstate Bakeries Corp. ................................................ 1,332,000 19,980,000
-----------
27,402,965
-----------
Total Consumer Staples ........................................................................ 73,196,315
-----------
Financial Services 7.4%
Banks & Savings & Loan 0.8%
First Niagara Financial Group Corp.* ..................................... 445,600 6,728,560
Staten Island Bancorp Inc. ............................................... 344,700 6,704,415
Sterling Bancshares Inc. ................................................. 771,900 9,208,767
-----------
22,641,742
-----------
Financial Data Processing Services & Systems 0.9%
Carreker Corp.* .......................................................... 1,153,600 9,286,480
John H. Harland Co. ...................................................... 580,500 15,365,835
-----------
24,652,315
-----------
Insurance 2.3%
Amerus Group Co. ......................................................... 438,400 14,905,600
Harleysville Group Inc. .................................................. 372,200 8,675,982
Hub International Ltd. ................................................... 679,100 11,137,240
Odyssey Reinsurance Holdings Corp. ....................................... 595,300 12,251,274
Ohio Casualty Corp.* ..................................................... 938,200 13,603,900
RLI Corp. ................................................................ 94,100 3,097,772
-----------
63,671,768
-----------
Miscellaneous Financial 0.3%
Fidelity National Financial Inc. ......................................... 194,263 5,839,546
Medallion Financial Corp. ................................................ 492,400 3,102,120
-----------
8,941,666
-----------
Real Estate Investment Trusts 0.7%
Anthracite Capital Inc. .................................................. 629,985 6,079,355
Heritage Property Investment Trust Inc. .................................. 484,400 13,989,472
-----------
20,068,827
-----------
Rental & Leasing Services: Commercial 0.6%
GATX Corp. ............................................................... 867,800 18,353,970
-----------
Securities Brokerage & Services 1.8%
American Capital Strategies Ltd. ......................................... 657,000 16,333,020
Investment Technology Group Inc.* ........................................ 369,800 7,092,764
MCG Capital Corp. ........................................................ 375,000 5,853,750
NCO Group Inc.* .......................................................... 658,800 15,462,036
SWS Group Inc. ........................................................... 259,400 5,112,774
-----------
49,854,344
-----------
Total Financial Services ...................................................................... 208,184,632
-----------
Health Care 5.0%
Drugs & Biotechnology 1.3%
ArthroCare Corp.* ........................................................ 395,100 7,040,682
Chattem Inc.* ............................................................ 439,800 6,104,424
Cytyc Corp.* ............................................................. 449,600 6,761,984
ICN Pharmaceuticals Inc. ................................................. 1,016,100 17,436,276
-----------
37,343,366
-----------
Health Care Facilities 0.9%
Genesis Health Ventures Inc.* ............................................ 410,400 9,952,200
LifePoint Hospitals Inc.* ................................................ 591,500 14,225,575
-----------
24,177,775
-----------
Issuer Shares Value
- -------------------------------------------------------------------------------------------------------------
Health Care Services 1.5%
Community Health Systems Inc.* ........................................... 288,800 $ 6,266,960
Hooper Holmes Inc. ....................................................... 1,317,600 8,762,040
Humana Inc.* ............................................................. 285,500 5,153,275
Province Healthcare Co.* ................................................. 1,240,900 16,069,655
Rehabcare Group Inc.* .................................................... 328,500 5,600,925
-----------
41,852,855
-----------
Hospital Supply 1.3%
American Medical Systems Holdings Inc.* 232,900 5,053,930
DJ Orthopedics Inc.* ..................................................... 469,000 6,542,550
Invivo Corp.* ............................................................ 171,356 2,688,568
Ocular Sciences Inc.* .................................................... 322,200 7,178,616
Sola International Inc.* ................................................. 393,400 6,294,400
Viasys Healthcare Inc.* .................................................. 443,400 8,956,680
-----------
36,714,744
-----------
Total Health Care ............................................................................. 140,088,740
-----------
Materials & Processing 16.8%
Agriculture 0.7%
Bunge Ltd. ............................................................... 297,100 8,170,250
Corn Products International Inc. ......................................... 311,900 9,934,015
-----------
18,104,265
-----------
Building & Construction 2.7%
ElkCorp .................................................................. 826,700 19,477,052
Granite Construction Inc. ................................................ 689,800 12,885,464
Martin Marietta Materials Inc. ........................................... 877,300 31,977,585
York International Corp. ................................................. 327,300 11,321,307
-----------
75,661,408
-----------
Chemicals 1.7%
Cambrex Corp. ............................................................ 431,100 9,785,970
Ferro Corp. .............................................................. 514,800 10,996,128
Methanex Corp. ........................................................... 992,800 9,292,608
Omnova Solutions Inc.* ................................................... 2,357,000 8,273,070
Spartech Corp. ........................................................... 399,600 8,511,480
Stepan Chemical Co. ...................................................... 42,150 960,177
-----------
47,819,433
-----------
Containers & Packaging 0.9%
Anchor Glass Container Corp.* ............................................ 293,900 4,790,570
Apogee Enterprises, Inc. ................................................. 613,800 6,334,416
Packaging Corp. of America* .............................................. 763,100 14,819,402
-----------
25,944,388
-----------
Diversified Manufacturing 0.9%
Acuity Brands Inc. ....................................................... 468,900 8,468,334
Barnes Group Inc. ........................................................ 61,200 1,588,752
Graphic Packaging Corp.* ................................................. 1,273,600 6,444,416
Tredegar Industries Corp. ................................................ 607,400 9,141,370
-----------
25,642,872
-----------
Engineering & Contracting Services 0.8%
Dycom Industries Inc.* ................................................... 587,500 11,979,125
Integrated Electrical Services Inc.* ..................................... 1,581,100 10,909,590
-----------
22,888,715
-----------
Fertilizers 2.2%
Agrium Inc. .............................................................. 4,173,900 52,424,184
IMC Global Inc. .......................................................... 1,290,600 8,272,746
Lesco Inc.* .............................................................. 118,400 1,292,928
-----------
61,989,858
-----------
Forest Products 0.7%
Louisiana Pacific Corp.* ................................................. 967,800 13,336,284
Rayonier Inc. ............................................................ 177,450 7,204,470
-----------
20,540,754
-----------
The notes are an integral part of the financial statements.
State Street Research Aurora Fund 7
Portfolio Holdings (cont'd)
- --------------------------------------------------------------------------------
Issuer Shares Value
- -------------------------------------------------------------------------------------------------------------
Gold & Precious Metals 0.1%
Coeur D'Alene Mines Corp.* ............................................... 748,700 $ 2,328,457
-----------
Miscellaneous Materials & Processing 2.2%
Maverick Tube Corp.* ..................................................... 1,048,200 16,268,064
NN Inc. .................................................................. 674,500 8,674,070
NS Group Inc.* ........................................................... 1,185,600 7,658,976
Precision Castparts Corp. ................................................ 214,300 7,521,930
RTI International Metals Inc.* ........................................... 644,600 6,781,192
Valmont Industries Inc. .................................................. 795,900 15,750,861
Wolverine Tube Inc.* ..................................................... 146,200 618,426
-----------
63,273,519
-----------
Non-Ferrous Metals 2.3%
GrafTech International Ltd.* ............................................. 738,900 5,911,200
Lydall Inc.* ............................................................. 238,600 2,865,586
Minerals Technologies Inc. ............................................... 356,400 18,140,760
Phelps Dodge Corp. * ..................................................... 737,700 34,524,360
Titanium Metals Corp.* ................................................... 108,219 3,652,391
-----------
65,094,297
-----------
Paper & Forest Products 0.2%
Caraustar Industries Inc.* ............................................... 577,200 5,038,956
-----------
Steel 1.3%
Alaska Steel Holding Corp.* .............................................. 881,600 1,763,200
Allegheny Technologies Inc. .............................................. 1,398,100 9,157,555
United States Steel Corp. ................................................ 1,379,300 25,351,534
-----------
36,272,289
-----------
Textile & Products 0.1%
Quaker Fabric Corp. ...................................................... 554,700 3,760,866
-----------
Total Materials & Processing .................................................................. 474,360,077
-----------
Other 1.8%
Multi-Sector 1.8%
Jacuzzi Brands Inc.* ..................................................... 912,100 5,655,020
Trinity Industries Inc. .................................................. 1,082,600 27,985,210
Walter Industries Inc. ................................................... 1,605,500 17,227,015
-----------
Total Other ................................................................................... 50,867,245
-----------
Other Energy 5.2%
Miscellaneous Energy 0.4%
Peabody Energy Corp. ..................................................... 406,300 12,745,631
-----------
Offshore Drilling 0.1%
Atwood Oceanics Inc.* .................................................... 78,500 1,883,215
-----------
Oil & Gas Producers 2.1%
Cabot Oil & Gas Corp. .................................................... 735,600 19,125,600
Energy Partners Ltd.* .................................................... 916,700 10,193,704
Nuevo Energy Co.* ........................................................ 487,400 8,856,058
Spinnaker Exploration Co.* ............................................... 238,900 5,733,600
Stone Energy Inc.* ....................................................... 257,900 9,098,712
Vintage Petroleum Inc. ................................................... 580,200 6,312,576
-----------
59,320,250
-----------
Oil Well Equipment & Services 2.6%
Core Laboratories NV Co.* ................................................ 887,300 12,466,565
Global Industries Ltd.* .................................................. 2,328,800 10,596,040
Hanover Compressor Co.* .................................................. 1,966,600 19,469,340
NewPark Resources Inc.* .................................................. 1,613,500 6,938,050
Veritas DGC Inc.* ........................................................ 800,200 6,385,596
W-H Energy Services Inc.* ................................................ 1,053,000 18,743,400
-----------
74,598,991
-----------
Total Other Energy ............................................................................ 148,548,087
-----------
Issuer Shares Value
- -------------------------------------------------------------------------------------------------------------
Producer Durables 19.4%
Aerospace 1.6%
Heico Corp. .............................................................. 616,500 $ 8,384,400
Ladish Company Inc.* ..................................................... 742,800 4,642,500
Orbital Sciences Corp.* .................................................. 621,300 5,765,664
Teledyne Technologies Inc.* .............................................. 793,400 11,543,970
United Defense Industries Inc.* .......................................... 511,000 14,507,290
-----------
44,843,824
-----------
Electrical Equipment & Components 3.4%
LittleFuse Inc.* ......................................................... 297,100 6,833,300
MKS Instruments Inc.* .................................................... 729,303 15,796,703
Regal Beloit Corp. ....................................................... 529,000 10,791,600
Technitrol Inc.* ......................................................... 2,710,200 49,894,782
Triumph Group Inc.* ...................................................... 460,000 13,708,000
-----------
97,024,385
-----------
Industrial Products 3.6%
C&D Technologies Inc. .................................................... 101,400 1,918,488
Denison International plc ADR* ........................................... 97,100 1,978,898
Federal Signal Corp. ..................................................... 522,400 7,783,760
Flowserve Corp.* ......................................................... 1,076,500 21,852,950
Roper Industries Inc. .................................................... 387,500 16,875,625
Veeco Instruments Inc.* .................................................. 2,108,400 42,083,664
Watts Industries Inc. Cl. A .............................................. 553,500 9,752,670
-----------
102,246,055
-----------
Machinery 4.3%
AGCO Corp.* .............................................................. 899,100 15,410,574
Applied Films Corp.* ..................................................... 415,100 12,340,923
Cummings Inc. ............................................................ 90,600 4,025,358
Helix Technology Corp. ................................................... 648,100 10,609,397
JLG Industries Inc. ...................................................... 586,300 6,754,176
Joy Global Inc.* ......................................................... 734,300 11,528,510
Kadant Inc.* ............................................................. 1,274,900 24,427,084
Manitowoc Company Inc. ................................................... 654,800 14,202,612
Stewart & Stevenson Services Inc. ........................................ 924,800 13,890,496
Terex Corp.* ............................................................. 458,000 8,486,740
-----------
121,675,870
-----------
Miscellaneous Equipment 0.8%
Pentair Inc. ............................................................. 247,700 9,875,799
Thomas & Betts Corp.* .................................................... 749,600 11,881,160
-----------
21,756,959
-----------
Office Furniture & Business Equipment 0.4%
Steelcase Inc. Cl. A ..................................................... 897,200 10,569,016
-----------
Production Technology Equipment 3.3%
ATMI Inc.* ............................................................... 733,600 18,538,072
Brooks Automation Inc.* .................................................. 1,219,100 25,479,190
Cognex Corp. ............................................................. 500,800 13,166,032
Esterline Technologies Corp.* ............................................ 532,200 10,266,138
Varian Semiconductor Equipment Inc.* ..................................... 683,600 25,600,820
-----------
93,050,252
-----------
Telecommunications Equipment 2.0%
American Tower Corp. Cl. A* .............................................. 1,235,000 12,535,250
Andrew Corp.* ............................................................ 1,767,300 21,720,117
Belden Inc. .............................................................. 405,200 7,078,844
Plantronics Inc.* ........................................................ 650,100 15,517,887
-----------
56,852,098
-----------
Total Producer Durables ....................................................................... 548,018,459
-----------
8 The notes are an integral part of the financial statements.
Issuer Shares Value
- --------------------------------------------------------------------------------
Technology 11.4%
Communications Technology 2.2%
Advanced Fibre Communications Inc.* .......... 247,900 $ 5,198,463
Anaren Microwave Inc.* ....................... 951,600 12,142,416
Anixter International Inc.* .................. 363,000 8,265,510
CommScope Inc.* .............................. 961,800 11,599,308
INET Technologies Inc.* ...................... 1,496,100 19,359,534
NMS Communications Corp.* .................... 2,327,900 5,214,496
-------------
61,779,727
-------------
Computer Software 2.0%
Ciber Inc.* .................................. 1,758,900 13,367,640
Eletronics for Imaging Inc.* ................. 1,063,500 24,800,820
Iona Technologies plc ADR* ................... 1,224,100 2,937,840
Micros Systems Inc.* ......................... 281,800 9,623,470
Systems & Computer Technology Corp.* ......... 604,000 6,299,720
-------------
57,029,490
-------------
Computer Technology 0.6%
Hutchinson Technology Inc.* .................. 420,900 13,931,790
SimpleTech Inc.* ............................. 662,300 4,742,068
-------------
18,673,858
-------------
Electronics 4.4%
AVX Corp. .................................... 632,100 8,653,449
BEI Technologies Inc. ........................ 998,900 15,582,840
Benchmark Electronics Inc.* .................. 530,500 22,424,235
Coherent Inc.* ............................... 315,900 7,780,617
Herley Industries Inc.* ...................... 926,300 16,228,776
Kemet Corp.* ................................. 2,496,400 31,804,136
Lecroy Corp.* ................................ 806,600 12,929,798
Trimble Navigation Ltd.* ..................... 418,700 9,692,905
-------------
125,096,756
-------------
Electronics: Semiconductors/Components 2.2%
Avnet Inc.* .................................. 529,000 8,739,080
Chippac Inc. ................................. 608,800 3,585,832
Cypress Semiconductor Corp.* ................. 1,802,100 31,861,128
Excel Technology Inc.* ....................... 348,100 8,702,500
OpticNet Inc.* @ ............................. 208,500 8,340
TriQuint Semiconductors Inc.* ................ 1,469,900 8,231,440
-------------
61,128,320
-------------
Total Technology .............................................. 323,708,151
-------------
Utilities 1.3%
Electrical 0.2%
Hawaiian Electric Industries Inc. ............ 102,200 4,448,766
-------------
Gas Distribution 0.4%
NUI Corp. .................................... 751,800 11,239,410
-------------
Telecommunications 0.7%
PTEK Holdings Inc.* .......................... 2,433,500 19,833,025
-------------
Total Utilities ............................................... 35,521,201
-------------
Total Common Stocks (Cost $2,415,314,362) ..................... 2,813,933,235
-------------
Short-Term Investments 16.7%
State Street Navigator Securities
Lending Prime Portfolio ...................... 472,319,423 472,319,423
-------------
Total Short-Term Investments (cost $472,319,423) .............. 472,319,423
-------------
Maturity Amount of
Coupon Rate Date Principal Value
- ------------------------ ------------ ------------- -------------
Commercial Paper 1.1%
AIG Funding Inc., 1.08% 10/01/2003 $8,166,000 $8,166,000
General Electric Capital
Corp., 1.04% ......... 10/02/2003 11,400,000 11,399,671
General Electric Capital
Corp., 1.02% ......... 10/06/2003 5,970,000 5,969,154
General Electric Capital
Corp., 1.05% ......... 10/06/2003 6,102,000 6,101,110
----------
Total Commercial Paper (Cost $31,635,935) ........... 31,635,935
----------
% of
Net Assets
------------
Summary of Portfolio Assets
Investments (Cost $2,919,269,720) ............... 117.4% 3,317,888,593
Cash and Other Assets, Less Liabilities ......... (17.4%) (490,778,267)
----- -------------
Net Assets ...................................... 100.0% $2,827,110,326
============= ==============
KEY TO SYMBOLS
* Denotes a security which has not paid a dividend during the last year.
@ Security valued under consistently applied procedures established by the
Trustees.
ADR Stands for American Depositary Receipt.
Federal Income Tax Information
At September 30, 2003, the net unrealized
appreciation of investments based on cost for federal
income tax purposes of $2,930,431,275 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $531,739,766
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value (144,282,448)
------------
$387,457,318
============
The notes are an integral part of the financial statements.
State Street Research Aurora Fund 9
FINANCIAL
Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
September 30, 2003
Investments, at value (Cost $2,919,269,720) (Note 1) $3,317,888,593
Cash ..................................................... 886,359
Receivable for fund shares sold .......................... 6,650,150
Dividends receivable ..................................... 1,974,462
Receivable for securities sold ........................... 130,809
Other assets ............................................. 14,527
---------
3,327,544,900
-------------
Liabilities
Payable for collateral received on securities loaned ..... 472,319,423
Payable for fund shares redeemed ......................... 11,895,211
Payable for securities purchased ......................... 10,905,815
Accrued management fee ................................... 2,104,387
Accrued transfer agent and shareholder services .......... 1,474,721
Accrued distribution and service fees .................... 1,151,199
Accrued trustees' fees ................................... 36,445
Accrued administration fee ............................... 23,924
Other accrued expenses ................................... 523,449
-------------
500,434,574
-------------
Net Assets ............................................... $2,827,110,326
==============
Net Assets consist of:
Unrealized appreciation of investments ................... $ 398,618,873
Accumulated net realized loss ............................ (19,061,225)
Paid-in capital .......................................... 2,447,552,678
--------------
$2,827,110,326
==============
Net Asset Value (NAV) of Each Share Class
Except where noted, the NAV is the offering and the redemption price for each
class.
Class Net Assets [divided by] Number of Shares = NAV
A $1,682,503,635 52,128,021 $ 32.28*
B(1) $ 401,015,986 13,284,859 $ 30.19**
B $ 192,054,780 6,256,257 $ 30.70**
C $ 409,076,392 13,552,560 $ 30.18**
S $ 142,459,533 4,293,543 $ 33.18
* Maximum offering price per share = $34.25 ($32.28 [divided by] 0.9425)
** When you sell Class B(1), Class B or Class C shares, you receive the net
asset value minus deferred sales charge, if any.
Statement of Operations
- --------------------------------------------------------------------------------
For the year ended September 30, 2003
Investment Income
Dividends, net of foreign taxes of $234,581 (Note 1)...... $ 19,042,335
Interest (Note 1) ........................................ 2,596,244
------------
21,638,579
------------
Expenses
Management fee (Note 2) .................................. 21,291,705
Transfer agent and shareholder services (Note 2) ......... 8,612,090
Distribution and service fees - Class A (Note 4) ......... 4,427,563
Distribution and service fees - Class B(1) (Note 4) ...... 3,534,392
Distribution and service fees - Class C (Note 4) ......... 3,856,413
Reports to shareholders .................................. 596,539
Custodian fee ............................................ 453,223
Trustees' fees (Note 2) .................................. 102,527
Registration fees ........................................ 89,840
Administration fee ....................................... 77,616
Audit fee ................................................ 37,128
Legal fees ............................................... 24,456
Miscellaneous ............................................ 145,625
------------
43,249,117
Fees paid indirectly (Note 2) ............................ (45,884)
------------
43,203,233
------------
Net investment loss ...................................... (21,564,654)
------------
Realized and Unrealized Gain (Loss) on
Investments
Net realized loss on investments (Notes 1 and 3) ......... (5,964,906)
Change in unrealized appreciation of investments ......... 732,152,627
------------
Net gain on investments .................................. 726,187,721
------------
Net increase in net assets resulting from operations ..... $704,623,067
============
10 The notes are an integral part of the financial statements.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Years ended
September 30
-------------------------------
2003 2002*
-------------------------------
Increase (Decrease) In Net Assets
Operations:
Net investment income ................ $ (21,564,654) $ (28,714,402)
Net realized gain (loss) on
investments ....................... (5,964,906) 14,770,020
Change in unrealized appreciation
(depreciation) of investments ..... 732,152,627 (356,652,695)
-------------- --------------
Net increase (decrease) resulting
from operations ................... 704,623,067 (370,597,077)
-------------- --------------
Distribution from capital gains:
Class A ........................... (8,427,738) -
Class B(1) ........................ (2,137,073) -
Class B ........................... (1,112,809) -
Class C ........................... (2,440,090) -
Class S ........................... (560,409) -
-------------- --------------
(14,678,119) -
-------------- --------------
Net increase (decrease) from
fund share transactions
(Note 6) .......................... (332,003,552) 516,543,308
-------------- --------------
Total increase in net assets ......... 357,941,396 145,946,231
Net Assets
Beginning of year .................... 2,469,168,930 2,323,222,699
-------------- --------------
End of year .......................... $2,827,110,326 $2,469,168,930
============== ==============
* Audited by other auditors
Notes to Financial Statements
- --------------------------------------------------------------------------------
September 30, 2003
Note 1
State Street Research Aurora Fund is a series of State Street Research Capital
Trust (the "Trust"), which is a Massachusetts business trust registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.
The investment objective of the fund is to provide high total return consisting
principally of capital appreciation. In seeking to achieve its investment
objective, the fund invests primarily in the equity securities of
small-capitalization companies which are trading at prices believed to be below
the true values of such securities.
The fund offers five classes of shares. Class A shares are subject to an
initial sales charge of up to 5.75% and pay annual service and distribution
fees equal to 0.30% of average daily net assets. Class B(1) shares pay annual
service and distribution fees equal to 1.00% of average daily net assets and
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 B shares are offered only to
current shareholders through reinvestment of dividends and distributions or
through exchanges from existing Class B accounts of State Street Research funds
and also automatically convert into Class A shares at the end of eight years.
Class B shares may also be subject to annual service and distribution fees
equal to 1.00% of average daily net assets. However, these fees are currently
waived under the terms of the distribution plan. Class C shares are subject to
a contingent deferred sales charge of 1.00% on any shares redeemed within one
year of their purchase. Class C shares also pay annual service and distribution
fees equal to 1.00% of average daily net assets. Class S shares are only
offered through certain retirement accounts, advisory accounts of State Street
Research & Management Company (the "Adviser"), an investment management
subsidiary of MetLife, Inc. ("MetLife"), 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 fund's expenses are
borne prorata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the plans of
distribution, related specifically to that class. The Trustees declare separate
dividends on each class of shares.
The following significant accounting policies are consistently followed by the
fund in preparing its financial statements, and such policies are in conformity
with accounting principles generally accepted in the United States of America.
A. Investment Valuation
Values for listed equity securities reflect final sales on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("Nasdaq") system are valued at closing prices
supplied through such system. If not quoted on the Nasdaq system, such
securities are valued at prices obtained from independent brokers. In the
absence of recorded sales, valuations are at the mean of the closing bid and
asked quotations. Short-term securities maturing within sixty days are valued
at amortized cost. Other securities, if any, are valued at their fair value as
determined in good faith under consistently applied procedures established by
and under the supervision of the Trustees. If trading or events occurring in
other markets after the close of the principal market in which foreign
securities are traded, and before the close of business of the fund, are
expected to materially affect the value of these securities, then they are
valued at their fair value taking this trading or these events into account.
B. Security Transactions
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses are reported on the basis of
identified cost of securities delivered.
The notes are an integral part of the financial statements.
State Street Research Aurora Fund 11
Notes (continued)
- --------------------------------------------------------------------------------
C. Net Investment Income
Net investment income is determined daily and consists of interest and
dividends accrued and discount earned, less the estimated daily expenses of the
fund. Interest income is accrued daily as earned. Dividend income is accrued on
the ex-dividend date. The fund is charged for expenses directly attributable to
it, while indirect expenses are allocated among all funds in the Trust.
D. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
Income dividends and capital gains distributions are determined in accordance
with federal income tax regulations which may differ from accounting principles
generally accepted in the United States of America. The difference is primarily
due to differing treatments for wash sale deferrals.
E. Federal Income Taxes
No provision for federal income taxes is necessary because the fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
At September 30, 2003, the fund had a capital loss carryforward of $7,899,670
available, to the extent provided in regulations, to offset future capital
gains, if any, which expire on September 30, 2011.
To the extent book/tax differences are permanent in nature, such amounts are
reclassified within the capital accounts based on federal tax basis treatment.
The fund reclassified for book purposes amounts arising from permanent book/tax
differences primarily relating to litigation settlements. At September 30,
2003, the components of distributable earnings on a tax basis differ from the
amounts reflected in the Statement of Assets and Liabilities by temporary
book/tax differences largely arising from wash sales and post-October losses.
At September 30, 2003, the tax basis distributable earnings were $0 in
undistributed ordinary income, $0 in undistributed short-term capital gains and
$0 in undistributed long-term gains.
F. Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from these
estimates.
G. Securities Lending
The fund may seek additional income by lending portfolio securities to
qualified institutions. The fund will receive cash or securities as collateral
in an amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. By reinvesting any cash collateral it
receives in these transactions, the fund could realize additional gains and
losses. If the borrower fails to return the securities and the value of the
collateral has declined during the term of the loan, the fund will bear the
loss. At September 30, 2003, the value of the securities loaned and the value
of collateral were $455,124,952 and $472,319,423 (including $472,205,387 of
cash collateral invested in State Street Navigator Securities Lending Prime
Portfolio and $114,036 of U.S. Government obligations), respectively. The
collateral was marked to market the next business day and made equal to at
least 100% of the current market value of the loaned securities and accrued
interest. During the year ended September 30, 2003, income from securities
lending amounted to $978,724 and is included in interest income.
Note 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 0.85% of the fund's average
daily net assets. In consideration of these fees, the Adviser furnishes the
fund with management, investment advisory, statistical and research facilities
and services. The Adviser also pays all salaries, rent and certain other
expenses of management. During the year ended September 30, 2003, the fees
pursuant to such agreement amounted to $21,291,705.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), provides certain shareholder services to the fund such as
responding to inquiries and instructions from investors with respect to the
purchase and redemption of shares of the fund. In addition, MetLife receives a
fee for maintenance of the accounts of certain shareholders who are
participants in sponsored arrangements, such as employee benefit plans, through
or under which shares of the fund may be purchased. Total shareholder service
costs are allocated to each fund in the same ratios as the transfer agent
costs. During the year ended September 30, 2003, the amount of such expenses
allocated to the fund was $4,938,440.
The fund has entered into an arrangement with its transfer agent whereby
credits realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expense. During the year ended September 30, 2003, the
fund's transfer agent fees were reduced by $45,884 under this arrangement.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$102,527 during the year ended September 30, 2003.
The fund has agreed to pay the Adviser for certain administrative costs
incurred in providing other assistance and services to the fund. The fee was
based on a fixed amount that has been allocated equally among the State Street
Research funds. During the year ended September 30, 2003, the amount of such
expenses was $77,616.
Note 3
For the year ended September 30, 2003, purchases and sales of securities,
exclusive of short-term obligations, aggregated $1,180,259,283, and
$1,206,762,934, respectively.
Note 4
The Trust has adopted plans of distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the plans, the fund pays annual service
fees to the Distributor at a rate of 0.25% of average daily net assets for
Class A, Class B(1) and Class C shares. In addition, the fund pays annual
distribution fees of 0.05% of average daily net assets for Class A shares. The
fund pays annual distribution fees of 0.75% of average daily net assets for
Class B(1) and Class C shares. Currently, the annual service and distribution
fees paid by Class B shares have been voluntarily waived to 0.00%. The fund
expects this waiver to continue, although there is no guarantee that it will.
The Distributor uses such payments for personal services and/or the maintenance
of shareholder accounts, to reimburse securities dealers for distribution and
marketing services, to furnish ongoing assistance to investors and to defray a
portion of its distribution and marketing expenses. For the year ended
September 30, 2003, fees pursuant to such plans amounted to $4,427,563,
$3,534,392 and $3,856,413 for Class A, Class B(1) and Class C shares,
respectively. For Class A, Class B and Class C shares, the payments are
intended to reimburse the distributor for expenditures incurred under the plan,
and any unused payments are returnable to the fund. As of September 30, 2003,
there were $25,246,201 and $7,335,326 for Class A and Class C shares,
respectively, of unreimbursed distribution and shareholder servicing related
expenses to be carried forward to future plan years. For Class B(1) shares, the
payments compensate the distributor for services and expenditures incurred
under the plan, and none of the payments are returnable to the fund.
The fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly-owned subsidiary of MetLife, earned initial sales charges aggregating
$433,166 and $243,228, respectively, on sales of Class A shares of the fund
during the year ended September 30, 2003, and that MetLife Securities, Inc.
earned commissions aggregating $306,343 and $2,719 on sales of Class B(1) and
Class C shares, and the Distributor collected contingent deferred sales charges
aggregating $899,124, $33,729 and $22,390 on redemptions of Class B(1), Class B
and Class C shares, respectively, during the same period.
12
Note 5
PricewaterhouseCoopers LLP resigned as the fund's independent accountants as of
April 25, 2003. The Trustees voted to appoint Deloitte & Touche LLP as the
fund's independent accountants for the fund's fiscal year ended September 30,
2003. During the previous two years, PricewaterhouseCoopers LLP's audit reports
contained no adverse opinion or disclaimer of opinion; nor were its reports
qualified or modified as to uncertainty, audit scope or accounting principle.
Further, in connection with its audits for the two previous fiscal years and
through April 25, 2003, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which if not
resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused it
to make reference to the disagreements in its report on the financial
statements for such years.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest at $0.001 par value per share.
These transactions break down by share class as follows:
Years ended September 30
-------------------------------------------------------------
2003 2002*
-------------------------------------------------------------
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 16,899,496 $ 469,042,922 37,873,343 $1,213,674,968
Issued upon reinvestment of distribution from capital gains 213,191 5,489,579 -- --
Shares redeemed (24,341,722) (651,666,848) (28,851,694) (872,078,700)
----------- ------------- ----------- --------------
Net increase (decrease) (7,229,035) $(177,134,347) 9,021,649 $ 341,596,268
=========== ============= =========== ==============
Class B(1) Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 1,403,726 $ 36,779,208 5,868,662 $ 180,539,417
Issued upon reinvestment of distribution from capital gains 64,891 1,576,445 -- --
Shares redeemed (2,979,708) (74,229,578) (2,958,688) (84,030,584)
----------- ------------- ----------- --------------
Net increase (decrease) (1,511,091) $ (35,873,925) 2,909,974 $ 96,508,833
=========== ============= =========== ==============
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 131,669 $ 3,441,001 486,207 $ 14,869,430
Issued upon reinvestment of distribution from capital gains 31,392 769,318 -- --
Shares redeemed (1,847,125) (46,449,514) (1,853,292) (53,411,346)
----------- ------------- ----------- --------------
Net decrease (1,684,064) $ (42,239,195) (1,367,085) $ (38,541,916)
=========== ============= =========== ==============
Class C Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 1,051,716 $ 28,486,342 6,405,484 $ 198,884,462
Issued upon reinvestment of distribution from capital gains 58,514 1,420,934 -- --
Shares redeemed (5,026,706) (124,996,244) (3,990,765) (114,071,764)
----------- ------------- ----------- --------------
Net increase (decrease) (3,916,476) $ (95,088,968) 2,414,719 $ 84,812,698
=========== ============= =========== ==============
Class S Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
Shares sold 1,772,631 $ 51,725,495 2,710,828 $ 89,899,756
Issued upon reinvestment of distribution from capital gains 21,069 558,168 -- --
Shares redeemed (1,205,014) (33,950,780) (1,841,322) (57,732,331)
----------- ------------- ----------- --------------
Net increase 588,686 $ 18,332,883 869,506 $ 32,167,425
=========== ============= =========== ==============
* Audited by other auditors
State Street Research Aurora Fund 13
FINANCIAL
Highlights
For a share outstanding throughout each year:
Class A - Years Ended September 30
--------------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(f)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 24.43 26.51 29.17 19.02 15.47
--------- --------- --------- ------- -------
Net investment income (loss) ($) (0.19) (0.23) 0.02 0.10 0.05
Net realized and unrealized gain (loss) on investments ($) 8.19 (1.85) (0.37) 10.05 3.50
--------- --------- --------- ------- -------
Total from investment operations ($) 8.00 (2.08) (0.35) 10.15 3.55
--------- --------- --------- ------- -------
Distributions from capital gains ($) (0.15) -- (2.31) -- --
--------- --------- --------- ------- -------
Total Distributions ($) (0.15) -- (2.31) -- --
--------- --------- --------- ------- -------
Net asset value, end of year ($) 32.28 24.43 26.51 29.17 19.02
========= ========= ========= ======= =======
Total return (%)(b) 32.90 (7.85) (0.98) 53.45 22.88
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 1,682,504 1,449,869 1,334,548 552,365 146,295
Expense ratio (%) 1.55 1.48 1.44 1.40 1.46
Expense ratio after expense reductions (%) 1.55 1.47 1.43 1.40 1.45
Ratio of net investment income (loss) to average net assets (%) (0.69) (0.73) 0.08 0.42 0.30
Portfolio turnover rate (%) 48.43 42.18 26.40 76.95 65.13
Class B(1) - Years Ended September 30
-----------------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(c)(f)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 23.02 25.16 27.99 18.38 16.17
--------- --------- --------- ------- -------
Net investment loss ($) (0.36) (0.42) (0.18) (0.07) (0.03)
Net realized and unrealized gain (loss) on investments ($) 7.68 (1.72) (0.34) 9.68 2.24
--------- --------- --------- ------- -------
Total from investment operations ($) 7.32 (2.14) (0.52) 9.61 2.21
--------- --------- --------- ------- -------
Distributions from capital gains ($) (0.15) -- (2.31) -- --
--------- --------- --------- ------- -------
Total Distributions (0.15) -- (2.31) -- --
--------- --------- --------- ------- -------
Net asset value, end of year ($) 30.19 23.02 25.16 27.99 18.38
========= ========= ========= ======= =======
Total return (%)(b) 31.96 (8.51) (1.67) 52.37 13.61(d)
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 401,016 340,529 299,062 110,743 20,419
Expense ratio (%) 2.25 2.18 2.14 2.13 2.10(e)
Expense ratio after expense reductions (%) 2.25 2.17 2.13 2.13 2.09(e)
Ratio of net investment loss to average net assets (%) (1.39) (1.43) (0.63) (0.29) (0.24)(e)
Portfolio turnover rate (%) 48.43 42.18 26.40 76.95 65.13
Class B - Years Ended September 30
--------------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(f)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 23.17 25.16 27.99 18.38 15.07
--------- --------- --------- ------- -------
Net investment loss ($) (0.10) (0.23) (0.15) (0.07) (0.08)
Net realized and unrealized gain (loss) on investments ($) 7.78 (1.76) (0.37) 9.68 3.39
--------- --------- --------- ------- -------
Total from investment operations ($) 7.68 (1.99) (0.52) 9.61 3.31
--------- --------- --------- ------- -------
Distributions from capital gains ($) (0.15) -- (2.31) -- --
--------- --------- --------- ------- -------
Total Distributions ($) (0.15) -- (2.31) -- --
--------- --------- --------- ------- -------
Net asset value, end of year ($) 30.70 23.17 25.16 27.99 18.38
========= ========= ========= ======= =======
Total return (%)(b) 33.31 (7.91) (1.67) 52.37 21.90
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 192,055 183,973 234,168 268,557 198,783
Expense ratio (%) 1.25 1.51 2.14 2.13 2.21
Expense ratio after expense reductions (%) 1.25 1.50 2.13 2.13 2.20
Ratio of net investment loss to average net assets (%) (0.39) (0.76) (0.54) (0.31) (0.46)
Portfolio turnover rate (%) 48.43 42.18 26.40 76.95 65.13
(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
(f) Audited by other auditors
14
Class C - Years Ended September 30
--------------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(f)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 23.01 25.16 27.99 18.38 15.06
------- ------- ------- ------- ------
Net investment loss ($) (0.35) (0.42) (0.18) (0.07) (0.08)
Net realized and unrealized gain (loss) on investments ($) 7.67 (1.73) (0.34) 9.68 3.40
------- ------- ------- ------- ------
Total from investment operations ($) 7.32 (2.15) (0.52) 9.61 3.32
------- ------- ------- ------- ------
Distributions from capital gains ($) (0.15) -- (2.31) -- --
------- ------- ------- ------- ------
Total Distributions ($) (0.15) -- (2.31) -- --
------- ------- ------- ------- ------
Net asset value, end of year ($) 30.18 23.01 25.16 27.99 18.38
======= ======= ======= ======= ======
Total return (%)(b) 31.97 (8.55) (1.67) 52.37 21.98
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 409,076 402,010 378,733 180,877 67,816
Expense ratio (%) 2.25 2.18 2.14 2.13 2.21
Expense ratio after expense reductions (%) 2.25 2.17 2.13 2.13 2.20
Ratio of net investment loss to average net assets (%) (1.39) (1.43) (0.62) (0.30) (0.45)
Portfolio turnover rate (%) 48.43 42.18 26.40 76.95 65.13
Class S - Years Ended September 30
--------------------------------------------------------------
2003(a) 2002(a)(f) 2001(a)(f) 2000(a)(f) 1999(a)(f)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 25.05 27.06 29.66 19.23 15.60
------- ------- ------- ------- ------
Net investment income (loss) ($) (0.11) (0.14) 0.13 0.12 0.10
Net realized and unrealized gain (loss) on investments ($) 8.39 (1.87) (0.39) 10.31 3.53
------- ------- ------- ------- ------
Total from investment operations ($) 8.28 (2.01) (0.26) 10.43 3.63
------- ------- ------- ------- ------
Dividends from net investment income ($) -- -- (0.03) -- --
Distributions from capital gains ($) (0.15) -- (2.31) -- --
------- ------- ------- ------- ------
Total Distributions ($) (0.15) -- (2.34) -- --
------- ------- ------- ------- ------
Net asset value, end of year ($) 33.18 25.05 27.06 29.66 19.23
======= ======= ======= ======= ======
Total return (%)(b) 33.21 (7.43) (0.64) 54.32 23.21
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 142,460 92,789 76,711 20,298 1,177
Expense ratio (%) 1.25 1.18 1.14 1.13 1.21
Expense ratio after expense reductions (%) 1.25 1.17 1.13 1.13 1.20
Ratio of net investment income (loss) to average net assets (%) (0.38) (0.43) 0.36 0.63 0.54
Portfolio turnover rate (%) 48.43 42.18 26.40 76.95 65.13
State Street Research Aurora Fund 15
INDEPENDENT AUDITORS'
Report
To the Board of Trustees and Shareholders
of State Street Research Aurora Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio holdings, of State Street Research Aurora Fund (the "Fund"), a
series of State Street Research Capital Trust, as of September 30, 2003, and the
related statement of operations, the statement of changes in net assets, and the
financial highlights for the year ended September 30, 2003. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of changes
in net assets for the year ended September 30, 2002, and the financial
highlights for each of the years in the four-year period ended September 30,
2002, were audited by other auditors whose report dated November 8, 2002,
expressed an unqualified opinion on such statement and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence suporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of September 30, 2003, and the results of its operations, the changes in
its net assets, and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 31, 2003
16
TRUSTEES AND OFFICERS
State Street Research Capital Trust
Name, Position(s) Term of Office
Address Held with and Length of Principal Occupations
and Age(a) Fund Time Served(b) During Past 5 Years
===================================================================================================
Independent Trustees
Bruce R. Bond Trustee Since Retired; formerly Chairman of the Board, Chief
(57) 1999 Executive Officer and President, PictureTel
Corporation (video conferencing systems)
- ---------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Since Retired; formerly Senior Vice President for
(66) 1997 Finance and Operations and Treasurer, The
Pennsylvania State University
- ---------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Since Retired; formerly Executive Vice President, Chief
(71) 1985 Operating Officer and Director, Hewlett-Packard
Company (computer manufacturer)
- ---------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Since Dean, School of Business and Public Management,
(58) 1998 George Washington University; formerly a member of
the Board of Governors of the Federal Reserve
System; and Chairman and Commissioner of the
Commodity Futures Trading Commission
- ---------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since President, Founders Investments Ltd.
(65) 1995 (investments); formerly President, The Glen Ellen
Company (private investment firm)
- ---------------------------------------------------------------------------------------------------
Michael S. Trustee Since Jay W. Forrester Professor of Management, Sloan
Scott Morton (66) 1987 School of Management, Massachusetts Institute of
Technology
- ---------------------------------------------------------------------------------------------------
James M. Storey Trustee Since Attorney; formerly Partner, Dechert (law firm)
(72) 2002
===================================================================================================
Interested Trustees
Richard S. Davis(+) Trustee Since Chairman of the Board, President and Chief
(58) 2000 Executive Officer of State Street Research &
Management Company; formerly Senior Vice
President, Fixed Income Investments, Metropolitan
Life Insurance Company
===================================================================================================
Officers
John F. Burbank Vice Since Managing Director of State Street Research &
(66) President 2001 Management Company; formerly Senior Vice
President, State Street Research & Management
Company
- ---------------------------------------------------------------------------------------------------
Caroline Evascu Vice Since Vice President of State Street Research &
(28) President 2003 Management Company; formerly Vice President and
senior analyst at SG Cowen Asset Management; and
research associate at Donaldson, Lufkin & Jenrette
- ---------------------------------------------------------------------------------------------------
C. Kim Goodwin Vice Since Managing Director and Chief Investment Officer -
(44) President 2002 Equities of State Street Research & Management
Company; formerly Chief Investment Officer - U.S.
Growth Equities, American Century
- ---------------------------------------------------------------------------------------------------
Paul Haagensen Vice Since Senior Vice President of State Street Research &
(57) President 2003 Management Company; formerly Portfolio Manager and
senior analyst at Putnam Investments
- ---------------------------------------------------------------------------------------------------
Eileen M. Leary Vice Since Senior Vice President of State Street Research &
(41) President 2002 Management Company; formerly Vice President, State
Street Research & Management Company
- ---------------------------------------------------------------------------------------------------
John S. Lombardo Vice Since Managing Director, Chief Financial Officer and
(48) President 2001 Director of State Street Research & Management
Company; formerly Executive Vice President, State
Street Research & Management Company; and Senior
Vice President, Product and Financial Management,
MetLife Auto & Home
- ---------------------------------------------------------------------------------------------------
Andrew Morey Vice Since Senior Vice President of State Street Research &
(34) President 2003 Management Company; formerly Vice President, State
Street Research & Management Company
- ---------------------------------------------------------------------------------------------------
Tucker Walsh Vice Since Managing Director of State Street Research &
(34) President 1999 Management Company; formerly Vice President and
analyst, State Street Research & Management
Company
- ---------------------------------------------------------------------------------------------------
Douglas A. Romich Treasurer Since Senior Vice President and Treasurer of State
(46) 2001 Street Research & Management Company; formerly
Vice President and Assistant Treasurer, State
Street Research & Management Company
- ---------------------------------------------------------------------------------------------------
Francis J. Secretary Since Managing Director, General Counsel and Secretary
McNamara, III (48) 1995 of State Street Research & Management Company;
formerly Executive Vice President, State Street
Research & Management Company
Number of Funds
Name, in Fund Complex Other
Address Overseen by Directorships Held
and Age(a) Trustee/Officer(c) by Trustee/Officer
================================================================================
Independent Trustees 19 Ceridian Corporation
Bruce R. Bond
(57)
- --------------------------------------------------------------------------------
Steve A. Garban 55 Metropolitan Series Fund, Inc.(d)
(66)
- --------------------------------------------------------------------------------
Dean O. Morton 55 The Clorox Company; KLA-Tencor
(71) Corporation; BEA Systems, Inc.;
Cepheid; Pharsight Corporation; and
Metropolitan Series Fund, Inc.(d)
- --------------------------------------------------------------------------------
Susan M. Phillips 19 The Kroger Co.
(58)
- --------------------------------------------------------------------------------
Toby Rosenblatt 55 A.P. Pharma, Inc.; and Metropolitan
(65) Series Fund, Inc.(d)
- --------------------------------------------------------------------------------
Michael S. 55 Metropolitan Series Fund, Inc.(d)
Scott Morton (66)
- --------------------------------------------------------------------------------
James M. Storey 19 SEI Investments Funds (consisting of
(72) 104 portfolios); and The
Massachusetts Health & Education
Tax-Exempt Trust
================================================================================
Interested Trustees
Richard S. Davis(+) 19 None
(58)
================================================================================
Officers
John F. Burbank 3 None
(66)
- --------------------------------------------------------------------------------
Caroline Evascu 3 None
(28)
- --------------------------------------------------------------------------------
C. Kim Goodwin 18 None
(44)
- --------------------------------------------------------------------------------
Paul Haagensen 3 None
(57)
- --------------------------------------------------------------------------------
Eileen M. Leary 3 None
(41)
- --------------------------------------------------------------------------------
John S. Lombardo 19 None
(48)
- --------------------------------------------------------------------------------
Andrew Morey 3 None
(34)
- --------------------------------------------------------------------------------
Tucker Walsh 3 None
(34)
- --------------------------------------------------------------------------------
Douglas A. Romich 19 None
(46)
- --------------------------------------------------------------------------------
Francis J. 19 None
McNamara, III (48)
The fund's Statement of Additional Information includes additional information
about the fund's trustees, and is available without charge, by contacting State
Street Research, One Financial Center, Boston, Massachusetts 02111-2690, or by
calling toll-free 1-87-SSR-FUNDS (1-877-773-8637).
(a) The address of each person is c/o State Street Research & Management
Company, One Financial Center, Boston, MA 02111-2690.
(b) A Trustee serves until he or she retires, resigns or is removed as provided
in the master trust agreement of the respective Trust. Each Trust has
adopted a mandatory retirement age of 72. Each officer holds office until he
or she resigns, is removed or a successor is elected.
(c) Includes all series of 9 investment companies for which State Street
Research & Management Company has served as sole investment adviser and all
series of Metropolitan Series Fund, Inc. The primary adviser to Metropolitan
Series Fund, Inc., is MetLife Advisers, LLC, which has retained State Street
Research & Management Company as sub-adviser to certain series of
Metropolitan Series Fund, Inc.
(d) Serves as Director of Metropolitan Series Fund, Inc., an investment company
comprising 36 separate portfolios.
(+) Mr. Davis is an "interested person" of the Trust under the Investment
Company Act of 1940 by reason of his affiliation with the Trust's Investment
Manager, State Street Research & Management Company, as noted.
State Street Research Aurora Fund 17
[LOGO] STATE STREET RESEARCH
One Financial Center
Boston, MA 02111-2690
----------------
PRSRT STD
U.S. POSTAGE
PAID
PERMIT #6
HUDSON, MA
----------------
- --------------------------------------------------------------------------------
New accounts, mutual fund purchases,
exchanges and account information
Internet www.ssrfunds.com
E-mail info@ssrfunds.com
Phone 1-87-SSR-FUNDS (1-877-773-8637),
toll-free, 7 days a week, 24 hours a day
Hearing-impaired: 1-800-676-7876
Chinese- and Spanish-speaking: 1-888-638-3193
Fax 1-617-737-9722 (request confirmation number
first from the Service Center by calling 1-877-773-8637)
Mail State Street Research Service Center
P.O. Box 8408, Boston, MA 02266-8408
- --------------------------------------------------------------------------------
Did You Know?
State Street Research offers electronic delivery of quarterly statements,
shareholder reports and fund prospectuses. If you elect this option, we will
send these materials to you via e-mail. To learn more, visit us on the Web at
www.ssrfunds.com and click on "Go to Your Account" or call us at 1-87-SSR-FUNDS
(1-877-773-8637).
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.
- --------------------------------------------------------------------------------
OverView
For more information on the products and services we offer, refer to OverView,
our quarterly shareholder newsletter.
Webcasts
For a professional perspective on the markets, the economy and timely investment
topics, tune in to a State Street Research webcast by visiting our website at
www.ssrfunds.com.
Complete Fund Listing
For a list of our funds, visit our website at www.ssrfunds.com under Research
Our Funds.
[GRAPHIC]
for Excellence in
Shareholder Communications
[GRAPHIC]
for Excellence in Service
This report must be accompanied or preceded by a current prospectus. When used
as sales material after December 31, 2003, this report must be accompanied by a
current Quarterly Performance Update.
To obtain a prospectus for any State Street Research fund call 1-87-SSR-FUNDS
(1-877-773-8637) or by visiting our website at www.ssrfunds.com. 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 quality shareholder
communications, 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 industrywide.
Member NASD, SIPC
(C)2003 State Street Research Investment Services, Inc.
One Financial Center
Boston, MA 02111-2690
www.ssrfunds.com
CONTROL NUMBER:(exp1104)SSR-LD
AR-2655-1103
<Page>
FORM N-CSR(2 OF 3)
ITEM 2:
(a) The Registrant has, as of the end of the period covered by this
report, adopted a code of ethics pursuant to Section 406 of
the Sarbanes-Oxley Act and as defined in the instructions to
Form N-CSR that applies to the Registrant's principal executive
officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the
Registrant or a third party.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in
2(a) above.
(c) During the period covered by this report, there were not any
waivers or implicit waivers to a provision of the code of ethics
adopted in 2(a) above.
ITEM 3:
The Registrant's Board of Directors has determined that Steve A.
Garban, a member of the Registrant's Board of Directors and Audit
Committee, qualifies as the "audit committee financial expert" as such
term is defined in the instructions to Form N-CSR. Mr. Garban is
"independent," as defined in the instructions to Form N-CSR.
ITEM 4 (PRINCIPAL ACCOUNTANT FEES AND SERVICES): Not applicable to this filing.
ITEM 5 (RESERVED)
ITEM 6 (RESERVED)
ITEM 7 (DISCLOSURE OF PROXY VOTING POLICIES & PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES): Not applicable to this filing.
ITEM 8 (RESERVED)
ITEM 9 (CONTROLS AND PROCEDURES):
SUB-ITEM 9a - The Principal Executive Officer and the Principal
Financial Officer have concluded that the State Street Research Capital
Trust disclosure controls and procedures (as defined in Rule 30-a2(c)
under the Investment Company Act) provide reasonable assurances that
material information relating to the State Street Research Capital
Trust is made known to them by the appropriate persons, based on their
evaluation of these controls and procedures as of a date within 90 days
of the filing date of this report.
SUB-ITEM 9b - There were no significant changes in the registrant's
internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation referenced in
(a)(i) above.
ITEM 10 (EXHIBITS):
(a)(1) Code of Ethics required to be disclosed under Item 2 of Form
N-CSR attached hereto as Exhibit 99.CODE ETH
(a)(2) Certification for each principal executive and principal
financial officer of the Registrant required by Rule 30a-2(a)
under the Investment Company Act of 1940, as amended (17 CFR
270.30a-2(a)) attached hereto as Exhibit 99.302CERT
(b) Certification required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) attached
hereto as Exhibit 99.906CERT
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
State Street Research Capital Trust
By: /s/ Richard S. Davis
------------------------------------------------------
Richard S. Davis, President, Chairman and
Chief Executive Officer
Principal Executive Officer
Date December 3, 2003
------------------------------------------------------
<Page>
FORM N-CSR(3 OF 3)
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities, and on the
dates indicated.
By: /s/ Richard S. Davis
------------------------------------------------------
Richard S. Davis, President, Chairman and
Chief Executive Officer
Principal Executive Officer
Date December 3, 2003
------------------------
By: /s/ Douglas A. Romich
------------------------------------------------------
Douglas A. Romich, Treasurer
Principal Financial Officer
Date December 3, 2003
------------------------