-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MTyPXcduIgRv9xVNhrIBRsLCYNMrNtEp0heL5mY7qVJe6uNFdISrc35O6TiD7kY9 qjKzKS7LB2r+UtTL3gIhdg== 0001047469-04-036424.txt : 20041208 0001047469-04-036424.hdr.sgml : 20041208 20041208105217 ACCESSION NUMBER: 0001047469-04-036424 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041208 DATE AS OF CHANGE: 20041208 EFFECTIVENESS DATE: 20041208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STATE STREET RESEARCH CAPITAL TRUST CENTRAL INDEX KEY: 0000727101 IRS NUMBER: 046171663 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-03838 FILM NUMBER: 041189951 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CTR STREET 2: RM 3800 CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6173577800 FORMER COMPANY: FORMER CONFORMED NAME: STATE STREET CAPITAL FUND INC DATE OF NAME CHANGE: 19890530 N-CSR 1 a2147587zn-csr.txt N-CSR 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 ---------------------------------------------- State Street Research Capital Trust ------------------------------------------------------------------------ (Exact name of registrant as specified in charter) One Financial Center, Boston, MA 02111 ------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Richard S. Davis, President and Chief Executive Officer State Street Research & Management Company One Financial Center, Boston, MA 02111 ------------------------------------------------------------------------ (Name and address of agent for service) Registrant's telephone number, including area code: 617-357-1200 ------------------ Date of fiscal year end: 9/30/04 ----------------- Date of reporting period: 10/1/03 - 9/30/04 ---------------------------- 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. [LOGO] STATE STREET RESEARCH [GRAPHIC] Mid-Cap Growth Fund September 30, 2004 Annual Report to Shareholders Table of Contents 3 Performance Discussion 6 About Your Fund Expenses 7 Portfolio Holdings 9 Financial Statements 13 Financial Highlights 15 Independent Auditors' Report 16 Trustees and Officers FROM THE CHAIRMAN State Street Research Optimism in the Economy The pace of U.S. economic growth was robust over the past 12 months as the economy advanced on all fronts. Gross domestic product (GDP) growth, a common measure of economic growth, averaged just short of 4.0% for the period, solidly above the economy's long-term trend rate of 3.0%. Our analysts expect the economy to grow between 3.5% and 4.0% for the remainder of 2004 and into 2005. Consumers continued to play a key role in the economy. Spending on retail goods, autos and housing remained generally strong throughout the period. Retail sales slowed during the summer months of 2004 as a result of higher energy prices and weather-related events. But the pace of consumer spending picked up again in September, as did consumer confidence, which see-sawed along with the outlook for the labor market throughout the period. The number of new jobs continued to fall short of expectations. In the spring, more than one million new jobs were added to the economy. But job growth was disappointing again during the summer months. The economy has yet to replace all the jobs lost in the downturn of 2000-2001. A pick-up in business spending was the bright spot in the economy. Industrial production moved steadily higher, as did manufacturing capacity utilization. Outlays for new equipment and construction enjoyed double-digit growth in the second half of the period. Strong spending by business helped offset some of the slowdown in consumer spending. Stocks Stumble, Bonds Edge Higher The U.S. stock market began the period on a strong note. However, the double-digit gains it achieved over the twelve months covered by this report were accumulated early in the period and the broad stock market indexes have been essentially flat in 2004. By contrast, the bond market has held up in the face of three increases in the Federal funds rate (a key short-term interest rate) that occurred late in the period. The yield on the 10-year benchmark U.S. Treasury ended the period only slightly higher than where it began, and bond prices moved higher across all sectors. Investing Despite Uncertainty By all accounts, news on the economy and the markets has been overshadowed over the past year by external events. As a result, many investors have remained on the sidelines. With so much uncertainty, it may feel safer to wait out the storm. Yet, it can be even more risky to try to time your entrances and exits as the markets move through their natural cycles. If you're feeling uncertain about your financial strategy, talk to your financial professional. With the advice and guidance of a financial professional, you can keep your financial goals on track. Sincerely, /s/ Richard S. Davis Richard S. Davis Chairman September 30, 2004 2 - ------------------ PERFORMANCE - ------------------ Discussion as of September 30, 2004 How State Street Research Mid-Cap Growth Fund Performed State Street Research Mid-Cap Growth Fund (Class A shares, without sales charge) returned 11.59% for the 12-month period ended September 30, 2004. The fund underperformed the Russell Midcap[RegTM] Growth Index, which returned 13.68% over the same period. However, the fund outperformed the Lipper Mid-Cap Growth Funds Average, which was 10.42% for the period. Performance: Class A - -------------------------------------------------------------------------------- Fund average annual total return as of 9/30/04 (does not reflect sales charge)
1 Year 5 Years 10 Years 11.59% -1.64% 4.43%
- -------------------------------------------------------------------------------- Fund average annual total return as of 9/30/04 (at maximum applicable sales charge)
1 Year 5 Years 10 Years 5.17% -2.80% 3.82%
- ------------------------------------------------------------------------------- Russell Midcap Growth Index as of 9/30/04
1 Year 5 Years 10 Years 13.68% 0.63% 9.64%
- -------------------------------------------------------------------------------- See pages 4 and 5 for additional performance data for Class A shares and for performance data on other share classes. Keep in mind that the performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted herein. For the most recent month-end performance results, visit our website at www.ssrfunds.com. 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. Average annual total return without sales charge does not reflect the maximum applicable sales charges. If the applicable sales charges were deducted, performance results would be lower. Average annual total return at maximum applicable sales charge reflects a maximum 5.75% Class A share front-end sales charge. The Russell Midcap Growth Index contains those stocks within the complete Russell MidcapT Index (800 of the smallest securities in the Russell 1000T 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 an index. The Lipper Mid-Cap Growth Funds Average shows the performance of a category of mutual funds with similar goals. The Lipper average shows you how well the fund has done compared to competing funds. - -------------------------------------------------------------------------------- Reasons for the Fund's Performance Although the fund lagged its benchmark during the year, it posted attractive gains. Its strong absolute return was the result of stock selection in the autos & transportation, energy and health care sectors. An emphasis on the top-performing energy sector also helped boost returns. The fund's shortfall relative to its benchmark was the result of weak stock selection in the technology, producer durables and materials & processing sectors. Within the automobiles & transportation sector, labor costs, rising fuel prices and increasing competition continued to weigh on the airline industry. In energy, our holdings in coal and crude oil producers Consol Energy and EOG Resources benefited from rising prices. Both companies' stock prices are highly dependent on the underlying commodity prices. Within the technology sector, American Power Conversion and Cypress Semiconductor were among the largest detractors from the fund's return during the period. Looking Ahead We believe that continued signs of economic strength, an accommodative Federal Reserve Board policy and the resolution of the uncertainty surrounding the presidential election could provide the catalysts for positive momentum in the stock market going forward. In this environment, we believe that stock selection is likely to drive returns. We will continue to focus our efforts on fundamental research and bottom-up stock selection. A Word about Risk The major risks of stock investing include sudden and unpredictable drops in value and period of lackluster performance. Growth stocks of any size company often have an above-average sensitivity to market fluctuations as their market prices tend to reflect future expectations. At times when it appears that these expectations may not be met, growth stock prices typically fall. Mid-cap companies entail greater risk and are usually more volatile than larger companies. Growth stocks can be volatile, as they usually reinvest a high proportion of their earnings in their own business and lack the dividends associated with value stocks. Summary Portfolio Schedule - --------------------------------------------------------------------------------
Summary Portfolio Schedule - -------------------------------------------------------------------------------- Industries % of Fund Net Assets Consumer Discretionary 22.1% - -------------------------------------------------------------------------------- Health Care 21.7% - -------------------------------------------------------------------------------- Technology 15.1% - -------------------------------------------------------------------------------- Financial Services 11.7% - -------------------------------------------------------------------------------- Other Energy 9.1% - -------------------------------------------------------------------------------- Producer Durables 8.5% - -------------------------------------------------------------------------------- Materials & Processing 3.0% - -------------------------------------------------------------------------------- Consumer Staples 2.5% - -------------------------------------------------------------------------------- Utilities 2.3% - -------------------------------------------------------------------------------- Automobiles & Transportation 1.1% - -------------------------------------------------------------------------------- Other 1.0% - -------------------------------------------------------------------------------- Net Cash 1.9% - -------------------------------------------------------------------------------- Total 100.0%
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. State Street Research Mid-Cap Growth Fund 3 - ------------------ PERFORMANCE - ------------------ Discussion as of September 30, 2004 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. - -------------------------------------------------------------------------------- Class A
1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 11.59% -7.95% 54.30% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 5.17% -13.24% 45.42% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 5.17% -2.80% 3.82% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell Midcap Class A Growth Index ------- --------------- 94 9425 10000 95 12908 12967 96 14214 15085 97 15226 19556 98 12464 17722 99 15799 24316 00 24473 38995 01 12277 18809 02 9817 15893 03 13032 22076 04 14542 25098
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class B(1)
1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 10.94% -10.96% 43.57% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 5.94% -11.75% 43.57% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 5.94% -2.47% 3.68% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell Midcap Class B(1) Growth Index --------- --------------- 94 10000 10000 95 13590 12967 96 14858 15085 97 15790 19556 98 12824 17722 99 16125 24316 00 24815 38995 01 12347 18809 02 9826 15893 03 12941 22076 04 14357 25098
- -------------------------------------------------------------------------------- Keep in mind that the performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted herein. For the most recent month-end performance results, visit our website at www.ssrfunds.com. 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. Cumulative Total Return without sales charge does not reflect the maximum applicable sales charges. If the applicable sales charges were deducted, performance results would be lower. 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) 12.53% -8.43% 47.65% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 7.53% -9.24% 47.65% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 7.53% -1.92% 3.97% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell Midcap Class B Growth Index ------- --------------- 94 10000 10000 95 13590 12967 96 14858 15085 97 15790 19556 98 12824 17722 99 16125 24316 00 24804 38995 01 12356 18809 02 9862 15893 03 13121 22076 04 14765 25098
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class C
1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 10.68% -11.25% 43.23% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 9.68% -11.25% 43.23% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 9.68% -2.36% 3.66% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell Midcap Class C Growth Index ------- --------------- 94 10000 10000 95 13607 12967 96 14863 15085 97 15794 19556 98 12832 17722 99 16139 24316 00 24831 38995 01 12377 18809 02 9812 15893 03 12941 22076 04 14323 25098
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class S
1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 11.97% -6.56% 58.49% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 11.97% -6.56% 58.49% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 11.97% -1.35% 4.71% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell Midcap Class S Growth Index ------- --------------- 94 10000 10000 95 13730 12967 96 15159 15085 97 16268 19556 98 13350 17722 99 16961 24316 00 26344 38995 01 13257 18809 02 10616 15893 03 14154 22076 04 15849 25098
- -------------------------------------------------------------------------------- Cumulative and Average Annual Total Return at maximum applicable sales charge reflect 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, returns would have been lower. Class S shares, offered without sales charge, are available through certain retirement plans and special programs. The Russell Midcap Growth Index contains those stocks within the complete 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 an index. State Street Research Mid-Cap Growth Fund 5 About Your Fund Expenses As a fund shareholder, you incur two types of costs: (1) Transaction costs, which include sales charges, and (2) ongoing expenses, which include management fees, service/distribution fees (12b-1) and "other" expenses. The examples below illustrate the ongoing cost in dollars of investing in the fund and allow you to compare these costs with the expenses of other funds. The examples are based on a $1,000 investment at the beginning of the period and held for the entire period from March 31, 2004, to September 30, 2004. Actual Fund Return is based on the fund's actual return and expenses. To estimate the ongoing expenses you paid during the entire period shown, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number shown for your fund under the column "Expenses Paid during the Period." Hypothetical 5% Return is based on the fund's actual expense ratio and an assumed rate of 5% per year before expenses. Please note that the return used is not the fund's actual return; therefore, this information may not be used to estimate your actual ending account balance and expenses paid during the period. To compare your fund's ongoing expenses with those of other funds, simply compare this 5% hypothetical example with the 5% hypothetical examples shown in the shareholder reports of other funds. Beginning Ending Expenses Account Account Paid Annualized Six months ended Value Value during Expense 9/30/04 3/31/04 9/30/04 Period* Ratio - --------------------------------------------------------------------------------- Actual Fund Return - --------------------------------------------------------------------------------- Class A $1,000 $ 960.76 $ 8.24 1.68% - --------------------------------------------------------------------------------- Class B(1) $1,000 $ 953.81 $ 11.63 2.38% - --------------------------------------------------------------------------------- Class B (closed) $1,000 $ 965.10 $ 6.80 1.38% - --------------------------------------------------------------------------------- Class C $1,000 $ 952.04 $ 11.62 2.38% - --------------------------------------------------------------------------------- Class S $1,000 $ 964.09 $ 6.78 1.38% - --------------------------------------------------------------------------------- Hypothetical 5% Return - --------------------------------------------------------------------------------- Class A $1,000 $ 1,016.60 $ 8.47 1.68% - --------------------------------------------------------------------------------- Class B(1) $1,000 $ 1,013.10 $ 11.98 2.38% - --------------------------------------------------------------------------------- Class B (closed) $1,000 $ 1,018.08 $ 6.98 1.38% - --------------------------------------------------------------------------------- Class C $1,000 $ 1,013.10 $ 11.98 2.38% - --------------------------------------------------------------------------------- Class S $1,000 $ 1,018.10 $ 6.98 1.38% - ---------------------------------------------------------------------------------
* Expenses are equal to the fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the period and then divided by the number of days in the year. Please note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transactional expenses such as sales charges, which would result in higher total expenses. It should also be noted that, for certain funds, expenses have been subsidized or reduced through expense offset arrangements, which reduces costs for shareholders. Generally, the fund expects that the expense subsidy or expense offset arrangement will continue although there is no guarantee that it will. Please see the fund's prospectus for more information. 6 - ------------ PORTFOLIO - ------------ Holdings September 30, 2004
Issuer Shares Value - --------------------------------------------------------------------------------------------------------------- Common Stocks 98.1% Automobiles & Transportation 1.1% Air Transport 1.1% Expeditors International of Washington Inc. 78,200 $ 4,042,940 ------------ Total Automobiles & Transportation ....................................... 4,042,940 ------------ Consumer Discretionary 22.1% Advertising Agencies 1.2% Lamar Advertising Co.* ................................................... 103,800 4,319,118 ------------ Casinos/Gambling, Hotel/Motel 3.8% Four Seasons Hotels Inc.^ ................................................ 30,200 1,935,820 International Game Technology Inc. ....................................... 58,000 2,085,100 Marriott International Inc. .............................................. 79,700 4,141,212 Starwood Hotels & Resorts Inc. ........................................... 113,400 5,264,028 ------------ 13,426,160 ------------ Commercial Services 4.8% ChoicePoint Inc.* ........................................................ 149,566 6,378,990 Corporate Executive Board Co.*^ .......................................... 89,300 5,468,732 Manpower Inc. ............................................................ 115,700 5,147,493 ------------ 16,995,215 ------------ Consumer Electronics 1.4% Electronic Arts Inc.* .................................................... 23,400 1,076,166 Harman International Inc. ................................................ 17,100 1,842,525 Yahoo! Inc.* ............................................................. 57,100 1,936,261 ------------ 4,854,952 ------------ Consumer Products 1.1% Yankee Candle Company Inc.^ .............................................. 133,500 3,866,160 ------------ Retail 8.9% CDW Corp. ................................................................ 106,200 6,162,786 Chico's FAS Inc.*^ ....................................................... 88,600 3,030,120 Linens 'n Things Inc.* ................................................... 121,900 2,824,423 MSC Industrial Direct Inc. ............................................... 167,300 5,701,584 PETsMART Inc. ............................................................ 129,000 3,662,310 Staples Inc.* ............................................................ 164,648 4,909,803 Williams-Sonoma Inc.* .................................................... 144,300 5,418,465 ------------ 31,709,491 ------------ Textile Apparel Manufacturers 0.9% Coach Inc.* .............................................................. 74,500 3,160,290 ------------ Total Consumer Discretionary ............................................. 78,331,386 ------------ Consumer Staples 2.5% Beverages 0.8% Pepsi Bottling Group Inc. ................................................ 110,000 2,986,500 ------------ Household Products 1.7% Clorox Co. ............................................................... 113,400 6,044,220 ------------ Total Consumer Staples ................................................... 9,030,720 ------------
Issuer Shares Value - --------------------------------------------------------------------------------------------------------------- Financial Services 11.7% Banks & Savings & Loan 1.7% City National Corp.^ ..................................................... 29,400 $ 1,909,530 North Fork Bancorp. Inc.^ ................................................ 91,900 4,084,955 ------------ 5,994,485 ------------ Financial Data Processing Services & Systems 2.7% Alliance Data Systems Corp. .............................................. 103,200 4,185,792 CheckFree Corp.* ......................................................... 65,100 1,801,317 DST Systems Inc. ......................................................... 82,900 3,686,563 ------------ 9,673,672 ------------ Insurance 1.0% WellChoice Inc.* ......................................................... 93,000 3,471,690 ------------ Miscellaneous Financial 3.0% Ambac Financial Group Inc. ............................................... 45,800 3,661,710 Chicago Mercantile Exchange Holdings, Inc. ......................................................... 11,600 1,871,080 Providian Financial Corp.* ............................................... 330,300 5,132,862 ------------ 10,665,652 ------------ Securities Brokerage & Services 3.3% Ameritrade Holding Corp.* ................................................ 265,200 3,185,052 Lehman Brothers Holdings Inc. ............................................ 70,900 5,652,148 T. Rowe Price Group Inc. ................................................. 57,600 2,934,144 ------------ 11,771,344 ------------ Total Financial Services ................................................. 41,576,843 ------------ Health Care 21.7% Drugs & Biotechnology 14.4% Allergan Inc. ............................................................ 48,200 3,496,910 Biogen Inc.* ............................................................. 133,165 8,145,703 Celgene Corp. ............................................................ 33,700 1,962,351 Charles River Laboratories International Inc.^ .................................................... 131,900 6,041,020 Chiron Corp.*^ ........................................................... 64,900 2,868,580 Cytyc Corp.* ............................................................. 206,100 4,977,315 Elan Corp. plc ADR*^ ..................................................... 124,400 2,910,960 Gilead Sciences Inc.* .................................................... 99,800 3,730,524 ICOS Corp.*^ ............................................................. 110,100 2,657,814 IVAX Corp.*^ ............................................................. 177,275 3,394,816 Medicis Pharmaceutical Corp. ............................................. 107,300 4,188,992 Millennium Pharmaceuticals Inc.*^ ........................................ 114,800 1,573,908 Millipore Corp.* ......................................................... 59,100 2,827,935 OSI Pharmaceuticals Inc.* ................................................ 38,300 2,353,918 ------------ 51,130,746 ------------ Health Care Services 5.7% Aetna Inc. ............................................................... 55,200 5,516,136 Caremark Rx Inc.* ........................................................ 325,500 10,438,785 Community Health Systems Inc.* ........................................... 155,800 4,156,744 ------------ 20,111,665 ------------ Hospital Supply 1.6% Guidant Corp. ............................................................ 27,900 1,842,516 Kinetic Concepts Inc.* ................................................... 77,100 4,051,605 ------------ 5,894,121 ------------ Total Health Care ........................................................ 77,136,532 ------------ Materials & Processing 3.0% Chemicals 1.7% EcoLab Inc. .............................................................. 195,400 6,143,376 ------------ Containers & Packaging 1.3% Sealed Air Corp.* ........................................................ 99,400 4,607,190 ------------ Total Materials & Processing ............................................. 10,750,566 ------------
The notes are an integral part of the financial statements. State Street Research Mid-Cap Growth Fund 7
Issuer Shares Value - --------------------------------------------------------------------------------------------------------------- Other 1.0% Multi-Sector 1.0% Nasdaq 100 Shares*^ ...................................................... 102,900 $ 3,616,935 ------------ Total Other .............................................................. 3,616,935 ------------ Other Energy 9.1% Gas Pipelines 2.8% EOG Resources Inc. ....................................................... 150,400 9,903,840 ------------ Miscellaneous Energy 2.1% Consol Energy Inc.^ ...................................................... 137,900 4,811,331 Peabody Energy Corp. ..................................................... 42,700 2,540,650 ------------ 7,351,981 Oil & Gas Producers 1.8% Newfield Exploration Co.* ................................................ 104,900 6,424,076 ------------ Oil Well Equipment & Services 2.4% BJ Services Co.* ......................................................... 61,500 3,223,215 Noble Corp.* ............................................................. 59,700 2,683,515 Weatherford International Ltd.* .......................................... 54,600 2,785,692 ------------ 8,692,422 ------------ Total Other Energy ....................................................... 32,372,319 ------------ Producer Durables 8.5% Aerospace 1.2% Alliant Technology Systems Inc.* ......................................... 70,000 4,235,000 ------------ Industrial Products 1.1% Waters Corp.* ............................................................ 88,900 3,920,490 ------------ Miscellaneous Equipment 1.8% Pentair Inc. ............................................................. 180,800 6,311,728 ------------ Office Furniture & Business Equipment 1.3% Diebold Inc.^ ............................................................ 63,400 2,960,780 Lexmark International Group Inc. ......................................... 21,200 1,781,012 ------------ 4,741,792 ------------ Production Technology Equipment 1.4% Lam Research Corp.* ...................................................... 219,800 4,809,224 ------------ Telecommunications Equipment 1.7% American Tower Corp.*^ ................................................... 230,300 3,535,105 Polycom Inc.* ............................................................ 128,700 2,550,834 ------------ 6,085,939 ------------ Total Producer Durables .................................................. 30,104,173 ------------ Technology 15.1% Communications Technology 1.0% Juniper Networks Inc.*^ .................................................. 150,000 3,540,000 ------------ Computer Software 8.6% Adobe Systems Inc. ....................................................... 74,900 3,705,303 Amdocs Ltd.* ............................................................. 197,800 4,317,974 Ceridian Corp.* .......................................................... 187,300 3,448,193 Mercury Interactive Corp.*^ .............................................. 106,900 3,728,672 NAVTEQ Corp.* ............................................................ 200,000 7,128,000 Siebel Systems Inc.* ..................................................... 312,500 2,356,250 Symantec Corp.* .......................................................... 103,500 5,680,080 ------------ 30,364,472 ------------ Electronics 2.6% Amphenol Corp.* .......................................................... 107,000 3,665,820 Avid Technology, Inc.*^ .................................................. 122,100 5,722,827 ------------ 9,388,647 ------------
Issuer Shares Value - -------------------------------------------------------------------------------------------------------------- Electronics: Semiconductors/Components 2.9% Altera Corp.* ............................................................ 166,900 $ 3,266,233 Linear Technology Corp. .................................................. 99,800 3,616,752 PerkinElmer Inc. ......................................................... 190,000 3,271,800 ------------ 10,154,785 ------------ Total Technology ......................................................... 53,447,904 ------------ Utilities 2.3% Telecommunications 2.3% Nextel Partners Inc.*^ ................................................... 369,400 6,124,652 Nil Holdings Inc.^ ....................................................... 45,100 1,858,571 ------------ Total Utilities .......................................................... 7,983,223 ------------ Total Common Stocks (Cost $301,830,183) .................................. 348,393,541 ------------ Short-Term Investments 13.0% State Street Navigator Securities Lending Prime Portfolio ......................................................... 46,290,672 46,290,672 ------------
Amount Maturity of Coupon Rate Date Principal - --------------------------------------------------------------------------------------------------------------- Commercial Paper 1.8% Federal National Mortgage Association, 1.71% ............................................ 10/06/2004 $5,088,000 5,086,792 UBS Finance Inc. 1.88%.......................................... 10/01/2004 1,361,000 1,361,000 --------- Total Commercial Paper (Cost $6,447,792) ....................... 6,447,792 ---------
% of Net Assets - --------------------------------------------------------------------------------------------------------------- Summary of Portfolio Assets Investments (Cost $354,568,647) ................................ 112.9% $401,132,005 Other Assets, Less Liabilities ................................. (12.9%) (45,798,067) ------ ------------- Net Assets ..................................................... 100.00 $355,333,938 ====== =============
KEY TO SYMBOLS ADR Stands for American Depositary Receipt * Denotes a security which has not paid a dividend during the last year. ^ A portion or all of the security was held on loan. At September 30, 2004, the value of securities loaned was $45,267,637. Federal Income Tax Information At September 30, 2004, the net unrealized appreciation of investments based on cost for federal income tax purposes of $354,635,514 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $55,585,372 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (9,088,881) ----------- $46,496,491 ===========
Options open at September 30, 2004, are as follows:
Unrealized Number of Expiration Appreciation Type Contracts Premium Month (Depreciation) - --------------------------------------------------------------------------------------------------------------- Peabody Energy Corp. Call ....................... (427) $ (42,123) December 2004 $ (13,387) Symantec Corp. Call ............................. (690) (84,180) January 2005 (43,470) --------- --------- $(126,303) $ (56,857) ========= =========
8 The notes are an integral part of the financial statements. - ----------- FINANCIAL - ----------- Statements Statement of Assets and Liabilities - -------------------------------------------------------------------------------- September 30, 2004
Assets Investments, at value (Cost $354,568,647) (Note 1) ........... $401,132,005 Receivable for securities sold ............................... 2,093,461 Dividends receivable ......................................... 42,426 Receivable for fund shares sold .............................. 33,496 Other assets ................................................. 72,113 ------------ 403,373,501 ------------ Liabilities Payable for collateral received on securities loaned ......... 46,290,672 Accrued transfer agent and shareholder services .............. 560,045 Payable for fund shares redeemed ............................. 493,391 Accrued management fee ....................................... 261,201 Options written, at value (premium $126,303) ................. 183,160 Accrued distribution and service fees ........................ 93,290 Accrued trustees' fees ....................................... 25,468 Accrued administration fee ................................... 7,888 Payable to custodian ......................................... 327 Other accrued expenses ....................................... 124,121 ------------ 48,039,563 ------------ Net Assets ................................................... $355,333,938 ============ Net Assets consist of: Unrealized appreciation of investments ..................... $ 46,563,358 Unrealized depreciation of options ......................... (56,857) Accumulated net realized loss .............................. (299,335,565) Pain-in capital ............................................ 608,163,002 ------------ $355,333,938 ============
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 $236,346,311 39,603,940 $ 5.97* B(1) $ 31,343,308 6,186,224 $ 5.07** B $ 39,653,604 7,617,075 $ 5.21** C $ 11,740,364 2,309,280 $ 5.08** S $ 36,250,351 5,703,852 $ 6.36
* Maximum offering price per share = $6.34 ($5.97 [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, 2004
Investment Income Dividends, net of foreign taxes of $2,710 (Note 1) ........... $ 1,173,541 Securities lending income (Note 1) ........................... 96,355 Interest (Note 1) ............................................ 93,661 ----------- 1,363,557 ----------- Expenses Management fee (Note 2) ...................................... 2,805,522 Transfer agent and shareholder services (Note 2) ............. 1,871,914 Administration fee (Note 2) .................................. 106,536 Custodian fee ................................................ 102,608 Reports to shareholders ...................................... 90,296 Distribution and service fees - Class A (Note 4) ............. 669,777 Distribution and service fees - Class B(1) (Note 4) .......... 320,033 Distribution and service fees - Class C (Note 4) ............. 126,457 Registration fees ............................................ 63,000 Audit fee .................................................... 31,448 Trustees' fees (Note 2) ...................................... 21,924 Legal fees ................................................... 5,247 Miscellaneous ................................................ 19,500 ----------- 6,234,262 Fees paid indirectly (Note 2) ................................ (1,281) ----------- 6,232,981 ----------- (4,869,424) Reimbursement of distribution fees (Note 4) .................. 270,857 ----------- Net investment loss .......................................... (4,598,567) ----------- Realized and Unrealized Gain (Loss) on Investments and Options Net increase from payment by affiliate (Note 1) .............. 9,526 ----------- Net realized gain on investments (Notes 1 and 3) ............. 56,868,980 ----------- Change in unrealized depreciation of options ................. (56,857) Change in unrealized depreciation of investments ............. (11,935,999) ----------- Total change in unrealized appreciation ...................... (11,992,856) ----------- Net gain on investments ...................................... 44,885,650 ----------- Net increase in net assets resulting from operations ......... $40,287,083 ===========
The notes are an integral part of the financial statements. State Street Research Mid-Cap Growth Fund 9 Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Years ended September 30 -------------------------------- 2004 2003 -------------------------------- Increase In Net Assets Operations: Net investment loss .................. $ (4,598,567) $ (3,959,087) Net increase from payment by affiliate ......................... 9,526 -- Net realized gain (loss) on investments ....................... 56,868,980 (2,516,067) Change in unrealized appreciation (depreciation) of investments and options ........................... (11,992,856) 96,745,512 -------------------------------- Net increase resulting from operations ........................ 40,287,083 90,270,358 -------------------------------- Net decrease from fund share transactions (Note 6) ............. (34,547,745) (43,134,681) -------------------------------- Total increase in net assets ......... 5,739,338 47,135,677 Net Assets Beginning of year .................... 349,594,600 302,458,923 -------------------------------- End of year .......................... $355,333,938 $349,594,600 ================================
Notes to Financial Statements - -------------------------------------------------------------------------------- September 30, 2004 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 and is 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. Currently, the annual service and distribution fees paid by Class B Shares have been voluntarily reduced to 0.00%. 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. Income, expenses (other than service and distribution fees), and realized and unrealized gains on losses on investments are allocated to each class of shares based on its relative net assets. 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. In the event that the market quotations for a portfolio instrument are not deemed to be readily available, the Investment Adviser's Valuation Committee determines the fair value for such portfolio instrument. The fair value of any such portfolio instruments are determined based upon a consideration of all available facts and information. The fair valuation of a restricted portfolio instrument reflects the inherent worth of the portfolio instrument, without regard to the restrictive feature, adjusted for any diminution in value resulting from the restrictive feature. The Investment Adviser and the Custodian also monitor domestic and foreign markets and news information for any developing events that may have an impact on the valuation of portfolio instruments. Such monitoring includes general market news and financial market information sources currently 10 The notes are an integral part of the financial statements. Notes (continued) - -------------------------------------------------------------------------------- utilized in making investment decisions, trading and investment personnel located abroad, foreign regional brokers, and /or foreign custodians. The value assigned to these securities is based upon available information at the time, and does not necessarily represent the amount which might ultimately realized upon sale. 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. 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, 2004 the payable to the custodian bank of $327 represents the amount due for cash advance for the settlement of the 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, 2004, the fund had a capital loss carryforward of $299,268,696 available, to the extent provided in regulations, to offset future capital gains, if any, of which $212,041,374, and $87,227,324 expire on September 30, 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 net operating losses not utilized. At September 30, 2004, 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 capital loss carryforwards. At September 30, 2004, 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, 2004, the value of the securities loaned and the value of collateral were $45,267,637 and $46,290,672 (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, 2004, income from securities lending amounted to $96,355. H. Options The Fund may use options to hedge against changes in values of securities the Portfolio owns or expects to purchase. Writing puts or buying calls tends to increase the fund's exposure to the underlying instrument and writing calls or buying puts tends to decrease the fund's exposure to the underlying instrument, or hege other fund investments. For options purchased to hedge the fund's investments, the potential risk to the fund is that the change in value of options contracts may correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market, or if the counter party is unable to perform. The maximum loss for purchased options is limited to the premium initially paid for the option. For options written by the fund, the maximum loss is not limited to the premium initially received for the option. 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, 2004, the fees pursuant to such agreement amounted to $2,805,522. 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, 2004, the amount of such expenses allocated to the fund was $491,746. The fund has entered onto an arrangement with its custodian whereby credits realized as a result of directed brokerage commissions were used to reduce a portion of the fund's expenses. During the twelve months ended September 30, 2004 the fund's custodian fees were reduced by $1,281 under this arrangement. The fees of the Trustees not currently affiliated with the Adviser amounted to $21,924 during the year ended September 30, 2004. 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, 2004, the amount of such expenses was $106,536. On February 19, 2004, the Distributor entered into an agreement with the NASD resolving all outstanding issues relating to an investigation by the NASD of the Distributor's email retention practices and supervision of trading activity in shares of the State Street Research funds. The Distributor, without admitting or denying the allegations or the findings set forth in the agreement, and solely for the purposes of the settlement, agreed to the entry of certain findings by the NASD relating to the Distributor's compliance with document retention requirements and the Distributor's supervision of enforcement of shareholder exchange limitations set forth in the funds' prospectuses. The agreement contains no allegations or findings of fraudulent conduct by the Distributor. As part of the agreement the Distributor made a payment to the fund to compensate the fund for losses relating to the exchange of fund shares beyond the annual limit set forth in the fund's prospectus. The payment was allocated among the fund's share classes as follows: $5,845 to Class A; $813 to Class B(1); $1,587 to Class B; $323 to Class C; and $958 to Class S. These amounts are State Street Research Mid-Cap Growth Fund 11 shown in the total amount of $9,526 as "Net increase from payment by affiliate" in the Statement of Operations. Note 3 For the year ended September 30, 2004, purchases and sales of securities, exclusive of short-term obligations, aggregated $356,332,906, and $391,772,228, 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 reduced to 0.00%. 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, 2004, fees pursuant to such plans amounted to $669,777, $320,033 and $126,457 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, 2004, there were $2,427,848, $14,985 and $1,771,015 for Class A, Class 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) shares, the payments compensate the distributor for services and expenditures incurred under the plan, and none of the payments are returnable to the fund. During the year ended September 30, 2004 the Distributor reimbursed a total of $270,857 to Class B shares of the fund reflecting the estimated excess of payments received over costs incurred under the plan. This amount is shown as "Reimbursement of Distribution Fees" in the Statement of Operations. The fund has been informed that the Distributor and MetLife Securities, Inc., a wholly owned subsidiary of MetLife, earned initial sales charges aggregating $163,181 and $747,057, respectively, on sales of Class A shares of the fund during the year ended September 30, 2004, and that MetLife Securities, Inc. earned commissions aggregating $574,627 and $7,297 on sales of Class B(1) and Class C shares, and the Distributor collected contingent deferred sales charges aggregating $60,470, $268 and $410 on redemptions of Class B(1), Class B and Class C shares, respectively, during the same period. Note 5 MetLife announced that it has entered into an agreement to sell the Adviser as part of a larger transaction to sell MetLife's asset management business to BlackRock, Inc. ("BlackRock"). The acquisition by BlackRock of MetLife's asset management business is expected to occur in the first quarter of 2005. At the time of the closing, the advisory agreement between the fund and the Adviser and the distribution agreement between the fund and the Distributor will be terminated. BlackRock Advisors, Inc. and BlackRock Distributors, Inc., wholly owned subsidiaries of BlackRock, will serve as investment adviser and distributor, respectively. A Special Meeting of Shareholders of the fund has been tentatively scheduled for December 2004. At this meeting, shareholders of the fund will be asked to consider and approve a plan of reorganization between the fund and the BlackRock Mid-Cap Growth Equity Portfolio. If the proposed reorganization is approved by shareholders of the fund, the BlackRock Mid-Cap Growth Equity Portfolio would acquire substantially all of the assets and liabilities of the fund. In exchange, shareholders of the fund would receive shares of the BlackRock Mid-Cap Growth Equity Portfolio with an aggregate value equivalent to the aggregate net asset value of their fund shares at the time of the transaction. If the proposed reorganization is not approved by shareholders of the fund, the Board of Trustees will need to consider other alternatives relating to the management and operations of the fund, including without limitations, seeking an alternative investment adviser for the fund or seeking shareholder approval to liquidate the fund.* * The foregoing is not an offer to sell, nor a solicitation of an offer to buy, shares of any fund, nor is it a solicitation of any proxy. 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 ---------------------------------------------------------------------- 2004 2003 ---------------------------------------------------------------------- Class A Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------ Shares sold 12,365,320 $ 75,029,993) 10,362,428 $ 47,693,729 Shares redeemed (6,317,143) (37,277,820) (12,783,402) (57,272,190) ------------- ------------- -------------- ------------- Net increase (decrease) 6,048,177 $ 37,752,173 (2,420,974) $ (9,578,461) ============= ============= ============== ============= Class B(1) Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------ Shares sold 929,181 $ 4,714,722 1,604,810 $ 6,518,156 Shares redeemed (977,296) (4,973,771) (1,808,414) (6,879,464) ------------- ------------- -------------- ------------- Net decrease (48,115) $ (259,049) (203,604) $ (361,308) ============= ============= ============== ============= Class B Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------ Shares sold 114,168 $ 588,374 416,179 $ 1,648,440 Shares redeemed (13,042,758) (68,824,217) (6,915,765) (27,246,929) ------------- ------------- -------------- ------------- Net decrease (12,928,590) $ (68,235,843) (6,499,586) $ (25,598,489) ============= ============= ============== ============= Class C Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------ Shares sold 206,074 $ 1,047,014 316,274 $ 1,309,387 Shares redeemed (520,561) (2,637,595) (799,177) (3,109,189) ------------- ------------- -------------- ------------- Net decrease (314,487) $ (1,590,581) (482,903) $ (1,799,802) ============= ============= ============== ============= Class S Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------ Shares sold 715,078 $ 4,498,709 1,519,064 $ 7,703,821 Shares redeemed (1,048,683) (6,713,154) (2,637,590) (13,500,442) ------------- ------------- -------------- ------------- Net decrease (333,605) $ (2,214,445) (1,118,526) $ (5,796,621) ============= ============= ============== =============
12 - ----------- FINANCIAL - ----------- Highlights
Class A - Years ended September 30 For a share outstanding throughout each year: --------------------------------------------------------------------- 2004(a)(c) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ($) 5.35 4.03 5.04 20.10 13.64 ------ ------- ------- ------- ------- Net investment loss ($) (0.08) (0.06) (0.07) (0.06) (0.15) Net realized and unrealized gain (loss) on investments ($) 0.70 1.38 (0.94) (6.47) 7.44 ------ ------- ------- ------- ------- Total from investment operations ($) 0.62 1.32 (1.01) (6.53) 7.29 ------ ------- ------- ------- ------- Distributions from capital gains ($) -- -- -- (8.53) (0.83) ------ ------- ------- ------- ------- Total distributions ($) -- -- -- (8.53) (0.83) ------ ------- ------- ------- ------- Net asset value, end of year ($) 5.97 5.35 4.03 5.04 20.10 ====== ======= ======= ======= ======= Total return %(b) 11.59 32.75 (20.04) (49.83) 54.91 Ratios/Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year ($ thousands) 236,346 179,519 144,814 201,936 450,521 Expense ratio (%) 1.67 1.75 1.78 1.56 1.38 Expense ratio after expense reductions (%) 1.67 1.74 1.76 1.54 1.37 Ratio of net investment loss to average net assets (%) (1.30) (1.36) (1.33) (0.73) (0.85) Portfolio turnover rate (%) 97.18 104.91 136.30 123.50 171.87 Class B(1) - Years ended September 30 --------------------------------------------------------------------- 2004(a)(c) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ($) 4.57 3.47 4.36 18.83 12.90 ------ ------- ------- ------- ------- Net investment loss ($) (0.10) (0.09) (0.09) (0.09) (0.26) Net realized and unrealized gain (loss) on investments ($) 0.60 1.19 (0.80) (5.85) 7.02 ------ ------- ------- ------- ------- Total from investment operations ($) 0.50 1.10 (0.89) (5.94) 6.76 ------ ------- ------- ------- ------- Distributions from capital gains ($) -- -- -- (8.53) (0.83) ------ ------- ------- ------- ------- Total distributions ($) -- -- -- (8.53) (0.83) ------ ------- ------- ------- ------- Net asset value, end of year ($) 5.07 4.57 3.47 4.36 18.83 ====== ======= ======= ======= ======= Total return %(b) 10.94 31.70 (20.41) (50.25) 53.90 Ratios/Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year ($ thousands) 31,343 28,518 22,314 26,083 37,063 Expense ratio (%) 2.37 2.45 2.48 2.26 2.11 Expense ratio after expense reductions (%) 2.37 2.44 2.46 2.24 2.10 Ratio of net investment loss to average net assets (%) (2.00) (2.17) (2.02) (1.43) (1.52) Portfolio turnover rate (%) 97.18 104.91 136.30 123.50 171.87 Class B - Years ended September 30 ------------------------------------------------------------------------ 2004(a)(c)(d) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ($) 4.63 3.48 4.36 18.82 12.90 ------- ------- ------ ------ ------ Net investment loss ($) (0.05) (0.03) (0.07) (0.10) (0.26) Net realized and unrealized gain (loss) on investments ($) 0.63 1.18 (0.81) (5.83) 7.01 ------- ------- ------ ------ ------ Total from investment operations ($) 0.58 1.15 (0.88) (5.93) 6.75 ------- ------- ------ ------ ------ Distributions from capital gains ($) -- -- -- (8.53) (0.83) ------- ------- ------ ------ ------ Total distributions ($) -- -- -- (8.53) (0.83) ------- ------- ------ ------ ------ Net asset value, end of year ($) 5.21 4.63 3.48 4.36 18.82 ======= ======= ====== ====== ====== Total return %(b) 12.53 33.05 (20.18) (50.18) 53.83 Ratios/Supplemental Data - ------------------------------------------------------------------------------------------ ---------------------------------------- Net assets at end of year ($ thousands) 39,654 95,216 94,029 157,788 411,584 Expense ratio (%) 1.37 1.45 1.88 2.26 2.11 Expense ratio after expense reductions (%) 1.37 1.44 1.86 2.24 2.10 Ratio of net investment loss to average net assets (%) (0.62) (0.83) (1.46) (1.44) (1.58) Portfolio turnover rate (%) 97.18 136.30 136.30 123.50 171.87
State Street Research Mid-Cap Growth Fund 13
Class C - Years ended September 30 --------------------------------------------------------------------- 2004(a)(c) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ------------------------------------------------------------------------------------------ ---------------------------------------- Net asset value, beginning of year ($) 4.59 3.48 4.39 18.87 12.93 ------ ------- ------- ------- ------- Net investment loss ($) (0.10) (0.08) (0.09) (0.10) (0.27) Net realized and unrealized gain (loss) on investments ($) 0.59 1.19 (0.82) (5.85) 7.04 ------ ------- ------- ------- ------- Total from investment operations ($) 0.49 1.11 (0.91) (5.95) 6.77 ------ ------- ------- ------- ------- Distributions from capital gains ($) -- -- -- (8.53) (0.83) ------ ------- ------- ------- ------- Total distributions ($) -- -- -- (8.53) (0.83) ------ ------- ------- ------- ------- Net asset value, end of year ($) 5.08 4.59 3.48 4.39 18.87 ====== ======= ======= ======= ======= Total return %(b) 10.68 31.90 (20.73) (50.15) 53.86 Ratios/Supplemental Data - ------------------------------------------------------------------------------------------ ---------------------------------------- Net assets at end of year ($ thousands) 11,740 12,044 10,805 17,362 51,721 Expense ratio (%) 2.37 2.45 2.48 2.26 2.11 Expense ratio after expense reductions (%) 2.37 2.44 2.46 2.24 2.10 Ratio of net investment loss to average net assets (%) (2.00) (2.00) (2.05) (1.44) (1.58) Portfolio turnover rate (%) 97.18 104.91 136.30 123.50 171.87 Class S - Years ended September 30 --------------------------------------------------------------------- 2004(a)(c) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ------------------------------------------------------------------------------------------ ---------------------------------------- Net asset value, beginning of year ($) 5.68 4.26 5.32 20.62 13.94 ------ ------- ------- ------- ------- Net investment loss ($) (0.06) (0.04) (0.06) (0.04) (0.11) Net realized and unrealized gain (loss) on investments ($) 0.74 1.46 (1.00) (6.73) 7.62 ------ ------- ------- ------- ------- Total from investment operations ($) 0.68 1.42 (1.06) (6.77) 7.51 ------ ------- ------- ------- ------- Distributions from capital gains ($) -- -- -- (8.53) (0.83) ------ ------- ------- ------- ------- Total distributions ($) -- -- -- (8.53) (0.83) ------ ------- ------- ------- ------- Net asset value, end of year ($) 6.36 5.68 4.26 5.32 20.62 ====== ======= ======= ======= ======= Total return %(b) 11.97 33.33 (19.92) (49.68) 55.32 Ratios/Supplemental Data - ------------------------------------------------------------------------------------------ ---------------------------------------- Net assets at end of year ($ thousands) 36,250 34,298 30,497 46,751 121,727 Expense ratio (%) 1.37 1.45 1.48 1.26 1.11 Expense ratio after expense reductions (%) 1.37 1.44 1.46 1.24 1.10 Ratio of net investment loss to average net assets (%) (1.00) (0.87) (1.05) (0.43) (0.58) Portfolio turnover rate (%) 97.18 104.91 136.30 123.50 171.87
(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) During the year ended September 30, 2004, the distributor made restitution payments to the fund as part of a settlement with NASD. These payments had no effect on net realized and unrealized gain per share and total return. (d) During the year ended September 30, 2004, the distributor reimbursed Class B shares of the fund the estimated excess of payments received over costs incurred under the 12b-1 plan. The effect of this reimbursement was to increase net investment income per share $0.02, increase the total return 0.22% and increase the ratio of net investment income to average net assets 0.39%. (e) Audited by other auditors 14 - ----------- REPORT OF - ----------- Independent Registered Public Accounting Firm 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, 2004, and the related statement of operations for the year then ended, and the statement of changes in net assets , and the financial highlights for each of the two years in the period then ended. 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 audits. The financial highlights for each of the years in the three-year period ended September 30, 2002, were audited by other auditors whose report dated November 8, 2002, expressed an unqualified opinion on such financial highlights. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).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, 2004, by correspondence with the custodian. 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 audits provide 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, 2004, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Boston, Massachusetts November 19, 2004 State Street Research Mid-Cap Growth Fund 15 - ----------------------- TRUSTEES AND OFFICERS - ----------------------- State Street Research Capital Trust
Number of Funds in Fund Complex Name, Position(s) Term of Office Overseen Other Address Held with and Length of Principal Occupations by Trustee/ Directorships Held and Age(a) Fund Time Served(b) During Past 5 Years Officer(c) by Trustee/Officer - ------------------------------------------------------------------------------------------------------------------------------------ Independent Trustees Bruce R. Bond Trustee Since Retired; formerly Chairman of the Board, 19 Avaya, Inc. (58) 1999 Chief Executive Officer and President, PictureTel Corporation (video conferencing systems) Peter S. Drotch Trustee Since Retired; formerly Partner, 19 First Marblehead Corp. (62) 2004 PricewaterhouseCoopers LLP Steve A. Garban Trustee Since Retired; formerly Senior Vice President for 53 Metropolitan Series (67) 1997 Finance and Operations and Treasurer, The Fund, Inc.; and Pennsylvania State University Metropolitan Series Fund II Susan M. Phillips Trustee Since Dean, School of Business and Public 19 The Kroger Co. (59) 1998 Management, 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. 53 A.P. Pharma, Inc.; (66) 1995 (investments); formerly President, The Glen Metropolitan Series Ellen Company (private investment firm) Fund, Inc.; and Metropolitan Series Fund II Michael S. Trustee Since Jay W. Forrester Professor of Management 53 Metropolitan Series Scott Morton (67) 1987 (Emeritus), Sloan School of Management, Fund, Inc.; and Massachusetts Institute of Technology Metropolitan Series Fund II Interested Trustees Richard S. Davis(+) Trustee Since Chairman of the Board, President and Chief 19 None (59) 2000 Executive Officer of State Street Research & Management Company; formerly Senior Vice President, Fixed Income Investments, Metropolitan Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Officers C. Kim Goodwin Vice Since Managing Director and Chief Investment 18 Akamai Technologies, (45) President 2002 Officer - Equities of State Street Research Inc. & Management Company; formerly Chief Investment Officer - U.S. Growth Equities, American Century Paul Haagensen Vice Since Senior Vice President of State Street 3 None (58) President 2003 Research & Management Company; formerly Portfolio Manager and senior analyst at Putnam Investments Eileen M. Leary Vice Since Senior Vice President of State Street 3 None (42) President 2002 Research & Management Company; formerly Vice President, State Street Research & Management Company John S. Lombardo Vice Since Managing Director, Chief Financial Officer 19 None (49) President 2001 and 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 3 None (35) President 2003 Research & Management Company; formerly Vice President, State Street Research & Management Company Tucker Walsh Vice Since Managing Director of State Street Research & 3 None (35) 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 19 None (47) 2001 Street Research & Management Company; formerly Vice President and Assistant Treasurer, State Street Research & Management Company
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. and Metropolitan Series Fund II. The primary adviser to Metropolitan Series Fund, Inc., and Metropolitan Series Fund II is MetLife Advisers, LLC, which has retained State Street Research & Management Company as sub-adviser to certain series of Metropolitan Series Fund, Inc. (+) 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. 16 [LOGO] STATE STREET RESEARCH -------------- One Financial Center PRSRT STD Boston, MA 02111-2690 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. Investors should carefully consider the fund's investment objective, risks, charges and expenses before investing. The fund's prospectus contains more complete information on these and other matters. A prospectus for any State Street Research fund is available through your financial professional, by calling toll-free 1-87-SSR-FUNDS (1-877-773-8637) or by visiting our website at www.ssrfunds.com. Please read the prospectus carefully before investing. 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, 2004, this report must be accompanied by a current Quarterly Performance Update. "State Street Research Proxy Voting Policies and Procedures"--which describes how we vote proxies relating to portfolio securities--is available upon request, free of charge, by calling the State Street Research Service Center toll-free at 1-87-SSR-FUNDS (1-877-773-8637) or by accessing the U.S. Securities and Exchange Commission website at www.sec.gov. 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)2004 State Street Research Investment Services, Inc. One Financial Center Boston, MA 02111-2690 www.ssrfunds.com CONTROL NUMBER:(exp1105)SSR-LD MG-2653-1104 [LOGO] STATE STREET RESEARCH Emerging Growth Fund September 30, 2004 Annual Report to Shareholders Table of Contents 3 Performance Discussion 6 About Your Fund Expenses 7 Portfolio Holdings 9 Financial Statements 13 Financial Highlights 16 Independent Auditors' Report 17 Trustees and Officers FROM THE CHAIRMAN State Street Research The pace of U.S. economic growth was robust over the past 12 months as the economy advanced on all fronts. Gross domestic product (GDP) growth, a common measure of economic growth, averaged just short of 4.0% for the period, solidly above the economy's long-term trend rate of 3.0%. Our analysts expect the economy to grow between 3.5% and 4.0% for the remainder of 2004 and into 2005. Consumers continued to play a key role in the economy. Spending on retail goods, autos and housing remained generally strong throughout the period. Retail sales slowed during the summer months of 2004 as a result of higher energy prices and weather-related events. But the pace of consumer spending picked up again in September, as did consumer confidence, which see-sawed along with the outlook for the labor market throughout the period. The number of new jobs continued to fall short of expectations. In the spring, more than one million new jobs were added to the economy. But job growth was disappointing again during the summer months. The economy has yet to replace all the jobs lost in the downturn of 2000-2001. A pick-up in business spending was the bright spot in the economy. Industrial production moved steadily higher, as did manufacturing capacity utilization. Outlays for new equipment and construction enjoyed double-digit growth in the second half of the period. Strong spending by business helped offset some of the slowdown in consumer spending. Stocks Stumble, Bonds Edge Higher The U.S. stock market began the period on a strong note. However, the double-digit gains it achieved over the twelve months covered by this report were accumulated early in the period and the broad stock market indexes have been essentially flat in 2004. By contrast, the bond market has held up in the face of three increases in the Federal funds rate (a key short-term interest rate) that occurred late in the period. The yield on the 10-year benchmark U.S. Treasury ended the period only slightly higher than where it began, and bond prices moved higher across all sectors. Investing Despite Uncertainty By all accounts, news on the economy and the markets has been overshadowed over the past year by external events. As a result, many investors have remained on the sidelines. With so much uncertainty, it may feel safer to wait out the storm. Yet, it can be even more risky to try to time your entrances and exits as the markets move through their natural cycles. If you're feeling uncertain about your financial strategy, talk to your financial professional. With the advice and guidance of a financial professional, you can keep your financial goals on track. Sincerely, /s/ Richard S. Davis Richard S. Davis Chairman September 30, 2004 2 - -------------- PERFORMANCE - -------------- Discussion as of September 30, 2004 How State Street Research Emerging Growth Fund Performed State Street Research Emerging Growth Fund (Class A shares, without sales charge) returned 2.84% for the 12-month period ended September 30, 2004. The fund underperformed the Russell 2000[RegTM] Growth Index and the Lipper Small-Cap Growth Funds Average, which returned 11.92% and 9.19% respectively for the period. Performance: Class A - ------------------------------------------------------------------------------- Fund average annual total return as of 9/30/04 (does not reflect sales charge)
1 Year 5 Years 10 Years 2.84% 5.63% 8.82%
- ------------------------------------------------------------------------------- Fund average annual total return as of 9/30/04 (at maximum applicable sales charge)
1 Year 5 Years 10 Years -3.08% 4.38% 8.18%
- ------------------------------------------------------------------------------- Russell 2000 Growth Index as of 9/30/04
1 Year 5 Years 10 Years 11.92% -0.68% 5.55%
- ------------------------------------------------------------------------------- See pages 4 and 5 for additional performance data for Class A shares and for performance data on other share classes. Keep in mind that the performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted herein. For the most recent month-end performance results, visit our website at www.ssrfunds.com. 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. Average annual total return without sales charge does not reflect the maximum applicable sales charges. If the applicable sales charges were deducted, performance results would be lower. Average annual total return at maximum applicable sales charge reflects a maximum 5.75% Class A share front-end sales charge. Performance results for the fund are increased by the voluntary reduction of fund fees and expenses. Without subsidization, performance results would have been lower. 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 an index. The Lipper Small-Cap Growth Funds Average shows the performance of a category of mutual funds with similar goals. The Lipper average shows you how well the fund has done compared to competing funds. Reasons for the Fund's Performance Market conditions changed dramatically over the past year. In 2003, small-cap growth stocks were favored, but beginning in February 2004, investor sentiment moved away from the sector, given rising energy prices, interest rate fears, slowed economic growth and geopolitical concerns. Overall liquidity in the sector lessened dramatically. This negative sentiment caused investors to look beyond company-specific fundamentals and focus on broader issues. As a result, individual stocks were subject to tremendous volatility. These factors, along with selected stock disappointments, hurt the fund's performance. Strong results from consumer issues Ask Jeeves, Boyd Gaming and Harman International were offset by poor performances from Corinthian Colleges and Alliance Gaming. We sold Corinthian Colleges after the company announced that its earnings would fall short of expectations. We also sold Nektar Therapeutics, a health care stock that lost ground after indications that European drug regulators would not approve its inhaled insulin product, Exubera. Technology returns also hurt results. The economic "soft patch" in June resulted in an immediate weakness in technology spending, and a number of holdings in the sector were hard hit. We reduced our exposure late in the period when it appeared likely that the semiconductor industry had peaked. Other sectors within the fund held up well, including energy, financials and materials. We anticipate further strength in energy shares owing to continued high oil, natural gas and coal prices. Gaming equipment makers and casino operators continue to demonstrate robust growth irrespective of economic conditions. Looking Ahead We believe that the fund is positioned for improved performance once the uncertainties that are holding back investors are lifted. We believe that the fund is invested in many solid companies with strong business prospects. And, we continue to adhere to our disciplined, bottom-up fundamental investment process. A Word about Risk The major risks of stock investing include sudden and unpredictable drops in value and period of lackluster performance. Emerging growth stocks of any size company often have an above-average sensitivity to market fluctuations, as their market prices tend to reflect future expectations. Small-company stocks may be particularly sensitive, because they may be thinly traded. The fund may underperform other stock funds during periods when small-cap stocks or emerging growth stocks are out of favor. Summary Portfolio Schedule - -------------------------------------------------------------------------------
Industries % of Fund Net Assets Consumer Discretionary 30.7% - ----------------------------------------------- Health Care 25.1% - ----------------------------------------------- Technology 13.2% - ----------------------------------------------- Financial Services 10.5% - ----------------------------------------------- Producer Durables 7.6% - ----------------------------------------------- Other Energy 5.2% - ----------------------------------------------- Other 4.5% - ----------------------------------------------- Materials & Processing 1.3% - ----------------------------------------------- Utilities 1.3% - ----------------------------------------------- Net Cash 0.6% - ----------------------------------------------- Total 100.0%
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. State Street Research Emerging Growth Fund 3 - -------------- PERFORMANCE - -------------- Discussion as of September 30, 2004 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. - -------------------------------------------------------------------------------- Class A
1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 2.84% 31.48% 132.85% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) -3.08% 23.92% 119.46% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) -3.08% 4.38% 8.18% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class A Growth Index ------- ------------ 94 9425 10000 95 10669 12821 96 12475 14438 97 18463 17808 98 12929 13387 99 16691 17757 00 24377 23024 01 17028 13218 02 16019 10818 03 21340 15329 04 21946 17159
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class B(1)
1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 2.17% 27.20% 117.21% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) -2.83% 25.20% 117.21% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) -2.83% 4.60% 8.07% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class B(1) Growth Index --------- ------------ 94 10000 10000 95 11244 12821 96 13040 14438 97 19156 17808 98 13303 13387 99 17076 17757 00 24766 23024 01 17217 13218 02 16076 10818 03 21261 15329 04 21721 17159
- -------------------------------------------------------------------------------- Keep in mind that the performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted herein. For the most recent month-end performance results, visit our website at www.ssrfunds.com. 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. Cumulative Total Return without sales charge does not reflect the maximum applicable sales charges. If the applicable sales charges were deducted, performance results would be lower. 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) 3.10% 28.51% 119.46% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) -1.90% 26.51% 119.46% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) -1.90% 4.82% 8.18% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class B Growth Index ------- ------------ 94 10000 10000 95 11244 12821 96 13040 14438 97 19156 17808 98 13303 13387 99 17076 17757 00 24749 23024 01 17220 13218 02 16099 10818 03 21285 15329 04 21964 17159
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class C
1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 2.16% 27.44% 117.62% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 1.16% 27.44% 117.62% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 1.16% 4.97% 8.09% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class C Growth Index ------- ------------ 94 10000 10000 95 11244 12821 96 13028 14438 97 19171 17808 98 13319 13387 99 17077 17757 00 24766 23024 01 17237 13218 02 16116 10818 03 21301 15329 04 21762 17159
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class R
1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 2.58% 30.94% 131.87% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 2.58% 30.94% 131.87% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 2.58% 5.54% 8.77% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class R Growth Index ------- ------------ 94 10000 10000 95 11320 12821 96 13236 14438 97 19589 17808 98 13718 13387 99 17709 17757 00 25864 23024 01 18067 13218 02 16996 10818 03 22603 15329 04 23187 17159
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class S
1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 3.14% 33.53% 139.62% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 3.14% 33.53% 139.62% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 3.14% 5.95% 9.13% - --------------------------------------------------------------------------------
$10,000 Over 10 Years (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class S Growth Index ------- ------------ 94 10000 10000 95 11360 12821 96 13302 14438 97 19733 17808 98 13847 13387 99 17945 17757 00 26264 23024 01 18456 13218 02 17382 10818 03 23233 15329 04 23962 17159
- -------------------------------------------------------------------------------- Cumulative and Average Annual Total Return at maximum applicable sales charge reflect 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 Class S shares, offered without sales charge, are available through certain retirement plans and special programs. Performance results for the fund are increased by the voluntary reduction of fund fees and expenses, without subsidization, performance would have been lower. 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 an index. State Street Research Emerging Growth Fund 5 About Your Fund Expenses As a fund shareholder, you incur two types of costs: (1) Transaction costs, which include sales charges, and (2) ongoing expenses, which include management fees, service/distribution fees (12b-1) and "other" expenses. The examples below illustrate the ongoing cost in dollars of investing in the fund and allow you to compare these costs with the expenses of other funds. The examples are based on a $1,000 investment at the beginning of the period and held for the entire period from March 31, 2004, to September 30, 2004. Actual Fund Return is based on the fund's actual return and expenses. To estimate the ongoing expenses you paid during the entire period shown, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number shown for your fund under the column "Expenses Paid during the Period." Hypothetical 5% Return is based on the fund's actual expense ratio and an assumed rate of 5% per year before expenses. Please note that the return used is not the fund's actual return; therefore, this information may not be used to estimate your actual ending account balance and expenses paid during the period. To compare your fund's ongoing expenses with those of other funds, simply compare this 5% hypothetical example with the 5% hypothetical examples shown in the shareholder reports of other funds.
Beginning Ending Expenses Account Account Paid Annualized Six months ended Value Value during Expense 9/30/04 3/31/04 9/30/04 Period* Ratio - -------------------------------------------------------------------------------- Actual Fund Return - -------------------------------------------------------------------------------- Class A $1,000 $ 820.14 $ 6.34 1.39% - -------------------------------------------------------------------------------- Class B(1) $1,000 $ 814.00 $ 9.49 2.09% - -------------------------------------------------------------------------------- Class B (closed) $1,000 $ 826.10 $ 4.99 1.09% - -------------------------------------------------------------------------------- Class C $1,000 $ 813.64 $ 9.49 2.09% - -------------------------------------------------------------------------------- Class R $1,000 $ 817.99 $ 7.23 1.59% - -------------------------------------------------------------------------------- Class S $1,000 $ 823.35 $ 4.97 1.09% - -------------------------------------------------------------------------------- Hypothetical 5% Return - -------------------------------------------------------------------------------- Class A $1,000 $1,018.03 $ 7.03 1.39% - -------------------------------------------------------------------------------- Class B(1) $1,000 $1,014.53 $10.54 2.09% - -------------------------------------------------------------------------------- Class B (closed) $1,000 $1,019.54 $ 5.52 1.09% - -------------------------------------------------------------------------------- Class C $1,000 $1,014.53 $10.55 2.09% - -------------------------------------------------------------------------------- Class R $1,000 $1,017.05 $ 8.02 1.59% - -------------------------------------------------------------------------------- Class S $1,000 $1,019.55 $ 5.50 1.09% - --------------------------------------------------------------------------------
* Expenses are equal to the fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the period and then divided by the number of days in the year. Please note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transactional expenses such as sales charges, which would result in higher total expenses. It should also be noted that, for certain funds, expenses have been subsidized or reduced through expense offset arrangements, which reduces costs for shareholders. Generally, the fund expects that the expense subsidy or expense offset arrangement will continue although there is no guarantee that it will. Please see the fund's prospectus for more information. 6 - ------------ PORTFOLIO - ------------ Holdings September 30, 2004
Issuer Shares Value - --------------------------------------------------------------------------------------------------------------------- Common Stocks 99.4% Consumer Discretionary 30.7% Casinos/Gambling, Hotel/Motel 8.5% Boyd Gaming Corp.^ ....................................................... 352,130 $ 9,912,459 Pinnacle Entertainment Inc.*^ ............................................ 550,500 7,596,900 Shuffle Master Inc.*^ .................................................... 142,199 5,326,774 Station Casinos Inc.^ .................................................... 195,800 9,602,032 WMS Industries Inc.*^ .................................................... 177,882 4,569,789 ----------- 37,007,954 ----------- Commercial Services 7.2% Ask Jeeves Inc.*^ ........................................................ 259,600 8,491,516 Autobytel Inc.*^ ......................................................... 556,100 4,988,217 Autobytel Inc.*++ ........................................................ 73,012 655,187 Corporate Executive Board Co.*^ .......................................... 54,200 3,319,208 LECG Corp.^ .............................................................. 266,500 4,506,515 Resources Connection Inc.^ ............................................... 244,000 9,218,320 ----------- 31,178,963 ----------- Communications, Media & Entertainment 4.3% Alliance Gaming Corp.*^ .................................................. 271,600 4,090,296 Citadel Broadcasting Corp.^ .............................................. 400,300 5,131,846 Entravision Communications Corp.*^ ....................................... 341,200 2,596,532 Radio One Inc.^ .......................................................... 488,800 6,955,624 ----------- 18,774,298 ----------- Consumer Electronics 2.5% Activision Inc.*^ ........................................................ 216,900 3,008,403 Harman International Inc.^ ............................................... 72,800 7,844,200 ----------- 10,852,603 ----------- Consumer Services 2.7% Aaron Rents Inc.^ ........................................................ 166,250 3,617,600 Laureate Education, Inc.^ ................................................ 166,600 6,200,852 SkillSoft plc ADR*^ ...................................................... 261,500 1,749,435 ----------- 11,567,887 ----------- Leisure Time 0.6% West Marine Inc.*^ ....................................................... 115,600 2,471,528 ----------- Retail 4.9% Ann Taylor Stores Corp.* ................................................. 153,100 3,582,540 Chico's, FAS Inc.*^ ...................................................... 72,300 2,472,660 Cost Plus Inc.^ .......................................................... 89,100 3,152,358 Guitar Center Inc.*^ ..................................................... 73,300 3,173,890 Linens 'n Things Inc.*^ .................................................. 120,100 2,782,717 Pacific Sunwear of California Inc.^ ...................................... 187,400 3,944,770 Williams-Sonoma Inc.*^ ................................................... 57,700 2,166,635 ----------- 21,275,570 ----------- Total Consumer Discretionary ............................................. 133,128,803 ----------- Financial Services 10.5% Banks & Savings & Loan 4.3% East West Bancorp Inc.^ .................................................. 89,400 3,002,946
Issuer Shares Value - ------------------------------------------------------------------------------------------------------------- South Financial Group Inc.^ .............................................. 120,900 $ 3,409,380 Southwest Bancorp of Texas Inc.^ ......................................... 301,500 6,072,210 UCBH Holdings Inc.^ ...................................................... 159,600 6,235,572 ----------- 18,720,108 ----------- Insurance 1.0% Bristol West Holdings Inc.*^ ............................................. 253,300 4,341,562 ----------- Miscellaneous Financial 2.9% CapitalSource Inc.*^ ..................................................... 236,700 5,287,878 Collegiate Funding Services Inc.^ ........................................ 277,900 3,490,424 Nelnet Inc.^ ............................................................. 166,456 3,725,285 ----------- 12,503,587 ----------- Securities Brokerage & Services 2.3% Affiliated Managers Group Inc.*^ ......................................... 187,300 10,028,042 ----------- Total Financial Services ................................................. 45,593,299 ----------- Health Care 25.1% Drugs & Biotechnology 6.3% Abgenix Inc.^ ............................................................ 299,500 2,953,070 Alkermes Inc.*^ .......................................................... 382,200 4,410,588 Dyax Corp.*^ ............................................................. 310,200 2,369,928 ICOS Corp.*^ ............................................................. 315,500 7,616,170 Invitrogen Corp.*^ ....................................................... 54,900 3,018,951 Martek Biosciences Corp.*^ ............................................... 61,000 2,967,040 MGI PHARMA Inc.*^ ........................................................ 74,200 1,980,398 Protein Design Laboratories, Inc.^ ....................................... 104,100 2,038,278 ----------- 27,354,423 ----------- Health Care Facilities 6.4% LCA-Vision Inc.^ ......................................................... 148,200 3,822,078 LifePoint Hospitals Inc.^ ................................................ 255,000 7,652,550 Psychiatric Solutions Inc.*^ ............................................. 293,100 7,430,085 United Surgical Partners Int'l Inc.*^ .................................... 250,600 8,608,110 ----------- 27,512,823 ----------- Health Care Services 5.7% Amedisys Inc.^ ........................................................... 91,700 2,746,415 AmSurg Corp.*^ ........................................................... 304,800 6,455,664 Cerner Corp.*^ ........................................................... 58,300 2,522,058 Community Health Systems Inc.*^ .......................................... 220,500 5,882,940 Covance Inc.*^ ........................................................... 125,100 5,000,247 Phase Forward Inc.^ ...................................................... 258,610 2,136,118 ----------- 24,743,442 ----------- Hospital Supply 6.7% Advanced Medical Optics Inc. ............................................. 111,800 4,423,926 Animas Corp.^ ............................................................ 191,000 3,075,100 Cooper Companies Inc. .................................................... 57,300 3,927,915 Cutera Inc.^ ............................................................. 285,882 3,224,749 Cyberonics Inc.*^ ........................................................ 95,200 1,947,792 INAMED Corp. ............................................................. 120,500 5,744,235 Respironics Inc.*^ ....................................................... 85,100 4,547,744 Wright Medical Group Inc.^ ............................................... 87,300 2,192,976 ----------- 29,084,437 ----------- Total Health Care ........................................................ 108,695,125 ----------- Materials & Processing 1.3% Building & Construction 1.3% Trex Company Inc.*^ ...................................................... 126,900 5,619,132 ----------- Total Materials & Processing ............................................. 5,619,132 ----------- Other 4.5% Miscellaneous 4.5% iShares Trust ............................................................ 170,300 19,388,655 ----------- Total Other .............................................................. 19,388,655 -----------
The notes are an integral part of the financial statements. State Street Research Emerging Growth Fund 7
Issuer Shares Value - ------------------------------------------------------------------------------------------------------------- Other Energy 5.2% Miscellaneous Energy 2.1% Arch Coal Inc.^ .......................................................... 130,300 $ 4,624,347 Consol Energy Inc.^ ...................................................... 126,100 4,399,629 ----------- 9,023,976 ----------- Oil Well Equipment & Services 3.1% Cal Dive International Inc.*^ ............................................ 48,100 1,713,322 NewPark Resources Inc.*^ ................................................. 715,100 4,290,600 Patterson-UTI Energy Inc.*^ .............................................. 155,740 2,969,962 Pride International Inc. ................................................. 235,800 4,666,482 ----------- 13,640,366 ----------- Total Other Energy ....................................................... 22,664,342 ----------- Producer Durables 7.6% Industrial Products 1.1% ESCO Technologies Inc.*^ ................................................. 70,800 4,797,408 ----------- Machinery 0.6% Helix Technology Corp.^ .................................................. 195,805 2,661,969 ----------- Production Technology Equipment 2.0% ATMI Inc.*^ .............................................................. 138,900 2,844,672 Cymer Inc.*^ ............................................................. 92,100 2,639,586 LAM Research Corp.*^ ..................................................... 57,500 1,258,100 Mattson Technology Inc.* ^ ............................................... 256,700 1,974,023 ----------- 8,716,381 ----------- Telecommunications Equipment 3.9% American Tower Corp.^ .................................................... 616,900 9,469,415 Polycom Inc.*^ ........................................................... 369,500 7,323,490 ----------- 16,792,905 ----------- Total Producer Durables .................................................. 32,968,663 ----------- Technology 13.2% Communications Technology 1.2% Anaren Microwave Inc.*^ .................................................. 241,400 3,249,244 Avocent Corp.*^ .......................................................... 76,200 1,983,486 ----------- 5,232,730 ----------- Computer Software 5.5% Anteon International Corp.^ .............................................. 165,729 6,073,968 Caci International Inc.^ ................................................. 82,005 4,328,224 eCollege Inc.*++^ ........................................................ 115,000 1,109,750 eCollege Inc.* ........................................................... 179,607 1,733,208 Epicor Software Corp.*^ .................................................. 195,300 2,349,459 Hyperion Solutions Corp.^ ................................................ 45,800 1,556,742 Jupitermedia Corp.^ ...................................................... 169,111 3,010,176 Opsware Inc.*^ ........................................................... 50,991 286,059 Quest Software Inc.*^ .................................................... 159,000 1,768,080 Sybase Inc.* ............................................................. 104,300 1,438,297 ----------- 23,653,963 ----------- Computer Technology 2.0% Emulex Corp.*^ ........................................................... 259,300 2,987,136 Mobility Electronics Inc.*^ .............................................. 285,200 2,350,048 Nvidia Inc.*^ ............................................................ 229,100 3,326,532 ----------- 8,663,716 ----------- Electronics 1.2% Aeroflex Inc.*^ .......................................................... 265,600 2,807,392 Power Integrations Inc.*^ ................................................ 111,900 2,286,117 ----------- 5,093,509 -----------
Issuer Shares Value - ------------------------------------------------------------------------------------------------------------- Electronics: Semiconductors/Components 3.3% Cree Inc.*^ .............................................................. 118,900 $ 3,630,017 Genesis Microchip Inc.*^ ................................................. 81,300 1,097,550 Micrel Inc.*^ ............................................................ 148,700 1,547,967 Microsemi Corp.*^ ........................................................ 205,100 2,891,910 O2Micro International Ltd.* .............................................. 215,800 2,317,692 Silicon Laboratories Inc.^ ............................................... 90,400 2,991,336 ----------- 14,476,472 ----------- Total Technology ......................................................... 57,120,390 ----------- Utilities 1.3% Telecommunications 1.3% Western Wireless Corp.*^ ................................................. 214,600 5,517,366 ----------- Total Utilities .......................................................... 5,517,366 ----------- Total Common Stocks (Cost $414,752,255) .................................. 430,695,775 ----------- Short-Term Investments 25.4% State Street Navigator Securities Lending Prime Portfolio ......................................................... 110,134,986 110,134,986 -----------
Maturity Amount of Coupon Rate Date Principal - ------------------------------------------------------------------------------------------------------------- Commercial Paper 5.6%. General Electric Capital Corp., 1.74% .................................................. 10/4/2004 $ 3,088,000 3,087,552 UBS Finance Inc., 1.76%.......................................... 10/1/2004 1,891,000 1,891,000 UBS Finance Inc., 1.88%.......................................... 10/1/2004 9,000,000 9,000,000 UBS Finance Inc., 1.76%.......................................... 10/5/2004 10,449,000 10,446,957 ----------- Total Commercial Paper (cost $24,425,509) ....................... 24,425,509 -----------
% of Net Assets ---------- Summary of Portfolio Assets Investments (Cost $549,312,750).................................. 130.4% $ 565,256,270 Cash and Other Assets, Less Liabilities ......................... (30.4%) (131,790,135) ----- ------------- Net Assets ...................................................... 100.0% $ 433,466,135 ===== =============
KEY TO SYMBOLS * Denotes a security which has not paid a dividend during the last year. ++ Security restricted as to public sale. As of report date, the fund had 0.41% of net assets in restricted securities. ^ A portion or all of the security was held on loan. At September 30, 2004, the value of securities loaned was $107,484,977. ADR Stands for American Depositary Receipt. Federal Income Tax Information At September 30, 2004, the net unrealized appreciation of investments based on cost for federal income tax purposes of $556,612,693 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 29,723,353 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (21,079,776) ------------ $ 8,643,577 ============
8 The notes are an integral part of the financial statements. - ------------- FINANCIAL - ------------- Statements Statement of Assets and Liabilities - -------------------------------------------------------------------------------- September 30, 2004 Assets Investments, at value (cost $549,312,750) (Note 1) ........... $565,256,270 Cash ......................................................... 1,971 Receivable for securities sold ............................... 12,429,767 Receivable for fund shares sold .............................. 3,979,779 Receivable from distributor .................................. 220,759 Dividends receivable ......................................... 8,390 Other assets ................................................. 84,912 ------------ 581,981,848 ------------ Liabilities Payable for collateral received on securities loaned ......... 110,134,986 Payable for securities purchased ............................. 37,015,566 Payable for fund shares redeemed ............................. 704,700 Accrued management fee ....................................... 265,607 Accrued transfer agent and shareholder services .............. 194,383 Accrued distribution and service fees ........................ 113,189 Accrued administration fee ................................... 11,743 Accrued trustees' fees ....................................... 9,766 Other accrued expenses ....................................... 65,773 ------------ 148,515,713 ------------ Net Assets ................................................... $433,466,135 ============ Net Assets consist of: Unrealized appreciation of investments ....................... $ 15,943,520 Accumulated net realized loss ................................ (35,164,325) Paid-in capital .............................................. 452,686,940 ------------ $433,466,135 ============
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 $268,064,695 22,415,165 $11.96* B(1) $ 24,880,335 2,294,326 $10.84** B $ 16,917,143 1,543,330 $10.96** C $ 29,626,940 2,726,164 $10.87** R $ 6,456,855 541,974 $11.91 S $ 87,520,167 7,008,894 $12.49
* Maximum offering price per share = $12.69 ($11.96 [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, 2004 Investment Income Dividends (Note 1) ........................................... $ 721,081 Interest (Note 1) ............................................ 160,430 Securities lending income (Note 1) ........................... 137,821 ------------ 1,019,332 ------------ Expenses Management fee (Note 2) ...................................... 2,550,085 Transfer agent and shareholder services (Note 2) ............. 1,045,395 Distribution and service fees - Class A (Note 5) ............. 666,668 Distribution and service fees - Class B(1) (Note 5) .......... 260,001 Distribution and service fees - Class B (Note 5) ............. 31,730 Distribution and service fees - Class C (Note 5) ............. 250,142 Distribution and service fees - Class R (Note 5) ............. 12,070 Custodian fee ................................................ 435,068 Administration fee (Note 2) .................................. 108,379 Registration fees ............................................ 52,416 Audit fee .................................................... 29,145 Trustees' fees (Note 2) ...................................... 24,907 Reports to shareholders ...................................... 14,381 Legal fees ................................................... 15,690 Miscellaneous ................................................ 3,270 ------------ 5,499,347 Expenses borne by the distributor (Note 3) ................... (502,887) Fees paid indirectly (Note 2) ................................ (61,468) ------------ 4,934,992 ------------ Net investment loss .......................................... (3,915,660) ------------ Realized and Unrealized Gain (Loss) on Investments Net increase from payment by affiliate (Note 2) .............. 200,956 Net realized loss on investments (Notes 1 and 4) ............. (16,219,909) Change in unrealized depreciation of investments ............. (10,056,987) ------------ Net loss on investments ...................................... (26,075,940) ------------ Net decrease in net assets resulting from operations ......... $(29,991,600) ============
The notes are an integral part of the financial statements. State Street Research Emerging Growth Fund 9 Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Years ended September 30 ------------------------------ 2004 2003 ------------------------------ Increase (Decrease) In Net Assets Operations: Net investment loss ....................... $ (3,915,660) $ (1,529,802) Net increase from payment by affiliate..... 200,956 -- Net realized gain (loss) on investments ............................ (16,219,909) 2,300,598 Change in unrealized appreciation (depreciation) of investments .......... (10,056,987) 31,784,757 ------------------------------ Net increase (decrease) resulting from operations ........................ (29,991,600) 32,555,553 ------------------------------ Net increase from fund share transactions (Note 7) .................. 282,999,700 58,870,609 ------------------------------ Total increase in net assets .............. 253,008,100 91,426,162 Net Assets Beginning of year ......................... 180,458,035 89,031,873 ------------------------------ End of year ............................... $433,466,135 $180,458,035 ==============================
Notes to Financial Statements - -------------------------------------------------------------------------------- September 30, 2004 Note 1 State Street Research Emerging Growth Fund is a series of State Street Research Capital Trust (the "Trust"), which is organized as a Massachusetts business trust and is 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 at least 65% of its total assets in emerging growth companies, with an emphasis on small-cap 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. From October 1, 2003, to March 18, 2004, Class B shares paid annual service and distribution fees of 1.00%. Effective March 19, 2004, the annual service and distribution fees paid by Class B shares were voluntarily reduced to 0.00%. 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. Income, expenses (other than service and distribution fees), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. 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. In the event that the market quotations for a portfolio instrument are not deemed to be readily available, the Investment Adviser's Valuation Committee determines the fair value for such portfolio instrument. The fair value of any such portfolio instruments are determined based upon a consideration of all available facts and information. The fair valuation of a restricted 10 The notes are an integral part of the financial statements. Notes (continued) - -------------------------------------------------------------------------------- portfolio instrument reflects the inherent worth of the portfolio instrument, without regard to the restrictive feature, adjusted for any diminution in value resulting from the restrictive feature. The Investment Adviser and the Custodian also monitor domestic and foreign markets and news information for any developing events that may have an impact on the valuation of portfolio instruments. Such monitoring includes general market news and financial market information sources currently utilized in making investment decisions, trading and investment personnel located abroad, foreign regional brokers, and/or foreign custodians. The value assigned to these securities is based upon available information at the time, and does not necessarily represent the amount which might ultimately be realized upon sale. 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. 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, 2004, the fund had a capital loss carryforward of $8,855,140 available, to the extent provided in regulations, to offset future capital gains, if any, of which, $8,701,249, and $153,891 expire on September 30, 2010 and 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, 2002, through September 30, 2003, the fund incurred net capital losses of $1,297,187 and has deferred and treated such losses as arising in the fiscal year ended September 30, 2004. From November 1, 2003, through September 30, 2004, the fund incurred net capital losses of $19,009,241 and intends to defer and treat such losses as arising in the fiscal year ended September 30, 2005. 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 net operating losses not utilized. At September 30, 2004, 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 capital loss carryforwards and post-October losses. At September 30, 2004, 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, 2004, the value of the securities loaned and the value of collateral were $107,484,977 and $110,134,986 (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, 2004, income from securities lending amounted to $137,821. 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, 2004, the fees pursuant to such agreement amounted to $2,550,085. 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, 2004, the amount of such expenses allocated to the fund was $607,693. The fund has entered into an arrangement with its custodian whereby credits realized as a result of directed brokerage commissions were used to reduce a portion of the fund's expenses. During the year ended September 30, 2004, the fund's custodian fees were reduced by $61,468 under this arrangement. The fees of the Trustees not currently affiliated with the Adviser amounted to $24,907 during the year ended September 30, 2004. 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, 2004, the amount of such expenses was $108,379. On February 19, 2004, the Distributor entered into an agreement with the NASD resolving all outstanding issues relating to an investigation by the NASD of the Distributor's e-mail retention practices and supervision of trading activity in shares of the State Street Research funds. The Distributor, without admitting or denying the allegations or the findings set forth in the agreement, and solely for the purpose of the settlement, agreed to the entry of certain findings by the NASD relating to the Distributor's compliance with document retention requirements and the Distributor's supervision of and enforcement of shareholder exchange limitations set forth in the funds' prospectuses. The agreement contains no allegations or findings of fraudulent conduct by the Distributor. As part of this agreement, the Distributor made a payment to the fund to compensate the fund for losses relating to the exchange of fund shares beyond the annual limit set forth in the fund's prospectus. The payment was allocated among the fund's share classes as follows: $143,922 to Class A, $17,116 to Class B(1), $13,661 to Class B, $16,147 to Class C, and $10,110 to Class S. These amounts are shown in the total amount of $200,956 as "Net increase from payment by affiliate" in the Statement of Operations. State Street Research Emerging Growth Fund 11 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, 2004, the amount of such expenses assumed by the Distributor and its affiliates was $502,887. Note 4 For the year ended September 30, 2004, purchases and sales of securities, exclusive of short-term obligations, aggregated $962,758,623, and $682,502,599, 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. From October 1, 2003, to March 18, 2004, Class B shares paid annual service and distribution fees of 1.00%. Effective March 19, 2004, the annual service and distribution fees paid by Class B shares were voluntarily reduced 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, 2004, fees pursuant to such plans amounted to $666,668, $260,001, $31,730, $250,142 and $12,070 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, 2004, there were $2,734,916, $6,138 and $1,512,555 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 $428,159 and $451,555 on sales of Class A shares of the fund during the year ended September 30, 2004, and that MetLife Securities, Inc. earned commissions aggregating $542,639 and $4,955 on sales of Class B(1) and Class C shares, and the Distributor collected contingent deferred sales charges aggregating $48,364, $40 and $3,662 on redemptions of Class B(1), Class B and Class C shares, respectively, during the same period. Note 6 MetLife announced that it has entered into an agreement to sell the Adviser as part of a larger transaction to sell MetLife's asset management business to BlackRock, Inc. ("BlackRock"). The acquisition by BlackRock of MetLife's asset management business is expected to occur in the first quarter of 2005. At the time of closing, the advisory agreement between the fund and the Adviser and the distribution agreement between the fund and the Distributor will be terminated. BlackRock Advisors, Inc. and BlackRock Distributors, Inc., wholly owned subsidiaries of BlackRock, will serve as investment adviser and distributor, respectively. A Special Meeting of Shareholders of the fund has been tentatively scheduled for December 2004. At this meeting, shareholders of the fund will be asked to consider and approve a plan of reorganization between the fund and the BlackRock Emerging Growth Portfolio, a newly created series of the BlackRock Funds. If the proposed reorganization is approved by shareholders of the fund, the BlackRock Emerging Growth Portfolio would acquire substantially all of the assets and liabilities of the fund. In exchange, shareholders of the fund would receive shares of the BlackRock Emerging Growth Portfolio with an aggregate value equivalent to the aggregate net asset value of their fund shares at the time of the transaction. If the proposed reorganization is not approved by shareholders of the fund, the Board of Trustees will need to consider other alternatives relating to the management and operations of the fund, including without limitations, seeking an alternative investment adviser for the fund or seeking shareholder approval to liquidate the fund.* * The foregoing is not an offer to sell, nor a solicitation of an offer to buy, shares of any fund, nor is it a solicitation of any proxy. 12 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, 2004, the Adviser held 11,338 Class R shares. These transactions break down by share class as follows:
Years ended September 30 ------------------------------------------------------------ 2004 2003 ------------------------------------------------------------ Class A Shares Amount Shares Amount - -------------------------------------------------------------------------------------- Shares sold 19,295,735 $ 258,636,959 12,559,523 $ 126,927,170 Shares redeemed (6,992,964) (89,912,786) (7,197,443) (69,515,792) ----------- ------------- ----------- ------------- Net increase 12,302,771 $ 168,724,173 5,362,080 $ 57,411,378 =========== ============= =========== ============= Class B(1) Shares Amount Shares Amount - -------------------------------------------------------------------------------------- Shares sold 841,240 $ 10,286,273 683,689 $ 6,402,427 Shares redeemed (411,875) (4,915,125) (473,546) (4,009,539) ----------- ------------- ----------- ------------- Net increase 429,365 $ 5,371,148 210,143 $ 2,392,888 =========== ============= =========== ============= Class B Shares Amount Shares Amount - -------------------------------------------------------------------------------------- Shares sold 45,715 $ 560,588 93,323 $ 904,460 Shares redeemed (536,425) (6,494,729) (848,937) (7,249,730) ----------- ------------- ----------- ------------- Net decrease (490,710) $ (5,934,141) (755,614) $ (6,345,270) =========== ============= =========== ============= Class C Shares Amount Shares Amount - -------------------------------------------------------------------------------------- Shares sold 1,796,388 $ 21,845,563 761,479 $ 7,223,469 Shares redeemed (342,131) (4,015,411) (209,540) (1,831,112) ----------- ------------- ----------- ------------- Net increase 1,454,257 $ 17,830,152 551,939 $ 5,392,357 =========== ============= =========== ============= Class R Shares Amount Shares Amount - -------------------------------------------------------------------------------------- Shares sold 611,851 $ 7,909,349 11,346 $ 100,075 Shares redeemed (81,223) (1,016,529) -- -- ----------- ------------- ----------- ------------- Net increase 530,628 $ 6,892,820 11,346 $ 100,075 =========== ============= =========== ============= Class S Shares Amount Shares Amount - -------------------------------------------------------------------------------------- Shares sold 6,902,293 $ 97,401,258 497,551 $ 5,435,719 Shares redeemed (538,478) (7,285,710) (520,322) (5,516,538) ----------- ------------- ----------- ------------- Net increase (decrease) 6,363,815 $ 90,115,548 (22,771) $ (80,819) =========== ============= =========== =============
State Street Research Emerging Growth Fund 13 - ------------ FINANCIAL - ------------ Highlights For a share outstanding throughout each each year:
Class A - Years Ended September 30 ------------------------------------------------------------------- 2004(a)(f) 2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year ($) 11.63 8.73 9.27 16.08 11.01 ---------- ---------- ---------- ---------- ---------- Net investment loss ($)* (0.14) (0.11) (0.09) (0.08) (0.14) Net realized and unrealized gain (loss) on investments ($) 0.47 3.01 (0.45) (4.45) 5.21 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 0.33 2.90 (0.54) (4.53) 5.07 ---------- ---------- ---------- ---------- ---------- Distributions from capital gains ($) -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Total distributions ($) -- -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 11.96 11.63 8.73 9.27 16.08 ========== ========== ========== ========== ========== Total return (%)(b) 2.84 33.22 (5.93) (30.22) 46.05 Ratios/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year ($ thousands) 268,065 117,571 41,474 39,522 53,600 Expense ratio (%)* 1.41 1.40 1.42 1.44 1.38 Expense ratio after expense reductions (%)* 1.39 1.40 1.40 1.40 1.37 Ratio of net investment loss to average net assets (%)* (1.09) (1.10) (0.90) (0.69) (0.90) Portfolio turnover rate (%) 208.00 166.71 167.69 281.64 218.99 *Reflects voluntary reduction of expenses of these amounts (%) 0.15 0.38 0.56 0.63 0.22
Class B(1) - Years Ended September 30 ------------------------------------------------------------------- 2004(a)(f) 2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year ($) 10.62 8.03 8.60 15.17 10.46 ---------- ---------- ---------- ---------- ---------- Net investment loss ($)* (0.21) (0.16) (0.15) (0.15) (0.24) Net realized and unrealized gain (loss) on investments ($) 0.43 2.75 (0.42) (4.14) 4.95 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 0.22 2.59 (0.57) (4.29) 4.71 ---------- ---------- ---------- ---------- ---------- Distributions from capital gains ($) -- -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Total distributions ($) -- -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 10.84 10.62 8.03 8.60 15.17 ========== ========== ========== ========== ========== Total return (%)(b) 2.17 32.25 (6.63) (30.48) 45.03 Ratios/Supplemental Data: -- - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year ($ thousands) 24,880 19,797 13,288 12,749 16,554 Expense ratio (%)* 2.11 2.10 2.12 2.14 2.11 Expense ratio after expense reductions (%)* 2.09 2.10 2.10 2.10 2.10 Ratio of net investment loss to average net assets (%)* (1.79) (1.78) (1.60) (1.39) (1.59) Portfolio turnover rate (%) 208.00 166.71 167.69 281.84 218.99 *Reflects voluntary reduction of expenses of these amounts (%) 0.14 0.44 0.56 0.63 0.22
Class B - Years Ended September 30 ------------------------------------------------------------------- 2004(a)(f) 2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year ($) 10.63 8.04 8.60 15.16 10.46 ---------- ---------- ---------- ---------- ---------- Net investment loss ($)* (0.11) (0.16) (0.16) (0.15) (0.24) Net realized and unrealized gain (loss) on investments ($) 0.44 2.75 (0.40) (4.13) 4.94 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 0.33 2.59 (0.56) (4.28) 4.70 ---------- ---------- ---------- ---------- ---------- Distributions from capital gains ($) -- -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Total distributions ($) -- -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 10.96 10.63 8.04 8.60 15.16 ========== ========== ========== ========== ========== Total return (%)(b) 3.10 32.21 (6.51) (30.42) 44.93 Ratios/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year ($ thousands) 16,917 21,816 22,422 36,531 65,496 Expense ratio (%)* 1.26 2.10 2.12 2.14 2.11 Expense ratio after expense reductions (%)* 1.24 2.10 2.10 2.10 2.10 Ratio of net investment loss to average net assets (%)* (0.94) (1.77) (1.61) (1.39) (1.64) Portfolio turnover rate (%) 208.00 166.71 167.69 218.64 218.99 *Reflects voluntary reduction of expenses of these amounts (%) 0.14 0.47 0.58 0.63 0.22
14
Class C - Years Ended September 30 ------------------------------------------------------------------- 2004(a)(f) 2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year ($) 10.64 8.05 8.61 15.17 10.46 ---------- ---------- ---------- ---------- ---------- Net investment loss ($)* (0.21) (0.16) (0.15) (0.15) (0.24) Net realized and unrealized gain (loss) on investments ($) 0.44 2.75 (0.41) (4.13) 4.95 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 0.23 2.59 (0.56) (4.28) 4.71 ---------- ---------- ---------- ---------- ---------- Distributions from capital gains ($) -- -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Total distributions ($) -- -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 10.87 10.64 8.05 8.61 15.17 ========== ========== ========== ========== ========== Total return (%)(b) 2.16 32.17 (6.50) (30.40) 45.03 Ratios/Supplemental Data: - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year ($ thousands) 29,627 13,530 5,794 5,332 9,082 Expense ratio (%)* 2.11 2.10 2.12 2.14 2.11 Expense ratio after expense reductions (%)* 2.09 2.10 2.10 2.10 2.10 Ratio of net investment loss to average net assets (%)* (1.79) (1.79) (1.60) (1.39) (1.63) Portfolio turnover rate (%) 208.00 166.71 167.69 281.64 218.99 *Reflects voluntary reduction of expenses of these amounts (%) 0.15 0.41 0.56 0.63 0.22
Class R ------------------------ 2004(a)(f) 2003(a)(e) - ----------------------------------------------------------------------------------------- Net asset value, beginning of year ($) 11.61 8.82 ---------- ---------- Net investment loss ($)* (0.16) (0.07) Net realized and unrealized gain on investments ($) 0.46 2.86 ---------- ---------- Total from investment operations ($) 0.30 2.79 ---------- ---------- Net asset value, end of year ($) 11.91 11.61 ========== ========== Total return (%)(b) 2.58 1.63(c) Ratios/Supplemental Data - ----------------------------------------------------------------------------------------- Net assets at end of year ($ thousands) 6,457 132 Expense ratio (%)* 1.61 1.60(d) Expense ratio after expense reductions (%)* 1.59 1.60(d) Ratio of net investment loss to average net assets (%)* (1.30) (1.34)(d) Portfolio turnover rate (%) 208.00 166.71 *Reflects voluntary reduction of expenses of these amounts (%) 0.16 0.24(d)
Class S - Years Ended September 30 ------------------------------------------------------------------- 2004(a)(f) 2003(a) 2002(a)(g) 2001(a)(g) 2000(a)(g) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year ($) 12.11 9.06 9.62 16.48 11.26 ---------- ---------- ---------- ---------- ---------- Net investment loss ($)* (0.10) (0.08) (0.06) (0.04) (0.10) Net realized and unrealized gain (loss) on investments ($) 0.48 3.13 (0.50) (4.54) 5.32 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 0.38 3.05 (0.56) (4.58) 5.22 ---------- ---------- ---------- ---------- ---------- Distributions from capital gains ($) -- -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Total distributions ($) -- -- -- (2.28) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 12.49 12.11 9.06 9.62 16.48 ========== ========== ========== ========== ========== Total return (%)(b) 3.14 33.66 (5.82) 29.73 46.36 Ratios/Supplemental Data - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year ($ thousands) 87,520 7,809 6,054 5,810 8,744 Expense ratio (%)* 1.11 1.10 1.12 1.14 1.11 Expense ratio after expense reductions (%)* 1.09 1.10 1.10 1.10 1.10 Ratio of net investment loss to average net assets (%)* (0.80) (0.78) (0.60) (0.39) (0.64) Portfolio turnover rate (%) 208.00 166.71 167.69 281.64 218.99 *Reflects voluntary reduction of expenses of these amounts (%) 0.17 0.45 0.57 0.63 0.22
(a) Per-share figures have been calculated using the average shares method. (b) Does not reflect any front-end or contingent deferred sales charges. Total return would be lower if the distributor and its affiliates had not voluntarily assumed a portion of the fund's expenses. (c) Not annualized (d) Annualized (e) April 3, 2003 (commencement of share class) to September 30, 2003 (f) During the year ended September 30, 2004, the distributor made restitution payments to the fund as part of a settlement with NASD. These payments increased net realized and unrealized gain on investments per share by $0.01, and increased total return by 0.09%. (g) Audited by other auditors State Street Research Emerging Growth Fund 15 - ------------- REPORT OF - ------------- Independent Registered Public Accounting Firm 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, 2004, and the related statement of operations for the year then ended, and the statement of changes in net assets, and the financial highlights for each of the two years in the period then ended. 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 audits. The financial highlights for each of the years in the three-year period ended September 30, 2002, were audited by other auditors whose report dated November 8, 2002, expressed an unqualified opinion on such financial highlights. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).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, 2004, 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 audits provide 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, 2004, the results of its operations for the year then ended and the changes in its net assets, and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Boston, Massachusetts November 19, 2004 16 - -------------------------- TRUSTEES AND OFFICERS - -------------------------- State Street Research Capital Trust
Number of Funds in Fund Complex Name, Position(s) Term of Office Overseen Other Address Held with and Length of Principal Occupations by Trustee/ Directorships Held and Age(a) Fund Time Served(b) During Past 5 Years Officer(c) by Trustee/Officer - ------------------------------------------------------------------------------------------------------------------------------------ Independent Trustees Bruce R. Bond Trustee Since Retired; formerly Chairman of the Board, 19 Avaya, Inc. (58) 1999 Chief Executive Officer and President, PictureTel Corporation (video conferencing systems) Peter S. Drotch Trustee Since Retired; formerly Partner, 19 First Marblehead Corp. (62) 2004 PricewaterhouseCoopers LLP Steve A. Garban Trustee Since Retired; formerly Senior Vice President for 53 Metropolitan Series (67) 1997 Finance and Operations and Treasurer, The Fund, Inc. and Pennsylvania State University Metropolitan Series Fund II Susan M. Phillips Trustee Since Dean, School of Business and Public 19 The Kroger Co. (59) 1998 Management, 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. 53 A.P. Pharma, Inc.; (66) 1995 (investments); formerly President, The Glen Metropolitan Series Ellen Company (private investment firm) Fund, Inc.; and Metropolitan Series Fund II Michael S. Trustee Since Jay W. Forrester Professor of Management 53 Metropolitan Series Scott Morton (67) 1987 (Emeritus), Sloan School of Management, Fund, Inc. and Massachusetts Institute of Technology Metropolitan Series Fund II - ------------------------------------------------------------------------------------------------------------------------------------ Interested Trustees Richard S. Davis(+) Trustee Since Chairman of the Board, President and Chief 19 None (59) 2000 Executive Officer of State Street Research & Management Company; formerly Senior Vice President, Fixed Income Investments, Metropolitan Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Officers C. Kim Goodwin Vice Since Managing Director and Chief Investment 18 Akamai Technologies, (45) President 2002 Officer - Equities of State Street Research Inc. & Management Company; formerly Chief Investment Officer - U.S. Growth Equities, American Century Paul Haagensen Vice Since Senior Vice President of State Street 3 None (58) President 2003 Research & Management Company; formerly Portfolio Manager and senior analyst at Putnam Investments Eileen M. Leary Vice Since Senior Vice President of State Street 3 None (42) President 2002 Research & Management Company; formerly Vice President, State Street Research & Management Company John S. Lombardo Vice Since Managing Director, Chief Financial Officer 19 None (49) President 2001 and 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 3 None (35) President 2003 Research & Management Company; formerly Vice President, State Street Research & Management Company Tucker Walsh Vice Since Managing Director of State Street Research & 3 None (35) 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 19 None (47) 2001 Street Research & Management Company; formerly Vice President and Assistant Treasurer, State Street Research & Management Company
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. and Metropolitan Series Fund II. The primary adviser to Metropolitan Series Fund, Inc., and Metropolitan Series Fund II is MetLife Advisers, LLC, which has retained State Street Research & Management Company as sub-adviser to certain series of Metropolitan Series Fund, Inc. (+) 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 Emerging Growth Fund 17 [LOGO] STATE STREET RESEARCH -------------- One Financial Center PRSRT STD Boston, MA 02111-2690 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. Investors should carefully consider the fund's investment objective, risks, charges and expenses before investing. The fund's prospectus contains more complete information on these and other matters. A prospectus for any State Street Research fund is available through your financial professional, by calling toll-free 1-87-SSR-FUNDS (1-877-773-8637) or by visiting our website at www.ssrfunds.com. Please read the prospectus carefully before investing. 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, 2004, this report must be accompanied by a current Quarterly Performance Update. "State Street Research Proxy Voting policies and procedures" -- which describes how we vote proxies relating to portfolio securities -- is available upon request free of charge by calling the State Street Research Center toll free at 1-87-SSR-FUNDS (1-877-773-8637) or by accessing the U.S. Security Exchange Commission website at www.sec.gov. 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)2004 State Street Research Investment Services, Inc. One Financial Center Boston, MA 02111-2690 www.ssrfunds.com CONTROL NUMBER:(exp1105)SSR-LD EM-2656-1104 [LOGO] STATE STREET RESEARCH [GRAPHIC] Aurora Fund September 30, 2004 Annual Report to Shareholders Table of Contents 3 Performance Discussion 6 About Your Fund Expenses 7 Portfolio Holdings 11 Financial Statements 15 Financial Highlights 17 Independent Auditors' Report 18 Trustees and Officers FROM THE CHAIRMAN State Street Research The pace of U.S. economic growth was robust over the past 12 months as the economy advanced on all fronts. Gross domestic product (GDP) growth, a common measure of economic growth, averaged just short of 4.0% for the period, solidly above the economy's long-term trend rate of 3.0%. Our analysts expect the economy to grow between 3.5% and 4.0% for the remainder of 2004 and into 2005. Consumers continued to play a key role in the economy. Spending on retail goods, autos and housing remained generally strong throughout the period. Retail sales slowed during the summer months of 2004 as a result of higher energy prices and weather-related events. But the pace of consumer spending picked up again in September, as did consumer confidence, which see-sawed along with the outlook for the labor market throughout the period. The number of new jobs continued to fall short of expectations. In the spring, more than one million new jobs were added to the economy. But job growth was disappointing again during the summer months. The economy has yet to replace all the jobs lost in the downturn of 2000-2001. A pick-up in business spending was the bright spot in the economy. Industrial production moved steadily higher, as did manufacturing capacity utilization. Outlays for new equipment and construction enjoyed double-digit growth in the second half of the period. Strong spending by business helped offset some of the slowdown in consumer spending. Stocks Stumble, Bonds Edge Higher The U.S. stock market began the period on a strong note. However, the double-digit gains it achieved over the twelve months covered by this report were accumulated early in the period and the broad stock market indexes have been essentially flat in 2004. By contrast, the bond market has held up in the face of three increases in the Federal funds rate (a key short-term interest rate) that occurred late in the period. The yield on the 10-year benchmark U.S. Treasury ended the period only slightly higher than where it began, and bond prices moved higher across all sectors. Investing Despite Uncertainty By all accounts, news on the economy and the markets has been overshadowed over the past year by external events. As a result, many investors have remained on the sidelines. With so much uncertainty, it may feel safer to wait out the storm. Yet, it can be even more risky to try to time your entrances and exits as the markets move through their natural cycles. If you're feeling uncertain about your financial strategy, talk to your financial professional. With the advice and guidance of a financial professional, you can keep your financial goals on track. Sincerely, /s/ Richard S. Davis Richard S. Davis Chairman September 30, 2004 2 - --------------- PERFORMANCE - --------------- Discussion as of September 30, 2004 How State Street Research Aurora Fund Performed State Street Research Aurora Fund (Class A shares, without sales charge) returned 22.39% for the 12-month period ended September 30, 2004. The fund underperformed the Russell 2000[RegTM] Value Index, which returned 25.66% for the period. However, it outperformed the Lipper Small-Cap Core Funds Average, which was 20.52% over the same period. Performance: Class A - ------------------------------------------------------------------------------- Fund average annual total return as of 9/30/04 (does not reflect sales charge)
Life of Fund 1 Year 5 Years (2/13/95) 22.39% 17.90% 20.67%
- ------------------------------------------------------------------------------- Fund average annual total return as of 9/30/04 (at maximum applicable sales charge)
Life of Fund 1 Year 5 Years (2/13/95) 15.36% 16.51% 19.93%
- ------------------------------------------------------------------------------- Russell 2000 Value Index as of 9/30/04 Life of Fund 1 Year 5 Years (2/13/95) 25.66% 14.71% 13.41%
- ------------------------------------------------------------------------------- See pages 4 and 5 for additional performance data for Class A and for performance data on other share classes. Keep in mind that the performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted herein. For the most recent month-end performance results, visit our website at www.ssrfunds.com. 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. Average annual total return without sales charge does not reflect the maximum applicable sales charges. If the applicable sales charges were deducted, performance results would be lower. Average annual total return at maximum applicable sales charge reflects a maximum 5.75% Class A share front-end sales charge. 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 an index. The Lipper Small-Cap Core Funds Average shows the performance of a category of mutual funds with similar goals. The Lipper average shows you how well the fund has done compared to competing funds. Reasons for the Fund's Performance Although the fund lagged its benchmark during the year, it posted solid gains. The fund's strong absolute return was primarily the result of our investments in the energy and materials sectors. Energy stocks benefited from higher crude oil and natural gas prices. In the materials sector, U.S. Steel, Phelps Dodge and Allegheny Technology gained as steel and copper prices increased in response to a strengthening worldwide economy and robust economic growth in China. The fund also benefited from an underweight position in the financial services sector, which failed to keep pace with other areas of the market. The fund's shortfall relative to its benchmark was the result of its emphasis on economically sensitive stocks. This positioning proved costly in the second half of the period as investors sought lower volatility in the stocks of larger companies. The fund's performance was hindered especially by investments in the producer durables and technology sectors. In producer durables, the semiconductor and electronics industries faltered in the second half of the period as it became clear that the U.S. economy had hit a "soft patch." MKS Instruments, ATMI and Varian Semiconductor fell as a result of a slowdown in demand. In technology, telecommunications equipment manufacturers also disappointed. Looking Ahead We believe that continued signs of economic strength, an accommodative Federal Reserve Board policy and resolution of the uncertainty surrounding the presidential race could provide the catalysts for positive momentum in the stock market going forward. In this environment, we believe that stock selection is likely to drive returns. We will continue to focus our efforts on fundamental research to identify stocks trading at a discount to the company's intrinsic value. This approach has resulted in a modest increase in our emphasis on the autos & transportation and materials & processing sectors. Although the fund remains underweight in financial services stocks, we added to the sector by selectively investing in insurance, investment management and brokerage names. We also took advantage of the strength in our steel industry holdings to trim positions in favor of more attractively valued opportunities. A Word about Risk The major risks of stock investing include sudden and unpredictable drops in value and period of lackluster performance. Small-cap stocks can be particularly sensitive to market movements, as they may be thinly traded and their market prices tend to reflect future expectations. "Value" investing poses the potential that a stock may not achieve its "expected" value if the circumstances that cause the stock to be underpriced do not change. Summary Portfolio Schedule - -------------------------------------------------------------------------------
Industries % of Fund Net Assets Consumer Discretionary 18.0% - --------------------------------------------- Producer Durables 16.3% - --------------------------------------------- Materials & Processing 15.8% - --------------------------------------------- Financial Services 10.8% - --------------------------------------------- Technology 9.7% - --------------------------------------------- Other Energy 7.4% - --------------------------------------------- Automobiles & Transportation 7.3% - --------------------------------------------- Health Care 5.9% - --------------------------------------------- Consumer Staples 2.0% - --------------------------------------------- Other 2.0% - --------------------------------------------- Utilities 1.7% - --------------------------------------------- Net Cash 3.1% - --------------------------------------------- Total 100.0%
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. State Street Research Aurora Fund 3 - --------------- PERFORMANCE - --------------- Discussion as of September 30, 2004 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) 22.39% 127.77% 511.47% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 15.36% 114.67% 476.31% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 15.36% 16.51% 19.93% - --------------------------------------------------------------------------------
$10,000 Over Life of Fund (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class A Value Index ------- ------------ 2/95 9425 10000 9/95 10984 12278 9/96 15776 13933 9/97 27245 19878 9/98 20591 17337 9/99 25302 18347 9/00 38826 21161 9/01 38447 22344 9/02 35430 22019 9/03 47087 28990 9/04 57361 36433
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class B(1)
Life of Fund 1 Year 5 Years (2/13/95) - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 21.53% 119.82% 469.50% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 16.53% 117.82% 469.50% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 16.53% 16.85% 19.78% - --------------------------------------------------------------------------------
$10,000 Over Life of Fund (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class B(1) Value Index ---------- ------------ 2/95 10000 10000 9/95 11602 12278 9/96 16535 13933 9/97 28332 19878 9/98 21253 17337 9/99 25907 18347 9/00 39474 21161 9/01 38814 22344 9/02 35513 22019 9/03 46862 28990 9/04 56950 36433
- -------------------------------------------------------------------------------- Keep in mind that the performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted herein. For the most recent month-end performance results, visit our website at www.ssrfunds.com. 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. Cumulative Total Return without sales charge does not reflect the maximum applicable sales charges. If the applicable sales charges were deducted, performance results would be lower. 4 - -------------------------------------------------------------------------------- Class B (only available through exchanges from another Class B account) "9/00" Life of Fund 1 Year 5 Years (2/13/95) - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 23.19% 126.58% 487.01% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 18.19% 124.58% 487.01% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 18.19% 17.56% 20.16% - --------------------------------------------------------------------------------
$10,000 Over Life of Fund (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class B Value Index ------- ------------ 2/95 10000 10000 9/95 11602 12278 9/96 16535 13933 9/97 28332 19878 9/98 21253 17337 9/99 25907 18347 9/00 39474 21161 9/01 38814 22344 9/02 35744 22019 9/03 47651 28990 9/04 58701 36433
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class C
Life of Fund 1 Year 5 Years (2/13/95) - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 21.57% 119.82% 469.50% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 20.57% 119.82% 469.50% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 20.57% 17.06% 19.78% - --------------------------------------------------------------------------------
$10,000 Over Life of Fund (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class C Value Index ------- ------------ 2/95 10000 10000 9/95 11602 12278 9/96 16535 13933 9/97 28318 19878 9/98 21239 17337 9/99 25907 18347 9/00 39474 21161 9/01 38815 22344 9/02 35498 22019 9/03 46847 28990 9/04 56950 36433
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class S
Life of Fund 1 Year 5 Years (2/13/95) - -------------------------------------------------------------------------------- Cumulative Total Return (does not reflect sales charge) 22.75% 132.08% 530.26% - -------------------------------------------------------------------------------- Cumulative Total Return (at maximum applicable sales charge) 22.75% 132.08% 530.26% - -------------------------------------------------------------------------------- Average Annual Total Return (at maximum applicable sales charge) 22.75% 18.34% 21.05% - --------------------------------------------------------------------------------
$10,000 Over Life of Fund (reflects maximum applicable sales charge) [The following table was depicted as a line graph in the printed material.]
Russell 2000 Class S Value Index ------- ------------ 2/95 10000 10000 9/95 11675 12278 9/96 16806 13933 9/97 29092 19878 9/98 22042 17337 9/99 27157 18347 9/00 41908 21161 9/01 41638 22344 9/02 38545 22019 9/03 51345 28990 9/04 63026 36433
- -------------------------------------------------------------------------------- Cumulative and Average Annual Total Return at maximum applicable sales charge reflect 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, returns would have been lower. Class S shares, offered without sales charge, are available through certain retirement plans and special programs. Performance results for the fund are increased by the voluntary reduction of fund fees and expenses, without subsidization, performance would have been lower. 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 an index. State Street Research Aurora Fund 5 About Your Fund Expenses As a fund shareholder, you incur two types of costs: (1) Transaction costs, which include sales charges, and (2) ongoing expenses, which include management fees, service/distribution fees (12b-1) and "other" expenses. The examples below illustrate the ongoing cost in dollars of investing in the fund and allow you to compare these costs with the expenses of other funds. The examples are based on a $1,000 investment at the beginning of the period and held for the entire period from March 31, 2004, to September 30, 2004. Actual Fund Return is based on the fund's actual return and expenses. To estimate the ongoing expenses you paid during the entire period shown, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number shown for your fund under the column "Expenses Paid during the Period." Hypothetical 5% Return is based on the fund's actual expense ratio and an assumed rate of 5% per year before expenses. Please note that the return used is not the fund's actual return; therefore, this information may not be used to estimate your actual ending balance and expenses paid during the period. To compare your fund's ongoing expenses with those of other funds, simply compare this 5% hypothetical example with the 5% hypothetical examples shown in the shareholder reports of other funds.
Beginning Ending Expenses Account Account Paid Annualized Six months ended Value Value during Expense 9/30/04 3/31/04 9/30/04 Period* Ratio - -------------------------------------------------------------------------------- Actual Fund Return - -------------------------------------------------------------------------------- Class A $1,000 $ 973.33 $ 6.73 1.36% - -------------------------------------------------------------------------------- Class B(1) $1,000 $ 966.25 $10.14 2.06% - -------------------------------------------------------------------------------- Class B (closed) $1,000 $ 977.78 $ 5.26 1.06% - -------------------------------------------------------------------------------- Class C $1,000 $ 966.25 $10.15 2.06% - -------------------------------------------------------------------------------- Class S $1,000 $ 976.12 $ 5.26 1.06% - -------------------------------------------------------------------------------- Hypothetical 5% Return - -------------------------------------------------------------------------------- Class A $1,000 $1,018.18 $ 6.88 1.36% - -------------------------------------------------------------------------------- Class B(1) $1,000 $1,014.68 $10.39 2.06% - -------------------------------------------------------------------------------- Class B (closed) $1,000 $1,019.68 $ 5.37 1.06% - -------------------------------------------------------------------------------- Class C $1,000 $1,014.68 $10.40 2.06% - -------------------------------------------------------------------------------- Class S $1,000 $1,019.68 $ 5.37 1.06% - --------------------------------------------------------------------------------
* Expenses are equal to the fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the period and then divided by the number of days in the year. Please note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transactional expenses such as sales charges, which would result in higher total expenses. It should also be noted that, for certain funds, expenses have been subsidized or reduced through expense offset arrangements, which reduces costs for shareholders. Generally, the fund expects that the expense subsidy or expense offset arrangement will continue although there is no guarantee that it will. Please see the fund's prospectus for more information. 6 - -------------- PORTFOLIO - -------------- Holdings September 30, 2004
Issuer Shares Value - ------------------------------------------------------------------------------------------------------------------- Common Stocks 96.9% Automobiles & Transportation 7.3% Air Transport 2.2% AAR Corp.*^ ............................................................ 1,398,100 $17,406,345 Alaska Air Group Inc.*^ ................................................ 511,200 12,667,536 EGL Inc.*^ ............................................................. 940,200 28,450,452 Mesa Air Group Inc.*^ .................................................. 1,749,600 8,922,960 SkyWest Airlines Inc.^ ................................................. 662,500 9,970,625 ----------- 77,417,918 ----------- Automotive Parts 1.6% American Axle & Manufacturing Holdings Inc.*^ ...................................................... 210,300 6,153,378 Borg-Warner Automotive Inc.^ ........................................... 403,000 17,445,870 Navistar International Corp.*^ ......................................... 744,600 27,691,674 Tower Automotive Inc.*^ ................................................ 2,096,200 4,381,058 ----------- 55,671,980 ----------- Miscellaneous Transportation 1.3% Kirby Corp.*^ .......................................................... 351,300 14,104,695 OMI Corp.*^ ............................................................ 1,990,900 31,894,218 ----------- 45,998,913 ----------- Railroad Equipment 1.3% Wabtec Corp.^ .......................................................... 2,385,600 44,586,864 ----------- Railroads 0.3% RailAmerica Inc.*^ ..................................................... 956,000 10,563,800 ----------- Tires & Rubber 0.6% Cooper Tire & Rubber Co.^ .............................................. 1,028,100 20,736,777 ----------- Total Automobiles & Transportation ..................................... 254,976,252 ----------- Consumer Discretionary 18.0% Casinos/Gambling, Hotel/Motel 2.1% Argosy Gaming Corp.*^ .................................................. 947,300 37,134,160 Boyd Gaming Corp.^ ..................................................... 691,500 19,465,725 Pinnacle Entertainment Inc.*^ .......................................... 1,285,100 17,734,380 ----------- 74,334,265 ----------- Commercial Services 2.1% Heidrick & Struggles International Inc.*^ .............................. 948,700 27,341,534 ProQuest Co.*^ ......................................................... 433,900 11,151,230 Startek Inc.^ .......................................................... 216,500 6,789,440 Steiner Leisure Ltd.*^ ................................................. 663,600 14,665,560 Tetra Tech Inc.*^ ...................................................... 751,200 9,517,704 Viad Corp.^ ............................................................ 135,500 3,215,415 ----------- 72,680,883 ----------- Communications, Media & Entertainment 1.4% Entercom Communications Corp. .......................................... 344,900 11,264,434 Gray Television Inc.^ .................................................. 735,100 8,747,690 Hollywood Entertainment Corp.*^ ........................................ 1,484,200 14,649,054 LIN TV Corp.^ .......................................................... 740,200 14,419,096 ----------- 49,080,274 -----------
Issuer Shares Value - ------------------------------------------------------------------------------------------------------------------- Consumer Electronics 0.5% EarthLink Inc.*^ ....................................................... 1,747,500 $17,999,250 ----------- Consumer Products 0.8% Playtex Products Inc.*^ ................................................ 2,228,500 14,039,550 Tupperware Corp.^ ...................................................... 761,700 12,933,666 ----------- 26,973,216 ----------- Consumer Services 1.2% Learning Tree International Inc.*^ ..................................... 797,500 11,244,750 SkillSoft plc ADR*^ .................................................... 914,900 6,120,681 Stewart Enterprises Inc.^ .............................................. 3,750,900 26,068,755 ----------- 43,434,186 ----------- Household Furnishings 0.8% Furniture Brands International Inc.*^ .................................. 452,100 11,338,668 La-Z-Boy Inc.^ ......................................................... 1,236,500 18,770,070 ----------- 30,108,738 ----------- Leisure Time 1.1% Callaway Golf Co.^ ..................................................... 969,700 10,249,729 K2 Inc.*^ .............................................................. 771,500 11,040,165 Penn National Gaming Inc.*^ ............................................ 333,400 13,469,360 Steinway Musical Instruments Inc.*^ .................................... 150,700 4,099,040 ----------- 38,858,294 ----------- Printing & Publishing 1.5% Hollinger International Inc.^ .......................................... 257,700 4,455,633 Journal Register Co.* .................................................. 1,012,800 19,141,920 Reader's Digest Association Inc. ....................................... 1,994,100 29,093,919 ----------- 52,691,472 ----------- Restaurants 1.7% California Pizza Kitchen Inc.^ ......................................... 711,900 15,555,015 CKE Restaurants Inc.*^ ................................................. 1,291,600 14,272,180 O'Charley's Inc.*^ ..................................................... 802,500 13,080,750 Papa John's International Inc.^ ........................................ 365,900 11,225,812 Ryans Restaurant Group Inc. ............................................ 303,900 4,509,876 ----------- 58,643,633 ----------- Retail 4.1% American Eagle Outfitters Inc.*^ ....................................... 274,800 10,126,380 Barnes & Noble Inc.*^ .................................................. 199,400 7,377,800 BJ's Wholesale Club Inc.^ .............................................. 714,100 19,523,494 Charming Shopper Inc.*^ ................................................ 2,343,200 16,683,584 Christopher & Banks Corp.*^ ............................................ 902,500 14,449,025 CSK Auto Corp.*^ ....................................................... 599,900 7,990,668 Dillard's Inc.^ ........................................................ 307,500 6,070,050 Genesco Inc.*^ ......................................................... 145,400 3,424,170 Hancock Fabrics Inc.^ .................................................. 904,700 10,838,306 Payless ShoeSource Inc.*^ .............................................. 2,155,000 21,830,150 Too Inc.*^ ............................................................. 1,030,700 18,624,749 Tweeter Home Entertainment Group Inc.*^ ................................ 1,584,322 8,951,419 ----------- 145,889,795 ----------- Textile Apparel Manufacturers 0.7% Oshkosh B'Gosh Inc.^ ................................................... 542,288 10,954,218 Russell Corp.^ ......................................................... 751,100 12,648,524 ----------- 23,602,742 ----------- Total Consumer Discretionary ........................................... 634,296,748 ----------- Consumer Staples 2.0% Drug & Grocery Store Chains 1.1% Longs Drug Stores Corp.^ ............................................... 999,300 24,183,060 Wild Oats Markets Inc.*^ ............................................... 1,603,600 13,855,104 ----------- 38,038,164 -----------
The notes are an integral part of the financial statements. State Street Research Aurora Fund 7
Issuer Shares Value - ----------------------------------------------------------------------------------------- Foods 0.9% American Italian Pasta Co. Cl. A*^ ........... 422,300 $11,043,145 Chiquita Brands International Inc.^ .......... 173,100 3,013,671 Sensient Technologies Corp.^ ................. 853,600 18,471,904 ----------- 32,528,720 ----------- Total Consumer Staples ....................... 70,566,884 ----------- Financial Services 10.8% Banks & Savings & Loan 1.3% First Niagara Financial Group Corp.*^ ........ 885,200 11,843,976 Sterling Bancshares Inc.^ .................... 1,190,941 16,018,156 Zions Bancorp^ ............................... 311,200 18,995,648 ----------- 46,857,780 ----------- Financial Data Processing Services & Systems 0.8% Carreker Corp.*^ ............................. 1,156,900 8,804,009 John H. Harland Co.^ ......................... 581,000 18,214,350 ----------- 27,018,359 ----------- Insurance 2.8% Amerus Group Co.^ ............................ 346,800 14,218,800 Harleysville Group Inc.^ ..................... 948,930 19,604,894 Hub International Ltd. ....................... 678,600 12,269,088 Odyssey Reinsurance Holdings Corp.^ .......... 747,700 16,583,986 Ohio Casualty Corp.*^ ........................ 939,100 19,655,363 Platinum Underwriters Holdings Ltd.^ ......... 238,800 6,992,064 United National Group Ltd.*^ ................. 773,900 11,237,028 ----------- 100,561,223 ----------- Miscellaneous Financial 1.8% Ambac Financial Group Inc.^ .................. 254,500 20,347,275 Fidelity National Financial Inc. ............. 214,369 8,167,459 Medallion Financial Corp.^ ................... 851,100 7,702,455 Moneygram International Inc. ................. 542,000 9,257,360 Radian Group Inc. ............................ 395,700 18,293,211 ----------- 63,767,760 ----------- Real Estate Investment Trusts 0.8% Anthracite Capital Inc.^ ..................... 631,085 7,017,665 Heritage Property Investment Trust Inc.^ ..... 484,700 14,138,699 Highland Hospitality Corp.*^ ................. 594,600 6,778,440 ----------- 27,934,804 ----------- Rental & Leasing Services: Commercial 0.8% GATX Corp.^ .................................. 1,049,800 27,987,668 ----------- Securities Brokerage & Services 2.5% Affiliated Managers Group Inc.*^ ............. 228,200 12,217,828 AG Edwards Inc.^ ............................. 366,400 12,684,768 American Capital Strategies Ltd.^ ............ 777,800 24,376,252 MCG Capital Corp.^ ........................... 896,200 15,558,032 NCO Group Inc.*^ ............................. 660,700 17,805,865 SWS Group Inc.^ .............................. 260,100 4,182,408 ----------- 86,825,153 ----------- Total Financial Services ..................... 380,952,747 ----------- Health Care 5.9% Drugs & Biotechnology 2.2% Albany Molecular Research Inc.* .............. 1,227,500 11,784,000 Cytyc Corp.*^ ................................ 521,800 12,601,470 InterMune Inc.*^ ............................. 965,200 11,379,708 Priority Healthcare Corp.*^ .................. 802,600 16,172,390 Valeant Pharmaceuticals Inc.^ ................ 1,111,800 26,816,616 ----------- 78,754,184 ----------- Health Care Facilities 0.5% LifePoint Hospitals Inc.*^ ................... 593,200 17,801,932 -----------
Issuer Shares Value - ----------------------------------------------------------------------------------------- Health Care Services 1.8% Hanger Orthopedic Group Inc.*^ ............... 904,500 $ 4,531,545 Hooper Holmes Inc.^ .......................... 3,370,500 15,099,840 Province Healthcare Co.*^ .................... 1,244,500 26,034,940 Rehabcare Group Inc.*^ ....................... 744,800 17,152,744 ----------- 62,819,069 ----------- Hospital Supply 1.4% ICU Medical Inc.*^ ........................... 363,200 9,457,728 Steris Corp. ................................. 655,100 14,372,894 Surmodics Inc.^ .............................. 486,200 11,547,250 VIASYS Healthcare Inc.*^ ..................... 702,900 11,759,517 ----------- 47,137,389 ----------- Total Health Care ............................................. 206,512,574 ----------- Materials & Processing 15.8% Building & Construction 1.8% Comfort Systems USA Inc.*^ ................... 1,231,300 8,126,580 ElkCorp. ..................................... 500,900 13,904,984 Martin Marietta Materials Inc.^ .............. 729,100 33,006,357 Trex Inc.*^ .................................. 217,600 9,635,328 ----------- 64,673,249 ----------- Chemicals 2.4% Cambrex Corp.^ ............................... 725,100 15,915,945 Ferro Corp.^ ................................. 708,700 15,456,747 Millennium Chemicals Inc.^ ................... 1,118,200 23,717,022 OM Group Inc.^ ............................... 101,800 3,721,808 Omnova Solutions Inc.*^ ...................... 2,363,200 14,250,096 Spartech Corp.^ .............................. 400,300 10,047,530 ----------- 83,109,148 ----------- Containers & Packaging 1.3% Anchor Glass Container Corp.*^ ............... 1,342,600 11,022,746 Apogee Enterprises, Inc.^ .................... 948,496 12,264,053 Packaging Corp. of America*^ ................. 880,900 21,555,623 ----------- 44,842,422 ----------- Diversified Manufacturing 0.6% Acuity Brands Inc.^ .......................... 457,700 10,879,529 Tredegar Industries Corp.^ ................... 609,100 11,085,620 ----------- 21,965,149 ----------- Engineering & Contracting Services 0.7% Dycom Industries Inc.*^ ...................... 589,300 16,730,227 Integrated Electrical Services Inc.*^ ........ 1,990,600 9,574,786 ----------- 26,305,013 ----------- Fertilizers 1.5% Agrium Inc. .................................. 2,227,600 39,562,176 IMC Global Inc.^ ............................. 844,600 14,687,594 ----------- 54,249,770 ----------- Forest Products 0.3% Rayonier Inc. ................................ 211,333 9,560,705 ----------- Miscellaneous Materials & Processing 2.7% Insituform Technologies Inc.*^ ............... 676,300 12,626,521 Maverick Tube Corp.*^ ........................ 862,200 26,564,382 NN Inc.^ ..................................... 676,500 7,745,925 NS Group Inc.*^ .............................. 1,018,400 18,840,400 RTI International Metals Inc.*^ .............. 702,900 13,615,173 Valmont Industries Inc.^ ..................... 794,900 16,589,563 ----------- 95,981,964 -----------
8 The notes are an integral part of the financial statements.
Issuer Shares Value - ------------------------------------------------------------------------------------------------------------------- Non-Ferrous Metals 2.2% Compass Minerals International Inc.^ ................................... 715,800 $15,890,760 GrafTech International Ltd.*^ .......................................... 1,794,700 25,036,065 Minerals Technologies Inc.^ ............................................ 154,000 9,064,440 Phelps Dodge Corp.*^ ................................................... 213,300 19,629,999 Titanium Metals Corp.*^ ................................................ 268,595 6,301,239 ----------- 75,922,503 ----------- Paper & Forest Products 0.6% Caraustar Industries Inc.*^ ............................................ 1,170,160 19,623,583 ----------- Steel 1.7% Allegheny Technologies Inc.^ ........................................... 1,750,800 31,952,100 United States Steel Corp.^ ............................................. 722,800 27,191,736 ----------- 59,143,836 ----------- Textile & Products 0.0% Quaker Fabric Corp.^ ................................................... 196,338 1,276,197 ----------- Total Materials & Processing ........................................... 556,653,539 ----------- Other 2.0% Multi-Sector 2.0% Jacuzzi Brands Inc.* ................................................... 1,255,300 11,674,290 Trinity Industries Inc.^ ............................................... 1,084,600 33,806,982 Walter Industries Inc.^ ................................................ 1,491,700 23,897,034 ----------- Total Other ............................................................ 69,378,306 ----------- Other Energy 7.4% Miscellaneous Energy 1.2% Massey Energy Corp.^ ................................................... 543,900 15,735,027 Peabody Energy Corp.^ .................................................. 407,500 24,246,250 ----------- 39,981,277 ----------- Offshore Drilling 0.5% Atwood Oceanics Inc.*^ ................................................. 395,400 18,797,316 ----------- Oil & Gas Producers 1.8% Cabot Oil & Gas Corp. Cl. A^ ........................................... 493,900 22,176,110 Spinnaker Exploration Co.*^ ............................................ 239,600 8,395,584 Stone Energy Corp.*^ ................................................... 258,700 11,320,712 Vintage Petroleum Inc.^ ................................................ 991,000 19,889,370 ----------- 61,781,776 ----------- Oil Well Equipment & Services 3.9% Core Laboratories NV Co.*^ ............................................. 692,800 17,035,952 Global Industries Inc.*^ ............................................... 2,778,500 17,171,130 Grey Wolf Inc.*^ ....................................................... 3,546,500 17,342,385 Hanover Compressor Co.*^ ............................................... 2,221,000 29,872,450 NewPark Resources Inc.*^ ............................................... 2,303,900 13,823,400 Veritas DGC Inc.*^ ..................................................... 797,400 18,164,772 W-H Energy Services Inc.*^ ............................................. 1,196,700 24,831,525 ----------- 138,241,614 ----------- Total Other Energy ..................................................... 258,801,983 ----------- Producer Durables 16.3% Aerospace 1.6% Alliant Technology Systems, Inc.*^ ..................................... 281,300 17,018,650 Heico Corp.^ ........................................................... 650,300 11,497,304 Heico Corp. Cl. A ...................................................... 65,029 876,591 Ladish Inc.* ........................................................... 738,100 6,753,615 Teledyne Technologies Inc.*^ ........................................... 795,700 19,924,328 ----------- 56,070,488 -----------
Issuer Shares Value - ------------------------------------------------------------------------------------------------------------------- Electrical Equipment & Components 2.7% MKS Instruments Inc.*^ ................................................. 989,203 $15,154,590 Regal Beloit Corp.^ .................................................... 528,000 12,772,320 Technitrol Inc.*^ ...................................................... 2,718,100 53,002,950 Triumph Group Inc.*^ ................................................... 460,000 15,561,800 ----------- 96,491,660 ----------- Homebuilding 0.2% Champion Enterprises Inc.^ ............................................. 716,400 7,371,756 ----------- Industrial Products 3.3% C&D Technologies Inc.^ ................................................. 101,700 1,934,334 Federal Signal Corp.^ .................................................. 522,800 9,713,624 Flowserve Corp.* ....................................................... 705,500 17,058,990 Roper Industries Inc.^ ................................................. 463,300 26,621,218 Veeco Instruments Inc.*^ ............................................... 2,114,500 44,341,065 Watts Industries Inc. Cl. A^ ........................................... 632,000 16,969,200 ----------- 116,638,431 ----------- Machinery 4.3% AGCO Corp.* ............................................................ 1,058,000 23,931,960 Applied Films Corp.*^ .................................................. 205,300 3,697,453 Helix Technology Corp.^ ................................................ 650,000 8,836,750 JLG Industries Inc.^ ................................................... 588,000 9,878,400 Joy Global Inc.*^ ...................................................... 728,200 25,035,516 Kadant Inc.*^ .......................................................... 1,227,800 22,542,408 Manitowoc Company Inc.^ ................................................ 653,400 23,169,564 Stewart & Stevenson Services Inc. ...................................... 855,100 15,109,617 Terex Corp.*^ .......................................................... 458,500 19,898,900 ----------- 152,100,568 ----------- Miscellaneous Equipment 0.4% Thomas & Betts Corp.*^ ................................................. 579,500 15,542,190 ----------- Office Furniture & Business Equipment 0.4% Steelcase Inc. Cl. A^ .................................................. 897,500 12,565,000 ----------- Production Technology Equipment 2.0% ATMI Inc.*^ ............................................................ 735,700 15,067,136 Brooks Automation Inc.*^ ............................................... 1,221,600 17,285,640 Esterline Technologies Corp.*^ ......................................... 533,700 16,325,883 Varian Semiconductor Equipment Inc.*^ .................................. 685,500 21,181,950 ----------- 69,860,609 ----------- Telecommunications Equipment 1.4% American Tower Corp. Cl. A*^ ........................................... 786,000 12,065,100 Andrew Corp.*^ ......................................................... 1,655,700 20,265,768 Belden CDT Inc.^ ....................................................... 738,900 16,108,020 ----------- 48,438,888 ----------- Total Producer Durables ................................................ 575,079,590 ----------- Technology 9.7% Electrical Equipment and Components 0.4% IXYS Corp.*^ ........................................................... 1,866,900 13,404,342 ----------- Communications Technology 2.2% Advanced Fibre Communications Inc.*^ ................................... 248,600 3,952,740 Anaren Microwave Inc.*^ ................................................ 945,500 12,726,430 Anixter International Inc.*^ ........................................... 293,900 10,312,951 Commscope Inc.*^ ....................................................... 964,600 20,835,360 iNet Technologies Inc.*^ ............................................... 1,500,500 18,876,290 NMS Communications Corp.*^ ............................................. 2,330,200 11,371,376 ----------- 78,075,147 -----------
The notes are an integral part of the financial statements. State Street Research Aurora Fund 9
Issuer Shares Value - -------------------------------------------------------------------------------- Computer Software 2.4% Ascential Software Corp.^ .................. 438,100 $ 5,901,207 Aspen Technology Inc.*^ .................... 2,180,979 15,245,043 Ciber Inc.*^ ............................... 1,764,000 13,265,280 Electronics for Imaging Inc.*^ ............. 875,300 14,214,872 IONA Technologies plc*^ .................... 633,100 2,595,710 Keane Inc.*^ ............................... 621,700 9,549,312 Mentor Graphics Corp.*^ .................... 1,317,200 14,443,098 MRO Software Inc.^ ......................... 637,300 6,373,000 Pegasystems Inc.*^ ......................... 266,800 1,862,264 ------------- 83,449,786 ------------- Computer Technology 1.2% Hutchinson Technology Inc.*^ ............... 422,100 11,282,733 Perot Systems Corp.*^ ...................... 1,178,900 18,933,134 Silicon Graphics Inc.*^ .................... 4,835,100 6,914,193 SimpleTech Inc.*^ .......................... 1,770,000 6,478,200 ------------- 43,608,260 ------------- Electronics 2.1% AVX Corp.^ ................................. 634,000 7,512,900 BEI Technologies Inc.^ ..................... 185,500 5,082,700 Benchmark Electronics Inc.* ................ 239,750 7,144,550 Gerber Scientific Inc.*^ ................... 561,800 3,702,262 Herley Industries Inc.*^ ................... 929,000 17,363,010 Kemet Corp.*^ .............................. 2,498,600 20,213,674 LeCroy Corp.* .............................. 758,600 12,676,206 ------------- 73,695,302 ------------- Electronics: Semiconductors/Components 1.4% Actel Corp.*^ .............................. 588,800 8,949,760 Avnet Inc.*^ ............................... 530,500 9,082,160 Cypress Semiconductor Corp.*^ .............. 1,649,800 14,584,232 Excel Technology Inc.*^ .................... 349,000 9,011,180 Stats Chippac Ltd.^ ........................ 531,221 3,176,702 TriQuint Semiconductors Inc.*^ ............. 1,474,200 5,749,380 ------------- 50,553,414 ------------- Total Technology ........................... 342,786,251 ------------- Utilities 1.7% Electrical 0.5% Hawaiian Electric Industries Inc.^ ......... 204,800 5,435,392 Westar Energy Inc. ......................... 660,100 13,334,020 ------------- 18,769,412 ------------- Gas Distribution 0.6% NUI Corp.^ ................................. 754,000 10,058,360 UGI Corp. .................................. 292,400 10,894,824 ------------- 20,953,184 ------------- Telecommunications 0.6% PTEK Holdings Inc.*^ ....................... 2,509,900 21,509,843 ------------- Total Utilities ............................ 61,232,439 ------------- Total Common Stocks (Cost $2,738,281,233) .. 3,411,237,313 ------------- Short-Term Investments 23.9% State Street Navigator Securities Lending Prime Portfolio .................. 840,778,353 840,778,353 -------------
Maturity Amount of Coupon Rate Date Principal Value - --------------------------------------------------------------------------- Commercial Paper 3.4% Federal National Mortgage Association 1.64% ........ 10/18/2004 $23,330,000 $23,311,822 UBS Finance Inc., 1.76%..... 10/06/2004 16,973,000 16,968,851 UBS Finance Inc., 1.75%..... 10/07/2004 11,045,000 11,041,779 Caterpillar Financial Services NV, 1.74% ....... 10/01/2004 20,854,000 20,854,000 Morgan Stanley Dean Witter & Co., 1.78%....... 10/15/2004 21,200,000 21,185,325 Morgan Stanley Dean Witter & Co., 1.78%....... 10/27/2004 24,618,000 24,586,352 ----------- Total Commercial Paper (Cost $117,948,129) ............ 117,948,129 -----------
% of Net Assets - -------------------------------------------------------------------------------- Summary of Portfolio Assets Investments (Cost $3,697,007,715) ......... 124.2% 4,369,963,795 Other Assets, Less Liabilities ............ (24.2%) (850,229,459) ----- ------------- Net Assets ................................ 100.0% $3,519,734,336 ===== ==============
KEY TO SYMBOLS * Denotes a security which has not paid a dividend during the last year. ^ A portion or all of the security was held on loan. At September 30, 2004, the value of securities loaned was $820,559,939. ADR Stands for American Depositary Receipt. Federal Income Tax Information At September 30, 2004, the net unrealized appreciation of investments based on cost for federal income tax purposes of $3,702,036,327 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost $ 865,973,632 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (198,046,164) ------------- $ 667,927,468 =============
10 The notes are an integral part of the financial statements. - -------------- FINANCIAL - -------------- Statements Statement of Assets and Liabilities - -------------------------------------------------------------------------------- September 30, 2004 Investments, at value (Cost $3,697,007,715) (Note 1) ..... $4,369,963,795 Receivable for fund shares sold .......................... 5,127,407 Receivable for securities sold ........................... 3,350,770 Dividends receivable ..................................... 2,843,115 Other assets ............................................. 102,666 -------------- 4,381,387,753 -------------- Liabilities Payable for collateral received on securities loaned ..... 840,778,353 Payable for fund shares redeemed ......................... 8,711,905 Payable for securities purchased ......................... 4,093,193 Accrued transfer agent and shareholder services .......... 2,851,615 Accrued management fee ................................... 2,456,230 Accrued distribution and service fees .................... 1,325,199 Payable to custodian ..................................... 980,526 Accrued trustees' fees ................................... 55,671 Accrued administration fee ............................... 1,705 Other accrued expenses ................................... 399,020 -------------- 861,653,417 -------------- Net Assets ............................................... $3,519,734,336 ============== Net Assets consist of: Unrealized appreciation of investments ................... $ 672,956,080 Accumulated net realized gain ............................ 331,822,817 Paid-in capital .......................................... 2,514,955,439 -------------- $3,519,734,336 ==============
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 $2,169,836,016 54,953,387 $39.49* B(1) $ 470,429,516 12,827,855 $36.67** B $ 188,014,375 4,973,472 $37.80** C $ 493,979,675 13,470,862 $36.67** S $ 197,474,754 4,850,308 $40.71
* Maximum offering price per share = $41.90 ($39.49 [divided by] 0.9425) ** Redemption price per share for Class B(1), Class B and Class C is equal to net asset value less any applicable contingent deferred sales charge. Statement of Operations - -------------------------------------------------------------------------------- For the year ended September 30, 2004 Investment Income Dividends, net of foreign taxes of $234,581 (Note 1)...... $ 25,929,912 Interest (Note 1) ........................................ 1,078,541 Securities lending income (Note 1) ....................... 1,508,066 ------------ 28,516,519 ------------ Expenses Management fee (Note 2) .................................. 29,179,140 Transfer agent and shareholder services (Note 2) ......... 7,254,508 Distribution and service fees - Class A (Note 4) ......... 6,237,602 Distribution and service fees - Class B(1) (Note 4) ...... 4,701,624 Distribution and service fees - Class C (Note 4) ......... 4,853,723 Custodian fee ............................................ 467,011 Reports to shareholders .................................. 465,128 Administration fee (Note 2) .............................. 96,535 Registration fees ........................................ 110,376 Trustees' fees (Note 2) .................................. 119,304 Legal fees ............................................... 5,544 Audit fee ................................................ 38,052 Miscellaneous ............................................ 76,696 ------------ 53,605,243 ------------ (25,088,724) Reimbursement of distribution fees (Note 4) .............. 707,239 ------------ Net investment loss ...................................... (24,381,485) ------------ Realized and Unrealized Gain on Investments et increase from payment by affiliate (Note 2) .......... 426,457 Net realized gain on investments (Notes 1 and 3) ......... 376,473,622 Change in unrealized appreciation of investments ......... 274,337,207 ------------ Net gain on investments .................................. 651,237,286 ------------ Net increase in net assets resulting from operations ..... $626,855,801 ============
The notes are an integral part of the financial statements. State Street Research Aurora Fund 11 Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Years ended September 30 -------------------------------- 2004 2003 -------------------------------- Increase (Decrease) In Net Assets Operations: Net investment loss .................. $ (24,381,485) $ (21,564,654) Net increase from payment by affiliate ...................... 426,457 -- Net realized gain (loss) on investments ....................... 376,473,622 (5,964,906) Change in unrealized appreciation of investments .................... 274,337,207 732,152,627 -------------------------------- Net increase resulting from operations ........................ 626,855,801 704,623,067 -------------------------------- Distributions from capital gains: Class A ........................... (966,224) (8,427,738) Class B(1) ........................ (240,069) (2,137,073) Class B ........................... (108,430) (1,112,809) Class C ........................... (244,717) (2,440,090) Class S ........................... (83,129) (560,409) -------------------------------- (1,642,569) (14,678,119) -------------------------------- Net increase (decrease) from fund share transactions (Note 6) .......................... 67,410,778 (332,003,552) -------------------------------- Total increase in net assets ......... 692,624,010 357,941,396 Net Assets Beginning of year .................... 2,827,110,326 2,469,168,930 -------------------------------- End of year .......................... $3,519,734,336 $2,827,110,326 ================================
Notes to Financial Statements - -------------------------------------------------------------------------------- September 30, 2004 Note 1 State Street Research Aurora Fund is a series of State Street Research Capital Trust (the "Trust"), which is a Massachusetts business trust and is 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 at least 65% of its total assets in small-cap value stocks. 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. Currently, the annual service and distribution fees paid by Class B shares have been voluntarily reduced to 0.00%. 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. Income, expenses (other than service and distribution fees), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. 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. In the event that the market quotations for a portfolio instrument are not deemed to be readily available, the Investment Adviser's Valuation Committee determines the fair value for such portfolio instrument. The fair value of any such portfolio instruments are determined based upon a consideration of all available facts and information. The fair value of a restricted portfolio instrument reflects the inherent worth of the portfolio instrument, without regard to the restrictive feature, adjusted for any diminution in value resulting from the restrictive feature. The Investment Adviser and the Custodian also monitor domestic and foreign markets and news information for any developing events that 12 The notes are an integral part of the financial statements. Notes (continued) - -------------------------------------------------------------------------------- may have an impact on the valuation of portfolio instruments. Such monitoring includes general market news and financial market information sources currently utilized in making investment decisions, trading and investment personnel located abroad, foreign regional brokers, and/or foreign custodians. The value assigned to these securities is based upon available information at the time, and does not necessarily represent the amount which might ultimately be realized upon sale. 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. 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, 2004 the payable to the custodian bank of $980,526 represents the amount due for cash advance for the settlement of the 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. For the year ended September 30, 2004, the fund has designated $0 as ordinary income dividends and $1,642,569 as long-term capital gain distributions. 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. 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 non-taxable dividend adjustments and REIT sell adjustments. At September 30, 2004, 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. At September 30, 2004, the tax basis distributable earnings were $51,565,898 in undistributed ordinary income and $285,689,445 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, 2004, the value of the securities loaned and the value of collateral were $820,559,939 and $840,778,353 (including $840,459,698 of cash collateral invested in State Street Navigator Securities Lending Prime Portfolio and $318,655 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, 2004, income from securities lending amounted to $1,508,066 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, 2004, the fees pursuant to such agreement amounted to $29,179,140. 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, 2004, the amount of such expenses allocated to the fund was $5,284,788. The fees of the Trustees not currently affiliated with the Adviser amounted to $119,304 during the year ended September 30, 2004. 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, 2004, the amount of such expenses was $96,535. On February 19, 2004, the Distributor entered into an agreement with the NASD resolving all outstanding issues relating to an investigation by the NASD of the Distributor's e-mail retention practices and supervision of trading activity in shares of the State Street Research funds. The Distributor, without admitting or denying the allegations or the findings set forth in the agreement, and solely for the purpose of the settlement, agreed to the entry of certain findings by the NASD relating to the Distributor's compliance with document retention requirements and the Distributor's supervision of and enforcement of shareholder exchange limitations set forth in the funds' prospectuses. The agreement contains no allegations or findings of fraudulent conduct by the distributor. As part of this agreement, the Distributor made a payment to State Street Research Aurora Fund to compensate the fund for losses relating to the exchange of fund shares beyond the annual limit set forth in the fund's prospectus. The payment was allocated among the fund's share classes as follows: $256,999 to Class A; $58,986 to Class B(1); $25,392 to Class B; $60,506 to Class C; and $24,574 to Class S. These amounts are shown in the total amount of $426,457 as "Net increase from payment by affiliate" in the Statement of Operations. Note 3 For the year ended September 30, 2004, purchases and sales of securities, exclusive of short-term obligations, aggregated $1,105,387,917, and $1,158,894,827, 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 reduced to 0.00%. The fund expects this waiver to continue, although there is no guarantee 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 State Street Research Aurora Fund 13 of its distribution and marketing expenses. For the year ended September 30, 2004, fees pursuant to such plans amounted to $6,237,602, $4,701,624 and $4,853,723 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, 2004, there were $33,153,047, $65,986 and $9,332,153 for Class A, Class 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) shares, the payments compensate the distributor for services and expenditures incurred under the plan, and none of the payments are returnable to the fund. During the year ended September 30, 2004 the Distributor reimbursed a total of $707,239 to Class B shares of the fund reflecting the estimated excess of payments received over costs incurred under the plan. This amount is shown as "Reimbursement of distribution fees" in the Statement of Operations. The fund has been informed that the Distributor and MetLife Securities, Inc., a wholly owned subsidiary of MetLife, earned initial sales charges aggregating $1,745,932 and $2,193,737, respectively, on sales of Class A shares of the fund during the year ended September 30, 2004, and that MetLife Securities, Inc. earned commissions aggregating $2,523,913 and $48,625 on sales of Class B(1) and Class C shares, and the Distributor collected contingent deferred sales charges aggregating $641,167, $37 and $19,193 on redemptions of Class B(1), Class B and Class C shares, respectively, during the same period. Note 5 MetLife announced that it has entered into an agreement to sell the Advisor as part of a larger transaction to sell MetLife's asset management business to BlackRock, Inc. ("BlackRock"). The acquisition by BlackRock of MetLife's asset management business is expected to occur in the first quarter of 2005. At the time of the closing, the advisory agreement between the fund and the Adviser and the distribution agreement between the fund and the Distributor will be terminated. BlackRock Advisors, Inc. and BlackRock Distributors, Inc., wholly owned subsidiaries of BlackRock, will serve as investment adviser and distributor, respectively. A Special Meeting of Shareholders of the fund has been tentatively scheduled for December 2004. At this meeting, shareholders of the fund will be asked to consider and approve a plan of reorganization between the fund and the BlackRock Mid-Cap Value Equity Portfolio II, a newly created series of the BlackRock Funds. If the proposed reorganization is approved by shareholders of the fund, the BlackRock Mid-Cap Value Equity Portfolio II would acquire substantially all of the assets and liabilities of the fund. In exchange, shareholders of the fund would receive shares of the BlackRock Mid-Cap Value Equity Portfolio II with an aggregate value equivalent to the aggregate net asset value of their fund shares at the time of the transaction. If the proposed reorganization is not approved by shareholders of the fund, the Board of Trustees will need to consider other alternatives relating to the management and operations of the fund, including without limitations, seeking an alternative investment adviser for the fund or seeking shareholder approval to liquidate the fund.* * The foregoing is not an offer to sell, nor a solicitation of an offer to buy, shares of any fund, nor is it a solicitation of any proxy. 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 ---------------------------------------------------------------- 2004 2003 ---------------------------------------------------------------- Class A Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------------------- Shares sold 21,883,004 $ 843,198,910 16,899,496 $ 469,042,922 Issued upon reinvestment of distributions from capital gains 18,801 708,316 213,191 5,489,579 Shares redeemed (19,076,439) (732,522,081) (24,341,722) (651,666,848) ------------- ------------- ------------- ------------- Net increase (decrease) 2,825,366 $ 111,385,145 (7,229,035) $(177,134,347) ============= ============= ============= ============= Class B(1) Shares Amount Shares Amount - ---------------------------------------------------------------------------------------------- ------------------------------ Shares sold 1,603,178 $ 57,403,099 1,403,726 $ 36,779,208 Issued upon reinvestment of distributions from capital gains 5,030 177,068 64,891 1,576,445 Shares redeemed (2,065,212) (73,852,145) (2,979,708) (74,229,578) ------------- ------------- ------------- ------------- Net decrease (457,004) $ (16,271,978) (1,511,091) $ (35,873,925) ============= ============= ============= ============= Class B Shares Amount Shares Amount - ---------------------------------------------------------------------------------------------- ------------------------------ Shares sold 66,288 $ 2,412,694 131,669 $ 3,441,001 Issued upon reinvestment of distributions from capital gains 2,233 80,289 31,392 769,318 Shares redeemed (1,351,306) (49,832,222) (1,847,125) (46,449,514) ------------- ------------- ------------- ------------- Net decrease (1,282,785) $ (47,339,239) (1,684,064) $ (42,239,195) ============= ============= ============= ============= Class C Shares Amount Shares Amount - ---------------------------------------------------------------------------------------------- ------------------------------ Shares sold 2,676,532 $ 96,224,763 1,051,716 $ 28,486,342 Issued upon reinvestment of distributions from capital gains 4,009 141,078 58,514 1,420,934 Shares redeemed (2,762,239) (99,357,980) (5,026,706) (124,996,244) ------------- ------------- ------------- ------------- Net decrease (81,698) $ (2,992,139) (3,916,476) $ (95,088,968) ============= ============= ============= ============= Class S Shares Amount Shares Amount - ---------------------------------------------------------------------------------------------- ------------------------------ Shares sold 2,488,213 $ 98,297,733 1,772,631 $ 51,725,495 Issued upon reinvestment of distributions from capital gains 2,027 78,602 21,069 558,168 Shares redeemed (1,933,475) (75,747,346) (1,205,014) (33,950,780) ------------- ------------- ------------- ------------- Net increase 556,765 $ 22,628,989 588,686 $ 18,332,883 ============= ============= ============= =============
14 - ------------ FINANCIAL - ------------ Highlights For a share outstanding throughout each year:
Class A - Years Ended September 30 ------------------------------------------------------------------ 2004(a)(c) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ($) 32.28 24.43 26.51 29.17 19.02 ---------- ---------- ---------- ---------- ---------- Net investment income (loss) ($) (0.22) (0.19) (0.23) 0.02 0.10 Net realized and unrealized gain (loss) on investments ($) 7.45 8.19 (1.85) (0.37) 10.05 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 7.23 8.00 (2.08) (0.35) 10.15 ---------- ---------- ---------- ---------- ---------- Distributions from capital gains ($) (0.02) (0.15) -- (2.31) -- ---------- ---------- ---------- ---------- ---------- Total Distributions ($) (0.02) (0.15) -- (2.31) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 39.49 32.28 24.43 26.51 29.17 ========== ========== ========== ========== ========== Total return (%)(b) 22.39 32.90 (7.85) (0.98) 53.45 Ratios/Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year ($ thousands) 2,169,836 1,682,504 1,449,869 1,334,548 552,365 Expense ratio (%) 1.40 1.55 1.48 1.44 1.40 Expense ratio after expense reductions (%) 1.40 1.55 1.47 1.43 1.40 Ratio of net investment income (loss) to average net assets (%) (0.57) (0.69) (0.73) 0.08 0.42 Portfolio turnover rate (%) 33.04 48.43 42.18 26.40 76.95
Class B(1) - Years ended September 30 ------------------------------------------------------------------ 2004(a)(c) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ($) 30.19 23.02 25.16 27.99 18.38 ---------- ---------- ---------- ---------- ---------- Net investment loss ($) (0.45) (0.36) (0.42) (0.18) (0.07) Net realized and unrealized gain (loss) on investments ($) 6.95 7.68 (1.72) (0.34) 9.68 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 6.50 7.32 (2.14) (0.52) 9.61 ---------- ---------- ---------- ---------- ---------- Distributions from capital gains ($) (0.02) (0.15) -- (2.31) -- ---------- ---------- ---------- ---------- ---------- Total Distributions (0.02) (0.15) -- (2.31) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 36.67 30.19 23.02 25.16 27.99 ========== ========== ========== ========== ========== Total return (%)(b) 21.53 31.96 (8.51) (1.67) 52.37 Ratios/Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year ($ thousands) 470,430 401,016 340,529 299,062 110,743 Expense ratio (%) 2.10 2.25 2.18 2.14 2.13 Expense ratio after expense reductions (%) 2.10 2.25 2.17 2.13 2.13 Ratio of net investment loss to average net assets (%) (1.27) (1.39) (1.43) (0.63) (0.29) Portfolio turnover rate (%) 33.04 48.43 42.18 26.40 76.95
Class B - Years ended September 30 ------------------------------------------------------------------- 2004(a)(c)(d) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ($) 30.70 23.17 25.16 27.99 18.38 ---------- ---------- ---------- ---------- ---------- Net investment income (loss) ($) 0.03 (0.10) (0.23) (0.15) (0.07) Net realized and unrealized gain (loss) on investments ($) 7.09 7.78 (1.76) (0.37) 9.68 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 7.12 7.68 (1.99) (0.52) 9.61 ---------- ---------- ---------- ---------- ---------- Distributions from capital gains ($) (0.02) (0.15) -- (2.31) -- ---------- ---------- ---------- ---------- ---------- Total Distributions ($) (0.02) (0.15) -- (2.31) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 37.80 30.70 23.17 25.16 27.99 ========== ========== ========== ========== ========== Total return (%)(b) 23.19 33.31 (7.91) (1.67) 52.37 Ratios/Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year ($ thousands) 188,014 192,055 183,973 234,168 268,557 Expense ratio (%) 1.10 1.25 1.51 2.14 2.13 Expense ratio after expense reductions (%) 1.10 1.25 1.50 2.13 2.13 Ratio of net investment income (loss) to average net assets (%) 0.07 (0.39) (0.76) (0.54) (0.31) Portfolio turnover rate (%) 33.04 48.43 42.18 26.40 76.95
State Street Research Aurora Fund 15
Class C - Years ended September 30 ------------------------------------------------------------------ 2004(a)(c) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ($) 30.18 23.01 25.16 27.99 18.38 ---------- ---------- ---------- ---------- ---------- Net investment loss ($) (0.45) (0.35) (0.42) (0.18) (0.07) Net realized and unrealized gain (loss) on investments ($) 6.96 7.67 (1.73) (0.34) 9.68 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 6.51 7.32 (2.15) (0.52) 9.61 ---------- ---------- ---------- ---------- ---------- Distributions from capital gains ($) (0.02) (0.15) -- (2.31) -- ---------- ---------- ---------- ---------- ---------- Total Distributions ($) (0.02) (0.15) -- (2.31) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 36.67 30.18 23.01 25.16 27.99 ========== ========== ========== ========== ========== Total return (%)(b) 21.57 31.97 (8.55) (1.67) 52.37 Ratios/Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year ($ thousands) 493,980 409,076 402,010 378,733 180,877 Expense ratio (%) 2.10 2.25 2.18 2.14 2.13 Expense ratio after expense reductions (%) 2.10 2.25 2.17 2.13 2.13 Ratio of net investment loss to average net assets (%) (1.27) (1.39) (1.43) (0.62) (0.30) Portfolio turnover rate (%) 33.04 48.43 42.18 26.40 76.95
Class S - Years ended September 30 ------------------------------------------------------------------ 2004(a)(c) 2003(a) 2002(a)(e) 2001(a)(e) 2000(a)(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ($) 33.18 25.05 27.06 29.66 19.23 ---------- ---------- ---------- ---------- ---------- Net investment income (loss) ($) (0.11) (0.11) (0.14) 0.13 0.12 Net realized and unrealized gain (loss) on investments ($) 7.66 8.39 (1.87) (0.39) 10.31 ---------- ---------- ---------- ---------- ---------- Total from investment operations ($) 7.55 8.28 (2.01) (0.26) 10.43 ---------- ---------- ---------- ---------- ---------- Dividends from net investment income ($) -- -- -- (0.03) -- Distributions from capital gains ($) (0.02) (0.15) -- (2.31) -- ---------- ---------- ---------- ---------- ---------- Total Distributions ($) (0.02) (0.15) -- (2.34) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of year ($) 40.71 33.18 25.05 27.06 29.66 ========== ========== ========== ========== ========== Total return (%)(b) 22.75 33.21 (7.43) (0.64) 54.32 Ratios/Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year ($ thousands) 197,475 142,460 92,789 76,711 20,298 Expense ratio (%) 1.10 1.25 1.18 1.14 1.13 Expense ratio after expense reductions (%) 1.10 1.25 1.17 1.13 1.13 Ratio of net investment income (loss) to average net assets (%) (0.27) (0.38) (0.43) 0.36 0.63 Portfolio turnover rate (%) 33.04 48.43 42.18 26.40 76.95
(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) During the year ended September 30, 2004, the distributor made restitution payments to the fund as part of a settlement with NASD. These payments had no effect on net realized and unrealized gain per share and total return. (d) During the year ended September 30, 2004, the distributor reimbursed Class B shares of the fund the estimated excess of payments received over costs incurred under the 12b-1 plan. The effect of this reimbursement was to increase net investment income per share $0.13, increase the total return 0.46% and increase the ratio of net investment income to average net assets 0.35%. (e) Audited by other auditors 16 - ---------------- REPORT OF - ---------------- Independent Registered Public Accounting Firm 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, 2004, and the related statement of operations for the year then ended, and the statement of changes in net assets and the financial highlights for each of the two years in the period then ended. 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 audits. The financial highlights for each of the years in the three-year period ended September 30, 2002, were audited by other auditors whose report dated November 8, 2002, expressed an unqualified opinion on such financial highlights. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). 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, 2004, 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 audits provide 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, 2004, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Boston, Massachusetts November 19, 2004 State Street Research Aurora Fund 17 - ------------------------ TRUSTEES AND OFFICERS - ------------------------ State Street Research Capital Trust
Number of Funds in Fund Complex Name, Position(s) Term of Office Overseen Other Address Held with and Length of Principal Occupations by Trustee/ Directorships Held and Age(a) Fund Time Served(b) During Past 5 Years Officer(c) by Trustee/Officer - ------------------------------------------------------------------------------------------------------------------------------------ Independent Trustees Bruce R. Bond Trustee Since Retired; formerly Chairman of the Board, 19 Avaya, Inc. (58) 1999 Chief Executive Officer and President, PictureTel Corporation (video conferencing systems) Peter S. Drotch Trustee Since Retired; formerly Partner, 19 First Marblehead Corp. (62) 2004 PricewaterhouseCoopers LLP Steve A. Garban Trustee Since Retired; formerly Senior Vice President for 53 Metropolitan Series (67) 1997 Finance and Operations and Treasurer, The Fund, Inc. and Pennsylvania State University Metropolitan Series Fund II Susan M. Phillips Trustee Since Dean, School of Business and Public 19 The Kroger Co. (59) 1998 Management, 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. 53 A.P. Pharma, Inc.; (66) 1995 (investments); formerly President, The Glen Metropolitan Series Ellen Company (private investment firm) Fund, Inc.; and Metropolitan Series Fund II Michael S. Trustee Since Jay W. Forrester Professor of Management 53 Metropolitan Series Scott Morton (67) 1987 (Emeritus), Sloan School of Management, Fund, Inc. and Massachusetts Institute of Technology Metropolitan Series Fund II - ------------------------------------------------------------------------------------------------------------------------------------ Interested Trustees Richard S. Davis(+) Trustee Since Chairman of the Board, President and Chief 19 None (59) 2000 Executive Officer of State Street Research & Management Company; formerly Senior Vice President, Fixed Income Investments, Metropolitan Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Officers C. Kim Goodwin Vice Since Managing Director and Chief Investment 18 Akamai Technologies, (45) President 2002 Officer - Equities of State Street Research Inc. & Management Company; formerly Chief Investment Officer - U.S. Growth Equities, American Century Paul Haagensen Vice Since Senior Vice President of State Street 3 None (58) President 2003 Research & Management Company; formerly Portfolio Manager and senior analyst at Putnam Investments Eileen M. Leary Vice Since Senior Vice President of State Street 3 None (42) President 2002 Research & Management Company; formerly Vice President, State Street Research & Management Company John S. Lombardo Vice Since Managing Director, Chief Financial Officer 19 None (49) President 2001 and 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 3 None (35) President 2003 Research & Management Company; formerly Vice President, State Street Research & Management Company Tucker Walsh Vice Since Managing Director of State Street Research & 3 None (35) 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 19 None (47) 2001 Street Research & Management Company; formerly Vice President and Assistant Treasurer, State Street Research & Management Company
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. (+) 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. 18 [LOGO] STATE STREET RESEARCH -------------- One Financial Center PRSRT STD Boston, MA 02111-2690 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. Investors should carefully consider the fund's investment objective, risks, charges and expenses before investing. The fund's prospectus contains more complete information on these and other matters. A prospectus for any State Street Research fund is available through your financial professional, by calling toll-free 1-87-SSR-FUNDS (1-877-773-8637) or by visiting our website at www.ssrfunds.com. Please read the prospectus carefully before investing. 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, 2004, this report must be accompanied by a current Quarterly Performance Update. "State Street Research Proxy Voting Policies and Procedures"--which describes how we vote proxies relating to portfolio securities--is available upon request, free of charge, by calling the State Street Research Service Center toll-free at 1-87-SSR-FUNDS (1-877-773-8637) or by accessing the U.S. Securities and Exchange Commission website at www.sec.gov. 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)2004 State Street Research Investment Services, Inc. One Financial Center Boston, MA 02111-2690 www.ssrfunds.com CONTROL NUMBER:(exp1105)SSR-LD AR-2655-1104 FORM N-CSR(2 OF 3) ITEM 2: CODE OF ETHICS (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) Omitted (c) 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. (d) 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. (e) Not applicable. (f) Not applicable. ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT The Registrant's Board of Trustees has determined that Steve A. Garban, a member of the Registrant's Board of Trustees and Audit Committee, qualifies as an "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
(a) Audit Fee Fiscal year ended June 30, 2003 $73,800 Fiscal year ended June 30, 2004 $81,000 (b) Audit-Related Fees - Represents fees for assurance and related services related to the audit of the registrant's financial statements. Fiscal year ended June 30, 2003 $0 Fiscal year ended June 30, 2004 $0 (c) Tax Fees - Represents fees for professional services rendered by the principal accountant for tax compliance, tax provision review, and the tax return preparation. Fiscal year ended June 30, 2003 $13,400 Fiscal year ended June 30, 2004 $14,000 (d) All other fees - Represents fees paid to Deloitte & Touche LLP to provide a special review of late trading, market timing and related issues concerning the Registrant. Fiscal year ended September 30, 2003 $0 Fiscal year ended September 30, 2004 $42,000
The Registrant's independent accountants, Deloitte & Touche LLP, did not bill fees for audit-related, tax, or other non-audit services that required pre-approval by the Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the Registrant's last two fiscal years. (e)(1) The Audit Committee has determined that all work performed for the Registrant by Deloitte & Touche LLP will be pre-approved by the full Audit Committee and, therefore, has not adopted pre-approval procedures. (2) None. (f) Not applicable. (g) Non-Audit Fees - Represents fees for audit-related, tax and other non-audit services rendered by the principal accountant to the Registrant, the Registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant. Fiscal Year Ended September 30, 2003 $ 13,400 Fiscal Year Ended September 30, 2004 $102,000 (h) The Audit Committee of the Registrant has considered whether the non-audit services that were rendered by the Registrant's principal accountant to the Registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant and that were not pre-approved by the Audit Committee are compatible with maintaining the principal accountant's independence. ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS Not applicable. ITEM 6: SCHEDULE OF INVESTMENTS Not applicable. ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES & PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not applicable. ITEM 8: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS Not applicable. ITEM 9: SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS The Governance Committee will consider nominees recommended by shareholders. Shareholders may submit recommendations to the attention of the Secretary of the Trust, State Street Research & Management Company, One Financial Center, 30th Floor, Boston MA 02111. ITEM 10: CONTROLS AND PROCEDURES (a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the Registrant's internal control over financial reporting during the Registrant's second fiscal half-year that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting. ITEM 11: 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 7, 2004 ------------------------------------------------------ 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 7, 2004 ------------------------ By: /s/ Douglas A. Romich ------------------------------------------------------ Douglas A. Romich, Treasurer Principal Financial Officer Date December 7, 2004 ------------------------ EX-99.CODEETH 2 a2147587zex-99_codeeth.txt EX-99.CODE ETH Exhibit 99.CODE ETH STATE STREET RESEARCH FUNDS FINANCIAL OFFICER CODE OF PROFESSIONAL CONDUCT INTRODUCTION The reputation and integrity of the State Street Research Funds (the "Funds") are valuable assets that are vital to the Funds' success. Each Fund's senior financial officers ("SFOs") are responsible for conducting the Fund's business in a manner that demonstrates a commitment to the highest standards of integrity. A Fund's SFOs include the principal executive officer, the principal financial officer, comptroller or principal accounting officer, and any person who performs a similar function. The Sarbanes-Oxley Act of 2002 (the "Act") effected sweeping corporate disclosure and financial reporting reform on public companies, including mutual funds, to address corporate malfeasance and assure investors that the companies in which they invest are accurately and completely disclosing financial information. Under the Act, all public companies (including the Funds) must either have a code of ethics for their SFOs, or disclose why they do not. The Act was intended to foster corporate environments that encourage employees to question unethical and potentially illegal business practices. Each Fund has chosen to adopt a financial officer code of ethics to encourage its SFOs to act ethically and to question potentially unethical or illegal practices, and to strive to ensure that the Fund's financial disclosures are complete, accurate, and understandable. This Code of Ethics should be read in conjunction with the Fund's other policy statements, including the Code of Ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940. PURPOSES OF THE CODE The purposes of this Code are: - To promote honest and ethical conduct among the Fund's SFOs, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - To assist SFOs to recognize and avoid conflicts of interest, including disclosure to an appropriate person of any material transaction or relationship that reasonably could be expected to give rise to such a conflict; - To promote full, fair, accurate, timely, and understandable disclosure in reports and documents that the Fund files with, or submits to, the SEC and in other public communications the Fund makes; - To promote compliance with applicable laws, rules and regulations; - To encourage the prompt internal reporting to an appropriate person of violations of the Code; and - To establish accountability for adherence to the Code. QUESTIONS ABOUT THIS CODE The Board of Trustees of each Fund has designated the Secretary of the Fund to be the Compliance Officer for the implementation and administration of the Code. You should direct your questions about this Code to the Compliance Officer. CONDUCT GUIDELINES Each Fund has adopted the following guidelines under which its SFOs must perform their duties and conduct the business affairs of the Funds. Persons subject to this requirement include the principal executive officer, the principal financial officer, comptroller or principal accounting officer, and any person who performs a similar function. However, the Fund expects that ALL persons who participate in the preparation of any part of the Fund's financial statements follow these guidelines: - ETHICAL AND HONEST CONDUCT IS OF PARAMOUNT IMPORTANCE. The Fund's SFOs must act with honesty and integrity and avoid violations of this Code, including actual or apparent conflicts of interest with the Fund in personal and professional relationships. - SFOS MUST DISCLOSE MATERIAL TRANSACTIONS OR RELATIONSHIPS. The Fund's SFOs must disclose to the Fund's Compliance Officer any material transaction or relationship that reasonably could be expected to give rise to any violations of the Code, including actual or apparent conflicts of interest with the Fund. You should disclose these transactions or relationships whether you are involved or have only observed the transaction or relationship. If it is not possible to disclose the matter to the Compliance Officer, it should be disclosed to the Fund's Chief Financial Officer or Chief Executive Officer. - STANDARDS FOR QUALITY OF INFORMATION SHARED WITH FUND SERVICE PROVIDERS. The Fund's SFOs must at all times seek to provide information to the Fund's other employees and service providers (adviser, administrator, outside auditor, outside counsel, custodian, ETC.) that is accurate, complete, objective, relevant, timely, and understandable. - STANDARDS FOR QUALITY OF INFORMATION INCLUDED IN PERIODIC REPORTS. The Fund's SFOs must at all times endeavor to ensure full, fair, timely, accurate, and understandable disclosure in the Fund's periodic reports. 2 - COMPLIANCE WITH LAWS. The Fund's SFOs must comply with the federal securities laws and other applicable laws and rules, such as the Internal Revenue Code. - STANDARD OF CARE. The Fund's SFOs must at all times act in good faith, responsibly, and with due care, competence and diligence, without misrepresenting material facts or allowing your independent judgment to be subordinated. - CONFIDENTIALITY OF INFORMATION. The Fund's SFOs must at all times respect the confidentiality of information acquired in the course of their professional duties, except when authorized by the Fund to disclose it or where disclosure is otherwise legally mandated. You may not use confidential information acquired in the course of your work for personal advantage. - SHARING OF INFORMATION AND ETHICAL STANDARDS. The Fund's SFOs should share information with relevant parties to keep them informed of the business affairs of the Fund, as appropriate, and maintain skills important and relevant to the Fund's needs. - PROMOTE ETHICAL CONDUCT. The Fund's SFOs should at all times proactively promote ethical behavior among peers in the work environment. - STANDARDS FOR RECORDKEEPING. The Fund's SFOs must at all times endeavor to ensure that the Fund's books and records are thoroughly and accurately maintained to the best of their knowledge in a manner consistent with applicable laws and this Code. WAIVERS OF THIS CODE You may request a waiver of a provision of this Code by submitting your request in writing to the Compliance Officer for appropriate review. For example, if a family member works for a service provider that prepares the Fund's financial statements, you may have a potential conflict of interest in reviewing those statements and should seek a waiver of this Code to review the work. An executive officer of the Fund or the Audit Committee will decide whether to grant a waiver. All waivers of this Code must be disclosed to the Fund's shareholders to the extent required by SEC rules. ANNUAL CERTIFICATION To the extent necessary, the Fund's Compliance Officer will provide guidance on the conduct required by this Code and the manner in which violations must be reported and waivers must be requested. Each SFO will be asked to certify on an annual basis that he/she is in full compliance with this Code. 3 REPORTING SUSPECTED VIOLATIONS SFOs who observe, learn of, or, in good faith, suspect a violation of the Code MUST immediately report the violation to the Compliance Officer, another member of the Fund's senior management, or to the Audit Committee of the Board. An example of a possible Code violation is the preparation and filing of financial disclosure that omits material facts, or that is accurate but is written in a way that obscures its meaning. Because service providers such as the adviser, outside accounting firm, and custodian provide much of the work relating to the Fund's financial statements, the Fund's SFOs should be alert for actions by service providers that may be illegal, or that could be viewed as dishonest or unethical conduct. A SFO should report these actions to the Compliance Officer even if you know, or think, that the service provider has its own code of ethics for its SFOs or employees. SFOs who report violations or suspected violations in good faith will not be subject to retaliation of any kind. Reported violations will be investigated and addressed promptly and will be treated confidentially to the extent possible. VIOLATIONS OF THE CODE Dishonest or unethical conduct or conduct that is illegal will constitute a violation of this Code, regardless of whether this Code refers to that particular conduct. A violation of this Code may result in disciplinary action, up to and including termination of employment. A variety of laws apply to the Fund and its operations, including the Securities Act of 1933, the Investment Company Act of 1940, state laws relating to duties owed by Fund directors/trustees and officers, and criminal laws. The federal securities laws generally prohibit the Fund from making material misstatements in its prospectus and other documents filed with the SEC, or from omitting to state a material fact. These material misstatements and omissions include financial statements that are misleading or omit material facts. The Fund must and will report all suspected criminal violations to the appropriate authorities for possible prosecution, and will investigate, address and report, as appropriate, non-criminal violations. ADOPTED MAY 7, 2003 4 EX-99.CERT 3 a2147587zex-99_cert.txt EX-99.CERT Exhibit 99.302 CERT State Street Research Capital Trust Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Douglas A. Romich, certify that: 1. I have reviewed this report on Form N-CSR of State Street Research Capital Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and changes in net assets of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2 (c) under the Investment Company Act) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 7, 2004 /s/ Douglas A. Romich Douglas A. Romich Treasurer State Street Research Capital Trust Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Richard S. Davis, certify that: 1. I have reviewed this report on Form N-CSR of State Street Research Capital Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and changes in net assets of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2 (c) under the Investment Company Act) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of the date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 7, 2004 /s/ Richard S. Davis Richard S. Davis President, Chairman and Chief Executive Officer EX-99.906CERT 4 a2147587zex-99_906cert.txt EX-99.906 CERT Exhibit 99.906 CERT State Street Research Capital Trust Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the State Street Research Capital Trust, a Massachusetts business trust, (the "Trust"), does hereby certify that the Trust's report on Form N-CSR for the period ended September 30, 2004 (the "N-CSR") fully complies with the requirements of Section 13 (a) or 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the N-CSR fairly presents, in all material respects, the financial condition and the results of operations of the Trust. This certification is provided solely pursuant to 18 U.S.C. 1350 and shall not be deemed a part of the N-CSR, the financial statements filed with the N-CSR or otherwise "filed" for any purpose. Date: December 7, 2004 /s/ Douglas A. Romich Douglas A. Romich Treasurer State Street Research Capital Trust Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of the State Street Research Capital Trust, a Massachusetts business trust, (the "Trust"), does hereby certify that the Trust's report on Form N-CSR for the period ended September 30, 2004 (the "N-CSR") fully complies with the requirements of Section 13 (a) or 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the N-CSR fairly presents, in all material respects, the financial condition and the results of operations of the Trust. This certification is provided solely pursuant to 18 U.S.C. 1350 and shall not be deemed a part of the N-CSR, the financial statements filed with the N-CSR or otherwise "filed" for any purpose. Date: December 7, 2004 /s/ Richard S. Davis Richard S. Davis President, Chairman and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----