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Schroder U.S. Smaller Companies Fund
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Two Portland Square, Portland, Maine 04101
General Information (207) 879-6200
Account Information (800) 344-8332
Fund Literature (800) 290-9826
Fax (207) 879-6050
INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term capital appreciation. The Fund
invests at least 65% of its assets in equity securities of U.S.-domiciled
companies that have at the time of purchase market capitalizations of $1.5
billion or less.
INVESTMENT ADVISER
Schroder Capital Management International Inc. (the 'Investment Adviser') is a
wholly owned indirect subsidiary of Schroders plc, the London Stock Exchange
listed holding company parent of an investment banking and investment management
group of companies (the 'Schroder Group') that dates its origins to 1804. The
investment management operations of the Schroder Group are located in 20
countries worldwide. At the end of the last calendar year, December 31, 1997,
the Schroder Group had over $175 billion in assets under management. As of March
31, 1998, the Investment Adviser, together with its U.K. affiliate, Schroder
Capital Management International Ltd., had over $29 billion under management.
Dear Shareholder:
For the fiscal year ended May 31, 1998, the Schroder U.S. Smaller Companies
Fund-Investor Shares returned 21.63% (21.50% for Advisor Shares) outperforming
its benchmark, the Russell 2000(Registered) Index which rose 21.40% for the same
period. During this same time period, larger capitalization stocks as measured
by the S&P 500(Registered) Index registered gains of 30.69%. This
underperformance, one of the most pronounced in recent history, has led to one
of the greatest valuation disparities between small and large companies in many
years.
Currently, Fund management believes that the economy is operating at a
level at or near capacity. Therefore, there is not room to support an
accelerating level of cyclical growth without triggering accelerating inflation.
One of two things could possibly happen in the shorter-term. The economy may
remain at a slow growth phase, as recent data and Federal Reserve Board
decisions may suggest. The recent international turmoil will likely slow
domestic growth enough to avoid significant interest rate hikes. This will be
beneficial for the equity markets, and in particular the small cap market.
Management believes that profit growth has peaked and that higher growth
companies will have greater attraction under the slow steady growth scenario.
Looking forward, we are cautiously optimistic regarding the outlook for
smaller companies given their valuations relative to larger companies and their
prospects for earnings growth. Management remains focused on its
research-intensive individual stock selection, concentrating on underfollowed
and misunderstood companies that can offer superior earnings growth.
Thank you for your interest and support in the Schroder U.S. Smaller
Companies Fund.
Sincerely,
/s/ Mark J. Smith
Mark J. Smith
President
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Schroder U.S. Smaller Companies Fund
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MANAGEMENT DISCUSSION AND ANALYSIS (As of May 31, 1998)
Against the backdrop of a stable U.S. economy and no sign of interest rates
increasing, the past 12 months (and particularly in the recent past), have been
affected by the Asian crisis, volatile market conditions and a serious
correction in October. This activity put an end to a brief three-month lead the
Russell 2000 Index enjoyed over the S&P 500 from mid-August to mid-November.
Smaller companies significantly underperformed larger companies during this
period bringing relative valuations to their lowest levels since 1990.
Sector level performance was again volatile during the period. Performance
was helped by outperformance in financials, technology and consumer staples. The
Fund did not, however, participate in gains in utilities, due to lack of
exposure in this sector. Both consumer staples and consumer cyclical sectors
performed well. Leading securities of the Fund in these two sectors were Suiza
Foods Corp. and Pillowtex Corp., respectively.
Due to falling oil prices, energy was the worst performing sector of the
Russell 2000. The Fund outperformed in this sector due to prudent stock
selection. Technology was the second worst performing sector in the market for
the period; however, the Fund's underweight position and management's
conservative stance and focused stock selection enabled the Fund's technology
holdings to outperform.
The Fund remained well diversified across sectors with investments
continuing to be made primarily on a bottom-up and opportunistic basis. Looking
forward, management continues to search for quality companies with attractive
growth prospects which are run by incentivized management, and trading at
reasonable valuations. We believe that currently many smaller companies offer
more attractive investment opportunities than larger companies based on their
valuations and growth prospects. We will remain focused on our
research-intensive individual stock selection, concentrating on underfollowed
and misunderstood companies that we believe offer superior earnings growth.
The views expressed in this report were those of the Fund's portfolio
managers as of May 31, 1998, and may not reflect the views of the portfolio
managers on the date this report is first published or any time thereafter.
These views are intended to assist shareholders of the Fund in understanding
their investments in the Fund and do not constitute investment advice; investors
should consult their own investment professionals as to their individual
investment programs.
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2
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Schroder U.S. Smaller Companies Fund
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INVESTMENT ADVISER'S REPORT--COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
The following information compares a change in value of a $10,000 investment in
the Investor Shares of the Fund (the initial class of shares) with the
performance of the Russell 2000 Index over the past 10 fiscal year periods or
since inception (for funds lacking 10-year records). The Russell 2000 Index is
an unmanaged capitalization weighted broad based index of small capitalization
U.S. companies which represents the smallest 2000 companies in the Russell 3000
Index. The Fund's total return includes operating expenses or charges (if
applicable) that reduce returns, while the total return of the Index does not.
Total return and principal value of an investment in the Fund will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for the Fund assumes reinvestment of dividends and
distributions. Advisor Shares have higher expenses and, therefore, have lower
performance than Investor Shares. Past performance cannot predict nor guarantee
future results.
SCHRODER U.S. SMALLER COMPANIES FUND VS RUSSELL 2000 INDEX
INVESTMENT VALUE ON 5/31/98
- ---------------------------
Schroder U.S. Smaller Companies Fund - Investor Shares $28,550
Schroder U.S. Smaller Companies Fund - Advisor Shares $13,538
Russell 2000 Index $20,208
SINCE
AVERAGE ANNUAL TOTAL RETURN ON 5/31/98 1 YEAR 3 YEAR INCEPTION
- -------------------------------------- ------ ------ ---------
Schroder U.S. Smaller Companies Fund -
Investor Shares 21.63% 28.70% 24.23%(a)
Schroder U.S. Smaller Companies Fund -
Advisor Shares 21.50% N/A 23.24%(b)
Russell 2000 Index 21.40% 20.80% 15.65%(c)
[PERFORMANCE GRAPH]
Schroder U.S.
Smaller
Companies Russell
Fund--Investor 2000
Shares Index
-------------- ----------
7/31/93 $10,000.00
08/06/93 $10,000.00
08/31/93 $10,350.00 $10,411.49
09/30/93 $10,820.00 $10,697.37
10/31/93 $10,990.00 $10,960.83
11/30/93 $10,710.00 $10,590.36
12/31/93 $11,202.30 $10,936.66
01/31/94 $11,655.63 $11,271.32
02/28/94 $11,806.74 $11,229.62
03/31/94 $11,222.45 $10,618.73
04/30/94 $11,373.56 $10,681.38
05/31/94 $11,343.34 $10,543.59
06/30/94 $11,141.86 $10,164.02
07/31/94 $11,272.82 $10,322.58
08/31/94 $11,917.55 $10,883.10
09/30/94 $11,665.70 $10,833.03
10/31/94 $11,897.41 $10,787.53
11/30/94 $11,383.63 $10,332.30
12/31/94 $11,700.61 $10,590.61
01/31/95 $11,752.84 $10,448.59
02/28/95 $12,379.66 $10,869.40
03/31/95 $12,755.75 $11,047.34
04/30/95 $13,090.05 $11,276.11
05/31/95 $13,382.57 $11,461.01
06/30/95 $13,957.15 $12,044.53
07/31/95 $15,116.77 $12,737.39
08/31/95 $15,680.90 $12,992.43
09/30/95 $16,224.14 $13,225.15
10/31/95 $15,816.71 $12,634.91
11/30/95 $16,683.81 $13,179.25
12/31/95 $17,443.54 $13,515.75
01/31/96 $17,360.42 $13,500.30
02/28/96 $17,835.39 $13,926.98
03/31/96 $18,785.35 $14,203.21
04/30/96 $19,972.79 $14,966.40
05/31/96 $21,160.23 $15,567.42
06/30/96 $20,459.64 $14,932.74
07/31/96 $18,915.97 $13,629.56
08/31/96 $19,497.81 $14,421.03
09/30/96 $20,614.01 $14,984.07
10/31/96 $20,459.64 $14,750.92
11/30/96 $21,124.61 $15,356.07
12/31/96 $21,330.98 $15,750.56
01/31/97 $21,720.43 $16,062.28
02/28/97 $21,720.43 $15,673.41
03/31/97 $20,941.54 $14,938.48
04/30/97 $21,012.35 $14,975.29
05/31/97 $23,472.93 $16,645.33
06/30/97 $24,835.99 $17,352.58
07/31/97 $26,022.03 $18,162.21
08/31/97 $26,588.49 $18,572.06
09/30/97 $28,376.40 $19,927.86
10/31/97 $27,084.15 $19,042.07
11/30/97 $26,871.73 $18,912.45
12/31/97 $27,060.17 $19,251.93
01/31/98 $26,537.92 $18,958.72
02/28/98 $28,298.09 $20,380.30
03/31/98 $30,058.26 $21,236.68
04/30/98 $30,096.95 $21,353.33
05/31/98 $28,549.54 $20,207.73
(a) Inception date for Investor Shares is August 6, 1993
(b) Inception date for Advisor Shares is December 23, 1996
(c) Annualized returns for the Russell 2000 Index are based on an inception date
of July 31, 1993
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3
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Schroder U.S. Smaller Companies Fund
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PORTFOLIO CHARACTERISTICS AS OF MAY 31, 1998 (UNAUDITED)
TOP TEN HOLDINGS
SECURITY % OF NET ASSETS
- --------------------------------------------------------------
Pillowtex Corp. 2.58%
WestPoint Stevens, Inc. 1.73%
Ha-Lo Industries, Inc. 1.57%
Triangle Pacific Corp. 1.38%
Interface, Inc. 1.37%
MAPICS, Inc. 1.34%
Select Appointments Holdings Public Ltd. Co. 1.31%
Bally Total Fitness Holdings Corp. 1.27%
Allied Capital Corp. 1.25%
Ball Corp. 1.22%
---------------
Total 15.02%
---------------
---------------
INVESTMENTS BY INDUSTRY
INDUSTRY % OF NET ASSETS
- -----------------------------------------------
Consumer Cyclical 22.7%
Transportation/Services/Misc. 21.1%
Financial 11.8%
Technology 9.6%
Capital Goods/Construction 6.8%
Energy 6.2%
Health Care 6.1%
Consumer Staples 5.9%
Basic Materials 3.1%
Cash & Other Net Assets 6.7%
---------------
Total 100.0%
---------------
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4
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Schroder U.S. Smaller Companies Fund
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STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
ASSETS:
Investments (Notes 1 and 2):
Investment in Schroder U.S. Smaller Companies
Portfolio (the 'Portfolio') $56,224,866
Receivable for Fund shares sold 177,809
Organization costs, net of amortization (Note 2) 816
Receivable from administrator (Note 4) 22,809
Other receivables 3,371
-----------
Total Assets 56,429,671
-----------
LIABILITIES:
Payable for Fund shares redeemed 120,597
Payable to administrator (Note 3) 16,016
Payable to subadministrator (Note 3) 3,642
Accrued expenses and other liabilities 65,882
-----------
Total Liabilities 206,137
-----------
Net Assets $56,223,534
-----------
-----------
COMPONENTS OF NET ASSETS:
Paid-in capital 47,523,710
Accumulated net realized gain (loss) 127,185
Net unrealized appreciation (depreciation) on
investments 8,572,639
-----------
Net Assets $56,223,534
-----------
-----------
NET ASSETS BY CLASS:
Investor Class $51,679,185
Advisor Class 4,544,349
-----------
Net Assets $56,223,534
-----------
-----------
SHARES OF BENEFICIAL INTEREST:
Investor Class 3,501,037
Advisor Class 308,725
NET ASSET VALUE OFFERING AND REDEMPTION PRICE PER SHARE
(NET ASSETS DIVIDED BY SHARES OF BENEFICIAL INTEREST):
Investor Class $ 14.76
Advisor Class $ 14.72
The accompanying notes are an integral part of the financial statements.
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5
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Schroder U.S. Smaller Companies Fund
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STATEMENT OF OPERATIONS
For the Year
Ended
May 31, 1998
------------
NET INVESTMENT INCOME ALLOCATED FROM THE PORTFOLIO:
Dividend income $ 235,045
Interest income 128,809
Net expenses (320,187)
------------
Net Investment Income Allocated
from the Portfolio 43,667
------------
EXPENSES:
Administration (Note 3) 106,075
Subadministration (Note 3) 31,822
Transfer agency (Note 3)
Investor Shares 25,979
Advisor Shares 18,867
Shareholder services - Advisor Shares (Note 3) 4,871
Accounting (Note 3) 12,000
Legal 10,628
Audit 12,606
Registration 38,843
Reporting 36,345
Trustees 1,167
Amortization of organization costs (Note 2) 5,818
Miscellaneous 4,040
------------
Total Expenses 309,061
Fees waived and expenses reimbursed (Note 4) (44,919)
------------
Net Expenses 264,142
------------
NET INVESTMENT INCOME (LOSS) (220,475)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold 2,230,689
Net change in unrealized appreciation (depreciation)
on investments 4,722,131
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 6,952,820
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 6,732,345
------------
------------
The accompanying notes are an integral part of the financial statements.
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6
<PAGE>
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Schroder U.S. Smaller Companies Fund
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STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period For the Year
For the Ended Ended
Year Ended May 31, 1997 October 31, 1996
May 31, 1998 (Note 1) (Note 1)
-------------- ---------------- ----------------
<S> <C> <C> <C>
NET ASSETS, BEGINNING OF PERIOD $ 26,185,077 $ 13,742,555 $ 15,287,216
-------------- ---------------- ----------------
OPERATIONS:
Net investment income (loss) (220,475) (42,527) (50,796)
Net realized gain (loss) on investments sold 2,230,689 1,749,974 4,597,614
Net change in unrealized appreciation (depreciation)
on investments 4,722,131 1,017,015 (843,435)
-------------- ---------------- ----------------
Net increase (decrease) in net assets resulting from
operations 6,732,345 2,724,462 3,703,383
-------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments - Investor Class (3,305,205) (4,517,569) (1,965,720)
Net realized gain on investments - Advisor Class (84,662) -- --
-------------- ---------------- ----------------
Total distributions to shareholders (3,389,867) (4,517,569) (1,965,720)
CAPITAL SHARE TRANSACTIONS:
Sale of shares - Investor Class 30,815,123 14,779,822 1,697,351
Sale of shares - Advisor Class 5,400,648 129,171 --
Reinvestment of distributions - Investor Class 2,814,366 3,516,999 1,522,389
Reinvestment of distributions - Advisor Class 27,828 -- --
Redemption of shares - Investor Class (11,273,810) (4,133,899) (6,502,064)
Redemption of shares - Advisor Class (1,088,176) (56,464) --
-------------- ---------------- ----------------
Net increase (decrease) from capital share
transactions 26,695,979 14,235,629 (3,282,324)
-------------- ---------------- ----------------
Net increase (decrease) in net assets 30,038,457 12,442,522 (1,544,661)
-------------- ---------------- ----------------
NET ASSETS, END OF PERIOD $ 56,223,534 $ 26,185,077 $ 13,742,555
(Including accumulated undistributed net investment -------------- ---------------- ----------------
income (loss) of $0, $887, and $0, respectively) -------------- ---------------- ----------------
SHARE TRANSACTIONS:
Sale of shares - Investor Class 2,088,564 1,190,001 95,854
Sale of shares - Advisor Class 376,171 10,511 --
Reinvestment of distributions in shares - Investor
Class 206,939 296,293 106,834
Reinvestment of distributions in shares - Advisor
Class 2,056 -- --
Redemption of shares - Investor Class (763,482) (315,073) (414,456)
Redemption of shares - Advisor Class (75,600) (4,413) --
-------------- ---------------- ----------------
Net increase (decrease) in shares 1,834,648 1,177,319 (211,768)
-------------- ---------------- ----------------
-------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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7
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Schroder U.S. Smaller Companies Fund
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FINANCIAL HIGHLIGHTS--INVESTOR SHARES (a)
Selected per share data and ratios for an Investor share outstanding
throughout each period:
<TABLE>
<CAPTION>
For the For the
Year Ended Period Ended For the Year Ended October 31,
May 31, May 31, ---------------------------------------------
1998 1997(b) 1996(b) 1995 1994 1993(b)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.26 $ 17.23 $ 15.14 $ 11.81 $ 10.99 $ 10.00
---------- ------------ ------- ------- ------- -------
Investment Operations
Net Investment Income (Loss) (0.06)(c) (0.02)(c) (0.06)(c) (0.04) (0.07) (0.02)
Net Realized and Unrealized Gain (Loss)
on Investments 2.82 1.88 4.10 3.78 0.97 1.01
---------- ------------ ------- ------- ------- -------
Total from Investment Operations 2.76 1.86 4.04 3.74 0.90 0.99
---------- ------------ ------- ------- ------- -------
Distributions From
Net Realized Gain on Investments (1.26) (5.83) (1.95) (0.41) (0.08) --
---------- ------------ ------- ------- ------- -------
Net Asset Value, End of Period $ 14.76 $ 13.26 $ 17.23 $ 15.14 $ 11.81 $ 10.99
---------- ------------ ------- ------- ------- -------
---------- ------------ ------- ------- ------- -------
Total Return 21.63% 14.73%(d) 29.35% 32.84% 8.26% 9.90%
Ratio/Supplementary Data
Net Assets at End of Period (in thousands) $ 51,679 $ 26,104 $13,743 $15,287 $13,324 $12,489
Ratios to Average Net Assets:
Expenses including reimbursement/waiver
of fees 1.37%(c)(e) 1.49%(c)(e) 1.49%(c)(e) 1.49%(e) 1.45%(e) 2.03%(e)
Expenses excluding reimbursement/waiver
of fees 1.37%(c)(e) 1.87%(c)(e) N/A(c)(e) N/A N/A N/A
Net investment income (loss) including
reimbursement/waiver of fees (0.51)%(c)(e) (0.42)%(c)(e) (0.35)%(c)(e) (0.30)%(e) (0.58)%(e) (0.99)%(e)
Average commission rate per share (f) $ 0.0582 $ 0.0584 $0.0583 N/A N/A N/A
Portfolio turnover rate (g) 54.98% 34.45% 58.50% 92.68% 70.82% 12.58%
</TABLE>
- ------------------
(a) On May 17, 1996, the Fund began offering two classes of shares, Investor
Shares and Advisor Shares, and all then outstanding shares of the Fund were
designated as Investor Shares.
(b) See Note 1.
(c) Includes the Fund's proportionate share of income and expenses of the
Portfolio.
(d) Total returns would have been lower had certain expenses not been limited
during the period shown (See Note 4).
(e) Annualized.
(f) Amount represents the average commissions per share paid by the Portfolio to
brokers on the purchase and sale of equity securities on which commissions
are charged.
(g) Portfolio turnover represents the rate of portfolio activity. The rate after
October 31, 1995 represents the portfolio turnover rate of the Portfolio.
The accompanying notes are an integral part of the financial statements.
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8
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Schroder U.S. Smaller Companies Fund
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FINANCIAL HIGHLIGHTS--ADVISOR SHARES (a)
Selected per share data and ratios for an Advisor share outstanding
throughout the period:
<TABLE>
<CAPTION>
For the For the
Year Ended Period Ended
May 31, May 31,
1998 1997(b)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 13.24 $ 11.89
---------- ------------
Investment Operations:
Net Investment Income (Loss) (0.05)(c) (0.03)(c)
Net Realized and Unrealized Gain (Loss) on Investments 2.79 1.38
---------- ------------
Total from Investment Operations 2.74 1.35
---------- ------------
Distributions From Net Realized Gain on Investments (1.26) --
---------- ------------
Net Asset Value, End of Period $ 14.72 $ 13.24
---------- ------------
---------- ------------
Total Return 21.50%(d) 11.35%(d)
Ratio/Supplementary Data
Net Assets at End of Period (in thousands) $ 4,544 $ 81
Ratios to Average Net Assets:
Expenses including reimbursement/waiver of fees 1.58%(c)(e) 1.74%(c)(e)
Expenses excluding reimbursement/waiver of fees 3.88%(c)(e) 57.02%(c)(e)
Net investment income (loss) including reimbursement/waiver of fees (0.78)%(c)(e) (0.67)%(c)(e)
Average commission rate per share (f) $ 0.0582 $ 0.0584
Portfolio turnover rate (g) 54.98% 34.45%
</TABLE>
- ------------------
(a) On May 17, 1996, the Fund began offering two classes of shares Investor
Shares and Advisor Shares, and all then outstanding shares of the Fund were
designated as Investor Shares. Advisor Class shares were first issued on
December 23, 1996.
(b) See Note 1.
(c) Includes the Fund's proportionate share of income and expenses of the
Portfolio.
(d) Total returns would have been lower had certain expenses not been limited
during the period shown (See Note 4).
(e) Annualized.
(f) Amount represents the average commissions per share paid by the Portfolio to
brokers on the purchase and sale of equity securities on which commissions
are charged.
(g) Portfolio turnover represents the rate of portfolio activity of the
Portfolio.
The accompanying notes are an integral part of the financial statements.
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9
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Schroder U.S. Smaller Companies Fund
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NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
NOTE 1. ORGANIZATION
Schroder Capital Funds (Delaware) (the 'Trust') was organized as a
Maryland corporation on July 30, 1969; reorganized as a series company on
February 29, 1988, as Schroder Capital Funds, Inc.; and reorganized on
January 9, 1996, as a Delaware business trust. The Trust, which is registered
as an open-end management investment company under the Investment Company Act
of 1940 (the 'Act'), currently has eight investment portfolios. Included in
this report is the Schroder U.S. Smaller Companies Fund (the 'Fund'), a
diversified portfolio that commenced operations on August 6, 1993. Under its
Trust Instrument, the Trust is authorized to issue an unlimited number of the
Fund's Investor Shares and Advisor Shares of beneficial interest without par
value which have equal rights as to assets and voting privileges. As of May
31, 1998, both Investor Shares and Advisor Shares had been issued.
Effective May 31, 1997, the Fund changed its fiscal year end to May 31
from October 31.
MASTER FEEDER ARRANGEMENT
The Fund seeks to achieve its investment objective by investing all of
its investable assets in Schroder U.S. Smaller Companies Portfolio (the
'Portfolio'), a separate, diversified portfolio of Schroder Capital Funds
('Schroder Core'), that has the same investment objective and substantially
similar investment policies as the Fund. This is commonly referred to as a
master-feeder arrangement. Schroder Core also is registered as an open-end
management investment company. The Fund may withdraw its investment from the
Portfolio at any time if the Trust's Board of Trustees determines that it is
in the best interest of the Fund and its shareholders to do so. The Fund
accounts for its investment in the Portfolio as a partnership interest and
records daily its share of the Portfolio's income, expenses and realized and
unrealized gain and loss. The Portfolio's financial statements are included
on pages 14 to 22 in this report and should be read in conjunction with the
Fund's financial statements. As of May 31, 1998, the Fund owns approximately
15.8% of the Portfolio's interests.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally
accepted accounting principles, that require management to make certain
estimates and assumptions which affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of increase and decrease
in net assets from operations during the fiscal period. Actual results could
differ from those estimates. The following summarizes the significant
accounting policies of the Fund:
SECURITY VALUATION
The Trust determines the net asset value per share of the Fund as of
the close of trading on the New York Stock Exchange on each Fund business
day. Valuation of securities held in the Portfolio are discussed in the Notes
to the Financial Statements of the Portfolio.
INVESTMENT INCOME AND EXPENSES
The Fund records daily its pro rata share of the Portfolio's income,
expenses and realized and unrealized gain and loss. In addition, the Fund
accrues its own expenses. Investment income, realized and unrealized gains
and losses, and the common expenses of the Fund are allocated as accrued on a
pro rata basis to each class based on the relative net assets of each class
to the total net assets of the Fund.
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10
<PAGE>
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Schroder U.S. Smaller Companies Fund
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and capital gain distributions, if any, are distributed to
shareholders at least annually. Distributions are based on amounts calculated
in accordance with applicable federal income tax regulations, which may
differ from generally accepted accounting principles. These differences are
due primarily to differing treatments of income and gain on various
investment securities held by the Fund, timing differences and differing
characterizations of distributions made by the Fund.
FEDERAL TAXES
The Fund intends to qualify and continue to qualify each year as
regulated investment company and distribute all of its taxable income. In
addition, by distributing in each calendar year substantially all of its net
investment income, capital gain and certain other amounts, if any, the Fund
will not be subject to a federal excise tax. Therefore, no federal income or
excise tax provision is required.
EXPENSE ALLOCATION
The Trust accounts separately for the assets and liabilities and
operation of each of its funds. Expenses that are directly attributable to
more than one fund are allocated among the respective funds in proportion to
each fund's net assets. Expenses that are directly attributable to a class
are allocated to that class.
ORGANIZATIONAL COSTS
Costs incurred by the Fund in connection with its organization are
amortized on a straight line basis over a five year period.
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Fund currently invests all of its assets in the Portfolio, which
retains Schroder Capital Management International Inc. ('SCMI') to act as
investment adviser pursuant to an Investment Advisory Agreement. See Notes to
the Financial Statements of the Portfolio.
ADMINISTRATOR
The Trust, on behalf of the Fund, has entered into an Administration
Agreement with Schroder Fund Advisors Inc. ('SFA') and a Subadministration
Agreement with Forum Administrative Services, LLC ('FAdS'). For its services,
SFA is entitled to receive an annual fee, payable monthly, at the rate of
0.25% of the Fund's average daily net assets. For its services, FAdS is
entitled to receive an annual fee, payable monthly, at the rate of 0.075% of
the Fund's average daily net assets.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The transfer agent and dividend disbursing agent for the Fund is Forum
Shareholder Services, LLC ('FSS'). FSS is paid a fee in the amount of $12,000
per share class per year, plus certain other charges.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
SHAREHOLDER SERVICE PLAN AND SERVICE ORGANIZATIONS
The Trust has adopted a Shareholder Service Plan ('the Plan') in
accordance with the requirements of the Act for Advisor Shares under which
SFA is authorized to pay service organizations a servicing fee. Payments
under the Plan may be for various types of services. The maximum annual
amount currently payable under the Plan is 0.25% of the Fund's average daily
net assets attributable to Advisor Shares.
OTHER SERVICE PROVIDERS
Forum Accounting Services, LLC ('FAcS') provides fund accounting
services to the Fund. For its services, FAcS is entitled to receive from the
Fund a fee of $12,000 per year.
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
In order to limit the Fund's expenses, SCMI and SFA have voluntarily
agreed to reduce their compensation (and, if necessary, to pay certain
expenses of the Fund) to the extent that the Fund's expenses would exceed
1.74% of the Fund's average daily net assets attributable to Advisor Shares
and 1.49% of the Fund's average daily net assets attributable to Investor
Shares. The expense limitations cannot be modified or withdrawn except by a
majority vote of the Trustees of the Trust. SCMI, SFA, FAdS, FSS and FAcS may
voluntarily waive all or a portion of their fees, from time to time. For the
year ended May 31, 1998, expenses reimbursed by SFA were $34,869 and fees
waived by FSS were $10,050.
- ------------------------
SUPPLEMENTARY UNAUDITED INFORMATION
DISTRIBUTIONS
During the fiscal year ended May 31, 1998, the Fund distributed
$491,709 in 20 percent rate gain, $1,343,491 in 28 percent rate gain and
$1,554,667 in ordinary income to shareholders, of which 35.44% of the
ordinary income distribution may qualify for the dividends received deduction
available to corporate shareholders.
- --------------------------------------------------------------------------------
12
<PAGE>
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Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To Trustees of Schroder Capital Funds (Delaware) and Shareholders of Schroder
U.S. Smaller Companies Fund
In our opinion, the accompanying statement of assets and liabilities and
related statement of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Schroder U.S. Smaller Companies Fund (the 'Fund') (a separately managed
portfolio of Schroder Capital Funds (Delaware)), at May 31, 1998, the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods indicated therein, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(herein referred to as 'financial statements') are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 21, 1998
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF MAY 31, 1998
COMMON STOCK - 93.3%
SHARES VALUE US$
- ------- ------------
BASIC MATERIALS - 3.1%
98,250 AMCOL International Corp. $ 1,350,938
110,200 Ball Corp. 4,346,013
87,500 Ferro Corp. 2,504,688
118,300 Galey & Lord, Inc. (a) 2,927,925
------------
11,129,564
------------
CAPITAL GOODS/CONSTRUCTION - 6.8%
69,800 Aeroquip-Vickers, Inc. 4,310,150
159,200 Aftermarket Technology Corp. (a) 2,726,300
128,600 Donaldson Co., Inc. 2,805,088
58,800 Essex International, Inc. (a) 1,444,275
92,200 Harsco Corp. 4,022,225
97,000 Tracor, Inc. (a) 3,831,500
111,400 Triangle Pacific Corp. (a) 4,915,530
------------
24,055,068
------------
CONSUMER CYCLICAL - 22.7%
126,000 800-JR CIGAR, Inc. (a) 2,504,250
96,300 American Italian Pasta Co. (a) 3,454,763
140,500 Bally Total Fitness Holding Corp. (a) 4,531,125
102,900 Blyth Industries, Inc. (a) 3,157,744
39,200 Ethan Allen Interiors, Inc. 1,972,250
175,950 Fossil, Inc. (a) 3,403,540
83,300 Furniture Brands International, Inc. (a) 2,457,350
124,600 Interface, Inc. 4,882,763
121,900 Knoll, Inc. (a) 3,847,472
138,600 Media Arts Group, Inc. (a) 2,694,038
217,900 Musicland Stores Corp. (a) 3,145,931
54,000 Pier 1 Imports, Inc. 1,299,375
196,200 Pillowtex Corp. 9,172,350
51,337 Promus Hotel Corp. (a) 2,220,325
174,600 ResortQuest International, Inc. (a) 2,651,738
52,450 Robert Half International, Inc. (a) 2,655,281
84,300 Ross Stores, Inc. 3,719,738
188,475 Sonic Corp. (a) 3,899,077
92,400 Stage Stores, Inc. (a) 4,308,150
138,000 Stanley Furniture Co., Inc. (a) 2,794,500
106,200 Trans World Entertainment Corp. (a) 3,836,475
102,500 Trendwest Resorts, Inc. (a) 1,819,375
188,200 WestPoint Stevens, Inc. (a) 6,163,550
------------
80,591,160
------------
CONSUMER STAPLES - 5.9%
80,800 Earthgrains Co. 4,267,250
57,200 Henry Schein, Inc. (a) 2,202,200
76,900 International Home Foods, Inc. (a) 2,085,913
142,200 Keebler Foods Co. (a) 4,132,687
93,600 Landry's Seafood Restaurants, Inc. (a) 2,120,630
80,100 Richfood Holdings, Inc. 1,957,444
69,300 Suiza Foods Corp. (a) 4,049,717
------------
20,815,841
------------
ENERGY - 6.2%
32,600 Atwood Oceanics, Inc. (a) 1,687,050
94,700 B.J. Service Co. (a) 3,095,506
50,800 Cooper Cameron Corp. (a) 3,022,600
85,000 Kuhlman Corp. 3,591,250
178,672 Ocean Energy, Inc. (a) 3,584,607
99,300 Tosco Corp. 3,152,775
148,900 Varco International, Inc. (a) 3,880,705
------------
22,014,493
------------
FINANCIAL - 11.8%
182,900 Allied Capital Corp. 4,435,325
116,400 AmerUs Life Holdings, Inc. 3,724,800
34,600 Annuity & Life Re Holdings (a) 789,312
73,800 Bank United Corp. 3,690,000
58,200 CMAC Investment Corp. 3,521,100
73,975 Commercial Federal Corp. 2,464,292
50,200 Cullen/Frost Bankers, Inc. 2,720,213
47,200 Duff & Phelps Credit Rating Co. 2,714,000
77,700 FBL Financial Group, Inc. 2,180,455
65,500 Fremont General Corp. 3,745,781
62,600 HealthCare Financial Partners, Inc. (a) 3,075,225
80,600 Mutual Risk Management Ltd. 2,826,038
89,150 North Fork BanCorp, Inc. 2,145,172
82,639 Patriot American Hospitality, Inc. 1,978,176
99,900 Waddell & Reed Financial, Inc. 2,310,187
------------
42,320,076
------------
HEALTH CARE - 6.1%
142,100 Centennial HealthCare Corp. (a) 2,966,337
112,500 Coventry Health Care, Inc. (a) 1,631,250
32,000 Express Scripts, Inc. (a) 2,462,000
156,700 Haemonetics Corp. (a) 2,389,675
69,600 Health Care & Retirement Corp. (a) 2,692,650
135,500 Invacare Corp. 3,573,813
74,500 Matria Healthcare, Inc.(a) 302,656
43,800 PSS World Medical, Inc. (a) 547,500
85,300 Protein Design Labs, Inc. (a) 2,143,163
106,400 Wesley Jessen VisionCare, Inc. (a) 2,872,800
------------
21,581,844
------------
TECHNOLOGY - 9.6%
171,900 Antec Corp. (a) 3,292,966
70,900 Dallas Semiconductor Corp. 2,388,443
100,300 EG&G, Inc. 3,159,450
112,700 Evans & Sutherland Computer Corp. (a) 2,831,588
151,600 INTERSOLV (a) 2,179,250
270,100 MAPICS, Inc. (a) 4,760,513
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONCLUDED)
AS OF MAY 31, 1998
SHARES VALUE US$
- ------- ------------
TECHNOLOGY (CONCLUDED)
149,500 MicroTouch Systems, Inc. (a) $ 2,392,000
205,900 Pairgain Technologies, Inc. (a) 3,217,188
31 Structural Dynamics Research Corp. (a) 785
118,500 Symbol Technologies, Inc. 4,169,718
60,500 Thomas & Betts Corp. 3,232,969
108,400 Wang Laboratories, Inc. (a) 2,601,600
------------
34,226,470
------------
TRANSPORTATION/SERVICES/MISCELLANEOUS - 21.1%
99,300 Alexandria Real Estate Equities, Inc. 3,146,567
100,400 Atlas Air, Inc. (a) 3,551,650
102,500 C.H. Robinson Worldwide, Inc. 2,370,312
71,300 CNF Transportation, Inc. 2,927,756
7,700 CORT Business Services Corp. (a) 301,261
161,400 Career Education Corp. (a) 4,014,824
20,000 Cavanaughs Hospitality Corp. (a) 273,750
121,950 Comair Holdings, Inc. 3,246,919
128,800 Cornell Corrections, Inc. (a) 2,833,600
102,400 Eastern Environmental Services, Inc. (a) 2,918,400
177,800 Group Maintenance America Corp. (a) 3,333,750
181,100 Ha-Lo Industries, Inc. (a) 5,602,780
112,400 INSpire Insurance Solutions, Inc. (a) 3,674,075
161,800 Ivex Packaging Corp. (a) 3,751,737
80,900 Jacor Communications, Inc. (a) 4,277,588
942,600 Laidlaw Environmental Services, Inc. (a) 3,652,575
83,800 Mac-Gray Corp. (a) 1,204,625
134,700 Manufactured Home Communities, Inc. 3,359,081
161,700 Mesaba Holdings, Inc. (a) 3,516,975
168,800 RCM Technologies, Inc. (a) 3,502,600
83,900 RemedyTemp, Inc. (a) 2,443,588
161,300 Select Appointments Holdings Public Ltd. Co. 4,657,537
107,300 StaffMark, Inc. (a) 3,943,275
93,500 Superior Services, Inc. (a) 2,863,438
------------
75,368,663
------------
Total Investments - 93.3%
(cost $292,812,680) 332,103,179
Other Assets Less Liabilities - 6.7% 23,700,242
------------
Total Net Assets - 100.0% $355,803,421
------------
------------
- ------------------
(a) Non-income producing security.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
ASSETS:
Investments (Note 2):
Investments at cost $292,812,680
Net unrealized appreciation (depreciation) 39,290,499
------------
Total Investments at Value 332,103,179
Cash and cash equivalents (Note 2) 19,665,550
Receivable for investments sold 5,128,850
Receivable for dividends and interest 140,278
Organization costs, net of amortization (Note 2) 16,078
------------
Total Assets 357,053,935
------------
LIABILITIES:
Payable for investments purchased 975,262
Payable to investment adviser (Note 3) 184,522
Payable to subadministrator (Note 3) 23,065
Accrued expenses and other liabilities 67,665
------------
Total Liabilities 1,250,514
------------
Net Assets $355,803,421
------------
------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year
Ended
May 31, 1998
------------
INVESTMENT INCOME:
Dividend income $ 1,309,477
Interest income 709,293
------------
Total Investment Income 2,018,770
------------
EXPENSES:
Investment advisory (Note 3) 1,419,439
Subadministration (Note 3) 177,430
Interestholder recordkeeping (Note 3) 12,241
Custody 30,609
Accounting (Note 3) 40,000
Legal 31,723
Audit 34,169
Trustees' fees 6,999
Amortization of organization costs (Note 2) 5,017
Miscellaneous 26,575
------------
Total Expenses 1,784,202
------------
NET INVESTMENT INCOME (LOSS) 234,568
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold 6,355,034
Net change in unrealized appreciation (depreciation)
on investments 28,258,572
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 34,613,606
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 34,848,174
------------
------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period For the Period
For the Year Ended Ended
Ended May 31, 1997 October 31, 1996
May 31, 1998 (Note 1) (Note 1)
-------------- -------------- ----------------
<S> <C> <C> <C>
NET ASSETS, BEGINNING OF PERIOD $ 103,385,258 $ 28,929,477 $ --
-------------- -------------- ----------------
OPERATIONS:
Net investment income (loss) 234,568 77,349 22,137
Net realized gain (loss) on investments sold 6,355,034 2,311,789 735,049
Net change in unrealized appreciation
(depreciation) on investments 28,258,572 8,079,833 2,952,095
-------------- -------------- ----------------
Net increase (decrease) in net assets resulting
from operations 34,848,174 10,468,971 3,709,281
-------------- -------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions 228,163,060 69,106,539 26,247,304
Withdrawals (10,593,071) (5,119,729) (1,027,108)
-------------- -------------- ----------------
Net increase (decrease) from transactions in
investors' beneficial interests 217,569,989 63,986,810 25,220,196
-------------- -------------- ----------------
Net increase (decrease) in net assets 252,418,163 74,455,781 28,929,477
-------------- -------------- ----------------
NET ASSETS, END OF PERIOD $ 355,803,421 $ 103,385,258 $ 28,929,477
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Portfolio performance for the following periods:
<TABLE>
<CAPTION>
For the Year For the Period For the Period
Ended Ended Ended
May 31, 1998 May 31, 1997 (a) October 31, 1996 (a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Assets at End of Period (in thousands) $355,803 $103,385 $28,929
Ratios to Average Net Assets:
Expenses including reimbursement/waiver of fees 0.75%(b) 0.85%(b) 0.85%(b)
Expenses excluding reimbursement/waiver of fees 0.75%(b) 0.95%(b) 1.31%(b)
Net investment income (loss) including
reimbursement/waiver of fees 0.10%(b) 0.22%(b) 0.50%(b)
Average Commission Rate Per Share (c) $0.0582 $0.0584 $0.0562
Portfolio Turnover Rate 54.98% 34.45% 17.30%
</TABLE>
- ------------------
(a) See Note 1.
(b) Annualized.
(c) Average commission per share paid to brokers on the purchase and sale of
equity securities on which commissions are charged.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
NOTE 1. ORGANIZATION
Schroder Capital Funds ('Schroder Core') was organized as a Delaware
business trust on September 7, 1995. Schroder Core, which is registered as an
open-end management investment company under the Investment Company Act of
1940 (the 'Act'), currently has eight investment portfolios. Included in this
report is Schroder U.S. Smaller Companies Portfolio ('Portfolio'), a
diversified portfolio that commenced operations on August 15, 1996. Under its
Trust Instrument, Schroder Core is authorized to issue an unlimited number of
interests without par value. Interests in the Portfolio are sold in private
placement transactions without any sales charges to qualified investors,
including open-end, management investment companies.
Effective May 31, 1997, the Fund changed its fiscal year end to May 31
from October 31.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally
accepted accounting principles, that require management to make certain
estimates and assumptions which affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of increase and decrease
in net assets from operations during the fiscal period. Actual results could
differ from those estimates.
The following summarizes the significant accounting policies of the
Portfolio:
SECURITY VALUATION
Portfolio securities listed on recognized stock exchanges are valued at
the last reported sale price on the exchange on which the securities are
principally traded. Listed securities traded on recognized stock exchanges
where last sale prices are not available are valued at the last sale price on
the preceding trading day or at closing mid-market prices. Securities traded
in over-the-counter markets, or listed securities for which no trade is
reported on the valuation date, are valued at the most recent reported
mid-market price. Prices used for valuations generally are provided by
independent pricing services. Short-term investments, having a maturity of 60
days or less, are valued at amortized cost which approximates market value.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith using methods
approved by the Schroder Core Board of Trustees.
CASH EQUIVALENTS
The Portfolio considers all balances and the related interest income in
money market sweep vehicles to be cash equivalents.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on trade date. Dividend
income is recorded on ex-dividend date. Interest income is recorded as
earned. Identified cost of investments sold is used to determine realized
gain and loss for both financial statement and federal income tax purposes.
EXPENSE ALLOCATION
Schroder Core accounts separately for the assets and liabilities and
operation of each of its portfolios. Expenses that are directly attributable
to more than one portfolio are allocated among the respective portfolios in
proportion to each portfolio's net assets.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
ORGANIZATIONAL COSTS
Costs incurred by the Portfolio in connection with its organization are
amortized on a straight line basis over a five-year period.
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Schroder Capital Management International Inc. ('SCMI') is the
investment adviser to the Portfolio. Pursuant to an Investment Advisory
Agreement, SCMI is entitled to receive from Schroder U.S. Smaller Companies
Portfolio, an annual fee, payable monthly, of 0.60% of the Portfolio's
average daily net assets.
SUBADMINISTRATOR
On behalf of the Portfolio, Schroder Core has entered into a
Subadministration Agreement with Forum Administrative Services, LLC ('FAdS')
under which FAdS is entitled to receive from Schroder U.S. Smaller Companies
Portfolio an annual fee, payable monthly, of 0.075% of the Portfolio's
average daily net assets subject to a $25,000 annual minimum.
OTHER SERVICE PROVIDERS
Forum Accounting Services, LLC ('FAcS') performs portfolio accounting
services for the Schroder U.S. Smaller Companies Portfolio and is entitled to
receive compensation for its services in the amount of $36,000 per year, plus
certain other charges, based upon the number and types of portfolio
transactions. FAcS also provides interestholder recordkeeping services to the
Portfolio for which it receives $12,000 per year plus certain other charges.
NOTE 4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of
securities (excluding short-term securities) for the year ended May 31, 1998
were $321,269,356 and $118,490,742, respectively.
For federal income tax purposes, the tax basis of investment securities
owned, the aggregate gross unrealized appreciation and the aggregate gross
unrealized depreciation as of May 31, 1998 were $292,802,767, $54,156,312,
$14,855,900 and $39,300,412, respectively.
NOTE 5. FEDERAL TAXES
The Portfolio is not required to pay federal income taxes on its net
investment income and net capital gain as it is treated as a partnership for
federal income tax purposes. All interest, dividends, gain and loss of the
Portfolio is deemed to have been 'passed through' to the interestholders in
proportion to their holdings in the Portfolio, regardless of whether such
interest, dividends or gain has been distributed by the Portfolio.
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To Trustees of Schroder Capital Funds and Investors of Schroder U.S. Smaller
Companies Portfolio:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and related statement of operations and
statements of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Schroder U.S. Smaller
Companies Portfolio (the 'Portfolio') (a separately managed portfolio of
Schroder Capital Funds), at May 31, 1998, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (herein referred to as
'financial statements') are the responsibility of the Portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1998, by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 21, 1998
- --------------------------------------------------------------------------------
22
<PAGE>
TRUSTEES
Hermann C. Schwab
Peter E. Guernsey
John I. Howell
Clarence F. Michalis
Mark J. Smith
David N. Dinkins
Peter S. Knight
Sharon L. Haugh
OFFICERS
Hermann C. Schwab
Chairman of the Board
Mark J. Smith
President
Mark Astley
Vice President
Robert G. Davy
Vice President
Margaret H. Douglas-Hamilton
Vice President
Richard R. Foulkes
Vice President
John Y. Keffer
Vice President
Jane P. Lucas
Vice President
Catherine A. Mazza
Vice President
Michael Perelstein
Vice President
Fariba Talebi
Vice President
John A. Troiano
Vice President
Ira L. Unschuld
Vice President
Alexandra Poe
Vice President
Secretary
Fergal Cassidy
Treasurer
<PAGE>
INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
ADMINISTRATOR AND DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
CUSTODIAN
The Chase Manhattan Bank
Chase MetroTech Center
Brooklyn, New York 11245
TRANSFER AND DIVIDEND
DISBURSING AGENT
Forum Shareholder Services, L.L.C.
Two Portland Square
Portland, Maine 04101
COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
This report is for the information of the shareholders of the Schroder U.S.
Smaller Companies Fund. Its use in connection with any offering of the Fund's
shares is authorized only in case of a concurrent or prior delivery of the
Fund's current prospectus.
[LOGO] SCHRODERS
Schroder
U.S. Smaller
Companies
Fund
ANNUAL REPORT
May 31, 1998
Schroder Capital Funds (Delaware)
