[LOGO] Schroders
Schroder
International Smaller
Companies Fund
ANNUAL REPORT
OCTOBER 31, 1998
Schroder Capital Funds (Delaware)
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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Two Portland Square, Portland, Maine 04101
General Information (207) 822-6500
Account Information (800) 344-8332
Fund Literature (800) 290-9826
Fax (207) 879-6050
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation through
investment in securities markets outside the United States.
INVESTMENT ADVISER
Schroder Capital Management International Inc. 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. As of
June 30, 1998, the Schroder Group had over $195 billion in assets under
management. As of September 30, 1998, the Investment Adviser, together with its
U.K. affiliate, Schroder Capital Management International Ltd., had
approximately $24 billion under management.
December 22, 1998
Dear Shareholder:
We are pleased to present the annual report for the Schroder International
Smaller Companies Fund for its fiscal year ended October 31, 1998. This past
fiscal year saw markedly divergent performance among the world's markets, as
well as considerable volatility of performance within certain individual
markets. A common theme was investors' rising level of risk aversion in response
to economic and financial shocks, including Russian debt default, hedge fund and
banking losses and increased devaluation risk in some emerging markets. In
general, in the first half of the fiscal year, economic problems appeared
largely contained within Asia and parts of the broader emerging markets
universe. In the last fiscal quarter, European and American markets - which
previously had behaved as if insulated from the difficulties - experienced some
volatility.
Looking forward, we expect global growth to be slower in 1999 than it was in
1998, as the contagion from emerging markets continues to weigh on demand in
developed markets. We believe that this will trim, but not eradicate, growth in
continental Europe. Growth is likely to be more adversely affected in the U.S.
and the U.K., which are at more mature stages of their economic cycles, while
Latin America could be one of the regions where growth is likely to slow most
sharply next year. Within Asia, which experienced a very sharp contraction in
1998, we believe that activity may be stabilizing, but further structural
reforms, especially within the banking sector, are needed to sustain a
significant recovery. Deflation is likely to appear a bigger risk than inflation
in several major economies, notably Japan. While it appears unlikely that the
world as a whole is facing a deflationary spiral, the absence of inflationary
pressure is likely to support bond markets and lead to interest rate cuts in
many markets. Correspondingly, however, we believe that the widespread inability
of companies to raise prices in many markets, including the U.S., will hurt
corporate profits growth.
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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On a more positive note, monetary authorities like the Federal Reserve and its
global counterparts appear to be stepping in to forestall future problems by
being quick to lower interest rates and issuing public statements that
acknowledge the need to address international pressure points before they become
major problems. A growing number of companies, including many in Asia, are
increasing their emphasis on shareholder value. This should help to ease
investors' anxieties and to trim the risk premiums that have risen in many
markets, although we believe that it is unlikely to return them to levels
reached earlier in the fiscal year. We expect further uncertainty and volatility
in the year ahead. Nevertheless, we believe that compelling values exist in many
emerging and Asian equity markets after this year's correction, and many high
quality stocks have been sold indiscriminately. Similarly, although valuations
in European and U.S. markets are not as universally undervalued, there are very
attractive opportunities in areas with strong fundamental prospects that have
received less attention in this year's flight to liquidity. Schroders'
investment approach stresses the rewards of identifying high quality franchises
with sustainable growth prospects at attractive valuations. The present
environment presents great scope for our extensive global research network to
identify such opportunities for the long-term benefit of our investors.
Thank you for your interest in the Schroder International Smaller Companies
Fund.
Sincerely,
/s/ Mark J. Smith
Mark J. Smith
Chairman
2
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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MANAGEMENT DISCUSSION AND ANALYSIS (As of October 31, 1998)
PERFORMANCE
The Schroder International Smaller Companies Fund returned 7.88% compared with
its benchmark, the Salomon Smith Barney EMI EPAC Index, which returned -1.23%.
Stock selection was the major factor contributing to the Fund's outperformance,
particularly in continental Europe and the U.K. Avoiding stocks susceptible to
the economic crisis in Southeast Asia also benefited the Fund. Our key country
allocation was overweight positions in continental Europe relative to the U.K.
and Asia.
MARKET BACKGROUND
Although we are pleased with the Fund's relative performance, the last year was
a difficult environment for small cap investing in international markets, with
smaller companies underperforming blue chips. While this was clearly
disappointing, we believe that it was part of a cyclical - not secular - process
and that the end of the cycle is now in sight. In particular, the bull market
has been led by a small number of very large stocks over the past four years.
Valuations for the largest companies are now approaching record highs, while
smaller companies are selling at relatively low valuations relative to their
growth rates.
Large stocks have been supported by the abundant economic growth in Europe.
This, combined with large-scale corporate restructuring in the region, has
favored value stocks in place of the steady earnings growth and cash-flow
generation of smaller growth companies. However, against a backdrop of slower
world growth, we believe that investors will increasingly focus on good quality
smaller growth stocks which have the potential to deliver superior results over
the medium term.
INVESTMENT POLICY
During the period, we reduced our position in Japan, becoming significantly
underweight in the region, due to its faltering economy and banking crisis. In
contrast, we added to our position in continental Europe, reducing our position
mid-year as markets in the region reached their peak. Our bottom-up stock
selection led us to discover companies that enjoyed strong earnings growth as a
result of a recovery in their domestic economies. In particular, we identified a
number of undervalued French information technology companies which boosted the
Fund's returns. Among the Fund's best-performing holdings was Endemol
Entertainment, a Dutch television producer. Endemol is well positioned to
benefit from the increasing number of channels in Europe due to the introduction
of digital television. In an effort to further capitalize on the digital age,
Endemol is building a pan-European network by acquiring other businesses at
cheap prices and by expanding its product base.
We also found some exciting opportunities in the U.K. Financial and consumer
service companies performed especially well; these tend to be niche businesses
which grow rapidly. Additionally, we invested in a number of general industrial
companies whose prices had fallen sharply and represented exceptional value.
Some were subsequently bought out. We remained, however, underweight in the
U.K., due to our concern that the economy was peaking over the course of the
year.
The performance of our Japanese stocks was disappointing over the period mainly
because we focused on domestic stocks which suffered from poor domestic
consumption. However, with valuations at historic lows, we are optimistic that
the bias towards quality domestic growth will benefit our stocks when the
economy recovers.
3
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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OUTLOOK
Our outlook for smaller companies is positive, despite concerns about a global
economic slowdown in the coming year. In particular, we believe that a stronger
bias towards domestic growth will favor our investment process which focuses on
smaller companies with consistent earnings and sales growth.
Looking ahead, we continue to favor continental Europe. Although GDP growth has
lagged, we believe that our holdings in the service sector have the potential to
deliver solid returns in the coming year.
We remain cautious about Southeast Asia. While there are signs of a recovery in
the region, such as greater stability and lower interest rates, a full-fledged
recovery is still many months away. The danger of exported deflation in the
region especially concerns us.
We ended the year with an unusually high cash position of approximately 9%. In
the coming year, we expect to use this position to increase our allocation in
Japan since we believe that valuations in this country are currently at an
all-time low. There is also evidence that the economy is bottoming out and the
Japanese government is taking action to recapitalize its banks.
We are optimistic about the beginning of Japan's economic recovery, causing us
to add to our position in the region. There is increasing evidence that its
government is committed to stimulating economic growth via job creation, tax
cuts and public-works spending. We believe that the ongoing growth pattern in
this country will provide the catalyst to reverse the recent trend of
underperformance and the vicious cycle of recession, providing additional
opportunity in the small cap arena.
THE VIEWS EXPRESSED IN THIS REPORT WERE THOSE OF THE FUND'S PORTFOLIO MANAGER AS
OF OCTOBER 31, 1998, AND MAY NOT REFLECT THE VIEWS OF THE PORTFOLIO MANAGER 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 INVESTMENT IN
THE FUND AND DO NOT CONSTITUTE INVESTMENT ADVICE; INVESTORS SHOULD CONSULT THEIR
OWN INVESTMENT PROFESSIONALS AS TO THEIR INDIVIDUAL INVESTMENT PROGRAMS.
4
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SCHRODER INTERNATIONAL 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 Fund with the performance of the Salomon Smith Barney Extended Market Index,
EPAC region (the "EMI EPAC") since inception date of the Fund. The EMI EPAC is
an unmanaged index representing the portion of the Salomon Smith Barney Broad
Market Index related to companies with small index capitalization in
approximately 22 European and Pacific Basin countries. The EMI EPAC represents
the smallest companies in each country based on total market capital having in
the aggregate 20% of the cumulative available market capital in such country.
The Fund's return reflects deduction of appplicable fees and expenses; the EMI
EPAC return does not reflect deduction of any fees and expenses. 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. PAST PERFORMANCE CANNOT PREDICT OR GUARANTEE FUTURE RESULTS.
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND VS
SALOMON SMITH BARNEY EMI EPAC INDEX
INVESTMENT VALUE ON 10/31/98
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Schroder International Smaller Companies Fund $9,954
Salomon Smith Barney EMI EPAC $9,213
AVERAGE ANNUAL TOTAL RETURN ON 10/31/98
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SINCE
1 YEAR INCEPTION
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Schroder International Smaller Companies Fund 7.88% -0.23%(a)
[EDGAR representation of graph chart.]
DATE FUND INDEX
11/04/96 10,000.00 10,000.00
11/30/96 9,970.00 10,138.55
12/31/96 9,917.78 9,942.27
01/31/97 9,527.48 9,671.24
02/28/97 9,677.59 9,841.71
03/31/97 9,637.56 9,701.76
04/30/97 9,357.34 9,523.83
05/31/97 9,997.84 10,099.08
06/30/97 10,288.07 10,302.15
07/31/97 9,947.81 10,083.43
08/31/97 9,477.44 9,623.63
09/30/97 9,567.51 9,720.75
10/31/97 9,227.24 9,328.23
11/30/97 8,756.87 8,950.62
12/31/97 8,516.77 8,718.35
01/31/98 9,176.82 9,121.10
02/28/98 9,687.82 9,790.06
03/31/98 10,241.41 10,211.82
04/30/98 10,763.07 10,263.43
05/31/98 11,306.01 10,474.65
06/30/98 11,263.43 10,138.52
07/31/98 11,529.58 10,095.06
08/31/98 10,060.43 8,902.83
09/30/98 9,528.14 8,608.06
10/31/98 9,953.97 9,213.17
(a) Inception date is November 4, 1996.
The Schroder International Smaller Companies Fund's average annual total
return for the 1 year and since inception periods ended September 30, 1998, was
- -0.41% and -2.50%, respectively.
5
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 1998 (UNAUDITED)
COUNTRY WEIGHTINGS INVESTMENT BY INDUSTRY
COUNTRY % OF NET ASSETS INDUSTRY % OF NET ASSETS
- ----------------------------------- ---------------------------------------
United Kingdom 23.5% Services 19.8%
France 15.4% Capital Equipment 16.2%
Japan 13.2% Retail 10.6%
Germany 9.1% Consumer Durables 10.2%
Netherlands 8.8% Finance 7.8%
Spain 6.6% Consumer Non-Durables 7.6%
Switzerland 5.7% Materials 5.2%
Denmark 3.0% Manufacturing 3.2%
Italy 2.3% Energy 3.1%
Hong Kong 1.7% Technology 2.8%
Sweden 1.2% Machinery 2.0%
Cash and Other Net Assets 9.5% Health Care 2.0%
--------------- Cash and Other Net Assets 9.5%
Total 100.0% -----------
=============== Total 100.0%
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TOP TEN HOLDINGS
SECURITY % OF NET ASSETS
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Primagaz (Cie Des Gaz Petrole) (Fr) 2.6%
HF Co. (Fr) 2.3%
Hugo Boss AG Pfd. (Ger) 2.2%
Avesco plc (U.K.) 2.2%
Endemol Entertainment Holding NV (Neth) 2.1%
Apothekers Cooperatie OPG (Neth) 2.0%
Canning plc (U.K.) 2.0%
Gautier France SA (Fr) 2.0%
Rhoen-Klinikum AG (Ger) 2.0%
Christian Hansen Holdings AS (Den) 2.0%
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Total 21.4%
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</TABLE>
6
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
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ASSETS:
Investments (Notes 1 and 2):
Investment in Schroder International Smaller Companies Portfolio
(the "Portfolio") $ 4,156,489
Receivable from administrator (Note 4) 61,465
Organization costs, net of amortization (Note 2) 9,066
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Total Assets 4,227,020
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LIABILITIES:
Payable to subadministrator (Note 3) 252
Accrued expenses and other liabilities 62,084
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Total Liabilities 62,336
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Net Assets $ 4,164,684
======================
COMPONENTS OF NET ASSETS:
Paid-in capital $ 4,469,581
Undistributed net investment income 11,815
Accumulated net realized gain on investments
and foreign currency transactions 302,354
Net unrealized appreciation (depreciation) on investments
and foreign currency transactions (619,066)
----------------------
Net Assets $ 4,164,684
======================
SHARES OF BENEFICIAL INTEREST 445,313
NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER SHARE $ 9.35
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
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NET INVESTMENT INCOME ALLOCATED FROM THE PORTFOLIO:
Dividend income (net of foreign withholding taxes of $15,451) $ 100,115
Interest income 11,001
Net expenses (72,767)
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Net Investment Income Allocated from the Portfolio 38,349
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EXPENSES:
Administration (Note 3) 6,048
Subadministration (Note 3) 25,000
Transfer agency (Note 3) 12,347
Accounting (Note 3) 12,000
Printing 12,366
Registration 12,870
Audit 14,858
Amortization of organization costs (Note 2) 3,022
Legal 6,768
Trustees 346
Miscellaneous 500
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Total Expenses 106,125
Fees waived and expenses reimbursed (Note 4) (87,977)
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Net Expenses 18,148
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NET INVESTMENT INCOME 20,201
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS ALLOCATED
FROM THE PORTFOLIO:
Net realized gain on investments sold 302,355
Net realized gain (loss) on foreign currency transactions (8,386)
----------------------
Net realized gain on investments and foreign
currency transactions 293,969
----------------------
Net change in unrealized appreciation (depreciation) on investments 333,108
Net change in unrealized appreciation (depreciation) on foreign
currency transactions 1,061
----------------------
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions 334,169
----------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS ALLOCATED
FROM THE PORTFOLIO 628,138
----------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 648,339
======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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STATEMENTS OF CHANGES IN NET ASSETS
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<S> <C> <C>
FOR THE PERIOD
FOR THE YEAR NOVEMBER 4, 1996
ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997 (A)
--------------------- ---------------------
NET ASSETS, BEGINNING OF PERIOD $ 6,836,084 $ -
--------------------- ---------------------
OPERATIONS:
Net investment income 20,201 15,068
Net realized gain on investments and foreign currency transactions 293,969 377,647
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions 334,169 (953,235)
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Net increase (decrease) in net assets resulting from operations 648,339 (560,520)
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (9,569) (5,427)
Net realized gain on investments (377,722) -
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Total distributions to shareholders (387,291) (5,427)
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CAPITAL TRANSACTIONS:
Sale of shares 192,122 7,555,555
Reinvestment of distributions 75,896 -
Redemption of shares (3,200,466) (153,524)
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Net increase (decrease) from capital share transactions (2,932,448) 7,402,031
--------------------- ---------------------
Net increase (decrease) in net assets (2,671,400) 6,836,084
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NET ASSETS, END OF PERIOD, (INCLUDING LINE A) $ 4,164,684 $ 6,836,084
===================== =====================
(A) Undistributed net investment income $ 11,815 $ 9,567
===================== =====================
SHARE TRANSACTIONS
Sale of shares 21,307 757,675
Reinvestment of distributions in shares 9,348 -
Redemption of shares (327,018) (15,999)
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Net increase (decrease) in shares (296,363) 741,676
===================== =====================
(a) The Fund commenced operations on November 4, 1996.
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The accompanying notes are an integral part of the financial statements.
9
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FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a share outstanding throughout each
period:
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FOR THE PERIOD
NOVEMBER 4, 1996
FOR THE YEAR ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997 (A)
-------------------------- -------------------------
Net Asset Value, Beginning of Period $9.22 $10.00
-------------------------- -------------------------
Investment Operations
Net Investment Income (b) 0.05 0.02
Net Realized and Unrealized Gain (Loss) on Investments 0.60 (0.79)
-------------------------- -------------------------
Total from Investment Operations 0.65 (0.77)
-------------------------- -------------------------
Distributions from
Net Investment Income (0.01) (0.01)
Net Realized Gain on Investments (0.51) -
-------------------------- -------------------------
Total Distributions (0.52) (0.01)
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Net Asset Value, End of Period $9.35 $9.22
========================== =========================
Total Return (c) 7.88% (7.73)%
Ratio/Supplementary Data:
Net Assets at End of Period (in thousands) $4,165 $6,836
Ratios to Average Net Assets:
Expenses including reimbursement/waiver of fees (b) 1.50% 1.50%(d)
Expenses excluding reimbursement/waiver of fees (b) 5.26% 3.93%(d)
Net investment income including reimbursement/waiver of fees (b) 0.33% 0.21%(d)
Portfolio Turnover Rate (e) 82% 32%
</TABLE>
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(a) The Fund commenced operations on November 4, 1996.
(b) Includes the Fund's proportionate share of income and expenses of the
Portfolio.
(c) Total returns would have been lower had certain expenses not been reduced
during the periods shown (See Note 4).
(d) Annualized.
(e) Rate represents the turnover of the underlying Portfolio.
The accompanying notes are an integral part of the financial statements.
10
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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NOTES TO FINANCIAL STATEMENTS
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 ten investment portfolios. Included in this report is the
Schroder International Smaller Companies Fund (the "Fund"), a diversified
portfolio that commenced operations on November 4, 1996. 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.
As of October 31, 1998, only Investor Shares of the Fund had been issued.
MASTER-FEEDER ARRANGEMENT
The Fund seeks to achieve its investment objective by investing all of its
investable assets in Schroder International 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 investment 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 15 to
28 in this report and should be read in conjunction with the Fund's financial
statements. As of October 31, 1998, the Fund owns substantially all the
interests in the Portfolio, and is deemed, for purposes of the Act, to control
the Portfolio.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that 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 amounts could differ from those
estimates.
The following represent 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 is discussed in the Notes to the Financial
Statements of the Portfolio.
INVESTMENT INCOME AND EXPENSES
The Trust records daily its pro rata share of the Portfolio's income, expenses
and realized and unrealized gain and loss. In addition, the Fund incurs its own
expenses.
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income and net capital gain, if any, are distributed to
shareholders at least annually and are recorded on the ex-dividend date.
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
Portfolio, timing differences and differing characterizations of distributions
made by the Fund.
11
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEDERAL TAXES
The Fund intends to qualify, and continue to qualify, each year as a regulated
investment company and distribute all its taxable income. In addition, by
distributing in each calendar year substantially all 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. Direct expenses are charged to the fund that incurred them.
Expenses that are attributable to more than one fund are allocated among the
respective funds in proportion to each fund's average net assets.
ORGANIZATION 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 WITH AFFILIATES
INVESTMENT ADVISER
The Fund currently invests all 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 AND SUBADMINISTRATOR
The Administrator of the Fund is Schroder Fund Advisors Inc. ("Schroder
Advisors") and the Subadministrator of the Fund is Forum Administrative
Services, LLC ("FAdS"). For its services, Schroder Advisors is entitled to
receive compensation at an annual rate, payable monthly, of 0.10% of the average
daily net assets of the Fund. For its services, FAdS is entitled to receive
compensation at an annual rate, payable monthly, of 0.075% of the average daily
net assets of the Fund, subject to an annual minimum fee of $25,000.
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 transfer agent fee in the
amount of $12,000 per year, plus certain other fees and expenses.
OTHER SERVICE PROVIDERS
Forum Accounting Services, LLC ("FAcS") is the fund accountant. For its services
to the Fund, FAcS is entitled to receive from the Trust a fee of $12,000 per
year.
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
Schroder Advisors voluntarily waived a portion of its fee and assumed certain
expenses of the Fund so that the Fund's expenses chargeable to Investor Shares,
including indirect expenses borne by the Fund as a result of investing in the
Portfolio, would not exceed an annual rate of 1.50% of the Fund's average daily
net assets attributable to such shares. Schroder Advisors, FAdS, FSS and FAcS
may voluntarily waive all or a portion of their fees, from time to time. For the
year ended October 31, 1998, Schroder Advisors waived fees and reimbursed
expenses of $6,048 and $61,465, respectively, and FAdS waived fees of $20,464.
12
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 5. BENEFICIAL INTEREST
For the year ended October 31, 1998, there was one shareholder, otherwise
unaffiliated with the Fund, owning 23.73% of the Fund's shares.
- -------------------------------------------
SUPPLEMENTAL INFORMATION (UNAUDITED)
SPECIAL 1998 TAX INFORMATION
The Fund intends to elect to pass through the credit for taxes paid in foreign
countries during its fiscal year ended October 31, 1998. In accordance with
current tax laws, the foreign income and foreign tax per share (for a share
outstanding October 31, 1998) is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
COUNTRY DIVIDENDS FOREIGN TAX COUNTRY DIVIDENDS FOREIGN TAX
- ------- --------- ----------- ------- --------- -----------
Denmark $0.0015 $0.0002 Malaysia $0.0009
$0.0039
Finland 0.0069 0.0014 Netherlands 0.0018
0.0093
France 0.0340 Spain 0.0004
0.0033 0.0028
Germany 0.0225 0.0030 Sweden 0.0008
0.0047
Hong Kong 0.0116 - Switzerland 0.0011
0.0057
Italy 0.0069 0.0003 United Kingdom 0.0143
0.0785
Japan 0.0317 0.0065 United States
0.0048 -
================= =================
Total $0.2248 $0.0340
================= =================
</TABLE>
The pass through of foreign tax credit will affect only those shareholders of
the Fund who are holders on the dividend record date in December 1998.
Accordingly, shareholders will receive more detailed information along with
their form 1099-DIV in January 1999.
13
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Schroder Capital Funds (Delaware) and Shareholders of
Schroder International Smaller Companies Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Schroder International Smaller Companies Fund (a separately managed
portfolio of Schroder Capital Funds (Delaware)) at October 31, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter 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.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 22, 1998
14
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
COMMON AND PREFERRED STOCKS - 90.5%
SHARES VALUE US$
------ ---------
DENMARK - 3.0%
COMMON STOCK
700 Carli Gry International AS
Consumer Durables $ 41,136
660 Christian Hansen Holdings AS
Health Care 81,243
----------------------
122,379
----------------------
FRANCE - 15.4%
COMMON STOCK
1,400 Afibel
Retail 79,991
2,260 Cyrano (a)
Technology 49,821
240 Filipacchi Medias
Services 45,998
1,200 Gautier France SA
Consumer Durables 82,924
1,300 HF Co. (a)
Capital Equipment 93,578
1,100 Infogrames Entertainment SA (a)
Technology 64,730
350 Manitou B.F. SA
Capital Equipment 60,402
1,200 Primagaz (Cie Des Gaz Petrole)
Energy 107,974
1,100 Societe Generale d'Enterprises SA
Capital Equipment 52,853
----------------------
638,271
----------------------
GERMANY - 9.1%
COMMON STOCK - 4.0%
3,000 Jungheinrich AG
Manufacturing 39,850
830 Rhoen-Klinikum AG
Consumer Durables 82,689
1,400 Winkler & Duennebier AG (a)
Capital Equipment 44,801
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AS OF OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
SHARES VALUE US$
------ ---------
GERMANY (CONCLUDED)
PREFERRED STOCK - 5.1%
60 Hugo Boss AG
Consumer Durables $ 93,467
150 Marschollek, Lautenschlaeger und Partner AG
Finance 76,531
1,300 Moebel Walther AG
Capital Equipment 42,386
----------------------
379,724
----------------------
HONG KONG - 1.7%
COMMON STOCK
100,000 Elec & Eltek International Holdings Ltd.
Capital Equipment 19,236
36,000 Lung Kee Metal Holdings Ltd.
Materials 16,200
19,000 Varitronix International Ltd.
Manufacturing 36,058
----------------------
71,494
----------------------
ITALY - 2.3%
COMMON STOCK
2,100 Gewiss SpA
Machinery 43,969
2,900 Industrie Natuzzi SpA ADR
Retail 52,744
----------------------
96,713
----------------------
JAPAN - 13.2%
COMMON STOCK
6,000 Airport Facilities Co. Ltd.
Services 19,618
6,000 Amada Metrecs Co. Ltd.
Machinery 24,715
4,000 Arcland Sakamoto
Services 24,716
7,000 Canon Copyer Sales Co.
Retail 17,421
2,000 Charle Co.
Services 14,589
6,000 DAIDOH Ltd.
Consumer Durables 15,962
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AS OF OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
SHARES VALUE US$
------ ---------
JAPAN (CONTINUED)
6,000 Diamond City Co.
Finance $ 20,596
4,000 Eiden Co. Ltd.
Retail 20,940
6,000 Idec Izumi Corp.
Capital Equipment 27,805
2,000 Inaba Denkisangyo Co. Ltd.
Capital Equipment 14,588
7,000 Inabata & Co. Ltd.
Services 18,502
3,000 Japan Airport Terminal Co. Ltd.
Services 15,936
4,000 Kansai Kosaido Co. Ltd.
Services 22,656
2,000 Mandom Corp.
Consumer Non-Durables 12,890
4,000 Maruzen Co. Ltd.
Consumer Durables 9,268
1,000 Meiko Shokai
Capital Equipment 15,018
2,000 Mirai Industry Co. Ltd.
Manufacturing 13,714
1,000 Nagaileben Co. Ltd.
Materials 17,335
4,000 Nippon Cable System
Capital Equipment 20,940
3,000 Nishio Rent All Co.
Services 19,566
4,000 Nissan Fire & Marine Insurance Co. Ltd.
Finance 11,088
3,000 Sanki Engineering Co. Ltd.
Capital Equipment 17,635
7,000 Sumitomo Warehouse Co. Ltd.
Services 29,435
1,000 Tachihi Enterprise Co. Ltd.
Finance 21,154
1,500 Trusco Nakayama Corp.
Machinery 14,019
5,000 Tsubaki Nakashima Co. Ltd.
Capital Equipment 26,045
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AS OF OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
SHARES VALUE US$
------ ---------
JAPAN (CONCLUDED)
4 Yoshinoya D&C Co. Ltd.
Services $ 41,192
5,000 Yushiro Chemical Industry Co. Ltd.
Energy 20,167
----------------------
547,510
----------------------
NETHERLANDS - 8.8%
COMMON STOCK
2,800 Apothekers Cooperatie OPG
Consumer Non-Durables 84,703
2,400 Content Beheer N.V.
Services 49,730
2,900 Endemol Entertainment Holding N.V.
Services 88,350
3,540 Koninklijke Ahrend Groep N.V.
Consumer Durables 71,835
800 Koninklijke Bijenkorf Beheer
Retail 70,932
----------------------
365,550
----------------------
SPAIN - 6.6%
COMMON STOCK
4,600 Corp. Financiera Reunida SA (a)
Finance 55,090
2,400 Cortefiel SA
Retail 59,185
5,600 Prima Inmobiliaria SA (a)
Finance 46,827
5,000 Prosegur, CIA de Seguridad SA
Services 60,411
2,000 Superdiplo SA (a)
Retail 51,660
45 Viscofan Industria Navarra
de Envolturas Celulosicas SA
Consumer Non-Durables 1,335
----------------------
274,508
----------------------
SWEDEN - 1.2%
COMMON STOCK
4,900 Hemkopskedjan AB
Retail 50,148
----------------------
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AS OF OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
SHARES VALUE US$
------ ---------
SWITZERLAND - 5.7%
COMMON STOCK
295 Barry Callebaut AG
Consumer Non-Durables $ 66,011
14 Gurit-Heberlein AG
Materials 36,600
3 Lindt & Spruengli AG
Consumer Non-Durables 71,782
280 The Selectra Group (a)
Consumer Non-Durables 61,620
----------------------
236,013
----------------------
UNITED KINGDOM - 23.5%
COMMON STOCK
6,680 Amey plc
Capital Equipment 78,647
15,250 Avesco plc
Services 91,306
28,080 British Regional Air Lines Group plc (a)
Services 29,157
6,000 Cammell Laird Holdings plc
Services 60,543
17,500 Canning plc
Materials 83,529
1,822 City Gourmets Holdings plc (a)
Retail 763
17,690 City Technology Holdings plc
Capital Equipment 59,623
18,270 Dawson Holdings plc
Finance 48,651
10,000 Fairey Group plc
Capital Equipment 52,253
6,710 Helphire Group plc
Services 54,784
7,370 Low & Bonar plc
Materials 25,673
7,300 Micro Focus Group plc (a)
Consumer Durables 27,875
33,210 Ockham Holdings plc
Finance 45,051
8,580 Old English Pub Co. plc
Retail 34,774
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONCLUDED)
AS OF OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
SHARES VALUE US$
------ ---------
UNITED KINGDOM (CONCLUDED)
8,450 Oriflame International SA
Consumer Non-Durables $ 18,680
7,500 PSD Group plc
Services 35,170
15,300 Penna Holdings plc
Services 52,913
8,400 Renishaw plc
Capital Equipment 47,831
13,190 Tilbury Douglas plc
Services 53,016
3,300 Whatman plc
Manufacturing 41,451
12,380 Wickes plc
Materials 35,869
----------------------
977,559
----------------------
Total Investments - 90.5% (cost $4,380,196) 3,759,869
Other Assets Less Liabilities - 9.5% 396,620
----------------------
Total Net Assets - 100% $ 4,156,489
======================
</TABLE>
- --------------------------------------------------------------
(a) Non-income producing security.
ADR - American Depository Receipts
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost $ 4,380,196
Net unrealized appreciation (depreciation) (620,327)
----------------------
Total Investments at value 3,759,869
Cash 352,569
Receivable for dividends and interest 11,917
Receivable for tax reclaims 13,071
Receivable for investments sold 67,328
Receivable from administrator (Note 6) 58,360
Organization costs, net of amortization (Note 2) 9,066
----------------------
Total Assets 4,272,180
----------------------
LIABILITIES:
Payable for investments purchased 53,796
Payable to administrator (Note 3) 252
Accrued expenses and other liabilities 61,643
----------------------
Total Liabilities 115,691
----------------------
Net Assets $ 4,156,489
======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income (net of foreign withholding taxes of $15,451) $ 100,115
Interest income 11,001
----------------------
Total Investment Income 111,116
----------------------
EXPENSES:
Investment advisory (Note 3) 51,559
Administration (Note 3) 9,099
Subadministration (Note 3) 25,000
Interest holder recordkeeping (Note 3) 12,050
Custody 4,233
Accounting (Note 3) 67,000
Legal 1,007
Audit 26,988
Pricing 11,353
Trustees 338
Amortization of organization costs (Note 2) 3,022
Miscellaneous 587
----------------------
Total Expenses 212,236
Fees waived and expenses reimbursed (Note 6) (139,469)
----------------------
Net Expenses 72,767
----------------------
NET INVESTMENT INCOME 38,349
----------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments 302,355
Net realized gain (loss) on foreign currency transactions (8,386)
----------------------
Net realized gain on investments and foreign currency transactions 293,969
----------------------
Net change in unrealized appreciation on investments 333,108
Net change in unrealized appreciation on foreign currency transactions 1,061
----------------------
Net change in unrealized appreciation on investments and
foreign currency transactions 334,169
----------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS 628,138
----------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 666,487
======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<S> <C> <C>
FOR THE PERIOD
FOR THE YEAR NOVEMBER 4, 1996
ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997 (A)
--------------------- -----------------------
NET ASSETS, BEGINNING OF PERIOD $ 6,825,551 $ -
--------------------- -----------------------
OPERATIONS:
Net investment income 38,349 36,266
Net realized gain on investments and foreign currency transactions 293,969 377,647
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions 334,169 (953,235)
--------------------- -----------------------
Net increase (decrease) in net assets resulting from operations 666,487 (539,322)
--------------------- -----------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Contributions 279,625 7,554,417
Withdrawals (3,615,174) (189,544)
--------------------- -----------------------
Net increase (decrease) in net assets from transactions in investors'
beneficial interest (3,335,549) 7,364,873
--------------------- -----------------------
Net increase (decrease) in net assets (2,669,062) 6,825,551
--------------------- -----------------------
NET ASSETS, END OF PERIOD $ 4,156,489 $ 6,825,551
===================== =======================
</TABLE>
(a) The Portfolio commenced operations on November 4, 1996.
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C>
Portfolio performance for each period:
FOR THE PERIOD
FOR THE YEAR NOVEMBER 4, 1996
ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997 (A)
------------------------------------------------
Ratio to Average Net Assets:
Expenses including reimbursement/waiver of fees 1.20% 1.20% (b)
Expenses excluding reimbursement/waiver of fees 3.50% 2.72% (b)
Net investment income including reimbursement/waiver of fees 0.63% 0.51% (b)
Portfolio Turnover Rate 82% 32%
</TABLE>
- -------------------------------------------
(a) The Portfolio commenced operations on November 4, 1996.
(b) Annualized.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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,
currently has eight investment portfolios. Included in this report is the
Schroder International Smaller Companies Portfolio (the "Portfolio"), a
diversified portfolio that commenced operations on November 4, 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.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that 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 amounts could differ from those
estimates.
The following represent 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 mean of the closing bid and ask
("mid-market price"), or, if none, the last sale prices on the preceding trading
day. Securities traded in over-the-counter markets, or listed securities for
which no trade is reported on the valuation date, generally are valued at the
most recent reported mid-market price. Short-term investments having a maturity
of 60 days or less, generally are valued at amortized cost, which approximates
market value. Prices used for valuations may be provided by independent pricing
services. 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 Schroder Core's Board of Trustees. As of October 31, 1998,
the Portfolio did not hold a position in fair valued securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Dividend income is
recorded on the ex-dividend date except that certain dividends from foreign
securities where the ex-dividend date may have passed are recorded as soon as
the Portfolio is informed of the ex-dividend date. Dividend income is recorded
net of unrecoverable withholding tax. Interest income is recorded as earned.
Identified cost of investments sold is used to determine gain and loss for both
financial statement and federal income tax purposes. Foreign dividend and
interest income amounts and realized capital gain and loss are converted to U.S.
dollar equivalents using foreign exchange rates in effect on the date of the
transactions.
Foreign currency amounts are translated into U.S. dollars at the mean of the bid
and asked prices of such currencies against U.S. dollars as follows: (i) assets
and liabilities at the rate of exchange at the end of the respective period; and
(ii) purchases and sales of securities and income and expenses at the rate of
exchange prevailing on the dates of such transactions. The portion of the
results of operations arising from changes in the exchange rates and the portion
due to fluctuations arising from changes in the market prices of securities are
not isolated. Such fluctuations are included with the net realized and
unrealized gain or loss on investments.
25
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Portfolio may enter into forward contracts to purchase or sell foreign
currencies to protect the U.S. dollar value of the underlying portfolio against
the effect of possible adverse movements in foreign exchange rates. Risks
associated with such contracts include the movement in value of the foreign
currency relative to the U.S. dollar and the ability of the counterparty to
perform. Fluctuations in the value of such contracts are recorded daily as
unrealized gain or loss; realized gain or loss includes net gain or loss on
contracts that have terminated by settlement or by the Portfolio entering into
offsetting commitments.
EXPENSE ALLOCATION
Schroder Core accounts separately for the assets and liabilities and operation
of each of its portfolios. Expenses that are attributable to more than one
portfolio are allocated among the respective portfolios in proportion to each
portfolio's average net assets.
ORGANIZATION 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 WITH AFFILIATES
INVESTMENT ADVISER AND SUBADVISER
Schroder Capital Management International Inc. ("SCMI") is the investment
adviser to the Portfolio. Pursuant to an Investment Advisory Agreement, SCMI is
entitled to receive an annual fee, payable monthly, of 0.85% of the average
daily net assets of the Portfolio. Pursuant to a Subadvisory Agreement among
SCMI, Schroder Investment Management International, Ltd. ("SIMIL") and Schroder
Core, SIMIL is the investment subadviser to the Portfolio. Under the Subadvisory
Agreement, SCMI pays SIMIL a monthly fee at the annual rate of 0.25% of the
Portfolio's average net assets.
ADMINISTRATOR AND SUBADMINISTRATOR
The Administrator of the Portfolio is Schroder Fund Advisors Inc. ("Schroder
Advisors") and the Subadministrator is Forum Administrative Services, LLC
("FAdS"). For its services, Schroder Advisors is entitled to receive
compensation at an annual rate, payable monthly, of 0.15% of the average daily
net assets of the Portfolio. For its services, FAdS is entitled to receive
compensation at an annual rate, payable monthly, of 0.075% of the average daily
net assets of the Portfolio, subject to an annual minimum of $25,000.
OTHER SERVICE PROVIDERS
Forum Accounting Services, LLC ("FAcS") performs portfolio accounting for the
Portfolio and is entitled to compensation for those services in the amount of
$60,000 per year, plus certain amounts based upon the number and types of
portfolio transactions. FAcS also provides interest holder recordkeeping
services to the Portfolio, and is entitled to compensation for those services
from Schroder Core with respect to the Portfolio in the amount of $12,000 per
year, plus certain other fees and expenses.
NOTE 4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of securities
(excluding short-term investments) for the year ended October 31, 1998,
aggregated $4,647,660 and $8,125,987, respectively.
26
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
For federal income tax purposes, the tax basis of investment securities owned as
of October 31, 1998, was $4,395,507, and the net unrealized depreciation of
investment securities was $635,638. The aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax cost
was $472,612, and the aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value was $1,108,250.
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 are deemed
to have been "passed through" to the partners in proportion to their holdings in
the Portfolio regardless of whether such interest, dividends or gain have been
distributed by the Portfolio.
NOTE 6. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
SCMI voluntarily waived a portion of its advisory fees and assumed certain
expenses of the Portfolio so that its total expenses would not exceed 1.20% of
the Portfolio's average daily net assets. Schroder Advisors, SCMI, FAdS and FAcS
may voluntarily waive all or a portion of their fees from time to time. SCMI
voluntarily has undertaken to waive 0.10% of the advisory fees payable by the
Fund. This fee limitation arrangement shall remain in effect until its
elimination is approved by the Board of Trustees of Schroder Core. For the year
ended October 31, 1998, SCMI, Schroder Advisors and FAdS waived fees of $51,559,
$9,099 and $20,451, respectively. For the year ended October 31, 1998, Schroder
Advisors reimbursed expenses of $58,360.
NOTE 7. CONCENTRATION OF RISK
The Portfolio has a relatively large number of portfolio securities invested in
companies domiciled in the United Kingdom, France and Japan. The Portfolio may
be more susceptible to political, social and economic events adversely affecting
those countries than portfolios not so invested.
27
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Schroder Capital Funds and Investors of Schroder
International Smaller Companies Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Schroder International Smaller
Companies Portfolio (a separate portfolio of Schroder Capital Funds) at October
31, 1998, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter 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 October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 22, 1998
<PAGE>
TRUSTEES
David N. Dinkins
Peter E. Guernsey
Sharon L. Haugh
John I. Howell
Peter S. Knight
William L. Means
Clarence F. Michalis
Hermann C. Schwab
Mark J. Smith
INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, NY 10019
ADMINISTRATOR & DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue, 34th Floor
New York, NY 10019
CUSTODIAN
The Chase Manhattan Bank
Global Custody Division
125 London Wall
London EC2Y 5AJ, United Kingdom
TRANSFER AND DIVIDEND DISBURSING
AGENT
Forum Shareholder Services, LLC
Two Portland Square
Portland, ME 04101
COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110-2624
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, MA 02109
This report is for the information of the shareholders of the Schroder
International 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.
