<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
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 (formerly Schroder U.S. Equity Fund) investment objective is growth
of capital.
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 U.S.
Diversified Growth Fund for the fiscal year ended October 31, 1998. For most of
the fiscal year, U.S. financial markets proved quite resilient to economic
shocks elsewhere in the world, and, towards the end of this period, to weaker
corporate profits at home. While the U.S. markets were not immune to these
problems, especially in October, their immediate impact was short-lived. The
concerns have, at times, seemed numerous, ranging from political uncertainties
to hedge fund and banking sector difficulties, but both Treasury and stock
markets ended the fiscal year showing positive returns. Within these more
volatile markets, however, quality and liquidity were increasingly prized;
lower-rated credits and corporate bond spreads widened significantly over
Treasuries, while large cap stocks outperformed smaller ones for most of the
period.
The U.S. economy delivered another solid performance in 1998, with real
gross domestic product (GDP) growing by an estimated 3.7%, after a 3.9% gain in
1997. This year's outcome was particularly impressive given that the U.S. trade
deficit increased dramatically following the collapse of many emerging market
economies. Domestic demand grew at almost a 5% pace over the year, driven by
consumer spending and a significant gain in capital spending, led by the
high-tech industry. Inflation continued to fall, as the lagged effects of the
dollar's appreciation -- together with global overcapacity in many industries --
outweighed the impact of a tight domestic labor market. The Federal Reserve
responded to global financial turmoil, and to early indications of weakening
U.S. growth, by reducing interest rates twice prior to the end of the fiscal
year.
Looking ahead, we anticipate that U.S. economic growth will slow in the
coming year. Corporate profits are being squeezed and corporations are beginning
to reduce costs aggressively. We believe that consumer and capital spending,
which have been the two main engines of U.S. growth in 1998, will expand far
more slowly in 1999. At the present time, we are anticipating a slowdown in real
GDP growth in 1999. We expect inflation rates to remain
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
broadly unchanged from those of 1998 and corporate profits to decline during
1999. In addition, we believe that interest rates are likely to continue to
fall.
On a brighter note, markets have been encouraged lately by moves by the
Federal Reserve and its global counterparts to offset pressures by lowering
interest rates and issuing public statements that acknowledge the need to
address international pressure points before they become major problems.
Although there are clearly problems ahead, lower interest rates in the U.S.
should help soften the impact of weaker earnings in the domestic equity markets,
while the absence of inflationary pressures and some unusually cheap valuations
in parts of the market present some interesting opportunities for bond
investors.
Thank you for your interest in the Schroder U.S. Diversified Growth Fund.
Sincerely,
/s/ M. J. SMITH
-----------------
Mark J. Smith
Chairman
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS (As of October 31, 1998)
PERFORMANCE
For the fiscal year ending October 31, 1998, the Schroder U.S. Diversified
Growth Fund (formerly, Schroder U.S. Equity Fund) rose 8.87% while its
benchmark, the S&P 500 Index, rose 21.99%.
The Fund's emphasis during the fiscal year on medium capitalization
stocks--between $3 billion and $10 billion--detracted from performance, as the
markets favored larger, more expensive stocks during the period. However, an
emphasis on companies with solid, long-term growth rates contributed to the
Fund's gains.
In terms of stock selection, our financial services holdings had a positive
contribution on returns. Consumer cyclicals and energy stocks--particularly oil
service companies--performed worst, as fuel prices and commodities were badly
hit by the economic crisis in Asia. Among our top-performing stocks were
Walmart, General Electric, Cisco Systems, Dell Computer, Colgate Palmolive, Gap
Stores and Bankamerica.
MARKET BACKGROUND
Compared to recent years, global markets have been extremely volatile over
the last fiscal year. In the U.S., larger stocks significantly outperformed all
other segments of the stock market. The large cap benchmark, the S&P 500 Index,
gained 21.99%, while the S&P Midcap 400 Index rose only 6.71% and the small cap
index, the Russell 2000 Index, fell 11.84%. This disparity in performance was
primarily due to the lack of liquidity in all capital markets caused by the
various international financial crises throughout the period. In an effort to
shield the U.S. economy from this turmoil, between the end of September and
October 31, the Federal Reserve reduced short term interest rates twice, from
5.5% to 5.0%.
INVESTMENT POLICY
The Fund remains diversified across most industry sectors. However, we have
varied sector weightings more than usual, in an effort to minimize the Fund's
risk exposure during these more volatile periods. We have added to our financial
services and consumer holdings, as these have strong earnings potential. We are
also adding selectively to our position in technology, specifically
semiconductor and computer-related stocks. The basic materials, utilities, and
transport sectors have less certain growth prospects and their presence in the
S&P 500 is comparatively small. As of October 31, 1998, the Fund held almost 60
stocks in total, as this portfolio diversification should moderate the Fund's
overall risk exposure during more volatile periods.
OUTLOOK
The recent market rally has left the equity market overbought and, we
believe, susceptible to a short-term correction. However, against a backdrop of
falling interest rates and low inflation, we believe that any correction will be
modest. Going forward, corporate profitability is crucial, as this will provide
a solid base for the stock market in the year ahead.
We will continue to focus on high quality, growth stocks. In particular, we
look for visible earnings growth, skilled management teams and attractively
priced securities relative to peer group or the overall market. These criteria
are crucial to our stock selection process.
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.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
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 Standard & Poor's 500 Index (the "S&P 500")
over 10 years beginning October 31, 1988. The S&P 500 is a market value weighted
composite index of 500 large capitalization U.S. companies and reflects the
reinvestment of dividends. The Fund's return reflects deduction of applicable
fees and expenses; the Index 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 U.S. DIVERSIFIED GROWTH FUND VS S&P 500 INDEX
Investment Value on 10/31/98
- ----------------------------
Schroder U.S. Diversified Growth Fund $40,752
S&P 500 Index $51,723
Average Annual Total Return on 10/31/98
- ---------------------------------------
1 Year 5 Years 10 Years
------ ------- --------
Schroder U.S. Diversified Growth Fund 8.87% 13.66% 15.08%
Schroder U.S. S&P
Diversified 500
Date Growth Fund Index
---- ----------- -----
10/31/88 10,000 10,000
4/30/89 11,196 11,295
10/31/89 12,084 12,634
4/30/90 12,012 12,485
10/31/90 11,051 11,690
4/30/91 13,847 14,680
10/31/91 15,268 15,597
4/30/92 16,538 16,735
10/31/92 17,976 17,148
4/30/93 19,347 18,279
10/31/93 21,478 19,701
4/30/94 20,945 19,246
10/31/94 21,044 20,462
4/30/95 22,326 22,602
10/31/95 24,774 25,866
4/30/96 28,015 29,424
10/31/96 29,592 32,095
4/30/97 33,004 36,816
10/31/97 37,431 42,398
4/30/98 44,257 51,926
10/31/98 40,752 51,723
The Schroder U.S. Diversified Growth Fund's average annual total return for
the 1, 5, and 10 year periods ended September 30, 1998, was -1.19%, 12.66%, and
14.36%, respectively.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
INVESTMENT BY INDUSTRY
INDUSTRY % OF NET ASSETS
- ----------------------------------------------------------
<S> <C>
Technology 23.2%
Financial 20.2%
Consumer Cyclicals 19.5%
Healthcare 13.7%
Consumer Staples 10.0%
Capital Goods/Construction 4.9%
Telecommunications 3.4%
Utilities 3.3%
Transportation 1.7%
Cash and Other Assets 0.1%
-------
Total 100.0%
-------
-------
<CAPTION>
TOP TEN HOLDINGS
SECURITY % OF NET ASSETS
- ----------------------------------------------------------
<S> <C>
Guidant Corp. 1.9%
Century Telephone Enterprises, Inc. 1.9%
PacifiCare Health Systems, Inc., Cl B 1.8%
Capital One Financial Corp. 1.8%
MBNA Corp. 1.8%
HBO & Co. 1.8%
Watson Pharmaceuticals, Inc. 1.8%
Kroger Co. 1.8%
Progressive Corp. 1.8%
Allegiance Corp. 1.7%
-----
Total 18.1%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF OCTOBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK - 99.9%
SHARES VALUE US$
- ------ -----------
<S> <C> <C>
CAPITAL GOODS/
CONSTRUCTION - 4.9%
9,100 Allied Waste Industries, Inc.(a) $ 196,788
4,800 American Power Conversion(a) 203,700
3,400 Tyco International Ltd. 210,588
-----------
611,076
-----------
CONSUMER CYCLICALS - 19.5%
4,700 Dayton Hudson Co. 199,163
3,600 Gap, Inc. 216,450
5,500 Harley-Davidson, Inc. 213,125
14,200 KMart Corp.(a) 200,575
6,200 Lowe's Cos., Inc. 208,863
4,200 Maytag Corp. 207,638
4,300 Quintiles International(a) 194,575
4,900 Robert Half International, Inc.(a) 196,613
6,500 Staples, Inc.(a) 212,063
4,200 Tandy Corp. 208,163
9,500 TJX Cos., Inc. 179,905
1,800 Vulcan Materials Co. 213,525
-----------
2,450,658
-----------
CONSUMER STAPLES - 10.0%
2,300 Cardinal Health, Inc. 217,494
7,900 General Instrument Corp.(a) 202,931
4,000 Kroger Co.(a) 222,000
3,300 Quaker Oats Co. 194,906
5,200 Rite Aid Corp. 206,376
4,500 Safeway, Inc.(a) 215,156
-----------
1,258,863
-----------
FINANCIAL - 20.2%
8,400 Alliance Capital Management L.P. 208,425
2,200 Capital One Financial Corp. 223,850
3,100 Fifth Third Bancorp 205,375
3,500 First Union Corp. 203,000
400 M & T Bank Corp. 199,400
9,800 MBNA Corp. 223,562
5,200 Old Kent Financial Corp. 218,725
1,500 Progressive Corp. 220,875
2,700 Providian Financial Corp. 214,313
2,800 Star Banc Corp. 211,750
3,000 SunAmerica, Inc. 211,500
500 Wells Fargo & Co. 185,000
-----------
2,525,775
-----------
HEALTHCARE - 13.7%
5,900 Allegiance Corp. 219,406
2,600 Amgen, Inc.(a) 204,263
<CAPTION>
SHARES VALUE US$
- ------ -----------
<S> <C> <C>
HEALTHCARE (CONCLUDED)
3,100 Guidant Corp. $ 237,150
5,900 Mylan Laboratories, Inc. 203,181
5,900 Omnicare, Inc. 203,918
4,100 Omnicom Group, Inc. 202,694
2,900 PacifiCare Health Systems,
Inc.,Cl B(a) 228,375
4,000 Watson Pharmaceuticals, Inc.(a) 222,500
-----------
1,721,487
-----------
TECHNOLOGY - 23.2%
4,500 Ascend Communications, Inc.(a) 217,125
3,500 Computer Sciences Corp.(a) 184,625
3,200 EMC Corp.(a) 206,000
2,700 Eastman Kodak Co. 209,250
5,400 Fort James Corp. 217,688
5,300 Galileo International, Inc. 201,068
3,600 Gateway 2000, Inc.(a) 200,925
8,500 HBO & Co. 223,125
4,300 Ingram Micro, Inc.(a) 195,650
3,100 Lexmark International Group,
Inc.(a) 216,805
7,300 Oracle Corp.(a) 215,806
3,700 Sun Microsystems, Inc.(a) 215,525
3,600 Tellabs, Inc.(a) 198,000
7,800 Unisys Corp.(a) 207,675
-----------
2,909,267
-----------
TELECOMMUNICATIONS - 3.4%
3,100 AT&T Corp. 192,975
4,100 Century Telephone Enterprises,
Inc. 232,931
-----------
425,906
-----------
TRANSPORTATION - 1.7%
4,700 Gulfstream Aerospace Corp.(a) 207,975
-----------
UTILITIES - 3.3%
3,600 Columbia Energy Group 208,350
5,300 Peco Energy Co. 205,043
-----------
413,393
-----------
Total Common Stock
(cost $11,874,447) 12,524,400
SHORT-TERM INVESTMENTS - 0.1%
17,849 Chase Institutional Trust Money
Market Fund (cost $17,849) 17,849
-----------
Total Investments - 100.0%
(cost $11,892,296) 12,542,249
Other Assets Less
Liabilities - 0.0% (1,888)
-----------
Total Net Assets - 100.0% $12,540,361
-----------
-----------
</TABLE>
- ------------------
(a) Non-income producing security.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost $11,892,296
Net unrealized appreciation 649,953
-----------
Total Investments at value 12,542,249
Cash 158
Receivable for interest and dividends 2,123
Other receivables 34,002
-----------
Total Assets 12,578,532
-----------
LIABILITIES:
Payable to subadministrator (Note 3) 971
Accrued expenses and other liabilities 37,200
-----------
Total Liabilities 38,171
-----------
Net Assets $12,540,361
-----------
-----------
COMPONENTS OF NET ASSETS:
Paid-in capital $ 7,081,730
Accumulated net realized gain 4,808,678
Net unrealized appreciation on investments 649,953
-----------
Net Assets $12,540,361
-----------
-----------
SHARES OF BENEFICIAL INTEREST 1,609,502
NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER SHARE $ 7.79
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year
Ended
October 31, 1998
----------------
<S> <C>
INVESTMENT INCOME:
Dividend income $ 102,862
Interest income 3,807
----------
Total Investment Income 106,669
----------
EXPENSES:
Investment advisory (Note 3) 101,134
Subadministration (Note 3) 13,485
Transfer agency (Note 3) 32,270
Custodian 2,118
Accounting (Note 3) 36,000
Legal 4,082
Audit 24,481
Registration 12,258
Printing 17,017
Trustees 721
Miscellaneous 6,017
----------
Total Expenses 249,583
Fees waived (Note 5) (46,931)
----------
Net Expenses 202,652
----------
NET INVESTMENT INCOME (LOSS) (95,983)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 4,826,342
Net change in unrealized appreciation (depreciation) on investments (3,505,555)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,320,787
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,224,804
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
NET ASSETS, BEGINNING OF PERIOD $ 13,861,150 $ 17,186,636
------------ ------------
OPERATIONS:
Net investment income (loss) (95,983) (14,917)
Net realized gain on investments 4,826,342 3,881,030
Net change in unrealized appreciation (depreciation) on investments (3,505,555) 164,449
------------ ------------
Net increase in net assets resulting from operations 1,224,804 4,030,562
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (41,186)
Net realized gain on investments (3,866,690) (3,648,561)
------------ ------------
Total distributions to shareholders (3,866,690) (3,689,747)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares 261,603 187,894
Reinvestment of distributions 2,861,046 2,684,379
Redemption of shares (1,801,552) (6,538,574)
------------ ------------
Net increase (decrease) from capital share transactions 1,321,097 (3,666,301)
------------ ------------
Net increase (decrease) in net assets (1,320,789) (3,325,486)
------------ ------------
NET ASSETS, END OF PERIOD (INCLUDING LINE A) $ 12,540,361 $ 13,861,150
------------ ------------
------------ ------------
(A) Undistributed net investment income (loss) $ -- $ --
------------ ------------
------------ ------------
SHARE TRANSACTIONS:
Sale of shares 31,106 20,314
Reinvestment of distributions of shares 386,628 324,592
Redemption of shares (220,413) (693,796)
------------ ------------
Net increase (decrease) in shares 197,321 (348,890)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a share outstanding throughout each
period:
<TABLE>
<CAPTION>
For the Year Ended October 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.82 $ 9.76 $ 9.41 $ 8.52 $ 11.28
-------- ------- ------- ------- -------
Investment Operations
Net Investment Income (Loss) (0.06) (0.01) 0.04 0.07 0.04
Net Realized and Unrealized Gain (Loss) on
Investments 0.78 2.20 1.62 1.33 (0.27)
-------- ------- ------- ------- -------
Total from Investment Operations 0.72 2.19 1.66 1.40 (0.23)
-------- ------- ------- ------- -------
Distributions From
Net Investment Income -- (0.02) (0.07) (0.05) (0.01)
Net Realized Gain on Investments (2.75) (2.11) (1.24) (0.46) (2.52)
-------- ------- ------- ------- -------
Total Distributions (2.75) (2.13) (1.31) (0.51) (2.53)
-------- ------- ------- ------- -------
Net Asset Value, End of Period $ 7.79 $ 9.82 $ 9.76 $ 9.41 $ 8.52
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Total Return (a) 8.87% 26.49% 19.45% 17.68% (2.01)%
Ratio/Supplementary Data:
Net Assets at End of Period (in thousands) $ 12,540 $13,861 $17,187 $19,688 $18,483
Ratios to Average Net Assets:
Expenses including waiver of fees 1.50% 1.50% 1.40% 1.40% 1.31%
Expenses excluding waiver of fees 1.85% 1.68% 1.43% N/A N/A
Net investment income (loss) including waiver
of fees (0.71)% (0.09)% 0.43% 0.78% 0.41%
Portfolio Turnover Rate 209% 44% 57% 57% 27%
</TABLE>
- ------------------
(a) Total returns would have been lower had certain expenses not been reduced
during the periods shown (see Note 5).
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
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 U.S. Diversified Growth Fund (the "Fund"), a
diversified portfolio that commenced operations on October 31, 1970. On
September 14, 1998, the Fund was renamed Schroder U.S. Diversified Growth
Fund. 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 had been issued.
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:
INVESTMENT 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 the mean of the closing bid and ask
("mid-market price"). 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. 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 the Trust's Board of Trustees. As of
October 31, 1998, the Fund 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. 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.
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 practices. 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.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
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.
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES WITH AFFILIATES
INVESTMENT ADVISER
The investment adviser to the Fund is Schroder Capital Management
International Inc. ("SCMI"). Pursuant to an Investment Advisory Agreement,
SCMI is entitled to receive an annual fee, payable monthly, of 0.75% of the
first $100 million of the Fund's average daily net assets and 0.50% of the
Fund's average daily net assets in excess of $100 million.
SUBADMINISTRATOR
The Trust has entered into a Subadministration Agreement with Forum
Administrative Services, LLC ("FAdS"). Under the Subadministration Agreement,
FAdS is entitled to receive compensation at an annual rate, payable monthly,
of 0.10% of the average daily net assets of the Fund.
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's fund accountant.
For its services to the Fund, FAcS is entitled to receive from the Trust a
fee of $36,000 per year, plus certain additional charges.
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 $27,854,546 and $30,263,417, respectively.
For federal income tax purposes, the tax basis of investment securities
owned as of October 31, 1998, was $11,892,296, and the net unrealized
appreciation of investment securities was $649,953. The aggregate gross
unrealized appreciation for all securities in which there was an excess of
market value over tax cost was $858,203, and the aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost over
market value was $208,250.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 5. WAIVER OF FEES
SCMI voluntarily has undertaken to waive a portion of its fees in order
to limit fees paid for the Fund's investment advisory services to 0.65% of
its average daily net assets. This fee waiver cannot be withdrawn except by a
majority vote of the Trustees of the Trust who are not affiliated persons (as
defined in the Act) of the Trust. SCMI voluntarily waived a portion of its
fee so that the Fund's total expenses would not exceed an annual rate of
1.50% of the Fund's average daily net assets. FAdS, FSS and FAcS may waive
voluntarily all or a portion of their fees, from time to time. For the year
ended October 31, 1998, SCMI waived fees of $40,931 and FSS waived fees of
$6,000.
- ------------------------
SUPPLEMENTAL INFORMATION (UNAUDITED)
DISTRIBUTIONS
During the fiscal year ended October 31, 1998, the Fund distributed
$3,572,074 in long term capital gain to shareholders.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Schroder Capital Funds (Delaware) and Shareholders of
Schroder U.S. Diversified Growth Fund:
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 U.S. Diversified
Growth Fund (formerly Schroder U.S. Equity 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, 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 22, 1998
- --------------------------------------------------------------------------------
14
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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, New York 10019
ADMINISTRATOR & DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
CUSTODIAN
Norwest Bank
Sixth Street and Marquette
Minneapolis, Minnesota 55479
TRANSFER AND DIVIDEND
DISBURSING AGENT
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
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.
Diversified Growth 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.
[SCHRODERS LOGO]
Schroder
U.S.
Diversified
Growth
Fund
(formerly Schroder
U.S. Equity Fund)
ANNUAL REPORT
October 31, 1998
Schroder Capital Funds (Delaware)
