<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is capital appreciation.
INVESTMENT ADVISER
Schroder Investment Management North America Inc. (the "Investment Adviser") is
a wholly owned indirect subsidiary of Schroders plc, the London Stock Exchange
listed holding company parent of an investment banking and investment management
group of companies (the "Schroder Group") that dates its origins to 1804. The
investment management operations of the Schroder Group are located in
22 countries worldwide. As of December 31, 1998, the Schroder Group had over
$195 billion in assets under management. As of March 31, 1999, the Investment
Adviser, together with its U.K. affiliate, Schroder Investment Management North
America Limited, had approximately $28 billion under management.
July 21, 1999
Dear Shareholder:
We are pleased to present the Schroder U.S. Smaller Companies Fund annual
report for the fiscal year ended May 31, 1999. The U.S. economy maintained
considerable momentum through the second quarter of this year following the
Federal Reserve's reduction in interest rates last October. Moreover, after
slowing in 1998, U.S. corporate profits have also increased, boosted by good
reserve growth and better controlled labor costs.
In general, inflation has remained benign, although data became more mixed
in the first part of 1999. This prompted the Federal Reserve's announcement in
May to move its bias towards tightening monetary policy and to increase interest
rates by 0.25 per cent the following month. We expect that faster than desired
economic growth will lead to further interest rate increases in the months
ahead, but do not anticipate an extended tightening phase. We continue to
believe that a disinflationary trend remains in place. Additionally, positive
long-term structural shifts in the U.S. economy, such as increased employee
productivity, ought to moderate any inflationary pressures that do develop.
As anticipated, long bond yields rose in early 1999 due to growing concern
about the economy's strength. Many parts of the U.S. equity market, however, did
not decline alongside the bond market, but continued to register good gains. As
a result, some parts of the U.S. market appear fully valued relative to interest
rates and we are encouraged to see that bond yields have subsequently retraced
some of this earlier move.
We do not anticipate a rise in interest rates of the magnitude that
historically has caused substantial falls in equity values. We recognize,
however, that many leading stocks in the U.S. market have become more expensive
and that investors will need to be particularly selective in their investment
choices. Having significantly lagged the performance of large companies, many
smaller companies now appear unusually attractive both in terms of valuation and
prospective earnings growth. In many cases these companies have remained
fundamentally strong and have generated good earnings growth. Throughout the
spring of 1999, smaller companies showed clear signs of attracting more favor.
While it is too early to determine if this marks a change in trend, it suggests
that the long-term return potential of smaller companies is being recognized.
Thank you for your interest in the Schroder U.S. Smaller Companies Fund.
Sincerely,
/s/ Nancy A. Curtin /s/ Alexandra Poe
- ------------------- ------------------
Nancy A. Curtin Alexandra Poe
Chairman President
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS (As of May 31, 1999)
PERFORMANCE
For the fiscal year ended May 31, 1999, the Investor Shares of the Schroder
U.S. Smaller Companies Fund returned -13.08% (-13.25% for Advisor Shares). Its
benchmark, the Russell 2000 Index, returned -2.62%. The Lipper average of peer
group funds returned -4.11% for the same period.
The Fund suffered through the fiscal year mainly due to its lack of exposure
to some of the faster growing but more expensive technology stocks.
MARKET BACKGROUND
The last twelve months were eventful for the U.S. equity market in general
and smaller companies in particular. After a strong start to the period, the
equity markets peaked in mid-July, 1998, with the Dow Jones reaching a then
record level of 9337. Over the next three months the markets sold off
considerably as fears of recession, concerns over the stability of the financial
markets, and continued turmoil in the emerging markets caused a flight to
quality and security. By early October the Russell 2000 Index had fallen by
23.6%, underperforming the S&P 500 by 9.9% over a three-month period, as
investors and market-makers lost all interest in companies with limited
liquidity. In the aftermath of the interest rate cut of October 15, both small
and large cap stocks rallied, though most smaller companies continued to
underperform through the end of the first calendar quarter. By the end of March,
smaller companies were trading at record low valuations, while the large growth
stocks were at record high valuations. In April, smaller companies started to
outperform as investors shifted their attention to more cyclical issues, and
both corporate and financial buyers began to take advantage of the tremendous
bargains available in the smaller company universe. Despite this outperformance
at the end of the fiscal year smaller companies significantly underperformed the
S&P 500, with the Russell 2000 Index still well below its all-time high level of
491 in April 1998.
PORTFOLIO REVIEW
During the first quarter of 1999, smaller companies that were expected to
lose money outperformed dramatically those that were expected to report profits.
This was largely a reflection of the rapidly growing interest in internet-
related issues and other concept stocks. Throughout the fiscal year, the Fund
aimed to balance risk and return and to focus on growing companies trading at
reasonable price-earnings ratios. As a result of such strong internet
performance, the Fund's limited technology exposure had the worst impact on
performance over the last six months.
On a more positive note, the Fund's energy holdings were concentrated in
service companies, such as BJ Service Co. and Cooper Cameron Corp., which
benefited from a reversal in oil prices triggered by OPEC's announced intention
to scale back production. The capital goods sector was also a positive
contributor to the Fund's performance as economic growth in the U.S. remained
strong and manufacturing-oriented companies returned to favor. Two of the Fund's
top ten holdings, Safety Kleen Corp. and SPX Corp., are examples of the
high-growth, underfollowed companies that benefited from this trend. We also saw
strong returns from the Fund's holdings in the media/publishing sector,
including Catalina Marketing, a provider of in-store couponing services.
OUTLOOK
The Fund remains well-diversified across sectors, with investments made
primarily on a bottom-up and opportunistic basis rather than top-down economic
and sector analysis. Looking forward, management will continue to search for
companies that can grow their earnings independently of the economic cycle.
While smaller companies are trading at very low valuations relative to large
companies, and attractive earnings growth prospects, there is no immediate
catalyst for the sector. Management believes that over time the market is
efficient and that the extremely large valuation disparity between large and
smaller companies will narrow as investors return to the smaller companies
sector. In any event, the Fund will remain true to its discipline of investing
in underfollowed and misunderstood companies that can offer superior earnings
growth.
The views expressed in this report were those of the Fund's portfolio
managers as of May 31, 1999, and may not reflect the views of the portfolio
managers on the date this report is first published or any time thereafter.
These views are intended to assist shareholders of the Fund in understanding
their investments in the Fund and do not constitute investment advice; investors
should consult their own investment professionals as to their individual
investment programs.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies 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 Investor Shares of the Fund (the initial class of shares) with
the performance of the Russell 2000 Index since inception of the Fund. The
Russell 2000 Index is an unmanaged capitalization weighted, broad based index of
2000 small capitalization U.S. companies. The Fund's total return includes
operating expenses that reduce returns, while the total return of the Russell
2000 Index does not. Total return and principal value of an investment in the
Fund will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total return for the Fund assumes
reinvestment of dividends and distributions. Advisor Shares have higher expenses
and, therefore, have lower returns than Investor Shares. Past performance cannot
predict nor guarantee future results.
SCHRODER U.S. SMALLER COMPANIES FUND--INVESTOR SHARES VS. RUSSELL 2000 INDEX
<TABLE>
<S> <C>
INVESTMENT VALUE ON 5/31/99 OF $10,000 INVESTED ON
8/6/93
Schroder U.S. Smaller Companies Fund - Investor Shares $24,815
Schroder U.S. Smaller Companies Fund - Advisor Shares $24,712
Russell 2000 Index $19,678
</TABLE>
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEAR INCEPTION
------- ------ -----------
<S> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN ON 5/31/99
Schroder U.S. Smaller Companies
Fund - Investor Shares -13.08% 16.95% 16.87%(a)
Schroder U.S. Smaller Companies
Fund - Advisor Shares -13.25% 16.91% 16.79%(b)
Russell 2000 Index -2.62% 13.28% 12.30%(c)
</TABLE>
[Line Graph]
Schroder U.S. Smaller Companies Fund
<TABLE>
<CAPTION>
Investor Shares Russell 2000 Index
<S> <C> <C>
07/31/93 $ 10,000.00 $ 10,000.00 000.00
08/31/93 $ 10,350.00 $ 10,411.49 350.00
09/30/93 $ 10,820.00 $ 10,697.37 820.00
10/31/93 $ 10,990.00 $ 10,960.83 990.00
11/30/93 $ 10,710.00 $ 10,590.36 710.00
12/31/93 $ 11,202.29 $ 10,936.66 202.29
01/31/94 $ 11,655.62 $ 11,271.32 655.62
02/28/94 $ 11,806.73 $ 11,229.62 806.73
03/31/94 $ 11,222.44 $ 10,618.73 222.44
04/30/94 $ 11,373.55 $ 10,681.38 373.55
05/31/94 $ 11,343.33 $ 10,543.59 343.33
06/30/94 $ 11,141.85 $ 10,164.02 141.85
07/31/94 $ 11,272.81 $ 10,322.58 272.81
08/31/94 $ 11,917.55 $ 10,883.10 917.55
09/30/94 $ 11,665.70 $ 10,833.03 665.70
10/31/94 $ 11,897.40 $ 10,787.53 897.40
11/30/94 $ 11,383.63 $ 10,332.30 383.63
12/31/94 $ 11,700.60 $ 10,590.61 700.60
01/31/95 $ 11,752.83 $ 10,448.59 752.83
02/28/95 $ 12,379.65 $ 10,869.40 379.65
03/31/95 $ 12,755.74 $ 11,047.34 755.74
04/30/95 $ 13,090.05 $ 11,276.11 090.05
05/31/95 $ 13,382.56 $ 11,461.01 382.56
06/30/95 $ 13,957.14 $ 12,044.53 957.14
07/31/95 $ 15,116.76 $ 12,737.39 116.76
08/31/95 $ 15,680.89 $ 12,992.43 680.89
09/30/95 $ 16,224.14 $ 13,225.15 224.14
10/31/95 $ 15,816.70 $ 12,634.91 816.70
11/30/95 $ 16,683.80 $ 13,179.25 683.80
12/31/95 $ 17,443.53 $ 13,515.75 443.53
01/31/96 $ 17,360.41 $ 13,500.30 360.41
02/28/96 $ 17,835.38 $ 13,926.98 835.38
03/31/96 $ 18,785.34 $ 14,203.21 785.34
04/30/96 $ 19,972.78 $ 14,966.40 972.78
05/31/96 $ 21,160.22 $ 15,567.42 160.22
06/30/96 $ 20,459.63 $ 14,932.74 459.63
07/31/96 $ 18,915.95 $ 13,629.56 915.95
08/31/96 $ 19,497.80 $ 14,421.03 497.80
09/30/96 $ 20,614.00 $ 14,984.07 614.00
10/31/96 $ 20,459.63 $ 14,750.92 459.63
11/30/96 $ 21,124.60 $ 15,356.07 124.60
12/31/96 $ 21,330.97 $ 15,750.56 330.97
01/31/97 $ 21,720.42 $ 16,062.28 720.42
02/28/97 $ 21,720.42 $ 15,673.41 720.42
03/31/97 $ 20,941.53 $ 14,938.48 941.53
04/30/97 $ 21,012.34 $ 14,975.29 012.34
05/31/97 $ 23,472.92 $ 16,645.33 472.92
06/30/97 $ 24,835.98 $ 17,352.58 835.98
07/31/97 $ 26,022.02 $ 18,162.21 022.02
08/31/97 $ 26,588.48 $ 18,572.06 588.48
09/30/97 $ 28,376.39 $ 19,927.86 376.39
10/31/97 $ 27,084.14 $ 19,042.07 084.14
11/30/97 $ 26,871.72 $ 18,912.43 871.72
12/31/97 $ 27,060.16 $ 19,251.91 060.16
01/31/98 $ 26,537.91 $ 18,958.70 537.91
02/28/98 $ 28,298.08 $ 20,380.28 298.08
03/31/98 $ 30,058.24 $ 21,236.66 058.24
04/30/98 $ 30,096.93 $ 21,353.31 096.93
05/31/98 $ 28,549.53 $ 20,207.71 549.53
06/30/98 $ 28,588.21 $ 20,265.54 588.21
07/31/98 $ 26,615.28 $ 18,610.66 615.28
08/31/98 $ 21,392.80 $ 15,002.05 392.80
09/30/98 $ 21,934.39 $ 16,162.82 934.39
10/31/98 $ 22,766.12 $ 16,825.85 766.12
11/30/98 $ 24,139.44 $ 17,714.24 139.44
12/31/98 $ 24,563.04 $ 18,820.16 563.04
01/31/99 $ 24,078.37 $ 19,064.29 078.37
02/28/99 $ 22,508.05 $ 17,528.28 508.05
03/31/99 $ 22,527.43 $ 17,798.52 527.43
04/30/99 $ 24,000.83 $ 19,391.36 000.83
05/31/99 $ 24,815.07 $ 19,678.12 815.07
</TABLE>
(a) Inception date for Investor Shares is August 6, 1993.
(b) Performance of Advisor Shares includes information for the Fund's Investor
Shares for periods prior to commencement of operations for Advisor Shares
(December 23, 1996). Such performance has been recalculated to reflect the
actual fees and expenses attributable to Advisor Shares.
(c) Annualized returns for the Russell 2000 Index are based on an inception date
of July 31, 1993.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS AS OF MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
SECURITY % OF NET ASSETS*
- ---------------------------------------------------------------
<S> <C>
Shopko Stores, Inc. 2.0%
Foodmaker, Inc. 1.9
Safety Kleen Corp. 1.8
CEC Entertainment, Inc. 1.7
Duff & Phelps Credit Rating Co. 1.7
El Paso Electric Co. 1.7
SPX Corp. 1.6
Heller Financial, Inc. 1.6
Ocular Sciences, Inc. 1.6
Mueller Industries, Inc. 1.6
------
17.2%
------
------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENTS BY INDUSTRY
INDUSTRY % OF NET ASSETS*
- ---------------------------------------------------------------
<S> <C>
Transportation/Services/Miscellaneous 24.9%
Consumer Cyclicals 16.3
Financial 13.0
Health Care 9.9
Technology 8.5
Energy 7.1
Basic Materials 6.4
Consumer Staples 4.9
Capital Goods/Construction 4.8
Short Term Investments and
other net assets 4.2
------
100.0%
------
------
</TABLE>
- ------------------
* Expressed as a percentage of the net assets of Schroder U.S. Smaller Companies
Portfolio.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments (Notes 1 and 2):
Investment in Schroder U.S. Smaller Companies
Portfolio (the "Portfolio") $50,555,252
Receivable for Fund shares sold 2,257,361
Receivable from administrator (Note 4) 27,387
Other receivables 4,505
-----------
Total Assets 52,844,505
-----------
LIABILITIES:
Payable for Fund shares redeemed 21,707
Payable to administrator (Note 3) 21,692
Accrued expenses and other liabilities 47,803
-----------
Total Liabilities 91,202
-----------
Net Assets $52,753,303
-----------
-----------
COMPONENTS OF NET ASSETS:
Paid-in capital 53,541,862
Accumulated net realized loss (5,420,673)
Net unrealized appreciation on investments 4,632,114
-----------
Net Assets $52,753,303
-----------
-----------
NET ASSETS BY CLASS:
Investor Class $47,870,456
Advisor Class 4,882,847
-----------
Net Assets $52,753,303
-----------
-----------
SHARES OF BENEFICIAL INTEREST:
Investor Class 3,740,777
Advisor Class 383,237
NET ASSET VALUE OFFERING AND REDEMPTION PRICE PER SHARE:
Investor Class $ 12.80
Advisor Class $ 12.74
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year
Ended
May 31, 1999
------------
<S> <C>
NET INVESTMENT INCOME ALLOCATED FROM THE PORTFOLIO:
Dividend income $ 295,673
Interest income 131,425
Net expenses (451,190)
------------
Net Investment Income Allocated
from the Portfolio (24,092)
------------
EXPENSES:
Administration (Note 3) 139,898
Subadministration (Note 3) 41,969
Transfer agency
Investor Shares 51,540
Advisor Shares 26,177
Shareholder services - Advisor Shares (Note 3) 11,960
Accounting 12,000
Legal 33,882
Audit 22,582
Registration 29,811
Trustees 5,808
Printing 29,347
Amortization of organization costs (Note 2) 816
Miscellaneous 7,390
------------
Total Expenses 413,180
Fees waived and expenses reimbursed (Note 4) (56,704)
------------
Net Expenses 356,476
------------
NET INVESTMENT LOSS (380,568)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ALLOCATED FROM
THE PORTFOLIO:
Net realized loss on investments sold (5,520,499)
Net change in unrealized depreciation on investments (3,940,525)
------------
Net Realized and Unrealized Loss on Investments
Allocated from the Portfolio (9,461,024)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (9,841,592)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
May 31, 1999 May 31, 1998
------------ ------------
<S> <C> <C>
NET ASSETS, BEGINNING OF PERIOD $ 56,223,534 $ 26,185,077
------------ ------------
OPERATIONS:
Net investment loss (380,568) (220,475)
Net realized gain (loss) on investments sold (5,520,499) 2,230,689
Net change in unrealized appreciation (depreciation) on investments (3,940,525) 4,722,131
------------ ------------
Net increase (decrease) in net assets resulting from operations (9,841,592) 6,732,345
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments - Investor Class (115,656) (3,305,205)
Net realized gain on investments - Advisor Class (12,796) (84,662)
------------ ------------
Total distributions to shareholders (128,452) (3,389,867)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares - Investor Class 48,301,794 30,815,123
Sale of shares - Advisor Class 5,849,691 5,400,648
Reinvestment of distributions - Investor Class 114,698 2,814,366
Reinvestment of distributions - Advisor Class 12,796 27,828
Redemption of shares - Investor Class (42,480,798) (11,273,810)
Redemption of shares - Advisor Class (5,298,368) (1,088,176)
------------ ------------
Net increase from capital share transactions 6,499,813 26,695,979
------------ ------------
Net increase (decrease) in net assets (3,470,231) 30,038,457
------------ ------------
NET ASSETS, END OF PERIOD (INCLUDING LINE A) $ 52,753,303 $ 56,223,534
------------ ------------
------------ ------------
(A) UNDISTRIBUTED NET INVESTMENT INCOME $ -- $ --
------------ ------------
------------ ------------
SHARE TRANSACTIONS:
Sale of shares - Investor Class 3,708,043 2,088,564
Sale of shares - Advisor Class 524,063 376,171
Reinvestment of distributions in shares - Investor Class 9,456 206,939
Reinvestment of distributions in shares - Advisor Class 1,058 2,056
Redemption of shares - Investor Class (3,477,759) (763,482)
Redemption of shares - Advisor Class (450,609) (75,600)
------------ ------------
Net increase in shares 314,252 1,834,648
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTOR SHARES (A)
Selected per share data and ratios for an Investor Share outstanding
throughout each period:
<TABLE>
<CAPTION>
For the Year Ended October
For the Year For the Year For the Period 31,
Ended Ended Ended -----------------------------
May 31, 1999 May 31, 1998 May 31, 1997(b) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 14.76 $ 13.26 $ 17.23 $ 15.14 $ 11.81 $ 10.99
-------- -------- ------- ------- ------- -------
Investment Operations
Net Investment Loss (0.09) (0.06) (0.02) (0.06) (0.04) (0.07)
Net Realized and Unrealized Gain
(Loss) on Investments (1.84) 2.82 1.88 4.10 3.78 0.97
-------- -------- ------- ------- ------- -------
Total from Investment Operations (1.93) 2.76 1.86 4.04 3.74 0.90
-------- -------- ------- ------- ------- -------
Distributions From
Net Realized Gain on Investments (0.03) (1.26) (5.83) (1.95) (0.41) (0.08)
-------- -------- ------- ------- ------- -------
Net Asset Value, End of Period $ 12.80 $ 14.76 $ 13.26 $ 17.23 $ 15.14 $ 11.81
-------- -------- ------- ------- ------- -------
-------- -------- ------- ------- ------- -------
Total Return (d) (13.08)%(e) 21.63%(e) 14.73%(e) 29.35% 32.84% 8.26%
Ratio/Supplementary Data
Net Assets at End of Period (in
thousands) $ 47,870 $ 51,679 $26,104 $13,743 $15,287 $13,324
Ratios to Average Net Assets:
Expenses including
reimbursement/waiver of fees (c) 1.42% 1.37% 1.49%(f) 1.49% 1.49% 1.45%
Expenses excluding
reimbursement/waiver of fees (c) 1.45% 1.37% 1.87%(f) N/A N/A N/A
Net investment income (loss)
including reimbursement/waiver of
fees (c) (0.65)% (0.51)% (0.42)%(f) (0.35)% (0.30)% (0.58)%
Portfolio Turnover Rate (g) 119% 55% 34% 59% 93% 71%
</TABLE>
- ------------------
(a) On May 17, 1996, the Fund began offering two classes of shares, Investor
Shares and Advisor Shares, and all then outstanding shares of the Fund were
designated as Investor Shares.
(b) See Note 1.
(c) Includes the Fund's proportionate share of income and expenses of the
Portfolio for periods ending after October 31, 1995.
(d) Total return calculation for a period of less than one year is not
annualized.
(e) Total returns would have been lower had certain expenses not been limited
during the periods shown (See Note 4).
(f) Annualized.
(g) The rate after October 31, 1995 represents the portfolio turnover rate of
the underlying Portfolio.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--ADVISOR SHARES
Selected per share data and ratios for an Advisor Share outstanding throughout
each period:
<TABLE>
<CAPTION>
For the
For the For the Period Ended
Year Ended Year Ended May 31,
May 31, 1999 May 31, 1998 1997(a)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 14.72 $13.24 $11.89
-------- ------ ------
Investment Operations
Net Investment Loss (0.12) (0.05) (0.03)
Net Realized and Unrealized Gain (Loss) on Investments (1.83) 2.79 1.38
-------- ------ ------
Total from Investment Operations (1.95) 2.74 1.35
-------- ------ ------
Distributions From
Net Realized Gain on Investments (0.03) (1.26) --
-------- ------ ------
Net Asset Value, End of Period $ 12.74 $14.72 $13.24
-------- ------ ------
-------- ------ ------
Total Return (d) (13.25)% 21.50 % 11.35 %(c)
Ratio/Supplementary Data
Net Assets at End of Period (in thousands) $ 4,883 $4,544 $ 81
Ratios to Average Net Assets:
Expenses including reimbursement/waiver of fees (b) 1.69 % 1.58 % 1.74 %(e)
Expenses excluding reimbursement/waiver of fees (b) 2.52 % 3.88 % 57.02 %(e)
Net investment income (loss) including reimbursement/waiver of fees (b) (0.95)% (0.78)% (0.67)%(e)
Portfolio Turnover Rate (f) 119 % 55 % 34 %
</TABLE>
- ------------------
(a) Advisor Class shares were first issued on December 23, 1996.
(b) Includes the Fund's proportionate share of income and expenses of the
Portfolio.
(c) Total return calculation for a period of less than one year is not
annualized.
(d) Total returns would have been lower had certain expenses not been limited
during the period shown (See Note 4).
(e) Annualized.
(f) Portfolio turnover represents the rate of portfolio activity of the
underlying Portfolio.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies 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 Schroder Capital Funds,
Inc., a series company, on February 29, 1988; 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, as amended (the "Act"), currently has eight investment portfolios.
Included in this report is the Schroder U.S. Smaller Companies Fund (the
"Fund"), a diversified portfolio that commenced operations on August 6, 1993.
Under its Trust Instrument, the Trust is authorized to issue an unlimited
number of the Fund's Investor Shares and Advisor Shares of beneficial
interest without par value. As of May 31, 1999, both Investor Shares and
Advisor Shares had been issued.
Effective May 31, 1997, the Fund changed its fiscal year end to May 31
from October 31.
Through May 31, 1999, the Fund sought to achieve its investment
objective by investing all its investable assets in Schroder U.S. Smaller
Companies Portfolio (the "Portfolio"), a separate, diversified portfolio of
Schroder Capital Funds ("Schroder Core"), that had the same investment
objective and substantially similar investment policies as the Fund. The Fund
accounted for its investment in the Portfolio as a partnership investment and
recorded daily its share of the Portfolio's income, expenses and realized and
unrealized gain and loss. The Portfolio's financial statements are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements. As of May 31, 1999, the Fund owned approximately 19.4%
of the interests in the Portfolio.
Since June 1, 1999, the Fund has sought its objective by investing
directly in a portfolio of securities considered by Schroder Investment
Management North America Inc., the Fund's investment adviser, to be
consistent with the Fund's investment objective and policies, and has ceased
to invest in the Portfolio.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally
accepted accounting principles, which require management to make certain
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 results could
differ from those estimates.
The following summarizes the significant accounting policies of the
Fund:
SECURITY VALUATION
The Trust determines the net asset value per share of the Fund as of
the close of trading on the New York Stock Exchange on each Fund business
day. Valuation of securities held in the Portfolio are discussed in the Notes
to the Financial Statements of the Portfolio.
INVESTMENT INCOME AND EXPENSES
The Fund recorded daily its pro rata share of the Portfolio's income,
expenses and realized and unrealized gain and loss. In addition, the Fund
incurred its own expenses. Investment income, realized and unrealized gains
and losses, and the common expenses of the Fund are allocated as accrued on a
pro rata basis to each class of shares based on the relative net assets of
each class of shares to the total net assets of the Fund.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and capital gain distributions, 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.
FEDERAL TAXES
The Fund intends 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.
Capital loss carryover available to offset future taxable income is
$5,190,650, which will expire in May 2007. During the year ended May 31,
1999, as permitted under Federal income tax regulations, the Fund has elected
to defer $147,028 of post-October 31, 1998 net capital losses to the next
taxable year.
EXPENSE ALLOCATION
The Trust accounts separately for the assets and liabilities and
operation of each of its funds. Expenses that are directly attributable to
more than one fund are allocated among the respective funds in proportion to
each fund's net assets. Expenses that are directly attributable to a class
are allocated to that class.
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Schroder Investment Management North America Inc. ("SIMNA") serves as
investment adviser to the Fund pursuant to an Investment Advisory Agreement
with the Fund. Under the Agreement, the Fund pays SIMNA investment advisory
fees at an annual rate, payable monthly, of 0.60% of the Fund's average daily
net assets. Until July 1, 1999, Schroder Capital Management International
Inc. ("SCMI") served as investment adviser to the Fund; on that date, SCMI
merged into SIMNA, and SIMNA commenced serving as investment adviser to the
Fund. SCMI was, and SIMNA is, a wholly owned subsidiary of Schroder U.S.
Holdings Inc. See Notes to the Financial Statements of the Portfolio.
ADMINISTRATOR AND SUBADMINISTRATOR
The administrator of the Fund is Schroder Fund Advisors Inc. ("Schroder
Advisors"). For its services, Schroder Advisors is entitled to receive
compensation at an annual rate, payable monthly, of 0.25% of the average
daily net assets of the Fund. Through May 31, 1999, the Fund paid
subadministration fees to Forum Administrative Services, LLC ("FAdS") at an
annual rate of 0.075% of the average daily net assets of the Fund. Effective
June 1, 1999, the Trust entered into a Sub-Administration Agreement with
State Street Bank and Trust Company ("State Street") and Schroder Advisors.
Under that Agreement, the Fund, together with other mutual funds managed by
SIMNA and certain related entities, pays fees to State Street based on the
combined average daily net assets of all of the funds in the Schroder
complex, according to the following annual rates: 0.06% of the first
$1.7 billion of such assets, 0.04% of the next $1.7 billion, and 0.02% of
assets in excess of $3.4 billion, subject to certain minimum requirements.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
SHAREHOLDER SERVICE PLAN
The Trust has adopted a Shareholder Service Plan ("the Plan") for
Advisor Shares under which Schroder Advisors, or other shareholder servicing
organizations, provide administrative support services to shareholders of the
Fund's Advisor Shares. For providing for, or arranging for the provision of,
these shareholder services, Schroder Advisors receives compensation monthly
at an annual rate of up to 0.25% of the average daily net assets of the Fund
attributable to its Advisor Shares. Schroder Advisors may pay shareholder
servicing organizations for these services at an annual rate of up to 0.25%.
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
SIMNA is contractually obligated during the current fiscal year to
reduce its compensation (and, if necessary, to pay certain expenses of the
Fund) to the extent that the Fund's expenses would exceed 1.74% of the Fund's
average daily net assets attributable to Advisor Shares and 1.49% of the
Fund's average daily net assets attributable to Investor Shares. SIMNA and
Schroder Advisors may voluntarily waive all or a portion of their fees, from
time to time. For the year ended May 31, 1999, Schroder Advisors reimbursed
expenses were $27,387 and fees waived were $317. Forum Shareholder Services,
LLC, then the Fund's transfer and dividend disbursing agent, waived fees in
the amount of $29,000.
- ------------------------
SUPPLEMENTARY UNAUDITED INFORMATION
DISTRIBUTIONS
During the fiscal year ended May 31, 1999, the Fund distributed capital
gain dividends (from net long-term capital gains) to shareholders of $128,452
all of which are designated as 20 percent rate gain distributions.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Schroder Capital Funds (Delaware) and Shareholders of
Schroder U.S. Smaller Companies Fund:
In our opinion, the accompanying statement of assets and liabilities and
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. Smaller Companies Fund (a separately managed
portfolio of Schroder Capital Funds (Delaware)), at May 31, 1999, 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 15, 1999
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF MAY 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK - 95.8%
SHARES VALUE
- ------- ------------
<C> <S> <C>
BASIC MATERIALS - 6.4%
69,000 Cambrex Corp. $ 1,552,500
246,100 Dal-Tile International, Inc.* 2,414,857
43,000 Elcor Corp. 1,736,126
43,800 Ferro Corp. 1,272,937
189,100 Ivex Packaging Corp.* 3,640,174
141,700 Mueller Industries, Inc.* 4,109,300
81,200 Spartech Corp. 1,979,250
------------
16,705,144
------------
CAPITAL GOODS/CONSTRUCTION - 4.8%
73,100 CTS Corp. 4,093,600
165,000 Hussmann International, Inc. 2,640,000
83,500 SLI, Inc. 2,703,312
121,100 Sybron International Corp.* 3,042,637
------------
12,479,549
------------
CONSUMER CYCLICALS - 16.3%
88,800 Ames Department Stores, Inc.* 3,640,800
47,100 Blyth Industries, Inc.* 1,318,800
120,000 CEC Entertainment, Inc.* 4,537,501
3,200 Chattem, Inc. 115,200
43,800 Duane Reade, Inc.* 1,396,125
115,500 Fairfield Communities, Inc.* 1,833,562
115,700 Family Dollar Stores, Inc. 2,581,556
49,650 Fossil, Inc.* 2,082,197
219,500 Goody's Family Clothing, Inc.* 2,387,062
110,600 Hollywood Entertainment Corp.* 2,847,950
74,200 Papa John's International, Inc.* 2,930,900
87,900 Regis Corp. 2,120,587
22,700 Ruby Tuesday, Inc. 421,369
148,300 Shopko Stores, Inc.* 5,264,650
99,275 Sonic Corp.* 2,733,169
94,900 Sunglass Hut International, Inc.* 1,447,225
119,300 Tent-A-Center, Inc.* 3,079,432
57,300 WestPoint Stevens, Inc. 1,812,112
------------
42,550,197
------------
CONSUMER STAPLES - 4.9%
68,100 American Italian Pasta Co.* 1,872,750
122,000 Aurora Foods, Inc.* 2,074,000
185,700 Foodmaker, Inc.* 5,013,900
164,100 Richfood Holdings, Inc. 2,102,531
49,900 Suiza Foods Corp.* 1,827,588
------------
12,890,769
------------
<CAPTION>
SHARES VALUE
- ------- ------------
<C> <S> <C>
ENERGY - 7.1%
99,600 B.J. Service Co.* $ 2,745,226
57,800 Cooper Cameron Corp.* 2,091,637
505,300 El Paso Electric Co.* 4,326,631
129,000 Hanover Compressor Co.* 3,579,750
44,700 Montana Power Co.* 3,302,212
78,600 Weatherford International, Inc.* 2,593,800
------------
18,639,256
------------
FINANCIAL - 13.0%
105,500 Affiliated Managers Group, Inc.* 3,085,875
149,200 AmerUs Life Holdings, Inc. 3,851,225
49,800 Bank United Corp. 2,060,476
222,800 Catellus Development Corp.* 3,425,550
189,500 Colonial BancGroup, Inc. 2,439,812
64,300 Cullen/Frost Bankers, Inc. 3,616,875
73,700 Duff & Phelps Credit Rating Co. 4,537,156
101,300 Fremont General Corp. 2,146,295
143,200 Heller Financial, Inc. 4,260,200
70,550 North Fork BanCorp, Inc. 1,503,596
40,000 Stancorp Financial Group, Inc.* 997,500
54,800 Sun Communities, Inc. 2,003,625
------------
33,928,185
------------
HEALTH CARE - 9.9%
92,600 Amerisource Health Corp.* 2,737,488
200,900 Haemonetics Corp.* 3,817,100
141,700 HCR Manor Care, Inc.* 3,790,475
74,800 Henry Schein, Inc.* 2,258,026
20,200 InfoCure Corp.* 744,875
116,200 Invacare Corp. 2,897,738
132,300 Pharmaceutical Product Development, Inc.* 3,539,025
69,000 Province Healthcare Co.* 1,492,125
118,800 Quest Diagnostics, Inc.* 3,036,825
86,300 Roberts Pharmaceutical Corp.* 1,639,700
------------
25,953,377
------------
TECHNOLOGY - 8.5%
121,600 Antec Corp.* 3,564,401
68,200 Benchmark Electronics, Inc.* 2,046,000
42,500 Dallas Semiconductor Corp. 1,848,750
114,400 EG&G, Inc. 3,396,250
88,400 Nielsen Media Research, Inc. 2,364,700
29,700 Symbol Technologies, Inc. 1,485,000
66,800 Thomas & Betts Corp. 2,859,875
85,500 Unitrode Corp.* 1,779,468
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONCLUDED)
AS OF MAY 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ------- ------------
<C> <S> <C>
TECHNOLOGY (CONCLUDED)
84,100 Zebra Technologies Corp.* $ 2,701,712
------------
22,046,156
------------
TRANSPORTATION/SERVICES/
MISCELLANEOUS - 24.9%
109,100 ACNielsen Corp.* 3,075,257
57,900 Apria Healthcare Group, Inc.* 1,194,187
136,300 Coach USA, Inc.* 3,969,738
17,000 Cox Radio, Inc.* 908,437
15,700 General Nutrition Cos., Inc.* 260,031
206,100 Group Maintenance America Corp.* 2,808,114
500 Inet Technologies, Inc.* 8,531
131,300 J.B. Hunt Transport Services, Inc. 2,215,687
9,600 Lincare Holdings, Inc.* 236,400
218,300 Mail-Well, Inc.* 3,233,568
120,000 Manufactured Home Communities, Inc. 3,105,000
147,600 Mesaba Holdings, Inc.* 2,195,550
620 Metrocall, Inc.* 1,801
126,200 NOVA Corp.* 2,807,950
139,300 Ocular Sciences, Inc.* 4,248,650
134,500 Penton Media, Inc. 2,698,407
62,300 Pinnacle Holdings, Inc.* 1,133,081
10,100 Radio One, Inc.* 406,525
79,700 Remedy Corp.* 1,514,300
83,900 RemedyTemp, Inc.* 1,132,650
96,900 Rent-Way, Inc.* 2,434,612
<CAPTION>
SHARES VALUE
- ------- ------------
<C> <S> <C>
TRANSPORTATION/SERVICES/
MISCELLANEOUS (CONCLUDED)
299,500 Safety Kleen Corp. 4,698,406
168,200 School Specialty, Inc.* $ 2,501,975
101,600 SkyWest, Inc. 2,362,200
148,400 Superior Services, Inc.* 3,181,325
55,200 SPX Corp. 4,284,900
23,700 Time Warner Telecom, Inc.* 607,312
91,100 True North Communications, Inc. 2,129,463
75,450 Valassis Communications, Inc.* 2,626,603
78,000 Young & Rubicam, Inc. 2,983,500
------------
64,964,160
------------
Total Common Stocks (cost $226,195,745) 250,156,793
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ------------
<C> <S> <C>
SHORT TERM INVESTMENTS - 5.1%
$12,456,995 Dreyfus Cash Management 12,456,995
831,216 Federated Prime Obligations Fund 831,216
------------
Total Short Term Investments (cost $13,288,211) 13,288,211
------------
TOTAL INVESTMENTS - 100.9% (cost $239,483,956) 263,445,004
Other Assets Less Liabilities - (0.9%) (2,257,144)
------------
TOTAL NET ASSETS - 100.00% $261,187,860
------------
------------
</TABLE>
- ------------------
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost $239,483,956
Net unrealized appreciation 23,961,048
------------
Total Investments at Value 263,445,004
Receivable for investments sold 2,616,709
Receivable for dividends and interest 98,722
Organization costs, net of amortization (Note 2) 11,060
Other assets 23,506
------------
Total Assets 266,195,001
------------
LIABILITIES:
Payable for investments purchased 4,798,442
Due to investment adviser (Note 3) 135,546
Accrued expenses and other liabilities 73,153
------------
Total Liabilities 5,007,141
------------
Net Assets $261,187,860
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year
Ended
May 31, 1999
------------
<S> <C>
INVESTMENT INCOME:
Dividend income $ 1,606,034
Interest income 726,966
------------
Total Investment Income 2,333,000
------------
EXPENSES:
Investment advisory (Note 3) 1,803,074
Subadministration (Note 3) 225,384
Interest holder recordkeeping 12,125
Custody 43,602
Accounting 43,000
Legal 66,639
Audit 60,593
Trustees 32,769
Pricing services 6,773
Amortization of organization costs (Note 2) 5,018
Miscellaneous 24,457
------------
Total Expenses 2,323,434
------------
NET INVESTMENT INCOME 9,566
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments sold (36,405,203)
Net change in unrealized depreciation on investments (15,329,451)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (51,734,654)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(51,725,088)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
May 31, 1999 May 31, 1998
------------ ------------
<S> <C> <C>
NET ASSETS, BEGINNING OF PERIOD $355,803,421 $103,385,258
------------ ------------
OPERATIONS:
Net investment income 9,566 234,568
Net realized gain (loss) on investments (36,405,203) 6,355,034
Net change in unrealized appreciation (depreciation) on
investments (15,329,451) 28,258,572
------------ ------------
Net increase (decrease) in net assets resulting from operations (51,725,088) 34,848,174
------------ ------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Contributions 62,305,395 228,163,060
Withdrawals (105,195,868) (10,593,071)
------------ ------------
Net increase (decrease) from transactions in investors'
beneficial interest (42,890,473) 217,569,989
------------ ------------
Net increase (decrease) in net assets (94,615,561) 252,418,163
------------ ------------
NET ASSETS, END OF PERIOD $261,187,860 $355,803,421
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Portfolio performance for the following periods:
<TABLE>
<CAPTION>
For the For the For the For the
Year Ended Year Ended Period Ended Period Ended
May 31, 1999 May 31, 1998 May 31, 1997 (a) Oct. 31, 1996 (a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Assets at End of Period (in thousands) $261,188 $355,803 $103,385 $28,929
Ratios to Average Net Assets:
Expenses including reimbursement/waiver
of fees 0.77% 0.75% 0.85%(b) 0.85%(b)
Expenses excluding reimbursement/waiver
of fees 0.77% 0.75% 0.95%(b) 1.31%(b)
Net investment income including
reimbursement/waiver of fees 0.00% 0.10% 0.22%(b) 0.50%(b)
Portfolio Turnover Rate 119% 55% 34% 17%
</TABLE>
- ------------------
(a) See Note 1.
(b) Annualized.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. 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. As of May 31, 1999, Schroder Core, which
is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "Act"), had eight investment
portfolios. Included in this report is Schroder U.S. Smaller Companies
Portfolio ("Portfolio"), a diversified portfolio that commenced operations on
August 15, 1996. Following the close of business on May 31, 1999, the
Portfolio distributed all of its net assets to shareholders in complete
liquidation and ceased investment operations.
Effective May 31, 1997, the Portfolio changed its fiscal year end to
May 31 from October 31.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally
accepted accounting principles, which require management to make certain
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 results could
differ from those estimates.
The following summarizes the significant accounting policies of the
Portfolio:
SECURITY VALUATION
Portfolio securities listed on recognized stock exchanges are valued at
the last reported sale price on the exchange on which the securities are
principally traded. Listed securities traded on recognized stock exchanges
where last sale prices are not available are valued at the last sale price on
the preceding trading day or at mean of the closing bid and ask prices
("mid-market price"). 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 valuation
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 Schroder Core
Board of Trustees. As of May 31, 1999, the Portfolio did not hold a position
in fair valued securities.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements. The Portfolio,
through its custodian, receives delivery of the underlying collateral whose
market value must always equal or exceed the repurchase price. The investment
advisor is responsible for determining the value of the underlying collateral
at all times. In the event of default, the Portfolio may have difficulties
with the disposition of any securities held as collateral.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Dividend
income is recorded on ex-dividend date. Interest income is recorded as
earned. Identified cost of investments sold is used to determine realized
gain and loss for both financial statement and federal income tax purposes.
EXPENSE ALLOCATION
Schroder Core accounts separately for the assets and liabilities and
operation of each of its portfolios. Expenses that are directly attributable
to more than one portfolio are allocated among the respective portfolios in
proportion to each portfolio's average net assets.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
ORGANIZATION COSTS
Costs incurred by the Portfolio in connection with its organization
were being amortized on a straight-line basis over a five-year period through
May 31, 1999. Remaining unamortized costs are being reimbursed by the
investment adviser.
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Schroder Capital Management International Inc. ("SCMI") served as
investment adviser to the Portfolio. SCMI was entitled to receive an annual
fee, payable monthly, of 0.60% of the average daily net assets of the
Portfolio.
SUBADMINISTRATOR
The Subadministrator of the Portfolio was Forum Administrative
Services, LLC ("FAdS"). FAdS was entitled to receive compensation at an
annual rate, payable monthly, of 0.075% of the Portfolio's average daily net
assets.
NOTE 4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of
securities (excluding short-term securities) for the period ended May 31,
1999 were $334,692,836 and $364,897,846, respectively.
For federal income tax purposes, the tax basis of investment securities
owned as of May 31, 1999 was $239,874,239 and the net unrealized appreciation
of investment securities was $23,570,765. The aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost was $35,863,481, and the aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost over
market value was $12,292,716.
NOTE 5. FEDERAL TAXES
The Portfolio is not required to pay federal income taxes on its net
investment income and net capital gain because it is treated as a partnership
for federal income tax purposes. All interest, dividends, gain and loss of
the Portfolio is deemed to have been "passed through" to the Portfolio's
interest holders in proportion to their holdings of the Portfolio, regardless
of whether such interest, dividends or gain has been distributed by the
Portfolio.
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Schroder Capital Funds and Investors of Schroder U.S. Smaller
Companies Portfolio:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and 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. Smaller Companies
Portfolio (a separate portfolio of Schroder Capital Funds) at May 31, 1999, 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 May 31, 1999, by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 15, 1999
- --------------------------------------------------------------------------------
22
<PAGE>
[This page intentionally left blank]
<PAGE>
TRUSTEES
Nancy A. Curtin, Chairman
David N. Dinkins
Peter E. Guernsey
Sharon L. Haugh
John I. Howell
Peter S. Knight
William L. Means
Clarence F. Michalis
Hermann C. Schwab
INVESTMENT ADVISER
Schroder Investment Management North America Inc.
787 Seventh Avenue, 34th Floor
New York, NY 10019
ADMINISTRATOR AND DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue, 34th Floor
New York, NY 10019
CUSTODIAN
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
TRANSFER AND DIVIDEND/
DISBURSING AGENT
Boston Financial Data Services
Two Heritage Drive
North Quincy, MA 02171
(800) 464-3108
COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
This report is for the information of the shareholders of the Schroder U.S.
Smaller Companies Fund. Its use in connection with any offering of the Fund's
shares is authorized only in case of a concurrent or prior delivery of the
Fund's current prospectus.
0799SFA
[LOGO] SCHRODERS
Schroder
U.S. Smaller
Companies
Fund
ANNUAL REPORT
May 31, 1999
Schroder Capital Funds (Delaware)
