<PAGE>
Schroder
Emerging Markets
Fund
ANNUAL REPORT
May 31, 1999
Schroder Capital Funds (Delaware)
<PAGE>
- --------------------------------------------------------------------------------
Schroder Emerging Markets Fund
- --------------------------------------------------------------------------------
Investment Objective
The investment objective of Schroder Emerging Markets Fund (the "Fund") is to
seek long-term capital appreciation. The Fund invests primarily in equity
securities of issuers domiciled or doing business in emerging market countries,
in regions such as Southeast Asia, Latin America, and Eastern and Southern
Europe.
Investment Adviser
Schroder Investment Management North America Inc. (the "Investment Adviser") is
a wholly owned U.S subsidiary of Schroder U.S. Holdings, Inc., an indirect
wholly owned U.S. 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 annual report for the Schroder Emerging Markets
Fund for the fiscal year ended May 31, 1999. While emerging markets experienced
substantial volatility and price weakness in the first half of the fiscal year,
in the second half many markets stabilized and, in particular, the recently
beleaguered Asian economies displayed clear signs of recovery.
The economic problems that began in Asia gradually affected other markets and
were exacerbated by Russia's debt default in the first six months of the fiscal
year. By early 1999, Latin American economies were themselves facing
difficulties, with rising interest rates and risk premiums, and capital outflows
from markets such as Brazil. The eventual devaluation of the Brazilian currency
proved to be less destabilizing than feared and marked a turnaround in the
fortunes of many emerging markets. This shift in sentiment was supported by
fundamental improvements in economies as growth resumed in Asia and interest
rates declined, and as many of the afflicted economies pursued financial and
corporate restructuring plans.
Despite this strong rebound, emerging markets had retreated from their highs by
the Fund's year-end. We believe, however, that the fundamental case supporting
the asset class remains sound. In the near term, improving growth in world
economies and some rebound in commodity prices should benefit emerging markets.
In addition, if the current flows of capital into these markets continues,
interest rates are likely to further decline. The possibility of increases in
U.S. interest rates should not undermine this scenario, as we believe that a
lengthy period of rate rises in the U.S. does not appear warranted. Moreover,
valuations in emerging markets remain compelling and we believe that levels of
volatility seen in the past year have been unusually high and will continue to
subside.
Given the rapidly changing investment landscape in emerging markets, we believe
our extensive research resources put Schroders in an optimal position to
identify attractive long-term investment opportunities for the benefit of
investors in this Fund.
Thank you for your interest in the Schroder Emerging Markets Fund.
Sincerely,
/s/ Nancy A. Curtin /s/ Alexandra Poe
Nancy A. Curtin Alexandra Poe
Chairman President
<PAGE>
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Schroder Emerging Markets Fund
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Management Discussion and Analysis (As of May 31, 1999)
Performance
For the fiscal year ended May 31, 1999, the Schroder Emerging Markets
Fund returned 17.88%. Its benchmark, the unmanaged Morgan Stanley Capital
International Emerging Markets Free Index returned 3.47%. The Lipper average of
peer group funds returned -5.48% for the same period.
Both country allocation and stock selection contributed to performance.
In particular, the Fund benefited from its underweight position in Latin America
prior to the Brazilian crisis and subsequent move back into Brazil and Mexico,
and its extreme overweight position in Korea due to the dramatic rise in the
Korean market over the period. Additionally, the Fund's overweight positions in
Indonesia and Thailand and underweight position in the weak South African market
added value. Stock selection was especially strong in Asia, Korea, Taiwan and
South Africa.
Market Background
The past 12 months were a tumultuous period for both the emerging
markets' economies and stock markets. After experiencing declines of over
- -15.35% in the first half of the fiscal year, the emerging markets rose 23.8% in
the second half of the fiscal year. Two significant events negatively impacted
the emerging markets during the 12-month period: market pressure forced Russia
to devalue its currency and effectively default on its domestic debt in August
1998. The crisis in Russia then spread to Brazil, where a build up of short-term
debt threatened the stability of the Brazilian currency and resulted in the
devaluation of the real. However, the Brazilian devaluation did not cause
widespread financial contagion as had been feared, thereby removing a major
source of uncertainty. In particular, the Latin American markets rebounded
strongly. Brazil, itself, staged a sharp economic recovery triggered by
expeditious, supportive actions by Brazil's new Central Bank governor, Arminio
Fraga, and the International Monetary Fund. Additionally, the Asian markets, led
first by Korea and then, more recently, by Thailand and the Philippines
experienced exceptionally strong gains as the pace of restructuring accelerated.
Portfolio Review
At the beginning of the fiscal year the Fund was underweight in Latin
America, as a tight credit environment prevented economic growth. The Fund
remained underweight in Latin America until after the Brazilian devaluation and
thereafter invested back in the region in order to benefit from the upturn in
Brazil's economy. To raise assets for this repositioning, we steadily reduced
the Fund's weighting in Europe, the Middle East and Africa (EMEA), as some
valuations appeared to be peaking, the economic outlook was deteriorating and
further interest rate cuts looked unlikely. We increased the Fund's exposure to
Asia during the period, due to a sharp decline in local interest rates and signs
of a turnaround in economic growth in the region. Over the period, we reduced
the Fund's cash position due to an improved outlook for emerging markets
generally.
Outlook
We are positive in our outlook for the asset class, with global growth
expected to be driven by continued economic recovery in Asia. Going forward, the
Fund is overweight in Asia, although we have taken some profits in Korea
following its dramatic rise over the past 12 months. Additionally, the Fund has
added to its positions in the Philippines and Indonesia where valuations are
attractive. Within Latin America, we continue to favor the larger markets of
Brazil and Mexico, as these should benefit from declining interest rates and
lower inflation. Within EMEA, we favor Eastern Europe, specifically Poland and
Hungary, and Israel, which we believe should benefit from lower inflation and
falling interest rates.
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
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Schroder Emerging Markets Fund
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Investment Adviser's Report -- Comparison of Change in Value of $10,000
Investment
The following information compares a change in value of a $10,000 investment in
the Investor Shares of the Fund with the performance of the Morgan Stanley
Capital International Emerging Markets Free Index (the "Index"). The Index is an
unmanaged, market capitalization index of companies representative of the market
structure of 25 emerging countries in Europe, Latin America, and the Pacific
Basin. The Index reflects actual buyable opportunities for the non-domestic
investor by taking into account local market restrictions on share ownership by
foreigners. The Fund's total expenses include operating expenses that reduce
returns, while the total return of the Index does not. Total return and
principal value of an investment in the Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Total return for the Fund assumes reinvestment of dividends and
distributions. Past performance cannot predict nor guarantee future results.
Schroder Emerging Markets Fund -- Investor Shares vs.
MSCI EMF Index and MSCI EMF Index Ex-Malaysia
[GRAPHIC OMITTED]
Investment Value on 5/31/99 of $10,000 invested on 10/31/97
- -----------------------------------------------------------
Schroder Emerging Market Fund -- Investor Shares $ 10,656
MSCI EMF Index $ 9,254
MSCI EMF Index Ex-Malaysia $ 9,536*
<TABLE>
<CAPTION>
Average Annual Total Return on 5/31/99 1 Year Since Inception(a)
- -------------------------------------- ------ ------------------
<S> <C> <C>
Schroder Emerging Market Fund -- Investor Shares 17.88% 4.09%
MSCI EMF Index 3.47% -4.78%
</TABLE>
<TABLE>
<CAPTION>
Schroder Emerging Markets Fund MSCI EMF Index MSCI EMF Index Ex-Malaysia
<S> <C> <C> <C>
10/31/97 $ 10,000.00 $ 10,000.00 $ 10,000.00
11/30/97 $ 9,670.00 $ 9,635.10 $ 9,779.83
12/31/97 $ 10,050.00 $ 9,867.29 $ 10,033.90
01/31/98 $ 9,370.00 $ 9,093.40 $ 9,268.43
02/28/98 $ 10,140.00 $ 10,042.56 $ 10,012.06
03/31/98 $ 10,440.00 $ 10,478.37 $ 10,505.09
04/30/98 $ 10,470.00 $ 10,364.26 $ 10,510.84
05/31/98 $ 9,040.00 $ 8,944.36 $ 9,096.51
06/30/98 $ 8,220.00 $ 8,006.09 $ 8,210.12
07/31/98 $ 8,630.00 $ 8,259.94 $ 8,529.75
08/31/98 $ 6,400.00 $ 5,871.99 $ 6,058.60
09/30/98 $ 6,740.00 $ 6,244.48 $ 6,478.14
10/31/98 $ 7,360.00 $ 6,902.02 $ 7,160.62
11/30/98 $ 7,930.00 $ 7,476.05 $ 7,703.40
12/31/98 $ 8,388.99 $ 7,367.72 $ 7,591.78
01/31/99 $ 8,358.89 $ 7,248.88 $ 7,469.32
02/28/99 $ 8,318.75 $ 7,319.39 $ 7,541.98
03/31/99 $ 9,442.63 $ 8,284.01 $ 8,535.93
04/30/99 $ 10,857.52 $ 9,308.91 $ 9,592.00
05/31/99 $ 10,656.83 $ 9,254.76 $ 9,536.20
</TABLE>
(a) Inception date of the Fund was October 31, 1997.
* Until November 30,1998 Schroder used, as a customized index for the Fund,
the Index ex-Malaysia. Since that date, the Index has not included Malaysian
companies, and no further customization has been required. The Investment
Value shown for "MSCI EMF Index Ex-Malaysia" is based on the return of the
Index ex-Malaysia for the period through November 30,1998 and on the actual
return of the Index for the period thereafter.
3
<PAGE>
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Schroder Emerging Markets Fund
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Portfolio Characteristics as of May 31, 1999 (unaudited)
Top Ten Holdings
<TABLE>
<CAPTION>
Security % of Net Assets*
- --------------------------------------------------------------------------
<S> <C>
Telefonos de Mexico SA ADR 4.8%
Pohang Iron & Steel Co. Ltd. 2.4
Samsung Electronics Co. 2.2
YPF Sociedad Anonima ADR 2.2
SK Telecom Co. Ltd. Warrants 2.0
Petroleo Brasileiro SA - Petrobras (Preferred) 1.8
Cifra SA de CV 1.7
United World Chinese Commercial Bank 1.7
Taiwan Semiconductor Manufacturing Co. 1.6
Telecomunicacoes de Sao Paulo SA - Telesp (Preferred) 1.6
----
22.0%
====
<CAPTION>
Country Weightings
Country % of Net Assets* MSCI EMF Index
- ---------------------------------------------------------------------------
<S> <C> <C>
Argentina 3.8% 4.7%
Botswana 0.3 0.0
Brazil 11.5 9.6
Chile 2.0 4.3
China 1.6 0.6
Czech Republic 1.0 0.9
Egypt 0.9 0.0
Greece 2.5 7.1
Hong Kong 0.5 0.0
Hungary 1.3 1.2
India 6.5 8.4
Indonesia 2.3 2.0
Israel 3.4 3.2
Korea, Republic of 12.8 12.9
Luxembourg 0.4 0.0
Mauritius 0.3 0.0
Mexico 14.5 12.9
Peru 1.0 0.9
Philippines 3.0 2.1
Poland 1.6 1.3
Russia 1.6 2.0
South Africa 8.8 9.1
Taiwan 7.7 9.3
Thailand 3.1 3.1
Turkey 2.3 2.4
Zimbabwe 0.8 0.0
Cash and Other Net Assets 4.5 0.0
-----
100.0%
=====
</TABLE>
* Expressed as a percentage of the net assets of Schroder EM Core Portfolio
4
<PAGE>
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Schroder Emerging Markets Fund
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Statement of Assets and Liabilities
May 31, 1999
<TABLE>
<S> <C>
Assets:
Investments (Notes 1 and 2):
Investment in Schroder EM Core Portfolio (the "Portfolio") $ 2,064,510
Receivable for Fund shares sold 152,967
Receivable from administrator (Note 3) 17,504
Other receivables 305
-----------
Total Assets 2,235,286
-----------
Liabilities:
Accrued expenses 17,552
-----------
Net Assets $ 2,217,734
===========
Components of Net Assets:
Paid-in capital $ 1,777,248
Undistributed net investment income 6,691
Accumulated net realized gain 198,606
Net unrealized appreciation on investments and foreign currency transactions 235,189
-----------
Net Assets $ 2,217,734
===========
Shares of Beneficial Interest 208,763
Net Asset Value, Offering, and Redemption Price Per Share $ 10.62
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
- --------------------------------------------------------------------------------
Schroder Emerging Markets Fund
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Statement of Operations
For the Year Ended May 31, 1999
Net Investment Income Allocated from the Portfolio:
Dividend income (net of unrecoverable foreign withholding taxes of $1,596) $ 20,002
Interest income 4,468
Net expenses (15,866)
---------
Net Investment Income Allocated from the Portfolio 8,604
---------
Expenses:
Administration (Note 3) 1,695
Subadministration (Note 3) 25,000
Transfer agency 17,454
Accounting 12,000
Legal 1,626
Audit 11,447
Registration 12,618
Printing 2,098
Trustees 115
Miscellaneous 230
---------
Total Expenses 84,283
Fees waived and expenses reimbursed (Note 4) (81,464)
---------
Net Expenses 2,819
---------
Net Investment Income 5,785
---------
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions Allocated from the Portfolio:
Net realized gain on investments 199,523
Net realized gain on foreign currency transactions 2,854
---------
Net realized gain on investments and foreign
currency transactions 202,377
---------
Net change in unrealized appreciation on investments 240,027
Net change in unrealized depreciation on foreign
currency transactions (2,648)
---------
Net change in unrealized appreciation on
investments and foreign currency transactions 237,379
---------
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions Allocated from the Portfolio 439,756
---------
Net Increase in Net Assets Resulting From Operations $ 445,541
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
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Schroder Emerging Markets Fund
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended
May 31, 1999 May 31, 1998 (a)
------------ ----------------
<S> <C> <C>
Net Assets, Beginning of Period $ 17,827 $ -
------------ -----------
Operations:
Net investment income 5,785 37
Net realized gain (loss) on investments
and foreign currency transactions 202,377 (915)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions 237,379 (2,190)
----------- -----------
Net increase (decrease) in net assets resulting from operations 445,541 (3,068)
----------- -----------
Distributions to Shareholders from:
Net investment income (1,988) -
----------- -----------
Capital Share Transactions:
Sale of shares 5,729,736 20,895
Reinvestment of distributions 1,988 -
Redemption of shares (3,975,370) -
----------- -----------
Net increase from capital share transactions 1,756,354 20,895
----------- -----------
Net increase in net assets 2,199,907 17,827
----------- -----------
Net Assets, End of Period (Including line A) 2,217,734 $ 17,827
=========== ===========
(A) Undistributed net investment income $ 6,691 $ 39
=========== ===========
Share Transactions:
Sale of shares 636,064 1,971
Reinvestment of distributions in shares 233 -
Redemption of shares (429,505) -
----------- -----------
Net increase in shares 206,792 1,971
=========== ===========
</TABLE>
(a) From October 31, 1997 (commencement of operations) through May 31, 1998.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Schroder Emerging Markets Fund
- --------------------------------------------------------------------------------
Financial Highlights
Selected per share data and ratios for an Investor Share outstanding throughout
each period:
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended
May 31, 1999 May 31, 1998 (a)
------------ ---------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 9.04 $10.00
------ ------
Investment Operations
Net Investment Income (b) 0.03 0.02
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions 1.58 (0.98)
------ ------
Total from Investment Operations 1.61 (0.96)
------ ------
Distributions from Net Investment Income (0.03) -
====== ======
Net Asset Value, End of Period $10.62 $9.04
====== ======
Total Return (c) 17.88% (9.60)%
Ratio/Supplementary Data
Net Assets at End of Period (in thousands) $2,218 $ 18
Ratios to Average Net Assets:
Expenses including reimbursement/waiver of fees (b)(d) 1.65% 1.70%
Expenses excluding reimbursement/waiver of fees (b)(d) 10.74% - (e)
Net investment income (loss) including reimbursement/
waiver of fees (b)(d) 0.51% 1.72%
Portfolio Turnover Rate (f) 177% 23%
</TABLE>
(a) Investor Class shares were first issued on October 31, 1997.
(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 period shown (Note 4). Total return calculations for a period of
less than one year are not annualized.
(d) Annualized for periods less than one year.
(e) Amount is not meaningful due to short period of operations.
(f) Rate represents the turnover of the underlying Portfolio.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
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Schroder Emerging Markets 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 Emerging Markets Fund (the "Fund"), a non-diversified
portfolio that commenced operations on October 31, 1997. 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, only Investor Shares had been issued.
Master-Feeder Arrangement
The Fund seeks to achieve its investment objective by investing all its
investable assets in Schroder EM Core Portfolio (the "Portfolio"), a separate
non-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 is also registered as an open-end management investment company. The Fund
may withdraw its investment in the Portfolio at any time if the Trust's Board of
Trustees determine 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 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 14.8% of the interests 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 amounts 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 is discussed in the Notes to the
Financial Statements of the Portfolio.
Investment Income and Expenses
The Fund records daily its pro rata share of the Portfolio's income,
expenses and realized and unrealized gain and loss. In addition, the Fund
incurred its own expenses.
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.
9
<PAGE>
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Schroder Emerging Markets Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
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 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 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.
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. Until July 1, 1999, Schroder Capital Management International Inc.
("SCMI") served as the investment adviser to the Fund; on that date, SCMI was
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. The Fund currently invests all its assets in the Portfolio, which
retains SIMNA to act as investment adviser, pursuant to the 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"). 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 Fund. Through May 31, 1999, the Fund paid subadministration
fees to Forum Administrative Services, LLC ("FAdS") at an annual rate, payable
monthly, of 0.075% of the average daily net assets of the Fund, subject to a
$25,000 minimum annual fee. Effective June 1, 1999, the Fund has entered into a
Sub-Administration Agreement with State Street Bank and Trust Company ("State
Street") and Schroder Advisors. Under the Agreement, State Street is entitled to
receive an annual fee from the Fund of $25,000, payable monthly.
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 exceed 1.70% 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, FAdS and Forum Shareholder Services
LLC, then the Fund's transfer and dividend disbursing agent, waived fees of
$1,695, $24,152, and $4,000, respectively, and Schroder Advisors reimbursed
expenses of $51,617.
Note 5. Beneficial Interest
As of May 31, 1999, one affiliated shareholder was record owner of
approximately 59% of the total outstanding shares of the Fund.
10
<PAGE>
- --------------------------------------------------------------------------------
Schroder Emerging Markets Fund
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Trustees of Schroder Capital Funds (Delaware) and Shareholders of
Schroder Emerging Markets 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 Emerging Markets 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
11
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments
As of May 31, 1999
<TABLE>
<CAPTION>
Shares Security Description Value
------ -------------------- -----
<S> <C> <C>
Argentina (3.8%)
Common Stock
2,200 Banco de Galicia y Buenos Aires SA de CV ADR $ 46,063
6,400 Perez Companc SA "B" Shares 38,237
2,000 Telecom Argentina ADR 57,000
2,500 Telefonica de Argentina SA, ADR 80,938
7,200 YPF Sociedad Anonima ADR 303,300
------------
525,538
------------
Botswana (0.3%)
Common Stock
37,700 Sechaba Breweries Ltd. 41,073
------------
Brazil (11.5%)
Common Stock
2,000 Companhia Brasileira de Distribuicao Grupo Pao de Acucar ADR 36,250
10,700 Companhia Cervejaria Brahma ADR 109,675
8,069 Companhia Energetica de Minas Gerais - CEMIG ADR 169,284
1,638,000 Companhia Paulista de Forca e Luz - CPFL 109,995
8,600 Companhia Vale do Rio Doce 116,086
4,700 Tele Celular Sul Participacoes SA ADR 88,419
Preferred Stock
123,000 Banco Itau SA 63,023
7,500 Companhia Vale do Rio Doce 133,140
17,700 Petroleo Brasileiro SA - Petrobras 248,919
3,200 Tele Centro Sul Participacoes SA 172,800
1,792,000 Telecomunicacoes de Sao Paulo SA - Telesp 216,897
6,000 Telesp Participacoes SA 131,250
------------
1,595,738
------------
Chile (2.0%)
Common Stock
1,600 Banco Santander Chile ADR 25,802
3,900 Chilectra SA 88,818
4,000 Distribucion y Servicio D&S SA ADR 67,500
2,000 Embotella Andina SA 31,250
1 Enersis SA ADR 19
952 Quimica y Minera de Chile SA ADR 33,208
3,300 Quinenco SA ADR 34,650
------------
281,247
------------
China (1.6%)
Common Stock
284,000 Yanzhou Coal Mining Co. Ltd. 71,782
880,000 Yizheng Chemical Fibre Co. Ltd. 131,640
102,000 Zhenhai Refining & Chemical Co. Ltd. 20,257
------------
223,679
------------
Czech Republic (1.0%)
Common Stock
4,200 Ceska Sporitelna AS* 19,558
4,400 Komercni Banka AS GDR* 26,180
5,440 SPT Telekom AS 90,402
------------
136,140
------------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
As of May 31, 1999
<TABLE>
<CAPTION>
Shares Security Description Value
------ -------------------- -----
<S> <C> <C>
Egypt (0.9%)
Common Stock
6,270 Oriental Weavers Co. $ 128,606
------------
Greece (2.5%)
Common Stock
1,653 Alpha Credit Bank 112,384
2,960 Hellenic Bottling Co. SA 86,587
6,918 Hellenic Telecommunication Organization SA 150,108
------------
349,079
------------
Hong Kong (0.5%)
Common Stock
28,000 China Merchants Holdings International Co. Ltd. 18,054
24,000 Cosco Pacific Ltd. 14,160
19,000 New World Infrastructure Ltd.* 30,505
90,000 Zhehuang Expressway Co. Ltd. 13,115
------------
75,834
------------
Hungary (1.3%)
Common Stock
3,340 Matav RT ADR 93,520
3,800 Mol Magyar Olaj RT GDR 92,720
------------
186,240
------------
India (6.5%)
Common Stock
900 Infosys Technologies Ltd. 44,775
7,100 ITC Ltd. GDR 187,263
7,500 Larsen & Toubro Ltd. GDR 93,563
4,300 Mahanagar Telephone GDR 38,915
24,000 Mahindra & Mahindra Ltd. GDR 114,000
6,700 Pentafour Software & Exports Ltd. GDR (a) 153,162
24,400 Reliance Industries Ltd. 210,450
6,300 State Bank of India 66,308
------------
908,436
------------
Indonesia (2.3%)
Common Stock
795,000 PT Bank Internasional Indonesia 21,982
13,000 PT Gudang Garam Tbk 25,081
42,000 PT Hanjaya Mandala Sampoerna Tbk 67,612
60,000 PT Indofoods Sukses Makmur Tbk 59,355
17,000 PT Indosat (Persero) Tbk 34,470
249,000 PT Telekomunikasi Indonesia 115,515
------------
324,015
------------
Israel (3.4%)
Common Stock
19,110 Bank Hapoalim Ltd. 48,478
35,000 Bank Leumi Le-Israel 65,910
2,780 ECI Telecommunications Ltd. 96,258
1,700 Gilat Satellite Networks Ltd.* 89,675
800 Koor Industries Ltd. 86,503
1,840 Teva Pharmaceutical Industries Ltd. ADR 90,390
------------
477,214
------------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
As of May 31, 1999
<TABLE>
<CAPTION>
Shares Security Description Value
------ -------------------- -----
<S> <C> <C>
Korea, Republic of (12.8%)
Common Stock
4,240 Daewoo Securities Co. $ 4,756
11,500 Kookmin Bank GDR 174,074
6,900 Korea Electric Power Corp. ADR 211,216
546 Korea Exchange Bank 2,473
4,632 L.G. Chemical Ltd. 91,011
3,600 Pohang Iron & Steel Co. Ltd. 335,569
4,466 Samsung Electronics Co. 310,702
2,500 Shinsegae Department Store Co. 111,734
5,898 SK Corp. 123,844
3 SK Telecom Co. Ltd. 3,799
Rights
357 Samsung Electronics Co.* 3,793
Warrants
1,000 Korea Telecom* 49,460
1,000 Pohang Iron & Steel Co. Ltd.* 78,780
250 SK Telecom Co. Ltd.* 276,806
------------
1,778,017
------------
Luxembourg (0.4%)
Common Stock
5,000 Quilmes Industrial SA ADR 56,562
------------
Mauritius (0.3%)
Common Stock
58,700 State Bank of Mauritius Ltd.* 37,321
------------
Mexico (14.5%)
Common Stock
10,000 Alfa SA de CV 35,046
19,000 ARA SA de CV* 64,751
38,200 Cemex SA de CV 166,129
147,400 Cifra SA de CV 238,419
49,400 Fomento Economico Mexicano SA de CV 161,065
39,000 Grupo Financiero Banamex Accival SA de CV 77,841
43,842 Grupo Industrial Bimbo SA de CV 83,938
17,400 Grupo Industrial Saltillo SA de CV 54,164
56,100 Grupo Modelo SA de CV 142,675
12,000 Grupo Sanborns SA* 20,020
2,700 Grupo Televisa SA GDR 112,894
37,400 Industrias Penoles SA* 95,497
30,900 Kimberly-Clarke de Mexico SA de CV 99,646
8,300 Telefonos de Mexico SA ADR 663,481
------------
2,015,566
------------
Peru (1.0%)
Common Stock
3,500 CPT Telefonica del Peru SA ADS 50,750
7,370 Credicorp Ltd. 81,070
------------
131,820
------------
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
As of May 31, 1999
<TABLE>
<CAPTION>
Shares Security Description Value
------ -------------------- -----
<S> <C> <C>
Philippines (3.0%)
Common Stock
160,600 Ayala Corp. $ 51,704
99,000 Far East Bank & Trust Co. 149,606
130,000 First Philippine Holdings Corp. 163,995
22,000 San Miguel Corp. 49,435
------------
414,740
------------
Poland (1.6%)
Common Stock
2,500 Bank Rozwoju Eksportu SA 67,160
4,750 Elektrim Spolka Akcyjna SA 55,454
1,200 KGHM Polska Miedz SA 14,550
14,060 Telekomunikacja Polska SA* 84,712
------------
221,876
------------
Russia (1.6%)
Common Stock
810 Lukoil Holding ADR 30,132
11,265 RAO Unified Energy Systems GDR 65,901
16,360 Surgutneftegaz ADR 125,808
------------
221,841
------------
South Africa (8.8%)
Common Stock
17,500 ABSA Group Ltd. 80,240
4,655 Anglo American plc* 214,377
21,936 Barlow Ltd. 101,987
1 Edgar Stores Ltd. 6
17,100 Ellerine Holdings Ltd. 58,531
88,100 First Rand Ltd. 82,767
25,441 LA Retail Stores Ltd. 34,628
7,776 Liberty Life Association of Africa Ltd. 104,719
102,900 Malbak Ltd. 52,791
26,400 Nampak Ltd. 52,906
9,000 Rembrandt Group Ltd. 63,847
86,376 Sanlam Ltd.* 83,086
18,400 Sappi Ltd. 112,095
19,900 Sasol Ltd. 113,258
8,975 South African Breweries Ltd.* 72,087
------------
1,227,325
------------
Taiwan (7.7%)
Common Stock
8,000 Asustek Computer, Inc. 92,594
13,000 Cathay Life Insurance Co. 44,465
236,000 Cheng Loong Co.* 123,964
46,650 Compal Electronics, Inc. 124,656
67,000 Formosa Chemicals & Fibre Corp. 69,567
13,000 Synnex Technology International Corp. 71,858
131,000 Taishin International Bank 90,014
62,000 Taiwan Semiconductor Manufacturing Co.* 222,476
174,000 United World Chinese Commercial Bank 230,086
------------
1,069,680
------------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
As of May 31, 1999
<TABLE>
<CAPTION>
Shares Security Description Value
------ -------------------- -----
<S> <C> <C>
Thailand (3.1%)
Common Stock
8,000 Bangkok Bank Public Co. Ltd. $ 24,768
19,000 Electricity Generating Public Co. Ltd. 40,409
5,500 PTT Exploration and Production Public Co. Ltd. 44,716
3,800 Siam Cement Public Co. Ltd. 98,619
38,000 Thai Airways International Public Co. Ltd. 64,450
163,000 Thai Petrochemical Industry Public Co. Ltd. 55,949
24,000 Total Access Communication Public Co. Ltd. 82,080
Preferred Stock
19,500 Siam Commercial Bank Public Co. Ltd. 19,949
Warrants
19,500 Siam Commercial Bank Public Co. Ltd.* 6,824
------------
437,764
------------
Turkey (2.3%)
Common Stock
5,270,070 Akbank TAS 86,819
3,083,074 Haci Omer Sabanci Holding 75,807
1,600,000 KOC Holding AS 123,924
31,210 Migros Turk TAS 39,905
------------
326,455
------------
Zimbabwe (0.8%)
Common Stock
1,080,000 Econet Wireless Holdings* 108,990
------------
Total Investments (95.5%) (cost $11,392,476) 13,300,796
Other Assets Less Liabilities (4.5%) 624,406
------------
Total Net Assets (100.0%) $ 13,925,202
============
</TABLE>
(a) Fair valued security
* Non-income producing security.
ADR - American Depository Receipts
GDR - Global Depository Receipts
Forward Foreign Currency Exchange Contracts
Contracts to Sell
<TABLE>
<CAPTION>
Underlying Face Unrealized
Contract Amount of Appreciation
Date Currency Units Value (Depreciation)
-------- ------------------ --------- --------------- --------------
<S> <C> <C> <C> <C>
06/16/99 Brazilian Cruzeiro 136,380 $ 78,900 $ 21,099
06/22/99 Brazilian Cruzeiro 84,000 48,401 11,598
01/21/00 Hong Kong Dollar 1,220,000 156,270 (3,401)
--------- --------
$ 283,571 $ 29,296
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements
16
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
May 31, 1999
<TABLE>
<S> <C>
Assets:
Investments (Note 2):
Investments at cost $ 11,392,476
Net unrealized appreciation 1,908,320
------------
Total Investments at value 13,300,796
Cash 477,235
Foreign currency (cost $22,659) 22,665
Receivable for forward foreign currency contracts (Note 2) 29,296
Receivable for dividends and interest 56,128
Receivable for investments sold 53,793
Receivable from investment adviser (Note 3) 52,325
Organization costs, net of amortization (Note 2) 665
Other assets 854
------------
Total Assets 13,993,757
------------
Liabilities:
Payable for investments purchased 20,323
Accrued expenses 48,232
------------
Total Liabilities 68,555
------------
Net Assets $ 13,925,202
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended May 31, 1999
<TABLE>
<S> <C>
Investment Income:
Dividend income (net of foreign withholding tax of $19,329) $ 242,305
Interest income 64,910
-----------
Total Investment Income 307,215
-----------
Expenses:
Investment advisory (Note 3) 131,766
Administration (Note 3) 13,177
Subadministration (Note 3) 25,000
Interest holder recordkeeping 12,254
Custody 141,091
Accounting 78,000
Legal 2,745
Audit 25,519
Pricing services 13,652
Trustees 1,573
Amortization of organization costs (Note 2) 194
Miscellaneous 939
-----------
Total Expenses 445,910
Fees waived and expenses reimbursed (Note 6) (255,027)
-----------
Net Expenses 190,883
-----------
Net Investment Income 116,332
-----------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized loss on investments (2,565,114)
Net realized loss on foreign currency transactions (40,084)
-----------
Net realized loss on investments and foreign currency transactions (2,605,198)
-----------
Net change in unrealized appreciation on investments 4,254,694
Net change in unrealized appreciation on foreign currency transactions 25,516
-----------
Net change in unrealized appreciation on investments and foreign
currency transactions 4,280,210
-----------
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions 1,675,012
-----------
Net Increase in Net Assets Resulting from Operations $ 1,791,344
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the Period
Year Ended Ended
May 31, 1999 May 31, 1998 (a)
------------ ----------------
<S> <C> <C>
Net Assets, Beginning of Period $ 26,730,035 $ -
------------ ------------
Operations:
Net investment income 116,332 210,351
Net realized loss on investments and foreign currency transactions (2,605,198) (518,984)
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions 4,280,210 (2,346,562)
------------ ------------
Net increase (decrease) in net assets resulting from operations 1,791,344 (2,655,195)
------------ ------------
Transactions in Investors' Beneficial Interest:
Contributions 8,838,138 39,419,804
Withdrawals (23,434,315) (10,034,574)
------------ ------------
Net increase (decrease) in net assets from transactions in investors'
beneficial interest (14,596,177) 29,385,230
------------ ------------
Net increase (decrease) in net assets (12,804,833) 26,730,035
------------ ------------
Net Assets, End of Period $ 13,925,202 $ 26,730,035
============ ============
</TABLE>
(a) From October 30, 1997 (commencement of operations) through May 31, 1998.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Financial Highlights
Portfolio performance for the following periods:
<TABLE>
<CAPTION>
For the For the
Year Ended Period Ended
May 31, 1999 May 31, 1998 (a)
------------ ----------------
<S> <C> <C>
Net Assets at End of Period (in thousands) $13,925 $26,730
Ratios to Average Net Assets:
Expenses including reimbursement/waiver of fees 1.45% 1.45%(b)
Expenses excluding reimbursement/waiver of fees 3.38% 2.38%(b)
Net investment income including reimbursement/waiver of fees 0.88% 1.35%(b)
Portfolio Turnover Rate 177% 23%
</TABLE>
(a) From October 30, 1997 (commencement of operations) through May 31, 1998.
(b) Annualized.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core 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 EM Core Portfolio (the "Portfolio"), a
non-diversified portfolio that commenced operations on October 30, 1997. Under
its Trust Instrument, Schroder Core is authorized to issue an unlimited number
of interests without par value. Interests in the Portfolio are sold without any
sales charges in private placement transactions 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 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 the 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. Prices used for valuations
may be provided by independent pricing services. Domestic short-term
investments, having a maturity of 60 days or less, are valued at amortized cost,
which approximates market value. Foreign short-term investments are valued at
the current market price, then marked to market to recognize any gain or loss on
the transaction. 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's Board of Trustees. As of May 31, 1999,
the Portfolio held a position in one fair valued security with a market value of
$153,162, representing 1.1% of the Portfolio's net assets.
Security Transactions and Investment Income
Investment transactions are accounted for on the trade date. Dividend
income is recorded on 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 realized gain
and loss for both financial statement and federal income tax purposes. Foreign
dividend and interest income amounts and realized capital gain or 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.
21
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
The Portfolio may enter into forward contracts to purchase or sell
foreign currencies. 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.
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
adviser 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.
Expense Allocation
Schroder Core accounts separately for the assets and liabilities and
operation of each of its portfolios. Expenses that are directly attributable to
more than one portfolio are allocated among the respective portfolios in
proportion to each portfolio's net assets.
Organization Costs
Costs incurred by the Portfolio in connection with its organization are
being amortized on a straight line basis over a five-year period.
Note 3. Investment Advisory and Other Services
Investment Adviser
Schroder Investment Management North America Inc. ("SIMNA") serves as
investment adviser to the Portfolio pursuant to an Investment Advisory Agreement
with the Portfolio. Until July 1, 1999, Schroder Capital Management
International Inc. ("SCMI") served as the investment adviser to the Portfolio;
on that date, SCMI was merged into SIMNA, and SIMNA commenced serving as
investment adviser to the Portfolio. SCMI was, and SIMNA is, a wholly owned
subsidiary of Schroder U.S. Holdings, Inc. Pursuant to the Investment Advisory
Agreement, SIMNA is entitled to receive from the Portfolio an annual fee,
payable monthly, of 1.00% of the average daily net assets of the Portfolio.
Administrator and Subadministrator
The administrator of the Portfolio is Schroder Fund Advisors Inc.
("Schroder Advisors"). For its services, Schroder Advisors is entitled to
receive compensation at an annual rate, payable monthly, of 0.10% of the average
daily net assets of the Portfolio. Through May 31,1999, the Portfolio paid
subadministration fees to Forum Administrative Services, LLC ("FAdS") at an
annual rate of 0.075% of the average daily net assets of the Portfolio, subject
to a minimum annual fee of $25,000. Effective June 1,1999, the Trust has entered
into a Sub-Administration Agreement with State Street Bank and Trust Company
("State Street") and Schroder Advisors. Under the agreement, the Portfolio,
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 the assets in excess of $3.4 billion, subject to certain minimum
requirements.
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 $20,183,299 and $32,699,783, respectively.
22
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
For federal income tax purposes, the tax basis of investment securities
owned as of May 31,1999, was $11,632,298, and the net unrealized appreciation of
investment securities was $1,668,498. The aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost was $2,453,973, and the aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over market value
was $785,475.
Note 5. Federal Taxes
The Portfolio is not required to pay federal income tax 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 or loss of the
Portfolio is deemed to have been "passed through" to the Portfolio's
interestholders in proportion to their holdings of the Portfolio, regardless of
whether such interest, dividends or gain has been distributed by the Portfolio.
Under the applicable foreign tax law, a withholding tax may be imposed
on interest, dividends, and capital gains at various rates.
Note 6. Waiver of Fees and Reimbursement of Expenses
SIMNA is contractually obligated to reduce its compensation for the
current fiscal year (and, if necessary, to pay certain other expenses) until
December 31, 1999, to the extent that the Portfolio's expenses exceed 1.45% of
the Portfolio's average daily net assets. SIMNA and Schroder Advisors may
voluntarily waive all or a portion of their fees, from time to time. For the
period ended May 31,1999, SCMI, Schroder Advisors, and FAdS voluntarily waived
fees of $131,766, $13,177, and $15,117, respectively. In addition, Schroder
Advisors reimbursed expenses in the amount of $94,967.
Note 7. Concentration of Risk
The Portfolio may invest more than 25% of its total assets in issuers
located in any one country. To the extent that it does so, the Portfolio is
susceptible to a range of factors that could adversely affect that country,
including political and economic developments and foreign exchange-rate
fluctuations. As a result of investing substantially in one country, the value
of the Portfolio's assets may fluctuate more widely than the value of shares of
a comparable fund with a lesser degree of geographic concentration. The
Portfolio invests in countries with limited or developing capital markets.
Investments in these markets may involve greater risks than investments in more
developed markets.
23
<PAGE>
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Trustees of Schroder Capital Funds and Investors of Schroder EM Core
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 EM Core 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
24
<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 Emerging
Markets 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.
