Schroder
International Bond
Portfolio
ANNUAL REPORT
December 31, 1997
Schroder Capital Funds II
<PAGE>
SCHRODER INTERNATIONAL BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 1997
FIXED INCOME INVESTMENTS - 95.1%
<TABLE>
<S> <C> <C>
CURRENCY FACE VALUE US$
- -------- ---- ---------
BELGIUM - 4.7%
BEF 24,000,000 Kingdom of Belgium, 9.00%, 3/28/03 $ 775,824
---------------------------
DENMARK - 4.5%
DKK 4,600,000 Kingdom of Denmark, 8.00%, 11/15/01 744,924
---------------------------
FRANCE - 4.0%
FRF 4,000,000 Government of France, 4.75%, 3/12/02 664,454
---------------------------
GERMANY - 37.4%
DEM 1,000,000 FNMA - Global Bond, 5.00%, 2/16/01 561,157
2,400,000 German Federal Government, 5.00%, 12/17/98 1,351,325
2,200,000 German Federal Government, 6.25%, 7/29/99 1,264,723
600,000 German Federal Government, 8.38%, 5/21/01 372,710
500,000 German Federal Government, 6.00%, 1/4/07 291,216
100,000 German Federal Government, 6.50%, 7/5/27 59,984
1,300,000 Province of Ontario, 6.25%, 1/13/04 765,096
1,300,000 Republic of Austria, 6.88%, 4/3/00 763,639
1,300,000 Republic of Finland, 6.88%, 4/3/01 746,129
---------------------------
---------------------------
6,175,979
---------------------------
ITALY - 4.5 %
ITL 1,170,000,000 Republic of Italy, 10.50%, 7/15/00 747,271
---------------------------
JAPAN - 10.9%
JPY 200,000,000 International Bank for Research & Development, 5.25%, 3/20/02 1,799,090
---------------------------
NETHERLANDS - 3.9%
NLG 800,000 Government of Netherlands, 7.50%, 11/15/99 417,199
400,000 Government of Netherlands, 8.75%, 9/15/01 227,469
---------------------------
644,668
---------------------------
SPAIN - 4.7%
ESP 105,000,000 Government of Spain, 8.40%, 4/30/01 765,556
---------------------------
SWEDEN - 4.2%
SEK 4,500,000 Kingdom of Sweden, 13.00%, 6/15/01 696,700
---------------------------
UNITED KINGDOM - 16.3%
GBP 550,000 Bayerische Landesbank, 6.88%, 6/7/02 904,903
600,000 International Bank for Research & Development, 7.00%, 6/7/02 995,967
50,000 United Kingdom Treasury, 7.25%, 3/30/98 82,274
400,000 United Kingdom Treasury, 8.00%, 6/10/03 701,544
---------------------------
2,684,688
---------------------------
TOTAL FIXED INCOME INVESTMENTS (COST $16,355,906) 15,699,154
---------------------------
</TABLE>
1
<PAGE>
SCHRODER INTERNATIONAL BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONCLUDED)
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
FOREIGN CURRENCY - 0.0% VALUE US$
---------
CURRENCY FACE
- -------- ----
ITL 4,495,313 Italian Lira (cost $2,570) $ 2,542
---------------------------
PURCHASED PUT OPTION - 0.0%
JPY 9,000,000 Japanese Government Bonds 125 March 1998 (cost $19,614) 4,152
---------------------------
Total Investments - 95.1% (cost $16,378,090) 15,705,848
Other Assets Less Liabilities - 4.9% 809,554
---------------------------
Total Net Assets - 100.0% $ 16,515,402
===========================
</TABLE>
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
CONTRACTS TO SELL
<S> <C> <C> <C> <C> <C>
CONTRACT DATE CURRENCY UNITS US $ UNREALIZED GAIN (LOSS) US$
------------- -------- ----- ---- --------------------------
1/16/98 AUD 450,000 $ 325,935 $ 32,642
1/2/98-2/19/98 DEM 3,630,000 2,064,533 43,733
1/16/98 ESP 144,600,000 987,108 38,102
1/16/98-2/19/98 GBP 1,010,000 1,696,934 37,428
1/16/98-2/19/98 JPY 260,000,000 2,113,250 104,701
1/16/98 NLG 1,807,000 927,676 35,550
1/16/98 SEK 6,902,000 917,649 47,426
===========================
$ 339,582
===========================
</TABLE>
<TABLE>
CONTRACTS TO BUY
<S> <C> <C> <C> <C> <C>
CONTRACT DATE CURRENCY UNITS US $ UNREALIZED GAIN (LOSS) US$
------------- -------- ----- ---- --------------------------
1/16/98 AUD 450,000 $ 330,885 $ (37,593)
1/15/98-2/19/98 CAD 2,300,000 1,637,650 (29,210)
1/15/98-2/19/98 DEM 2,187,000 1,261,075 (43,109)
1/16/98 ESP 53,100,000 358,431 (9,938)
1/16/98-2/19/98 JPY 506,434,000 4,192,132 (281,463)
1/16/98 NLG 425,000 211,306 (1,481)
1/16/98 SEK 1,285,000 165,167 (3,151)
===========================
$ (405,945)
===========================
===========================
Net forward foreign currency contracts $ (66,363)
===========================
</TABLE>
- ---------------------------------------------
ABBREVIATIONS
AUD - Australian Dollar
BEF - Belgian Franc
DEM - German Deutsche Mark
DKK - Danish Krone
ESP - Spanish Peseta
FRF - French Franc
GBP - British Pound
ITL - Italian Lira
JPY - Japanese Yen
NLG - Dutch Guilder
SEK - Swedish Krona
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
SCHRODER INTERNATIONAL BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost $ 16,378,090
Net unrealized appreciation (depreciation) (672,242)
----------------------
Total Investments at value 15,705,848
Cash 300,974
Receivable from investment adviser (Note 3) 6,549
Receivable for investments sold 1,288,887
Interest and other receivables 519,367
Organization costs, net of amortization (Note 2) 6,617
----------------------
Total Assets 17,828,242
----------------------
LIABILITIES:
Payable for shares of beneficial interest redeemed 1,202,750
Net payable for forward foreign currency contracts (Note 2) 66,363
Accrued expenses 43,727
----------------------
Total Liabilities 1,312,840
----------------------
Net Assets $ 16,515,402
======================
COMPONENTS OF NET ASSETS:
Investors' capital $ 17,267,942
Net unrealized appreciation (depreciation) on investments (752,540)
----------------------
Net Assets $ 16,515,402
======================
</TABLE>
The acompanying notes are an integral part of the financial statements.
3
<PAGE>
SCHRODER INTERNATIONAL BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 661,538
-----------------------
EXPENSES:
Investment advisory (Note 3) 53,529
Administration (Note 3) 10,706
Subadministration (Note 3) 25,000
Transfer agency (Note 3) 12,123
Custody 3,386
Accounting (Note 3) 62,000
Legal 3,635
Audit 33,452
Trustees' Fees 1,072
Amortization of organization costs (Note 2) 1,654
Miscellaneous 6,141
-----------------------
Total Expenses 212,698
Fees waived and expenses reimbursed (Note 6) (131,908)
-----------------------
Net Expenses 80,790
-----------------------
NET INVESTMENT INCOME (LOSS) 580,748
-----------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD FOREIGN
CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on investments sold (107,908)
Net realized gain (loss) on forward foreign currency contracts and
foreign currency transactions (443,900)
-----------------------
Net realized gain (loss) on investments, forward foreign
currency contracts and foreign currency transactions (551,808)
-----------------------
Net change in unrealized appreciation (depreciation) on investments (672,242)
Net change in unrealized appreciation (depreciation) on forward
foreign currency contracts and foreign currency transactions (80,298)
-----------------------
Net change in unrealized appreciation (depreciation) on investments,
forward foreign currency contracts and foreign currency transactions (752,540)
-----------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD FOREIGN
CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS (1,304,348)
-----------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (723,600)
=======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
SCHRODER INTERNATIONAL BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
NET ASSETS, BEGINNING OF PERIOD $ 3,000,100
----------------------------
OPERATIONS:
Net investment income (loss) 580,748
Net realized gain (loss) on investments sold (551,808)
Net change in unrealized appreciation (depreciation) on investments (752,540)
----------------------------
Net increase (decrease) in net assets resulting from operations (723,600)
----------------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Contributions 18,113,652
Withdrawals (3,874,750)
----------------------------
Net increase (decrease) in net assets from transactions
in investors' beneficial interest 14,238,902
----------------------------
Net increase (decrease) in net assets 13,515,302
----------------------------
NET ASSETS, END OF PERIOD $ 16,515,402
============================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
SCHRODER INTERNATIONAL BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C>
Portfolio performance for the following period:
For the
Year Ended
December 31, 1997
------------------------
Ratio to Average Net Assets:
Expenses including reimbursement/waiver of fees 0.75%
Expenses excluding reimbursement/waiver of fees 1.99%
Net investment income including reimbursement/waiver of fees 5.42%
Portfolio Turnover Rate 112.04%
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
SCHRODER INTERNATIONAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Schroder Capital Funds II ("Schroder Core") was organized on December
27, 1996 as a Delaware business trust. Schroder Core, which is registered as an
open-end, management investment company under the Investment Company Act of 1940
(the "Act"), currently has one investment portfolio. Under the Trust Instrument,
Schroder Core is authorized to issue an unlimited number of interests without
par value. Interests in the Portfolio are sold in private placement transactions
without any sales or transaction charges to qualified investors, including
open-end, management investment companies. The Portfolio commenced operations on
December 31, 1996.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally
accepted accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates.
The following represent significant accounting policies of the
Portfolio:
SECURITY VALUATION
Portfolio securities listed on recognized stock exchanges are valued at the last
reported sale price on the exchange on which the securities are principally
traded. Listed securities traded on recognized stock exchanges where last sale
prices are not available are valued at the last sale price on the proceeding
trading day or at closing mid-market prices. Securities traded in
over-the-counter markets are valued at the most recent reported mid-market
price. Short-term investments having a maturity of 60 days or less are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith using methods approved by Schroder Core's Board of
Trustees.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Interest
income, including amortization of discount or premium, 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 interest
income amounts and realized capital gain and loss are converted to U.S. dollar
equivalents using foreign exchange rates in effect at 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.
The Portfolio may purchase put options on securities to protect
its holdings in an underlying or related security against a substantial decline
in market value. Securities are considered related if their price movements
generally correlate with one another. The purchase of put options on securities
held in the Portfolio or related to such securities will enable the Portfolio to
preserve, at least partially, unrealized gains occuring prior to the purchase of
the option on a security without actually selling the security. In addition, the
Portfolio will continue to receive interest or dividend income on the security.
7
<PAGE>
SCHRODER INTERNATIONAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Portfolio may enter into forward contracts to purchase or sell foreign
currencies to protect against the effect on the U.S. dollar value of the
underlying portfolio of possible adverse movements in foreign exchange rates.
Risks associated with such contracts include the movement in value of the
foreign currency relative to the U.S. dollar and the ability of the counterparty
to perform. Fluctuations in the value of such contracts are recorded daily as
unrealized gain or loss; realized gain or loss include net gain or loss on
contracts that have terminated by settlement or by the Portfolio entering into
offsetting commitments.
ORGANIZATIONAL COSTS
Cost 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 Capital Management International Inc. ("SCMI") is the investment
adviser to the Portfolio. Pursuant to an Investment Advisory Agreement, SCMI is
entitled to receive an annual fee, payable monthly, of 0.50% of the average
daily net assets of the Portfolio.
ADMINISTRATOR AND SUBADMINISTRATOR
The administrator of the Portfolio is Schroder Fund Advisors Inc.
("Schroder Advisors"). In addition, the Portfolio has entered into a
Subadministration Agreement with Forum Administrative Services, LLC ("Forum").
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. For its services, Forum is entitled to receive compensation an annual
rate, payable monthly, of 0.075% of the average daily net assets of the
Portfolio. The minimum total subadministration fee is $25,000.
OTHER SERVICE PROVIDERS
Forum Financial Corp.(R) ("FFC") serves as the Portfolio's
interestholder recordkeeper and is entitled to compensation for those services
from Schroder Core with respect to the Portfolio in the amount of $12,000 per
year plus certain other fees and expenses. FFC also performs portfolio
accounting for the Portfolio and is entitled to compensation for those services
in the amount of $60,000 per year, plus certain amounts based upon the number
and types of portfolio transactions.
8
<PAGE>
SCHRODER INTERNATIONAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of
securities (excluding short-term investments) for the year ended December 31,
1997 aggregated $29,100,085 and $12,276,672, respectively.
For federal income tax purposes, the tax basis of investment securities
owned as of December 31, 1997 was $16,382,853 and the net unrealized
depreciation of investment securities was $677,005. The aggregate gross
unrealized appreciation for all securities in which there was an excess of
market value over tax cost was $57,844, and the aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost over
market value was $734,849. .
NOTE 5. FEDERAL TAXES
The Portfolio is not required to pay federal income taxes on its net
investment income and net capital gain as it is treated as a partnership for
federal income tax purposes. All interest, dividends, gain and loss of the
Portfolio are deemed to have been "passed through" to the partners in proportion
to their holdings of the Portfolio regardless of whether such interest,
dividends or gain have been distributed by the Portfolio. Under the applicable
foreign tax law, a withholding tax may be imposed on interest and capital gains
at various rates.
NOTE 6. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
SCMI and Schroder Advisors voluntarily have waived a portion of their
fees and have assumed certain expenses of the Portfolio so that its total
expenses would not exceed certain limitations. Forum and FFC may waive
voluntarily all or a portion of their fees, from time to time. For the year
ended December 31, 1997, fees waived and expenses reimbursed were as follows:
<TABLE>
<S> <C> <C>
Waived Reimbursed
- -------------------------------------------------------------------------------------------------
SCMI $53,529 $6,549
Schroder Advisors 10,706 -
Forum 25,000 -
FFC 36,124 -
</TABLE>
NOTE 7. BENEFICIAL INTEREST
As of the period ended December 31, 1997, there were three unaffiliated
shareholders, each of whom owns more than 10% of the Portfolio's interests,
holding in the aggregate in excess of 99% of the Portfolio's total interests.
NOTE 8. GEOGRAPHIC CONCENTRATION
The Portfolio has a relatively large concentration of portfolio securities
invested in companies domiciled in Germany. The Portfolio may be more
susceptible to political, social and economic events adversely affecting German
companies than portfolios not so concentrated.
9
<PAGE>
To the Trustees of Schroder Capital Funds II and the Investors of International
Bond Portfolio:
We have audited the accompanying statement of assets and liabilities
for the International Bond Portfolio (a separate portfolio of Schroder Capital
Funds II), including the schedule of investments, as of December 31, 1997, and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosure in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the International Bond Portfolio as of December 31, 1997, the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended in conformity with generally accepted
accounting principles.
Boston, Massachusetts Coopers & Lybrand L.L.P.
February 23, 1998
10
<PAGE>
TRUSTEES
Hermann C. Schwab
David N. Dinkins
Peter E. Guernsey
Sharon L. Haugh
John I. Howell
Peter S. Knight
Clarence F. Michalis
Mark J. Smith
OFFICERS
Mark J. Smith
Chairman and President
Mark Astley
Vice President
Robert G. Davy
Vice President
Margaret H. Douglas-Hamilton
Vice President
Richard Foulkes
Vice President
John Y. Keffer
Vice President
Jane Lucas
Vice President
Catherine A. Mazza
Vice President
Michael Perelstein
Vice President
Fariba Talebi
Vice President
John A. Troiano
Vice President
Ira L. Unschuld
Vice President
Alexandra Poe
Vice President
Secretary
Fergal Cassidy
Treasurer
<PAGE>
INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue
New York, New York 10019
ADMINISTRATOR & DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue
New York, New York 10019
SUBADMINISTRATOR
Forum Administrative Services, LLC
Two Portland Square
Portland, Maine 04101
CUSTODIAN
The Chase Manhattan Bank
Global Custody Division
Woolgate House, Coleman Street
London ECP 2HD, United Kingdom
TRANSFER AND DIVIDEND DISBURSING AGENT
Forum Financial Corp.
P.O.Box 446
Portland, Maine 04112
COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
This report is for the information of the shareholders of the Schroder
International Bond Portfolio. 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.
