SCHRODER
INTERNATIONAL BOND
PORTFOLIO
ANNUAL REPORT
December 31, 1998
Schroder Capital Funds II
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 1998
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<CAPTION>
FIXED INCOME INVESTMENTS - 94.0%
<S> <C> <C> <C>
PRINCIPAL
CURRENCY AMOUNT VALUE (US$)
-------- --------- -----------
AUSTRIA - 3.6%
DEM 550,000 Republic of Austria, 6.88%, 4/3/00 $ 344,910
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BELGIUM - 4.5%
BEF 13,250,000 Kingdom of Belgium, 9.00%, 6/27/01 437,582
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CANADA - 5.7%
GBP 120,000 Government of Canada, 6.25%, 11/26/04 215,154
DEM 500,000 Province of Ontario, 6.25%, 1/13/04 334,460
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549,614
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DENMARK - 5.1%
DKK 1,500,000 Kingdom of Denmark, 7.00%, 11/10/24 302,546
DKK 1,100,000 Kingdom of Denmark, 8.00%, 11/15/01 191,895
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494,441
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FRANCE - 9.1%
FRF 2,000,000 Government of France, 4.75%, 3/12/02 373,896
FRF 2,500,000 Societe Nationale des Chemins de Fer,
7.75%, 3/1/02 503,517
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877,413
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GERMANY - 22.8%
DEM 1,920,000 Bundesobligation, 6.50%, 3/15/00 1,197,940
DEM 750,000 KFW International Finance, 6.25%, 10/15/03 502,890
DEM 660,000 Deutschland Republik, 6.50%, 7/4/27 495,373
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2,196,203
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ITALY - 4.0%
ITL 570,000,000 Republic of Italy, 10.5%, 7/15/00 382,634
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NETHERLANDS - 3.5%
DEM 500,000 LKB Baden-Wuerttemberg Finance, 6.63%, 8/20/03 338,458
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SPAIN - 4.1%
ESP 50,000,000 Government of Spain, 8.40%, 4/30/01 394,120
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SUPRA-NATIONAL - 15.9%
DEM 800,000 Asian Development Bank, 5.50%, 10/24/07 524,414
JPY 100,000,000 International Bank for Reconstruction &
Development, 5.25%, 3/20/02 1,008,385
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1,532,799
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SWEDEN - 5.8%
SEK 3,600,000 Government of Sweden, 10.25%, 5/5/03 558,607
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The accompanying notes are an integral part of the financial statements.
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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SCHEDULE OF INVESTMENTS (CONCLUDED)
AS OF DECEMBER 31, 1998
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<S> <C> <C> <C>
PRINCIPAL
CURRENCY AMOUNT VALUE (US$)
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UNITED KINGDOM - 9.9%
GBP 420,000 United Kingdom Treasury, 9.00%, 10/13/08 $ 953,211
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TOTAL INVESTMENTS - 94.0% (cost $8,473,848) 9,059,992
Other Assets Less Liabilities - 6.0% 573,506
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TOTAL NET ASSETS - 100.0% $ 9,633,498
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FORWARD FOREIGN CURRENCY CONTRACTS
CONTRACTS TO SELL
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<S> <C> <C> <C> <C>
Underlying Unrealized
Face Amount Appreciation/
Maturity Date Currency Units of Value (Depreciation)
- ------------- -------- ----- ----------- --------------
1/20/99 AUD 206,677 $ 130,000 $ 3,212
1/20/99 CAD 470,000 304,296 (1,694)
1/20/99 DEM 8,813,066 5,245,936 (49,104)
1/20/99 GBP 585,183 975,913 2,700
1/20/99 SEK 4,500,000 563,415 8,065
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$ 7,219,560 $ (36,821)
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CONTRACTS TO BUY
Underlying Unrealized
Face Amount Appreciation/
Maturity Date Currency Units of Value (Depreciation)
- ------------- -------- ----- ----------- --------------
1/20/99 AUD 205,242 $ 130,000 $ (4,093)
1/20/99 CAD 985,600 640,000 1,667
1/20/99 DEM 7,452,920 4,530,000 (52,158)
1/20/99 DKK 160,000 25,023 120
1/20/99 GBP 235,696 400,000 (8,016)
1/20/99 JPY 243,028,000 2,043,119 115,210
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$ 7,768,142 $ 52,730
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Net Receivable for Forward Foreign
Currency Contracts (Note 2) $ 15,909
==========
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<TABLE>
<CAPTION>
______________________________
CURRENCY ABBREVIATIONS
<S> <C>
AUD - Australian Dollar FRF - French Franc
BEF - Belgian Franc GBP - British Pound
CAD - Canadian Dollar ITL - Italian Lira
DEM - German Mark JPY - Japanese Yen
DKK - Danish Krone SEK - Swedish Krona
ESP - Spanish Peseta
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
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ASSETS:
Investments (Note 2):
Investments at cost $ 8,473,848
Net unrealized appreciation (depreciation) 586,144
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Total Investments at Value 9,059,992
Cash 292,438
Cash denominated in foreign currencies (cost $7,568) 7,443
Receivable for forward foreign currency contracts (Note 2) 15,909
Interest and other receivables 291,868
Organization costs, net of amortization (Note 2) 4,963
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Total Assets 9,672,613
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LIABILITIES:
Payable to subadministrator (Note 3) 1,071
Accrued expenses and other liabilities 38,044
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Total Liabilities 39,115
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Net Assets $ 9,633,498
==================
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The accompanying notes are an integral part of the financial statements.
3
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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<S> <C>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME:
Interest income $ 857,701
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EXPENSES:
Investment advisory (Note 3) 70,985
Administration (Note 3) 14,197
Subadministration (Note 3) 25,000
Interestholder recordkeeping (Note 3) 12,131
Custody 4,626
Accounting (Note 3) 67,000
Legal 2,764
Audit 27,278
Trustees 1,185
Amortization of organization costs (Note 2) 1,654
Miscellaneous 5,860
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Total Expenses 232,680
Fees waived and expenses reimbursed (Note 6) (126,250)
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Net Expenses 106,430
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NET INVESTMENT INCOME (LOSS) 751,271
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) on investments sold (20,937)
Net realized gain (loss) on foreign currency transactions (776,235)
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Net realized gain (loss) on investments and foreign
currency transactions (797,172)
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Net change in unrealized appreciation (depreciation) on investments 1,328,529
Net change in unrealized appreciation (depreciation) on foreign
currency transactions 33,915
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Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions 1,362,444
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS 565,272
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,316,543
==================
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The accompanying notes are an integral part of the financial statements.
4
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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<S> <C> <C>
STATEMENTS OF CHANGES IN NET ASSETS
For the For the
Year Ended Year Ended
December 31, 1998 December 31, 1997
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NET ASSETS, BEGINNING OF PERIOD $ 16,515,402 $ 3,000,100
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OPERATIONS:
Net investment income (loss) 751,271 580,748
Net realized gain (loss) on investments and foreign currency (551,808)
transactions (797,172)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions 1,362,444 (752,540)
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Net increase (decrease) in net assets resulting from operations 1,316,543 (723,600)
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TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions 4,891,436 18,113,652
Withdrawals (13,089,883) (3,874,750)
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Net increase (decrease) from transactions in investors'
beneficial interests (8,198,447) 14,238,902
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Net increase (decrease) in net assets (6,881,904) 13,515,302
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NET ASSETS, END OF PERIOD $ 9,633,498 $ 16,515,402
=================== =====================
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FINANCIAL HIGHLIGHTS For the For the
Year Ended Year Ended
December 31, 1998 December 31, 1997
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NET ASSETS AT END OF PERIOD (IN THOUSANDS) $9,633 $16,515
RATIOS TO AVERAGE NET ASSETS:
Expenses including reimbursement/waiver of fees 0.75% 0.75%
Expenses excluding reimbursement/waiver of fees 1.64% 1.99%
Net investment income (loss) including reimbursement/
waiver of fees 5.29% 5.42%
PORTFOLIO TURNOVER RATE 140% 112%
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The accompanying notes are an integral part of the financial statements.
5
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Schroder Capital Funds II ("Schroder Core") was organized as a Delaware
business trust on December 27, 1996. 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. Included in this report is
Schroder International Bond Portfolio ("Portfolio"), which is a non-diversified
portfolio that commenced operations on December 31, 1996. Under its Trust
Instrument, Schroder Core is authorized to issue an unlimited number of
interests without par value. Interests in the Portfolio are sold 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 represent the significant accounting policies of the
Portfolio:
INVESTMENT VALUATION
Portfolio securities listed on recognized stock exchanges are valued at
the last reported sales price on the exchange on which the securities are
principally traded. Listed securities traded on recognized stock exchanges where
last sales prices are not available are valued at the last sale price on the
preceding day or at the mean of the closing bid and ask ("mid-market price").
Securities traded in over-the-counter markets, or listed securities for which no
trade is reported on the valuation date, are valued at the most recent reported
mid-market price. Prices used for valuations generally are 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 December 31, 1998, the Portfolio did
not hold a position in any fair valued securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on trade date. Interest income,
including accretion of discount, 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
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 enter into forward contracts to purchase or sell
foreign currencies to protect the U.S. dollar value of the underlying portfolio
of securities against the effect of possible adverse movements in foreign
exchange rates. Risks associated with such contracts include the movement in
value of the foreign currency relative to the U.S. dollar and the ability of the
counterparty to perform. Fluctuations in the value of such contracts are
recorded daily as unrealized gain or loss; realized gain or loss includes net
gain or loss on contracts that have terminated by settlement or by the Portfolio
entering into offsetting commitments.
ORGANIZATION COSTS
Costs incurred by the Portfolio in connection with its organization are
amortized on a straight line basis over a five-year period.
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES
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 compensation at an annual rate, payable monthly, of 0.50% of
the Portfolio's average daily net assets.
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
Portfolio's average daily net assets. The subadministrator of the Portfolio is
Forum Administrative Services, LLC ("FAdS"). FAdS is entitled to receive
compensation at an annual rate, payable monthly, of 0.075% of the Portfolio's
average daily net assets, subject to an annual minimum of $25,000 for its
services.
OTHER SERVICE PROVIDERS
Forum Accounting Services, LLC ("FAcS") performs portfolio accounting
services for the Portfolio and is entitled to receive compensation for its
services in the amount of $60,000 per year, plus certain other charges, based
upon the number and types of portfolio transactions. FAcS also provides
interestholder recordkeeping services to the Portfolio for which it receives
$12,000 per year, plus certain other charges.
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 December 31,
1998, were $22,224,990 and $29,698,947, respectively.
For federal income tax purposes, the tax basis of investment securities
owned, the aggregate gross unrealized appreciation and the aggregate gross
unrealized depreciation as of December 31, 1998, were $8,493,563, $689,600, and
$123,171, respectively.
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 and loss of the
Portfolio are 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 have been distributed by the Portfolio.
NOTE 6. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
SCMI, Schroder Advisors, FAdS and FAcS voluntarily waived a portion of
their fees and assumed certain expenses of the Portfolio so that the Portfolio's
total expenses would not exceed 0.75% of its average daily net assets. For the
period ended December 31, 1998, SCMI, Schroder Advisors, FAdS and FAcS waived
fees of $70,985, $14,197, $19,960 and $21,108, respectively.
NOTE 7. BENEFICIAL INTEREST
At December 31, 1998, there was one interestholder, otherwise
unaffiliated with the Portfolio, owning a 96.44% interest in the Portfolio.
NOTE 8. 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 a substantial amount of its assets in a
single 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 also invests in countries with limited or
developing capital markets. Investments in such countries may involve greater
risks than investments in more developed markets.
8
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Schroder Capital Funds II and Investors of Schroder
International Bond Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Schroder International Bond
Portfolio (a portfolio of Schroder Capital Funds II) at December 31, 1998, and
the results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 5, 1999
9
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TRUSTEES
David N. Dinkins
Peter E. Guernsey
Sharon L. Haugh
John I. Howell
Peter S. Knight
William L. Means
Clarence F. Michalis
Hermann C. Schwab
Mark J. Smith
INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
ADMINISTRATOR AND DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
CUSTODIAN
The Chase Manhattan Bank
Global Custody Division
125 London Wall
London EC2Y 5AJ, United Kingdom
TRANSFER AND DIVIDEND
DISBURSING AGENT
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
This report is for the information of the shareholders of the Schroder
International Bond 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.
