[LOGO] SCHRODERS
SCHRODER
INTERNATIONAL BOND
FUND
SEMI-ANNUAL REPORT
June 30, 1998
Schroder Capital Funds (Delaware)
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SCHRODER INTERNATIONAL BOND FUND
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Two Portland Square, Portland, Maine 04101
General Information (207) 879-6200
Account Information (800) 344-8332
Fund Literature (800) 290-9826
Fax (207) 879-6050
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek a high rate of total return. The
Fund normally invests substantially all of its assets in debt securities and
debt-related investments of issuers domiciled outside the United States.
INVESTMENT ADVISER
Schroder Capital Management International Inc. (the "Investment Adviser") is a
wholly owned indirect subsidiary of Schroders plc, the London Stock Exchange
listed holding company parent of an investment banking and investment management
group of companies (the "Schroder Group") that dates its origins to 1804. The
investment management operations of the Schroder Group are located in 20
countries worldwide. As of December 31, 1997, the Schroder Group had over $175
billion in assets under management. As of June 30, 1998, the Investment Adviser,
together with its U.K. affiliate, Schroder Capital Management International
Ltd., had over $27 billion under management.
August 15, 1998
Dear Shareholder,
We are pleased to present the Schroder International Bond Portfolio Fund's
semi-annual report for the period ending June 30, 1998. Over the period, total
return of the Fund was -2.04% compared to its benchmark, the Salomon Brothers
World Government Bond Index(R) (ex-U.S.), which returned 2.08%.
While most international bond markets performed well in the first half of the
year, overall, European bond markets performed better than Australia, Canada or
Japan. The Fund held a neutral European bond exposure on a weighted duration
basis versus the benchmark, but it was most heavily exposed to the short end of
the yield curves. As a result it did not fully benefit from the rally in longer
maturity bond prices and had a lower running yield than the benchmark. The
Fund's underweighting in the Japanese bond market added value, but was unable to
offset the impact of the European bond positioning.
The U.S. dollar was stronger over the period as it acted as a safe-haven against
most currencies associated with the Asian crisis. The Japanese Yen fell sharply
as recessionary conditions worsened and banking sector debts raised the prospect
of major bankruptcies. The Australian dollar was dragged down by the
geographical association with the Pacific-Rim and the strong regional trade
links that exist.
The strategic currency exposure between the major blocs was underweight the Yen
and overweight the Deutschemark which had a broadly neutral impact in relative
terms. However, exposure to both the
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SCHRODER INTERNATIONAL BOND FUND
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Australian and Canadian dollars detracted from performance. While both
currencies were at competitive levels, the fall in commodity prices (to which
both currencies are sensitive) as a result of the Asian turmoil led to their
resulting depreciation. The Canadian dollar is also sensitive to commodity price
trends and given the negative interest rate differential with the U.S., the
currency fell to all-time lows. Also, in the case of the Australian dollar,
being the most liquid Pacific-Rim currency outside Japan, investors sold it as a
proxy for Asian emerging market currencies adding to its decline.
The currency and bond exposures in the portfolio have been re-balanced in light
of management's increasing belief that the Asia financial turmoil, now affecting
both Russia and much of South America, provides a positive outlook for
international bond markets.
Thank you for your interest in the Schroder International Bond Portfolio.
Sincerely,
/S/ M. J. Smith
Mark J. Smith
President
2
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SCHRODER INTERNATIONAL BOND FUND
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MANAGEMENT DISCUSSION AND ANALYSIS (AS OF JUNE 30, 1998)
As the Asian crisis deepened and spread to Russia, support appeared to gather
for a decline in international government bond yields so the Fund extended
duration in both European markets and Japan. The prospects for a further
flattening of the yield curve increased as central banks held monetary policy
constant and inflation expectations declined. The Fund repositioned the yield
curve exposure accordingly. In the dollar bloc countries, exposure was confined
to the U.S. market as yield spreads in Canada and Australia converged offering
no risk premium over the "anchor" bond market. Duration was extended in the U.S.
allocation in response to the increasing demand from overseas investors seeking
a safe haven and the likelihood that the Federal Reserve would leave interest
rates unchanged for the remainder of the year.
The decline in the Australian dollar appeared to be a result of the fall in
commodity prices. Once the currency stabilized and rallied on the prospect of
central bank intervention, the Fund cut back exposure sharply. Sterling exposure
was reduced as data on the U.K. economy continued to show signs of weakness and
the potential for further interest rate rises diminished. The exposure was
switched into the Deutschemark as the cyclical economic outlook in Germany
remains strong in comparison to both the U.K. and the U.S. Towards the end of
the semi-annual period some profits were taken on the Deutschemark position
against the U.S. dollar on a tactical basis as renewed financial turmoil in
Japan and Russia led to safe-haven buying of the dollar.
Existing strategy for the Fund is focused on an overweighting in European bonds
relative to Japanese bonds, as management believes that yields in Japan are so
low that Japanese bonds no longer represent value. Once the cyclical outlook for
the economy improves, it is likely that yields will begin to rise from the
current artificially low levels and the Fund will further underweight the
Japanese exposure once the early signs of a recovery become evident.
The Asian crisis has several ramifications for both currency and bond strategy
depending upon the direction that it takes. The turmoil there is increasingly
affecting other emerging market economies and as this alters the risk
preferences of global investors, international government bond markets are
highly attractive. Should the crisis deepen, government bonds are likely to
become more popular and the Fund is likely to extend duration on signs of a
deterioration in the global economic and financial landscape. Management is
reluctant to extend the bond exposure in the near term, as many markets have
recently moved to new low yield levels. However, we will look to extend duration
exposure on any weakness as we regard the likelihood of a swift end to the
current economic difficulties remote and therefore the attraction of
international government bond markets to global investors to remain high.
The outlook for the U.S. dollar versus continental European currencies is
looking increasingly negative given the slowdown in U.S. activity as a result of
the deteriorating trade balance. The Fund, with an overweighting in European
currencies, is positioned to benefit should this occur. The outlook for the Yen
remains bleak until reforms by the Japanese government begin to take effect.
Until that occurs the Fund will maintain a strategic underweight position to the
currency.
THE VIEWS EXPRESSED IN THIS REPORT WERE THOSE OF THE FUND'S PORTFOLIO MANAGERS
AS OF THE DATES SPECIFIED 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 INVESTMENT IN THE FUND AND DO NOT CONSTITUTE INVESTMENT ADVICE; INVESTORS
SHOULD CONSULT THEIR OWN INVESTMENT PROFESSIONALS AS TO THEIR INDIVIDUAL
INVESTMENT PROGRAMS.
3
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SCHRODER INTERNATIONAL BOND FUND
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<TABLE>
PORTFOLIO CHARACTERISTICS AS OF JUNE 30, 1998 (UNAUDITED)
<S> <C> <C> <C> <C>
COUNTRY WEIGHTINGS TOP TEN HOLDINGS
SALOMON BROTHERS
WORLD GOVERNMENT
COUNTRY % OF NET ASSETS BOND INDEX SECURITY % OF NET ASSETS
- ----------------------------------------------------------------- -------------------------------------------------------
Austria 2.90% 1.40% Int'l Bank for Recon. & Development (SNat) 9.03%
Belgium 3.60% 3.60% Int'l Bank for Recon. & Development (SNat) 7.48%
Canada 6.40% 5.00% Deutschland Republik (Ger) 6.48%
Denmark 4.00% 2.30% FNMA (U.S.) 6.07%
France 7.10% 11.10% Deutschland Republik (Ger) 4.65%
Germany 24.50% 13.80% Asian Development Bank (SNat) 4.14%
Italy 3.20% 10.70% Societe Nat. Des Chemins (Fr) 4.11%
Japan 4.40% 27.40% KFW International Finance (Ger) 4.02%
Netherlands 6.40% 4.50% Bundes Obligation DM Iss. (Ger) 3.87%
Spain 3.20% 4.50% United Kingdom Treasury (U.K.) 3.84%
Supra-National 20.60% 0.00% ===============
United Kingdom 3.80% 9.90% Total 53.69%
United States 10.70% 0.00% ===============
Cash and Other Net Assets -0.80% 0.00%
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Total 100.00%
================
</TABLE>
4
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SCHRODER INTERNATIONAL BOND FUND
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STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
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ASSETS:
Investments (Notes 1 and 2):
Investment in Schroder International Bond Portfolio
(the "Portfolio") $ 58,194
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Total Assets 58,194
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LIABILITIES:
Accrued expenses and other liabilities 53
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Total Liabilities 53
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Net Assets $ 58,141
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COMPONENTS OF NET ASSETS:
Paid-in capital $ 59,140
Undistributed net investment income (loss) 1,430
Accumulated net realized gain (loss) (342)
Net unrealized appreciation (depreciation) on investments (2,087)
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Net Assets $ 58,141
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SHARES OF BENEFICIAL INTEREST 5,913
NET ASSET VALUE OFFERING AND REDEMPTION PRICE PER SHARE
(NET ASSETS / SHARES OF BENEFICIAL INTEREST) $ 9.83
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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SCHRODER INTERNATIONAL BOND FUND
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STATEMENT OF OPERATIONS (UNAUDITED)
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FOR THE
PERIOD ENDED
JUNE 30, 1998
(NOTE 1)
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NET INVESTMENT INCOME ALLOCATED FROM THE PORTFOLIO:
Interest income $ 1,682
Net expenses (199)
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Net Investment Income Allocated from the Portfolio 1,483
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EXPENSES:
Administration (Note 3) 27
Subadministration (Note 3) 11,533
Transfer agency (Note 3) 5,561
Accounting (Note 3) 5,548
Legal 201
Audit 5,975
Trustees 2
Registration 10,846
Miscellaneous 16
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Total Expenses 39,709
Fees waived and expenses reimbursed (Note 4) (39,656)
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Net Expenses 53
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NET INVESTMENT INCOME 1,430
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS ALLOCATED FROM THE PORTFOLIO:
Net realized gain on investments sold 160
Net realized gain (loss) on foreign currency transactions (502)
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Net realized gain (loss) on investments and foreign
currency transactions (342)
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Net change in unrealized appreciation (depreciation) on investments 216
Net change in unrealized appreciation (depreciation) on foreign
currency transactions (2,303)
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Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions (2,087)
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS ALLOCATED FROM THE PORTFOLIO (2,429)
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (999)
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</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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SCHRODER INTERNATIONAL BOND FUND
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STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
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FOR THE
PERIOD ENDED
JUNE 30, 1998
(NOTE 1)
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NET ASSETS, BEGINNING OF PERIOD $ -
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OPERATIONS:
Net investment income 1,430
Net realized gain (loss) on investments
and foreign currency transactions (342)
Net change in unrealized appreciation (depreciation) on investments
and foreign currency tranactions (2,087)
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Net increase (decrease) in net assets resulting from operations (999)
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CAPITAL SHARE TRANSACTIONS:
Sale of shares 59,140
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Net increase from capital share transactions 59,140
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Net increase in net assets 58,141
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NET ASSETS, END OF PERIOD $ 58,141
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(Including accumulated undistributed net investment income of $1,430)
SHARE TRANSACTIONS:
Sale of shares 5,913
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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SCHRODER INTERNATIONAL BOND FUND
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FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected per share data and ratios for a share outstanding throughout the
period:
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FOR THE
PERIOD ENDED
JUNE 30, 1998
(NOTE 1)
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Net Asset Value, Beginning of Period $10.00
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Investment Operations
Net Investment Income 0.24
Net Realized and Unrealized Gain (Loss) on Investments (0.41)
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Total from Investment Operations (0.17)
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Net Asset Value, End of Period $9.83
===================
Total Return (a) -1.70%
Ratio/Supplementary Data
Net Assets at End of Period (in thousands) $58
Ratios to Average Net Assets:
Expenses including reimbursement/waiver of fees 0.95%(b)(c)
Expenses excluding reimbursement/waiver of fees 150.09%(b)(c)
Net investment income including reimbursement/waiver of fees 5.35%(b)(c)
Portfolio Turnover Rate (d) 44.71%
</TABLE>
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(a) Total returns would have been lower had certain expenses not been reduced
during the period shown (See Note 4).
(b) Includes the Fund's proportionate share of income and expenses of the
Portfolio.
(c) Annualized.
(d) Portfolio turnover represents the rate of portfolio activity of the
Portfolio.
The accompanying notes are an integral part of the financial statements.
8
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SCHRODER INTERNATIONAL BOND FUND
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
NOTE 1. ORGANIZATION
Schroder Capital Funds (Delaware) (the "Trust") was organized as a Maryland
corporation on July 30, 1969; reorganized as a series company on February 29,
1988, as Schroder Capital Funds, Inc.; and reorganized on January 9, 1996, as a
Delaware business trust. The Trust, which is registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"Act"), currently has eight investment portfolios. Included in this report is
the Schroder International Bond Fund (the "Fund"), a non-diversified portfolio
that commenced operations on January 15, 1998. 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 which have equal
rights as to assets and voting privileges. As of June 30, 1998, 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 International Bond Portfolio
(the "Portfolio"), a separate non-diversified portfolio of Schroder Capital
Funds II ("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 also is registered as an
open-end management investment company. The Fund may withdraw its investment
from the Portfolio at any time if the Trust's Board of Trustees determines 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 interest 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 on
pages 11 to 19 of this report and should be read in conjunction with the Fund's
financial statements. As of June 30, 1998, the Fund owns approximately 0.52% of
the Portfolio's interests.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles that require management to make certain estimates and
assumptions which affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates. The following summarizes the significant accounting policies of the
Fund:
SECURITY VALUATION - The Trust determines the net asset value per share of the
Fund as of the close of trading on the New York Stock Exchange on each Fund
business day. Valuation of securities held in the Portfolio 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 accrues its own expenses.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends and capital gain distributions, if
any, are distributed to shareholders at least annually. 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 Fund, timing differences and
differing characterizations of distributions made by the Fund.
9
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SCHRODER INTERNATIONAL BOND FUND
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
FEDERAL TAXES - The Fund intends to qualify, and continue to qualify, each year
as a regulated investment company and distribute all its taxable income. In
addition, by distributing in each calendar year substantially all its net
investment income, capital gain and certain other amounts, if any, the Fund will
not be subject to a federal excise tax. Therefore, no federal income or excise
tax provision is required.
EXPENSE ALLOCATION - The Trust accounts separately for the assets and
liabilities and operation of each Fund. Expenses that are directly attributable
to more than one Fund are allocated among the respective Funds in proportion to
each Fund's net assets. Expenses that are directly attributable to a class of
shares are allocated to that class.
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER - The Fund currently invests all its assets in the Portfolio,
which retains Schroder Capital Management International Inc. ("SCMI") to act as
investment adviser pursuant to an Investment Advisory Agreement. See Notes to
the Financial Statements of the Portfolio.
ADMINISTRATOR AND SUBADMINISTRATOR - The Trust, on behalf of the Fund, has
entered into an Administration Agreement with Schroder Fund Advisors Inc.
("SFA") and a Subadministration Agreement with Forum Administrative Services,
LLC ("FAdS"). For its services, SFA is entitled to receive compensation at an
annual rate, payable monthly, of 0.10% of the average daily net assets of the
Fund. For its services, FAdS is entitled to receive compensation at an annual
rate, payable monthly, of 0.075% of the average daily net assets of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT - The transfer agent and dividend
disbursing agent for the Fund is Forum Shareholder Services, LLC ("FSS"). For
its services, FSS is paid a fee in the amount of $12,000 per share class, per
year, plus certain other charges.
OTHER SERVICE PROVIDERS - Forum Accounting Services, LLC ("FAcS") provides fund
accounting services to the Fund. For its services to the Fund, FAcS is entitled
to receive from the Trust a fee of $12,000 per year.
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
In order to limit the Fund's expenses, SCMI and SFA have voluntarily agreed to
reduce their compensation (and, if necessary, to pay certain expenses of the
Fund) to the extent that the Fund's expenses exceed 0.95% of the Fund's average
daily net assets attributable to Investor shares. The expense limitations cannot
be modified or withdrawn except by a majority vote of the Trustees of the Trust.
SCMI, SFA, FAdS, FSS and FAcS may voluntarily waive all or a portion of their
fees, at any time. For the period ended June 30, 1998, SFA and FAdS waived fees
of $27 and $11,513, respectively, and SFA reimbursed expenses of $28,116.
10
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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SCHEDULE OF INVESTMENTS (UNAUDITED)
AS OF JUNE 30, 1998
FIXED INCOME INVESTMENTS -100.8%
<TABLE>
<S> <C> <C>
CURRENCY FACE VALUE US$
- -------- ---- ---------
AUSTRIA - 2.9%
DEM 550,000 Republic of Austria, 6.88%, 4/3/00 $ 320,220
-----------------------
BELGIUM - 3.6%
BEF 14,500,000 Kingdom of Belgium, 7.00%, 4/29/99 399,656
-----------------------
CANADA - 6.4%
GBP 250,000 Government of Canada, 6.25%, 11/26/04 411,157
DEM 500,000 Province of Ontario, 6.25%, 1/13/04 300,472
-----------------------
-----------------------
711,629
-----------------------
DENMARK - 4.0%
DKK 1,100,000 Kingdom of Denmark, 8.00%, 11/15/01 177,264
DKK 1,500,000 Kingdom of Denmark, 7.00%, 11/10/24 265,438
-----------------------
-----------------------
442,702
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FRANCE - 7.1%
FRF 2,000,000 Government of France, 4.75%, 3/12/02 335,647
FRF 2,500,000 Societe Nat. Des Chemins, 7.75%, 3/1/02 458,724
-----------------------
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794,371
-----------------------
GERMANY - 24.5%
GBP 250,000 Bayerische Landesbank, 6.88%, 6/7/02 418,571
DEM 750,000 Bundesobligation, 6.50%, 3/15/00 432,406
DEM 750,000 KFW International Finance, 6.25%, 10/15/03 448,982
DEM 360,000 Truehand-Obligation, 5.00%, 12/17/98 200,672
DEM 1,200,000 Deutschland Republik, 6.00%, 1/4/07 722,642
DEM 800,000 Deutschland Republik, 6.50%, 7/5/27 518,908
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2,742,181
-----------------------
ITALY - 3.2 %
ITL 570,000,000 Republic of Italy, 10.50%, 7/15/00 357,575
-----------------------
JAPAN - 4.4%
USD 100,000 IBJ Preferred Capital Co., LLC, 8.79% V/R, 12/29/49 91,550
USD 400,000 SB Treasury Co., LLC, 9.40% V/R, 12/29/49 394,250
-----------------------
485,800
-----------------------
NETHERLANDS - 6.4%
NLG 800,000 Government of Netherlands, 7.50%, 11/15/99 411,237
DEM 500,000 LKB Baden-Wuerttemberg Finance, 6.63%, 8/20/03 302,836
-----------------------
-----------------------
714,073
-----------------------
SPAIN - 3.2%
ESP 50,000,000 Government of Spain, 8.40%, 4/30/01 361,522
-----------------------
SUPRA-NATIONAL - 20.6%
DEM 800,000 Asian Development Bank, 5.50%, 10/24/07 462,210
JPY 100,000,000 International Bank for Recon. & Development, 5.25%, 3/20/02 835,069
GBP 600,000 International Bank for Recon. & Development, 7.00%, 6/7/02 1,007,354
-----------------------
2,304,633
-----------------------
UNITED KINGDOM - 3.8%
GBP 240,000 United Kingdom Treasury, 8.00%, 6/10/03 428,375
-----------------------
UNITED STATES -10.7%
JPY 90,000,000 FNMA, 2.13%, 10/9/07 677,795
USD 200,000 U.S. Treasury Bond, 6.13%, 11/15/27 214,375
USD 300,000 U.S. Treasury Note, 6.25%, 5/31/00 304,031
-----------------------
-----------------------
1,196,201
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TOTAL FIXED INCOME INVESTMENTS (COST $11,504,214) 11,258,938
-----------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONCLUDED)
AS OF JUNE 30, 1998
<TABLE>
<S> <C> <C>
CURRENCY FACE VALUE US$
- -------- ---- ---------
PURCHASED PUT OPTION - 0.0%
DEM 1,000,000 German Deutsche Mark July 31,1998 @1.725 (cost $11,000) 649
DEM 1,250,000 German Deutsche Mark July 15,1998 @1.750 (cost $4,500) -
DEM 1,000,000 German Deutsche Mark August 31, 1998 @1.750 (cost $13,000) 3,902
-----------------------
-----------------------
4,551
-----------------------
Total Investments -100.8% (cost $11,532,714) 11,263,489
Other Assets Less Liabilities - (0.8%) (88,867)
-----------------------
Total Net Assets - 100.0% $ 11,174,622
=======================
</TABLE>
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FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
CONTRACTS TO SELL
<S> <C> <C> <C> <C>
CONTRACT DATE CURRENCY UNITS US $ UNREALIZED GAIN/(LOSS) US$
-----------------------------------------------------------------------------------
8/14/98 AUD 16,892 $ 12,521 $ (22,987)
8/14/98 DEM 4,146,760 2,345,518 42,403
7/15/98 ESP 41,500,000 266,532 (4,656)
7/15/98 FRF 460,000 76,033 (108)
7/15/98 -8/14/98 GBP 1,369,900 2,238,801 (43,937)
7/15/98 JPY 38,100,000 145,759 (129,271)
=======================
$ (158,556)
=======================
</TABLE>
<TABLE>
CONTRACTS TO BUY
<S> <C> <C> <C> <C>
CONTRACT DATE CURRENCY UNITS US $ UNREALIZED GAIN/(LOSS) US$
-----------------------------------------------------------------------------------
7/15/98 AUD 500,000 $ 348,809 $ (39,135)
7/15/98 -8/14/98 CAD 1,650,000 1,176,960 (54,550)
7/15/98 DEM 6,370,000 3,605,571 (73,942)
7/15/98 DKK 160,000 23,270 6
10/15/98 GRD 39,150,000 125,428 821
7/15/98 ITL 1,230,654,429 691,289 1,139
8/14/98 JPY 151,034,000 1,151,612 (56,609)
7/15/98 NLG 18,000 11,345 (2,490)
=======================
$ (224,760)
=======================
=======================
Net forward foreign currency contracts $ (383,316)
- ---------------------- =======================
</TABLE>
ABBREVIATIONS
AUD - Australian Dollar
BEF - Belgian Franc
CAD - Canadian Dollars
DEM - German Deutsche Mark
DKK - Danish Krone
ESP - Spanish Peseta
FRF - French Franc
GBP - British Pound
GRD - Greek Drachma
ITL - Italian Lira
JPY - Japanese Yen
NLG - Dutch Guilder
USD - United States Dollar
The accompanying notes are an integral part of the financial statements.
12
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost $ 11,532,714
Net unrealized appreciation (depreciation) (269,225)
------------------
Total Investments at Value 11,263,489
Cash 41,630
Cash denominated in foreign currencies (cost $5,056) 4,943
Receivable for investments sold 709,167
Interest and other receivables 254,094
Organization costs, net of amortization (Note 2) 5,790
------------------
Total Assets 12,279,113
------------------
LIABILITIES:
Payable for investments purchased 700,000
Payable for forward foreign currency contracts 383,317
Payable to subadministrator (Note 3) 3,452
Accrued expenses and other liabilities 17,722
------------------
Total Liabilities 1,104,491
------------------
Net Assets $ 11,174,622
==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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<TABLE>
<S> <C>
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE
PERIOD ENDED
JUNE 30, 1998
(NOTE 1)
------------------
INVESTMENT INCOME:
Interest income $ 506,641
------------------
EXPENSES:
Investment advisory (Note 3) 40,378
Administration (Note 3) 8,076
Subadministration (Note 3) 12,500
Transfer agency (Note 3) 6,073
Custody 2,733
Accounting (Note 3) 34,000
Legal 757
Audit 15,300
Trustees 743
Amortization of organization costs (Note 2) 829
Miscellaneous 2,177
------------------
Total Expenses 123,566
Fees waived and expenses reimbursed (Note 6) (63,004)
------------------
Net Expenses 60,562
------------------
NET INVESTMENT INCOME 446,079
------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) on investments sold (94,526)
Net realized gain (loss) on foreign currency transactions (716,982)
------------------
Net realized gain (loss) on investments and foreign
currency transactions (811,508)
------------------
Net change in unrealized appreciation (depreciation) on investments 476,082
Net change in unrealized appreciation (depreciation) on foreign
currency transactions (426,536)
------------------
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions 49,546
------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS (761,962)
------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (315,883)
==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
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SCHRODER INTERNATIONAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
(UNAUDITED) (NOTE 1)
----------------- -------------------
NET ASSETS, BEGINNING OF PERIOD $ 16,515,402 $ 3,000,100
----------------- -------------------
OPERATIONS:
Net investment income 446,079 580,748
Net realized gain (loss) on investments and foreign currency transactions (811,508) (551,808)
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions 49,546 (752,540)
----------------- -------------------
Net increase (decrease) in net assets resulting from operations (315,883) (723,600)
----------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 3,537,175 18,113,652
Withdrawals (8,562,072) (3,874,750)
----------------- -------------------
Net increase (decrease) from transactions in investors'
beneficial interest (5,024,897) 14,238,902
----------------- -------------------
Net increase (decrease) in net assets (5,340,780) 13,515,302
----------------- -------------------
NET ASSETS, END OF PERIOD $ 11,174,622 $ 16,515,402
================= ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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FINANCIAL HIGHLIGHTS
Portfolio performance for the following periods:
<TABLE>
<S> <C> <C>
FOR THE
PERIOD ENDED FOR THE
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
--------------- -------------------------
Ratios to Average Net Assets:
Expenses including reimbursement/waiver of fees 0.75% (a) 0.75%
Expenses excluding reimbursement/waiver of fees 1.53% (a) 1.99%
Net investment income including reimbursement/waiver of fees 5.52% (a) 5.42%
Portfolio Turnover Rate 44.71% 112.04%
</TABLE>
- ----------------------------------------------
(a) Annualized.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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. 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 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 period. Actual results could differ from those estimates.
The following summarizes the significant accounting policies of the Portfolio:
SECURITY VALUATION - 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 currency denominated short-term investments
are valued at local amortized cost and then translated into U.S. dollars.
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 closing mid-market prices. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith using methods approved by the Schroder Core Board of
Trustees.
SECURITY TRANSACTIONS AND INVESTMENT INCOME - Investment transactions are
accounted for on 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 occurring 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.
17
<PAGE>
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SCHRODER INTERNATIONAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Portfolio may enter into forward contracts to purchase or sell foreign
currencies to protect the U.S. dollar value of the underlying portfolio 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 an annual fee, 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. ("SFA"). In addition, the Portfolio has entered into
a Subadministration Agreement with Forum Administrative Services, LLC ("FAdS").
For its services, SFA 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, FAdS is entitled to receive compensation at an annual rate,
payable monthly, of 0.075% of the average daily net assets of the Portfolio,
subject to an annual minimum of $25,000.
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 interest holder record keeping services to the Portfolio for which
it receives, from Schroder Core, $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 June 30, 1998 were
$8,149,415 and $14,485,027, 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 June 30, 1998 were $11,504,214, $60,757, and $306,032,
respectively.
NOTE 5. FEDERAL TAXES
The Portfolio is not required to pay federal income tax 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 interest holders 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, dividends, and capital gains
at various rates.
18
<PAGE>
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SCHRODER INTERNATIONAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)
JUNE 30, 1998
NOTE 6. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
SCMI, SFA, FAdS and FAcS 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. For the period ended June 30, 1998, SCMI, SFA,
FAdS and FAcS waived fees of $40,378, $8,076, $8,861 and $5,690, respectively.
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.
19
<PAGE>
TRUSTEES OFFICERS
Hermann C. Schwab Hermann C. Schwab
Peter E. Guernsey Chairman of the Board
John I. Howell Mark J. Smith
Clarence F. Michalis President
Mark J. Smith Mark Astley
David N. Dinkins Vice President
Peter S. Knight Robert G. Davy
Sharon L. Haugh Vice President
Margaret H. Douglas-Hamilton
Vice President
Richard R. Foulkes
Vice President
John Y. Keffer
Vice President
Jane P. 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, 34th Floor
New York, NY 10019
ADMINISTRATOR & DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue, 34th Floor
New York, NY 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, ME 04101
COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110-2624
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, MA 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.
