[Logo] SCHRODERS
SCHRODER
INTERNATIONAL BOND
FUND
ANNUAL REPORT
December 31, 1998
Schroder Capital Funds (Delaware)
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SCHRODER INTERNATIONAL BOND FUND
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Account Information (800) 344-8332
Fund Literature (800) 290-9826
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek a high rate of total return.
INVESTMENT ADVISER
Schroder Capital Management International Inc. 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, 1998, the Schroder Group had over $195 billion in assets under
management. As of December 31, 1998, the Investment Adviser, together with its
U.K. affiliate, Schroder Capital Management International Ltd., had
approximately $27 billion under management.
February 22, 1999
Dear Shareholder:
The Schroder International Bond Fund commenced operations on January 15,
1998. From its inception through the year ended December 31, 1998, the Fund
returned 14.00%. Its benchmark, the Salomon Smith Barney World Government Bond
ex-US (unhedged) Index, returned 17.91% over the same period.
Overall, 1998 was a positive year for bonds, as the value of bonds rose
due to falling bond yields in all markets. The main concern for global monetary
policy makers appeared to be deflation rather than inflation, especially in the
second half of the year following the Russian devaluation in August and the
subsequent global financial crisis. Central banks around the world responded to
the crisis by successively cutting interest rates in the fourth quarter, which
helped bring international bond yields significantly lower.
European bond markets produced the highest returns for the year. Among
the countries participating in the European Monetary Union (EMU) there was a low
variation of returns in 1998, reflecting the large degree of convergence that
had already occurred due to investors' confidence in the EMU process. The
Japanese bond market performed worse for the same period, suffering from
exceptionally low yield levels and investors' deteriorating perceptions about
the state of that government's finances.
In the first half of the year, the Fund's overall conservative duration
position detracted from performance, as yields continued to decline. In the
second half of the year, the Russian debt crisis and falls in the global stock
market resulted in a "flight to quality" as investors sought a relatively safe
place to invest. The consequent decline in bond yields had a negative impact on
the Fund, although we extended duration of European bonds later in the year,
which contributed positively to the Fund's performance.
The Fund performed well in the fourth quarter. One of the key
contributing factors was the decision to move to an overweight position in the
Japanese yen against the U.S. dollar, as the yen rose dramatically against the
dollar in a very short period of time.
Thank you for your interest in the Schroder International Bond Fund.
Sincerely,
Mark J. Smith
CHAIRMAN
1
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SCHRODER INTERNATIONAL BOND FUND
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MANAGEMENT DISCUSSION AND ANALYSIS (AS OF DECEMBER 31, 1998)
Q: WHAT STEPS DID THE FUND TAKE TO MITIGATE THE EFFECTS OF THE GLOBAL FINANCIAL
CRISIS IN THE FALL OF 1998?
A: Given the deflationary forces in the global economy in 1998, we adopted a
cautious stance to credit exposure. Therefore, throughout the year, the Fund
focused on high quality issues and almost completely invested in sovereign
issuers. The liquidity crunch that emerged in the fall of 1998 led to a relative
sell off of credit-dependent debt positions as investors sought to lock in
profits and reduce their risk levels. One major casualty was the U.S. dollar
which fell dramatically against the Japanese yen in the third quarter. The
portfolio was protected from these potential losses by holding a neutral
position against the yen during this period.
Q: GIVEN THE GENERAL DECLINE IN BOND YIELDS ACROSS GLOBAL MARKETS IN 1998, HOW
WAS THE FUND POSITIONED TO TAKE ADVANTAGE OF THIS TREND?
A: We were cautious in our outlook for bond markets in the early part of 1998 as
developed economies were still experiencing robust growth and interest rate
increases appeared likely, particularly in the U.S. However, yields on bonds
continued to decline as inflation was subdued and therefore inflation-adjusted
yields remained attractive. Following the Russian devaluation and default in
August, the financial landscape changed completely: safe haven flows were
directed at government bond markets, the threat of a slowdown in growth
increased and deflationary pressures intensified. As investors fled to more
defensive positions, yields on bonds fell and consequently prices of bonds rose.
Therefore, we increased the portfolio's exposure to government bond markets in
order to benefit from the continued decline in bond yields and subsequent rise
in prices.
Q: WHAT EFFECT, IF ANY, WILL THE INTRODUCTION OF THE EURO HAVE ON THE FUND'S
INVESTMENT STRATEGY?
The advent of the euro has completely altered the context of the European bond
market. While yields between European Monetary Union (EMU) member governments
are now very similar because the element of currency risk has been removed,
opportunities in corporate bonds have grown. This is mainly because the now
sizeable EMU bond market is encouraging corporations to raise funds through the
bond market rather than through traditional bank lending. Consequently, there is
an important new sector of the bond market for the portfolio to invest in and,
by investing in corporate debt rather than sovereign debt, there is the
potential for higher returns. Given the widening of spreads between these two
categories in late 1998, value has returned to the markets, and we anticipate
starting to build the portfolio's strategic exposure to this sector.
Q: WHAT IS YOUR GLOBAL OUTLOOK FOR THE YEAR AHEAD?
A: The global economic outlook remains precarious with a slowdown in growth and
falling inflation likely. We believe that U.S. growth will slow in 1999;
European growth is already slowing due to reduced demand for exports and high
unemployment; and the Japanese economy is still in recession. In addition,
deflationary pressures are increasing as emerging market countries attempt to
export their way back to growth by selling cheap goods across world markets,
thereby keeping prices low. For this reason, we believe that global bond yields
will continue to fall over the medium term. In terms of currency exposure, given
what we believe will be a slowdown in the U.S. economy later in 1999 and a still
burgeoning current account deficit, the U.S. dollar is likely to come under
significant downward pressure versus the new euro currency.
THE VIEWS EXPRESSED IN THIS REPORT WERE THOSE OF THE FUND'S PORTFOLIO MANAGERS
AS OF DECEMBER 31, 1998, 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.
2
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SCHRODER INTERNATIONAL BOND 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 Fund with the performance of the Salomon Smith Barney World Government Bond
ex-US (unhedged) Index (the "WGB Index") since inception date of the Fund. The
WGB Index is a market capitalization weighted benchmark that tracks the
performance of 16 government bond markets of Europe and Asia. The Fund's return
reflects deduction of applicable fees and expenses; the WGB Index return does
not reflect deduction of any fees and expenses. 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 OR GUARANTEE FUTURE RESULTS.
SCHRODER INTERNATIONAL BOND FUND - INVESTOR SHARES VS.THE WGB INDEX
INVESTMENT VALUE ON 12/31/98
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Schroder International Bond Fund - Investor Shares $11,400
WGB Index $11,791
CUMULATIVE TOTAL RETURN ON 12/31/98 SINCE INCEPTION
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Schroder International Bond Fund - Investor Shares 14.00%(a)
[EDGAR REPRESENTATION OF GRAPH CHART]
Schroder
International The WGB
Bond Fund Index
1/15/98 10,000.00 10,000.00
1/31/98 10,080.00 10,077.86
2/28/98 10,170.00 10,219.49
3/31/98 9,970.00 10,051.38
4/30/98 10,130.00 10,272.53
5/31/98 9,990.00 10,255.76
6/30/98 9,830.00 10,218.90
7/31/98 9,830.00 10,231.12
8/31/98 10,040.00 10,511.49
9/30/98 10,690.00 11,201.02
10/31/98 11,070.00 11,706.46
11/30/98 10,950.00 11,468.00
12/31/98 11,400.12 11,790.99
(a) Inception date of the Fund was January 15, 1998.
3
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SCHRODER INTERNATIONAL BOND FUND
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STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments (Notes 1 and 2):
Investment in Schroder International Bond Portfolio
(the "Portfolio") $ 229,482
Receivable from administrator 38,944
Receivable for Fund shares sold 409
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Total Assets 268,835
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LIABILITIES:
Payable to subadministrator 61
Accrued expenses and other liabilities 39,045
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Total Liabilities 39,106
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Net Assets $ 229,729
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COMPONENTS OF NET ASSETS:
Paid-in capital $ 217,677
Undistributed (distributions in excess of) net investment income 1,080
Accumulated net realized gain (loss) (1,353)
Net unrealized appreciation (depreciation) on investments 12,325
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Net Assets $ 229,729
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SHARES OF BENEFICIAL INTEREST 20,421
NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER SHARE $ 11.25
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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SCHRODER INTERNATIONAL BOND FUND
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STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998 (a)
<TABLE>
<S> <C>
NET INVESTMENT INCOME ALLOCATED FROM THE PORTFOLIO:
Interest income $ 4,848
Net expenses (604)
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Net Investment Income Allocated from the Portfolio 4,244
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EXPENSES:
Administration (Note 3) 81
Subadministration (Note 3) 24,041
Transfer agency (Note 3) 11,575
Accounting (Note 3) 11,548
Legal 762
Audit 11,119
Trustees 7
Reporting 2,026
Registration 12,859
Miscellaneous 16
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Total Expenses 74,034
Fees waived and expenses reimbursed (Note 4) (73,872)
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Net Expenses 162
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NET INVESTMENT INCOME (LOSS) 4,082
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS ALLOCATED FROM THE PORTFOLIO:
Net realized gain (loss) on investments sold (495)
Net realized gain (loss) on foreign currency transactions (1,103)
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Net realized gain (loss) on investments and foreign
currency transactions (1,598)
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Net change in unrealized appreciation (depreciation) on investments 13,120
Net change in unrealized appreciation (depreciation) on foreign
currency transactions (795)
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Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions 12,325
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NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS ALLOCATED FROM THE PORTFOLIO 10,727
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 14,809
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</TABLE>
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(a) The Fund commenced operations on January 15, 1998.
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 CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998 (a)
<TABLE>
<S> <C>
NET ASSETS, BEGINNING OF PERIOD $ -
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OPERATIONS:
Net investment income (loss) 4,082
Net realized gain (loss) on investments and foreign currency
transactions (1,598)
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions 12,325
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Net increase (decrease) in net assets resulting from operations 14,809
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,542)
Net realized gain on investments (399)
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Total distributions to shareholders (2,941)
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CAPITAL SHARE TRANSACTIONS:
Sale of shares 215,146
Reinvestment of distributions 2,941
Redemption of shares (226)
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Net increase (decrease) from capital share transactions 217,861
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Net increase (decrease) in net assets 229,729
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NET ASSETS, END OF PERIOD (b) $ 229,729
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SHARE TRANSACTIONS:
Sale of shares 20,179
Reinvestment of distributions 265
Redemption of shares (23)
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Net increase (decrease) from share transactions 20,421
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</TABLE>
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(a) The Fund commenced operations on January 15, 1998.
(b) Includes undistributed net investment income of $1,080.
The accompanying notes are an integral part of the financial statements.
6
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SCHRODER INTERNATIONAL BOND FUND
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FINANCIAL HIGHLIGHTS - INVESTOR SHARES
FOR THE PERIOD ENDED DECEMBER 31, 1998 (a)
Selected per share data and ratios for a Share outstanding throughout the
period:
<TABLE>
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
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INVESTMENT OPERATIONS:
Net investment income (loss) 0.20
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 1.20
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Total from investment operations 1.40
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DISTRIBUTIONS FROM:
Net investment income (0.13)
Net realized gain on investments (0.02)
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Total distributions (0.15)
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NET ASSET VALUE, END OF PERIOD $11.25
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TOTAL RETURN 14.00% (b)(c)
RATIO/SUPPLEMENTARY DATA:
Net assets at end of period (in thousands) $230
RATIOS TO AVERAGE NET ASSETS:
Expenses including reimbursement/waiver of fees 0.95% (d)(e)
Expenses excluding reimbursement/waiver of fees 92.87% (d)(e)
Net investment income including reimbursement/waiver of fees 5.03% (d)(e)
PORTFOLIO TURNOVER RATE 140% (f)
</TABLE>
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(a) The Fund commenced operations on January 15, 1998.
(b) Total return would have been lower had certain expenses not been reduced
during the period shown (See Note 4).
(c) Total return is calculated from Fund's inception to date.
(d) Includes the Fund's proportionate share of income and expenses of the
Portfolio.
(e) Annualized.
(f) Rate represents the turnover of the underlying Portfolio.
The accompanying notes are an integral part of the financial statements.
7
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SCHRODER INTERNATIONAL BOND FUND
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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 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 nine investment portfolios. Included in this report
is the Schroder International Bond Fund (the "Fund"), which is 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 December 31,
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 investment and records daily its
share of the Portfolio's income, expenses and realized and unrealized gain or
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
December 31, 1998, the Fund owned approximately 2.38% of the Portfolio's
interests.
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 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 or loss. In addition, the Fund accrues
its own expenses.
8
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SCHRODER INTERNATIONAL BOND FUND
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income and net capital gain, if any, are distributed to
shareholders at least annually and are recorded on the ex-dividend date.
Distributions are based on amounts calculated in accordance with applicable
federal income tax regulations, which may differ from generally accepted
accounting principles. These differences are due primarily to differing
treatments of income and gain on various investment securities held by the
Portfolio, timing differences and differing characterizations of distributions
made by the Fund.
FEDERAL TAXES
The Fund intends to qualify, 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 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 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 average net assets.
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 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 0.10% of the Fund's average
daily net assets. The subadministrator of the Fund is Forum Administrative
Services, LLC ("FAdS"). FAdS is entitled to receive compensation at an annual
rate, payable monthly, of 0.075% of the Fund's average daily net assets, subject
to an annual minimum of $25,000 for its services, plus a $12,000 charge per
additional class of shares.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The transfer agent and dividend disbursing agent for the Fund is Forum
Shareholder Services, LLC ("FSS"). FSS is paid a fee in the amount of $12,000
per share class, per year, plus certain other fees and expenses.
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
Fund a fee of $12,000 per year.
9
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SCHRODER INTERNATIONAL BOND FUND
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NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
In order to limit the Fund's expenses, SCMI and Schroder Advisors 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 limitation cannot be modified or withdrawn except by a majority vote
of the Trustees who are not affiliated persons (as defined in the Act) of the
Trust. SCMI, Schroder Advisors, FAdS, FSS and FAcS may voluntarily waive all or
a portion of their fees at any time. For the year ended December 31, 1998,
Schroder Advisors and FAdS waived fees of $81 and $23,980, respectively, and
Schroder Advisors reimbursed expenses of $49,811.
NOTE 5. BENEFICIAL INTEREST
At December 31, 1998, there was one shareholder, otherwise unaffiliated
with the Fund, owning 100% of the Fund's shares.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
DISTRIBUTIONS
During the fiscal year ended December 31, 1998, the Fund distributed $11 in
long term capital gain to shareholders.
10
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SCHRODER INTERNATIONAL BOND FUND
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Schroder Capital Funds (Delaware) and Shareholders of
Schroder International Bond 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 International Bond Fund (a series of Schroder Capital Funds
(Delaware)) at December 31, 1998, and the results of its operations, the changes
in its net assets and the financial highlights for the period 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 audit. We
conducted our audit 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
audit provides a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 5, 1999
11
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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SCHEDULE OF INVESTMENTS
AS OF DECEMBER 31, 1998
<TABLE>
<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
-------------
BELGIUM - 4.5%
BEF 13,250,000 Kingdom of Belgium, 9.00%, 6/27/01 437,582
-------------
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
-------------
549,614
-------------
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
-------------
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
-------------
2,196,203
-------------
ITALY - 4.0%
ITL 570,000,000 Republic of Italy, 10.5%, 7/15/00 382,634
-------------
NETHERLANDS - 3.5%
DEM 500,000 LKB Baden-Wuerttemberg Finance, 6.63%, 8/20/03 338,458
-------------
SPAIN - 4.1%
ESP 50,000,000 Government of Spain, 8.40%, 4/30/01 394,120
-------------
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
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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SCHEDULE OF INVESTMENTS (CONCLUDED)
AS OF DECEMBER 31, 1998
<TABLE>
<S> <C> <C> <C>
PRINCIPAL
CURRENCY AMOUNT VALUE (US$)
-------- --------- -----------
UNITED KINGDOM - 9.9%
GBP 420,000 United Kingdom Treasury, 9.00%, 10/13/08 $ 953,211
-------------
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
=============
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS
CONTRACTS TO SELL
<TABLE>
<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
----------- ----------
$ 7,219,560 $ (36,821)
----------- ----------
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
------------ ----------
$ 7,768,142 $ 52,730
------------ -----------
Net Receivable for Forward Foreign
Currency Contracts (Note 2) $ 15,909
==========
</TABLE>
<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.
13
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost $ 8,473,848
Net unrealized appreciation (depreciation) 586,144
------------------
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
------------------
Total Assets 9,672,613
------------------
LIABILITIES:
Payable to subadministrator (Note 3) 1,071
Accrued expenses and other liabilities 38,044
------------------
Total Liabilities 39,115
------------------
Net Assets $ 9,633,498
==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
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<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME:
Interest income $ 857,701
------------------
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
------------------
Total Expenses 232,680
Fees waived and expenses reimbursed (Note 6) (126,250)
------------------
Net Expenses 106,430
------------------
NET INVESTMENT INCOME (LOSS) 751,271
------------------
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)
------------------
Net realized gain (loss) on investments and foreign
currency transactions (797,172)
------------------
Net change in unrealized appreciation (depreciation) on investments 1,328,529
Net change in unrealized appreciation (depreciation) on foreign
currency transactions 33,915
------------------
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions 1,362,444
------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS 565,272
------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,316,543
==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
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SCHRODER INTERNATIONAL BOND PORTFOLIO
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<TABLE>
<S> <C> <C>
STATEMENTS OF CHANGES IN NET ASSETS
For the For the
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------ -------------------
NET ASSETS, BEGINNING OF PERIOD $ 16,515,402 $ 3,000,100
------------------- ---------------------
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)
------------------- ---------------------
Net increase (decrease) in net assets resulting from operations 1,316,543 (723,600)
------------------- ---------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions 4,891,436 18,113,652
Withdrawals (13,089,883) (3,874,750)
------------------- ---------------------
Net increase (decrease) from transactions in investors'
beneficial interests (8,198,447) 14,238,902
------------------- ---------------------
Net increase (decrease) in net assets (6,881,904) 13,515,302
------------------- ---------------------
NET ASSETS, END OF PERIOD $ 9,633,498 $ 16,515,402
=================== =====================
</TABLE>
<TABLE>
<S> <C> <C>
FINANCIAL HIGHLIGHTS For the For the
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
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%
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
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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
17
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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.
18
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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.
19
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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
20
<PAGE>
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.
