CAPSTONE NEW ZEALAND FUND
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present this annual report on the Capstone New Zealand Fund
for the year ended October 31, 1997. The Fund's net asset value ("NAV") at
October 31, 1997 was US $11.25 per share compared to US $12.73 at the end of our
October 31, 1996 fiscal year. A dividend of $.174 was paid in December 1996,
which reduced the net asset value.
FUND'S COMPARATIVE PERFORMANCE
The Fund's strategy continues to concentrate on a diversified portfolio of
medium-sized stocks not readily available to individual US investors. The most
relevant index to compare the Fund's performance is the New Zealand Small
Company Index* ("NZSCI") that measures the performance of small to medium cap
stocks of the New Zealand market. During the year ended October 31, 1997, the
NZSCI increased by .3% in New Zealand dollars. In analyzing comparisons of
performance to the NZSCI, the reader should remember an index does not reflect
any cash positions, brokerage costs or administrative or management fees
incurred by the fund or individual investors.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
CAPSTONE NEW ZEALAND FUND AND THE NZSCI
AVERAGE ANNUAL TOTAL RETURNS
AS OF 10/31/97
1 YEAR 5 YEAR INCEPTION
- -10.46% 5.87% 4.47%
GRAPH DATA:
NEW ZEALAND FUND NZSCI
11/25/91 10,000.00 10,000.00
10/31/92 15,334.00 10,028.00
10/31/93 22,902.00 11,718.30
10/31/94 20,936.00 10,740.10
10/31/95 20,001.00 12,011.60
10/31/96 24,141.00 15,178.10
10/31/97 24,370.00 12,919.00
NEW ZEALAND MARKET OVERVIEW
Although the latest fiscal year's performance has been disappointing compared to
recent years, your Fund was ranked number 1 out of 81 Pacific Ex-Japan funds for
the quarter ending September 30, 1997 according to Lipper Analytical Services.
Furthermore, the Fund was also ranked number 1 of 45 and number 1 of 25 for the
two-year and three-year periods, respectively, ending September 30, 1997. Total
return during those periods was 30.43% and 36.22%, respectively. During the same
two-year and three-year periods, the NZSCI was up 38.5% and 25.0% respectively.
The Fund's recent performance was affected by a sharp drop in the value of the
New Zealand currency and more recently by the continuing turmoil in the Hong
Kong and other Asian stock markets. The New Zealand dollar (NZD) declined 12%
compared to the US dollar over the latest fiscal year. We believe there will be
continued downward pressure on the NZD because of looser domestic monetary
settings and a rising current account deficit coupled with the perception that
the NZD is currently overvalued. However, we believe the downside is limited
because of the projected economic growth for 1998 and the favorable interest
rate differential to other countries. Although the Fund does not have a current
hedging policy, we take a defensive position by continuing to re-weight our
investments in sectors, such as exports and tourism, that will benefit from the
cheaper NZD.
The New Zealand stock market was adversely impacted by the dramatic drop in the
Asian markets and continues to feel the pressure.
<PAGE>
CAPSTONE NEW ZEALAND FUND
- --------------------------------------------------------------------------------
NEW ZEALAND ECONOMY
The general consensus of the local market analysts is that the New Zealand
economy is improving. Macroeconomic fundamentals are strong as are corporate
balance sheets and it is estimated economic growth will be in excess of 3.0% in
the March years 1999 and 2000. The projected fiscal surplus for 1998 will allow
the government to continue to repay its foreign debt and to follow through with
proposed personal income tax cuts as well as announce cuts to company tax rates.
The America Cup races, the Olympics in Sydney and other global events being held
in New Zealand should have a very positive impact in the near future. We believe
that with the additional government spending, the reduction in the tax rates and
the weaker NZD, inflation will rise over the next year but will remain in the
Reserve Bank's target range of 0 to 3%.
NEW ZEALAND POLITICS
Jenny Shipley has been chosen to replace Jim Bolger as the new leader of the
National Party and to become New Zealand's first woman Prime Minister. Mr.
Bolger, who was unable to fend off leadership attacks, decided to step aside.
The arrival of Ms. Shipley has reinvigorated the National Party and was well
received by the financial markets. Ms. Shipley is adamant that the coalition
with NZ First will continue and the current coalition agreement will be adhered
to.
THE PORTFOLIO
The Fund is widely diversified by industry sector. At October 31, 1997 the
percentages of equity investments of the Fund by major industry categories were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Port Operations 13.85% Lumber & Wood 2.64%
Insurance 10.19% Chemicals 2.38%
Transportation 9.79% Breweries 2.27%
Commercial Services 6.45% Oil & Gas 2.11%
Broadcast Media 6.30% Vehicle Distributor 1.91%
Electrical/Appliance Manufacturing 5.71% Investment Companies 1.51%
Construction/Building Materials 4.44% Retail--Apparel 1.15%
Horticultural Supplier 3.88% Fisheries 1.14%
Utilities--Electric 3.69% Food Products 0.95%
Retail--Department Stores 3.46% Textiles--Manufacturing 0.91%
Stock & Station Services 2.95% Entertainment 0.71%
Environmental Controls 2.89% Manufacturing Distribution 0.62%
Real Estate 2.67%
</TABLE>
Should you have any questions, please feel free to contact us. Thank you for
your continued support.
Sincerely,
/s/ Robert W. Scharar /s/ W. Lance Hall
- ------------------------------ ------------------------------
Robert W. Scharar W. Lance Hall
President and Portfolio Manager Assistant Portfolio Manager
*The New Zealand Small Company Index is composed of approximately 100 equity
securities, excluding those in the New Zealand Stock Exchange 40-Index, weighted
by their full market capitalization.
THIS PUBLICATION MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS FOR CAPSTONE NEW ZEALAND FUND.
<PAGE>
<TABLE>
CAPSTONE NEW ZEALAND FUND
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1997
<CAPTION>
MARKET % OF
VALUE NET
COMMON STOCKS- 94.57% SHARES (NOTE 1-A) ASSETS
--------------------------------------------------
<S> <C> <C> <C>
BREWERIES (2.27%)
DB Group, Limited 100,000 $155,695 2.27%
BROADCAST MEDIA (6.30%)
Radio Otago, Limited 64,300 109,723 1.60
Radio Pacific, Limited 151,700 321,218 4.70
--------- ------
430,941 6.30
CHEMICALS (2.38%)
Nuplex Industries, Limited 70,798 163,139 2.38
COMMERCIAL SERVICES (6.45%)
Baycorp Holdings, Limited 100,000 336,302 4.91
Taylors Group, Limited 120,100 105,462 1.54
--------- ------
441,764 6.45
CONSTRUCTION/BUILDING MATERIALS (4.44%)
Fletcher Challenge Forestry, Limited 234,864 226,717 3.31
Milburn Corp., Limited 49,724 77,418 1.13
--------- ------
304,135 4.44
ELECTRICAL/ APPLIANCE MANUFACTURING (5.71%)
Fisher & Paykel Industries 56,949 180,881 2.64
PDL Holdings, Limited 41,100 209,890 3.07
--------- ------
390,771 5.71
ENTERTAINMENT (0.71%)
Shotover Jet, Limited (a) 260,000 48,577 0.71
ENVIRONMENTAL CONTROL (2.89%)
Waste Management NZ, Limited 52,874 197,574 2.89
FISHERIES (1.14%)
Sanford, Limited 50,000 77,848 1.14
FOOD PRODUCTS (0.95%)
Restaurant Brands, Limited (a) 50,000 64,769 0.95
HORTICULTURAL SUPPLIER (3.88%)
Fruitfed Supplies, Limited ... 449,000 265,648 3.88
<PAGE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1997
- --------------------------------------------------------------------------------
MARKET % OF
VALUE NET
SHARES (NOTE 1-A) ASSETS
--------------------------------------------------
<S> <C> <C> <C>
INSURANCE (10.19%)
Colonial Limited (a) 30,000 $ 79,405 1.16%
Metropolitan Lifecare Group 400,000 448,403 6.55
National Mutual Holdings, Limited 111,059 169,455 2.48
--------- ------
697,263 10.19
INVESTMENT COMPANIES (1.51%)
Helaby Holdings, Limited ... 61,640 103,648 1.51
LUMBER & WOOD PRODUCTS (2.64%)
Evergreen Forest, Limited (a) 500,000 180,607 2.64
MANUFACTURING DISTRIBUTION (0.62%)
Scott Technologies, Limited (a) 36,697 42,280 0.62
OIL & GAS (2.11%)
New Zealand Refining, Limited 9,647 144,191 2.11
PORT OPERATIONS (13.85%)
Lyttleton Port Corp., Limited 250,000 319,176 4.66
Northland Port Corp., Limited 262,300 392,053 5.73
Port of Tauranga., Limited 5,000 11,054 0.16
South Port New Zealand, Limited 289,500 225,369 3.30
--------- ------
947,652 13.85
REAL ESTATE (2.67%)
Kiwi Income 140,000 104,627 1.53
New Zealand Guardian Trust (Note 5) 68,913 77,999 1.14
--------- ------
182,626 2.67
RETAIL-APPAREL (1.15%)
Hallenstein Glasson Holdings, Limited 57,900 78,969 1.15
RETAIL-DEPARTMENT STORES (3.46%)
Arthur Barnett, Limited 210,300 237,057 3.46
STOCK & STATION SERVICES (2.95%)
Williams & Kettle, Limited 153,500 201,710 2.95
TEXTILES - MANUFACTURING (0.91%)
Donaghy's, Limited 58,715 62,163 0.91
<PAGE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
MARKET % OF
VALUE NET
SHARES (NOTE 1-A) ASSETS
--------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION (9.79%)
Air New Zealand, Limited - Class B 62,600 $ 132,553 1.94%
Mainfreight, Limited 234,000 276,889 4.04
Owens Group, Limited 213,680 260,829 3.81
--------- ------
670,271 9.79
UTILITIES- ELECTRIC (3.69%)
Infrastructure & Utilities Corporation, Limited 216,229 134,663 1.97
Transalta New Zealand, Limited 88,000 117,830 1.72
--------- ------
252,493 3.69
VEHICLE DISTRIBUTOR (1.91%)
The Colonial Motor Co., Limited 91,100 130,491 1.91
TOTAL COMMON STOCKS (COST $6,292,659) 6,472,282 94.57
<CAPTION>
BONDS (3.57%) PAR VALUE
<S> <C> <C> <C>
Shortland Properties, 6.375%, Conv. 12/31/98 $226,500 132,596 1.94
State Bank of South Australia, 9%, 07/30/02 94,000 62,997 0.92
Transalta NZ Capital Notes, 9.84%, 10/01/01 25,000 15,185 0.22
Transalta NZ 7 year Conv. Notes, 8.81%, 10/01/03 25,000 16,597 0.24
Transalta NZ 10 year Conv. Notes, 8.86%, 10/01/06 25,000 16,737 0.25
--------- ------
TOTAL BONDS (COST $276,639) 244,112 3.57
TOTAL INVESTMENTS (COST $6,569,298) 6,716,394 98.14
OTHER ASSETS, LESS LIABILITIES 127,634 1.86
--------- ------
NET ASSETS $6,844,028 100.00%
========== ======
<FN>
(a) Non-income producing security
</FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
CAPSTONE NEW ZEALAND FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities at market value (identified cost $6,569,298) (Note 1-A) ............... $ 6,716,394
Foreign currency holdings - New Zealand Dollar account, at market (Note 1-B) .................... 179,578
Receivables:
Dividends and interest ......................................................... $ 15,604
Trust shares sold .............................................................. 8,315
Investment adviser ............................................................. 1,884 25,803
----------- -----------
Total Assets ............................................................................. 6,921,775
-----------
LIABILITIES:
Cash overdraft ...................................................................... 47,812
Payable for Trust shares redeemed ................................................... 444
Accrued expenses .................................................................... 29,491
-----------
Total Liabilities ........................................................................ 77,747
-----------
NET ASSETS ............................................................................................... $ 6,844,028
===========
NET ASSET VALUE PRICE PER SHARE:
($6,844,028 / 608,142 shares of beneficial interest outstanding) ......................................... $ 11.25
===========
SOURCE OF NET ASSETS:
Paid in capital ................................................................................. $ 6,605,516
Undistributed net investment income ............................................................. 98,434
Accumulated net realized loss on investments .................................................... (1,471)
Net unrealized appreciation on investments and foreign currencies ............................... 141,549
-----------
Total .................................................................................... $ 6,844,028
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
CAPSTONE NEW ZEALAND FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends ....................................................................... $ 343,023
Interest ........................................................................ 45,158
---------
388,181
Less: Foreign taxes withheld .................................................. 34,847
---------
Total investment Income ...................................................................... $ 353,334
---------
Expenses: (Note 2)
Advisory fees ................................................................... 63,809
Transfer agent fees ............................................................. 43,564
Administrative services ......................................................... 35,270
Distribution fees ............................................................... 21,261
Fund accounting fees ........................................................... 17,500
Professional fees ............................................................... 16,708
Custodian fees .................................................................. 16,484
Registration and filing fees .................................................... 12,050
Reports and notices to stockholders ............................................. 8,897
Trustees' fees and expenses ..................................................... 6,372
Miscellaneous ................................................................... 3,592
---------
Total Expenses ............................................................................... 245,507
Less: Advisory fees waived ...................................................... 26,923
Custodian fees paid indirectly .............................................. 5,546 32,469
--------- ---------
Net Expenses ............................................................................... 213,038
---------
Net Investment Income .................................................................. 140,296
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 4)
Net realized gain from security transactions ......................................... 43,537
Net realized loss on conversion of foreign currencies to U.S. dollars ................ (39,168)
---------
Net realized gain on investments .............................................................. 4,369
Net unrealized depreciation of investments and foreign currencies .................................. (920,559)
---------
Net realized and unrealized depreciation of investments ....................................... (916,190)
---------
Net decrease in net assets resulting from operations ...................................... $(775,894)
=========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
CAPSTONE NEW ZEALAND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
-----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income .............................................................. $ 140,296 $ 111,784
Net realized gain on investments ................................................... 4,369 1,011,044
Net unrealized depreciation of investments, forward currency contracts
and foreign currencies ........................................................ (920,559) (11,788)
----------- -----------
Net increase (decrease) in net assets resulting from operations .................... (775,894) 1,111,040
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................................................. (134,014) (94,166)
Net realized gains from investment transactions .................................... -- (73,239)
TRUST SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from capital share
transactions (Note 3) ......................................................... (503,680) 3,819,564
----------- -----------
Net increase (decrease) in net assets ....................................... (1,413,588) 4,763,199
NET ASSETS
Beginning of year .................................................................. 8,257,616 3,494,417
----------- -----------
End of year (including undistributed net investment income of $98,434 and
$98,100, respectively) ........................................................ $ 6,844,028 $ 8,257,616
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS-OCTOBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Capstone New Zealand Fund (the "Fund") is one of two series of beneficial
interest of Capstone International Series Trust (the "Trust") which is
registered under the Investment Company Act of 1940 (the "Act"), as a
diversified open-end management investment company. The Fund seeks to provide
long-term capital appreciation and current income by investing in equity
securities, debt securities, and securities convertible into common stock of New
Zealand issuers. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
A) VALUATION OF SECURITIES - Portfolio securities which are traded on securities
exchanges are valued at the last sales price on that exchange prior to the
relevant closing or, if there is no recent last sale price available, at the
last current bid quotation. A security which is listed or traded on more than
one exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Fixed income securities are valued using
market quotations or pricing services. In the absence of any applicable price,
securities will be valued at a fair value as determined in good faith in
accordance with procedures established by the Trustees.
B) CURRENCY TRANSLATION - For purposes of determining the Fund's net asset
value, all assets and liabilities initially expressed in foreign currency values
are converted into U.S. dollar values at the prevailing market rate at 14:00 GMT
on each U.S. business day, as established by the Board of Trustees. The cost of
securities is determined by using historical exchange rates. Income is
translated at approximate rates prevailing when accrued. The Fund does not
isolate that portion of gains and losses on investments which is due to changes
in foreign exchange rates from that which is due to changes in the market prices
of the investments. Such fluctuations are included with the net realized and
unrealized gains and losses from investments.
<PAGE>
C) ACCOUNTING FOR INVESTMENTS - Security transactions are accounted for on the
trade date. Realized gains and losses on security transactions are based on the
identified cost basis for both financial statement and Federal income tax
purposes. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Discounts on bonds purchased are amortized over the life of
the respective issue. Interest income and estimated expenses are accrued daily.
D) FEDERAL INCOME TAXES - No provision has been made for Federal income taxes
since it is the Fund's policy to continue to comply with the special provisions
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and realized capital gains, to relieve it
from all, or substantially all, such taxes. Under the United States-New Zealand
tax treaty, New Zealand imposes a withholding tax on dividends (15%) and
interest (10%) received by the Fund. There is currently no New Zealand tax on
capital gains.
E) DISTRIBUTIONS TO SHAREHOLDERS - The Fund distributes its net investment
income and net realized gains annually. Income and capital gain distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions and capital loss
carryovers.
F) USE OF ESTIMATES - The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
The Investment Adviser, FCA Corp., is paid a fee, calculated daily and paid
monthly, equal to an annual rate of 0.75% of the average net assets of the Fund.
For the year ended October 31, 1997, FCA Corp. has voluntarily waived $26,923 of
its advisory fees in order to limit the Fund's expenses to 2.5% of the Fund's
average net assets.
The Administrator, Capstone Asset Management Company, is paid a fee,
calculated daily and paid monthly, equal to an annual rate of 0.25% of the
Fund's average daily net assets. Prior to June 1997, the Administrator was also
paid a monthly fee representing the cost of certain accounting and bookkeeping
services. Effective June 1997, Fifth Third Bank performs the accounting,
bookkeeping and pricing services for the Fund.
Capstone Asset Planning Company ("CAPCO") serves as Distributor of the
Fund's shares. CAPCO is an affiliate of the Administrator, and both are
wholly-owned subsidiaries of Capstone Financial Services, Inc. ("CFS").
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Act whereby Fund assets are used to reimburse CAPCO for
costs and expenses incurred with the distribution and marketing of shares of the
Fund and servicing of Fund shareholders. Distribution and marketing expenses
include, among other things, printing of prospectuses, advertising literature,
and costs of personnel involved with the promotion and distribution of the
Fund's shares. Under the Plan, the Fund pays to CAPCO an amount computed at an
annual rate of up to 0.25% of the Fund's average net assets (including
reinvested dividends paid with respect to those assets). Of this amount, CAPCO
may reallocate to securities dealers (which may include CAPCO itself) and other
financial institutions and organizations (collectively, "Service Organizations")
amounts based on the Fund's average net assets owned by stockholders for whom
the Service Organizations have a servicing relationship. The Plan permits CAPCO
to carry forward for a maximum of twelve months distribution expenses covered by
the Plan for which CAPCO has not yet received reimbursement. For the year ended
October 31, 1997, the Fund paid $21,261 in 12b-1 fees, of which approximately
21% was paid to Service Organizations other than CAPCO.
Certain officers and trustees of the Trust and the Fund who are also
officers and directors of the Adviser, the Administrator, Distributor or CFS,
received no compensation from the Trust. During the year ended October 31, 1997,
trustees of the Fund who are not "interested persons" received trustees' fees of
$3,000.
<PAGE>
NOTE 3 - TRUST SHARES
At October 31, 1997 there were 608,142 Trust shares outstanding.
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
---- ----
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold ............................................. 598,767 $ 7,747,373 634,364 $ 7,280,993
Shares issued to shareholders in reinvestment of
distributions ......................................... 7,766 102,048 15,526 163,953
----------- ----------- ----------- -----------
606,533 7,849,421 649,890 7,444,946
Shares redeemed ......................................... (647,261) (8,353,101) (315,346) (3,625,382)
----------- ----------- ----------- -----------
Net increase (decrease) ............................. (40,728) $ (503,680) 334,544 $ 3,819,564
=========== =========== =========== ===========
</TABLE>
NOTE 4 - SECURITIES TRANSACTIONS
Purchases and sales of securities aggregated $2,375,862 and $2,069,863,
respectively. At October 31, 1997, the cost of investments for Federal income
tax purposes was $6,569,298. Accumulated net unrealized appreciation on
investments was $147,096 consisting of $918,915 gross unrealized appreciation
and $771,819 gross unrealized depreciation.
NOTE 5 - RESTRICTED SECURITY
In 1993, the Fund acquired 61,015 shares of Guardian Property Fund
("Guardian"), a closed-end mutual fund (offered by The New Zealand Guardian
Trust Company Limited), through private placements at a cost of $60,606. These
shares cannot be sold prior to their valuation date, which occurs two years
after the date of investment. In October 1995 and October 1997, the Guardian
shares were renewed for additional two year periods to October 15, 1999. 1996
and 1997 cash dividends were reinvested into 7,898 additional shares, bringing
the position to 68,913 shares. The Guardian shares are valued daily based on a
weekly quoted price. At October 31, 1997, the value of the Guardian investment
was $77,999 representing approximately 1% of the Fund's net assets.
NOTE 6 - SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
Capstone International Series Trust held a special meeting of shareholders
of the Capstone New Zealand Fund on December 4, 1997. On July 14, 1997, the
record date for the meeting, the Fund had 650,723 shares outstanding, of which
330,542 (51% of the total) were represented at the meeting. The votes at the
meeting were as follows:
Item 1: Election of Trustees
<TABLE>
<CAPTION>
NUMBER OF SHARES
NOMINEES FOR TRUSTEE AFFIRMATIVE WITHHELD
<S> <C> <C>
Edward L. Jaroski 325,144 5,398
James F. Leary 324,788 5,754
John R. Parker 325,652 4,890
Bernard J. Vaughan 325,409 5,133
</TABLE>
Item 2: To ratify the selection of Briggs, Bunting & Dougherty, LLP as
independent public accountants of the Trust for the fiscal year ended October
31, 1997.
NUMBER OF SHARES
Affirmative 318,548
Against 1,545
Abstain 10,449
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table sets forth the per share operating performance data for a
share of capital stock outstanding, total return, ratios to average net assets
and other supplemental data for each year indicated.
PER SHARE DATA YEAR ENDED OCTOBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............................. $12.73 $11.12 $10.44 $11.61 $9.75
------ ------ ------ ------ ------
Income from investment operations:
Net investment income....................................... 0.24 0.19 0.31 0.16 0.09
Net realized and unrealized gain (loss) on investments...... (1.55) 1.93 0.90 (1.00) 1.77
------ ------ ------ ------ ------
Total from investment operations............................ (1.31) 2.12 1.21 (0.84) 1.86
------ ------ ------ ------ ------
Less dividends from:
Net investment income....................................... 0.17 0.29 0.21 0.06 --
Net realized gain on investments............................ -- 0.22 0.32 0.27 --
------ ------ ------ ------ ------
Total distributions.............................................. 0.17 0.51 0.53 0.33 --
------ ------ ------ ------ ------
Net asset value at end of year................................... $11.25 $12.73 $11.12 $10.44 $11.61
====== ====== ====== ====== ======
TOTAL RETURN (%) (1)............................................. (10.46) 20.03 12.22 (7.40) 19.08
- ------------
RATIOS/SUPPLEMENTAL DATA
Net assets at end of year (in thousands)......................... $6,844 $8,258 $3,494 $3,014 $2,732
RATIOS:
Operating expenses to average net assets:
Before expense reimbursement (%)............................ 2.89 3.63 4.77 4.40 8.19
After expense reimbursement (%)............................. 2.50 2.72 2.52 2.50 2.50
Net investment income to average net assets (%).................. 1.65 2.32 3.06 1.55 0.95
Portfolio turnover rate (%)...................................... 24 38 38 40 32
Average commission rate (per share of security)(2)............... $.0079 $.0050
<FN>
(1) Calculated without sales charge. Sales charge eliminated on
August 21, 1995.
(2) Average commission rate (per share of security) as required by amended
disclosure requirements effective September 1, 1995.
</FN>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
CAPSTONE NEW ZEALAND FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of Capstone New Zealand Fund
We have audited the accompanying statement of assets and liabilities of Capstone
New Zealand Fund, including the portfolio of investments as of October 31, 1997,
and the related statements of operations, changes in net assets and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets for the year ended
October 31, 1996 and the financial highlights for each of the four years in the
period ended October 31, 1996, were audited by other auditors, whose report,
dated November 18, 1996, expressed an unqualified opinion on that statement and
the financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 1997 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provided a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capstone New Zealand Fund at October 31, 1997, and the results of its
operations, changes in its net assets and financial highlights for the year
ended October 31, 1997, in conformity with generally accepted accounting
principles.
Briggs, Bunting & Dougherty, LLP
Philadelphia, Pennsylvania
December 8, 1997
<PAGE>
CAPSTONE NEW ZEALAND FUND
5847 SAN FELIPE, SUITE 4100
HOUSTON, TEXAS 77057
1-800-262-6631
ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
TRUSTEES OFFICERS
Edward L. Jaroski Edward L. Jaroski
President-Capstone
International Series Trust
James F. Leary
Robert W. Scharar
John R. Parker President-Capstone
New Zealand Fund
Bernard J. Vaughan Linda G. Giuffre
Treasurer
Iris R. Clay
Secretary
Norma R. Ybarbo
Assistant Secretary
- --------------------------------------------------------------------------------
INVESTMENT ADVISER TRANSFER AGENT
FCA Corp FPS Services, Inc.
5847 San Felipe 3200 Horizon Drive
Suite 850 P.O. Box 61503
Houston, TX 77057 King of Prussia, PA 19406-0903
1-800-845-2340
ADMINISTRATOR CUSTODIAN
Capstone Asset Management Company Fifth Third Bank, N.A.
5847 San Felipe, Suite 4100 Fifth Third Center
Houston, TX 77057 38 Fountain Square Plaza
1-800-262-6631 Cincinnati, OH 45263
DISTRIBUTOR AUDITORS
Capstone Asset Planning Company Briggs, Bunting & Dougherty, LLP
5847 San Felipe, Suite 4100 Two Logan Square, Suite 2121
Houston, TX 77057 Philadelphia, PA 19103-4901
1-800-262-6631
<PAGE>
ANNUAL REPORT
OCTOBER 31, 1997
CAPSTONE
NEW ZEALAND
FUND
GRAPHIC OF: Pyramid
A Member Of
THE CAPSTONE GROUP
of Mutual Funds
THE CAPSTONE GROUP
OF MUTUAL FUNDS
EQUITY
O CAPSTONE GROWTH FUND, INC.
FIXED INCOME
O CAPSTONE GOVERNMENT INCOME FUND
INTERNATIONAL/GLOBAL
O CAPSTONE JAPAN FUND
O CAPSTONE NEW ZEALAND FUND
For more complete information about the Capstone Funds
including charges and expenses, contact the Distributor at
the address below to receive additional prospectuses.
Please read it carefully before you invest or send money.
This publication must be accompanied or preceded by a
current prospectus for Capstone New Zealand Fund
CAPSTONE ASSET PLANNING COMPANY
5847 SAN FELIPE, SUITE 4100
HOUSTON, TEXAS 77057
1-800-262-6631
CAPSTONE NEW ZEALAND FUND
5847 SAN FELIPE, SUITE 4100
HOUSTON, TX 77057
