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, 1998. The Fund's net asset value ("NAV") at
October 31, 1998 was US $7.73 per share compared to US $11.21 at the end of our
October 31, 1997 fiscal year. A dividend of $.20 was paid in December 1997,
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, 1998, the
NZSCI decreased by 22% in New Zealand dollars and 33.5% in US 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 investor.
Line Chart
Camparison of Change in Value of a $10,000 Investment in Capstone New Zealand
Fund and the NZSCI
Average Annual Total Returns as of 10/31/98
1 year 5 years Inception
- -29.88% -4.77% -1.36%
New Zealand Fund NZSCI NZSCI (US)$
10000 10000 10000
9750 15334 14607.8
11610 22902 23022.8
10750.4 20936 23022.8
12063.6 20001 20680
14479.8 24141 30980.5
12965.8 24370 31968.8
9092.08 20775.4 19969.9
NEW ZEALAND MARKET OVERVIEW
The Fund's recent performance was affected by a drop in the value of the New
Zealand currency and the continuing turmoil in other Asian markets. The New
Zealand dollar (NZD) declined 15% compared to the US dollar over the latest
fiscal year. We believe there will be a relatively flat NZD over the next year
because of the projected economic growth and the favorable interest rate
differential to other countries. The Fund does not have a current hedging
policy. We take defensive positions by continuing to re-weight our investments
in sectors, such as exports and tourism that will benefit from the cheaper NZD
and economic recovery.
The New Zealand stock market was adversely impacted by the dramatic drop in the
Asian markets and continues to feel the pressure. The New Zealand "STOCK MARKET
VALUE DISCOUNT" relative to other markets has now been going on for over 12
months as investors have increasingly discounted the flow-on effects of the
Asian economic crisis and more recently, fears of a global economics slowdown.
With the stock market on a 1-year forward PE of 16X and a 1999 gross yield of
7%, there is little doubt that the market is cheap. New Zealand companies are
now trading on multiples of less than 14X 2000 earnings.
<PAGE>
CAPSTONE NEW ZEALAND FUND
- --------------------------------------------------------------------------------
NEW ZEALAND ECONOMY
The general consensus of the local market analysts is that the New Zealand
economy has been in a recession. The loosening in monetary policy has seen a
significant reduction in bond yields with 5-year yields falling from above 7.5%
to their current level of 5.7%. We believe the New Zealand economy and the stock
market in specific, should enjoy improved performance over the next year for
several reasons. For example, New Zealand's abundance of maturing Radiata Pine
and its proximity to Asia make it a more likely candidate to benefit from any
incremental demand. Asia is a developing market, where significant harvesting of
plantation forest for export purposes has only recently begun. Also, in
September 99, New Zealand will host the leaders of 21 countries including the
U.S. for the APEC Summit (The Asian Pacific Economic Cooperation). The gathering
in Auckland will be the largest, most important international meeting ever held
in New Zealand and will be the only Pacific-wide Heads of State meeting. It is,
in short, a major engine for economic growth, stability and PEACE in the region.
Additionally, New Zealand will host the America's Cup Yacht Races from October
1999 through February 2000, and also should feel the benefits of The 2000
Olympics in Sydney in its tourism sector.
THE MILLENNIUM EVENTS
There's a lot of talk about the new Millennium, and where people are going to
be when the sun comes up on January 1, 2000. New Zealand will be the first
inhabited country to see the sun rise that day. A number of major events will
take place in New Zealand and Australia, which will bring unprecedented business
opportunities to that part of the world. The international media exposure should
greatly benefit New Zealand's businesses, individual and corporate wealth of an
unparalleled dimension will be coming to New Zealand's shores - primarily to
have fun and spend money.
THE PORTFOLIO
The Fund is widely diversified by industry sector. At October 31, 1998, the
percentages of equity investments of the Fund by major industry categories were
as follows:
Port Operations 13.7% Chemicals 3.6%
Transportation 10.4% Utilities (Electric) 6.5%
Lumber & Wood Products 2.5% Finance 1.9%
Insurance 13.2% Environmental Control 6.0%
Miscellaneous 6.7% Real Estate 3.3%
Broadcast Media 9.1% Stock & Station Services 2.6%
Electrical/Appliance 6.1% Oil & Gas 2.6%
Manufacturing 0.4% Breweries 3.5%
Horticultural Supplier 3.9% Vehicle Distributor 1.6%
Retail 2.4%
If you have any questions, please feel free to contact us. We 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
- --------------------------------------------------------------------------------
NEW ZEALAND ON-LINE INFORMATION WEB SITES
New Zealand news: www.newsroom.co.nz NZ Embassy: www.emb.com/nzemb
Christchurch Press: www.press.co.nz Trade NZ: www.tradenz.govt.nz
National Business Review: www.nbr.co.nz Tourism NZ: www.nztb.govt.nz
NZ Government: www.govt.nz Air New Zealand:www.airnz.com
- --------------------------------------------------------------------------------
* The New Zealand Small Company Index is composed of under 100 equity
securities, excluding those in the New Zealand Stock Exchange 40-Index, weighted
by their full market capitalization.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - October 31, 1998 CAPSTONE NEW ZEALAND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Market % of
Value Net
COMMON STOCKS - (99.62%) Shares (Note 1-A) Assets
------------------------------------------------
<S> <C> <C> <C>
BREWERIES - (3.53%)
DB Group, Limited 100,000 $ 158,820 3.53%
BROADCAST MEDIA - (9.07%)
Radio Otago, Limited 64,300 102,121 2.28%
Radio Pacific, Limited 151,700 305,178 6.79%
--------- ---------
407,299 9.07%
CHEMICALS - (3.62%))
Nuplex Industries, Limited 123,178 162,373 3.62%
CONSTRUCTION/BUILDING MATERIALS - (1.39%)
Milburn New Zealand, Limited 62,155 62,519 1.39%
ELECTRICAL/APPLIANCE MANUFACTURING - (6.09%)
Fisher & Paykel Industries 58,030 172,038 3.83%
PDL Holdings, Limited 41,100 101,611 2.26%
--------- ---------
273,649 6.09%
ENVIRONMENTAL CONTROL - (5.99%)
Waste Management NZ, Limited 86,874 269,048 5.99%
FINANCE - (1.93%)
Corporate Investment ORD 184,000 86,695 1.93%
HORTICULTURAL SUPPLIER - (3.97%)
Fruitfed Supplies, Limited 449,000 178,275 3.97%
INSURANCE - (13.21%)
Metlifecare, Limited 325,000 375,080 8.36%
National Mutual Holdings, Limited 111,059 218,128 4.85%
--------- ---------
593,208 13.21%
INVESTMENT COMPANIES - (1.31%)
Hellaby Holdings, Limited 61,640 58,738 1.31%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - October 31, 1998 CAPSTONE NEW ZEALAND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Market % of
Value Net
Shares (Note 1-A) Assets
------------------------------------------------
<S> <C> <C> <C>
LUMBER & WOOD PRODUCTS - (2.48%)
Evergreen Forest, Limited (a) 500,000 $ 111,174 2.48%
MANUFACTURING - (0.35%)
Steel & Tube Holdings, Limited 20,000 15,882 0.35%
MANUFACTURING DISTRIBUTION - (0.89%)
Scott Technologies, Limited (a) 36,697 39,826 0.89%
MEDIA - (1.15%)
Independent Newspapers, Limited 15,000 51,617 1.15%
OIL & GAS - (2.57%)
New Zealand Refining Co., Limited 13,647 115,596 2.57%
PORT OPERATIONS - (13.69%)
Lyttleton Port Corp., Limited 304,800 225,906 5.03%
Northland Port Corp., Limited 302,300 184,043 4.10%
Port of Tauranga, Limited 5,000 9,000 0.20%
South Port New Zealand, Limited 336,500 195,957 4.36%
--------- ---------
614,906 13.69%
REAL ESTATE - (3.34%)
Kiwi Income Property Trust 140,000 81,528 1.81%
New Zealand Guardian Trust (Note 5) 75,242 68,971 1.53%
--------- ---------
150,499 3.34%
RETAIL - DEPARTMENT STORES - (2.40%)
Arthur Barnett, Limited 210,300 107,993 2.40%
STOCK & STATION SERVICES - (2.62%)
Williams & Keattle, Limited 153,500 117,831 2.62%
TEXTILES - MANUFACTURING - (0.90%)
Donaghy's, Limited 58,715 40,409 0.90%
TOURIST SERVICES - (0.62%)
Tourism Holdings, Limited (a) 50,000 28,058 0.62%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - October 31, 1998 CAPSTONE NEW ZEALAND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Market % of
Value Net
Shares (Note 1-A) Assets
------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION - (10.41%)
Air New Zealand, Limited - Class B 112,600 $ 149,026 3.32%
Mainfreight, Limited 414,000 278,347 6.19%
Owens Group, Limited 56,500 40,380 0.90%
--------- ------
467,753 10.41%
UTILITIES - ELECTRIC - (6.45%)
Infrastructure & Utilities Corporation, Limited 559,729 290,394 6.45%
VEHICLE DISTRIBUTOR - (1.64%)
The Colonial Motor Co., Limited 86,100 74,298 1.64%
TOTAL COMMON STOCK (Cost $5,780,133) 4,476,860 99.62%
BONDS (3.37%) Par Value
Shortland Properties, 6.375%, Conv. 12/31/98 $201,200 54,322 1.21%
State Bank of South Australia, 9.00%, 07/30/02 94,000 53,398 1.19%
Transalta NZ Capital Notes, 9.84%, 10/01/01 25,000 14,490 0.32%
Transalta NZ 7 year Conv. Notes, 8.81%, 10/01/03 25,000 14,460 0.32%
Transalta NZ 10 year Conv. Notes, 8.86%, 10/01/06 25,000 14,997 0.33%
--------- ------
TOTAL BONDS (Cost $279,074) 151,667 3.37%
TOTAL INVESTMENTS (Cost $6,059,207) 4,628,527 102.99%
OTHER ASSETS, LESS LIABILITIES (134,262) (2.99)%
--------- --------
NET ASSETS $4,494,265 100.00%
========== ========
</TABLE>
(a) Non-income producing security
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - October 31, 1998 CAPSTONE NEW ZEALAND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities at market value (identified cost $6,059,207) (Note 1-A) 4,628,527
Receivable for capital stock sold 51,037
Dividends receivable 12,426
Interest receivable 4,171
-------------
Total Assets 4,696,161
-------------
LIABILITIES:
Cash overdraft 94,870
Foreign currency overdraft - New Zealand Dollar account, at market (Note 1B) 29,701
Accrued expenses 77,325
-------------
Total Liabilities 201,896
-------------
NET ASSETS $ 4,494,265
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE:
($4,494,265/581,032 shares of beneficial interest outstanding) $7.73
=============
SOURCE OF NET ASSETS:
Paid in capital $ 6,301,243
Accumulated net realized loss on investments (375,738)
Net unrealized depreciation on securities and foreign currencies (1,431,240)
-------------
Total $4,494,265
=============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS For The Year Ended October 31, 1998 CAPSTONE NEW ZEALAND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 252,071
Interest income 50,596
-----------
Total Investment Income 302,667
Expenses: (Note 2)
Advisory fees $ 38,680
Distribution fees 12,893
Administrative services 13,379
Transfer agent fees 39,682
Reports and notices to stockholders 17,955
Audit fees 12,297
Legal fees 5,052
Trustees' fees and expenses 7,000
Custodian fees 5,273
Fund accounting fees 50,999
Registration and filing fees 12,189
Miscellaneous 9,637
----------
Total Expenses 225,036
------------
Net Investment Income 77,631
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from security transactions (375,738)
Net realized loss on conversion of foreign currencies to U.S. Dollars (65,648)
Unrealized depreciation of investments:
Beginning of period 141,549
End of period (1,431,240)
-----------
Net change in unrealized depreciation of investments (1,572,789)
------------
Net realized and unrealized loss on investments (2,014,175)
------------
Net decrease in net assets resulting from operations $(1,936,544)
============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS CAPSTONE NEW ZEALAND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Year Ended Year Ended
October 31, 1998 October 31, 1997
------------------------------------------
OPERATIONS:
Net investment income $ 77,631 $ 140,296
Net realized gain (loss) on investments (441,386) 4,369
Net change in unrealized depreciation of investments, forward currency
contracts and foreign currencies (1,572,789) (920,559)
----------- -----------
Net decrease in net assets resulting from operations (1,936,544) (775,894)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (108,946) (134,014)
CAPITAL SHARE TRANSACTIONS:
Decrease in net assets resulting from capital
share transactions (Note 3) (304,273) (503,680)
----------- -----------
Total decrease in net assets (2,349,763) (1,413,588)
NET ASSETS
Beginning of period 6,844,028 8,257,616
----------- -----------
End of period (including accumulated net investment income
of $0 and $98,434, respectively) $4,494,265 $6,844,028
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - October 31, 1998
- --------------------------------------------------------------------------------
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's investment
objective is to seek 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 consistently 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 sales
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 Board of 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>
CAPSTONE NEW ZEALAND FUND
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 and premiums on bonds purchased are amortized over
the life of the bonds. 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 policy of the Fund 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. At October 31,
1998, the Fund had a capital loss carryforward of $375,738 which expires in
2006. 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, if any, and net realized gains (net of any capital loss carryovers)
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 Fund retains FCA Corp, ("FCA") as its Investment Adviser. Under the
Investment Advisory Agreement (the "Agreement"), the Adviser is paid a monthly
fee based on the average net assets at the annual rate of .75%.
The Administrator, Capstone Asset Management Company, is paid a fee, calculated
daily and paid monthly, equal to an annual rate of .25% of the Fund's average
daily net assets.
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 FundOs shares. Under the Plan, the Fund pays CAPCO an amount
computed at an annual rate of up to 0.25% of the FundOs 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,
OService OrganizationsO) amounts based on the FundOs 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, 1998, the Fund paid $12,893 in
12b-1 fees. Of this amount approximately 7.5% was paid to Service Organizations
other than CAPCO.
Certain officers and trustees of the Fund who are also officers and
trustees of the Adviser, the Administrator, Distributor or CFS, received no
compensation from the Fund. During the year ended October 31, 1998, trustees of
the Fund who are not "interested persons" received directors' fees of $7,000.
<PAGE>
CAPSTONE NEW ZEALAND FUND
Note 3 - Capital Stock
At October 31, 1998 there were 581,032 shares outstanding. Transactions
in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 368,702 $ 2,861,378 598,767 $ 7,747,373
Shares issued to shareholders in reinvestment of
distributions 9,459 92,030 7,766 102,048
--------- ----------- -------- -----------
378,161 2,953,408 606,533 7,849,421
Shares redeemed (405,271) (3,257,681) (647,261) (8,353,101)
--------- ----------- -------- -----------
Net increase (decrease) (27,110) $ (304,273) (40,728) $ (503,680)
========= =========== ======== ===========
</TABLE>
Note 4 - Securities Transactions
Purchases and sales of securities other than U.S. Government
obligations aggregated $1,247,884 and $1,399,426 respectively. At October 31,
1998, the cost of investments for Federal income tax purposes was $6,059,207.
Accumulated net unrealized depreciation on investments was $1,430,680 consisting
of $412,161 gross unrealized appreciation and $1,842,841 gross unrealized
depreciation.
Note 5 - Restricted Security
In 1993, the Fund acquired 61,015 shares of Guardian Property Fund
(OGuardianO), 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,
1997 and 1998 cash dividends were reinvested into 14,227 additional shares,
bringing the position to 75,242. The Guardian shares are valued daily based on a
weekly quoted price. At October 31, 1998, the value of the Guardian investment
was $68,971 representing approximately 1.5% of the Fund's net assets.
<PAGE>
CAPSTONE NEW ZEALAND FUND
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.
<TABLE>
<CAPTION>
Years Ended October 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net asset value at beginning of year $11.25 $12.73 $11.12 $10.44 $11.61
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.14 0.24 0.19 0.31 0.16
Net realized and unrealized gain (loss) (3.46) (1.55) 1.93 0.90 (1.00)
-------- ------- ------- ------- -------
Total from investment operations (3.32) (1.31) 2.12 1.21 (0.84)
-------- ------- ------- ------- -------
Less distributions from:
Net investment income (0.20) (0.17) (0.29) (0.21) (0.06)
Net realized gain on investments -- -- (0.22) (0.32) (0.27)
-------- ------- ------- ------- -------
(0.20) (0.17) (0.51) (0.53) (0.33)
Net asset value at end of year $ 7.73 $11.25 $12.73 $11.12 $10.44
======== ======= ======= ======= =======
Total Return (%) (1) (29.88)% (10.46)% 20.03% 12.22% (7.40)%
======== ======= ======= ======= =======
Ratios/Supplemental Data
Net assets at end of year (in thousands) $4,494 $6,844 $8,258 $3,494 $3,014
Ratio of total expenses to average net assets 4.37% 2.89% 3.63% 4.77% 4.40%
Ratio of total expenses to average net assets, before
reimbursement and waiver of expenses N/A 2.50% 2.72% 2.52% 2.50%
Ratio of net investment income to average net assets 1.51% 1.65% 2.32% 3.06% 1.55%
Portfolio turnover rate 25% 24% 38% 38% 40%
</TABLE>
(1) Calculated without sales charge. Sales charge eliminated on August 21, 1995.
See Accompanying Notes to Financial Statements
<PAGE>
CAPSTONE NEW ZEALAND FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board
of Trustees of Capstone International Series Trust
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Capstone New Zealand Fund (a series of Capstone
International Series Trust), as of October 31, 1998, the related statement of
operations for the year then ended, and the statment of changes in net assets,
and the financial highlights for each of the two years in the period then ended.
These financial statements and financial highlights are the responsibility of
the TrustOs management. Our responsibility is to express an opinion on these
financial statements and financial highlights are the responsibility of the
TrustOs management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the three years in the period ended October 31, 1996 were
audited by other auditors whose report dated November 18, 1996, expressed an
unqualified opinion on the financial highlights.
We conducted our audits 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, 1998 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide 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 as of October 31, 1998, and the results of its
operations for the year then ended, and the changes in its net assets, and the
financial highlights for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
Briggs, Bunting & Dougherty, LLP
Philadelphia, Pennsylvania
November 20, 1998
<PAGE>
CAPSTONE NEW ZEALAND FUND
5847 San Felipe, Suite 4100
Houston, Texas 77057
1-800-262-6631
ANNUAL REPORT TO SHAREHOLDERS
October 31, 1998
- --------------------------------------------------------------------------------
TRUSTEES OFFICERS
Edward L. Jaroski Edward L. Jaroski
President-Capstone International Series Trust
James F. Leary
Robert W. Scharar
John R. Parker President-Capstone Japan Fund
Bernard J. Vaughan Linda G. Giuffre
Secretary/Treasurer
- --------------------------------------------------------------------------------
INVESTMENT ADVISER TRANSFER AGENT
FCA Corp First Data Investor Services Group, 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
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, 1998
CAPSTONE
NEW ZEALAND
FUND
Pyramid Graphic
A Member Of
THE CAPSTONE GROUP
of Mutual Funds
Pyramid Graphic
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
