As filed with the Securities and Exchange Commission on September 30, 1997
File No. 811-9130
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6
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SCHRODER CAPITAL FUNDS
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: 207-879-1900
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Thomas G. Sheehan, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
(Name and Address of Agent for Service)
Copies to:
R. Darrell Mounts, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Alexandra Poe, Esq.
Schroder Capital Management International Inc.
787 seventh Avenue, 34th Floor
New York, New York 10019
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EXPLANATORY NOTE
This Registration Statement is being filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. Beneficial interests in
the series of Registrant are not being registered under the Securities Act of
1933, as amended, because such interests will be issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of that act. Investments in Registrant's series may only
be made by certain institutional investors, whether organized within or without
the United States (excluding individuals, S corporations, partnerships, and
grantor trusts beneficially owned by any individuals, S corporations, or
partnerships). This Registration Statement does not constitute an offer to sell,
or the solicitation of an offer to buy, any beneficial interests in any series
of Registrant.
THIS REGISTRATION STATEMENT IS INTENDED TO SUPPLEMENT THE PREVIOUSLY FILED
REGISTRATION STATEMENT OF THE SCHRODER CAPITAL FUNDS AND DOES NOT EFFECT THE
INTERNATIONAL EQUITY FUND, SCHRODER EMERGING MARKETS FUND INSTITUTIONAL
PORTFOLIO, SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO SCHRODER EM CORE
PORTFOLIO OF SCHRODER GLOBAL GROWTH PORTFOLIO.
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PART A
(PROSPECTUS)
SCHRODER CAPITAL FUNDS
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SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
OCTOBER 1, 1997
Schroder Capital Funds (the "Trust") is registered as an open-end management
investment company under the Investment Company Act of 1940 (the "1940 Act").
The Trust offers beneficial interests ("Interests") in separate series, each
with a distinct investment objective and policies (each, a "portfolio" and
collectively, the "portfolios"). The Trust currently offers six portfolios:
Schroder U.S. Smaller Companies Portfolio (the "Portfolio"), International
Equity Fund , Schroder Emerging Markets Fund Institutional Portfolio, Schroder
International Smaller Companies Portfolio, Schroder EM Core Portfolio and
Schroder Global Growth Portfolio. Additional portfolios may be added in the
future. This Part A relates solely to the Portfolio.
The Trust does not offer its Interests directly to the public; Interests are
offered on a no-load basis exclusively to various qualified investors (including
other investment companies) as described in Item 4 below. An investor that is an
investment company or other collective investment vehicle typically has an
investment objective and polices substantially similar to those of the portfolio
in which it invests and typically seeks to achieve its investment objective by
holding Interests in another portfolio, instead of separately managing its own
portfolio of investment securities and related assets.
Interests of the Trust are not offered publicly and, are not registered under
the Securities Act of 1933 (the "1933 Act"). Accordingly, consistent with
paragraph 4 of Instruction F of the General Instructions to Form N-1A, responses
to Items 1, 2, 3 and 5A of that Form have been omitted.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
The Trust was organized as a business trust under the laws of the State of
Delaware on September 7, 1995, under Trust Instrument dated September 6, 1995.
The Trust has an unlimited number of authorized Interests. The assets of the
Portfolio and of any additional portfolios now existing or created in the
future, belong only to that portfolio. The assets belonging to a portfolio are
charged with the liabilities of and all expenses, costs, charges and reserves
attributable to that portfolio. The Portfolio is classified as "diversified"
under the 1940 Act and commenced operations on or about August 15, 1996.
Interests in the Portfolio are offered solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in the Portfolio may only be made by certain qualified
investors (excluding S corporations, partnerships, and grantor trusts
beneficially owned by any individuals, S corporations, or partnerships).
Investors may be organized within or without the U.S. This registration
statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.
Beneficial interests in the Portfolio are offered solely in private placement
transactions which do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Portfolio may only be made by
certain institutional investors, whether organized within or without the U.S.
(excluding individuals, S corporations, partnerships, and grantor trusts
beneficially owned by any individuals, S corporations, or partnerships). This
registration statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is capital appreciation. Current
income is incidental to the objective of capital appreciation. There can be no
assurance that the Portfolio will achieve its investment objective. The
investment objective of the Portfolio may not be changed without approval of the
holders of a majority of the outstanding voting interests (defined in the same
manner as the phrase "vote of a majority of the outstanding voting securities"
is defined in the 1940 Act) of the Portfolio.
INVESTMENT POLICIES
Under normal market conditions the Portfolio will seek to achieve its investment
objective by investing at least 65% of its total assets in equity securities of
U.S. domiciled companies that, at the time of purchase, have market
capitalizations of $1.5 billion or less. (Market capitalization means the market
value of a company's outstanding stock.)
In its investment approach, Schroder Capital Management International Inc.
("SCMI"), the Portfolio's Investment Adviser, will identify securities of
companies that it believes can generate above average earnings growth, selling
at favorable prices in relation to book values and earnings. As part of the
investment decision, SCMI's assessment of the competency of an issuer's
management will be an important consideration. These criteria are not rigid, and
other investments may be included in the Portfolio if they may help the
Portfolio to attain its objective. These criteria can be changed by the Trust's
Board of Trustees, without shareholder approval.
The Portfolio invests principally in equity securities, namely, common stocks,
securities convertible into common stocks or, subject to special limitations,
rights or warrants to subscribe for or purchase common stocks. The Portfolio may
also invest to a limited degree in non-convertible debt securities and preferred
stocks when, in the opinion of SCMI, such investments are warranted to achieve
the Portfolio's investment objective. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula.
The Portfolio may invest in securities of small, unseasoned companies (which,
together with any predecessors, have been in operation for less than three
years), as well as in securities of more established companies. The Portfolio
currently intends to invest no more than 25% of its total assets in securities
of small, unseasoned issuers.
Although there is no minimum rating for debt securities (convertible or
non-convertible) in which the Portfolio may invest, it is the present intention
of the Portfolio to invest no more than 5% of its net assets in debt securities
rated below "Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by
Standard & Poor's Ratings Group ("S&P"), such securities being commonly known as
"high yield/high risk" securities or "junk bonds," and it will not invest in
debt securities that are in default. High yield/high risk securities are
predominantly speculative with respect to the capacity to pay interest and repay
principal and generally involve a greater volatility of price than securities in
higher rated categories. It should be noted that even bonds rated "Baa" by
Moody's or "BBB" by S&P are described by those rating agencies as having
speculative characteristics and that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of issuers of such
bonds to make principal and interest payments than is the case with higher grade
bonds. The Portfolio is not obligated to dispose of securities due to changes by
the rating agencies. See Part B for information about the risks associated with
investing in junk bonds.
For temporary defensive purposes, the Portfolio may invest without limitation in
(or enter into repurchase agreements maturing in seven days or less with U.S.
banks and broker-dealers with respect to) short-term debt securities, including
commercial paper, U.S. Treasury bills, other short-term U.S. Government
securities, certificates of deposit and bankers' acceptances of U.S. banks. The
Portfolio also may hold cash and time deposits in U.S. banks. See "Investment
Policies" in Part B for further information about these securities.
The investment policies of the Portfolio that are designated as fundamental may
not be changed without investor approval. Unless otherwise indicated, all other
investment policies are not fundamental and may be changed by the Trust's Board
of Trustees without prior investor approval. Additional investment techniques,
features and restrictions (including a list of fundamental investment
restrictions) concerning the Portfolio's investment programs are described in
Part B.
INVESTMENT TYPES
COMMON AND PREFERRED STOCK AND WARRANTS. The Portfolio may invest in common and
preferred stock. Common stockholders are the owners of the company issuing the
stock and, accordingly, vote on various corporate governance matters such as
mergers. They are not creditors of the company, but rather, upon liquidation of
the company, are entitled to their pro rata share of the company's assets after
creditors (including fixed income security holders) and, if applicable,
preferred stockholders are paid. Preferred stock is a class of stock having a
preference over common stock as to dividends and, generally, as to the recovery
of investment. A preferred stockholder is a shareholder in a company and not a
creditor of the company, as is a holder of the company's fixed income
securities. Dividends paid to common and preferred stockholders are
distributions of the earnings of the company and not interest payments (which
are expenses of the company). Equity securities owned by the Portfolio may be
traded in the over-the counter market or on a securities exchange but may not be
traded every day or in the volume typical of securities traded on a major U.S.
national securities exchange. As a result, disposition by the Portfolio of a
security to meet redemptions by interest holders or otherwise may require the
Portfolio to sell these securities at a discount from market prices, to sell
during periods when disposition is not desirable, or to make many small sales
over a lengthy period of time. The market value of all securities, including
equity securities, is based upon the market's perception of value and not
necessarily the book value of an issuer or other objective measure of a
company's worth.
Convertible preferred stock generally may be converted at a stated
price within a specific amount of time into a specified number of shares of
common stock. A convertible security entitles the holder to receive the dividend
paid on preferred stock until the convertible security is converted or
exchanged. Before conversion, convertible securities have characteristics
similar to non-convertible debt securities in that they ordinarily provide a
stream of income with generally higher yields than those of common stocks of the
same or similar issuers. These securities are usually senior to common stock in
a company's capital structure, but are usually subordinated to non-convertible
debt securities. In general, the value of a convertible security is the higher
of its investment value (its value as a fixed income security) and its
conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock.
The Portfolio may also invest in warrants, which are options to
purchase an equity security at a specified price (usually representing a premium
over the applicable market value of the underlying equity security at the time
of the warrant's issuance) and usually during a specified period of time.
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase agreements, which
are a means of investing monies for a short period whereby a seller - a U.S.
bank or recognized broker-dealer sells securities to the Portfolio and agrees to
repurchase the securities at the Portfolio's cost plus interest within a
specified period (normally one day). In these transactions, the values of the
underlying collateral held by the Portfolio are monitored at all times by SCMI
to insure that the total value of the collateral equals or exceeds the value of
the repurchase agreement, and the Portfolio's custodian bank holds the
collateral until it is repurchased. In the event of default by the seller under
the repurchase agreement, the Portfolio may have difficulties in exercising its
rights to the underlying collateral and may incur costs and experience time
delays in disposing of it. To evaluate potential risks, SCMI reviews the
creditworthiness of those banks and dealers with which the Portfolio enters into
repurchase agreements.
ILLIQUID AND RESTRICTED SECURITIES. The Portfolio will not purchase or otherwise
acquire any security if, as a result, more than 15% of its net assets (taken at
current value) would be invested in securities that are illiquid by virtue of
the absence of a readily available market or because of legal or contractual
restrictions on resale ("restricted securities"). There may be undesirable
delays in selling illiquid securities at prices representing their fair value.
This policy includes over-the-counter options held by the Portfolio and the "in
the money" portion of the assets used to cover such options. As stated above,
this policy also includes assets that are subject to material legal restrictions
on repatriation. The limitation on investing in restricted securities does not
include securities that may not be resold to the general public but may be
resold to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933. If SCMI determines that a "Rule 144A security" is liquid
pursuant to guidelines adopted by the Trust's Board of Trustees it will not be
deemed illiquid. These guidelines take into account trading activity for the
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, that security may become illiquid, which could affect the Portfolio's
liquidity. See Part B for further details.
LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend portfolio securities
(other than in repurchase transactions) to brokers, dealers and other financial
institutions meeting specified credit conditions, if the loan is collateralized
in accordance with applicable regulatory requirements and if, after any loan,
the value of the securities loaned does not exceed 25% of the value of the
Portfolio's total assets. By so doing, the Portfolio attempts to earn income
through the receipt of interest on the loan. In the event of the bankruptcy of
the other party to a securities loan, the Portfolio could experience delays in
recovering the securities it lent. To the extent that, in the meantime, the
value of the securities the Portfolio lent has increased, the Portfolio could
experience a loss.
The Portfolio may lend securities from its portfolio if liquid assets in an
amount at least equal to the current market value of the securities loaned
(including accrued interest thereon) plus the interest payable to the Portfolio
with respect to the loan is maintained as collateral by the Portfolio in a
segregated account. Any securities that the Portfolio may receive as collateral
will not become a part of its portfolio at the time of the loan, and, in the
event of a default by the borrower, the Portfolio will, if permitted by law,
dispose of such collateral except for such part thereof that is a security in
which the Portfolio is permitted to invest. During the time that the securities
are on loan, the borrower will pay the Portfolio any accrued income on those
securities, and the Portfolio may invest the cash collateral and earn income or
receive an agreed-upon fee from a borrower that has delivered cash equivalent
collateral. Cash collateral received by the Portfolio will be invested in U.S.
Government securities and liquid high-grade debt obligations. The value of
securities loaned will be marked to market daily. Portfolio securities purchased
with cash collateral are subject to possible depreciation. Loans of securities
by the Portfolio will be subject to termination at the Portfolio's or the
borrower's option. The Portfolio may pay reasonable negotiated fees in
connection with loaned securities, so long as such fees are set forth in a
written contract and approved by the Schroder Core Board of Trustees.
OPTIONS AND FUTURES TRANSACTIONS. While the Portfolio does not presently intend
to do so, it may write covered call options and purchase certain put and call
options, stock index futures, and options on stock index futures and broadly
based stock indices, all of which are referred to as "Hedging Instruments". In
general, the Portfolio may use Hedging Instruments (1) to attempt to protect
against declines in the market value of the Portfolio's securities and thus
protect the Fund's net asset value per share against downward market trends or
(2) to establish a position in the equity markets as a temporary substitute for
purchasing particular equity securities. The Portfolio will not use Hedging
Instruments for speculation. The Hedging Instruments that the Portfolio is
authorized to use have certain risks associated with them. Principal among such
risks are (a) the possible failure of such instruments as hedging techniques in
cases where the price movements of the securities underlying the options or
futures do not follow the price movements of the portfolio securities subject to
the hedge; (b) potentially unlimited loss associated with futures transactions
and the possible lack of a liquid secondary market for closing out a futures
position; and (c) possible losses resulting from the inability of SCMI to
correctly predict the direction of stock prices, interests rates and other
economic factors. The Hedging Instruments the Portfolio may use and the risks
associated with them are described in greater detail under in Part B.
SHORT SALES AGAINST-THE-BOX. The Portfolio may not sell securities short except
in "short sales against-the-box". For federal income tax purposes, short sales
against-the-box may be made to defer recognition of gain or loss on the sale of
securities "in the box;" and no income can result and no gain can be realized
from securities sold short against-the-box until the short position is closed
out. Such short sales are subject to the limits described under "Fundamental
Restrictions" above closed out. See "Short Sales Against-the-Box" in Part B for
further details.
Risk Considerations
SMALLER COMPANIES. While all investments have risks, investments in smaller
capitalization companies carry greater risk than investments in larger
capitalization companies. Smaller capitalization companies generally experience
higher growth rates and higher failure rates than do larger capitalization
companies; and the trading volume of smaller capitalization companies'
securities is normally lower than that of larger capitalization companies and,
consequently, generally has a disproportionate effect on market price (tending
to make prices rise more in response to buying demand and fall more in response
to selling pressure).
UNSEASONED ISSUERS. Investments in small, unseasoned issuers generally involve
greater risk than is customarily associated with larger, more seasoned
companies. Such issuers often have products and management personnel that have
not been thoroughly tested by time or the marketplace, and their financial
resources may not be as substantial as those of more established companies.
Their securities, which the Portfolio may purchase when they are offered to the
public for the first time, may have a limited trading market, which may
adversely affect their sale by the Portfolio and may result in such securities
being priced lower than otherwise might be the case. If other institutional
investors engage in trading this type of security, the Portfolio may be forced
to dispose of its holdings at prices lower than might otherwise be obtained.
Item 5. Management of the Trust.
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Boards of Trustees
The business and affairs of the Portfolio are managed under the direction of the
Schroder Core Board. The Board formulates the general policies of the Portfolio
and the Trust and meets periodically to review the results of the Portfolio,
monitor investment activities and practices and discuss other matters affecting
the Portfolio and the Trust. Additional information regarding the Trustees and
executive officers of the Trust may be found in Part B.
Investment Adviser and Portfolio Managers
Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New
York, New York 10019, serves as investment adviser to the Portfolio. SCMI
manages the investment and reinvestment of the assets in the Portfolio and
continuously reviews, supervises and administers the Portfolio's investments. In
this regard, it is the responsibility of SCMI to make decisions relating to the
Portfolio's investments and to place purchase and sale orders regarding
investments with brokers or dealers selected by it in its discretion. For its
services with respect to the Portfolio, SCMI is entitled to receive a monthly
advisory fee at the annual rate of 0.60% of the Portfolio's average daily net
assets. From time to time, SCMI voluntarily may waive all or a portion of its
fees.
SCMI is a wholly owned U.S. subsidiary of Schroders Incorporated, the
wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large world-wide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices in eighteen countries. The
Schroder Group specializes in providing investment management services.
The investment management team of Fariba Talebi, a Vice President of the Trust
and a Group Vice President of SCMI, and Ira Unschuld, a Vice President of the
Trust and of SCMI, with the assistance of an investment committee, is primarily
responsible for the day-to-day management of the Portfolio's investments and has
so managed the Portfolio since its inception. Ms. Talebi and Mr. Unschuld have
been employed by SCMI in the investment research and portfolio management areas
since 1987 and 1990, respectively.
Administrative Services
On behalf of the Portfolio, the Trust has entered into an administration
agreement with Schroder Fund Advisors Inc. ("Schroder Advisors"), 787 Seventh
Avenue, New York, New York 10019. Schroder Advisors is a wholly owned subsidiary
of SCMI. On behalf of the Portfolio, the Trust has also entered into a
subadministration agreement with Forum Administrative Services, LLC ("Forum"),
Two Portland Square, Portland, Maine 04101. Pursuant to these agreements,
Schroder Advisors and Forum provide certain management and administrative
services necessary for the Portfolio`s operations, other than the administrative
services provided to the Portfolio by SCMI. Forum is entitled to receive a
monthly fee at the annual rate of 0.10% of the Portfolio's average daily net
assets. Schroder Advisors is not entitled to receive a separate fee for the
administrative services it provides to the Portfolio. From time to time, Forum
voluntarily may waive all or a portion of its fees.
Transfer Agent and Portfolio Accountant
Forum Financial Corp. (FFC), P.O. Box 446, Portland, Maine 04112, acts as the
Portfolio's transfer agent and portfolio accountant. FFC is an affiliate of
Forum. For its transfer agent services with respect to the Portfolio, FFC is
entitled to receive a fee of $12,000 per year plus $25 per interestholder
account. For fund accounting services with respect to the Portfolio, FFC is
entitled to receive a base fee of $36,000 per year plus additional amounts
depending on the assets of the Portfolio, the number and type of securities held
by the Portfolio and the portfolio turnover rate of the Portfolio. From time to
time, FFC voluntarily may waive all or a portion of its fees.
Expenses
The Portfolio is obligated to pay all of its expenses. These expenses include:
governmental fees; interest charges; taxes; brokerage fees and commissions;
insurance premiums; investment advisory, custodial, administrative and transfer
agency and fund accounting fees, as described above; compensation of certain of
the Trust's Trustees, costs of membership trade associations; fee and expenses
of independent auditors and legal counsel to the Trust; and expenses of
calculating the net asset value of and the net income of the Portfolio. The
Portfolio's expenses comprise Trust expenses attributable to the Portfolio,
which are allocated to the Portfolio, and expenses not attributable to the
Portfolio, which are allocated among the series in proportion to their average
net assets or as otherwise determined by the Board of Trustees.
Portfolio Transactions
SCMI places orders for the purchase and sale of the Portfolio's investments with
brokers and dealers selected by SCMI in its discretion and seeks "best
execution" of such portfolio transactions. The Portfolio may pay higher than the
lowest available commission rates when SCMI believes it is reasonable to do so
in light of the value of the brokerage and research services provided by the
broker effecting the transaction. SCMI may also consider sales of shares of the
Fund or any other entity that invests in the Portfolio as a factor in the
selection of broker-dealers to execute portfolio transactions for the Portfolio.
Subject to the Portfolio's policy of obtaining the best price consistent with
quality of execution on transactions, SCMI may employ: (i) Schroder Wertheim &
Company, Incorporated and its affiliates ("Schroder Wertheim"), affiliates of
SCMI, to effect transactions of the Portfolio on the New York Stock Exchange,
and (ii) Schroder Securities Limited and its affiliates ("Schroder Securities"),
affiliates of SCMI, to effect transactions of the Portfolio, if any, on certain
foreign securities exchanges. Because of the affiliation between SCMI and
Schroder Wertheim and Schroder Securities, the Portfolio's payment of
commissions to them is subject to procedures adopted by the Trust's Board of
Trustees designed to ensure that such commissions will not exceed the usual and
customary brokers' commissions. No specific portion of the Portfolio's brokerage
is directed to Schroder Wertheim or Schroder Securities, and in no event will
either receive any brokerage in recognition of research services.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Schroder Core Board may
determine, SCMI may consider sales of shares of the Fund or any other entity
that invests in the Portfolio as a factor in the selection of broker-dealers to
execute portfolio transactions for the Portfolio.
Although the Portfolio does not currently engage in directed brokerage
arrangements to pay expenses, it may do so in the future. These arrangements,
whereby brokers executing the Portfolio's transactions would agree to pay
designated expenses of the Portfolio if brokerage commissions generated by the
Portfolio reached certain levels, might reduce the Portfolio's expenses (and,
indirectly, the Fund's expenses). As anticipated, these arrangements would not
materially increase the brokerage commissions paid by the Portfolio. Brokerage
commissions are not deemed to be Fund expenses
Custodian
The Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York
11245, acts as custodian of the Portfolio's assets.
Item 5A. Management's Discussion of Fund Performance.
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Omitted. See "Introduction" above.
Item 6. Capital Stock and Other Securities.
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The Trust was organized as a business trust under the laws of the State of
Delaware. Under the Trust Instrument, the Trustees are authorized to issue
Interests in separate series of the Trust. The Trust currently has six
portfolios and the Trust reserves the right to create additional portfolios.
Each investor in the Portfolio is entitled to participate equally in the
Portfolio's earnings and assets and to a vote in proportion to the amount of its
investment in the Portfolio. Investments in the Portfolio may not be
transferred, but an investor may withdraw all or any portion of its investment
at any time at net asset value.
Investments in the Portfolio have no preemptive or conversion rights and are
fully paid and non-assessable, except as set forth below. The Trust is not
required and has no current intention to hold annual meetings of investors, but
the Trust will hold special meetings of investors when in the Trustees' judgment
it is necessary or desirable to submit matters to an investor vote. Generally,
Interests are voted in the aggregate without reference to a particular
portfolio, except if the matter affects only one portfolio or portfolio voting
is required, in which case Interests are voted separately by portfolio.
Investors have the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of investors. Upon liquidation of
the Portfolio, investors will be entitled to share pro rata in the Portfolio's
net assets available for distribution to investors.
The Portfolio's net income consists of: (1) all dividends, accrued interest
(including earned discount, both original issue and market discount), and other
income, including any net realized gains on the Portfolio's assets; less (2) all
actual and accrued expenses of the Portfolio, amortization of any premium, and
net realized losses on the Portfolio's assets (all as determined in accordance
with generally accepted accounting principles). All of the Portfolio's net
income is allocated pro rata among the investors in the Portfolio. The
Portfolio's net income generally is not distributed to the investors in the
Portfolio except as determined by the Trustees from time to time but instead is
included in the net asset value of the investors' respective Interests in the
Portfolio.
The Portfolio is not required to pay federal income taxes on its ordinary income
and capital gain, as it is treated as a partnership for federal income tax
purposes. All interest, dividends and gains and losses of the Portfolio are
deemed to "pass through" to its investors, regardless of whether such interest,
dividends or gains are distributed by the Portfolio or losses are realized by
the Portfolio. Under the anticipated method of the Portfolio's operations, it
will not be subject to any income tax. However, each investor in the Portfolio
will be taxed on its proportionate share (as determined in accordance with the
Trust's Trust Instrument and the Code) of the Portfolio's ordinary income and
capital gain, to the extent that the investor is subject to tax on its income.
It is intended that the Portfolio's assets, income, and distributions will be
managed in such a way that an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio. The Trust will inform investors of
the amount and nature of such income or gain.
Investor inquiries may be directed to Forum Financial Services, Inc. (FFSI).
Item 7. Purchase of Securities.
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Beneficial interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. See "General Description of Registrant" above. All
investments in the Portfolio are made without a sales load, at the NAV next
determined after an order is received by the Portfolio.
The net asset value is calculated separately for each class of Shares of the
Fund at 4:00 p.m. (eastern time), Monday through Friday, each day that the New
York Stock Exchange is open for trading (a "Fund Business Day"), which excludes
the following holidays: New Year's Day, Presidents' Day, Martin Luther King, Jr.
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per Share is calculated by dividing the
aggregate value of the Portfolio's assets less all Portfolio liabilities, if
any, by the number of Shares of the Fund outstanding.
Securities held by the Portfolio that are listed on recognized stock exchanges
are valued at the last reported sale price, prior to the time when the
securities are valued, on the exchange on which the securities are principally
traded. Listed securities traded on recognized stock exchanges where last sale
prices are not available are valued at mid-market prices. 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.
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 Trust's Board of Trustees.
The Trust reserves the right to cease accepting investments in the Portfolio at
any time or to reject any investment order.
The exclusive placement agent for the Trust is FFSI. FFSI receives no
compensation for serving as the exclusive placement agent for the Trust.
Item 8. Redemption or Repurchase.
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An investor in the Portfolio may withdraw all or any portion of its investment
in the Portfolio at the NAV next determined after a withdrawal request in proper
form is furnished by the investor to the Trust. The proceeds of a withdrawal
will be paid by the Portfolio in federal funds normally on the business day
after the withdrawal is effected, but in any event within seven days.
Investments in the Portfolio may not be transferred. The right of redemption may
not be suspended nor the payment dates postponed for more than seven days except
when the New York Stock Exchange is closed (or when trading thereon is
restricted) for any reason other than its customary weekend or holiday closings
or under any emergency or other circumstances as determined by the Commission.
Redemptions from the Portfolio may be made wholly or partially in portfolio
securities if the Board determines that payment in cash would be detrimental to
the best interests of the Portfolio. The Trust has filed an election with the
Commission pursuant to which the Portfolio will only consider effecting a
redemption in portfolio securities if the particular interestholder is redeeming
more than $250,000 or 1% of the Portfolio's NAV, whichever is less, during any
90-day period.
Item 9. Pending Legal Proceedings.
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Not applicable.
<PAGE>
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
SCHRODER CAPITAL FUNDS
--------
SCHRODER U.S. SMALLER COMPANIES FUND
OCTOBER 1, 1997
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
General Information and History............................................B-1
Investment Objectives and Policies.........................................B-1
Management of the Trust...................................................B-13
Control Persons and Principal Holders of Securities.......................B-16
Investment Advisory and Other Services....................................B-17
Brokerage Allocation and Other Practices..................................B-19
Capital Stock and Other Securities........................................B-21
Purchase, Redemption and Pricing of Securities............................B-22
Tax Status................................................................B-22
Underwriters..............................................................B-23
Calculations of Performance Data..........................................B-24
Financial Statements......................................................B-24
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13.. INVESTMENT OBJECTIVES AND POLICIES.
INVESTMENT POLICIES
INTRODUCTION
Part A contains information about the investment objective and policies of the
Schroder U.S. Smaller Companies Portfolio (the "Portfolio"), a series of
Schroder Capital Funds (the "Trust"). The following discussion is intended to
supplement the disclosure in Part A concerning the Portfolio's investments,
investment techniques and strategies and the risks associated therewith. This
Part B should be read only in conjunction with Part A.
DEFINITIONS
As used in Part B, the following terms shall have the meanings listed:
"Board" shall mean the Board of Trustees of the Trust.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
"Commission" shall mean the U.S. Securities and Exchange Commission.
U.S. GOVERNMENT SECURITIES
The Portfolio may invest in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities that have remaining maturities
not exceeding one year. Agencies and instrumentalities that issue or guarantee
debt securities and that have been established or sponsored by the U.S.
Government include the Bank for Cooperatives, the Export-Import Bank, the
Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land
Banks, the Federal National Mortgage Association, the Government National
Mortgage Association and the Student Loan Marketing Association. Except for
obligations issued by the U.S. Treasury and the Government National Mortgage
Association, none of the obligations of the other agencies or instrumentalities
referred to above is backed by the full faith and credit of the U.S. Government.
BANK OBLIGATIONS
The Portfolio may invest in obligations of U.S. banks (including certificates of
deposit, bankers' acceptances and time deposits) having total assets at the time
of purchase in excess of $1 billion. Such banks must be insured by the Federal
Deposit Insurance Corporation.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. A time deposit earns a specified rate of
interest over a definite time period; however, unlike certificates of deposit, a
time deposit cannot be traded in the secondary market.
SHORT-TERM DEBT SECURITIES
The Portfolio may invest in commercial paper, that is short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations
and finance companies. The commercial paper purchased by the Portfolio for
temporary defensive purposes consists of direct obligations of domestic issuers
that, at the time of investment, are rated "P-1" by Moody's Investors Service
("Moody's") or "A-1" by Standard & Poor's ("S&P"), or securities that, if not
rated, are issued by companies having an outstanding debt issue currently rated
"Aa" by Moody's or "AAA" or "AA" by S&P. The rating "P-1" is the highest
commercial paper rating assigned by Moody's and the rating "A-1" is the highest
commercial paper rating assigned by S&P.
REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements that mature or may be
terminated by notice in seven days or less with U.S. banks or broker-dealers. In
a typical repurchase agreement the seller of a security commits itself at the
time of the sale to repurchase that security from the buyer at a mutually
agreed-upon time and price. The repurchase price exceeds the sale price,
reflecting an agreed-upon interest rate effective for the period the buyer owns
the security subject to repurchase. The agreed-upon rate is unrelated to the
interest rate on that security. Schroder Capital Management Inc. ("SCMI"), the
Portfolio's Investment Adviser, will monitor the value of the underlying
collateral at all times during the term of the repurchase agreement to insure
that the value of the collateral always equals or exceeds the repurchase price.
In the event of default by the seller under the repurchase agreement, the
Portfolio may have difficulties in exercising its rights to the underlying
collateral and may incur costs and experience time delays in connection with the
disposition of such collateral. To evaluate potential risks, SCMI reviews the
creditworthiness of those banks and dealers with which the Portfolio enters into
repurchase agreements.
WARRANTS
The Portfolio may invest in warrants. Warrants are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Warrants have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer. The Portfolio may not invest in warrants
if, as a result, more than 5% of its net assets would be so invested or if, more
than 2% of its net assets would be so invested in warrants that are not listed
on the New York or American Stock Exchanges.
HIGH YIELD/JUNK BONDS
The Portfolio may invest up to 5% of its assets in bonds rated below "Baa" by
Moody's or "BBB" by S&P (commonly known as "high yield/high risk securities" or
"junk bonds"). Ratings of bonds represents the rating agencies' opinion
regarding their quality, are not a guarantee of quality and may be reduced after
the Portfolio has acquired the security. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not reflect an assessment of
the volatility of the security's market value or the liquidity of an investment
in the security. In addition, a rating agency may fail to make timely changes in
credit ratings in response to subsequent events, so that an issuer's financial
condition may be better or worse than the rating indicates.
Securities rated less than "Baa" by Moody's or "BBB" by S&P are classified as
non-investment grade securities and securities rated "Baa" and "BB"
respectively, are considered speculative by those rating agencies. Changes in
economic condition or other circumstances are more likely to lead to a weakened
capacity for such securities to make principal and interest payments than is the
case for higher grade debt securities. Debt securities rated below investment
grade are deemed by these agencies to be predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal and may involve
substantial risk exposure to adverse conditions. Junk bonds includes securities
that are in default or face the risk of default with respect to the payment of
principal or interest. Such securities are generally unsecured and are often
subordinated to other creditors of the issuer. To the extent the Portfolio is
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings, the Portfolio may incur additional expenses and have
limited legal recourse in the event of a default.
Lower rated debt securities generally offer a higher current yield than that
available from higher grade issuers, but they involve higher risks, in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuations in response to changes in
interest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress, which could adversely
effect their ability to make payments of principal and interest and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them, and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.
The market for lower rated securities has expanded rapidly in recent years, and
its growth paralleled a long economic expansion. In the past, the prices of many
lower rated debt securities declined substantially, reflecting an expectation
that many issuers of such securities might experience financial difficulties. As
a result, the yields on lower rated debt securities rose dramatically. However,
such higher yields did not reflect the value of the income stream that holders
of such securities could lose a substantial portion of their value as a result
of the issuers' financial restructuring or default. There can be no assurance
that such declines will not recur. The market for lower rated debt securities
generally is thinner and less active than that for higher quality securities,
which may limit the Portfolio's ability to sell such securities at fair value in
response to changes in the economy or the financial markets. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of lower rated securities, especially in a
thinly traded market.
ILLIQUID AND RESTRICTED SECURITIES
"Illiquid and Restricted Securities" under Part A sets forth the circumstances
in which the Portfolio may invest in illiquid and restricted securities. In
connection with the Portfolio's original purchase of restricted securities it
may negotiate rights with the issuer to have such securities registered for sale
at a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by the Portfolio with the issuer at the
time such securities are purchased by the Portfolio. When registration is
required, however, a considerable period may elapse between a decision to sell
the securities and the time the Portfolio would be permitted to sell such
securities. A similar delay might be experienced in attempting to sell such
securities pursuant to an exemption from registration. Thus, the Portfolio may
not be able to obtain as favorable a price as that prevailing at the time of the
decision to sell.
LOANS OF PORTFOLIO SECURITIES
The Portfolio may lend its portfolio securities subject to the restrictions
stated in Part A. Under applicable regulatory requirements (which are subject to
change), the loan collateral must, on each business day, at least equal the
market value of the loaned securities and must consist of cash, bank letters of
credit, U.S. Government securities, or other cash equivalents in which the
Portfolio is permitted to invest. To be acceptable as collateral, letters of
credit must obligate a bank to pay amounts demanded by the Portfolio if the
demand meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Portfolio. In a portfolio securities lending transaction,
the Portfolio receives from the borrower an amount equal to the interest paid or
the dividends declared on the loaned securities during the term of the loan as
well as the interest on the collateral securities, less any finders' or
administrative fees the Portfolio pays in arranging the loan. The Portfolio may
share the interest it receives on the collateral securities with the borrower as
long as it realizes at least a minimum amount of interest required by the
lending guidelines established by the Board. The Portfolio will not lend its
portfolio securities to any officer, director, employee or affiliate of the
Portfolio or SCMI. The terms of the Portfolio's loans must meet certain tests
under the Internal Revenue Code of 1986, as amended (the "Code") and permit the
Portfolio to reacquire loaned securities on five business days' notice or in
time to vote on any important matter.
COVERED CALLS AND HEDGING
As described in Part A, the Portfolio may write covered calls on up to 100% of
its total assets or employ one or more types of Hedging Instruments (as defined
in Part A). When hedging to attempt to protect against declines in the market
value of the Portfolio's securities, to permit the Portfolio to retain
unrealized gains in the value of portfolio securities that have appreciated, or
to facilitate selling securities for investment reasons, the Portfolio would:
(1) sell Stock Index Futures (as defined below), (2) purchase puts on such
futures or on securities, or (3) write covered calls on securities or such
futures. When hedging to establish a position in the equities markets as a
temporary substitute for purchasing particular equity securities (which the
Portfolio will normally purchase and then terminate the hedging position), the
Portfolio would: (1) purchase Stock Index Futures; or (2) purchase calls on such
futures or on securities. The Portfolio's strategy of hedging with Stock Index
Futures and options on such futures will be incidental to the Portfolio's
activities in the underlying cash market.
WRITING COVERED CALL OPTIONS. The Portfolio may write (i.e., sell) call options
("calls") if: (1) the calls are listed on a domestic securities or commodities
exchange; and (2) the calls are "covered" (i.e., the Portfolio owns the
securities subject to the call or other securities acceptable for applicable
escrow arrangements) while the call is outstanding. A call written on a Stock
Index Future must be covered by deliverable securities or segregated liquid
assets. If a call written by the Portfolio is exercised, the Portfolio forgoes
any profit from any increase in the market price above the call price of the
underlying investment on which the call was written.
When the Portfolio writes a call on a security, it receives a premium and agrees
to sell the underlying securities to a purchaser of a corresponding call on the
same security during the call period (usually not more than nine months) at a
fixed exercise price (which may differ from the market price of the underlying
security), regardless of market price changes during the call period. The risk
of loss will have been retained by the Portfolio if the price of the underlying
security should decline during the call period, which may be offset to some
extent by the premium.
To terminate its obligation on a call it has written, the Portfolio may purchase
a corresponding call in a "closing purchase transaction." A profit or loss will
be realized, depending upon whether the net of the amount of option transaction
costs and the premium previously received on the call written was more or less
than the price of the call subsequently purchased. A profit may also be realized
if the call lapses unexercised because the Portfolio retains the underlying
security and the premium received. If the Portfolio could not effect a closing
purchase transaction due to the lack of a market, it would have to hold the
callable securities until the call lapsed or was exercised.
The Portfolio may also write calls on Stock Index Futures without owning a
futures contract or a deliverable bond, provided that at the time the call is
written, the Portfolio covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Portfolio will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current value
of the Stock Index Future. In no circumstances would an exercise notice require
the Portfolio to deliver a futures contract; it would simply put the Portfolio
in a short futures position, which is permitted by the Portfolio's hedging
policies.
PURCHASING CALLS AND PUTS. The Portfolio may purchase put options ("puts") that
relate to: (1) securities held by it; (2) Stock Index Futures (whether or not it
holds such futures in its portfolio); or (3) broadly-based stock indices. The
Portfolio may not sell puts other than those it previously purchased nor
purchase puts on securities it does not hold. The Portfolio may purchase calls:
(1) as to securities, broadly based stock indices or Stock Index Futures; or (2)
to effect a "closing purchase transaction" to terminate its obligation on a call
it has previously written. A call or put may be purchased only if, after such
purchase, the value of all put and call options held by the Portfolio would not
exceed 5% of its total assets.
When the Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock indices, has
the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price. The
Portfolio benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the
call price plus the transaction costs and the premium paid for the call and the
call is exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Portfolio will
lose its premium payments and the right to purchase the underlying investment.
When the Portfolio purchases a call on a stock index, it pays a premium, but
settlement is in cash rather than by delivery of an underlying investment.
When the Portfolio purchases a put, it pays a premium and, except as to puts on
stock indices, has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on a security or Stock Index Future the Portfolio
owns enables it to attempt to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price by
selling the underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is equal to
or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date and the Portfolio
will lose its premium payment and the right to sell the underlying investment;
the put may, however, be sold prior to expiration (whether or not at a profit).
Purchasing a put on either a stock index or on a Stock Index Future not held by
the Portfolio permits it either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price of the put will
vary inversely with the price of the underlying investment. If the market price
of the underlying investment is above the exercise price and, as a result, the
put is not exercised, the put will become worthless on its expiration date. In
the event of a decline in price of the underlying investment, the Portfolio
could exercise or sell the put at a profit to attempt to offset some or all of
its loss on its portfolio securities. When the Portfolio purchases a put on a
stock index, or on a Stock Index Future not held by it, the put protects the
Portfolio to the extent that the index moves in a similar pattern to the
securities held. In the case of a put on a stock index or Stock Index Future,
settlement is in cash rather than by the Portfolio's delivery of the underlying
investment.
STOCK INDEX FUTURES. The Portfolio may buy and sell futures contracts only if
they relate to broadly based stock indices ("Stock Index Futures"). A stock
index is "broadly based" if it includes stocks that are not limited to issuers
in any particular industry or group of industries. Stock Index Futures obligate
the seller to deliver (and the purchaser to take) cash to settle the futures
transaction or to enter into an offsetting contract. No physical delivery of the
underlying stocks in the index is made.
No price is paid or received upon the purchase or sale of a Stock Index Future.
Upon entering into a futures transaction, the Portfolio will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with a futures
commission merchant (the "futures broker"). The initial margin will be deposited
with the Portfolio's custodian in an account registered in the futures broker's
name; however the futures broker can gain access to that account only under
specified conditions. As the future is marked to market to reflect changes in
its market value, subsequent margin payments, called variation margin, will be
paid to or by the futures broker on a daily basis. Prior to expiration of the
future, if the Portfolio elects to close out its position by taking an opposite
position, a final determination of variation margin is made, additional cash is
required to be paid by or released to the Portfolio, and any loss or gain is
realized for tax purposes. Although Stock Index Futures by their terms call for
settlement by the delivery of cash, in most cases the obligation is fulfilled
without such delivery, by entering into an offsetting transaction. All futures
transactions are effected through a clearinghouse associated with the exchange
on which the contracts are traded.
Puts and calls on broadly based stock indices or Stock Index Futures are similar
to puts and calls on securities or other futures contracts except that all
settlements are in cash and gain or loss depends on changes in the index in
question (and thus on price movements in the stock market generally) rather than
on price movements in individual securities or futures contracts. When the
Portfolio buys a call on a stock index or Stock Index Future, it pays a premium.
During the call period, upon exercise of a call by the Portfolio, a seller of a
corresponding call on the same index will pay the Portfolio an amount of cash to
settle the call if the closing level of the stock index or Stock Index Future
upon which the call is based is greater than the exercise price of the call;
that cash payment is equal to the difference between the closing price of the
index and the exercise price of the call times a specified multiple (the
"multiplier") that determines the total dollar value for each point of
difference. When the Portfolio buys a put on a stock index or Stock Index
Future, it pays a premium and has the right during the put period to require a
seller of a corresponding put, upon the Portfolio's exercise of its put, to
deliver to the Portfolio an amount of cash to settle the put if the closing
level of the stock index or Stock Index Future upon which the put is based is
less than the exercise price of the put; that cash payment is determined by the
multiplier, in the same manner as described above as to calls.
ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE. The Portfolio's
custodian, or a securities depository acting for the custodian, will act as the
Portfolio's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC"), as to the securities on which the Portfolio has written
options, or as to other acceptable escrow securities, so that no margin will be
required for such transactions. OCC will release the securities on the
expiration of the option or upon the Portfolio's entering into a closing
transaction. An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option.
The Portfolio's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Portfolio may cause
it to sell related portfolio securities, thus increasing its turnover rate in a
manner beyond its control. The exercise by the Portfolio of puts on securities
or Stock Index Futures may cause the sale of related investments, also
increasing portfolio turnover. Although such exercise is within the Portfolio's
control, holding a put might cause the Portfolio to sell the underlying
investment for reasons that would not exist in the absence of the put. The
Portfolio will pay a brokerage commission each time it buys or sells a call, a
put or an underlying investment in connection with the exercise of a put or
call. Such commissions may be higher than those that would apply to direct
purchases or sales of the underlying investments. Premiums paid for options are
small in relation to the market value of such investments, and, consequently,
put and call options offer large amounts of leverage. The leverage offered by
trading in options could result in the Portfolio's net asset value being more
sensitive to changes in the value of the underlying investments.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS AND COVERED CALLS. The Portfolio must
operate within certain restrictions as to its long and short positions in Stock
Index Futures and options thereon under a rule (the "CFTC Rule") adopted by the
Commodity Futures Trading Commission (the "CFTC") under the Commodity Exchange
Act (the "CEA"), which excludes the Portfolio from registration with the CFTC as
a "commodity pool operator" (as defined in the CEA) if it complies with the CFTC
Rule. Under these restrictions the Portfolio will not, as to any positions,
whether short, long or a combination thereof, enter into Stock Index Futures and
options thereon for which the aggregate initial margins and premiums exceed 5%
of the fair market value of its total assets, with certain exclusions as defined
in the CFTC Rule. Under the restrictions, the Portfolio also must, as to its
short positions, use Stock Index Futures and options thereon solely for
bona-fide hedging purposes within the meaning and intent of the applicable
provisions under the CEA.
Transactions in options by the Portfolio are subject to limitations established
by each of the exchanges governing the maximum number of options that may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
exchanges or brokers. Thus, the number of options which the Portfolio may write
or hold may be affected by options written or held by other entities, including
other investment companies having the same or an affiliated investment adviser.
Position limits also apply to Stock Index Futures. An exchange may order the
liquidation of positions found to be in violation of those limits and may impose
certain other sanctions. Due to requirements under the 1940 Act, as amended,
when the Portfolio purchases a Stock Index Future, the Portfolio will maintain,
in a segregated account or accounts with its custodian bank, cash or
readily-marketable, short-term (maturing in one year or less) debt instruments
in an amount equal to the market value of the securities underlying such Stock
Index Future, less the margin deposit applicable to it.
LIMITS ON USE OF HEDGING INSTRUMENTS. Due to the Short-Short Limitation
described under "Taxation," the Portfolio will limit the extent to which it
engages in the following activities but will not be precluded from them: (1)
selling investments, including Stock Index Futures, held for less than three
months, whether or not they were purchased on the exercise of a call held by the
Portfolio; (2) purchasing calls or puts that expire in less than three months;
(3) effecting closing transactions with respect to calls or puts purchased less
than three months previously; (4) exercising puts held for less than three
months; and (5) writing calls on investments held for less than three months.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks discussed above,
there is a risk in using short hedging by selling Stock Index Futures or
purchasing puts on stock indices that the prices of the applicable index (thus
the prices of the Hedging Instruments) will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of the Portfolio's equity
securities. The ordinary spreads between prices in the cash and futures markets
are subject to distortions due to differences in the natures of those markets.
First, all participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions that could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures markets may
cause temporary price distortions.
The risk of imperfect correlation increases as the composition of the Portfolio
diverges from the securities included in the applicable index. To compensate for
the imperfect correlation of movements in the price of the equity securities
being hedged and movements in the price of the Hedging Instruments, the
Portfolio may use Hedging Instruments in a greater dollar amount than the dollar
amount of equity securities being hedged if the historical volatility of the
prices of such equity securities being hedged is more than the historical
volatility of the applicable index. It is also possible that where the Portfolio
has used Hedging Instruments in a short hedge, the market may advance and the
value of equity securities held in the Portfolio may decline. If this occurred,
the Portfolio would lose money on the Hedging Instruments and also experience a
decline in value in its equity securities. However, while this could occur for a
very brief period or to a very small degree, the value of a diversified
portfolio of equity securities will tend to move over time in the same direction
as the indices upon which the Hedging Instruments are based.
If the Portfolio uses Hedging Instruments to establish a position in the
equities markets as a temporary substitute for the purchase of individual equity
securities (long hedging) by buying Stock Index Futures and/or calls on such
futures, on securities or on stock indices, it is possible that the market may
decline. If the Portfolio then concluded not to invest in equity securities at
that time because of concerns as to possible further market decline or for other
reasons, it would realize a loss on the Hedging Instruments that is not offset
by a reduction in the price of the equity securities purchased.
SHORT SALES AGAINST-THE-BOX
After the Portfolio makes a short sale against-the-box, while the short position
is open, it must own an equal amount of the securities sold short or by virtue
of ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold short. Short
sales against-the-box may be made to defer recognition of gain or loss, for
federal income tax purposes, on the sale of securities "in the box" until the
short position is closed out.
INVESTMENT RESTRICTIONS
The following investment restrictions, except where stated to be fundamental
policies, are non-fundamental policies of the Portfolio. The policies defined as
fundamental, together with the fundamental policies and investment objective
described in the Part A, cannot be changed without the vote of a "majority" of
the Portfolio's outstanding voting interests. Under the 1940 Act, such a
"majority" vote is defined as the vote of the holders of the lesser of: (1) 67%
or more of the interests present or represented by proxy at a meeting of
interestholders, if the holders of more than 50% of the outstanding interests
are present; or (2) more than 50% of the outstanding interests.
The following investment restrictions of the Portfolio are fundamental policies:
(a) With respect to 75% of its assets, the Portfolio may not
purchase a security other than a U.S. Government Security if,
as a result, more than 5% of its total assets would be
invested in the securities of a single issuer or it would own
more than 10% of the outstanding voting securities of any
single issuer.
(b) The Portfolio may not purchase securities if, immediately
after the purchase, 25% or more of the value of its total
assets would be invested in the securities of issuers
conducting their principal business activities in the same
industry; provided, however, that there is no limit on
investments in U.S. Government Securities.
(c) The Portfolio may borrow money from banks or by entering into
reverse repurchase agreements, provided that such borrowings
do not exceed 33 1/3% of the value of the Portfolio's total
assets (computed immediately after the borrowing).
(d) The Portfolio may not issue senior securities except to the
extent permitted by the 1940 Act.
(e) The Portfolio may not underwrite securities of other issuers,
except to the extent that it may be considered to be acting as
an underwriter in connection with the disposition of portfolio
securities.
(f) The Portfolio may not make loans, except it may enter into
repurchase agreements, purchase debt securities that are
otherwise permitted investments and lend portfolio securities.
(g) The Portfolio may not purchase or sell real estate or any
interest therein, except that it may invest in debt
obligations secured by real estate or interests therein or
securities issued by companies that invest in real estate or
interests therein.
(h) The Portfolio may not purchase or sell physical commodities
unless acquired as a result of owning securities or other
instruments, but it may purchase, sell or enter into financial
options and futures and forward currency contracts and other
financial contracts or derivative instruments.
The following investment restrictions of the Portfolio are
non-fundamental policies:
(a) The Portfolio's borrowings for other than temporary or
emergency purposes or meeting redemption requests may not
exceed an amount equal to 5% of the value of its net assets.
(b) The Portfolio may not acquire securities or invest in
repurchase agreements with respect to any securities if, as a
result, more than 15% of its net assets (taken at current
value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days
and in securities that are not readily marketable by virtue of
restrictions on the sale of such securities to the public
without registration under the 1933 Act ("Restricted
Securities").
(c) The Portfolio may not invest in securities of another
investment company, except to the extent permitted by the 1940
Act.
(d) The Portfolio may not purchase securities on margin, or make
short sales of securities (except short sales against the
box), except for the use of short-term credit necessary for
the clearance of purchases and sales of portfolio securities.
The Portfolio may make margin deposits in connection with
permitted transactions in options, futures contracts and
options on futures contracts.
(e) The Portfolio may not invest in securities (other than fully
collateralized debt obligations) issued by companies that have
conducted continuous operations for less than three years,
including the operations of predecessors, unless guaranteed as
to principal and interest by an issuer in whose securities the
Portfolio could invest, if, as a result, more than 5% of the
value of the Portfolio's total assets would be so invested.
(f) The Portfolio may not pledge, mortgage, hypothecate or
encumber any of its assets except to secure permitted
borrowings.
(g) The Portfolio may not invest in or hold securities of any
issuer if, to the Trust's knowledge, officers and trustees of
the Trust or officers and directors of the Portfolio's
investment adviser, individually owning beneficially more than
1/2 of 1% of the securities of the issuer, in the aggregate
own more than 5% of the issuer's securities.
(h) The Portfolio may not invest in interest in oil and gas or
interests in other mineral exploration or development
programs.
(i) The Portfolio may not lend portfolio securities if the total
value of all loaned securities would exceed 25% of its total
assets.
(j) The Portfolio may not purchase real estate limited partnership
interests.
(k) The Portfolio may not invest in warrants if, as a result, more
than 5% of its net assets would be so invested or if, more
than 2% of its net assets would be invested in warrants that
are not listed on the New York or American Stock Exchanges.
ITEM 14. MANAGEMENT OF THE TRUST.
The following information relates to the principal occupations of each Trustee
and executive officer of the Trust during the past five years and shows the
nature of any affiliation with SCMI. Each of these individuals currently serves
in the same capacity for Schroder Capital Funds (Delaware), an investment
company with a series that invests all of its assets in the Portfolio.
PETER E. GUERNSEY, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Insurance Consultant since August 1986; prior thereto
Senior Vice President, Marsh & McLennan, Inc., insurance brokers.
JOHN I. HOWELL, 80, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Private Consultant since February 1987; Honorary Director,
American International Group, Inc.; Director, American International Life
Assurance Company of New York.
CLARENCE F. MICHALIS, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Chairman of the Board of Directors, Josiah Macy, Jr.
Foundation (charitable foundation).
HERMANN C. SCHWAB, 77, c/o the Trust, Two Portland Square, Portland, Maine -
Chairman and Trustee of the Trust; retired since March, 1988; prior thereto,
consultant to SCMI since February 1, 1984.
MARK J. SMITH*, 35, 33 Gutter Lane, London, England - President and Trustee of
the Trust; Senior Vice President and Director of SCMI since April 1990; Director
and Senior Vice President, Schroder Advisors.
MARK ASTLEY, 33, 787 Seventh Avenue, New York, New York - Vice President of the
Trust; First Vice President of SCMI, prior thereto, employed by various
affiliates of SCMI in various positions in the investment research and portfolio
management areas since 1987.
ROBERT G. DAVY, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior thereto,
employed by various affiliates of SCMI in various positions in the investment
research and portfolio management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON, 55, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Secretary of SCM since July 1995; Senior Vice President
(since April 1997) and General Counsel of Schroders Incorporated since May 1987;
prior thereto, partner of Sullivan & Worcester, a law firm.
RICHARD R. FOULKES, 51, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Deputy Chairman of SCMI since October 1995; Director and Executive
Vice President of Schroder Capital Management International Ltd.
since 1989.
JOHN Y. KEFFER, 54, Two Portland Square, Portland, Maine - Vice President of the
Trust; President of FFC, the Fund's transfer and dividend disbursing agent and
other affiliated entities including Forum Financial Services, Inc. and Forum
Advisors, Inc.
JANE P. LUCAS, 35, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director and Senior Vice President SCMI; Director of SCM since
September 1995; Director of Schroder Advisors since September 1996; Assistant
Director Schroder Investment Management Ltd. since June 1991.
CATHERINE A. MAZZA, 37, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; President of Schroder Advisors since 1997; First Vice President of
SCMI and SCM since 1996; prior thereto, held various marketing positions at
Alliance Capital, an investment adviser, since July 1985.
MICHAEL PERELSTEIN, 41, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Director since May 1997 and Senior Vice President of SCMI since
January 1997; prior thereto, Managing Director of MacKay - Shields Financial
Corp.
ALEXANDRA POE, 36, 787 Seventh Avenue, New York, New York - Secretary and Vice
President of the Trust; Vice President of SCMI since August 1996; Fund Counsel
and Senior Vice President of Schroder Advisors since August 1996; Secretary of
Schroder Advisors; prior thereto, an investment management attorney with Gordon
Altman Butowsky Weitzen Shalov & Wein since July 1994; prior thereto counsel and
Vice President of Citibank, N.A. since 1989.
THOMAS G. SHEEHAN, 42, Two Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust; Managing Director, Forum
Financial Services, Inc. since 1993; prior thereto, Special Counsel, U.S.
Securities and Exchange Commission, Division of Investment Management,
Washington, D.C.
FARIBA TALEBI, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Group Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas since 1987;
Director of SCM since April 1997.
JOHN A. TROIANO, 38, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCM since April 1997; Chief Executive Officer, since
April 1, 1997, of SCMI and Managing Director and Senior Vice President of SCMI
since October 1995; prior thereto, employed by various affiliates of SCMI in
various positions in the investment research and portfolio management areas
since 1981.
IRA L. UNSCHULD, 31, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Vice President of SCMI since April, 1993 and an Associate from July,
1990 to April, 1993.
CATHERINE S. WOOLEDGE, 55, Two Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust - Counsel, Forum Financial
Services, Inc. since November 1996. Prior thereto, associate at Morrison &
Foerster, Washington, D.C. from October 1994 to November 1996, associate
corporate counsel at Franklin Resources, Inc. from September 1993 to September
1994, and prior thereto associate at Drinker Biddle & Reath, Philadelphia, PA.
* Interested Trustee of the Trust within the meaning of the 1940 Act.
Schroder Fund Advisors Inc. ("Schroder Advisors") 787 Seventh Avenue, New York,
New York 10019, is a wholly owned subsidiary of SCMI, which is a wholly owned
subsidiary of Schroders Incorporated, which in turn is an indirect, wholly owned
U.S. subsidiary of Schroders plc. Schroder Capital Management Inc. ("SCM") is
also a wholly owned subsidiary of Schroders Incorporated.
Officers and Trustees who are interested persons of the Trust receive no salary,
fees or compensation from the Fund. Independent Trustees of the Trust receive an
annual fee of $1,000 and a fee of $250 for each meeting of the Trust Board
attended by them except in the case of Mr. Schwab, who receives an annual fee of
$1,500 and a fee of $500 for each meeting attended. The Fund has no bonus,
profit sharing, pension or retirement plans.
The following table provides the aggregate compensation paid to the Trustees of
the Trust by the Trust and Schroder Asian Growth Fund, Inc., combined.
Information is presented for the twelve months ended May 31, 1997.
<TABLE>
Name of Trustee Aggregate Pension or Estimated Annual Total Compensation
Compensation From Retirement Benefits Benefits Upon From Trust And Fund
Trust Accrued As Part of Retirement Complex Paid To
Portfolio Expenses Trustees*
- ------------------------------- -------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Mr. Guernsey $1,750 $0 $0 $14,750
Mr. Hansmann 1,375 0 0 1,375
Mr. Howell 1,750 0 0 14,750
Mr. Michalis 1,750 0 0 1,750
Mr. Schwab 3,000 0 0 3,000
Mr. Smith 0 0 0 0
</TABLE>
* In addition to the Trust, "Fund Complex" includes Schroder Capital Funds
(Delaware), an open-end investment company for which SCMI serves as investment
adviser, and Schroder Asian Growth Fund, Inc., a closed-end investment company
for which SCMI serves as investment adviser.
As of August 31, 1997, the officers and Trustees of the Trust owned, in the
aggregate, less than 1% of the Portfolio's outstanding shares.
While the Trust is a Delaware business trust, certain of its Trustees or
officers are residents of the United Kingdom and substantially all of their
assets may be located outside of the U.S. As a result it may be difficult for
U.S. investors to effect service upon such persons within the U.S., or to
realize judgments of courts of the U.S. predicated upon civil liabilities of
such persons under the Federal securities laws of the U.S. The Trust has been
advised that there is substantial doubt as to the enforceability in the United
Kingdom of such civil remedies and criminal penalties as are afforded by the
Federal securities laws of the U.S. Also it is unclear if extradition treaties
now in effect between the U.S. and the United Kingdom would subject such persons
to effective enforcement of the criminal penalties of such acts.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of August 31, 1997, Schroder U.S. Smaller Companies Fund (the "Fund"), a
series of Schroder Capital Funds (Delaware), a Delaware business trust
registered with the SEC as an open-end management investment company, invests
all of its investable assets in the Portfolio and may be deemed to control the
Portfolio for purposes of the 1940 Act.
Schroder Capital Funds (Delaware) has informed the Trust that whenever the Fund
is requested to vote on matters pertaining to the Portfolio, the Fund will hold
a meeting of its shareholders and will cast its vote as instructed by its
shareholders. This only applies to matters for which the Fund would be required
to have a shareholder meeting if it directly held investment securities rather
than invested in the Portfolio. It is anticipated that any other registered
investment company (or series thereof) that may in the future invest in the
Portfolio will follow the same or a similar practice.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISORY SERVICES
SCMI serves as investment adviser to the Portfolio pursuant to an Investment
Advisory Contract. SCMI is a wholly owned U.S. subsidiary of Schroders
Incorporated, the wholly owned United States holding subsidiary of Schroders
plc. Schroders plc is the holding company parent of a large worldwide group of
banks and financial service companies (referred to as the "Schroder Group"),
with associated companies and branch and representative offices located in
seventeen countries worldwide. The Schroder Group specializes in providing
investment management services, with Group funds under management currently in
excess of $175 billion as of June 30, 1997.
Pursuant to the Investment Advisory Contract, SCMI is responsible for managing
the investment and reinvestment of the Portfolio's assets and for continuously
reviewing, supervising and administering the Portfolio's investments. In this
regard, it is the responsibility of SCMI to make decisions relating to the
Portfolio's investments and to place purchase and sale orders regarding such
investments with brokers or dealers selected by it in its discretion. SCMI also
furnishes to the Board periodic reports on the investment performance of the
Portfolio.
Under the terms of the Investment Advisory Contract, SCMI is required to manage
the Portfolio's investment portfolio in accordance with applicable laws and
regulations. In making its investment decisions, SCMI does not use material
inside information that may be in its possession or in the possession of its
affiliates.
The Investment Advisory Contract will continue in effect provided such
continuance is approved annually: (1) by the holders of a majority of the
outstanding voting securities of the Portfolio or by the Board; and (2) by a
majority of the Trustees who are not parties to such contract or "interested
persons" (as defined in the 1940 Act) of any such party. The Investment Advisory
Contract may be terminated without penalty by vote of the Trustees or the
shareholders of the Portfolio on 60 days' written notice to SCMI, or by SCMI on
60 days' written notice to the Trust and it will terminate automatically if
assigned. The Investment Advisory Contract also provides that, with respect to
the Portfolio, neither SCMI nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
or their duties to the Portfolio, except for willful misfeasance, bad faith or
gross negligence in the performance of the SCMI's or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Investment Advisory Contract.
For its investment advisory services under the Investment Advisory Contract with
respect to the Portfolio, SCMI receives an annual advisory fee of 0.60% of the
Portfolio's average daily net assets.
ADMINISTRATIVE SERVICES
On behalf of the Portfolio, the Trust has entered into an administration
agreement with Schroder Advisors. Schroder Advisors is a wholly owned subsidiary
of SCMI. The Trust has also entered into a sub-administration agreement with
Forum Administrative Services, LLC ("Forum"). Pursuant to these agreements,
Schroder Advisors and Forum provide certain management and administrative
services necessary for the Portfolio's operations, other than the investment
management and administrative services provided to the Portfolio by SCMI
pursuant to the investment advisory agreement, including among other things: (1)
preparation of shareholder reports and communications, (2) regulatory
compliance, such as reports to and filings with the Commission and state
securities commissions; and (3) general supervision of the operation of the
Portfolio, including coordination of the services performed by the Portfolio's
investment adviser, transfer agent, custodian, independent accountants, legal
counsel and others. Forum receives a monthly fee at the annual rate of 0.075% of
the Portfolio's average daily net assets. Schroder Advisors receives no fee from
the Portfolio for the administrative services it provides the Portfolio.
The administrative services agreements are terminable with respect to the
Portfolio without penalty, at any time, by vote of a majority of the Trustees of
the Trust, upon not more than 60 days' written notice to Schroder or Forum, or,
upon 60 days' notice by Schroder or Forum. The administrative services
agreements will terminate automatically in the event of their assignment.
CUSTODIAN
All securities and cash of the Portfolio are held by The Chase Manhattan Bank,
N.A., Chase MetroTech Center, Brooklyn, New York 11245.
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109,
serves as independent accountants for the Trust.
PORTFOLIO ACCOUNTANT
On behalf of the Portfolio, the Trust has entered into a Transfer Agency and
Fund Accounting Agreement with Forum Financial Corp. ("FFC"), an affiliate of
Forum. Pursuant to this agreement, FFC performs transfer agency and portfolio
accounting services. FFC receives a base fee per year, plus additional amounts
depending upon the assets of the Portfolio, the number and type of securities
held by the Portfolio and the portfolio turnover rate of the Portfolio.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
INVESTMENT DECISIONS
Investment decisions for the Portfolio and for the other investment advisory
clients of SCMI are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved. Thus, a particular
security may be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which in SCMI's opinion is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio securities
for one or more clients will have an adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Portfolio of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities generally involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States. Since most brokerage transactions for the Portfolio will be placed with
foreign broker-dealers, certain portfolio transaction costs for the Portfolio
may be higher than fees for similar transactions executed on U.S. securities
exchanges. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, but the price paid by the Portfolio
usually includes an undisclosed dealer commission or mark-up. In underwritten
offerings, the price paid by the Portfolio includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
The Investment Advisory Contract authorizes and directs SCMI to place orders for
the purchase and sale of the Portfolio's investments with brokers or dealers
selected by SCMI in its discretion and to seek "best execution" of such
portfolio transactions. SCMI places all such orders for the purchase and sale of
portfolio securities and buys and sells securities for the Portfolio through a
substantial number of brokers and dealers. In so doing, SCMI uses its best
efforts to obtain for the Portfolio the most favorable price and execution
available. The Portfolio may, however, pay higher than the lowest available
commission rates when SCMI believes it is reasonable to do so in light of the
value of the brokerage and research services provided by the broker effecting
the transaction. In seeking the most favorable price and execution, SCMI, having
in mind the Portfolio's best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealers involved and the
quality of service rendered by the broker-dealers in other transactions.
It has for many years been a common practice in the investment advisory business
as conducted in certain countries, including the United States, for advisers of
investment companies and other institutional investors to receive research
services from broker-dealers which execute portfolio transactions for the
clients of such advisers. Consistent with this practice, SCMI may receive
research services from broker-dealers with which SCMI places the Portfolio's
portfolio transactions. These services, which in some cases may also be
purchased for cash, include such items as general economic and security market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services are of value to SCMI in advising various of its clients (including the
Portfolio), although not all of these services are necessarily useful and of
value in managing the Portfolio. The investment advisory fee paid by the
Portfolio is not reduced because SCMI and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), SCMI may cause the Portfolio to pay a broker-dealer which provides
"brokerage and research services" (as defined in the Act) to SCMI an amount of
disclosed commission for effecting a securities transaction for the Portfolio in
excess of the commission which another broker-dealer would have charged for
effecting that transaction.
Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized SCMI to employ Schroder & Co. an
affiliate of SCMI, to effect securities transactions of the Portfolio, on the
New York Stock Exchange only, provided certain other conditions are satisfied as
described below.
Payment of brokerage commissions to Schroder & Co. for effecting such
transactions is subject to Section 17(e) of the 1940 Act, which requires, among
other things, that commissions for transactions on a national securities
exchange paid by a registered investment company to a broker which is an
affiliated person of such investment company or an affiliated person of another
person so affiliated not exceed the usual and customary broker's commissions for
such transactions. It is the Portfolio's policy that commissions paid to
Schroder & Co. will in the judgment of the officers of the Trust responsible for
making portfolio decisions and selecting brokers, be: (1) at least as favorable
as commissions contemporaneously charged by Schroder & Co. on comparable
transactions for its most favored unaffiliated customers; and (2) at least as
favorable as those which would be charged on comparable transactions by other
qualified brokers having comparable execution capability. The Board, including a
majority of the non-interested Trustees, has adopted procedures pursuant to Rule
17e-1 promulgated by the Securities and Exchange Commission under Section 17(e)
to ensure that commissions paid to Schroder & Co. by the Portfolio satisfy the
foregoing standards. The Board will review all transactions at least quarterly
for compliance with such procedures.
The Portfolio has no understanding or arrangement to direct any specific portion
of its brokerage to Schroder & Co. and will not direct brokerage to Schroder &
Co. in recognition of research services.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Trust Instrument, the Trustees are authorized to issue beneficial
interest in one or more separate and distinct series. Investments in the
Portfolio have no preference, preemptive, conversion or similar rights and are
fully paid and nonassessable, except as set forth below. Each investor in the
Portfolio is entitled to a vote in proportion to the amount of its investment
therein. Investors in the Portfolio and other series (collectively, the
"portfolios") of the Trust will all vote together in certain circumstances
(i.e., election of the Trustees and ratification of auditors, as required by the
1940 Act and the rules thereunder). One or more portfolios could control the
outcome of these votes. Investors do not have cumulative voting rights, and
investors holding more than 50% of the aggregate interests in the Trust or in
the Portfolio, as the case may be, may control the outcome of votes. The Trust
is not required and has no current intention to hold annual meetings of
investors, but the Trust will hold special meetings of investors when: (1) a
majority of the Trustees determines to do so; or (2) investors holding at least
10% of the interests in the Trust (or the Portfolio) request in writing a
meeting of investors in the Trust (or Portfolio). Except for certain matters
specifically described in the Trust Instrument, the Trustees may amend the
Trust's Trust Instrument without the vote of investors.
The Trust, with respect to the Portfolio, may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved by
the Trust's Board. The Portfolio may be terminated: (1) upon liquidation and
distribution of its assets, if approved by the vote of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act); or (2)
by the Trustees on written notice to the Portfolio's investors. Upon liquidation
or dissolution of any Portfolio, the investors therein would be entitled to
share pro rata in its net assets available for distribution to investors.
The Trust is organized as a business trust under the laws of the State of
Delaware. The Trust's interestholders are not personally liable for the
obligations of the Trust under Delaware law. The Delaware Business Trust Act
provides that an interestholder of a Delaware business trust shall be entitled
to the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust interestholder liability exists in many other states,
including Texas. As a result, to the extent that the Trust or an interestholder
is subject to the jurisdiction of courts in those states, the courts may not
apply Delaware law, and may thereby subject the Trust to liability. To guard
against this risk, the Trust Instrument of the Trust disclaims liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
interestholder held personally liable for the obligations of the Trust. Thus,
the risk of an interestholder incurring financial loss beyond his investment
because of shareholder liability is limited to circumstances in which: (1) a
court refuses to apply Delaware law; (2) no contractual limitation of liability
is in effect; and (3) the Trust itself is unable to meet its obligations. In
light of Delaware law, the nature of the Trust's business, and the nature of its
assets, the Board believes that the risk of personal liability to a Trust
interestholder is remote.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Interests in the Portfolio are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of section 4(2) of
the 1933 Act. All investments in the Portfolio are made and withdrawn at the net
asset value ("NAV") next determined after an order is received by the Portfolio.
NAV per share is calculated by dividing the aggregate value of the Portfolio's
assets less all liabilities by the number of shares of the Portfolio
outstanding. See Items 6, 7 and 8 in Part A.
ITEM 20. TAX STATUS.
The Portfolio will be classified for federal income tax purposes as a
partnership that will not be a "publicly traded partnership." As a result, the
Portfolio will not be subject to federal income tax; instead, each investor in
the Portfolio will be required to take into account in determining its federal
income tax liability its share of the Portfolio's income, gains, losses,
deductions, and credits, without regard to whether it has received any cash
distributions from the Portfolio. The Portfolio also will not be subject to
Delaware income or franchise tax.
Each investor in the Portfolio will be deemed to own a proportionate share of
the Portfolio's assets, and to earn a proportionate share of the Portfolio's
income, for, among other things, purposes of determining whether the investor
satisfies the requirements to qualify as a regulated investment company ("RIC").
Accordingly, the Portfolio intends to conduct its operations so that its
investors that intend to qualify as RICs ("RIC investors") will be able to
satisfy all those requirements.
Distributions to an investor from the Portfolio (whether pursuant to a partial
or complete withdrawal or otherwise) will not result in the investor's
recognition of any gain or loss for federal income tax purposes, except that:
(1) gain will be recognized to the extent any cash that is distributed exceeds
the investor's basis for its interest in the Portfolio before the distribution;
(2) income or gain will be recognized if the distribution is in liquidation of
the investor's entire interest in the Portfolio and includes a disproportionate
share of any unrealized receivables held by the Portfolio; (3) loss will be
recognized if a liquidation distribution consists solely of cash and/or
unrealized receivables; and (4) gain or loss may be recognized on a distribution
to an investor that contributed property to the Portfolio. An investor's basis
for its interest in the Portfolio generally will equal the amount of cash and
the basis of any property it invests in the Portfolio, increased by the
investor's share of the Portfolio's net income and gains and decreased by: (1)
the amount of cash and the basis of any property the Portfolio distributes to
the investor; and (2) the investor's share of the Portfolio's losses.
The Portfolio's use of hedging strategies, such as writing (selling) and
purchasing options and futures and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the gains and losses the Portfolio realizes in
connection therewith. The Portfolio's income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and income
from transactions in hedging instruments derived by it with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income for its RIC investors under the requirement that at least 90%
of a RIC's gross income each taxable year consist of specified types of income.
However, income from the disposition by the Portfolio of hedging instruments
(other than those on foreign currencies) held for less than three months will be
subject to the requirement applicable to its RIC investors that less than 30% of
a RIC's gross income each taxable year consist of certain short-term gains
("Short-Short Limitation"). Income from the disposition of foreign currencies,
and hedging instruments on foreign currencies, that are not directly related to
the Portfolio's principal business of investing in securities (or options and
futures with respect thereto) also will be subject to the Short-Short Limitation
for its RIC investors if they are held for less than three months.
If the Portfolio satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether its RIC investors
satisfy the Short-Short Limitation. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. The Portfolio will consider whether it should seek to qualify for
this treatment for its hedging transactions. To the extent the Portfolio does
not so qualify, it may be forced to defer the closing out of certain hedging
instruments beyond the time when it otherwise would be advantageous to do so, in
order for its RIC investors to qualify or continue to qualify as RICs.
ITEM 21. UNDERWRITERS.
Forum Financial Services, Inc. ("FFSI"), Two Portland Square, Portland, Maine
04101, serves as the Trust's placement agent. Forum receives no compensation for
such placement agent services.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
Not applicable.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
(1) Included in Part A
Not applicable
(2) Included in Part B
For Schroder U.S. Smaller Companies Portfolio:
Audited financial statements for the period ended May 31, 1997,
including: schedule of investmenst, statement of assets and
liabilities, statements of operations, statements of changes in net
assets, financial highlights, notes to financial statements and
independent auditor's report thereon, were filed with the Securities
and Exchange Commission via EDGAR on August 5, 1997, accession number
0000889812-97-001630, pursuant to Rule 30b2-1 under the Investment
Company Act of 1940, as amended, and are incorporated herein by
reference.
(b) Exhibits:
(1) Trust Instrument of Schroder Capital Funds (the "Trust")
(filed as Exhibit 1 to the Trust's Initial Registration
Statement and incorporated herein by reference).
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) (a) Form of Investment Advisory Agreement between the
Trust and Schroder Capital Management International
Inc. ("SCMI") with respect to International Equity
Fund, Schroder Emerging Markets Fund Institutional
Portfolio and Schroder U.S. Smaller Companies
Portfolio (filed as Exhibit 5 to the Trust's
Amendment No. 1 and incorporated herein by
reference).
(b) Investment Advisory Agreement between the Trust and
SCMI with respect to Schroder International Smaller
Companies Portfolio (filed as Exhibit 5 (b) to the
Trust's Amendment No. 4 and incorporated herein by
reference).
(6) Not required.
(7) Not applicable.
(8) Form of Custodian Agreement between the Trust and The Chase
Manhattan Bank, N.A. with respect to International Equity Fund
and Schroder Emerging Markets Fund Institutional Portfolio and
Schroder (filed as Exhibit 8 to the Trust's Initial
Registration Statement and incorporated herein by reference).
(9) (a) Administration Agreement between the Trust and
Schroder Fund Advisors Inc. with respect to
International Equity Fund, Schroder Emerging Markets
Fund Institutional Portfolio, Schroder U.S. Smaller
Companies Portfolio, Schroder International Smaller
Companies Portfolio and Schroder Global Asset
Allocation Portfolio (filed as Exhibit 9 (a) to the
Trust's Amendment No. 4 and incorporated herein by
reference).
(b) Sub-administration Agreement between the Trust and
Forum Administrative Services, Limited Liability
Company with respect to International Equity Fund,
Schroder Emerging Markets Fund Institutional
Portfolio, Schroder U.S. Smaller Companies Portfolio,
Schroder International Smaller Companies Portfolio
and Schroder Global asset Allocation Portfolio (filed
as Exhibit 9 (b) to the Trust's Amendment No. 4 and
incorporated herein by reference).
(e) Form of Transfer Agency and Portfolio Accounting
Agreement between the Trust and Forum Financial Corp.
with respect to International Equity Fund and
Schroder Emerging Markets Fund Institutional
Portfolio (filed as Exhibit 9(c) to the Trust's
Initial Registration Statement and incorporated
herein by reference).
(f) Form of Placement Agent Agreement between the Trust
and Forum with respect to International Equity Fund
and Schroder Emerging Markets Fund Institutional
Portfolio (filed as Exhibit 9(d) to the Trust's
Initial Registration Statement and incorporated
herein by reference).
(10) Consent of Auditor.
(11) Not required.
(12) Not required.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
Item 25. Persons Controlled by or Under Common Control with Registrant.
None
Item 26. Number of Holders of Securities as of August 31, 1997.
Number of Holders
Title of Class of Shares -----------------
of Beneficial Interest
- ------------------------
International Equity Fund 2
Schroder Emerging Markets Fund Institutional Portfolio 2
Schroder U.S. Smaller Companies Portfolio 2
Schroder International Smaller Companies Portfolio 2
Item 27. Indemnification.
The Trust does not currently hold any directors' and officers' or
errors and omissions insurance policies. The Trust's trustees and officers are
insured under the Trust's fidelity bond purchased pursuant to Rule 17j-1 under
the Investment Company Act of 1940, as amended (the "Act").
The general effect of Article 5 of Registrant's Trust Instrument is to
indemnify existing or former trustees and officers of the Trust to the fullest
extent permitted by law against liability and expenses. There is no
indemnification if, among other things, any such person is adjudicated liable to
the Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. This description is modified in its entirety by the provisions of
Article 5 of Registrant's Trust Instrument contained in this Registration
Statement as Exhibit 1 and incorporated herein by reference.
Provisions of Registrant's investment advisory agreements provide that
the respective investment adviser shall not be liable for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing shall be deemed to protect, or purport to protect, the investment
adviser against any liability to Registrant or to Registrant's interestholders
to which the investment adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the investment
adviser's duties, or by reason of the investment adviser's reckless disregard of
its obligations and duties hereunder. This description is modified in its
entirety by the provisions of Registrant's Investment Advisory Agreement
contained in this Registration Statement as Exhibit 5 and incorporated herein by
reference. Likewise, Registrant has agreed to indemnify (1) Forum Financial
Services, Inc. in the Administration and Sub-Administration Agreements, (2)
Forum Financial Corp. in the Transfer Agency and Fund Accounting Agreement, and
(3) Forum Financial Services, Inc. in the Placement Agent Agreement for certain
liabilities and expenses arising out of their acts or omissions under the
respective agreements.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The following are the directors and principal officers of SCMI, including their
business connections of a substantial nature. The address of each company
listed, unless otherwise noted, is 33 Gutter Lane, London EC2V 8AS, United
Kingdom. Schroder Capital Management International Limited ("Schroder Ltd.") is
a United Kingdom affiliate of SCMI which provides investment management services
international clients located principally in the United States.
David M. Salisbury. Chief Executive Officer, Director and Chairman of
Schroder Capital; Joint Chief Executive and Director of Schroder.
Richard R. Foulkes. Senior Vice President and Managing Director of
Schroder Capital.
John A. Troiano. Managing Director and Senior Vice President. Mr.
Troiano is also a Director of Schroder Ltd.
David Gibson. Senior Vice President and Director of Schroder Capital.
Director of Schroder Wertheim Investment Services Inc.
John S. Ager. Senior Vice President and Director of Schroder Capital.
Sharon L. Haugh. Senior Vice President and Director of Schroder
Capital, Director and Chairman of Schroder Advisors Inc.
Gavin D.L. Ralston. Senior Vice President and Director of Schroder
Capital.
Mark J. Smith. Senior Vice President and Director of Schroder Capital.
Robert G. Davy. Senior Vice President. Mr. Davy is also a Director of
Schroder Ltd. and an officer of open end investment companies for
which SCMI and/or its affiliates provide investment services.
Jane P. Lucas. Senior Vice President and Director of Schroder Capital;
Director of Schroder Advisors Inc.; Director of Schroder Wertheim
Investment Services, Inc.
C. John Govett. Director of Schroder Capital; Group Managing Director
of Schroder Investment Management Ltd. And Director of Schroders plc.
Phillipa J. Gould. Senior Vice President and Director of Schroder
Capital.
Louise Croset. First Vice President and Director of Schroder Capital.
Abdallah Nauphal, Group Vice President and Director.
ITEM 29. PRINCIPAL UNDERWRITERS.
(A) Schroder Fund Advisors Inc., the Registrant's principal underwriter, also
serves as principal underwriter for Schroder Series Trust.
(B) Following is information with respect to each officer and director of
Schroder Fund Advisors Inc., the Distributor of the shares of Schroder
International Fund, Schroder U.S. Equity Fund, Schroder U.S. Smaller Companies
Fund, Schroder Emerging Markets Fund Institutional Portfolio, Schroder
International Smaller Companies Fund, Schroder International Bond Fund, Schroder
Cash Reserves Fund and Schroder Latin America Fund (each a series of the
Registrant):
Catherine A. Mazza, President
Mark J. Smith, Director and Vice President.
John A. Troiano, Director and Vice President
Sharon L. Haugh, Director
Robert Jackowitz, Treasurer
Margaret H. Douglas-Hamilton, Secretary
* Address for each is 787 Seventh Avenue, New York, New York 10019 except for
John A. Troiano and Mark J. Smith each of whose address is 33 Gutter Lane,
London, England.
(C) Inapplicable.
Item 30. Location of Books and Records.
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Act and the Rules thereunder are maintained
at the offices of Forum Administrative Services, Limited Liability Company and
Forum Financial Corp., Two Portland Square, Portland, Maine 04104. The records
required to be maintained under Rule 31a-1(b)(1) with respect to journals of
receipts and deliveries of securities and receipts and disbursements of cash are
maintained at the offices of the Registrant's custodian, which is named under
"Custodian" in Part B to this Registration Statement. The records required to be
maintained under Rule 31a-1(b)(5), (6) and (9) are maintained at the offices of
Registrant's investment adviser, which is named in Item 28 hereof.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant undertakes to contain in its Trust Instrument provisions for
assisting shareholder communications and for the removal of trustees
substantially similar to those provided for in Section 16(c) of the Act, except
to the extent such provisions are mandatory or prohibited under applicable
Delaware law.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of New York and
the State of New York on the 30th day of September, 1997.
SCHRODER CAPITAL FUNDS
By: /S/ MARK J. SMITH
Mark J. Smith
President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO ANNUAL REPORT DATE 5/31/97
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 030
<NAME> US SMALLER COS. PORTFOLIO
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 84,209,629
<INVESTMENTS-AT-VALUE> 95,241,557
<RECEIVABLES> 2,331,566
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,517,099
<PAYABLE-FOR-SECURITIES> 1,049,223
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82,618
<TOTAL-LIABILITIES> 1,131,841
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,353,330
<SHARES-COMMON-STOCK> 0
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<NET-INVESTMENT-INCOME> 77,349
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