As filed with the Securities and Exchange Commission on February 12, 1998
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. 9
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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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Catherine S. Wooledge, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies to:
Timothy W. Diggins, Esq.
Ropes & Gray
One International Place, Boston, MA 02110-2624
Alexandra Poe, Esq.
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
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This Registration Statement becomes effective immediately pursuant to Section
8(b) of the Investment Company Act of 1940, as amended.
No securities are being registered under the Securities Act of 1933.
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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, to amend Registrant's
Registration Statement for Schroder EM Core Portfolio and Schroder International
Smaller Companies Portfolio and does not affect the previously filed Parts A and
B for International Equity Fund, Schroder Emerging Markets Fund Institutional
Portfolio, Schroder Global Growth Portfolio and Schroder U.S. Smaller Companies
Portfolio.
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PART A
(PRIVATE PLACEMENT MEMORANDUM)
SCHRODER CAPITAL FUNDS
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SCHRODER EM CORE PORTFOLIO
FEBRUARY 10, 1998
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 is authorized to offer 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 EM Core Portfolio (the "Portfolio"),
International Equity Fund, Schroder Emerging Markets Fund Institutional
Portfolio, Schroder Global Growth Portfolio, Schroder International Smaller
Companies Portfolio, and Schroder U.S. Smaller Companies Portfolio. Additional
portfolios may be added in the future. This Part A relates solely to the
Portfolio. Schroder Capital Management International Inc. ("SCMI") is the
Portfolio's investment adviser.
GENERAL DESCRIPTION OF REGISTRANT
The Trust was organized as a business trust under the law of the State
of Delaware on September 7, 1995 under a Trust Instrument dated September 6,
1995. The Trust has an unlimited number of authorized Interests. The assets of
the Portfolio, and of any other portfolios now existing or created in the
future, belong only to the Portfolio or those other portfolios, as the case may
be. 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 "non-diversified" under the 1940 Act and commenced
operations on or about October 31, 1997.
Interests in the Portfolio are offered solely through private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933 (the "1933 Act") on a no-load basis
exclusively to qualified investors as described under "General Description of
Registrant". Investments in the Portfolio may be made only by certain qualified
investors, including other investment companies (generally excluding S
corporations, partnerships, and grantor trusts beneficially owned by any
individuals, S corporations, or partnerships). Investors may be organized within
or outside 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.
This Private Placement Memorandum does not constitute an offer to sell,
or the solicitation of an offer to buy, Interests in the Portfolio. An investor
may obtain information on subscribing to an Interest in the Portfolio by
contacting the placement agent at Two Portland Square, Portland, Maine 04101,
(207) 879-1900. The Trust, investment adviser and placement agent reserve the
right to refuse to accept a subscription for any reason.
THE TRUST'S SECURITIES DESCRIBED IN THIS PRIVATE PLACEMENT MEMORANDUM ARE NOT
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE. INTERESTS MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER: (1) THE TERMS OF THE TRUST'S TRUST INSTRUMENT,
AND (2) THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE OR FOREIGN
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
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INVESTMENT OBJECTIVE AND INVESTMENT POLICIES
The Portfolio's investment objective is to seek long-term capital
appreciation. It seeks to achieve this objective through investment in equity
securities of issuers domiciled or doing business in emerging market countries
in regions such as Southeast Asia, Latin America, and Eastern and Southern
Europe. There can be no assurance that the Portfolio will achieve its investment
objective.
The Portfolio's investment objective and fundamental investment
policies may not be changed without a majority vote of the holders of the
Portfolio's 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). Unless otherwise indicated, all other investment policies are not
fundamental and may be changed by the Trust's Board of Trustees (the "Board")
without prior investor approval. The following specific policies and limitations
are considered at the time of any purchase. Additional investment techniques,
risks and restrictions concerning the Portfolio's investments are described
below and under "Risk Considerations" and "Investment Restrictions" in Part A
and "Investment Restrictions" in Part B.
Under normal market conditions, the Portfolio invests at least 65% of
its total assets in emerging market equity securities, including common stocks,
preferred stocks, convertible preferred stocks, stock rights and warrants, and
convertible debt securities. (Investments in stock rights and warrants are not
considered for purposes of determining compliance with this policy.) The
Portfolio may invest up to 35% of its total assets in high-risk debt securities
that are unrated or rated below investment grade. See "Debt Securities" and
"Risk Considerations -- Debt Securities". The Portfolio may acquire emerging
market securities that are not denominated in emerging market currency. Under
certain circumstances, the Portfolio may invest indirectly in emerging market
securities by investing in other investment companies or vehicles. See
"Investment in Other Investment Companies or Vehicles".
In recent years, many emerging market countries have begun programs of
economic reform: removing import tariffs, dismantling trade barriers,
deregulating foreign investment, privatizing state owned industries, permitting
the value of their currencies to float against the dollar and other major
currencies, and generally reducing the level of state intervention in industry
and commerce. Important intra-regional economic integration also holds the
promise of greater trade and growth. At the same time, significant progress has
been made in restructuring the heavy external debt burden that certain emerging
market countries accumulated during the 1970s and 1980s. While there is no
assurance that these trends will continue, the Portfolio's investment adviser
will seek out attractive investment opportunities in these countries.
"Emerging market" countries are all those not included in the Morgan
Stanley Capital International World Index ("MSCI World") of major world
economies. If, however, the investment adviser determines that the economy of an
MSCI World - listed country is an emerging market economy, the investment
adviser may include such country in the emerging market category. The following
countries currently are excluded from the Portfolio's emerging market category:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland, the United Kingdom and the United States of America. The
Portfolio does not necessarily seek to diversify investments on a geographic
basis and may invest more than 25% of its total assets in issuers located in any
one country. See "Risk Considerations -- Geographic Concentration".
An issuer of a security is considered to be domiciled or doing business
in an emerging market when: (1) it is organized under the laws of an emerging
market country; (2) its primary securities trading market is in an emerging
market country; (3) in the judgment of the investment adviser, at least 50% of
the issuer's revenues or profits are derived from goods produced or sold,
investments made, or services performed in emerging market countries; or (4) it
has at least 50% of its assets situated in emerging market countries. The
Portfolio's investment adviser may consider investment companies to be located
in the country or countries in which they primarily invest.
COMMON AND PREFERRED STOCK, CONVERTIBLE PREFERRED STOCK AND WARRANTS.
The Portfolio's investments include common or preferred stock of established
emerging market companies that are listed on
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recognized securities exchanges or traded in other established markets. However,
the Portfolio may make limited investments in convertible preferred stock,
warrants and stock rights.
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, would be entitled to their pro rata share of the company's assets after
creditors (including fixed-income securityholders) and any 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 also a shareholder and not a creditor of
the company. Emerging market equity securities may be traded in the
over-the-counter market or on a securities exchange, but such securities are not
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 withdrawals by interestholders 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 usually are senior to common stock in
a company's capital structure but usually are subordinated to non-convertible
debt securities. In general, the value of a convertible security is a function
of its investment value as a fixed-income security and the value of the
underlying stock into which it will convert. 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 Portfolio also may invest in warrants. Warrants 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.
AMERICAN DEPOSITARY RECEIPTS ("ADRS"). Due to the absence of
established securities markets in certain emerging market countries and
restrictions in certain countries on direct investment by foreign entities, the
Portfolio may invest in certain emerging market issuers through the purchase of
sponsored and unsponsored American Depositary Receipts or other similar
securities, such as American Depositary Shares, Global Depositary Shares or
International Depositary Receipts. ADRs are receipts typically issued by U.S.
banks evidencing ownership of the underlying securities into which they are
convertible. These securities may or may not be denominated in the same currency
as the underlying securities. Unsponsored ADRs may be created without the
participation of the foreign issuer. Holders of unsponsored ADRs generally bear
all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
DEBT SECURITIES. The Portfolio may seek capital appreciation through
investment in emerging market convertible or non-convertible debt securities.
Capital appreciation in debt securities may arise as a result of a favorable
change in relative foreign exchange rates, in relative interest-rate levels, or
in the creditworthiness of issuers. Because convertible debt is convertible into
stock under specified conditions, the value of convertible debt also is affected
normally by changes in the value of the issuer's equity securities. The receipt
of income from debt securities is incidental to the Portfolio's objective of
long-term capital appreciation. Such income can be used, however, to offset the
operating expenses of the Portfolio. The Portfolio also may invest to a certain
extent in debt securities in order to participate in debt-to-equity conversion
programs incident to corporate reorganizations.
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The Portfolio may invest in debt securities issued or guaranteed by
emerging market governments (including countries, provinces and municipalities)
or their agencies and instrumentalities ("governmental entities"); debt
securities issued or guaranteed by international organizations designated or
supported by multiple foreign governmental entities (which are not obligations
of foreign governments) to promote economic reconstruction or development; and
debt securities issued by corporations or financial institutions.
The Portfolio may invest up to 35% of its total assets in
non-convertible investment-grade emerging market debt securities, including debt
securities that are unrated or are rated below investment grade (below "Baa" by
Moody's or "BBB" by S&P). For a further description of S&P's and Moody's
securities ratings, see the Appendix to Part B. Investors should note that even
debt securities rated "Baa" by Moody's are considered to have speculative
characteristics. Below investment-grade securities (and unrated securities of
comparable quality) ("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
rating categories. These securities are commonly referred to as "junk" bonds.
The risks associated with high yield/high risk securities are generally greater
than those associated with higher-rated securities. See "Risk Considerations --
High Yield/High Risk Securities". The Portfolio is not obligated to dispose of
securities due to rating changes by the rating agencies. The Portfolio is not
authorized to purchase debt securities that are in default, except for sovereign
debt (discussed above) in which the Portfolio may invest no more than 5% of its
total assets while such sovereign debt securities are in default.
BRADY BONDS. The Portfolio may invest a portion of its assets in Brady
Bonds, which are securities created through the exchange of existing commercial
bank loans to sovereign entities for new obligations in connection with debt
restructuring (under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady). Brady Bonds have been issued only
recently and, therefore, do not have a long payment history. Brady Bonds may
have collateralized and uncollateralized components, are issued in various
currencies, and are actively traded in the over-the-counter secondary market.
Brady Bonds are not considered U.S. government securities. In light of the
residual risk associated with the uncollateralized portions of Brady Bonds and,
among other factors, the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are considered speculative. Brady Bonds could be
subject to restructuring arrangements or to requests for new credit, which could
cause the Portfolio to suffer a loss of interest or principal on its holdings.
For further information see "Brady Bonds" in Part B.
FOREIGN EXCHANGE CONTRACTS. Changes in currency exchange rates will
affect the U.S. dollar values of securities denominated in foreign currencies.
Exchange rates between the U.S. dollar and other currencies fluctuate in
response to forces of supply and demand in the foreign exchange markets. These
forces are affected by the international balance of payments and other economic
and financial conditions, government intervention, speculation, and other
factors, many of which may be difficult (if not impossible) to predict. When
investing in foreign securities, the Portfolio usually effects currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign exchange market. The Portfolio incurs foreign exchange expenses in
converting assets from one currency to another.
The Portfolio may enter into forward contracts for the purchase or sale
of foreign currency: (1) to "lock in" the U.S. dollar price of the securities
denominated in a foreign currency or the U.S. dollar value of interest and
dividends to be paid on such securities; or (2) to hedge against the possibility
that a foreign currency may suffer a decline against the U.S. dollar. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date (which may be any fixed number of days from the date of the contract
agreed upon by the parties) at a price set at the time of the contract. This
method of attempting to hedge against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of securities and exposes
the Portfolio to the risk that the counterparty is unable to perform. Although
the strategy of engaging in foreign currency transactions could reduce the risk
of loss due to a decline in the value of the hedged currency, it could also
limit the potential gain from an increase in the value of the currency.
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The Portfolio does not intend to maintain a net exposure to such
contracts if the fulfillment of obligations under such contracts would obligate
it to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in the currency. The Portfolio
will not enter into these contracts for speculative purposes and will not enter
into non-hedging currency contracts. The Portfolio will generally not enter into
a forward contract with a term of greater than one year. Forward contracts are
not exchange traded, and there can be no assurance that a liquid market will
exist at a time when the Portfolio seeks to close out a forward contract.
Currently, only a limited market, if any, exists for hedging transactions
relating to currencies in certain emerging markets or to securities of issuers
domiciled or principally engaged in business in certain emerging markets. This
may limit the Portfolio's ability to hedge its investments in those markets.
These contracts involve a risk of loss if SCMI fails to predict accurately
changes in relative currency values. See "Risk Considerations -- Currency
Fluctuations and Devaluations".
OPTIONS AND FUTURES TRANSACTIONS. Although the Portfolio does not
presently intend to do so, it may: (1) write covered call options on portfolio
securities, and the U.S. dollar and emerging market currencies without limit;
(2) write covered put options on portfolio securities, the U.S. dollar and
emerging market currencies with the limitation that the aggregate value of the
obligations underlying the puts determined as of the date the options are sold
will not exceed 50% of the Portfolio's net assets; (3) purchase call and put
options in amounts up to 5% of its total assets; and (4)(a) purchase and sell
exchange-traded futures contracts on underlying portfolio securities, any
emerging market currency, U.S. and emerging market fixed-income securities and
such indices of U.S. or emerging market equity or fixed-income securities as may
exist or come into being, and (b) purchase and write call and put options on
such futures contracts, in all cases involving such futures contracts or options
on futures contracts for hedging purposes only, and without limit, except that
the Portfolio may not enter into futures contracts or purchase related options
if, immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts generally exceeds 5% of
the value of the Portfolio's total assets. All of the foregoing are referred to
as "Hedging Instruments".
In general, the Portfolio may use Hedging Instruments: (1) to protect
against declines in the market value of the Portfolio's portfolio securities or
stock index futures, and the currencies in which they are denominated, or (2) to
establish a position in securities markets as a temporary substitute for
purchasing securities. The Portfolio will not use Hedging Instruments for
speculation. Hedging Instruments have certain risks associated with them,
including: (1) the possible failure of such instruments as hedging techniques in
cases where the price movement of the securities underlying the options or
futures does not follow the price movements of the portfolio securities subject
to the hedge; (2) potentially unlimited loss associated with futures
transactions and the possible lack of a liquid secondary market for closing out
a futures position; and (3) possible losses resulting from the inability of the
Portfolio's investment adviser to predict the direction of stock prices,
interest rates, relative currency values and other economic factors. In
addition, only a limited market, if any, currently exists for hedging
transactions relating to currencies in many emerging markets or to securities of
issuers domiciled or principally engaged in business in emerging markets. This
may limit the Portfolio's ability to hedge its investments in such emerging
market countries. The Portfolio has no plans to enter into currency futures or
options contracts but may do so in the future. See "Options and Futures
Transactions" in Part B for additional information on Hedging Instruments the
Portfolio may use and the associated risks.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES AND FORWARD COMMITMENTS.
The Portfolio may purchase securities on a when-issued or delayed-delivery basis
or may purchase or sell securities on a forward-commitment basis. When such
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment may take place a month or more after the date of the
commitment. There is no overall limit on the percentage of the Portfolio's
assets that may be committed to the purchase of securities on a when-issued,
delayed-delivery or forward-commitment basis. An increase in the percentage of
the Portfolio's assets committed to the purchase of securities on a when-issued,
delayed-delivery or forward-commitment basis may increase the volatility of the
Portfolio's net asset value.
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WHEN, AS AND IF ISSUED SECURITIES. The Portfolio may purchase
securities on a "when, as and if issued" basis under which the issuance of the
security depends upon the occurrence of a subsequent event, such as approval of
a merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Portfolio will have lost an investment opportunity. There is no overall limit to
the percentage of the Portfolio's assets that may be committed to the purchase
of securities on a "when, as
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and if issued" basis. An increase in the percentage of the Portfolio's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value.
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase
agreements, which are a means of investing monies for a short period, whereby, a
seller -- a bank or recognized broker-dealer -- sells securities to the
Portfolio and agrees to repurchase them (at the Portfolio's cost plus interest)
within a specified period (normally one day). The value of the underlying
securities purchased by the Portfolio is monitored at all times by SCMI to
ensure that the total value of the collateral given to secure the seller's
repurchase obligation equals or exceeds the value of the repurchase agreement.
The Portfolio's custodian bank holds the collateral until the repurchase
agreement has matured. If the seller defaults under a repurchase agreement, the
Portfolio may have difficulty exercising its rights to the underlying collateral
and may incur costs and experience time delays in disposing of it. To evaluate
potential risk, SCMI reviews the creditworthiness of banks and dealers with
which the Portfolio enters into repurchase agreements.
LOANS OF PORTFOLIO SECURITIES. The Portfolio may loan portfolio
securities 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 one third of the Portfolio's total assets. By
so doing, the Portfolio seeks to earn income. In the event of the other party's
bankruptcy, the Portfolio could experience delays in recovering the securities
it loaned. If, in the meantime, the value of the loaned securities has declined,
the Portfolio could experience a loss.
The Portfolio is required to maintain in a segregated account the
collateral in an amount equal to the current market value of the securities
loaned (including accrued interest thereon) plus the loan interest payable to
the Portfolio. Any securities that the Portfolio receives as collateral do not
become part of its investment portfolio at the time of the loan. In the event of
a default by the borrower, the Portfolio (to the extent permitted by law) will
dispose of such collateral except for such part thereof that is a security in
which the Portfolio is permitted to invest. While securities are on loan, the
borrower pays the Portfolio any accrued income on those securities. The
Portfolio invests any cash collateral or earns income or receives an agreed upon
fee from a borrower that has delivered securities that are permissible
collateral. Cash collateral received by the Portfolio is invested in U.S.
government securities and high-grade liquid debt or equity securities. The value
of securities loaned is marked to market daily. The market value of any
securities purchased with cash collateral is subject to decline. Securities
loans are 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 Board.
LIQUIDITY. The Portfolio will not invest more than 15% of its assets in
securities determined by SCMI to be illiquid. Certain securities, including
Section 4(2) paper issued under the 1933 Act that has an active secondary market
and other securities which are restricted as to resale that may nonetheless be
resold by the Portfolio under Rule 144A of the 1933 Act may be determined by
SCMI to be liquid for purposes of compliance with the Portfolio's limitations on
illiquid investments. There is no guarantee that the Portfolio will be able to
sell such securities at any time when SCMI deems it advisable to do so or at
prices prevailing for comparable securities that are more widely held. See
"Investment Policies -- Liquidity" in Part B for further information.
INVESTMENT IN OTHER INVESTMENT COMPANIES OR VEHICLES. The Portfolio is
permitted to invest in certain emerging markets through governmentally
authorized investment vehicles or companies. Pursuant to the 1940 Act, the
Portfolio may invest in the shares of other investment companies which invest in
securities that the Portfolio is permitted to purchase subject to the limits
permitted under the 1940 Act or any orders, rules or regulations thereunder.
When investing through investment companies, the Portfolio may pay substantial
premiums above such investment companies' net asset value per share. As a
shareholder in an investment company, the Portfolio would bear its ratable share
of the investment company's expenses, including its advisory and administrative
fees. At the same time, the Portfolio would continue to pay its own fees and
expenses.
TEMPORARY DEFENSIVE INVESTMENTS. For temporary defensive purposes, the
Portfolio may invest without limitation in (or enter into repurchase agreements
maturing in seven days or less with banks and broker-dealers with respect to)
short-term debt securities, including commercial paper, U.S. Treasury bills,
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other short-term U.S. government securities, certificates of deposit, and
bankers' acceptances of U.S. or foreign banks. The Portfolio also may hold cash
and time deposits denominated in any major foreign currency in foreign banks. To
the extent that the Portfolio assumes a temporary defensive position, it may not
be pursuing its investment objective. See Part B "Investment Objectives and
Policies" for further information about these securities.)
RISK CONSIDERATIONS
INTERNATIONAL INVESTMENTS. All investments, both domestic and foreign,
involve risk. Investment in the securities of foreign issuers may involve risks
in addition to those normally associated with investments in the securities of
U.S. issuers. All foreign investments are subject to risks of foreign political
and economic instability, adverse movements in foreign exchange rates, the
imposition or tightening of exchange controls, or other limitations on
repatriation of foreign capital. Foreign investments are subject to the risk of
changes in foreign governmental attitudes towards private investment that could
lead to nationalization, increased taxation or confiscation of Portfolio assets.
Moreover: (1) dividends payable on foreign securities may be subject to
foreign withholding taxes, thereby reducing the income earned by the Portfolio;
(2) commission rates payable on foreign portfolio transactions are generally
higher than in the U.S.; (3) accounting, auditing and financial reporting
standards differ from those in the U.S., which means that less information about
foreign companies may be available than is generally available about issuers of
comparable securities in the U.S.; (4) foreign securities often trade less
frequently and with lower volume than U.S. securities and consequently may
exhibit greater price volatility; and (5) foreign securities trading practices,
including those involving securities settlement, may expose the Portfolio to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer or registrar.
REGULATION AND LIQUIDITY OF MARKETS. Government supervision and
regulation of exchanges and brokers in emerging market countries is typically
less extensive than in the U.S. These markets may have different clearance and
settlement procedures, and in certain cases, settlements have not kept pace with
the volume of securities transactions, making them difficult to conduct. Delays
in settlement could adversely affect or interrupt the Portfolio's intended
investment program or result in investment losses due to intervening declines in
security values.
Securities markets in emerging market countries are substantially
smaller than U.S. securities markets and have substantially lower trading
volume, resulting in diminished liquidity and greater price volatility. Reduced
secondary market liquidity may make it more difficult for the Portfolio to
determine the value of its portfolio securities or dispose of particular
instruments when necessary. Brokerage commissions and other transaction costs on
foreign securities exchanges are also generally higher.
EMERGING MARKETS. In any emerging market country, there is the
possibility of expropriation of assets, confiscatory taxation, nationalization
of companies or industries, foreign exchange controls, foreign investment
controls on daily stock market movements, default in foreign government
securities, political or social instability, or diplomatic developments that
could affect investments in those countries. In the event of expropriation,
nationalization or other confiscation, the Portfolio could lose its entire
investment in a country. The economies of developing countries generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. There may also be less
monitoring and regulation of emerging markets and the activities of brokers
there. Investing may require that the Portfolio adopt special procedures, seek
local government approvals or take other actions that may incur costs for the
Portfolio.
Certain emerging market countries may restrict investment by foreign
entities by limiting the size of foreign investment in certain issuers;
requiring prior approval of foreign investment by the government; imposing
additional tax on foreign investors; or limiting foreign investors to specific
classes of securities of an issuer that have less advantageous rights (with
regard to price or convertibility, for example) than classes available to
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domiciliaries of the country. These restrictions or controls may at times limit
or preclude investment in certain securities and may increase the costs and
expenses of the Portfolio.
CURRENCY FLUCTUATIONS AND DEVALUATIONS. The Portfolio invests heavily
in securities denominated in non-U.S. currencies. A decline against the dollar
in the value of currencies in which the Portfolio's investments are denominated
will result in a corresponding decline in the dollar value of its assets. This
risk is heightened in some emerging market countries.
The Portfolio may, at times, have to liquidate some portfolio
securities to acquire sufficient U.S. dollars to fund redemptions, make
distributions or pay its expenses. Changes in foreign currency exchange rates
may contribute to the need to liquidate portfolio securities. The Portfolio
incurs foreign exchange expenses in converting assets from one currency to
another.
INFLATION. Several emerging market countries have experienced high, and
in some periods extremely high, rates of inflation in recent years. Inflation
and rapid fluctuations in inflation rates may adversely affect these countries'
economies and securities markets. Further, inflation accounting rules in some
emerging market countries require, for companies that keep accounting records in
the local currency, that certain assets and liabilities be restated on the
company's balance sheet in order to express items in terms of current currency
purchasing power. Inflation accounting may indirectly generate losses or profits
for certain emerging market companies.
NON-DIVERSIFIED INVESTMENTS. Because suitable investments in emerging
market countries may be limited, the Portfolio has classified itself as
"non-diversified" under the 1940 Act so that it may invest more than 5% of its
total assets in the securities of a single issuer. This classification may not
be changed without an interestholder vote. However, so that investors in the
Portfolio may continue to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, at the close of
each quarter of the taxable year: (1) not more than 25% of the market value of
the Portfolio's total assets will be invested in the securities of a single
issuer; (2) with respect to 50% of the market value of its total assets, not
more than 5% will be invested in the securities of a single issuer; and (3) the
Portfolio will not own more than 10% of the outstanding voting securities of a
single issuer.
To the extent the Portfolio makes investments in excess of 5% of its
assets in a particular issuer, its exposure to credit and market risks
associated with that issuer is increased. Also, since a relatively high
percentage of the Portfolio's assets may be invested in the securities of a
limited number of issuers, the Portfolio may be more susceptible to any single
economic, political or regulatory occurrence than a diversified investment
company.
GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its
total assets in issuers located in any one country. To the extent that it does
so, the Portfolio is susceptible to a range of factors that could adversely
affect that country, including political and economic developments and foreign
exchange rate fluctuations as discussed above. As a result of investing
substantially in one country, the value of the Portfolio's assets may fluctuate
more widely than the value of shares of a comparable fund with a lesser degree
of geographic concentration.
DEBT SECURITIES. Debt securities are generally subject to two kinds of
risk -- credit risk and market risk. Credit risk refers to the ability of the
debtor, and any other obligor, to pay principal and interest on the debt as it
becomes due. The Portfolio may, from time to time, invest in debt securities
with high risk/high yields (as compared to other debt securities meeting the
Portfolio's investment criteria). The debt securities in which the Portfolio
invests may be unrated but will not be in default at the time of purchase.
Market risk refers to the tendency of the value of debt securities to vary
inversely with interest-rate changes. Certain debt instruments may also be
subject to extension risk, which refers to change in total return on a debt
instrument resulting from extension or abbreviation of the instrument's
maturity.
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HIGH YIELD/HIGH RISK SECURITIES. High yield/high risk securities'
market values are affected more by individual issuer developments and are more
sensitive to adverse economic changes than are higher-rated securities. Issuers
of high yield/high risk securities may be highly leveraged and may not have more
traditional methods of financing available to them. During economic downturns or
substantial periods of rising interest rates, issuers of high yield/high risk
securities, especially highly leveraged ones, may be less able to service their
principal and interest payment obligations, meet their projected business goals,
or obtain additional financing. The risk of loss due to default by the issuer is
significantly greater for holders of high yield/high risk securities because
such securities may be unsecured and may be subordinated to other creditors of
the issuer. In addition, the Portfolio may incur additional expenses if it is
required to seek recovery upon a default by the issuer of such an obligation or
participate in the restructuring of such obligation.
Periods of economic uncertainty and change are likely to cause
increased volatility of market prices of high yield/high risk securities and,
correspondingly, in the Portfolio's net asset value if it invests in such
securities. Market prices of such securities structured as zero coupon or
pay-in-kind securities are more affected by interest-rate changes and, thus,
tend to be more volatile than any securities that pay interest periodically and
in cash.
High yield/high risk securities may have call or redemption features
that would permit an issuer to repurchase the securities from the Portfolio. If
a call were exercised by the issuer during a period of declining interest rates,
the Portfolio likely would have to replace the called securities with lower
yielding securities, thus decreasing the Portfolio's net investment income and
dividends to investors.
While a secondary trading market for high yield/high risk securities
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. In periods of reduced secondary market liquidity,
prices of high yield/high risk securities may become volatile and experience
sudden and substantial price declines. The Portfolio may, therefore, have
difficulty disposing of particular issues to meet its liquidity needs or in
response to a specific economic event (such as a deterioration in the
creditworthiness of the issuer). Reduced secondary market liquidity for certain
high yield/high risk securities also may make it more difficult for the
Portfolio to obtain accurate market quotations (for purposes of valuing the
Portfolio's investment portfolio). Market quotations generally are available on
many high yield/high risk securities only from a limited number of dealers and
may not necessarily represent firm bids of such dealers or prices for actual
sales. Under such conditions, high yield/high risk securities may have to be
valued at fair value as determined by the Board or SCMI under Board-approved
guidelines.
Adverse publicity and investor perceptions (which may not be based on
fundamental analysis) may decrease the value and liquidity of high yield/high
risk securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield/high risk securities are likely to
adversely affect the Portfolio's net asset value.
SOVEREIGN DEBT. Investment in sovereign debt carries high risk. Certain
emerging market countries such as Argentina, Brazil and Mexico are among the
largest debtors to commercial banks and foreign governments. At times, certain
emerging market countries have declared moratoria on the payment of principal
and/or interest on outstanding debt. The governmental entity that controls the
repayment of sovereign debt may not be able or willing to repay the principal
and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest
when it is due may be affected by many factors, such as its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange, the relative size of the debt service burden to the economy as a
whole, and political restraints. The Portfolio, as a holder of sovereign debt,
may be asked to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which defaulted sovereign debt may be collected.
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Sovereign debt instruments in which the Portfolio may invest involve
great risk and are deemed to be the equivalent in terms of quality to high
yield/high risk securities discussed above and are subject to many of the same
risks as such securities. Similarly, the Portfolio may have difficulty disposing
of certain sovereign debt obligations because there may be a thin trading market
for such securities. The Portfolio will not invest more than 5% of its total
assets in sovereign debt instruments that are in default.
PORTFOLIO TURNOVER. The Portfolio may engage in short-term trading but
its portfolio turnover rate is not expected to exceed 100%. High portfolio
turnover and short-term trading involve correspondingly greater commission
expenses, transaction costs and potentially higher amount of recognized gain for
federal income tax purposes. (See "Tax Status" in Part B.)
INVESTMENT RESTRICTIONS
The following investment restrictions on the Portfolio are designed to
reduce its exposure in specific situations. Under these fundamental
restrictions, the Portfolio will not:
1. Concentrate investments in any particular industry; therefore, the
Portfolio will not purchase the securities of companies in any one industry if,
thereafter, 25% or more of the Portfolio's total assets would consist of
securities of companies in that industry. (This restriction does not apply to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.)
2. Although the Portfolio may borrow money, it will limit borrowings to
amounts not in excess of one third of the value of its total assets. Borrowing
for other than temporary or emergency purposes or meeting redemption requests is
not expected to exceed 5% of the value of the Portfolio's assets. Certain
transactions, such as reverse repurchase agreements, that are similar to
borrowings are not treated as borrowings to the extent that they are fully
collateralized.
3. Make investments for the purpose of exercising control or
management. Investments by the Portfolio in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making of
investments for the purpose of exercising control or management.
The percentage restrictions described above and in Part B apply only at
the time of investment and require no action by the Portfolio as a result of
subsequent changes in value of the investments or the size of the Portfolio. A
supplementary list of investment restrictions is contained in Part B.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS. The Portfolio's business and affairs are managed
under the Board's direction. The Board formulates the Trust's and Portfolio's
general policies and meets periodically to review the Portfolio's results,
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. SCMI is a wholly owned U.S. subsidiary of Schroders
Incorporated (doing business in New York as Schroders Holdings), 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.
As investment adviser to the Portfolio, SCMI manages the Portfolio and
continuously reviews, supervises and administers its investments. SCMI is
responsible for making decisions relating to the Portfolio's investments and
placing purchase and sale orders regarding investments with brokers or dealers
it selects. For these services, SCMI is entitled to receive a monthly advisory
fee at the annual rate of 1.00% of the Portfolio's average daily net assets.
SCMI has agreed, however, to waive its advisory fees to the extent required to
maintain the Portfolio's total operating expense ratio at or below 1.45% of its
average daily net assets. Such fee limitation arrangement shall remain in effect
until its elimination is approved by the Board.
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.
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Commission rates are fixed on many foreign securities exchanges, and this may
cause higher brokerage expenses to accrue to the Portfolio than would be the
case for comparable transactions effected on U.S. securities exchanges.
Subject to the policy of obtaining the best price consistent with
quality of execution on transactions, SCMI may employ: (1) Schroder & Co., Inc.
and its affiliates ("Schroder & Co."), affiliates of SCMI, to effect
transactions on the New York Stock Exchange; and (2) Schroder Securities Limited
and its affiliates ("Schroder Securities"), also affiliates of SCMI, to effect
transactions of the Portfolio on certain foreign securities exchanges. Because
of the affiliation between SCMI and both Schroder & Co. and Schroder Securities,
the Portfolio's payment of commissions to them is subject to procedures adopted
by the Board designed to ensure that commissions will not exceed the usual and
customary brokers' commissions. No specific portion of the Portfolio's brokerage
will be directed to Schroder & Co. or Schroder Securities, and in no event will
either receive any brokerage in recognition of research services.
PORTFOLIO MANAGERS. The Portfolio's current investment managers include
John A. Troiano, a Vice President of the Trust and Schroder Core, who has
managed the Portfolio's assets since its inception, assisted by the management
team of Heather Crighton and Mark Bridgeman, who are responsible for the
day-to-day management of the investment portfolio. Mr. Troiano, Chief Executive
Officer of SCMI since April 1, 1997, has been Managing Director of SCMI since
October 1995 and has been employed by various Schroder Group companies in the
investment research and portfolio management areas since 1981. Ms. Crighton is a
Vice President of SCMI and has been employed by SCMI and various Schroder Group
companies in the investment research and portfolio management areas since 1992.
Mr. Bridgeman, also a Vice President of SCMI, has been employed by various
Schroder Group companies in the investment research and portfolio management
areas since 1990.
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. For these services, Schroder
Advisors is entitled to receive an administration fee at an annual rate of 0.10%
of the Portfolio's average daily net assets. In addition, the Trust has entered
into a Subadministration Agreement with Forum Administrative Services, LLC
("Forum"), Two Portland Square, Portland, Maine 04101. For its services, Forum
is entitled to receive a subadministration fee at an annual rate of 0.075% of
the Portfolio's average daily net assets. From time to time, Schroder Advisors
or Forum voluntarily may agree to waive all or a portion of their fees.
RECORDKEEPER AND FUND ACCOUNTANT. Forum Accounting Services, LLC
("Forum Accounting"), Two Portland Square, Portland, Maine 04101, is the
Portfolio's recordkeeper (transfer agent) and fund accountant. Forum Accounting
is an affiliate of Forum. From time to time, Forum Accounting voluntarily may
agree to waive all or a portion of its fees.
EXPENSES. The Portfolio is obligated to pay for all of its expenses.
These expenses include: governmental fees; interest charges; taxes; 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; fees 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 Portfolios. The Portfolio's
expenses comprise Trust expenses attributable to the Portfolio, which are
allocated to the Portfolio, and expenses not attributable to the Portfolio, are
allocated among the portfolios in proportion to their average net assets or as
otherwise determined by the Board.
CUSTODIAN. The Chase Manhattan Bank, through its Global Securities
Services division located in London, England, acts as custodian of the
Portfolio's assets and employs foreign subcustodians to maintain the Portfolio's
foreign assets outside the U.S.
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CAPITAL STOCK AND OTHER SECURITIES
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 (one being the Portfolio), 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 for an
investor vote. Generally, Interests are voted in the aggregate without reference
to a particular portfolio, unless the Trustees determine that the matter affects
only one portfolio or portfolio voting is required, in which case Interests are
voted separately by each portfolio. 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 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 Portfolio's operational method, it is not 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 Internal Revenue Code) of the Portfolio's ordinary income and
capital gain, to the extent that the investor is subject to tax on its income.
The Trust will inform investors of the amount and nature of such income or gain.
As of January 30, 1998, each of the following Norwest Advantage Funds held
in excess of 25% of the Portfolio's interests and may therefore be considered a
"control person" of the Portfolio: Growth Equity Fund; International Fund and
Diversified Equity Fund.
PURCHASE OF SECURITIES
Portfolio Interests 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 are
made without a sales load, at the Portfolio's net asset value next determined
after an order is received.
Net asset value is calculated as of 4:00 p.m. (Eastern time), Monday
through Friday, on each day that the New York Stock Exchange is open for trading
(which excludes the following national business holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day) ("Portfolio Business Day").
Net asset value per Interest is calculated by dividing the aggregate value of
the Portfolio's assets less all liabilities by the number of Interests
outstanding. Portfolio securities listed on recognized stock exchanges are
valued at the last reported trade price, prior to the time when the assets are
valued, on the exchange on which the securities are principally traded. Listed
securities traded on recognized stock exchanges where last trade 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 recently 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
Board.
Trading in securities on non-U.S. exchanges and over-the-counter
markets may not take place on every day that the New York Stock Exchange is open
for trading. Furthermore, trading takes place in various foreign markets on days
on which the Portfolio's net asset value is not calculated. If events materially
affecting the value of foreign securities occur between the time when their
price is determined and the time when net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the
Board. All assets and liabilities of the
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Portfolio denominated in foreign currencies are converted to U.S. dollars at the
mid price of such currencies against U.S. dollars last quoted by a major bank
prior to the time when net asset value of the Portfolio is calculated.
Registered investment companies are subject to no minimum initial or
subsequent investment amount. For other qualified investors, the minimum initial
investment amount is $2 million, and there is no minimum subsequent investment
amount. However, since the Portfolio seeks to be as fully invested at all times
as is reasonably practicable in order to enhance the return on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Trust's custodian by a Federal Reserve Bank). Minimum investment amounts
may be waived in the discretion of the Portfolio's investment adviser, SCMI.
Qualified investors who have completed a subscription agreement may
transmit purchase payments by Federal Reserve Bank wire directly to the
Portfolio as follows:
The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Financial Corp.
Account No.: 910-2-792281
Ref.: Schroder EM Core Portfolio
Account of: (interestholder name)
Account Number: (interestholder account number)
The wire order must specify the name of the Portfolio, the account name
and number, address, confirmation number, amount to be wired, name of the wiring
bank, and name and telephone number of the person to be contacted in connection
with the order. If the initial investment is by wire, an account number is
assigned, and a Subscription Agreement must be completed and mailed to the
Portfolio before any account becomes active. Wire orders received prior to 4:00
p.m. (Eastern time) on each Portfolio day that the New York Stock Exchange is
open for trading (a "Business Day") are processed at the net asset value
determined as of that day. Wire orders received after 4:00 p.m. (Eastern time)
are processed at the net asset value determined as of the next Business Day. The
Trust reserves the right to cease accepting investments in the Portfolio at any
time or to reject any investment order.
Forum Financial Services, Inc., an affiliate of Forum, is the placement
agent for the Trust. The placement agent receives no compensation for its
services.
REDEMPTION OR REPURCHASE
An investor may withdraw all or any portion of its investment in the
Portfolio at the net asset value next determined after the investor furnishes a
withdrawal request in proper form to the Trust. Redemption proceeds are 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 on the Exchange is restricted) for any
reason other than its customary weekend or holiday closings or under any
emergency or other circumstances as determined by the Securities and Exchange
Commission.
Interests are redeemed at their next determined net asset value after
receipt by the Trust of a redemption request in proper form. Redemption requests
may be made between 9:00 a.m. and 6:00 p.m. (Eastern time) on each Business Day.
Redemption requests that are received prior to 4:00 p.m. (Eastern time) are
processed at the net asset value determined as of that day. Redemption requests
that are received after 4:00 p.m. (Eastern time) are processed at the net asset
value determined on the next Business Day. Redemption requests must include the
name of the interestholder, the Portfolio's name, the dollar amount or number of
Interests to be redeemed, interestholder account number, and the signature of
the holder designated on the account.
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Written redemption requests may be sent to the Trust at the following
address:
Schroder EM Core Portfolio
P.O. Box 446
Portland, Maine 04112
Telephone redemption requests may be made by telephoning the transfer
agent at (800) 344-8332. A telephone redemption may be made only if the
telephone redemption privilege option has been elected on the Subscription
Agreement or otherwise in writing, and the interestholder has obtained a
password from the transfer agent. In an effort to prevent unauthorized or
fraudulent redemption requests by telephone, reasonable procedures will be
followed by the transfer agent to confirm that telephone instructions are
genuine. The transfer agent and the Trust generally will not be liable for any
losses due to unauthorized or fraudulent redemption requests, but either may be
liable if it does not follow these procedures. In times of drastic economic or
market change it may be difficult to make redemptions by telephone. If an
interestholder cannot reach the transfer agent by telephone, redemption requests
may be mailed or hand-delivered to the transfer agent.
Redemption proceeds normally are paid in cash. Redemptions from the
Portfolio may be made wholly or partially in portfolio securities, however, 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 Securities
and Exchange Commission pursuant to which the Portfolio will only consider
effecting a redemption in portfolio securities if the interestholder is
redeeming more than $250,000 or 1% of the Portfolio's net asset value, whichever
is less, during any 90-day period.
PENDING LEGAL PROCEEDINGS
None.
<PAGE>
PART A
(PRIVATE PLACEMENT MEMORANDUM)
SCHRODER CAPITAL FUNDS
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SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
FEBRUARY 10, 1998
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 is authorized to offer 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 International Smaller Companies Portfolio (the
"Portfolio"), International Equity Fund, Schroder EM Core Portfolio, Schroder
Emerging Markets Fund Institutional Portfolio, Schroder Global Growth Portfolio,
and Schroder U.S. Smaller Companies Portfolio. Additional portfolios may be
added in the future. This Part A relates solely to the Portfolio. Schroder
Capital Management International Inc. ("SCMI") is the Portfolio's investment
adviser.
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 a Trust Instrument dated September 6,
1995. The Trust has an unlimited number of authorized Interests. The assets of
the Portfolio, and of any other portfolios now existing or created in the
future, belong only to the Portfolio or those other portfolios, as the case may
be. 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 November 4, 1996.
Interests in the Portfolio are offered solely through private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933 (the "1933 Act") on a no-load basis
exclusively to qualified investors as described under "General Description of
Registrant". Investments in the Portfolio may be made only by certain qualified
investors, including other investment companies (generally excluding S
corporations, partnerships, and grantor trusts beneficially owned by any
individuals, S corporations, or partnerships). Investors may be organized within
or outside 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.
This Private Placement Memorandum does not constitute an offer to sell,
or the solicitation of an offer to buy, Interests in the Portfolio. An investor
may obtain information on subscribing to an Interest in the Portfolio by
contacting the placement agent at Two Portland Square, Portland, Maine 04101,
(207) 879-1900. The Trust, investment adviser and placement agent reserve the
right to refuse to accept a subscription for any reason.
THE TRUST'S SECURITIES DESCRIBED IN THIS PRIVATE PLACEMENT MEMORANDUM ARE NOT
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE. INTERESTS MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER: (1) THE TERMS OF THE TRUST'S TRUST INSTRUMENT,
AND (2) THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE OR FOREIGN
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
<PAGE>
INVESTMENT OBJECTIVE AND INVESTMENT POLICIES
The Portfolio's investment objective is long-term capital appreciation
through investment in markets outside the United States. It seeks to achieve its
investment objective by investing primarily in equity securities, which may be
denominated in foreign or U.S. currency, of companies domiciled outside of the
United States that have market capitalizations of $1.5 billion or less at the
time of investment. It is intended for long-term investors seeking international
diversification and willing to accept the risks associated with investment in
smaller companies of foreign markets. There can be no assurance that the
Portfolio will achieve its investment objective.
The investment objective and fundamental investment policies may not be
changed without approval of the holders of a majority of the Portfolio's
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).
Unless otherwise indicated, all other investment policies are not fundamental
and may be changed by the Trust's Board of Trustees (the "Board") without prior
investor approval. The following specific policies and limitations are
considered at the time of any purchase. Additional investment techniques, risks
and restrictions concerning the Portfolio's investments are described below and
under "Risk Considerations" in Part A and "Investment Restrictions" in Part B.
The Portfolio normally invests in equity securities of issuers that
have market capitalizations of $1.5 billion or less at the time of investment.
Investments by the Portfolio are selected by SCMI on the basis of their
potential for capital appreciation without regard for current income. SCMI
generally considers the following factors in determining the potential for
capital appreciation: (1) issuers' potential for long-term growth; (2) issuers'
financial conditions; (3) valuation; (4) issuers' sensitivity to cyclical
factors; and (5) whether issuers' management holds a significant equity position
in the issuer.
The Portfolio may purchase preferred stock and convertible securities,
including warrants and convertible preferred stock, and may purchase American
Depositary Receipts, European Depositary Receipts, Global Depositary Receipts or
other similar securities (collectively, "Depositary Receipts") of foreign
issuers. Depositary receipts typically are receipts issued by a financial
institution or trust company evidencing ownership of underlying securities. 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 U.S.
government securities and certificates of deposit and bankers' acceptances of
U.S. banks. The Portfolio may also hold cash and time deposits in foreign banks
denominated in any major foreign currency. See "Investment Objective and
Policies" in Part B for further information about all these types of
investments.
Countries in which the Portfolio may invest include, but are not
limited to, Japan, Germany, the United Kingdom, France, Italy, Belgium, Austria,
Finland, Ireland, New Zealand, Switzerland, the Netherlands, Hong Kong,
Singapore, Malaysia, Australia, Sweden, Norway, Denmark and Spain. The Portfolio
has a non-fundamental policy to invest in the securities of foreign issuers
domiciled in at least three foreign countries. In general, the Portfolio invests
only in securities of companies and governments in countries that SCMI, in its
judgment, considers both politically and economically stable. The Portfolio may
invest more than 25% of its total assets in issuers located in any one country.
To the extent it invests in issuers located in one country, the Portfolio may be
susceptible to factors adversely affecting that country.
In selecting securities denominated in foreign currencies, SCMI
considers, among other factors, the effect of movement in currency exchange
rates on the U.S. dollar value of such securities. An increase in the value of a
currency will increase the total return to the Portfolio of securities
denominated in such currency. Conversely, a decline in the value of the currency
will reduce the total return. The Portfolio may also enter into foreign exchange
contracts, including forward contracts to purchase or sell foreign currencies,
in anticipation of its currency requirements and to protect against possible
adverse movements in foreign exchange rates. Although such contracts may reduce
the risk of loss to the Portfolio from adverse movements in currency values, the
contracts also limit possible gains from favorable movements.
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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
preferred stockholders, if any, 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 withdrawals by interestholders 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.
The Portfolio may also invest in warrants. Warrants 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.
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 equities
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: (1) 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; (2) potentially
unlimited loss associated with futures transactions and the possible lack of a
liquid secondary market for closing out a futures position; and (iii) possible
losses resulting from the inability of the investment adviser to correctly
predict the direction of stock prices, interests rates and other economic
factors. Hedging Instruments that the Portfolio may use and the risks associated
with them are described in greater detail under "Investment Objective and
Policies -- Covered Calls and Hedging" 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. See "Short Sales Against-the-Box" in Part B for further details.
DEPOSITARY RECEIPTS. The Portfolio may invest in certain issuers
exclusively or primarily through the purchase of sponsored and unsponsored
Depositary Receipts, including American Depositary Receipts ("ADRs") and other
similar securities, such as European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or International Depositary Receipts ("IDRs"), or
through investment in government-approved investment companies or other
vehicles. ADRs are receipts typically issued by U.S. banks evidencing ownership
of the underlying securities, into which they are convertible. These securities
may or may not be denominated in the same currency as the underlying securities.
Unsponsored ADRs may be created without the participation of the foreign issuer.
Holders of these ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depositary of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights. EDRs, GDRs and IDRs are similar to ADRs and are
designed for use in foreign markets.
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FOREIGN EXCHANGE CONTRACTS. Changes in foreign currency exchange rates
affect the U.S. dollar values of securities denominated in currencies other than
the U.S. dollar. The rate of exchange between the U.S. dollar and other
currencies fluctuates in response to forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors, many of which may be difficult if not impossible
to predict. When investing in foreign securities, the Portfolio usually effects
currency exchange transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market. The Portfolio incurs foreign exchange
expenses in converting assets from one currency to another.
The Portfolio may enter into foreign currency forward contracts or
currency futures or options contracts for the purchase or sale of foreign
currency to "lock in" the U.S. dollar price of the securities denominated in a
foreign currency or the U.S. dollar value of interest and dividends to be paid
on such securities, or to hedge against the possibility that the currency of a
foreign country in which the Portfolio has investments may suffer a decline
against the U.S. dollar. A forward currency contract is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. This method of attempting to hedge the
value of portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities and may
expose the Portfolio to the risk that the counterparty is unable to perform.
Although the strategy of engaging in foreign currency transactions could reduce
the risk of loss due to a decline in the value of the hedged currency, it could
also limit the potential gain from an increase in the value of the currency. The
Portfolio does not intend to maintain a net exposure to such contracts where the
fulfillment of obligations under such contracts would obligate it to deliver an
amount of foreign currency in excess of the value of its portfolio securities or
other assets denominated in the currency. The Portfolio will not enter into
these contracts for speculative purposes and will not enter into non-hedging
currency contracts. These contracts involve a risk of loss if SCMI fails to
predict currency values correctly.
The Portfolio is required to distribute substantially all of its
investment income in U.S. dollars. Because most of the Portfolio's income is
received and realized in foreign currencies, a decline in the value of a
particular foreign currency against the U.S. dollar occurring after the
Portfolio's income has been earned may require the Portfolio to liquidate some
portfolio securities to acquire sufficient U.S. dollars to make such
distributions. Similarly, if the exchange rate declines between the time the
Portfolio incurs expenses in U.S. dollars and the time such expenses are paid,
the Portfolio may be required to liquidate additional foreign securities to
purchase the U.S. dollars required to meet such expenses.
FIRM- AND STANDBY-COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES. New
issues of certain debt securities are often offered on a when-issued basis. That
is, the payment obligation and the interest rate are fixed at the time the buyer
enters into the commitment, but delivery and payment for the securities normally
take place after the date of the commitment to purchase. Firm- and
standby-commitment agreements call for the purchase of securities at an
agreed-upon price on a specified future date. The transactions are entered into
in order to secure what is considered to be an advantageous price and yield to
the Portfolio and not for purposes of leveraging the Portfolio's assets.
However, the Portfolio will not accrue any income on these securities prior to
delivery. The value of when-issued securities and firm- and standby-commitment
agreements may vary prior to and after delivery depending on market conditions
and changes in interest-rate levels. There is a risk that a party with whom the
Portfolio has entered into such transactions will not perform its commitment,
which could result in a gain or loss to the Portfolio.
DEBT SECURITIES. The Portfolio may also invest in debt obligations of
the United States and its subdivisions, foreign governments, international
organizations and foreign corporations. The Portfolio may from time to time
invest up to 5% of its total assets in debt securities with high risk and high
yields (as compared to other debt securities meeting the Portfolio's investment
criteria). The debt securities in which the Portfolio invests may be unrated but
will not be in default at the time of purchase. The value of debt securities
generally varies inversely with interest rate changes.
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BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS. The Portfolio may
invest in certificates of deposit, time deposits, bankers' acceptances, and
other short-term debt obligations issued by commercial banks and in certificates
of deposit, time deposits, and other short-term obligations issued by savings
and loan associations ("S&Ls"). Certificates of deposit are receipts from a bank
or S&L for funds deposited for a specified period of time at a specified rate of
return. Time deposits in banks or S&Ls are generally similar to certificates of
deposit, but are uncertificated. Bankers' acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with international
commercial transactions. The Portfolio will limit its investment in time
deposits for which there is a penalty for early withdrawal to 15% of its net
assets.
ILLIQUID AND RESTRICTED SECURITIES. As a non-fundamental policy, 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. 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, as amended. If SCMI determines that a "Rule 144A
security" is liquid pursuant to guidelines adopted by the Trust Board, the
security 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 "Investment Policies -- Illiquid and
Restricted Securities" in Part B for further information.
LENDING OF PORTFOLIO SECURITIES. The Portfolio may lend its investment
securities to brokers, dealers and financial institutions for the purpose of
realizing additional income. The total market value of securities loaned will
not at any time exceed 25% of the value of the total assets of the Portfolio.
The risk in lending portfolio securities, as with other extensions of credit, is
the possible loss of rights in the collateral should the borrower fail
financially. In determining whether to lend securities, the Portfolio's
investment adviser will consider all relevant facts and circumstances, including
the creditworthiness of the borrower.
COMMERCIAL PAPER. The Portfolio may invest in commercial paper, which
represents short-term unsecured promissory notes issued by banks or bank holding
companies, corporations and finance companies. The Portfolio may invest in
commercial paper primarily rated at the time of investment "P-1" by Moody's
Investor Service ("Moody's") or "A-1" by Standard and Poor's ("S&P"), or, if
unrated by Moody's or S&P, deemed comparable in quality by the Portfolio's
investment adviser. The Portfolio may also invest in commercial paper rated
below "A-1"/ "P-1"; however, such investments are subject to the Portfolio's 10%
limit on high-yield/high-risk securities. See "Appendix -- Ratings of Corporate
Debt Instruments" in Part B.
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase
agreements. A repurchase agreement is a means of investing monies for a short
period. In a repurchase agreement, 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
securities purchased by the Portfolio are monitored at all times by SCMI to
ensure that the total value of the securities equals or exceeds the value of the
repurchase agreement, and the Portfolio's custodian bank holds the securities
until they are 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 securities and may incur costs and experience time
delays in disposing of them. To evaluate potential risks, SCMI reviews the
creditworthiness of those banks and dealers with which the Portfolio enters into
repurchase agreements.
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TEMPORARY DEFENSIVE INVESTMENTS. 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. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government or its agencies, instrumentalities or
government-sponsored enterprises. The Portfolio also may hold cash and time
deposits in U.S. banks. In transactions involving "repurchase agreements," the
Portfolio purchases securities from a bank or broker-dealer who agrees to
repurchase the security at the Portfolio's cost plus interest within a specified
time. The securities purchased by the Portfolio have a total value in excess of
the value of the repurchase agreement and are held by the Portfolio's custodian
bank until repurchased. See "Investment Objective and Policies" in Part B for
further information.
RISK CONSIDERATIONS
FOREIGN INVESTMENTS. Investments in foreign securities involve certain
risks not associated with domestic investments, including fluctuations in
foreign exchange rates, uncertain political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws or
restrictions.
Foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as economic growth rates, rates of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments positions.
Certain foreign investments may also be subject to foreign withholding taxes,
thereby reducing the income available for distribution to the Portfolio's
interestholders. Additionally, commission rates payable on foreign portfolio
transactions may often be higher than in the U.S. Because international
investments generally involve risks in addition to those risks associated with
investments in the U.S., the Fund should be considered only as a vehicle for
international diversification and not as a complete investment program.
Issuers of securities in foreign jurisdictions are generally not
subject to the same degree of regulation as are U.S. issuers with respect to
such matters as insider trading rules, restrictions on market manipulation,
shareholder proxy requirements and timely disclosure of information. Often,
available information about issuers and their securities is less extensive in
foreign markets, particularly emerging market countries, than in the United
States. In addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Portfolio than that provided by U.S.
laws.
Moreover: (1) interest payable on foreign securities may be subject to
foreign withholding taxes, thereby reducing the income earned by the Portfolio;
(2) accounting, auditing and financial reporting standards differ from those in
the U.S., which means that less information about foreign companies may be
available than is generally available about issuers of comparable securities in
the U.S.; (3) foreign securities may trade less frequently and/or with less
volume than U.S. securities and consequently may exhibit greater price
volatility; and (4) foreign securities trading practices, including those
involving securities settlement, may expose the Portfolio to increased risk in
the event of a failed trade or the insolvency of a foreign broker-dealer or
registrar.
GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its
total assets in issuers located in any one country. To the extent that it
invests in issuers located in one country, the Portfolio is susceptible to
factors adversely affecting that country, including the political and economic
developments and foreign exchange rate fluctuations discussed above. As a result
of investing substantially in one country, the value of the Portfolio's assets
may fluctuate more widely than the value of shares of a comparable fund with a
lesser degree of geographic concentration.
CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will
invest in non-U.S. dollar denominated securities, changes in foreign currency
exchange rates will affect the value of the Portfolio's investments. A decline
against the dollar in the value of currencies in which the Portfolio's
investments are denominated will result in a corresponding decline in the dollar
value of its assets. Exchange rates are influenced generally by the forces of
supply and demand in the foreign currency markets and by numerous other
political and economic events occurring outside the United States, many of which
may be difficult, if not impossible, to predict.
The Portfolio may enter into foreign currency forward contracts to
purchase or sell foreign currencies in anticipation of its currency requirements
and to protect against possible adverse movements in foreign exchange rates.
Although such contracts may reduce the risk of loss to the Portfolio due to a
decline in the value of the currency sold, they also limit any possible gain
that might result should the value of such currency rise. See "Options and
Futures Transactions".
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SMALLER COMPANIES. Investments in smaller capitalization companies
involve greater risks than those associated with investments in larger
capitalization companies. Smaller capitalization companies generally experience
higher growth rates and higher failure rates than do larger capitalization
companies. The trading volume of securities of smaller capitalization companies
is normally less than that of larger capitalization companies and, consequently,
generally has a disproportionate effect on their market price, tending to make
them rise more in response to buying demand and fall more in response to selling
pressure than is the case with larger capitalization companies.
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 which 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 can 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.
FIXED-INCOME SECURITIES AND THEIR CHARACTERISTICS. Fixed-income
securities generally are subject to market risk and credit risk. Market risk
refers to the change in the market value of investments by the Portfolio in
fixed income securities, including money market instruments, when there is a
change in interest rates or the issuer's actual or perceived creditworthiness or
ability to meet its obligations. There is normally an inverse relationship
between the market value of fixed-rate debt securities and changes in interest
rates. In other words, an increase in interest rates produces a decrease in
market value. Moreover, the longer the remaining maturity of a security, the
greater will be the effect of interest rate changes on the market value of that
security. The Portfolio's investments are subject to "credit risk" relating to
the financial condition of the issuers of the securities that the Portfolio
holds. Credit risk refers to changes in the ability of an issuer to make
payments of interest and principal when due and changes in the market's
perception of an issuer's creditworthiness that affect the value of the debt
securities of that issuer.
PORTFOLIO TURNOVER. The Portfolio may engage in short-term trading but
its portfolio turnover rate is not expected to exceed 100%. High portfolio
turnover and short-term trading involve correspondingly greater commission
expenses and transaction costs. Also, higher portfolio turnover rates may cause
interestholders of the Portfolio to recognize gains for federal income tax
purposes. See "Tax Status" in Part B for further detail.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS. The business and affairs of the Portfolio are
managed under the direction of the 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. See Part B
"Management of the Trust" for additional information regarding the Trustees and
executive officers of the Trust.
INVESTMENT ADVISER AND PORTFOLIO MANAGER. As investment adviser to the
Portfolio, SCMI manages the Portfolio and continuously reviews, supervises and
administers its investments. SCMI is responsible for making decisions relating
to the Portfolio's investments and placing purchase and sale orders regarding
such investments with brokers or dealers it selects. For these services, the
Investment Advisory Agreement between SCMI and the Trust provides that SCMI is
entitled to receive a monthly advisory fee at the annual rate of 0.85% of the
Portfolio's average daily net assets. SCMI has agreed, however, to waive 0.10%
of the advisory fees payable under the Investment Advisory Agreement. Such fee
limitation arrangement shall remain in effect until its elimination is approved
by the Board.
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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 located in eighteen countries
world-wide. The Schroder Group specializes in providing investment management
services.
As of the date of this Private Placement Memorandum, SCMI has been
investing in international small companies as a specialist area for over 20
years and has 14 analysts dedicated to following small company stock. Schroders'
analysts maintain contact with over 1,500 small companies in a typical year and
conduct over 900 exclusive on-site company visits.
Richard R. Foulkes, a Vice President of the Trust and Deputy Chairman of
SCMI, with the assistance of an SCMI investment committee, is primarily
responsible for the day-to-day management of the Portfolio's investments. Mr.
Foulkes has managed the Portfolio's investment portfolio since January 1997. Mr.
Foulkes has been a Director and Executive Vice President of Schroder Capital
Management International Ltd. since 1989 and a Deputy Chairman/Executive Vice
President of Schroder Capital Management Inc. since October 1995.
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. Under these agreements, Schroder Advisors and Forum provide certain
management and administrative services necessary for the Portfolio's operations,
other than the investment management services provided to the Portfolio by SCMI.
Schroder Advisors is entitled to compensation at the annual rate of 0.15% of the
Portfolio's average daily net assets, and Forum is entitled to compensation at
the annual rate of 0.075% of the Portfolio's average daily net assets.
RECORDKEEPER AND FUND ACCOUNTANT. Forum Accounting Services, LLC
("Forum Accounting"), Two Portland Square, Portland, Maine 04101, is the
Portfolio's recordkeeper (transfer agent) and fund accountant. Forum Accounting
is an affiliate of Forum. From time to time, Forum Accounting voluntarily may
agree to 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; 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; fees and expenses of
independent auditors and legal counsel to the Trust; and expenses associated
with calculating the net asset value and the net income of the Portfolio. The
Portfolio's expenses are comprised of Trust expenses attributable to the
Portfolio, which are allocated to the Portfolio, and expenses not attributable
to the Portfolio, are allocated among the series of the Trust 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. Commission
rates for brokerage transactions are fixed on many foreign securities exchanges,
and this may cause higher brokerage expenses to accrue to the Portfolio than
would be the case for comparable transactions effected on U.S. securities
exchanges.
Subject to the Portfolio's policy of obtaining the best price
consistent with quality of execution on transactions, SCMI may employ Schroder
Securities Limited and its affiliates (collectively, "Schroder Securities"),
affiliates of SCMI, to effect transactions of the Portfolio on certain foreign
securities exchanges. Because of the affiliation between SCMI and Schroder
Securities, the Portfolio's payment of commissions to Schroder Securities is
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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 will be directed
to Schroder Securities and in no event will Schroder Securities receive such
brokerage in recognition of research services.
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 portfolio 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. As
anticipated, these arrangements would not materially increase the brokerage
commissions paid by the Portfolio. Brokerage commissions are not deemed to be
Fund expenses. In the Fund's fee table, per share table, and financial
highlights, however, directed brokerage arrangements might cause Fund expenses
to appear lower than actual expenses incurred.
CUSTODIAN. The Chase Manhattan Bank, through its Global Securities
Services division located in London, England, acts as custodian of the
Portfolio's assets and employs foreign subcustodians to maintain the Portfolio's
foreign assets outside the U.S.
CAPITAL STOCK AND OTHER SECURITIES
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 (one being the Portfolio), 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 redeem all or any portion of its investment at
any time at net asset value.
Under the federal securities laws, any person or entity that signs a
registration statement may be liable for a misstatement or omission of a
material fact in the registration statement. The Trust, its Trustees and certain
of its officers are required to sign the registration statement of certain
publicly offered investors in the Portfolio. In addition, under the federal
securities laws, the Trust could be liable for misstatements or omissions of a
material fact in any proxy soliciting material of a publicly offered investor in
the Trust. Under the Trust's Trust Instrument, each investor in the Portfolio
indemnifies the Trust and its Trustees and officers (the "Trust Indemnitees")
against certain claims. Indemnified claims are those brought against Trust
Indemnitees but based on a misstatement or omission of a material fact in the
investor's registration statement or proxy materials, except to the extent such
claim is based on a misstatement or omission of a material fact relating to
information about the Trust in the investor's registration statement or proxy
materials that was supplied to the investor by the Trust. Similarly, the Trust
indemnifies each investor in the Portfolio for any claims brought against the
investor with respect to the investor's registration statement or proxy
materials, to the extent the claim is based on a misstatement or omission of a
material fact relating to information about a series of the registered
investment company that did not invest in the Trust. The purpose of these
cross-indemnity provisions is principally to limit the liability of the Trust to
information that it knows or should know and can control. With respect to other
prospectuses and other offering documents and proxy materials of investors in
the Trust, the Trust's liability is similarly limited to information about and
supplied by the Trust.
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 for an
investor vote. Generally, Interests are voted in the aggregate without reference
to a particular portfolio, unless the Trustees determine that the matter affects
only one portfolio or portfolio voting is required, in which case Interests are
voted separately by each portfolio. Upon liquidation, the Portfolio's, investors
will be entitled to share pro rata in the Portfolio's net assets available for
distribution to investors.
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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 Portfolio's operational method, it is not 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 Internal Revenue Code) of the Portfolio's ordinary income and
capital gain, to the extent that the investor is subject to tax on its income.
The Trust will inform investors of the amount and nature of such income or gain.
As of January 30, 1998, Schroder International 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,
holds in excess of 26% of the Portfolio's Interests and, accordingly, controls
the Portfolio.
PURCHASE OF SECURITIES
Portfolio Interests 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 are
made without a sales load, at the Portfolio's net asset value next determined
after an order is received.
Net asset value is calculated as of as the close of the New York Stock
Exchange (the "Exchange"), Monday through Friday, on each day that the Exchange
is open for trading (which excludes the following national business holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day)
("Business Day"). Net asset value per Interest is calculated by dividing the
aggregate value of the Portfolio's assets less all liabilities by the number of
Interests outstanding. Portfolio securities listed on recognized stock exchanges
are valued at the last reported trade price, prior to the time when the assets
are valued, on the exchange on which the securities are principally traded.
Listed securities traded on recognized stock exchanges where last trade 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 Board.
Trading in securities on non-U.S. exchanges and over-the-counter
markets may not take place on every day that the Exchange is open for trading.
Furthermore, trading takes place in various foreign markets on days on which the
Portfolio's net asset value is not calculated. If events materially affecting
the value of foreign securities occur between the time when their price is
determined and the time when net asset value is calculated, such securities may
be valued at fair value as determined in good faith by SCMI under methods
approved by the Board. All assets and liabilities of the Portfolio denominated
in foreign currencies are converted to U.S. dollars at the mid price of such
currencies against U.S. dollars last quoted by a major bank prior to the time
when net asset value of the Portfolio is calculated.
For registered investment companies, there is no minimum initial or
subsequent investment amount. For other qualified investors, the minimum initial
investment amount is $2 million, and there is no minimum subsequent investment
amount. However, since the Portfolio seeks to be as fully invested at all times
as is reasonably practicable in order to enhance the return on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Trust's custodian by a Federal Reserve Bank). Minimum investment amounts
may be waived in the discretion of the Portfolio's investment adviser, SCMI.
Qualified investors who have completed a subscription agreement may
transmit purchase payments by Federal Reserve Bank wire directly to the
Portfolio as follows:
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The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Financial Corp.
Account No.: 910-2-792596
Ref.: Schroder International Smaller Companies Portfolio
Account of: (interestholder name)
Account Number: (interestholder account number)
The wire order must specify the name of the Portfolio, the account name
and number, address, confirmation number, amount to be wired, name of the wiring
bank, and name and telephone number of the person to be contacted in connection
with the order. If the initial investment is by wire, an account number is
assigned, and a Subscription Agreement must be completed and mailed to the Trust
before any account becomes active. Wire orders received prior to the close of
the Exchange on a Business Day are processed at the net asset value determined
as of that day. Wire orders received after the close of the Exchange on a
Business Day are processed at the net asset value determined as of the next
Business Day. The Trust reserves the right to cease accepting investments in the
Portfolio at any time or to reject any investment order.
Forum Financial Services, Inc., an affiliate of Forum, is the placement
agent for the Trust. The placement agent receives no compensation for its
services.
REDEMPTION OR REPURCHASE
An investor may withdraw all or any portion of its investment in the
Portfolio at the net asset value next determined after the investor furnishes a
withdrawal request in proper form to the Trust. Redemption proceeds are normally
paid by the Portfolio in federal funds 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 Exchange is
closed (or when trading on the Exchange is restricted) for any reason other than
its customary weekend or holiday closings or under any emergency or other
circumstances as determined by the Securities and Exchange Commission.
Interests are redeemed at their next determined net asset value after
receipt by the Trust of a redemption request in proper form. Redemption requests
may be made on each Business Day. Redemption requests that are received before
the closing of the Exchange are processed at the net asset value determined as
of that day. Redemption requests that are received after the closing of the
Exchange are processed at the net asset value determined on the next Business
Day. Redemption requests must include the name of the interestholder, the
Portfolio's name, the dollar amount or number of Interests to be redeemed,
interestholder account number, and the signature of the holder designated on the
account.
Written redemption requests may be sent to the Trust at the following
address:
Schroder International Smaller Companies Portfolio
P.O. Box 446
Portland, Maine 04112
Telephone redemption requests may be made by telephoning the transfer
agent at (800) 344-8332. A telephone redemption may be made only if the
telephone redemption privilege option has been elected on the Subscription
Agreement or otherwise in writing, and the interestholder has obtained a
password from the transfer agent. In an effort to prevent unauthorized or
fraudulent redemption requests by telephone, reasonable procedures will be
followed by the transfer agent to confirm that telephone instructions are
genuine. The transfer agent and the Trust generally will not be liable for any
losses due to unauthorized or fraudulent redemption requests, but either may be
liable if it does not follow these procedures. In times of drastic economic or
market change it may be difficult to make redemptions by telephone. If an
interestholder cannot reach the transfer agent by telephone, redemption requests
may be mailed or hand-delivered to the transfer agent.
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Redemption proceeds normally are paid in cash. Redemptions from the
Portfolio may be made wholly or partially in portfolio securities, however, 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 Securities
and Exchange Commission pursuant to which the Portfolio will only consider
effecting a redemption in portfolio securities if the interestholder is
redeeming more than $250,000 or 1% of the Portfolio's net asset value, whichever
is less, during any 90-day period.
PENDING LEGAL PROCEEDINGS
None.
<PAGE>
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
SCHRODER CAPITAL FUNDS
--------
SCHRODER EM CORE PORTFOLIO
FEBRUARY 10, 1998
COVER PAGE
Not applicable.
TABLE OF CONTENTS
General Information and History.............................................1
Investment Objective and Policies...........................................1
Investment Restrictions.....................................................13
Management of the Trust.....................................................16
Control Persons and Principal Holders of Securities.........................18
Investment Advisory and Other Services......................................18
Brokerage Allocation and Other Practices....................................20
Capital Stock and Other Securities..........................................21
Purchase, Redemption and Pricing of Securities..............................22
Tax Status..................................................................22
Placement Agent.............................................................24
Calculations of Performance Data............................................24
Financial Statements........................................................24
Appendix....................................................................A-1
GENERAL INFORMATION AND HISTORY
Not applicable.
INVESTMENT OBJECTIVE AND POLICIES
Part A contains information about the investment objective, policies
and restrictions of Schroder EM Core 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 associated risks. This Part B
should be read only in conjunction with Part A. Defined terms used in this Part
B have the same meaning as in Part A.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. To hedge against adverse
price movements in the securities held in its portfolio and the currencies in
which they are denominated (as well as in the securities it might wish to
purchase and their denominated currencies), the Portfolio may engage in
transactions in forward foreign currency exchange contracts.
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A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell a currency at a future date (which may be any
fixed number of days from the date of the contract agreed upon by the parties)
at a price set at the time of the contract. The Portfolio may enter into forward
contracts as a hedge against fluctuations in future foreign exchange rates.
Currently, only a limited market, if any, exists for hedging
transactions relating to currencies in many emerging market countries or to
securities of issuers domiciled or principally engaged in business in emerging
market countries. This may limit the Portfolio's ability to hedge its
investments effectively in those emerging markets. Hedging against a decline in
the value of a currency does not eliminate fluctuations in the prices of
portfolio securities or prevent losses if the prices of such securities decline.
Such transactions also limit the opportunity for gain if the value of the hedged
currencies should rise. In addition, it may not be possible for the Portfolio to
hedge against a devaluation that is so generally anticipated that the Portfolio
is not able to contract to sell the currency at a price above the devaluation
level it anticipates.
The Portfolio may enter into forward contracts under which, it may, for
example, wish to secure the price of the security in U.S. dollars or some other
foreign currency that the Portfolio is temporarily holding in its portfolio. By
entering into a forward contract for the purchase or sale (for a fixed amount of
dollars or other currency) of the amount of foreign currency involved in the
underlying security transactions, the Portfolio will be able to protect itself
against possible loss (resulting from adverse changes in the relationship
between the U.S. dollar or other currency being used for the security purchase
and the foreign currency in which the security is denominated) during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received. In addition, when the Portfolio anticipates
purchasing securities at some future date, and wishes to secure the current
exchange rate of the currency in which those securities are denominated against
the U.S. dollar or some other currency, it may enter into a forward contract to
purchase an amount of currency equal to part or all of the value of the
anticipated purchase, for a fixed amount of U.S.
dollars or other currency.
In all of the above instances, if the currency in which the Portfolio's
portfolio securities (or anticipated portfolio securities) are denominated rises
in value with respect to the currency that is being purchased, then the
Portfolio will have realized fewer gains than if the Portfolio had not entered
into the forward contracts. Furthermore, the precise matching of the forward
contract amounts and the value of the securities involved is not generally
possible, since the future value of such securities in foreign currencies
changes as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
To the extent that the Portfolio enters into forward contracts to hedge
against a decline in the value of portfolio holdings denominated in a particular
foreign currency resulting from currency fluctuations, there is a risk that the
Portfolio may nevertheless realize a gain or loss as a result of currency
fluctuations after such portfolio holdings are sold should the Portfolio be
unable to enter into an "offsetting" forward foreign currency contract with the
same party or another party. The Portfolio may be limited in its ability to
enter into hedging transactions involving forward contracts by the Internal
Revenue Code requirements relating to qualifications as a regulated investment
company. See "Tax Status".
The Portfolio is not required to enter into such transactions with
regard to its foreign currency-denominated securities and will not do so unless
deemed appropriate by Schroder Capital Management International Inc. ("SCMI").
Generally, the Portfolio will not enter into a forward contract with a term of
greater than one year.
OPTIONS AND FUTURES TRANSACTIONS. As described in Part A, the Portfolio
may write covered call options against securities held in its portfolio and
covered put options on eligible portfolio securities, may purchase options of
the same series to effect closing transactions, and may hedge against potential
changes in the market value of its investments (or anticipated investments), by
purchasing put and call options on portfolio (or eligible portfolio) securities
(and the currencies in which they are denominated) and engaging in transactions
involving futures contracts and options on such contracts.
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Call and put options on U.S. Treasury notes, bonds and bills and on
various foreign currencies are listed on several U.S. and foreign securities
exchanges and are written in over-the-counter transactions ("OTC Options").
Listed options are issued or guaranteed by the exchange on which they trade or
by a clearing corporation such as the Options Clearing Corporation ("OCC").
Ownership of a listed call option gives the Portfolio the right to buy from the
OCC (in the U.S.) or other clearing corporation or exchange, the underlying
security or currency covered by the option at the stated exercise price (the
price per unit of the underlying security or currency) by filing an exercise
notice prior to the expiration date of the option. The writer (seller) of the
option would then have the obligation to sell, to the OCC (in the U.S.) or other
clearing corporation or exchange, the underlying security or currency at that
exercise price prior to the expiration date of the option, regardless of its
then current market price. Ownership of a listed put option would give the
Portfolio the right to sell the underlying security or currency to the OCC (in
the U.S.) or other clearing corporation or exchange at the stated exercise
price. Upon notice of exercise of the put option, the writer of the option would
have the obligation to purchase the underlying security or currency from the OCC
(in the U.S.)
or other clearing corporation or exchange at the exercise price.
The OCC or other clearing corporation or exchange that issues listed
options ensures that all transactions in such options are properly executed. OTC
options are purchased from or sold (written) to dealers or financial
institutions that have entered into direct agreements with the Trust. With OTC
options, variables such as expiration date, exercise price and premium are
agreed between the Portfolio and the transacting dealer. If the transacting
dealer fails to make or take delivery of the securities or amount of foreign
currency underlying an option it has written, the Portfolio would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. The Portfolios will engage in OTC option transactions only with
member banks of the Federal Reserve System or primary dealers in U.S. government
securities or with affiliates of such banks or dealers that have capital of at
least $50 million or whose obligations are guaranteed by an entity having
capital of at least $50 million.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write
options on foreign currencies for purposes similar to those involved with
investing in forward foreign currency exchange contracts. For example, in order
to protect against declines in the dollar value of portfolio securities that are
denominated in a foreign currency, the Portfolio may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Portfolio would be able to sell the
foreign currency for a fixed amount of U.S. dollars, thereby securing the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Portfolio may purchase call options on foreign
currencies in which securities it anticipates purchasing are denominated to
secure a set U.S. dollar price for such securities and protect against a decline
in the value of the U.S. dollar against such foreign currency. The Portfolio may
also purchase call and put options to close out written option positions.
The Portfolio also may write covered call options on foreign currency
to protect against potential declines in its portfolio securities that are
denominated in foreign currencies. If the U.S. dollar value of the portfolio
securities falls as a result of a decline in the exchange rate between the
foreign currency in which it is denominated and the U.S. dollar, then a loss to
the Portfolio occasioned by such value decline would be ameliorated by receipt
of the premium on the option sold. At the same time, however, the Portfolio
gives up the benefit of any rise in value of the relevant portfolio securities
above the exercise price of the option and, in fact, only receives a benefit
from the writing of the option to the extent that the value of the portfolio
securities falls below the price of the premium received. The Portfolio also may
write options to close out long call option positions. A covered put option on a
foreign currency would be written by the Portfolio for the same reason it would
purchase a call option, namely, to hedge against an increase in the U.S. dollar
value of a foreign security that the Portfolio anticipates purchasing. In this
case, the receipt of the premium would offset, to the extent of the size of the
premium, any increased cost to the Portfolio resulting from an increase in the
U.S. dollar value of the foreign security. However, the Portfolio could not
benefit from any decline in the cost of the foreign security that is greater
than the price of the premium received. The Portfolio also may write options to
close out long put option positions.
Markets in foreign currency options are relatively new, and the
Portfolio's ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Although the Portfolio
will not purchase or write such options unless and until, in the opinion of the
SCMI, the market for them has developed sufficiently to ensure that their risks
are not greater than the risks in connection with the underlying currency, there
4
<PAGE>
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. In addition, options on foreign currencies are
affected by all of those factors that influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar, with the result that the price
of the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a foreign
security, including foreign securities held in a "hedged" investment portfolio.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and, thus, may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
COVERED CALL WRITING. The Portfolio is permitted to write covered call
options on portfolio securities, and on the U.S. dollar and foreign currencies
in which they are denominated, without limit. Generally, a call option is
"covered" if the Portfolio owns (or has the right to acquire without additional
cash consideration, or for additional cash consideration held for the Portfolio
by its custodian in a segregated account) the underlying security (currency)
subject to the option. In the case of call options on U.S. Treasury Bills,
however, the Portfolio might own U.S. Treasury Bills of a different series from
those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the security (currency) deliverable under the call option. A call option is also
covered if the Portfolio holds a call on the same security as the underlying
security (currency) of the written option, where the exercise price of the call
used for coverage is equal to or less than the exercise price of the call or
greater than the exercise price of the call written if the mark-to-market
difference is maintained by the Portfolio in cash, U.S. government or other
high-grade debt obligations, or other high-quality liquid securities, held by
the Portfolio in a segregated account maintained with its custodian.
The Portfolio receives a premium from the purchaser in return for a
call it has written. Receipt of such premiums may enable the Portfolio to earn a
higher level of current income than it would earn from holding the underlying
securities (currencies) alone. Moreover, the premium received offsets a portion
of the potential loss incurred by the Portfolio if the securities (currencies)
underlying the option are ultimately sold (exchanged) by the Portfolio at a
loss. Furthermore, a premium received on a call written on a foreign currency
ameliorates any potential loss of value on the portfolio security due to a
decline in the value of the currency. However, during the option period, the
covered call writer has, in return for the premium, given up the opportunity for
capital appreciation above the exercise price should the market price of the
underlying security (or the exchange rate of the currency in which it is
denominated) increase but has retained the risk of loss should the price of the
underlying security (or the exchange rate of the currency in which it is
denominated) decline. The premium received fluctuates with varying economic
market conditions. If the market value of the portfolio securities (or the
currencies in which they are denominated) upon which call options have been
written increases, the Portfolio may receive a lower total return from the
portion of its portfolio upon which calls have been written than it would have
had such calls not been written.
With respect to listed options and certain OTC options, during the
option period the Portfolio may be required, at any time, to deliver the
underlying security (currency) against payment of the exercise price on any
calls it has written (exercise of certain listed and OTC options may be limited
to specific expiration dates). This obligation terminates upon the expiration of
the option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Portfolio has been assigned an exercise notice, the Portfolio
is unable to effect a closing purchase transaction.
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Closing purchase transactions are ordinarily effected to realize a
profit on an outstanding call option, to prevent an underlying security
(currency) from being called, to permit the sale of an underlying security (or
the exchange of the underlying currency) or to enable the Portfolio to write
another call option on the underlying security (currency) with either a
different exercise price or expiration date or both. The Portfolio may realize a
net gain or loss from a closing purchase transaction depending upon whether the
amount of the premium received on the call option is more or less than the cost
of effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security (currency).
If a call option expires unexercised, the Portfolio realizes a gain in
the amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the underlying
security (currency) and the proceeds of the sale of the security (currency) plus
the premium received on the option less the commission paid.
Options written by the Portfolio normally have expiration dates of up
to eighteen months from the date written. The exercised price of a call option
may be below, equal to or above the current market value of the underlying
security at the time the option is written.
COVERED PUT WRITING. As a writer of a covered put option, the Portfolio
would incur an obligation to buy the security underlying the option from the
purchaser of the put, at the option's exercise price at any time during the
option period, at the purchaser's election (certain listed and OTC put options
written by the Portfolio will be exercisable by the purchaser only on a specific
date). A put is "covered" if at all times the Portfolio maintains with its
custodian (in a segregated account) cash, U.S. government or other high-grade
obligations, or other high-quality liquid securities, in an amount equal to at
least the exercise price of the option. Similarly, a short put position could be
covered by the Portfolio by its purchase of a put option on the same security
(currency) as the underlying security of the written option, where the exercise
price of the purchased option is equal to or more than the exercise price of the
put written or less than the exercise price of the put written if the marked to
market difference is maintained by the Portfolio in cash, U.S. government or
other high-grade debt obligations, or other high-quality liquid securities, that
the Portfolio holds in a segregated account maintained at its custodian. In
writing puts, the Portfolio assumes the risk of loss should the market value of
the underlying security (currency) decline below the exercise price of the
option (any loss being decreased by the receipt of the premium on the option
written). In the case of listed options, during the option period the Portfolio
may be required, at any time, to make payment of the exercise price against
delivery of the underlying security (currency). The operation of and limitations
on covered put options in other respects are substantially identical to those of
call options.
The Portfolio will write put options for three purposes: (1) to receive
the income derived from the premiums paid by purchasers; (2) when the investment
adviser wishes to purchase the security (or a security denominated in the
currency underlying the option) underlying the option at a price lower than its
current market price (in which case it will write the covered put at an exercise
price reflecting the lower purchase price sought); and (3) to close out a long
put option position. The potential gain on a covered put option is limited to
the premium received on the option (less the commissions paid on the
transaction) while the potential loss equals the differences between the
exercise price of the option and the current market price of the underlying
securities (currencies) when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. The Portfolio may purchase listed and
OTC call and put options in amounts equaling up to 5% of its total assets. The
Portfolio may purchase a call option in order to close out a covered call
position (see "Covered Call Writing"), to protect against an increase in price
of a security it anticipates purchasing or, in the case of a call option on
foreign currency, to hedge against an adverse exchange rate move of
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<PAGE>
the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which purchased
the call written by the Portfolio.
The Portfolio may purchase put options on securities (currencies) that
it holds in its portfolio to protect itself against a decline in the value of
the security and to close out written put option positions. If the value of the
underlying security (currency) were to fall below the exercise price of the put
purchased in an amount greater then the premium paid for the option, the
Portfolio would incur no additional loss. In addition, the Portfolio may sell a
put option it has previously purchased prior to the sale of the securities
(currencies) underlying such option. Such a sale would result in a net gain or
loss depending upon whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the put option that is sold. Any
such gain or loss could be offset in whole or in part by a change in the market
value of the underlying security (currency). If a put option purchased by the
Portfolio expired without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered
call writer has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price if the market
price of the underlying security (or the value of its denominated currency)
increases but has retained the risk of loss if the price of the underlying
security (or the value of its denominated currency) declines. The writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. If a covered
call option writer is unable to effect a closing purchase transaction or to
purchase an offsetting OTC option, it cannot sell the underlying security until
the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell an underlying security at a time when it
might otherwise be advantageous to do so. A covered put option writer who is
unable to effect a closing purchase transaction or to purchase an offsetting OTC
option would continue to bear the risk of decline in the market price of the
underlying security until the option expires or is exercised. In addition, a
covered put writer would be unable to utilize the amount held in cash, U.S.
Government or other high-grade short-term obligations, or other high-quality
liquid securities, as security for the put option for other investment purposes
until the exercise or expiration of the option.
The Portfolio's ability to close out its position as a writer of an
option is dependent upon the existence of a liquid secondary market on option
exchanges. There is no assurance that such a market will exist, particularly in
the case of OTC options, since such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
However, the Portfolio may be able to purchase an offsetting option that does
not close out its position as a writer but constitutes an asset of equal value
to the obligation under the option written. If the Portfolio is not able to
either enter into a closing purchase transaction or purchase an offsetting
position, it will be required to maintain the securities subject to the call, or
the collateral underlying the put, even though it might not be advantageous to
do so, until a closing transaction can be entered into (or the option is
exercised or expires).
Among the possible reasons for the absence of a liquid secondary market
on an exchange are: (1) insufficient trading interest in certain options; (2)
restrictions on transactions imposed by an exchange; (3) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (4) interruption of the normal
operations on an exchange; (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume; or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist.
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In the event of the bankruptcy of a broker through which the Portfolio
engages in transactions in options, the Portfolio could experience delays and/or
losses in liquidating open positions purchased or sold through the broker and/or
incur a loss of all or part of its margin deposits with the broker. Similarly,
in the event of the bankruptcy of the writer of an OTC option purchased by the
Portfolio, the Portfolio could experience a loss of all or part of the value of
the option. Transactions will be entered into by the Portfolio only with brokers
or financial institutions deemed creditworthy by SCMI.
Exchanges have established limitations governing the maximum number of
options on the same underlying security or futures contract (whether or not
covered) that may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more accounts or through
one or more brokers). An exchange may order the liquidation of positions found
to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Portfolio may write.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. If the option markets close before
the markets for the underlying securities, significant price and rate movements
can take place in the underlying markets that cannot be reflected in the option
markets.
The extent to which the Portfolio may enter into transactions involving
options may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Portfolio's intention to
manage its investment portfolio to permit its investors to so qualify. See "Tax
Status".
FUTURES CONTRACTS. The Portfolio may purchase and sell interest-rate,
currency, and index futures contracts ("futures contracts") that are traded on
U.S. and foreign commodity exchanges, on such underlying securities as U.S.
Treasury bonds, notes and bills, and/or any foreign government fixed-income
security ("interest-rate futures contracts"), on various currencies ("currency
futures contracts") and on such indices of U.S. and foreign securities as may
exist or come into being ("index futures contracts").
The Portfolio may purchase or sell interest-rate futures contracts for
the purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If the investment adviser anticipates that interest rates may rise and,
concomitantly, that the price of certain of its portfolio securities fall, the
Portfolio may sell an interest-rate futures contract. If declining interest
rates are anticipated, the Portfolio may purchase an interest-rate futures
contract to protect against a potential increase in the price of securities the
Portfolio intends to purchase. Subsequently, appropriate securities may be
purchased by the Portfolio in an orderly fashion; as securities are purchased,
corresponding futures positions would be terminated by offsetting sales of
contracts.
The Portfolio may purchase or sell currency futures contracts on
currencies in which its portfolio securities (or anticipated portfolio
securities) are denominated for the purposes of hedging against anticipated
changes in currency exchange rates. The Portfolio may enter into currency
futures contracts for the same reasons as set forth above for entering into
forward foreign currency exchange contracts; namely, to secure the value of a
security purchased or sold in a given currency vis-a-vis a different currency or
to hedge against an adverse currency exchange rate movement of a portfolio
security's (or anticipated portfolio security's) denominated currency vis-a-vis
a different currency.
The Portfolio may purchase or sell index futures contracts for the
purpose of hedging some or all of its portfolio (or anticipated portfolio)
securities against changes in their prices. If it anticipates that the prices of
securities it holds may fall, the Portfolio may sell an index futures contract.
Conversely, if the Portfolio wishes to hedge against anticipated price rises in
those securities which it intends to purchase, the Portfolio may purchase an
index futures contract.
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In addition to the above, interest-rate, currency and index futures
contracts will be bought or sold in order to close out short or long positions
maintained by the Portfolio in corresponding futures contracts.
Although most interest-rate futures contracts call for actual delivery
or acceptance of securities, the contracts usually are closed out before the
settlement date without making or taking delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Portfolio will be able to enter into a
closing transaction.
INTEREST-RATE FUTURES CONTRACTS. When the Portfolio enters into an
interest-rate futures contract, it is initially required to deposit with the
Portfolio's custodian (in a segregated account in the name of the broker
performing the transaction) an "initial margin" of cash, U.S. Government or
other high-grade short-term obligations, or other high-quality liquid
securities, equal to approximately 2% of the contract amount. Initial margin
requirements are established by the exchanges on which futures contracts trade
and may change. In addition, brokers may establish margin deposit requirements
in excess of those required by the exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
money by a brokers' client but is, rather, a good faith deposit on the futures
contract that will be returned to the Portfolio upon the proper termination of
the futures contract. The margin deposits made are marked to market daily, and
the Portfolio may be required to make subsequent deposits with the Portfolio's
futures contract clearing broker of cash or U.S. Government securities (called
"variation margin") that are reflective of price fluctuations in the futures
contract.
CURRENCY FUTURES CONTRACTS. Generally, foreign currency futures
contracts provide for the delivery of a specified amount of a given currency, on
the exercise date, for a set exercise price denominated in U.S. dollars or other
currency. Foreign currency futures contracts would be entered into for the same
reason and under the same circumstances as forward foreign currency exchange
contracts. SCMI assesses such factors as cost spreads, liquidity and transaction
costs in determining whether to use futures contracts or forward contracts in
its foreign currency transactions and hedging strategy.
Purchasers and sellers of foreign currency futures contracts are
subject to the same risks that apply generally to the buying and selling of
futures contracts. In addition, there are risks associated with foreign currency
futures contracts and their use as a hedging device similar to those associated
with options on foreign currencies described above. Further, settlement of a
foreign currency futures contract must occur within the country issuing the
underlying currency. Thus, the Portfolio must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign restrictions
or regulations regarding the maintenance of foreign banking arrangements by U.S.
residents and may be required to pay any fees, taxes or charges associated with
such delivery that are assessed in the issuing country.
INDEX FUTURES CONTRACTS. The Portfolio may invest in index futures
contracts. An index futures contract sale creates an obligation by the
Portfolio, as seller, to deliver cash at a specified future time. An index
futures contract purchase would create an obligation by the Portfolio, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indices do not require the physical delivery of securities but
provide for a final cash settlement on the expiration date that reflects
accumulated profits and losses credited or debited to each party's account.
The Portfolio is required to maintain margin deposits with brokerage
firms through which it effects index futures contracts in a manner similar to
that described above for interest-rate futures contracts. In addition, due to
current industry practice, daily variations in gain and loss on open contracts
are required to be reflected in cash in the form of variation margin payments.
The Portfolio may be required to make additional margin payments during the term
of the contract.
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At any time prior to expiration of the futures contract, the Portfolio
may elect to close the position by taking an opposite position, which will
operate to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash may be required
to be paid by or released to the Portfolio and the Portfolio realizes a loss or
gain.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may purchase and write call
and put options on futures contracts traded on an exchange and may enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the position in the futures contract by
the writer of the option to the holder of the option is accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract at the
time of exercise exceeds, in case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
The Portfolio may purchase and write options on futures contracts for
purposes identical to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of a
futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
investment adviser wished to protect against an increase in interest rates and
the resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest-rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the investment adviser seeks to hedge. Any premiums received in the writing of
options on futures contracts may provide a further hedge against losses
resulting from price declines in portions of the Portfolio's investment
portfolio.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. To reduce this risk,
the Portfolio will not purchase or write options on foreign currency futures
contracts unless and until, in SCMI's opinion, the market for such options has
developed sufficiently that the risks in connection with them are not greater
than the risks in connection with transactions in the underlying foreign
currency futures contracts.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The
Portfolio may not enter into futures contracts or purchase related options
thereon if, immediately thereafter, the amount committed to margin plus the
amount paid for premiums for unexpired options on futures contracts exceeds 5%
of the value of the Portfolio's total assets, after taking into account
unrealized gain and unrealized loss on such contracts it has entered into,
provided, however, that in the case of an option that is in-the-money (the
exercise price of the call (put) option is less (more) than the market price of
the underlying security) at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. However, there is no overall limitation on the
percentage of the Portfolio's assets that may be subject to a hedge position. In
addition, in accordance with the regulations of the Commodity Futures Trading
Commission ("CFTC") under which the Portfolio is exempted from registration as a
commodity pool operator, the Portfolio may only enter into futures contracts and
options on futures contracts transactions for purposes of hedging a part or all
of its portfolio. Except as described above, there are no other limitations on
the use of futures and options thereon by the Portfolio.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an option
on a futures contract are included in initial margin deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
Portfolio may sell a futures contract to protect against the decline in the
value of securities (or the currency in which they are denominated) held by the
Portfolio. However, it is possible that the futures market may advance and the
value of the Portfolio's securities (or the currency in which they are
denominated) may decline. If this occurs, the Portfolio will lose money on the
futures contract and also experience a decline in value of its portfolio
securities. While this might occur for only a very brief period or to a very
small degree, over time the value of a diversified portfolio will tend to move
in the same direction as the futures contracts.
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If the Portfolio purchases a futures contract to hedge against the
increase in value of securities it intends to buy (or the currency in which they
are denominated) and the value of such securities (currencies) decreases, then
the Portfolio may determine not to invest in the securities as planned and will
realize a loss on the futures contract that is not offset by a reduction in the
price of the securities.
If the Portfolio has sold a call option on a futures contract, it will
cover this position by holding (in a segregated account maintained at its
custodian) cash, U.S. Government securities or other high-grade debt
obligations, or other high-quality liquid securities, equal in value (when added
to any initial or variation margin on deposit) to the market value of the
securities (currencies) underlying the futures contract or the exercise price of
the option. Such a position may also be covered by owning the securities
(currencies) underlying the futures contract or by holding a call option
permitting the Portfolio to purchase the same contract at a price no higher than
the price at which the short position was established.
In addition, if the Portfolio holds a long position in a futures
contract, it will hold cash, U.S. Government or other high-grade debt
obligations, or other high-quality liquid securities, equal to the purchase
price of the contract (less the amount of initial or variation margin on
deposit) in a segregated account maintained for the Portfolio by its custodian.
Alternatively, the Portfolio could cover its long position by purchasing a put
option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Portfolio.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Portfolio
would continue to be required to make daily cash payments of variation margin on
open futures contract positions. In such situations, if the Portfolio has
insufficient cash, it may have to sell portfolio securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do so.
In addition, the Portfolio may be required to take or make delivery of the
instruments underlying interest-rate futures contracts it holds at a time when
it is disadvantageous to do so. The inability to close out options and futures
contract positions could also have an adverse impact on the Portfolio's ability
to effectively hedge its portfolio.
Futures contracts and options thereon that are purchased or sold on
foreign commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges, and brokerage
commissions, clearing costs and other transaction costs may be higher. Greater
margin requirements may limit the Portfolio's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may cause delays in the
settlement of the Portfolio's foreign exchange transactions.
In the event of the bankruptcy of a broker through which the Portfolio
engages in transactions in futures or options thereon, the Portfolio could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
with the broker. Similarly, in the event of the bankruptcy of the writer of an
OTC option purchased by the Portfolio, the Portfolio could experience a loss of
all or part of the value of the option. Transactions are entered into by the
Portfolio only with brokers or financial institutions deemed creditworthy by
SCMI.
While the futures contracts and options transactions in which the
Portfolio engages for the purpose of hedging its portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk that may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indices subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Portfolio's portfolio securities
(and the currencies in which they are denominated). Another such risk is that
prices of interest-rate futures contracts may not move in tandem with the
changes in prevailing interest rates
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against which the Portfolio seeks a hedge. A correlation may also be distorted
by the fact that the futures market is dominated by short-term traders seeking
to profit from the difference between a contract or security price objective and
their cost of borrowed funds. Such distortions are generally minor and are
expected to diminish as the contract approaches maturity.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Portfolio and the movements in the prices of
the securities (currencies) which are the subject of the hedge. If participants
in the futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the debt securities or currency markets and futures
markets could result. Price distortions could also result if investors in
futures contracts choose to make or take delivery of underlying securities
rather than engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, because the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market can be
anticipated with the resulting speculation causing temporary price distortions.
Due to the possibility of price distortions in the futures contracts market and
because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of interest-rate trends may still not result in a successful hedging
transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts and related options in which the Portfolio may invest. In the
event a liquid market does not exist, it may not be possible to close out a
futures position, and in the event of adverse price movements, the Portfolio
would continue to be required to make daily cash payments of variation margin.
In addition, limitations imposed by an exchange or board of trade on which
futures contracts are traded may compel the Portfolio to or prevent it from
closing out a contract, which may result in reduced gain or increased loss to
the Portfolio. The absence of a liquid market in futures contracts might cause
the Portfolio to make or take delivery of the underlying securities (currencies)
at a time when it may be disadvantageous to do so.
The extent to which the Portfolio may enter into transactions involving
futures contracts and options thereon may be limited by the Internal Revenue
Code's requirements for qualification as a regulated investment company and the
Portfolio's intention to qualify as such, see "Tax Status".
WARRANTS AND STOCK RIGHTS. The Portfolio may 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). Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale of
the warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised (in which case the warrant may
expire without being exercised, resulting in the loss of the Portfolio's entire
investment therein). The prices of warrants 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.
In addition, the Portfolio may invest up to 5% of its assets (at the
time of investment) in stock rights. A stock right is an option given to a
shareholder to buy additional shares at a predetermined price during a specified
time period.
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible
preferred stocks and convertible debt securities ("convertible securities"). 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. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, carry less
risk than the corporation's common stock. The value of a convertible security is
a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
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DEBT-TO-EQUITY CONVERSIONS. The Portfolio may invest up to 5% of its
net assets in debt-to-equity conversions. Debt-to-equity conversion programs are
sponsored in varying degrees by certain emerging market countries, particularly
in Latin America, and permit investors to use external debt of a country to make
equity investments in local companies. Many conversion programs relate primarily
to investments in transportation, communication, utilities and similar
infrastructure-related areas. The terms of the programs vary from country to
country, but include significant restrictions on the application of proceeds
received in the conversion and on the repatriation of investment profits and
capital. When inviting conversion applications by holders of eligible debt, a
government usually specifies the minimum discount from par value that it will
accept for conversion. SCMI believes that debt-to-equity conversion programs may
offer investors opportunities to invest in otherwise restricted equity
securities that have a potential for significant capital appreciation and
intends to invest assets of the Portfolio to a limited extent in such programs
under appropriate circumstances. There can be no assurance that debt-to-equity
conversion programs will continue to be successful or that the Portfolio will be
able to convert all or any of its emerging market debt portfolio into equity
investments.
U.S. GOVERNMENT SECURITIES. The Portfolio may invest in securities
issued or guaranteed by the U.S. Government (or its agencies, instrumentalities
or government-sponsored enterprises). Agencies, instrumentalities and
government-sponsored enterprises that have been established or sponsored by the
U.S. Government and issue or guarantee debt securities 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, instrumentalities or government-sponsored enterprises referred
to above are backed by the full faith and credit of the U.S. Government. There
can be no assurance that the U.S. Government will provide financial support to
these obligations where it is not obligated to do so.
BANK OBLIGATIONS. The Portfolio may invest in obligations of U.S. banks
(including certificates of deposit and bankers' acceptances) whose total assets
at the time of purchase exceed $1 billion. Such banks must be members of the
Federal Deposit Insurance Corporation. The Portfolio also may hold cash and time
deposits denominated in any major currency in foreign banks.
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 is a non-negotiable
receipt issued by a bank in exchange for the deposit of funds. Similar to a
certificate of deposit, a time deposit earns a specified rate of interest over a
definite time period; however, it cannot be traded in the secondary markets.
SHORT-TERM DEBT SECURITIES. The Portfolio may invest in commercial
paper -- 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 "Aaa" or "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. The
Portfolio also may invest in variable rate master demand notes, which are
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payer of such notes. Generally both parties have
the right to vary the amount of the outstanding indebtedness on the notes.
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REPURCHASE AGREEMENTS. The Portfolio may invest in securities subject
to repurchase agreements that mature or may be terminated by notice in seven
days or less with 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. SCMI
monitors the value of the underlying security at the time the transaction is
entered into and at all times during the term of the repurchase agreement to
insure that the value of the security always equals or exceeds the repurchase
price. If a seller defaults under a repurchase agreement, the Portfolio may have
difficulty exercising its rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities. To evaluate potential risks, SCMI reviews the credit-worthiness of
banks and dealers with which the Portfolio enters into repurchase agreements.
LIQUIDITY. "Liquidity" under "Investment Policies" in Part A sets forth
the circumstances in which the Portfolio may invest in "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 registration expenses of illiquid restricted
securities 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 the 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. If SCMI determines that a "restricted security" is liquid
pursuant to guidelines adopted by the Trust Board, the security is not 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 restricted security, that
security may become illiquid, which could affect the Portfolio's liquidity.
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:
(1) on each business day, at least equal the market value of the loaned
securities; and (2) consist of cash, bank letters of credit, U.S. Government
securities, other cash equivalents or liquid securities 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. When lending portfolio securities, 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 plus 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 if it realizes at least a minimum
amount of interest required by the lending guidelines established by the Trust's
Board of Trustees (the "Trust 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 and permit the Portfolio to reacquire loaned securities on
five business days' notice or in time to vote on any important matter.
The market value of portfolio securities purchased with cash collateral
may decline. Loans of securities by the Portfolio are 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 Board.
INVESTMENT RESTRICTIONS
The following investment restrictions restate or are in addition to
those described under "Investment Restrictions" and "Investment Objective and
Policies" in Part A. These restrictions, unless otherwise indicated, are
fundamental policies of the Portfolio and cannot be changed without the vote of
a "majority" of the Portfolio's outstanding Interests. Under the Investment
Company Act of 1940, as amended ("1940 Act"), such a "majority" vote is defined
as the vote of the holders of the lesser of: (1) 67% of more of the shares
present or represented by proxy at a meeting of shareholders, if the holders of
more than 50% of the outstanding shares are present; or (2) more than 50% of the
outstanding shares. Under these additional restrictions, the Portfolio will not:
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1. INDUSTRY CONCENTRATION
purchase a security if, as a result, more than 25% of the
Portfolio's total assets would be invested in securities of
issuers conducting their principal business activities in the
same industry. For purposes of this limitation, there is no
limit on: (1) investments in U.S. government securities, in
repurchase agreements covering U.S. government securities, in
securities issued by the states, territories or possessions of
the United States ("municipal securities") or in foreign
government securities; or (2) investment in issuers domiciled
in a single jurisdiction. Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, each
Portfolio may invest in one or more investment companies;
provided that, except to the extent the Portfolio invests in
other investment companies pursuant to Section 12(d)(1)(A) of
the 1940 Act, the Portfolio treats the assets of the
investment companies in which it invests as its own for
purposes of this policy.
2. BORROWING
borrow money if, as a result, outstanding borrowings would
exceed an amount equal to one third of the Portfolio's total
assets.
3. REAL ESTATE
purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall
not prevent the Portfolio from investing in securities or
other instruments backed by real estate or securities of
companies engaged in the real estate business).
4. LENDING
make loans to other parties. For purposes of this limitation,
entering into repurchase agreements, lending securities and
acquiring any debt security are not deemed to be the making of
loans.
5. COMMODITIES
purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but
this shall not prevent the Portfolio from purchasing or
selling options and futures contracts or from investing in
securities or other instruments backed by physical
commodities).
6. UNDERWRITING
underwrite (as that term is defined in the Securities Act of
1933, as amended) securities issued by other persons except,
to the extent that in connection with the disposition of the
Portfolio's assets, the Portfolio may be deemed to be an
underwriter.
7. SENIOR SECURITIES
issue any class of senior securities except to the extent
consistent with the 1940 Act.
NONFUNDAMENTAL LIMITATIONS. The Portfolio has adopted the
following nonfundamental investment limitations. A nonfundamental policy does
not override a fundamental limitation. The policies of the Portfolio may be
changed by the Board without interestholder approval.
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1. DIVERSIFICATION
The Portfolio is "non-diversified" as that term is defined in
the 1940 Act. To the extent required to qualify as a regulated
investment company under the Code, the Portfolio may not
purchase a security (other than a U.S. government security or
a security of an investment company) if, as a result, (1) with
respect to 50% of its assets, more than 5% of the Portfolio's
total assets would be invested in the securities of any single
issuer; (2) with respect to 50% of its assets, the Portfolio
would own more than 10% of the outstanding securities of any
single issuer; or (3) more than 25% of the Portfolio's total
assets would be invested in the securities of any single
issuer.
2. BORROWING
for purposes of the limitation on borrowing, the following
are not treated as borrowings to the extent they are fully
collateralized: (1) the delayed delivery of purchased
securities (such as the purchase of when-issued securities);
(2) reverse repurchase agreements; (3) dollar-roll
transactions; and (5) the lending of securities ("leverage
transactions"). (See fundamental Limitation No. 3
"Borrowing" above.
3. LIQUIDITY
invest more than 15% of its net assets in: (1) securities that
cannot be disposed of within seven days at their then-current
value; (2) repurchase agreements not entitling the holder to
payment of principal within seven days; and (3) securities
subject to restrictions on the sale of the securities to the
public without registration under the 1933 Act ("restricted
securities") that are not readily marketable. Each Portfolio
may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board.
4. EXERCISING CONTROL OF ISSUERS
make investments for the purpose of exercising control of an
issuer. Investments by the Portfolio in entities created under
the laws of foreign countries solely to facilitate investment
in securities in that country will not be deemed the making of
investments for the purpose of exercising control.
5. OTHER INVESTMENT COMPANIES
invest in securities of another investment company, except to
the extent permitted by the 1940 Act.
6. SHORT SALES AND PURCHASING ON MARGIN
sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the
securities sold short (short sales "against the box"), and
provided that transactions in futures contracts and options
are not deemed to constitute selling securities short.
purchase securities on margin, except that the Portfolio may
use short-term credit for the clearance of the Portfolio's
transactions, and provided that initial and variation margin
payments in connection with futures contracts and options on
futures contracts shall not constitute purchasing securities
on margin.
7. LENDING
lend a security if, as a result, the amount of loaned
securities would exceed an amount equal to one third of the
Portfolio's total assets.
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MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES. The following information relates to the
principal occupations during the past five years of each Trustee and executive
officer of the Trust and shows the nature of any affiliation with SCMI. Except
as noted, each of these individuals currently serves in the same capacity for
Schroder Capital Funds (Delaware), Schroder Capital Funds II and Schroder Series
Trust, other registered investment companies in the Schroder family of funds.
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.
HON. DAVID N. DINKINS, 69, c/o the Trust, Two Portland Square, Portland, Maine,
Trustee of the Trust; Professor, Columbia University School of International and
Public Affairs; Director, American Stock Exchange, Carver Federal Savings Bank,
Transderm Laboratory Corporation, and The Cosmetic Center, Inc.; formerly,
Mayor, The City of New York.
PETER S. KNIGHT, 46, c/o the Trust, Two Portland Square, Portland, Maine,
Trustee of the Trust; Partner, Wunder, Knight, Levine, Thelen & Forcey;
Director, Comsat Corp., Medicis Pharmaceutical Corp., and Whitman Education
Group Inc., Formerly, Campaign Manager, Clinton/Gore `96.
SHARON L. HAUGH*, 51, 787 Seventh Avenue, New York, New York, Trustee of the
Trust; Chairman, Schroder Capital Management Inc. ("SCM"), Executive Vice
President and Director, SCMI; Chairman and Director, Schroder Advisors.
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.
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FERGAL CASSIDY, 28, 787 Seventh Avenue, New York, New York - Treasurer of the
Trust.
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, 37, 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; Relationship Manager and
Counsel, 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 July
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 Advisors 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. SCM is also a wholly owned
subsidiary of Schroders Incorporated.
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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 retainer of $11,000 and additional fees of $1,250 per meeting
attended in person or $500 per meeting attended by telephone. Members of an
Audit Committee for one or more of the investment companies receive an
additional $1,000 per year. Payment of the annual retainer is allocated among
the various investment companies based on their relative net assets. Payment of
meeting fees is allocated only among those investment companies to which the
meeting relates. None of the registered investment companies in the Fund Complex
has any bonus, profit sharing, pension or retirement plans.
The following table provides the fees paid to each independent Trustee
of the Trust for certain funds' fiscal year ended December 31, 1997.
<TABLE>
Pension or Total
Retirement Compensation From
Aggregate Benefits Accrued Estimated Annual Trust And Fund
Compensation From As Part of Trust Benefits Upon Complex Paid To
Name of Trustee Trust Core Expenses Retirement Trustees
- -------------------------------- -------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Mr. Guernsey $2,749.95 $0 $0 $4,250.00
Mr. Howell $1,983.70 $0 $0 $3,000.00
Mr. Michalis $1,759.31 $0 $0 $2,750.00
Mr. Schwab $4,733.65 $0 $0 $8,250.00
Mr. Dinkins $ 0.00 $0 $0 $11,000.00
Mr. Knight $ 785.68 $0 $0 $12,500.00
</TABLE>
* In addition to the Trust, the "Fund Complex" includes three other registered
investment companies (Schroder Capital Funds II, an open-end company; Schroder
Capital Funds (Delaware), an open-end company; and Schroder Asian Growth Fund,
Inc., a closed-end company) for which SCMI serves as investment adviser for each
series.
As of January 30, 1998, the officers and Trustees of the Trust owned, in
the aggregate, less than 1% of the Trust's outstanding shares.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 30, 1998, each of the following Norwest Advantage Funds held
in excess of 25% of the Portfolio's interests and may therefore be considered a
"control person" of the Portfolio: Growth Equity Fund; International Fund and
Diversified Equity Fund.
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.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY SERVICES. SCMI, 787 Seventh Avenue, New York, New
York, 10019, serves as investment adviser to the Portfolio under an "Investment
Advisory Agreement." SCMI is a wholly owned U.S. subsidiary of Schroders
Incorporated (doing business in New York State as Schroders Holdings), the
wholly owned U.S. holding company 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 funds under management in excess of $175 billion as of September
30, 1997.
Under the Investment Advisory Agreement, SCMI is responsible for
managing the investment and reinvestment of the assets included in the Portfolio
and for continuously reviewing, supervising and administering the Portfolio's
investments. In this regard, SCMI is responsible for making decisions relating
to the Portfolio's investments and placing purchase and sale orders regarding
such investments with brokers or dealers selected by it in its discretion. SCMI
also furnishes to the Board, which has overall responsibility for the business
and affairs of the Trust, periodic reports on the investment performance of the
Portfolio.
Under the terms of the Investment Advisory Agreement, 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 information that may be in its possession or in the possession of its
affiliates.
The Investment Advisory Agreement continues in effect provided such
continuance is approved annually: (1) by the Board or by the vote of a majority
of the outstanding voting securities of the Portfolio (as defined by the 1940
Act) or by the Board; and (2) by a majority of the Trustees who are not parties
to such agreement or "interested persons" (as defined in the 1940 Act) of any
such party. The Investment Advisory Agreement may be terminated without penalty
by vote of the Trustees or the interestholders of the Portfolio, in each case on
60 days' written notice to the Adviser, or by the Adviser on 60 days' written
notice to the Trust. The agreement terminates automatically if assigned. The
Investment Advisory Agreement 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 Agreement.
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. The Trust
has also entered into a "Subadministration Agreement" with Forum Administrative
Services, LLC ("Forum"). Under 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. These services include, among other things: (1) preparation of
shareholder reports and communications; (2) regulatory compliance, such as
reports to and filings with the Securities and Exchange 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. Schroder Advisors is a wholly owned subsidiary of SCMI, and
is a registered broker-dealer organized to act as administrator and distributor
of mutual funds. Effective July 5, 1995, Schroder Advisors changed its name from
Schroder Capital Distributors Inc..
For these services, Schroder Advisors is entitled to receive from the
Portfolio a fee at the annual rate of 0.10% of the Portfolio's average daily net
assets. Forum is entitled to receive from the Portfolio a fee at the annual rate
of 0.075% of the Portfolio's average daily net assets for its services.
The Administration and Subadministration Agreements are terminable with
respect to the Portfolio without penalty, at any time, by the Board on 60 days'
written notice to Schroder Advisors or Forum, as applicable, or by Schroder
Advisors or Forum on 60 days' written notice to the Trust.
CUSTODIAN. The Chase Manhattan Bank, through its Global Securities
Services division located in London, England, acts as custodian of the
Portfolio's assets but plays no role in making decisions as to the purchase or
sale of portfolio securities for the Portfolio. Under rules adopted under the
1940 Act, the Portfolio may maintain its foreign securities and cash in the
custody of certain eligible foreign banks and securities depositories. Selection
of these foreign custodial institutions is made by the Board following a
consideration of a number of factors, including (but not limited to) the
reliability and financial stability of the institution; the ability of the
institution to perform capably custodial services for the Portfolio; the
reputation of the institution in its national market; the political and economic
stability of the country in which the institution is located; and further risks
of potential nationalization or expropriation of Portfolio assets.
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<PAGE>
INDEPENDENT AUDITORS. Coopers & Lybrand L.L.P., One Post Office Square,
Boston, Massachusetts 02109, serves as independent auditors for the Trust.
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, and a particular security may be 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 other 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. The Portfolio's portfolio transaction costs are
borne pro rata by its investors, including the Fund.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock exchanges
and other agency transactions involve the payment of negotiated brokerage
commissions. Such commissions vary among brokers. Also, a particular broker may
charge different commissions according to the difficulty and size of the
transaction; for example, transactions in foreign securities generally involve
the payment of fixed brokerage commissions, which are generally higher than
those in the U.S. Since most brokerage transactions for the Portfolio are 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. However, the Portfolio's investment adviser seeks to
achieve the best net results in effecting its portfolio transactions. There is
generally less governmental supervision and regulation of foreign stock
exchanges and brokers than in the U.S. There is generally no stated commission
in the case of securities traded in the over-the-counter markets, but the price
paid usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid includes a disclosed, fixed commission or
discount retained by the underwriter or dealer.
The Investment Advisory Agreement authorizes and directs SCMI to place
orders for the purchase and sale of the Portfolio's investments with brokers or
dealers it selects 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 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 considers all factors it may deem relevant (including
price, transaction size, the nature of the market for the security, the
commission amount, 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 for advisers of investment companies and other institutional investors
to receive research services from broker-dealers that 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 Fund'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.
23
<PAGE>
As permitted by Section 28(e) of the 1934 Act, SCMI may cause the
Portfolio to pay a broker-dealer that provides SCMI with "brokerage and research
services" (as defined in the 1934 Act) 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.
In addition, SCMI may allocate brokerage transactions to broker-dealers who have
entered into arrangements under which the broker-dealer allocates a portion of
the commissions paid by the Portfolio toward payment of Portfolio expenses, such
as custodian fees.
Subject to the general policies of the Portfolio regarding allocation
of portfolio brokerage as set forth above, the Trust's Board has authorized SCMI
to employ: (1) Schroder Wertheim & Company, Incorporated ("Schroder Wertheim")
an affiliate of SCMI, to effect securities transactions of the Portfolio on the
New York Stock Exchange only; and (2) Schroder Securities Limited and its
affiliates (collectively, "Schroder Securities"), affiliates of SCMI, to effect
securities transactions of the Portfolio on various foreign securities exchanges
on which Schroder Securities has trading privileges, provided certain other
conditions are satisfied as described below.
Payment of brokerage commissions to Schroder Wertheim or Schroder
Securities 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 securities exchange paid by a registered investment company to a broker
that 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 Wertheim or Schroder Securities will in SCMI's opinion be: (1)
at least as favorable as commissions contemporaneously charged by Schroder
Wertheim or Schroder Securities, as the case may be, on comparable transactions
for their 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 Schroder Core 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 Wertheim or
Schroder Securities by the Portfolio satisfy the foregoing standards. Such
procedures will be reviewed at least annually by the Schroder Core Board,
including a majority of the non-interested Trustees. The Schroder Core Board
will also review all transactions at least quarterly for compliance with such
procedures.
It is further a policy of the Portfolio that all such transactions
effected for the Portfolio by Schroder Wertheim on the New York Stock Exchange
be in accordance with Rule 11a2-2(T) promulgated under the 1934 Act, which
requires in substance that a member of such exchange not associated with
Schroder Wertheim actually execute the transaction on the exchange floor or
through the exchange facilities. Thus, while Schroder Wertheim will bear
responsibility for determining important elements of execution such as timing
and order size, another firm will actually execute the transaction.
Schroder Wertheim pays a portion of the brokerage commissions it
receives from the Portfolio to the brokers executing the Portfolio's
transactions on the New York Stock Exchange. In accordance with Rule 11a2-2(T),
Schroder Core has entered into an agreement with Schroder Wertheim permitting it
to retain a portion of the brokerage commissions paid to it by the Portfolio.
This agreement has been approved by the Schroder Core Board, including a
majority of the non-interested Trustees.
The Portfolio has no understanding or arrangement to direct any
specific portion of its brokerage to Schroder Wertheim or Schroder Securities
and will not direct brokerage to Schroder Wertheim or Schroder Securities in
recognition of research services.
CAPITAL STOCK AND OTHER SECURITIES
Under the Trust Instrument, the Trustees are authorized to issue
beneficial interests 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
(e.g., election of the Trustees and ratification of auditors, as required by the
24
<PAGE>
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 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.
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 per Interest next determined after an order is
received by the Portfolio. Net asset value per Interest is calculated by
dividing the aggregate value of the Portfolio's assets less all liabilities by
the number of shares of the Portfolio outstanding.
TAX STATUS
The Portfolio is classified for federal income tax purposes as a
partnership that is not a "publicly traded partnership." As a result, the
Portfolio is not subject to federal income tax; instead, each investor in the
Portfolio is 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 is not subject to Delaware income or franchise
tax.
Each investor in the Portfolio is 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 invest substantially all of their assets in the Portfolio and
intend to qualify as RICs ("RIC investors") should be able to satisfy all those
requirements.
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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: (a)
the amount of cash and the basis of any property the Portfolio distributes to
the investor and (b) the investor's share of the Portfolio's losses.
Dividends and interest received by the Portfolio may be subject to
income, withholding, or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on its securities. Tax conventions
between certain countries and the United States may reduce or eliminate these
foreign taxes, however, and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors.
The Portfolio may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive;
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a RIC that holds
stock of a PFIC (including a RIC investor's indirect holding thereof through its
interest in the Portfolio) will be subject to federal income tax on a portion of
any "excess distribution" received on the stock or of any gain on disposition of
the stock (collectively "PFIC income"), plus interest thereon, even if the RIC
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the RIC's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders.
If the Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund," then in lieu of the foregoing tax and interest
obligation, the Portfolio would be required to include in income each year its
pro rata share of the qualified electing fund's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) - which most likely would have to be distributed by the
Portfolio's RIC investors to satisfy the distribution requirements applicable to
them - even if those earnings and gain were not received by it. In most
instances it will be very difficult, if not impossible, to make this election
because of certain requirements thereof.
Three bills passed by Congress in 1991 and 1992 and vetoed by President
Bush would have substantially modified the taxation of U.S. shareholders of
foreign corporations, including eliminating the provisions described above
dealing with PFICs and replacing them (and other provisions) with a regulatory
scheme involving entities called "passive foreign corporations." The "Tax
Simplification and Technical Corrections Bill of 1993," passed in May 1994 by
the House of Representatives, contains the same modifications. It is unclear at
this time whether, and in what form, the proposed modifications may be enacted
into law.
Proposed regulations have been published pursuant to which certain RICs
would be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of each
such PFIC's stock over the adjusted basis in that stock (including
marked-to-market gain for each prior year for which an election was in effect).
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.
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PLACEMENT AGENT
Forum Financial Services, Inc., Two Portland Square, Portland, Maine
04101, serves as the Trust's placement agent (underwriter). The placement agent
receives no compensation for such placement agent services.
CALCULATIONS OF PERFORMANCE DATA
Not applicable.
FINANCIAL STATEMENTS
Not applicable.
<PAGE>
APPENDIX
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be of
high quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade
fixed-income securities. They are rated lower than the best
fixed-income securities because margins of protection may not be
as large as in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
"A" Fixed-income securities which are rated "A" possess many
favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime
in the future.
"Baa" Fixed-income securities which are rated "Baa" are considered as
medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Such fixed-income securities lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Fixed-income securities rated "Aaa", "Aa", "A" and "Baa" are
considered investment grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate, and therefore not well safeguarded during
both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
"Caa" Fixed-income securities which are rated "Caa" are of poor
standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
"Ca" Fixed-income securities which are rated "Ca" present obligations
which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
"C" Fixed-income securities which are rated "C" are the lowest rated
class of fixed-income securities, and issues so rated can be
regarded as having extremely poor prospects of ever attaining
any real investment standing.
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Rating Refinements: Moody's may apply numerical modifiers, "1",
"2", and "3" in each generic rating classification from "Aa" through "B" in its
municipal fixed-income security rating system. The modifier "1" indicates that
the security ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and a modifier "3" indicates that
the issue ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to
repay punctually promissory obligations not having an original maturity in
excess of nine months. The ratings apply to Municipal Commercial Paper as well
as taxable Commercial Paper. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers: "Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment
of short-term promissory obligations. Issuers rated "Prime-2" have a strong
capacity for repayment of short-term promissory obligations; and Issuers rated
"Prime-3" have an acceptable capacity for repayment of short-term promissory
obligations.
Issuers rated "Not Prime" do not fall within any of the Prime rating categories.
STANDARD & POOR'S RATING GROUP("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with
any rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity
to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
"A" Fixed-income securities rated "A" have a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than fixed-income securities in
higher-rated categories.
"BBB" Fixed-income securities rated "BBB" are regarded as having an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
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Fixed-income securities rated "AAA", "AA", "A" and "BBB" are
considered investment grade.
"BB" Fixed-income securities rated "BB" have less near-term
vulnerability to default than other speculative grade
fixed-income securities. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or
willingness to pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability
to default but presently have the capacity to meet interest
payments and principal repayments. Adverse business, financial
or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon
favorable business, financial and economic conditions to meet
timely payments of interest and repayments of principal. In the
event of adverse business, financial or economic conditions, it
is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or
implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or
implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on which
no interest is being paid.
"NR" Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are
regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and repay principal.
"BB" indicates the least degree of speculation and "C" the
highest degree of speculation. While such fixed-income
securities will likely have some quality and protective
characteristics, these are out-weighed by large uncertainties or
major risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be
modified by the addition of a plus or minus sign to show
relative standing with the major ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The commercial paper rating is not a
recommendation to purchase or sell a security. The ratings are based upon
current information furnished by the issuer or obtained by Standard & Poor's
from other sources it considers reliable. The ratings may be changed, suspended,
or withdrawn as a result of changes in or unavailability of such information.
Ratings are graded into group categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Ratings are applicable to both
taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation "1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is
very strong.
"A-2" Indicates capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is
not as overwhelming as for issues designated "A-1".
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"A-3" Indicates a satisfactory capacity for timely payment.
Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
<PAGE>
COUNTRIES EXCLUDED FROM EMERGING MARKET CATEGORY
Australia The Netherlands
Austria New Zealand
Belgium Norway
Canada Portugal
Denmark Singapore
Finland Spain
France Sweden
Germany Switzerland
Ireland United Kingdom
Italy USA
Japan
<PAGE>
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
SCHRODER CAPITAL FUNDS
--------
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
FEBRUARY 10, 1998
COVER PAGE
Not applicable.
TABLE OF CONTENTS
General Information and History..............................................1
Investment Objective and Policies............................................1
Investment Restrictions......................................................8
Management of the Trust......................................................9
Control Persons and Principal Holders of Securities.........................12
Investment Advisory and Other Services......................................12
Brokerage Allocation and Other Practices....................................13
Capital Stock and Other Securities..........................................15
Purchase, Redemption and Pricing of Securities..............................15
Tax Status..................................................................16
Underwriters................................................................17
Calculations of Performance Data............................................17
Financial Statements........................................................17
Appendix...................................................................A-1
GENERAL INFORMATION AND HISTORY
Not applicable.
INVESTMENT OBJECTIVE AND POLICIES
Part A contains information about the investment objective and policies
of the Schroder International Smaller Companies Portfolio (the "Portfolio"), a
series of Schroder Capital Funds (the "Trust"). The following discussion
supplements 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.
Defined terms used in this Part B have the same meaning as in Part A.
FOREIGN SECURITIES. The Portfolio may invest, without limit (subject to the
other investment policies applicable to the Portfolio), in U.S.
dollar-denominated and foreign-currency denominated foreign debt securities and
in certificates of deposit issued by foreign banks and foreign branches of U.S.
banks to any extent deemed appropriate by SCMI.
<PAGE>
Investment in the securities of non-U.S. issuers may involve risks in
addition to those normally associated with investments in the securities of U.S.
issuers. There may be less publicly available information about foreign issuers
than is available for U.S. issuers, and foreign auditing, accounting and
financial reporting practices may differ from U.S. practices. Foreign securities
markets may have lower volume or activity than U.S. markets, resulting in thin
trading and lower liquidity than for U.S. issues. Consequently, securities
prices may be more volatile. In general, SCMI invests only in securities of
companies and governments of countries that, in its judgment, are both
politically and economically stable. Nevertheless, all foreign investments are
subject to risks of foreign political and economic instability, adverse
movements in foreign exchange rates, the imposition or tightening of exchange
controls or other limitations on the repatriation of foreign capital, and
changes in foreign governmental attitudes toward private investment, possibly
leading to adoption of foreign governmental restrictions affecting the payment
of principal and interest, nationalization, increased withholding, taxation, or
confiscation of portfolio assets, and other possible adverse political or
economic developments that would affect portfolio assets. In addition, it may be
more difficult to obtain and enforce a judgment against a foreign issuer or a
foreign branch of a domestic bank.
EMERGING MARKETS. The Portfolio may invest in securities of issuers
located in countries considered by some to be emerging market countries. The
risks of investing in foreign securities may be greater with respect to
securities of issuers in, or denominated in the currencies of, emerging market
countries. The economies of emerging market countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade. The securities markets of emerging market
countries are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the United States and other developed
countries. Disclosure and regulatory standards in many respects are less
stringent in emerging market countries than in the United States and other major
markets. There also may be a lower level of monitoring and regulation of
emerging market countries than in the United States and other major markets.
There also may be a lower level of monitoring and regulation of emerging markets
and the activities of investors in such markets, and enforcement of existing
regulations may be extremely limited. Investing in local markets, particularly
in emerging market countries, may require the Portfolio to adopt special
procedures, seek local government approvals or take other actions, each of which
may involve additional costs to the Portfolio. Certain emerging market countries
may also restrict investment opportunities in issuers in industries deemed
important to national interests or in all issuers with respect to foreign
investors. Currency risk tends to be heightened in the case of investing in
certain emerging market countries.
DEPOSITARY RECEIPTS. Investments in securities of foreign issuers may
on occasion be in the form of sponsored or unsponsored American Depositary
Receipts ("ADRs") or European Depositary Receipts ("EDRs"), or other similar
securities convertible into securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued in the United States
by a bank or trust company, evidencing ownership of the underlying securities.
EDRs are typically issued in Europe under a similar arrangement. Generally,
ADRs, in registered form, are designed for use in the U.S. securities markets
and EDRs, in bearer form, are designed for use in European securities markets.
Unsponsored ADRs may be created without the participation of the foreign issuer.
Holders of these ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depository of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights.
USE OF FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In anticipation of
foreign exchange requirements and to protect or "hedge" against adverse
movements in foreign currency exchange rates, the Portfolio may invest in
forward foreign currency exchange contracts ("forward contracts") to purchase or
sell an agreed-upon amount of a specified currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Such forward contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades.
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Although such contracts tend to minimize the risk of loss due to a decline in
the value of the currency that is sold, they expose the Portfolio to the risk
that the counterparty is unable to perform and tend to limit commensurately any
potential gain which might result should the value of such currency increase
during the contract period.
U.S. GOVERNMENT SECURITIES. The Portfolio may invest in obligations
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
which have remaining maturates not exceeding one year. Agencies and
instrumentalities which 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 are backed by the full
faith and credit of the U.S. Government. There can be no assurance that the U.S.
Government will provide financial support to these obligations where it is not
obligated to do so.
BANK OBLIGATIONS. The Portfolio will not invest in any obligation of a
domestic or foreign bank unless: (1) the bank has capital, surplus, and
individual profits (as of the date of the most recently published financial
statements) in excess of $100 million (or the equivalent in other currencies);
and (2) in the case of a U.S. bank, its deposits are insured by the Federal
Deposit Insurance Corporation. These limitations do not prohibit investments in
the securities issued by foreign branches of U.S. banks, provided such U.S.
banks meet the foregoing requirements. The Portfolio may also invest in
certificates of deposit issued by foreign banks, denominated in any major
foreign currency. The Portfolio may invest in instruments issued by foreign
banks which, in the view of Schroder Capital and the Trustees of Schroder Core,
are of credit-worthiness and financial stature in their respective countries
comparable to U.S. banks used by the Portfolio. 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.
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 which, 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 "Aaa" or "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 ratings assigned by
S&P.
For temporary defensive purposes, to accumulate cash for investments,
or to meet anticipated redemptions, the Portfolio may invest in (or enter into
repurchase agreements with banks and broker dealers with respect to) short-term
debt securities, including Treasury bills and other U.S. Government securities,
and certificates of deposit and bankers' acceptances of U.S. banks. The
Portfolio may also hold cash and time deposits in foreign banks, denominated in
any major foreign currency.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase
agreements with U.S. banks or broker-dealers maturing in seven days or less. 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. SCMI monitors the value of the underlying
security at the time the transaction is entered into and at all times during the
term of the repurchase agreement to insure that the value of the security 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 securities and may incur costs and
experience time delays in connection with the disposition of such securities. To
evaluate potential risks, SCMI reviews the creditworthiness of those banks and
dealers with which the Portfolio enters into repurchase agreements.
3
<PAGE>
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.
ILLIQUID AND RESTRICTED SECURITIES. "Illiquid and Restricted
Securities" in the Prospectus sets forth the circumstances in which the
Portfolio may invest in illiquid and restricted securities. In connection with
the Portfolios original purchase of restricted securities, SCMI 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 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
LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend its portfolio
securities subject to the restrictions stated in the Prospectus. 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
Schroder Core Board. The Portfolio will not lend its portfolio securities to any
officer, director, employee or affiliate of the Portfolio, the Fund or Schroder
Capital. The terms of the Portfolio s loans must meet certain tests under the
Internal Revenue 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 the Prospectus, while the
Portfolio does not presently intend to do so, it may write covered calls on up
to 100% of its total assets or employ one or more types of Hedging Instruments
(as defined in the Prospectus). 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.
4
<PAGE>
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
be 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 fund 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.
5
<PAGE>
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 that 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 Investment
Company Act of 1940, as amended ("1940 Act"), 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
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<PAGE>
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 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:
1. The Portfolio may not, with respect to 75% of its assets, purchase a
security other than a security issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or a security of an
investment company if, as a result, more than 5% of the Portfolio's
total assets would be invested in the securities of a single issuer or
the Portfolio would own more than 10% of the outstanding voting
securities of any single issuer.
2. The Portfolio may not concentrate investments in any particular
industry; therefore, the Portfolio will not purchase the securities of
companies in any one industry if, thereafter, 25% or more of the
Portfolio's total assets would consist of securities of companies in
that industry. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
An investment of more than 25% of the Portfolio's assets in the
securities of issuers located in one country does not contravene this
policy.
3. The Portfolio may not borrow money in excess of 33 1/3% of its total
assets taken at market value (including the amount borrowed) and then
only from a bank as a temporary measure for extraordinary or emergency
purposes, including to meet redemptions or to settle securities
transactions that may otherwise require untimely dispositions of
Portfolio securities.
4. The Portfolio may not purchase or sell real estate, provided that
the Portfolio may invest in securities issued by companies which invest
in real estate or interests therein.
7
<PAGE>
5. The Portfolio may not make loans to other persons, provided that for
purposes of this restriction, entering into repurchase agreements or
acquiring any otherwise permissible debt securities shall not be deemed
to be the making of a loan.
6. The Portfolio may not invest in commodities or commodity contracts
other than foreign currency forward contracts.
7. The Portfolio may not underwrite securities issued by other persons
except to the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter under U.S.
securities laws.
8. The Portfolio may not issue senior securities except to the extent
permitted by the 1940 Act.
The following investment restrictions of the Portfolio are
non-fundamental policies:
1. The Portfolio will not purchase more than 3% of the outstanding
securities of any closed-end investment company.
2. The Portfolio will not purchase securities while borrowings exceed
5% of total assets.
3. The Portfolio may not acquire a security if, as a result, more than
15% of its net assets (taken at current value) would be invested in
illiquid securities (securities that cannot be disposed of within seven
days at their then-current value), including repurchase agreements not
entitling the holder to payment of principal within seven days or other
securities that are not readily marketable by virtue of restrictions on
the sale of such securities to the public without registration under
the Act of 1933, as amended ("Restricted Securities").
This policy does not include restricted securities that can be
sold to the public in foreign markets or that may be eligible for
qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser
pursuant to guidelines adopted by the Trust's Board of Trustees.
4. The Portfolio may not make investments for the purpose of exercising
control or management. (Investments by the Portfolio in wholly owned
investment entities created under the laws of certain countries will
not be deemed the making of investments for the purpose of exercising
control or management.)
5. 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.
6. The Portfolio may not invest in oil, gas, or other mineral
resources, lease, or arbitrage transactions.
7. The Portfolio may not purchase a security, other than a security
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities if, as a result, more than 5% of the Portfolio's
total assets would be invested in the securities of a single issuer or
the Portfolio would own more than 10% of the outstanding voting
securities of any single issuer.
Except for the policies on borrowing and illiquid securities, the
percentage restrictions described above apply only at the time of investment and
require no action by the Portfolio as a result of subsequent changes in value of
the investments or the size of the Portfolio.
8
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MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES. The following information relates to the
principal occupations during the past five years of each Trustee and executive
officer of the Trust and shows the nature of any affiliation with SCMI. Except
as noted, each of these individuals currently serves in the same capacity for
Schroder Capital Funds (Delaware), Schroder Capital Funds II and Schroder Series
Trust, other registered investment companies in the Schroder family of funds.
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.
HON. DAVID N. DINKINS, 69, c/o the Trust, Two Portland Square, Portland, Maine,
Trustee of the Trust; Professor, Columbia University School of International and
Public Affairs; Director, American Stock Exchange, Carver Federal Savings Bank,
Transderm Laboratory Corporation, and The Cosmetic Center, Inc.; formerly,
Mayor, The City of New York.
PETER S. KNIGHT, 46, c/o the Trust, Two Portland Square, Portland, Maine,
Trustee of the Trust; Partner, Wunder, Knight, Levine, Thelen & Forcey;
Director, Comsat Corp., Medicis Pharmaceutical Corp., and Whitman Education
Group Inc., Formerly, Campaign Manager, Clinton/Gore `96.
SHARON L. HAUGH*, 51, 787 Seventh Avenue, New York, New York, Trustee of the
Trust; Chairman, Schroder Capital Management Inc. ("SCM"), Executive Vice
President and Director, SCMI; Chairman and Director, Schroder Advisors.
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.
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FERGAL CASSIDY, 28, 787 Seventh Avenue, New York, New York - Treasurer of the
Trust.
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, 37, 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; Relationship Manager and
Counsel, 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 July
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 Advisors 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. SCM is also a wholly owned
subsidiary of Schroders Incorporated.
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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 retainer of $11,000 and additional fees of $1,250 per meeting
attended in person or $500 per meeting attended by telephone. Members of an
Audit Committee for one or more of the investment companies receive an
additional $1,000 per year. Payment of the annual retainer is allocated among
the various investment companies based on their relative net assets. Payment of
meeting fees is allocated only among those investment companies to which the
meeting relates. None of the registered investment companies in the Fund Complex
has any bonus, profit sharing, pension or retirement plans.
The following table provides the fees paid to each independent Trustee
of the Trust for certain funds' fiscal year ended December 31, 1997.
<TABLE>
Pension or Total
Retirement Compensation From
Aggregate Benefits Accrued Estimated Annual Trust And Fund
Compensation From As Part of Trust Benefits Upon Complex Paid To
Name of Trustee Trust Expenses Retirement Trustees
- -------------------------------- -------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Mr. Guernsey $2,749.95 $0 $0 $4,250.00
Mr. Howell $1,983.70 $0 $0 $3,000.00
Mr. Michalis $1,759.31 $0 $0 $2,750.00
Mr. Schwab $4,733.65 $0 $0 $8,250.00
Mr. Dinkins $ 0.00 $0 $0 $11,000.00
Mr. Knight $ 785.68 $0 $0 $12,500.00
</TABLE>
* In addition to the Trust, the "Fund Complex" includes three other registered
investment companies (Schroder Capital Funds II, an open-end company; Schroder
Capital Funds (Delaware), an open-end company; and Schroder Asian Growth Fund,
Inc., a closed-end company) for which SCMI serves as investment adviser for each
series.
As of January 30, 1998, the officers and Trustees of the Trust owned, in
the aggregate, less than 1% of the Trust's outstanding shares.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 30, 1998, Schroder International 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,
holds in excess of 26% of the Portfolio's Interests and, accordingly, controls
the Portfolio.
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 invest in the
Portfolio will follow the same or a similar practice.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER. SCMI, 787 Seventh Avenue, New York, New York 10019,
serves as investment adviser to the Portfolio under an "Investment Advisory
Agreement". SCMI is a wholly owned U.S. subsidiary of Schroders Incorporated,
the wholly-owned U.S. 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 and had
funds under management of approximately $175 billion as of September 30, 1997.
11
<PAGE>
Under the Investment Advisory Agreement, 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 Agreement, 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 information that may be in its possession or in the possession of its
affiliates.
The Investment Advisory Agreement continues in effect provided such
continuance is approved annually: (1) by the vote of a majority of the
outstanding voting interests of the Portfolio or by the Board; and (2) by a
majority of the Trust's Trustees who are not parties to such contract or
"interested persons" (as defined in the 1940 Act) of any such party. The
Investment Advisory Agreement 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. The agreement
terminates automatically if assigned. The Investment Advisory Agreement 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 Agreement.
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. The Trust
has also entered into a "Subadministration Agreement" with Forum Administrative
Services, LLC ("Forum"). Under these agreements, Schroder Advisors and Forum
have agreed to 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. These services include, 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. Schroder Advisors is compensated at the annual rate of 0.15%
of the Portfolio's average daily net assets. Forum is entitled to receive from
the Portfolio a fee at the annual rate of 0.075% of the Portfolio's average
daily net assets for its services.
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 60 days' written notice to Schroder or Forum, or,
upon 60 days' notice to the Trust by Schroder or Forum.
CUSTODIAN. The Chase Manhattan Bank, through its Global Custody Division
located in London, England, acts as custodian of the Portfolio's securities and
cash.
INDEPENDENT AUDITORS. Coopers & Lybrand L.L.P., One Post Office Square,
Boston, Massachusetts 02109, serves as independent accountants for the Trust.
12
<PAGE>
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 Agreement 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.
13
<PAGE>
Subject to the general policies regarding allocation of portfolio
brokerage as set forth above, the Board has authorized SCMI to employ Schroder
Wertheim & Company, Incorporated ("Schroder Wertheim") 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 Wertheim 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 Wertheim 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 Wertheim 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 Wertheim 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 Wertheim and will not direct
brokerage to Schroder Wertheim in recognition of research services.
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
(e.g., 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
14
<PAGE>
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.
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 "Purchase of Securities" and "Redemption or
Repurchase" in Part A.
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 purposes of determining whether the investor satisfies
the requirements to qualify as a regulated investment company ("RIC") for
federal income tax purposes. 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 which 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.
Dividends and interest received by the Portfolio may be subject to
income, withholding, or other taxes imposed by foreign countries and U.S.
possessions ("foreign taxes") that would reduce the yield on its securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors. If more
than 50% of the value of a RIC investor's total assets (taking into account its
proportionate share of the Portfolio's assets) at the close of any taxable year
consists of securities of foreign corporations, the RIC investor will be
eligible to, and may, file an election with the Internal Revenue Service that
will enable its shareholders, in effect, to receive the benefit of the foreign
tax credit with respect to its proportionate share of any foreign taxes paid by
the Portfolio ("RIC investor's foreign taxes"). Pursuant to that election, the
RIC investor would treat its foreign taxes as dividends paid to its
shareholders, and each shareholder would be required to: (1) include in gross
income, and treat as paid by him, his proportionate share of the RIC investor's
foreign taxes; (2) treat his share of those taxes and of any dividend paid by
the RIC investor that represents its proportionate share of the Portfolio's
income from foreign or U.S. possessions sources as his own income from those
sources; and (3) either deduct the taxes deemed paid by him in computing his
taxable income or, alternatively, use the foregoing information in calculating
the foreign tax credit against his Federal income tax.
15
<PAGE>
The Portfolio may invest in the stock of passive foreign investment
companies ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive;
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a RIC investor will
be subject to Federal income tax on its proportionate share of a part of any
"excess distribution" received by the Portfolio on the stock of a PFIC or of any
gain on the Portfolio's disposition of the stock (collectively "PFIC income"),
plus interest thereon, even if the RIC investor distributes its share of the
PFIC income as a taxable dividend to its shareholders. The balance of the RIC
investor's share of the PFIC income will be included in its investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders.
If the Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund," then in lieu of the foregoing tax and interest
obligation, a RIC investor would be required to include in income each year its
proportionate share of the Portfolio's pro rata share of the qualified electing
fund's annual ordinary earnings and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) -- which probably would
have to be distributed by the RIC investor to satisfy certain distribution
requirements -- even if the RIC investor's share of those earnings and gain were
not received by it. In most instances it will be very difficult, if not
impossible, to make this election because of certain requirements thereof.
Pursuant to proposed regulations, open-end RIC investors, would be
entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of each
such PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).
Gains or losses: (1) from the disposition of foreign currencies; (2) on
the disposition of a debt security denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition; and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Portfolio accrues interest, dividends, or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time it
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of investment
company taxable income available to a RIC investor for distribution to its
shareholders.
The Portfolio's use of hedging strategies, such as 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 it
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from forward contracts derived by the Portfolio 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 of foreign currencies and forward contracts
thereon 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 if they are held for less than three months and are not
directly related to the Portfolio's principal business of investing in
securities (or options and futures with respect thereto).
UNDERWRITERS
Forum Financial Services, Inc., Two Portland Square, Portland, Maine
04101, serves as the Trust's placement agent. Forum receives no compensation for
such placement agent services.
CALCULATIONS OF PERFORMANCE DATA
Not applicable.
16
<PAGE>
FINANCIAL STATEMENTS
Financial Statements for the Portfolio appear below.
-------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
AS OF OCTOBER 31, 1997
STOCKS - 96.7%
SHARES VALUE US$
- - ------- ------------
DENMARK - 1.4%
COMMON STOCK
2,000 Carli Gry International AS
Consumer Durables $ 98,927
------------
FINLAND - 1.5%
COMMON STOCK
1,750 KCI Konecranes International
Machinery 66,040
1,850 The Rauma Group
Capital Equipment 34,728
------------
100,768
------------
FRANCE - 11.0%
COMMON STOCK
900 Gascogne SA
Retail 81,932
2,200 Gautier France SA
Consumer Durables 92,571
1,500 Genset SA (a)
Consumer Durables 84,825
2,200 Lapeyre SA
Materials 128,805
500 Manitou B.F. SA
Capital Equipment 64,628
1,500 Regional Airlines SA
Services 70,413
3,000 Servant Soft SA
Services 80,264
2,800 Societe Generale d'Enterprises
SA (a)
Materials 71,897
2,200 Sommer Allibert
Consumer Durables 74,531
------------
749,866
------------
GERMANY - 10.6%
COMMON STOCK
180 Buderus AG
Manufacturing 87,427
600 Jungheinrich AG
Manufacturing 94,121
700 Rhoen - Klinikum AG
Consumer Durables 67,104
PREFERRED STOCK
90 Hugo Boss AG
Consumer Durables 113,990
300 KSB AG Pfd
Capital Equipment 76,691
400 Marschollek Lautenschlaeger und
Partner AG
Finance 91,796
SHARES VALUE US$
- - ------- ------------
GERMANY (CONCLUDED)
1,900 Moebel Walther AG
Retail $ 77,272
280 Sto AG Pfd.
Materials 112,736
------------
721,137
------------
HONG KONG - 2.9%
COMMON STOCK
110,000 Chen Hsong Holdings Ltd.
Capital Equipment 42,694
57,200 HKR International Ltd.
Finance 37,741
35,000 Varitronix International Ltd.
Manufacturing 57,960
83,000 YGM Trading Ltd.
Retail 60,133
------------
198,528
------------
ITALY - 4.0%
COMMON STOCK
6,900 Brembo SpA
Consumer Durables 68,790
5,810 Gewiss SpA
Consumer Durables 113,439
4,000 Industrie Natuzzi SpA ADR
Retail 89,500
------------
271,729
------------
JAPAN - 28.1%
COMMON STOCK
5,000 Aichi Toyota Motor Co. Ltd.
Capital Equipment 54,045
14,300 Airport Facilities Co. Ltd.
Services 51,127
8,000 Amada Metrecs Co. Ltd.
Machinery 58,867
5,000 Arcland Sakamoto
Retail 43,651
11,000 Canon Copyer Sales Co.
Capital Equipment 74,998
6,000 Charle Co.
Retail 55,874
200 Chubu - Nippon Broadcast Co.
Ltd.
Services 2,994
14,000 Daidoh Ltd.
Materials 62,277
8,000 Diamond City Co.
Finance 31,928
6,000 Eiden Sakakiya Co. Ltd.
Retail 33,175
- - ------------------------------------------------------------------------------
17
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AS OF OCTOBER 31, 1997
SHARES VALUE US$
- - ------- ------------
JAPAN (CONTINUED)
3,000 Glory Ltd.
Machinery $ 49,139
11,000 Hitachi Transport System
Services 99,692
12,000 Idec Izumi
Machinery 69,344
4,000 Inaba Denkisangyo Co.
Capital Equipment 44,899
9,000 Inabata & Co.
Consumer Durables 47,069
5,000 Kansai Kosaido Co. Ltd.
Capital Equipment 47,394
5,000 Mandom Corp.
Consumer Non-Durables 46,978
6,000 Maruzen Co. Ltd.
Capital Equipment 21,950
2,000 Meiko Shokai
Capital Equipment 61,528
3,000 Mirai Industry Co. Ltd.
Manufacturing 41,407
1,000 Nagaileben Co. Ltd.
Consumer Durables 28,685
9,000 Nippon Cable System
Capital Equipment 69,219
6,000 Nishio Rent All Co.
Capital Equipment 56,872
16,000 Nissan Fire & Marine Insurance
Finance 65,851
8,000 Sanki Engineering
Capital Equipment 66,517
5,000 Santen Pharmaceutical
Consumer Durables 88,551
10,000 Sumitomo Warehouse
Services 49,638
12,000 Tachibana Shokai
Services 81,816
1,000 Tachihi Enterprise Co. Ltd.
Finance 24,279
14,000 Tokyo Soir
Retail 27,123
13,000 Toyo Shutter
Capital Equipment 46,154
3,500 Trusco Nakayama Corp.
Services 56,747
7,000 Tsubaki Nakashima Co. Ltd.
Capital Equipment 48,018
3,000 Tsutsumi Jewelry Co. Ltd.
Capital Equipment 41,906
11,000 Yodogawa Steel Works
Materials 58,626
6 Yoshinoya D & C Co. Ltd.
Retail 63,358
SHARES VALUE US$
- - ------- ------------
JAPAN (CONCLUDED)
7,000 Yushiro Chemical Industry
Materials $ 44,816
------------
1,916,512
------------
MALAYSIA - 0.6%
COMMON STOCK
28,000 Nylex (Malaysia) Berhad
Capital Equipment 15,045
26,000 Sime UEP Properties Berhad
Finance 24,060
------------
39,105
------------
NETHERLANDS - 6.3%
COMMON STOCK
6,000 BE Semiconductor Industries N.V.
(a)
Capital Equipment 89,658
6,400 ICT Automatisering N.V. (a)
Services 77,498
3,100 NBM-Amstelland N.V.
Materials 86,577
3,000 Unique International N.V.
Services 74,664
3,400 Volker Stevin N.V.
Materials 103,365
------------
431,762
------------
SINGAPORE - 0.7%
COMMON STOCK
19,000 Clipsal Industries Ltd.
Consumer Durables 49,210
------------
SWEDEN - 1.2%
COMMON STOCK
8,000 Hemkopskedjan AB (a)
Retail 82,841
------------
SWITZERLAND - 7.6%
COMMON STOCK
650 AGIE Charmilles Holding AG (a)
Capital Equipment 55,858
35 Bobst SA
Machinery 54,641
20 Gurit-Heberlein AG
Multi-Industry 63,378
5 Lindt & Spruengli AG
Consumer Non-Durables 100,258
40 SEZ Holding AG
Capital Equipment 67,889
1,000 Safra Republic Holdings SA
Finance 111,000
- - ------------------------------------------------------------------------------
18
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONCLUDED)
AS OF OCTOBER 31, 1997
SHARES VALUE US$
- - ------- ------------
SWITZERLAND (CONCLUDED)
600 TAG Heuer International SA (a)
Consumer Non-Durables $ 68,748
------------
521,772
------------
UNITED KINGDOM - 20.8%
COMMON STOCK
7,000 AEA Technology plc
Services 54,704
9,900 Bespak plc
Services 107,916
22,800 Blagden Industries plc
Services 65,001
8,000 Candover Investments plc
Finance 96,327
17,500 W. Canning plc
Materials 75,864
17,600 Devro plc
Consumer Non-Durables 109,059
15,300 Helphire Group plc (a)
Services 58,886
1,667 Lanica Trust (a) (b)
Finance 1,406
5,700 Logica plc
Services 80,774
14,300 London Clubs International plc
Services 74,702
9,800 Low & Bonar plc
Services 52,098
8,450 Oriflame International SA (b)
Services 68,020
SHARES VALUE US$
- - ------- ------------
UNITED KINGDOM (CONCLUDED)
11,700 PSD Group plc
Services $ 77,797
86,000 Rutland Trust plc
Finance 72,472
10,500 Servisair plc
Services 59,869
85,500 Taylor Nelson AGB plc
Services 102,878
16,000 Ultra Electronics Holdings plc
Manufacturing 89,351
14,300 Watmoughs Holdings plc
Services 51,080
9,100 Whatman plc
Capital Equipment 122,082
------------
1,420,286
------------
Total Investments - 96.7%
(cost $7,555,878) 6,602,443
Other Assets Less
Liabilities - 3.3% 223,108
------------
Total Net Assets - 100.0% $ 6,825,551
------------
------------
- - ------------------
(a) Non-income producing security.
(b) Valued pursuant to methodology approved by the Board of Trustees.
ADR - American Depositary Receipts
The accompanying notes are an integral part of the financial statements.
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost $ 7,555,878
Net unrealized appreciation (depreciation) (953,435)
------------
Total Investments at value 6,602,443
Cash 195,768
Receivable from investment adviser (Note 6) 30,753
Receivable for dividends, tax reclaims and interest 21,759
Organization costs, net of amortization (Note 2) 12,088
------------
Total Assets 6,862,811
------------
LIABILITIES:
Payable to administrator (Note 3) 450
Accrued expenses and other liabilities 36,810
------------
Total Liabilities 37,260
------------
Net Assets $ 6,825,551
------------
------------
COMPONENTS OF NET ASSETS:
Investors' capital $ 7,778,786
Net unrealized appreciation (depreciation) on investments (953,235)
------------
Net Assets $ 6,825,551
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - ------------------------------------------------------------------------------
19
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
November 4, 1996
(commencement of operations)
to October 31, 1997
----------------------------
<S> <C>
INVESTMENT INCOME:
Dividend income (net of foreign withholding taxes of $13,842) $ 100,427
Interest income 20,623
------------
Total Investment Income 121,050
------------
EXPENSES:
Investment advisory (Note 3) 60,033
Administration (Note 3) 10,882
Subadministration (Note 3) 5,009
Transfer agency (Note 3) 11,906
Custody 5,171
Accounting (Note 3) 59,333
Legal 374
Audit 23,900
Pricing 11,037
Trustees 538
Amortization of organization costs (Note 2) 2,770
Miscellaneous 1,056
------------
Total Expenses 192,009
Fees waived and expenses reimbursed (Note 6) (107,225)
------------
Net Expenses 84,784
------------
NET INVESTMENT INCOME (LOSS) 36,266
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on investments sold 377,721
Net realized gain (loss) on foreign currency transactions (74)
------------
Net realized gain (loss) on investments
and foreign currency transactions 377,647
------------
Net change in unrealized appreciation (depreciation) on
investments (953,435)
Net change in unrealized appreciation (depreciation) on foreign
currency transactions 200
------------
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency transactions (953,235)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS (575,588)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (539,322)
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - ------------------------------------------------------------------------------
20
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
November 4, 1996
(commencement of operations)
to October 31, 1997
----------------------------
<S> <C>
NET ASSETS, BEGINNING OF PERIOD $ --
-------------
OPERATIONS:
Net investment income (loss) 36,266
Net realized gain (loss) on investments sold 377,647
Net change in unrealized appreciation (depreciation) on investments (953,235)
-------------
Net increase (decrease) in net assets resulting from operations (539,322)
-------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Contributions 7,554,417
Withdrawals (189,544)
-------------
Net increase (decrease) in net assets from transactions in investors'
beneficial interest 7,364,873
-------------
Net increase (decrease) in net assets 6,825,551
-------------
NET ASSETS, END OF PERIOD $6,825,551
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - ------------------------------------------------------------------------------
21
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Portfolio performance for the period:
<TABLE>
<CAPTION>
For the Period
November 4, 1996
through
October 31, 1997(a)
- - ------------------------------------------------------------------------------------------------------------
<S> <C>
Ratio to Average Net Assets:
Expenses including reimbursement/waiver of fees 1.20%(b)
Expenses excluding reimbursement/waiver of fees 2.72%(b)
Net investment income including reimbursement/waiver of fees 0.51%(b)
Average Commission Rate Per Share (c) $ 0.0389
Portfolio Turnover Rate 32.30%
</TABLE>
- - ------------------
(a) The Portfolio commenced operations on November 4, 1996.
(b) Annualized.
(c) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities on which commissions are charged.
The accompanying notes are an integral part of the financial statements.
- - ------------------------------------------------------------------------------
22
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Schroder Capital Funds ('Schroder Core') was organized as a Delaware
business trust on September 7, 1995. Schroder Core, which is registered as an
open-end, managment investment company under the Investment Company Act of
1940, currently has six investment portfolios. Included in this report is
Schroder International Smaller Companies Portfolio (the 'Portfolio'), a
diversified portfolio that commenced operations on November 4, 1996. Under
the Trust Instrument, Schroder Core is authorized to issue an unlimited
number of interests without par value. Interests in the Portfolio are sold in
private placement transactions without any sales charges to qualified
investors, including open-end, management investment companies.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally
accepted accounting principles, which require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets
from operations during the fiscal period. Actual results could differ from
those estimates.
The following represent significant accounting policies of the
Portfolio:
SECURITY VALUATION
Portfolio securities listed on recognized stock exchanges are valued at
the last reported sale price on the exchange on which the securities are
principally traded. Listed securities traded on recognized stock exchanges
where last sale prices are not available are valued at the last sale price on
the proceeding trading day or at closing mid-market prices. Securities traded
in over-the-counter markets are valued at the most recent reported mid-market
price. Short-term investments having a maturity of 60 days or less are valued
at amortized cost, which approximates market value. 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 Schroder
Core's Board of Trustees. Fair valued securities represented approximately
1.05% of total investments at October 31, 1997.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date except that certain dividends from
foreign securities where the ex-dividend date may have passed are recorded as
soon as the Portfolio is informed of the ex-dividend date. Dividend income is
recorded net of withholding tax. Interest income, including amortization of
discount or premium, is recorded as earned. Identified cost of investments
sold is used to determine realized gain and loss for both financial statement
and federal income tax purposes. Foreign dividend and interest income amounts
and realized capital gain and loss are converted to U.S. dollar equivalents
using foreign exchange rates in effect at the date of the transactions.
Foreign currency amounts are translated into U.S. dollars at the mean
of the bid and asked prices of such currencies against U.S. dollars as
follows: (i) assets and liabilities at the rate of exchange at the end of the
respective period; and (ii) purchases and sales of securities and income and
expenses at the rate of exchange prevailing on the dates of such
transactions. The portion of the results of operations arising from changes
in the exchange rates and the portion due to fluctuations arising from
changes in the market prices of securities are not isolated. Such
fluctuations are included with the net realized and unrealized gain or loss
on investments.
The Portfolio may enter into forward contracts to purchase or sell
foreign currencies to protect against the effect on the U.S. dollar value of
the underlying portfolio of possible adverse movements in foreign exchange
rates. Risks associated with such contracts include the movement in value of
the foreign currency relative to the U.S. dollar and the ability of the
counterparty to perform. Fluctuations in the value of such contracts are
recorded daily as unrealized gain or loss; realized gain or loss include net
gain or loss on contracts that have terminated by settlement or by the
Portfolio entering into offsetting commitments.
- - ------------------------------------------------------------------------------
23
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
EXPENSE ALLOCATION
Schroder Core accounts separately for the assets and liabilities and
operation of each Portfolio. Expenses that are directly attributable to more
than one Portfolio are allocated among the respective Portfolios.
ORGANIZATIONAL COSTS
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight line basis over a five
year period.
NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Schroder Capital Management International Inc. ('SCMI') is the
investment adviser to the Portfolio. Pursuant to an Investment Advisory
Agreement, SCMI is entitled to receive an annual fee, payable monthly, of
0.85% of the average daily net assets of the Portfolio.
ADMINISTRATOR AND SUBADMINISTRATOR
Effective November 26, 1996 and February 1, 1997, Schroder Core, on
behalf of Portfolio, entered into Administration and Subadministration
Agreements with Schroder Fund Advisors Inc. ('Schroder Advisors') and Forum
Administrative Services, LLC ('Forum'). From November 26, 1996 through
January 31, 1997, the Portfolio had a Subadministration Agreement with Forum
Financial Services, Inc. ('FFSI') that was identical in all material terms to
the February 1, 1997 Agreement with Forum. For its services, Schroder
Advisors is entitled to receive compensation at an annual rate, payable
monthly, of 0.15% of the average daily net assets of the Portfolio. For its
services, Forum is entitled to receive compensation at an annual rate,
payable monthly, of 0.075% of the average daily net assets of the Portfolio.
TRANSFER AGENT
Forum Financial Corp.(Registered) ('FFC') serves as the Portfolio's
transfer agent and is entitled to compensation for those services from
Schroder Core with respect to the Portfolio in the amount of $12,000 per year
plus certain other fees and expenses.
OTHER SERVICE PROVIDERS
FFC also performs portfolio accounting for the Portfolio and is
entitled to compensation for those services in the amount of $60,000 per
year, plus certain amounts based upon the number and types of portfolio
transactions.
NOTE 4. PURCHASES AND SALES OF SECURITIES
The cost of securities purchased and the proceeds from sales of
securities (excluding short-term securities) for the year ended October 31,
1997 aggregated $9,392,808 and $2,214,651, respectively.
For federal income tax purposes, the tax basis of investment securities
owned as of October 31, 1997 was $7,555,878 and the net unrealized
depreciation of investment securities was $953,435. The aggregate gross
unrealized appreciation for all securities in which there was an excess of
market value over tax cost was $481,076, and the aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost over
market value was $1,434,511.
- - ------------------------------------------------------------------------------
24
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 5. FEDERAL TAXES
The Portfolio is not required to pay federal income taxes on its net
investment income and net capital gain as it is treated as a partnership for
federal income tax purposes. All interest, dividends, gain and loss of the
Portfolio are deemed to have been 'passed through' to the partners in
proportion to their holdings of the Portfolio regardless of whether such
interest, dividends or gain have been distributed by the Portfolio.
NOTE 6. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
SCMI voluntarily has waived a portion of its advisory fees and has
assumed certain expenses of the Portfolio so that its total expenses would
not exceed 1.20% of the Portfolio's average daily net assets. Schroder
Advisors, SCMI, Forum and FFC may waive voluntarily all or a portion of their
fees from time to time. For the period ended October 31, 1997, fees waived
and expenses reimbursed were as follows:
<TABLE>
<CAPTION>
WAIVED REIMBURSED
------- ----------
<S> <C> <C>
SCMI $60,033 $ 36,598
Schroder Advisors 10,594 --
</TABLE>
NOTE 7. CONCENTRATION OF RISK
The Portfolio has a relatively large concentration of portfolio
securities invested in companies domiciled in Japan and the United Kingdom.
The Portfolio may be more susceptible to political, social and economic
events adversely affecting Japanese and United Kingdom companies than
portfolios not so concentrated.
- - ------------------------------------------------------------------------------
25
<PAGE>
- - ------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
- - ------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Schroder Capital Funds and Investors of Schroder
International Smaller Companies Portfolio:
We have audited the accompanying statement of assets and liabilities of the
Schroder International Smaller Companies Portfolio (a separate portfolio of
Schroder Capital Funds), including the schedule of investments, as of October
31, 1997, and the related statement of operations, the statement of changes in
net assets and the financial highlights for the period from November 4, 1996
(commencement of operations) to October 31, 1997. These financial statements and
financial highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Schroder International Smaller Companies Portfolio as of October 31, 1997, the
results of its operations, the changes in its net assets and the financial
highlights for the period from November 4, 1996 (commencement of operations) to
October 31, 1997, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 19, 1997
26
<PAGE>
APPENDIX
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be of
high quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade
fixed-income securities. They are rated lower than the best
fixed-income securities because margins of protection may not be
as large as in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
"A" Fixed-income securities which are rated "A" possess many
favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime
in the future.
"Baa" Fixed-income securities which are rated "Baa" are considered as
medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Such fixed-income securities lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Fixed-income securities rated "Aaa", "Aa", "A" and "Baa" are
considered investment grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate, and therefore not well safeguarded during
both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
"Caa" Fixed-income securities which are rated "Caa" are of poor
standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
27
<PAGE>
"Ca" Fixed-income securities which are rated "Ca" present obligations
which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
"C" Fixed-income securities which are rated "C" are the lowest rated
class of fixed-income securities, and issues so rated can be
regarded as having extremely poor prospects of ever attaining
any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, "1",
"2", and "3" in each generic rating classification from "Aa" through "B" in its
municipal fixed-income security rating system. The modifier "1" indicates that
the security ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and a modifier "3" indicates that
the issue ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to
repay punctually promissory obligations not having an original maturity in
excess of nine months. The ratings apply to Municipal Commercial Paper as well
as taxable Commercial Paper. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers: "Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment
of short-term promissory obligations. Issuers rated "Prime-2" have a strong
capacity for repayment of short-term promissory obligations; and Issuers rated
"Prime-3" have an acceptable capacity for repayment of short-term promissory
obligations.
Issuers rated "Not Prime" do not fall within any of the Prime rating categories.
STANDARD & POOR'S RATING GROUP("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with
any rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity
to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
"A" Fixed-income securities rated "A" have a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than fixed-income securities in
higher-rated categories.
28
<PAGE>
"BBB" Fixed-income securities rated "BBB" are regarded as having an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are
considered investment grade.
"BB" Fixed-income securities rated "BB" have less near-term
vulnerability to default than other speculative grade
fixed-income securities. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or
willingness to pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability
to default but presently have the capacity to meet interest
payments and principal repayments. Adverse business, financial
or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon
favorable business, financial and economic conditions to meet
timely payments of interest and repayments of principal. In the
event of adverse business, financial or economic conditions, it
is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or
implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or
implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on which
no interest is being paid.
"NR" Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are
regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and repay principal.
"BB" indicates the least degree of speculation and "C" the
highest degree of speculation. While such fixed-income
securities will likely have some quality and protective
characteristics, these are out-weighed by large uncertainties or
major risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be
modified by the addition of a plus or minus sign to show
relative standing with the major ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The commercial paper rating is not a
recommendation to purchase or sell a security. The ratings are based upon
current information furnished by the issuer or obtained by Standard & Poor's
from other sources it considers reliable. The ratings may be changed, suspended,
or withdrawn as a result of changes in or unavailability of such information.
Ratings are graded into group categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Ratings are applicable to both
taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation "1", "2", and "3" to indicate the relative degree of safety.
29
<PAGE>
"A-1" Indicates that the degree of safety regarding timely payment is
very strong.
"A-2" Indicates capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is
not as overwhelming as for issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment.
Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
30
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Included in Part B for Schroder International Smaller Companies
Portfolio:
Audited financial statements for the fiscal period ended October 31,
1997, including: Schedule of Investments as of October 31, 1997;
Statement of Assets and Liabilities -- October 31, 1997; Statement of
Operations; Statement of Changes in Net Assets; Financial Highlights;
Notes to Financial Statements; and Report of Independent Accountants
dated December 19, 1997.
(b) Exhibits:
Note: * Indicates that the exhibit is incorporated herein by reference.
(1)* Trust Instrument of Registrant (filed as Exhibit (1) to
Registrant's Initial Registration Statement filed on
November 1, 1995).
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) (a)* Investment Advisory Agreement between Registrant
and Schroder Capital Management International Inc.
("SCMI") with respect to Schroder International
Smaller Companies Portfolio and Schroder Global Asset
Allocation Portfolio (filed as Exhibit 5(b) to
Amendment No. 4 via EDGAR on March 13, 1997,
accession number 0000912057-97-008728).
(b) Investment Advisory Agreement between Registrant and
SCMI with respect to International Equity Fund and
Schroder Emerging Markets Fund Institutional
Portfolio (filed herewith).
(c) Investment Advisory Agreement between Registrant and
SCMI with respect to Schroder U.S. Smaller Companies
Portfolio and Schroder EM Core Portfolio (filed
herewith).
(d) Investment Advisory Agreement between Registrant and
SCMI with respect to Schroder Global Growth Portfolio
(filed herewith).
(6) Not required.
(7) Not applicable.
(8) Global Custody Agreement between Registrant and The Chase
Manhattan Bank, N.A. with respect to International Equity
Fund, Schroder Emerging Markets Fund Institutional Portfolio,
Schroder International Smaller Companies Portfolio, Schroder
Global Asset Allocation Portfolio, Schroder U.S. Smaller
Companies Portfolio, Schroder EM Core Portfolio, Schroder
Japan Portfolio, Schroder European Growth Portfolio, Schroder
Asian Growth Portfolio, Schroder United Kingdom Portfolio, and
Schroder Global Growth Portfolio (filed herewith).
<PAGE>
(9) (a)* Administration Agreement between Registrant and
Schroder Fund Advisors Inc. ("Schroder Advisors")
with respect to International Equity Fund, Schroder
Emerging Markets Fund Institutional Portfolio,
Schroder U.S. Smaller Companies Portfolio, Schroder
International Smaller Companies Portfolio, Schroder
EM Core Portfolio and Schroder Global Growth
Portfolio (filed as Exhibit 9(a) to Amendment No. 4
via EDGAR on March 13, 1997, accession number
0000912057-97-008728).
(b)* Subadministration Agreement between Registrant and
Forum Administrative Services, LLC 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
Amendment No. 4 via EDGAR on March 13, 1997,
accession number 0000912057-97-008728).
(c) Transfer Agency and Fund Accounting Agreement between
Registrant and Forum Financial Corp. with respect to
International Equity Fund, Schroder Emerging Markets
Fund Institutional Portfolio, Schroder International
Smaller Companies Portfolio, Schroder Global Asset
Allocation Portfolio, Schroder U.S. Smaller Companies
Portfolio, Schroder EM Core Portfolio, Schroder Japan
Portfolio, Schroder European Growth Portfolio,
Schroder Asian Growth Portfolio, Schroder United
Kingdom Portfolio, and Schroder Global Growth
Portfolio (filed herewith).
(d) Placement Agent Agreement between Registrant and
Forum Financial Services, Inc. with respect to
International Equity Fund, Schroder Emerging Markets
Fund Institutional Portfolio, Schroder International
Smaller Companies Portfolio, Schroder Global Asset
Allocation Portfolio, Schroder U.S. Smaller Companies
Portfolio, Schroder EM Core Portfolio, Schroder Japan
Portfolio, Schroder European Growth Portfolio,
Schroder Asian Growth Portfolio, Schroder United
Kingdom Portfolio, and Schroder Global Growth
Portfolio (filed herewith).
(10) Not required.
(11) Not required.
(12) Not required.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Financial Data Schedule for Schroder International Smaller
Companies Portfolio (filed herewith):
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
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ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF JANUARY 30, 1998.
Title of Class of Shares Number
of Beneficial Interest of Holders
----------------------- -----------
International Equity Fund 5
Schroder EM Core Portfolio 11
Schroder Emerging Markets Fund Institutional Portfolio 4
Schroder Global Growth Portfolio 4
Schroder International Smaller Companies Portfolio 3
Schroder U.S. Smaller Companies Portfolio 7
ITEM 27. INDEMNIFICATION.
Registrant currently holds a joint directors' and officers'/errors and
omissions insurance policy pursuant to Rule 17d-1(d)(7). Registrant is covered
under a joint 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 Registrant 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 or her 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.
Article 5 of the Registrant's Trust Instrument has been amended as of
November 30, 1995 to incorporate Section 5.6 as set forth below. This section
provides that covered trustees and officers of the Trust shall be indemnified by
purchasers of interests in series of the Trust in the circumstances and to the
extent provided for in said Section 5.6:
Section 5.6
"(a) Each Holder of an Interest shall indemnify and hold harmless the
Trust and each Covered Person against any losses, claims, damages or
liabilities, joint or several, to which the Trust or such Covered
Person may become subject, under the 1933 Act or otherwise,
specifically including, but not limited to losses, claims, damages or
liabilities related to negligence on the part of the Trust or any
Covered Person, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
Misstatement in a Holder Statement; and agrees to reimburse the Trust
and each Covered Person for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however that the
Holder of an Interest shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any Misstatement made in such Holder Statement in
reliance upon and in conformity with written information furnished to
such Holder by the Trust or such Covered Person for use in the
preparation thereof. The foregoing proviso shall not apply to exculpate
a Holder under this Section 5.6(a) with respect to any losses, claims,
damages or liabilities to which the Trust or any such Covered Person
may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any Misstatement in any Holder Statement or portion thereof of
such Holder, if such Misstatement only relates to: (1) any investment
company or series thereof that does not and does not propose, as of the
time the Misstatement is made, to invest all or a portion of its assets
in a Series of the Trust or (2) to an offering of securities (as
defined under the 1933 Act) of such Holder or its affiliates the
proceeds from which are not and are not proposed, as of the time the
Misstatement is made, to be invested in a Series of the Trust.
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"The indemnity provisions of this Section 5.6(a) shall inure to the
benefit of each person, if any, who controls the Trust or any Covered
Person within the meaning of the 1933 Act.
"(b) The Trust shall indemnify and hold harmless each Holder against
any losses, claims, damages or liabilities, joint or several, to which
such Holder may become subject under the 1933 Act or otherwise,
specifically including but not limited to losses, claims, damages or
liabilities (or actions in respect thereof) which arise out of or are
based upon any Misstatement in the Holder Statement of such Holder, in
each case to the extent, but only to the extent, that such Misstatement
was made in reliance upon and in conformity with written information
furnished to such Holder by the Trust for inclusion therein, and will
reimburse such Holder for any legal or other expenses reasonably
incurred by such Holder in connection with investigating or defending
any such loss, claim, damage, liability or action.
"This indemnity provision in this Section 5.6(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
officer and director of each Holder and each person, if any, who
controls such Holder within the meaning of the 1933 Act.
"(c) Promptly after receipt by an indemnified party under this Section
5.6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under Section 5.6(a) or 5.6(b), notify the
indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
under Section 5.6(a) or 5.6(b). In case any such action is brought
against any indemnified party, and it notified the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include
both the indemnified parties and the indemnifying party and the
indemnified party shall have reasonably concluded that there are legal
defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying
party and that as a result thereof, the indemnified party shall
reasonably conclude that it is inadvisable for it to be represented by
counsel for the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense of such action
and approval by the indemnified party of counsel (or the unreasonable
withholding of such approval), the indemnifying party will not be
liable to such indemnified party under Section 5.6(a) or 5.6(b) for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof unless: (1) the indemnified
party shall have employed separate counsel in accordance with the
proviso to the immediately preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel approved by the indemnifying
party, representing all the indemnified parties under Section 5.6(a) or
5.6(b) hereof who are parties to such action); (2) the indemnifying
party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action; or (3) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid
in settlement of any action unless the indemnifying party shall
approved the terms of such settlement; provided, however, that such
consent shall not be unreasonably withheld or delayed.
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<PAGE>
"(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to Section
5.6(a) or 5.6(b) but is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case
notwithstanding the fact that Section 5.6(a) or 5.6(b) provides for
indemnification in such case, all the parties hereto shall contribute
to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so
that,
(i) if such losses, claims, damages or liabilities arise out of or are
based upon a Misstatement described in the final sentence of Section
5.6(a), the Holder shall contribute the entire amount of such claims,
damages or liabilities; and
(ii) in all other circumstances, (A) the Holder and (B) the Trust and
the Covered Persons shall contribute to such claims, damages and
liabilities based on their respective fault or negligence with respect
to such Misstatement, as determined by arbitration according to the
procedural and substantive rules of the American Arbitration
Association; provided, however, that no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to a contribution from any person who is not guilty
of such fraudulent misrepresentation.
"(e) For purposes of this Section 5.6, the following terms shall
have the following meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Holder Statement" shall mean any registration statement or prospectus,
as such terms are defined under the 1933 Act, or any other material or
information, written or oral, distributed or communicated to
shareholders or partners, or prospective shareholders or partners, of a
Holder by or at the direction of such Holder, including, without
limitation, proxies and proxy statements, as such terms are defined
under the 1940 Act and the Exchange Act.
"Misstatement" shall mean, with respect to any Holder Statement, any
untrue statement or alleged untrue statement of any material fact, or
any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading.
"1933 Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"(f) The provisions of this Section 5.6 shall apply to each Holder
effective on the date such Holder becomes a shareholder of the Trust
and shall survive after such Holder no longer holds an interest in the
Trust."
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, Schroder Fund Advisors Inc., Registrant has
5
<PAGE>
agreed to indemnify: (1) Schroder Fund Advisors, Inc. and Forum Financial
Services, Inc. in the Administration and Subadministration Agreements,
respectively; (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."), a United Kingdom affiliate of SCMI, provides investment management
services to international clients located principally in the United Kingdom.
David M. Salisbury. Chief Executive Officer, Director and Chairman;
Joint Chief Executive and Director of Schroder.
Richard R. Foulkes. Senior Vice President and Managing Director.
John A. Troiano. Managing Director and Senior Vice President; Director
of Schroder Ltd.
David Gibson. Senior Vice President and Director; Director of Schroder
Wertheim Investment Services Inc.
John S. Ager. Senior Vice President and Director.
Sharon L. Haugh. Senior Vice President and Director; Director and
Chairman of Schroder Advisors.
Gavin D.L. Ralston. Senior Vice President and Director.
Mark J. Smith. Senior Vice President and Director.
Robert G. Davy. Senior Vice President; 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; Director of
Schroder Advisors Inc.; Director of Schroder Wertheim Investment
Services, Inc.
C. John Govett. Director; Group Managing Director of Schroder
Investment Management Ltd. And Director of Schroders plc.
Phillipa J. Gould. Senior Vice President and Director.
Louise Croset. First Vice President and Director.
Abdallah Nauphal. Group Vice President and Director.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Forum Financial Services, Inc. is the Registrant's placement
agent. Registrant has no underwriters.
(b) Inapplicable.
(c) Inapplicable.
6
<PAGE>
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, LLC and its affiliates, Two
Portland Square, Portland, Maine 04101. 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 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 1940 Act,
except to the extent such provisions are mandatory or prohibited under
applicable Delaware law.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Amendment to its 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 10th day of February, 1998.
SCHRODER CAPITAL FUNDS
By: /s/ Catherine A. Mazza
-------------------------
Catherine A. Mazza
Vice President
<PAGE>
Index to Exhibits
Exhibit
5(b) Investment Advisory Agreement between Registrant SCMI with respect to
International Equity Fund and Schroder Emerging Markets Fund Institutional
Portfolio.
5(c) Investment Advisory Agreement between Registrant SCMI with respect to
Schroder U.S. Smaller Companies Portfolio and Schroder EM Core Portfolio.
5(d) Investment Advisory Agreement between Registrant SCMI with respect to
Schroder Global Growth Portfolio.
(8) Global Custody Agreement between Registrant and The Chase Manhattan Bank,
N.A. with respect to International Equity Fund, Schroder Emerging Markets
Fund Institutional Portfolio, Schroder International Smaller Companies
Portfolio, Schroder Global Asset Allocation Portfolio, Schroder U.S.
Smaller Companies Portfolio, Schroder EM Core Portfolio, Schroder Japan
Portfolio, Schroder European Growth Portfolio, Schroder Asian Growth
Portfolio, Schroder United Kingdom Portfolio, and Schroder Global Growth
Portfolio.
9(c) Transfer Agency and Fund Accounting Agreement between Registrant and Forum
Financial Corp. with respect to International Equity Fund, Schroder
Emerging Markets Fund Institutional Portfolio, Schroder International
Smaller Companies Portfolio, Schroder Global Asset Allocation Portfolio,
Schroder U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio,
Schroder Japan Portfolio, Schroder European Growth Portfolio, Schroder
Asian Growth Portfolio, Schroder United Kingdom Portfolio, and Schroder
Global Growth Portfolio.
9(d) Placement Agent Agreement between Registrant and Forum Financial Services,
Inc. with respect to International Equity Fund, Schroder Emerging Markets
Fund Institutional Portfolio, Schroder International Smaller Companies
Portfolio, Schroder Global Asset Allocation Portfolio, Schroder U.S.
Smaller Companies Portfolio, Schroder EM Core Portfolio, Schroder Japan
Portfolio, Schroder European Growth Portfolio, Schroder Asian Growth
Portfolio, Schroder United Kingdom Portfolio, and Schroder Global Growth
Portfolio.
17 Financial Data Schedule
<PAGE>
<PAGE>
EXHIBIT 5(b)
SCHRODER CAPITAL FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 13th day of September, 1995, between Schroder
Capital Funds (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Schroder Capital Management International Inc. (the
"Adviser"), a corporation organized under the laws of the State of New York with
its principal place of business at One State Street, New York, New York.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series;
WHEREAS, the Adviser provides investment advice and is registered with
the Securities and Exchange Commission (the "SEC") as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is registered with the United Kingdom Investment Management Regulatory
Organization ("IMRO");
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for each series listed in Appendix A (each a "Portfolio," and
collectively the "Portfolios"), and the Adviser is willing to provide those
services on the terms and conditions set forth in this Agreement; and
WHEREAS, the Adviser is willing to render such investment advisory
services to the Portfolios;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument and Registration Statement filed with the
Securities and Exchange Commission (the "Commission") under the Act, as may be
supplemented from time to time, all in such manner and to such extent as may
from time to time be authorized by the Trust's Board of Trustees (the "Board").
The Trust is currently authorized to issue two series of interests, and the
Trust is authorized to issue interests in any number of additional series upon
approval of the Board. The Trust has delivered to the Adviser copies of the
Trust's Trust Instrument and Registration Statement and will from time to time
furnish Adviser with any amendments thereof.
<PAGE>
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs Adviser, subject to the direction and control
of the Board, to manage the investment and reinvestment of the assets in each
Portfolio and, without limiting the generality of the foregoing, to provide
other services specified in Section 3 hereof.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser shall make decisions with respect to all purchases and
sales of securities and other investment assets in the Portfolios. To carry out
such decisions, the Adviser is hereby authorized, as agent and attorney-in-fact
for the Trust, for the account of, at the risk of and in the name of the Trust,
to place orders and issue instructions with respect to those transactions of the
Portfolios. In all purchases, sales and other transactions in securities for the
Portfolios, the Adviser is authorized to exercise full discretion and act for
the Trust in the same manner and with the same force and effect as the Trust
might or could do with respect to such purchases, sales or other transactions,
as well as with respect to all other things necessary or incidental to the
furtherance or conduct of such purchases, sales or other transactions.
(b) The Adviser will report to the Board at each meeting thereof all
changes in the Portfolios since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Portfolios and the
Adviser, and on its own initiative, will furnish the Board from time to time
with such information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included in a
Portfolio's holdings, the industries in which they engage, or the economic,
social or political conditions prevailing in each country in which the Portfolio
maintains investments. The Adviser will also furnish the Board with such
statistical and analytical information with respect to securities in the
Portfolios as the Adviser may believe appropriate or as the Board reasonably may
request. In making purchases and sales of securities for a Portfolio, the
Adviser will bear in mind the policies set from time to time by the Board as
well as the limitations imposed by the Trust's Trust Instrument and Registration
Statement under the Act, the limitations in the Act and in the Internal Revenue
Code of 1986, as amended, in respect of regulated investment companies and the
investment objectives, policies and restrictions of the Portfolios.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect.
(d) The Adviser shall maintain records for each Portfolio relating to
portfolio transactions and the placing and allocation of brokerage orders as are
required to be maintained by the Trust under the Act. The Adviser shall prepare
and maintain, or cause to be prepared and maintained, in such form, for such
periods and in such locations as may be required by applicable law, all
documents and records relating to the services provided by the Adviser pursuant
to this Agreement required to be prepared and maintained by the Trust pursuant
to the rules and regulations of any national, state, or local government entity
with jurisdiction over the Trust,
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<PAGE>
including the Commission and the Internal Revenue Service. The books and records
pertaining to the Trust that are in possession of the Adviser shall be the
property of the Trust. The Trust, or the Trust's authorized representatives,
shall have access to such books and records at all times during the Adviser's
normal business hours. Upon the reasonable request of the Trust, copies of any
such books and records shall be provided promptly by the Adviser to the Trust or
the Trust's authorized representatives.
SECTION 4. EXPENSES
The Trust hereby confirms that the Trust shall be responsible and shall
assume the obligation for payment of all the Trust's expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian and
transfer agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of the Trust's formation and maintaining its existence; costs of
preparing the Trust's registration statement, account application forms and
interestholder reports and delivering them to existing and prospective
interestholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of interests in the Trust; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and costs
of other personnel performing services for the Trust who are not officers of the
Adviser or of Schroder Fund Advisors Inc. or affiliated persons of either; costs
of Trust meetings; registration fees and related expenses for registration with
the Commission and the securities regulatory authorities of other countries in
which the Trust's interests are sold; state securities law registration fees and
related expenses; and fees and out-of-pocket expenses payable to Schroder Fund
Advisors Inc. under any placement agent, management or similar agreement.
SECTION 5. STANDARD OF CARE
(a) The Trust shall expect of the Adviser, and the Adviser will give
the Trust the benefit of, the Adviser's best judgment and efforts in rendering
its services to the Trust, and as an inducement to the Adviser's undertaking
these services the Adviser shall not be liable hereunder for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing herein shall be deemed to protect, or purport to protect, the
Adviser against any liability to the Trust or to the Trust's interestholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties
hereunder, or by reason of the Adviser's reckless disregard of its obligations
and duties hereunder. As used in this Section 5, the term "Adviser" shall
include any affiliates of the Adviser performing services for the Portfolios
contemplated hereby and directors, officers and employees of the Adviser as well
as the Adviser itself.
(b) The Adviser shall not be liable for any losses caused by
disturbances of its operations by virtue of force majeure, war, riot, or damage
caused by nature or due to other events for which the Adviser is not responsible
(e.g., strike, lock-out or losses caused by the imposition of foreign exchange
controls, expropriation of assets or other acts of domestic or foreign
authorities) except under the circumstances provided for in Section 5(a).
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The presence of exculpatory language in this Agreement shall not in any
way limit or be deemed by anyone to limit the Trust, the Trustees of the Trust,
the Portfolios, the Adviser, or any other party appointed pursuant to this
Agreement, including without limitation any custodian, as in any way limiting
causes of action and remedies which may, notwithstanding such language, be
available to the Trust, the Trustees of the Trust, Portfolios or any other party
appointed pursuant to this Agreement, either under common law or statutory law
principles applicable to fiduciary relationships or under the Federal securities
laws.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to the average daily net assets of each of the Portfolios, a fee at
an annual rate as listed in Appendix A hereto. Such fees shall be accrued by the
Trust daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed hereunder during the prior calendar month.
SECTION 7. EFFECTIVENESS, DURATION, AND TERMINATION
(a) This Agreement shall become effective with respect to a Portfolio
immediately upon approval by a majority of the outstanding voting interests of
that Portfolio.
(b) This Agreement shall remain in effect with respect to a Portfolio
for a period of two years from the date of its effectiveness and shall continue
in effect for successive twelve-month periods (computed from each anniversary
date of the approval) with respect to the Portfolio; provided that such
continuance is specifically approved at least annually (i) by the Board or by
the vote of a majority of the outstanding voting interests of the Portfolio,
and, in either case, (ii) by a majority of the Trust's trustees who are not
parties to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if this Agreement or the
continuation of this Agreement is not approved as to a Portfolio, the Adviser
may continue to render to that Portfolio the services described herein in the
manner and to the extent permitted by the Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated with respect to a Portfolio at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting interests of a Portfolio on 60 days' written
notice to the Adviser or (ii) by the Adviser on 60 days' written notice to the
Trust. This agreement shall terminate upon assignment.
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or
4
<PAGE>
dissimilar nature, or to render services of any kind to any other corporation,
trust, firm, individual or association. It is specifically understood that
officers, directors and employees of the Adviser and its affiliates may continue
to engage in providing portfolio management services and advice to other
investment companies, whether or not registered, and to other investment
advisory clients. When other clients of the Adviser desire to purchase or sell a
security at the same time such security is purchased or sold for the Portfolios,
such purchases and sales will, to the extent feasible, be allocated among the
Portfolios and such clients in a manner believed by the Adviser to be equitable
to the Portfolios and such clients.
SECTION 9. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees or officers of the Trust and the interestholders of the
Portfolios shall not be liable for any obligations of the Trust or of the
Portfolios under this Agreement, and the Adviser agrees that, in asserting any
rights or claims under this Agreement, it shall look only to the assets and
property of the Trust or the Portfolios to which the Adviser's rights or claims
relate in settlement of such rights or claims, and not to the Trustees or
officers of the Trust or the interestholders of the Portfolios.
SECTION 10. NOTICE
Any notice or other communication required to be given pursuant to this
Agreement shall be in writing or by telex and shall be effective upon receipt.
Notices and communications shall be given, if to the Trust, at:
Schroder Capital Funds
Two Portland Square
Portland, Maine 04101
Attention: Thomas G. Sheehan
and if to the Adviser, at:
Schroder Capital Management International Inc.
787 Seventh Avenue, 29th Floor
New York, New York 10019
Attention: Laura Luckyn-Malone
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting interests of the Portfolios thereby affected. No amendment to
this Agreement or the termination of this Agreement with respect to a Portfolio
shall effect this Agreement as it pertains to any other Portfolio.
5
<PAGE>
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Delaware.
(f) The Adviser confirms that each Portfolio is a "Non-private
Customer" as defined in the rules of IMRO.
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS
/s/ Laura E. Luckyn-Malone
Laura E. Luckyn-Malone
President
SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC.
/s/ Mark J. Smith
Mark J. Smith
Director
SCHRODER CAPITAL FUNDS
INVESTMENT ADVISORY AGREEMENT
Appendix A
Annual Fee as a % of
the Average Daily
Portfolios of the Trust Net Assets of the Portfolio
- ----------------------- ---------------------------
International Equity Fund 0.45%
Schroder Emerging Markets Fund Institutional Portfolio 1.00%
Schroder U.S. Smaller Companies Fund 0.60%
EXHIBIT 5(c)
SCHRODER CAPITAL FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 16th day of May, 1996, between Schroder Capital
Funds (the "Trust"), a business trust organized under the laws of the State of
Delaware with its principal place of business at Two Portland Square, Portland,
Maine 04101, and Schroder Capital Management International Inc. (the "Adviser"),
a corporation organized under the laws of the State of New York with its
principal place of business at One State Street, New York, New York.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series;
WHEREAS, the Adviser provides investment advice and is registered with
the Securities and Exchange Commission (the "SEC") as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is registered with the United Kingdom Investment Management Regulatory
Organization ("IMRO");
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for each series listed in Appendix A (each a "Portfolio," and
collectively the "Portfolios"), and the Adviser is willing to provide those
services on the terms and conditions set forth in this Agreement; and
WHEREAS, the Adviser is willing to render such investment advisory
services to the Portfolios;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument and Registration Statement filed with the
Securities and Exchange Commission (the "Commission") under the Act, as may be
supplemented from time to time, all in such manner and to such extent as may
from time to time be authorized by the Trust's Board of Trustees (the "Board").
The Trust is currently authorized to issue two series of interests, and the
Trust is authorized to issue interests in any number of additional series upon
approval of the Board. The Trust has delivered to the Adviser copies of the
Trust's Trust Instrument and Registration Statement and will from time to time
furnish Adviser with any amendments thereof.
<PAGE>
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs Adviser, subject to the direction and control
of the Board, to manage the investment and reinvestment of the assets in each
Portfolio and, without limiting the generality of the foregoing, to provide
other services specified in Section 3 hereof.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser shall make decisions with respect to all purchases and
sales of securities and other investment assets in the Portfolios. To carry out
such decisions, the Adviser is hereby authorized, as agent and attorney-in-fact
for the Trust, for the account of, at the risk of and in the name of the Trust,
to place orders and issue instructions with respect to those transactions of the
Portfolios. In all purchases, sales and other transactions in securities for the
Portfolios, the Adviser is authorized to exercise full discretion and act for
the Trust in the same manner and with the same force and effect as the Trust
might or could do with respect to such purchases, sales or other transactions,
as well as with respect to all other things necessary or incidental to the
furtherance or conduct of such purchases, sales or other transactions.
(b) The Adviser will report to the Board at each meeting thereof all
changes in the Portfolios since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Portfolios and the
Adviser, and on its own initiative, will furnish the Board from time to time
with such information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included in a
Portfolio's holdings, the industries in which they engage, or the economic,
social or political conditions prevailing in each country in which the Portfolio
maintains investments. The Adviser will also furnish the Board with such
statistical and analytical information with respect to securities in the
Portfolios as the Adviser may believe appropriate or as the Board reasonably may
request. In making purchases and sales of securities for a Portfolio, the
Adviser will bear in mind the policies set from time to time by the Board as
well as the limitations imposed by the Trust's Trust Instrument and Registration
Statement under the Act, the limitations in the Act and in the Internal Revenue
Code of 1986, as amended, in respect of regulated investment companies and the
investment objectives, policies and restrictions of the Portfolios.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect.
(d) The Adviser shall maintain records for each Portfolio relating to
portfolio transactions and the placing and allocation of brokerage orders as are
required to be maintained by the Trust under the Act. The Adviser shall prepare
and maintain, or cause to be prepared and maintained, in such form, for such
periods and in such locations as may be required by applicable law, all
documents and records relating to the services provided by the Adviser pursuant
to this Agreement required to be prepared and maintained by the Trust pursuant
to the rules and regulations of any national, state, or local government entity
with jurisdiction over the Trust,
2
<PAGE>
including the Commission and the Internal Revenue Service. The books and records
pertaining to the Trust that are in possession of the Adviser shall be the
property of the Trust. The Trust, or the Trust's authorized representatives,
shall have access to such books and records at all times during the Adviser's
normal business hours. Upon the reasonable request of the Trust, copies of any
such books and records shall be provided promptly by the Adviser to the Trust or
the Trust's authorized representatives.
SECTION 4. EXPENSES
The Trust hereby confirms that the Trust shall be responsible and shall
assume the obligation for payment of all the Trust's expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian and
transfer agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of the Trust's formation and maintaining its existence; costs of
preparing the Trust's registration statement, account application forms and
interestholder reports and delivering them to existing and prospective
interestholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of interests in the Trust; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and costs
of other personnel performing services for the Trust who are not officers of the
Adviser or of Schroder Fund Advisors Inc. or affiliated persons of either; costs
of Trust meetings; registration fees and related expenses for registration with
the Commission and the securities regulatory authorities of other countries in
which the Trust's interests are sold; state securities law registration fees and
related expenses; and fees and out-of-pocket expenses payable to Schroder Fund
Advisors Inc. under any placement agent, management or similar agreement.
SECTION 5. STANDARD OF CARE
(a) The Trust shall expect of the Adviser, and the Adviser will give
the Trust the benefit of, the Adviser's best judgment and efforts in rendering
its services to the Trust, and as an inducement to the Adviser's undertaking
these services the Adviser shall not be liable hereunder for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing herein shall be deemed to protect, or purport to protect, the
Adviser against any liability to the Trust or to the Trust's interestholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties
hereunder, or by reason of the Adviser's reckless disregard of its obligations
and duties hereunder. As used in this Section 5, the term "Adviser" shall
include any affiliates of the Adviser performing services for the Portfolios
contemplated hereby and directors, officers and employees of the Adviser as well
as the Adviser itself.
(b) The Adviser shall not be liable for any losses caused by
disturbances of its operations by virtue of force majeure, war, riot, or damage
caused by nature or due to other events for which the Adviser is not responsible
(e.g., strike, lock-out or losses caused by the imposition of foreign exchange
controls, expropriation of assets or other acts of domestic or foreign
authorities) except under the circumstances provided for in Section 5(a).
3
<PAGE>
The presence of exculpatory language in this Agreement shall not in any
way limit or be deemed by anyone to limit the Trust, the Trustees of the Trust,
the Portfolios, the Adviser, or any other party appointed pursuant to this
Agreement, including without limitation any custodian, as in any way limiting
causes of action and remedies which may, notwithstanding such language, be
available to the Trust, the Trustees of the Trust, Portfolios or any other party
appointed pursuant to this Agreement, either under common law or statutory law
principles applicable to fiduciary relationships or under the Federal securities
laws.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to the average daily net assets of each of the Portfolios, a fee at
an annual rate as listed in Appendix A hereto. Such fees shall be accrued by the
Trust daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed hereunder during the prior calendar month.
SECTION 7. EFFECTIVENESS, DURATION, AND TERMINATION
(a) This Agreement shall become effective with respect to a Portfolio
immediately upon approval by a majority of the outstanding voting interests of
that Portfolio.
(b) This Agreement shall remain in effect with respect to a Portfolio
for a period of two years from the date of its effectiveness and shall continue
in effect for successive twelve-month periods (computed from each anniversary
date of the approval) with respect to the Portfolio; provided that such
continuance is specifically approved at least annually (i) by the Board or by
the vote of a majority of the outstanding voting interests of the Portfolio,
and, in either case, (ii) by a majority of the Trust's trustees who are not
parties to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if this Agreement or the
continuation of this Agreement is not approved as to a Portfolio, the Adviser
may continue to render to that Portfolio the services described herein in the
manner and to the extent permitted by the Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated with respect to a Portfolio at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting interests of a Portfolio on 60 days' written
notice to the Adviser or (ii) by the Adviser on 60 days' written notice to the
Trust. This agreement shall terminate upon assignment.
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or
4
<PAGE>
dissimilar nature, or to render services of any kind to any other corporation,
trust, firm, individual or association. It is specifically understood that
officers, directors and employees of the Adviser and its affiliates may continue
to engage in providing portfolio management services and advice to other
investment companies, whether or not registered, and to other investment
advisory clients. When other clients of the Adviser desire to purchase or sell a
security at the same time such security is purchased or sold for the Portfolios,
such purchases and sales will, to the extent feasible, be allocated among the
Portfolios and such clients in a manner believed by the Adviser to be equitable
to the Portfolios and such clients.
SECTION 9. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees or officers of the Trust and the interestholders of the
Portfolios shall not be liable for any obligations of the Trust or of the
Portfolios under this Agreement, and the Adviser agrees that, in asserting any
rights or claims under this Agreement, it shall look only to the assets and
property of the Trust or the Portfolios to which the Adviser's rights or claims
relate in settlement of such rights or claims, and not to the Trustees or
officers of the Trust or the interestholders of the Portfolios.
SECTION 10. NOTICE
Any notice or other communication required to be given pursuant to this
Agreement shall be in writing or by telex and shall be effective upon receipt.
Notices and communications shall be given, if to the Trust, at:
Schroder Capital Funds
Two Portland Square
Portland, Maine 04101
Attention: Thomas G. Sheehan
and if to the Adviser, at:
Schroder Capital Management International Inc.
787 Seventh Avenue, 29th Floor
New York, New York 10019
Attention: Laura Luckyn-Malone
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting interests of the Portfolios thereby affected. No amendment to
this Agreement or the termination of this Agreement with respect to a Portfolio
shall effect this Agreement as it pertains to any other Portfolio.
5
<PAGE>
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Delaware.
(f) The Adviser confirms that each Portfolio is a "Non-private
Customer" as defined in the rules of IMRO.
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS
/s/ Laura E. Luckyn-Malone
--------------------------
Laura E. Luckyn-Malone
President
SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC.
/s/ Mark J. Smith
---------------------------
Mark J. Smith
Director
<PAGE>
Schroder Capital Funds
Investment Advisory Agreement
Appendix A
Portfolios of the Trust
- --------------------------------------------------------------------------------
ANNUAL FEE AS A % OF THE AVERAGE
PORTFOLIOS DAILY NET ASSETS OF THE PORTFOLIO
- --------------------------------------------------------------------------------
AS OF MAY 16, 1996
Schroder U.S. Smaller Companies Portfolio 0.60%
AS OF NOVEMBER 26, 1996
Schroder EM Core Portfolio 1.00%
- --------------------------------------------- ----------------------------------
EXHIBIT 5(d)
SCHRODER CAPITAL FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 18th day of September, 1997, between Schroder
Capital Funds (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Schroder Capital Management International Inc. (the
"Adviser"), a corporation organized under the laws of the State of New York with
its principal place of business at One State Street, New York, New York.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series;
WHEREAS, the Adviser provides investment advice and is registered with
the Securities and Exchange Commission (the "SEC") as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is registered with the United Kingdom Investment Management Regulatory
Organization ("IMRO");
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for Schroder Global Growth Portfolio (the "Portfolio"), and the Adviser
is willing to provide those services on the terms and conditions set forth in
this Agreement; and
WHEREAS, the Adviser is willing to render such investment advisory
services to the Portfolios;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument and Registration Statement filed with the
Securities and Exchange Commission (the "Commission") under the Act, as may be
supplemented from time to time, all in such manner and to such extent as may
from time to time be authorized by the Trust's Board of Trustees (the "Board").
The Trust is currently authorized to issue four series of interests and the
Board is authorized to issue interests in any number of additional series. The
Trust has delivered to the Adviser copies of the Trust's Trust Instrument and
Registration Statement and will from time to time furnish Adviser with any
amendments thereof.
<PAGE>
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs Adviser, subject to the direction and control
of the Board, to manage the investment and reinvestment of the assets in each
Portfolio and, without limiting the generality of the foregoing, to provide
other services specified in Section 3 hereof.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser shall make decisions with respect to all purchases and
sales of securities and other investment assets in the Portfolios. To carry out
such decisions, the Adviser is hereby authorized, as agent and attorney-in-fact
for the Trust, for the account of, at the risk of and in the name of the Trust,
to place orders and issue instructions with respect to those transactions of the
Portfolios. In all purchases, sales and other transactions in securities for the
Portfolios, the Adviser is authorized to exercise full discretion and act for
the Trust in the same manner and with the same force and effect as the Trust
might or could do with respect to such purchases, sales or other transactions,
as well as with respect to all other things necessary or incidental to the
furtherance or conduct of such purchases, sales or other transactions.
(b) The Adviser will report to the Board at each meeting thereof all
changes in the Portfolios since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Portfolios and the
Adviser, and on its own initiative, will furnish the Board from time to time
with such information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included in a
Portfolio's holdings, the industries in which they engage, or the economic,
social or political conditions prevailing in each country in which the Portfolio
maintains investments. The Adviser will also furnish the Board with such
statistical and analytical information with respect to securities in the
Portfolios as the Adviser may believe appropriate or as the Board reasonably may
request. In making purchases and sales of securities for a Portfolio, the
Adviser will bear in mind the policies set from time to time by the Board as
well as the limitations imposed by the Trust's Trust Instrument and Registration
Statement under the Act, the limitations in the Act and in the Internal Revenue
Code of 1986, as amended, in respect of regulated investment companies and the
investment objectives, policies and restrictions of the Portfolios.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect.
(d) The Adviser shall maintain records for each Portfolio relating to
portfolio transactions and the placing and allocation of brokerage orders as are
required to be maintained by the Trust under the Act. The Adviser shall prepare
and maintain, or cause to be prepared and maintained, in such form, for such
periods and in such locations as may be required by applicable law, all
documents and records relating to the services provided by the Adviser pursuant
to this Agreement required to be prepared and maintained by the Trust pursuant
to the rules and regulations of any national, state, or local government entity
with jurisdiction over the Trust,
2
<PAGE>
including the Commission and the Internal Revenue Service. The books and records
pertaining to the Trust which are in possession of the Adviser shall be the
property of the Trust. The Trust, or the Trust's authorized representatives,
shall have access to such books and records at all times during the Adviser's
normal business hours. Upon the reasonable request of the Trust, copies of any
such books and records shall be provided promptly by the Adviser to the Trust or
the Trust's authorized representatives.
SECTION 4. EXPENSES
The Trust hereby confirms that the Trust shall be responsible and shall
assume the obligation for payment of all the Trust's expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian and
transfer agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of the Trust's formation and maintaining its existence; costs of
preparing the Trust's registration statement, account application forms and
interestholder reports and delivering them to existing and prospective
interestholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of interests in the Trust; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and costs
of other personnel performing services for the Trust who are not officers of the
Adviser or of Forum Financial Services, Inc. or affiliated persons of either;
costs of Trust meetings; registration fees and related expenses for registration
with the Commission and the securities regulatory authorities of other countries
in which the Trust's interests are sold; state securities law registration fees
and related expenses; and fees and out-of-pocket expenses payable to Forum
Financial Services, Inc. under any placement agent, management or similar
agreement.
SECTION 5. STANDARD OF CARE
(a) The Trust shall expect of the Adviser, and the Adviser will give
the Trust the benefit of, the Adviser's best judgment and efforts in rendering
its services to the Trust, and as an inducement to the Adviser's undertaking
these services the Adviser shall not be liable hereunder for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing herein shall be deemed to protect, or purport to protect, the
Adviser against any liability to the Trust or to the Trust's interestholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties
hereunder, or by reason of the Adviser's reckless disregard of its obligations
and duties hereunder. As used in this Section 5, the term "Adviser" shall
include any affiliates of the Adviser performing services for the Portfolios
contemplated hereby and directors, officers and employees of the Adviser as well
as the Adviser itself.
(b) The Adviser shall not be liable for any losses caused by
disturbances of its operations by virtue of force majeure, war, riot, or damage
caused by nature or due to other events for which the Adviser is not responsible
(e.g., strike, lock-out or losses caused by the imposition of foreign exchange
controls, expropriation of assets or other acts of domestic or foreign
authorities) except under the circumstances provided for in Section 5(a).
3
<PAGE>
The presence of exculpatory language in this Agreement shall not in any
way limit or be deemed by anyone to limit the Trust, the Trustees of the Trust,
the Portfolios, the Adviser, or any other party appointed pursuant to this
Agreement, including without limitation any custodian, as in any way limiting
causes of action and remedies which may, notwithstanding such language, be
available to the Trust, the Trustees of the Trust, Portfolios or any other party
appointed pursuant to this Agreement, either under common law or statutory law
principles applicable to fiduciary relationships or under the Federal securities
laws.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to each of the Portfolios, a fee at an annual rate as listed in
Appendix A hereto. Such fees shall be accrued by the Trust based on average
daily net assets and shall be payable monthly in arrears on the first day of
each calendar month for services performed hereunder during the prior calendar
month.
SECTION 7. EFFECTIVENESS, DURATION, AND TERMINATION
(a) This Agreement shall become effective with respect to a Portfolio
immediately upon approval by a majority of the outstanding voting interests of
that Portfolio.
(b) This Agreement shall remain in effect with respect to a Portfolio
for a period of two years from the date of its effectiveness and shall continue
in effect for successive twelve-month periods (computed from each anniversary
date of the approval) with respect to the Portfolio, provided that such
continuance is specifically approved at least annually (i) by the Board or by
the vote of a majority of the outstanding voting interests of the Portfolio,
and, in either case, (ii) by a majority of the Trust's trustees who are not
parties to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if this Agreement or the
continuation of this Agreement is not approved as to a Portfolio, the Adviser
may continue to render to that Portfolio the services described herein in the
manner and to the extent permitted by the Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated with respect to a Portfolio at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting interests of a Portfolio on 60 days' written
notice to the Adviser or (ii) by the Adviser on 60 days' written notice to the
Trust. This agreement shall terminate upon assignment.
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm,
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individual or association. It is specifically understood that officers,
directors and employees of the Adviser and its affiliates may continue to engage
in providing portfolio management services and advice to other investment
companies, whether or not registered, and to other investment advisory clients.
When other clients of the Adviser desire to purchase or sell a security at the
same time such security is purchased or sold for the Portfolios, such purchases
and sales will, to the extent feasible, be allocated among the Portfolios and
such clients in a manner believed by the Adviser to be equitable to the
Portfolios and such clients.
SECTION 9. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the interestholders of the Portfolios
shall not be liable for any obligations of the Trust or of the Portfolios under
this Agreement, and the Adviser agrees that, in asserting any rights or claims
under this Agreement, it shall look only to the assets and property of the Trust
or the Portfolios to which the Adviser's rights or claims relate in settlement
of such rights or claims, and not to the Trustees of the Trust or the
interestholders of the Portfolios.
SECTION 10. NOTICE
Any notice or other communication required to be given pursuant to this
Agreement shall be in writing or by telex and shall be effective upon receipt.
Notices and communications shall be given, if to the Trust, at:
Schroder Capital Funds
Two Portland Square
Portland, Maine 04101
Attention: Thomas G. Sheehan
and if to the Adviser, at:
Schroder Capital Management International Inc.
787 Seventh Avenue, 29th Floor
New York, New York 10019
Attention: Catherine Mazza
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting interests of the Portfolios thereby affected. No amendment to
this Agreement or the termination of this Agreement with respect to a Portfolio
shall effect this Agreement as it pertains to any other Portfolio.
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(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Delaware.
(f) The Adviser confirms that each Portfolio is a "Non-private
Customer" as defined in the rules of IMRO.
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS
/s/ Laura E. Luckyn-Malone
--------------------------
Laura E. Luckyn-Malone
President
SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC.
/s/ David Gibson
---------------------------
David Gibson
Senior Vice President and
Director
<PAGE>
SCHRODER CAPITAL FUNDS
INVESTMENT ADVISORY AGREEMENT
Appendix A
Annual Fee as a % of
the Average Daily
Portfolios of the Trust Net Assets of the Portfolio
Schroder Global Growth Portfolio 0.50%
<PAGE>
EXHIBIT 8
SCHRODER CAPITAL FUNDS
Global Custody Agreement
AGREEMENT, dated as of September 13, 1995 between The Chase Manhattan
Bank, N.A. (the "Bank") and Schroder Capital Funds. (the "Customer") on behalf
of each series of the Customer listed in Schedule A hereto (each series, a
"Fund").
SECTION 1. CUSTOMER ACCOUNTS
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody
Account") for any and all stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment of
money, bullion, coin and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any
other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by
the Bank or its Subcustodian (as defined in Section 3) for the
account of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit
Account") for any and all cash in any currency received by the
Bank or its Subcustodian for the account of the Customer,
which cash shall not be subject to withdrawal by draft or
check.
The Customer warrants its authority to: 1) deposit the cash and
Securities("Assets") received in the Accounts and 2) give Instructions (as
defined in Section 11) concerning the Accounts. The Bank may deliver securities
of the same class in place of those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
SECTION 2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction
in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment
or where such Securities are acquired; and
<PAGE>
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is
the legal currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balances on deposit for
the Customer with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as the Customer may direct, if acceptable to the Bank.
If the Customer wishes to have any of its Assets held in the custody of
an institution other than the established Subcustodians as defined in Section 3
(or their securities depositories), such arrangement must be authorized by a
written agreement, signed by the Bank and the Customer.
SECTION 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES
The Bank may act under this Agreement through the Subcustodians listed
in Schedule B of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank to
hold Assets in the Accounts in accounts which the Bank has established with one
or more of its branches or Subcustodians. The Bank and Subcustodians are
authorized to hold any of the Securities in their account with any securities
depository in which they participate.
The Bank reserves the right to add new, replace or remove
Subcustodians. The Customer will be given reasonable notice by the Bank of any
amendment to Schedule B. Upon request by the Customer, the Bank will identify
the name, address and principal place of business of any Subcustodian of the
Customer's Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined
in Rule 17f-5 under the Act;
(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company incorporated or organized under the laws of a
country other than the United States that is regulated as such by
that country's government or an agency thereof and that has
shareholders' equity in excess of $200 million in U.S. currency
(or a foreign currency equivalent thereof), (ii) a majority owned
direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws
of a country other than the United States and that has
shareholders' equity in excess of $100 million in U.S. currency
(or a foreign
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currency equivalent thereof) (iii) a banking
institution or trust company incorporated or organized under the
laws of a country other than the United States or a majority
owned direct or indirect subsidiary of a qualified U.S. bank or
bank holding company that is incorporated or organized under the
laws of a country other than the United States which has such
other qualifications as shall be specified in Instructions and
approved by the Bank; or (iv) any other entity that shall have
been so qualified by exemptive order, rule or other appropriate
action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under
the laws of a country other than the United States, which
operates (i) the central system for handling securities or
equivalent book-entries in that country, or (ii) a transnational
system for the central handling of securities or equivalent
book-entries.
The Customer represents that its Board of Trustees has approved each of
the Subcustodians listed in Schedule B to this Agreement and the terms of the
subcustody agreements between the Bank and each Subcustodian, which are attached
as Exhibits I through ___ of Schedule B, and further represents that its Board
has determined that the use of each Subcustodian and the terms of each
subcustody agreement are consistent with the best interests of the Fund(s) and
its (their) shareholders. The Bank will supply the Customer with any amendment
to Schedule B for approval. The Customer has supplied or will supply the Bank
with certified copies of its Board of Trustees resolutions(s) with respect to
the foregoing prior to placing Assets with any Subcustodian so approved.
SECTION 4. USE OF SUBCUSTODIAN
(a) The Bank will identify such Assets on its books as belonging to
the Customer.
(b) A Subcustodian will hold such Assets together with assets
belonging to other customers of the Bank in accounts identified
on such Subcustodian's books as special custody accounts for the
exclusive benefit of customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities
held in a securities depository for the account of a Subcustodian
will be subject only to the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for
holding its customer's assets shall provide that such assets will
not be subject to any right, charge, security interest, lien or
claim of any kind in favor of such Subcustodian except for safe
custody or administration, and that the beneficial ownership of
such assets will be freely transferable without the payment of
money or value other than for safe custody or administration. The
foregoing shall not apply to the extent of any special agreement
or arrangement made by the Customer with any particular
Subcustodian.
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SECTION 5. DEPOSIT ACCOUNT TRANSACTIONS
(a) The Bank or its Subcustodians will make payments from a Deposit
Account upon receipt of Instructions which include all
information required by the Bank. Instructions bust be received
from one or more Authorized Person(s) and countersigned or
confirmed in writing by one or more Authorized Person(s) who are
different than the Authorized Person(s) that originated or
drafted the Instructions.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in a Deposit Account, the Bank, in
its discretion, may advance the Customer such excess amount which
shall be deemed a loan payable on demand, bearing interest at the
rate customarily charged by the Bank on similar loans.
(c) If the Bank credits a Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to that
Deposit Account, with interest, dividends, redemptions or any
other amount due, the Customer will promptly return any such
amount upon oral or written notification: (i) that such amount
has not been received in the ordinary course of business or (ii)
that such amount was incorrectly credited. If the Customer does
not promptly return any amount upon such notification, the Bank
shall be entitled, upon oral or written notification to the
Customer, to reverse such credit by debiting the Deposit Account
for the amount previously credited. The Bank or its Subcustodian
shall have no duty or obligation to institute legal proceedings,
file a claim or a proof of claim in any insolvency proceeding or
take any other action with respect to the collection of such
amount, but may act for the Customer upon Instructions after
consultation with the Customer.
SECTION 6. CUSTODY ACCOUNT TRANSACTIONS
(a) Securities will be transferred, exchanged or delivered by the
Bank or its Subcustodian upon receipt by the Bank of Instructions
which include all information required by the Bank. Settlement
and payment for Securities received for, and delivery of
Securities out of, a Custody Account may be made in accordance
with the customary or established securities trading or
securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs,
including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery.
Delivery of Securities out of a Custody Account may also be made
in any manner specifically required by Instructions acceptable to
the Bank.
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(b) The Bank, in its discretion, may credit or debit an Account on a
contractual settlement date with cash or Securities with respect
to any sale, exchange or purchase of Securities. Otherwise, such
transactions will be credited or debited to the Account on the
date cash or Securities are actually received by the Bank and
reconciled to the Account.
(i) The Bank may reverse credits or debits made to an
Account in its discretion if the related transaction
fails to settle within a reasonable period,
determined by the Bank in its discretion, after the
contractual settlement date for the related
transaction.
(ii) If any Securities delivered pursuant to this Section
6 are returned by the recipient thereof, the Bank may
reverse the credits and debits of the particular
transaction at any time.
SECTION 7. ACTIONS OF THE BANK
The Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other
income items which call for payment upon presentation, to the
extent that the Bank or Subcustodian is actually aware of such
opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of
Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank
or any Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer sends the Bank a written exception or objection to
any Bank statement within sixty (60) days of receipt, the Customer shall be
deemed to have approved such statement. In such event, or where the Customer has
otherwise approved any such statement, the Bank shall, to the extent permitted
by law, be released, relieved and discharged with respect to all matters set
forth in such statement or reasonably implied therefrom as though it had been
settled by the decree of a court of competent jurisdiction in an action where
the Customer and all persons having or claiming an interest in the Customer or
the Customer's Accounts were parties.
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All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. The Bank shall have no liability for any loss occasioned by delay in
the actual receipt of notice by the Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Securities in the Custody Account in
respect of which the Bank has agreed to take any action under this Agreement.
SECTION 8. CORPORATE ACTIONS; PROXIES
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities (other
than a proxy), such as subscription rights, bonus issues, stock repurchase plans
and rights offerings, or legal notices or other material intended to be
transmitted to securities holders ("Corporate Actions"), the Bank will give the
Customer notice of such Corporate Actions to the extent that the Bank's central
corporate actions department has actual knowledge of a Corporate Action in time
to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person as defined in Section
10, but if Instructions are not received in time for the Bank to take timely
actions, or actual notice of such Corporate Action was received too late to seek
Instructions, the Bank is authorized to sell such rights entitlement or
fractional interest and to credit the Deposit Account with the proceeds or take
any other action it deems, in good faith, to be appropriate in which case it
shall be held harmless for any such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing. Such
proxies shall be executed in the appropriate nominee name relating to Securities
in the Custody Account registered in the name of such nominee but without
indicating the manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance with
Instructions.
SECTION 9. NOMINEES
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities depository,
as the case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising from their status as a mere record
holder of Securities in the Custody Account.
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SECTION 10. AUTHORIZED PERSONS.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer or
its designated agent that any such employee or agent is no longer an Authorized
Person.
SECTION 11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold the
Bank harmless for the failure of an Authorized Person to send such confirmation
in writing, the failure of such confirmation to conform to the telephone
instructions received or the Bank's failure to produce such confirmation at any
subsequent time. The Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall make
available to the Customer or its Authorized Persons.
Deposit Account Payments and Custody Account Transactions made pursuant
to Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is to be
made and Customer shall be solely responsible to assure that Instructions are in
accord with any limitations or restrictions applicable to the Customer by law or
as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices
as confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise
become payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment;
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(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses;
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts
borrowed;
(h) In connection with any loans, but only against receipt of
adequate collateral as specified in Instructions which shall
reflect any restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of,
the Bank, its Subcustodian or the Customer's transfer agent, such
shares to be purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer
against delivery to the Bank, its Subcustodian or the Customer's
transfer agent of such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Bank and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Customer;
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be
released only upon payment to the Bank of monies for the premium
due and a receipt for the Securities which are to be held in
escrow. Upon exercise of the option, or at expiration, the Bank
will receive from brokers the Securities previously deposited.
The Bank will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no
responsibility or liability for any such Securities which are not
returned promptly when due other than to make proper request for
such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
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(n) For other proper purposes as may be specified in Instructions
issued by an officer of the Customer which shall include a
statement of the purpose for which the delivery or payment is to
be made, the amount of the payment or specific Securities to be
delivered, the name of the person or persons to whom delivery or
payment is to be made, and a certification that the purpose is a
proper purpose under the instruments governing the Customer; and
(o) Upon the termination of this Agreement as set forth in Section
14(i).
SECTION 12. STANDARD OF CARE; LIABILITIES
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained
in Instructions which are consistent with the provisions of this
Agreement as follows:
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
Assets. The Bank shall be liable to the Customer for
any loss which shall occur as the result of the failure
of a Subcustodian to exercise reasonable care with
respect to the safekeeping of such Assets to the same
extent that the Bank would be liable to the Customer if
the Bank were holding such Assets in New York. In the
event of any loss to the Customer by reason of the
failure of the Bank or its Subcustodian to utilize
reasonable care, the Bank shall be liable to the
customer only to the extent of the Customer's direct
damages, to be determined based on the market value of
the property which is the subject of the loss at the
date of discovery of such loss and without reference to
any special conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent
which it or a Subcustodian appoints unless such
appointment was made negligently or in bad faith.
(iii)The Bank shall be indemnified by, and without
liability to the Customer for any actions taken or
omitted by the Bank whether pursuant to Instructions or
otherwise within the scope of this Agreement if such
act or omission was in good faith, without negligence.
In performing its obligations under this Agreement, the
Bank may rely on the genuineness of any document which
it believes in good faith to have been validly
executed.
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(iv) The Customer agrees to pay for and hold the Bank
harmless from any liability or loss resulting from the
imposition or assessment of any taxes or other
governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon
the advice of counsel (who may be counsel for the
Customer) on all matters and shall be without liability
for any action reasonably taken or omitted pursuant to
such advice.
(vi) The Bank need not maintain any insurance for the
benefit of the Customer.
(vii)Without limiting the foregoing, the Bank shall not be
liable for any loss which results from: 1) the general
risk of investing, or 2) investing or holding Assets in
a particular country including, but not limited to,
losses resulting from nationalization, expropriation or
other governmental actions; regulation of the banking
or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities
transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any
loss due to forces beyond their control including, but
not limited to strikes or work stoppages, acts of war
or terrorism, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall
have no duty or responsibility to:
(i) question Instructions or make any suggestions to the
Customer or an Authorized Person regarding such
Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii)advise the Customer or an Authorized Person regarding
any default in the payment of principal or income of
any security other than as provided in Section 5(c) of
this Agreement;
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(iv) evaluate or report to the Customer or an Authorized
Person regarding the financial condition of any broker,
agent or other party (except for brokers, agents other
than subcustodians or depositories or other parties
selected by the Bank, except in markets where there is
only one registered or otherwise qualified broker,
agent or other party) to which Securities are delivered
or payments are made pursuant to this Agreement; or
(v) review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as
defined in Section 10) issuing Instructions shall bear
any responsibility to review such confirmations against
Instructions issued to and statements issued by the
Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or
affiliates may have a material interest in a transaction, or
circumstances are such that the Bank may have a potential
conflict of duty or interest including the fact that the Bank or
any of its affiliates may provide brokerage services to other
customers, act as financial advisor to the issuer of Securities,
act as a lender to the issuer of Securities, act in the same
transaction as agent for more than one customer, have a material
interest in the issue of Securities, or earn profits from any of
the activities listed herein.
(d) The Bank hereby warrants to the Customer that in its opinion,
after due inquiry, the established procedures to be followed by
each of its branches, each branch of a qualified U.S. bank, each
eligible foreign custodian and each eligible foreign securities
depository holding the Customer's Securities pursuant to this
Agreement afford protection for such Securities at least equal to
that afforded by the Bank's established procedures with respect
to similar securities held by the Bank and its securities
depositories in New York.
SECTION 13. FEES AND EXPENSES
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing, together with the Bank's
reasonable out-of-pocket or incidental expenses, including, but not limited to,
legal fees. The Bank shall have a lien on and is authorized to charge any
Accounts of the Customer for any amount owing to the Bank under any provision of
this Agreement, so long as such lien does not contravene the provisions of
S.E.C. Release #40-12053, as amended from time to time. No fee shall be payable
hereunder with respect to any Fund during any period in which such Fund invests
all (or substantially all) of its investment assets in a registered, open-end
management investment company, or separate series thereof, in accordance with
section 12(d)(1)(E) under the Investment Company Act of 1940.
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SECTION 14. MISCELLANEOUS
(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration
of the Customer's trading and investment activity, the Bank is
authorized to enter into spot or forward foreign exchange
contracts with the Customer or an Authorized Person for the
Customer and may also provide foreign exchange through its
subsidiaries, affiliates or Subcustodians. Instructions,
including standing instructions, may be issued with respect to
such contracts, but the Bank may establish rules or limitations
concerning any foreign exchange facility made available. In all
cases where the Bank, its subsidiaries, affiliates or
Subcustodians enter into a foreign exchange contract related to
an Account, the terms and conditions of the then current foreign
exchange contract of the Bank, its subsidiary, affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement
shall apply to such transaction.
(b) CERTIFICATION OF RESIDENCY, ETC. The Customer certifies that it
is a resident of the United States and agrees to notify the Bank
of any changes in residency. The Bank may rely upon this
certification or the certification of such other facts as may be
required to administer the Bank's obligations under this
Agreement. The Customer will indemnify the Bank against all
losses, liability, claims or demands arising directly or
indirectly from any such certifications.
(c) ACCESS TO RECORDS. The Bank shall allow the Customer's
independent public accountant reasonable access to the records of
the Bank relating to the Assets as is required in connection with
their examination of books and records pertaining to the
customer's affairs. Subject to restrictions under applicable law,
the Bank shall also obtain an undertaking to permit the
Customer's independent public accountants reasonable access to
the records of any Subcustodian which has physical possession of
any Assets as may be required in connection with the examination
of the Customer's books and records. Upon reasonable request from
the Customer, the Bank shall furnish the Customer such reports
(or portions thereof) of the Bank's system of internal accounting
controls applicable to the Bank's duties under this Agreement.
The Bank shall endeavor to obtain and furnish the Customer with
such similar reports as it may reasonably request with respect to
each Subcustodian and securities depository holding the
Customer's assets.
(d) GOVERNING LAW; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be
assignable by either party, but shall bind the successors in
interest of the Customer and the Bank.
12
<PAGE>
(e) ENTIRE AGREEMENT; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
___ Employee Benefit Plan or other assets subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA");
X Mutual Fund assets subject to certain Securities and
---- Exchange Commission ("SEC")rules and regulations;
___ Neither of the above.
This Agreement consists exclusively of this document together with Schedule A,
Schedule B, Exhibits I-___ and the following Rider(s) [Check applicable
rider(s)]:
___ ERISA
X MUTUAL FUND
---
X SPECIAL TERMS AND CONDITIONS
---
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any respect
on the basis of any particular circumstances or in any
jurisdiction, the validity, legality and enforceability of such
provision or provisions under other circumstances or in other
jurisdictions and of the remaining provisions will not in any way
be affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no
failure or delay on the part of either party in exercising any
power or right under this Agreement operates as a waiver, nor
does any single or partial exercise of any power or right
preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party or any provision of
this Agreement, or waiver of any breach or default, is effective
unless in writing and signed by the party against whom the waiver
is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may
be required under this Agreement are to be sent to the parties at
the following addresses or such other addresses as may
subsequently be given to the other party in writing:
13
<PAGE>
Bank: The Chase Manhattan Bank, N.A.
Attention: Global Custody Division
Woolgate House, Coleman Street
London, EC2P 2HD, United Kingdom
or telex:
Customer: Schroder Capital Funds
c/o Forum Financial Services, Inc., Legal
Dept.
Two Portland Square
Portland, Maine 04101
or telex: (207) 879-6050
(i) TERMINATION. This Agreement may be terminated by the
Customer or the Bank by giving sixty (60) days written
notice to the other, provided that such notice to the Bank
shall specify the names of the persons to whom the Bank
shall deliver the assets in the Accounts. If notice of
termination is given by the Bank, the Customer shall, within
sixty (60) days following receipt of the notice, deliver to
the Bank Instructions specifying the names of the persons to
whom the Bank shall deliver the Assets. In either case, the
Bank will deliver the Assets to the persons so specified,
after deducting any amounts which the Bank determines in
good faith to be owed to it under Section 13. If within
sixty (60) days following receipt of a notice of termination
by the Bank, the Bank does not receive Instructions from the
Customer specifying the names of the persons to whom the
Bank shall deliver the Assets, the Bank, at its election,
may deliver the Assets to a bank or trust company doing
business in the State of New York to be held and disposed of
pursuant to the provisions of this Agreement, or to
Authorized Persons, or may continue to hold the Assets until
Instructions are provided to the Bank.
(j) A copy of the Trust Instrument of the Schroder Capital Funds
is on file with the Secretary of the State of Delaware and
notice is hereby given that the Agreement is not binding
upon any of the trustees, officers, or shareholders of the
Customer individually, but are binding only upon the assets
and property of the applicable Fund. The Bank agrees that no
shareholder, trustee, or officer of the Customer or any Fund
may be held personally liable or responsible for any
obligations of any fund arising out of the Agreement. With
respect to the obligations of a Fund arising out of the
Agreement, the Bank shall look for payment or satisfaction
of any claim solely to the assets and property of that Fund,
and not to the assets of any other series of the Trust.
SCHRODER CAPITAL FUNDS
On behalf of each fund
listed in Schedule A.
By: /s/ Mark J. Smith
---------------------------
Name: Mark J. Smith
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Carolyn J. Willson
---------------------------
Name: Carolyn J. Willson
Title: Vice President
<PAGE>
SCHRODER CAPITAL FUNDS
GLOBAL CUSTODY AGREEMENT
SCHEDULE A
PORTFOLIOS OF THE TRUST
- --------------------------------------------------------------------------------
PORTFOLIOS
- --------------------------------------------------------------------------------
AS OF SEPTEMBER 13, 1995
- --------------------------------------------------------------------------------
International Equity Fund
Schroder Emerging Markets Fund Institutional Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS OF MARCH 15, 1996
- --------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
Schroder Global Asset Allocation Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS OF MAY 16, 1996
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of November 26, 1996
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
Schroder Japan Portfolio
Schroder European Growth Portfolio
Schroder Asian Growth Portfolio
Schroder United Kingdom Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of September 18, 1997
- --------------------------------------------------------------------------------
Schroder Global Growth Portfolio
<PAGE>
SCHRODER CAPITAL FUNDS
Global Custody Agreement
Schedule B
(List of authorized Subcustodians)
<PAGE>
Special Terms and Conditions
These Special Terms and Conditions supplement the Agreement by and
between The Chase Manhattan Bank, N.A. (the "Bank") and Schroder
Capital Funds (the "Customer") effective September 13, 1995. To the
extent that any term or provision of the Agreement is inconsistent with
these Special Terms and Conditions, the Special Terms and Conditions
shall control.
In order to properly allocate the responsibilities of the parties, the
term "Customer" shall have the meanings designated below.
a) In the following sections of the Agreement, the term "Customer"
shall mean "each Fund":
-- Section 1(a) & (b)
-- Section 2
-- Section 4
-- Section 13, and
-- Section 14(c)
b) In the following sections of the Agreement the term "Customer"
shall refer to the Customer on behalf of a Fund.
-- Section 1; the last paragraphs
-- Section 3
-- Section 4
-- Section 5(c)
-- Section 7(b) & (e)
-- Section 7; the last paragraph
-- Section 8
-- Section 10
-- Section 11, and
-- Section 14(a) & (i)
c) In sections 9 and 12 of the Agreement, the term "Customer" shall
mean the Customer or the Fund.
EXHIBIT 9(c)
SCHRODER CAPITAL FUNDS
TRANSFER AGENCY AND FUND ACCOUNTING AGREEMENT
AGREEMENT made this 13th day of September, 1995, between Schroder
Capital Funds (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Forum Financial Corp., a corporation organized under
the laws of the State of Delaware, having its principal place of business at Two
Portland Square, Portland, Maine 04101 ("Forum").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series;
WHEREAS, the Trust desires that Forum perform interestholder and fund
accounting services for each of the portfolios of the Trust as listed in
Appendix A hereto (each a "Portfolio," and collectively the "Portfolios"), and
for other series that may be created in the future, and Forum is willing to
provide those services on the terms and conditions set forth in this Agreement;
and
WHEREAS, the Trust on behalf of each Portfolio desires to appoint Forum
as its transfer agent and fund accountant, and Forum desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. TERMS OF APPOINTMENT; DUTIES OF FORUM
(a) Subject to the terms and conditions set forth in this Agreement,
the Trust, on behalf of each Portfolio, hereby employs and appoints Forum to act
as, and Forum agrees to act as, its transfer agent and fund accountant for the
authorized and issued interests of the Trust representing interests in each of
the respective Portfolios ("Interests").
(b) Forum shall be responsible for performing as agent, as of the date
of this Agreement, the services described in Appendix B attached hereto and made
a part hereof, as said appendix may be amended from time to time.
(c) Forum shall provide additional services to the Trust on behalf of
the Portfolios which may be agreed upon in writing between the Trust and Forum.
<PAGE>
SECTION 2. FEES AND EXPENSES
(a) For its services hereunder Forum shall receive from the Trust, with
respect to each Portfolio, such transfer agency and fund accounting fees as are
listed in Appendix C attached hereto, as amended from time to time.
(b) Each Portfolio shall reimburse Forum for its ancillary costs (or
appropriate share of the costs) incurred in providing to that Portfolio any
transfer agency and fund accounting services hereunder, including but not
limited to (i) any and all forms and stationery used or specially prepared for
the purpose, (ii) postage, (iii) telephone services, (iv) bank fees, and (v)
electronic or facsimile transmission. Each Portfolio shall reimburse Forum for
all expenses and employee time attributable to any review of the Portfolio's
accounts and records by the Trust's independent public accountants or any
regulatory body outside of routine and normal periodic reviews and for all
expenses for services in connection with Forum's activities in effecting any
termination of this Agreement (except the termination of Forum for cause),
including expenses incurred by Forum to deliver the property of the Portfolio in
the possession of Forum to the Trust or other persons.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF FORUM
Forum represents and warrants to the Trust that:
(a) It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
(b) It is registered as a transfer agent under the Securities Exchange
Act of 1934, as amended ("1934 Act") and it is empowered under applicable laws
and by its Articles of Incorporation and By-Laws to enter into and perform this
Agreement.
(c) All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
(d) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants to Forum that:
(a) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(b) It is empowered under applicable laws and by its Trust Instrument
to enter into and perform this Agreement.
2
<PAGE>
(c) All proceedings required by said Trust Instrument have been taken
to authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the 1940 Act.
(e) All interests of the Portfolios, when issued, shall be validly
issued, fully paid and non-assessable.
SECTION 5. RECORDKEEPING; INSPECTION OF RECORDS
(a) Forum shall prepare and maintain in such form and in such locations
as may be required by applicable regulation all records and documents relating
to the services provided to the Trust pursuant to this Agreement required to be
prepared and maintained by Forum or the Trust pursuant to the 1940 Act, the 1934
Act and the rules and regulations of the Securities and Exchange Commission and
the Internal Revenue Service.
(b) Forum shall notify the Trust of any request or demand for the
inspection of the Trust's interestholder records. Forum shall abide by the
Trust's instructions for granting or denying the inspection; provided, however,
Forum may grant the inspection without such instructions if it is advised by its
counsel that failure to do so will result in liability to Forum.
(c) Forum shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. The Trust, or the
Trust's authorized representatives, shall have access to such books and records
at all times during Forum's normal business hours. Upon the reasonable request
of the Trust, copies of any such books and records shall be provided promptly by
Forum to the Trust or the Trust's authorized representatives. In the event the
Trust designates a successor to any of Forum's obligations hereunder, Forum
shall, at the expense and direction of the Trust, transfer to such successor all
relevant books, records and other data established or maintained by Forum under
this Agreement. To the extent required by Section 31 of the 1940 Act and the
Rules thereunder, Forum agrees that all such records prepared or maintained by
Forum relating to the services to be performed by Forum hereunder are the
property of the Trust and will be preserved, maintained and made available in
accordance with such Section and Rules, and will be surrendered promptly to the
Trust on and in accordance with its request.
SECTION 6. INDEMNIFICATION
(a) The Trust shall, on behalf of the applicable Portfolio, indemnify
and hold Forum harmless against any losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from:
(i) any claim, demand, action or suit brought by any person other than
the Trust, including by an interestholder, which names Forum and/or the
Trust as a party and is not based on and does not result from Forum's
willful misfeasance, bad faith or gross negligence or reckless
disregard of duties, and arises out of or in connection with Forum's
performance hereunder; or
3
<PAGE>
(ii) any claim, demand, action or suit (except to the extent
contributed to by Forum's willful misfeasance, bad faith or gross
negligence or reckless disregard of duties) which results from the
negligence of the Trust, or from Forum's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Trust, or as a result of Forum's acting
in reliance upon advice reasonably believed by Forum to have been given
by counsel for the Trust, or as a result of Forum's acting in reliance
upon any instrument reasonably believed by it to have been genuine and
signed, countersigned or executed by the proper person.
(b) Forum shall indemnify and hold the Trust harmless against any
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any claim, demand, action or suit brought by
any person other than Forum, which names the Trust and/or Forum as a party and
is based upon and arises out of Forum's willful misfeasance, bad faith or gross
negligence or reckless disregard of duties in connection with its performance
hereunder.
(c) In the event that either party requests the other to indemnify or
hold it harmless hereunder, the party requesting indemnification (the
Indemnified Party) shall inform the other party (the Indemnifying Party) of the
relevant facts known to Indemnified Party concerning the matter in question. The
Indemnified Party shall use reasonable care to identify and to promptly notify
the Indemnifying Party concerning any matter which presents, or appears likely
to present, a claim for indemnification. The Indemnifying Party shall have the
election of defending the Indemnified Party against any claim which may be the
subject of indemnification or of holding the Indemnified Party harmless
hereunder. In the event the Indemnifying Party so elects, it will so notify the
Indemnified Party and thereupon the Indemnifying Party shall take over defense
of the claim and, if so requested by the Indemnifying Party, the Indemnified
Party shall incur no further legal or other expenses related thereto for which
it shall be entitled to indemnity or to being held harmless hereunder; provided,
however, that nothing herein shall prevent the Indemnified Party from retaining
counsel at its own expense to defend any claim. Except with the Indemnifying
Party's prior written consent, the Indemnified Party shall in no event confess
any claim or make any compromise in any matter in which the Indemnifying Party
will be asked to indemnify or hold Indemnified Party harmless hereunder.
SECTION 7. STANDARD OF CARE; LIMITATION OF LIABILITY
(a) Forum shall not be liable for any action taken or not taken in good
faith and reasonably believed by Forum to be within the powers conferred upon it
under this Agreement; provided that nothing herein shall be deemed to protect,
or purport to protect, Forum against any liability to the Trust or to the
interestholders of the Trust to which it would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties hereunder or by reason of Forum's reckless disregard of its obligations
and duties hereunder.
(b) In the event of equipment failures beyond Forum's control, Forum
shall, at no additional expense to the Trust, take reasonable steps to minimize
service interruptions, but shall have no liability with respect thereto. Forum
shall enter into and shall maintain in effect with appropriate
4
<PAGE>
parties one or more agreements making reasonable provision for emergency use of
electronic data processing equipment to the extent appropriate equipment is
available or shall maintain a secondary site with processing capability.
(c) Subject to Section 7(b), Forum shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication equipment of common carriers or power supply.
SECTION 8. COVENANTS OF THE TRUST AND FORUM
(a) The Trust, on behalf of Portfolio, promptly shall furnish to Forum
the following:
(i) A certified copy of the resolution of the Trustees of the
Trust authorizing the appointment of Forum and the execution
and delivery of this Agreement.
(ii) A copy of the Trust Instrument of the Trust and all
amendments thereto.
(b) Forum hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Trust for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
(c) Forum and the Trust agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
(d) In case of any requests or demands for the inspection of the
interestholder records of the Trust, Forum will endeavor to notify the Trust and
to secure instructions from an authorized officer of the Trust as to such
inspection. Forum reserves the right, however, to exhibit the interestholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the interestholder records to such person.
SECTION 9. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each
Portfolio on the later of the date of this Agreement or the date of commencement
of operations of the Trust, and with respect to each future portfolio of the
Trust on the date this Agreement or Appendix A hereto is amended. Upon
effectiveness of this Agreement, it shall supersede all previous agreements
between the parties hereto covering the subject matter hereof insofar as such
Agreement may have been deemed to relate to the Portfolios.
(b) This Agreement shall continue in effect with respect to a Portfolio
for a period of one year from its effectiveness and shall continue in effect for
successive twelve-month periods;
5
<PAGE>
provided, however, that continuance is specifically approved at least annually
(i) by the Board or by a vote of a majority of the outstanding voting interests
of the Portfolio and (ii) by a vote of a majority of Trustees of the Trust who
are not parties to this agreement or interested persons of any such party (other
than as Trustees of the Trust); provided further, however, that if the
continuation of this agreement is not approved as to a Portfolio, Forum may
continue to render to the Portfolio the services described herein in the manner
and to the extent permitted by the Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Portfolio at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Trust.
SECTION 10. ASSIGNMENT; DELEGATION
(a) This Agreement shall extend to and shall bind the parties hereto
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Trust without the written consent of
Forum or by Forum without the written consent of the Trust, authorized or
approved by a resolution of the Board. Notwithstanding the foregoing, either
party may assign this Agreement without the consent of the other party so long
as the assignee is an affiliate, parent or subsidiary of the assigning party and
is qualified to act under applicable law.
(b) Forum may contract with other qualified service providers to
perform any of the services contemplated by this Agreement; provided, that Forum
shall not thereby be relieved of any of its obligations hereunder. Forum may
subcontract any or all of its functions to one or more qualified sub-transfer
agents or processing agents. Forum may pay those agents for their service, but
not such payment will increase Forum's compensation from the Trust.
SECTION 11. NOTICES
Any notice or other communication required by or permitted to be given
in connection with this Agreement shall be in writing, and shall be delivered in
person, sent by first-class mail, postage prepaid, or sent by overnight
delivery, postage prepaid, to the respective parties at the following addresses
or such other address as the parties may designate in writing by the same
methods:
If to the Trust:
Schroder Capital Funds
Two Portland Square
Portland, Maine 04101
Attn: Thomas G. Sheehan
6
<PAGE>
If to Forum:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
Attn: David I. Goldstein
SECTION 12. LIMITATION OF LIABILITY OF THE TRUSTEES AND INTERESTHOLDERS
The Trustees of the Trust and the interestholders of the Portfolios
shall not be liable for any obligations of the Trust or of the Portfolios under
this Agreement, and Forum agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Trust or
the Portfolio to which Forum's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the interestholders of
the Portfolios.
SECTION 13. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Delaware.
(f) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SCHRODER CAPITAL FUNDS
/s/ Laura E. Luckyn-Malone
--------------------------
Laura E. Luckyn-Malone
President
FORUM FINANCIAL CORP.
/s/ John Y. Keffer
--------------------------
John Y. Keffer
President
8
<PAGE>
SCHRODER CAPITAL FUNDS
TRANSFER AGENCY AND FUND ACCOUNTING AGREEMENT
APPENDIX A
PORTFOLIOS OF THE TRUST
- --------------------------------------------------------------------------------
PORTFOLIOS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS OF SEPTEMBER 13, 1995
- --------------------------------------------------------------------------------
International Equity Fund
Schroder Emerging Markets Fund Institutional Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS OF MARCH 15, 1996
- --------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
Schroder Global Asset Allocation Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS OF MAY 16, 1996
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS OF NOVEMBER 26, 1996
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
Schroder Japan Portfolio
Schroder European Growth Portfolio
Schroder Asian Growth Portfolio
Schroder United Kingdom Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS OF SEPTEMBER 18, 1997
- --------------------------------------------------------------------------------
Schroder Global Growth Portfolio
- --------------------------------------------------------------------------------
9
<PAGE>
SCHRODER CAPITAL FUNDS
TRANSFER AGENCY AND FUND ACCOUNTING AGREEMENT
APPENDIX B
SERVICES
A. Forum shall prepare and maintain, on behalf of the Trust, the following books
and records of each Portfolio pursuant to Rule 31a-1 under the Act (the "Rule"):
(i) Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of
cash and all other debits and credits, as required by sub-section
(b)(1) of the Rule;
(ii) Journals and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, as required by
subsection (b)(2) of the Rule;
(iii) A record of each brokerage order given by or on behalf of the
Trust for, or in connection with, the purchase or sale of securities,
and all other portfolio purchases or sales, as required by sub-sections
(b)(5) and (b)(6) of the Rule;
(iv) A record of all options, if any, in which the Trust has any direct
or indirect interest or which the Trust has granted or guaranteed and a
record of any contractual commitments to purchase, sell, receive or
deliver any property as required by subsection (b)(7) of the Rule;
(v) A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by sub-section (b)(8) of the Rule; and
(vi) Other records required by the Rule or any successor rule or
pursuant to interpretations thereof to be kept by open-end management
investment companies, but limited to these provisions of the Rule
applicable to portfolio and interestholder transactions and as agreed
upon between the parties hereto.
B. Forum shall perform the following accounting services:
(i) Calculate the net asset value of each Portfolio and each
interestholder thereof with the frequency prescribed in each
Portfolio's then-current Registration Statement;
(ii) Calculate and track each item of income, gain, loss, deduction and
credit, if any, and apply such items to each interestholder as required
by applicable accounting rules;
(iii) Maintain such accounts and perform such allocations as is
required by each Portfolio's Capital Account Establishment and
Maintenance Policies;
10
<PAGE>
(iv) Calculate the yield, effective yield, tax equivalent yield and
total return for each Portfolio, as applicable, and such other measure
of performance as may be agreed upon between the parties hereto;
(v) Provide the Trust and such other persons as the Trust's
administrator or sub-administrator may direct with the following
reports: (a) a current security position report, (b) a summary report
of transactions and pending maturities (including the principal, cost,
and accrued interest on each portfolio security in maturity date
order), and (c) a current cash position and projection report;
(vi) Prepare and record, as of each time when the net asset value of a
Portfolio is calculated or as otherwise directed by the Trust's
administrator or sub-administrator, either: (a) a valuation of the
assets in the Portfolio (based upon the use of outside services
normally used and contracted for this purpose by Forum in the case of
securities for which information and market price or yield quotations
are readily available and based upon evaluations conducted in
accordance with the Trust's or the Trust's administrator's instructions
in the case of all other assets) or (b) a calculation confirming that
the market value of the Portfolio's assets does not deviate from the
amortized cost value of those assets by more than a specified
percentage agreed to from time to time by Forum and the Trust;
(vii) Obtain necessary information from the Trust and the Trust's
administrator in order to prepare the Trust's Form N-SAR;
(viii) Assist in the preparation of support schedules necessary for the
completion of Federal and State income tax returns of the Portfolios;
(ix) Monitor each Portfolio's status as if it were a regulated
investment company under Subchapter M of the Internal Revenue Code of
1986, as amended;
(x) Assist the Trust's independent accountants and, upon approval of
the Trust or the Trust's administrator, any regulatory body in any
requested review of the Trust's books and records maintained by Forum;
(xi) Prepare semi-annual financial statements of each Portfolio; and
(xii) Prepare other periodic reports to shareholders and the Securities
and Exchange Commission and such other reports as may be agreed to from
time to time and provide information typically supplied in the
investment company industry to companies that track or report the
price, performance or other information with respect to investment
companies.
11
<PAGE>
SCHRODER CAPITAL FUNDS
TRANSFER AGENCY AND FUND ACCOUNTING AGREEMENT
APPENDIX C
COMPENSATION
TRANSFER AGENCY SERVICES
For its transfer agency services, Forum shall receive a fee of $12,000 per year
with respect to each Portfolio, plus $25 per interestholder account, such
amounts to be computed and paid monthly in advance by the Trust.
FUND ACCOUNTING SERVICES
Standard Fee per Series $36,000/year
Plus additional surcharges for each of:
Global or International Funds $24,000/year
Tax Free Money Market Funds $12,000/year
Series with more than 25% of
net assets invested in asset
backed securities $1000/month
Series with more than 50% of
net assets invested in asset
backed securities $1000/month
Series with more than 100
security positions $1,000/month
Series with a monthly portfolio
turnover rate of 10% or greater $1,000/month
Monthly surcharges are determined based upon the total assets or
security positions as of the end of the prior month and on the portfolio
turnover rate for the prior month. Portfolio turnover rate shall have the
meaning ascribed thereto in Securities and Exchange Commission Form N-1A.
The rates set forth above shall remain fixed through December 31, 1995.
On January 1, 1996, and on each successive January 1, the rates shall be
adjusted to reflect changes in the Consumer Price Index for the preceding
calendar year, as published by the U.S. Department of Labor, Bureau of Labor
Statistics.
EXHIBIT 9(d)
SCHRODER CAPITAL FUNDS
PLACEMENT AGENT AGREEMENT
AGREEMENT made this 13th day of September, 1995, between Schroder
Capital Funds (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Forum Financial Services, Inc. ("Forum"), a
corporation organized under the laws of State of Delaware with its principal
place of business at 61 Broadway, New York, New York 10006.
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "Act"), and is
authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series; and
WHEREAS, the Trust desires that Forum perform placement agent services
for each of the portfolios of the Trust as listed in Appendix A hereto (each a
"Portfolio," and collectively the "Portfolios") and Forum is willing to provide
those services on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. SERVICES AS PLACEMENT AGENT
(a) Forum will act as Placement Agent of the Interests covered by the
Trust's registration statement then in effect under the 1940 Act. As Placement
Agent, Forum shall have the right to sell Interests of the Portfolios upon the
terms set forth in the Trust's registration statement, as such registration
statement is amended and in effect from time to time. In acting as Placement
Agent under the Placement Agency Agreement, neither Forum nor its employees nor
any agents thereof shall make any offer or sale of Interests in a manner which
would require the Interests to be registered under the Securities Act of 1933,
as amended (the "1933 Act"). As used in this Agreement the term "registration
statement" shall mean any registration statement filed with the Securities and
Exchange Commission (the "Commission") as modified by any amendments thereto
that at any time shall have been filed with the Commission by or on behalf of
the Trust.
(b) All activities by Forum and its agents and employees as Placement
Agent of Interests shall comply with all applicable laws, rules and regulations,
including without limitation, all rules and regulations adopted pursuant to the
1940 Act by the Commission.
(c) Nothing herein shall be construed to require the Trust to accept
any offer to purchase any Interests, all of which shall be subject to approval
by the Trust's Board of Trustees.
<PAGE>
(d) The Trust shall furnish from time to time for use in connection
with the sale of Interests such information with respect to the Trust and
Interests as Forum may reasonably request. The Trust shall also furnish Forum
upon request with: (a) audited annual and unaudited semiannual statements of the
Trust's books and accounts prepared by the Trust, and (b) such additional
information regarding the Trust's financial or regulatory condition as Forum may
from time to time reasonably request.
(e) The Trust represents to Forum that all registration statements
filed by the Trust with the Commission under the 1940 Act with respect to
Interests have been prepared in conformity with the requirements of such statute
and rules and regulations of the Commission thereunder. The Trust represents and
warrants to Forum that any registration statement will contain all statements
required to be stated herein in conformity with both such statute and the rules
and regulations of the Commission; that all statements of fact contained in any
registration statement will be true and correct in all material respects at the
time of filing of such registration statements or amendments thereto; and that
no registration statement will include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of Interests. The Trust
may, but shall not be obligated to, propose from time to time such amendment to
any registration statement as in the light of future developments may, in the
opinion of the Trust's counsel, be necessary or advisable. If the Trust shall
not propose such amendment and/or supplement within fifteen days after receipt
by the Trust of a written request from Forum to do so, Forum may, at its option,
terminate this Agreement. The Trust shall not file any amendment to any
registration statement without giving Forum reasonable notice thereof in
advance; provided, however, that nothing contained in this Agreement shall in
any way limit the Trust's right to file at any time such amendment to any
registration statement as the Trust may deem advisable, such right being in all
respects absolute and unconditional.
(f) The Trust agrees to indemnify, defend and hold Forum, its several
officers and directors, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act or Section 20 of the Securities Exchange Act of 1934
(the "1934 Act") (for purposes of this Section 1(f), collectively, "Covered
Persons") free and harmless from and against any and all claims, demands,
liabilities and any counsel fees incurred in connection therewith) which any
Covered Person may incur under the 1933 Act, the 1934 Act, common law or
otherwise, arising out of or based on any untrue statement of a material fact
contained in any registration statement, private placement memorandum or other
offering material ("Offering Material") or arising out of or based on any
omission to state a material fact required to be stated in any Offering Material
or necessary to make the statements in any Offering Material not misleading,
provided, however, that the Trust's agreement to indemnify Covered Persons shall
not be deemed to cover any claims, demands, liabilities or expenses arising out
of any financial and other statements as are furnished in writing to the Trust
by Forum in its capacity as Placement Agent for use in the answers to any items
of any registration statement or in any statements made in any Offering
Material, or arising out of or based on any omission or alleged omission to
state a material fact in connection with the giving of such information required
to be stated in such answers or necessary to make the answers not misleading;
and further provided that the Trust's agreement to Section 1(e) shall not be
deemed to cover any liability to the Trust or its investors to which a Covered
Person would otherwise be subject by reason or willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by
2
<PAGE>
reason of a Covered Person's reckless disregard of its obligations and duties
under this Agreement. The Trust shall be notified of any action brought against
a Covered Person, such notification to be given by letter or by telegram
addressed to the Secretary of the Trust, promptly after the summons or other
first legal process shall have been duly and completely served upon such Covered
Person. The failure to notify the Trust of any such action shall not relieve the
Trust from any liability except to the extent that the Trust shall have been
prejudiced by such failure, or from any liability that the Trust may have to the
Covered Person against whom such action is brought by reason of any such untrue
statement or omission, otherwise than on account of the Trust's indemnity
agreement contained in this Section 1(f). The Trust will be entitled to assume
the defense of any suit brought to enforce any such claim, demand or liability,
but in such case such defense shall be conducted by counsel chosen by the Trust
and approved by Forum, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but in case
the Trust does not elect to assume the defense of any such suit, or in case
Forum reasonably does not approve of counsel chosen by the Trust, the Trust will
reimburse the Covered Person named as defendant in such suit, for the fees and
expenses of any counsel retained by Forum or such Covered Person. The Trust's
indemnification agreement contained in this Section (f) and the Trust's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
Covered Persons, and shall survive the delivery of any Interests. This agreement
of indemnity will inure exclusively to Covered Persons and their successors. The
Trust agrees to notify Forum promptly of the commencement of any litigation or
proceedings against the Trust or any of its officers or Trustees in connection
with the issue and sale of any Interests.
(g) Forum agrees to indemnify, defend and hold the Trust, its several
officers and trustees, and any person who controls the Trust within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act (for purposes of
this Section 1(g) collectively, "Covered Persons") free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands, liabilities and any
counsel fees incurred in connection therewith) that Covered Persons may incur
under the 1933 Act, the 1934 Act, or common law or otherwise, but only to the
extent that such liability or expense incurred by a Covered Person resulting
from such claims or demands shall arise out of or be based on any untrue
statement of a material fact contained in information furnished in writing by
Forum in its capacity as Placement Agent to the Trust for use in the answers to
any of the items of any registration statement or in any statements in any
Offering Material or shall arise out of or be based on any omission to state a
material fact in connection with such information furnished in writing by Forum
to the Trust required to be stated in such answers or necessary to make such
information not misleading. Forum shall be notified of any action brought
against a Covered Person, such notification to be given by letter or telegram
addressed to Forum, Attention: Legal Department, promptly after the summons or
other first legal process shall have been duly and completely served upon such
Covered Person. Forum shall have the right of first control of the defense of
the action with counsel of its own choosing satisfactory to the Trust if such
action is based solely on such alleged misstatement or omission on Forum's part,
and in any other event each Covered Person shall have the right to participate
in the defense or preparation of the defense of any such action. The failure to
so notify Forum of any such action shall not relieve Forum from any liability
except to the extent that Forum shall have been prejudiced by such failure, or
from any liability that Forum may have to Covered Persons by reason of any such
untrue or alleged untrue statement, or omission or alleged omission, otherwise
than on account of Forum's indemnity agreement contained in this Section 1(g).
3
<PAGE>
(h) No Interests shall be offered by either Forum or the Trust under
any of the provisions of this Agreement and no orders for the purchase or sale
of Interests hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement or any necessary amendments thereto
shall be suspended under any of the provisions of the 1940 Act; provided,
however, that nothing contained in this Section 1(h) shall in any way restrict
or have an application to or bearing on the Trust's obligation to redeem
Interests from any investor in accordance with the provisions of the Trust's
registration statement or Trust Instrument, as amended from time to time.
(i) The Trust agrees to advise Forum as soon as reasonably practical by
a notice in writing delivered to Forum or its counsel:
(i) of any request by the Commission for amendment to the
registration statement then in effect or for additional
information;
(ii) in the event of the issuance by the Commission of any
stop order suspending the effectiveness of the registration
statement then in effect or the initiation by service of
process on the Trust of any proceeding for that purpose;
(iii) of the happening of any event that makes untrue any
statement of a material fact made in the registration
statement then in effect or that requires the making of a
change in such registration statement in order to make the
statements therein not misleading; and
(iv) of all action of the Commission with respect to any
amendment to any registration statement that may from time to
time be filed with the Commission.
For purposes of this Section 1(i), informal requests by or acts of the
Staff of the Commission shall not be deemed actions or requests by the
Commission.
(j) Forum agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trust all records and other
information not otherwise publicly available relative to the Trust and its
prior, present or potential investors and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Trust, which approval shall not be unreasonably withheld and may not be
withheld where Forum may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
(k) In addition to Forum's duties as Placement Agent, the Trust
understands that Forum may, in its discretion, perform additional functions in
connection with transactions in Interests.
4
<PAGE>
(l) Forum shall receive no fee for its services hereunder.
(m) The processing of Interest transactions may include, but is not
limited to, compilation of all transactions; creation of a transaction tape and
timely delivery of it to the Trust's transfer agent for processing;
reconciliation of all transactions delivered to the Trust's transfer agent; and
the recording and reporting of these transactions executed by the Trust's
transfer agent in customer statements; and rendering of periodic customer
statements.
(n) Forum may also provide other investor services, such as
communicating with Trust investors and other functions in administering customer
accounts for Trust investors.
(o) Nothing herein is intended, nor shall be construed, as requiring
Forum to perform any of the foregoing functions.
SECTION 2. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each
Portfolio on the later of the date hereof or the date of commencement of
operations of the Trust, and with respect to each future portfolio of the Trust,
on the date this Agreement or Appendix A hereto is amended. Upon effectiveness
of this Agreement, it shall supersede all previous agreements between the
parties hereto covering the subject matter hereof insofar as such Agreement may
have been deemed to relate to the Portfolios.
(b) This Agreement shall continue in effect with respect to a Portfolio
for a period of one year from its effectiveness and shall continue in effect for
successive twelve-month periods; provided, however, that continuance is
specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting interests of the Portfolio and (ii) by a vote
of a majority of Trustees of the Trust who are not parties to this agreement or
interested persons of any such party (other than as Trustees of the Trust);
provided further, however, that if the continuation of this agreement is not
approved as to a Portfolio, Forum may continue to render to the Portfolio the
services described herein in the manner and to the extent permitted by the Act
and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Portfolio at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Trust. This
agreement shall terminate upon assignment.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Forum and the Trust each hereby represents and warrants to the other
that it has all requisite authority to enter into, execute, deliver and perform
its obligations under this Agreement and that, with respect to it, this
Agreement is legal, valid and binding, and enforceable in accordance with its
terms.
5
<PAGE>
SECTION 4. ACTIVITIES OF FORUM
Except to the extent necessary to perform Forum's obligations
hereunder, nothing herein shall be deemed to limit or restrict Forum's right, or
the right of any of Forum's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm, individual or association.
SECTION 5. LIMITATION OF INTEREST HOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the interestholders of each Portfolio
shall not be liable for any obligations of the Trust or of the Portfolios under
this Agreement, and Forum agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Trust or
the Portfolio to which Forum's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the interestholders of
the Portfolios.
SECTION 6. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New York.
(f) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
6
<PAGE>
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS
/s/ Laura E. Luckyn Malone
--------------------------
Laura E. Luckyn Malone
President
FORUM FINANCIAL SERVICES,INC.
/s/ John Y. Keffer
--------------------------
John Y. Keffer
President
7
<PAGE>
SCHRODER CAPITAL FUNDS
PLACEMENT AGENT AGREEMENT
APPENDIX A
PORTFOLIOS OF THE TRUST
- --------------------------------------------------------------------------------
PORTFOLIOS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS OF SEPTEMBER 13, 1995
- --------------------------------------------------------------------------------
International Equity Fund
Schroder Emerging Markets Fund Institutional Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of March 15, 1996
- --------------------------------------------------------------------------------
Schroder International Smaller Companies Portfolio
Schroder Global Asset Allocation Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of May 16, 1996
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of November 26, 1996
- --------------------------------------------------------------------------------
Schroder EM Core Portfolio
Schroder Japan Portfolio
Schroder European Growth Portfolio
Schroder Asian Growth Portfolio
Schroder United Kingdom Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of September 18, 1997
- --------------------------------------------------------------------------------
Schroder Global Growth Portfolio
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM SCHRODER INTERNATIONAL SMALLER COMPANIES
PORTFOLIO DATED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 004
<NAME> SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 7,555,878
<INVESTMENTS-AT-VALUE> 6,602,443
<RECEIVABLES> 52,512
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 207,856
<TOTAL-ASSETS> 6,862,811
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,260
<TOTAL-LIABILITIES> 37,260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,778,786
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (953,235)
<NET-ASSETS> 6,825,551
<DIVIDEND-INCOME> 100,427
<INTEREST-INCOME> 20,623
<OTHER-INCOME> 0
<EXPENSES-NET> 84,784
<NET-INVESTMENT-INCOME> 36,266
<REALIZED-GAINS-CURRENT> 377,647
<APPREC-INCREASE-CURRENT> (953,235)
<NET-CHANGE-FROM-OPS> (539,322)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,554,417
<NUMBER-OF-SHARES-REDEEMED> (189,544)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,825,551
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 60,033
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 192,009
<AVERAGE-NET-ASSETS> 7,141,036
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
