As filed with the Securities and Exchange Commission on November 16, 1998
File No. 811-9130
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 14
SCHRODER CAPITAL FUNDS
Two Portland Square
Portland, Maine 04101
207-879-1900
Cheryl O. Tumlin, Esq.
Forum Administrative Services, LLC
Two Portland Square
Portland, Maine 04101
Copies to:
Timothy W. Diggins, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Carin Muhlbaum, Esq.
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
EXPLANATORY NOTE
This Registration Statement is being filed by Registrant pursuant to Section 8
of the Investment Company Act of 1940, as amended. Beneficial interests in the
series of Registrant are not being registered under the Securities Act of 1933,
as amended, because such interests are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of that act. Investments in a series of the Registrant may be made
only by certain institutional investors, whether organized within or outside the
United States (excluding individuals, S corporations, partnerships, and grantor
trusts beneficially owned by any individuals, S corporations or partnerships).
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any beneficial interests in any series of
Registrant.
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PART A
(PRIVATE PLACEMENT MEMORANDUM)
SCHRODER CAPITAL FUNDS
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INTERNATIONAL EQUITY FUND
SCHRODER EM CORE PORTFOLIO
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
SCHRODER GLOBAL GROWTH PORTFOLIO
NOVEMBER 13, 1998
INTRODUCTION
Schroder Capital Funds (the "Trust") is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Trust is authorized to offer beneficial interests ("Interests")
in separate series, each with a distinct investment objective and policies. The
Trust currently offers eight portfolios: International Equity Fund, Schroder EM
Core Portfolio, Schroder International Smaller Companies Portfolio, Schroder
U.S. Smaller Companies Portfolio, Schroder Emerging Markets Fund Institutional
Portfolio, Schroder Global Growth Portfolio, Schroder Japan Portfolio and
Schroder Asian Growth Fund Portfolio. Additional portfolios may be added in the
future. This Part A relates to all the portfolios (other than Schroder Emerging
Markets Fund Institutional Portfolio, Schroder Japan Portfolio and Schroder
Asian Growth Fund Portfolio). The portfolios herein are referred to as a
"Portfolio" and collectively, the "Portfolios". Schroder Capital Management
International Inc. ("SCMI") is each Portfolio's investment adviser. Each of the
Portfolios, except Schroder EM Core Portfolio, is "diversified".
Interests are offered on a no-load basis exclusively to various qualified
investors (including other investment companies) as described under "General
Description of Registrant". Interests of the Trust are not offered publicly and,
accordingly, are not registered under the Securities Act of 1933 (the "1933
Act").
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 each
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. Schroder
EM Core Portfolio is a non-diversified series of the Trust. Each of the other
Portfolios is a diversified series of the Trust.
Interests in each Portfolio are offered solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in the Portfolio may be made only by certain qualified
investors (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
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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.
An investor may subscribe for a beneficial interest in a Portfolio by contacting
Forum Financial Services, Inc., the Trust's placement agent, at Two Portland
Square, Portland, Maine 04101, (207) 879-1900, for a complete subscription
package, including a subscription agreement. The Trust and the placement agent
reserve the right to refuse to accept any subscription for any reason. The Trust
has filed with the Securities and Exchange Commission a second half (Part B) to
this Memorandum which contains more detailed information about the Trust and the
Portfolios. Part B, which is incorporated into this Memorandum by reference,
also is available from the placement agent.
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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TABLE OF CONTENTS
Page
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Introduction 1
General Description of Registrant 1
Investment Objectives and Policies 3
Investment Restrictions 12
Management of the Trust 14
Capital Stock and Other Securities 15
Purchase of Securities 16
Redemption or Repurchase 17
Pending Legal Proceedings 18
Appendix A
INVESTMENT OBJECTIVES AND POLICIES
Each Portfolio has a different investment objective that it pursues
through the investment policies described below.
Because of the differences in objectives and policies among the
Portfolios, the Portfolios will achieve different investment returns and will be
subject to varying degrees of market and financial risk. There is no assurance
that any Portfolio will achieve its objective. None of the Portfolios is
intended to be a complete investment program.
A Portfolio's investment objective may not be changed without
interestholder approval. The investment policies of each Portfolio may, unless
otherwise specifically stated, be changed by the Trust's Board of Trustees
without a vote of the interestholders. All percentage limitations on investments
will apply at the time of investment and will not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of
the investment, except that the policies stated with regard to borrowing and
liquidity will be observed at all times.
INTERNATIONAL EQUITY FUND
International Equity Fund's investment objective is long-term capital
appreciation through investment in securities markets outside the United States.
Equity securities in which the Portfolio may invest include common stocks,
preferred stocks, securities convertible into common or preferred stocks, and
rights or warrants to purchase any of the foregoing. They may also include
American Depositary Receipts, European Depositary Receipts, and other similar
instruments providing for indirect investment in securities of foreign issuers.
The Portfolio may also invest in securities of closed-end investment companies
that invest in turn primarily in foreign securities.
The Portfolio normally invests at least 65% of its assets in equity
securities of companies domiciled outside the United States and will invest in
securities of issuers domiciled in at least three countries other than the
United States. There is no limit on the amount of the Portfolio's assets that
may be invested in securities of issuers domiciled in any one country. When the
Portfolio has invested a substantial portion of its assets in the securities of
companies domiciled in a single country, it will be more susceptible to the
risks of investing in that country than would a fund investing in a
geographically more diversified portfolio. The Portfolio normally invests a
substantial portion of its assets in countries included in the Morgan Stanley
Capital International EAFE Index, which is a market capitalization index of
companies in developed countries in Europe, Australia and the Far East. Other
countries in which the Portfolio may invest may be considered "emerging markets"
and involve special risks. See "Other Investment Practices and Risk
Considerations -- Foreign Securities."
The Portfolio may invest in debt securities, including, for example,
securities of foreign governments (including provinces and municipalities) or
their agencies or instrumentalities, securities issued or guaranteed by
international organizations designated or supported by multiple foreign
governmental entities to promote economic reconstruction or development, and
debt securities of foreign corporations or financial institutions. The Portfolio
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may invest up to 5% of its net assets in lower-quality, high yielding debt
securities, which entail certain risks. See "Other Investment Practices and Risk
Considerations -- Debt Securities."
SCHRODER EM CORE PORTFOLIO
Schroder EM Core Portfolio's investment objective is to seek long-term
capital appreciation. The Portfolio invests primarily 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. The Portfolio
is "non-diversified".
An "emerging market" country is any country not included at the time of
investment in the Morgan Stanley Capital International World Index of major
world economies. Those economies currently include: 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. SCMI may at
times determine based on its own analysis that an economy included in the Index
should nonetheless be considered an emerging market country; any such country
would then constitute an emerging market country for purposes of investment by
the Portfolio.
The Portfolio normally invests at least 65% of its assets in equity
securities of issuers determined by SCMI to be emerging market issuers. Equity
securities include common stocks, preferred stocks, securities convertible into
common or preferred stocks, and rights or warrants to purchase any of the
foregoing. They may also include American Depositary Receipts, European
Depositary Receipts, and other similar instruments providing for indirect
investment in securities of foreign issuers. The Portfolio may also invest in
securities of closed-end investment companies that invest in turn primarily in
foreign securities, including emerging market issuers.
The remainder of the Portfolio's assets may be invested in securities
of issuers located anywhere in the world. The Portfolio may invest up to 35% of
its assets in debt securities, including lower-quality, high-yielding debt
securities, which entail certain risks. See "Other Investment Practices and Risk
Considerations -- Debt Securities."
An issuer of a security will be considered to be an emerging market
issuer if SCMI determines that: (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) 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) at least 50% of its assets are situated in
emerging market countries. The Portfolio may consider investment companies to be
located in the country or countries in which SCMI determines they focus their
investments.
There is no limit on the amount of the Portfolio's assets that may be
invested in securities of issuers domiciled in any one country. When the
Portfolio has invested a substantial portion of its assets in the securities of
companies domiciled in a single country, it will be more susceptible to the
risks of investing in that country than would a fund investing in a
geographically more diversified portfolio.
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
Schroder International Smaller Companies Portfolio's investment
objective is long-term capital appreciation through investment in securities
markets outside the United States. The Portfolio normally invests at least 65%
of its assets in equity securities of companies domiciled outside the United
States that have market capitalizations of $1.5 billion or less at the time of
investment. In selecting investments for the Portfolio, SCMI considers a number
of factors, including, for example, the company's potential for long-term
growth, the company's financial condition, its sensitivity to cyclical factors,
the relative value of the company's securities (to those of other companies and
to the market as a whole), and the extent to which the company's management owns
equity in the company.
Equity securities in which the Portfolio may invest include common
stocks, preferred stocks, securities convertible into common or preferred
stocks, and rights or warrants to purchase any of the foregoing. They may
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also include American Depositary Receipts, European Depositary Receipts, and
other similar instruments providing for indirect investment in securities of
foreign issuers. The Portfolio may also invest in securities of closed-end
investment companies that invest in turn primarily in foreign securities.
The Portfolio generally invests in securities of issuers domiciled in
at least three countries other than the United States, although there is no
limit on the amount of the Portfolio's assets that may be invested in securities
of issuers domiciled in any one country. When the Portfolio has invested a
substantial portion of its assets in the securities of companies domiciled in a
single country, it will be more susceptible to the risks of investing in that
country than would a Portfolio investing in a geographically more diversified
portfolio. The Portfolio normally invests a substantial portion of its assets in
countries included in the Morgan Stanley Capital International EAFE Index, which
is a market capitalization index of companies in developed market countries in
Europe, Australia, and the Far East. Other countries in which the Portfolio may
invest may be considered "emerging markets" and involve special risks. See
"Other Investment Practices and Risk Considerations -- Foreign Securities".
Smaller companies may present greater opportunities for investment
return than do larger companies, but also involve greater risks. Smaller
companies may have limited product lines, markets, or financial resources, or
may depend on a limited management group. Their securities may trade less
frequently and in limited volume. As a result, the prices of these securities
may fluctuate more than prices of securities of larger, more widely traded
companies. See "Other Investment Practices and Risk Considerations --Investments
in Smaller Companies".
The Portfolio may invest in debt securities, including, for example,
securities of foreign governments, international organizations, foreign
corporations, and U.S. government obligations. The Portfolio may invest up to 5%
of its total assets in lower-quality, high yielding debt securities, which
entail certain risks. See "Other Investment Practices and Risk Considerations--
Debt Securities."
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
Schroder U.S. Smaller Companies Portfolio's investment objective is to
seek capital appreciation. The Portfolio invests at least 65% of its assets in
equity securities of U.S.-domiciled companies that have at the time of purchase
market capitalizations of $1.5 billion or less. In selecting investments for the
Portfolio, SCMI seeks to identify securities of companies with strong management
that it believes can generate above average earnings growth, and are selling at
favorable prices in relation to book values and earnings. Equity securities in
which the Portfolio may invest include common stocks, preferred stocks,
securities convertible into common or preferred stocks, and rights or warrants
to purchase any of the foregoing.
The Portfolio may also invest in equity securities of larger companies
and in debt securities, if SCMI believes such investments are consistent with
the Portfolio's investment objective. The Portfolio may invest up to 5% of its
assets in lower-quality, high yielding debt securities, which entail certain
risks. See "Other Investment Practices and Risk Considerations -- Debt
Securities."
Smaller companies may present greater opportunities for investment
return than do larger companies, but also involve greater risks. They may have
limited product lines, markets, or financial resources, or may depend on a
limited management group. Their securities may trade less frequently and in
limited volume. As a result, the prices of these securities may fluctuate more
than prices of securities of larger, widely traded companies. See "Other
Investment Practices and Risk Considerations -- Investments in Smaller
Companies." The Portfolio intends to invest no more than 25% of its total assets
in securities of small companies that, together with their predecessors, have
been in operation for less than three years.
SCHRODER GLOBAL GROWTH PORTFOLIO
Schroder Global Growth Portfolio's investment objective is to seek
long-term growth of capital. It seeks to achieve this objective by investing in
common stocks of companies located anywhere in the world, including the United
States. The Portfolio invests in common stocks of companies located in
developed, newly industrialized and emerging markets. Under normal market
conditions, the Portfolio invests at least 65% of its total assets in equity
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securities of companies located in at least five countries, one of which is the
United States. Equity securities include common stocks, preferred stocks,
convertible preferred stocks, stock rights and warrants, and convertible debt
securities. Investments in stock rights and warrants are not considered in the
65% of total assets determination. The Portfolio may purchase stocks without
regard to a company's market capitalization, although investments generally are
concentrated in larger and, to a lesser extent, medium-sized companies relative
to the particular market. The percentage of the Portfolio's assets invested in
U.S. and non-U.S. stocks varies over time in accordance with the investment
adviser's outlook.
Stock selection is at the heart of SCMI's investment process. SCMI
emphasizes fundamental company analysis in seeking companies that it believes
have a sustainable competitive advantage and whose growth potential is
undervalued by investors. In selecting companies for investment, SCMI considers
historical growth rates and future growth prospects, management capability,
competitive position in both domestic and export markets, and other factors.
SCMI also seeks to add value through active geographic allocation. Its
allocation decisions are based upon its assessment of the likelihood that the
country will have a favorable long-term business environment in which corporate
growth will not be impeded materially by adverse macroeconomics or political
factors.
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The Portfolios may also engage in the following investment practices,
each of which involves certain special risks. The SAI contains more detailed
information about these practices (some of which may be considered "derivative"
investments), including limitations designed to reduce these risks.
FOREIGN SECURITIES. Investments in foreign securities entail certain
risks. There may be a possibility of nationalization or expropriation of assets,
confiscatory taxation, political or financial instability, and diplomatic
developments that could affect the value of a Portfolio's investments in certain
foreign countries. Since foreign securities are normally denominated and traded
in foreign currencies, the values of the Portfolio's assets may be affected
favorably or unfavorably by currency exchange rates, currency exchange control
regulations, foreign withholding taxes and restrictions or prohibitions on the
repatriation of foreign currencies. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and foreign issuers
are not generally subject to accounting, auditing, and financial reporting
standards and practices comparable to those in the United States. The securities
of some foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions and other
fees are also generally higher than in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of a Portfolio's assets
held abroad) and expenses not present in the settlement of domestic investments.
In addition, legal remedies available to investors in certain foreign
countries may be more limited than those available with respect to investments
in the United States or in other foreign countries. The willingness and ability
of sovereign issuers to pay principal and interest on government securities
depends on various economic factors, including without limitation the issuer's
balance of payments, overall debt level, and cash-flow considerations related to
the availability of tax or other revenues to satisfy the issuer's obligations.
If a foreign governmental entity is unable or unwilling to meet its obligations
on the securities in accordance with their terms, a Portfolio may have limited
recourse available to it in the event of default. The laws of some foreign
countries may limit a Portfolio's ability to invest in securities of certain
issuers located in those foreign countries. Special tax considerations apply to
foreign securities. Except as otherwise provided in this Prospectus, there is no
limit on the amount of a Portfolio's assets that may be invested in foreign
securities.
If a Portfolio purchases securities denominated in foreign currencies,
a change in the value of any such currency against the U.S. dollar will result
in a change in the U.S. dollar value of the Portfolio's assets and the
Portfolio's income available for distribution. In addition, although at times
most of a Portfolio's income may be received or realized in these currencies,
the Portfolio will be required to compute and distribute its income in U.S.
dollars. Therefore, if the exchange rate for any such currency declines after
the Portfolio's income has been earned and translated into U.S. dollars but
before payment, the Portfolio could be required to liquidate portfolio
securities to make such distributions. Similarly, if an exchange rate declines
between the time the Portfolio incurs expenses in
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U.S. dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars in order to pay such expenses in U.S.
dollars will be greater than the equivalent amount in any such currency of such
expenses at the time they were incurred. A Portfolio may buy or sell foreign
currencies and options and futures contracts on foreign currencies for hedging
purposes in connection with its foreign investments.
In determining whether to invest in debt securities of foreign issuers,
SCMI considers the likely impact of foreign taxes on the net yield available to
the Portfolio and its shareholders. Income received by a Portfolio from sources
within foreign countries may be reduced by withholding and other taxes imposed
by such countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Any such taxes paid by a Portfolio
will reduce its net income available for distribution to shareholders. In
certain circumstances, a Portfolio may be able to pass through to shareholders
credits for foreign taxes paid. See "Capital Stock and Other Securities".
Certain Portfolios may invest in securities of issuers in emerging
market countries with respect to some or all of their assets. The securities'
prices and relative currency values of emerging market investments are subject
to greater volatility than those of issuers in many more developed countries.
Investments in emerging market countries are subject to the same risks
applicable to foreign investments generally, although those risks may be
increased due to conditions in such countries. For example, the securities
markets and legal systems in emerging market countries may only be in a
developmental stage and may provide few, or none, of the advantages or
protections of markets or legal systems available in more developed countries.
Although many of the securities in which the Portfolios may invest are traded on
securities exchanges, they may trade in limited volume, and the exchanges may
not provide all of the conveniences or protections provided by securities
exchanges in more developed markets. The Portfolios may also invest a
substantial portion of their assets in securities traded in the over-the-counter
markets in such countries and not on any exchange, which may affect the
liquidity of the investment and expose the Portfolios to the credit risk of
their counterparties in trading those investments. Emerging market countries may
experience extremely high rates of inflation, which may adversely affect these
countries' economies and securities markets.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. 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. A Portfolio may engage in foreign currency exchange transactions to
protect against uncertainty in the level of future exchange rates. Although the
strategy of engaging in foreign currency exchange 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.
In particular, a Portfolio may enter into foreign currency exchange
transactions to protect against a change in exchange ratios that may occur
between the date on which the Portfolio contracts to trade a security and the
settlement date ("transaction hedging") in anticipation of placing a trade
("anticipation hedging"); to "lock in" the U.S. dollar value of interest and
dividends to be paid in a foreign currency; or to hedge against the possibility
that a foreign currency in which portfolio securities are denominated or quoted
may suffer a decline against the U.S. dollar ("position hedging").
SCMI may seek to enhance the Portfolio's investment return through
active currency management. SCMI may buy or sell currencies of the Portfolio, on
a spot or forward basis, in an attempt to profit from inefficiencies in the
pricing of various currencies or of debt securities denominated in those
currencies. When investing in foreign securities, a Portfolio usually effects
currency exchange transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign exchange market. A Portfolio incurs foreign exchange
expenses in converting assets from one currency to another.
A Portfolio may also enter into forward currency contracts. 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
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contract agreed upon by the parties) at a price set at the time of the contract.
Forward contracts do not eliminate fluctuations in the underlying prices of
securities and expose the Portfolio to the risk that the counterparty is unable
to perform.
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 exchange 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 a 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, the direction of stock
prices or interest rates, and other economic factors.
From time to time, a Portfolio's currency hedging transactions may call
for the delivery of one foreign currency in exchange for another foreign
currency and may at times involve currencies in which its portfolio securities
are not then denominated ("cross hedging"). From time to time, a Portfolio may
also engage in "proxy" hedging; whereby the Portfolio would seek to hedge the
value of portfolio holdings denominated in one currency by entering into an
exchange contract on a second currency, the valuation of which SCMI believes
correlates to the value of the first currency. Cross hedging and proxy hedging
transactions involve the risk of imperfect correlation between changes in the
values of the currencies to which such transactions relate and changes in the
value of the currency or other asset or liability that is the subject of the
hedge.
INVESTMENTS IN SMALLER COMPANIES. Certain Portfolios may invest all or
a substantial portion of their assets in securities issued by small companies.
Such companies may offer greater opportunities for capital appreciation than
larger companies, but investments in such companies may involve certain special
risks. Such companies may have limited product lines, markets, or financial
resources and may be dependent on a limited management group. While the markets
in securities of such companies have grown rapidly in recent years, such
securities may trade less frequently and in smaller volume than more widely held
securities. The values of these securities may fluctuate more sharply than those
of other securities, and a Portfolio may experience some difficulty in
establishing or closing out positions in these securities at prevailing market
prices. There may be less publicly available information about the issuers of
these securities or less market interest in such securities than in the case of
larger companies, and it may take a longer period of time for the prices of such
securities to reflect the full value of their issuers' underlying earnings
potential or assets.
Some securities of smaller issuers may be restricted as to resale or
may otherwise be highly illiquid. The ability of a Portfolio to dispose of such
securities may be greatly limited, and a Portfolio may have to continue to hold
such securities during periods when SCMI would otherwise have sold the
securities. It is possible that SCMI or its affiliates or clients may hold
securities issued by the same issuers, and may in some cases have acquired the
securities at different times, on more favorable terms, or at more favorable
prices, than a Portfolio. See "Additional Information Regarding Investments
- --Micro and Small Cap Companies, and --Unseasoned Issuers" in Part B.
DEBT SECURITIES. Each Portfolio may invest in debt securities. A
Portfolio may invest in debt securities either to earn investment income or to
benefit from changes in the market values of such securities. Debt securities
are subject to market risk (the risk of fluctuation of market value in response
to changes in interest rates) and to credit risk (the risk that the issuer may
become unable or unwilling to make timely payments of principal and interest).
Each Portfolio also may invest in lower-quality, high-yielding debt
securities rated below investment grade. Lower-rated debt securities (commonly
called "junk bonds") are considered to be of poor standing and predominantly
speculative. Securities in the lowest rating categories may have extremely poor
prospects of attaining any real investment standing, and some of those
securities in which a Portfolio may invest may be in default. The rating
services' descriptions of securities in the lower rating categories, including
their speculative characteristics, are set forth in the Appendix to this Private
Placement Memorandum.
In addition, lower-rated securities reflect a greater possibility that
adverse changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may
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impair the ability of the issuer to make payments of interest and principal.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability or perceived ability of an issuer to make payments
of interest and principal may also affect the value of these investments.
Each Portfolio may at times invest in so-called "zero coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity, rather than at intervals
during the life of the security. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. The values of zero-coupon bonds and payment-in-kind bonds are
subject to greater fluctuation in response to changes in market interest rates
than bonds which pay interest currently, and may involve greater credit risk
than such bonds. From time to time, a 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. Brady Bonds have been issued only recently
and, therefore, do not have a long payment history.
A Portfolio will not necessarily dispose of a security when its debt
rating is reduced below its rating at the time of purchase, although SCMI will
monitor the investment to determine whether continued investment in the security
will assist in meeting the Portfolio's investment objective.
OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio may engage in a
variety of transactions involving the use of options and futures contracts for
purposes of increasing its investment return or hedging against market changes.
A Portfolio may engage in such transactions for hedging purposes or, to the
extent permitted by applicable law, to increase investment return.
A Portfolio may seek to increase its current return by writing covered
call options and covered put options on its portfolio securities or other
securities in which it may invest. A Portfolio receives a premium from writing a
call or put option, which increases the Portfolio's return if the option expires
unexercised or is closed out at a net profit. A Portfolio may also buy and sell
put and call options on such securities for hedging purposes. When a Portfolio
writes a call option on a portfolio security, it gives up the opportunity to
profit from any increase in the price of the security above the exercise price
of the option; when it writes a put option, a Portfolio takes the risk that it
will be required to purchase a security from the option holder at a price above
the current market price of the security. A Portfolio may terminate an option
that it has written prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms as the option
written. A Portfolio may also from time to time buy and sell combinations of put
and call options on the same underlying security to earn additional income.
A Portfolio may buy and sell futures contracts. An "index future" is a
contract to buy or sell units of a particular index at an agreed price on a
specified future date. Depending on the change in value of the index between the
time when a Portfolio enters into and terminates an index future transaction,
the Portfolio may realize a gain or loss. A Portfolio may also purchase
warrants, issued by banks or other financial institutions, whose values are
based on the values from time to time of one or more securities indices.
A Portfolio may buy and sell futures contracts on U.S. government
obligations or other debt securities. A futures contract on a debt security is a
contract to by and sell a certain amount of the debt security at an agreed price
on a specified future date. Depending on the change in the value of the security
when the Portfolio enters into and terminates a futures contract, the Portfolio
realizes a gain or loss.
A Portfolio may purchase or sell options on futures contracts or on
securities indices in addition to or as an alternative to purchasing and selling
futures contracts.
A Portfolio may purchase and sell put and call options on foreign
currencies, futures contracts on foreign currencies, and options on foreign
currency futures contracts as an alternative, or in addition to, the foreign
currency exchange transactions described above. Such transactions are similar to
options and futures contracts on securities, except that they typically
contemplate that one party to a transaction will deliver one foreign currency to
the other in return for another currency (which may or may not be the U.S.
dollar).
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RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS. Options and futures
transactions involve costs and may result in losses. The use of options and
futures involves certain special risks, including the risks that a Portfolio may
be unable at times to close out such positions, that hedging transactions may
not accomplish their purpose because of imperfect market correlations, or that
SCMI may not forecast market movements correctly.
The effective use of options and futures strategies is dependent on,
among other things, a Portfolio's ability to terminate options and futures
positions at times when SCMI deems it desirable to do so. Although a Portfolio
will enter into an option or futures contract position only if SCMI believes
that a liquid secondary market exists for that option or futures contract, there
is no assurance that a Portfolio will be able to effect closing transactions at
any particular time or at an acceptable price.
Each Portfolio generally expects that its options and futures contract
transactions will be conducted on recognized exchanges. In certain instances,
however, a Portfolio may purchase and sell options in the over-the-counter
markets. A Portfolio's ability to terminate options in the over-the-counter
markets may be more limited than for exchange-traded options and may also
involve the risk that securities dealers participating in such transactions
would be unable to meet their obligations to a Portfolio. A Portfolio will,
however, engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in the opinion of SCMI,
the pricing mechanism and liquidity of the over-the-counter markets are
satisfactory and the participants are responsible parties likely to meet their
contractual obligations. A Portfolio will treat over-the-counter options (and,
in the case of options sold by the Portfolio, the underlying securities held by
the Portfolio) as illiquid investments as required by applicable law.
The use of options and futures strategies also involves the risk of
imperfect correlation between movements in the prices of options and futures
contracts and movements in the value of the underlying securities or index, or
currency, or in the prices of the securities or currency that are the subject of
a hedge. The successful use of these strategies further depends on the ability
of SCMI to forecast market movements correctly.
Because the markets for certain options and futures contracts in which
a Portfolio will invest (including markets located in foreign countries) are
relatively new and still developing and may be subject to regulatory restraints,
a Portfolio's ability to engage in transactions using such investments may be
limited. A Portfolio's ability to engage in hedging transactions may be limited
by certain regulatory and tax considerations. A Portfolio's hedging transactions
may affect the character or amount of its distributions. The tax consequences of
certain hedging transactions have been modified by the Taxpayer Relief Act of
1997.
For more information about any of the options or futures portfolio
transactions described above, see the SAI.
SHORT SALES AGAINST-THE-BOX. Each Portfolio may make short sales
"against-the-box", which are transactions in which the Portfolio sells a
security that it owns in anticipation of a decline in the market value of that
security. The proceeds of the short sale are held by a broker until the
settlement date, at which time the Portfolio delivers the security to close the
short position. The Portfolio receives the net proceeds from the short sale. It
is anticipated that the Portfolio will make short sales against-the-box to
protect the value of its net assets. Further information regarding limits of
short sales is contained in the SAI.
NON-DIVERSIFICATION AND GEOGRAPHIC CONCENTRATION. Schroder EM Core
Portfolio is a "non-diversified" series of an investment company, and may invest
its assets in a more limited number of issuers than may other investment
companies. Under the Internal Revenue Code, however, an investment company,
including a non-diversified investment company, generally may not invest more
than 25% of its total assets in obligations of any one issuer other than U.S.
Government obligations and, with respect to 50% of its total assets, a fund may
not invest more than 5% of its total assets in the securities of any one issuer
( except U.S. Government obligations). Thus, the Portfolio may invest up to 25%
of its total assets in the securities of each of any two issuers. This practice
involves an increased risk of loss to the Portfolio if the market value of a
security should decline or its issuer were otherwise not to meet its
obligations.
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A Portfolio may invest more than 25% of its total assets in issuers
located in any one country. To the extent that it does so, a 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 a Portfolio's assets may fluctuate more widely than the
value of shares of a comparable fund with a lesser degree of geographic
concentration.
SECURITIES LOANS, REPURCHASE AGREEMENTS, AND FORWARD COMMITMENTS. Each
Portfolio may lend portfolio securities to brokers, dealers and financial
institutions meeting specified credit conditions and may enter into repurchase
agreements without limit. The percentage limitation on the amount of a
Portfolio's total assets that may be loaned in accordance with the approved
procedures is as follows: International Equity Fund-- 10%; Schroder
International Smaller Companies Portfolio and Schroder U.S. Smaller Companies
Portfolio -- 25%; Schroder EM Core Portfolio -- 33 1/3%; and Schroder Global
Growth Portfolio -- 33 1/3%. These transactions must be fully collateralized at
all times but involve some risk to a Portfolio if the other party should default
on its obligation and the Portfolio is delayed or prevented from recovering its
assets or realizing on the collateral. Each Portfolio may also purchase
securities for future delivery, which may increase its overall investment
exposure and involves a risk of loss if the value of the securities declines
prior to the settlement date.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Portfolio is permitted
to invest in other investment companies or pooled vehicles, including closed-end
funds, that are advised by SCMI or its affiliates or by unaffiliated parties.
Pursuant to the 1940 Act, a Portfolio may invest in the shares of other
investment companies that invest in securities in which the Portfolio is
permitted to invest, subject to the limits and conditions required under the
1940 Act or any orders, rules or regulations thereunder. When investing through
investment companies, a Portfolio may pay a premium above such investment
companies' net asset value per share. As a shareholder in an investment company,
a 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.
LIQUIDITY. A Portfolio will not invest more than 15% (10%, in the case
of International Equity Fund) of its net assets in securities determined by SCMI
to be illiquid. Certain securities that are restricted as to resale may
nonetheless be resold by a Portfolio in accordance with Rule 144A under the
Securities Act of 1933, as amended. Such securities may be determined by SCMI to
be liquid for purposes of compliance with the limitation on a Portfolio's
investment in illiquid securities. There can, however, be no assurance that a
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.
ALTERNATIVE INVESTMENTS. At times, SCMI may judge that market
conditions make pursuing a Portfolio's basic investment strategy inconsistent
with the best interests of its shareholders. At such times, SCMI may temporarily
use alternative strategies, primarily designed to reduce fluctuations in the
values of the Portfolio's assets. In implementing these "defensive" strategies,
a Portfolio may invest without limit in U.S. government obligations and other
high-quality debt instruments and any other investment SCMI considers to be
consistent with such defensive strategies, and may hold any portion of its
assets in cash.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a
particular security is not generally a consideration in investment decisions.
The investment policies of a Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by a Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to a Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Such securities sales may
result in realization of taxable capital gains.
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INVESTMENT RESTRICTIONS
The following investment restrictions on the Portfolios are designed to
reduce their exposure in specific situations.
A. Under these fundamental restrictions, INTERNATIONAL EQUITY FUND
will not:
1. Invest more than 5% of its assets in the securities of any single
issuer. (This restriction does not apply to securities issued by
the U.S. Government, its agencies, instrumentalities or
government- sponsored enterprises.)
2. Purchase more than 10% of the voting securities of any one
issuer. Moreover, the Portfolio will not purchase more than 3% of
the outstanding securities of any closed-end investment company.
(Any such purchase of securities issued by a closed-end
investment company will otherwise be made in full compliance with
Sections 12(d)(1)(a)(i), (ii) and (iii) of the Act.)
3. Invest more than 10% of its assets in "restricted securities"
which include: (1) securities that are not readily marketable,
and (2) securities of issuers having a record (together with all
predecessors) of less than three years of continuous operation.
4. Invest more than 25% of its assets in any one industry.
5. Borrow money, except from banks for temporary emergency purposes
and then only in an amount not exceeding 5% of the value of the
total assets of the Portfolio.
6. Pledge, mortgage or hypothecate its assets to an extent greater
than 10% of the value of the total assets of the Portfolio.
B. Under these fundamental restrictions, SCHRODER EM CORE 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,
instrumentalities or government-sponsored enterprises.
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.
C. Under these fundamental restrictions, SCHRODER INTERNATIONAL
SMALLER COMPANIES PORTFOLIO will not:
1. 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.
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2. 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. 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.
D. Under these fundamental restrictions, SCHRODER U.S. SMALLER
COMPANIES PORTFOLIO will not:
1. With respect to 75% of its assets, the Portfolio may not purchase
a security other than a U.S. Government Security if, as a result,
more than 5% of its total assets would be invested in the
securities of a single issuer or it would own more than 10% of
the outstanding voting securities of any single issuer.
2. Purchase securities if, immediately after the purchase, 25% or
more of the value of its total assets would be invested in the
securities of issuers conducting their principal business
activities in the same industry; provided, however, that there is
no limit on investments in U.S. Government Securities.
3. Borrow money, except that it may borrow money from banks or by
entering into reverse repurchase agreements, provided that such
borrowings do not exceed 33 1/3% of the value of the Portfolio's
total assets (computed immediately after the borrowing).
F. Under these fundamental restrictions, SCHRODER GLOBAL GROWTH
PORTFOLIO will not:
1. With respect to 75% of its assets, purchase a security (other
than a U.S. government security or a security of an investment
company) if, as a result: (1) more than 5% of the Portfolio's
total assets would be invested in the securities of a single
issuer; or (2) the Portfolio would own more than 10% of the
outstanding voting securities of any single issuer.
2. Concentrate its assets in the securities of issuers in any one
industry; therefore the Portfolio may not purchase a security if,
as a result, more than 25% of the value of its total assets would
be invested in the securities of issuers conducting their
principal business activities in the same industry. This limit
does not apply to investments in U.S. government securities, or
repurchase agreements covering U.S. government securities.
3. Borrow money 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.
The percentage restrictions described above and in Part B apply only at the
time of investment and require no action by a Portfolio as a result of
subsequent changes in value of the investments or the size of the Portfolio,
except as to liquidity and borrowing. A complete list of investment restrictions
is contained in Part B.
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MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS. The Board of Trustees of the Trust is
responsible for generally overseeing the conduct of the Trust's business. The
business and affairs of each Portfolio are managed under the direction of the
Board of Trustees. Information regarding the trustees and executive officers of
the Trust may be found in Part B.
INVESTMENT ADVISER. Schroder Capital Management International Inc., the
investment adviser to each Portfolio, is a wholly owned U.S. subsidiary of
Schroders U.S. Holdings Inc., which engages through its subsidiary firms in the
investment banking, asset management, and securities businesses. Affiliates of
Schroders U.S. Holdings Inc. (or their predecessors) have been investment
managers since 1927. SCMI and its United Kingdom affiliate, Schroder Capital
Management International, Ltd., have served together as investment manager for
over $27 billion as of June 30, 1998. Schroders U.S. Holdings Inc. is an
indirect, wholly owned U.S. subsidiary of Schroders plc, a publicly owned
holding company organized under the laws of England. Schroders plc and its
affiliates engage in international merchant banking and investment management
businesses, and as of June 30, 1998, had under management assets of
approximately $175 billion. Schroder Advisors is a wholly owned subsidiary of
Schroder Capital Management International Inc.
As investment adviser to each Portfolio, SCMI is entitled to monthly
advisory fees at the following annual rates (based on the assets of each
Portfolio taken separately): INTERNATIONAL EQUITY FUND -- 0.45% of the
Portfolio's average daily net assets; SCHRODER INTERNATIONAL SMALLER COMPANIES
PORTFOLIO -- 0.85% of the Portfolio's average daily net assets; SCHRODER EM CORE
PORTFOLIO -- 1.00% of the Portfolio's average daily net assets; SCHRODER U.S.
SMALLER COMPANIES PORTFOLIO -- 0.60% of the Portfolio's average daily net
assets; and SCHRODER GLOBAL GROWTH PORTFOLIO -- 0.50% of the Portfolio's average
daily net assets.
Schroder Investment Management International, Ltd. ("SIMIL"), 31
Gresham Street, London, U.K. EC2V 7QA, an affiliate of SCMI, serves as
subadviser to Schroder International Smaller Companies Portfolio. Under a
Subadvisory Agreement among SCMI, SIMIL, and the Portfolio, SIMIL is responsible
for the day-to-day portfolio management of the Portfolio, subject to the
direction and control of SCMI. SIMIL, a newly organized investment advisory
firm, is a wholly-owned subsidiary of Schroders plc, and as of June 30, 1998 had
under management assets of approximately $42 billion. Under the Subadvisory
Agreement, SCMI pays SIMIL a monthly fee at the annual rate of 0.25% of the
Portfolio's average daily net assets.
PORTFOLIO MANAGERS. SCMI's investment decisions for each Portfolio are made
by an investment manager or an investment team, with the assistance of an
investment committee at SCMI. Mr. Michael Perelstein, Vice President of the
Trust and of Schroder Capital Funds, is primarily responsible for managing
International Equity. Ms. Jane P. Lucas, aa Senior Vice President of SCMI and
investment manager of SIMIL, and Mr. Nicholas Melhuish, an investment manager of
SIMIL, is primarily responsible for managing Schroder International Smaller
Companies Portfolio. Mr. John A. Troiano, a Vice President of the Trust and of
Schroder Capital Funds, Ms. Heather Crighton, a vice president of SCMI, and Mr.
Mark Bridgeman are primarily responsible for managing Schroder EM Core
Portfolio. Mr. Ira Unschuld, a Vice President of the Trust and a Group Vice
President of SCMI, is primarily responsible for managing Schroder U.S. Smaller
Companies Portfolio. Each of the persons named has several years of experience
in managing investment portfolios comparable to those for which each has
responsibility.
PORTFOLIO TRANSACTIONS. SCMI places all orders for purchases and sales
of the Portfolios' securities. In selecting broker-dealers, SCMI may consider
research and brokerage services furnished to it and its affiliates. Schroder &
Co. and Schroder Securities Limited, affiliates of SCMI, may receive brokerage
commissions from the Portfolios in accordance with procedures adopted by the
Trustees under the 1940 Act which require periodic review of these transactions.
Subject to seeking the most favorable price and execution available, SCMI may
consider sales of shares of the Funds as a factor in the selection of
broker-dealers.
ADMINISTRATIVE SERVICES. The Trust, on behalf of each Portfolio, has
entered into an administration agreement with Schroder Advisors, pursuant to
which Schroder Advisors is required to provide certain management
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and administrative services to those Portfolios. The Trust also has entered into
a subadministration agreement with Forum Administrative Services, LLC, Two
Portland Square, Portland, Maine 04101 ("FAdS"), pursuant to which FAdS provides
certain management and administrative services necessary for the Portfolios'
operations. Schroder Advisors and FAdS monthly at the following annual rates
(based on the assets of each Portfolio taken separately): INTERNATIONAL EQUITY
FUND -- 0.075% and 0.075%, respectively, of the Portfolio's average daily net
assets; SCHRODER EM CORE PORTFOLIO -- 0.10% and 0.075%, respectively, of the
Portfolio's average daily net assets; SCHRODER INTERNATIONAL SMALLER COMPANIES
FUND -- 0.15% and 0.075%, respectively, of the Portfolio's average daily net
assets; SCHRODER U.S. SMALLER COMPANIES FUND -- 0.00% and 0.10%, respectively,
of the Portfolio's average daily net assets; and SCHRODER GLOBAL GROWTH
PORTFOLIO -- 0.15% and 0.075%, respectively, of the Portfolio's average daily
net assets.
RECORDKEEPER AND PORTFOLIO 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 FAdS. From time to time, Forum Accounting voluntarily may
agree to waive all or a portion of its fees.
EXPENSES. Each 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 a Portfolio, which are
allocated to that Portfolio , and expenses not attributable to a Portfolio,
which are allocated among all portfolios of the Trust in proportion to their
average net assets or as otherwise determined by the Board.
CUSTODIAN. The Chase Manhattan Bank, through its Global Custody
Division located at 125 London Wall, London EC2Y 5AJ, United Kingdom, acts as
custodian of the assets of each Portfolio (other than Schroder U.S. Smaller
Companies Portfolio). Chase employs foreign subcustodians to maintain the
Portfolios' foreign assets outside the United States. Norwest Bank located at
Sixth Street and Marquette, Minneapolis, Minnesota 55479 acts as custodian of
the assets of Schroder U.S. Smaller Companies Portfolio.
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.
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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 August 31, 1998, each of the following held in excess of 25% of a
Portfolio's Interests and may therefore be considered a "control person" of the
Portfolio: (1) Schroder International Fund, a series of Schroder Capital Funds
(Delaware) owned substantially all of the outstanding Interests of International
Equity Fund; (2) Norwest International Fund, Norwest Growth Equity Fund and
Norwest Diversified Equity Fund, series of Norwest Advantage Funds, a registered
open-end management investment company, each held in excess of 25%, and
collectively owned substantially all of the outstanding Interests, of Schroder
EM Core Portfolio; (3) Schroder International Smaller Companies Fund, a series
of Schroder Capital Funds (Delaware) owned substantially all of the outstanding
Interests of Schroder International Smaller Companies Portfolio; (4) Small Cap
Opportunities Fund, a series of Norwest Advantage Funds, owned a majority of the
outstanding Interests of Schroder U.S. Smaller Companies Portfolio; and (5)
Schroders Inc. and Performa Global Growth Fund, a series of Norwest Advantage
Funds, each held in excess of 25% of the outstanding Interests of Schroder
Global Growth Portfolio. In addition, Schroder Capital Funds (Delaware) may be
deemed to be a control person of the Trust.
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 the close of the New York Stock
Exchange (the "Exchange") (normally, 4:00 p.m. Eastern time), 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 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 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.
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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 Shareholder Services, LLC.
Account No.:[ See Account Numbers below]
Ref.: [Name of Schroder Portfolio]
Account of: [interestholder name]
Account Number: [interestholder account number]
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<S> <C>
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PORTFOLIO NAME ACCOUNT NUMBER
-------------------------------------------------------------- -------------------------------
International Equity Fund 910-2-783637
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Schroder EM Core Portfolio 910-2-792281
-------------------------------------------------------------- -------------------------------
Schroder International Smaller Companies Portfolio 910-2-792596
-------------------------------------------------------------- -------------------------------
Schroder U.S. Smaller Companies Portfolio 910-2-792588
-------------------------------------------------------------- -------------------------------
Schroder Global Growth Portfolio 910-2-792492
-------------------------------------------------------------- -------------------------------
</TABLE>
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 the
close of the Exchange (normally 4:00 p.m. Eastern time) on each Business Day are
processed at the net asset value next determined that day. Wire orders received
after the closing of the Exchange are processed at the net asset value next
determined. 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 FAdS, is the placement
agent for the Trust. The placement agent receives no compensation for its
services.
REDEMPTION OR REPURCHASE
An investor may redeem all or any portion of its investment in the
Portfolio at the net asset value next determined after the investor furnishes a
redemption 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 a 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 between 9:00 a.m. and 6:00 p.m. (Eastern time) on each Business Day.
Redemption requests that are received prior to the closing of the Exchange are
processed at the net asset value next determined on that day. Redemption
requests that are received after the closing of the Exchange are processed at
the net asset value next determined. 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.
17
<PAGE>
Written redemption requests may be sent to the Trust at the following
address:
[Name of Schroder Portfolio]
P.O. Box 446
Portland, Maine 04112
Telephone redemption requests may be made by telephoning the transfer
agent at 1-800-344-8332 or 1-207-879-8903. 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 a 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.
18
<PAGE>
APPENDIX A
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.
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.
A-1
<PAGE>
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.
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
A-2
<PAGE>
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.
"D" The rating "D" is reserved for fixed-income securities when
the issue is in payment default, or the obligor has filed for
bankruptcy. The D rating category is used when interest
payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless
S&P believes that such payments will made during such grace
period.
"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".
"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.
A-3
<PAGE>
SCHRODER CAPITAL FUNDS
PART B
(PRIVATE PLACEMENT MEMORANDUM)
INTERNATIONAL EQUITY FUND
SCHRODER EM CORE PORTFOLIO
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
SCHRODER GLOBAL GROWTH PORTFOLIO
NOVEMBER 13, 1998
COVER PAGE
Not applicable.
TABLE OF CONTENTS
General Information and History.................................... 2
Investment Objectives and Policies................................. 3
Investment Restrictions............................................ 14
Management of the Trust............................................ 21
Control Persons and Principal Holders of Securities................ 24
Investment Advisory and Other Services............................. 24
Brokerage Allocation and Other Practices........................... 27
Capital Stock and Other Securities................................. 29
Purchase, Redemption and Pricing of Securities..................... 30
Tax Status......................................................... 31
Placement Agent.................................................... 34
Calculations of Performance Data................................... 34
Financial Statements............................................... 34
Appendix A - Miscellaneous Tables.................................. A-1
Interests in each Portfolio are offered solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in a Portfolio may be made only by certain qualified
investors (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.
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>
GENERAL INFORMATION AND HISTORY
.........
See "General Description of Registrant", "Management of the Trust" and "Capital
Stock and Other Securities" in Part A of this Private Placement Memorandum. As
used herein the following terms have the meanings ascribed:
Board The term "Board" means of the board of trustees of the Trust.
CFTC The term "CFTC" means the United States Commodities Futures trading
Commission.
Code The term "Code" means the United States Internal
Revenue Code of 1986, as amended.
FAS The term "FAS" means Forum Accounting Services, LLC,
the Portfolios' interestholder recordkeeper and
portfolio accountant.
FAdS The term "FAdS" means Forum Administrative Services,
LLC, the Portfolios' subadministrator.
Portfolio The term "Portfolio" means each of International
Equity Fund, Schroder EM Core Portfolio, Schroder
International Smaller Companies Portfolio, Schroder
U.S. Smaller Companies Portfolio and Schroder Global
Growth Portfolio
Schroder Advisors The term "Schroder Advisors" means Schroder
Fund Advisors Inc., the Portfolios' administrator.
SCMI The term "SCMI" means Schroder Capital Management
International Inc., the Portfolios' investment
adviser.
SEC The term "SEC" means the United States Securities and
Exchange Commission.
Trust The term "Trust: means Schroder Capital Funds.
U.S. Government
Securities The term "U.S. Government Securities' means
securities issued or guaranteed by the United States
government or by its agencies or instrumentalities.
1940 Act The term "1940 Act" means the United States
Investment Company Act of 1940, as amended.
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Part A contains information about the investment objective, policies
and restrictions of each of the portfolios named above. The Portfolios are
series of the Trust. The following discussion supplements the disclosure in Part
A concerning the Portfolios' 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.
Except as otherwise noted, the policies described in Part A and in this
Part B are not "fundamental". Fundamental policies of a Portfolio cannot be
changed without the vote of a "majority" of the Portfolio's outstanding
Interests. Under the 1940 Act, 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.
The Board may change any policy of a Portfolio that is not fundamental without a
vote of the interestholders of the Portfolio.
Except as otherwise noted, the following descriptions of certain
investment policies and techniques are applicable to each of the Portfolios.
OPTIONS
Each Portfolio may purchase and sell covered put and call options on
its portfolio securities to enhance investment performance and to protect
against changes in market prices.
COVERED CALL OPTIONS. A Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by the Portfolio.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call
option, a Portfolio gives up some or all of the opportunity to profit from an
increase in the market price of the securities covering the call option during
the life of the option. The Portfolio retains the risk of loss should the price
of such securities decline. If the option expires unexercised, the Portfolio
realizes a gain equal to the premium, which may be offset by a decline in price
of the underlying security. If the option is exercised, the Portfolio realizes a
gain or loss equal to the difference between the Portfolio's cost for the
underlying security and the proceeds of sale (exercise price minus commissions)
plus the amount of the premium.
A Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. A Portfolio may enter
into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called in
an unexpected market rise. Any profits from a closing purchase transaction may
be offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Portfolio.
COVERED PUT OPTIONS. A Portfolio may write covered put options in order
to enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.
3
<PAGE>
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes the
risk that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
A Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
PURCHASING PUT AND CALL OPTIONS. A Portfolio may also purchase put
options to protect portfolio holdings against a decline in market value. This
protection lasts for the life of the put option because the Portfolio, as a
holder of the option, may sell the underlying security at the exercise price
regardless of any decline in its market price. In order for a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction costs
that the Portfolio must pay. These costs will reduce any profit the Portfolio
might have realized had it sold the underlying security instead of buying the
put option.
A Portfolio may purchase call options to hedge against an increase in
the price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Portfolio
might have realized had it bought the underlying security.
A Portfolio may purchase call options to hedge against an increase in
the price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Portfolio
might have realized had it bought the underlying security at the time it
purchased the call option.
A Portfolio may also purchase put and call options to enhance its
current return.
OPTIONS ON FOREIGN SECURITIES. A Portfolio may purchase and sell
options on foreign securities if in SCMI's opinion the investment
characteristics of such options, including the risks of investing in such
options, are consistent with the Portfolio's investment objectives. It is
expected that risks related to such options will not differ materially from
risks related to options on U.S. securities. However, position limits and other
rules of foreign exchanges may differ from those in the U.S. In addition,
options markets in some countries, many of which are relatively new, may be less
liquid than comparable markets in the U.S.
RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve
certain risks, including the risks that SCMI will not forecast interest rate or
market movements correctly, that a Portfolio may be unable at times to close out
such positions, or that hedging transactions may not accomplish their purpose
because of imperfect market correlations. The successful use of these strategies
depends on the ability of SCMI to forecast market and interest rate movements
correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Portfolio may be forced to continue to hold,
or to purchase at a fixed price, a security on which it has sold an option at a
time when SCMI believes it is inadvisable to do so.
4
<PAGE>
Higher than anticipated trading activity or order flow or other
unforeseen events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict a
Portfolio's use of options. The exchanges have established limitations on the
maximum number of calls and puts of each class that may be held or written by an
investor or group of investors acting in concert. It is possible that the
Portfolios and other clients of SCMI may be considered such a group. These
position limits may restrict the Portfolios' ability to purchase or sell options
on particular securities.
Options that are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that reason,
it may be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
FUTURES CONTRACTS
In order to hedge against the effects of adverse market changes, each
Portfolio that may invest in debt securities may buy and sell futures contracts
on debt securities of the type in which the Portfolio may invest and on indexes
of debt securities. In addition, each Portfolio that may invest in equity
securities may purchase and sell stock index futures to hedge against changes in
stock market prices. Each Portfolio may also, to the extent permitted by
applicable law, buy and sell futures contracts and options on futures contracts
to increase the Portfolio's current return. All such futures and related options
will, as may be required by applicable law, be traded on exchanges that are
licensed and regulated by the CFTC.
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- a
Portfolio will legally obligate itself to accept the future delivery of the
underlying security and pay the agreed price. By selling futures on debt
securities --assuming a "short" position -- it will legally obligate itself to
make the future delivery of the security against payment of the agreed price.
Positions taken in the futures markets are not normally held to
maturity, but are instead liquidated through offsetting transactions that may
result in a profit or a loss. While futures positions taken by a Portfolio will
usually be liquidated in this manner, a Portfolio may instead make or take
delivery of the underlying securities whenever it appears economically
advantageous to the Portfolio to do so. A clearing corporation associated with
the exchange on which futures are traded assumes responsibility for such closing
transactions and guarantees that a Portfolio's sale and purchase obligations
under closed-out positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Portfolio may, for example, take a "short" position in
the futures market by selling contracts for the future delivery of debt
securities held by the Portfolio (or securities having characteristics similar
to those held by the Portfolio) in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the Portfolio's
portfolio securities. When hedging of this character is successful, any
depreciation in the value of portfolio securities may substantially be offset by
appreciation in the value of the futures position.
On other occasions, a Portfolio may take a "long" position by
purchasing futures on debt securities. This would be done, for example, when the
Portfolio expects to purchase particular securities when it has the necessary
cash, but expects the rate of return available in the securities markets at that
time to be less favorable than rates currently available in the futures markets.
If the anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Portfolio of
purchasing the securities may be offset, at least to some extent, by the rise in
the value of the futures position taken in anticipation of the subsequent
securities purchase.
Successful use by a Portfolio of futures contracts on debt securities
is subject to SCMI's ability to predict correctly movements in the direction of
interest rates and other factors affecting markets for debt securities. For
5
<PAGE>
example, if a Portfolio has hedged against the possibility of an increase in
interest rates which would adversely affect the market prices of debt securities
held by it and the prices of such securities increase instead, the Portfolio
will lose part or all of the benefit of the increased value of its securities
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Portfolio has insufficient
cash, it may have to sell securities to meet daily maintenance margin
requirements. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
A Portfolio may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to options
on securities except that options on futures contracts give 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 period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. A
Portfolio will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements, and, in addition, net option premiums received will be
included as initial margin deposits. See "Investment Objectives and Policies
Futures Contracts - Margin Payments". Compared to the purchase or sale of
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to a Portfolio because the maximum amount at risk
is the premium paid for the options plus transactions costs. However, there may
be circumstances when the purchase of call or put options on a futures contract
would result in a loss to a Portfolio when the purchase or sale of the futures
contracts would not, such as when there is no movement in the prices of debt
securities. The writing of a put or call option on a futures contract involves
risks similar to those risks relating to the purchase or sale of futures
contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. Certain Portfolios may invest in
debt index futures contracts and stock index futures contracts, and in related
options. A debt index futures contract is a contract to buy or sell units of a
specified debt index at a specified future date at a price agreed upon when the
contract is made. A unit is the current value of the index. Debt index futures
in which the Portfolios are presently expected to invest are not now available,
although such futures contracts are expected to become available in the future.
A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one
contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Portfolio enters into a futures contract to buy 100 units of
the S&P 100 Index at a specified future date at a contract price of $180 and the
S&P 100 Index is at $184 on that future date, the Portfolio will gain $400 (100
units x gain of $4). If the Portfolio enters into a futures contract to sell 100
units of the stock index at a specified future date at a contract price of $180
and the S&P 100 Index is at $182 on that future date, the Portfolio will lose
$200 (100 units x loss of $2).
A Portfolio may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge a Portfolio's investments successfully using futures
contracts and related options, a Portfolio must invest in futures contracts with
respect to indexes or sub-indexes the movements of which will, in its judgment,
have a significant correlation with movements in the prices of the Portfolio's
securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures
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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 period of
the option. Upon exercise of the option, the holder would assume the underlying
futures position and would receive a variation margin payment of cash or
securities approximating the increase in the value of the holder's option
position. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
based on the difference between the exercise price of the option and the closing
level of the index on which the futures contract is based on the expiration
date. Purchasers of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
As an alternative to purchasing and selling call and put options on
index futures contracts, each of the Portfolios that may purchase and sell index
futures contracts may purchase and sell call and put options on the underlying
indexes themselves to the extent that such options are traded on national
securities exchanges. Index options are similar to options on individual
securities in that the purchaser of an index option acquires the right to buy
(in the case of a call) or sell (in the case of a put), and the writer
undertakes the obligation to sell or buy (as the case may be), units of an index
at a stated exercise price during the term of the option. Instead of giving the
right to take or make actual delivery of securities, the holder of an index
option has the right to receive a cash "exercise settlement amount". This amount
is equal to the amount by which the fixed exercise price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing value
of the underlying index on the date of the exercise, multiplied by a fixed
"index multiplier".
A Portfolio may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices which it has
purchased. A Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to a Portfolio
because the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves
risks similar to those risks relating to the purchase or sale of index futures
contracts.
MARGIN PAYMENTS. When a Portfolio purchases or sells a futures
contract, it is required to deposit with its custodian an amount of cash, U.S.
Treasury bills, or other permissible collateral equal to a small percentage of
the amount of the futures contract. This amount is known as "initial margin".
The nature of initial margin is different from that of margin in security
transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to a Portfolio upon termination of the contract,
assuming a Portfolio satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a Portfolio sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Portfolio's
position declines in value. The Portfolio then pays the broker a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the securities underlying the futures contract.
Conversely, if the price of the underlying security falls below the delivery
price of the contract, the Portfolio's futures position increases in value. The
broker then must make a variation margin payment equal to the difference between
the delivery price of the futures contract and the market price of the
securities underlying the futures contract.
When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market for such
futures. Although each Portfolio intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular time.
If there is not a liquid secondary market at a particular time, it may not be
possible to close a futures
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position at such time and, in the event of adverse price movements, a Portfolio
would continue to be required to make daily cash payments of variation margin.
However, in the event financial futures are used to hedge portfolio securities,
such securities will not generally be sold until the financial futures can be
terminated. In such circumstances, an increase in the price of the portfolio
securities, if any, may partially or completely offset losses on the financial
futures.
In addition to the risks that apply to all options transactions, there
are several special risks relating to options on futures contracts. The ability
to establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Portfolio generally will purchase only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that a Portfolio would have to exercise the
options in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying securities or
index or movements in the prices of a Portfolio's securities which are the
subject of a hedge. SCMI will, however, attempt to reduce this risk by
purchasing and selling, to the extent possible, futures contracts and related
options on securities and indexes the movements of which will, in its judgment,
correlate closely with movements in the prices of the underlying securities or
index and a Portfolio's portfolio securities sought to be hedged.
Successful use of futures contracts and options by a Portfolio for
hedging purposes is also subject to SCMI's ability to predict correctly
movements in the direction of the market. It is possible that, where a Portfolio
has purchased puts on futures contracts to hedge its portfolio against a decline
in the market, the securities or index on which the puts are purchased may
increase in value and the value of securities held in the portfolio may decline.
If this occurred, the Portfolio would lose money on the puts and also experience
a decline in value in its portfolio securities. In addition, the prices of
futures, for a number of reasons, may not correlate perfectly with movements in
the underlying securities or index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit requirements.
Such requirements may cause investors to close futures contracts through
offsetting transactions which could distort the normal relationship between the
underlying security or index and futures markets. Second, the margin
requirements in the futures markets are less onerous than margin requirements in
the securities markets in general, and as a result the futures markets may
attract more speculators than the securities markets do. Increased participation
by speculators in the futures markets may also cause temporary price
distortions. Due to the possibility of price distortion, even a correct forecast
of general market trends by SCMI may still not result in a successful hedging
transaction over a very short time period.
OTHER RISKS. The Portfolios will incur brokerage fees in connection
with their futures and options transactions. In addition, while futures
contracts and options on futures will be purchased and sold to reduce certain
risks, those transactions themselves entail certain other risks. Thus, while a
Portfolio may benefit from the use of futures and related options, unanticipated
changes in interest rates or stock price movements may result in a poorer
overall performance for the Portfolio than if it had not entered into any
futures contracts or options transactions. Moreover, in the event of an
imperfect correlation between the futures position and the portfolio position
which is intended to be protected, the desired protection may not be obtained
and the Portfolio may be exposed to risk of loss.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements. A repurchase
agreement is a contract under which the Portfolio acquires a security for a
relatively short period (usually not more than 7 days) subject to the obligation
of the seller to repurchase and the Portfolio to resell such security at a fixed
time and price (representing the Portfolio's cost plus interest). It is the
Trust's present intention to enter into repurchase agreements only with member
banks of the Federal Reserve System and securities dealers meeting certain
criteria as to creditworthiness and financial condition established by the
Trustees of the Trust and only with respect to obligations of the U.S.
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government or its agencies or instrumentalities or other high quality short term
debt obligations. Repurchase agreements may also be viewed as loans made by a
Portfolio which are collateralized by the securities subject to repurchase. SCMI
will monitor such transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller defaults, a
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, if the
seller should be involved in bankruptcy or insolvency proceedings, a Portfolio
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if a Portfolio is treated as an unsecured
creditor and required to return the underlying collateral to the seller's
estate.
FORWARD COMMITMENTS
Each Portfolio may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") if the Portfolio holds, and maintains until the settlement date in
a segregated account, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or if the Portfolio enters into
offsetting contracts for the forward sale of other securities it owns. Forward
commitments may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Where such purchases are made through dealers,
a Portfolio relies on the dealer to consummate the sale. The dealer's failure to
do so may result in the loss to the Portfolio of an advantageous yield or price.
Although a Portfolio will generally enter into forward commitments with
the intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, a Portfolio may dispose of a
commitment prior to settlement if SCMI deems it appropriate to do so. A
Portfolio may realize short-term profits or losses upon the sale of forward
commitments.
WHEN-ISSUED SECURITIES
Each Portfolio may from time to time purchase securities on a
"when-issued" basis. Debt securities are often issued on this basis. The price
of such securities, which may be expressed in yield terms, is fixed at the time
a commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by a Portfolio and no interest accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending the
settlement of a purchase of securities, that Portfolio would earn no income.
While a Portfolio may sell its right to acquire when-issued securities prior to
the settlement date, a Portfolio intends actually to acquire such securities
unless a sale prior to settlement appears desirable for investment reasons. At
the time a Portfolio makes the commitment to purchase a security on a
when-issued basis, it will record the transaction and reflect the amount due and
the value of the security in determining the Portfolio's net asset value. The
market value of the when-issued securities may be more or less than the purchase
price payable at the settlement date. Each Portfolio will establish a segregated
account in which it will maintain cash and U.S. Government Securities or other
high-grade debt obligations at least equal in value to commitments for
when-issued securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
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LOANS OF PORTFOLIO SECURITIES
Each Portfolio may lend its portfolio securities, provided: (1) the
loan is secured continuously by collateral consisting of U.S. government
securities, cash, or cash equivalents adjusted daily to have market value at
least equal to the current market value of the securities loaned; (2) the
Portfolio may at any time call the loan and regain the securities loaned; (3) a
Portfolio will receive any interest or dividends paid on the loaned securities;
and (4) the aggregate market value of securities of any Portfolio loaned will
not at any time exceed one-third of the total assets of the Portfolio. In
addition, it is anticipated that the Portfolio may share with the borrower some
of the income received on the collateral for the loan or that it will be paid a
premium for the loan. Before a Portfolio enters into a loan, SCMI considers all
relevant facts and circumstances including the creditworthiness of the borrower.
The risks in lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. Although voting
rights or rights to consent with respect to the loaned securities pass to the
borrower, a Portfolio retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by a Portfolio if the holders of such securities are asked to vote upon or
consent to matters materially affecting the investment. A Portfolio will not
lend portfolio securities to borrowers affiliated with a Portfolio.
Schroder EM Core Portfolio and Schroder Global Growth Portfolio may not
lend a security if, as a result, the amount of loaned securities would exceed an
amount equal to 33 1/3% of the Portfolio's total assets.
Schroder International Smaller Companies Portfolio and Schroder U.S.
Smaller Companies Portfolio may not lend a security if, as a result, the amount
of loaned securities would exceed an amount equal to 25% of the Portfolio's
total assets.
International Equity Fund may not end a security if, as a result, the
amount of loaned securities would exceed an amount equal to 10% of the
Portfolio's total assets.
FOREIGN SECURITIES
Each Portfolio may invest in foreign securities and in certificates of
deposit issued by United States branches of foreign banks and foreign branches
of United States banks.
Investments in foreign securities may involve considerations different
from investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other fees are generally higher than in the
United States. It may be more difficult to obtain and enforce a judgment against
a foreign issuer.
In addition, to the extent that any Portfolio's foreign investments are
not United States dollar-denominated, the Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers, the
investment adviser of a Portfolio seeking current income will consider the
likely impact of foreign taxes on the net yield available to the Portfolio and
its shareholders. Income received by a Portfolio from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to determine the effective rate
of foreign tax in advance since the amount of a Portfolio's assets to be
invested in various countries is not known, and tax laws and their
interpretations may change from time to time and may change without advance
notice. Any such taxes paid by a Portfolio will reduce its net income available
for distribution to shareholders.
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FOREIGN CURRENCY TRANSACTIONS
Each Portfolio may engage in currency exchange transactions to protect
against uncertainty in the level of future foreign currency exchange rates and
to increase current return. A Portfolio may engage in both "transaction hedging"
and "position hedging."
When it engages in transaction hedging, a Portfolio enters into foreign
currency transactions with respect to specific receivables or payables of a
Portfolio generally arising in connection with the purchase or sale of its
portfolio securities. A Portfolio will engage in transaction hedging when it
desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging a Portfolio will attempt
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is purchased or sold or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received.
A Portfolio may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. A
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes a Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives a Portfolio the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives a Portfolio the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives a Portfolio the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives a Portfolio the right to purchase a
currency at the exercise price until the expiration of the option. A Portfolio
will engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in SCMI's opinion, the
pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations.
When it engages in position hedging, a Portfolio enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by a Portfolio are denominated or
are quoted in their principal trading markets or an increase in the value of
currency for securities which a Portfolio expects to purchase. In connection
with position hedging, a Portfolio may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. A Portfolio may also purchase
or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of a
Portfolio's portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Portfolio is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of a Portfolio if the market value of such security or securities
exceeds the amount of foreign currency a Portfolio is obligated to deliver.
To offset some of the costs to a Portfolio of hedging against
fluctuations in currency exchange rates, a Portfolio may write covered call
options on those currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can
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achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.
A Portfolio may also seek to increase its current return by purchasing
and selling foreign currency on a spot basis, and by purchasing and selling
options on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves 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 as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
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. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Portfolio may
either accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Portfolio will normally purchase
or sell foreign currency futures contracts and related options only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or option or at any particular time. In such
event, it may not be possible to close a futures or related option position and,
in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin on its futures
positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when SCMI believes that a liquid secondary market exists for such options. There
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. Options on foreign currencies are affected by all
of those factors which influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. 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.
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There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (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 cannot be reflected in the U.S. options
markets.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio
at one rate, while offering a lesser rate of exchange should a Portfolio desire
to resell that currency to the dealer.
ZERO-COUPON SECURITIES
Zero-coupon securities in which a Portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. As a result, the net asset value of
shares of a Portfolio investing in zero-coupon securities may fluctuate over a
greater range than shares of other Portfolios of the Trust and other mutual
funds investing in securities making current distributions of interest and
having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly
by the U.S. Treasury or other short-term debt obligations, and longer-term bonds
or notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (I.E., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under the
STRIPS program, a Portfolio will be able to have its beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
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EMERGING MARKETS COUNTRIES
The following countries are not deemed to be "emerging markets" for
Schroder EM Core Portfolio.
Australia The Netherlands
Austria New Zealand
Belgium Norway
Canada Portugal
Denmark Singapore
Finland Spain
France Sweden
Germany Switzerland
Ireland United Kingdom
Italy USA
Japan
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. Except as required by the 1940 Act, if any percentage
restriction on investment or utilization of assets is adhered to at the time an
investment is made, a later change in percentage resulting from a change in the
market values of the Portfolio's assets or purchases and redemptions of
interests will not be considered a violation of the limitation.
INTERNATIONAL EQUITY FUND
FUNDAMENTAL RESTRICTIONS. The following investment restrictions are
fundamental policies of the Portfolio.
DIVERSIFICATION. The Portfolio may not invest more than 5% of its
assets in the securities of any single issuer. This restriction does
not apply to U.S. Government Securities.
PURCHASING VOTING SECURITIES. The Portfolio may not purchase more than
10% of the voting securities of any one issuer.
CLOSED-END FUNDS. The Portfolio will not purchase more than 3% of the
outstanding securities of any closed-end investment company.
UNSEASONED ISSUERS. The Portfolio may not invest in securities of
issuers having a record, together with predecessors, of less than
three years of continuous operations if, regarding all such
securities, more than 10% of its total assets would be invested in
such securities.
CONCENTRATION. The Portfolio may not invest 25% or more of the value
of its total assets in any one industry.
BORROWING. The Portfolio may not borrow money, except from banks, for
temporary emergency purposes and then only in an amount not exceeding
5% of the value of the total assets of the Portfolio.
PLEDGING. The Portfolio may not pledge, mortgage or hypothecate its
assets to an extent greater than 10% of the value of the total assets
of the Portfolio.
MARGIN; SHORT SALES. The Portfolio may not purchase securities on
margin or sell short.
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INVESTING FOR CONTROL. The Portfolio may not make investments for the
purpose of exercising control or management.
REAL ESTATE. 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.
LENDING. The Portfolio may not make loans to other persons, provided
that for purposes of this restriction, entering into repurchase
agreements, acquiring corporate debt securities and investing in U.S.
Government Securities, short-term commercial paper, certificates of
deposit and bankers' acceptances shall not be deemed to be the making
of a loan.
COMMODITIES. The Portfolio may not invest in commodities; commodity
contracts other than foreign currency forward contracts; or oil, gas
and other mineral resource, lease, or arbitrage transactions.
OPTIONS. The Portfolio may not write, purchase or sell options or
puts, calls, straddles, spreads, or combinations thereof.
UNDERWRITING. 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.
WARRANTS. The Portfolio may not invest in warrants, valued at the
lower of cost or market, more than 5% of the value of the Portfolio's
net assets (included within that amount, but not to exceed 2% of the
value of the Portfolio's net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired
by the Portfolio in units or attached to securities may be deemed to
be without value.).
NONFUNDAMENTAL RESTRICTIONS. The following investment restrictions are
not fundamental policies of the Portfolio.
LIQUIDITY. The Portfolio may not invest in securities which cannot be
readily resold to the public because of legal or contractual
restrictions or for which no readily available market exists. This
policy does not include restricted securities eligible for resale to
qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Board
or SCMI under Board-approved guidelines. Such guidelines take into
account trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack
of trading interest in particular Rule 144A securities, the
Portfolio's holdings of those securities may be illiquid.
SCHRODER EM CORE PORTFOLIO
FUNDAMENTAL RESTRICTIONS. The following investment restrictions are
fundamental policies of the Portfolio.
INDUSTRY CONCENTRATION. The Portfolio may not 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.
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<PAGE>
BORROWING. The Portfolio may not borrow money if, as a result,
outstanding borrowings would exceed an amount equal to one third of
the Portfolio's total assets.
REAL ESTATE. The Portfolio may not 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).
LENDING. The Portfolio may not 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.
COMMODITIES. The Portfolio may not 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).
UNDERWRITING. The Portfolio may not 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.
SENIOR SECURITIES. The Portfolio may not issue any class of senior
securities except to the extent consistent with the 1940 Act.
NONFUNDAMENTAL RESTRICTIONS. The following investment restrictions are
not fundamental policies of the Portfolio.
DIVERSIFICATION. 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.
BORROWING. For purposes of the Portfolio's 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").
LIQUIDITY. The Portfolio may not 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.
EXERCISING CONTROL OF ISSUERS. The Portfolio may not 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.
OTHER INVESTMENT COMPANIES. The Portfolio may not invest in securities
of another investment company, except to the extent permitted by the
1940 Act.
MARGIN; SHORT SALES. The Portfolio 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
16
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securities on margin. The Portfolio may not 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.
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
FUNDAMENTAL RESTRICTIONS. The following investment restrictions are
fundamental policies of the Portfolio.
DIVERSIFICATION. The Portfolio may not, with respect to 75% of its
assets, purchase a security other than a U.S. Government Security 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.
CONCENTRATION. 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 U.S.
Government Securities. 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.
BORROWING. 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.
REAL ESTATE. 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.
LENDING. 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.
COMMODITIES. The Portfolio may not invest in commodities or commodity
contracts other than foreign currency forward contracts.
UNDERWRITING. 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.
SENIOR SECURITIES. The Portfolio may not issue senior securities
except to the extent permitted by the 1940 Act.
NONFUNDAMENTAL RESTRICTIONS. The following investment restrictions are
not fundamental policies of the Portfolio.
CLOSED-END FUNDS. The Portfolio will not purchase more than 3% of the
outstanding securities of any closed-end investment company.
BORROWING. The Portfolio will not purchase securities while borrowings
exceed 5% of total assets.
LIQUIDITY. 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
17
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virtue of restrictions on the sale of such securities to the public
without registration under the Securities 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 SCMI pursuant to guidelines
adopted by the Board.
INVESTING FOR CONTROL. 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.)
MARGIN; SHORT SALES. 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.
OIL, GAS AND MINERAL INVESTMENTS. The Portfolio may not invest in oil,
gas, or other mineral resources, lease, or arbitrage transactions.
DIVERSIFICATION. The Portfolio may not purchase a security, other than
a U.S. Government Security 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.
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
FUNDAMENTAL RESTRICTIONS. The following investment restrictions are
fundamental policies of the Portfolio.
DIVERSIFICATION. The Portfolio may not, with respect to 75% of its
assets, the Portfolio may not purchase a security other than a U.S.
Government Security if, as a result, more than 5% of its total assets
would be invested in the securities of a single issuer or it would own
more than 10% of the outstanding voting securities of any single
issuer.
CONCENTRATION. The Portfolio may not purchase securities if,
immediately after the purchase, 25% or more of the value of its total
assets would be invested in the securities of issuers conducting their
principal business activities in the same industry; provided, however,
that there is no limit on investments in U.S. Government Securities.
BORROWING. The Portfolio may borrow money from banks or by entering
into reverse repurchase agreements, provided that such borrowings do
not exceed 33 1/3% of the value of the Portfolio's total assets
(computed immediately after the borrowing).
SENIOR SECURITIES. The Portfolio may not issue senior securities
except to the extent permitted by the 1940 Act.
UNDERWRITING. The Portfolio may not underwrite securities of other
issuers, except to the extent that it may be considered to be acting as
an underwriter in connection with the disposition of portfolio
securities.
LENDING. The Portfolio may not make loans, except it may enter into
repurchase agreements, purchase debt securities that are otherwise
permitted investments and lend portfolio securities.
REAL ESTATE. The Portfolio may not purchase or sell real estate or any
interest therein, except that it may invest in debt obligations secured
by real estate or interests therein or securities issued by companies
that invest in real estate or interests therein.
18
<PAGE>
COMMODITIES. The Portfolio may not purchase or sell physical
commodities unless acquired as a result of owning securities or other
instruments, but it may purchase, sell or enter into financial options
and futures and forward currency contracts and other financial
contracts or derivative instruments.
NONFUNDAMENTAL RESTRICTIONS. The following investment restrictions are
not fundamental policies of the Portfolio.
BORROWING. The Portfolio's borrowings for other than temporary or
emergency purposes or meeting redemption requests may not exceed an
amount equal to 5% of the value of its net assets.
LIQUIDITY. The Portfolio may not acquire securities or invest in
repurchase agreements with respect to any securities if, as a result,
more than 15% of its net assets (taken at current value) would be
invested in repurchase agreements not entitling the holder to payment
of principal within seven days and in securities that are not readily
marketable by virtue of restrictions on the sale of such securities to
the public without registration under the 1933 Act ("Restricted
Securities").
OTHER FUNDS. The Portfolio may not invest in securities of another
investment company, except to the extent permitted by the 1940 Act.
MARGIN; SHORT SALES. 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.
UNSEASONED ISSUERS. The Portfolio may not invest in securities (other
than fully collateralized debt obligations) issued by companies that
have conducted continuous operations for less than three years,
including the operations of predecessors, unless guaranteed as to
principal and interest by an issuer in whose securities the Portfolio
could invest, if, as a result, more than 5% of the value of the
Portfolio's total assets would be so invested.
PLEDGING. The Portfolio may not pledge, mortgage, hypothecate or
encumber any of its assets except to secure permitted borrowings.
SECURITIES HELD BY TRUSTEES AND OFFICERS. The Portfolio may not invest
in or hold securities of any issuer if, to the Trust's knowledge,
officers and trustees of the Trust or officers and directors of the
Portfolio's investment adviser, individually owning beneficially more
than 1/2 of 1% of the securities of the issuer, in the aggregate own
more than 5% of the issuer's securities.
OIL, GAS AND MINERAL INVESTMENTS. The Portfolio may not invest in
interest in oil and gas or interests in other mineral exploration or
development programs.
REAL ESTATE PARTNERSHIPS. The Portfolio may not purchase real estate
limited partnership interests.
WARRANTS. The Portfolio may not invest in warrants if, as a result,
more than 5% of its net assets would be so invested or if, more than 2%
of its net assets would be invested in warrants that are not listed on
the New York or American Stock Exchanges.
SCHRODER GLOBAL GROWTH PORTFOLIO
FUNDAMENTAL RESTRICTIONS. The following investment restrictions are
fundamental policies of the Portfolio.
DIVERSIFICATION. With respect to 75% of its assets, 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) more than 5% of
19
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the Portfolio's total assets would be invested in the securities of a
single issuer; or (2) the Portfolio would own more than 10% of the
outstanding voting securities of any single issuer.
INDUSTRY CONCENTRATION. The Portfolio may not 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.
BORROWING. The Portfolio may not borrow money if, as a result,
outstanding borrowings would exceed an amount equal to one third of
the Portfolio's total assets.
REAL ESTATE. The Portfolio may not 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).
LENDING. The Portfolio may not 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.
COMMODITIES. The Portfolio may not 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).
UNDERWRITING. The Portfolio may not 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.
SENIOR SECURITIES . The Portfolio may not issue any class of senior
securities except to the extent consistent with 1940 Act.
NONFUNDAMENTAL LIMITATIONS. The Portfolio has adopted the following
nonfundamental investment limitations.
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.
LIQUIDITY. The Portfolio may not 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.
EXERCISING CONTROL OF ISSUERS. The Portfolio may not make investments
for the purpose of exercising control of an issuer. Investments by a
Portfolio in entities created under the laws of foreign countries
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solely to facilitate investment in securities in that country will not
be deemed the making of investments for the purpose of exercising
control.
OTHER INVESTMENT COMPANIES. The Portfolio may not invest in securities
of another investment company, except to the extent permitted by the
1940 Act.
SHORT SALES AND PURCHASING ON MARGIN. The Portfolio may not 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.
The Portfolio may not purchase securities on margin, except that a
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.
LENDING. The Portfolio may not 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.
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of the
Portfolio's assets or purchases and redemptions of interests will not be
considered a violation of the limitation.
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. If no address
is shown, the person's address is that of the Trust, Two Portland Square.
Portland, Maine 04101.
PETER E. GUERNSEY, 75 - Trustee of the Trust; Insurance Consultant
since August 1986; prior thereto Senior Vice President, Marsh &
McLennan, Inc., insurance brokers.
JOHN I. HOWELL, 80 - 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 - Trustee of the Trust; Chairman of the Board
of Directors, Josiah Macy, Jr. Foundation (charitable foundation).
HERMANN C. SCHWAB, 77 - Chairman and Trustee of the Trust; retired
since March, 1988; prior thereto, consultant to SCMI since February 1,
1984.
HON. DAVID N. DINKINS, 69 - 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 - 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.
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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.
FERGAL CASSIDY, 29, 787 Seventh Avenue, New York, New York - Treasurer
of the Trust; Acting Controller and Assistant Vice President of SCM and
SCMI since September 1997; Assistant Vice President of SCM and SCMI
from April 1997 to September 1997; Associate, SCMI, from August 1995 to
March 1997; and prior thereto Senior Accountant of Concurrency Mgt.,
Greenwich, Connecticut from November 1994 to August 1995, and Senior
Accountant, Schroder Properties, London, September 1990 to November
1993.
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 U.S. Holdings Inc. since May 1987; prior thereto, partner of
Sullivan & Worcester, a law firm.
RICHARD R. FOULKES, 51, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Deputy Chairman of SCMI since October 1995;
Director and Executive Vice President of Schroder Capital Management
International Ltd. since 1989.
JOHN Y. KEFFER, 54 - Vice President of the Trust; President of Forum
Financial Group, LLC, parent Forum Accounting Services, LLC and Forum
Administrative Services, LLC.
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.
ALAN MANDEL, 41, 787 Seventh Avenue, New York, New York - Assistant
Treasurer of the Trust; Vice President of SCMI since September 1998;
prior thereto Director of Mutual Fund Administration for Salomon
Brothers Asset Management since 1995; prior thereto Chief Financial
Officer and Vice President of Mutual Capital Management since 1991.
CARIN MUHLBAUM, 36, 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust; Vice President of SCMI since 1998; prior
thereto an investment management attorney with Seward & Kissel since
1998; prior thereto an investment management attorney with Gordon
Altman Butowsky Weitzen Shalov & Wein since 1989.
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.
22
<PAGE>
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.
NICHOLAS ROSSI, 35, 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust, Associate of SCMI since October 1997 and
Assistant Vice President Schroder Advisors since March 1998; prior
thereto Mutual Fund Specialist, Willkie Farr & Gallagher since May
1996; prior thereto, Fund Administrator with Furman Selz LLC since
1992.
THOMAS G. SHEEHAN, 42 - Assistant Treasurer and Assistant Secretary of
the Trust; Relationship Manager and Counsel, Forum Administrative
Services, LLC since 1993; prior thereto, Special Counsel, U.S.
Securities and Exchange Commission, Division of Investment Management,
Washington, D.C.
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.
CHERYL O. TUMLIN, 32, Two Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust; Assistant Counsel,
Forum Administrative Services, LLC since July 1996, prior thereto,
attorney with the U.S. Securities and Exchange Commission, Division of
Market Regulation since 1995; prior thereto, attorney with Robinson
Silverman Pearce Aronsohn & Berman since 1991.
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.
* Interested Trustee of the Trust within the meaning of the 1940 Act.
In addition to the Trust, the term "Fund Complex" includes three other
registered investment companies -- Schroder Capital Funds II, an open-end
management investment company; Schroder Capital Funds (Delaware), an open-end
management investment company; and Schroder Series Trust, an open-end company
- --for which SCMI serves as investment adviser for each series.
Officers and Trustees who are interested persons of the Trust receive
no salary, fees or compensation from the Trust. Independent Trustees of the
Trust receive an annual retainer from the Fund Complex 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 $1,000 per year. Payment of the annual retainer
is allocated among the various investment companies based on their relative net
assets. Payment of meeting fees is allocated only among those investment
companies to which the meeting relates. None of the registered investment
companies in the Fund Complex has any bonus, profit sharing, pension or
retirement plans.
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The following table provides the fees paid to each independent Trustee
of the Trust for the year ended May 31, 1998.
<TABLE>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation From
Aggregate Benefits Accrued Estimated Annual Fund Complex Paid
Compensation From As Part of Trust Benefits Upon To Trustees ($)
Name of Trustee the Trust ($) Expenses ($) Retirement ($)
- -------------------------------- -------------------- -------------------- --------------------- -------------------
Mr. Guernsey 4,073 0 0 7,000
Mr. Howell 3,043 0 0 7,000
Mr. Michalis 4,073 0 0 7,000
Mr. Schwab 4,573 0 0 7,750
Mr. Dinkins 2,543 0 0 5,000
Mr. Knight 2,543 0 0 6,250
</TABLE>
As of August 31, 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
The control persons and principal shareholders in the Trust's
Portfolios are set forth in Table 3 in Appendix A.
Both Schroder Capital Funds (Delaware) and Norwest Advantage Funds have
informed the Trust that whenever one of their series is requested to vote on
matters pertaining to a Portfolio, they will either: (1) solicit voting
instructions from fund shareholders with regard to the voting of all proxies
with respect to a fund's shares in a Portfolio and vote such proxies in
accordance with such instructions, or (2) vote the interests held by a fund in
the same proportion as the vote of all other holders of the Portfolio's
interests.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY SERVICES
SCMI, 787 Seventh Avenue, New York, New York, 10019, serves as
investment adviser to each Portfolio pursuant to an investment advisory
agreement. SCMI (as well as SCM) 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 agreements, SCMI is responsible for
managing the investment and reinvestment of the assets included in each
Portfolio and for continuously reviewing, supervising and administering the
Portfolios' investments. In this regard, SCMI is responsible for making
decisions relating to the Portfolios' 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 Portfolios.
Under the terms of the investment advisory agreements, SCMI is required
to manage the Portfolios' investment portfolio in accordance with applicable
laws and regulations. In making its investment decisions, SCMI does not use
material inside information that may be in its possession or in the possession
of its affiliates.
The investment advisory agreements each continue in effect provided
such continuance is approved annually: (1) by the vote of a majority of the
outstanding voting securities of the Portfolio (as defined by the 1940
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Act) or by the Board and (2) by a majority of the Trustees who are not parties
to the agreement or "interested persons" (as defined in the 1940 Act) of any
party to the agreement. The investment advisory agreement with respect to a
Portfolio 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
SCMI, or by SCMI on 60 days' written notice to the Trust. The agreements
terminate automatically if assigned. Each 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 SCMI's duties
or by reason of reckless disregard of its or their obligations and duties under
the agreement.
Table 1 in Appendix A shows the dollar amount of advisory fees payable
as a percentage of daily net assets by each Fund to SCMI, as well as the dollar
amount of fees that would have been payable had certain waivers not been in
place, together with the dollar amount of fees waived and the dollar amount of
net fees paid. The advisory fee rates are set forth in Part A. This information
is provided for the past three years or such shorter terms as a Portfolio has
been operational.
Schroder Investment Management International, Ltd. ("SIMIL"), 31
Gresham Street, London, U.K. EC2V 7QA, an affiliate of SCMI, serves as
subadviser to Schroder International Smaller Companies Portfolio. Under a
Subadvisory Agreement among SCMI, SIMIL, and the Portfolio, SIMIL is responsible
for the day-to-day portfolio management of the Portfolio, subject to the
direction and control of SCMI. SIMIL, a newly organized investment advisory
firm, is a wholly-owned subsidiary of Schroders plc, and as of June 30, 1998 had
under management assets of approximately $42 billion. Under the Subadvisory
Agreement, SCMI pays SIMIL a monthly fee at the annual rate of 0.25% of the
Portfolio's average daily net assets.
Under the terms of the investment sub-advisory agreement, SIMIL is
required to manage the investment portfolio of Schroder International Smaller
Companies Portfolio in accordance with applicable laws and regulations. In
making its investment decisions, SIMIL does not use material inside information
that may be in its possession or in the possession of its affiliates.
The investment sub-advisory agreement continues in effect provided such
continuance is approved annually: (1) 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 the
agreement or "interested persons" (as defined in the 1940 Act) of any party to
the agreement. The investment sub-advisory agreement may be terminated without
penalty (i) by a vote of the Board or by a vote of a majority of the outstanding
voting interests of the Portfolio on 60 days' written notice to SIMIL; (ii) by
the SCMI on 60 days' written notice to the SIMIL; or (iii) by SIMIL on 60 days'
written notice to the Trust. The agreement shall terminate automatically if
assigned. The agreement also provides that, with respect to the Portfolio,
neither SIMIL 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 SIMIL's or their duties or by reason of
reckless disregard of its or their obligations and duties under the agreement.
ADMINISTRATIVE SERVICES
On behalf of each Portfolio, the Trust has entered into an
administration agreement with Schroder Advisors, 787 Seventh Avenue, New York,
New York 10019, and a subadministration agreement FAdS. Under these agreements,
Schroder Advisors and FAdS provide certain management and administrative
services necessary for the Portfolios' operations, other than the investment
management and administrative services provided to the Portfolios by SCMI
pursuant SCMI's investment advisory agreements. These services include, among
other things: (1) preparation of shareholder reports and communications; (2)
regulatory compliance, such as reports to and filings with the SEC and state
securities commissions; and (3) general supervision of the operation of the
Portfolios, including coordination of the services performed by SCMI and the
interestholder recordkeeper and portfolio accountant, 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.
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<PAGE>
The administration and subadministration agreements are terminable with
respect to each Portfolio without penalty, at any time, by the Board on 60 days'
written notice to Schroder Advisors or FAdS, as applicable, or by Schroder
Advisors or FAdS on 60 days' written notice to the Trust.
Table 2 in Appendix A shows the dollar amount of administration and
subadministration fees payable with respect to each Portfolio had certain
waivers not been in place, together with the dollar amount of fees waived and
the dollar amount of net fees paid. The fee rates are set forth in Part A. This
information is provided for the past three years or such shorter terms as a
Portfolio has been operational.
INTERESTHOLDER RECORDKEEPING AND PORTFOLIO ACCOUNTING
FAS, an affiliate of FAdS, performs interestholder recordkeeping and
portfolio accounting services for each Portfolio pursuant to an agreement with
the Trust. The agreement is terminable with respect to each Portfolio without
penalty, at any time, by the Board upon 60 days' written notice to FAS or by FAS
upon 60 days' written notice to the Trust.
Under its agreement, FAS prepares and maintains the interestholder and
accounting books and records of each Portfolio that are required to be
maintained under the 1940 Act, calculates the net asset value of each Portfolio,
calculates the distributive share of the Portfolios' income, expense, gain and
loss allocable to each interestholder and prepares periodic reports to
interestholders and the SEC. For its services to each Portfolio, FAS is entitled
to receive from the Trust a fee of $48,000 per year. FAS is entitled to an
additional $24,000 per year with respect to global and international portfolios.
In addition, FAS also is entitled to an additional $12,000 per year with respect
to tax-free money market portfolios, portfolios with more than 25% of their
total assets invested in asset-backed securities, portfolios that have more than
100 security positions, or portfolios that have a monthly portfolio turnover
rate of 10% or greater.
FAS is required to use its best judgment and efforts in rendering its
services and is not liable to the Trust for any action or inaction in the
absence of bad faith, willful misconduct or gross negligence. FAS is not
responsible or liable for any failure or delay in performance of its obligations
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control. The Trust has agreed to indemnify and hold harmless FAS and
its employees, agents, officers and directors against and from any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and all other expenses arising out of or in any way
related to FAS's actions taken or failures to act with respect to a Portfolio or
based, if applicable, upon information, instructions or requests with respect to
a Portfolio given or made to FAS by an officer of the Trust duly authorized.
This indemnification does not apply to FAS's actions taken or failures to act in
cases of FAS's own bad faith, willful misconduct or gross negligence.
CUSTODIAN
The Chase Manhattan Bank, through its Global Securities Services
division located at 125 London Wall, London EC2Y 5AJ, United Kingdom, acts as
custodian of the assets of each Portfolio (other than Schroder U.S. Smaller
Companies Portfolio) but plays no role in making decisions as to the purchase or
sale of portfolio securities for the Portfolios. Norwest Bank located at Sixth
Street and Marquette, Minneapolis, Minnesota 55479 acts as custodian of the
assets of Schroder U.S. Smaller Companies Portfolio. Neither Chase Manhattan
Bank nor Norwest Bank plays a role in making decisions as to the purchase or
sale of portfolio securities for the Funds or the Portfolios. Pursuant to rules
adopted under the 1940 Act, the Portfolios may maintain their 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.
26
<PAGE>
INDEPENDENT AUDITORS
PricewaterhouseCoopers, LLP, One Post Office Square, Boston,
Massachusetts 02109, serves as independent auditors for each Portfolio.
YEAR 2000 DISCLOSURE
The Portfolios receive services from SCMI, Schroder Advisors, FAdS, FAS, The
Chase Manhattan Bank and others which rely on the smooth functioning of their
respective systems and the systems of others to perform those services. It is
generally recognized that certain systems in use today may not perform their
intended functions adequately after the Year 1999 because of the inability of
the software to distinguish the year 2000 from the year 1900. Schroder Advisors
is taking steps that it believes are reasonably designed to address this
potential "Year 2000" problem and to obtain satisfactory assurances that
comparable steps are being taken by each of the Portfolios other major service
providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Portfolios from this problem.
BROKERAGE ALLOCATION AND OTHER PRACTICES
INVESTMENT DECISIONS
Investment decisions for the Portfolios and for SCMI's other investment
advisory clients 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 that, 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 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 a Portfolio are placed with foreign
broker-dealers, certain portfolio transaction costs for a Portfolio may be
higher than fees for similar transactions executed on U.S. securities exchanges.
However, SCMI 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.
Each Portfolio's advisory agreement authorizes and directs SCMI to
place orders for the purchase and sale of the Portfolio's investments with
brokers or dealers SCMI selects and to seek "best execution" of 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 the most
favorable price and execution available. A 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 deems 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,
27
<PAGE>
experience and financial stability of the broker-dealers involved, and the
quality of service rendered by the broker-dealers in other transactions.
Historically, investment advisers, including advisers of investment
companies and other institutional investors, have received research services
from broker-dealers that execute portfolio transactions for the advisers'
clients. Consistent with this practice, SCMI may receive research services from
broker-dealers with which it places 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 other Portfolios), although not all of these services are
necessarily useful and of value in managing a Portfolio. The investment advisory
fee paid by a 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,
as amended, SCMI may cause a Portfolio to pay a broker-dealer that provides SCMI
with "brokerage and research services" (as defined in that Section) an amount of
disclosed commission for effecting a securities transaction in excess of the
commission which another broker-dealer would have charged for effecting that
transaction. In addition, although it does not do so currently 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 a
Portfolio toward payment of Portfolio expenses, such as custodian fees.
Subject to the general policies of a Portfolio regarding allocation of
portfolio brokerage as set forth above, the Board has authorized SCMI to employ:
(1) Schroder & Co. Inc., an affiliate of SCMI, to effect securities transactions
of a 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 a 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 & Co. Inc. or Schroder
Securities for effecting brokerage 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 Portfolio 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 policy of each Portfolio that commissions paid
to Schroder & Co. Inc. or Schroder Securities will, in SCMI's opinion, be: (1)
at least as favorable as commissions contemporaneously charged by Schroder & Co.
Inc. 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 Board, including a majority
of the non-interested Trustees, has adopted procedures pursuant to Rule 17e-1
under the 1940 Act to ensure that commissions paid to Schroder & Co. Inc. or
Schroder Securities by a Portfolio satisfy these standards. Such procedures are
reviewed periodically by the Board, including a majority of the non-interested
Trustees. The Board also reviews all transactions at least quarterly for
compliance with such procedures.
It is further a policy of the Portfolios that all such transactions
effected by Schroder & Co. Inc. on the New York Stock Exchange be in accordance
with Rule 11a2-2(T) promulgated under the Securities Exchange Act of 1934, as
amended, which requires in substance that a member of such exchange not
associated with Schroder & Co. Inc. actually execute the transaction on the
exchange floor or through the exchange facilities. Thus, while Schroder & Co.
Inc. will bear responsibility for determining important elements of execution
such as timing and order size, another firm will actually execute the
transaction.
Schroder & Co. Inc. pays a portion of the brokerage commissions it receives
from a Portfolio to the brokers executing the transactions on the New York Stock
Exchange. In accordance with Rule 11a2-2(T), the Trust has entered into an
agreement with Schroder & Co. Inc. permitting it to retain a portion of the
brokerage commissions paid to it by a Portfolio. The Board, including a majority
of the non-interested Trustees, has approved this agreement.
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None of the Portfolios has any understanding or arrangement to direct any
specific portion of its brokerage to Schroder & Co. Inc. or Schroder Securities,
and none will direct brokerage to Schroder & Co. Inc. or Schroder Securities in
recognition of research services.
From time to time, a Portfolio may purchase securities of a broker or
dealer through which it regularly engages in securities transactions.
Table 4 in Appendix A shows the dollar amount of brokerage commissions
paid by each Portfolio for the past three years or such shorter terms as a
Portfolio has been operational. In addition, the table also indicates the dollar
amount of brokerage commissions, percentage of brokerage commissions and
percentage of commission transactions executed through each of Schroder & Co.
Inc. and Schroder Securities.
CAPITAL STOCK AND OTHER SECURITIES
Under the Trust's Trust Instrument, the Trustees are authorized to
issue beneficial interests in one or more separate and distinct series.
Investments in the Portfolios have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Each investor in a Portfolio is entitled to a vote in proportion to the amount
of its investment therein. Investors in a Portfolio and other series of the
Trust will all vote together in certain circumstances (e.g., election of the
Trustees) as required by the 1940 Act. One or more portfolios of the Trust 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 a 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 a 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
Instrument without the vote of investors.
The Trust, with respect to a Portfolio, may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved by
the Board. A 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 a 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. 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 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, SCMI believes that the
risk of personal liability to a Trust interestholder is remote.
Under federal securities law, 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, the Trustees and certain
officers are required to sign the registration statement and amendments thereto
of certain registered investment companies that invest in a Portfolio. In
addition, under federal securities law, the Trust may be liable for
misstatements or omissions of a material fact in any proxy soliciting material
of a publicly offered investment company investor in the Trust. Each such
investor in a Portfolio has agreed to indemnify the Trust, the Trustees and
officers ("Indemnitees") against certain claims.
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Indemnified claims are those brought against Indemnitees based on a
misstatement or omission of a material fact in the investor's registration
statement or proxy materials. No indemnification need be made, however, if such
alleged misstatement or omission relates to information about the Trust and was
supplied to the investor by the Trust. Similarly, the Trust will indemnify each
investor in a 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 the Trust that is supplied to the investor by the
Trust. In addition, certain registered investment company investors in the
Portfolio will indemnify each Indemnitee against any claim 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.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES
PRIVATE SALE OF INTERESTS
Interests in the Portfolios 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 a 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.
Each investment in a Portfolio is in the form of a non-transferable
beneficial interest.
DETERMINATION OF NET ASSET VALUE
The Board has established the time for (see Part A) and the procedures
for the valuation of the Portfolios' securities: (1) equity securities listed or
traded on the New York or American Stock Exchange or other domestic or foreign
stock exchange are valued at their latest sale prices on such exchange that day
prior to the time when assets are valued; in the absence of sales that day, such
securities are valued at the mid-market prices (in cases where securities are
traded on more than one exchange, the securities are valued on the exchange
designated as the primary market by the Portfolio's investment adviser); (2)
unlisted equity securities for which over-the-counter market quotations are
readily available are valued at the latest available mid-market prices prior to
the time of valuation; (3) securities (including restricted securities) not
having readily-available market quotations are valued at fair value under the
Board's procedures; (4) debt securities having a maturity in excess of 60 days
are valued at the mid-market prices determined by a portfolio pricing service or
obtained from active market makers on the basis of reasonable inquiry; and (5)
short-term debt securities (having a remaining maturity of 60 days or less) are
valued at cost, adjusted for amortization of premiums and accretion of discount.
When an option is written, an amount equal to the premium received is
recorded in the books as an asset, and an equivalent deferred credit is recorded
as a liability. The deferred credit is adjusted ("marked-to-market") to reflect
the current market value of the option. Options are valued at their mid-market
prices in the case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the average of the last bid price as obtained
from two or more dealers unless there is only one dealer, in which case that
dealer's price is used. Futures contracts and related options are stated at
market value.
Open futures positions on debt securities will be valued at the most
recent settlement price, unless that price does not, in the judgment of the
Board (or SCMI under the Board's procedures), reflect the fair value of the
contract, in which case the positions will be valued under the Board's
procedures.
REDEMPTIONS IN-KIND
In the event that payment for redeemed interests is made wholly or
partly in portfolio securities, interestholders may incur brokerage costs in
converting the securities to cash. An in-kind distribution of portfolio
30
<PAGE>
securities is generally less liquid than cash. The interestholder may have
difficulty finding a buyer for portfolio securities received in payment for
redeemed shares. Portfolio securities may decline in value between the time of
receipt by the interestholder and conversion to cash. A redemption in-kind of
portfolio securities could result in a less diversified portfolio of investments
for a Portfolio and could affect adversely the liquidity of its investment
portfolio.
TAX STATUS
PORTFOLIOS AS PARTNERSHIPS
Each Portfolio is classified for federal income tax purposes as a
partnership that is not a "publicly traded partnership". As a result, each
Portfolio is not subject to federal income tax; instead, each investor in a
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 Portfolios' also are not subject to Delaware income or
franchise tax.
Each investor in a 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, each 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 should be able to satisfy all those requirements.
Distributions to an investor from a 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.
INVESTMENTS IN FOREIGN SECURITIES
Dividends and interest received by a Portfolio may be subject to
income, withholding, or other taxes imposed by foreign countries and U.S.
possessions that would reduce the return on the security respect to which the
dividend or interest is paid. 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 Portfolios 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, RICs and certain
other investors that hold stock of a PFIC (including indirect holding through an
interest in a 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 a 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
31
<PAGE>
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 the
portfolio. In most instances it will be very difficult, if not impossible, to
make this election because of certain requirements thereof.
A Portfolio's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency options,
futures contracts and forward contracts (and similar instruments)Under Code
Section 988, special rules are provided for certain transactions in a foreign
currency other than the taxpayer's functional currency (I.E., unless certain
special rules apply, currencies other than the U.S. dollar). In general, foreign
currency gain or loss from certain forward contracts not traded in the interbank
market, from futures contracts that are not "regulated futures contracts," and
from unlisted options will be treated as ordinary income or loss under Code
Section 988. In certain circumstances, a Fund may elect capital gain or loss
treatment for such transactions. In general, however, Code Section 988 gain or
loss will increase or decrease the amount of a Fund's investment company taxable
income available to be distributed to shareholders as ordinary income.
Additionally, if the Code Section 988 loss exceeds other investment company
taxable income during a taxable year, a Fund would not be able to make any
ordinary dividend distributions, and any distributions made before the loss was
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing each shareholder's basis in his or her
Fund shares.
OTHER PORTFOLIO INVESTMENTS
If a Portfolio engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to-market, straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Portfolio, defer losses to the
Portfolio, cause adjustments in the holding periods of the Portfolio's
securities, or convert short-term capital losses into long-term capital losses.
These rules could therefore affect the amount, timing and character of
interestholder income. Each Portfolio will endeavor to make any available
elections pertaining to such transactions in a manner believed to be in the best
interests of the Portfolio.
"Constructive sale" provisions apply to activities by a Portfolio which
lock-in gain on an "appreciated financial position". Generally, a "position" is
defined to include stock, a debt instrument, or partnership interest, or an
interest in any of the foregoing, including through a short sale, a swap
contract, or a future or forward contract. The entry into a short sale, a swap
contract or a future or forward contract relating to an appreciated direct
position in any stock or debt instrument, or the acquisition of stock or debt
instrument at a time when a Portfolio occupies an offsetting (short) appreciated
position in the stock or debt instrument, is treated as a "constructive sale"
that gives rise to the immediate recognition of gain (but not loss). The
application of these provisions may cause a Portfolio to recognize taxable
income from these offsetting transactions in excess of the cash generated by
such activities.
WITHHOLDING
Ordinary income paid to interestholders who are nonresident aliens are
subject to a 30% U.S. withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Nonresident interestholders are urged to consult their own tax advisors
concerning the applicability of the U.S. withholding tax.
Each Portfolio may write, purchase or sell options or futures
contracts. Unless a Portfolio is eligible to, and does, make a special election,
such options and futures contracts that are "Section 1256 contracts" will be
"marked to market" for federal income tax purposes at the end of each taxable
year (I.E., each option or futures contract will be treated as sold for its fair
market value on the last day of the taxable year). In general, unless such
special election is made, gain or loss from transactions in options and futures
contracts will be 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of a Portfolio's transactions in options and futures contracts. Under
Section 1092, a Portfolio may be required to postpone recognition for tax
purposes of losses incurred in certain closing transactions in options and
futures.
32
<PAGE>
The Trust is required to report to the Internal Revenue Service ("IRS")
all distributions and gross proceeds from the redemption of Interests (except in
the case of certain exempt interestholders). All such distributions and proceeds
generally will be subject to the withholding of federal income tax at a rate of
31% ("backup withholding") in the case of non-exempt interestholders if: (1) the
interestholder fails to furnish the Trust with and to certify the
interestholder's correct taxpayer identification number; (2) the IRS notifies
the Trust that the interestholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect; or (3)
when required to do so, the interestholder fails to certify that it is not
subject to backup withholding. If the withholding provisions are applicable, any
such distributions or proceeds will be reduced by the amount required to be
withheld. Any amounts withheld may be credited against the interestholder's
federal income tax liability.
In some circumstances, new federal tax regulations (effective for
payments made on or after January 1, 1999 although transition rules will apply)
will increase the U.S. federal income taxation of a interestholder who, under
the Code, is a non-resident alien individual, a foreign trust or estate, foreign
corporation or foreign partnership ("non-U.S. interestholder") depends on
whether the income from a Portfolio is "effectively connected" with a U.S. trade
or business carried on by such interestholder. Ordinarily, income from a
Portfolio will not be treated as so "effectively connected."
If the income from a Portfolio is not treated as "effectively
connected" with a U.S. trade or business carried on by the non-U.S.
interestholder dividends of net investment income (which includes short-term
capital gains), whether received in cash or reinvested in shares, will be
subject to a U.S. federal income tax of 30% (or lower treaty rate), which tax is
generally withheld from such dividends. Furthermore, such non-U.S.
interestholders may be subject to U.S. federal income tax at the rate of 30% (or
lower treaty rate) on their income resulting from a Portfolio's election
(described above) to "pass through" the amount of non-U.S. taxes paid by a
Portfolio, but may not be able to claim a credit or deduction with respect to
the non-U.S. income taxes treated as having been paid by them.
A non-U.S. interestholder whose income is not treated as "effectively
connected" with a U.S. trade or business generally will not be subject to U.S.
federal income taxation on distributions of net long-term capital gains and any
gain realized upon the sale of Portfolio shares. If the non-U.S. interestholder
is treated as a non-resident alien individual but is physically present in the
United States for more than 182 days during the taxable year, then in certain
circumstances such distributions of net long-term capital gains amounts retained
by Portfolio which are designated as undistributed capital gains and gain from
the sale of Portfolio shares will be subject to a U.S. federal income tax of 30%
(or lower treaty rate). In the case of a non-U.S. interestholder who is a
non-resident alien individual, a Portfolio may be required to withhold U.S.
federal income tax at a rate of 31% of distributions (including distributions of
net long-term capital gains) unless IRS Form W-8 is provided.
If the income from a Portfolio is "effectively connected" with a U.S. trade
or business carried on by a non-U.S. interestholder, then distributions of net
investment income (which includes short-term capital gains) whether received in
cash or reinvested in shares net long-term capital gains and amounts otherwise
includable in income, such as amounts retained by a Portfolio which are
designated as undistributed capital gains and any gains realized upon the sale
of shares of a Portfolio will be subject to U.S. federal income tax at the
graduated rates applicable to U.S. taxpayers. Non-U.S. interestholders that are
corporations may also be subject to the branch profits tax.
Transfers of shares of a Portfolio by gift by a non-U.S. interestholder
will generally not be subject to U.S. federal gift tax, but the value of shares
of a Portfolio held by such a interestholder at death will be includable in the
interestholder's gross estate for U.S. federal income tax purposes.
The income tax and estate tax consequences to a non-U.S. interestholder
entitled to claim the benefits of an applicable tax treaty may be different from
those described herein. Non-U.S. interestholders may be required to provide
appropriate documentation to establish their entitlement to the benefits of such
a treaty.
Non-U.S. interestholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in shares of
the Portfolio.
33
<PAGE>
The foregoing discussion relates only to federal income tax law as
applicable to U.S. persons (I.E., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by the Portfolio
also may be subject to state and local taxes, and their treatment under state
and local income tax laws may differ from the federal income tax treatment.
Interestholders should consult their tax advisors with respect to particular
questions of federal, foreign, state and local taxation.
GENERAL
The income tax and estate tax consequences to a non-U.S. interestholder
entitled to claim the benefits of an applicable tax treaty may be different from
those described herein. Non-U.S. interestholders may be required to provide
appropriate documentation to establish their entitlement to the benefits of such
a treaty. Non-U.S. interestholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in a
Portfolio.
The foregoing discussion relates only to federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Income from a Portfolio also
may be subject to foreign, state and local taxes, and their treatment under
foreign, state and local income tax laws may differ from the federal income tax
treatment. Interestholders should consult their tax advisors with respect to
particular questions of federal, foreign, state and local taxation.
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
Each Portfolio calculates its yields and returns in accordance with SEC
prescribed formulas. The Portfolios may also calculate performance information
using other methodologies.
FINANCIAL STATEMENTS
The fiscal year end of International Equity Fund and Schroder
International Smaller Companies Portfolio is October 31. The fiscal year end of
Schroder EM Core Portfolio, Schroder U.S. Smaller Companies Portfolio and
Schroder Global Growth Portfolio is May 31.
Financial statements for each Portfolio's semi-annual period and fiscal
year will be distributed to interestholders. The Board in the future may change
the fiscal year end of a Portfolio; the tax year end of a Portfolio may change
due to the year ends of the interestholders under certain circumstances.
The annual reports for the year ended October 31, 1997 and the
semi-annual reports for the period ended April 30, 1998 for International Equity
Fund and Schroder International Smaller Companies Portfolio, including, in the
case of the annual reports, the independent auditors' reports thereon, and the
annual report for Schroder EM Core Portfolio, Schroder U.S. Smaller Companies
Portfolio and Schroder Global Growth Portfolio for the year ended is May 31,
1998, including the independent auditors' report thereon, are included along
with this Part B.
34
<PAGE>
APPENDIX A
MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
<TABLE>
<S> <C> <C> <C>
GROSS
ADVISORY FEE ($) FEE WAIVED ($) NET FEE PAID ($)
---------------- -------------- ----------------
INTERNATIONAL EQUITY FUND
Year ended October 31, 1997 892,167 47,471 844,696
Year ended October 31, 1996 978,697 51,971 926,726
SCHRODER EM CORE PORTFOLIO
Year Ended May 31, 1998 155,546 142,195 13,351
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
Year ended October 31, 1997 60,033 60,033 0
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
Year ended May 31, 1998 1,419,439 0 1,419,439
Period ended May 31, 1997 211,277 35,396 175,881
Period ended October 31, 1996 26,334 20,260 6,074
SCHRODER GLOBAL GROWTH PORTFOLIO
Year ended May 31, 1998 8,177 8,177 0
TABLE 2(A) - ADMINISTRATION FEES
GROSS
ADMIN, FEE ($) FEE WAIVED ($) NET FEE PAID ($)
-------------- -------------- ----------------
INTERNATIONAL EQUITY FUND
Year ended October 31, 1997 159,378 0 159,378
Year ended October 31, 1996 326,232 0 326,232
SCHRODER EM CORE PORTFOLIO
Year Ended May 31, 1998 15,555 0 15,555
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
Year ended October 31, 1997 10,882 10,594 288
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
Year Ended May 31, 1998 0 0 0
Period ended May 31, 1997 0 0 0
Period ended October 31, 1996 0 0 0
SCHRODER GLOBAL GROWTH PORTFOLIO
Year Ended May 31, 1998 2,453 2,453 0
A-1
<PAGE>
TABLE 2(B) - SUBADMINISTRATION FEES
GROSS
SUBADMIN FEE ($) FEE WAIVED ($) NET FEE PAID ($)
---------------- -------------- ----------------
INTERNATIONAL EQUITY FUND
Year ended October 31, 1997 138,010 0 138,010
Year ended October 31, 1996 N/A N/A N/A
SCHRODER EM CORE PORTFOLIO
Year ended May 31, 1998 14,658 2,992 11,666
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
Year ended October 31, 1997 5,009 0 5,009
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
Year ended May 31, 1998 177,430 0 177,430
Period ended May 31, 1997 26,410 0 26,410
Period ended October 31, 1996 3,292 0 3,292
SCHRODER GLOBAL GROWTH PORTFOLIO
Year ended May 31, 1998 15,685 14,459 1,226
</TABLE>
A-2
<PAGE>
TABLE 3: CONTROL PERSONS AND PRINCIPAL INTERESTHOLDERS
As of October 31, 1998, there were no interestholders holding more than 25% of
the shares of the Trust. The following are the principal interestholder each of
the Portfolios as of September 1, 1998:
<TABLE>
<S> <C> <C>
Number of Units of Percentage of
Beneficial Interest Portfolio Owned
INTERNATIONAL EQUITY FUND
Schroder International Fund, a series of Schroder
Capital Funds (Delaware)
Two Portland Square
Portland, Maine 04101 10,436,966.371 86.38%
Sealaska Corporation --Permanent Fund
One Sealaska Plaza
Juneau, AK 99801 1,286,462.312 10.65%
Bankers Trust Company as Trustee FBO
Northrop Grumman Corporation
100 Plaza One MS 3048
Jersey City, NJ 07311-3999 649,799.323 5.30%
EM CORE PORTFOLIO
Norwest Advantage Funds Diversified Equity Fund, 385,946.316 26.41%
Norwest Advantage Growth Equity Fund, 433,662.780 29.68%
Norwest Advantage Funds Growth Balanced Fund, 112,744.460 7.72%
Norwest Advantage Funds International Fund, each
a series of Norwest Advantage Funds,
Two Portland Square
Portland, Maine 04101 420,180.421 28.75
INTERNATIONAL SMALLER COMPANIES PORTFOLIO
Schroder International Smaller Companies Fund, a
series of Schroder Capital Funds (Delaware)
Two Portland Square
Portland, Maine 04101 414,000.176 99.99%
U.S. SMALLER COMPANIES PORTFOLIO
Schroder U.S. Smaller Companies Fund, a
series of Schroder Capital Funds (Delaware)
Two Portland Square
Portland, Maine 04101 3,048,794.254 19.83%
Norwest Advantage Funds Small Cap Opportunities
Fund, a series of Norwest Advantage Funds,
Two Portland Square
Portland, Maine 04101 12,231,534.939 79.42%
GLOBAL GROWTH PORTFOLIO
Schroders Incorporated
787 Seventh Avenue
New York, NY 10019 200,00.00 59.81%
Performa Global Growth Fund
c/o Forum Financial Corp.
3 Canal Plaza, 3rd Fl.
Portland, ME 04101 136,149.704 40.72%
</TABLE>
A-3
<PAGE>
TABLE 4 - BROKERAGE COMMISSIONS
<TABLE>
<S> <C> <C> <C> <C>
SCHRODER & CO. INC.
------------------------------------------------------------
TOTAL BROKERAGE TOTAL BROKERAGE PERCENTAGE OF PERCENTAGE OF
COMMISSIONS ($) COMMISSIONS ($) COMMISSIONS TRANSACTIONS
INTERNATIONAL EQUITY FUND
Year ended October 31, 1997 421,189 4,716 0.99 1.11
Year ended October 31, 1996 756,181
SCHRODER EM CORE PORTFOLIO
Year ended May 31, 1998 92,986 0 0 0
SCHRODER INTERNATIONAL SMALLER
COMPANIES PORTFOLIO
Year ended October 31, 1997 37,223 0 0 0
SCHRODER U.S. SMALLER COMPANIES
PORTFOLIO
Year ended May 31, 1998 491,278 0 0 0
Period ended May 31, 1997 167,043 0 0 0
Period ended October 31, 1996 37,589 0 0 0
SCHRODER GLOBAL GROWTH PORTFOLIO
Year ended May 31, 1998 7,259 0 0 0
SCHRODER SECURITIES
------------------------------------------------------------
TOTAL BROKERAGE TOTAL BROKERAGE PERCENTAGE OF PERCENTAGE OF
COMMISSIONS ($) COMMISSIONS ($) COMMISSIONS TRANSACTIONS
INTERNATIONAL EQUITY FUND
Year ended October 31, 1997 421,189 0 0 0
Year ended October 31, 1996 756,181 0 0 0
SCHRODER EM CORE PORTFOLIO
Year ended May 31, 1998 92,986 0 0 0
SCHRODER INTERNATIONAL SMALLER
COMPANIES PORTFOLIO
Year ended October 31, 1997 37,223 0 0 0
SCHRODER U.S. SMALLER COMPANIES
PORTFOLIO
Year ended May 31, 1998 491,278 0 0 0
Period ended May 31, 1997 167,043 0 0 0
Period ended October 31, 1996 37,589 0 0 0
SCHRODER GLOBAL GROWTH PORTFOLIO
Year ended May 31, 1998 7,259 0 0 0
</TABLE>
A-4
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements:
Part A: None.
Part B:
Audited Financial Statements for the fiscal year
ended October 31, 1997 including Schedule of
Investments, Statement of Assets and Liabilities,
Statement of Operations, Statements of Changes in Net
Assets, Financial Highlights, Notes to Financial
Statements and Report of Independent Accountants for
Schroder Emerging Markets Fund Institutional
Portfolio (Annual Report filed via EDGAR on January
9, 1998 accession number 0001004402-98-00018).
Unaudited financial statements for the period ended
April 30, 1998 including Schedule of Investments,
Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets,
Financial Highlights, Notes to Financial Statements
for Schroder Emerging Markets Fund Institutional
Portfolio (Semi-Annual Reports filed via EDGAR on
July 9, 1998, accession number 0001004402-98-000377).
(b) Exhibits:
(1) Trust Instrument of Registrant dated September 6,
1995 as amended November 30, 1995 and restated
March 13, 1998 (see Note 1).
(2) Not applicable.
(3) Not applicable.
(4) See the following Articles and Sections in the Trust
Instrument filed as Exhibit (1): Article II, Section
2.3, 2.4; Article V; Article VI; Article VII; Article
IX; and Article X.
(5) (a) Investment Advisory Agreement between
Registrant and Schroder Capital Management
International Inc. ("SCMI") dated as of
March 15, 1996 with respect to Schroder
International Smaller Companies Portfolio
and Schroder Global Asset Allocation
Portfolio (see Note 2).
(b) Investment Advisory Agreement between
Registrant and SCMI dated as of September
13, 1995 with respect to International
Equity Fund and Schroder Emerging Markets
Fund Institutional Portfolio (see Note 3).
(c) Investment Advisory Agreement between
Registrant and SCMI dated as of September
18, 1997 with respect to Schroder Global
Growth Portfolio (see Note 3).
(d) Investment Advisory Agreement between
Registrant and SCMI dated as of May 16, 1996
with respect to Schroder U.S. Smaller
Companies Portfolio, Schroder EM Core
Portfolio, Schroder Asian Growth Fund
Portfolio, and Schroder Japan Portfolio (see
Note 4).
<PAGE>
(e) Investment Subadvisory Agreement between
Registrant, SCMI and Schroder Investment
Management International Ltd. ("SIMIL")
dated as of June 15, 1998 with respect to
Schroder International Smaller Companies
Portfolio (see Note 1).
(6) Not applicable.
(7) Not applicable.
(8) (a) Global Custody Agreement between Registrant
and The Chase Manhattan Bank, N.A. dated as
of September 13, 1995 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 Fund
Portfolio, Schroder United Kingdom
Portfolio, and Schroder Global Growth
Portfolio (see Note 3).
(b) Custodian Contract between registrant and
Schroder Capital Funds dated ______ relating
to Schroder U.S. Smaller Companies Portfolio
(filed herewith).
(9) (a) Administration Agreement between
Registrant and Schroder Fund Advisors Inc.
("Schroder Advisors") dated as of November
26, 1996 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, Schroder Global
Growth Portfolio, Schroder Asian Growth Fund
Portfolio, and Schroder Japan Portfolio (see
Note 4).
(b) Subadministration Agreement between
Registrant and Forum Administrative
Services, LLC dated as of February 1, 1997
with respect to International Equity Fund,
Schroder Emerging Markets Fund Institutional
Portfolio, Schroder U.S. Smaller Companies
Portfolio, Schroder International Smaller
Companies Portfolio, Schroder Global Growth
Portfolio, Schroder EM Core Portfolio,
Schroder Asian Growth Fund Portfolio, and
Schroder Japan Portfolio (see Note 4).
(c) Transfer Agency and Fund Accounting
Agreement between Registrant and Forum
Financial Corp. dated as of September 13,
1995 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 Fund
Portfolio, Schroder United Kingdom
Portfolio, and Schroder Global Growth
Portfolio (see Note 3).
(d) Placement Agent Agreement between Registrant
and Forum Financial Services, Inc. dated as
of September 13, 1995 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 Fund
<PAGE>
Portfolio, Schroder United Kingdom
Portfolio, and Schroder Global Growth
Portfolio (see Note 3).
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Financial Data Schedules (see Note 1).
(18) Not applicable.
---------------
Notes:
(1) Exhibit incorporated by reference as filed on Amendment No. 12
via EDGAR on September 28, 1998 accession number
0001004402-98-000531.
(2) Exhibit incorporated by reference as filed on Amendment No. 4
via EDGAR on March 13, 1997, accession number
0000912057-97-008728.
(3) Exhibit incorporated by reference as filed on Amendment No. 9
via EDGAR on February 12, 1998, accession number
0001004402-98-000117.
(4) Exhibit incorporated by reference as filed on Amendment No. 11
via EDGAR on March 19, 1998, accession number
001004402-98-000199.
(5) Exhibit incorporated by reference as filed on Amendment No. 13
via EDGAR on October 23, 1998, accession number
001004402-98-000566.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF INTERESTS
<TABLE>
<S> <C>
---------------------------------------------------------------------------- ------------------------------
Title of Series Number of Interestholders
as of September 1, 1998
---------------------------------------------------------------------------- ------------------------------
---------------------------------------------------------------------------- ------------------------------
International Equity Fund 4
---------------------------------------------------------------------------- ------------------------------
Schroder EM Core Portfolio 10
---------------------------------------------------------------------------- ------------------------------
Schroder International Smaller Companies Portfolio 2
---------------------------------------------------------------------------- ------------------------------
Schroder U.S. Smaller Companies Portfolio 5
---------------------------------------------------------------------------- ------------------------------
Schroder Emerging Markets Fund Institutional Portfolio 2
---------------------------------------------------------------------------- ------------------------------
Schroder Global Growth Portfolio 4
---------------------------------------------------------------------------- ------------------------------
Schroder Asian Growth Fund Portfolio 1
---------------------------------------------------------------------------- ------------------------------
Schroder Japan Portfolio 1
---------------------------------------------------------------------------- ------------------------------
</TABLE>
ITEM 27. INDEMNIFICATION
Registrant currently holds a joint directors' and officers'/errors and
omissions insurance policy pursuant to Rule 17d-1(d)(7).
The general effect of Article 5 of Registrant's Trust Instrument (filed
as Exhibit (1) and incorporated herein by reference) 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 interestholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Schroder Capital Management International Inc.
The following is a description of any business, profession, vocation or
employment of a substantial nature in which the investment adviser of
the registrant, Schroder Capital Management International Inc.
("SCMI"), and each trustee or officer of the investment adviser is or
has been, at any time during the past two years, engaged for his or her
own account or in the capacity of trustee, officer or employee. The
address of each company listed, unless otherwise noted, is 787 Seventh
Avenue, 34th Floor, New York, NY 10019. 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.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David M. Salisbury Chairman, Director SCMI
------------------------------------ ----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
Director Schroders plc.*
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SCMI
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.*
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
John A. Troiano Chief Executive, Director SCMI
------------------------------------
----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Sharon L. Haugh Executive Vice President, Director SCMI
----------------------------------
------------------------------------ ----------------------------------
Director, Chairman Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
Chairman, Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
Trustee Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Gavin D. L. Ralston Senior Vice President, Managing SCMI
Director
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Mark J. Smith Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Robert G. Davy Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jane P. Lucas Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David R. Robertson Group Vice President SCMI
------------------------------------ ----------------------------------
Senior Vice President Schroder Fund Advisors Inc.
----------------------------------
------------------------------------
Director of Institutional Business Oppenheimer Funds, Inc.
resigned 2/98
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Michael M. Perelstein Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President, Director Schroders Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Managing Director MacKay Shields Financial
Corporation
resigned 11/96
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Louise Croset First Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ellen B. Sullivan Group Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Catherine A. Mazza Group Vice President SCMI
------------------------------------ ----------------------------------
President, Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Heather F. Crighton First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ira Unschuld Group Vice President SCMI
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Paul M. Morris Senior Vice President SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Principal, Senior Portfolio Manager Weiss, Peck & Greer LLC
resigned 12/96
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Susan B. Kenneally First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jennifer A. Bonathan First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
*Schroder Ltd. and Schroders plc. are located at 31 Gresham St., London EC2V
7QA, United Kingdom.
(b) Schroder Investment Management International Ltd.
The following is a description of any business, profession, vocation or
employment of a substantial nature in which the investment subadviser of
Schroder International Smaller Companies Portfolio, Schroder Investment
Management International Ltd. ("SIMIL"), and each trustee or officer of the
investment subadviser is or has been, at any time during the past two years,
engaged for his or her own account or in the capacity of trustee, officer or
employee. The address of each company listed below is set forth in the note
following the table. 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.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Hugh Westrope Bolland Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroders (C.I.) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(Hong Kong)
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Properties Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Personal Investment
Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director, Chief Executive Officer Schroder Investment Management
Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Schroder Investment Management
(Australasia) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Schroder Investment Management
(UK) Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jennifer A. Bonathan Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Capital Management
International Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Nigel J. Burnham Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Finance Officer, First Vice SCMI
President
------------------------------------ ----------------------------------
Finance Officer, First Vice Schroder Capital Management
President International Limited
------------------------------------ ----------------------------------
Assistant Vice President Schroder Fund Advisors, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Denis H. Clough Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management
International Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Robert G. Davy Director SIMIL
------------------------------------ ----------------------------------
Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Ltd.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SIMIL
------------------------------------ ----------------------------------
Deputy Chairman, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Phillipa J. Gould Director SIMIL
------------------------------------
----------------------------------
Director, Senior Vice President SCMI
------------------------------------ ----------------------------------
----------------------------------
Director Schroder Capital Management
International Limited
------------------------------------ ----------------------------------
----------------------------------
Director Schroder Investment Management
International Inc.
------------------------------------ ----------------------------------
----------------------------------
Director Schroder Investment Management
International (Europe) Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Madeleine S. Hall Director SIMIL
----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ----------------------------------
Assistant Director Schroder Investment Management
Limited
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jeremy A. Hill Chairman, Director SIMIL
------------------------------------ ----------------------------------
Commissioner PT Schroder Investment
Management Indonesia
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Schroder Investment Management
(Hong Kong) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Schroder Investment Management
(Japan) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Korea Schroder Fund Management
Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director/Chairman Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ian Johnson Secretary SIMIL
------------------------------------ ----------------------------------
Secretary Schroder Capital Management
International Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Assistant Secretary J. Henry Schroder & Co., Limited
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Jan Anthony Kingzett Director SIMIL
------------------------------------- ----------------------------------
Deputy Chairman Schroder Investment Management
(Japan) Limited
------------------------------------- ----------------------------------
Chairman Schroder Investment Trust
Management Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Schroder Investment Management
(Singapore) Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Schroder Investment Management
Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Maggie Lay Wah Lee Director SIMIL
------------------------------------- ----------------------------------
Director Schroder Investment Management
(Singapore) Limited
----------------------------------
-------------------------------------
Director Schroder Investment Management
Limited
----------------------------------- ------------------------------------- ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections*
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Richard A. Mountford Chief Executive Officer, Chief SIMIL
Operating Officer, Director
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director, Deputy Chairman Schroder Investment Management
(Singapore) Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Schroder Investment Management
Limited
----------------------------------- ------------------------------------- ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Nicola Ralston Deputy Chairman, Director SIMIL
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Nicola Jane Richards Director SIMIL
------------------------------------ ----------------------------------
Division Director Schroder Investment Management
Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Christopher N. Rodgers Director SIMIL
------------------------------------ ----------------------------------
Director Schroder Investment Management
Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David M. Salisbury Director SIMIL
------------------------------------ ----------------------------------
Chairman, Director SCMI
------------------------------------ ----------------------------------
Chief Executive, Director Schroder Ltd.
------------------------------------ ----------------------------------
Director Schroders plc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Daniele Serruya Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Assistant Director, Investment Schroder Investment Management
Manager Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Olaf N. Siedler Director SIMIL
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Manager Schroder Investment Management
Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Hugh M. Stewart Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Manager Schroder Investment Management
Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Thomas J. Willoughby Chief Compliance Officer SIMIL
------------------------------------ ----------------------------------
Schroder Unit Trust Limited Director
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
Each of SCMI, Schroder Capital Management International Limited, Schroder
Investment Management Limited, Schroder Investment Management (UK) Limited,
Schroder Investment Management (Europe), Korea Schroder Fund Management Limited
and Schroder Personal Investment Management, are located at 33 Gutter Lane,
London EC2V 8AS United Kingdom.
Schroder Investment Management (Singapore) Limited is located at #47-01 OCBC
Centre, Singapore.
Schroder Investment Management (Hong Kong) Limited is located at 8 Connaight
Place, Hong Kong.
Schroder Investment Management (Australasia) Limited is located at 225 George
Place, Sydney Australia.
PT Schroder Investment Management Indonesia is located at Lippo Plaza Bldg., 25
Jakarta, 12820.
Schroders (C.I.) Limited is located at St. Peter Port, Guernsey, Channel
Islands, GY1 3UF.
Schroder Properties Limited is located at Senator House, 85 Queen Victoria
Street, London EC4V 4EJ, United Kingdom.
Schroder Fund Advisors Inc. is located at 787 Seventh Avenue, 34th Floor, New
York, NY 10019.
Schroder Ltd. and Schroders plc. are located at 31 Gresham St., London EC2V 7QA,
United Kingdom.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Forum Financial Services, Inc. is the Registrant's placement
agent. Registrant has no underwriters.
(b) Not applicable.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
SCMI (investment management records) and Schroder Fund Advisors, Inc.
(administrator records), 787 Seventh Avenue, New York, New York, 10019, except
that certain items are maintained at the following locations:
(a) Forum Accounting Services, LLC, Two Portland Square, Portland,
Maine 04101 (portfolio accounting records).
(b) Forum Administrative Services, LLC, Two Portland Square,
Portland, Maine 04101 (corporate minutes and all other records
required under the Subadministration Agreement).
(c) Forum Shareholder Services, LLC, Two Portland Square,
Portland, Maine 04101 (unitholder records).
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as amended,
the Registrant has duly caused this amendment to its registration statement to
be signed on its behalf by the undersigned, duly authorized, in the City of New
York and State of New York on the 13th day of November, 1998.
SCHRODER CAPITAL FUNDS
By:/s/ Catherine A. Mazza
---------------------------
Catherine A. Mazza
Vice President
<PAGE>
Index to Exhibits
(8)(b) Custodian Contract between registrant and Schroder Capital Funds
relating to Schroder U.S. Smaller Companies Portfolio.
Exhibit (8)(b)
CUSTODIAN CONTRACT
between
SCHRODER CAPITAL FUNDS
and
NORWEST BANK MINNESOTA, N.A.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
1. Employment of Custodian and Property to be Held by It..................................................1
2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States.....................................................................1
2.1 Holding Securities.............................................................................1
2.2 Delivery of Securities.........................................................................1
2.3 Registration of Securities.....................................................................3
2.4 Bank Accounts..................................................................................3
2.5 Payments for Shares............................................................................3
2.6 Availability of Federal Funds..................................................................3
2.7 Collection of Income...........................................................................3
2.8 Payment of Company Monies......................................................................3
2.9 Liability for Payment in Advance of Receipt of Securities Purchased............................4
2.10 Payments for Repurchases or Redemptions of Shares of a Fund....................................4
2.11 Appointment of Agents..........................................................................4
2.12 Deposit of Fund Assets in Securities System....................................................4
2.13 Segregated Account.............................................................................5
2.14 Ownership Certificates for Tax Purposes........................................................6
3. Proxies ...............................................................................................9
4. Communications Relating to Fund Portfolio Securities...................................................9
5. Proper Instructions....................................................................................9
6. Actions Permitted Without Express Authority............................................................9
7. Evidence of Authority..................................................................................9
8. Class Actions..........................................................................................10
9. Records 10
10. Opinion of Company's Independent Accountant............................................................10
11. Reports to Company by Independent Public Accountant....................................................10
12. Compensation of Custodian..............................................................................11
13. Responsibility of Custodian............................................................................11
14. Effective Period, Termination and Amendment............................................................11
15. Successor Custodian....................................................................................12
16. Interpretive and Additional Provisions.................................................................12
17. New York Law to Apply..................................................................................12
18. Prior Contracts........................................................................................12
19. General 13
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
This AGREEMENT made as of ___________________________by and between
Schroder Capital Funds, a Delaware Business Trust having its principal office
and place of business at Two Portland Square, Portland, Maine 04101 (the
"Company"), and Norwest Bank Minnesota, N.A., a national banking association
having its principal office and place of business at Sixth and Marquette,
Minneapolis, MN 55479 (the "Custodian").
WHEREAS, the Company is a mutual fund whose shares are currently
offered in eight series;
WHEREAS, the Company desires to appoint the Custodian as the custodian
for each Fund (which, together with each future series of the Company that
adopts this contract are hereafter referred to individually as a "Fund" and
collectively as the "Funds") set forth on Exhibit A and the Custodian desires to
accept such appointment;
WITNESSETH, that in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It.
The Company hereby employs the Custodian as the custodian of the assets
of each Fund. The Company agrees to deliver to the Custodian all securities and
cash owned by each Fund, and all payments of income, payments of principal or
capital distributions received by the Fund with respect to all securities owned
by the Fund from time to time, and the cash consideration received by the Fund
for such new or treasury shares of capital stock ("Shares") of the Fund as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall from time to time employ one or more sub-custodians, but
only in accordance with any necessary approvals by the Board of Trustees of the
Company, and provided that the appointment by the Custodian of any
sub-custodians shall not relieve the Custodian of any of its responsibilities or
liabilities hereunder.
2. Duties of the Custodian with Respect to Fund Property held by the Custodian
in the United States.
2.1 Holding Securities.
The Custodian shall hold and physically segregate for the account of
each of the Funds all non-cash property, including all securities owned by the
Funds, other than securities which are maintained pursuant to Section 2.12 in a
clearing agency which acts as a securities depository or in a Federal Reserve
Bank, as Custodian may select, and to permit such deposited assets, subject to
Section 2.3, to be registered in the name of Custodian or Custodian's agent or
nominee on the records of such Federal Reserve Bank or such registered clearing
agency or the nominee of either, and to employ and use securities depositories,
clearing agencies, clearance systems, sub-custodians or agents located outside
the United States in connection with transactions involving foreign securities,
collectively referred to herein as a "Securities System".
The ownership of assets of each Fund, whether securities or otherwise,
and whether any such assets are held directly by the Custodian or through a
sub-custodian or a Securities System, shall be clearly recorded on the
Custodian's books as belonging to such Fund. Beneficial ownership of the assets
shall be freely transferable without the payment of money or value other than
for safe custody or administration.
No assets are, nor shall any assets be, subject to any right, charge,
security interest, lien, or claim of any kind in favor of the Custodian, any
sub-custodian, any Securities System, or any creditor of any of them.
Nothwithstanding any other provision of this Agreement, including
without limitation any provision of Section 2.2 or Section 2.8, all payments and
deliveries of assets of any kind shall be made only on a delivery-versus-payment
basis, except in accordance with specific Proper Instructions to do otherwise.
<PAGE>
2.2 Delivery of Securities.
The Custodian shall release and deliver securities owned by the Company
for the account of a Fund held by the Custodian or in a Securities System
account of the Custodian only upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of a Fund and receipt
of payment therefor; 2) Upon the receipt of payment in connection with
any repurchase agreement related to such securities
entered into by the Company on behalf of a Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of a Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Company for the account of a Fund or into the name of any
nominee or nominees of the Custodian in accordance with Section
2.3, or for exchange for a different number of bonds, certificates
or other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of a Fund, to the
broker or its clearing agent, against a receipt, for examination
in accordance with "street delivery" custom; provided that in any
such case, the Custodian shall have no responsibility or liability
for any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from the
Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts of
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Company on behalf of a Fund, but only against receipt of
adequate collateral as agreed upon from time to time by the
Custodian and the Company, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by a Fund prior to the receipt of
such collateral in accordance with those procedures implemented by
such system providing the greatest protection to the assets of the
Company under the circumstances.
11) For delivery as security in connection with any borrowings by the
Company on behalf of a Fund requiring a pledge of assets by the
Company on behalf of such Fund, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Company on behalf of a Fund, the Custodian 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 the 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 Company;
<PAGE>
13) For delivery in accordance with the provisions of any agreement
among the Company on behalf of a Fund, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Company on behalf
of a Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the applicable Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with distributions
in kind, as may be described from time to time in the Fund's
currently effective prospectus and statement of additional
information ("prospectus"), in satisfaction of requests by holders
of Shares for repurchase or redemptions; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions, a certificate signed by an
officer of the Company, specifying the securities to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities.
Domestic securities held by the Custodian (other than bearer
securities) shall be registered in the name of the Company for the account of
the applicable Fund(s) or in the name of any nominee of the Company or of any
nominee of the Custodian which nominee shall be assigned exclusively to the
Company, unless the Company has authorized in writing the appointment of a
nominee to be used in common with other registered investment companies having
the same investment adviser as the applicable Fund(s). All securities accepted
by the Custodian on behalf of the Company under the terms of this Contract shall
be in "street name" or other good delivery form.
2.4 Bank Accounts.
Cash held by the Custodian for each Fund and otherwise uninvested may
be deposited in the Banking Department of the Custodian or in such other banks
or trust companies as the Custodian may in its discretion deem necessary or
desirable, in each case in an account which does not contain any assets of the
Custodian other than assets held by it as a fiduciary, custodian, or otherwise
for customers and in which it has no beneficial interest; provided, however,
that every such bank or trust company shall be qualified to act as a custodian
under the Investment Company Act of 1940 and that each such bank or trust
company and the cash to be deposited with each such bank or trust company shall
be approved by vote of a majority of the Board of Directors of the Company. Such
cash shall be deposited by the Custodian in its capacity as Custodian and shall
be withdrawable by the Custodian only in that capacity.
2.5 Payments for Shares.
The Custodian shall receive from the Transfer Agent of each Fund and
deposit into the Fund account such payments as are received for Shares of the
Fund issued or sold from time to time by the Fund. The Custodian will provide
timely notification to the Fund and the Transfer Agent of any receipt by it of
payments for Shares of the Funds.
2.6 Availability of Federal Funds.
Upon mutual agreement between the Company and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions, make federal funds
available to the Funds as of specified times agreed upon from time to time by
the Company and the Custodian in the amount of checks received in payment for
Shares of the Funds which are deposited into the Funds' accounts.
2.7 Collection of Income.
The Custodian shall, or shall cause its agent or sub-custodian to,
collect on a timely basis all income and other payments with respect to
registered securities held hereunder to which each Fund shall be entitled either
by law or pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to bearer securities if,
on the date of payment by the issuer, such securities are held by the Custodian
or its agent or sub-custodian and shall credit such income, as collected, to the
applicable Fund's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Unless the Custodian is
the lending agent in connection with securities loaned by the Fund, arrangements
for the collection of income due each Fund on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Company. The
<PAGE>
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Company with such information or data as may be necessary to
assist the Company in arranging for the timely delivery to the Custodian of the
income to which each Fund is properly entitled.
2.8 Payment of Company Monies.
Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall pay out
monies of each Fund in the following cases only:
1) Upon the purchase of domestic securities, options, or options on
futures contracts for the account of each Fund but only (a)
against the delivery of such securities or evidence of title to
such options or options on futures contracts, to the Custodian
registered in the name of the Company for the account of a Fund or
in the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance with
the conditions set forth in Section 2.12 hereof or (c) in the case
of the repurchase agreements entered into between the Company and
the Custodian, or another bank, or a broker-dealer which is a
member of NASD against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities.
2) In connection with conversion, exchange or surrender of securities
owned by a Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by a Fund as set
forth in Section 2.10 hereof; 4) For the payment of any expense or
liability incurred by a Fund, including but not limited to the
following payments for the account of such Fund: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses are to
be in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the
governing documents of the Company and the applicable Fund;
6) For payment of the amount of dividends received in respect of
securities sold short; or 7) For any other proper purpose, but only
upon receipt of, in addition to Proper Instructions, a
certificate signed by an officer of the Company, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment is
to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.
The Custodian shall not make payment for the purchase of domestic
securities for the account of a Fund in advance of receipt of the securities
purchased in the absence of specific written instructions from the Company to so
pay in advance. In any and every case where payment for purchase of domestic
securities for the account of a Fund is made by the Custodian in advance of
receipt of the securities purchased in the absence of specific written
instructions from the Company to so pay in advance, the Custodian shall be
absolutely liable to the Company (for the account of the Fund) for such
securities to the same extent as if the securities had been received by the
Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund.
From such funds as may be available for the purpose but subject to the
limitations of the Trust Instrument or Bylaws and any applicable votes of the
Board of Trustees of the Company, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders.
2.11 Appointment of Agents.
The Custodian may, with the consent of the Company, at any time or
times in its discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company Act of 1940
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of any of its
responsibilities or liabilities hereunder.
<PAGE>
2.12 Deposit of Fund Assets in Securities Systems.
The Custodian may deposit and/or maintain domestic securities owned by
any Fund in a clearing agency registered with the Securities and Exchange
commission under Section 17A of the Exchange Act, which acts as a securities
depository, or in a Federal Reserve Bank, as Custodian may select, and permit
such deposited assets to be registered in the name of Custodian or Custodian's
agent or nominee on the records of such Federal Reserve Bank or such registered
clearing agency or the nominee of either (collectively referred to herein as
"Securities System") in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and subject to
the following provisions:
1) The Custodian may keep domestic securities of a Fund in a
Securities System provided that such securities are represented in
an account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic securities
of a Fund which are maintained in a Securities System shall
identify by book-entry those securities belonging to such Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of a Fund upon (i) the simultaneous receipt of advice from
the Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the account
of the Fund. The Custodian shall transfer domestic securities sold
for the account of a Fund upon (i) the simultaneous receipt of
advice from the Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advises from
the Securities System of transfers of securities for the account
of a Fund shall identify the Fund, be maintained for the Fund by
the Custodian and be provided to the Company at its request. Upon
request, the Custodian shall furnish the Company confirmation of
each transfer to or from the account of a Fund in the form of a
written advice or notice and shall furnish to the Company copies
of daily transaction sheets reflecting each day's transactions in
the Securities System for the account of each Fund.
4) The Custodian shall provide the Company with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received the initial certificate required
by Article 15 hereof; 6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to the
Company (for the account of each Fund) for any loss or damage to
the applicable Fund(s) resulting from use of the Securities System
by reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their employees
or from failure of the Custodian or any such agent or employee to
enforce effectively such rights as it may have against the
Securities System; at the election of the Company, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such
loss or damage if and to the extent that the applicable Funds have
not been made whole for any such loss or damage.
2.13 Segregated Account.
The Custodian shall upon receipt of Proper Instructions establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to Section 2.12
hereof, (i) in accordance with the provisions of any agreement among the
Company, the Custodian and a broker-dealer registered under the Exchange Act and
a member of NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Company for the account of
any Fund, (ii) for the purpose of segregating cash or government securities in
connection with options purchased, sold or written by the Company for the
account of any Fund or commodity futures contracts or options thereon purchased
<PAGE>
or sold by the Company for the account of any Fund, (iii) for the purpose of
compliance by the Company with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate purposes,
but only, in the case of the clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of Trustees of the
Company signed by an officer of the Company and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.14 Ownership Certificates for Tax Purposes.
The Custodian shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in connection with receipt of
income or other payments with respect to domestic securities of each Fund held
by it and in connection with transfers of securities.
3. Proxies.
The Custodian shall, with respect to the securities held hereunder,
cause to be promptly executed by the registered holder of such securities, if
the securities are registered otherwise than in the name of the Company or a
nominee of the Company, all proxies, without indication of the manner in which
such proxies are to be voted, and shall promptly deliver to the Company such
proxies, all proxy soliciting materials and all notices relating to such
securities.
4. Communications Relating to Fund Portfolio Securities.
The Custodian shall transmit promptly to the Company all written
information (including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Company) received by the Custodian from
issuers of the securities being held for each Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Company all
written information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Company desires to take action with respect to
any tender offer, exchange offer or any other similar transaction, the Company
shall notify the Custodian at least one business day prior to the date on which
the Custodian is to take such action.
5. Proper Instructions.
Proper Instructions as used in this Contract means a writing signed or
initialed by one or more person or persons as the Board of Trustees of the
Company shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved, including a
specific statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Company shall cause
all oral instructions to be confirmed in writing, provided that any failure to
provide such confirmation will not in any way limit the effectiveness of such
oral instructions. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the
Company accompanied by a detailed description of procedures approved by the
Board of Trustees, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Board of Trustees and the Custodian are satisfied that such procedures afford
adequate safeguards for each Fund's assets.
6. Actions Permitted Without Express Authority.
The Custodian may in its discretion, without express authority from the
Company:
1) Make payments to itself or others for minor expenses of handling
securities provided that the Company shall be notified of all such
payments in advance;
2) Surrender securities in temporary form for securities in definitive
form;
3) Endorse for collection, in the names of the applicable Fund,
checks, drafts and other negotiable instruments; and
4) In general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Company
except as otherwise directed by the Board of Trustees of the
Company.
<PAGE>
7. Evidence of Authority.
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Company. The Custodian may receive and accept a certified copy of a vote of the
Board of Directors of the Company as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action duly made or taken by the Board of Directors as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
8. Class Actions. The Custodian shall transmit promptly to the Company all
notices or other communications received by it in connection with any class
action lawsuit relating to securities currently or previously held for one or
more of the Funds. Upon being directed by the Company to do so, the Custodian
shall furnish to the Company any and all written materials which establish the
holding/ownership, amount held/owned, and period of holding/ownership of the
securities in question.
9. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Company and each Fund under the Investment Company Act of
1940, with particular attention to Section 31 thereof and Rule 31a-1 and 31a-2
thereunder. The Custodian shall also maintain records as directed by the Company
in connection with applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Company and
the Funds. With respect to securities and cash deposited with a Securities
System, a sub-custodian or an agent of the Custodian, the Custodian shall
identify on its books all such securities and cash as belonging to the Company
for the account of the applicable Fund(s). All such records shall be the
property of the Company and shall at all times during the regular business hours
of the Custodian be open for inspection by duly authorized officers, employees
or agents of the Company. Such records shall be made available to the Company
for review by employees and agents of the Securities and Exchange Commission.
The Custodian shall furnish to the Company, and its agents as directed by the
Company, as of the close of business on the last day of each month a statement
showing all transactions and entries for the account of the Company during that
month, and all holdings as of month-end.
All records so maintained in connection with the performance of its
duties under this Agreement shall remain the property of the Company and, in the
event of termination of this Agreement, shall be delivered to the Company.
Subsequent to such delivery, and surviving the termination of this Agreement,
the Company shall provide the Custodian access to examine and photocopy such
records as the Custodian, in its discretion, deems necessary, for so long as
such records are retained by the Company.
10. Opinion of Company's Independent Accountant.
The Custodian shall take all reasonable action, as the Company may from
time to time request, to obtain from year to year favorable opinions from the
Company's independent accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of the Company's Form N-1A and
Form N-SAR or other reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
11. Reports to Company by Independent Public Accountants.
The Custodian shall provide the Company, at such times as the Company
may reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall be of
sufficient scope, and in sufficient detail, as may reasonably be required by the
Company to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
<PAGE>
12. Compensation of Custodian.
For performance by the Custodian pursuant to this Agreement, the
Company, agrees to pay the Custodian annual asset fees as set out in Exhibit B
as billed by the Custodian on a monthly basis. Fees may be changed from time to
time subject to mutual written agreement between the Company and the Custodian.
13. Responsibility of Custodian.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Company or any Fund for any action taken or omitted by
it in good faith and without negligence. It shall be entitled to rely on and may
act upon advice of counsel of, or reasonably acceptable to, the Company on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
If the Company requires the Custodian to take any action with respect
to securities, which action involves the payment of money or which action may,
in the reasonable opinion of the Custodian, result in the Custodian or its
nominee assigned to the Company being liable for the payment of money or
incurring liability of some other form, the Company, as a prerequisite to
requiring the Custodian to take such action, shall provide indemnity to the
Custodian in an amount and form reasonably satisfactory to it.
If the Company requires the Custodian to advance cash or securities for
any purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of a Fund shall be
security therefor and should the Company fail to repay the Custodian promptly
with respect to any Fund, the Custodian shall be entitled to utilize available
cash and to dispose of assets to the extent necessary to obtain reimbursement.
The Custodian shall not be liable for any loss or damage to the Company
or any Fund resulting from participation in a securities depository unless such
loss or damage arises by reason of any negligence, misfeasance, or willful
misconduct of officers or employees as agents of the Custodian, or from its
failure to enforce effectively such rights as it may have against any securities
depository or from use of a sub-custodian or agent. Anything in this Contract to
the contrary notwithstanding, the Custodian shall exercise, in the performance
of its obligations undertaken or reasonably assumed with respect to this
Agreement, reasonable care, for which the Custodian shall be responsible to the
same extent as if it were performing such duties directly. The Custodian shall
be responsible for the securities and cash held by or deposited with any
sub-custodian or agent to the same extent as if such securities and cash were
directly held by or deposited with the Custodian. The Custodian hereby agrees
that it shall indemnify and hold the Company and each applicable Fund harmless
from and against any loss which shall occur as a result of the failure of a
foreign sub-custodian holding the securities and cash to provide a level of
safeguards for maintaining any Fund's securities and cash not materially
different from that provided by a United States custodian holding such
securities and cash in the United States.
The Custodian agrees to indemnify and hold the Company and each of the
Funds harmless for any and all loss, liability and expense, including reasonable
legal fees and expenses, arising out of the Custodian's own negligence or
willful misconduct or that of its officers, agents, sub-custodians or employees
in the performance of the Custodian's duties and obligations under this
Contract.
14. Effective Period, Termination and Amendment.
The Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however, that the Custodian shall not act under Section 2.12 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Company has approved the initial use
of a particular Securities System, as required by Rule 17f-4 under the
Investment Company Act of 1940, provided further, however, that the Company
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of its Trust Instrument, and
further provided, that the Company may at any time by action of its Board of
Trustees, with respect to any Fund (i) substitute another bank or trust company
for the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
<PAGE>
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Company on behalf of each Fund
shall pay to the Custodian such compensation as may be due as elsewhere provided
in this Agreement of the date of such termination and shall likewise reimburse
the Custodian for its reasonable costs, expenses and disbursements as elsewhere
provided in this Agreement.
15. Successor Custodian.
If a successor custodian shall be appointed by the Board of Trustees of
the Company, the Custodian shall, upon termination, deliver to such successor
custodian all securities, funds and other properties held by the Custodian and
all instruments held by the Custodian relative thereto and all property held by
it under this Contract and to transfer to an account of such successor custodian
all of each Fund's securities held in any Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Company, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940, of
its own selection, having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, of not less than $100,000,000, all
securities, funds and other properties held by the Custodian and all instruments
held by the Custodian relative thereto and all other property held by it under
this Contract and to transfer to an account of such successor custodian all of
each Fund's securities held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under and pursuant to this
Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Company to procure the certified copy of the vote referred to or
of the Board of Trustees to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and
the Company may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Company. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. New York Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the State of New York.
18. Prior Contracts.
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Company and the Custodian relating to the custody of
each Fund's assets. This Contract shall not be assignable by any party hereto;
provided however, that any entity into which the Company or the Custodian, as
the case may be, may be merged or converted or with which it may be
consolidated, or any entity succeeding to all or substantially all of the
business of the Company or the custody business of the Custodian, shall succeed
to the respective rights and shall assume the respective duties of the Company
or the Custodian, as the case may be, hereunder.
<PAGE>
19. General.
Nothing expressed or mentioned in or to be implied from any provision
of this Contract is intended to, or shall be construed to give any person or
corporation other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect to this Contract, or any covenant, condition and
provision herein contained, this Contract and all of the covenants, conditions
and provisions hereof being intended to be and being the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.
A copy of the Trust Instrument of the Company is on file with the
Secretary of State of the State of Delaware and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Company as Trustees and
not individually, and that the obligations of or arising out of this instrument
are not binding upon any of the Trustees, officers, or shareholders individually
but are binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized officers as of the day
and year first above written.
SCHRODER CAPITAL FUNDS
By /s/ Catherine A. Mazza
-----------------------------------------------
ATTEST
By /s/ Carin Muhlbaum
----------------------------------------------
NORWEST BANK MINNESOTA, N.A.
By /s/ Denise V Zapzalka
----------------------------------------
ATTEST
By /s/ Susan J. Skonnard
-----------------------------------------
<PAGE>
EXHIBIT A
SCHRODER CAPITAL FUNDS
----------------------
Schroder U.S. Smaller Companies Fund
<PAGE>
EXHIBIT B
- --------------------------------------------------------------------------------
FEE STRUCTURE FOR SCHRODER CAPITAL MANAGEMENT INTERNATIONAL
- --------------------------------------------------------------------------------
1. ANNUAL ASSET-BASED FEE (WITH NO TRANSACTION FEE):
1.5 BASIS POINTS
THE ABOVE FEE STRUCTURE WILL BE GUARANTEED BY NORWEST BANK FOR A THREE YEAR
PERIOD.
