As filed with the Securities and Exchange Commission on March 19, 1998
File No. 811-9130
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No.11
SCHRODER CAPITAL FUNDS
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: 207-879-1900
Catherine S. Wooledge, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies to:
Timothy W. Diggins, Esq.
Ropes & Gray
One International Place, Boston, MA 02110-2624
Alexandra Poe, Esq.
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
This Registration Statement becomes effective immediately pursuant to Section
8(b) of the Investment Company Act of 1940, as amended.
No securities are being registered under the Securities Act of 1933.
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PART A
(PRIVATE PLACEMENT MEMORANDUM)
SCHRODER CAPITAL FUNDS
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SCHRODER ASIAN GROWTH FUND PORTFOLIO
SCHRODER JAPAN PORTFOLIO
MARCH 18, 1998
INTRODUCTION
Schroder Capital Funds (the "Trust") is registered as an open-end management
investment company under the Investment Company Act of 1940 (the "1940 Act").
The Trust is authorized to offer beneficial interests ("Interests") in separate
series, each with a distinct investment objective and investment policies. The
Trust currently offers eight portfolios: International Equity Fund, Schroder
Asian Growth Fund Portfolio, Schroder EM Core Portfolio, Schroder Emerging
Markets Portfolio Institutional Portfolio, Schroder Global Growth Portfolio,
Schroder International Smaller Companies Portfolio, Schroder Japan Portfolio,
and Schroder U.S. Smaller Companies Portfolio. Additional portfolios may be
added in the future. This Part A relates to Schroder Asian Growth Fund Portfolio
and Schroder Japan Portfolio (each, a "Portfolio" and collectively, the
"Portfolios"). Schroder Capital Management International Inc. ("SCMI") is each
Portfolio's investment adviser. Each Portfolio is "non-diversified" as that term
is defined under the 1940 Act.
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.
It is expected that each Portfolio will receive all of its initial assets
in-kind in connection with the tax-free reorganization and conversion of
Schroder Asian Growth Fund, Inc. from a closed-end investment company to an
open-end investment company on March 20, 1998.
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
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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 2
Investment Restrictions 7
Management of the Trust 7
Capital Stock and Other Securities 9
Purchase of Securities 9
Redemption or Repurchase 11
Pending Legal Proceedings 11
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 between the Portfolios,
each Portfolio will achieve different investment returns and will be subject to
varying degrees of market and financial risk. There is no assurance that either
Portfolio will achieve its objective. Neither Portfolio is intended to be a
complete investment program.
Each Portfolio is intended for investors who seek the aggressive growth
potential of foreign markets and are willing to bear the special investment
risks of investing in those markets. Investments in the securities of foreign
issuers generally involve risks in addition to the risks associated with
investments in the securities of U.S. issuers. Neither Portfolio is intended for
investors whose objective is assured income or preservation of capital.
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.
SCHRODER ASIAN GROWTH FUND PORTFOLIO
The Portfolio's investment objective is to seek long-term capital appreciation.
It seeks to achieve its investment objective through investment primarily in
equity securities of Asian companies. "Asian companies" are: (1) companies that
are organized under the laws of China, Hong Kong SAR, India, Indonesia, Korea,
Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan, or Thailand,
or any other countries in the Asian region located south of the border of the
former Soviet Union, east of the borders of Afghanistan and Iran, north of the
Australian sub-continent, and west of the International Date Line and that, in
the future, permit foreign investors to participate in their stock markets
(collectively, the "Asian countries," and each, an "Asian country"); and (2)
companies, wherever organized, that are determined by SCMI at the time of
investment, either: (a) to derive at least 75% of their revenues from goods
produced or sold, investments made, or services performed in Asian countries; or
(b) to maintain at least 75% of their assets in Asian countries.
Under normal market conditions, the Portfolio will be invested in companies
located in at lest five Asian countries. Under normal market conditions, the
Portfolio invests at least 65% of its total assets in equity securities of Asian
companies.
Equity securities in which the Portfolio may invest include common stocks,
preferred stocks, convertible preferred stocks, convertible debt securities, and
stock rights and warrants to purchase any of the foregoing, as well as equity
interest in trusts, partnerships, joint ventures, or similar enterprises, and
American or Global Depositary Receipts
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and other similar instruments providing for indirect investment in securities of
foreign issuers. Under certain circumstances, the Portfolio may invest
indirectly in equity securities by investing in other investment companies or
similar pooled vehicles. See "Other Investment Practices and Risk Considerations
- --Investments in Other Investment Companies or Vehicles".
The Portfolio may also invest up to 10% of its total assets in debt securities
of governments or governmental agencies of Asian countries or of Asian
companies. It may also invest in debt securities of certain international
organizations. Debt securities in which the Portfolio invests may be unrated or
may be rated below investment grade, which entail special risks. See "Other
Investment Practices and Risk Considerations -- Debt Securities."
All percentage limitations on investments apply at the time of investment and
will not be considered violated unless an excess or a 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.
For temporary defensive purposes or in anticipation of redemptions, each
Portfolio may invest without limit in ( or enter into repurchase agreements
maturing in seven days or less with U.S. banks and broker-dealers with respect
to) U.S. Government securities and other high-quality debt instruments. The
Portfolios also may hold cash and time deposits in U.S. banks.
See the SAI for additional information concerning the investment policies and
restrictions of the Portfolios. The investment policies of the Portfolio may,
unless otherwise specifically stated, be changed by the Trustees of the Trust
without a shareholder vote.
SCHRODER JAPAN PORTFOLIO
The Portfolio's investment objective is to seek long-term capital appreciation.
It seeks to achieve its investment objective through investment substantially in
Japanese companies. "Japanese companies" are: (1) companies that are organized
under the laws of Japan; and (2) companies, wherever organized, that are
determined by SCMI at the time of investment, either: (a) to derive at least 75%
of their revenues from goods produced or sold, investments made, or services
performed in Japan; or (b) to maintain at least 75% of their assets in Japan.
Under normal market conditions the Portfolio invests at least 65% of its total
assets in equity securities of Japanese companies.
Equity securities in which the Portfolio may invest include common stocks,
preferred stocks, convertible preferred stocks, convertible debt securities, and
stock rights and warrants to purchase any of the foregoing, as well as equity
interests in trusts, partnerships, joint ventures, or similar enterprises, and
American or Global Depositary Receipts and other similar instruments providing
for indirect investment in securities of foreign issuers. Under certain
circumstances, the Portfolio may invest indirectly in equity securities by
investing in other investment companies or similar pooled vehicles. See "Other
Investment Practices and Risk Considerations --Investments in Other Investment
Companies or Vehicles".
The Portfolio may also invest up to 10% of its total assets in debt securities
of the Japanese government or of Japanese governmental agencies or of Japanese
companies. Debt securities in which the Portfolio invests may be unrated or may
be rated below investment grade, which entail special risks. See "Other
Investment Practices and Risk Considerations -- Debt Securities."
See the SAI for additional information concerning the investment policies and
restrictions of the Portfolio and Portfolios. The investment policies of the
Portfolio may, unless otherwise specifically stated, be charged by the Trustees
of the Trust without a shareholder vote.
For temporary defensive purposes or in anticipation of redemptions, each
Portfolio may invest without limit in ( or enter into repurchase agreements
maturing in seven days or less with U.S. banks and broker-dealers with respect
to)
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U.S. Government securities and other high-quality debt instruments. The
Portfolios also may hold cash and time deposits in U.S. banks.
All percentage limitations on investments apply at the time of investment and
will not be considered violated unless an excess or a 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.
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The Portfolios may also engage in the following investment practices, each of
which involves certain risks. Part B of this Private Placement Memorandum
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.
Since foreign securities are normally denominated and traded in foreign
currencies, the values of a Portfolio's assets may be affected favorably or
unfavorably by currency exchange rates, 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. Aggregate 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 in
delivery of securities or in the recovery of assets held abroad) and expenses
not present in the settlement of domestic investments. 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.
In addition, there may be a possibility of nationalization or expropriation of
assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability, currency devaluations, and diplomatic
developments that could affect the value of the Portfolio's investments in
certain foreign countries. 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. In the case of
securities issued by a foreign governmental entity, the issuer may in certain
circumstances be unable or unwilling to meet its obligations on the securities
in accordance with their terms, and the Portfolio may have limited recourse
available to it in the event of default. The laws of some foreign countries may
limit the Portfolio's ability to invest in securities of issuers located in
those countries.
Because Schroder Asian Growth Fund Portfolio's investments will be concentrated
in Asian countries, political, economic, market and other factors affecting
those countries will likely affect the values of the Portfolio's investments
more than if the Portfolio's investments were invested elsewhere or in a greater
range of geographic regions. In addition, Schroder Asian Growth Fund Portfolio
may invest more than 25% of its total assets in issuers located in any one of
the Asian countries hereafter named: China, Hong Kong SAR, India, Indonesia,
Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan, and
Thailand. Schroder Japan Portfolio invests most of its assets in Japan. As a
result, Japan Portfolio and, to the extent its concentrates its assets in
issuers in any one country, Asian Growth Fund Portfolio, will be adversely
affected by factors adversely affecting that country, including, among other
things, 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 portfolio with a lesser degree of geographic
concentration.
Most of each Portfolio's assets and income are expected to be denominated in
foreign currencies. Currency values are affected by a wide variety of economic
forces and events; thus, fluctuations in values can be difficult, if not
impossible, to predict. 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. Further, if the value of a particular
currency declines between the time the Portfolio
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incurs expenses in U.S. dollars and the time such expenses are paid, the amount
of such other currency required to be converted into U.S. dollars in order to
pay such expenses will be greater than the amount that would have been needed at
the time the expenses 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.
Special tax considerations apply to foreign securities. In determining whether
to invest in foreign securities, SCMI considers the likely impact of foreign
taxes on the net yield available to a Portfolio and its shareholders. Income
and/or gains received by the 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 the net
income available for distribution to shareholders.
EMERGING MARKETS. Schroder Asian Growth Fund Portfolio intends to invest in
securities of issuers in Asian emerging market countries and may at times invest
a substantial portion of its assets in such securities. The prices of securities
of issuers in emerging market countries are subject to greater volatility than
those of issuers in 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 Portfolio
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 Portfolio may
also invest a substantial portion of its assets in securities traded in the
over-the-counter markets in Asian countries and not on any exchange, which may
affect the liquidity of the investment and expose the Portfolio to the credit
risk of its 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. The
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 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: (1) to protect against a change in exchange ratio that may occur
between the date on which the Portfolio contracts to trade a security and the
settlement date; (2) to "lock in" the U.S. dollar value of interest and
dividends to be paid in a foreign currency ("transaction hedging"); or (3) 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"). When investing in foreign securities, the Portfolio
usually effects currency exchange transactions on a spot (I.E., cash) basis at
the spot rate prevailing in the foreign exchange market. A Portfolio incurs
foreign exchange expenses in converting assets from one currency to another.
Each 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 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.
Neither Portfolio intends to maintain a net exposure to forward contracts if the
fulfillment of obligations under such contracts would obligate it to deliver an
amount of foreign currency in excess of the value of its portfolio securities or
other assets denominated in the currency. Neither Portfolio will enter into
these contracts for speculative
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purposes and will not enter into non-hedging currency contracts. A Portfolio
will generally not enter into a forward contract with a term of greater than one
year. Forward contracts are not exchange traded, and there can be no assurance
that a liquid market will exist at a time when the Portfolio seeks to close out
a forward contract. Currently, only a limited market, if any, exists for
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 the Portfolio's ability to hedge its
investments in those markets. These contracts involve a risk of loss if SCMI
fails to predict accurately changes in relative currency values, the directions
of securities prices or interest rates, and other 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 then
denominated ("cross hedging"). Cross hedging transactions involve the risk of
imperfect correlation between changes in the values of the currencies to which
such transactions related and changes in the value of the currency or other
asset or liability which was the subject of the hedge.
INVESTMENTS IN SMALLER COMPANIES. Each Portfolio may invest a portion of its
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 the Portfolio may have to continue to hold such securities
during periods when SCMI would otherwise have sold the security.
NON-DIVERSIFICATION. Each Portfolio is "non-diversified" as that term is defined
under the 1940 Act. This means that it may invest its assets in a more limited
number of issuers than may other investment companies. Under the Internal
Revenue Code, an investment company, including a non-diversified investment
company, generally may not invest more than 25% of its assets in securities of
any one issuer other than U.S. government securities and, with respect to 50% of
its total assets, a Portfolio may not invest more than 5% of its total assets in
the securities of any one issuer (except U.S. government securities). Thus, each
Portfolio may invest up to 25% of its total assets in the securities of each of
any two issuers. To the extent the Portfolio invests in securities of a
relatively few issuers, the value of its shares will be affected by changes in
the values of those securities more than if it had invested in a more
diversified portfolio.
DEBT SECURITIES. Each Portfolio may invest up to 10% of its total assets in
convertible or non-convertible debt securities. A Portfolio may invest in debt
securities issued or guaranteed by Asian governments (including countries,
provinces and municipalities) or their agencies and instrumentalities
("governmental entities") or, in the case of Japan Portfolio, debt securities
issued or guaranteed by Japanese governmental entities; in the case of Asian
Growth Fund Portfolio, debt securities issued or guaranteed by international
organizations designated or supported by multiple foreign governmental entities
(which are not obligations of foreign governments) to promote economic
reconstruction or development; and debt securities issued by Asian companies
(as, in the case of Japan Portfolio, Japanese companies).
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Each Portfolio may invest in lower-quality, high-yielding debt securities that
may be rated below investment grade and in unrated debt securities determined by
SCMI to be of comparable quality. 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 the Portfolio may invest may be in default. The rating
services' descriptions of securities in the various rating categories, including
speculative characteristics, are set forth in Part B of this Private Placement
Memorandum.
The values of lower-rated securities fluctuate in response to changes in
interest rates like those of other fixed-income securities. In addition, the
lower ratings of such 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 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 inability of an issuer to make payments of interest and
principal may also affect the value of these investments.
OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio may engage in a variety of
transactions including options and futures contracts for hedging against market
changes. Although neither Portfolio presently intends to do so, a Portfolio may:
(1) write covered call options on portfolio securities, and the U.S. dollar and
foreign currencies without limit; (2) write covered put options on portfolio
securities and the U.S. dollar and foreign currencies with the limitation that
the aggregate value of the obligations underlying the puts determined as of the
date the options are sold will not exceed 50% of the Portfolio's net assets; (3)
purchase call and put options in amounts up to 5% of the Portfolio's total
assets; and (4)(a) purchase and sell exchange-traded futures contracts on
underlying portfolio securities, any foreign currency, U.S. and foreign
fixed-income securities and such indices of U.S. or foreign equity or
fixed-income securities as may exist or come into being, and (b) purchase and
write call and put options on such futures contracts for hedging purposes only,
and provided that the Portfolio may not enter into futures contracts or purchase
related options, if, immediately thereafter, the amount committed to margin plus
the amount paid for premiums for unexpired options on futures contracts
generally exceeds 5% of the value of the Portfolio's total assets. All of the
foregoing are referred to as "Hedging Instruments".
Each Portfolio may use Hedging Instruments: (1) to protect against declines in
the market value of the Portfolio's portfolio securities or stock index futures,
and the currencies in which they are denominated; or (2) to establish a position
in securities markets as a temporary substitute for purchasing securities. The
Portfolio will not use Hedging Instruments for speculation.
Hedging Instruments have certain risks associated with them, including: (1) the
possible failure of such instruments as hedging techniques in cases where the
price movement of the securities underlying the options or futures does not
follow the price movements of the portfolio securities subject to the hedge; (2)
potentially unlimited loss associated with futures transactions and the possible
lack of liquid secondary market for closing out a futures position; and (3)
possible losses resulting from the inability of SCMI to predict the direction of
stock prices, interest rates, relative currency values and other economic
factors.
In addition, only a limited market, if any, currently exists for hedging
transactions relating to currencies in many emerging market countries or to
securities of issuers domiciled or principally engaged in business in emerging
market countries. This may limit the Portfolio's ability to hedge its
investments in such emerging markets.
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 the Portfolio. The 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. The Portfolio will treat over-the-counter options
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(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.
For more information about any of the options or futures portfolio transactions
described above, see "Options and Futures Transactions" in Part B of this
Private Placement Memorandum.
SECURITIES LOANS, REPURCHASE AGREEMENTS, AND FORWARD COMMITMENTS. Each Portfolio
may lend portfolio securities amounting to not more than one-third of its assets
to brokers, dealers and financial institutions meeting specified credit
conditions, and may enter into repurchase agreements without limit. These
transactions must be fully collateralized at all times but involve some risk to
the 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. The 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 certain
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 bears 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% 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 the 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 the Portfolio's investment in illiquid securities. There can,
however, be no assurance that the Portfolio will be able to sell such securities
at any time when SCMI deems it advisable to do so or at prices prevailing for
comparable securities that are more widely held.
PORTFOLIO TURNOVER. Each Portfolio may engage in short-term trading, but its
portfolio turnover rate is not expected to exceed 100%. High portfolio turnover
and short-term trading involve correspondingly greater commission expenses,
transaction costs and potentially higher amounts of taxable income. See
"Taxation" in Part B of this Private Placement Memorandum.
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
approximately $28 billion as of September 30, 1997. 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 September 30, 1997, had under management assets of over
$175 billion. Schroder Advisors is a wholly owned subsidiary of Schroder Capital
Management International Inc.
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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): SCHRODER ASIAN GROWTH FUND PORTFOLIO -- 0.70% of the Portfolio's
average daily net assets; and SCHRODER JAPAN PORTFOLIO -- 0.55% 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.
Schroder Asian Growth Fund Portfolio's current investment management team
includes Louise Croset and Heather F. Crighton. Ms. Croset and Ms. Crighton are
primarily responsible for the day-to-day management of the investment portfolio,
with the assistance of SCMI's Asian investment management teams. Ms. Croset has
managed the Portfolio's assets since inception. She has been a First Vice
President of SCMI since 1993, and she became a Director of SCMI in 1996. She
served as a Vice President at Wellington Management Co. from 1987 to 1993. Ms.
Crighton, who also has managed the Portfolio's assets since inception, is a Vice
President of SCMI. Ms. Crighton has been employed by SCMI in the investment
research and portfolio management areas since 1992.
Schroder Japan Portfolio's current investment management team includes Ms.
Croset and Donald M. Farquharson, a Vice President of the Trust. Ms. Croset and
Mr. Farquharson are primarily responsible for the day-to-day management of the
investment portfolio, with the assistance of SCMI's Japanese investment
management team, and have together managed the Portfolio's assets since
inception. Mr. Farquharson is a First Vice President of SCMI. He originally
joined SCMI as an equity analyst in 1988, served as the head of SCMI's Japanese
Equity Research group in Tokyo from 1993 to 1995, and thereafter has served as a
portfolio manager for SCMI.
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. Inc.
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 and administrative
services to those Portfolios. The Trust also has entered into a
sub-administration 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): SCHRODER ASIAN GROWTH
FUND PORTFOLIO -- 0.05% and 0.05%, respectively, of the Portfolio's average
daily net assets; and SCHRODER JAPAN FUND -- 0.05% and 0.05%, 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.
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CUSTODIAN. The Chase Manhattan Bank, Chase MetroTech Center, Brooklyn, New York
11245 acts as custodian of the Portfolios' assets and, for foreign securities,
through its Global Securities Services division located at 125 London Wall,
London EC2Y 5AJ, United Kingdom. Chase employs foreign subcustodians to maintain
the Portfolios' foreign assets outside the U.S.
CAPITAL STOCK AND OTHER SECURITIES
The Trust was organized as a business trust under the laws of the State of
Delaware. Under the Trust Instrument, the Trustees are authorized to issue
Interests in separate series of the Trust. The Trust currently has eight
portfolios (two being the Portfolios), and the Trust reserves the right to
create additional portfolios.
Each investor in a 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 a 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 a 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 a Portfolio, investors will be
entitled to share pro rata in the Portfolio's net assets available for
distribution to investors.
A 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 a Portfolio or losses are realized by a
Portfolio.
Under each Portfolio's operational method, it is not subject to any income tax.
However, each investor in a 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 March 10, 1998, there were no holders of any Interest in either Portfolio.
PURCHASE OF SECURITIES
Portfolio Interests are issued solely in private placement transactions that do
not involve any "public offering" within the meaning of Section 4(2) of the 1933
Act. See "General Description of Registrant" above. All investments are made at
the Portfolio's net asset value, without a sales load, 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.
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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.
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]
- --------------------------------------------- -------------------------------
PORTFOLIO NAME ACCOUNT NUMBER
- --------------------------------------------- -------------------------------
Schroder Asian Growth Fund Portfolio 323089429
- --------------------------------------------- -------------------------------
Schroder Japan Portfolio 323089437
- --------------------------------------------- -------------------------------
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 Forum, is the placement agent
for the Trust. The placement agent receives no compensation for its services.
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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.
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.
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PART B
(PRIVATE PLACEMENT MEMORANDUM)
SCHRODER CAPITAL FUNDS
--------
SCHRODER ASIAN GROWTH FUND PORTFOLIO
SCHRODER JAPAN PORTFOLIO
MARCH 18, 1998
COVER PAGE
Not applicable.
TABLE OF CONTENTS
General Information and History.................................. 2
Investment Objective and Policies................................ 3
Investment Restrictions.......................................... 14
Management of the Trust.......................................... 20
Control Persons and Principal Holders of Securities.............. 22
Investment Advisory and Other Services........................... 23
Brokerage Allocation and Other Practices......................... 25
Capital Stock and Other Securities............................... 27
Purchase, Redemption and Pricing of Securities................... 28
Tax Status....................................................... 29
Placement Agent.................................................. 31
Calculations of Performance Data................................. 31
Financial Statements............................................. 31
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.
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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.
Forum The term "Forum" means Forum Administrative Services,
LLC, the Portfolios' subadministrator.
Portfolio The term "Portfolio" means each of Schroder Asian
Growth Fund Portfolio and Schroder Japan 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.
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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.
WARRANTS AND STOCK RIGHTS. Warrants, which are options to purchase an
equity security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance). Investments in warrants involve certain risks, including
the possible lack of a liquid market for the resale of the warrants, potential
price fluctuations as a result of speculation or other factors and failure of
the price of the underlying security to reach a level at which the warrant can
be prudently exercised (in which case the warrant may expire without being
exercised, resulting in the loss of the Portfolio's entire investment therein).
The prices of warrants do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer.
In addition, the Portfolios may invest to a limited degree in stock
rights. A stock right is an option given to a shareholder to buy additional
shares at a predetermined price during a specified time period. Currently, the
Portfolios do not intend to invest more than 5% of their total net assets (at
the time of investment) in stock rights.
AMERICAN DEPOSITARY RECEIPTS ("ADRS"). As described in the Prospectus,
the Portfolios may invest in American Depositary Receipts, European Depositary
Receipts, and other similar instruments provide for indirect investment in
securities of foreign issuers. Due to the absence of established securities
markets in certain foreign countries and restrictions in certain countries on
direct investment by foreign entities, the Portfolios may invest in certain
issuers through the purchase of sponsored and unsponsored ADRs or other similar
securities, such as American Depositary Shares, Global Depositary Shares or
International Depositary Receipts. ADRs are receipts typically issued by U.S.
banks evidencing ownership of the underlying securities into which they are
convertible. These securities may or may not be denominated in the same currency
as the underlying securities. Unsponsored ADRs may be created without the
participation of the foreign issuer. Holders of unsponsored ADRs generally bear
all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
CONVERTIBLE SECURITIES. Each Portfolio may invest in convertible
preferred stocks and convertible debt securities ("convertible securities"). A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, carry less
risk than the corporation's common stock. The value of a convertible security is
a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege). Because convertible debt is convertible into stock
under specified conditions, the value of convertible debt also is affected
normally by changes in the value of the issuer's equity securities.
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DEBT-TO-EQUITY CONVERSIONS. Each Portfolio may invest up to 5% of its
net assets in debt-to-equity conversions. Debt-to-equity conversion programs are
sponsored in varying degrees by certain foreign countries and permit investors
to use external debt of a country to make equity investments in local companies.
Many conversion programs relate primarily to investments in transportation,
communication, utilities and similar infrastructure-related areas. The terms of
the programs vary from country to country but include significant restrictions
on the application of proceeds received in the conversion and on the
repatriation of investment profits and capital. When inviting conversion
applications by holders of eligible debt, a government usually specifies the
minimum discount from par value that it will accept for conversion. SCMI
believes that debt-to-equity conversion programs may offer opportunities to
invest in otherwise restricted equity securities that have a potential for
significant capital appreciation. SCMI, therefore, may invest the Portfolios'
assets to a limited extent in such programs under appropriate circumstances.
There can be no assurance that debt-to-equity conversion programs will continue
to be successful or that the Portfolios will be able to convert all or any of
its emerging market debt portfolio into equity investments.
BRADY BONDS. Each 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
restructurings. Brady Bonds have been issued only recently and, therefore, do
not have a long payment history. Brady Bonds may have collateralized and
uncollateralized components, are issued in various currencies, and are actively
traded in the over-the-counter secondary market. Brady Bonds are not considered
U.S. government securities. In light of the residual risk associated with the
uncollateralized portions of Brady Bonds and, among other factors, the history
of defaults with respect to commercial bank loans by public and private entities
of countries issuing Brady Bonds, investments in Brady Bonds are considered
speculative. Brady Bonds acquired by the Portfolios could be subject to
restructuring arrangements or to requests for new credit, which could cause a
Portfolio to suffer a loss of interest or principal on its holdings.
ZERO-COUPON AND PAYMENT IN KIND BONDS. The Portfolios may at times
invest in " 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.
The Portfolios 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. If a security's
rating is reduced below investment grade, an investment in that security may
entail the risks of lower-rated securities described below.
INDEXED SECURITIES. Each Portfolio may invest in indexed securities,
the values of which are linked to currencies, interest rates, commodities,
indices, or other financial indicators. Investment in indexed securities
involves certain risks. In addition to the credit risk of the securities issuer
and normal risks of price changes in response to changes in interest rates, the
principal amount of indexed securities may decrease as a result of changes in
the value of the reference instruments. Also, in the case of certain indexed
securities where the interest rate is linked to a reference instrument, the
interest rate may be reduced to zero and any further declines in the value of
the security may then reduce the principal amount payable on maturity. Further,
indexed securities may be more volatile than the reference instruments
underlying indexed securities.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS CONTRACTS. Changes in currency
exchange rates will affect the U.S. dollar values of securities denominated in
foreign currencies. Exchange rates between the U.S. dollar and other currencies
fluctuate in response to forces of supply and demand in the foreign exchange
markets. These forces are affected by the international balance of payments and
other economic and financial conditions, government intervention, speculation,
and other factors, many of which may be difficult (if not impossible) to
predict. The Portfolios may engage in foreign currency exchanges transactions to
protect against uncertainty in the level of future exchange rates. Although the
strategy of engaging in foreign currency transactions could reduce the
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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.
Each 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 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 a Portfolio seeks to
close out a forward contract. Currently, only a limited market, if any, exists
for hedging transactions relating to currencies in certain emerging markets or
to securities of issuers domiciled or principally engaged in business in certain
emerging markets. This may limit 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.
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 then denominated ("cross hedging"). Cross hedging transactions involve the
risk of imperfect correlation between changes in the values of the currencies to
which such transactions related and changes in the value of the currency or
other asset or liability which was the subject of the hedge.
OPTIONS AND FUTURES TRANSACTIONS. Call and put options on U.S. Treasury
notes, bonds and bills and on various foreign currencies are listed on several
U.S. and foreign securities exchanges and are written in over-the-counter
transactions ("OTC Options"). Listed options are issued or guaranteed by the
exchange on which they trade or by a clearing corporation such as the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives a
Portfolio the right to buy from the OCC (in the U.S.) or other clearing
corporation or exchange, the underlying security or currency covered by the
option at the stated exercise price (the price per unit of the underlying
security or currency) by filing an exercise notice prior to the expiration date
of the option. The writer (seller) of the option would then have the obligation
to sell, to the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency at that exercise price prior to the expiration
date of the option, regardless of its then current market price. Ownership of a
listed put option would give a Portfolio the right to sell the underlying
security or currency to the OCC (in the U.S.) or other clearing corporation or
exchange at the stated exercise price. Upon notice of exercise of the put
option, the writer of the option would have the obligation to purchase the
underlying security or currency from the OCC (in the U.S.) or other clearing
corporation or exchange at the exercise price. The OCC or other clearing
corporation or exchange that issues listed options ensures that all transactions
in such options are properly executed.
OTC options are purchased from or sold (written) to dealers or
financial institutions that have entered into direct agreements with the
Portfolio. With OTC options, variables such as expiration date, exercise price
and premium are agreed between a Portfolio and the transacting dealer. If the
transacting dealer fails to make or take delivery of the securities or amount of
foreign currency underlying an option it has written, a Portfolio would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. A Portfolio will engage in OTC option transactions only with member
banks of the Federal Reserve System or primary dealers in U.S. government
securities or with affiliates of such banks or dealers which have capital of at
least $50 million or whose obligations are guaranteed by an entity having
capital of at least $50 million.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio may purchase and write
options on foreign currencies for purposes similar to those involved with
investing in forward foreign currency exchange contracts. For example, in order
to protect against declines in the dollar value of portfolio securities that are
denominated in a foreign currency, a Portfolio may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, a Portfolio would be able to sell the foreign
currency for a
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fixed amount of U.S. dollars, thereby securing the dollar value of the portfolio
securities (less the amount of the premiums paid for the options). Conversely, a
Portfolio may purchase call options on foreign currencies in which securities it
anticipates purchasing are denominated to secure a set U.S. dollar price for
such securities and protect against a decline in the value of the U.S. dollar
against such foreign currency. A Portfolio may also purchase call and put
options to close out written option positions.
Each Portfolio also may write covered call options on foreign currency
to protect against potential declines in its portfolio securities that are
denominated in foreign currencies. If the U.S. dollar value of the portfolio
securities falls as a result of a decline in the exchange rate between the
foreign currency in which it is denominated and the U.S. dollar, then a loss to
a Portfolio occasioned by such value decline would be ameliorated by receipt of
the premium on the option sold. At the same time, however, a Portfolio gives up
the benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio securities
falls below the price of the premium received. A Portfolio also may write
options to close out long call option positions. A covered put option on a
foreign currency would be written by a Portfolio for the same reason it would
purchase a call option, namely, to hedge against an increase in the U.S. dollar
value of a foreign security that a Portfolio anticipates purchasing. In this
case, the receipt of the premium would offset, to the extent of the size of the
premium, any increased cost to resulting from an increase in the U.S. dollar
value of the foreign security. However, a Portfolio could not benefit from any
decline in the cost of the foreign security that is greater than the price of
the premium received. A Portfolio also may write options to close out long put
option positions.
Markets in foreign currency options are relatively new, and the
Portfolios' ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Although a Portfolio
will not purchase or write such options unless and until, in the opinion of the
SCMI, the market for them has developed sufficiently to ensure that their risks
are not greater than the risks in connection with the underlying currency, there
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. In addition, options on foreign currencies are
affected by all of those factors that influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar, with the result that the price
of the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a foreign
security, including foreign securities held in a "hedged" investment portfolio.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and, thus, may not reflect relatively smaller transactions
(I.E., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
COVERED CALL WRITING. Each Portfolio may write covered call options.
Generally, a call option is "covered" if a Portfolio owns or has the right to
acquire without additional cash consideration (or for additional cash
consideration held for a Portfolio by its custodian in a segregated account) the
underlying security (currency) subject to the option. In the case of call
options on U.S. Treasury Bills, however, a Portfolio might own U.S. Treasury
Bills of a different series from those underlying the call option but with a
principal amount and value corresponding to the exercise price and a maturity
date no later than that of the security (currency) deliverable under the call
option. A call option is also covered if a Portfolio holds a call on the same
security as the underlying security (currency) of the written option, where the
exercise price of the call used for coverage is equal to or less than the
exercise price of the call or greater than the exercise price of the call
written if the mark-to-market
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difference is maintained by a Portfolio in cash, U.S. government or other
high-grade debt obligations, or other high-quality liquid securities, held by a
Portfolio in a segregated account maintained with its custodian.
A Portfolio receives a premium from the purchaser in return for a call
it has written. Receipt of such premiums may enable a Portfolio to earn a higher
level of current income than it would earn from only holding the underlying
securities (currencies). Moreover, the premium received offsets a portion of the
potential loss incurred by a Portfolio if the securities (currencies) underlying
the option are ultimately sold (exchanged) by a Portfolio at a loss.
Furthermore, a premium received on a call written on a foreign currency
ameliorates any potential loss of value on the portfolio security due to a
decline in the value of the currency. However, during the option period, the
covered call writer has, in return for the premium, given up the opportunity for
capital appreciation above the exercise price should the market price of the
underlying security (or the exchange rate of the currency in which it is
denominated) increase but has retained the risk of loss should the price of the
underlying security (or the exchange rate of the currency in which it is
denominated) decline. The premium received fluctuates with varying economic
market conditions. If the market value of the portfolio securities (or the
currencies in which they are denominated) upon which call options have been
written increases, a Portfolio may receive a lower total return from the portion
of its portfolio upon which calls have been written than it would have received
had such calls not been written.
With respect to listed options and certain OTC options, during the
option period a Portfolio may be required, at any time, to deliver the
underlying security (currency) against payment of the exercise price on any
calls it has written (exercise of certain listed and OTC options may be limited
to specific expiration dates). This obligation terminates upon the expiration of
the option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once a Portfolio has been assigned an exercise notice, a Portfolio is
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a
profit on an outstanding call option, to prevent an underlying security
(currency) from being called, to permit the sale of an underlying security (or
the exchange of the underlying currency) or to enable a Portfolio to write
another call option on the underlying security (currency) with either a
different exercise price or expiration date or both. A Portfolio may realize a
net gain or loss from a closing purchase transaction depending upon whether the
amount of the premium received on the call option is more or less than the cost
of effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security (currency).
If a call option expires unexercised, a Portfolio realizes a gain in
the amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, a
Portfolio realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the underlying
security (currency) and the proceeds of the sale of the security (currency) plus
the premium received on the option less the commission paid.
Options written by a Portfolio normally have expiration dates of up to
eighteen months from the date written. The exercised price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written.
COVERED PUT WRITING. As a writer of a covered put option, a Portfolio
would incur an obligation to buy the security underlying the option from the
purchaser of the put, at the option's exercise price at any time during the
option period, at the purchaser's election (certain listed and OTC put options
written by a Portfolio will be exercisable by the purchaser only on a specific
date). A put is "covered" if at all times a Portfolio maintains with its
custodian (in a segregated account) cash, U.S. government or other high-grade
obligations, or other high-quality liquid securities, in an amount equal to at
least the exercise price of the option. Similarly, a short put position could be
covered by a Portfolio by its purchase of a put option on the same security
(currency) as the underlying security of the written option, where the exercise
price of the purchased option is equal to or more than the exercise price of
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the put written or less than the exercise price of the put written if the marked
to market difference is maintained by a Portfolio in cash, U.S. government or
other high-grade debt obligations, or other high-quality liquid securities, that
a Portfolio holds in a segregated account maintained at its custodian. In
writing puts, a Portfolio assumes the risk of loss should the market value of
the underlying security (currency) decline below the exercise price of the
option (any loss being decreased by the receipt of the premium on the option
written). In the case of listed options, during the option period a Portfolio
may be required, at any time, to make payment of the exercise price against
delivery of the underlying security (currency). The operation of and limitations
on covered put options in other respects are substantially identical to those of
call options.
A Portfolio will write put options for three purposes: (1) to receive
the income derived from the premiums paid by purchasers; (2) when SCMI wishes to
purchase the security (or a security denominated in the currency underlying the
option) underlying the option at a price lower than its current market price (in
which case it will write the covered put at an exercise price reflecting the
lower purchase price sought); and (3) to close out a long put option position.
The potential gain on a covered put option is limited to the premium received on
the option (less the commissions paid on the transaction) while the potential
loss equals the differences between the exercise price of the option and the
current market price of the underlying securities (currencies) when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
PURCHASING CALL AND PUT OPTIONS. Each Portfolio may purchase listed and
OTC call and put options. A Portfolio may purchase a call option in order to
close out a covered call position, see "Covered Call Writing", to protect
against an increase in price of a security it anticipates purchasing or, in the
case of a call option on foreign currency, to hedge against an adverse exchange
rate move of the currency in which the security it anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is denominated.
The purchase of the call option to effect a closing transaction on a call
written over-the-counter may be a listed or an OTC option. In either case, the
call purchased is likely to be on the same securities (currencies) and have the
same terms as the written option. If purchased over-the-counter, the option
would generally be acquired from the dealer or financial institution that
purchased the call written by the Portfolio.
Each Portfolio may purchase put options on securities (currencies) that
it holds in its portfolio to protect itself against a decline in the value of
the security and to close out written put option positions. If the value of the
underlying security (currency) were to fall below the exercise price of the put
purchased in an amount greater then the premium paid for the option, a Portfolio
would incur no additional loss. In addition, a Portfolio may sell a put option
it has previously purchased prior to the sale of the securities (currencies)
underlying such option. Such a sale would result in a net gain or loss depending
upon whether the amount received on the sale is more or less than the premium
and other transaction costs paid on the put option that is sold. Any such gain
or loss could be offset in whole or in part by a change in the market value of
the underlying security (currency). If a put option purchased by a Portfolio
expired without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered
call writer has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price if the market
price of the underlying security (or the value of its denominated currency)
increases, but the writer has retained the risk of loss if the price of the
underlying security (or the value of its denominated currency) declines. The
writer has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. If a covered
call option writer is unable to effect a closing purchase transaction or to
purchase an offsetting OTC option, it cannot sell the underlying security until
the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell an underlying security at a time when it
might otherwise be advantageous to do so. A covered put option writer who is
unable to effect a closing purchase transaction or to purchase an offsetting OTC
option would continue to bear the risk of decline in the market price of the
underlying security until the option expires or is exercised. In addition, a
covered put writer would be unable to utilize the amount held in cash, U.S.
government or other high-grade short-term obligations, or other high-quality
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liquid securities, as security for the put option for other investment purposes
until the exercise or expiration of the option.
The Portfolio's ability to close out its position as a writer of an
option is dependent upon the existence of a liquid secondary market on option
exchanges. There is no assurance that such a market will exist, particularly in
the case of OTC options, since such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
However, a Portfolio may be able to purchase an offsetting option that does not
close out its position as a writer but constitutes an asset of equal value to
the obligation under the option written. If a Portfolio is not able to either
enter into a closing purchase transaction or purchase an offsetting position, it
will be required to maintain the securities subject to the call, or the
collateral underlying the put, even though it might not be advantageous to do
so, until a closing transaction can be entered into (or the option is exercised
or expires).
Among the possible reasons for the absence of a liquid secondary market
on an exchange are: (1) insufficient trading interest in certain options; (2)
restrictions on transactions imposed by an exchange; (3) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (4) interruption of the normal
operations on an exchange; (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume; or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist.
In the event of the bankruptcy of a broker through which a Portfolio
engages in transactions in options, a Portfolio could experience delays and/or
losses in liquidating open positions purchased or sold through the broker and/or
incur a loss of all or part of its margin deposits with the broker. Similarly,
in the event of the bankruptcy of the writer of an OTC option purchased by the
Portfolio, a Portfolio could experience a loss of all or part of the value of
the option. Transactions will be entered into by a Portfolio only with brokers
or financial institutions deemed creditworthy by SCMI.
Exchanges have established limitations governing the maximum number of
options on the same underlying security or futures contract (whether or not
covered) that may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more accounts or through
one or more brokers). An exchange may order the liquidation of positions found
to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which a Portfolio may write.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. If the option markets close before
the markets for the underlying securities, significant price and rate movements
can take place in the underlying markets that cannot be reflected in the option
markets.
The extent to which a Portfolio may enter into transactions involving
options may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Portfolio's intention to
operate in such a manner as to permit a fund invested in the Portfolio to
qualify as such, see "Taxation".
FUTURES CONTRACTS. Each Portfolio may purchase and sell interest-rate,
currency, and index futures contracts ("futures contracts") that are traded on
U.S. and foreign commodity exchanges, on such underlying securities as U.S.
Treasury bonds, notes and bills, and/or any foreign government fixed-income
security ("interest-rate futures contracts"), on various currencies ("currency
futures contracts"), and on such indices of U.S. and foreign securities as may
exist or come into being ("index futures contracts").
Each Portfolio may purchase or sell interest-rate futures contracts for
the purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If SCMI anticipates that interest rates may rise and, concomitantly, that the
price of certain of its portfolio securities fall, a Portfolio may sell an
interest-rate futures contract. If declining interest rates are anticipated, a
Portfolio may purchase an interest-rate futures contract to protect against a
potential increase in the price of securities a Portfolio
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intends to purchase. Subsequently, appropriate securities may be purchased by a
Portfolio in an orderly fashion; as securities are purchased, corresponding
futures positions would be terminated by offsetting sales of contracts.
Each Portfolio may purchase or sell currency futures contracts on
currencies in which its portfolio securities (or anticipated portfolio
securities) are denominated for the purposes of hedging against anticipated
changes in currency exchange rates. A Portfolio may enter into currency futures
contracts for the same reasons as set forth above for entering into forward
foreign currency exchange contracts; namely, to secure the value of a security
purchased or sold in a given currency vis-a-vis a different currency or to hedge
against an adverse currency exchange rate movement of a portfolio security's (or
anticipated portfolio security's) denominated currency vis-a-vis a different
currency.
Each Portfolio may purchase or sell index futures contracts for the
purpose of hedging some or all of its portfolio (or anticipated portfolio)
securities against changes in their prices. If SCMI anticipates that the prices
of securities a Portfolio holds may fall, a Portfolio may sell an index futures
contract. Conversely, if SCMI wishes to hedge the portfolio against anticipated
price rises in those securities that a Portfolio intends to purchase, a
Portfolio may purchase an index futures contract.
In addition to the above, interest-rate, currency and index futures
contracts will be bought or sold in order to close out short or long positions
maintained by a Portfolio in corresponding futures contracts.
Although most interest-rate futures contracts call for actual delivery
or acceptance of securities, the contracts usually are closed out before the
settlement date without making or taking delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that a Portfolio will be able to enter into a
closing transaction.
INTEREST-RATE FUTURES CONTRACTS. When a Portfolio enters into an
interest-rate futures contract, it is initially required to deposit with its
custodian (in a segregated account in the name of the broker performing the
transaction) an "initial margin" of cash, U.S. government or other high-grade
short-term obligations, or other high-quality liquid securities, equal to
approximately 2% of the contract amount. Initial margin requirements are
established by the exchanges on which futures contracts trade and may change. In
addition, brokers may establish margin deposit requirements in excess of those
required by the exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
money by a brokers' client but is, rather, a good faith deposit on the futures
contract that will be returned to a Portfolio upon the proper termination of the
futures contract. The margin deposits made are marked to market daily, and a
Portfolio may be required to make subsequent deposits with its futures contract
clearing broker of cash or U.S. government securities (called "variation
margin") that are reflective of price fluctuations in the futures contract.
CURRENCY FUTURES CONTRACTS. Generally, foreign currency futures
contracts provide for the delivery of a specified amount of a given currency, on
the exercise date, for a set exercise price denominated in U.S. dollars or other
currency. Foreign currency futures contracts would be entered into for the same
reason and under the same circumstances as forward foreign currency exchange
contracts. SCMI assesses such factors as cost spreads, liquidity and transaction
costs in determining whether to use futures contracts or forward contracts in
its foreign currency transactions and hedging strategy.
Purchasers and sellers of foreign currency futures contracts are
subject to the same risks that apply generally to the buying and selling of
futures contracts. In addition, there are risks associated with foreign currency
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futures contracts and their use as a hedging device similar to those associated
with options on foreign currencies described above. Further, settlement of a
foreign currency futures contract must occur within the country issuing the
underlying currency. Thus, a Portfolio must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign restrictions
or regulations regarding the maintenance of foreign banking arrangements by U.S.
residents and may be required to pay any fees, taxes or charges associated with
such delivery that are assessed in the issuing country.
INDEX FUTURES CONTRACTS. A Portfolio may invest in index futures
contracts. An index futures contract sale creates an obligation by the
Portfolio, as seller, to deliver cash at a specified future time. An index
futures contract purchase creates an obligation by the Portfolio, as purchaser,
to take delivery of cash at a specified future time. Futures contracts on
indices do not require the physical delivery of securities but provide for a
final cash settlement on the expiration date that reflects accumulated profits
and losses credited or debited to each party's account.
Each Portfolio is required to maintain margin deposits with brokerage
firms through which it effects index futures contracts in a manner similar to
that described above for interest-rate futures contracts. In addition, due to
current industry practice, daily variations in gain and loss on open contracts
are required to be reflected in cash in the form of variation margin payments. A
Portfolio may be required to make additional margin payments during the term of
the contract.
At any time prior to expiration of the futures contract, a Portfolio
may elect to close the position by taking an opposite position, which will
operate to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash may be required
to be paid by or released to the Portfolio, and it realizes a loss or gain.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio may purchase and write
call and put options on futures contracts traded on an exchange and may enter
into closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the position in the futures contract by
the writer of the option to the holder of the option is accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract at the
time of exercise exceeds, in case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
A Portfolio may purchase and write options on futures contracts for
purposes identical to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of a
futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, SCMI
wished to protect against an increase in interest rates and the resulting
negative impact on the value of a portion of its fixed-income portfolio, a
Portfolio might write a call option on an interest-rate futures contract, the
underlying security of which correlates with the portion of the portfolio that
SCMI seeks to hedge. Any premiums received in the writing of options on futures
contracts may provide a further hedge against losses resulting from price
declines in portions of the Portfolio's investment portfolio.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. To reduce this risk,
a Portfolio will not purchase or write options on foreign currency futures
contracts unless and until, in SCMI's opinion, the market for such options has
developed sufficiently that the risks in connection with them are not greater
than the risks in connection with transactions in the underlying foreign
currency futures contracts.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A
Portfolio may not enter into futures contracts or purchase related options
thereon if, immediately thereafter, the amount committed to margin plus the
amount paid for premiums for unexpired options on futures contracts exceeds 5%
of the value of the
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Portfolio's total assets, after taking into account unrealized gain and
unrealized loss on such contracts it has entered into, provided, however, that
in the case of an option that is in-the-money (the exercise price of the call
(put) option is less (more) than the market price of the underlying security) at
the time of purchase, the in-the-money amount may be excluded in calculating the
5%. However, there is no overall limitation on the percentage of the Portfolio's
assets that may be subject to a hedge position. In addition, in accordance with
the regulations of the Commodity Futures Trading Commission under which each
Portfolio is excluded from registration as a commodity pool operator, a
Portfolio may only enter into futures contracts and options on futures contracts
transactions for purposes of hedging a part or all of its portfolio. Except as
described above, there are no other limitations on the use of futures and
options thereon by the Portfolio.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an option
on a futures contract are included in initial margin deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Each
Portfolio may sell a futures contract to protect against the decline in the
value of securities (or the currency in which they are denominated) it holds.
However, it is possible that the futures market may advance and the value of the
Portfolio's securities (or the currency in which they are denominated) may
decline. If this occurs, a Portfolio will lose money on the futures contract and
also experience a decline in value of its portfolio securities. While this might
occur for only a very brief period or to a very small degree, over time the
value of a diversified portfolio will tend to move in the same direction as the
futures contracts.
If a Portfolio purchases a futures contract to hedge against the
increase in value of securities it intends to buy (or the currency in which they
are denominated) and the value of such securities (currencies) decreases, then a
Portfolio may determine not to invest in the securities as planned and will
realize a loss on the futures contract that is not offset by a reduction in the
price of the securities.
If a Portfolio has sold a call option on a futures contract, it will
cover this position by holding (in a segregated account maintained by its
custodian) cash, U.S. government securities or other high-grade debt
obligations, or other high-quality liquid securities, equal in value (when added
to any initial or variation margin on deposit) to the market value of the
securities (currencies) underlying the futures contract or the exercise price of
the option. Such a position may also be covered by owning the securities
(currencies) underlying the futures contract or by holding a call option
permitting a Portfolio to purchase the same contract at a price no higher than
the price at which the short position was established.
In addition, if a Portfolio holds a long position in a futures
contract, it will hold cash, U.S. government or other high-grade debt
obligations, or other high-quality liquid securities, equal to the purchase
price of the contract (less the amount of initial or variation margin on
deposit) in a segregated account maintained by the Portfolio's custodian.
Alternatively, a Portfolio could cover its long position by purchasing a put
option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Portfolio.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, a Portfolio
would continue to be required to make daily cash payments of variation margin on
open futures contract positions. In such situations, if a Portfolio has
insufficient cash, it may have to sell portfolio securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do so.
In addition, a Portfolio may be required to take or make delivery of the
instruments underlying interest-rate futures contracts it holds at a time when
it is disadvantageous to do so. The inability to close out options and futures
contract positions could also have an adverse impact on the Portfolio's ability
to effectively hedge its portfolio.
Futures contracts and options thereon that are purchased or sold on
foreign commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges, and brokerage
commissions, clearing costs and
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other transaction costs may be higher. Greater margin requirements may limit the
Portfolio's ability to enter into certain commodity transactions on foreign
exchanges. Moreover, differences in clearance and delivery requirements on
foreign exchanges may cause delays in the settlement of the Portfolio's foreign
exchange transactions.
In the event of the bankruptcy of a broker through which a Portfolio
engages in transactions in futures or options thereon, a Portfolio could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
with the broker. Similarly, in the event of the bankruptcy of the writer of an
OTC option purchased by the Portfolio, a Portfolio could experience a loss of
all or part of the value of the option. Transactions are entered into by a
Portfolio only with brokers or financial institutions deemed creditworthy by
SCMI.
While the futures contracts and options transactions in which a
Portfolio engages for the purpose of hedging its portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk that may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indices subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Portfolio's portfolio securities
(and the currencies in which they are denominated). Another such risk is that
prices of interest-rate futures contracts may not move in tandem with the
changes in prevailing interest rates against which a Portfolio seeks a hedge. A
correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between a
contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and are expected to diminish as the contract
approaches maturity.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by a Portfolio and the movements in the prices of
the securities (currencies) that are the subject of the hedge. If participants
in the futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the debt securities or currency markets and futures
markets could result. Price distortions could also result if investors in
futures contracts choose to make or take delivery of underlying securities
rather than engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, because the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market can be
anticipated with the resulting speculation causing temporary price distortions.
Due to the possibility of price distortions in the futures contracts market and
because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of interest-rate trends may still not result in a successful hedging
transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts and related options in which a Portfolio may invest. In the
event a liquid market does not exist, it may not be possible to close out a
futures position, and, in the event of adverse price movements, a Portfolio
would continue to be required to make daily cash payments of variation margin.
In addition, limitations imposed by an exchange or board of trade on which
futures contracts are traded may compel a Portfolio to close, or prevent it from
closing, out a contract, which may result in reduced gain or increased loss to
the Portfolio. The absence of a liquid market in futures contracts might cause a
Portfolio to make or take delivery of the underlying securities (currencies) at
a time when it may be disadvantageous to do so.
The extent to which a Portfolio may enter into transactions involving
futures contracts and options thereon may be limited by the Internal Revenue
Code's requirements for qualification as a regulated investment company and the
Portfolio's intention to operate in such a manner as to permit a fund invested
in a Portfolio to qualify as such, see "Taxation".
INTEREST-RATE TRANSACTIONS. In order to attempt to protect the value of
its portfolio from interest-rate fluctuations and to adjust the interest-rate
sensitivity of its portfolio, each Portfolio may enter into interest-rate swaps
and other interest-rate transactions, such as interest-rate caps, floors, and
collars. Interest-rate swaps involve
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the exchange by a Portfolio with another party of different types of
interest-rate streams (E.G., an exchange of floating-rate payments for
fixed-rate payments with respect to a notional amount of principal). The
purchase of an interest-rate cap entitles the purchaser to receive payments on a
notional principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling the floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined rate
of interest rates or values. The Portfolios intend to use these interest-rate
transactions as a hedge and not as a speculative investment. The Portfolio's
ability to engage in certain interest rate transactions is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. If SCMI were
incorrect in its forecasts of market values, interest rates, or other applicable
factors, the Portfolio's investment performance would be less favorable than it
would have been if this investment technique were not used.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS.
Each Portfolio may purchase securities on a when-issued or delayed delivery
basis or may purchase or sell securities on a forward commitment basis. When
such transactions are negotiated, the price is fixed at the time of the
commitment, but delivery and payment may take place a month or more after the
date of the commitment. There is no overall limit on the percentage of the
Portfolio's assets that may be committed to the purchase of securities on a
when-issued, delayed delivery or forward commitment basis. An increase in the
percentage of the Portfolio's assets committed to the purchase of securities on
a when-issued, delayed delivery or forward commitment basis may increase the
volatility of the Portfolio's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. Each Portfolio may purchase
securities on a "when, as and if issued" basis under which the issuance of the
security depends upon the occurrence of a subsequent event, such as approval of
a merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, a
Portfolio will have lost an investment opportunity. There is no overall limit to
the percentage of the Portfolio's assets that may be committed to the purchase
of securities on a "when, as and if issued" basis. An increase in the percentage
of the Portfolio's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value.
TEMPORARY INVESTMENTS. As described in the Prospectus, each Portfolio
may hold and/or invest its assets without limitation in cash and/or Temporary
Investments (as defined below) for cash management purposes, pending initial
investment in accordance with the Portfolio's investment objective and policies.
In addition, each Portfolio may hold these investments for temporary defensive
purposes. A Portfolio may assume a temporary defensive posture when, owing to
political, market or other factors broadly affecting markets in one or more
Asian Countries, SCMI determines either that opportunities for capital
appreciation in those markets may be significantly limited or that significant
diminution in value of the securities traded in those markets may occur. Each
Portfolio may invest without limitation in (or enter into repurchase agreements
maturing in seven days or less with banks and broker-dealers with respect to)
short-term debt securities, including commercial paper, U.S. Treasury bills,
other short-term U.S. government securities, certificates of deposit, and
bankers' acceptances of U.S. or foreign banks. Each Portfolio also may hold cash
and time deposits denominated in any major foreign currency in foreign banks. To
the extent that a Portfolio invests in Temporary Investments, it may not achieve
its investment objective.
Temporary Investments are high quality debt securities (rated "AA" or
above by Standard & Poor's Corporation ("S&P") or "Aa" or above by Moody's
Investors Services, Inc. ("Moody's") or with an equivalent rating by other
nationally recognized securities rating organizations) denominated in U.S.
dollars or in another freely convertible currency including: (1) short-term
(less than 12 months to maturity) and medium-term (not more than five years to
maturity) obligations issued or guaranteed by: (a) the U.S. Government, its
agencies instrumentalities, or government-sponsored enterprises; or (b)
international organizations designated or supported by multiple foreign
governmental entities to promote economic reconstruction or development
("supranational entities"); (2) U.S. finance company obligations, corporate
commercial paper and other short-term commercial obligations; (3) obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks; and (4) repurchase agreements with respect to securities
in which a Portfolio may invest. The banks whose obligations may be purchased by
a Portfolio and the banks and broker-dealers with which a
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Portfolio may enter into repurchase agreements include any member bank of the
Federal Reserve System and any U.S. broker-dealer or any foreign bank that has
been determined by the investment adviser to be creditworthy.
SHORT-TERM DEBT SECURITIES. For cash management, pending investment or
other temporary purposes, each Portfolio may invest in commercial paper --
short-term unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance companies. The commercial paper purchased by
a Portfolio for temporary defensive purposes consists of direct obligations of
domestic issuers that at the time of investment are rated "P-1" by Moody's
Investors Service ("Moody's") or "A-1" by Standard & Poor's ("S&P"), or
securities that, if not rated, are issued by companies having an outstanding
debt issue currently rated "Aaa" or "Aa" by Moody's or "AAA" or "AA" by S&P. The
rating "P-1" is the highest commercial paper rating assigned by Moody's, and the
rating "A-1" is the highest commercial paper rating assigned by S&P. Each
Portfolio also may invest in variable rate master demand notes, which are
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payer of such notes. Generally both parties have
the right to vary the amount of the outstanding indebtedness on the notes.
REPURCHASE AGREEMENTS. Each Portfolio may invest in securities subject
to repurchase agreements that mature or may be terminated by notice in seven
days or less with banks or broker-dealers. In a typical repurchase agreement,
the seller of a security commits itself at the time of the sale to repurchase
that security from the buyer at a mutually agreed-upon time and price. The
repurchase price exceeds the sale price, reflecting an agreed-upon interest rate
effective for the period the buyer owns the security subject to repurchase. The
agreed-upon rate is unrelated to the interest rate on that security. SCMI
monitors the value of the underlying security at the time the transaction is
entered into and at all times during the term of the repurchase agreement to
insure that the value of the security always equals or exceeds the repurchase
price. If a seller defaults under a repurchase agreement, a Portfolio may have
difficulty exercising its rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities. To evaluate potential risks, SCMI reviews the credit-worthiness of
banks and dealers with which a Portfolio enters into repurchase agreements.
RESTRICTED SECURITIES. "Liquidity" under "Investment Policies" in the
Prospectus sets forth the circumstances in which a Portfolio may invest in
"restricted securities". In connection with the Portfolio's original purchase of
restricted securities, SCMI may negotiate rights with the issuer to have such
securities registered for sale at a later time. Further, the registration
expenses of illiquid restricted securities may also be negotiated by a Portfolio
with the issuer at the time such securities are purchased by the Portfolio. When
registration is required, however, a considerable period may elapse between the
decision to sell the securities and the time a Portfolio would be permitted to
sell such securities. A similar delay might be experienced in attempting to sell
such securities pursuant to an exemption from registration. Thus, a Portfolio
may not be able to obtain as favorable a price as that prevailing at the time of
the decision to sell.
If SCMI determines that a "restricted security" is liquid pursuant to
guidelines adopted by Board of Trustees of Schroder Capital Funds (the "Schroder
Core Board"), the security is not deemed illiquid. These guidelines take into
account trading activity for the securities and the availability of reliable
pricing information, among other factors. If there is a lack of trading interest
in a particular restricted security, that security may become illiquid, which
could affect the Portfolio's liquidity.
RULE 144A SECURITIES. Each Portfolio may purchase certain restricted
securities ("Rule 144A securities") for which there is a secondary market of
qualified institutional buyers, as contemplated by rule 144A under the
Securities Act of 1933 (the "Securities Act"). Rule 144A provides an exemption
from the registration requirements of the Securities Act for resale of certain
restricted securities to qualified institutional buyers. One effect of Rule 144A
is that certain restricted securities may now be deemed to be liquid, though
there is no assurance that a liquid market for any particular Rule 144A security
will develop or be maintained. SCMI will make liquidity determinations subject
to guidelines approved by the Schroder Core Board. If any Rule 144A security
previously determined to be liquid is later determined to be illiquid, such
security will be subject to the Portfolio's 15% limitation on illiquid
securities.
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U.S. GOVERNMENT SECURITIES. Each Portfolio may invest in securities
issued or guaranteed by the U.S. Government (or its agencies, instrumentalities
or government-sponsored enterprises). Agencies, instrumentalities and
government-sponsored enterprises that have been established or sponsored by the
U.S. Government and issue or guarantee debt securities include the Bank for
Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal
Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage
Association, the Government National Mortgage Association and the Student Loan
Marketing Association. Except for obligations issued by the U.S. Treasury and
the Government National Mortgage Association, none of the obligations of the
other agencies, instrumentalities or government-sponsored enterprises referred
to above are backed by the full faith and credit of the U.S. Government. There
can be no assurance that the U.S. Government will provide financial support to
these obligations where it is not obligated to do so.
BANK OBLIGATIONS. Each Portfolio may invest in obligations of U.S. and
foreign banks (including certificates of deposit and bankers' acceptances) whose
total assets at the time of purchase exceed $1 billion. A Portfolio also may
hold cash and time deposits denominated in any major currency in foreign banks.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. A time deposit is a non-negotiable
receipt issued by a bank in exchange for the deposit of funds. Similar to a
certificate of deposit, a time deposit earns a specified rate of interest over a
definite time period; however, it cannot be traded in the secondary markets.
LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must: (1) on each business day, at least equal the market value of
the loaned securities; and (2) consist of cash, bank letters of credit, U.S.
government securities, other cash equivalents or liquid securities in which a
Portfolio is permitted to invest. To be acceptable as collateral, letters of
credit must obligate a bank to pay amounts demanded by a Portfolio if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Portfolio. When lending portfolio securities, a Portfolio
receives from the borrower an amount equal to the interest paid or the dividends
declared on the loaned securities during the term of the loan plus the interest
on the collateral securities (less any finders' or administrative fees a
Portfolio pays in arranging the loan). A Portfolio may share the interest it
receives on the collateral securities with the borrower if it realizes at least
a minimum amount of interest required by the lending guidelines established by
the Schroder Core Board. A Portfolio will not lend its portfolio securities to
any officer, trustee, employee or affiliate of a Portfolio or SCMI. The terms of
the Portfolio's loans must meet certain tests under the Internal Revenue Code
and permit a Portfolio to reacquire loaned securities on five business days'
notice or in time to vote on any important matter.
The market value of portfolio securities purchased with cash collateral
may decline. Loans of securities by a Portfolio are subject to termination at
the Portfolio's or the borrower's option. A Portfolio may pay reasonable
negotiated fees in connection with loaned securities, so long as such fees are
set forth in a written contract and approved by the Schroder Core Board.
HIGH YIELD/HIGH RISK SECURITIES. High yield/high risk securities'
market values are affected more by individual issuer developments and are more
sensitive to adverse economic changes than are higher-rated securities. Issuers
of high yield/high risk securities may be highly leveraged and may not have more
traditional methods of financing available to them. During economic downturns or
substantial periods of rising interest rates, issuers of high yield/high risk
securities, especially highly leveraged ones, may be less able to service their
principal and interest payment obligations, meet their projected business goals,
or obtain additional financing. The risk of loss due to default by the issuer is
significantly greater for holders of high yield/high risk securities because
such securities may be unsecured and may be subordinated to other creditors of
the issuer. In addition, a Portfolio may incur additional expenses if it is
required to seek recovery upon a default by the issuer of such an obligation or
participate in the restructuring of such obligation.
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Periods of economic uncertainty and change are likely to cause
increased volatility in the market prices of high yield/high risk securities
and, correspondingly, in the Portfolio's net asset value if it invests in such
securities. Market prices of such securities structured as zero coupon or
pay-in-kind securities are more affected by interest-rate changes and, thus,
tend to be more volatile than securities that pay interest periodically and in
cash.
High yield/high risk securities may have call or redemption features
that would permit an issuer to repurchase the securities from the Portfolio. If
a call were exercised by the issuer during a period of declining interest rates,
a Portfolio would likely have to replace called securities with lower yielding
securities, thus decreasing the Portfolio's net investment income and dividends
to shareholders.
While a secondary trading market for high yield/high risk securities
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. In periods of reduced secondary market liquidity,
prices of high yield/high risk securities may become volatile and experience
sudden and substantial price declines. A Portfolio may, therefore, have
difficulty disposing of particular issues to meet its liquidity needs or in
response to a specific economic event (such as a deterioration in the
creditworthiness of the issuer). Reduced secondary market liquidity for certain
high yield/high risk securities also may make it more difficult for a Portfolio
to obtain accurate market quotations (for purposes of valuing the Portfolio's
investment portfolio): market quotations generally are available on many high
yield/high risk securities only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
Under such conditions, high yield/high risk securities may have to be valued at
fair value as determined by the Schroder Core Board or SCMI under Board-approved
guidelines.
Adverse publicity and investor perceptions (which may not be based on
fundamental analysis) may decrease the value and liquidity of high yield/high
risk securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield/high risk securities are likely to
adversely affect the Portfolio's net asset value.
SOVEREIGN DEBT. Investment in sovereign debt carries high risk. Certain
foreign countries are large debtors to commercial banks and foreign governments.
At times, certain foreign countries have declared moratoria on the payment of
principal and/or interest on outstanding debt. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest
when it is due may be affected by many factors, such as its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange, the relative size of the debt service burden to the economy as a
whole, and political restraints. The Portfolio, as a holder of sovereign debt,
may be asked to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which defaulted sovereign debt may be collected.
The sovereign debt instruments in which a Portfolio may invest involve
great risk, are deemed to be the equivalent in terms of quality to high
yield/high risk securities discussed above and are subject to many of the same
risks as such securities. Similarly, a Portfolio may have difficulty disposing
of certain sovereign debt obligations because there may be a thin trading market
for such securities. A Portfolio will not invest in sovereign debt that is in
default.
EMERGING MARKETS COUNTRIES
The following countries are not deemed to be "emerging markets" for
Schroder Asian Growth Fund Portfolio.
Australia The Netherlands
Austria New Zealand
Belgium Norway
Canada Portugal
Denmark Singapore
Finland Spain
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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 Schroder Asian Growth Fund Portfolio's or Schroder Japan
Portfolio's assets or purchases and redemptions of interests will not be
considered a violation of the restriction.
Under these fundamental restrictions, each Portfolio will not:
FUNDAMENTAL RESTRICTIONS
1. INDUSTRY CONCENTRATION
purchase any securities which would cause 25% or more of the
value of its total assets, taken at market value at the time
of such purchase, to be invested in securities of one or more
issuers conducting their principal business activities in the
same industry, provided that there is no limitation with
respect to investment in securities issued or guaranteed by
the U. S. Government, its agencies or instrumentalities. For
purposes of this restriction, a foreign government is deemed
to be an "industry."
2. BORROWING AND SENIOR SECURITIES
borrow money except that the Portfolio may borrow from banks
up to 33 1/3% of its total assets (including the amount
borrowed ) for temporary or emergency purposes or to meet
redemption requests. A Portfolio may not issue any class of
securities which is senior to the Portfolio's shares of
beneficial interest; provided, however, that none of the
following shall be deemed to create senior securities: (1) any
borrowing permitted by this restriction or any pledge or
encumbrance to secure such borrowing; (2) any collateral
arrangements with respect to options, futures contracts,
options on future contracts or other financial instruments; or
(3) any purchase, sale or other permitted transaction in
options, forward contracts, futures contracts, options on
future contracts or other financial instruments. (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 (4) the lending of securities.)
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3. REAL ESTATE
purchase or sell real estate, real estate mortgage loans or
real estate limited partnership interests (other than
securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or
interests therein )
4. LENDING
make loans to other parties, except that the Portfolio may:
(a) purchase and hold debt instruments (including bonds,
debentures or other obligations and certificates of deposit,
bankers' acceptances and fixed time deposits) in accordance
with its investment objective and policies, (b) enter into
repurchase agreements with respect to portfolio securities,
and (c) make loans of portfolio securities.
5. COMMODITIES
purchase or sell commodities or commodity contracts, including
futures contracts and options thereon, except that the
Portfolio may purchase or sell financial futures contracts and
related options, and futures contracts, forward contracts, and
options with respect to foreign currencies, and may enter into
swaps or other financial transactions.
6. UNDERWRITING
underwrite (as that term is defined in the Securities Act of
1933, as amended) securities issued by other persons except to
the extent that, in connection with the disposition of its
portfolio securities, it may be deemed to be an underwriter.
7. EXERCISING CONTROL OF ISSUERS
invest for the purpose of exercising control over
the management of any company.
8. SHORT SALES AND PURCHASING ON MARGIN
make short sales of securities or maintain a short position; or
purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are
necessary for the clearance of transactions and for hedging
purposes and margin deposits in connection with transactions
in futures contracts, options on futures contracts, options on
securities and securities indices, currency transactions, and
other financial transactions).
NONFUNDAMENTAL RESTRICTIONS
Each Portfolio has adopted the following nonfundamental investment
restrictions. Nonfundamental restrictions may be changed by the Board without
approval of the interestholders.
1. NON -DIVERSIFICATION
A Portfolio may not invest more than 25% of its total assets
in obligations of any one issuer other than U.S. Government
securities and, with respect to 50% of its total assets, a
Portfolio may not invest more than 5% of its total assets in
the securities of any one issuer (except U.S. Government
securities). Thus, a Portfolio may invest up to 25% of its
total assets in the securities of each of any two issuers.
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2. LIQUIDITY
A 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. The Portfolio may treat certain restricted
securities as liquid pursuant to guidelines adopted by the
Board.
3. 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.
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.
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.
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MARK ASTLEY, 33, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; First Vice President of SCMI, prior thereto,
employed by various affiliates of SCMI in various positions in the
investment research and portfolio management areas since 1987.
ROBERT G. DAVY, 36, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Director of SCMI and Schroder Capital
Management International Ltd. since 1994; First Vice President of SCMI
since July, 1992; prior thereto, employed by various affiliates of SCMI
in various positions in the investment research and portfolio
management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON, 55, 787 Seventh Avenue, New York, New
York - Vice President of the Trust; Secretary of SCM since July 1995;
Senior Vice President (since April 1997) and General Counsel of
Schroders 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.
FERGAL CASSIDY, 28, 787 Seventh Avenue, New York, New York - Treasurer
of the Trust.
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.
CATHERINE A. MAZZA, 37, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; President of Schroder Advisors since 1997;
First Vice President of SCMI and SCM since 1996; prior thereto, held
various marketing positions at Alliance Capital, an investment adviser,
since July 1985.
MICHAEL PERELSTEIN, 41, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Director since May 1997 and Senior Vice
President of SCMI since January 1997; prior thereto, Managing Director
of MacKay - Shields Financial Corp.
ALEXANDRA POE, 37, 787 Seventh Avenue, New York, New York - Secretary
and Vice President of the Trust; Vice President of SCMI since August
1996; Fund Counsel and Senior Vice President of Schroder Advisors since
August 1996; Secretary of Schroder Advisors; prior thereto, an
investment management attorney with Gordon Altman Butowsky Weitzen
Shalov & Wein since July 1994; prior thereto counsel and Vice President
of Citibank, N.A. since 1989.
THOMAS G. SHEEHAN, 42 - 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.
FARIBA TALEBI, 36, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Group Vice President of SCMI since April 1993,
employed in various positions in the investment research and portfolio
management areas since 1987; Director of SCM since April 1997.
JOHN A. TROIANO, 38, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Director of SCM since April 1997; Chief
Executive Officer, since July 1, 1997, of SCMI and Managing Director
and Senior Vice President of SCMI since October 1995; prior thereto,
employed by various affiliates of SCMI in various positions in the
investment research and portfolio management areas since 1981.
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IRA L. UNSCHULD, 31, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Vice President of SCMI since April, 1993 and an
Associate from July, 1990 to April, 1993.
CATHERINE S. WOOLEDGE, 55 - Assistant Treasurer and Assistant Secretary
of the Trust; Counsel, Forum Administrative Services, LLC since
November 1996. Prior thereto, associate at Morrison & Foerster,
Washington, D.C. from October 1994 to November 1996, associate
corporate counsel at Franklin Resources, Inc. from September 1993 to
September 1994, and prior thereto associate at Drinker Biddle & Reath,
Philadelphia, PA.
* Interested Trustee of the Trust within the meaning of the 1940 Act.
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 a Portfolio 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 $1,000 per year. Payment of the
annual retainer is allocated among the various investment companies based on
their relative net assets. Payment of meeting fees is allocated only among those
investment companies to which the meeting relates. None of the registered
investment companies in the Fund Complex has any bonus, profit sharing, pension
or retirement plans.
The following table provides the fees paid to each independent Trustee
of the Trust for the year ended December 31, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation From
Aggregate Benefits Accrued Estimated Annual Fund Complex Paid
Compensation From As Part of Trust Benefits Upon To Trustees ($)
Name of Trustee the Trust ($) Expenses ($) Retirement ($)
- -------------------------------- -------------------- -------------------- --------------------- -------------------
Mr. Guernsey 2,586.53 0 0 3,983.42
Mr. Howell 2,586.53 0 0 14,983.42
Mr. Michalis 1,595.89 0 0 2,483.42
Mr. Schwab 4,570.23 0 0 7,983.42
Mr. Dinkins 0.00 0 0 11,000.00
Mr. Knight 602.83 0 0 11,983.42
</TABLE>
As of January 30, 1998, the officers and Trustees of the Trust owned, in
the aggregate, less than 1% of the Trust's outstanding shares.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 19, 1998, there were no holders of the shares of beneficial
interests of either Portfolio.
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
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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 portfolios 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 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 or their duties or by reason of reckless
disregard of its or their obligations and duties under the agreement.
The advisory fee rates are set forth in Part A.
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 Forum. Under these agreements,
Schroder Advisors and Forum 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.
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 Forum, as applicable, or by Schroder
Advisors or Forum on 60 days' written notice to the Trust.
The fee rates are set forth in Part A.
INTERESTHOLDER RECORDKEEPING AND PORTFOLIO ACCOUNTING
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FAS, an affiliate of Forum, 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 in London, England, acts as custodian of the Portfolios' assets
but plays no role in making decisions as to the purchase or sale of portfolio
securities for the Portfolios. Under 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.
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P., 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, Forum,
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.
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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, 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
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<PAGE>
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.
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.
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
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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.
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
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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 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 last sale price on the preceding trading day or at closing
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 Fund'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
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.
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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 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) may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
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-
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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.
The Trust is required to report to the IRS all distributions and gross
proceeds from the redemption of Interests (except in the case of certain exempt
shareholders). 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 shareholders if: (1) the shareholder 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 certification and filing requirements imposed on foreign
investors in order to qualify for exemption from the 31% back-up withholding tax
and for reduced withholding tax rates under income tax treaties. Foreign
investors in each Portfolio should consult their tax advisors with respect to
the potential application of these new regulations.
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.
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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 each of the Portfolios is October 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.
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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements: None
(b) Exhibits:
NOTE: * INDICATES THAT THE EXHIBIT IS INCORPORATED HEREIN BY REFERENCE.
(1)* Trust Instrument of Registrant (filed as Exhibit (1) to
Registrant's Initial Registration Statement filed on November
1, 1995).
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) (a)* Investment Advisory Agreement between Registrant
and Schroder Capital Management International Inc.
("SCMI") with respect to Schroder International
Smaller Companies Portfolio and Schroder Global Asset
Allocation Portfolio (filed as Exhibit 5(b) to
Amendment No. 4 via EDGAR on March 13, 1997,
accession number 0000912057-97-008728).
(b)* Investment Advisory Agreement between Registrant and
SCMI with respect to International Equity Fund and
Schroder Emerging Markets Fund Institutional
Portfolio (filed as Exhibit 5(b) to Amendment No. 9
via EDGAR on February 12, 1998, accession number
0001004402-98-000117).
(c)* Investment Advisory Agreement between Registrant and
SCMI with respect to Schroder Global Growth Portfolio
(filed as Exhibit 5(d) to Amendment No. 9 via EDGAR
on February 12, 1998, accession number
0001004402-98-000117).
(d) Investment Advisory Agreement between Registrant
and Schroder Capital Management International Inc.
("SCMI") with respect to Schroder U.S. Smaller
Companies Portfolio, Schroder EM Core Portfolio,
Schroder Asian Growth Fund Portfolio, and Schroder
Japan Portfolio, filed herewith.
(6) Not required.
(7) Not applicable.
(8)* Global Custody Agreement between Registrant and The Chase
Manhattan Bank, N.A. with respect to International Equity
Fund, Schroder Emerging Markets Fund Institutional Portfolio,
Schroder International Smaller Companies Portfolio, Schroder
Global Asset Allocation Portfolio, Schroder U.S. Smaller
Companies Portfolio, Schroder EM Core Portfolio, Schroder
Japan Portfolio, Schroder European Growth Portfolio, Schroder
Asian Growth Fund Portfolio, Schroder United Kingdom
Portfolio, and Schroder Global Growth Portfolio (filed as
Exhibit 8 to Amendment No. 9 via EDGAR on February 12, 1998,
accession number 0001004402-98-000117).
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(9) (a) Administration Agreement between Registrant and
Schroder Fund Advisors Inc. ("Schroder Advisors")
with respect to International Equity Fund, Schroder
Emerging Markets Fund Institutional Portfolio,
Schroder U.S. Smaller Companies Portfolio, Schroder
International Smaller Companies Portfolio, Schroder
EM Core Portfolio, Schroder Global Growth Portfolio,
Schroder Asian Growth Fund Portfolio, and Schroder
Japan Portfolio, filed herewith.
(b) Subadministration Agreement between Registrant and
Forum Administrative Services, LLC with respect to
International Equity Fund, Schroder Emerging Markets
Fund Institutional Portfolio, Schroder U.S. Smaller
Companies Portfolio, Schroder International Smaller
Companies Portfolio, Schroder Global Asset Allocation
Portfolio, Schroder Asian Growth Fund Portfolio, and
Schroder Japan Portfolio, filed herewith.
(c)* Transfer Agency and Fund Accounting Agreement
between Registrant and Forum Financial Corp. with
respect to International Equity Fund, Schroder
Emerging Markets Fund Institutional Portfolio,
Schroder International Smaller Companies Portfolio,
Schroder Global Asset Allocation Portfolio, Schroder
U.S. Smaller Companies Portfolio, Schroder EM Core
Portfolio, Schroder Japan Portfolio, Schroder
European Growth Portfolio, Schroder Asian Growth
Fund Portfolio, Schroder United Kingdom Portfolio,
and Schroder Global Growth Portfolio (filed as
Exhibit 9(c) to Amendment No. 9 via EDGAR on February
12, 1998, accession number 0001004402-98-000117).
(d)* Placement Agent Agreement between Registrant and
Forum Financial Services, Inc. with respect to
International Equity Fund, Schroder Emerging
Markets Fund Institutional Portfolio, Schroder
International Smaller Companies Portfolio, Schroder
Global Asset Allocation Portfolio, Schroder U.S.
Smaller Companies Portfolio, Schroder EM Core
Portfolio, Schroder Japan Portfolio, Schroder
European Growth Portfolio, Schroder Asian Growth
Fund Portfolio, Schroder United Kingdom Portfolio,
and Schroder Global Growth Portfolio (filed as
Exhibit 9(d) to Amendment No. 9 via EDGAR on
February 12, 1998, accession number 0001004402-98-
000117).
(10) Not required.
(11) Not required.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Not applicable.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF MARCH 1, 1998.
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Title of Class of Shares Number
of Beneficial Interest of Holders
------------------------ ----------
Schroder Asian Growth Fund Portfolio None
Schroder Japan Portfolio None
ITEM 27. INDEMNIFICATION.
Registrant currently holds a joint directors' and officers'/errors and
omissions insurance policy pursuant to Rule 17d-1(d)(7). Registrant is covered
under a joint fidelity bond purchased pursuant to Rule 17j-1 under the
Investment Company Act of 1940, as amended (the "Act").
The general effect of Article 5 of Registrant's Trust Instrument is to
indemnify existing or former trustees and officers of Registrant to the fullest
extent permitted by law against liability and expenses. There is no
indemnification if, among other things, any such person is adjudicated liable to
the Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office. This description is modified in its entirety by the
provisions of Article 5 of Registrant's Trust Instrument contained in this
Registration Statement as Exhibit 1 and incorporated herein by reference.
Article 5 of the Registrant's Trust Instrument has been amended as of
November 30, 1995 to incorporate Section 5.6 as set forth below. This section
provides that covered trustees and officers of the Trust shall be indemnified by
purchasers of interests in series of the Trust in the circumstances and to the
extent provided for in said Section 5.6:
SECTION 5.6
"(a) Each Holder of an Interest shall indemnify and hold harmless the
Trust and each Covered Person against any losses, claims, damages or
liabilities, joint or several, to which the Trust or such Covered
Person may become subject, under the 1933 Act or otherwise,
specifically including, but not limited to losses, claims, damages or
liabilities related to negligence on the part of the Trust or any
Covered Person, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
Misstatement in a Holder Statement; and agrees to reimburse the Trust
and each Covered Person for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however that the
Holder of an Interest shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any Misstatement made in such Holder Statement in
reliance upon and in conformity with written information furnished to
such Holder by the Trust or such Covered Person for use in the
preparation thereof. The foregoing proviso shall not apply to exculpate
a Holder under this Section 5.6(a) with respect to any losses, claims,
damages or liabilities to which the Trust or any such Covered Person
may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any Misstatement in any Holder Statement or portion thereof of
such Holder, if such Misstatement only relates to: (1) any investment
company or series thereof that does not and does not propose, as of the
time the Misstatement is made, to invest all or a portion of its assets
in a Series of the Trust or (2) to an offering of securities (as
defined under the 1933 Act) of such Holder or its affiliates the
proceeds from which are not and are not proposed, as of the time the
Misstatement is made, to be invested in a Series of the Trust.
"The indemnity provisions of this Section 5.6(a) shall inure to the
benefit of each person, if any, who controls the Trust or any Covered
Person within the meaning of the 1933 Act.
"(b) The Trust shall indemnify and hold harmless each Holder against
any losses, claims, damages or liabilities, joint or several, to which
such Holder may become subject under the 1933 Act or otherwise,
specifically including but not limited to losses, claims, damages or
liabilities (or actions in respect thereof) which arise out of or are
based upon any Misstatement in the Holder Statement of such Holder, in
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each case to the extent, but only to the extent, that such Misstatement
was made in reliance upon and in conformity with written information
furnished to such Holder by the Trust for inclusion therein, and will
reimburse such Holder for any legal or other expenses reasonably
incurred by such Holder in connection with investigating or defending
any such loss, claim, damage, liability or action.
"This indemnity provision in this Section 5.6(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
officer and director of each Holder and each person, if any, who
controls such Holder within the meaning of the 1933 Act.
"(c) Promptly after receipt by an indemnified party under this Section
5.6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under Section 5.6(a) or 5.6(b), notify the
indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
under Section 5.6(a) or 5.6(b). In case any such action is brought
against any indemnified party, and it notified the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include
both the indemnified parties and the indemnifying party and the
indemnified party shall have reasonably concluded that there are legal
defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying
party and that as a result thereof, the indemnified party shall
reasonably conclude that it is inadvisable for it to be represented by
counsel for the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense of such action
and approval by the indemnified party of counsel (or the unreasonable
withholding of such approval), the indemnifying party will not be
liable to such indemnified party under Section 5.6(a) or 5.6(b) for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof unless: (1) the indemnified
party shall have employed separate counsel in accordance with the
proviso to the immediately preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel approved by the indemnifying
party, representing all the indemnified parties under Section 5.6(a) or
5.6(b) hereof who are parties to such action); (2) the indemnifying
party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action; or (3) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid
in settlement of any action unless the indemnifying party shall
approved the terms of such settlement; provided, however, that such
consent shall not be unreasonably withheld or delayed.
"(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to Section
5.6(a) or 5.6(b) but is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case
notwithstanding the fact that Section 5.6(a) or 5.6(b) provides for
indemnification in such case, all the parties hereto shall contribute
to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so
that,
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(i) if such losses, claims, damages or liabilities arise out of or are
based upon a Misstatement described in the final sentence of Section
5.6(a), the Holder shall contribute the entire amount of such claims,
damages or liabilities; and
(ii) in all other circumstances, (A) the Holder and (B) the Trust and
the Covered Persons shall contribute to such claims, damages and
liabilities based on their respective fault or negligence with respect
to such Misstatement, as determined by arbitration according to the
procedural and substantive rules of the American Arbitration
Association; provided, however, that no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to a contribution from any person who is not guilty
of such fraudulent misrepresentation.
"(e) For purposes of this Section 5.6, the following terms shall have
the following meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Holder Statement" shall mean any registration statement or prospectus,
as such terms are defined under the 1933 Act, or any other material or
information, written or oral, distributed or communicated to
shareholders or partners, or prospective shareholders or partners, of a
Holder by or at the direction of such Holder, including, without
limitation, proxies and proxy statements, as such terms are defined
under the 1940 Act and the Exchange Act.
"Misstatement" shall mean, with respect to any Holder Statement, any
untrue statement or alleged untrue statement of any material fact, or
any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading.
"1933 Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"(f) The provisions of this Section 5.6 shall apply to each Holder
effective on the date such Holder becomes a shareholder of the Trust
and shall survive after such Holder no longer holds an interest in the
Trust."
Provisions of Registrant's investment advisory agreements provide that
the respective investment adviser shall not be liable for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing shall be deemed to protect, or purport to protect, the investment
adviser against any liability to Registrant or to Registrant's interestholders
to which the investment adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the investment
adviser's duties, or by reason of the investment adviser's reckless disregard of
its obligations and duties hereunder. This description is modified in its
entirety by the provisions of Registrant's Investment Advisory Agreement
contained in this Registration Statement as Exhibit 5 and incorporated herein by
reference. Likewise, Schroder Fund Advisors Inc., Registrant has agreed to
indemnify: (1) Schroder Fund Advisors, Inc. and Forum Financial Services, Inc.
in the Administration and Subadministration Agreements, respectively; (2) Forum
Financial Corp. in the Transfer Agency and Fund Accounting Agreement; and (3)
Forum Financial Services, Inc. in the Placement Agent Agreement for certain
liabilities and expenses arising out of their acts or omissions under the
respective agreements.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The following are the directors and principal officers of SCMI,
including their business connections of a substantial nature. The address of
each company listed, unless otherwise noted, is 33 Gutter Lane, London EC2V 8AS,
United Kingdom. Schroder Capital Management International Limited ("Schroder
Ltd."), a United Kingdom
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affiliate of SCMI, provides investment management services to international
clients located principally in the United Kingdom.
David M. Salisbury. Chief Executive Officer, Director and Chairman;
Joint Chief Executive and Director of Schroder.
Richard R. Foulkes. Senior Vice President and Managing Director.
John A. Troiano. Managing Director and Senior Vice President; Director
of Schroder Ltd.
David Gibson. Senior Vice President and Director; Director of Schroder
Wertheim Investment Services Inc.
John S. Ager. Senior Vice President and Director.
Sharon L. Haugh. Senior Vice President and Director; Director and
Chairman of Schroder Advisors.
Gavin D.L. Ralston. Senior Vice President and Director.
Mark J. Smith. Senior Vice President and Director.
Robert G. Davy. Senior Vice President; Director of Schroder Ltd. and
an officer of open end investment companies for which SCMI and/or its
affiliates provide investment services.
Jane P. Lucas. Senior Vice President and Director; Director of
Schroder Advisors Inc.; Director of Schroder Wertheim Investment
Services, Inc.
C. John Govett. Director; Group Managing Director of Schroder
Investment Management Ltd. And Director of Schroders plc.
Phillipa J. Gould. Senior Vice President and Director.
Louise Croset. First Vice President and Director.
Abdallah Nauphal. Group Vice President and Director.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Forum Financial Services, Inc. is the Registrant's placement
agent. Registrant has no underwriters.
(b) Inapplicable.
(c) Inapplicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Act and the Rules thereunder are maintained
at the offices of Forum Administrative Services, LLC and its affiliates, Two
Portland Square, Portland, Maine 04101. The records required to be maintained
under Rule 31a-1(b)(1) with respect to journals of receipts and deliveries of
securities and receipts and disbursements of cash are maintained at the offices
of Registrant's custodian, which is named under "Custodian" in Part B to this
Registration Statement.
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The records required to be maintained under Rule 31a-1(b)(5), (6) and (9) are
maintained at the offices of Registrant's investment adviser, which is named in
Item 28 hereof.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
None.
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SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
New York, and the State of New York on the 16th day of March, 1998.
SCHRODER CAPITAL FUNDS
By:/s/ Catherine A. Mazza
-----------------------------
Catherine A. Mazza
Vice President
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INDEX TO EXHIBITS
EXHIBIT
5(d) Investment Advisory Agreement between Registrant SCMI with respect to
Schroder U.S. Smaller Companies Portfolio, Schroder EM Core Portfolio,
Schroder Asian Growth Fund Portfolio, and Schroder Japan Portfolio.
(9)(a) Administration Agreement between Registrant and Schroder Fund Advisors
Inc. ("Schroder Advisors") with respect to International Equity Fund,
Schroder Emerging Markets Fund Institutional Portfolio, Schroder U.S.
Smaller Companies Portfolio, Schroder International Smaller Companies
Portfolio, Schroder EM Core Portfolio, Schroder Global Growth
Portfolio, Schroder Asian Growth Fund Portfolio, and Schroder Japan
Portfolio.
(9)(b) Subadministration Agreement between Registrant and Forum
Administrative Services, LLC with respect to International Equity
Fund, Schroder Emerging Markets Fund Institutional Portfolio, Schroder
U.S. Smaller Companies Portfolio, Schroder International Smaller
Companies Portfolio, Schroder Global Asset Allocation Portfolio,
Schroder Asian Growth Fund Portfolio, and Schroder Japan Portfolio.
54
EXHIBIT (5)(D)
SCHRODER CAPITAL FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 16th day of May, 1996, between Schroder Capital
Funds (the "Trust"), a business trust organized under the laws of the State of
Delaware with its principal place of business at Two Portland Square, Portland,
Maine 04101, and Schroder Capital Management International Inc. (the "Adviser"),
a corporation organized under the laws of the State of New York with its
principal place of business at One State Street, New York, New York.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series;
WHEREAS, the Adviser provides investment advice and is registered with
the Securities and Exchange Commission (the "SEC") as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is registered with the United Kingdom Investment Management Regulatory
Organization ("IMRO");
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for each series listed in Appendix A (each a "Portfolio," and
collectively the "Portfolios"), and the Adviser is willing to provide those
services on the terms and conditions set forth in this Agreement; and
WHEREAS, the Adviser is willing to render such investment advisory services
to the Portfolios;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument and Registration Statement filed with the
Securities and Exchange Commission (the "Commission") under the Act, as may be
supplemented from time to time, all in such manner and to such extent as may
from time to time be authorized by the Trust's Board of Trustees (the "Board").
The Trust is currently authorized to issue two series of interests, and the
Trust is authorized to issue interests in any number of additional series upon
approval of the Board. The Trust has delivered to the
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Adviser copies of the Trust's Trust Instrument and Registration Statement and
will from time to time furnish Adviser with any amendments thereof.
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs Adviser, subject to the direction and control
of the Board, to manage the investment and reinvestment of the assets in each
Portfolio and, without limiting the generality of the foregoing, to provide
other services specified in Section 3 hereof.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser shall make decisions with respect to all purchases and
sales of securities and other investment assets in the Portfolios. To carry out
such decisions, the Adviser is hereby authorized, as agent and attorney-in-fact
for the Trust, for the account of, at the risk of and in the name of the Trust,
to place orders and issue instructions with respect to those transactions of the
Portfolios. In all purchases, sales and other transactions in securities for the
Portfolios, the Adviser is authorized to exercise full discretion and act for
the Trust in the same manner and with the same force and effect as the Trust
might or could do with respect to such purchases, sales or other transactions,
as well as with respect to all other things necessary or incidental to the
furtherance or conduct of such purchases, sales or other transactions.
(b) The Adviser will report to the Board at each meeting thereof all
changes in the Portfolios since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Portfolios and the
Adviser, and on its own initiative, will furnish the Board from time to time
with such information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included in a
Portfolio's holdings, the industries in which they engage, or the economic,
social or political conditions prevailing in each country in which the Portfolio
maintains investments. The Adviser will also furnish the Board with such
statistical and analytical information with respect to securities in the
Portfolios as the Adviser may believe appropriate or as the Board reasonably may
request. In making purchases and sales of securities for a Portfolio, the
Adviser will bear in mind the policies set from time to time by the Board as
well as the limitations imposed by the Trust's Trust Instrument and Registration
Statement under the Act, the limitations in the Act and in the Internal Revenue
Code of 1986, as amended, in respect of regulated investment companies and the
investment objectives, policies and restrictions of the Portfolios.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect.
(d) The Adviser shall maintain records for each Portfolio relating to
portfolio transactions and the placing and allocation of brokerage orders as are
required to be maintained by the Trust under the Act. The Adviser shall prepare
and maintain, or cause to be prepared and maintained, in such form, for such
periods and in such locations as may be required by applicable
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law, all documents and records relating to the services provided by the Adviser
pursuant to this Agreement required to be prepared and maintained by the Trust
pursuant to the rules and regulations of any national, state, or local
government entity with jurisdiction over the Trust, including the Commission and
the Internal Revenue Service. The books and records pertaining to the Trust that
are in possession of the Adviser shall be the property of the Trust. The Trust,
or the Trust's authorized representatives, shall have access to such books and
records at all times during the Adviser's normal business hours. Upon the
reasonable request of the Trust, copies of any such books and records shall be
provided promptly by the Adviser to the Trust or the Trust's authorized
representatives.
SECTION 4. EXPENSES
The Trust hereby confirms that the Trust shall be responsible and shall
assume the obligation for payment of all the Trust's expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian and
transfer agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of the Trust's formation and maintaining its existence; costs of
preparing the Trust's registration statement, account application forms and
interestholder reports and delivering them to existing and prospective
interestholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of interests in the Trust; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and costs
of other personnel performing services for the Trust who are not officers of the
Adviser or of Schroder Fund Advisors Inc. or affiliated persons of either; costs
of Trust meetings; registration fees and related expenses for registration with
the Commission and the securities regulatory authorities of other countries in
which the Trust's interests are sold; state securities law registration fees and
related expenses; and fees and out-of-pocket expenses payable to Schroder Fund
Advisors Inc. under any placement agent, management or similar agreement.
SECTION 5. STANDARD OF CARE
(a) The Trust shall expect of the Adviser, and the Adviser will give
the Trust the benefit of, the Adviser's best judgment and efforts in rendering
its services to the Trust, and as an inducement to the Adviser's undertaking
these services the Adviser shall not be liable hereunder for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing herein shall be deemed to protect, or purport to protect, the
Adviser against any liability to the Trust or to the Trust's interestholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties
hereunder, or by reason of the Adviser's reckless disregard of its obligations
and duties hereunder. As used in this Section 5, the term "Adviser" shall
include any affiliates of the Adviser performing services for the Portfolios
contemplated hereby and directors, officers and employees of the Adviser as well
as the Adviser itself.
(b) The Adviser shall not be liable for any losses caused by
disturbances of its operations by virtue of force majeure, war, riot, or damage
caused by nature or due to other
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events for which the Adviser is not responsible (e.g., strike, lock-out or
losses caused by the imposition of foreign exchange controls, expropriation of
assets or other acts of domestic or foreign authorities) except under the
circumstances provided for in Section 5(a).
The presence of exculpatory language in this Agreement shall not in any
way limit or be deemed by anyone to limit the Trust, the Trustees of the Trust,
the Portfolios, the Adviser, or any other party appointed pursuant to this
Agreement, including without limitation any custodian, as in any way limiting
causes of action and remedies which may, notwithstanding such language, be
available to the Trust, the Trustees of the Trust, Portfolios or any other party
appointed pursuant to this Agreement, either under common law or statutory law
principles applicable to fiduciary relationships or under the Federal securities
laws.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to the average daily net assets of each of the Portfolios, a fee at
an annual rate as listed in Appendix A hereto. Such fees shall be accrued by the
Trust daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed hereunder during the prior calendar month.
SECTION 7. EFFECTIVENESS, DURATION, AND TERMINATION
(a) This Agreement shall become effective with respect to a Portfolio
immediately upon approval by a majority of the outstanding voting interests of
that Portfolio.
(b) This Agreement shall remain in effect with respect to a Portfolio
for a period of two years from the date of its effectiveness and shall continue
in effect for successive twelve-month periods (computed from each anniversary
date of the approval) with respect to the Portfolio; provided that such
continuance is specifically approved at least annually (i) by the Board or by
the vote of a majority of the outstanding voting interests of the Portfolio,
and, in either case, (ii) by a majority of the Trust's trustees who are not
parties to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if this Agreement or the
continuation of this Agreement is not approved as to a Portfolio, the Adviser
may continue to render to that Portfolio the services described herein in the
manner and to the extent permitted by the Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated with respect to a Portfolio at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting interests of a Portfolio on 60 days' written
notice to the Adviser or (ii) by the Adviser on 60 days' written notice to the
Trust. This agreement shall terminate upon assignment.
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers,
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directors or employees who may also be a trustee, officer or employee of the
Trust, or persons otherwise affiliated persons of the Trust to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association. It is specifically understood that officers, directors and
employees of the Adviser and its affiliates may continue to engage in providing
portfolio management services and advice to other investment companies, whether
or not registered, and to other investment advisory clients. When other clients
of the Adviser desire to purchase or sell a security at the same time such
security is purchased or sold for the Portfolios, such purchases and sales will,
to the extent feasible, be allocated among the Portfolios and such clients in a
manner believed by the Adviser to be equitable to the Portfolios and such
clients.
SECTION 9. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees or officers of the Trust and the interestholders of the
Portfolios shall not be liable for any obligations of the Trust or of the
Portfolios under this Agreement, and the Adviser agrees that, in asserting any
rights or claims under this Agreement, it shall look only to the assets and
property of the Trust or the Portfolios to which the Adviser's rights or claims
relate in settlement of such rights or claims, and not to the Trustees or
officers of the Trust or the interestholders of the Portfolios.
SECTION 10. NOTICE
Any notice or other communication required to be given pursuant to this
Agreement shall be in writing or by telex and shall be effective upon receipt.
Notices and communications shall be given, if to the Trust, at:
Schroder Capital Funds
Two Portland Square
Portland, Maine 04101
Attention: Thomas G. Sheehan
and if to the Adviser, at:
Schroder Capital Management International Inc.
787 Seventh Avenue, 29th Floor
New York, New York 10019
Attention: Laura Luckyn-Malone
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting interests of the Portfolios
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thereby affected. No amendment to this Agreement or the termination of this
Agreement with respect to a Portfolio shall effect this Agreement as it pertains
to any other Portfolio.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Delaware.
(f) The Adviser confirms that each Portfolio is a "Non-private
Customer" as defined in the rules of IMRO.
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS
/s/ Laura E. Luckyn-Malone
---------------------------
Laura E. Luckyn-Malone
President
SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC.
/s/ David Gibson
-------------------------
David Gibson
Director
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SCHRODER CAPITAL FUNDS
INVESTMENT ADVISORY AGREEMENT
APPENDIX A
PORTFOLIOS OF THE TRUST
- ---------------------------------------------- ---------------------------------
ANNUAL FEE AS A % OF THE AVERAGE
PORTFOLIOS DAILY NET ASSETS OF THE PORTFOLIO
- ---------------------------------------------- ---------------------------------
AS OF MAY 16, 1996
Schroder U.S. Smaller Companies Portfolio 0.60%
AS OF NOVEMBER 26, 1996
Schroder EM Core Portfolio 1.00%
Schroder Asian Growth Fund Portfolio 0.70%
Schroder Japan Portfolio 0.55%
- ---------------------------------------------- ---------------------------------
61
EXHIBIT (9) (A)
SCHRODER CAPITAL FUNDS
ADMINISTRATION AGREEMENT
AGREEMENT made this 26th day of November, 1996, between Schroder
Capital Funds (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Schroder Fund Advisors Inc. ("Schroder"), a
corporation organized under the laws of the State of Maryland.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "1940 Act") as an open-end management investment company
and is authorized to issue shares of beneficial interest ("Shares") in separate
series;
WHEREAS, the Trust has entered into various Investment Advisory
Agreements with Schroder Capital Management International Inc. (the "Adviser"),
pursuant to which the Adviser provides investment advisory services for the
Trust;
WHEREAS, the Trust desires that Schroder perform certain administrative
services for each of the series of the Trust as listed in Appendix A hereto
(each a "Series," and collectively the "Portfolios") other than any
administrative services required to be performed by the Adviser, and Schroder is
willing to provide those services on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and Schroder agree as follows:
SECTION 1. APPOINTMENT. The Trust hereby appoints Schroder as
administrator of the Trust and of each Series and Schroder hereby accepts such
appointment, all in accordance with the terms and conditions of this Agreement.
In connection therewith, the Trust has delivered to Schroder copies of its Trust
Instrument, the Trust's Registration Statement and all amendments thereto filed
pursuant to the 1940 Act (the "Registration Statement"), and the current Parts A
and B of each Series (collectively, as currently in effect and as amended or
supplemented, the "Prospectus"), all in such manner and to such extent as may
from time to time be authorized by the Trust's Board of Trustees (the "Board"),
and shall promptly furnish Schroder with all amendments of or supplements to the
foregoing.
SECTION 2. FURNISHING OF EXISTING ACCOUNTS AND RECORDS. The Trust shall
promptly turn over to Schroder such of the accounts and records previously
maintained by or for it as are necessary for Schroder to perform its functions
under this Agreement. The Trust authorizes Schroder to rely on such accounts and
records turned over to it and hereby indemnifies and will hold Schroder, its
successors and assigns, harmless of and from any and all expenses, damages,
claims, suits, liabilities, actions, demands and losses whatsoever
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arising out of or in connection with any error, omission, inaccuracy or other
deficiency of such accounts and records or in the failure of the Trust to
provide any portion of such or to provide any information needed by Schroder to
knowledgeably perform its functions.
SECTION 3. ADMINISTRATIVE DUTIES
(a) Subject to the direction and control of the Board and in
cooperation with the Adviser, Schroder shall provide, or oversee, as applicable,
administrative services necessary for the Trust's operations with respect to
each Series except those services that are the responsibility of the Adviser or
the Series' custodian or transfer agent, all in such manner and to such extent
as may be authorized by the Board.
(b) With respect to the Trust and each Series, as applicable, Schroder
shall:
(i) oversee (A) the preparation and maintenance by the Adviser
and the Trust's sub-administrator, custodian, interestholder
record keeper and fund accountant (or if appropriate,
prepare and maintain) in such form, for such periods and in
such locations as may be required by applicable law, of all
documents and records relating to the operation of the Trust
required to be prepared or maintained by the Trust or its
agents pursuant to applicable law; (B) the reconciliation of
account information and balances among the Adviser and the
Trust's custodian, interestholder record keeper and fund
accountant; (C) the transmission of purchase and redemption
orders for Shares; (D) the notification to the Adviser of
available funds for investment; and (E) the performance of
fund accounting, including the calculation of the net asset
value of the Shares;
(ii) oversee the performance of administrative and professional
services rendered to the Trust by others, including its
sub-administrator, custodian, interestholder record keeper and
fund accountant as well as legal, auditing and shareholder
servicing and other services performed for each Series;
(iii) oversee the preparation and the printing of the periodic
updating of the Registration Statement and Prospectus, tax
returns, and reports to interestholders, the Securities and
Exchange Commission and state securities commissions;
(iv) oversee the preparation of proxy and information statements
and any other communications to interestholders;
(v) at the request of the Board, provide the Trust with adequate
general office space and facilities and provide persons
suitable to the Board to serve as officers of the Trust;
(vi) provide the Trust, at the Trust's request, with the services
of persons who are competent to perform such supervisory or
administrative functions as are necessary for effective
operation of the Trust;
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(vii) oversee the preparation, filing and maintenance the Trust's
governing documents, including the Trust Instrument and
minutes of meetings of Trustees and interestholders;
(viii) oversee with the cooperation of the Trust's counsel, the
Adviser and other relevant parties, preparation and
dissemination of materials for meetings of the Board;
(ix) oversee, and if required, monitor sales of Shares and ensure
that such Shares are properly and duly registered with the
Securities and Exchange Commission and applicable state
securities commissions;
(x) oversee the calculation of performance data for dissemination
to information services covering the investment company
industry, for sales literature of the Trust and other
appropriate purposes;
(xi) oversee the determination of the amount of, and supervise
distributions to interestholders; and
(xii) advise the Trust and its Board on matters concerning the Trust
and its affairs.
(c) Schroder shall oversee the preparation and maintenance, or cause to
be prepared and maintained, records in such form for such periods and in such
locations as may be required by applicable regulations, all documents and
records relating to the services provided to the Trust pursuant to this
Agreement required to be maintained pursuant to the 1940 Act, rules and
regulations of the Securities and Exchange Commission, the Internal Revenue
Service and any other national, state or local government entity with
jurisdiction over the Trust. The accounts and records pertaining to the Trust
which are in possession of Schroder, or an entity subcontracted by Schroder,
shall be the property of the Trust. The Trust, or the Trust's authorized
representatives, shall have access to such accounts and records at all times
during Schroder's, or its subcontractor's, normal business hours. Upon the
reasonable request of the Trust, copies of any such accounts and records shall
be provided promptly by Schroder to the Trust or the Trust's authorized
representatives. In the event the Trust designates a successor to any of
Schroder's obligations under this agreement, Schroder shall, at the expense and
direction of the Trust, transfer to such successor all relevant books, records
and other data established or maintained by Schroder, or its subcontractor,
under this Agreement.
SECTION 4. STANDARD OF CARE
(a) Schroder, in performing under the terms and conditions of this
Agreement, shall use its best judgment and efforts in rendering the services
described herein, and shall incur no liability for its status under this
agreement or for any reasonable actions taken or omitted in good faith. As an
inducement to Schroder's undertaking to render these services, the Trust hereby
agrees to indemnify and hold harmless Schroder, its employees, agents, officers
and directors,
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from any and all loss, liability and expense, including any legal expenses,
arising out of Schroder's performance under this Agreement, or status, or any
act or omission of Schroder, its employees, agents, officers and directors;
provided that this indemnification shall not apply to Schroder's actions taken
or failures to act in cases of Schroder's own bad faith, willful misconduct or
gross negligence in the performance of its duties under this Agreement; and
further provided, that Schroder shall give the Trust notice and reasonable
opportunity to defend against any such loss, claim, damage, liability or expense
in the name of the Trust or Schroder, or both. The Trust will be entitled to
assume the defense of any suit brought to enforce any such claim or demand, and
to retain counsel of good standing chosen by the Trust and approved by Schroder,
which approval shall not be withheld unreasonably. In the event the Trust does
elect to assume the defense of any such suit and retain counsel of good standing
approved by Schroder, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but in case
the Trust does not elect to assume the defense of any such suit, or in case
Schroder does not approve of counsel chosen by the Trust or Schroder has been
advised that it may have available defenses or claims which are not available or
conflict with those available to the Trust, the Trust will reimburse Schroder,
its employees, agents, officers and directors for the fees and expenses of any
one law firm retained as counsel by Schroder or them. Schroder may, at any time,
waive its right to indemnification under this agreement and assume its own
defense. The provisions of paragraphs (b) through (d) of this Section 4 should
not in any way limit the foregoing:
(a) Schroder may rely upon the advice of the Trust or of counsel, who
may be counsel for the Trust or counsel for Schroder, and upon statements of
accountants, brokers and other persons believed by it in good faith to be expert
in the matters upon which they are consulted, and Schroder shall not be liable
to anyone for any actions taken in good faith upon such statements.
(b) Schroder may act upon any oral instruction which it receives and
which it believes in good faith was transmitted by the person or persons
authorized by the Board of the Trust to give such oral instruction. Schroder
shall have no duty or obligation to make any inquiry or effort of certification
of such oral instruction.
(c) Schroder shall not be liable for any action taken in good faith
reliance upon any written instruction or certified copy of any resolution of the
Board of the Trust, and Schroder may rely upon the genuineness of any such
document or copy thereof reasonably believed in good faith by Schroder to have
been validly executed.
(d) Schroder may rely and shall be protected in acting upon any
signature, instruction, request, letter of transmittal, certificate, opinion of
counsel, statement, instrument, report, notice, consent, order, or other paper
document believed by it to be genuine and to have been signed or presented by
the purchaser, Trust or other proper party or parties.
SECTION 5. EXPENSES Subject to any agreement by Schroder or other
person to reimburse any expenses of the Trust that relate to any Series, the
Trust shall be responsible for and assume the obligation for payment of all of
its expenses, including: (a) the fee payable under
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Section 6 hereof; (b) any fees payable to the Adviser; (c) interest charges,
taxes and brokerage fees and commissions; (d) premiums of insurance for the
Trust, its Trustees and officers and fidelity bond premiums; (e) fees, interest
charges and expenses of third parties, including the Trust's custodian, transfer
agent, dividend disbursing agent and fund accountant; (f) telecommunications
expenses; (g) auditing, legal and compliance expenses; (h) costs of forming the
Trust and maintaining its existence; (i) to the extent permitted by the 1940
Act, costs of preparing the Trust's registration statement, subscription
application forms and interestholder reports and delivering them to existing and
prospective interestholders; (j) costs of maintaining books of original entry
for portfolio and fund accounting and other required books and accounts, of
calculating the net asset value of shares of the Trust and of preparing tax
returns; (k) costs of reproduction, stationery and supplies; (l) fees and
expenses of the Trust's Trustees; (m) compensation of the Trust's officers and
employees who are not employees of the Adviser or Schroder or their respective
affiliated persons and costs of other personnel (who may be employees of the
Adviser, Schroder or their respective affiliated persons) performing services
for the Trust; (n) costs of Trustee meetings; (o) Securities and Exchange
Commission registration fees and related expenses; (p) state or foreign
securities laws registration fees and related expenses; and (q) fees and
out-of-pocket expenses payable to each investment adviser under any investment
advisory or similar agreement.
SECTION 6. COMPENSATION
(a) In consideration of the services performed by Schroder under this
Agreement, the Trust will pay Schroder, with respect to each Series, a fee at
the annual rate, as listed in Appendix B hereto. Such fee shall be accrued by
the Trust daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed under this agreement during the prior
calendar month. If the fees payable pursuant to this provision begin to accrue
before the end of any month or if this Agreement terminates before the end of
any month, the fees for the period from that date to the end of that month or
from the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement, the Trust shall pay to Schroder such compensation as shall be
payable prior to the effective date of such termination.
(b) In the event that this agreement is terminated, Schroder shall be
reimbursed for reasonable charges and disbursements associated with promptly
transferring to its successor as designated by the Trust the original or copies
of all accounts and records maintained by Schroder under this agreement, and
cooperating with, and providing reasonable assistance to its successor in the
establishment of the accounts and records necessary to carry out the successor's
or other person's responsibilities.
(c) Notwithstanding anything in this Agreement to the contrary,
Schroder and its affiliated persons may receive compensation or reimbursement
from the Trust with respect to (i) the provision of services on behalf of the
Series in accordance with any distribution plan adopted by the Trust pursuant to
Rule 12b-1 under the 1940 Act or (ii) the provision of shareholder support or
other services, including fund accounting services.
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SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date first above
written with respect to each Series of the Trust then existing and shall relate
to every other Series as of the later of the date on which the Trust's
Registration Statement relating to the shares of such Series becomes effective
or the Series commences operations.
(b) This Agreement shall continue in effect for twelve months and,
thereafter, shall be automatically renewed each year for an additional term of
one year.
(c) This Agreement may be terminated with respect to a Series at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to Schroder or (ii) by Schroder on 60 days' written notice to the Trust.
Upon receiving notice of termination by Schroder, the Trust shall use its best
efforts to obtain a successor administrator. Upon receipt of written notice from
the Trust of the appointment of a successor, and upon payment to Schroder of all
fees owed through the effective termination date, and reimbursement for
reasonable charges and disbursements, Schroder shall promptly transfer to the
successor administrator the original or copies of all accounts and records
maintained by Schroder under this agreement including, in the case of records
maintained on computer systems, copies of such records in machine-readable form,
and shall cooperate with, and provide reasonable assistance to, the successor
administrator in the establishment of the accounts and records necessary to
carry out the successor administrator's responsibilities. For so long as
Schroder continues to perform any of the services contemplated by this Agreement
after termination of this Agreement as agreed to by the Trust and Schroder, the
provisions of Sections 4 and 6 hereof shall continue in full force and effect.
SECTION 8. ACTIVITIES OF SCHRODER
(a) Except to the extent necessary to perform Schroder's obligations
under this Agreement, nothing herein shall be deemed to limit or restrict the
right of Schroder, or any affiliate of Schroder, or any employee of the
Schroder, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
(b) Schroder may subcontract any or all of its functions or
responsibilities pursuant to this Agreement to one or more corporations, trusts,
firms, individuals or associations, which may be affiliates of Schroder, who
agree to comply with the terms of this Agreement. Schroder may pay those persons
for their services, but no such payment will increase Schroder's compensation
from the Trust.
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SECTION 9. COOPERATION WITH INDEPENDENT ACCOUNTANTS.
Schroder shall cooperate, if applicable, with the Trust's independent public
accountants and shall take reasonable action to make all necessary information
available to such accountants for the performance of their duties.
SECTION 10. SERVICE DAYS. Nothing contained in this Agreement is
intended to or shall require Schroder, in any capacity under this agreement, to
perform any functions or duties on any day other than a business day of the
Trust or of a Series. Functions or duties normally scheduled to be performed on
any day which is not a business day of the Trust or of a Series shall be
performed on, and as of, the next business day, unless otherwise required by
law.
SECTION 11. NOTICES. Any notice or other communication required by or
permitted to be given in connection with this Agreement shall be in writing and
shall be delivered in person, or by first-class mail, postage prepaid, or by
overnight or two-day private mail service to the respective party. Notice to the
Trust shall be given as follows or at such other address as the Trust may
designate in writing:
Schroder Capital Funds
787 Seventh Avenue
New York, New York 10019
Notice to Schroder shall be given as follows or at such other address
as Schroder may designate in writing:
Schroder Fund Advisors Inc.
787 Seventh Avenue
New York, New York 10019
Notices and other communications received by the parties at the
addresses listed above shall be deemed to have been properly given.
SECTION 12. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Series shall not
be liable for any obligations of the Trust or of the Series under this
Agreement, and Schroder agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Trust or
the Series to which Schroder's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the shareholders of
the Series.
SECTION 13. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
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(b) This Agreement may be executed in two or more counterparts, each of
which, when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
(c) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(d) Section and Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written
consent of Schroder, or by Schroder, without the written consent of the Trust
authorized or approved by a resolution of the Board.
(f) This Agreement shall be governed by the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS
/s/Catherine A. Mazza
-----------------------------
Catherine A. Mazza, Vice President
SCHRODER FUND ADVISORS INC.
/s/ Jane P.Lucas
------------------------------
Jane P. Lucas, Vice President
69
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SCHRODER CAPITAL FUNDS
ADMINISTRATION AGREEMENT
APPENDIX A
SERIES OF THE TRUST
International Equity Fund
Schroder U.S. Smaller Companies Portfolio
Schroder Emerging Markets Fund Institutional Portfolio
Schroder International Smaller Companies Portfolio
Schroder EM Core Portfolio
Schroder Global Growth Portfolio
Schroder Asian Growth Fund Portfolio
Schroder Japan Portfolio
70
<PAGE>
SCHRODER CAPITAL FUNDS
ADMINISTRATION AGREEMENT
APPENDIX B
ADMINISTRATION FEES
<TABLE>
<S> <C>
Fee As % of the Average Annual
Series of the Trust Daily Net Assets of the Series
------------------- ------------------------------
International Equity Fund 0.075%
Schroder U.S. Smaller Companies Portfolio 0.00%
Schroder Emerging Markets Fund Institutional Portfolio 0.05%
Schroder International Smaller Companies Portfolio 0.15%
Schroder EM Core Portfolio 0.10%
Schroder Global Growth Portfolio 0.15%
Schroder Asian Growth Fund Portfolio 0.05%
Schroder Japan Portfolio 0.05%
3/19/98
</TABLE>
71
EXHIBIT 9(B)
SCHRODER CAPITAL FUNDS
SUBADMINISTRATION AGREEMENT
AGREEMENT made this 1st day of February, 1997, between Schroder Capital
Funds ("Trust"), a business trust organized under the laws of the State of
Delaware with its principal place of business at Two Portland Square, Portland,
Maine 04101, and Forum Administrative Services, Limited Liability Company
("Subadministrator"), a limited liability company organized under the laws of
the State of Delaware.
WHEREAS, the Trust is registered under the Investment Company Act of
1940 as amended ("1940 Act") as an open-end management investment company and is
authorized to issue shares of beneficial interest ("Shares") in separate series;
WHEREAS, the Trust has entered into various Investment Advisory
Agreements with Schroder Capital Management International Inc. (the "Adviser")
and Administrative Services Agreement with Schroder Fund Advisers Inc. (the
"Administrator"), pursuant to which the Adviser and Administrator provide
certain management and administrative services for the Trust.
WHEREAS, the Trust desires that the Subadministrator perform certain
administrative services for each of the series of the Trust as listed in
Appendix A hereto (each a "Series") other than any administrative services
required to be performed by the Adviser or the Administrator, and the
Subadministrator is willing to provide those services on the terms and
conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and the Subadministrator agree as
follows:
SECTION 1. APPOINTMENT. The Trust hereby appoints the Subadministrator
as subadministrator of the Trust and of each Series and the Subadministrator
hereby accepts such appointment, all in accordance with the terms and conditions
of this Agreement. In connection therewith, the Trust has delivered to the
Subadministrator copies of its Trust Instrument, the Trust's Registration
Statement and all amendments thereto filed pursuant to the 1940 Act (the
"Registration Statement"), and the current Parts A and B of each Series
(collectively, as currently in effect and as amended or supplemented, the
"Prospectus"), all in such manner and to such extent as may from time to time be
authorized by the Trust's Board of Trustees (the "Board"), and shall promptly
furnish the Subadministrator with all amendments of or supplements to the
foregoing.
SECTION 2. FURNISHING OF EXISTING ACCOUNTS AND RECORDS. The Trust shall
promptly turn over to the Subadministrator such of the accounts and records
previously maintained by or for it as are necessary for the Subadministrator to
perform its
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functions under this Agreement. The Trust authorizes the Subadministrator to
rely on such accounts and records turned over to it and hereby indemnifies and
will hold the Subadministrator, its successors and assigns, harmless of and from
any and all expenses, damages, claims, suits, liabilities, actions, demands and
losses whatsoever arising out of or in connection with any error, omission,
inaccuracy or other deficiency of such accounts and records or in the failure of
the Trust to provide any portion of such or to provide any information needed by
the Subadministrator to knowledgeably perform its functions.
SECTION 3. ADMINISTRATIVE DUTIES
(a) Subject to the direction and control of the Board and in
cooperation with the Adviser and the Administrator, the Subadministrator shall
provide administrative services necessary for the Trust's operations with
respect to each Series except those services that are the responsibility of the
Adviser, the Administrator or the Series' custodian or transfer agent, all in
such manner and to such extent as may be authorized by the Board and requested
by the Administrator.
(b) With respect to the Trust and each Series, as applicable, the
Subadministrator shall:
(i) oversee (A) the preparation and maintenance by the Adviser
and the Trust's custodian, interestholder record keeper and
fund accountant (or if appropriate, prepare and maintain) in
such form, for such periods and in such locations as may be
required by applicable law, of all documents and records
relating to the operation of the Trust required to be
prepared or maintained by the Trust or its agents pursuant
to applicable law; (B) the reconciliation of account
information and balances among the Adviser and the Trust's
custodian, interestholder record keeper and fund accountant;
(C) the transmission of purchase and redemption orders for
Shares; (D) the notification to the Adviser of available
funds for investment; and (E) the performance of fund
accounting, including the calculation of the net asset value
of the Shares;
(ii) oversee the performance of administrative and professional
services rendered to the Trust by others, including its
custodian and interestholder record keeper as well as legal,
auditing and shareholder servicing and other services
performed for each Series;
(iii) be responsible for the preparation and the printing of the
periodic updating of the Registration Statement and
Prospectus, tax returns, and reports to interestholders, the
Securities and Exchange Commission and state securities
commissions;
(iv) be responsible for the preparation of proxy and information
statements and any other communications to interestholders;
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(v) at the request of the Board, provide the Trust with adequate
general office space and facilities and provide persons
suitable to the Board to serve as officers of the Trust;
(vi) provide the Trust, at the Trust's request, with the services
of persons who are competent to perform such supervisory or
administrative functions as are necessary for effective
operation of the Trust;
(vii) prepare, file and maintain the Trust's governing documents,
including the Trust Instrument and minutes of meetings of
Trustees and shareholders;
(viii) with the cooperation of the Trust's counsel, the
Administrator, the Adviser, and other relevant parties,
prepare and disseminate materials for meetings of the Board;
(ix) if required, monitor sales of Shares and ensure that such
Shares are properly and duly registered with the Securities
and Exchange Commission and applicable state securities
commissions;
(x) oversee the calculation of performance data for dissemination
to information services covering the investment company
industry, for sales literature of the Trust and other
appropriate purposes;
(xi) oversee the determination of the amount of, and prepare and
distribute to appropriate parties notices announcing the
distributions to interestholders; and
(xii) advise the Trust and its Board on matters concerning the Trust
and its affairs.
(c) The Subadministrator shall prepare and maintain or cause to be
prepared and maintained records in such form for such periods and in such
locations as may be required by applicable regulations, all documents and
records relating to the services provided to the Trust pursuant to this
Agreement required to be maintained pursuant to the 1940 Act, rules and
regulations of the Securities and Exchange Commission, the Internal Revenue
Service and any other national, state or local government entity with
jurisdiction over the Trust. The accounts and records pertaining to the Trust
which are in possession of the Subadministrator shall be the property of the
Trust. The Trust, or the Trust's authorized representatives, shall have access
to such accounts and records at all times during the Subadministrator's normal
business hours. Upon the reasonable request of the Trust, copies of any such
accounts and records shall be provided promptly by the Subadministrator to the
Trust or the Trust's authorized representatives. In the event the Trust
designates a successor to any of the Subadministrator's obligations under this
agreement, the Subadministrator shall, at the expense and direction of the
Trust, transfer to such successor all relevant books, records and other data
established or maintained by the Subadministrator under this Agreement.
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SECTION 4. STANDARD OF CARE.
(a) The Subadministrator, in performing under the terms and conditions
of this Agreement, shall use its best judgment and efforts in rendering the
services described herein, and shall incur no liability for its status under
this agreement or for any reasonable actions taken or omitted in good faith. As
an inducement to the Subadministrator's undertaking to render these services,
the Trust hereby agrees to indemnify and hold harmless the Subadministrator, its
employees, agents, officers and directors, from any and all loss, liability and
expense, including any legal expenses, arising out of the Subadministrator's
performance under this Agreement, or status, or any act or omission of the
Subadministrator, its employees, agents, officers and directors; provided that
this indemnification shall not apply to the Subadministrator's actions taken or
failures to act in cases of the Subadministrator's own bad faith, willful
misconduct or gross negligence in the performance of its duties under this
Agreement; and further provided, that the Subadministrator shall give the Trust
notice and reasonable opportunity to defend against any such loss, claim,
damage, liability or expense in the name of the Trust or the Subadministrator,
or both. The Trust will be entitled to assume the defense of any suit brought to
enforce any such claim or demand, and to retain counsel of good standing chosen
by the Trust and approved by the Subadministrator, which approval shall not be
withheld unreasonably. In the event the Trust does elect to assume the defense
of any such suit and retain counsel of good standing approved by the
Subadministrator, the defendant or defendants in such suit shall bear the fees
and expenses of any additional counsel retained by any of them; but in case the
Trust does not elect to assume the defense of any such suit, or in case the
Subadministrator does not approve of counsel chosen by the Trust or the
Subadministrator has been advised that it may have available defenses or claims
which are not available or conflict with those available to the Trust, the Trust
will reimburse the Subadministrator, its employees, agents, officers and
directors for the fees and expenses of any one law firm retained as counsel by
the Subadministrator or them. The Subadministrator may, at any time, waive its
right to indemnification under this agreement and assume its own defense. The
provisions of paragraphs (b) through (d) of this Section 4 should not in any way
limit the foregoing:
(a) The Subadministrator may rely upon the advice of the Trust or of
counsel, who may be counsel for the Trust or counsel for the Subadministrator,
and upon statements of accountants, brokers and other persons believed by it in
good faith to be expert in the matters upon which they are consulted, and the
Subadministrator shall not be liable to anyone for any actions taken in good
faith upon such statements.
(b) The Subadministrator may act upon any oral instruction which it
receives and which it believes in good faith was transmitted by the person or
persons authorized by the Board of the Trust to give such oral instruction. The
Subadministrator shall have no duty or obligation to make any inquiry or effort
of certification of such oral instruction.
(c) The Subadministrator shall not be liable for any action taken in
good faith reliance upon any written instruction or certified copy of any
resolution of the Board of the Trust, and the Subadministrator may rely upon the
genuineness of any such document or copy thereof reasonably believed in good
faith by the Subadministrator to have been validly executed.
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(d) The Subadministrator may rely and shall be protected in acting upon
any signature, instruction, request, letter of transmittal, certificate, opinion
of counsel, statement, instrument, report, notice, consent, order, or other
paper document believed by it to be genuine and to have been signed or presented
by the purchaser, Trust or other proper party or parties.
SECTION 5. EXPENSES. Subject to any agreement by the Subadministrator
or other person to reimburse any expenses of the Trust that relate to any
Series, the Trust shall be responsible for and assume the obligation for payment
of all of its expenses, including: (a) the fee payable under Section 6 hereof;
(b) any fees payable to the Adviser; (c) any fees payable to the Administrator;
(d) expenses of issue, repurchase and redemption of Shares; (e) interest
charges, taxes and brokerage fees and commissions; (f) premiums of insurance for
the Trust, its Trustees and officers and fidelity bond premiums; (g) fees,
interest charges and expenses of third parties, including the Trust's custodian,
interestholder and record keeper and fund accountant; (h) fees of pricing,
interest, dividend, credit and other reporting services; (i) costs of membership
in trade associations; (j) telecommunications expenses; (l) funds transmission
expenses; (m) auditing, legal and compliance expenses; (n) costs of forming the
Trust and maintaining its existence; (o) to the extent permitted by the 1940
Act, costs of preparing and printing the Series' Prospectuses, subscription
application forms and shareholder reports and delivering them to existing
shareholders; (p) expenses of meetings of interestholders and proxy
solicitations therefore; (q) costs of maintaining books of original entry for
portfolio and fund accounting and other required books and accounts, of
calculating the net asset value of shares of the Trust and of preparing tax
returns; (r) costs of reproduction, stationery and supplies; (s) fees and
expenses of the Trust's Trustees; (t) compensation of the Trust's officers and
employees who are not employees of the Adviser or Subadministrator or their
respective affiliated persons and costs of other personnel (who may be employees
of the Adviser, the Administrator, the Subadministrator or their respective
affiliated persons) performing services for the Trust; (u) costs of Trustee
meetings; (v) Securities and Exchange Commission registration fees and related
expenses; (w) state or foreign securities laws registration fees and related
expenses; and (x) all fees and expenses paid by the Trust in accordance with any
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act or under any
shareholder service plan or agreement.
SECTION 6. COMPENSATION.
(a) In consideration of the services performed by the Subadministrator
under this Agreement, the Trust will pay the Subadministrator, with respect to
each Series, a fee at the annual rate, as listed in Appendix B hereto. Such fee
shall be accrued by the Trust daily and shall be payable monthly in arrears on
the first day of each calendar month for services performed under this agreement
during the prior calendar month. If the fees payable pursuant to this provision
begin to accrue before the end of any month or if this Agreement terminates
before the end of any month, the fees for the period from that date to the end
of that month or from the beginning of that month to the date of termination, as
the case may be, shall be prorated according to the proportion that the period
bears to the full month in which the effectiveness or termination occurs. Upon
the termination of this Agreement, the Trust shall pay to the Subadministrator
such compensation as shall be payable prior to the effective date of such
termination.
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(b) In the event that this agreement is terminated, the
Subadministrator shall be reimbursed for reasonable charges and disbursements
associated with promptly transferring to its successor as designated by the
Trust or the Administrator the original or copies of all accounts and records
maintained by the Subadministrator under this agreement, and cooperating with,
and providing reasonable assistance to its successor in the establishment of the
accounts and records necessary to carry out the successor's or other person's
responsibilities.
(c) Notwithstanding anything in this Agreement to the contrary, the
Subadministrator and its affiliated persons may receive compensation or
reimbursement from the Trust with respect to (i) the provision of services on
behalf of the Series in accordance with any distribution plan adopted by the
Trust pursuant to Rule 12b-1 under the 1940 Act or (ii) the provision of
shareholder support or other services, including fund accounting services.
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date first above
written with respect to each Series of the Trust then existing and shall relate
to every other Series as of the later of the date on which the Trust's
Registration Statement relating to the shares of such Series becomes effective
and the Series commences operations.
(b) This Agreement shall continue in effect for twelve months and,
thereafter, shall be automatically renewed each year for an additional term of
one year.
(c) This Agreement may be terminated with respect to a Series at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to the Subadministrator or (ii) by the Subadministrator on 60 days'
written notice to the Trust. Upon receiving notice of termination by the
Subadministrator, the Trust shall use its best efforts to obtain a successor
subadministrator. Upon receipt of written notice from the Trust of the
appointment of a successor, and upon payment to the Subadministrator of all fees
owed through the effective termination date, and reimbursement for reasonable
charges and disbursements, the Subadministrator shall promptly transfer to the
successor subadministrator the original or copies of all accounts and records
maintained by the Subadministrator under this agreement including, in the case
of records maintained on computer systems, copies of such records in
machine-readable form, and shall cooperate with, and provide reasonable
assistance to, the successor sub-administrator in the establishment of the
accounts and records necessary to carry out the successor sub-administrator's
responsibilities. For so long as the Subadministrator continues to perform any
of the services contemplated by this Agreement after termination of this
Agreement as agreed to by the Trust and the Subadministrator, the provisions of
Sections 4 and 6 hereof shall continue in full force and effect.
SECTION 8. ACTIVITIES OF SUB-ADMINISTRATOR. Except to the extent
necessary to perform its obligations under this Agreement, nothing herein shall
be deemed to limit or restrict the Subadministrator's right, or the right of any
of its officers, directors or employees (whether or not they are a Trustee,
officer, employee or other affiliated person of the
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Trust) to engage in any other business or to devote time and
attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust,
fund, firm, individual or association.
SECTION 9. COOPERATION WITH INDEPENDENT ACCOUNTANTS. The
Subadministrator shall cooperate with the Trust's independent public accountants
and shall take reasonable action to make all necessary information available to
such accountants for the performance of their duties.
SECTION 10. SERVICE DAYS. Nothing contained in this Agreement is
intended to or shall require the Subadministrator, in any capacity under this
agreement, to perform any functions or duties on any day other than a business
day of the Trust or of a Series. Functions or duties normally scheduled to be
performed on any day which is not a business day of the Trust or of a Series
shall be performed on, and as of, the next business day, unless otherwise
required by law.
SECTION 11. NOTICES. Any notice or other communication required by or
permitted to be given in connection with this Agreement shall be in writing and
shall be delivered in person, or by first-class mail, postage prepaid, or by
overnight or two-day private mail service to the respective party. Notice to the
Trust shall be given as follows or at such other address as a party may have
designated in writing, shall be deemed to have been properly given:
Schroder Capital Funds
787 Seventh Avenue
New York, New York 10019
Notice to the Subadministrator shall be given as follows or at such
other address as a party may have designated in writing, shall be deemed to have
been properly given:
Forum Administrative Services, Limited Liability Company
Two Portland Square
Portland, Maine 04101
Notices and other communications received by the parties at the
addresses listed above.
SECTION 12. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY.
The Trustees of the Trust and the shareholders of each Series shall not
be liable for any obligations of the Trust or of the Series under this
Agreement, and the Subadministrator agrees that, in asserting any rights or
claims under this Agreement, it shall look only to the assets and property of
the Trust or the Series to which the Subadminstrator's rights or claims relate
in settlement of such rights or claims, and not to the Trustees of the Trust or
the shareholder of the Series.
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SECTION 13. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) This Agreement may be executed in two or more counterparts, each of
which, when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
(c) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(d) Section and Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the fund without the written
consent of the Subadministrator, or by the Subadministrator, without the written
consent of the Trust authorized or approved by a resolution of the Board.
(f) This Agreement shall be governed by the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS
/s/ Alexandra Poe
-------------------------
Alexandra Poe, Vice President
FORUM ADMINISTRATIVE SERVICES,
LIMITED LIABILITY COMPANY
/s/ John Y.Keffer
-------------------------
John Y. Keffer, President
79
<PAGE>
SCHRODER CAPITAL FUNDS
SUBADMINISTRATION AGREEMENT
APPENDIX A
SERIES OF THE FUND
International Equity Fund
Schroder U.S. Smaller Companies Portfolio
Schroder Emerging Markets Fund Institutional Portfolio
Schroder International Smaller Companies Portfolio
Schroder EM Core Portfolio
Schroder Global Growth Portfolio
Schroder Asian Growth Fund Portfolio
Schroder Japan Portfolio
80
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SCHRODER CAPITAL FUNDS
SUBADMINISTRATION AGREEMENT
APPENDIX B
SUBADMINISTRATION FEES
<TABLE>
<S> <C>
Fee As % of the Average Annual
Series of the Trust Daily Net Assets of the Series
------------------- ------------------------------
International Equity Fund
Schroder International Smaller Companies Portfolio
Schroder U.S. Smaller Companies Portfolio
Schroder EM Core Portfolio
Schroder Global Growth Portfolio 0.075%
Schroder Emerging Markets Fund
Institutional Portfolio 0.10%
Schroder Asian Growth Fund Portfolio
Schroder Japan Portfolio 0.05%
</TABLE>
The minimum administration fee per Series is $25,000.
81
