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As filed with the Securities and Exchange Commission on September 30, 1999
File No. 811-9130
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
Amendment No. 16
SCHRODER CAPITAL FUNDS
P.O. Box 1713
Boston, Massachusetts 02105
Michael E. Gillespie, Esq.
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
Copies to:
Timothy W. Diggins, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Carin Muhlbaum, Esq.
Schroder Investment Management North America Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
EXPLANATORY NOTE: This Registration Statement is being filed by Registrant
pursuant to Section8(b) of the Investment Company Act of 1940, as amended.
Beneficial interests in the series of Registrant are not being registered
under the Securities Act of1933, as amended, because such interests will be
issued solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of that act. Investments
in Registrant's series may only be made by certain institutional investors,
whether organized within or without the United States (excluding individuals,
S corporations, partnerships, and grantor trusts beneficially owned by any
individuals, S corporations or partnerships). This Registration Statement
does not constitute an offer to sell, or the solicitation of an offer to buy
any beneficial interests in any series of Registrant.
INFORMATION CONTAINED IN PARTS A AND B OF THE AMENDMENT RELATES ONLY
TO SCHRODER GLOBAL GROWTH PORTFOLIO, AS SERIES OF THE TRUST; NO SUCH
INFORMATION RELATING TO ANY OTHER SERIES OF THE TRUST IS AMENDED OR
SUPERSEDED HEREBY.
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CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
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SCHRODER CAPITAL FUNDS
SCHRODER GLOBAL GROWTH PORTFOLIO
OCTOBER 1, 1999
Schroder Capital Funds (the "Trust"), acting through Schroder Fund Advisors
Inc. (the "Placement Agent"), is making a private placement of shares of
beneficial interest ("Portfolio Interests") in a single series of the Trust.
The Trust is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). Currently, the
Trust offers four Portfolios, one of which, Schroder Global Growth Portfolio,
(the "Portfolio") is described in this Confidential Private Placement
Memorandum. Schroder Investment Management North America Inc. ("Schroder")
manages the Portfolio. Portfolio Interests are offered by the Placement Agent
solely in private placement transactions to qualified investors subject to
the terms contained in this Memorandum.
THE PORTFOLIO INTERESTS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES. ACCORDINGLY, THE PORTFOLIO INTERESTS MAY NOT BE
OFFERED, SOLD OR TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, ANY U.S. PERSONS EXCEPT IN CERTAIN TRANSACTIONS THAT ARE EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE 1933 ACT. THE PORTFOLIO INTERESTS ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE.
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
GENERAL CONSIDERATIONS....................................................1
SUMMARY INFORMATION.......................................................2
OTHER INVESTMENT RISKS AND STRATEGIES.....................................3
MANAGEMENT OF THE PORTFOLIO...............................................6
INTERESTHOLDER INFORMATION................................................7
OTHER INFORMATION.........................................................9
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GENERAL CONSIDERATIONS
OFFERING TO ACCREDITED INVESTORS
The Trust, through the Placement Agent, is making a private placement of
Portfolio Interests in the Portfolio to a limited number of U.S. institutional
investors that are "accredited investors" within the meaning of Rule 501 of
Regulation D under the 1933 Act (each, an "Accredited Investor").
No sale of Portfolio Interests will be made in the United States or to any U.S.
Person (as such terms are defined in Regulation S under the 1933 Act) that does
not execute and deliver, for the benefit of the Trust and the Placement Agent, a
Subscription Agreement (the "Subscription Agreement") completed in a manner
acceptable to the Trust and the Placement Agent.
Portfolio Interests are being offered subject to prior sale and to withdrawal,
cancellation or modification of the offering. The Trust and the Placement Agent
reserve the right to accept or reject any offer to purchase Portfolio Interests
at any time prior to the termination of the offering.
CONFIDENTIAL MEMORANDUM
This Memorandum is confidential and has been prepared and submitted for use
solely in connection with the consideration of the purchase of Portfolio
Interests in the Portfolio by a limited group of sophisticated accredited
investors in a private placement. You should not use it for any other purpose,
and it should not be reproduced or transferred to any other person without the
consent of the Trust and the Placement Agent. By accepting delivery of this
Memorandum, you agree to return it and all related documents to the Placement
Agent in the event you do not purchase any Portfolio Interests in the Portfolio.
No person has been authorized to give any information or to make any
representations other than those contained in this Memorandum and the Trust's
Statement of Additional Information relating to the Portfolio (the "SAI"), which
is available from the Placement Agent and incorporated herein by reference, and
the Subscription Agreement in connection with the offering and sale of Portfolio
Interests. You should not rely upon any other information or representations as
having been authorized by the Trust or the Placement Agent. The information
contained in this Memorandum and the SAI is correct as of the date hereof, but
may change subsequent to the date hereof.
The contents of this Memorandum and the SAI should not be considered to be legal
or tax advice and you should consult with your own legal counsel and advisers as
to all matters concerning an investment in the Portfolio. You must rely on your
own evaluation of the investment and the terms of the offering, including the
merits and risks involved, in making an investment decision with respect to the
Portfolio.
PRIVATE PLACEMENT IN THE UNITED STATES
The Portfolio Interests are not being registered under the 1933 Act or under any
of the securities laws of any state or other political subdivision of the United
States in reliance upon the offering and sale being exempt from registration in
the United States as a private placement. Accordingly, the Portfolio Interests
are offered only to investors who have the qualifications necessary to permit
the Portfolio Interests to be sold in reliance upon the private placement
exemption. You and your advisors must have such knowledge and experience in
business and financial matters as will enable you to evaluate the merits and
risks of a proposed investment in the Portfolio and to bear the economic risk of
the investment. In the Subscription Agreement, you must confirm that you are
purchasing the Portfolio Interests for investment purposes only and not with a
view to, or for resale in connection with, any distribution or other disposition
of the Portfolio Interests and you must represent that you are an Accredited
Investor.
Neither this Memorandum, the SAI nor the Subscription Agreement constitutes an
offer to sell or the solicitation of an offer to buy Portfolio Interests in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. In addition, this Memorandum constitutes an
offer only if a Memorandum Identification Number appears in red ink in the
appropriate space on the cover hereof.
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SUMMARY INFORMATION
The following summary identifies the Portfolio's investment objective, principal
investment strategies, and principal risks. The investment objective of the
Portfolio may be changed only with approval of the Portfolio's investors
("Interestholders"). The policies of the Portfolio may, unless otherwise
specifically stated, be changed by the Trustees of the Trust without a vote of
the Interestholders. There is no assurance that the Portfolio will achieve its
stated objective. Further information about the Portfolio is contained in the
SAI.
INVESTMENT OBJECTIVE. To seek long-term growth of capital.
PRINCIPAL INVESTMENTS. The Portfolio invests in common stocks of companies
located in developed, newly industrialized, and emerging markets. The Portfolio
normally invests at least 65% of its total assets in equity securities of
companies located in at least four countries plus the United States. The
Portfolio may invest in companies of any size, but generally is concentrated in
companies that are large and, to a lesser extent, medium-sized for the
particular market.
INVESTMENT STRATEGIES. Schroder's investment process emphasizes stock selection
and a fundamental company analysis. Schroder seeks companies that it believes
have a sustainable competitive advantage and a potential for growth that is
generally undervalued by other investors. Schroder considers historical growth
rates and future growth prospects, management capability, competitive position
in both domestic and export markets, and other factors.
Schroder seeks to add value by allocating the Portfolio's investments
geographically. Schroder selects countries it believes have a favorable
long-term business environment in which adverse macroeconomic or political
conditions are not likely to materially impede corporate growth.
The Portfolio also may do the following:
- Invest in convertible or non-convertible debt securities.
- Invest in debt securities issued by corporations or financial
institutions.
- Invest in debt securities issued or guaranteed by international
organizations that promote economic reconstruction or development.
PRINCIPAL RISKS.
- - EQUITY SECURITIES. The Portfolio is subject to the risk that the value of
the equity securities in which it invests will fall, or will not appreciate
as anticipated by Schroder, due to factors that adversely affect markets
generally or particular companies in the portfolio. Additionally, because
the Portfolio invests in foreign securities, it is subject to the risk that
foreign issuers or other foreign entities may not have adequately prepared
their computer systems to address the "Year 2000" problem, which could have
an adverse impact on the foreign securities markets generally and therefore
reduce the value of the Fund's portfolio investments.
- - FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among others, risks related to
political or economic instability, foreign currency (such as exchange,
valuation, and fluctuation risks), and taxation. Additionally, because
the Portfolio invests in foreign securities, it is subject to the risk
that foreign issuers or other foreign entities may not have adequately
prepared their computer systems to address the "Year 2000" problem,
which could have an adverse impact on the foreign securities markets
generally and therefore reduce the value of the Fund's portfolio
investments.
- - GEOGRAPHIC CONCENTRATION. There is no limit on the amount of the
Portfolio's assets that may be invested in
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securities of issuers domiciled in any one country. To the extent that the
Portfolio invests a substantial amount of its assets in one country, it
will be more susceptible to the political and economic developments and
market fluctuations in that country than if it invested in a more
geographically diversified portfolio.
- - EMERGING MARKETS. The Portfolio may invest in "emerging market" countries
whose securities markets may experience heightened levels of volatility.
The risks of investing in emerging markets include greater political and
economic uncertainties than in foreign developed markets, currency transfer
restrictions, a more limited number of potential buyers, and an emerging
market country's dependence on revenue from particular commodities or
international aid. Additionally, 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. Emerging market countries
may experience extremely high levels of inflation, which may adversely
affect those countries' economies and securities markets.
OTHER INVESTMENT RISKS AND STRATEGIES
The Portfolio may not achieve its investment objective in all circumstances. The
following provides more detail about the Portfolio's principal risks and the
circumstances, which could adversely affect the value of Portfolio Interests or
their total return. You could lose money by investing.
RISKS OF INVESTING IN THE PORTFOLIO
FOREIGN SECURITIES. Except as otherwise noted in this Memorandum, there is no
limit on the amount of the Portfolio's assets that may be invested in foreign
securities. Investments in foreign securities entail certain risks. There may be
a possibility of nationalization or expropriation of assets, confiscatory
taxation, political or financial instability, and diplomatic developments that
could affect the value of the Portfolio's investments in certain foreign
countries. Since foreign securities normally are denominated and traded in
foreign currencies, the value of the Portfolio's assets may be affected
favorably or unfavorably by currency exchange rates, currency exchange control
regulations, foreign withholding taxes, and restrictions or prohibitions on the
repatriation of foreign currencies. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and foreign issuers
are not generally subject to accounting, auditing, and financial reporting
standards and practices comparable to those in the United States. The securities
of some foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions and other
fees are also generally higher than in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the Portfolio's assets
held abroad) and expenses not present in the settlement of domestic investments.
In addition, legal remedies available to investors in certain foreign countries
may be more limited than those available to investors in the United States or in
other foreign countries. The willingness and ability of foreign governmental
entities to pay principal and interest on government securities depends on
various economic factors, including the issuer's balance of payments, overall
debt level, and cash-flow considerations related to the availability of tax or
other revenues to satisfy the issuer's obligations. If a foreign governmental
entity defaults on its obligations on the securities, the Portfolio may have
limited recourse available to it. The laws of some foreign countries may limit
the Portfolio's ability to invest in securities of certain issuers located in
those countries.
If the Portfolio purchases securities denominated in foreign currencies, a
change in the value of any such currency against the U.S. dollar will result in
a change in the U.S. dollar value of the Portfolio's assets and the Portfolio's
income available for distribution. In addition, although at times most of the
Portfolio's income may be received or realized in these currencies, the
Portfolio will be required to compute and distribute its income in U.S. dollars.
As a result, if the exchange rate for any such currency declines after the
Portfolio's income has been earned and translated into U.S. dollars but before
payment to Interestholders, the Portfolio could be required to liquidate
portfolio securities to make such distributions. Similarly, if the Portfolio
incurs an expense in U.S. dollars and the exchange rate declines before the
expense is paid, the Portfolio would have to convert a greater amount of U.S.
dollars to pay
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for the expense at that time than it would have had to convert at the time the
Portfolio incurred the expense. The 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 debt securities of foreign issuers, Schroder considers the likely
impact of foreign taxes on the net yield available to the Portfolio and its
Interestholders. Income 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 the Portfolio will reduce
its income available for distribution to Interestholders. In certain
circumstances, the Portfolio may be able to pass through to Interestholders
credits for foreign taxes paid.
DEBT SECURITIES. The Portfolio may invest in debt securities, which are subject
to the risk of fluctuation of market value in response to changes in interest
rates and the risk that the issuer may default on the timely payment of
principal and interest. Additionally, the Portfolio may invest in junk bonds,
which are lower-quality, high-yielding debt securities rated below Baa or BBB by
Moody's Investors Services Inc. or Standard & Poor's Rating Group (or, if they
are unrated, which Schroder believes to be of comparable quality). See the SAI
for further descriptions of securities ratings assigned by Moody's and Standard
& Poor's. Lower-rated debt securities are predominantly speculative and tend to
be more susceptible than other debt securities to adverse changes in the
financial condition of the issuer, general economic conditions, or an
unanticipated rise in interest rates, which may affect an issuer's ability to
pay interest and principal. This would likely make the values of the securities
held by the Portfolio more volatile and could limit the Portfolio's ability to
liquidate its securities. Changes by recognized rating services in their ratings
of any fixed-income security and in the perceived ability of an issuer to make
payments of interest and principal also may affect the value of these
investments.
U.S. GOVERNMENT SECURITIES. U.S. Government securities include a variety of
securities that differ in their interest rates, maturities, and dates of issue.
Securities issued or guaranteed by agencies or instrumentalities of the U.S.
Government may or may not be supported by the full faith and credit of the
United States or by the right of the issuer to borrow from the U.S. Treasury.
OTHER INVESTMENT STRATEGIES AND TECHNIQUES AND THE CORRESPONDING RISKS
In addition to the principal investment strategies described in the Summary
Information section above, the Portfolio may at times use the strategies and
techniques described below, which involve certain special risks. This Memorandum
does not attempt to disclose all of the various investment techniques and types
of securities that Schroder might use in managing the Portfolio. As in any
mutual fund, investors must rely on the professional investment judgment and
skill of the Portfolio's adviser.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Changes in currency exchange rates will
affect the U.S. dollar value of Portfolio assets, including 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 political, economic and financial conditions, which may be
difficult to predict. The Portfolio may engage in currency exchange transactions
to protect against unfavorable fluctuations in exchange rates.
In particular, the Portfolio may enter into foreign currency exchange
transactions to protect against a change in exchange rates that may occur
between the date on which the Portfolio contracts to trade a security and the
settlement date ("transaction hedging") or in anticipation of placing a trade
("anticipatory hedging"); to "lock in" the U.S. dollar value of interest and
dividends to be paid in a foreign currency; or to hedge against the possibility
that a foreign currency in which portfolio securities are denominated or quoted
may suffer a decline against the U.S. dollar ("position hedging").
From time to time, the Portfolio's currency hedging transactions may call for
the delivery of one foreign currency in exchange for another foreign currency
and may at times involve currencies in which its portfolio securities are not
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then denominated ("cross hedging"). The Portfolio may also engage in "proxy"
hedging, whereby the Portfolio would seek to hedge the value of portfolio
holdings denominated in one currency by entering into an exchange contract on a
second currency, the valuation of which Schroder believes correlates to the
value of the first currency.
Schroder may buy or sell currencies in "spot" or forward transactions. "Spot"
transactions are executed contemporaneously on a cash basis at the
then-prevailing market rate. 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.
The Portfolio incurs foreign exchange expenses in converting assets from one
currency to another. The Portfolio may engage in foreign currency exchange
transactions only for hedging purposes. Although there is no limit on the amount
of any Portfolio's assets that may be invested in foreign currency exchange and
foreign currency forward contracts, the Portfolio may enter into such
transactions only to the extent necessary to effect the hedging transactions
described above. Suitable foreign currency hedging transactions may not be
available in all circumstances and there can be no assurance that the Portfolio
will utilize hedging transactions at any time.
SECURITIES LOANS, REPURCHASE AGREEMENTS, AND FORWARD COMMITMENTS. The Portfolio
may lend portfolio securities to broker-dealers up to one-third of the
Portfolio's total assets. The Portfolio may also 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 the
collateral. The Portfolio may also enter into contracts to purchase securities
for a fixed price at a future date beyond customary settlement time, 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. The Portfolio may invest in other
investment companies or pooled vehicles, including closed-end funds, that are
advised by Schroder or its affiliates or by unaffiliated parties. When investing
in another investment company, the Portfolio may pay a premium above such
investment company's net asset value per share. As a shareholder in an
investment company, the Portfolio would bear its ratable share of the investment
company's expenses, including advisory and administrative fees, and would at the
same time continue to pay its own fees and expenses.
DERIVATIVE INVESTMENTS. Instead of investing directly in the types of portfolio
securities described in the Summary Information, the Portfolio may buy or sell a
variety of "derivative" investments to gain exposure to particular securities or
markets, in connection with hedging transactions, and to increase total return.
These may include options and futures contracts on securities and securities
indices, for example. Derivatives involve the risk that they may not work as
intended due to unanticipated developments in market conditions or other causes.
Also, derivatives often involve the risk that the other party to the transaction
will be unable to meet its obligations or that the Portfolio will be unable to
close out the position at any particular time or at an acceptable price.
ZERO-COUPON BONDS. The Portfolio may invest in zero-coupon 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.
Zero-coupon bonds allow an issuer to avoid the need to generate cash to meet
current interest payments and, as a result, may involve greater credit risks
than bonds that pay interest currently. When investing in zero-coupon bonds,
the Portfolio is required to distribute the income on these securities as the
income accures, even though the Portfolio is not receiving the income in cash
on a current basis. Thus, the Portfolio may have to sell other investments,
including when it may not be advisable to do so, to make income distributions.
PORTFOLIO TURNOVER. The length of time the Portfolio has held a particular
security is not generally a consideration in investment decisions. The
investment policies of the Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by the Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to the Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Such sales may increase the
amount of capital gains (and, in particular, short-term gains) realized by the
Portfolio, on which Interestholders pay tax.
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TEMPORARY DEFENSIVE STRATEGIES. At times, Schroder may judge that conditions in
the securities markets make pursuing the Portfolio's basic investment strategy
inconsistent with the best interests of its Interestholders. At such times,
Schroder may temporarily use alternate investment strategies primarily designed
to reduce fluctuations in the value of the Portfolio's assets. In implementing
these "defensive" strategies, the Portfolio would invest in high-quality debt
securities, cash, or money market instruments to any extent Schroder considers
consistent with such defensive strategies. It is impossible to predict when, or
for how long, the Portfolio will use these alternate strategies. One risk of
taking such temporary defensive positions is that the Portfolio may not achieve
its investment objective.
OTHER INVESTMENTS. The Portfolio may also invest in other types of securities
and utilize a variety of investment techniques and strategies that are not
described in this Memorandum. These securities and techniques may subject the
Portfolio to additional risks. Please see the SAI for additional information
about the securities and investment techniques described in this Memorandum and
about additional techniques and strategies that may be used by the Portfolios.
MANAGEMENT OF THE PORTFOLIO
A Board of Trustees governs the Trust, which has retained Schroder to manage the
investments of the Portfolio. Subject to the control of the Trustees, Schroder
also manages the Portfolio's other affairs and business. Schroder has served as
investment adviser to each of the Portfolio since inception.
Schroder (itself or its predecessors) has been an investment manager since
1962, and currently serves as investment adviser to the Funds, and a broad
range of institutional investors. As of June 30, 1999, Schroder Capital
Management International Inc. and Schroder Capital Management Inc. (the
corporate predecessors to Schroder) together with their United Kingdom
affiliate, Schroder Capital Management International Limited, had
approximately $36.5 billion in assets under management. Schroder's address
is 787 Seventh Avenue, New York, New York 10019, and its telephone number
is (212) 641-3900.
INVESTMENT ADVISORY FEES PAID BY THE PORTFOLIO. For the fiscal year ended May
31, 1999, the Portfolio paid investment advisory fees to Schroder at the annual
rate of 0.85% (based on the average net assets of the Portfolio).
EXPENSE LIMITATIONS AND WAIVERS. In order to limit the Portfolio's expenses,
Schroder is contractually obligated to reduce its compensation until October
1, 2000, unless otherwise indicated (and, if necessary, to pay certain other
Portfolio expenses) to the extent that the Portfolio's total operating expenses
exceed 0.85% (based on the average net assets of the Portfolio).
PORTFOLIO MANAGERS. Investment decisions for the Portfolio are generally made by
an investment manager or an investment team, with the assistance of an
investment committee. The following portfolio managers have had primary
responsibility for making investment decisions for the Portfolio since 1997.
Their recent professional experience is also shown.
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PORTFOLIO MANAGER RECENT PROFESSIONAL EXPERIENCE
Michael Perelstein Employed as an investment professional
at Schroder since 1997. Mr. Perelstein
is also Vice President of the Trust and
of Schroder Capital Funds (Delaware) and
Schroder Capital Funds II, and a Director
and Senior Investment Officer of
Schroder. Prior to joining Schroder,
Mr. Perelstein was a Managing Director
at MacKay-Shields Financial Corp. from
March 1993 to November 1996.
Paul Morris Employed as an investment professional
at Schroder since 1997. Mr. Morris is a
Director and Managing Director of
Schroder. Prior to joining Schroder,
Mr. Morris was a Principal and Senior
Portfolio Manager at Weiss Peck & Greer,
L.L.C., and a Managing Director, Equity
Division, of UBS Asset Management.
INTERESTHOLDER INFORMATION
HOW PORTFOLIO INTERESTS ARE PRICED
The Portfolio calculates the net asset value of its Portfolio Interests by
dividing the total value of its assets less its liabilities by the number of
Portfolio Interests outstanding. Portfolio Interests are valued as of the
close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
Time) each day the Exchange is open (a "Business Day"). The Trust expects
that days, other than weekend days, that the Exchange will not be open are
New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. The Portfolio values its portfolio securities for which market
quotations are readily available at market value. Short-term investments that
will mature in 60 days or less are stated at amortized cost, which
approximates market value. The Portfolio values all other securities at their
fair values as determined in accordance with procedures adopted by the Board
of Trustees. All assets and liabilities of the Portfolio denominated in
foreign currencies are valued in U.S. dollars based on the mid-market price
of such currencies against the U.S. dollar at the time when last quoted prior
to the time when the net asset value of the Portfolio Interests is
calculated. Because certain of the securities in which the Portfolio may
invest may trade on days on which the Portfolio does not price its Portfolio
Interests, the net asset value of the Portfolio Interests may change on days
when Interestholders will not be able to purchase or redeem their Portfolio
Interests.
PURCHASE OF PORTFOLIO INTERESTS
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. Portfolio Interests are sold at the Portfolio's net asset value next
determined after an order is received, without a sales load. The Placement Agent
receives no compensation for its services.
Registered investment companies are not subject to a 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. 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 at the discretion of Schroder.
If your completed Subscription Agreement has been accepted by the Placement
Agent, you may transmit purchase payments by Federal Reserve Bank wire directly
to the Portfolio as follows:
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State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
ABA No.: 011000028
DDA No.: 9904-650-0
Attn: Mutual Funds/Control Department
FBO: (Interestholder's name, Schroder Global Growth
Portfolio, account number)
The wire order must specify the name of the Portfolio, the account name and
number, address, confirmation number, amount to be wired, name of the wiring
bank, and name and telephone number of the person to be contacted in connection
with the order. If your initial investment is by wire, your completed
Subscription Agreement must be received and accepted by the Placement Agent, who
will assign you an Interestholder account number and activate your account. Wire
orders received prior to the close of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time) on each Business Day are processed at the net
asset value determined as of the end of that day. Wire orders received after
that time are processed at the net asset value next determined thereafter. The
Trust reserves the right to cease accepting investments in the Portfolio at any
time or to reject any Subscription Agreement or investment order.
PURCHASING INTERESTS IN EXCHANGE FOR SECURITIES
Portfolio Interests may be purchased for cash or in exchange for securities
held by the investor, subject to the determination by Schroder that the
securities are acceptable. Schroder reserves the right to reject any
particular investment. If you are interested in purchases through exchange,
please telephone the Trust at (800) 464-3108.
REDEMPTION OF PORTFOLIO INTERESTS
You may redeem all or any portion of your investment in the Portfolio at the net
asset value next determined after you deliver a redemption request in proper
form to the Trust. Redemption proceeds are normally paid by the Trust in federal
funds on the Business Day after the withdrawal is effected but, in any event,
within seven calendar days. Investments in the Portfolio may not be transferred.
The right of redemption may not be suspended nor may the payment dates be
postponed for more than seven days except when the New York Stock Exchange is
closed (or when trading on the New York Stock 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.
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 New York Stock 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 thereafter.
Redemption requests must include the name of the Interestholder, the Portfolio's
name, the dollar amount or number of Portfolio Interests to be redeemed,
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Interestholder account number, and the signature of the holder designated on the
account.
Written redemption requests may be sent to the Trust at the following address:
Schroder Global Growth Portfolio
P.O. Box 8507
Boston, MA 02266
Telephone redemption requests may be made by telephoning the Trust at (800)
464-3108. 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 Trust's
Placement Agent. In an effort to prevent unauthorized or fraudulent redemption
requests by telephone, reasonable procedures will be followed by the Trust's
Placement Agent to confirm that telephone instructions are genuine. The
Placement 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 Placement Agent by telephone, redemption requests may be mailed
or hand-delivered to the Placement Agent.
Redemption proceeds normally are paid in cash. If you paid for your Portfolio
Interests by check, you will not be sent redemption proceeds until the check you
used to pay for the Portfolio Interests has cleared, which may take up to 15
calendar days from the purchase date.
Redemptions from the Portfolio may be made wholly or partially in portfolio
securities, however, if the Trust's Board of Trustees determines that payment in
cash would be detrimental to the best interests of Interestholders. The Trust
has filed an election with the Securities and Exchange Commission pursuant to
which the Portfolio will only consider effecting a redemption in portfolio
securities if the Interestholder is redeeming more than $250,000 or 1% of the
Portfolio's net asset value, whichever is less, during any 90-day period.
TAXES
The Portfolio is not required to pay federal income taxes on its ordinary
income and capital gain because 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 Interestholders, regardless of
whether such interest, dividends or gains are distributed by the Portfolio or
the Portfolio realizes losses.
Under the Portfolio's operational method, it is not subject to any federal
income tax. However, each Interestholder in the Portfolio will be taxed on its
proportionate share (as determined in accordance with the Trust's Trust
Instrument and the Internal Revenue Code of 1986, as amended) of the Portfolio's
ordinary income and capital gain, to the extent that the Interestholder is
subject to tax on its income. The Trust will inform Interestholders of the
Portfolio of the amount and nature of such income or gain.
The foregoing discussion relates only to federal income tax law. Income from the
Portfolio also may be subject to foreign, state and local taxes, and the
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.
OTHER INFORMATION
CAPITAL STRUCTURE
The Trust was organized as a business trust under the laws of the State of
Delaware on September 7, 1995. Under the Trust Instrument, the Trustees are
authorized to issue interests in separate series of the Trust. The Trust
currently has four series (including the Portfolio described in this
Memorandum). The Trust reserves the right to create additional series.
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Each Interestholder in the Portfolio is entitled to participate equally in the
Portfolio's earnings and assets and to a vote in proportion to the amount of its
investment in the Portfolio. Investments in the Portfolio have no preemptive or
conversion rights and are fully paid and non-assessable. Upon liquidation of the
Portfolio, Interestholders will be entitled to share pro rata in the Portfolio's
net assets available for distribution to Interestholders.
RESTRICTIONS ON TRANSFER
Transfers of Portfolio Interests will be subject to the restrictions set forth
in the Subscription Agreement and in the Trust Instrument. These provide that no
sale or other transfer of Portfolio Interests may be made by an Interestholder
unless such sale or other transfer is exempt from registration under the 1933
Act and other applicable legislation, and that the consent of the other
Interestholders of the Portfolio will be required for any such sale or other
transfer of Portfolio Interests, other than redemptions.
STATEMENT OF ADDITIONAL INFORMATION
Further information about the Portfolio is contained in the Trust's Statement
of Additional Information relating to the Portfolio, which is available from
the Placement Agent and is incorporated herein by reference.
YEAR 2000
The Portfolio receives services from its investment adviser, administrator,
subadministrator, placement agent, transfer agent, custodian and other providers
that 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. Schroder 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 the Portfolio's other major
service providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Portfolio from this problem. In
addition, there can be no assurance that the Year 2000 problem will not have an
adverse impact on companies and other issuers in which the Portfolio invests or
on the securities markets generally, which may reduce the value of the
Portfolio's investments.
Additionally, because the Portfolio invests in foreign securities, it is subject
to the risk that foreign issuers or other foreign entities may not have
adequately prepared their computer systems to address the Year 2000 problem,
which could have an adverse impact on the foreign securities markets generally
and therefore reduce the value of the Portfolio's investments.
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FORM N-1A PART B
CONFIDENTIAL STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SCHRODER CAPITAL FUNDS
SCHRODER GLOBAL GROWTH PORTFOLIO
OCTOBER 1, 1999
Schroder Capital Funds (the "Trust"), acting through Schroder Fund Advisors
Inc. (the "Placement Agent"), is making a private placement of shares of
beneficial interest ("Portfolio Interests") in a single series of the Trust,
Schroder Global Growth Portfolio. The Trust is registered as an open-end
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). Currently, the Trust offers three series, including Schroder Global
Growth Portfolio (the "Portfolio"), which is described in this Statement of
Additional Information (the "SAI").
Schroder Investment Management North America Inc. manages the Portfolio.
Portfolio Interests are offered by the Placement Agent solely in private
placement transactions to qualified investors subject to the terms contained in
the Trust's Confidential Private Placement Memorandum (the "Memorandum") dated
October 1, 1999 relating to the Portfolio.
This SAI is not a Memorandum and is authorized for distribution only when
accompanied or preceded by the Confidential Private Placement Memorandum. This
SAI contains information that may be useful to investors in the Portfolio
("Interestholders") but which is not included in the Memorandum. You may obtain
free copies of the Memorandum by calling the Trust at (800) 464-3108.
Certain disclosure has been incorporated by reference into this SAI from the
Portfolio's Annual Report. For a free copy of the Annual Report, please call
(800) 464-3108.
THE PORTFOLIO INTERESTS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES. ACCORDINGLY, THE PORTFOLIO INTERESTS MAY NOT BE
OFFERED, SOLD OR TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, ANY U.S. PERSONS EXCEPT IN CERTAIN TRANSACTIONS THAT ARE EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE 1933 ACT. THE PORTFOLIO INTERESTS ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE.
<PAGE>
TABLE OF CONTENTS
TRUST HISTORY.................................................................3
PORTFOLIO CLASSIFICATION......................................................3
CAPITAL STOCK AND OTHER SECURITIES............................................3
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS.....................3
INVESTMENT RESTRICTIONS......................................................15
TRUSTEES AND OFFICERS........................................................16
SCHRODER AND ITS AFFILIATES..................................................18
INVESTMENT ADVISORY AGREEMENTS...............................................18
ADMINISTRATIVE SERVICES......................................................20
PLACEMENT AGENT..............................................................21
BROKERAGE ALLOCATION AND OTHER PRACTICES.....................................21
DETERMINATION OF NET ASSET VALUE.............................................22
REDEMPTIONS IN KIND..........................................................23
TAXES........................................................................24
PRINCIPAL HOLDERS OF PORTFOLIO INTERESTS.....................................27
PERFORMANCE INFORMATION......................................................27
CUSTODIAN....................................................................27
INDEPENDENT AUDITORS.........................................................28
LEGAL COUNSEL................................................................28
INTERESTHOLDER LIABILITY.....................................................28
FINANCIAL STATEMENTS.........................................................28
APPENDIX A..................................................................A-1
APPENDIX B..................................................................B-1
<PAGE>
SCHRODER CAPITAL FUNDS
CONFIDENTIAL STATEMENT OF ADDITIONAL INFORMATION
TRUST HISTORY
The Trust was organized as a Delaware business trust on September 7, 1995. The
Trust's Trust Instrument, which is governed by Delaware law, is on file with the
Secretary of State of the State of Delaware.
PORTFOLIO CLASSIFICATION
Schroder Global Growth Portfolio is a "diversified" investment company under the
1940 Act. This means that with respect to 75% of the Portfolio's total assets,
the Portfolio may not invest in securities of any issuer if, immediately after
such investment, more than 5% of the total assets of the Portfolio (taken at
current value) would be invested in the securities of that issuer (this
limitation does not apply to investments in U.S. Government securities).
Schroder Global Growth Portfolio is not subject to this limitation with respect
to the remaining 25% of its total assets. To the extent a Portfolio invests a
significant portion of its assets in the securities of a particular issuer, it
will be subject to an increased risk of loss if the market value of the issuer's
securities declines.
CAPITAL STOCK AND OTHER SECURITIES
Under the Trust Instrument of the Trust, the Trustees are authorized to issue
shares of beneficial interest in separate series of the Trust. The Trust
currently has four series (one being the Portfolio described in this SAI), and
the Trust reserves the right to create additional series.
Each Interestholder in a portfolio of the Trust (including the one Portfolio
described in this SAI) 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 without the
unanimous consent of the other Interestholders in the portfolio, but an
Interestholder may withdraw all or any portion of its investment at any time at
the next determined net asset value.
The Trust is not required, and has no current intention, to hold annual meetings
of Interestholders, but the Trust will hold special meetings of Interestholders
when in the Trustees' judgment it is necessary or desirable to submit matters
for an Interestholder vote or when it is otherwise required under state law or
the 1940 Act. Generally, portfolio 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
portfolio interests are voted separately by the portfolio. Upon liquidation of a
portfolio, Interestholders will be entitled to share pro rata in the portfolio's
net assets available for distribution to Interestholders.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
In addition to the principal investment strategies and the principal risks of
the Portfolio described in the Memorandum, the Portfolio may employ other
investment practices and may be subject to additional risks, which are described
below.
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CERTAIN DERIVATIVE INSTRUMENTS
Derivative instruments are financial instruments whose value depends upon, or is
derived from, the value of an underlying asset, such as a security, index or
currency. As described below, the Portfolio may engage in a variety of
transactions involving the use of derivative instruments, including options and
futures contracts on securities and securities indices and options on futures
contracts. These transactions may be used by the Portfolio for hedging purposes
or, to the extent permitted by applicable law, to increase its current return.
The Portfolio may also engage in derivative transactions involving foreign
currencies. See "Foreign Currency Transactions," below.
OPTIONS
The Portfolio may purchase and sell covered put and call options on its
portfolio securities to enhance investment performance and to protect against
changes in market prices.
COVERED CALL OPTIONS. The Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by the Portfolio.
A call option gives the holder the right to purchase, and obligates the writer
to sell, a security at the exercise price at any time before the expiration
date. A call option is "covered" if the writer, at all times while obligated as
a writer, either owns the underlying securities (or comparable securities
satisfying the cover requirements of the securities exchanges), or has the right
to acquire such securities through immediate conversion of securities.
In return for the premium received when it writes a covered call option, the
Portfolio gives up some or all of the opportunity to profit from an increase in
the market price of the securities covering the call option during the life of
the option. The Portfolio retains the risk of loss should the price of such
securities decline. If the option expires unexercised, the Portfolio realizes a
gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Portfolio realizes a gain
or loss equal to the difference between the Portfolio's cost for the underlying
security and the proceeds of the sale (exercise price minus commissions) plus
the amount of the premium.
The Portfolio may terminate a call option that it has written before it expires
by entering into a closing purchase transaction. A Portfolio may enter into
closing purchase transactions in order to free itself to sell the underlying
security or to write another call on the security, realize a profit on a
previously written call option, or protect a security from being called in an
unexpected market rise. Any profits from a closing purchase transaction may be
offset by a decline in the value of the underlying security. Conversely, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from a
closing purchase transaction is likely to be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Portfolio.
COVERED PUT OPTIONS. The Portfolio may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from terminating
such options in closing purchase transactions, the Portfolio also receives
interest on the cash and debt securities maintained to cover the exercise price
of the option. By writing a put option, the Portfolio assumes the risk that it
may be required to purchase the underlying security for an exercise price higher
than its then current market value, resulting in a potential capital loss unless
the security later appreciates in value. The Portfolio may terminate a put
option that it has written before it expires by a closing purchase transaction.
Any loss from this transaction may be partially or entirely offset by the
premium received on the terminated option.
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PURCHASING PUT AND CALL OPTIONS. The Portfolio may also purchase put options to
protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Portfolio, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Portfolio
must pay. These costs will reduce any profit the Portfolio might have realized
had it sold the underlying security instead of buying the put option.
The Portfolio may purchase call options to hedge against an increase in the
price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Portfolio
might have realized had it bought the underlying security at the time it
purchased the call option.
The Portfolio may also purchase put and call options to enhance its current
return. The Portfolio may also buy and sell combinations of put and call options
on the same underlying security to earn additional income.
OPTIONS ON FOREIGN SECURITIES. The Portfolio may purchase and sell options on
foreign securities if in Schroder's opinion the investment characteristics of
such options, including the risks of investing in such options, are consistent
with the Portfolio's investment objectives. It is expected that risks related to
such options will not differ materially from risks related to options on U.S.
securities. However, position limits and other rules of foreign exchanges may
differ from those in the U.S. In addition, options markets in some countries,
many of which are relatively new, may be less liquid than comparable markets in
the U.S.
RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve certain
risks, including the risks that Schroder will not forecast interest rate or
market movements correctly, that the Portfolio may be unable at times to close
out such positions, or that hedging transactions may not accomplish their
purpose because of imperfect market correlations. The successful use of these
strategies depends on the ability of Schroder to forecast market and interest
rate movements correctly.
An exchange-listed option may be closed out only on an exchange that provides a
secondary market for an option of the same series. Although the Portfolio will
enter into an option position only if Schroder believes that a liquid secondary
market exists, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option or at any particular time. If no
secondary market were to exist, it would be impossible to enter into a closing
transaction to close out an option position. As a result, the Portfolio may be
forced to continue to hold, or to purchase at a fixed price, a security on which
it has sold an option at a time when Schroder believes it is inadvisable to do
so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Portfolio's
use of options. The exchanges have established limitations on the maximum number
of calls and puts of each class that may be held or written by an investor or
group of investors acting in concert. It is possible that the Portfolio and
other clients of Schroder may be considered such a group. These position limits
may restrict the Portfolio's ability to purchase or sell options on particular
securities.
As described below, the Portfolio generally expects that its options
transactions will be conducted on recognized exchanges. In certain instances,
however, the Portfolio may purchase and sell options in the over-the-counter
markets. Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that
reason, it may be more difficult to close out over-the-counter options than
exchange-traded options. Options in the over-the-counter market may also
involve the risk that securities dealers participating in such transactions
would be unable to meet their obligations to the Portfolio. Furthermore,
over-the-counter options are not subject to the protection afforded
purchasers of exchange-traded options by The Options Clearing Corporation.
The Portfolio will, however, engage in over-the-counter options transactions
only when appropriate exchange-traded options transactions are unavailable
and when, in the opinion of Schroder, 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 (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.
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Government regulations, particularly the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
FUTURES CONTRACTS
In order to hedge against the effects of adverse market changes, the Portfolio
may invest in debt securities, may buy and sell futures contracts on U.S.
Government securities and other debt securities in which the Portfolio may
invest, and on indices of debt securities. In addition, the Portfolio may
purchase and sell stock index futures to hedge against changes in stock market
prices. The Portfolio may also, to the extent permitted by applicable law, buy
and sell futures contracts and options on futures contracts to increase the
Portfolio's current return. All such futures and related options will, as may be
required by applicable law, be traded on exchanges that are licensed and
regulated by the Commodity Futures Trading Commission (the "CFTC"). Depending
upon the change in the value of the underlying security or index when a
Portfolio enters into or terminates a futures contract, the Portfolio may
realize a gain or loss.
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a debt
security is a binding contractual commitment which, if held to maturity, will
result in an obligation to make or accept delivery, during a particular month,
of securities having a standardized face value and rate of return. By purchasing
futures on debt securities -- assuming a "long" position -- the Portfolio will
legally obligate itself to accept the future delivery of the underlying security
and pay the agreed price. By selling futures on debt securities - assuming a
"short" position - it will legally obligate itself to make the future delivery
of the security against payment of the agreed price. Open futures positions on
debt securities will be valued at the most recent settlement price, unless that
price does not, in the judgment of persons acting at the direction of the
Trustees as to the valuation of the Portfolio's assets, reflect the fair value
of the contract, in which case the positions will be valued by the Trustees or
such persons.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by the Portfolio will usually be
liquidated in this manner, the Portfolio may instead make or take delivery of
the underlying securities whenever it appears economically advantageous to the
Portfolio to do so. A clearing corporation associated with the exchange on which
futures are traded assumes responsibility for such closing transactions and
guarantees that the Portfolio's sale and purchase obligations under closed-out
positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more certainly
than would otherwise be possible the effective rate of return on portfolio
securities. The Portfolio may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Portfolio (or securities having characteristics similar to those
held by the Portfolio) in order to hedge against an anticipated rise in interest
rates that would adversely affect the value of the Portfolio's portfolio
securities. When hedging of this character is successful, any depreciation in
the value of portfolio securities may substantially be offset by appreciation in
the value of the futures position. On other occasions, the Portfolio may take a
"long" position by purchasing futures on debt securities. This would be done,
for example, when the Portfolio expects to purchase particular securities when
it has the necessary cash, but expects the rate of return available in the
securities markets at that time to be less favorable than rates currently
available in the futures markets. If the anticipated rise in the price of the
securities should occur (with its concomitant reduction in yield), the increased
cost to the Portfolio of purchasing the securities may be offset, at least to
some extent, by the rise in the value of the futures position taken in
anticipation of the subsequent securities purchase.
Successful use by the Portfolio of futures contracts on debt securities is
subject to Schroder's ability to predict correctly movements in the direction
of interest rates and other factors affecting markets for debt securities.
For example, if the Portfolio has hedged against the possibility of an
increase in interest rates that would adversely affect the market prices of
debt securities held by it and the prices of such securities increase
instead, the Portfolio will lose part or all of the benefit of the increased
value of its securities that it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements. The Portfolio may have to sell securities at
a time when it may be disadvantageous to do so.
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The Portfolio may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to options
on securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. The
Portfolio will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements, and, in addition, net option premiums received will be
included as initial margin deposits. See "Margin Payments" below. Compared to
the purchase or sale of futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to the Portfolio because the
maximum amount at risk is the premium paid for the options plus transactions
costs. However, there may be circumstances when the purchase of call or put
options on a futures contract would result in a loss to the Portfolio when the
purchase or sale of the futures contracts would not, such as when there is no
movement in the prices of debt securities. The writing of a put or call option
on a futures contract involves risks similar to those risks relating to the
purchase or sale of futures contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. The Portfolio may invest in debt index
futures contracts and stock index futures contracts, and in related options. A
debt index futures contract is a contract to buy or sell units of a specified
debt index at a specified future date at a price agreed upon when the contract
is made. A unit is the current value of the index. A stock index futures
contract is a contract to buy or sell units of a stock index at a specified
future date at a price agreed upon when the contract is made. A unit is the
current value of the stock index.
Depending on the change in the value of the index between the time when the
Portfolio enters into and terminates an index futures transaction, the Portfolio
may realize a gain or loss. The following example illustrates generally the
manner in which index futures contracts operate. The Standard & Poor's 100 Stock
Index is composed of 100 selected common stocks, most of which are listed on the
New York Stock Exchange. The S&P 100 Index assigns relative weightings to the
common stocks included in the Index, and the Index fluctuates with changes in
the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index
were $180, one contract would be worth $18,000 (100 units x $180). The stock
index futures contract specifies that no delivery of the actual stocks making up
the index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract. For example, if the Portfolio enters into a futures contract to
buy 100 units of the S&P 100 Index at a specified future date at a contract
price of $180 and the S&P 100 Index is at $184 on that future date, the
Portfolio will gain $400 (100 units x gain of $4). If the Portfolio enters into
a futures contract to sell 100 units of the stock index at a specified future
date at a contract price of $180 and the S&P 100 Index is at $182 on that future
date, the Portfolio will lose $200 (100 units x loss of $2).
The Portfolio may purchase or sell futures contracts with respect to any
securities indices. Positions in index futures may be closed out only on an
exchange or board of trade that provides a secondary market for such futures.
In order to hedge the Portfolio's investments successfully using futures
contracts and related options, the Portfolio must invest in futures contracts
with respect to indices or sub-indices the movements of which will, in
Schroder's judgment, have a significant correlation with movements in the prices
of the Portfolio's securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right,
in return for the premium paid, to assume a position in an index futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period
of the option. Upon exercise of the option, the holder would assume the
underlying futures position and would receive a variation margin payment of
cash or securities approximating the increase in the value of the holder's
option position. If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be made entirely in
cash based on the difference between the exercise price of the option and the
closing level of the index on which the futures contract is based on the
expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid. As an
alternative to purchasing and selling call and put options on index futures
contracts, the Portfolio that may purchase and sell index futures contracts
may purchase and sell call and put options on the underlying indices
themselves to the extent that such options are traded on national securities
exchanges. Index options are similar to options on individual securities in
that the purchaser of an index option acquires the right to buy (in the case
of a call) or sell (in the case of a put), and the writer undertakes the
obligation to sell or buy (as the case may be), units of an index at a stated
exercise price during the term of the option. Instead of giving the right to
take or make actual delivery of securities, the holder of an index option has
the right to receive a cash "exercise settlement amount." This amount is
equal to the amount by which the fixed exercise price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing
value of the underlying index on the date of the exercise, multiplied by a
fixed "index multiplier".
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The Portfolio may purchase or sell options on stock indices in order to close
out its outstanding positions in options on stock indices that it has purchased.
The Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on an index involves less potential risk to the Portfolio because
the maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
The Portfolio may also purchase warrants, issued by banks and other financial
institutions, whose values are based on the values from time to time of one or
more securities indices.
MARGIN PAYMENTS. When the Portfolio purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, U.S. Treasury bills,
or other permissible collateral equal to a small percentage of the amount of the
futures contract. This amount is known as "initial margin." The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the Portfolio upon termination of the contract, assuming the Portfolio
satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a process
known as "marking to market." These payments are called "variation margin" and
are made as the value of the underlying futures contract fluctuates. For
example, when the Portfolio sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Portfolio's
position declines in value. The Portfolio then pays the broker a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the securities underlying the futures contract.
Conversely, if the price of the underlying security falls below the delivery
price of the contract, the Portfolio's futures position increases in value. The
broker then must make a variation margin payment equal to the difference between
the delivery price of the futures contract and the market price of the
securities underlying the futures contract.
When the Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only on an
exchange or board of trade that provides a secondary market for such futures.
Although the Portfolio intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, the Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event financial futures are used
to hedge portfolio securities, such securities will not generally be sold until
the financial futures can be terminated. In such circumstances, an increase in
the price of the portfolio securities, if any, may partially or completely
offset losses on the financial futures.
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In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although the Portfolio generally will purchase only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that the Portfolio would have to exercise the
options in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by the
Portfolio of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying securities or
index or in the prices of the Portfolio's securities, which are the subject of a
hedge. Schroder will, however, attempt to reduce this risk by purchasing and
selling, to the extent possible, futures contracts and related options on
securities and indices the movements of which will, in its judgment, correlate
closely with movements in the prices of the underlying securities or index and
the Portfolio's investments sought to be hedged.
Successful use of futures contracts and options by the Portfolio for hedging
purposes is also subject to Schroder's ability to predict correctly movements
in the direction of the market. It is possible that, where the Portfolio has
purchased puts on futures contracts to hedge its portfolio against a decline
in the market, the securities or index on which the puts are purchased may
increase in value and the value of securities held in the portfolio may
decline. If this occurred, the Portfolio would lose money on the puts and
also experience a decline in the value of its portfolio securities. In
addition, the prices of futures, for a number of reasons, may not correlate
perfectly with movements in the underlying securities or index due to certain
market distortions. First, all participants in the futures market are subject
to margin deposit requirements. Such requirements may cause investors to
close futures contracts through offsetting transactions that could distort
the normal relationship between the underlying security or index and futures
markets. Second, the margin requirements in the futures markets are less
onerous than margin requirements in the securities markets in general, and as
a result the futures markets may attract more speculators than the securities
markets do. Increased participation by speculators in the futures markets may
also cause temporary price distortions. Due to the possibility of price
distortion, even a correct forecast of general market trends by Schroder may
still not result in a successful hedging transaction over a very short time
period.
LACK OF AVAILABILITY. Because the markets for certain options and futures
contracts and other derivative instruments in which the Portfolio may invest
(including markets located in foreign countries) are relatively new and still
developing and may be subject to regulatory restraints, the Portfolio's ability
to engage in transactions using such instruments may be limited. Suitable
derivative transactions may not be available in all circumstances and there is
no assurance that the Portfolio will engage in such transactions at any time or
from time to time. The Portfolio's ability to engage in hedging transactions may
also be limited by certain regulatory and tax considerations.
OTHER RISKS. The Portfolio will incur brokerage fees in connection with its
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while the Portfolio
may benefit from the use of futures and related options, unanticipated changes
in interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
correlation between the futures position and the portfolio position that is
intended to be protected, the desired protection may not be obtained and the
Portfolio may be exposed to risk of loss.
FORWARD COMMITMENTS
The Portfolio may enter into contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if the
Portfolio holds, and maintains until the settlement date in a segregated
account, cash or liquid securities in an amount sufficient to meet the purchase
price, or if the Portfolio enters into offsetting contracts for the forward sale
of other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the Portfolio's other assets.
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Where such purchases are made through dealers, the Portfolio relies on the
dealer to consummate the sale. The dealer's failure to do so may result in the
loss to the Portfolio of an advantageous yield or price. Although the Portfolio
will generally enter into forward commitments with the intention of acquiring
securities for its portfolio or for delivery pursuant to options contracts it
has entered into, the Portfolio may dispose of a commitment prior to settlement
if Schroder deems it appropriate to do so. The Portfolio may realize short-term
profits or losses upon the sale of forward commitments.
REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements. A repurchase agreement is a
contract under which the Portfolio acquires a security for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Portfolio to resell such security at a fixed time and
price (representing the Portfolio's cost plus interest). It is the Trust's
present intention to enter into repurchase agreements only with member banks of
the Federal Reserve System and securities dealers meeting certain criteria as to
creditworthiness and financial condition as established by the Trustees of the
Trust, and only with respect to obligations of the U.S. government or its
agencies or instrumentalities or other high quality short-term debt obligations.
Repurchase agreements may also be viewed as loans made by the Portfolio that are
collateralized by the securities subject to repurchase. Schroder will monitor
such transactions to ensure that the value of the underlying securities will be
at least equal at all times to the total amount of the repurchase obligation,
including the interest factor. If the seller defaults, the Portfolio could
realize a loss on the sale of the underlying security to the extent that the
proceeds of the sale, including accrued interest, are less than the resale price
provided in the agreement including interest. In addition, if the seller should
be involved in bankruptcy or insolvency proceedings, the Portfolio may incur
delay and costs in selling the underlying security or may suffer a loss of
principal and interest if the Portfolio is treated as an unsecured creditor and
required to return the underlying collateral to the seller's estate.
WHEN-ISSUED SECURITIES
The Portfolio may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued on this basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time a
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by the Portfolio and no interest accrues to the
Portfolio. To the extent that assets of the Portfolio are held in cash pending
the settlement of a purchase of securities, that Portfolio would earn no income.
While the Portfolio may sell its right to acquire when-issued securities prior
to the settlement date, the Portfolio intends actually to acquire such
securities unless a sale prior to settlement appears desirable for investment
reasons. At the time the Portfolio makes the commitment to purchase a security
on a when-issued basis, it will record the transaction and reflect the amount
due and the value of the security in determining the Portfolio's net asset
value. The market value of the when-issued securities may be more or less than
the purchase price payable at the settlement date. The Portfolio will establish
a segregated account in which it will maintain cash and U.S. government
securities or other liquid securities at least equal in value to commitments for
when-issued securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
LOANS OF PORTFOLIO SECURITIES
The Portfolio may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. government securities,
cash, or cash equivalents adjusted daily to have market value at least equal
to the current market value of the securities loaned; (2) the Portfolio may
at any time call the loan and regain the securities loaned; (3) the Portfolio
will receive any interest or dividends paid on the loaned securities; and (4)
the aggregate market value of the Portfolio's portfolio securities loaned
will not at any time exceed one-third of the total assets of the Portfolio.
In addition, it is anticipated that the Portfolio may share with the borrower
some of the income received on the collateral for the loan or that it will be
paid a premium for the loan. Before the Portfolio enters into a loan,
Schroder considers all relevant facts and circumstances, including the
creditworthiness of the borrower. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral should the
borrower fail financially. Although voting rights or rights to consent with
respect to the loaned securities pass to the borrower, the Portfolio retains
the right to call the loans at any time on reasonable notice, and it will do
so in order that the securities may be voted by the Portfolio if the holders
of such securities are asked to vote upon or consent to matters materially
affecting the investment. The Portfolio will not lend portfolio securities to
borrowers affiliated with the Portfolio.
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FOREIGN SECURITIES
The Portfolio may invest without limit in securities principally traded in
foreign markets. The Portfolio may also invest without limit in Eurodollar
certificates of deposit and other certificates of deposit issued by United
States branches of foreign banks and foreign branches of United States banks.
Investments in foreign securities may involve risks and considerations
different from or in addition to investments in domestic securities. There
may be less information publicly available about a foreign company than about
an U.S. company, and foreign companies 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
companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are
also generally higher than in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of the Portfolio's
assets held abroad) and expenses not present in the settlement of domestic
investments. Also, because foreign securities are normally denominated and
traded in foreign currencies, the values of the Portfolio's assets may be
affected favorably or unfavorably by currency exchange rates and exchange
control regulations, and the Portfolio may incur costs in connection with
conversion between currencies.
In addition, with respect to certain foreign countries, there is a
possibility of nationalization or expropriation of assets, imposition of
currency exchange controls, adoption of foreign governmental restrictions
affecting the payment of principal and interest, imposition of withholding or
confiscatory taxes, political or financial instability, and adverse
political, diplomatic or economic developments which could affect the values
of investments in those countries. In certain countries, legal remedies
available to investors may be more limited than those available with respect
to investments in the United States or other countries and it may be more
difficult to obtain and enforce a judgment against a foreign issuer. Also,
the laws of some foreign countries may limit the Portfolio's ability to
invest in securities of certain issuers located in those countries.
Special tax considerations apply to foreign securities. In determining
whether to invest in securities of foreign issuers, Schroder will consider
the likely impact of foreign taxes on the net yield available to the
Portfolio and its Interestholders. Income 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. It is impossible to
determine the effective rate of foreign tax in advance since the amount of
the Portfolio's assets to be invested in various countries is not known, and
tax laws and their interpretations may change from time to time and may
change without advance notice. Any such taxes paid by the Portfolio will
reduce its net income available for distribution to Interestholders.
FOREIGN CURRENCY TRANSACTIONS
The Portfolio may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. The Portfolio may engage in both "transaction hedging"
and "position hedging."
When it engages in transaction hedging, the Portfolio enters into foreign
currency transactions with respect to specific receivables or payables of that
Portfolio generally arising in connection with the purchase or sale of its
portfolio securities. The Portfolio will engage in transaction hedging when it
desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging, the Portfolio will
attempt to protect against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold or
on which the dividend or interest payment is declared, and the date on which
such payments are made or received.
The Portfolio may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. The
Portfolio may also enter into contracts to purchase or sell foreign
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currencies at a future date ("forward contracts") and purchase and sell foreign
currency futures contracts.
For transaction hedging purposes, the Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures
contract gives a Portfolio the right to assume a short position in the
futures contract until expiration of the option. A put option on currency
gives the Portfolio the right to sell a currency at an exercise price until
the expiration of the option. A call option on a futures contract gives the
Portfolio the right to assume a long position in the futures contract until
the expiration of the option. A call option on currency gives the Portfolio
the right to purchase a currency at the exercise price until the expiration
of the option. The Portfolio will engage in over-the-counter transactions
only when appropriate exchange-traded transactions are unavailable and when,
in Schroder's opinion, the pricing mechanism and liquidity are satisfactory
and the participants are responsible parties likely to meet their contractual
obligations.
When it engages in position hedging, the Portfolio enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by the Portfolio are denominated or are
quoted in their principal trading markets or an increase in the value of
currency for securities which the Portfolio expects to purchase. In connection
with position hedging, the Portfolio may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. The Portfolio may also
purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the values of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of the Portfolio's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Portfolio is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of the Portfolio if the market value of such security or securities
exceeds the amount of foreign currency the Portfolio is obligated to deliver.
To offset some of the costs to the Portfolio of hedging against fluctuations in
currency exchange rates, a Portfolio may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities, which a Portfolio owns or intends to purchase or sell.
They simply establish a rate of exchange that one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in the value of such
currency. Also, suitable foreign currency hedging transactions may not be
available in all circumstances and there can be no assurance that a Portfolio
will utilize hedging transactions at any time or from time to time.
The Portfolio may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling options
on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign
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currency futures contracts traded in the United States are designed by and
traded on exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the contract agreed
upon by the parties, rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Portfolio may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade, which provides a secondary
market in such contracts or options. Although the Portfolio will normally
purchase or sell foreign currency futures contracts and related options only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or option or at any particular
time. In such event, it may not be possible to close a futures or related option
position and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin on its
futures positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter market,
although options on foreign currencies have recently been listed on several
exchanges. Such options will be purchased or written only when Schroder believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specific time. Options on foreign currencies are affected by all of those
factors that influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(less than $1 million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To the extent that
the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the U.S. options markets.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(the "spread") between prices at which they buy and sell various currencies.
Thus, a dealer may offer to sell a foreign currency to the Portfolio at one
rate, while offering a lesser rate of exchange should a Portfolio desire to
resell that currency to the dealer.
ZERO-COUPON SECURITIES
Zero-coupon securities in which the Portfolio may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
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Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest. As a result, the net asset value of Portfolio
Interests of the Portfolio investing in zero-coupon securities may fluctuate
over a greater range than Portfolio Interests of other Portfolios of the Trust
and other mutual funds investing in securities making current distributions of
interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by the
U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). CATS and TIGRS are not considered U.S. government
securities. The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of particular
interest coupons and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Portfolio will be able to have its beneficial ownership of U.S. Treasury
zero-coupon securities recorded directly in the book-entry record-keeping system
in lieu of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest coupons by
the holder, the stripped coupons are sold separately. The principal or corpus is
sold at a deep discount because the buyer receives only the right to receive a
future fixed payment on the security and does not receive any rights to periodic
cash interest payments. Once stripped or separated, the corpus and coupons may
be sold separately. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such bundled form. Purchasers
of stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero-coupon securities issued directly by the
obligor.
SHORT SALES
In a short sale, the Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio also may engage in short sales if, at the time of the short sale,
it owns or has the right to obtain, at no additional cost, an equal amount of
the security being sold short. This investment technique is known as a short
sale "against-the-box." In such a short sale, a seller does not immediately
deliver the securities sold and is said to have a short position in those
securities until delivery occurs. If the Portfolio engages in a short sale,
the collateral for the short position is maintained by the Portfolio's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio maintains in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into
or exchangeable for such equivalent securities. These securities constitute
the Portfolio's long position. The Portfolio does not engage in short sales
against-the-box for speculative purposes but may, however, make a short sale
as a hedge, when Schroder believes that the price of a security may decline,
causing a decline in the value of a security owned by the Portfolio (or a
security convertible or exchangeable for such security). There are certain
additional transaction costs associated with short sales against-the-box, but
Schroder endeavors to offset these costs with the income from the investment
of the cash proceeds of short sales. Under the Taxpayer Relief Act of 1997,
activities by the Portfolio which lock-in gain on an appreciated financial
instrument generally will be treated as a "constructive sale" of such
instrument which will trigger gain (but not loss) for federal income tax
purposes. Such activities may create taxable income in excess of the cash
they generate.
TEMPORARY DEFENSIVE STRATEGIES
As described in the Memorandum, Schroder may at times judge that conditions in
the securities markets make
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pursuing the Portfolio's basic investment strategies inconsistent with the
best interests of its Interestholders and may temporarily use alternate
investment strategies primarily designed to reduce fluctuations in the value
of the Portfolio's assets. In implementing these "defensive" strategies, the
Portfolio would invest in high-quality debt securities, cash, or money market
instruments to any extent Schroder considers consistent with such defensive
strategies. It is impossible to predict when, or for how long, the Portfolio
will use these alternate strategies.
INVESTMENT RESTRICTIONS
The Trust has adopted the following fundamental and non-fundamental
investment restrictions for the Portfolio. The Portfolio's Fundamental
investment restrictions may not be changed without the affirmative vote of a
"majority of the outstanding voting securities" of the Portfolio, which is
defined in the 1940 Act to mean the affirmative vote of the lesser of (1)
more than 50% of the outstanding Portfolio Interests and (2) 67% or more of
the Portfolio Interests present at a meeting if more than 50% of the
outstanding Portfolio Interests are represented at the meeting in person or
by proxy. The non-fundamental investment policies described in the Memorandum
and this SAI may be changed by the Trustees without Interestholder approval.
The Portfolio will not:
FUNDAMENTAL RESTRICTIONS:
1. With respect to 75% of its assets, purchase a security (other than a U.S.
government security or a security of an investment company) if, as a
result: (1) more than 5% of the Portfolio's total assets would be invested
in the securities of a single issuer; or (2) the Portfolio would own more
than 10% of the outstanding voting securities of any single issuer.
2. Purchase a security if, as a result, more than 25% of the Portfolio's total
assets would be invested in securities of issuers conducting their
principal business activities in the same industry. For purposes of this
limitation, there is no limit on: (1) investments in U.S. government
securities, in securities issued by the states, territories or possessions
of the U.S. or in foreign government securities; or (2) investment in
issuers domiciled in a single jurisdiction. Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, the Portfolio may invest
in one or more investment companies; provided that, except to the extent
the Portfolio invests in other investment companies pursuant to Section
12(d)(1)(A) of the 1940 Act, the Portfolio treats the assets of the
investment companies in which it invests as its own for purposes of this
policy.
3. Borrow money if, as a result, outstanding borrowings would exceed an amount
equal to one third of the Portfolio's total assets.
4. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
5. Make loans to other parties. For purposes of this limitation, entering into
repurchase agreements, lending securities and acquiring any debt security
are not deemed to be the making of loans.
6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the Portfolio from purchasing or selling options and futures contracts or
from investing in securities or other instruments backed by physical
commodities).
7. Underwrite (as that term is defined in the 1933 Act) securities issued by
other persons except, to the extent that in connection with the disposition
of the Portfolio's assets, the Portfolio may be deemed to be an
underwriter.
8. Issue any class of senior securities except to the extent consistent with
1940 Act.
NON-FUNDAMENTAL RESTRICTIONS:
15
<PAGE>
1. 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.
2. For purposes of the limitation on borrowing, the following are not treated
as borrowings to the extent they are fully collateralized: (1) the delayed
delivery of purchased securities (such as the purchase of when-issued
securities); (2) reverse repurchase agreements; (3) dollar-roll
transactions; and (4) the lending of securities ("leverage transactions").
3. Make investments for the purpose of exercising control of an issuer.
Investments by a Portfolio in entities created under the laws of foreign
countries solely to facilitate investment in securities in that country
will not be deemed the making of investments for the purpose of exercising
control.
4. Invest in securities of another investment company, except to the extent
permitted by the 1940 Act.
5. Sell securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short (short sales
"against the box"), and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.
6. Purchase securities on margin, except that a Portfolio may use short-term
credit for the clearance of the Portfolio's transactions, and provided that
initial and variation margin payments in connection with futures contracts
and options on futures contracts shall not constitute purchasing securities
on margin.
7. 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.
-------------------
All percentage limitations on investments (other than limitations on borrowing
and illiquid securities) will apply at the time of investment and shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of such investment.
TRUSTEES AND OFFICERS
The Trustees of the Trust are responsible for the general oversight of the
Trust's business. Subject to such policies as the Trustees may determine,
Schroder Investment Management North American Inc. ("Schroder") furnishes a
continuing investment program for the Portfolio and makes investment decisions
on its behalf. Subject to the control of the Trustees, Schroder also manages the
Portfolio's other affairs and business.
The Trustees and executive officers of the Trust and their principal occupations
during the last five years are set forth below.
(*) Nancy A. Curtin, Trustee and Chairman of the Trust. 41. 787 Seventh
Avenue, New York. Managing Director, Schroder. Director, Schroder Investment
Management North America Limited. Vice Chairman and Director, Schroder Fund
Advisors Inc. Trustee, Schroder Capital Funds (Delaware), Schroder Series Trust
and Schroder Series Trust II. Formerly, Director, Barings Asset Management since
1993.
David N. Dinkins, Trustee. 71. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), and Schroder Series Trust.
Professor, Columbia University School of International and Public Affairs.
Director, American Stock Exchange, Carver Federal Savings Bank, Transderm
Laboratory Corporation, and The Cosmetics Center, Inc. Formerly, Mayor, City
of New York.
John I. Howell, Trustee. 82. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital
16
<PAGE>
Funds (Delaware), Schroder Series Trust, and Schroder Series Trust II. Director,
American International Life Assurance Company of New York. Private consultant
since 1987.
Peter S. Knight, Trustee. 48. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), and Schroder Series Trust. Partner,
Wunder, Knight, Levine, Thelen & Forscey. Director, Comsat Corp., Medicis
Pharmaceutical Corp., and Whitman Education Group, Inc. Formerly, Campaign
Manager, Clinton/Gore '96.
Peter E. Guernsey, Trustee. 77. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), Schroder Series Trust, and Schroder
Series Trust II. Formerly, Senior Vice President, Marsh & McLennan, Inc.
(*) Sharon L. Haugh, Trustee. 53. 787 Seventh Avenue, New York, New York.
Chairman and Director, Schroder. Chairman and Director, Schroder Fund Advisors
Inc. Trustee, Schroder Capital Funds (Delaware), and Schroder Series Trust.
William L. Means, Trustee. 63. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), Schroder Series Trust; and Schroder
Series Trust II. Formerly, Chief Investment Officer, Alaska Permanent Fund
Corporation.
Clarence F. Michalis, Trustee. 77. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), and Schroder Series Trust. Chairman
of the Board of Directors, Josiah Macy, Jr. Foundation.
Hermann C. Schwab, Trustee. 79. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), and Schroder Series Trust. Trustee,
St. Luke's/Roosevelt Hospital Center.
Mark J. Astley, Vice President of the Trust. 35. 787 Seventh Avenue, New
York, New York. First Vice President, Schroder. Formerly, employed by various
affiliates of Schroder in various positions in the investment research and
portfolio management areas since 1987.
Robert G. Davy, Vice President of the Trust. 38. 787 Seventh Avenue, New
York, New York. Director and Executive Vice President, Schroder. Director,
Schroder Investment Management North America Limited. Formerly, employed by
various affiliates of Schroder in various positions in the investment research
and portfolio management areas since 1986.
Margaret H. Douglas-Hamilton, Vice President of the Trust. 57. 787 Seventh
Avenue, New York, New York. Director, Senior Vice President and Secretary,
Schroder.
Richard R. Foulkes, Vice President of the Trust. 53. 787 Seventh Avenue,
New York, New York. Director and Deputy Chairman, Schroder. Director and
Executive Vice President of Schroder Investment Management North America Limited
since 1989.
Michael Perelstein, Vice President of the Trust. 43. 787 Seventh Avenue,
New York, New York. Director and Senior Investment Officer, Schroder. Formerly,
Managing Director of MacKay - Shields Financial Corp.
Catherine A. Mazza, Vice President of the Trust. 39. 787 Seventh Avenue,
New York, New York. Director and Senior Vice President, Schroder. Executive Vice
President and Director, Schroder Fund Advisors Inc. Vice President, Schroder
Capital Funds (Delaware), and Schroder Series Trust. Formerly, Vice President,
Alliance Capital Management L.P.
Alexandra Poe, President of the Trust. 38. 787 Seventh Avenue, New York,
New York. First Vice President, Schroder. Senior Vice President, Secretary, and
General Counsel, Schroder Fund Advisors Inc. President, Schroder Capital Funds
(Delaware), and Schroder Series Trust. Assistant Secretary, Schroder
Series Trust II. Formerly, Attorney, Gordon Altman Butowsky Weitzen Shalov &
Wein; Vice President and Counsel, Citibank, N.A.
17
<PAGE>
Jane P. Lucas, Vice President of the Trust. 38. 787 Seventh Avenue, New
York, New York. Senior Vice President, Schroder.
Alan M. Mandel, Treasurer and Secretary of the Trust. 41. 787 Seventh
Avenue, New York, New York. Secretary and Treasurer of Schroder Capital Funds
(Delaware), Schroder Series Trust and Schroder Series Trust II. First Vice
President, Schroder. Formerly, Director of Mutual Fund Administration for
Salomon Brothers Asset Management; and prior thereto Chief Financial Officer
and Vice President of Hyperion Capital Management.
Carin Muhlbaum, Assistant Secretary of the Trust. 37. Vice President,
Schroder. Formerly, an investment management attorney with Seward & Kissel
and prior thereto, with Gordon Altman Butowsky Weitzen Shalov & Wein.
Nicholas Rossi, Assistant Secretary of the Trust. 36. 787 Seventh Avenue,
New York, New York. Assistant Vice President, Schroder. Assistant Vice President
of Schroder Fund Advisors Inc. since March 1998. Formerly, Mutual Fund
Specialist, Wilkie Farr & Gallagher; and prior thereto Fund Administrator,
Furman Selz LLC.
John A. Troiano, Vice President of the Trust. 40. 787 Seventh Avenue, New
York, New York. Director and Chief Executive, Schroder. Formerly, employed by
affiliates of Schroder in various positions in the investment research and
portfolio management areas since 1981.
Ira L. Unschuld, Vice President of the Trust. 33. 787 Seventh Avenue,
New York, New York. Director and Senior Vice President, Schroder.
Except as otherwise noted, the principal occupations of the Trustees and
officers for the last five years have been with the employers shown above,
although in some cases they have held different positions with such employers or
their affiliates.
TRUSTEE COMPENSATION
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust, Schroder, or Schroder Fund Advisors Inc. receive an annual retainer of
$11,000 for their services as Trustees of all open-end investment companies
distributed by Schroder Fund Advisors Inc. and $1,250 per meeting attended in
person or $500 per meeting attended by telephone. Members of an Audit Committee
for one or more of such 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.
The following table sets forth information regarding compensation paid by the
Trust for the fiscal year ended May 31, 1999, and by all the Trusts in the
Schroder Fund Complex (including the Trust) during the 1998 calendar year.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(1) (2) (3)
NAME OF AGGREGATE TOTAL COMPENSATION FROM TRUST
TRUSTEE COMPENSATION AND
FROM TRUST FUND COMPLEX PAID TO TRUSTEES*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<PAGE>
David N. Dinkins 7,380 17,000
- -------------------------------------------------------------------------------------------------------------------
Peter E. Guernsey 7,380 26,500
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
John I. Howell 7,141 25,750
- -------------------------------------------------------------------------------------------------------------------
Peter S. Knight 7,380 17,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
William L. Means** 3,996 13,500
- -------------------------------------------------------------------------------------------------------------------
Clarence F. Michalis 7,380 17,000
- -------------------------------------------------------------------------------------------------------------------
Hermann C. Schwab 7,380 17,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Total Compensation listed in column (3) for each Trustee includes
compensation for services as a Trustee of the Trust, Schroder Capital Funds
(Delaware) ("SCF(D)"), Schroder Series Trust ("SST"), and Schroder Series
Trust II (formerly Schroder Asian Growth Fund, Inc., "SST II"). The Trust,
SCF(D), SST, and SST II are considered part of the same "Fund Complex" for
these purposes.
** Mr. Means was elected Trustee of the Trust on December 15, 1998.
The Trust's Trust Instrument provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
the Trust, except if it is determined, in the manner specified in the Trust
Instrument, that they have not acted in good faith in the reasonable belief
that their actions were in the best interests of the Trust or that such
indemnification would relieve any officer or Trustee of any liability to the
Trust or its Interestholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of his or her duties. The Trust, at
its expense, provides liability insurance for the benefit of its Trustees and
officers.
SCHRODER AND ITS AFFILIATES
Schroder has served as the investment adviser for the Portfolio since its
inception. Schroder is a wholly owned subsidiary of Schroder U.S. Holdings
Inc., which engages through its subsidiary firms in the investment banking,
asset management, and securities businesses. Schroder U.S. Holdings Inc. is
an indirect, wholly owned U.S. subsidiary of Schroders plc, a publicly owned
holding company organized under the laws of England. Schroders plc and its
affiliates engage in international merchant banking and investment management
businesses, and as of June 30, 1999, had under management assets of
approximately $208 billion. Schroder's address is 787 Seventh Avenue, New
York, New York 10019.
INVESTMENT ADVISORY AGREEMENT
Under an Amended and Restated Investment Advisory Agreement between the Trust
and Schroder (the "Advisory Agreement"), Schroder, at its expense, provides the
Portfolio with investment advisory services and advises and assists the officers
of the Trust in taking such steps as are necessary or appropriate to carry out
the decisions of its Trustees regarding the conduct of business of the Trust and
the Portfolio. The fees to be paid under the Advisory Agreement are set forth in
the Memorandum.
Under the Advisory Agreement, Schroder is required to regularly provide the
Portfolio with investment research, advice, and supervision and furnishes
continuously investment programs consistent with the investment objective
18
<PAGE>
and policies of the Portfolio. Schroder also determines, for the Portfolio, what
securities shall be purchased, what securities shall be held or sold, and what
portion of the Portfolio's assets shall be held uninvested, subject always to
the provisions of the Trust's Trust Instrument and By-laws, and the 1940 Act,
and to the Portfolio's investment objective, policies, and restrictions, and
subject further to such policies and instructions as the Trustees may from time
to time establish.
Schroder makes available to the Trust, without additional expense to the Trust,
the services of such of its directors, officers, and employees as may duly be
elected Trustees or officers of the Trust, subject to their individual consent
to serve and to any limitations imposed by law. Schroder pays the compensation
and expenses of officers and executive employees of the Trust. Schroder also
provides investment advisory research and statistical facilities and all
clerical services relating to such research, statistical, and investment work.
Schroder pays the Trust's office rent.
Under the Advisory Agreement, the Trust is responsible for all its other
expenses, including clerical salaries not related to investment activities;
fees and expenses incurred in connection with membership in investment
company organizations; brokers' commissions; payment for portfolio pricing
services to a pricing agent, if any; legal expenses; auditing expenses;
accounting expenses; taxes and governmental fees; fees and expenses of the
placement agent of the Trust; the cost of preparing subscription documents or
any other expenses, including clerical expenses, incurred in connection with
the issue, sale, underwriting, redemption, or repurchase of Portfolio
Interests; the expenses of and fees for registering or qualifying securities
for exemptions from registration requirements; the fees and expenses of the
Trustees of the Trust who are not affiliated with Schroder or their
respective affiliates; the cost of preparing and distributing reports and
notices to Interestholders; public and investor relations expenses; and fees
and disbursements of custodians of the Portfolio's assets. The Trust is also
responsible for its expenses incurred in connection with litigation, legal
proceedings, and claims and the legal obligation it may have to indemnify its
officers and Trustees with respect thereto.
Schroder's compensation under the Advisory Agreement may be reduced in any
year if the Portfolio's expenses exceed the limits on investment company
expenses imposed by any statute or regulatory authority of any jurisdiction
in which Portfolio Interests are qualified for offer or sale.
The Advisory Agreement may be terminated without penalty by vote of the Trustees
as to the Portfolio, by the Interestholders of the Portfolio, or by Schroder on
60 days' written notice. The Advisory Agreement also terminates without payment
of any penalty in the event of its assignment, as such term is defined in the
1940 Act. In addition, the Advisory Agreement may be amended only by a vote of
the Interestholders of the Portfolio, and the Advisory Agreement provides that
it will continue in effect from year to year only so long as such continuance is
approved at least annually with respect to the Portfolio by vote of either the
Trustees or the Interestholders of the Portfolio, and, in either case, by a
majority of the Trustees who are not "interested persons" of Schroder. In each
of the foregoing cases, the vote of the Interestholders is the affirmative vote
of a "majority of the outstanding voting securities" as defined in the 1940 Act.
State Street Bank and Trust Company ("State Street") provides certain
administrative, accounting, and other services to the Trust. For these services,
State Street receives a monthly fee at annual rates based on the Portfolio's
average daily net assets, as approved by the Trustees.
RECENT INVESTMENT ADVISORY FEES. The total investment advisory fees paid by the
Portfolio to Schroders during its two completed fiscal years are set forth in
the following tables. The fees listed in the following tables reflect reductions
pursuant to expense limitations in effect during such periods.
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------
INVESTMENT ADVISORY FEES INVESTMENT ADVISORY FEES
PAID FOR FISCAL YEAR ENDED PAID FOR FISCAL YEAR ENDED
5/31/99 5/31/98
- ------------------------------ ----------------------------
<S> <C>
$0 $0
- ------------------------------ ----------------------------
</TABLE>
19
<PAGE>
FEE WAIVERS
Schroder voluntarily waived its fees during its two completed fiscal years
pursuant to voluntary expense limitations and/or waivers in effect during such
periods. The tables below reflect the amount of the investment advisory fees
scheduled to be paid by the Portfolio that was waived by Schroder.
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------
FEES WAIVED DURING FISCAL FEES WAIVED DURING FISCAL
YEAR ENDED 5/31/99 YEAR ENDED 5/31/98
- ------------------------------ ----------------------------
<S> <C>
$17,416 $8,177
- ------------------------------ ----------------------------
</TABLE>
ADMINISTRATIVE SERVICES
On behalf of the Portfolio, the Trust has entered into an administration
agreement with Schroder Fund Advisors Inc., under which Schroder Fund Advisors
Inc. provides management and administrative services necessary for the operation
of the Portfolio, including: (1) preparation of Interestholder 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 Portfolio, including coordination of the services performed by
its investment adviser, transfer agent, custodian, independent accountants,
legal counsel and others. Schroder Fund Advisors Inc. is a wholly owned
subsidiary of Schroder and is a registered broker-dealer organized to act as
administrator and distributor of mutual funds.
For providing administrative services, Schroder Fund Advisors Inc. is entitled
to receive a monthly fee at the annual rates (based upon the Portfolio's average
daily net assets) of 0.15%. The administration agreement is terminable with
respect to the Portfolio without penalty, at any time, by the Trustees upon 60
days' written notice to Schroder Fund Advisors Inc. or by Schroder Fund Advisors
Inc. upon 60 days' written notice to the Trust.
The Trust has entered into a subadministration agreement with State Street.
Under its agreement, State Street assists Schroder Fund Advisors Inc. with
certain of its responsibilities under the administration agreement, including
Interestholder reporting and regulatory compliance. For providing its services,
State Street is entitled to receive a monthly fee of 0.06% of the first $1.7
billion assets in the Fund Complex; 0.04% of the next $1.7 billion of assets in
the Fund Complex; and 0.02% thereafter, subject to certain minimums. The
Portfolio pays its pro rata portion of such expenses. The subadministration
agreement is terminable with respect to a Portfolio without penalty, at any
time, by the Trust upon 60 days' written notice to State Street or by State
Street upon 60 days' written notice to the Trust.
State Street provides certain accounting services to the Trust. The Trust
compensates State Street on a basis approved by the Trustees.
Prior to June 1, 1999, Forum Administrative Services, LLC ("FadS") served as
subadministrator to the Portfolio. During the two most recent fiscal years, the
Portfolio paid the following fees to Schroder Fund Advisors Inc. and FAdS
pursuant to the administration agreement and the subadministration agreements.
The fees listed in the following tables reflect reductions pursuant to fee
waivers and expense limitations in effect during such periods.
20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------
ADMINISTRATIVE FEES PAID FOR ADMINISTRATIVE FEES PAID
FISCAL YEAR ENDED 5/31/99 FOR FISCAL YEAR ENDED
5/31/98
- ------------------------------ ----------------------------
<S> <C>
Schroder Fund Schroder Fund Advisors
Advisors Inc. $0 Inc. $0
FAdS $2,612 FAdS $1,226
- ------------------------------ ----------------------------
</TABLE>
PLACEMENT AGENT
Schroder Fund Advisors Inc., 787 Seventh Avenue, 34th floor, New York, New
York 10019 acts as Placement Agent for the Trust. The Placement Agent
receives no compensation for its services.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Schroder may place portfolio transactions with broker-dealers which furnish,
without cost, certain research, statistical, and quotation services of value to
Schroder and its affiliates in advising the Trust and other clients, provided
that it shall always seek best price and execution with respect to transactions.
Certain investments may be appropriate for the Trust and for other clients
advised by Schroder. Investment decisions for the Trust and other clients are
made with a view to achieving their respective investment objectives and after
consideration of such factors as their current holdings, availability of cash
for investment, and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients of Schroder on the same
day. In such event, such transactions will be allocated among the clients in a
manner believed by Schroder to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Trust. Purchase and sale orders for the Trust may be
combined with those of other clients of Schroder in the interest of achieving
the most favorable net results for the Trust.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock exchanges and other
agency transactions involve the payment by the Trust of negotiated brokerage
commissions. Such commissions vary among different brokers. Also, a particular
broker may charge different commissions according to such factors as the
difficulty and size of the transaction. Transactions in foreign securities often
involve the payment of fixed brokerage commissions, which are generally higher
than those in the United States, and therefore certain portfolio transaction
costs may be higher than the costs for similar transactions executed on U.S.
securities exchanges. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid by the
Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
Schroder places all 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, it uses its best efforts to obtain the best price and execution
available. In seeking the best price and execution, Schroder considers all
factors it deems relevant, including price, the size of the transaction, the
nature of the market for the security, the amount of the commission, the timing
of the transaction (taking into account market prices and trends), the
reputation, experience, and financial stability of the broker-dealer involved,
and the quality of service rendered by the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive research, statistical, and quotation services from broker-dealers that
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, Schroder receives research, statistical, and quotation services
from many broker-dealers with which it places the Trust's portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters 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
Schroder and its affiliates in advising various of their clients (including the
Trust or the Portfolio), although not all of these services are necessarily
useful and of value in managing a Portfolio. The investment advisory fee paid by
the Portfolio is not
21
<PAGE>
reduced because Schroder and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, and by the Advisory Agreements, Schroder may cause the Portfolio to
pay a broker that provides brokerage and research services to Schroder an
amount of disclosed commission for effecting a securities transaction for the
Portfolio in excess of the commission which another broker would have charged
for effecting that transaction. Schroder's authority to cause the Portfolio
to pay any such greater commissions is also subject to such policies as the
Trustees may adopt from time to time.
To the extent permitted by law, the Portfolio may engage in brokerage
transactions with Schroder & Co. Inc. ("Schroder & Co."), an affiliate of
Schroder, to effect securities transactions on the New York Stock Exchange
only or Schroder Securities Limited and its affiliates (collectively,
"Schroder Securities"), affiliates of Schroder, to effect securities
transactions on various foreign securities exchanges on which Schroder
Securities has trading privileges. Consistent with regulations under the 1940
Act, the Portfolio have adopted procedures which are reasonably designed to
provide that any commissions or other remuneration the Portfolio pay to
Schroder & Co. and Schroder Securities do not exceed the usual and customary
broker's commission. In addition, the Portfolio will adhere to the rule,
under the Securities Exchange Act of 1934, governing floor trading. This rule
permits the Portfolio to effect, but not execute, exchange listed securities
transactions with Schroder & Co. Schroder & Co. pays a portion of the
brokerage commissions it receives from a Portfolio to the brokers executing
the transactions. Also, due to securities law limitations, the Portfolio may
be required to limit purchases of securities in a public offering if Schroder
& Co. or Schroder Securities or one of their affiliates is a member of the
syndicate for that offering.
The Portfolio has no any understanding or arrangement to direct any specific
portion of its brokerage to Schroder & Co. or Schroder Securities, and it will
not direct brokerage to Schroder & Co. or Schroder Securities in recognition of
research services.
The following tables show the aggregate brokerage commissions paid by the
Portfolio for its two completed fiscal years.
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------
BROKERAGE COMMISSIONS PAID BROKERAGE COMMISSIONS PAID
DURING FISCAL YEAR ENDED DURING FISCAL YEAR ENDED
5/31/99 5/31/98
- ------------------------------ ----------------------------
<S> <C>
$7,679 $ 7,260
- ------------------------------ ----------------------------
</TABLE>
In the fiscal year ended October 31, 1999, Schroder, on behalf of the Trust,
placed agency and underwritten transactions having an approximate aggregate
dollar value of $5,557, (5.5% of the Trust's aggregate agency and
underwritten transactions, on which approximately $306.14 of commissions were
paid) with brokers and dealers (other than Schroder & Co. and Schroder
Securities) whose research, statistical, and quotation services Schroder
considered to be particularly useful to it and its affiliates. However, many
of such transactions were placed with such brokers and dealers without regard
to the furnishing of such services.
The Portfolio did not pay any brokerage commissions to Schroder & Co. or
Schroder Securities during its two completed fiscal years.
DETERMINATION OF NET ASSET VALUE
The net asset value per Portfolio Interest is determined daily as of the close
of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time)
on each day the Exchange is open for trading.
The Trustees have established procedures for the valuation of the Portfolio's
securities, as follows:
Equities listed or traded on a domestic or foreign stock exchange are valued
at their latest sale prices on such
22
<PAGE>
exchange on that day prior to the time when the assets are valued. In the
absence of sales that day, such securities are valued at the mid-market prices.
(Where the securities are traded on more than one exchange, they are valued on
the exchange that Schroder designates as the primary market.) Unlisted
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. Securities that do not have readily available market quotations are
valued at fair value pursuant to procedures established by the Trustees. Debt
securities having a maturity of more than 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. 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 discounts.
All assets and liabilities of a Fund denominated in foreign currencies are
valued in U.S. based on the mid-market price of such currencies against the U.S.
dollar last quoted when the net asset value of the Fund's shares is calculated.
Long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities are stated at fair value on the
basis of valuations furnished by pricing services approved by the Trustees,
which determine valuations for normal, institutional-size trading units of
such securities using methods based on market transactions for comparable
securities.
If any securities held by the Portfolio are restricted as to resale, their fair
value is generally determined as the amount which the Trust could reasonably
expect to realize from an orderly disposition of such securities over a
reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Trust in connection with such disposition). In addition,
specific factors are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of the same class
(both at the time of purchase and at the time of valuation), the size of the
holding, the prices of any recent transactions or offers with respect to such
securities, and any available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of these securities used in determining the net
asset value of the Trust's Interests are computed as of such times. Also,
because of the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of certain
securities (such as convertible bonds and U.S. Government Securities) are
determined based on market quotations collected earlier in the day at the latest
practicable time prior to the close of the New York Stock Exchange.
Occasionally, events affecting the value of such securities may occur between
such times and the close of the New York Stock Exchange that will not be
reflected in the computation of the Trust's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value, in the manner described
above.
The proceeds received by the Portfolio for each issue or sale of its Portfolio
Interests, and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, will be specifically allocated to the Portfolio, and
constitute the underlying assets of the Portfolio. The underlying assets of the
Portfolio will be segregated on the Trust's books of account, and will be
charged with the liabilities in respect of the Portfolio and with a share of the
general liabilities of the Trust. Expenses with respect to any two or more
portfolios or classes may be allocated in proportion to the net asset values of
the respective portfolios except where allocations of direct expenses can
otherwise be fairly made to a specific portfolio.
REDEMPTIONS IN KIND
In consideration of the best interests of the remaining Interestholders, the
Trust may pay certain redemption proceeds in whole or in part by a distribution
in kind of securities held by the Portfolio in lieu of cash. The Trust does not
expect to redeem Portfolio Interests in kind under normal circumstances. If your
Portfolio Interests are
23
<PAGE>
redeemed in kind, you should expect to incur transaction costs upon the
disposition of the securities received in the distribution.
TAXES
The Portfolio is classified for federal income tax purposes as a partnership
that is not a "publicly traded partnership." As a result, the Portfolio is
not subject to federal income tax; instead, each Interestholder in the
Portfolio is required to take into account in determining its federal income
tax liability its share of the Portfolio's income, gains, losses, deductions,
and credits, without regard to whether it has received any cash distributions
from the Portfolio. Certain expenses of the Portfolio, including advisory
fees, may not be deductible by the Portfolio and would be treated as income
to Interestholders. Although such income would be deductible by
Interestholders, individual Interestholders are subject to the 2% "floor" on
miscellaneous itemized deductions and other limitations on itemized
deductions set forth in the Internal Revenue Code of 1986, as amended.
Each Interestholder in the Portfolio is deemed to own a proportionate share
of the Portfolio's assets and to earn a proportionate share of the
Portfolio's income, for, among other things, purposes of determining whether
the Interestholder satisfies the requirements to qualify as a regulated
investment company ("RIC"). Accordingly, the Portfolio intends to conduct its
operations so that its Interestholders 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 Interestholder from the Portfolio (whether pursuant to a
partial or complete withdrawal or otherwise) will not result in the
Interestholder'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 Interestholder'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 Interestholder's entire interest
in the Portfolio and includes a disproportionate share of any unrealized
receivables held by the Portfolio; (3) loss will be recognized to the extent
that a liquidation distribution consisting solely of cash and/or unrealized
receivables is less than the Interestholder's basis for its interest in the
Portfolio prior to the distribution; and (4) gain or loss may be recognized
on a distribution to an Interestholder that contributed property to the
Portfolio. An Interestholder'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 Interestholder'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 Interestholder and
(b) the Interestholder's share of the Portfolio's losses.
INVESTMENTS IN FOREIGN SECURITIES
Dividends and interest received by the Portfolio may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the return on the security with 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. If, however, more than 50% in value of the
Portfolio's total assets at the close of its taxable year consists of
securities of foreign corporations, the Portfolio will be eligible, and
ordinarily expects to file an election with the Internal Revenue Service
("IRS") pursuant to which Interestholders of the Portfolio will be required
to include their proportionate share of such withholding taxes in their U.S.
income tax returns as gross income; treat such proportionate share as taxes
paid by them; and, subject to certain limitations (including a holding period
requirement imposed at both the Portfolio and Interestholder levels), deduct
such proportionate share in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their U.S. income
taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate Interestholders who do not itemize deductions. An Interestholder
that is a nonresident alien individual or a foreign corporation may be
subject to U.S. withholding tax on the income resulting from the Portfolio's
election described in this paragraph but will not be able to claim a credit
or deduction against such U.S. tax for the foreign taxes treated as having
been paid by such Interestholder. The Portfolio will report annually to its
Interestholders their proportionate shares of such withholding taxes.
24
<PAGE>
The Portfolio may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is
passive; or (2) an average of at least 50% of its assets produce, or are held
for the production of, passive income. Under certain circumstances, RICs and
certain other investors that hold stock of a PFIC indirectly, 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 the Portfolio invests in a PFIC and elects to mark such investment to
market annually or 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.
The 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 the Portfolio engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to-market, straddle, wash sale, and short sale rules), the effect
of which may be to accelerate income to the Portfolio, defer losses to the
Portfolio, cause adjustments in the holding periods of the Portfolio's
securities, or convert short-term capital losses into long-term capital
losses. These rules could, therefore, adversely affect the amount, timing and
character of Interestholder income. The 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 the Portfolio that
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 swap contract, or a
future or forward contract. The entry into 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 the 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 the Portfolio to recognize taxable income from these
offsetting transactions in excess of the cash generated by such activities.
The Portfolio may write, purchase or sell options or futures contracts.
Unless the Portfolio is eligible to, and does, make a special election, such
options and futures contracts that are "Section 1256 contracts" will be
"marked to market" for federal income tax purposes at the end of each taxable
year (I.E., each option or futures contract will be treated as sold for its
fair market value on the last day of the taxable year). In general, unless
such special election is made, gain or loss from transactions in options and
futures contracts will be 60% long-term and 40% short-term capital gain or
loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of a fund's transactions in options and futures contracts. Under
Section 1092, the Portfolio may be required to postpone recognition for tax
purposes of losses incurred in certain closing transactions in options and
futures.
WITHHOLDING
Ordinary income paid to Interestholders who are nonresident aliens is 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
25
<PAGE>
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 Portfolio Interests (except in the case of certain exempt
Interestholders). All such distributions and proceeds generally will be subject
to the withholding of federal income tax at a rate of 31% ("backup withholding")
in the case of non-exempt Interestholders if: (1) the Interestholder fails to
furnish the Trust with and to certify the Interestholder's correct taxpayer
identification number; (2) the IRS notifies the Trust that the Interestholder
has failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect; or (3) when required to do so, the
Interestholder fails to certify that it is not subject to backup withholding. If
the withholding provisions are applicable, any such distributions or proceeds
will be reduced by the amount required to be withheld. Any amounts withheld may
be credited against the Interestholder's federal income tax liability.
New federal tax regulations (effective for payments made on or after January 1,
1999, although transition rules apply) will increase the U.S. federal income
taxation of an Interestholder who, under the Code, is a non-resident alien
individual, a foreign trust or estate, foreign corporation or foreign
partnership ("non-U.S. Interestholder"), depending on whether the income from
the Portfolio is "effectively connected" with a U.S. trade or business carried
on by such Interestholder. Ordinarily, income from a Portfolio will not be
treated as so "effectively connected."
If the income from the Portfolio is not treated as "effectively connected" with
a U.S. trade or business carried on by the non-U.S. Interestholders, dividends
of net investment income (which includes short-term capital gains), whether
received in cash or reinvested in Portfolio Interests, will be subject to a U.S.
federal income tax of 30% (or lower treaty rate), which tax is generally
withheld from such dividends. Furthermore, such non-U.S. Interestholders may be
subject to U.S. federal income tax at the rate of 30% (or lower treaty rate) on
their income resulting from a Portfolio's election (described above) to "pass
through" the amount of non-U.S. taxes paid by the Portfolio, but may not be able
to claim a credit or deduction with respect to the non-U.S. income taxes treated
as having been paid by them.
A non-U.S. Interestholder whose income is not treated as "effectively connected"
with a U.S. trade or business generally will not be subject to U.S. federal
income taxation on distributions of net long-term capital gains and any gain
realized upon the sale of Portfolio Interests. If the non-U.S. Interestholder is
treated as a non-resident alien individual but is physically present in the
United States for more than 182 days during the taxable year, then in certain
circumstances such distributions of net long-term capital gains amounts retained
by the Portfolio which is designated as undistributed capital gains and gain
from the sale of the Portfolio shares will be subject to a U.S. federal income
tax of 30% (or lower treaty rate). In the case of a non-U.S. Interestholder who
is a non-resident alien individual, the Portfolio may be required to withhold
U.S. federal income tax at a rate of 31% of distributions (including
distributions of net long-term capital gains) unless IRS Form W-8 is provided.
If the income from the Portfolio is "effectively connected" with a U.S. trade or
business carried on by a non-U.S. Interestholder, then distributions of net
investment income (which includes short-term capital gains) whether received in
cash or reinvested in Portfolio Interests, net long-term capital gains and
amounts otherwise includable in income (such as amounts retained by the
Portfolio which are designated as undistributed capital gains and any gains
realized upon the sale of Portfolio Interests of the Portfolio), will be subject
to U.S. federal income tax at the graduated rates applicable to U.S. taxpayers.
Non-U.S. Interestholders that are corporations may also be subject to the branch
profits tax.
Transfers of shares of the Portfolio by gift by a non-U.S. Interestholder will
generally not be subject to U.S. federal gift tax, but the value of shares of
the Portfolio held by such an Interestholder at death will be includable in the
Interestholder's gross estate for U.S. federal income tax purposes.
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.
26
<PAGE>
Interestholders are advised to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Portfolio.
The foregoing discussion relates only to federal income tax law. Income from the
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.
PRINCIPAL HOLDERS OF PORTFOLIO INTERESTS
As of August 31, 1999, the Trustees of the Trust and, except as noted below,
the officers of the Trust, as a group owned less than 1% of the outstanding
Portfolio Interests of the Portfolio.
The table attached as Appendix A lists those Interestholders that owned 5% or
more of the Interests of the Portfolio as of August 31, 1999, and therefore are
controlling persons of the Portfolio. Because these Interestholders hold a
substantial number of Interests, they may be able to require that the Trust hold
special Interestholder meetings and may be able to determine the outcome of any
Interestholder vote.
PERFORMANCE INFORMATION
Average annual total return of the Portfolio for one-year and since inception
periods is determined by calculating the actual dollar amount of investment
return on a $1,000 investment at the beginning of the period, and then
calculating the annual compounded rate of return which would produce that
amount. Total return for a period of one year or less is equal to the actual
return during that period. Total return calculations assume reinvestment of
all Portfolio distributions at net asset value on their respective
reinvestment dates. Total return may be presented for other periods.
ALL PERFORMANCE DATA IS BASED ON PAST INVESTMENT RESULTS AND DOES NOT PREDICT
FUTURE PERFORMANCE. Investment performance is based on many factors, including
market conditions, the composition of the Portfolio's investments, and the
Portfolio's operating expenses. Investment performance also often reflects the
risks associated with a Portfolio's investment objectives and policies.
Quotations of yield or total return for any period when an expense limitation is
in effect will be greater than if the limitation had not been in effect. These
factors should be considered when comparing the investment results of the
Portfolio to other mutual funds and other investment vehicles. Performance for
the Portfolio may be compared to various indices.
The tables below set forth the total return of the Portfolio for the one-year
period ended May 31, 1999 and for the period from the commencement of the
Portfolio's operations (October 15, 1997) through May 31, 1999.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED MAY 31, 1999
<TABLE>
<CAPTION>
------------------- --------------------
SINCE INCEPTION
OF PORTFOLIO
1 YEAR (ANNUALIZED)
------------------- --------------------
<S> <C>
4.72% 7.13%
------------------- --------------------
</TABLE>
From time to time, Schroder or Schroder Fund Advisors Inc. may reduce its
compensation or assume expenses of the Portfolio in order to reduce its
expenses, as described in the current Memorandum. Any such waiver or
assumption would increase the Portfolio's yield or total return during the
period of the waiver or assumption.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02266 serves as custodian to the Trust. The custodian's responsibilities include
safeguarding and controlling the Portfolio's cash and securities,
27
<PAGE>
handling the receipt and delivery of securities, and collecting interest
and dividends on the Portfolio's investments.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP, the Trust's independent accountants, provide audit
services, tax return preparation services, and assistance and consultation in
connection with the Trust's various Securities and Exchange Commission filings.
Their address is One Post Office Square, Boston, Massachusetts 02109.
LEGAL COUNSEL
Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624, serves
as counsel to the Trust.
INTERESTHOLDER LIABILITY
Under Delaware law, Interestholders could, under certain circumstances, be held
personally liable for the obligations of the Trust. However, the Trust's Trust
Instrument disclaims Interestholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust or the Trustees.
The Trust's Trust Instrument provides for indemnification out of the Portfolio's
property for all loss and expense of any Interestholder held personally liable
for the obligations of the Portfolio. Thus the risk of a Interestholder's
incurring financial loss on account of Interestholder liability is limited to
circumstances in which the Portfolio would be unable to meet its obligations.
FINANCIAL STATEMENTS
The fiscal year end of Schroder Global Growth Portfolio is May 31.
The following Financial Statements required by Part B and the related Report of
Independent Public Accountants are incorporated herein by reference to the
Trust's Annual Report, dated May 31, 1999, which was filed electronically with
the Securities and Exchange Commission on August 5, 1999. Accession
Number: 0001047469-99-029827.
28
<PAGE>
APPENDIX A
HOLDERS OF 5% OR MORE OF OUTSTANDING PORTFOLIO INTERESTS
AS OF AUGUST 31, 1999, THE INTERESTHOLDERS LISTED BELOW OWNED MORE THAN 5% OF
THE PORTFOLIO AS NOTED. INTERESTHOLDERS OWNING 25% OR MORE OF THE INTERESTS OF
THE PORTFOLIO'S INTERESTS OR OF THE TRUST AS A WHOLE MAY BE DEEMED TO BE
CONTROLLING PERSONS. BY REASON OF THEIR SUBSTANTIAL HOLDINGS OF INTERESTS, THESE
PERSONS MAY BE ABLE TO REQUIRE THE TRUST TO HOLD AN INTERESTHOLDER MEETING TO
VOTE ON CERTAIN ISSUES AND MAY BE ABLE TO DETERMINE THE OUTCOME OF ANY
INTERESTHOLDER VOTE. AS NOTED, CERTAIN OF THESE INTERESTHOLDERS ARE KNOWN TO THE
TRUST TO HOLD THEIR PORTFOLIO INTERESTS OF RECORD ONLY AND HAVE NO BENEFICIAL
INTEREST, INCLUDING THE RIGHT TO VOTE THE PORTFOLIO INTERESTS.
<TABLE>
<CAPTION>
NUMBER OF % OF
UNITS OF PORTFOLIO
BENEFICIAL INTERESTS
SCHRODER GLOBAL GROWTH PORTFOLIO INTEREST OWNED
-------------------------------------------------------------------------------
<S> <C> <C>
Schroders Incorporated 200,000 99.46%
787 Seventh Avenue, 6th Floor
New York, NY 10019
</TABLE>
A-1
<PAGE>
APPENDIX B
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they comprise what are
generally known as high grade fixed-income securities. They are rated lower than
the best fixed-income securities because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" Fixed-income securities which are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
"Baa" Fixed-income securities which are rated "Baa" are considered as medium
grade obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such fixed-income securities lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Fixed-income securities rated "Aaa", "Aa", "A" and "Baa" are considered
investment grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate, and
therefore not well safeguarded during both good and bad times in the future.
Uncertainty of position characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa" Fixed-income securities which are rated "Caa" are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
"Ca" Fixed-income securities which are rated "Ca" present obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
"C" Fixed-income securities which are rated "C" are the lowest rated class of
fixed-income securities, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, "1", "2", and
"3" in each generic rating classification from "Aa" through "B" in its municipal
fixed-income security rating system. The modifier "1" indicates that the
security ranks in the higher end of its generic rating category; the modifier
"2" indicates a mid-range ranking; and a modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
B-1
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: "Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of
short-term promissory obligations. Issuers rated "Prime-2" have a strong
capacity for repayment of short-term promissory obligations; and Issuers rated
"Prime-3" have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATING GROUP("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity to pay
interest and repay principal and differs from the highest-rated issues only in
small degree.
"A" Fixed-income securities rated "A" have a strong capacity to pay interest
and repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than fixed-income
securities in higher-rated categories.
"BBB" Fixed-income securities rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are considered
investment grade.
"BB" Fixed-income securities rated "BB" have less near-term vulnerability to
default than other speculative grade fixed-income securities. However, it faces
major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or willingness to
pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability to default
but presently have the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
B-2
<PAGE>
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon favorable business,
financial and economic conditions to meet timely payments of interest and
repayments of principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied "CCC-"
rating.
"CI" The rating "CI" is reserved for fixed-income securities on which no
interest is being paid.
"NR" Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are regarded
as having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest degree of speculation. While such fixed-income securities
will likely have some quality and protective characteristics, these are
out-weighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be modified by
the addition of a plus or minus sign to show relative standing with the major
ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest capacity
for timely payment. Issues in this category are further refined with the
designation "1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is very
strong.
"A-2" Indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
B-3
<PAGE>
PART C OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Trust Instrument of Registrant dated September 6, 1995 as amended November
30, 1995 and restated March 13, 1998 (see Note 1).
(b) Not applicable.
(c) See the following Articles and Sections in the Trust Instrument filed as
Exhibit (a): Article II, Section 2.3, 2.4; Article V; Article VI; Article
VII; Article IX; and Article X.
(d)(1) Form of Amended and Restated Investment Advisory Agreement between
Registrant and Schroder Investment Management North America Inc. (SIM N.A.)
dated as of September 15, 1999 with respect to Schroder Global Growth
Portfolio is filed herewith.
(d)(2) Form of Amended and Restated Investment Advisory Agreement between
Registrant and SIM N.A. dated as of September 15, 1999 with respect to
Schroder Asian Growth Fund Portfolio and Schroder Japan Portfolio is filed
herewith.
(e) Not required.
(f) Not applicable.
(g) Form of Custodian Contract between the Registrant and State Street Bank and
Trust Company dated as of May 31, 1999 is filed herewith.
(h)(1) Administration Agreement between Registrant and Schroder Fund Advisors
Inc. ("Schroder Advisors") dated as of November 26, 1996 with respect to
International Equity Fund, Schroder Emerging Markets Fund Institutional
Portfolio, Schroder U.S. Smaller Companies Portfolio, Schroder International
Smaller Companies Portfolio, Schroder EM Core Portfolio, Schroder Global
Growth Portfolio, Schroder Asian Growth Fund Portfolio, and Schroder Japan
Portfolio (see Note 4).
C-1
<PAGE>
(2) Form of Sub-Administration Agreement between Registrant and State Street
Bank and Trust Company dated as of June 1, 1999 is filed herewith.
(i) Not required.
(j) Consent of PricewaterhouseCoopers LLP is filed herewith.
(k) Not required.
(l) Not applicable.
(m) Not applicable.
(n) Not applicable.
(o) Power of Attorney from Nancy A. Curtin, David N. Dinkins, Peter E.
Guernsey, Sharon L. Haugh, John I. Howell, Peter S. Knight, Alan Mandel,
William L. Means, Clarence F. Michalis, Hermann C. Schwab is filed
herewith.
Notes:
1 Exhibit incorporated by reference as filed on Amendment No. 12 via EDGAR on
September 28, 1998, accession number 0001004402-98-000526.
2 Exhibit incorporated by reference as filed on Amendment No. 4 via EDGAR on
March 13, 1997, accession number 0000912057-97-008728.
3 Exhibit incorporated by reference as filed on Amendment No. 9 via EDGAR on
February 12, 1998, accession number 0001004402-98-000117.
4 Exhibit incorporated by reference as filed on Amendment No. 11 via EDGAR on
March 19, 1998, accession number 0001004402-98-000199.
5 Exhibit incorporated by reference as filed on Amendment No. 14 via EDGAR on
November 16, 1998, accession number 0001004402-98-000597.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
C-2
<PAGE>
None.
ITEM 25. INDEMNIFICATION
Registrant currently holds a joint directors' and officers'/errors and omissions
insurance policy pursuant to Rule 17d-1(d)(7). The general effect of Article 5
of Registrant's Trust Instrument (filed as Exhibit (a) and incorporated herein
by reference) is to indemnify existing or former trustees and officers of
Registrant to the fullest extent permitted by law against liability and
expenses. There is no indemnification if, among other things, any such person is
adjudicated liable to the Registrant or its interestholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Schroder Investment Management North America Inc. The following is a
description of any business, profession, vocation or employment of a substantial
nature in which the investment adviser of the registrant, Schroder Investment
Management North America Inc. ("SIM N.A."), and each director or officer of the
investment adviser is or has been, at any time during the past two years,
engaged for his or her own account or in the capacity of director, officer or
employee. The address of each company listed, unless otherwise noted, is 787
Seventh Avenue, 34th Floor, New York, NY 10019. Schroder Investment Management
North America Limited ("Schroder Ltd."), a United Kingdom affiliate of SIM N.A.,
provides investment management services to international clients. Schroder
Capital Management International Inc. ("SCMI") served as investment adviser of
the registrant prior to July 1, 1999. SCMI merged into SIM N.A. which effective
as of July 1, 1999, became the investment adviser of the registrant.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME TITLE BUSINESS CONNECTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
David M. Salisbury Director SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Chief Executive, Director Schroder Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
Director Schroders plc.*
- ----------------------------------------------------------------------------------------------------------------------
Trustee and Officer Schroder Series Trust II
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
John A. Troiano Director, Chief Executive SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Chief Executive, Director Schroder Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
Officer Certain open end management
investment companies for which SIM
N.A. and/or its affiliates provide
investment services
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Richard R. Foulkes Director, Deputy Chairman SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Deputy Chairman Schroder Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
Officer Certain open end management
investment companies for which SIM
N.A. and/or its affiliates provide
investment
- ----------------------------------------------------------------------------------------------------------------------
C-3
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME TITLE BUSINESS CONNECTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
services
- ----------------------------------------------------------------------------------------------------------------------
Michael M. Perelstein Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Senior Vice President, Director Schroders Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Sharon L. Haugh Director, Chairman SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Director, Chairman Schroder Fund Advisors Inc.
- ----------------------------------------------------------------------------------------------------------------------
Director Schroder Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
Trustee Certain open end management
investment companies for which SIM
N.A. and/or its affiliates provide
investment services
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Gavin D. L. Ralston Managing Director, Senior Vice SIM N.A.
President
- ----------------------------------------------------------------------------------------------------------------------
Director, Senior Vice President Schroder Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Davy Director, Executive Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Director Schroder Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
Officer Certain open end management
investment companies for which SIM
N.A. and/or its affiliates provide
investment services
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Mark J. Smith Director, Executive Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Senior Vice President, Director Schroder Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
Director, Senior Vice President Schroder Fund Advisors Inc.
- ----------------------------------------------------------------------------------------------------------------------
Officer Certain open end management
investment companies for which SIM
N.A. and/or its affiliates provide
investment services
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Jane P. Lucas Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Officer Certain open end management
- ----------------------------------------------------------------------------------------------------------------------
C-4
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME TITLE BUSINESS CONNECTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
investment companies for which SIM
N.A. and/or its affiliates provide
investment services
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
David R. Robertson Group Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Senior Vice President Schroder Fund Advisors Inc.
- ----------------------------------------------------------------------------------------------------------------------
Director of Institutional Business Oppenheimer Funds, Inc. resigned 2/98
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Louise Croset Director, Executive Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Ellen B. Sullivan Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Catherine A. Mazza Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Executive Vice President, Director Schroder Fund Advisors Inc.
- ----------------------------------------------------------------------------------------------------------------------
Trustee, Officer Certain open end management
investment companies for which SIM
N.A. and/or its affiliates provide
investment services
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Heather F. Crighton Senior Vice President, Director SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
First Vice President, Director Schroder Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Ira Unschuld Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Officer Certain open end management
investment companies for which SIM
N.A. and/or its affiliates provide
investment services
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Paul M. Morris Director, Managing Director SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Principal, Senior Portfolio Manager Weiss, Peck & Greer LLC resigned
12/96
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Susan B. Kenneally Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
C-5
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME TITLE BUSINESS CONNECTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Vice President, Director Schroder Ltd.*
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Nancy A. Curtin Director, Managing Director SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
Vice Chairman Schroder Fund Advisors Inc.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Tappan K. Datta Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Donald H. M. Farquharson Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
David J. Ridgway Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Johannes C. van Heusde Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Philip J. Hardy Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Guy N.B. Varney Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Reza Vishkai Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Andrew R. Barker Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
William H. Barnes Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Margaret H. Douglas-Hamilton Director, Senior Vice President, SIM N.A.
Secretary
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Thomas Melendez Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Robert C. Michele Director, Managing Director SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Connie Moak Mazur Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
C-6
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME TITLE BUSINESS CONNECTIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nancy B. Tooke Director, Executive Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Frances P. Selby Director, Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Tony Ellingham Internal Audit Officer SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
T. Jeremy Willoughby Compliance Officer SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Abdallah H. Nauphal Senior Vice President SIM N.A.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Barbara Brooke Manning Compliance Officer, First Vice SIM N.A.
President
- ----------------------------------------------------------------------------------------------------------------------
First Vice President Schroder Fund Advisors Inc.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Schroder Ltd. and Schroders plc. are located at 31 Gresham St., London EC2V
7QA, United Kingdom.
Each of Schroder Investment Management Limited, Schroder Investment Management
(UK) Limited, Schroder Investment Management (Europe), Korea Schroder Fund
Management Limited and Schroder Personal Investment Management, are located at
33 Gutter Lane, London EC2V 8AS United Kingdom. Schroder Investment Management
(Singapore) Limited is located at #47-01 OCBC Centre, Singapore. Schroder
Investment Management (Hong Kong) Limited is located at 8 Connaight Place, Hong
Kong. Schroder Investment Management (Australasia) Limited is located at 225
George Place, Sydney Australia. PT Schroder Investment Management Indonesia is
located at Lippo Plaza Bldg., 25 Jakarta, 12820. Schroders (C.I.) Limited is
located at St. Peter Port, Guernsey, Channel Islands, GY1 3UF. Schroder
Properties Limited is located at Senator House, 85 Queen Victoria Street, London
EC4V 4EJ, United Kingdom. Schroder Fund Advisors Inc. and SIM N.A. are located
at 787 Seventh Avenue, 34th Floor, New York, NY 10019. Schroder Ltd. and
Schroders plc. are located at 31 Gresham St., London EC2V 7QA, United Kingdom.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) State Street Bank and Trust Company is the Registrant's placement agent.
Registrant has no underwriters.
(b) Not applicable.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of SIM N.A. (investment management records) and
Schroder Fund Advisors Inc. (administrator and distributor records), 787 Seventh
Avenue, New York, New York 10019, except that certain items are maintained at
State Street Bank and Trust Company, 2 Avenue de Lafayette, Boston,
Massachusetts 02111 and 2 Heritage Drive, N. Quincy, Massachusetts 02171.
C-7
<PAGE>
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS None.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the requirements for
effectiveness of this registration statement under rule 485(b) under the
Securities Act of 1933, as amended, and has duly caused this amendment number
16 to the Registrant's registration statement to be signed on its behalf by
the undersigned, duly authorized, in the City of New York, and State of New
York on September 30, 1999.
Schroder Capital Funds
By: /s/ Alexandra Poe
Alexandra Poe
President
C-9
<PAGE>
EXHIBIT LIST
Exhibit
Number Description
------ -----------
(d)(1) Form of Amended and Restated Investment Advisory Agreement between
Registrant and Schroder Investment Management North America Inc. (SIM
N.A.) dated as of September 15, 1999 with respect to Schroder Global
Growth Portfolio
(d)(2) Form of Amended and Restated Investment Advisory Agreement between
Registrant and SIM N.A. dated as of September 15, 1999 with respect to
Schroder Asian Growth Fund Portfolio and Schroder Japan Portfolio
(g) Form of Custodian Contract
(h)(2) Form of Sub-Administration Agreement
(j) Consent of PricewaterhouseCoopers LLP
(o) Power of Attorney from Nancy A. Curtin, David N. Dinkins, Peter E.
Guernsey, Sharon L. Haugh, John I. Howell, Peter S. Knight, Alan
Mandel, William L. Means, Clarence F. Michalis, Hermann C. Schwab
<PAGE>
SCHRODER CAPITAL FUNDS
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the 18th day of September, 1997, as amended and restated
this __ day of _____, 1999, 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 787 Seventh Avenue, 34th Floor, New York, New
York 10019, and Schroder Investment Management North America Inc. (the
"Adviser"), a corporation organized under the laws of the State of Delaware with
its principal place of business at 787 Seventh Avenue, 34th Floor, New York, New
York 10019.
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 "Commission") as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is registered with the United Kingdom Investment Management Regulatory
Organization ("IMRO");
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for Schroder Global Growth Portfolio (the "Portfolio"), and the Adviser
is willing to provide those services on the terms and conditions set forth in
this Agreement; and
WHEREAS, the Adviser is willing to render such investment advisory
services to the Portfolio;
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
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
multiple series of interests and the Board is authorized to issue interests in
any number of additional series. The Trust has delivered to the Adviser copies
of the Trust's Trust Instrument and Registration Statement and will from time to
time furnish the Adviser with any amendments thereof.
<PAGE>
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs the Adviser, subject to the direction and control
of the Board, to manage the investment and reinvestment of the assets in the
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 Portfolio. 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
Portfolio. In all purchases, sales and other transactions in securities for the
Portfolio, 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 Portfolio since the prior report, and will keep the Board
informed of important developments affecting the Trust, the Portfolio 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 the
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
Portfolio as the Adviser may believe appropriate or as the Board reasonably may
request. In making purchases and sales of securities for the 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 Portfolio.
(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 the 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
-2-
<PAGE>
prepared and maintained, in such form, for such periods and in such locations as
may be required by applicable law, all documents and records relating to the
services provided by the Adviser pursuant to this Agreement required to be
prepared and maintained by the Trust pursuant to the rules and regulations of
any national, state, or local government entity with jurisdiction over the
Trust, including the Commission and the Internal Revenue Service. The books and
records pertaining to the Trust which are in possession of the Adviser shall be
the property of the Trust. The Trust, or the Trust's authorized representatives,
shall have access to such books and records at all times during the Adviser's
normal business hours. Upon the reasonable request of the Trust, copies of any
such books and records shall be provided promptly by the Adviser to the Trust or
the Trust's authorized representatives.
SECTION 4. EXPENSES
The Trust hereby confirms that the Trust shall be responsible and shall
assume the obligation for payment of all the Trust's expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian and
transfer agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of the Trust's formation and maintaining its existence; costs of
preparing the Trust's registration statement, account application forms and
interestholder reports and delivering them to existing and prospective
interestholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of interests in the Trust; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and costs
of other personnel performing services for the Trust who are not officers of the
Adviser or of 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 jurisdictions
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 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 affiliated person
of the Adviser performing services for the
-3-
<PAGE>
Portfolio contemplated hereby and directors, officers and employees of the
Adviser as well as the Adviser itself.
(b) The Adviser shall not be liable for any losses caused by
disturbances of its operations by virtue of force majeure, war, riot, or damage
caused by nature or due to other events for which the Adviser is not responsible
(e.g., strike, lock-out or losses caused by the imposition of foreign exchange
controls, expropriation of assets or other acts of domestic or foreign
authorities) except under the circumstances provided for in Section 5(a).
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 Portfolio, 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, the Portfolio 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 of the United States.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Trust shall pay the Adviser, with
respect to the Portfolio, a fee at an annual rate as listed in Appendix A
hereto. Such fees shall be accrued by the Trust based on the average daily net
assets of the Portfolio 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 the Portfolio
immediately upon approval by a majority of the outstanding voting interests of
the Portfolio.
(b) This Agreement shall remain in effect with respect to the 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 the Portfolio, the Adviser
may continue to render to the Portfolio the services described herein in the
manner and to the extent permitted by the Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated with respect to the Portfolio at
any time,
-4-
<PAGE>
without the payment of any penalty, (i) by the Board or by a vote of a majority
of the outstanding voting interests of the 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 automatically upon assignment.
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers, directors or employees who may 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 Portfolio, such purchases and sales will, to the extent feasible, be
allocated among the Portfolio and such clients in a manner believed by the
Adviser to be equitable to the Portfolio and such clients.
SECTION 9. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the interestholders of the Portfolio shall
not be liable for any obligations of the Trust or of the Portfolio 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 Portfolio to which the Adviser's rights or claims relate in settlement of
such rights or claims, and not to the Trustees of the Trust or the
interestholders of the Portfolio.
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
787 Seventh Avenue, 34th Floor
New York, NY 10019
Attention: Ms. Alexandra Poe
and if to the Adviser, at:
-5-
<PAGE>
Schroder Investment Management North America Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
Attention: Ms. Catherine A. Mazza
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting interests of the Portfolio thereby affected.
(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 the 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.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Investment Advisory Agreement to be duly executed all as of ________,
1999.
SCHRODER CAPITAL FUNDS
on behalf of Schroder Global Growth
Portfolio
------------------------------------------
By:
Title:
SCHRODER INVESTMENT MANAGEMENT
NORTH AMERICA INC.
------------------------------------------
By:
Title:
-7-
<PAGE>
SCHRODER CAPITAL FUNDS
INVESTMENT ADVISORY AGREEMENT
Appendix A
<TABLE>
<CAPTION>
Annual Fee as a % of
the Average Daily
Portfolio Net Assets of the Portfolio
- --------- ---------------------------
<S> <C>
Schroder Global Growth Portfolio 0.50%
</TABLE>
-8-
<PAGE>
SCHRODER CAPITAL FUNDS
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the 16th day of May, 1996, as amended the 26th day of
November, 1996, and as further amended and restated this __ day of _____, 1999,
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 787
Seventh Avenue, 34th Floor, New York, New York 10019, and Schroder Investment
Management North America Inc. (the "Adviser"), a corporation organized under the
laws of the State of Delaware with its principal place of business at 787
Seventh Avenue, 34th Floor, New York, New York 10019.
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 "Commission") 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 of the Trust listed in Appendix A hereto (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
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
multiple series of interests, and the Trust is authorized to issue interests in
any number of additional series upon approval of the Board. The Trust has
delivered to the Adviser copies of the Trust's Trust Instrument and Registration
Statement and will from time to time furnish the
<PAGE>
Adviser with any amendments thereof.
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs the 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 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
-2-
<PAGE>
transactions and the placing and allocation of brokerage orders as are required
to be maintained by the Trust under the Act. The Adviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Adviser pursuant to this
Agreement required to be prepared and maintained by the Trust pursuant to the
rules and regulations of any national, state, or local government entity with
jurisdiction over the Trust, including the Commission and the Internal Revenue
Service. The books and records pertaining to the Trust which are in possession
of the Adviser shall be the property of the Trust. The Trust, or the Trust's
authorized representatives, shall have access to such books and records at all
times during the Adviser's normal business hours. Upon the reasonable request of
the Trust, copies of any such books and records shall be provided promptly by
the Adviser to the Trust or the Trust's authorized representatives.
SECTION 4. EXPENSES
The Trust hereby confirms that the Trust shall be responsible and shall
assume the obligation for payment of all the Trust's expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian and
transfer agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of the Trust's formation and maintaining its existence; costs of
preparing the Trust's registration statement, account application forms and
interestholder reports and delivering them to existing and prospective
interestholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of interests in the Trust; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and costs
of other personnel performing services for the Trust who are not officers of the
Adviser or of 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 jurisdictions
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
-3-
<PAGE>
disregard of its obligations and duties hereunder. As used in this Section 5,
the term "Adviser" shall include any affiliated person of the Adviser performing
services for the Portfolios contemplated hereby and directors, officers and
employees of the Adviser as well as the Adviser itself.
(b) The Adviser shall not be liable for any losses caused by
disturbances of its operations by virtue of force majeure, war, riot, or damage
caused by nature or due to other events for which the Adviser is not responsible
(e.g., strike, lock-out or losses caused by the imposition of foreign exchange
controls, expropriation of assets or other acts of domestic or foreign
authorities) except under the circumstances provided for in Section 5(a).
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, the 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 of the United States.
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.
-4-
<PAGE>
(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 automatically upon assignment.
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers, directors or employees who may 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 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
-5-
<PAGE>
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
787 Seventh Avenue, 34th Floor
New York, NY 10019
Attention: Ms. Alexandra Poe
and if to the Adviser, at:
Schroder Investment Management North America Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
Attention: Ms. Catherine A. Mazza
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting interests of the Portfolios thereby affected. No amendment to
this Agreement or the termination of this Agreement with respect to a Portfolio
shall effect this Agreement as it pertains to any other Portfolio.
(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.
-6-
<PAGE>
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Investment Advisory Agreement to be duly executed all as of ________,
1999.
SCHRODER CAPITAL FUNDS
on behalf of the Portfolios listed in
Appendix A hereto
------------------------------------------
By:
Title:
SCHRODER INVESTMENT MANAGEMENT
NORTH AMERICA INC.
------------------------------------------
By:
Title:
-8-
<PAGE>
SCHRODER CAPITAL FUNDS
INVESTMENT ADVISORY AGREEMENT
Appendix A
<TABLE>
<CAPTION>
Annual Fee as a % of
the Average Daily
Portfolios of the Trust Net Assets of the Portfolio
- ----------------------- ---------------------------
<S> <C>
AS OF NOVEMBER 26, 1996
Schroder Asian Growth Fund Portfolio 0.70%
Schroder Japan Portfolio 0.55%
</TABLE>
-9-
<PAGE>
CUSTODIAN CONTRACT
This Contract between Schroder Capital Funds, a business trust
organized and existing under the laws of the State of Delaware, having its
principal place of business at 787 Seventh Avenue, 34th Floor, New York, New
York 10019 (the "Fund"), and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares ("Interests") in
separate series of beneficial interests, with each such series representing
interests in a separate portfolio of securities and other assets; and
WHEREAS, the Fund currently offers shares in four (4) series, Schroder
Asian Growth Fund Portfolio, Schroder EM Core Portfolio, Schroder Global Growth
Portfolio, and Schroder Japan Portfolio (such series together with each other
series subsequently established by the Fund and made subject to this Contract in
accordance with Article 18, being herein referred to as "Portfolios");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund's Trust
Instrument (as further amended or restated, the "Trust Instrument"). The Fund on
behalf of the Portfolios agrees to deliver to the Custodian all securities and
cash of the Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Portfolios from time to time, and the cash consideration received by it for such
new Interests in the Portfolios as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Portfolio and not delivered to the Custodian. With respect to
uncertificated shares (the "Underlying Shares") of registered investment
companies in the same "group of investment companies" (as defined in Section
12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder (the "1940 Act")) as the Fund (the "Schroder Funds"),
the holding of confirmation statements that identify the Underlying Shares as
being
<PAGE>
recorded in the Custodian's name on behalf of the Portfolios will be
deemed custody for purposes hereof.
Upon receipt of "Proper Instructions" (within the meaning of Article
6), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A and B hereto, but only in accordance with the provisions of Articles
3 and 4.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY
THE CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities maintained in a U.S. Securities
System as defined in Section 2.9; (b) commercial paper of an issuer for
which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.10; and (c) the Underlying Shares owned by the
Fund which are maintained pursuant to Section 2.11 in an account with
Boston Financial Data Services, Inc. or such other entity which may
from time to time act as a transfer agent for the Schroder Funds and
with respect to which the Custodian is provided with Proper
Instructions (the "Schroder Transfer Agent").
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
or in an account with the Schroder Transfer Agent only upon receipt of
Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate
by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
<PAGE>
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.9
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities held by the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.8 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1, in each case to the extent permitted by Section
2.3; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; PROVIDED that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; PROVIDED that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
PROVIDED that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; PROVIDED that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, BUT ONLY against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is
<PAGE>
to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian, absent its negligence, misfeasance or misconduct,
will not be held liable or responsible for the delivery of
securities owned by the Portfolio prior to the receipt of such
collateral in accordance with standard market practice;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, BUT ONLY
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other similar arrangements in connection
with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
a Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of Interests in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectuses and statements of
additional information for the Fund, related to the relevant
Portfolios (together, the "Prospectus"), in satisfaction of
requests by holders of Interests for repurchase or redemption;
15) In the case of a sale processed through the Schroder Transfer
Agent of Underlying Shares, in accordance with Section 2.11
hereof; and
16) For any other proper corporate purpose, BUT ONLY upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
<PAGE>
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, UNLESS the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies or other investment pools or accounts
having the same investment adviser as the Portfolio, or has authorized
in writing that such securities may be registered in the name or
nominee name of any agent appointed pursuant to Section 2.8 or in the
name or nominee name of any sub-custodian appointed pursuant to Article
1. All securities accepted by the Custodian on behalf of any Portfolio
under the terms of this Contract shall be in "street name" or other
good delivery form. If, however, the Fund directs the Custodian to
maintain securities in "street name", the Custodian shall utilize its
best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, and tender or exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the 1940 Act. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
PROVIDED, however, that every such bank or trust company shall be
qualified to act as a custodian under the 1940 Act and that each such
bank or trust company and the funds to be deposited with each such bank
or trust company shall on behalf of each applicable Portfolio be
approved by vote of a majority of the Board of Trustees of the Fund.
Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent and shall credit such income, as collected, to
such Portfolio's custodian account. Without limiting
<PAGE>
the generality of the foregoing, the Custodian shall detach and present
for payment all coupons and other income items requiring presentation
as and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio, but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the 1940 Act
to act us custodian and has been designated by the Custodian
as its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.9 hereof; (c) in the case of a purchase of
Underlying Shares, in accordance with the conditions set forth
in Section 2.11 hereof; (d) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10; (e) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of the NASD, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (f) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 6;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
<PAGE>
3) For the redemption or repurchase of Interests issued by the
Portfolio as set forth in Article 5 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Interests in the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.7 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.8 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which itself is qualified under the 1940 Act to act as a
custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; PROVIDED,
however, that the appointment of any such agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder and the
Custodian shall be as responsible for the acts of such agent as if the
Custodian performed them itself. The Schroder Transfer Agent shall not
be deemed an agent or subcustodian of the Custodian for purposes of
this Section 2.8 or any other provision of this Contract.
2.9 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the
<PAGE>
Securities and Exchange Commission under Section 17A of the Exchange
Act which acts as a securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and certain federal
agencies (each a "U.S. Securities System") in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account of the Custodian in the U.S.
Securities System ("U.S. Securities System Account") which
shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 15 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be
<PAGE>
liable to the Fund for the benefit of the Portfolio for any
loss or damage to the Portfolio resulting from use of the U.S.
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of
its or their employees, or from failure of the Custodian or
any such agent to enforce effectively such rights as it may
have against the U.S. Securities System; at the election of
the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such
loss or damage.
2.10 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account of the Custodian in the Direct Paper System
("Direct Paper System Account") which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio;
<PAGE>
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control and procedures for safeguarding securities deposited
in the Direct Paper System as the Fund may reasonably request
from time to time.
2.11 DEPOSIT OF FUND ASSETS WITH THE SCHRODER TRANSFER AGENT. The Custodian
shall verify that Underlying Shares are deposited and/or maintained in
an account or accounts maintained with the Schroder Transfer Agent. The
Schroder Transfer Agent shall be deemed to be acting as if it is a
"securities depository" for purposes of Rule 17f-4 under the 1940 Act.
The Fund hereby directs the Custodian to deposit and/or maintain such
securities with the Schroder Transfer Agent, subject to the following
provisions:
1) The Custodian shall keep Underlying Shares owned by a
Portfolio with the Schroder Transfer Agent provided that such
securities are maintained in an account or accounts on the
books and records of the Schroder Transfer Agent in the name
of the Custodian as custodian for the Portfolio and the
account includes only assets held in the name of the Custodian
for its customers.
2) The records of the Custodian with respect to Underlying Shares
which are maintained with the Schroder Transfer Agent shall
identify by book-entry those Underlying Shares belonging to
each Portfolio;
3) The Custodian shall pay for Underlying Shares purchased for
the account of a Portfolio upon (i) receipt of advice from the
Portfolio's investment adviser that such Underlying Shares
have been purchased and will be transferred to the account of
the Custodian, on behalf of the Portfolio, on the books and
records of the Schroder Transfer Agent, and (ii) the making of
an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Portfolio. The
Custodian shall receive confirmation from the Schroder
Transfer Agent of the purchase of such securities and the
transfer of such securities to the Custodian's account with
the Schroder Transfer Agent only after such payment is made.
The Custodian shall transfer Underlying Shares redeemed for
the account of a Portfolio (i) upon receipt of an advice from
the Portfolio's investment adviser that such securities have
been redeemed and that payment for such securities will be
transferred to the Custodian and (ii) the making of an entry
on the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. The Custodian will
receive confirmation from the Schroder Transfer Agent of the
redemption of such securities and payment therefor only after
such securities are redeemed. Copies of all advices from the
Portfolio's investment adviser of purchases and sales of
Underlying Shares for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian, and be provided to the investment adviser at its
request. The Custodian shall promptly send to the Fund reports
it receives from the Schroder Transfer Agent on its
<PAGE>
system of internal accounting control;
4) The Custodian shall be not be liable to the Fund or any
Portfolio for any loss or damage to the Fund or any Portfolio
resulting from maintenance of Underlying Shares with Schroder
Transfer Agent except for losses resulting directly from the
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees.
2.12 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.9 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other similar arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased,
sold or written by the Portfolio, (iii) for the purpose of compliance
by the Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies, and (iv) for
other proper corporate purposes, BUT ONLY, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and
<PAGE>
shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange offers
or any other similar transaction, the Custodian shall transmit promptly
to the Portfolio all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from
the party (or his agents) making the tender or exchange or similar
offer. If the Portfolio desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian of the action the Portfolio
desires the Custodian to take at least three business days prior to the
date on which the Custodian is to take such action.
3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER OF THE PORTFOLIOS
3.1 DEFINITIONS. The following capitalized terms shall have the indicated
meanings:
"Country Risk" means all factors reasonably related to the systemic
risk of holding Foreign Assets in a particular country including, but
not limited to, such country's political environment; economic and
financial infrastructure (including any Mandatory Securities
Depositories operating in the country); prevailing or developing
custody and settlement practices; and laws and regulations applicable
to the safekeeping and recovery of Foreign Assets held in custody in
that country.
"Eligible Foreign Custodian" has the meaning set forth in section
(a)(1) of Rule 17f-5 under the 1940 Act, including a majority-owned
direct or indirect subsidiary of a U.S. Bank (as defined in Rule
17f-5), a bank holding company meeting the requirements of an Eligible
Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate
action of the SEC), or a foreign branch of a Bank (as defined in
Section 2(a)(5) of the 1940 Act) meeting the requirements of a
custodian under Section 17(f) of the 1940 Act, except that the term
does not include Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments (including
foreign currencies) for which the primary market is outside the United
States and such cash and cash equivalents as are reasonably necessary
to effect the Portfolios' transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2)
of Rule 17f-5.
<PAGE>
"Mandatory Securities Depository" means a foreign securities depository
or clearing agency that, either as a legal or practical matter, must be
used if the Fund, on the Portfolios' behalf, determines to place
Foreign Assets in a country outside the United States (i) because
required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency;
or (iii) because maintaining or effecting trades in securities outside
the foreign securities depository or clearing agency is not consistent
with applicable prevailing or developing custodial or market practices.
3.2 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Fund, in
accordance with a resolution adopted by its Board of Trustees, hereby
delegates to the Custodian with respect to the Portfolios, subject to
Section (b) of Rule 17f-5, the responsibilities set forth in this
Article 3 with respect to Foreign Assets of the Portfolios held outside
the United States, and the Custodian hereby accepts such delegation, as
Foreign Custody Manager with respect to the Portfolios.
3.3 COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for
performing the delegated responsibilities defined below only with
respect to the countries and custody arrangements for each such country
listed on Schedule A to this Contract, which list of countries may be
amended from time to time by the Fund with the agreement of the Foreign
Custody Manager. The Foreign Custody Manager shall list on Schedule A
the Eligible Foreign Custodians selected by the Foreign Custody Manager
to maintain the assets of the Portfolios in each such country, which
list of Eligible Foreign Custodians may be amended from time to time in
the sole discretion of the Foreign Custody Manager. Mandatory
Securities Depositories and the countries in which each is located are
listed on Schedule B to this Contract, which Schedule B may be amended
from time to time by the Foreign Custody Manager by adding or removing
Mandatory Securities Depositories. The Foreign Custody Manager will
provide to the Fund amended versions of Schedules A and B in accordance
with Section 3.7 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions
to open an account or to place or maintain Foreign Assets in a country
listed on Schedule A, and the fulfillment by the Fund on behalf of the
Portfolios of the applicable account opening requirements for such
country, the Foreign Custody Manager shall be deemed to have been
delegated by the Board on behalf of the Portfolios responsibility as
Foreign Custody Manager with respect to that country and to have
accepted such delegation. Following the receipt of Proper Instructions
directing the Foreign Custody Manager to close the account of a
Portfolio with the Eligible Foreign Custodian selected by the Foreign
Custody Manager in a designated country, the delegation by the Board of
Trustees on behalf of the Portfolios to the Custodian as Foreign
Custody Manager for that country shall be deemed to have been withdrawn
and the Custodian shall immediately cease to be the Foreign Custody
Manager of the Portfolios with respect to that country.
<PAGE>
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written
notice to the Fund. Sixty days (or such longer period as to which the
parties agree in writing) after receipt of any such notice by the Fund,
the Custodian shall have no further responsibility as Foreign Custody
Manager to the Fund with respect to the country as to which the
Custodian's acceptance of delegation is withdrawn.
3.4 SCOPE OF DELEGATED RESPONSIBILITIES.
3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the
provisions of this Article 3, the Portfolios' Foreign Custody
Manager may place and maintain Foreign Assets in the care of
the Eligible Foreign Custodian selected by the Foreign Custody
Manager in each country listed on Schedule A, as amended from
time to time. In performing its delegated responsibilities as
Foreign Custody Manager to place or maintain Foreign Assets
with an Eligible Foreign Custodian, the Foreign Custody
Manager shall determine that the Foreign Assets will be
subject to reasonable care, based on the standards applicable
to custodians in the relevant market, after considering all
factors relevant to the safekeeping of such assets, including,
without limitation, the factors specified in Rule 17f-5(c)(1),
as amended from time to time.
3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign
Custody Manager shall ensure that a written contract (or rules
or established practices or procedures in the case of an
Eligible Foreign Custodian that is a foreign securities
depository or clearing agency) is or are in place governing
the foreign custody arrangements with each Eligible Foreign
Custodian selected by the Foreign Custody Manager and will
determine that such contract, rules or established practices
or procedures provide reasonable care for the Portfolio's
Foreign Assets based on the standards specified in Rule
17f-5(c)(1) and that the written contract satisfies all
requirements of Rule 17f-5(c)(2), each as amended from time to
time.
3.4.3. MONITORING. In each case in which the Foreign Custody Manager
maintains Foreign Assets with an Eligible Foreign Custodian
selected by the Foreign Custody Manager, the Foreign Custody
Manager shall establish a system to monitor the
appropriateness of (i) maintaining the Foreign Assets with
such Eligible Foreign Custodian under Rule 17f-5(c)(1) and
(ii) the contract governing the custody arrangements
established by the Foreign Custody Manager with the Eligible
Foreign Custodian (or the rules or established practices and
procedures in the case of an Eligible Foreign Custodian
selected by the Foreign Custody Manager which is a foreign
securities depository or clearing agency that is not a
Mandatory Securities Depository) under 17f-5(c)(2). In the
event the Foreign Custody Manager determines that the custody
arrangements with an Eligible
<PAGE>
Foreign Custodian it has selected are no longer appropriate or
no longer meet the requirements of Rule 17f-5, the Foreign
Custody Manager shall notify the Fund's Board of Trustees in
accordance with Section 3.7 hereunder and assist the
Portfolios in withdrawing their assets from such Eligible
Foreign Custodian as soon as reasonably practicable.
3.5 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of
this Article 3, the Fund's Board of Trustees, or at its delegation the
Fund's investment adviser, shall be deemed to have considered and
determined to accept such Country Risk as is incurred by placing and
maintaining the Foreign Assets in each country for which the Custodian
is serving as Foreign Custody Manager of the Portfolios. The Fund, on
behalf of the Portfolios, and the Fund's Board of Trustees, or at its
delegation the funds investment adviser, shall be deemed to be
monitoring on a continuing basis such Country Risk to the extent that
they consider necessary or appropriate. The Fund and the Custodian each
expressly acknowledge that the Foreign Custody Manager shall not be
delegated any responsibilities under this Article 3 with respect to
Mandatory Securities Depositories.
3.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE PORTFOLIOS. In
performing the responsibilities delegated to it, the Foreign Custody
Manager agrees to exercise reasonable care, prudence and diligence such
as a person having responsibility for the safekeeping of assets of
management investment companies registered under the 1940 Act would
exercise.
3.7 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the
withdrawal of the Foreign Assets from an Eligible Foreign Custodian and
the placement of such Foreign Assets with another Eligible Foreign
Custodian by providing to the Board amended Schedules A or B at the end
of the calendar quarter in which an amendment to either Schedule has
occurred or at such other times as the Board deems reasonable or
appropriate. The Foreign Custody Manager shall make written reports
notifying the Board of any other material change in the foreign custody
arrangements of the Portfolios described in this Article 3 as soon as
practicable after the occurrence of the material change.
3.8 OTHER REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody
Manager represents to the Fund that it is a U.S. Bank as defined in
section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that
the Fund's Board of Trustees has determined that it is reasonable for
the Board to rely on the Custodian to perform the responsibilities
delegated pursuant to this Contract to the Custodian as the Foreign
Custody Manager of the Portfolios.
3.9 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
MANAGER. The Board's delegation to the Custodian as Foreign Custody
Manager of the Portfolios shall
<PAGE>
be effective as of the date of execution of this Contract and shall
remain in effect until terminated at any time, without penalty, by
written notice from the terminating party to the non-terminating party,
or upon the termination of this Contract in accordance with its terms
by either party, if earlier. Except as expressly provided elsewhere in
this Contract, termination will become effective no less than thirty
(30) days after receipt by the non-terminating party of such notice.
The provisions of Section 3.3 hereof shall govern the delegation to and
termination of the Custodian as Foreign Custody Manager of the
Portfolios with respect to designated countries.
4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS HELD
OUTSIDE OF THE UNITED STATES
4.1 DEFINITIONS. Capitalized terms in this Article 4 shall have the
following meanings:
"Foreign Securities System" means either a clearing agency or a
securities depository listed on Schedule A hereto or a Mandatory
Securities Depository listed on Schedule B hereto. Foreign Securities
Systems and U.S. Securities Systems are collectively referred to herein
as the "Securities Systems"
"Foreign Sub-Custodian" means a foreign banking institution serving as
an Eligible Foreign Custodian.
4.2 HOLDING SECURITIES. The Custodian shall identify on its books as
belonging to each Portfolio the respective foreign securities held by
each Foreign Sub-Custodian or Foreign Securities System. The Custodian
may hold foreign securities for all of its customers, including each
Portfolio, with any Foreign Sub-Custodian in an account that is
identified as belonging to the Custodian for the benefit of its
customers, PROVIDED HOWEVER, that (i) the records of the Custodian with
respect to the foreign securities of each Portfolio which are
maintained in such account shall identify those securities as belonging
to such Portfolio and (ii), to the extent permitted and customary in
the market in which the account is maintained, the Custodian shall
require that securities so held by the Foreign Sub-Custodian be held
separately from any assets of such Foreign Sub-Custodian or of other
customers of such Foreign Sub-Custodian. The books and records of the
Custodian shall at all times indicate the beneficial ownership of the
applicable Portfolio.
4.3 FOREIGN SECURITIES SYSTEMS. Foreign Assets shall be maintained in a
Foreign Securities System in a designated country only through
arrangements implemented by the Foreign Sub-Custodian in such country
pursuant to the terms of this Contract. Where possible, such
arrangements shall include entry into agreements containing the
provisions referenced in Section 3.4.2 hereof.
4.4 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
<PAGE>
4.4.1. DELIVERY OF FOREIGN SECURITIES. The Custodian or a Foreign
Sub-Custodian shall release and deliver foreign securities of
the Portfolios held by such Foreign Sub-Custodian, or in a
Foreign Securities System account, only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for
the Portfolios in accordance with commercially
reasonable market practice in the country where such
foreign securities are held or traded, including,
without limitation: (A) delivery against expectation
of receiving later payment; or (B) in the case of a
sale effected through a Foreign Securities System in
accordance with the rules governing the operation of
the Foreign Securities System;
(ii) in connection with any repurchase agreement
related to foreign securities;
(iii) to the depository agent in connection with
tender or other similar offers for foreign securities
of the Portfolios;
(iv) to the issuer thereof or its agent when such
foreign securities are called, redeemed, retired or
otherwise become payable;
(v) to the issuer thereof, or its agent, for
transfer into the name of the Custodian (or the name
of the respective Foreign Sub-Custodian or of any
nominee of the Custodian or such Foreign
Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing
the same aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing
agents for examination or trade execution in
accordance with market custom; PROVIDED that in any
such case the Foreign Sub-Custodian shall have no
responsibility or liability for any loss arising from
the delivery of such securities prior to receiving
payment for such securities except as may arise from
the Foreign Sub-Custodian's own negligence or willful
misconduct;
(vii) for exchange or conversion pursuant to any plan
of merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
<PAGE>
(viii) in the case of warrants, rights or similar
foreign securities, the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim receipts or
temporary securities for definitive securities;
(ix) for delivery as security in connection with
any borrowing by a Portfolio requiring a pledge of
assets by such Portfolio;
(x) in connection with trading in options and
futures contracts, including delivery as original
margin and variation margin;
(xi) in connection with the lending of foreign
securities; and
(xii) for any other proper purpose, BUT ONLY upon
receipt of Proper Instructions specifying the foreign
securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such
purpose to be a proper Fund purpose, and naming the
person or persons to whom delivery of such securities
shall be made.
4.4.2. PAYMENT OF PORTFOLIO MONIES. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, the Custodian shall pay out, or
direct the respective Foreign Sub-Custodian or the respective
Foreign Securities System to pay out, monies of a Portfolio in
the following cases only:
(i) upon the purchase of foreign securities for
the Portfolio, unless otherwise directed by Proper
Instructions, by (A) delivering money to the seller
thereof or to a dealer therefor (or an agent for such
seller or dealer) against expectation of receiving
later delivery of such foreign securities; or (B) in
the case of a purchase effected through a Foreign
Securities System, in accordance with the rules
governing the operation of such Foreign Securities
System;
(ii) in connection with the conversion, exchange or
surrender of foreign securities of the Portfolio;
(iii) for the payment of any expense or liability of
the Portfolio, including but not limited to the
following payments: interest, taxes, investment
advisory fees, transfer agency fees, fees under this
Contract, legal fees, accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign exchange
or foreign exchange contracts for the Portfolio,
including transactions executed with or through
<PAGE>
the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and
futures contracts, including delivery as original
margin and variation margin;
(vi) in connection with the borrowing or lending of
foreign securities;
(vii) for payment of part or all of the dividends
received in respect of securities sold short; and
(viii) for any other proper purpose, BUT ONLY upon
receipt of Proper Instructions specifying the amount
of such payment, setting forth the purpose for which
such payment is to be made, declaring such purpose to
be a proper Fund purpose, and naming the person or
persons to whom such payment is to be made.
4.4.3. MARKET CONDITIONS. Notwithstanding any provision of this
Contract to the contrary, settlement and payment for Foreign
Assets received for the account of the Portfolios and delivery
of Foreign Assets maintained for the account of the Portfolios
may be effected in accordance with the customary established
securities trading or processing practices and procedures in
the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering Foreign Assets to
the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) with the expectation of receiving
later payment for such Foreign Assets from such purchaser or
dealer.
The Custodian shall provide to the Fund's Board of Trustees
the information with respect to custody and settlement
practices in countries in which the Custodian employs a
Foreign Sub-Custodian, including without limitation
information relating to Foreign Securities Systems, described
on Schedule C hereto at the time or times set forth on such
Schedule. The Custodian may revise Schedule C from time to
time, provided that no such revision shall result in the Board
of Trustees being provided with substantively less information
than had been previously provided hereunder.
4.5 REGISTRATION OF FOREIGN SECURITIES. The Portfolio's foreign securities
maintained in the custody of a Foreign Sub-Custodian or Foreign
Securities System (other than bearer securities) shall be registered in
the name of the applicable Portfolio or in the name of the Custodian or
in the name of any Foreign Sub-Custodian or in the name of any nominee
of the foregoing (provided, however, that such registration indicates
such securities as having been held for the benefit of customers, and
not, in any event, for the benefit of a Foreign Sub-Custodian, and the
Fund on behalf of such Portfolio agrees to hold any such nominee
harmless from any liability as a holder of record of such foreign
securities
<PAGE>
absent such nominee's negligence, misfeasance, bad faith or breach of
obligation. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Portfolio under the terms
of this Contract unless the form of such securities and the manner in
which they are delivered are in accordance with reasonable market
practice.
4.6 BANK ACCOUNTS. The Custodian shall identify on its books as belonging
to the Fund cash (including cash denominated in foreign currencies)
deposited with the Custodian. Where the Custodian is unable to
maintain, or market practice does not facilitate the maintenance of,
cash on the books of the Custodian, a bank account or bank accounts
opened and maintained outside the United States on behalf of a
Portfolio with a Foreign Sub-Custodian shall be subject only to draft
or order by the Custodian or such Foreign Sub-Custodian, acting
pursuant to the terms of this Contract to hold cash received by or from
or for the account of the Portfolio.
4.7 COLLECTION OF INCOME. The Custodian shall use reasonable commercial
efforts to collect all income and other payments with respect to the
Foreign Assets held hereunder to which the Portfolios shall be entitled
and shall credit such income, as collected, to the applicable
Portfolio. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to
such measures and as to the compensation and expenses of the Custodian
relating to such measures.
4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held
pursuant to this Contract, the Custodian will use reasonable commercial
efforts to facilitate the exercise of voting and other shareholder
rights, subject always to the laws, regulations and practical
constraints that may exist in the country where such securities are
issued. The Fund acknowledges that local conditions, including lack of
regulation, onerous procedural obligations, lack of notice and other
factors may have the effect of severely limiting the ability of the
Fund to exercise shareholder rights.
4.9 COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall
transmit promptly to the Fund written information (including, without
limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign
securities being held for the account of the Portfolios. With respect
to tender or exchange offers, the Custodian shall transmit promptly to
the Fund written information so received by the Custodian from issuers
of the foreign securities whose tender or exchange is sought or from
the party (or its agents) making the tender or exchange offer. Absent
the Custodian's negligence, misfeasance or misconduct, the Custodian
shall not be liable for any untimely exercise of any tender, exchange
or other right or power in connection with foreign securities or other
property of the Portfolios at any time held by it unless (i) the
Custodian or the respective Foreign Sub-Custodian is in actual
possession of such foreign securities or property and (ii) the
Custodian receives Proper Instructions with regard to
<PAGE>
the exercise of any such right or power, and both (i) and (ii) occur at
least three business days prior to the date on which the Custodian is
to take action to exercise such right or power.
4.10 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a Foreign Sub-Custodian shall specify, to the
extent possible in accordance with that jurisdiction's legal
nomenclature, that the Foreign Sub-Custodian will exercise reasonable
care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian and each Portfolio from and
against any loss, damage, cost, expense, liability or claim arising out
of or in connection with the Foreign Sub-Custodian's performance of
such obligations. At the Fund's election, the Portfolios shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claims against a Foreign Sub-Custodian as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the
extent that the Fund and any applicable Portfolios have not been made
whole for any such loss, damage, cost, expense, liability or claim.
4.11 TAX LAW. The Custodian shall be responsible to use reasonable
professional efforts to assist each Portfolio with respect to any claim
for exemption or refund under the tax law of jurisdictions in which the
Portfolio has invested. The Custodian and each Portfolio shall consult
and cooperate to facilitate the appropriate administration of tax
matters connected with the income and securities of each Portfolio to
which this Contract relates. The Custodian will be entitled to rely
without separate duty of inquiry on any representation or information
relating to tax status that it is supplied by a Portfolio.
4.12 CONFLICT. If the Custodian is delegated the responsibilities of Foreign
Custody Manager pursuant to the terms of Article 3 hereof, in the event
of any conflict between the provisions of Article 3 and 4 hereof, the
provisions of Article 3 shall prevail.
5. PAYMENTS FOR SALES, REPURCHASES, REDEMPTIONS OR WITHDRAWALS OF
INTERESTS IN THE FUND
The Custodian shall receive from the distributor, or placement agent
for the Interests or from the Transfer Agent of the Fund and deposit into the
account of the appropriate Portfolio such payments as are received for Interests
in that Portfolio issued or sold from time to time by the Fund. The Custodian
will provide timely notification to the Fund on behalf of each such Portfolio
and the Transfer Agent of any receipt by it of payments for Interests in such
Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Trust Instrument and the Bylaws of the Fund and any
applicable votes of the Board of Trustees of the Fund pursuant thereto, the
Custodian shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of Interests which have delivered to the
Transfer Agent a request for redemption, repurchase or withdrawal of all or a
portion of their Interest(s). In connection with the redemption, repurchase or
withdrawal of all or a portion of the Interest(s) in a Portfolio, the Custodian
is authorized upon receipt of instructions from the
<PAGE>
Transfer Agent to wire funds to or through a commercial bank designated by the
redeeming holders of Interests.
6. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees of
the Fund shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved, including a
specific statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to give Proper
Instructions with respect to the transaction involved. The Fund shall cause all
oral instructions to be confirmed in writing (but the failure to provide such
confirmation shall not effect the validity of an oral instruction). Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Trustees and
the Custodian are satisfied that procedures are in place that afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
7. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, PROVIDED that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
8. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed by or on behalf
of the Fund. The Custodian may receive and accept a certified
<PAGE>
copy of a vote of the Board of Trustees of the Fund as conclusive evidence (a)
of the authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to the Trust
Instrument as described in such vote, and such vote may be considered as in full
force and effect until receipt by the Custodian of written notice to the
contrary.
9. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
Interest of the outstanding Interests in each Portfolio or, if directed in
writing to do so by the Fund on behalf of the Portfolio, shall itself keep such
books of account and/or compute such net asset value per Interest. If so
directed, the Custodian shall also calculate daily the net income of the
Portfolio as described in the Fund's Prospectus related to such Portfolio and
shall advise the Fund and the Transfer Agent daily of the total amounts of such
net income and, if instructed in writing by an officer of the Fund to do so,
shall advise the Transfer Agent periodically of the division of such net income
among its various components. The Fund acknowledges and agrees that, with
respect to investments maintained with the Schroder Transfer Agent, the Schroder
Transfer Agent is the sole source of information on the number of Underlying
Shares held by it on behalf of a Portfolio and that the Custodian has the right
to reasonably rely on holdings information furnished by the Schroder Transfer
Agent to the Custodian in performing its duties under this Contract, including
without limitation, the duties set forth in this Article 9 and in Article 10
hereof; PROVIDED, however, that the Custodian shall be obligated to reconcile
information as to purchases and sales of Underlying Shares contained in trade
instructions and confirmations received by the Custodian and to report promptly
any discrepancies to the Schroder Transfer Agent. The calculations of the net
asset value per Interest and the daily income of each Portfolio shall be made by
the Custodian at the time or times described from time to time in the Fund's
Prospectus related to such Portfolio.
10. RECORDS
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such a manner as will meet the Fund's obligations under Section 31 of the 1940
Act, with particular attention to Rules 31a-1, 31a-2, and 31a-3 thereunder. All
such records shall be the property of the Fund and shall at all times during the
regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and agents of the
Securities and Exchange Commission. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
<PAGE>
11. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder including, without limitation, in connection with
the preparation of the Fund's Form N-1A, and Form N-SAR, or other annual reports
to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
12. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a U.S. Securities System, relating to the services provided by the Custodian
under this Contract; such reports shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
13. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
14. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence in carrying out
the provisions of this Contract. The Custodian shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Fund) on all matters,
and shall be without liability for any action reasonably taken or omitted
pursuant to such advice. The Custodian shall be without liability to the Fund
and the Portfolios for any loss, liability, claim or expense to the extent that
it results from or is caused by a Country Risk.
<PAGE>
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent
of the Custodian, the Custodian shall be without liability to the Fund for any
loss, liability, claim or expense resulting from or caused by: (i) events or
circumstances beyond the reasonable control of the Custodian or any
sub-custodian or Securities System or any agent or nominee of any of the
foregoing, including, without limitation, nationalization or expropriation,
imposition of currency controls or restrictions, the interruption, suspension or
restriction of trading on or the closure of any securities market, power or
other mechanical or technological failures or interruptions, computer viruses or
communications disruptions, acts of war or terrorism, riots, revolutions, work
stoppages, natural disasters or other similar events or acts; (ii) errors by the
Fund or any investment adviser of the Fund in its instructions to the Custodian
provided such instructions have been in accordance with this Contract; (iii) the
insolvency of or acts or omissions by a Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) delays or inability to perform its duties due to any
disorder in market infrastructure with respect to any particular security or
Securities System; and (vi) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.
The Custodian shall not be liable to the Fund for any loss resulting
from: (i) the insolvency of any Foreign Sub-Custodian (as defined in Article 4
hereof) which is not a branch or an affiliate of the Custodian; or (ii) any act
of any Foreign Sub-Custodian, except where such loss results from an error or
omission by the Foreign Sub-Custodian or the failure by the Sub-Custodian to use
reasonable care in the performance of its duties based on the standards
applicable to custodians in the relevant market, or from the fraud, willful
default or negligence (measured in accordance with the standards prevailing in
the relevant market) of such Foreign Sub-Custodian in the provision of custodial
services by it.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money
other than cash held by the Custodian on behalf of the Fund pursuant to this
Contract or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money other than cash held by the Custodian on behalf of the Fund
pursuant to this Contract or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities other than cash or securities held by the
Custodian on behalf of the Fund pursuant to this Contract for any purpose for
the benefit of a Portfolio (including but not limited to securities settlements,
foreign exchange contracts and assumed settlement) or in the event that the
<PAGE>
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of such Portfolio's
assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
15. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect, unless
expressly provided otherwise in this Contract, not sooner than thirty (30) days
after the date of such delivery or mailing; PROVIDED, however that the Custodian
shall not with respect to a Portfolio act under Section 2.9 hereof in the
absence of receipt of a certificate of the Secretary or an Assistant Secretary
that the Board of Trustees of the Fund has approved the initial use of a
particular U.S. Securities System by such Portfolio or any changes thereto, and
that the Custodian shall not with respect to a Portfolio act under Section 2.10
hereof in the absence of receipt of a certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio or any changes thereto; PROVIDED
FURTHER, however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Fund's Trust Instrument, and further provided, that the Fund on behalf of
one or more of the Portfolios may at any time by action of its Board of Trustees
(i) substitute another bank or trust company for the Custodian by giving notice
as described above to the Custodian, or (ii) immediately terminate this Contract
in the event of the appointment of a conservator or receiver for the Custodian
by the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
reasonable costs, expenses and disbursements pursuant to this Contract.
16. SUCCESSOR CUSTODIAN
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such
<PAGE>
successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities of each applicable Portfolio then held by it
hereunder and shall transfer to an account of the successor custodian all of the
securities of each such Portfolio held in a U.S. Securities System or at the
Schroder Transfer Agent.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the 1940 Act, doing business in Boston,
Massachusetts or New York, New York, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
the Custodian on behalf of each applicable Portfolio and all instruments held by
the Custodian relative thereto and all other property held by it under this
Contract on behalf of each applicable Portfolio and to transfer to an account of
such successor custodian all of the securities of each such Portfolio held in
any U.S. Securities System or at the Schroder Transfer Agent. Thereafter, such
bank or trust company shall be the successor of the Custodian under this
Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services (at a rate not greater than the
rate of compensation in effect immediately prior to termination) during such
period as the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
17. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, PROVIDED that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Trust Instrument of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
<PAGE>
18. ADDITIONAL PORTFOLIOS
In the event that the Fund establishes one or more series of Interests
in addition to Schroder Asian Growth Fund Portfolio, Schroder EM Core Portfolio,
Schroder Global Growth Portfolio, and Schroder Japan Portfolio with respect to
which it desires to have the Custodian render services as custodian under the
terms hereof, it shall so notify the Custodian in writing, and if the Custodian
agrees in writing to provide such services, such series of Interests shall
become a Portfolio hereunder.
19. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
20. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
21. REPRODUCTION OF DOCUMENTS
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
22. YEAR 2000
Custodian will take reasonable steps to ensure that its products (and
those of its third-party suppliers) reflect the available state of the art
technology to offer products that are Year 2000 compliant, including, but not
limited to, century recognition of dates, calculations that correctly compute
same century and multi- century formulas and date values, and interface values
that reflect the date issues arising between now and the next one hundred years.
If any changes are required, Custodian will make the changes to its products at
no cost to the Fund and in a commercially reasonable time frame and will require
third-party suppliers to do likewise.
23. SHAREHOLDER COMMUNICATIONS ELECTION
<PAGE>
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [X] The Custodian is not authorized to release the Fund's name,
address, and share positions.
24. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees and officers of the Fund and the Interest holders of the
Portfolios shall not be liable for any obligations of the Fund or of the
Portfolios under this Contract, and the Custodian agrees that, in asserting any
rights or claims under this Contract, it shall look only to the assets and
property of the Fund or the Portfolio(s) to which the Custodian's rights or
claims relate in settlement of such rights or claims, and not to the Trustees or
officers of the Fund or to the Interest holders of any Portfolio.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 31st day of May, 1999.
ATTEST SCHRODER CAPITAL FUNDS
By
- ---------------------------- ----------------------------------
Name: Name:
Title: Title:
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- ---------------------------- ----------------------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Vice Chairman
<PAGE>
<PAGE>
SUB-ADMINISTRATION AGREEMENT
Agreement dated as of June 1, 1999, among Schroder Fund Advisors Inc.
(the "Administrator"), Schroder Capital Funds, Schroder Capital Funds (Delaware)
and Schroder Series Trust II (hereinafter "The Schroder Capital Funds Family" or
the "Trusts") and State Street Bank and Trust Company, a Massachusetts trust
company (the "Bank").
WHEREAS, the Trusts are registered as open-end, management investment
companies under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Administrator acts as administrator to the Trusts;
WHEREAS, the Administrator and the Trusts desire to retain the Bank to
furnish certain administrative services to the Trusts, and the Bank is willing
to furnish such services, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF BANK
The Administrator and the Trusts hereby appoint the Bank to act as
sub-administrator with respect to the Trusts for purposes of providing certain
administrative services for the period and on the terms set forth in this
Agreement. The Bank accepts such appointment and agrees to render the services
stated herein.
The Trusts will initially consist of the portfolio(s) and/or class(es)
of shares (each an "Investment Fund") listed in Schedule A to this Agreement. In
the event that any Trust establishes one or more additional Investment Funds
with respect to which the Administrator and the Trust wish to retain the Bank to
act as administrator hereunder, the Administrator and such Trust shall notify
the Bank in writing. Upon written acceptance by the Bank, such Investment Fund
shall become subject to the provisions of this Agreement to the same extent as
the existing Investment Funds, except to the extent that such provisions
(including those relating to the compensation and expenses payable by the Trusts
and their Investment Funds) may be modified with respect to each additional
Investment Fund in writing by the Administrator, the Trusts and the Bank at the
time of the addition of the Investment Fund.
2. DELIVERY OF DOCUMENTS
The Trusts will promptly deliver to the Bank copies of each of the
following documents and all future amendments and supplements, if any:
a. Each Trust's Declaration of Trust or comparable document;
b. Each Trust's currently effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), where
applicable, and the 1940 Act and each Trust's Prospectus(es) and
Statement(s) of Additional Information relating to all
<PAGE>
Investment Funds and all amendments and supplements thereto as in
effect from time to time;
c. Certified copies of the resolutions of the Board of Trustees of
each Trust (the "Board") authorizing (1) the Trust to enter into
this Agreement and (2) certain individuals on behalf of the Trust
to (a) give instructions to the Bank pursuant to this Agreement
and (b) sign checks and pay expenses on behalf of the Trust;
d. A copy of the investment advisory agreement between each Trust
and its investment adviser, including any sub-advisory agreement
between the Trust and its investment sub-adviser, if any; and
e. Such other certificates, documents or opinions which the Bank
may, in its reasonable discretion, deem necessary or appropriate
in the proper performance of its duties.
3. REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Trusts that:
a. It is a Massachusetts trust company, duly organized and existing
under the laws of The Commonwealth of Massachusetts;
b. It has the corporate power and authority to carry on its business
in The Commonwealth of Massachusetts;
c. All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement;
d. No legal or administrative proceedings have been instituted or
threatened which would impair the Bank's ability to perform its
duties and obligations under this Agreement; and
e. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Bank or any law or regulation applicable to it.
4. REPRESENTATIONS AND WARRANTIES OF THE TRUSTS
Each Trust represents and warrants to the Bank that:
a. With respect to Schroder Capital Funds, Schroder Capital Funds
(Delaware) and Schroder Series Trust II, each is a business
trust, duly organized, existing and in good standing under the
laws of the State of Delaware;
b. It has the corporate power and authority under applicable laws
and under its Declaration of Trust and by-laws or comparable
documents to enter into and
<PAGE>
perform this Agreement;
c. All requisite proceedings have been taken to authorize it to
enter into and perform this Agreement;
d. It is an investment company properly registered under the 1940
Act;
e. A registration statement under the 1933 Act, where applicable,
and the 1940 Act has been filed and will be effective and remain
effective during the term of this Agreement. Each Trust also
warrants to the Bank that as of the effective date of this
Agreement, all necessary filings under the securities laws of the
states in which the Trust offers or sells its shares have been
made;
f. No legal or administrative proceedings have been instituted or
threatened which would impair the Trust's ability to perform its
duties and obligations under this Agreement;
g. Its entrance into this Agreement will not cause a material breach
or be in material conflict with any other agreement or obligation
of the Trust or any law or regulation applicable to it; and
h. As of the close of business on the date of this Agreement, the
Trust is authorized to issue shares of beneficial interest in the
authorized amounts as set forth in Schedule A to this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR
The Administrator represents and warrants to the Bank that:
a. It is a corporation, duly organized, existing and in good
standing under the laws of The State of New York;
b. It has the power and authority under New York law and by its
charter and by-laws to enter into and perform this Agreement;
c. All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement;
d. No legal or administrative proceedings have been instituted or
threatened which would impair the Administrator's ability to
perform its duties and obligations under this Agreement; and
e. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Administrator or any law or regulation
applicable to it.
6. ADMINISTRATION SERVICES
<PAGE>
The Bank shall provide the following services, in each case, subject
to the control, supervision and direction of the Trusts and the Administrator
and the review and comment by each Trust's and the Administrator's auditors and
legal counsel and in accordance with procedures which may be established from
time to time among a Trust, the Administrator and the Bank:
a. Oversee the determination of each Investment Fund's net asset
value in accordance with each Investment Fund's policy as adopted
from time to time by the Board;
b. Prepare on a timely basis each Investment Fund's federal, state
and local income tax returns for review by the Investment Fund's
independent accountants and filing by each Investment Fund's
treasurer;
c. Review the calculation of, submit for approval by officers of
each Investment Fund and arrange for payment of each Investment
Fund's expenses;
d. Prepare on a timely basis for review and approval by officers of
each Investment Fund financial information for each Investment
Fund's semi-annual and annual reports, proxy statements and other
communications with shareholders required or otherwise to be sent
to Investment Fund shareholders, and arrange for the printing and
dissemination of such reports and communications to shareholders;
e. Prepare on a timely basis reports relating to the business and
affairs of each Investment Fund as may be mutually agreed upon
and not otherwise prepared by each Investment Fund's investment
advisor, custodian, legal counsel or independent accountants;
f. Make such reports and recommendations to the Board concerning the
performance of the independent accountants as the Board may
reasonably request;
g. Make such reports and recommendations to the Board concerning the
performance and fees of each Investment Fund's custodian and
transfer and dividend disbursing agent ("Transfer Agent") as the
Board may reasonably request or deem appropriate;
h. Oversee and review calculations of fees paid to each Investment
Fund's investment advisor, custodian and Transfer Agent;
i. Consult with each Investment Fund's officers, independent
accountants, legal counsel, custodian and Transfer Agent in
establishing the accounting policies of the Investment Fund;
j. Respond to, or refer to each Investment Fund's officers or
Transfer Agent, shareholder inquiries relating to the Investment
Fund;
<PAGE>
k. Provide periodic testing of portfolios to assist each Investment
Fund's investment advisor in complying with Investment Fund
investment limitations as may be mutually agreed upon;
l. Blue Sky notice filing and reporting;
m. Oversee the maintenance of certain books and records of each
Trust as required under Rule 31a-1(b)(4) of the 1940 Act;
n. Prepare on a timely basis for review by an officer or the counsel
for each Trust the Trust's periodic financial report required to
be filed with the Securities and Exchange Commission (the "SEC")
on Form N-SAR and Form N-1A and such other reports, forms or
filings, as may be mutually agreed upon;
o. Provide periodic testing of the Investment Funds to assist the
Administrator in complying with Internal Revenue Code mandatory
qualification requirements, the requirements of the Investment
Company Act and Trust prospectus limitations as may be mutually
agreed upon and provide on a timely basis quarterly reports to
the Trustees as to such compliance;
p. Prepare on a timely basis recommendations of distributions to be
made by each of the Investment Funds in order to comply with the
requirements outlined in paragraph (o) above, for review by the
Investment Funds' auditors and officers;
q. Utilize the Aggregate Portfolio Allocation System to provide
partnership tax allocations;
LIMITED LEGAL SUPPORT:
r. Consult on Blue Sky matters;
s. Provide assistance with developing and maintaining an SEC filing
calendar; and
t. Process insurance renewals.
The Bank may provide additional legal services to the Administrator
and the Trusts for an additional fee as described in the Fee Schedule. The Bank
shall provide the office facilities and the personnel required by it to perform
the services contemplated herein.
The Bank will take reasonable steps to ensure that its products (and
those of its third-party suppliers) reflect the available state of the art
technology to offer products that are Year 2000 compliant, including, but not
limited to, century recognition of dates, calculations that correctly compute
same century and multi-century formulas and date values, and interface values
that reflect the date issues arising between now and the next one hundred years.
If any changes are required, the Bank will make the changes to its products at
no cost to the Administrator or the Trusts and in a commercially reasonable time
frame and will require third-party suppliers to do likewise.
<PAGE>
6. FEES; EXPENSES; EXPENSE REIMBURSEMENT
The Bank shall receive from each Trust such compensation for the
Bank's services provided pursuant to this Agreement as may be agreed to from
time to time in a written fee schedule approved by the parties and initially set
forth in the Fee Schedule to this Agreement. The fees are accrued daily and
billed monthly and shall be due and payable upon receipt of the invoice. Upon
the termination of this Agreement before the end of any month, the fee for the
part of the month before such termination shall be prorated according to the
proportion which such part bears to the full monthly period and shall be payable
upon the date of termination of this Agreement. In addition, each Trust shall
reimburse the Bank for its reasonable out-of-pocket costs incurred in connection
with its performance of this Agreement in respect of that Trust.
The Trusts agree promptly to reimburse the Bank for any equipment and
supplies specially ordered by or for the Trusts, or the Administrator, through
the Bank and for any other expenses not contemplated by this Agreement that the
Bank may incur on any Trust's or the Administrator's behalf, at the Trust's or
the Administrator's request or with any Trust's or the Administrator's consent.
Each Trust will bear all expenses that are incurred in its operation
and not specifically assumed by the Bank. Expenses to be borne by the Trusts,
include, but are not limited to: organizational expenses; cost of services of
independent accountants and outside legal and tax counsel (including such
counsel's review of each Trust's registration statement, proxy materials,
federal and state tax qualification as a regulated investment company and other
reports and materials prepared by the Bank under this Agreement); cost of any
services contracted for by the Trusts directly from parties other than the Bank;
cost of trading operations and brokerage fees, commissions and transfer taxes in
connection with the purchase and sale of securities for the Trusts; investment
advisory fees; taxes, insurance premiums and other fees and expenses applicable
to each Trust's operation; costs incidental to any meetings of shareholders
including, but not limited to, legal and accounting fees, proxy filing fees and
the costs of preparation, filing (including edgarization), printing and mailing
of any proxy materials; costs incidental to Board meetings, including fees and
expenses of Board members; the salary and expenses of any officer,
director/trustee or employee of the Trusts; costs incidental to the preparation,
filing (including edgarization), printing and distribution of each Trust's
registration statements and any amendments thereto, and shareholder reports;
cost of typesetting and printing of prospectuses; cost (other than internal
costs of the Bank in its performance of its obligations under this Agreement) of
preparation and filing of each Trust's tax returns, Form N-1A and Form N-SAR,
and all notices, registrations and amendments associated with applicable federal
and state tax and securities laws; all applicable registration fees and filing
fees required under federal and state securities laws; fidelity bond and
directors' and officers' liability insurance; and cost of independent pricing
services used in computing each Trust's net asset value.
The Bank is authorized to and may employ or associate with such person
or persons as the Bank may deem desirable to assist it in performing its duties
under this Agreement; provided, however, that the compensation of such person or
persons shall be paid by the Bank and that the Bank shall be as fully
responsible to the Trusts for the acts and omissions of any such person or
persons as it is for its own acts and omissions.
<PAGE>
7. INSTRUCTIONS AND ADVICE
At any time, the Bank may apply to any officer of the Trusts or the
Administrator for instructions and may consult with its own outside legal
counsel or outside counsel for the Trusts or the independent accountants for the
Trusts at the expense of the Trusts, with respect to any matter arising in
connection with the services to be performed by the Bank under this Agreement.
The Bank shall not be liable, and shall be indemnified by the Trusts, for any
action taken or omitted by it in good faith in reliance upon any such
instructions or advice or upon any paper or document reasonably believed by it
to be genuine and to have been signed by the proper person or persons. The Bank
shall not be held to have notice of any change of authority of any person until
receipt of written notice thereof from the Trusts. Nothing in this paragraph
shall be construed as imposing upon the Bank any obligation to seek such
instructions or advice of counsel or independents accountants, or to act in
accordance with such advice or the Administrator when received.
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
The Bank shall be responsible for the performance of only such duties
as are set forth in this Agreement and, except as otherwise provided under
Section 6, shall have no responsibility for the actions or activities of any
other party, including other service providers. The Bank shall have no liability
for any error of judgment or mistake of law or for any loss or damage resulting
from the performance or nonperformance of its duties hereunder except to the
extent caused by or resulting from the negligence or willful misconduct of the
Bank, its officers or employees. Neither party shall be liable for any special,
indirect, incidental, or consequential damages of any kind whatsoever
(including, without limitation, attorneys' fees) under any provision of this
Agreement (including this Section 8) or for any such damages arising out of any
act or failure to act hereunder. In any event, the Bank's liability under this
Agreement shall be limited to two and one half (2 1/2) times its total annual
compensation earned and fees paid hereunder during the preceding twelve months
for any liability or loss suffered by the Administrator, the Trusts or the
Investment Funds, including, but not limited to, any liability relating to
qualification of any Trust as a regulated investment company or any liability
relating to any Trust's compliance with any federal or state tax or securities
statute, regulation or ruling. If this Agreement has been in effect for less
than twelve months, all fees paid during the period that the Agreement has been
in effect plus all fees payable for the remainder of the initial twelve month
period shall be used to calculate the limitation of liability hereunder.
The Bank shall not be responsible or liable for any failure or delay
in performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its control, including without
limitation, work stoppage, power or other mechanical failure, computer virus,
natural disaster, governmental action or communication disruption.
The Administrator and the Trusts shall indemnify and hold the Bank
harmless from all loss, cost, damage and expense, including reasonable fees and
expenses for counsel, incurred by the Bank resulting from any claim, demand,
action or suit in connection with the Bank's acceptance of this Agreement, any
action or omission by it in the performance of its duties hereunder, or as a
result of acting upon any instructions reasonably believed by it to have been
duly authorized by the Administrator and the Trusts, provided that this
indemnification shall not apply to actions or omissions of the Bank, its
officers or employees in cases of its or their own negligence or willful
misconduct.
<PAGE>
The Administrator and the Trusts will be entitled to participate at
their own expense in the defense, or, if it so elects, to assume the defense of
any suit which might be the subject of the indemnification provided above. In
the event the Administrator and/or the Trusts elect to assume the defense of any
suit and retain such counsel, the Bank or any other person entitled to such
indemnification, named as defendant or defendants in the suit, may retain
additional counsel but shall bear the fees and expenses of such counsel unless
the Administrator or the Trusts have specifically authorized the retaining of
such counsel.
The indemnification contained herein shall survive the termination of
this Agreement.
9. CONFIDENTIALITY
The Bank agrees that, except as otherwise required by law or in
connection with any required disclosure to a banking or other regulatory
authority, it will keep confidential the terms of this Agreement and all records
and information in its possession relating to the Trusts or their shareholders
or shareholder accounts and will not disclose the same to any person except at
the request or with the written consent of the Trusts.
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS
The Trusts assumes full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable to
it.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Bank agrees that all records which it maintains for the Trusts shall at all
times remain the property of the Trusts, shall be readily accessible during
normal business hours, and shall be promptly surrendered upon the termination of
the Agreement or otherwise on written request. The Bank further agrees that all
records which it maintains for the Trusts pursuant to Rule 31a-1 under the 1940
Act will be preserved for the periods prescribed by Rule 31a-2 under the 1940
Act unless any such records are earlier surrendered as provided above. Records
shall be surrendered in usable machine-readable form.
11. SERVICES NOT EXCLUSIVE
The services of the Bank to the Trusts are not to be deemed exclusive,
and the Bank shall be free to render similar services to others. The Bank shall
be deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Trusts from time to time, have no authority
to act or represent the Trusts in any way or otherwise be deemed an agent of the
Trusts.
12. TERM, TERMINATION AND AMENDMENT
This Agreement shall become effective on the date of its execution and
shall remain in full force and effect from the effective date for an initial
term of three years from the effective date and shall automatically continue in
full force and effect after such initial term unless any party terminates this
Agreement by written notice to the other parties at least sixty (60) days prior
to the expiration of the initial term. Any party may terminate this Agreement at
any time after the initial term upon at least sixty (60) days' prior written
notice to the other parties. In addition, a Trust may terminate this Agreement
without penalty as to any Investment Fund during the initial term upon at least
sixty (60) days' prior
<PAGE>
written notice to the other parties; provided, however, that, in the event of
any such termination (other than following material breach by the Bank of this
Agreement not remedied within 30 days or following any assignment of this
Agreement by the Bank which is not reasonably acceptable to a Trust) the Trust,
on behalf of such Investment Fund, will pay to the Bank an amount equal to the
difference between (i) the fees that would have been payable by such Investment
Fund for the period prior to such termination if the fee schedule for the third
year of the initial term had been in effect during such period and (ii) the fees
actually paid by that Investment Fund for the period. Termination of this
Agreement with respect to any given Investment Fund shall in no way affect the
continued validity of this Agreement with respect to any other Investment Fund.
Upon termination of this Agreement, the Trusts shall pay to the Bank such
compensation and any reimbursable expenses as may be due under the terms hereof
as of the date of such termination, including reasonable out-of-pocket expenses
associated with such termination. This Agreement may be modified or amended from
time to time by mutual written agreement of the parties hereto.
13. NOTICES
Any notice or other communication authorized or required by this
Agreement to be given to any party shall be in writing and deemed to have been
given when delivered in person, by overnight courier or by confirmed facsimile,
or by certified mail, return receipt requested, to the following address (or
such other address as a party may specify by written notice to the other): If to
the Administrator: Schroder Fund Advisors Inc., 787 Seventh Avenue, 34th Floor,
New York, NY 10019, Attn: Catherine A. Mazza and Alexandra Poe, fax:
212-641-3897; if to the Trusts: c/o Schroder Capital Management International
Inc., 787 Seventh Avenue, 34th Floor, New York, NY 10019, Attn: Alexandra Poe;
fax: 212-641-3877; if to the Bank: State Street Bank and Trust Company, 1776
Heritage Drive, AFB-4, North Quincy, Massachusetts 02171, Attn: Fund
Administration Legal Department, fax: 617-537-2578.
14. NON-ASSIGNABILITY
This Agreement shall not be assigned by any party hereto without the
prior consent in writing of the other two parties, except that the Bank may
assign this Agreement to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by or under common control with
the Bank.
15. SUCCESSORS
This Agreement shall be binding on and shall inure to the benefit of
the Trusts, the Administrator and the Bank and their respective successors and
permitted assigns.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes all previous
representations, warranties or commitments regarding the services to be
performed hereunder whether oral or in writing.
<PAGE>
17. WAIVER
The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed by
the waiving party.
18. LIMITATION OF LIABILITY OF TRUSTEES AND SHAREHOLDERS
Notice is hereby given that this Agreement is executed on behalf of
the Trustees of each Trust as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of any Trust individually but are binding only upon the assets and
property of the Investment Fund in question.
19. SEVERABILITY
If any provision of this Agreement is invalid or unenforceable, the
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
20. GOVERNING LAW
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
21. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
22. RIGHTS AND OBLIGATIONS OF THE FUNDS SEVERAL
The parties agree that this Agreement shall constitute a separate and
discrete agreement among the Bank, the Administrator and each Investment Fund,
as if set out in a separate writing executed by the Bank, the Administrator and
a Trust on behalf of each Investment Fund alone. Notwithstanding any other
provision of this Agreement, no Investment Fund shall have any obligation or
incur any liability (including without limitation by way of indemnification) in
respect of any action, omission or course of dealing of or in respect of, any
other Investment Fund. Any reference in this Agreement to a "Trust," the
"Trusts" or an "Investment Fund" shall be construed so as to give effect to the
foregoing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first written
above.
SCHRODER CAPITAL FUNDS
SCHRODER CAPITAL FUNDS (DELAWARE)
SCHRODER SERIES TRUST II
By:
Name:
Title:
SCHRODER FUND ADVISORS, INC.
By:
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
Name: Kathleen C. Cuocolo
---------------------
Title: Senior Vice President
---------------------
<PAGE>
SUB-ADMINISTRATION AGREEMENT
SCHEDULE A
LISTING OF INVESTMENT FUNDS AND AUTHORIZED SHARES
INVESTMENT FUND AUTHORIZED SHARES
SCHRODER SERIES TRUST II Unlimited
- - Schroder All-Asia Fund
SCHRODER CAPITAL FUNDS Unlimited
- - Schroder Global Growth Portfolio
- - Schroder Japan Portfolio
- - Schroder Asian Growth Fund Portfolio
- - Schroder EM Core Portfolio
SCHRODER CAPITAL FUNDS (DELAWARE) Unlimited
- - Schroder US Smaller Companies Fund
- - Schroder International Fund
- - Schroder International Smaller Companies Fund
- - Schroder Emerging Markets Fund Institutional
Portfolio
- - Schroder Emerging Markets Fund
- - Schroder Micro Cap Fund
- - Schroder U.S. Diversified Growth Fund
- - Schroder Greater China Fund
<PAGE>
SUB-ADMINISTRATION AGREEMENT
SCHRODER CAPITAL FUNDS FAMILY
SCHEDULE B
NOTICE FILING WITH
STATE SECURITIES AUTHORITIES
AT THE SPECIFIC DIRECTION OF THE TRUSTS, THE BANK WILL PREPARE REQUIRED
DOCUMENTATION AND MAKE NOTICE FILINGS IN ACCORDANCE WITH THE SECURITIES LAWS OF
EACH JURISDICTION IN WHICH TRUST SHARES ARE TO BE OFFERED OR SOLD PURSUANT TO
INSTRUCTIONS GIVEN TO THE BANK BY THE TRUSTS.
THE TRUSTS SHALL BE SOLELY RESPONSIBLE FOR THE DETERMINATION (I) OF THOSE
JURISDICTIONS IN WHICH NOTICE FILINGS ARE TO BE SUBMITTED AND (II) THE NUMBER OF
TRUST SHARES TO BE PERMITTED TO BE SOLD IN EACH SUCH JURISDICTION. IN THE EVENT
THAT THE BANK BECOMES AWARE OF (A) THE SALE OF TRUST SHARES IN A JURISDICTION IN
WHICH NO NOTICE FILING HAS BEEN MADE OR (B) THE SALE OF TRUST SHARES IN EXCESS
OF THE NUMBER OF TRUST SHARES PERMITTED TO BE SOLD IN SUCH JURISDICTION, THE
BANK SHALL REPORT SUCH INFORMATION TO THE TRUSTS, AND IT SHALL BE THE
RESPONSIBILITY OF THE TRUST IN QUESTION TO DETERMINE APPROPRIATE CORRECTIVE
ACTION AND INSTRUCT THE BANK WITH RESPECT THERETO.
The Blue Sky services provided by the Bank hereunder shall consist of the
following:
1. Filing of the Trusts' Initial Notice Filings, as directed by the
Trusts;
2. Filing of the Trusts' renewals and amendments as required;
3. Filing of amendments to the Trust's registration statement where
required;
4. Filing Trust sales reports where required;
5. Payment at the expense of the Trusts of all Trust Notice Filing fees;
6. Filing the Prospectuses and Statements of Additional Information of
the Trusts and any amendments or supplements thereto where required;
7. Filing of annual reports, supplements and stickers, and proxy
statements where required; and
8. The performance of such additional services as the Bank and the Trusts
may agree upon in writing.
Unless otherwise specified in writing by the Bank, Blue Sky services by the Bank
shall not include determining the availability of exemptions under a
jurisdiction's blue sky law. Any such determination shall be made by the Trusts
or their legal counsel. In connection with the services described herein, the
Trusts shall issue in favor of the Bank a power of attorney to submit Notice
Filings on behalf of the Trust, which power of attorney shall be substantially
in the form of Exhibit I attached hereto.
<PAGE>
EXHIBIT I
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, as of ____________________ , 1998 that Schroder
Capital Funds with principal offices at 787 Seventh Avenue, New York, New York
10019-6016 (the "Trust") makes, constitutes, and appoints STATE STREET BANK AND
TRUST COMPANY (the "Bank") with principal offices at 225 Franklin Street,
Boston, Massachusetts its lawful attorney-in-fact for it to do as if it were
itself acting, the following:
1. REGISTRATION OF TRUST SHARES. The power to register shares of the Trust in
each jurisdiction in which Trust's shares are offered or sold and in
connection therewith the power to prepare, execute, and deliver and file
any and all Trust applications, including without limitation, applications
to register shares, consents, including consents to service of process,
reports, including without limitation, all periodic reports, claims for
exemption, or other documents and instruments now or hereafter required or
appropriate in the judgment of the Bank in connection with the registration
of Trust shares.
2. AUTHORIZED SIGNERS. Pursuant to this Limited Power of Attorney, individuals
holding the titles of Officer, Blue Sky Manager, or Senior Blue Sky Bank at
the Bank shall have authority to act on behalf of the Trust with respect to
item 1 above.
The execution of this limited power of attorney shall be deemed coupled with an
interest and shall be revocable only upon receipt by the Bank of such
termination of authority. Nothing herein shall be construed to constitute the
appointment of the Bank as or otherwise authorize the Bank to act as an officer,
director or employee of the Trust.
IN WITNESS WHEREOF, the Trust has caused this Agreement to be executed in its
name and on its behalf by and through its duly authorized officer, as of the
date first written above.
SCHRODER CAPITAL FUNDS
By:
Name:
Title:
<PAGE>
EXHIBIT I
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, as of ____________________, 1998 that Schroder
Capital Funds (Delaware) with principal offices at 787 Seventh Avenue, New York,
New York 10019-6016 (the "Trust") makes, constitutes, and appoints STATE STREET
BANK AND TRUST COMPANY (the "Bank") with principal offices at 225 Franklin
Street, Boston, Massachusetts its lawful attorney-in-fact for it to do as if it
were itself acting, the following:
1. REGISTRATION OF TRUST SHARES. The power to register shares of the Trust in
each jurisdiction in which Trust's shares are offered or sold and in
connection therewith the power to prepare, execute, and deliver and file
any and all Trust applications, including without limitation, applications
to register shares, consents, including consents to service of process,
reports, including without limitation, all periodic reports, claims for
exemption, or other documents and instruments now or hereafter required or
appropriate in the judgment of the Bank in connection with the registration
of Trust shares.
2. AUTHORIZED SIGNERS. Pursuant to this Limited Power of Attorney, individuals
holding the titles of Officer, Blue Sky Manager, or Senior Blue Sky Bank at
the Bank shall have authority to act on behalf of the Trust with respect to
item 1 above.
The execution of this limited power of attorney shall be deemed coupled with an
interest and shall be revocable only upon receipt by the Bank of such
termination of authority. Nothing herein shall be construed to constitute the
appointment of the Bank as or otherwise authorize the Bank to act as an officer,
director or employee of the Trust.
IN WITNESS WHEREOF, the Trust has caused this Agreement to be executed in its
name and on its behalf by and through its duly authorized officer, as of the
date first written above.
SCHRODER CAPITAL FUNDS (DELAWARE)
By:
Name:
Title:
<PAGE>
EXHIBIT I
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, as of _____________________, 1998 that Schroder
Series Trust II with principal offices at 787 Seventh Avenue, New York, New York
10019-6016 (the "Trust") makes, constitutes, and appoints STATE STREET BANK AND
TRUST COMPANY (the "Bank") with principal offices at 225 Franklin Street,
Boston, Massachusetts its lawful attorney-in-fact for it to do as if it were
itself acting, the following:
1. REGISTRATION OF TRUST SHARES. The power to register shares of the Trust in
each jurisdiction in which Trust's shares are offered or sold and in
connection therewith the power to prepare, execute, and deliver and file
any and all Trust applications, including without limitation, applications
to register shares, consents, including consents to service of process,
reports, including without limitation, all periodic reports, claims for
exemption, or other documents and instruments now or hereafter required or
appropriate in the judgment of the Bank in connection with the registration
of Trust shares.
2. AUTHORIZED SIGNERS. Pursuant to this Limited Power of Attorney, individuals
holding the titles of Officer, Blue Sky Manager, or Senior Blue Sky Bank at
the Bank shall have authority to act on behalf of the Trust with respect to
item 1 above.
The execution of this limited power of attorney shall be deemed coupled with an
interest and shall be revocable only upon receipt by the Bank of such
termination of authority. Nothing herein shall be construed to constitute the
appointment of the Bank as or otherwise authorize the Bank to act as an officer,
director or employee of the Trust.
IN WITNESS WHEREOF, the Trust has caused this Agreement to be executed in its
name and on its behalf by and through its duly authorized officer, as of the
date first written above.
SCHRODER SERIES TRUST II
By:
Name:
Title:
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect to Post-Effective Amendment No.
16 to the Private Placement Memorandum (File No. 811-9130) of Schroder Capital
Funds on behalf of Schroder Global Growth Portfolio (the "Fund"):
1. The incorporation by reference of our report dated July 15, 1999, on our
audits of the financial statements and financial highlights of the Fund, in
the Confidential Statement of Additional Information.
2. The reference to our firm under the heading "Independent Auditors" in the
Confidential Statement of Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 30, 1999
<PAGE>
POWER OF ATTORNEY
We, the undersigned Trustees and officers of Schroder Capital Funds
(Delaware), Schroder Capital Funds, and Schroder Series Trust (the "Trusts"),
hereby constitute and appoint Catherine A. Mazza, Alexandra Poe, Carin F.
Muhlbaum, Nancy A. Curtin, and Timothy W. Diggins as our true and lawful
attorneys, with full power to each of them individually and with full power of
substitution, to sign for us, and in each of our names and in the capacities
indicated below, any and all amendments to the Registration Statements of the
Trusts on Form N-1A, including all post-effective amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys full power and authority to do and perform each and every act and
thing requisite or necessary to be done in the premises, as fully to all intents
and purposes as said attorney might or could do in person, hereby ratifying and
confirming all that said attorney lawfully could do or cause to be done by
virtue hereof. In executing this Power of Attorney, each of us hereby revokes
and rescinds all powers of attorney granted prior to the date hereof in each of
our capacities as a Trustee of officer of the Trusts.
Name Capacity Date
- ---- -------- -----
/s/ Nancy A. Curtin Trustee and Chairman June 2, 1999
- ---------------------------- -------------------
Nancy A. Curtin
/s/ David N. Dinkins Trustee June 2, 1999
- ---------------------------- -------------------
David N. Dinkins
/s/ John I. Howel Trustee June 2, 1999
- ---------------------------- -------------------
John I. Howel
/s/ Peter S. Knight Trustee June 2, 1999
- ---------------------------- -------------------
Peter S. Knight
/s/ Peter E. Guernsey Trustee June 2, 1999
- ---------------------------- -------------------
Peter E. Guernsey
/s/ Sharon L. Haugh Trustee June 2, 1999
- ---------------------------- -------------------
Sharon L. Haugh
/s/ William L. Means Trustee June 2, 1999
- ---------------------------- -------------------
William L. Means
/s/ Clarence F. Michalis Trustee June 2, 1999
- ---------------------------- -------------------
Clarence F. Michalis
<PAGE>
Name Capacity Date
- ---- -------- -----
/s/ Hermann C. Schwab Trustee June 2, 1999
- ---------------------------- -------------------
Herman C. Schwab
/s/ Alan Mandel Treasurer and Principal June 2, 1999
- ---------------------------- Financial and Accounting -------------------
Alan Mandel Officer
