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As filed with the Securities and Exchange Commission on February 26, 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. 15
SCHRODER CAPITAL FUNDS
Two Portland Square
Portland, Maine 04101
207-879-1900
Dana A. Lukens, Esq.
Forum Administrative Services, LLC
Two Portland Square
Portland, Maine 04101
Copies to:
Timothy W. Diggins, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Carin Muhlbaum, Esq.
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
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EXPLANATORY NOTE
This Registration Statement is being filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. Beneficial interests in
the series of Registrant are not being registered under the Securities Act of
1933, as amended, because such interests will be issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of that act. Investments in Registrant's series may only
be made by certain institutional investors, whether organized within or without
the United States (excluding individuals, S corporations, partnerships, and
grantor trusts beneficially owned by any individuals, S corporations or
partnerships). This Registration Statement does not constitute an offer to sell,
or the solicitation of an offer to buy any beneficial interests in any series of
Registrant.
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PART A
Schroder International Equity Fund, Schroder EM Core Portfolio, Schroder
International Smaller Companies Portfolio, Schroder U.S. Smaller Companies
Portfolio, Schroder Global Growth Portfolio and Schroder Emerging Markets Fund
Institutional Portfolio.
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CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
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SCHRODER CAPITAL FUNDS
INTERNATIONAL EQUITY FUND
SCHRODER EM CORE PORTFOLIO
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
SCHRODER GLOBAL GROWTH PORTFOLIO
MARCH 1, 1999
Schroder Capital Funds (the "Trust"), acting through Forum Fund Services, LLC
(the "Placement Agent"), is making a private placement of shares of beneficial
interest (`Portfolio Interests") in separate series of the Trust, each with a
distinct investment objective and policies. 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 eight Portfolios, five of which
(the "Portfolios") are described in this Confidential Private Placement
Memorandum: International Equity Fund, Schroder EM Core Portfolio, Schroder
International Smaller Companies Portfolio, Schroder U.S. Smaller Companies
Portfolio, and Schroder Global Growth Portfolio.
Schroder Capital Management International Inc. ("Schroder") manages each
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
Offering to Accredited Investors....................................1
Confidential Memorandum.............................................1
Private Placement in the United States..............................1
SUMMARY INFORMATION
International Equity Fund...........................................2
Schroder EM Core Portfolio..........................................3
Schroder International Smaller Companies Portfolio..................5
Schroder U.S. Smaller Companies Portfolio...........................6
Schroder Global Growth Portfolio....................................7
OTHER INVESTMENT STRATEGIES AND RISKS
Risks of Investing in the Portfolios................................8
Other Investment Strategies and Techniques and the Corresponding
Risks. ..........................................................10
MANAGEMENT OF THE PORTFOLIOS................................................12
INTERESTHOLDER INFORMATION
How the Portfolio Interests are Priced.............................15
Purchase of Portfolio Interests....................................15
Purchasing Interests in Exchange for Securities....................16
Redemption of Portfolio Interests..................................17
Taxes..............................................................18
OTHER INFORMATION
Capital Structure..................................................18
Restrictions on Transfer...........................................18
Statement of Additional Information................................18
Year 2000..........................................................19
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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 each 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 Portfolios 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 a 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 Portfolios (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 a 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 a
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
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business and financial matters as will enable you to evaluate the merits and
risks of a proposed investment in a 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.
SUMMARY INFORMATION
The following summary identifies each Portfolio's investment objective,
principal investment strategies, and principal risks. The investment objective
of a Portfolio may be changed only with approval of the Portfolio's investors
("Interestholders"). The policies of a Portfolio may, unless otherwise
specifically stated, be changed by the Trustees of the Trust without a vote of
the Interestholders.
Because of the differences in objectives and strategies, each Portfolio will
achieve different investment returns and is subject to varying degrees of market
and financial risk. There is no assurance that a Portfolio will achieve its
stated objective. Further information about each Portfolio is contained in the
SAI.
INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE. Long-term capital appreciation through investment in
securities markets outside the United States.
PRINCIPAL INVESTMENTS. The Portfolio normally invests at least 65% of its total
assets in equity securities of companies domiciled outside of the United States,
and will invest in securities of companies domiciled in at least three countries
other than the United States. The Portfolio invests in a variety of equity
securities, including common and preferred stocks, securities convertible into
common and preferred stocks, and warrants to purchase common and preferred
stocks.
INVESTMENT STRATEGIES. The Portfolio normally invests a substantial portion of
its assets in countries included in the Morgan Stanley Capital International
EAFE Index, which is a market capitalization-weighted index of companies in
developed market countries in Europe, Australia and the Far East.
The Portfolio invests in issuers that Schroder believes offer the potential for
capital growth. In identifying candidates for investment, Schroder considers a
variety of factors, including the issuer's likelihood of above average earnings
growth, attractive relative valuation, and whether the issuer has any
proprietary advantages. Securities generally are sold when they reach fair
valuation or when significantly more attractive investment candidates become
available.
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The Portfolio also may do the following:
* Invest in securities of issuers domiciled or doing business in "emerging
market" countries.
* Invest in securities of closed-end investment companies that invest
primarily in foreign securities.
PRINCIPAL RISKS.
* FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among others, risks related to
political or economic instability, currency exchange, and taxation.
* EQUITY SECURITIES. Another risk of investing in the Portfolio is the risk
that the value of the equity securities in which the Portfolio 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.
* GEOGRAPHIC CONCENTRATION. There is no limit on the amount of the
Portfolio's assets that may be invested in securities of issuers domiciled
in any one country. 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.
SCHRODER EM CORE PORTFOLIO
INVESTMENT OBJECTIVE. To seek long-term capital appreciation.
PRINCIPAL INVESTMENTS. The Portfolio normally invests at least 65% of its total
assets in equity securities of companies determined by Schroder to be "emerging
market" issuers. The Portfolio may invest the remaining 35% of its assets in
securities of issuers located anywhere in the world. The Portfolio invests in a
variety of equity securities, including common and preferred stocks, securities
convertible into common and preferred stocks, and warrants to purchase common
and preferred stocks.
INVESTMENT STRATEGIES. The Portfolio invests primarily in equity securities of
issuers domiciled or doing business in "emerging market" countries in regions
such as Southeast Asia, Latin America, and Eastern and Southern Europe.
"Emerging market" countries are countries that at the time of investment are not
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included in the Morgan Stanley International World Index of major world
economies. Economies currently in the Index include: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States. Schroder may at times
determine, based on its own analysis, that an economy included in the Index
should nonetheless be considered an emerging market country, in which case that
country would constitute an emerging market country for purposes of the
Portfolio's investments. The Portfolio normally will invest in at least three
countries other than the United States.
The Portfolio invests in issuers that Schroder believes offer the potential for
capital growth. In identifying candidates for investment, Schroder considers a
variety of factors, including the issuer's likelihood of above average earnings
growth, attractive relative valuation, and whether the issuer has any
proprietary advantages. Securities generally are sold when they reach fair
valuation or when significantly more attractive investment candidates become
available.
The Portfolio also may do the following:
* Invest in securities of closed-end investment companies that invest
primarily in foreign securities.
* Invest up to 35% of its assets in debt securities, including junk bonds,
which entail certain risks.
* Invest up to 5% of its assets in sovereign debt securities that are in
default.
PRINCIPAL RISKS.
* 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.
* FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among others, risks related to
political or economic instability, currency exchange, and taxation.
* GEOGRAPHIC CONCENTRATION. There is no limit on the amount of the
Portfolio's assets that may be invested in securities of issuers domiciled
in any one country. 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.
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* NON-DIVERSIFIED MUTUAL FUND. The Portfolio is a "non-diversified" mutual
fund, and will invest its assets in a more limited number of issuers than
may diversified investment companies. To the extent the Portfolio focuses
on fewer issuers, its risk of loss increases if the market value of a
security declines or if an issuer is not able to meet its obligations.
* JUNK BONDS. Securities rated below investment grade ("junk bonds") lack
outstanding investment characteristics and have speculative characteristics
and are subject to greater credit and market risks than higher-rated
securities. The ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general
economic conditions, or an unanticipated rise in interest rates, may impair
the ability of the issuer to make payments of interest and principal. If
this were to occur, the values of securities held by the Portfolio may
become more volatile.
* EQUITY SECURITIES. Another risk of investing in the Portfolio is the risk
that the value of the equity securities in which the Portfolio 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.
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
INVESTMENT OBJECTIVE. Long-term capital appreciation through investment in
securities markets outside the United States.
PRINCIPAL INVESTMENTS. The Portfolio normally invests at least 65% of its total
assets in equity securities of smaller companies (with market capitalizations of
$1.5 billion or less at the time of investment) domiciled outside the United
States. The Portfolio invests in a variety of equity securities, including
common and preferred stocks, securities convertible into common and preferred
stocks, and warrants to purchase common and preferred stocks.
INVESTMENT STRATEGIES. In selecting investments for the Portfolio, Schroder
considers a number of factors, including the company's potential for long-term
growth, financial condition, sensitivity to cyclical factors, the relative value
of the company's securities (compared to that of other companies and to the
market as a whole), and the extent to which the company's management owns equity
in the company. The Portfolio will invest in securities of issuers domiciled in
at least three countries other than the United States, and may, although it does
not currently, invest in the securities of issuers domiciled or doing business
in emerging market countries. Securities generally are sold when they reach fair
valuation or when significantly more attractive investment candidates become
available.
The Portfolio invests in small capitalization companies that Schroder believes
offer the potential for capital growth. In doing so, Schroder considers, among
other things, an issuer's likelihood of above average earnings growth, the
securities' attractive relative valuation, and whether the issuer has any
proprietary advantages.
The Portfolio also may do the following:
* Invest in securities of closed-end funds that invest primarily in foreign
securities.
* Invest in securities of issuers domiciled or doing business in emerging
market countries.
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PRINCIPAL RISKS.
* FOREIGN SECURITIEs. Investments in foreign securities entail risks not
present in domestic investments including, among others, risks related to
political or economic instability, currency exchange, and taxation.
* SMALL COMPANIEs. The Portfolio invests primarily in small companies, which
tend to be more vulnerable to adverse developments than larger companies.
Small companies may have limited product lines, markets, or financial
resources, or may depend on a limited management group. Their securities
may trade infrequently and in limited volumes. As a result, the prices of
these securities may fluctuate more than the prices of securities of
larger, more widely traded companies. Also, there may be less publicly
available information about small companies or less market interest in
their securities as compared to larger companies, and it may take longer
for the prices of the securities to reflect the full value of their
issuers' earnings potential or assets.
* EQUITY SECURITIEs. Another risk of investing in the Portfolio is the risk
that the value of the equity securities in which the Portfolio 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.
* GEOGRAPHIC CONCENTRATIOn. There is no limit on the amount of the
Portfolio's assets that may be invested in securities of issuers domiciled
in any one country. 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.
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
INVESTMENT OBJECTIVE. To seek capital appreciation.
PRINCIPAL INVESTMENTS. The Portfolio invests at least 65% of its total assets in
equity securities of companies in the United States that have (at the time of
investment) market capitalizations of $1.5 billion or less. The Portfolio also
may invest in equity securities of larger companies and in debt securities, if
Schroder believes such investments are consistent with the Portfolio's
investment objective. The Portfolio invests in a variety of equity securities
including common and preferred stocks, securities convertible into common and
preferred stocks, and warrants to purchase common and preferred stocks.
INVESTMENT STRATEGIES. In selecting investments for the Portfolio, Schroder
seeks to identify securities of companies with strong management that it
believes can generate above average earnings growth, and are selling at
favorable prices in relation to book values and earnings. The Portfolio intends
to invest no more than 25% of its total assets in securities of small companies
that, together with their predecessors, have been in operation for less than
three years.
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PRINCIPAL RISKS.
* SMALL COMPANIES. The Portfolio invests primarily in small companies, which
tend to be more vulnerable to adverse developments than larger companies.
Small companies may have limited product lines, markets, or financial
resources, or may depend on a limited management group. Their securities
may trade less frequently and in limited volumes. As a result, the prices
of these securities may fluctuate more than the prices of securities of
larger, more widely traded companies. Also, there may be less publicly
available information about small companies or less market interest in
their securities as compared to larger companies, and it may take longer
for the price of the securities to reflect the full value of their issuers'
earnings potential or assets.
* EQUITY SECURITIES. Another risk of investing in the Portfolio is the risk
that the value of the equity securities in which the Portfolio 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.
SCHRODER GLOBAL GROWTH PORTFOLIO
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.
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PRINCIPAL RISKS.
* EQUITY SECURITIES. Another risk of investing in the Portfolio is the risk
that the value of the equity securities in which the Portfolio 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.
* FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among others, risks related to
political or economic instability, currency exchange, and taxation.
* GEOGRAPHIC CONCENTRATION. There is no limit on the amount of the
Portfolio's assets that may be invested in securities of issuers domiciled
in any one country. 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 STRATEGIES AND RISKS
A Portfolio may not achieve its investment objective in all circumstances. The
following provides more detail about the Portfolios' 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 PORTFOLIOS
FOREIGN SECURITIES. Except as otherwise noted in this Memorandum, there is no
limit on the amount of a 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 a Portfolio's investments in certain foreign
countries. Since foreign securities normally are denominated and traded in
foreign currencies, the values of the Portfolio's assets may be affected
favorably or unfavorably by currency exchange rates, currency exchange control
regulations, foreign withholding taxes, and restrictions or prohibitions on the
repatriation of foreign currencies. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and foreign issuers
are not generally subject to accounting, auditing, and financial reporting
standards and practices comparable to those in the United States. The securities
of some foreign issuers are less liquid and at times more volatile than
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securities of comparable U.S. issuers. Foreign brokerage commissions and other
fees are also generally higher than in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of a Portfolio's assets
held abroad) and expenses not present in the settlement of domestic investments.
In addition, legal remedies available to investors in certain foreign countries
may be more limited than those available 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, a Portfolio may have
limited recourse available to it. The laws of some foreign countries may limit a
Portfolio's ability to invest in securities of certain issuers located in those
countries.
If a Portfolio purchases securities denominated in foreign currencies, a change
in the value of any such currency against the U.S. dollar will result in a
change in the U.S. dollar value of the Portfolio's assets and the Portfolio's
income available for distribution. In addition, although at times most of a
Portfolio's income may be received or realized in these currencies, the
Portfolio will be required to compute and distribute its income in U.S. dollars.
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 a 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 for the expense at that time than it would have had to convert at
the time the Portfolio incurred the expense. A Portfolio may buy or sell foreign
currencies and options and futures contracts on foreign currencies for hedging
purposes in connection with its foreign investments.
Special tax considerations apply to foreign securities. In determining whether
to invest in 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 a Portfolio from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by a Portfolio will reduce
its income available for distribution to Interestholders. In certain
circumstances, a Portfolio may be able to pass through to Interestholders
credits for foreign taxes paid.
DEBT SECURITIES. All of the Portfolios 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, all of the Portfolios 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 a Portfolio more volatile and could limit the Portfolio's ability to
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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.
RISKS OF SMALLER CAPITALIZATION COMPANIES. Schroder International Smaller
Companies Portfolio and Schroder U.S. Smaller Companies Portfolio invest in
companies that are smaller and less well known than larger, more widely held
companies. Small and mid-cap companies may offer greater opportunities for
capital appreciation than larger companies, but may also involve certain special
risks. They are more likely than larger companies to have limited product lines,
markets or financial resources, or to depend on a small, inexperienced
management group. Securities of smaller companies may trade less frequently and
in lesser volume than more widely held securities and their values may fluctuate
more sharply than other securities. They may also trade in the over-the-counter
market or on a regional exchange, or may otherwise have limited liquidity. These
securities may therefore be more vulnerable to adverse developments than
securities of larger companies and the Portfolios may have difficulty
establishing or closing out their securities positions in smaller companies at
prevailing market prices. Also, there may be less publicly available information
about smaller companies or less market interest in their securities as compared
to larger companies, and it may take longer for the prices of the securities to
reflect the full value of their issuers' earnings potential or assets.
OTHER INVESTMENT STRATEGIES AND TECHNIQUES AND THE CORRESPONDING RISKS
In addition to the principal investment strategies described in the Summary
Information section above, the Portfolios 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 Portfolios. 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. A Portfolio may engage in currency exchange transactions
to protect against unfavorable fluctuations in exchange rates.
In particular, a 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, a Portfolio's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign currency and
may at times involve currencies in which its portfolio securities are not then
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denominated ("cross hedging"). A Portfolio may also engage in "proxy" hedging,
whereby the Portfolio would seek to hedge the value of portfolio holdings
denominated in one currency by entering into an exchange contract on a second
currency, the valuation of which 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.
A Portfolio incurs foreign exchange expenses in converting assets from one
currency to another. A 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, each 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 a Portfolio
will utilize hedging transactions at any time.
SECURITIES LOANS, REPURCHASE AGREEMENTS, AND FORWARD COMMITMENTS. Each Portfolio
(other than International Equity Fund) may lend portfolio securities to
broker-dealers up to one-third of the Portfolio's total assets. Each Portfolio
may also enter into repurchase agreements without limit. These transactions must
be fully collateralized at all times, but involve some risk to a Portfolio if
the other party should default on its obligation and the Portfolio is delayed or
prevented from recovering the collateral. Each 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. Each 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, a Portfolio may pay a premium above such
investment company's net asset value per share. As a shareholder in an
investment company, a Portfolio would bear its ratable share of the investment
company's expenses, including 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, each 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, futures, and 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. Each Portfolio that may invest in debt securities may invest
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
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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.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. The
investment policies of a Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by a Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to a Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Such sales may increase the
amount of capital gains (and, in particular, short-term gains) realized by the
Portfolios, on which Interestholders pay tax.
TEMPORARY DEFENSIVE STRATEGIES. At times, Schroder may judge that conditions in
the securities markets make pursuing a 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 a 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, a 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. Each 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
Portfolios 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 PORTFOLIOS
A Board of Trustees governs the Trust, which has retained Schroder to manage the
investments of each Portfolio. Subject to the control of the Trustees, Schroder
also manages the Portfolios' other affairs and business. Schroder has served as
investment adviser to each of the Portfolios since inception.
Subject to the direction and control of Schroder, Schroder Investment Management
International Limited (SIMIL), an affiliate of Schroder, serves as subadviser to
Schroder International Smaller Companies Portfolio pursuant to an Investment
Subadvisory Agreement among Schroder, SIMIL and the Portfolio.
Schroder has been an investment manager since 1962 and serves as investment
adviser to a broad range of institutional investors. As of December 31, 1998,
Schroder, together with its United Kingdom affiliate, Schroder Capital
Management International Limited, had approximately $27.1 billion in assets
under management. Schroder's address is 787 Seventh Avenue, 34th floor, New
York, New York 10019, and its telephone number is (212) 641-3900. SIMIL has been
registered as a U.S. investment adviser since 1998, and as of June 30, 1998 had
under management assets of approximately $42 billion. SIMIL's address is 31
Gresham Street, London, United Kingdom, EC2V 7QA.
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INVESTMENT ADVISORY FEES PAID BY THE PORTFOLIOS. For the following fiscal years,
the Portfolios paid investment advisory fees to Schroder at the following annual
rates (based on the average net assets of each Portfolio taken separately):
<TABLE>
<S> <C> <C>
PORTFOLIO MOST RECENT FISCAL YEAR ENDED FEE (AS A % OF NET ASSETS)
- --------- ----------------------------- --------------------------
International Equity Fund October 31, 1998 0.427%
Schroder EM Core Portfolio May 31, 1998 0.086%
Schroder International Smaller
Companies Portfolio October 31, 1998 0.00%
Schroder U.S. Smaller Companies
Portfolio May 31, 1998 0.60%
Schroder Global Growth Portfolio
October 31, 1998 0.00%
</TABLE>
Schroder is contractually obligated to waive 0.10% of the investment advisory
fees payable by Schroder International Smaller Companies Portfolio. Pursuant to
the Investment Subadvisory Agreement, Schroder pays SIMIL a monthly fee at the
annual rate of 0.25% of the daily net assets of Schroder International Smaller
Companies Portfolio.
EXPENSE LIMITATIONS AND WAIVERS. In order to limit the Portfolios' expenses,
Schroder is contractually obligated to reduce its compensation until December
31, 1999, unless otherwise indicated(and, if necessary, to pay certain other
Portfolio expenses) to the extent that each Portfolio's total operating expenses
exceed the following annual rates (based on the average net assets of each
Portfolio taken separately): INTERNATIONAL EQUITY FUND -- 0.75%; SCHRODER EM
CORE PORTFOLIO -- 1.45%; SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO --
1.20%; and SCHRODER U.S. SMALLER COMPANIES PORTFOLIO -- and SCHRODER GLOBAL
GROWTH PORTFOLIO(May 31, 1999)0.85%.
PORTFOLIO MANAGERS. Schroder's investment decisions for each of the Portfolios
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 Portfolios since
the years shown below. Their recent professional experience is also shown.
<TABLE>
<S> <C> <C> <C> <C>
PORTFOLIO PORTFOLIO MANAGER SINCE RECENT PROFESSIONAL EXPERIENCE
International Michael Perelstein 1997 Employed as an investment professional
Equity Fund 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 Vice President of
Schroder. Prior to joining Schroder,
Mr. Perelstein was a Managing Director
at MacKay-Shields Financial Corp. from
March 1993 to November 1996.
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Schroder EM Core John Troiano Inception Employed as an investment professional
Portfolio (1997) at Schroder since 1986. Mr. Troiano is
the Chief Executive and director of
Schroder, and a Vice President of the
Trust and of Schroder Capital Funds
(Delaware).
Heather Crighton Inception Employed as an investment professional
(1997) at Schroder since 1993. Ms. Crighton
is a director and a First Vice
President of Schroder.
Mark Bridgeman Inception Employed as an investment professional
(1997) at Schroder since 1990. Mr. Bridgeman
is a First Vice President of Schroder.
Schroder International Jane P. Lucas 1998 Employed as an investment professional
Smaller Companies at Schroder since 1987. Ms. Lucas is a
Portfolio Vice President of the Trust and of
Schroder Capital Funds (Delaware) and a
Senior Vice President of Schroder.
Nicholas Melhuish 1998 Employed as an investment professional
at Schroder since 1991. Mr. Melhuish
is an investment manager of SIMIL and
of Schroder.
Schroder U.S. Smaller Ira L. Unschuld 1997 (sole Employed as an investment professional
Companies Portfolio manager at Schroder since 1990. Mr. Unschuld
since is a Vice President of the Trust and of
1998) Schroder Capital Funds (Delaware) and a
Group Vice President of Schroder.
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Schroder Global Growth Michael Perelstein 1997 See above.
Portfolio
Paul Morris 1997 Employed as an investment professional
at Schroder since 1997. Mr. Morris is
Senior Vice President 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.
</TABLE>
INTERESTHOLDER INFORMATION
HOW PORTFOLIO INTERESTS ARE PRICED
Each 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 Portfolios
value their 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
Portfolios value all other securities at their fair values as determined in
accordance with procedures adopted by the Board of Trustees. All assets and
liabilities of a Portfolio denominated in foreign currencies are valued in U.S.
dollars based on the exchange rate last quoted by a major bank prior to the time
when the net asset value of the Portfolio's Portfolio Interests is calculated.
Because certain of the securities in which the Portfolios may invest may trade
on days on which the Portfolios do not price their 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 a 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.
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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:
The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Shareholder Services, LLC
Account No.: 910-2-783645
Ref.: [Name of Portfolio]
Account of: [Interestholder name]
Account Number: [Interestholder account number]
The wire order must specify the name of the Portfolio, the account name and
number, address, confirmation number, amount to be wired, name of the wiring
bank, and name and telephone number of the person to be contacted in connection
with the order. If 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 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 a 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. (For purposes of determining whether securities will be
acceptable, Schroder will consider, among other things, whether they are liquid
securities of a type consistent with the investment objectives and policies of
the Portfolio in question and have a readily ascertainable value.) If a
Portfolio receives securities from an investor in exchange for Portfolio
Interests, the Portfolio will under some circumstances have the same tax basis
in the securities as the investor had prior to the exchange (and the Portfolio's
gain for tax purposes would be calculated with regard to the investor's tax
basis). Any gain on the sale of those securities would be subject to
distribution as capital gain to all of the Portfolio's Interestholders. Schroder
reserves the right to reject any particular investment. Securities accepted by
Schroder will be valued in the same manner as are the Trust's portfolio
securities at the next determination of the Portfolios' net asset value. All
dividend, subscription, or other rights which are reflected in the market price
of accepted securities at the time of valuation become the property of the
relevant Portfolio and must be delivered to the Portfolio upon receipt by the
investor. Investors may realize a gain or loss upon the exchange for federal
income tax purposes. If you are interested in purchases through exchange, please
telephone the Trust at (800) 290-9826.
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<PAGE>
REDEMPTION OF PORTFOLIO INTERESTS
You may redeem all or any portion of your investment in a Portfolio at the net
asset value next determined after the 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 a 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,
Interestholder account number, and the signature of the holder designated on the
account.
Written redemption requests may be sent to the Trust at the following address:
[Name of Portfolio]
P.O. Box 446
Portland, Maine 04112
Telephone redemption requests may be made by telephoning the Trust at (800)
344-8332. A telephone redemption may be made only if the telephone redemption
privilege option has been elected on the Subscription Agreement or otherwise in
writing, and the Interestholder has obtained a password from the 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.
17
<PAGE>
TAXES
No Portfolio is required to pay federal income taxes on its ordinary income and
capital gain because each is treated as a partnership for federal income tax
purposes. All interest, dividends and gains and losses of a 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 each Portfolio's operational method, it is not subject to any federal
income tax. However, each Interestholder in a Portfolio will be taxed on its
proportionate share (as determined in accordance with the Trust's Trust
Instrument and the Internal Revenue Code) of the Portfolio's ordinary income and
capital gain, to the extent that the Interestholder is subject to tax on its
income. The Trust will inform Interestholders of each 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 eight series (including the five Portfolios described in this
Memorandum). The Trust reserves the right to create additional series.
Each Interestholder in a Portfolio is entitled to participate equally in the
Portfolio's earnings and assets and to a vote in proportion to the amount of its
investment in the Portfolio. Investments in a Portfolio have no preemptive or
conversion rights and are fully paid and non-assessable. Upon liquidation of a
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 each Portfolio is contained in the Trust's Statement
of Additional Information relating to the Portfolios, which is available from
the Placement Agent and is incorporated herein by reference.
18
<PAGE>
YEAR 2000
Each of the Portfolios 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 each of the
Portfolios' other major service providers. There can be no assurance, however,
that these steps will be sufficient to avoid any adverse impact on the
Portfolios from this problem. 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 Portfolios invest or on the securities markets generally, which may
reduce the value of the Portfolios' investments.
19
<PAGE>
PART A
Schroder Asian Growth Portfolio, Schroder Japan Portfolio.
<PAGE>
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
- --------------------------------------------------------------------------------
SCHRODER CAPITAL FUNDS
SCHRODER ASIAN GROWTH FUND PORTFOLIO
SCHRODER JAPAN PORTFOLIO
MARCH 1, 1999
Schroder Capital Funds (the "Trust"), acting through Forum Fund Services, LLC
(the "Placement Agent"), is making a private placement of shares of beneficial
interest ("Portfolio Interests") in separate series (each, a "Portfolio"), each
with a distinct investment objective and policies. 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 eight Portfolios, two of which are
described in this Confidential Private Placement Memorandum (the "Memorandum"):
Schroder Asian Growth Fund Portfolio and Schroder Japan Portfolio.
Schroder Capital Management International Inc. ("Schroder") manages each
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.
<PAGE>
TABLE OF CONTENTS
GENERAL CONSIDERATIONS
Offering to Accredited Investors...............................1
Confidential Memorandum........................................1
Private Placement in the United States.........................1
SUMMARY INFORMATION
Schroder Asian Growth Fund Portfolio ..........................2
Schroder Japan Portfolio.......................................4
OTHER INVESTMENT STRATEGIES AND RISKS
Risks of Investing in the Portfolios...........................5
Other Investment Strategies and Techniques and
the Corresponding Risks....................................8
MANAGEMENT OF THE PORTFOLIOS...........................................10
INTERESTHOLDER INFORMATION
How the Portfolio Interests are Priced........................11
Purchase of Portfolio Interests...............................11
Purchasing Interests in Exchange for Securities...............12
Redemption of Portfolio Interests.............................12
Taxes.........................................................13
OTHER INFORMATION
Capital Structure.............................................14
Restrictions on Transfer......................................14
Statement of Additional Information...........................14
Year 2000.....................................................14
<PAGE>
GENERAL CONSIDERATIONS
OFFERING TO ACCREDITED INVESTORS
The Trust, through the Placement Agent, is making a private placement of
Portfolio Interests in the Portfolios 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 Portfolios 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 a 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 Portfolios (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 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 a 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 a
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, 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
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proposed investment in a 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 must represent that you are an Accredited
Investor.
Neither this Memorandum 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.
SUMMARY INFORMATION
The following summary identifies each Portfolio's investment objective,
principal investment strategies, and principal risks. The investment objective
of a Portfolio may be changed only with approval of the Portfolio's investors
("Interestholder"). The policies of a Portfolio may, unless otherwise
specifically stated, be changed by the Trustees of the Trust without a vote of
the Interestholders.
Because of the differences in objectives and strategies, each Portfolio will
achieve different investment returns and is subject to varying degrees of market
and financial risk. There is no assurance that either of the Portfolios will
achieve its stated objective. Further information about each Portfolio is
contained in the SAI.
SCHRODER ASIAN GROWTH FUND PORTFOLIO
INVESTMENT OBJECTIVE. Long-term capital appreciation through investment
primarily in equity securities of Asian companies.
PRINCIPAL INVESTMENTS. As a matter of fundamental policy, under normal market
conditions the Portfolio invests at least 65% of its total assets in equity
securities of Asian companies. "Asian companies" are: (1) companies that are
organized under the laws of China, Hong Kong SAR, India, Indonesia, Korea,
Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan, or Thailand,
or any other countries in the Asian region located south of the border of the
former Soviet Union, east of the borders of Afghanistan and Iran, north of the
Australian sub-continent, and west of the International Date Line and that, in
the future, permit foreign investors to participate in their stock markets
(collectively, the "Asian countries," and each, an "Asian country"); and (2)
companies, wherever organized, that are determined by Schroder at the time of
investment, either: (a) to derive at least 75% of their revenues from goods
produced or sold, investments made, or services performed in Asian countries; or
(b) to maintain at least 75% of their assets in Asian countries.
INVESTMENT STRATEGIES. The Portfolio normally invests directly in equity
securities of companies located in at least five Asian countries.
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The Portfolio also may do the following:
* Invest in equity interests in trusts, partnerships, joint ventures, or
similar enterprises, and American or Global Depositary Receipts and other
similar instruments providing for indirect investment in securities of
foreign issuers.
* Invest indirectly in equity securities by investing in other investment
companies or similar pooled vehicles that invest primarily in equity
securities of Asian companies.
* Invest up to 10% of its total assets in debt securities of governments or
governmental agencies of Asian countries, as well as of Asian companies.
PRINCIPAL RISKS.
* INVESTMENTS IN ASia. Because the Portfolio's investments are concentrated
in Asian countries, political, economic, market and other factors affecting
those countries will determine the values of the Portfolio's investments.
Recent significant economic and political volatility in certain Asian
countries may continue and could have an adverse effect on the value of the
Portfolio's investments in those countries.
* INVESTMENTS IN MALAYSia. The Portfolio's investments include securities
issued by Malaysian companies. Currency restrictions imposed by the
Malaysian government impose a significant exit levy on repatriated
investments. In addition, pending finalization of these restrictions by the
Malaysian government, it may be difficult for the Portfolio to determine
the fair value of such securities (or of the Malaysian currency in which
they are denominated) for purposes of computing the Portfolio's net asset
value.
* FOREIGN SECURITIEs. Investments in foreign securities entail risks not
present in domestic investments including, among others, risks related to
political or economic instability, currency exchange, and taxation.
* 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.
* NON-DIVERSIFIED MUTUAL FUnd. The Portfolio is a "non-diversified" mutual
fund, and will invest its assets in a more limited number of issuers than
many diversified investment companies. To the extent the Portfolio focuses
on fewer issuers, its risk of loss increases if the market value of a
security declines or if an issuer is not able to meet its obligations.
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* EQUITY SECURITIes. Another risk of investing in the Portfolio is the risk
that the value of the equity securities in which the Portfolio 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.
* SMALL COMPANIEs. The Portfolio invests primarily in small companies,
which tend to be more vulnerable to adverse developments than larger
companies. Small companies may have limited product lines, markets, or
financial resources, or may depend on a limited management group. Their
securities may trade infrequently and in limited volumes. As a result, the
prices of these securities may fluctuate more than the prices of securities
of larger, more widely traded companies. Also, there may be less publicly
available information about small companies or less market interest in
their securities as compared to larger companies, and it may take longer
for the prices of the securities to reflect the full value of their
issuers' earnings potential or assets.
SCHRODER JAPAN PORTFOLIO
INVESTMENT OBJECTIVE. Long-term capital appreciation through investment
primarily in equity securities of Japanese companies.
PRINCIPAL INVESTMENTS. As a matter of fundamental policy, "Japanese companies"
are: (1) companies that are organized under the laws of Japan; and (2)
companies, wherever organized, that are determined by Schroder at the time of
investment, either: (a) to derive at least 75% of their revenues from goods
produced or sold, investments made, or services performed in Japan; or (b) to
maintain at least 75% of their assets in Japan.
INVESTMENT STRATEGIES. Under normal market conditions the Portfolio invests at
least 65% of its total assets in equity securities of Japanese companies..
The Portfolio also may do the following:
* Invest in equity interests in trusts, partnerships, joint ventures, or
similar enterprises, and American or Global Depositary Receipts and other
similar instruments providing for indirect investment in securities of
foreign issuers.
* Invest indirectly in equity securities by investing in other investment
companies or similar pooled vehicles that invest primarily in equity
securities of Japanese companies.
* Invest up to 10% of its total assets in debt securities of the Japanese
government or of Japanese governmental agencies or of Japanese companies.
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PRINCIPAL RISKS.
* INVESTMENTS IN JAPan. Because the Portfolio's investments are concentrated
in Japan, political, economic, market and other factors affecting Japan
will determine the values of the Portfolio's investments. Recent
significant economic and political volatility in Japan may continue and
could have an adverse effect on the value of the Portfolio's investments.
* FOREIGN SECURITIEs. Investments in foreign securities entail risks not
present in domestic investments including, among others, risks related to
political or economic instability, currency exchange, and taxation.
* NON-DIVERSIFIED MUTUAL FUnd. The Portfolio is a "non-diversified" mutual
fund, and will invest its assets in a more limited number of issuers than
many diversified investment companies. To the extent the Portfolio focuses
on fewer issuers, its risk of loss increases if the market value of a
security declines or if an issuer is not able to meet its obligations.
* EQUITY SECURITIes. Another risk of investing in the Portfolio is the risk
that the value of the equity securities in which the Portfolio 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.
* SMALL COMPANIEs. The Portfolio invests primarily in small companies, which
tend to be more vulnerable to adverse developments than larger companies.
Small companies may have limited product lines, markets, or financial
resources, or may depend on a limited management group. Their securities
may trade infrequently and in limited volumes. As a result, the prices of
these securities may fluctuate more than the prices of securities of
larger, more widely traded companies. Also, there may be less publicly
available information about small companies or less market interest in
their securities as compared to larger companies, and it may take longer
for the prices of the securities to reflect the full value of their
issuers' earnings potential or assets.
OTHER INVESTMENT STRATEGIES AND RISKS
The Portfolios may not achieve their investment objective in all circumstances.
The following provides more detail about each Portfolio's principal risks and
the circumstances that could adversely affect the value of Portfolio Interests
or their total return. You could lose money by investing.
RISKS OF INVESTING IN THE PORTFOLIOS
INVESTMENT IN ASIA. Certain Asian markets have experienced devaluation and/or
significant volatility during the past several years. Schroder cannot predict
whether, when and to what extent the Asian markets will recover. Additionally,
the Schroder Asian Growth Fund Portfolio may invest more than 25% of its total
assets in issuers located in any one Asian country. To the extent that the
Portfolio focuses its investments in any Asian countries, the Portfolio will be
susceptible to adverse political, economic and market developments in those
countries. Similarly, Schroder Japan Portfolio will be
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susceptible to adverse political, economic and market developments in Japan
because of its concentration in equity investments in Japan.
FOREIGN SECURITIES. Except as otherwise noted in this Memorandum, there is no
limit on the amount of a 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 a Portfolio's investments in certain foreign
countries. Since foreign securities normally are denominated and traded in
foreign currencies, the values of a Portfolio's assets may be affected favorably
or unfavorably by currency exchange rates, currency exchange control
regulations, foreign withholding taxes, and restrictions or prohibitions on the
repatriation of foreign currencies. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and foreign issuers
are not generally subject to accounting, auditing, and financial reporting
standards and practices comparable to those in the United States. The securities
of some foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions and other
fees are also generally higher than in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of a Portfolio's assets
held abroad) and expenses not present in the settlement of domestic investments.
In addition, legal remedies available to investors in certain foreign countries
may be more limited than those available 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, a Portfolio may have
limited recourse available to it. The laws of some foreign countries may limit a
Portfolio's ability to invest in securities of certain issuers located in those
countries.
If a Portfolio purchases securities denominated in foreign currencies, a change
in the value of any such currency against the U.S. dollar will result in a
change in the U.S. dollar value of a Portfolio's assets and a Portfolio's income
available for distribution. In addition, although at times most of a Portfolio's
income may be received or realized in these currencies, a 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 a Portfolio's income has
been earned and translated into U.S. dollars but before payment to
Interestholders, a Portfolio could be required to liquidate portfolio securities
to make such distributions. Similarly, if a Portfolio incurs an expense in U.S.
dollars and the exchange rate declines before the expense is paid, a Portfolio
would have to convert a greater amount of U.S. dollars to pay for the expense at
that time than it would have had to convert at the time a Portfolio incurred the
expense. A Portfolio may buy or sell foreign currencies and options and futures
contracts on foreign currencies for hedging purposes in connection with its
foreign investments.
Special tax considerations apply to foreign securities. In determining whether
to invest in debt securities of foreign issuers, Schroder considers the likely
impact of foreign taxes on the net yield available to a Portfolio and its
Interestholders. Income received by a Portfolio from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by a Portfolio will reduce
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its income available for distribution to Interestholders. In certain
circumstances, a Portfolio may be able to pass through to Interestholders
credits for foreign taxes paid.
EMERGING MARKETS. Each Portfolio intends to invest in securities of issuers in
Asian emerging market countries and may at times invest a substantial portion of
its assets in such securities. The prices of securities of issuers in emerging
market countries are subject to greater volatility than those of issuers in more
developed countries. Investments in emerging market countries are subject to the
same risks applicable to foreign investments generally, although those risks may
be increased due to conditions in such countries. For example, the securities
markets and legal systems in emerging market countries may only be in a
developmental stage and may provide few, or none, of the advantages or
protections of markets or legal systems available in more developed countries.
Although many of the securities in which a Portfolio may invest are traded on
securities exchanges, they may trade in limited volume, and the exchanges may
not provide all of the conveniences or protections provided by securities
exchanges in more developed markets. Each Portfolio may also invest a
substantial portion of its assets in securities traded in the over-the-counter
markets in Asian countries and not on any exchange, which may affect the
liquidity of the investment and expose the Portfolio to the credit risk of its
counterparties in trading those investments. Emerging market countries may
experience extremely high rates of inflation, which may adversely affect these
countries' economies and securities markets.
DEBT SECURITIES. Each 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, each 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 a 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.
RISKS OF SMALLER CAPITALIZATION COMPANIES. Each Portfolio may invest in
companies that are smaller and less well known than larger, more widely held
companies. Small and mid-cap companies may offer greater opportunities for
capital appreciation than larger companies, but may also involve certain special
risks. They are more likely than larger companies to have limited product lines,
markets or financial resources, or to depend on a small, inexperienced
management group. Securities of smaller companies may trade less frequently and
in lesser volume than more widely held securities and their values may fluctuate
more sharply than other securities. They may also trade in the over-the-counter
market or on a regional exchange, or may otherwise have limited liquidity. These
securities may therefore be more vulnerable to adverse developments than
securities of larger companies and a Portfolio may have difficulty establishing
or closing out its securities positions in smaller companies at prevailing
market prices. Also, there may be less publicly available information about
smaller companies or less market interest in their securities as compared to
larger companies, and it may take longer for the prices of the securities to
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reflect the full value of their issuers' earnings potential or assets.
OTHER INVESTMENT STRATEGIES AND TECHNIQUES AND THE CORRESPONDING RISKS
In addition to the principal investment strategies described in the Summary
Information section above, each 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 a 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. Each Portfolio may engage in currency exchange
transactions to protect against unfavorable fluctuations in exchange rates.
In particular, a 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, a Portfolio's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign currency and
may at times involve currencies in which its portfolio securities are not then
denominated ("cross hedging"). Each 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 a Portfolio to
the risk that the counterparty is unable to perform.
Each Portfolio incurs foreign exchange expenses in converting assets from one
currency to another. A Portfolio may engage in foreign currency exchange
transactions only for hedging purposes. Although there is no limit on the amount
of a Portfolio's assets that may be invested in foreign currency exchange and
foreign currency forward contracts, a 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 a Portfolio will utilize
hedging transactions at any time.
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SECURITIES LOANS, REPURCHASE AGREEMENTS, AND FORWARD COMMITMENTS. Each Portfolio
may lend portfolio securities to broker-dealers up to one-third of the
Portfolio's total assets. Each Portfolio may also enter into repurchase
agreements without limit. These transactions must be fully collateralized at all
times, but involve some risk to a Portfolio if the other party should default on
its obligation and the Portfolio is delayed or prevented from recovering the
collateral. Each 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. Each 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, a Portfolio may pay a premium above such
investment company's net asset value per share. As a shareholder in an
investment company, a Portfolio would bear its ratable share of the investment
company's expenses, including 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, each 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, futures, and 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 a Portfolio will be unable to close
out the position at any particular time or at an acceptable price.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. The
investment policies of a Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by a Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to a Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Such sales may increase the
amount of capital gains (and, in particular, short-term gains) realized by a
Portfolio, on which Interestholders pay tax.
TEMPORARY DEFENSIVE STRATEGIES. At times, Schroder may judge that conditions in
the securities markets make pursuing a 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 a Portfolio's assets. In implementing
these "defensive" strategies, a 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, a Portfolio will use these alternate strategies. One risk of
taking such temporary defensive positions is that a Portfolio may not achieve
its investment objective.
OTHER INVESTMENTS. Each 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
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Portfolios 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 PORTFOLIOS
A Board of Trustees governs the Trust, which has retained Schroder to manage the
investments of each Portfolio. Subject to the control of the Trustees, Schroder
also manages the Portfolios' other affairs and business. Schroder has served as
investment adviser to the Portfolios since inception.
Schroder has been an investment manager since 1962 and serves as investment
adviser to a broad range of institutional investors. As of December 31, 1998,
Schroder, together with its United Kingdom affiliate, Schroder Capital
Management International Limited, had approximately $27.1 billion in assets
under management. Schroder's address is 787 Seventh Avenue, 34th floor, New
York, New York 10019, and its telephone number is (212) 641-3900.
INVESTMENT ADVISORY FEES PAID BY THE PORTFOLIOS. The Portfolios pay investment
advisory fees to Schroder at the following annual rates (based on the average
net assets of the Portfolio): SCHRODER ASIAN GROWTH FUND PORTFOLIO -- 0.70%;
SCHRODER JAPAN PORTFOLIO -- 0.55%.
EXPENSE LIMITATIONS AND WAIVERS. In order to limit the Portfolio's expenses,
Schroder is contractually obligated to reduce its compensation until October 31,
1999 (and, if necessary, to pay certain other Portfolio expenses) to the extent
that the Portfolios' total operating expenses exceed the following annual rates
(based on the average net assets of the Portfolio): Schroder Asian Growth Fund
Portfolio -- 1.16%; Schroder Japan Portfolio -- 0.99%.
PORTFOLIO MANAGERS. An investment manager or an investment team generally makes
Schroder's investment decisions for the Portfolio, with the assistance of an
investment committee. The following portfolio managers have had primary
responsibility for making investment decisions for the Portfolios since the
years shown below. Their recent professional experience is also shown.
<TABLE>
<S> <C> <C> <C> <C>
-------------------------- ------------------------ ------------------- ------------------------------------ -----------
Portfolio Portfolio Manager Since Recent Professional Experience
-------------------------- ------------------------ ------------------- ------------------------------------ -----------
-------------------------- ------------------------ ------------------- ------------------------------------
Schroder Asian Growth Louise Croset 1997 Employed as an investment
Fund Portfolio/Schroder professional at Schroder since
Japan Portfolio 1993. Ms. Croset is also a
Trustee and President of the
Trust, and a Senior Vice President
and a Director of Schroder.
-------------------------- ------------------------ ------------------- ------------------------------------
-------------------------- ------------------------ ------------------- ------------------------------------
Heather Crighton Inception (1993) Employed as an investment
professional at Schroder since
1992. Ms. Crighton is also a Vice
President of the Trust, and a
Director and a First Vice
President of Schroder.
-------------------------- ------------------------ ------------------- ------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
-------------------------- ------------------------ ------------------- ------------------------------------
Donald M. Farquharson 1998 Employed as an investment
professional at Schroder since
1988. Mr. Farquharson is a First
Vice President of Schroder.
-------------------------- ------------------------ ------------------- ------------------------------------
</TABLE>
INTERESTHOLDER INFORMATION
HOW PORTFOLIO INTERESTS ARE PRICED
Each 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. Generally,
securities that are listed on recognized stock exchanges are valued at the last
reported sale price, on the day the securities are valued (the "Valuation Day"),
on the primary exchange on which the securities are principally traded. Listed
securities traded on recognized stock exchanges for which there were no sales on
the Valuation Day are valued at the last sale price on the preceding trading day
or at closing mid-market prices. Securities traded in over-the-counter markets
are valued at the most recent reported mid-market price. The Portfolios value
all other securities and assets at their fair values as determined by the Board
of Trustees. All assets and liabilities of a Portfolio denominated in foreign
currencies are valued in U.S. dollars based on the exchange rate last quoted by
a major bank prior to the time when the net asset value of the Portfolio's
Portfolio Interests is calculated. Because certain of the securities in which a
Portfolio may invest may trade on days on which the Portfolios do not price
their 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 a 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 the Placement Agent has accepted your completed Subscription Agreement, you
may transmit purchase payments by Federal Reserve Bank wire directly to the
Portfolio as follows:
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The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Shareholder Services, LLC
Account No.: 910-2-783645
Ref.: [Name of Portfolio]
Account of: [Interestholder name]
Account Number: [Interestholder account number]
The wire order must specify the Portfolio's name, 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 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 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 a 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. (For purposes of determining whether securities will be
acceptable, Schroder will consider, among other things, whether they are liquid
securities of a type consistent with the investment objectives and policies of
the Portfolio in question and have a readily ascertainable value.) If a
Portfolio receives securities from an investor in exchange for Portfolio
Interests, the Portfolio will under some circumstances have the same tax basis
in the securities as the investor had prior to the exchange (and the Portfolio's
gain for tax purposes would be calculated with regard to the investor's tax
basis). Any gain on the sale of those securities would be subject to
distribution as capital gain to all of the Portfolio Interestholders. Schroder
reserves the right to reject any particular investment. Securities accepted by
Schroder will be valued in the same manner as are the Trust's portfolio
securities at the next determination of the Portfolio's' net asset value. All
dividend, subscription, or other rights which are reflected in the market price
of accepted securities at the time of valuation become the property of the
relevant Portfolio and must be delivered to the Portfolio upon receipt by the
investor. Investors may realize a gain or loss upon the exchange for federal
income tax purposes. If you are interested in purchases through exchange, please
telephone the Trust at (800) 290-9826.
REDEMPTION OF PORTFOLIO INTERESTS
You may redeem all or any portion of your investment in a Portfolio at the net
asset value next determined after the you deliver a redemption request in proper
form to the Trust. Redemption proceeds are normally paid by each Portfolio in
federal funds on the Business Day after the withdrawal is effected but, in any
event, within seven calendar days. Investments in a 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
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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,
Interestholder account number, and the signature of the holder designated on the
account.
Written redemption requests may be sent to the Trust at the following address:
[Name of Portfolio]
P.O. Box 446
Portland, Maine 04112
Telephone redemption requests may be made by telephoning the Trust at (800)
344-8332. A telephone redemption may be made only if the telephone redemption
privilege option has been elected on the Subscription Agreement or otherwise in
writing, and the Interestholder has obtained a password from the 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 a 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 each Portfolio will only consider effecting a redemption in portfolio
securities if an 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
Neither Portfolio is required to pay federal income taxes on its ordinary income
and capital gain because each Portfolio is treated as a partnership for federal
income tax purposes. All interest, dividends and gains and losses of a 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.
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Under each Portfolio's operational method, it is not subject to any federal
income tax. However, each Interestholder in a Portfolio will be taxed on its
proportionate share (as determined in accordance with the Trust's Trust
Instrument and the Internal Revenue Code) of the Portfolio's ordinary income and
capital gain, to the extent that the Interestholder is subject to tax on its
income. The Trust will inform Interestholders of each Portfolio of the amount
and nature of such income or gain.
The foregoing discussion relates only to federal income tax law. Income from a
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 eight series (including the two Portfolios described in this
Memorandum). The Trust reserves the right to create additional series.
Each Interestholder in a Portfolio is entitled to participate equally in the
Portfolio's earnings and assets and to a vote in proportion to the amount of its
investment in the Portfolio. Investments in a Portfolio have no preemptive or
conversion rights and are fully paid and non-assessable. Upon liquidation of a
Portfolio, Interestholders will be entitled to share pro rata in the Portfolio's
net assets available for distribution to Interestholders.
RESTRICTIONS ON TRANSFER
Transfer of Portfolio Interests will be subject to the restrictions set forth in
the Subscription Agreement and in the Trust Instrument. These documents 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 a Portfolio will be required for any such sale or other
transfer of Portfolio Interests, other than redemptions.
STATEMENT OF ADDITIONAL INFORMATION
Further information about each Portfolio is contained in the Trust's Statement
of Additional Information relating to the Portfolios, which is available from
the Placement Agent and is incorporated herein by reference.
YEAR 2000
Each of the Portfolios 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
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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 each of the
Portfolios' other major service providers. There can be no assurance, however,
that these steps will be sufficient to avoid any adverse impact on the
Portfolios from this problem. 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 Portfolios invest or on the securities markets generally, which may
reduce the value of the Portfolios' investments.
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PART A
Schroder Emerging Markets Fund Institutional Portfolio.
<PAGE>
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
- --------------------------------------------------------------------------------
SCHRODER CAPITAL FUNDS
SCHRODER EMERGING MARKETS FUND INSTITUTIONAL PORTFOLIO
MARCH 1, 1999
Schroder Capital Funds (the "Trust"), acting through Forum Fund Services, LLC
(the "Placement Agent"), is making a private placement of shares of beneficial
interest ("Portfolio Interests") in separate series of the Trust, each with a
distinct investment objective and policies. 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 eight Portfolios, one of which,
Schroder Emerging Markets Fund Institutional Portfolio (the "Portfolio"), is
described in this Confidential Private Placement Memorandum (the "Memorandum").
Schroder Capital Management International 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 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
GENERAL CONSIDERATIONS
Offering to Accredited Investors....................................................1
Confidential Memorandum.............................................................1
Private Placement in the United States..............................................1
1
SUMMARY INFORMATION..........................................................................2
OTHER INVESTMENT STRATEGIES AND RISKS
Risks Of Investing In The Portfolio.................................................4
Other Investment Strategies and Techniques and theCorresponding Risks...............6
MANAGEMENT OF THE PORTFOLIO..................................................................8
INTERESTHOLDER INFORMATION
How the Portfolio Interests are Priced..............................................9
Purchase of Portfolio Interests.....................................................10
Purchasing Interests in Exchange for Securities.....................................11
Redemption of Portfolio Interests...................................................11
Taxes...............................................................................12
OTHER INFORMATION
Capital Structure...................................................................12
Restrictions on Transfer............................................................13
Statement of Additional Information.................................................13
Year 2000...........................................................................13
</TABLE>
<PAGE>
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, (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
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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 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.
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.
SCHRODER EMERGING MARKETS FUND INSTITUTIONAL PORTFOLIO
INVESTMENT OBJECTIVE. To seek long-term capital appreciation through direct or
indirect investment in equity and debt securities of issuers domiciled or doing
business in emerging market countries in regions such as Southeast Asia, Latin
America, and Eastern and Southern Europe.
PRINCIPAL INVESTMENTS. The Portfolio normally invests at least 65% of its assets
in securities of companies determined by Schroder to be "emerging market"
issuers. The Portfolio may invest the remaining 35% of its assets in securities
of issuers located anywhere in the world. The Portfolio may invest in equity or
debt securities of any kind. The Portfolio is non-diversified.
INVESTMENT STRATEGIES. The Portfolio invests primarily in equity securities of
issuers domiciled or doing business in "emerging market" countries in regions
such as Southeast Asia, Latin America, Eastern and Southern Europe, and Africa.
"Emerging market" countries are countries not included at the time of investment
in the Morgan Stanley International World Index of major world economies.
Economies currently in the Index include: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United
Kingdom, and the United States. Schroder may at times determine based on its own
analysis that an economy included in the Index should nonetheless be considered
an emerging market country, in which case that country would constitute an
emerging market country for purposes of the Portfolio's investments. There is no
limit on the amount of the Portfolio's assets that may be invested in securities
of issuers domiciled in any one country.
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The Portfolio invests in issuers and countries that Schroder believes offer the
potential for capital growth. In identifying candidates for investment, Schroder
considers a variety of factors, including the issuer's likelihood of above
average earnings growth, the securities' attractive relative valuation, and
whether the issuer has any proprietary advantages. In addition, Schroder takes
into account the risk of local political and/or economic instability and the
liquidity of local markets. Securities generally are sold when they reach fair
valuation or when significantly more attractive investment candidates become
available.
The Portfolio also may do the following:
o Invest in securities of closed-end investment companies that invest
primarily in foreign securities, including securities of emerging market
issuers.
o Invest up to 35% of its assets in debt securities, including lower-quality,
high-yielding debt securities (commonly known as "junk bonds"), which
entail certain risks.
PRINCIPAL RISKS.
o 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.
o FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among others, risks related to
political or economic instability, currency exchange, and taxation.
o SMALL COMPANIES. The Portfolio invests primarily in small companies, which
tend to be more vulnerable to adverse developments than larger companies.
Small companies may have limited product lines, markets, or financial
resources, or may depend on a limited management group. Their securities
may trade infrequently and in limited volumes. As a result, the prices of
these securities may fluctuate more than the prices of securities of
larger, more widely traded companies. Also, there may be less publicly
available information about small companies or less market interest in
their securities as compared to larger companies, and it may take longer
for the prices of the securities to reflect the full value of their
issuers' earnings potential or assets.
o GEOGRAPHIC CONCENTRATION. There is no limit on the amount of the
Portfolio's assets that may be invested in securities of issuers domiciled
in any one country. To the extent that the Portfolio invests a substantial
amount of its assets in one country, it will be more susceptible to the
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political and economic developments and market fluctuations in that country
than if it invested in a more geographically diversified portfolio.
o NON-DIVERSIFIED MUTUAL FUND. The Portfolio is a "non-diversified" mutual
fund, and will invest its assets in a more limited number of issuers than
may diversified investment companies. To the extent the Portfolio focuses
on fewer issuers, its risk of loss increases if the market value of a
security declines or if an issuer is not able to meet its obligations.
o EQUITY SECURITIES. Another risk of investing in the Portfolio is the risk
that the value of the equity securities in which the Portfolio 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.
o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to
changes in interest rates) and to credit risks (the risk that the issuer
may become unable or unwilling to make timely payments of principal and
interest).
o JUNK BONDS. Securities rated below investment grade ("junk bonds") lack
outstanding investment characteristics and have speculative characteristics
and are subject to greater credit and market risks than higher-rated
securities. The ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general
economic conditions, or an unanticipated rise in interest rates, may impair
the ability of the issuer to make payments of interest and principal. If
this were to occur, the values of securities held by the Portfolio may
become more volatile.
OTHER INVESTMENT STRATEGIES AND RISKS
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
EMERGING MARKETS. The Portfolio intends to invest a substantial portion of its
assets in securities of issuers in emerging market countries. An issuer will be
considered to be an emerging market issuer if Schroder determines that: (1) it
is organized under the laws of an emerging market country; (2) its primary
securities trading market is in an emerging market country; (3) at least 50% of
the issuer's revenues or profits are derived from goods produced or sold,
investments made, or services performed in emerging market countries; or (4) at
least 50% of its assets are situated in emerging market countries.
The prices of securities of issuers in emerging market countries are subject to
greater volatility than those of issuers in more developed countries.
Investments in emerging market countries are subject to the same risks
applicable to foreign investments generally, although those risks may be
increased due to conditions in such countries. For example, the securities
markets and legal systems in emerging market countries may only be in a
developmental stage and may provide few, or none, of the advantages or
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protections of markets or legal systems available in more developed countries.
Although many of the securities in which the Portfolio may invest are traded on
securities exchanges, they may trade in limited volume, and the exchanges may
not provide all of the conveniences or protections provided by securities
exchanges in more developed markets. The Portfolio may also invest a substantial
portion of its assets in securities traded in the over-the-counter markets in
emerging market countries and not on any exchange, which may affect the
liquidity of the investment and expose the Portfolio to the credit risk of its
counterparties in trading those investments. Emerging market countries may
experience extremely high rates of inflation, which may adversely affect those
countries' economies and securities markets.
INVESTMENT IN ASIA. Certain Asian markets have experienced devaluation and/or
significant volatility during the past several years. Schroder cannot predict
whether, when and to what extent the Asian markets will recover. To the extent
that the Portfolio focuses its investments in any Asian countries, the Portfolio
will be susceptible to adverse political, economic and market developments in
those countries.
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 values of the Portfolio's assets may be
affected favorably or unfavorably by currency exchange rates, currency exchange
control regulations, foreign withholding taxes, and restrictions or prohibitions
on the repatriation of foreign currencies. There may be less information
publicly available about a foreign issuer than about a U.S. issuer, and foreign
issuers are not generally subject to accounting, auditing, and financial
reporting standards and practices comparable to those in the United States. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign brokerage commissions and
other fees are also generally higher than in the United States. Foreign
settlement procedures and trade regulations may involve certain risks (such as
delay in payment or delivery of securities or in the recovery of 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 is unable or unwilling to meet 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
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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 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 lower-quality,
high-yielding debt securities, commonly known as junk bonds. 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.
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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
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. Although there is no limit on the amount of the Portfolio's
assets that may be invested in foreign currency exchange and foreign currency
forward contracts, the Portfolio may engage in foreign currency exchange
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-quarter 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
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exposure to particular securities or markets, in connection with hedging
transactions, and to increase total return. These may include options, futures,
and 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.
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.
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
Portfolios to additional risks. Please see the SAI for additional discussion
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 the Portfolio since inception.
Schroder has been an investment manager since 1962 and serves as an investment
adviser to a broad range of institutional investors. As of December 31, 1998,
Schroder, together with its United Kingdom
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affiliate, Schroder Capital Management International Limited, had approximately
$27.1 billion in assets under management.
INVESTMENT ADVISORY FEES PAID BY THE PORTFOLIO. For the fiscal year ended
October 31, 1998, the Portfolio paid investment advisory fees to Schroder at the
annual rate (based on the average net assets of the Portfolio) of 1.00%.
Schroder is contractually obligated to waive 0.15% of the advisory fees payable
by the Portfolio. This waiver shall remain in effect until the Trust's Board of
Trustees approves its elimination.
EXPENSE LIMITATIONS AND WAIVERS. In order to limit the Portfolio's expenses,
Schroder is contractually obligated to reduce its compensation (and, if
necessary, to pay certain other Portfolio expenses) until October 31, 1999 to
the extent that the Portfolio's total operating expenses exceed the annual rate
(based on the average net assets of the Portfolio) of 1.18%.
PORTFOLIO MANAGERS. An investment manager or an investment team generally makes
Schroder's investment decisions for the Portfolio, with the assistance of an
investment committee. The following portfolio managers have had primary
responsibility for making investment decisions for the Portfolio since the years
shown below. Their recent professional experience is also shown.
<TABLE>
<S> <C> <C> <C>
- ----------- ---------------------------------- ------------------------- ------------------------------------------- ----------
Portfolio Manager Since Recent Professional Experience
- ----------- ---------------------------------- ------------------------- ------------------------------------------- ----------
- ----------- ---------------------------------- ------------------------- ------------------------------------------- ----------
John Troiano Inception (1995) Employed as an investment professional at
Schroder since 1986. Mr. Troiano is the
Chief Executive and director of Schroder,
and a Vice President of the Trust and of
Schroder Capital Funds (Delaware).
- ----------- ---------------------------------- ------------------------- ------------------------------------------- ----------
- ----------- ---------------------------------- ------------------------- ------------------------------------------- ----------
Heather Crighton Inception (1995) Employed as an investment professional at
Schroder since 1993. Ms. Crighton is a
director and a First Vice President of
Schroder.
- ----------- ---------------------------------- ------------------------- ------------------------------------------- ----------
- ----------- ---------------------------------- ------------------------- ------------------------------------------- ----------
Mark Bridgeman Inception (1995) Employed as an investment professional at
Schroder since 1990. Mr. Bridgeman is a
First Vice President of Schroder.
- ----------- ---------------------------------- ------------------------- ------------------------------------------- ----------
</TABLE>
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 weekdays, 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 Portfolios
value their portfolio securities for which market quotations are readily
available at
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<PAGE>
market value. Short-term investments that will mature in 60 days or less are
stated at amortized cost, which approximates market value. The Portfolios value
all other securities at their fair values as determined 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 exchange rate last quoted by
a major bank prior to the time when the net asset value of the Portfolio's
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's 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 a 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 the Placement Agent has accepted your completed Subscription Agreement, you
may transmit purchase payments by Federal Reserve Bank wire directly to the
Portfolio as follows:
The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Shareholder Services, LLC
Account No.: 910-2-783645
Ref.: Schroder Emerging Markets Fund Institutional Portfolio
Account of: [Interestholder name]
Account Number: [Interestholder account number]
The wire order must specify the Portfolio's name, 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 that day. Wire orders received after the closing of the
New York Stock Exchange 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.
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<PAGE>
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. (For purposes of determining whether securities will be
acceptable, Schroder will consider, among other things, whether they are liquid
securities of a type consistent with the investment objectives and policies of
the Portfolio in question and have a readily ascertainable value.) If the
Portfolio receives securities from an investor in exchange for Portfolio
Interests, the Portfolio will under some circumstances have the same tax basis
in the securities as the investor had prior to the exchange (and the Portfolio's
gain for tax purposes would be calculated with regard to the investor's tax
basis). Any gain on the sale of those securities would be subject to
distribution as capital gain to all of the Portfolio's Interestholders. Schroder
reserves the right to reject any particular investment. Securities accepted by
Schroder will be valued in the same manner as are the Trust's portfolio
securities at the next determination of the Portfolio's net asset value. All
dividend, subscription, or other rights which are reflected in the market price
of accepted securities at the time of valuation become the property of the
relevant Portfolio and must be delivered to the Portfolio upon receipt by the
investor. Investors may realize a gain or loss upon the exchange for federal
income tax purposes. If you are interested in purchases through exchange, please
telephone the Trust at (800) 290-9826.
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 the 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,
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 Emerging Markets Fund Institutional Portfolio
P.O. Box 446
Portland, Maine 04112
Telephone redemption requests may be made by telephoning the Trust at (800)
344-8332. A telephone redemption may be made only if the telephone redemption
privilege option has been elected on the Subscription Agreement or otherwise in
writing, and the Interestholder has obtained a password from
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<PAGE>
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 an 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 the Portfolio 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 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 eight series (one being the Portfolio described in this
Memorandum). The Trust reserves the right to create additional series.
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<PAGE>
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
Each of the Portfolios 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 each of the
Portfolios' other major service providers. There can be no assurance, however,
that these steps will be sufficient to avoid any adverse impact on the
Portfolios from this problem. 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 Portfolios invest or on the securities markets generally, which may
reduce the value of the Portfolios' investments.
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<PAGE>
PART B
Schroder International Equity Fund, Schroder EM Core Portfolio, Schroder
International Smaller Companies Portfolio, Schroder U.S. Smaller Companies
Portfolio, Schroder Global Growth Portfolio
<PAGE>
FORM N-1A PART B
CONFIDENTIAL STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SCHRODER CAPITAL FUNDS
INTERNATIONAL EQUITY PORTFOLIO
SCHRODER EM CORE PORTFOLIO
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
SCHRODER GLOBAL GROWTH PORTFOLIO
MARCH 1, 1999
Schroder Capital Funds (the "Trust"), acting through Forum Fund Services, LLC
(the "Placement Agent"), is making a private placement of shares of beneficial
interest ("Portfolio Interests") in separate series, each with a distinct
investment objective and policies. 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 eight series, five of which (each a
"Portfolio") are described in this Statement of Additional Information (the
"SAI"): International Equity Fund, Schroder EM Core Portfolio, Schroder
International Smaller Companies Portfolio, Schroder U.S. Smaller Companies
Portfolio, and Schroder Global Growth Portfolio.
Schroder Capital Management International Inc. manages each 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 March
1, 1999 relating to the five Portfolios.
This SAI is not a Memorandum and is authorized for distribution only when
accompanied or preceded by the Private Placement Memorandum. This SAI contains
information that may be useful to investors in a Portfolio ("Interestholders")
but which is not included in the Memorandum. You may obtain free copies of the
Memorandum by calling the Trust at (800) 730-2932 or the Placement Agent at
(207) 879-1900.
Certain disclosure has been incorporated by reference into this SAI from the
Portfolios' annual reports. For a free copy of the annual reports, please call
(800) 730-2932.
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...................................................................
PORTFOLIO CLASSIFICATION........................................................
CAPITALSTOCK AND OTHER SECURITIES...............................................
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS.......................
INVESTMENT RESTRICTIONS.........................................................
TRUSTEES AND OFFICERS...........................................................
SCHRODER AND ITS AFFILIATES.....................................................
INVESTMENT ADVISORY AGREEMENTS..................................................
ADMINISTRATIVE SERVICES.........................................................
PLACEMENT AGENT.................................................................
PORTFOLIOACCOUNTING.............................................................
BROKERAGE ALLOCATION AND OTHER PRACTICES........................................
DETERMINATION OF NET ASSET VALUE................................................
REDEMPTIONS IN KIND.............................................................
TAXES...........................................................................
PRINCIPAL HOLDERS OF PORTFOLIO INTERESTS........................................
PERFORMANCE INFORMATION.........................................................
CUSTODIAN.......................................................................
INDEPENDENT AUDITORS............................................................
LEGAL COUNSEL...................................................................
INTERESTHOLDER LIABILITY........................................................
FINANCIAL STATEMENTS............................................................
APPENDIX A......................................................................
APPENDIX B
<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
Each of the five Portfolios described in and offered pursuant to the Memorandum
and this SAI has distinct investment objectives and policies. Each Portfolio
other than Schroder EM Core Portfolio is a "diversified" investment company
under the 1940 Act. This means that with respect to 75% of a 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). None of
the diversified Portfolios is subject to this limitation with respect to the
remaining 25% of its total assets. Schroder EM Core Portfolio is a
"non-diversified" investment company under the 1940 Act, and therefore may
invest its assets in a more limited number of issuers than may diversified
investment companies. 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 eight series (five being the Portfolios described in this SAI),
and the Trust reserves the right to create additional series.
Each Interestholder in a portfolio of the Trust (including the five Portfolios
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
<PAGE>
matter affects only one portfolio or portfolio voting is required, in which case
portfolio interests are voted separately by each 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.
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<PAGE>
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
In addition to the principal investment strategies and the principal risks of
the Portfolios described in the Memorandum, each Portfolio may employ other
investment practices and may be subject to additional risks, which are described
below. Because the following is a combined description of investment strategies
and risks for all the Portfolios, certain strategies or risks described below
may not apply to a Portfolio. Unless a strategy or policy described below is
specifically prohibited by the investment restrictions listed in the Memorandum,
under "Investment Restrictions" in this SAI, or by applicable law, a Portfolio
may engage in each of the practices described below.
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, each 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 a Portfolio for hedging purposes
or, to the extent permitted by applicable law, to increase its current return.
The Portfolios may also engage in derivative transactions involving foreign
currencies. See "Foreign Currency Transactions."
OPTIONS
Each Portfolio may purchase and sell covered put and call options on its
portfolio securities to enhance investment performance and to protect against
changes in market prices.
COVERED CALL OPTIONS. A Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by a 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
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<PAGE>
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.
A Portfolio may terminate a call option that it has written before it expires by
entering into a closing purchase transaction. A Portfolio may enter into closing
purchase transactions in order to free itself to sell the underlying security or
to write another call on the security, realize a profit on a previously written
call option, or protect a security from being called in an unexpected market
rise. Any profits from a closing purchase transaction may be offset by a decline
in the value of the underlying security. Conversely, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from a closing purchase
transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Portfolio.
COVERED PUT OPTIONS. A Portfolio may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.
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.
A Portfolio may terminate a put option that it has written before it expires by
a closing purchase transaction. Any loss from this transaction may be partially
or entirely offset by the premium received on the terminated option.
PURCHASING PUT AND CALL OPTIONS. A Portfolio may also purchase put options to
protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Portfolio, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Portfolio
must pay. These costs will reduce any profit the Portfolio might have realized
had it sold the underlying security instead of buying the put option.
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
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for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Portfolio might have
realized had it bought the underlying security at the time it purchased the call
option.
A Portfolio may also purchase put and call options to enhance its current
return. A 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. A 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 a Portfolio may be unable at times to close out
such positions, or that hedging transactions may not accomplish their purpose
because of imperfect market correlations. The successful use of these strategies
depends on the ability of 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 a 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, a Portfolio may be
forced to continue to hold, or to purchase at a fixed price, a security on which
it has sold an option at a time when 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 Portfolios'
use of options. The exchanges have established limitations on the maximum number
of calls and puts of each class that may be held or written by an investor or
group of investors acting in concert. It is possible that the Portfolios and
other clients of Schroder may be considered such a group. These position limits
may restrict the Portfolios' ability to purchase or sell options on particular
securities.
As described below, each Portfolio generally expects that its options
transactions will be conducted on recognized exchanges. In certain instances,
however, a Portfolio may purchase and sell options in the over-the-counter
markets. Options which are not traded on national securities exchanges may be
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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 a Portfolio. Furthermore, over-the-counter
options are not subject to the protection afforded purchasers of exchange-traded
options by The Options Clearing Corporation. A 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. A Portfolio will treat over-the-counter options (and, in the case
of options sold by the Portfolio, the underlying securities held by the
Portfolio) as illiquid investments as required by applicable law.
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, each Portfolio
that 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, each Portfolio that may
invest in equity securities may purchase and sell stock index futures to hedge
against changes in stock market prices. Each Portfolio may also, to the extent
permitted by applicable law, buy and sell futures contracts and options on
futures contracts to increase the Portfolio's current return. All such futures
and related options will, as may be required by applicable law, be traded on
exchanges that are licensed and regulated by the 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 -- a Portfolio will
legally obligate itself to accept the future delivery of the underlying security
and pay the agreed price. By selling futures on debt securities - assuming a
"short" position - it will legally obligate itself to make the future delivery
of the security against payment of the agreed price. 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.
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Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by a Portfolio will usually be
liquidated in this manner, a Portfolio may instead make or take delivery of the
underlying securities whenever it appears economically advantageous to the
Portfolio to do so. A clearing corporation associated with the exchange on which
futures are traded assumes responsibility for such closing transactions and
guarantees that a Portfolio's sale and purchase obligations under closed-out
positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more certainly
than would otherwise be possible the effective rate of return on portfolio
securities. A Portfolio may, for example, take a "short" position in the futures
market by selling contracts for the future delivery of debt securities held by
the Portfolio (or securities having characteristics similar to those held by the
Portfolio) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Portfolio's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities may substantially be offset by appreciation in the value of
the futures position. On other occasions, a Portfolio may take a "long" position
by purchasing futures on debt securities. This would be done, for example, when
the Portfolio expects to purchase particular securities when it has the
necessary cash, but expects the rate of return available in the securities
markets at that time to be less favorable than rates currently available in the
futures markets. If the anticipated rise in the price of the securities should
occur (with its concomitant reduction in yield), the increased cost to the
Portfolio of purchasing the securities may be offset, at least to some extent,
by the rise in the value of the futures position taken in anticipation of the
subsequent securities purchase.
Successful use by a Portfolio of futures contracts on debt securities is subject
to Schroder's ability to predict correctly movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if a 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.
A Portfolio may purchase and write put and call options on certain debt futures
contracts, as they become available. Such options are similar to options on
securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. A
Portfolio will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements, and, in addition, net option premiums received will be
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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 a Portfolio because the
maximum amount at risk is the premium paid for the options plus transactions
costs. However, there may be circumstances when the purchase of call or put
options on a futures contract would result in a loss to a Portfolio when the
purchase or sale of the futures contracts would not, such as when there is no
movement in the prices of debt securities. The writing of a put or call option
on a futures contract involves risks similar to those risks relating to the
purchase or sale of futures contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. A 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 a
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 a Portfolio enters into a futures contract to buy
100 units of the S&P 100 Index at a specified future date at a contract price of
$180 and the S&P 100 Index is at $184 on that future date, the Portfolio will
gain $400 (100 units x gain of $4). If a Portfolio enters into a futures
contract to sell 100 units of the stock index at a specified future date at a
contract price of $180 and the S&P 100 Index is at $182 on that future date, the
Portfolio will lose $200 (100 units x loss of $2).
A Portfolio may purchase or sell futures contracts with respect to any
securities 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 a Portfolio's investments successfully using futures contracts
and related options, a Portfolio must invest in futures contracts with respect
to indices or sub-indices the movements of which will, in Schroder's judgment,
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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, each of the Portfolios 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".
A 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. A
Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on an index involves less potential risk to a Portfolio because the
maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
A 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 a Portfolio purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, U.S. Treasury bills,
or other permissible collateral equal to a small percentage of the amount of the
futures contract. This amount is known as "initial margin." The nature of
initial margin is different from that of margin in security transactions in that
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it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to a Portfolio upon termination of the contract, assuming a Portfolio satisfies
its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a process
known as "marking to market." These payments are called "variation margin" and
are made as the value of the underlying futures contract fluctuates. For
example, when a Portfolio sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Portfolio's
position declines in value. The Portfolio then pays the broker a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the securities underlying the futures contract.
Conversely, if the price of the underlying security falls below the delivery
price of the contract, the Portfolio's futures position increases in value. The
broker then must make a variation margin payment equal to the difference between
the delivery price of the futures contract and the market price of the
securities underlying the futures contract.
When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only on an
exchange or board of trade that provides a secondary market for such futures.
Although each Portfolio intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, a Portfolio would continue to be required to make daily cash payments
of variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Portfolio generally will purchase only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that a Portfolio would have to exercise the
options in order to realize any profit.
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HEDGING RISKS. There are several risks in connection with the use by a Portfolio
of futures contracts and related options as a hedging device. One risk arises
because of the imperfect correlation between movements in the prices of the
futures contracts and options and movements in the underlying securities or
index or in the prices of a 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 a
Portfolio's investments sought to be hedged.
Successful use of futures contracts and options by a 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 a Portfolio has
purchased puts on futures contracts to hedge its portfolio against a decline in
the market, the securities or index on which the puts are purchased may increase
in value and the value of securities held in the portfolio may decline. If this
occurred, the Portfolio would lose money on the puts and also experience a
decline in 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 a Portfolio may invest
(including markets located in foreign countries) are relatively new and still
developing and may be subject to regulatory restraints, a Portfolio's ability to
engage in transactions using such instruments may be limited. Suitable
derivative transactions may not be available in all circumstances and there is
no assurance that a Portfolio will engage in such transactions at any time or
from time to time. A Portfolio's ability to engage in hedging transactions may
also be limited by certain regulatory and tax considerations.
OTHER RISKS. Each 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 a Portfolio may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
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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
Each Portfolio may enter into contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if the
Portfolio holds, and maintains until the settlement date in a segregated
account, cash or 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. 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 a Portfolio will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, a Portfolio may dispose of a commitment
prior to settlement if Schroder deems it appropriate to do so. A Portfolio may
realize short-term profits or losses upon the sale of forward commitments.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements. A repurchase agreement is a
contract under which the Portfolio acquires a security for a relatively short
period (usually not more than 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 a 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, a 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, a Portfolio may incur delay and costs
in selling the underlying security or may suffer a loss of principal and
interest if a Portfolio is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
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WHEN-ISSUED SECURITIES
Each Portfolio may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued on this basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time a
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by a Portfolio and no interest accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending the
settlement of a purchase of securities, that Portfolio would earn no income.
While a Portfolio may sell its right to acquire when-issued securities prior to
the settlement date, a Portfolio intends actually to acquire such securities
unless a sale prior to settlement appears desirable for investment reasons. At
the time a Portfolio makes the commitment to purchase a security on a
when-issued basis, it will record the transaction and reflect the amount due and
the value of the security in determining the Portfolio's net asset value. The
market value of the when-issued securities may be more or less than the purchase
price payable at the settlement date. Each Portfolio will establish a segregated
account in which it will maintain cash and U.S. government securities or other
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
A 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 a 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, a Portfolio retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by the Portfolio if the holders of such securities are asked to vote upon or
consent to matters materially affecting the investment. A Portfolio will not
lend portfolio securities to borrowers affiliated with that Portfolio.
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FOREIGN SECURITIES
Each Portfolio, with the exception of Schroder U.S. Smaller Companies Portfolio,
may invest without limit in securities principally traded in foreign markets.
Each Portfolio, other than Schroder U.S. Smaller Companies 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 a 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 a
Portfolio's assets may be affected favorably or unfavorably by currency exchange
rates and exchange control regulations, and a 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 a 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 a Portfolio and its
Interestholders. Income received by a Portfolio from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to determine the effective rate
of foreign tax in advance since the amount of a Portfolio's assets to be
invested in various countries is not known, and tax laws and their
interpretations may change from time to time and may change without advance
notice. Any such taxes paid by a Portfolio will reduce its net income available
for distribution to Interestholders.
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FOREIGN CURRENCY TRANSACTIONS
Each Portfolio may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. A Portfolio may engage in both "transaction hedging"
and "position hedging."
When it engages in transaction hedging, a Portfolio enters into foreign currency
transactions with respect to specific receivables or payables of that Portfolio
generally arising in connection with the purchase or sale of its portfolio
securities. A Portfolio will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, a Portfolio will attempt to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
A Portfolio may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with transaction hedging. A Portfolio may
also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes, a Portfolio may also purchase exchange-listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. A put option on a futures contract gives a Portfolio
the right to assume a short position in the futures contract until expiration of
the option. A put option on currency gives a Portfolio the right to sell a
currency at an exercise price until the expiration of the option. A call option
on a futures contract gives a Portfolio the right to assume a long position in
the futures contract until the expiration of the option. A call option on
currency gives a Portfolio the right to purchase a currency at the exercise
price until the expiration of the option. A Portfolio will engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in 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, a Portfolio enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by a Portfolio are denominated or are quoted
in their principal trading markets or an increase in the value of currency for
securities which a Portfolio expects to purchase. In connection with position
hedging, a Portfolio may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. A Portfolio may also purchase or sell foreign
currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
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change as a consequence of market movements in the values of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of a Portfolio's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Portfolio is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of a Portfolio if the market value of such security or securities
exceeds the amount of foreign currency a Portfolio is obligated to deliver.
To offset some of the costs to a Portfolio of hedging against fluctuations in
currency exchange rates, a Portfolio may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities, which a Portfolio owns or intends to purchase or sell.
They simply establish a rate of exchange 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.
A Portfolio may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling options
on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
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Forward foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the contract agreed
upon by the parties, rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Portfolio may either accept
or make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade, which provides a secondary
market in such contracts or options. Although a Portfolio will normally purchase
or sell foreign currency futures contracts and related options only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or option or at any particular time. In such
event, it may not be possible to close a futures or related option position and,
in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin on its futures
positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter market,
although options on foreign currencies have recently been listed on several
exchanges. Such options will be purchased or written only when 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
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(less than $1 million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To the extent that
the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the U.S. options markets.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(the "spread") between prices at which they buy and sell various currencies.
Thus, a dealer may offer to sell a foreign currency to a Portfolio at one rate,
while offering a lesser rate of exchange should a Portfolio desire to resell
that currency to the dealer.
ZERO-COUPON SECURITIES
Zero-coupon securities in which a Portfolio may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest. As a result, the net asset value of Portfolio
Interests of a 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, a
Portfolio will be able to have its beneficial ownership of U.S. Treasury
zero-coupon securities recorded directly in the book-entry record-keeping system
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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, a Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A 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 a 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 pursuing a 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 a 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, a
Portfolio will use these alternate strategies.
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INVESTMENT RESTRICTIONS
The Trust has adopted the following fundamental and non-fundamental
investment restrictions for each Portfolio. A Portfolio's Fundamental investment
restrictions may not be changed without the affirmative vote of a "majority of
the outstanding voting securities" of the affected 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.
INTERNATIONAL EQUITY FUND
International Equity Fund will not:
FUNDAMENTAL POLICIES:
1. Invest more than 5% of its assets in the securities of any single
issuer. This restriction does not apply to securities issued by the
U.S. Government, its agencies or instrumentalities.
2. Purchase more than 10% of the voting securities of any one issuer.
3. Invest more than 10% of its assets in "illiquid securities" (securities
that cannot be disposed of within seven days at their then-current
value). For purposes of this limitation, "illiquid securities"
includes, except in those circumstances described below: (1)
"restricted securities," which are securities than cannot be resold to
the public without registration under federal securities law; and (2)
securities of issuers (together with all predecessors) having a record
of less than three years of continuous operation.
4. Invest 25% or more of the value of its total assets in any one
industry.
5. Borrow money, except from banks for temporary emergency purposes, and
then only in an amount not exceeding 5% of the value of the total
assets of the Portfolio.
6. Pledge, mortgage or hypothecate its assets to an extent greater than
10% of the value of its total assets.
7. Purchase securities on margin or sell short.
8. Make investments for the purpose of exercising control or management.
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9. Purchase or sell real estate (provided that the Portfolio may invest in
securities issued by companies that invest in real estate or interests
therein).
10. Make loans to other persons (provided that, for purposes of this
restriction, entering into repurchase agreements, acquiring corporate
debt securities and investing in U.S. Government obligations,
short-term commercial paper, certificates of deposit and bankers'
acceptances shall not be deemed to be the making of a loan).
11. Invest in commodities, commodity contracts, other than foreign currency
forward contracts, or oil, gas and other mineral resource, lease, or
arbitrage transactions.
12. Write, purchase or sell options, puts, calls, straddles, spreads,
or combinations thereof.
13. Underwrite securities issued by other persons (except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under U.S. securities laws).
14. Invest in warrants, valued at the lower of cost or market, to more than
5% of the value of the Portfolio's net assets. Included within that
amount, but not to exceed 2% of the value of the Portfolio's net
assets, may be warrants that are not listed on the New York or American
Stock Exchange. Warrants acquired by the Portfolio in units or attached
to securities may be deemed to be without value.
15. Purchase more than 3% of the outstanding securities of any closed-end
investment company. Any such purchase of securities issued by a
closed-end investment company will otherwise be made in full compliance
with Sections 12(d)(1)(A)(i), (ii) and (iii) of the 1940 Act.
NON-FUNDAMENTAL POLICY:
International Equity Fund will not invest in restricted securities. This policy
does not include restricted securities eligible for resale to qualified
institutional purchasers pursuant to Rule 144A under the Securities Act of 1933,
as amended, that are determined to be liquid by Schroder pursuant to guidelines
adopted by the Trust's Board of Trustees. Such guidelines take into account
trading activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in
particular Rule 144A securities, these securities may be illiquid.
SCHRODER EM CORE PORTFOLIO
Schroder Emerging Markets Portfolio will not:
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FUNDAMENTAL POLICIES:
1. Purchase a security if, as a result, more than 25% of the Portfolio's
total assets would be invested in securities of issuers conducting
their principal business activities in the same industry. For purposes
of this limitation, there is no limit on: (1) investments in U.S.
Government securities, in repurchase agreements covering U.S.
Government securities, in securities issued by the states, territories
or possessions of the 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 that it invests in other
investment companies pursuant to Section 12(d)(1)(A) of the 1940 Act,
the Portfolio treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
2. Borrow money if, as a result, outstanding borrowings would exceed an
amount equal to one- third of the Portfolio's total assets.
3. Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate
business).
4. Make loans to other parties. For purposes of this limitation, entering
into repurchase agreements, lending securities and acquiring any debt
security are not deemed to be the making of loans.
5. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the Portfolio from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities).
6. Underwrite (as that term is defined in the Securities Act of 1933, as
amended) securities issued by other persons except, to the extent that
in connection with the disposition of its assets, the Portfolio may be
deemed to be an underwriter.
7. Issue any class of senior securities except to the extent consistent
with the 1940 Act.
NON-FUNDAMENTAL POLICIES:
1. The Portfolio is "non-diversified" as that term is defined in the 1940
Act. To the extent required to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, the
Portfolio may not purchase a security (other than a U.S. Government
security or a security of an investment company) if, as a result: (1)
with respect to 50% of its assets, more than 5% of the Portfolio's
total assets would be invested in the securities of any single issuer;
(2) with respect to 50% of its assets, the Portfolio would own more
than 10% of the outstanding securities of any single issuer; or (3)
more than 25% of the Portfolio's total assets would be invested in the
securities of any single issuer.
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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 purchase securities (such as the purchase of
when-issued securities); (2) reverse repurchase agreements; (3)
dollar-roll transactions; and (4) the lending of securities.
1 Invest more than 15% of its net assets in "illiquid securities", which
include: (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 Securities Act of 1933, as amended,
("restricted securities") that are not readily marketable. The
Portfolio may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Trust's Board of Trustees.
3. The Portfolio will not make investments for the purpose of exercising
control of an issuer. Investments by the Portfolio in entities created
under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments
for the purpose of exercising control.
4. The Portfolio will not invest in securities of another investment
company, except to the extent permitted by the 1940 Act.
5. The Portfolio will not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the
securities sold short (short sales "against-the-box"), and provided
that transactions in futures contracts and options are not deemed to
constitute selling securities short.
6. The Portfolio will not purchase securities on margin, except that the
Portfolio may use short-term credit for the clearance of its
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. The Portfolio will not lend a security if, as a result, the amount of
loaned securities would exceed an amount equal to one-third of the
Portfolio's total assets.
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
FUNDAMENTAL POLICIES:
Schroder International Smaller Companies Portfolio will not:
1. With respect to 75% of it assets, purchase a security other than a
security issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or a security of an investment company if, as a
result, more than 5% of the Portfolio's total assets would be invested
in the securities of a single issuer or the Portfolio would own more
than 10% of the outstanding voting securities of any single issuer.
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2. Concentrate investments in any particular industry; therefore, the
Portfolio will not purchase the securities of companies in any one
industry if, thereafter, 25% or more of the Portfolio's total assets
would consist of securities of companies in that industry. This
restriction does not apply to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. An investment of
more than 25% of the Portfolio's assets in the securities of issuers
located in one country does not contravene this policy.
3. Borrow money in excess of 33 1/3% of its total assets taken at market
value (including the amount borrowed) and then only from a bank as a
temporary measure for extraordinary or emergency purposes, including to
meet redemptions or to settle securities transactions that may
otherwise require untimely dispositions of portfolio securities.
4. Purchase or sell real estate, provided that the Portfolio may invest
in securities issued by companies which invest in real estate or
interests therein.
5. Make loans to other persons, provided that for purposes of this
restriction, entering into repurchase agreements or acquiring any
otherwise permissible debt securities or engaging in securities loans
shall not be deemed to be the making of a loan.
6. Invest in commodities or commodity contracts other than forward
foreign currency exchange contracts.
7. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under U.S. securities laws.
8. Issue senior securities except to the extent permitted by the 1940
Act.
NON-FUNDAMENTAL POLICY:
The Portfolio will not invest more than 15% of its assets in securities
determined by Schroder to be illiquid. Certain securities that are restricted as
to resale may nonetheless be resold by the Portfolio in accordance with Rule
144A under the Securities Act of 1933, as amended. Such securities may be
determined by Schroder to be liquid for purposes of compliance with the
limitation on the Portfolio's investment in illiquid securities.
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
Schroder U.S. Smaller Companies Portfolio will not:
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FUNDAMENTAL POLICIES:
1. Borrow money, except that the Portfolio may borrow from banks or by
entering into reverse repurchase agreements, provided that such
borrowings do not exceed 33 1/3% of the value of the Portfolio's total
assets (computed immediately after the borrowing).
2. Underwrite securities of other companies (except insofar as the
Portfolio might be deemed to be an underwriter in the resale of any
securities held in its portfolio).
3. Invest in commodities or commodity contracts (other than covered call
options, put and call options, stock index futures, and options on
stock index futures and broadly-based stock indices, all of which are
referred to as Hedging Instruments, which it may use as permitted by
any of its other fundamental policies, whether or not any such Hedging
Instrument is considered to be a commodity or a commodity contract).
4. Purchase securities on margin; however, the Portfolio may make margin
deposits in connection with any Hedging Instruments, which it may use
as permitted by any of its other fundamental policies.
5. Purchase or write puts or calls except as permitted by any of its
other fundamental policies.
6. Lend money except in connection with the acquisition of that portion of
publicly-distributed debt securities that the Portfolio's investment
policies and restrictions permit it to purchase; the Portfolio may also
make loans of portfolio securities and enter into repurchase
agreements.
7. Pledge, mortgage or hypothecate its assets to an extent greater than
10% of the value of the total assets of the Portfolio; however, this
does not prohibit the escrow arrangements contemplated by the put and
call activities of the Portfolio or other collateral or margin
arrangements in connection with any of the Hedging Instruments, which
it may use as permitted by any of its other fundamental policies.
8. Invest in companies for the purpose of acquiring control or management
thereof.
9. Invest in interests in oil, gas or other mineral exploration or
development programs (but may purchase readily marketable securities of
companies which operate, invest in, or sponsor such programs).
10. Invest in real estate or in interests in real estate, but may purchase
readily marketable securities of companies holding real estate or
interests therein.
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NON-FUNDAMENTAL POLICY:
The Portfolio will not invest more than 15% of its assets in securities
determined by Schroder to be illiquid. Certain securities that are restricted as
to resale may nonetheless be resold by the Portfolio in accordance with Rule
144A under the Securities Act of 1933, as amended. Such securities may be
determined by Schroder to be liquid for purposes of compliance with the
limitation on the Portfolio's investment in illiquid securities.
SCHRODER GLOBAL GROWTH PORTFOLIO
Schroder Global Growth Portfolio will not:
FUNDAMENTAL POLICIES:
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.
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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 Securities Act of 1933, as
amended) securities issued by other persons except, to the extent that
in connection with the disposition of the Portfolio's assets, the
Portfolio may be deemed to be an underwriter.
8. Issue any class of senior securities except to the extent consistent
with 1940 Act.
NON-FUNDAMENTAL POLICIES
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.
Each 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.
27
<PAGE>
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 furnishes a continuing investment program for each Portfolio and makes
investment decisions on its behalf. Subject to the control of the Trustees,
Schroder also manages the Portfolios' 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.
David N. Dinkins, Trustee. 71. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), Schroder Capital Funds II, 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 Funds (Delaware), Schroder Capital Funds II, 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), Schroder Capital Funds II, 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 Capital Funds II, Schroder
Series Trust, and Schroder Series Trust II. Formerly, Senior Vice President,
Marsh & McLennan, Inc.
28
<PAGE>
(*) Sharon L. Haugh, Trustee. 53. 787 Seventh Avenue, New York, New York.
Chairman, Schroder Capital Management Inc. Executive Vice President and
Executive Director, Schroder Capital Management International Inc. Chairman and
Director, Schroder Fund Advisors Inc. Trustee, Schroder Capital Funds
(Delaware), Schroder Capital Funds II, and Schroder Series Trust.
William L. Means, Trustee. 59. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), Schroder Capital Funds II 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), Schroder Capital Funds II, 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), Schroder Capital Funds II, and
Schroder Series Trust. Trustee, St. Luke's/Roosevelt Hospital Center. Formerly,
consultant to Schroder Capital Management International Inc.
(*) Mark J. Smith, President and Trustee of the Trust. 36. 787 Seventh
Avenue, New York, New York. Director and Senior Vice President, Schroder Capital
Management International Limited and Schroder Capital Management International
Inc. Director, Schroder Investment Management Ltd., Schroder Fund Advisors Inc.,
and Schroder Japanese Warrant Fund Ltd. Trustee, Schroder Capital Funds
(Delaware), Schroder Capital Funds II, and Schroder Series Trust.Vice President,
Schroder Series Trust II.
Mark Astley, Vice President of the Trust. 34. 787 Seventh Avenue, New York,
New York. First Vice President of Schroder Capital Management International Inc.
Formerly, employed by various affiliates of Schroder Capital Management
International Inc. in various positions in the investment research and portfolio
management areas since 1987.
Robert G. Davy, Vice President of the Trust. 37. 787 Seventh Avenue, New
York, New York. Director of Schroder Capital Management International Inc. and
Schroder Capital Management International Ltd. since 1994; First Vice President
of Schroder Capital Management International Inc. since July 1992. Formerly,
employed by various affiliates of Schroder Capital Management International Inc.
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 and Secretary of Schroder Capital
Management Inc.
Richard R. Foulkes, Vice President of the Trust. 53. 787 Seventh Avenue,
New York, New York. Deputy Chairman of Schroder Capital Management International
Inc. since October 1995; Director and Executive Vice President of Schroder
Capital Management International Ltd. since 1989.
- -------------------------
(*) Trustee who is an "interested person" (as defined in the 1940 Act) of the
Trust, Schroder, or Schroder Fund Advisors Inc.
29
<PAGE>
John Y. Keffer, Vice President of the Trust. 56. Two Portland Square,
Portland, Maine. President of Forum Fund Services, LLC, the Portfolio's
placement agent, and other affiliated entities including Forum Accounting
Services, LLC, Forum Administrative Services, LLC, and Forum Investment
Advisors, LLC.
Michael Perelstein, Vice President of the Trust. 43. 787 Seventh Avenue,
New York, New York. Director since May 1997 and Senior Vice President of
Schroder Capital Management International Inc. since January 1997. Formerly,
Managing Director of MacKay - Shields Financial Corp.
Catherine A. Mazza, Vice President of the Trust. 39. 787 Seventh Avenue,
New York, New York. First Vice President, Schroder Capital Management
International Inc. and Schroder Capital Management Inc. President, Schroder Fund
Advisors Inc. Vice President, Schroder Capital Funds (Delaware), Schroder
Capital Funds II, and Schroder Series Trust. Formerly, Vice President, Alliance
Capital Management L.P.
Alexandra Poe, Secretary and Vice President of the Trust. 38. 787 Seventh
Avenue, New York, New York. Vice President, Schroder Capital Management
International Inc. Senior Vice President, Secretary, and General Counsel,
Schroder Fund Advisors Inc. Vice President and Secretary, Schroder Capital Funds
(Delaware), Schroder Capital Funds II, 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.
Jane E. Lucas, Vice President of the Trust. 38. 787 Seventh Avenue, New
York, New York. Senior Vice President, Schroder Capital Management International
Inc.
Fergal Cassidy, Treasurer and Principal Financial and Accounting Officer of
the Trust. 29. 787 Seventh Avenue, New York, New York. Vice President and
Treasurer, Schroder Capital Management Inc. Vice President and Comptroller,
Schroder Capital Management International Inc. Treasurer and Chief Financial
Officer, Schroder Fund Advisors Inc. Assistant Treasurer, Schroder Series Trust.
Formerly, Senior Accountant, Concurrency Management Corp.
Alan Mandel, Assistant Treasurer of the Trust. 41. 787 Seventh Avenue, New
York, New York. First Vice President of Schroder Capital Management
International Inc. since September 1998. Formerly, Director of Mutual Fund
Administration for Salomon Brothers Asset Management; Chief Financial Officer
and Vice President of Mutual Capital Management.
Carin Muhlbaum, Assistant Secretary of the Trust. 36. Vice President of
Schroder Capital Management International Inc. since 1998. 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. 35. 787 Seventh Avenue,
New York, New York. Associate of Schroder Capital Management International Inc.
since October 1997 and Assistant Vice President of Schroder Fund Advisors Inc.
since March 1998. Formerly, Mutual Fund Specialist, Willkie Farr & Gallagher;
Fund Administrator, Furman Selz LLC since 1992.
30
<PAGE>
Thomas G. Sheehan, Assistant Treasurer and Assistant Secretary of the
Trust. 44. Two Portland Square, Portland, Maine. Relationship Manager and
Counsel, Forum Financial Services, Inc. since 1993. Formerly, Special Counsel,
U.S. Securities and Exchange Commission, Division of Investment Management,
Washington, D.C.
John A. Troiano, Vice President of the Trust. 38. 787 Seventh Avenue, New
York, New York. Director of Schroder Capital Management Inc. since April 1997;
Chief Executive Officer, since July 1, 1997, of Schroder Capital Management
International Inc. and Managing Director and Senior Vice President of Schroder
Capital Management International Inc. since October 1995. Formerly, employed by
various affiliates of Schroder Capital Management International Inc. 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. Group Vice President of Schroder Capital Management
International Inc. since April 1998 and an Associate from July 1990 to April
1993.
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
for the fiscal year ended October 31, 1998 to the disinterested Trustees.
31
<PAGE>
COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
(2) (3)
AGGREGATE TOTAL COMPENSATION FROM TRUST AND
(1) COMPENSATION FUND COMPLEX PAID TO TRUSTEES*
NAME OF FROM TRUST
TRUSTEE
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
David N. Dinkins $6,762 $14,250
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Peter E. Guernsey $7,365 $23,750
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
John I. Howell $7,365 $25,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Peter S. Knight $7,365 $15,500
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
William L. Means** $0 $9,500
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Clarence F. Michalis $7,365 $14,250
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Hermann C. Schwab $7,365 $14,250
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Total Compensation listed in column (3) for each Trustee includes
compensation for services as a Trustee of the Trust, Schroder Capital
Funds II ("SCF II"), 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), SCF II,
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.
As of December 1, 1998, the Trustees of the Trust as a group owned less than 1%
of the Portfolio Interests.
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.
32
<PAGE>
SCHRODER AND ITS AFFILIATES
Schroder has served as the investment adviser for each of the Portfolios since
their 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. Affiliates of Schroder U.S.
Holdings Inc. (or their predecessors) have been investment managers since 1927.
Schroder itself has been an investment manager since 1962, and served as
investment manager for approximately $27.1 billion as of December 31, 1998.
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 December 31, 1998, had
under management assets of approximately $195 billion.
INVESTMENT ADVISORY AGREEMENTS
Under Investment Advisory Agreements between the Trust and Schroder (the
"Advisory Agreements"), Schroder, at its expense, provides the Portfolios 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 each
Portfolio. The fees to be paid under the Advisory Agreements are set forth in
the Memorandum.
Under the Advisory Agreements, Schroder is required to regularly provide the
Portfolios with investment research, advice, and supervision and furnishes
continuously investment programs consistent with the investment objectives and
policies of the various Portfolios. Schroder also determines, for the various
Portfolios, what securities shall be purchased, what securities shall be held or
sold, and what portion of a 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 a Portfolio's investment objectives, 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 Agreements, 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
33
<PAGE>
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 Forum Fund Services, LLC, 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 Portfolios' 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 Agreements may be reduced in any year
if a 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 Agreements may be terminated without penalty by vote of the
Trustees as to any Portfolio, by the Interestholders of that Portfolio, or by
Schroder on 60 days' written notice. Each Advisory Agreement also terminates
without payment of any penalty in the event of its assignment. In addition, each
Advisory Agreement may be amended only by a vote of the Interestholders of the
affected Portfolio(s), and each 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 a 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.
Subject to the direction and control of Schroder, Schroder Investment Management
International Limited ("SIMIL"), an affiliate of Schroder, serves as subadviser
to Schroder International Smaller Companies Portfolio pursuant to an Investment
Subadvisory Agreement among Schroder, SIMIL and the Portfolio.
Forum Administrative Services, LLC ("FAdS") and provide certain administrative,
accounting, and other services to the Trust. For these services, FAdS and Forum
Accounting receive a monthly fee at annual rates based on each Portfolio's
average daily net assets, as approved by the Trustees.
RECENT INVESTMENT ADVISORY FEES. The total investment advisory fees paid by the
Portfolios to Schroders during the three most recent 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.
Portfolios with May 31 fiscal year end:
34
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
INVESTMENT ADVISORY FEES INVESTMENT ADVISORY FEES INVESTMENT ADVISORY FEES
PAID FOR FISCAL YEAR ENDED PAID FOR FISCAL YEAR PAID FOR FISCAL YEAR ENDED
PORTFOLIO 5/31/98 ENDED 5/31/97 5/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder EM Core Portfolio $13,351 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Global Growth $0 N/A N/A
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder U.S. Smaller $1,419,439 $175,881 $6,073
Companies Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Portfolios with October 31 fiscal year end:
- ------------------------------ ---------------------------- --------------------------- ----------------------------
INVESTMENT ADVISORY FEES INVESTMENT ADVISORY FEES INVESTMENT ADVISORY FEES
PAID FOR FISCAL YEAR ENDED PAID FOR FISCAL YEAR PAID FOR FISCAL YEAR ENDED
PORTFOLIO 10/31/98 ENDED 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
International Equity Fund $824,302 $844,696 $978,697
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder International $0 $0 N/A
Smaller Companies Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
FEE WAIVERS
Schroder voluntarily waived its fees during the three most recent 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 each Portfolio that was waived by Schroder.
Portfolios with May 31 fiscal year end:
35
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
FEES WAIVED DURING FISCAL FEES WAIVED DURING FISCAL FEES WAIVED DURING FISCAL
YEAR ENDED 5/31/98 YEAR ENDED 5/31/97 YEAR ENDED 5/31/96
PORTFOLIO
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder EM Core Portfolio $142,195 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Global Growth $8177 N/A N/A
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder U.S. Smaller $0 $35,396 $20,260
Companies Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Portfolios with October 31 fiscal year end:
- ------------------------------ ---------------------------- --------------------------- ----------------------------
FEES WAIVED DURING FISCAL FEES WAIVED DURING FISCAL FEES WAIVED DURING FISCAL
YEAR ENDED 10/31/98 YEAR ENDED 10/31/97 YEAR ENDED 10/31/96
PORTFOLIO
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
International Equity Fund $43,861 $47,471 $0
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder International $51,559 $60,034 N/A
Smaller Companies Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
ADMINISTRATIVE SERVICES
On behalf of each 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 Portfolios, 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 Portfolios, 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 following annual rates (based upon each
Portfolio's average daily net assets): 0.075% with respect to International
Equity Fund; 0.10% with respect to Schroder EM Core Portfolio; 0.15% with
respect to Schroder International Smaller Companies Portfolio; 0.0% with respect
36
<PAGE>
to Schroder U.S. Smaller Companies Portfolio; and 0.15% with respect to Schroder
Global Growth Portfolio. The administration agreement is terminable with respect
to a 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 FadS. Under its
agreement, FAdS assists Schroder Fund Advisors Inc. with certain of its
responsibilities under the administration agreement, including Interestholder
reporting and regulatory compliance. For providing its services, FAdS is
entitled to receive a monthly fee from each of the Portfolios at the annual rate
of 0.075% (based upon each Portfolio's average daily net assets and subject to a
$25,000 minimum per Portfolio). The subadministration agreement is terminable
with respect to a Portfolio without penalty, at any time, by the Trust upon 60
days' written notice to FAdS or by FAdS upon 60 days' written notice to the
Trust.
Schroder Fund Advisors Inc. is contractually obligated to waive a portion of its
administration fee and has assumed certain expenses of each Portfolio, in each
case through December 31, 1999 (except for Schroder Global Growth Portfolio,
with respect to which the waiver period may terminate on May 31, 1999) so that
such Portfolio's total expenses would not exceed the following rates (based on
each of the respective Portfolio's average daily net assets):
International Equity Fund 0.75%
Schroder EM Core Portfolio 1.45%
Schroder International Smaller Companies Portfolio 1.20%
Schroder U.S. Smaller Companies Portfolio 0.85%
Schroder Global Growth Portfolio 0.85%
The expense limitations cannot be modified or withdrawn except by a majority
vote of the Trustees of the Trust who are not affiliated persons (as defined in
the 1940 Act ) of the Trust.
During the three most recent fiscal years, each 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.
37
<PAGE>
Portfolios with May 31 fiscal year end:
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
ADMINISTRATIVE FEES PAID ADMINISTRATIVE FEES PAID ADMINISTRATIVE FEES PAID
FOR FISCAL YEAR ENDED FOR FISCAL YEAR ENDED FOR FISCAL YEAR ENDED
PORTFOLIO 5/31/98 5/31/97 5/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder EM Core Portfolio Schroder Fund Advisors N/A N/A
Inc.
$15,555
FAdS $11,666 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Global Growth Schroder Fund Advisors N/A N/A
Portfolio Inc. $0
FAdS $1226 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder U.S. Smaller Schroder Fund Advisors Schroder Fund Advisors Schroder Fund Advisors
Companies Portfolio Inc. $0 Inc. $0 Inc. $0
FAdS $177,430 FAdS $26,410 FAdS $3,292
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Portfolios with October 31 fiscal year end:
- ------------------------------ ---------------------------- --------------------------- ----------------------------
ADMINISTRATIVE FEES PAID ADMINISTRATIVE FEES PAID ADMINISTRATIVE FEES PAID
FOR FISCAL YEAR ENDED FOR FISCAL YEAR ENDED FOR FISCAL YEAR ENDED
PORTFOLIO 10/31/98 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
International Equity Fund Schroder Fund Advisors Schroder Fund Advisors Schroder Fund Advisors
Inc. $144,694 Inc. $148,694 Inc. $163,116
FAdS $144,694 FAdS $148,694 FAdS $111,145
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder International Schroder Fund Advisors Schroder Fund Advisors N/A
Smaller Companies Portfolio Inc. Inc. $0
$0
FAdS $4,549 FAdS $5,297 N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
38
<PAGE>
PLACEMENT AGENT
Forum Fund Services, LLC, Two Portland Square, Portland, Maine, 04101, serves as
the Trust's placement agent (underwriter). The Placement Agent receives no
compensation for its services.
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of FAds, performs fund accounting services for
each Portfolio pursuant to an agreement with the Trust. Under the Transfer
Agency and Fund Accounting Agreement, Forum Accounting prepares and maintains
the books and records of each Portfolio that are required to be maintained under
the 1940 Act, calculates the net asset value of each Portfolio, calculates the
distributive share of the Portfolio's income, expense, gain or loss allocable to
each Interestholder and prepares periodic reports to Interestholders and the
SEC.
For its services to each Portfolio, Forum Accounting is entitled to receive from
the Trust a fee of $36,000 per year plus $24,000 per year for global and
international Portfolios, and an additional $12,000 per year with respect to
tax-free money market funds,
Portfolios with more than 25% of their total assets invested in asset-backed
securities, Portfolios that have more than 100 security positions, and
Portfolios that have a monthly turnover rate of 10% or more.
The tables below show the amount of fees paid by each Portfolio to Forum
Accounting during the three most recent fiscal years (or such shorter time a
Portfolio has been operational). The fees listed in the tables below reflect
reductions pursuant to fee waivers during such periods.
Portfolios with May 31 fiscal year end
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
ACCOUNTING FEES PAID ACCOUNTING FEES PAID ACCOUNTING FEES PAID
DURING FISCAL YEAR ENDED DURING FISCAL YEAR ENDED DURING FISCAL YEAR ENDED
PORTFOLIO 5/31/98 5/31/97 5/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder EM Core Portfolio $40,323 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Global Growth $37,742 N/A N/A
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder U.S. Smaller $40,000 $21,000 $7,645
Companies Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
39
<PAGE>
Portfolios with October 31 fiscal year end:
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
ACCOUNTING FEES PAID ACCOUNTING FEES PAID ACCOUNTING FEES PAID
DURING FISCAL YEAR ENDED DURING FISCAL YEAR ENDED DURING FISCAL YEAR ENDED
PORTFOLIO 10/31/98 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
International Equity Fund $72,000 $72,000 $74,000
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder International $67,000 $59,333 N/A
Smaller Companies Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
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
40
<PAGE>
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 a Portfolio), although not all of these services are necessarily useful
and of value in managing a Portfolio. The investment advisory fee paid by a
Portfolio is not reduced because 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 a Portfolio to pay a
broker that provides brokerage and research services to Schroder an amount of
disclosed commission for effecting a securities transaction for a Portfolio in
excess of the commission which another broker would have charged for effecting
that transaction. Schroder's authority to cause a 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 Portfolios 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 Portfolios have
adopted procedures which are reasonably designed to provide that any commissions
or other remuneration the Portfolios pay to Schroder & Co. and Schroder
Securities do not exceed the usual and customary broker's commission. In
addition, the Portfolios will adhere to the rule, under the Securities Exchange
41
<PAGE>
Act of 1934, governing floor trading. This rule permits the Portfolios 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 Portfolios 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.
None of the Portfolios has any understanding or arrangement to direct any
specific portion of its brokerage to Schroder & Co. or Schroder Securities, and
none will direct brokerage to Schroder & Co. or Schroder Securities in
recognition of research services.
The following tables show the aggregate brokerage commissions paid for the three
most recent fiscal years with respect to each Portfolio.
Portfolios with May 31 fiscal year end:
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
BROKERAGE COMMISSIONS PAID BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS PAID
DURING FISCAL YEAR ENDED PAID DURING FISCAL YEAR DURING FISCAL YEAR ENDED
PORTFOLIO 5/31/98 ENDED 5/31/97 5/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder EM Core Portfolio $92,883.11 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Global Growth $ 7,260.57 N/A N/A
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder U.S. Smaller
Companies Portfolio $490,041.92 $145,697.92 $57,566.30
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
Portfolios with October 31 fiscal year end:
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
BROKERAGE COMMISSIONS PAID BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS PAID
DURING FISCAL YEAR ENDED PAID DURING FISCAL YEAR DURING FISCAL YEAR ENDED
PORTFOLIO 10/31/98 ENDED 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
International Equity Fund $430,341.04 $420,858.90 $602,982.10
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder International $ 27,396.19 $ 37,181.39 N/A
Smaller Companies Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
<PAGE>
The following tables show the aggregate brokerage commissions paid to Schroder &
Co. and Schroder Securities for the three most recent fiscal years, as well as
the percentage such commissions represented of all transactions on which the
Portfolio paid brokerage commissions during such fiscal year.
Portfolios with May 31 fiscal year end:
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
BROKERAGE COMMISSIONS PAID BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS PAID
DURING FISCAL YEAR ENDED PAID DURING FISCAL YEAR DURING FISCAL YEAR ENDED
5/31/98 ENDED 5/31/97 5/31/96
PORTFOLIO
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder EM Core Portfolio Schroder & Co. $0 0% Schroder & Co. $0 0%(a) Schroder & Co. $0 0%
Schroder Securities $0 0% Schroder Securities $0 0% Schroder Securities $0 0%
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Global Growth Schroder & Co. $0 0% Schroder & Co. $0 0% Schroder & Co. $0 0%
Portfolio Schroder Securities $0 0% Schroder Securities $0 0% Schroder Securities $0 0%
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder U.S. Smaller Schroder & Co. $0 0% Schroder & Co. $0 0% Schroder & Co. $0 0%
Companies Portfolio Schroder Securities $0 0% Schroder Securities $0 0% Schroder Securities $0 0%
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
Portfolios with October 31 fiscal year end:
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
BROKERAGE COMMISSIONS PAID BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS PAID
DURING FISCAL YEAR ENDED PAID DURING FISCAL YEAR DURING FISCAL YEAR ENDED
10/31/98 ENDED 10/31/97 10/31/96
PORTFOLIO
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
International Equity Fund Schroder & Co. $0 0% Schroder & Co. $4,716, Schroder & Co. $0 0%
Schroder Securities $0 0% 0.99% Schroder Securities $0 0%
Schroder Securities $0 0%
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder International Schroder & Co. $0 0% Schroder & Co. $0 0% Schroder & Co. $0 0%
Smaller Companies Portfolio Schroder Securities $0 0% Schroder Securities $0 0% Schroder Securities $0 0%
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
42
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per Portfolio Interest of each Portfolio 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. Any assets or
liabilities initially expressed in terms of foreign currencies are translated
into U.S. dollars at the prevailing market rates as quoted by one or more banks
or dealers on the afternoon of valuation. The New York Stock Exchange is
normally closed on the following national holidays: New Years Day, Martin Luther
King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving, and Christmas.
The Trustees have established procedures for the valuation of a 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 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.
Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments 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
43
<PAGE>
comparable securities and various relationships between securities which are
generally recognized by institutional traders.
If any securities held by a 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 each 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 such Portfolio,
and constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated on the Trust's books of account, and will be
charged with the liabilities in respect of such 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 a Portfolio in lieu of cash. The Trust does not
expect to redeem Portfolio Interests in kind under normal circumstances. If your
44
<PAGE>
Portfolio Interests are redeemed in kind, you should expect to incur transaction
costs upon the disposition of the securities received in the distribution.
TAXES
Each Portfolio is classified for federal income tax purposes as a partnership
that is not a "publicly traded partnership." As a result, each Portfolio is not
subject to federal income tax; instead, each Interestholder in a Portfolio is
required to take into account in determining its federal income tax liability
its share of the Portfolio's income, gains, losses, deductions, and credits,
without regard to whether it has received any cash distributions from the
Portfolio. The Portfolio also is not subject to Delaware income or franchise
tax.
Each Interestholder in a Portfolio is deemed to own a proportionate share of the
Portfolio's assets and to earn a proportionate share of the Portfolio's income,
for, among other things, purposes of determining whether the Interestholder
satisfies the requirements to qualify as a regulated investment company ("RIC").
Accordingly, each 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 a 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 a Portfolio may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the return on the security 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 a 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
45
<PAGE>
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 a 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. Each Portfolio will
report annually to its Interestholders their proportionate shares of such
withholding taxes.
Each 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 a 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.
A Portfolio's transactions in foreign currencies, foreign currency-denominated
debt securities and certain foreign currency options, futures contracts and
forward contracts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value of
the foreign currency concerned.
46
<PAGE>
OTHER PORTFOLIO INVESTMENTS
If a Portfolio engages in hedging transactions, including hedging transactions
in options, futures contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale,
mark-to-market, straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Portfolio, defer losses to the Portfolio,
cause adjustments in the holding periods of the Portfolio's securities, or
convert short-term capital losses into long-term capital losses. These rules
could, therefore, 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 a 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.
Each Portfolio may write, purchase or sell options or futures contracts. Unless
a Portfolio is eligible to, and does, make a special election, such options and
futures contracts that are "Section 1256 contracts" will be "marked to market"
for federal income tax purposes at the end of each taxable year (I.E., each
option or futures contract will be treated as sold for its fair market value on
the last day of the taxable year). In general, unless such special election is
made, gain or loss from transactions in options and futures contracts will be
60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the taxation
of a 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 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.
47
<PAGE>
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 a 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 a Portfolio is "effectively connected" with a U.S. trade or
business carried on by a non-U.S. Interestholder, then distributions of net
investment income (which includes short-term capital gains) whether received in
cash or reinvested in Portfolio Interests, net long-term capital gains and
amounts otherwise includable in income (such as amounts retained by the
48
<PAGE>
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. 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 a
Portfolio also may be subject to foreign, state and local taxes, and their
treatment under foreign, state and local income tax laws may differ from the
federal income tax treatment. Interestholders should consult their tax advisors
with respect to particular questions of federal, foreign, state and local
taxation.
PRINCIPAL HOLDERS OF PORTFOLIO INTERESTS
As of December 1, 1998, 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 each Portfolio.
The table attached as Appendix A lists those Interestholders that owned 5% or
more of the Interests of each Portfolio as of February 1, 1999, and therefore
are controlling persons of such 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.
49
<PAGE>
PERFORMANCE INFORMATION
Average annual total return of a Portfolio for one-, five-, and ten-year periods
(or for such shorter periods as Portfolio Interests of the Portfolio have been
offered) 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 a
Portfolio to other mutual funds and other investment vehicles. Performance for
each Portfolio may be compared to various indices.
The tables below set forth the total return of the Portfolios for the one-year
period ended October 31, 1998 (November 30, 1998 for those Portfolios with a May
31 fiscal year end) and for the period from the commencement of each Portfolio's
operations until October 31, 1998 (November 30, 1998 for those Portfolios with a
May 31 fiscal year end).
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED NOVEMBER 30, 1998
(FOR PORTFOLIOS WITH MAY 31 FISCAL YEAR END)
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------- ------------------ ------------------ -------------------- -----------------
SINCE INCEPTION INCEPTION DATE
OF PORTFOLIO OF PORTFOLIO
PORTFOLIO 1 YEAR 5 YEAR (ANNUALIZED)
- ---------------------------------- ------------------ ------------------ -------------------- -----------------
- ---------------------------------- ------------------ ------------------ -------------------- -----------------
Schroder EM Core Portfolio (18.39)% N/A (19.48)% 10/30/97
- ---------------------------------- ------------------ ------------------ -------------------- -----------------
- ---------------------------------- ------------------ ------------------ -------------------- -----------------
Schroder U.S. Smaller Companies (9.66)% 18.03% 18.32% 8/15/96
Portfolio
- ---------------------------------- ------------------ ------------------ -------------------- -----------------
- ---------------------------------- ------------------ ------------------ -------------------- -----------------
Schroder Global Growth Portfolio 11.79% N/A 3.80% 10/15/97
- ---------------------------------- ------------------ ------------------ -------------------- -----------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 1998
(FOR PORTFOLIOS WITH OCTOBER 31 FISCAL YEAR END)
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------------------- ----------------- ----------------- ------------------ ----------------- -----------------
SINCE INCEPTION
OF PORTFOLIO INCEPTION DATE
(ANNUALIZED) OF PORTFOLIO
PORTFOLIO 1 YEAR 5 YEAR 10 YEAR
- ---------------------------- ----------------- ----------------- ------------------ ----------------- -----------------
- ---------------------------- ----------------- ----------------- ------------------ ----------------- -----------------
International Equity 4.27% N/A N/A 7.71% 11/01/95
Fund
- ---------------------------- ----------------- ----------------- ------------------ ----------------- -----------------
- ---------------------------- ----------------- ----------------- ------------------ ----------------- -----------------
Schroder International
Smaller Companies Portfolio 8.54% N/A N/A 0.20% 11/05/96
- ---------------------------- ----------------- ----------------- ------------------ ----------------- -----------------
</TABLE>
From time to time, Schroder, Schroder Fund Advisors Inc., Forum
Accounting or FAds may reduce its compensation or assume expenses of a Portfolio
in order to reduce the Portfolio's expenses, as described in the current
Memorandum. Any such waiver or assumption would increase a Portfolio's yield or
total return during the period of the waiver or assumption.
CUSTODIAN
The Chase Manhattan Bank, through its Global Custody Division located at 125
London Wall, London EC2Y 5AJ, United Kingdom, acts as custodian of the assets of
the Portfolios (other than Schroder U.S. Smaller Companies Portfolio). Norwest
Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479, acts as
custodian of the assets of Schroder U.S. Smaller Companies Portfolio. The
custodians' responsibilities include safeguarding and controlling the
Portfolios' cash and securities, handling the receipt and delivery of
securities, and collecting interest and dividends on the Portfolios'
investments. Neither custodian determines the investment policies of the
Portfolios or decides which securities a Portfolio will buy or sell.
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.
50
<PAGE>
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 a Portfolio's
property for all loss and expense of any Interestholder held personally liable
for the obligations of a 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 International Equity Fund and Schroder International
Smaller Companies Portfolio is October 31. The fiscal year end of Schroder EM
Core Portfolio, Schroder U.S. Smaller Companies Portfolio and Schroder Global
Growth Portfolio is May 31.
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 October 31, 1998, which was filed electronically
with the Securities and Exchange Commission on January 22, 1999 Accession
Numbers: 0000889812-99-000186, 0000889812-99-000187, 0001004402-99-000032.
51
<PAGE>
APPENDIX A
HOLDERS OF 5% OR MORE OF OUTSTANDING PORTFOLIO INTERESTS
As of February 1, 1999, the Interestholders listed below owned more than 5% of a
Portfolio as noted. Interestholders owning 25% or more of the interests of a
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>
<S> <C> <C> <C>
NUMBER OF UNITS % OF PORTFOLIO
OF BENEFICIAL INTERESTS OWNED
INTEREST
INTERNATIONAL EQUITY PORTFOLIO
- ----------------------------------------------------------------- ------------------ -----------------
Schroder International Fund, a series of Schroder Capital
Fun Funds (DE)
Two Portland Square
Portland, ME 04101 9,518,708 82.27%
Sealaska Corporation
One Sealaska Plaza
Juneau, AK 99801 1,410,634 12.19%
Bankers Trust Company
FBO Northrop Grumman Corporation
100 Plaza One MS 3048
Jersey City, NJ 07311 640,799 5.54%
</TABLE>
52
<PAGE>
<TABLE>
<S> <C> <C> <C>
NUMBER OF UNITS % OF
OF BENEFICIAL PORTFOLIO
INTEREST INTERESTS
SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO OWNED
- ----------------------------------------------------------------- ----------------- ----------------
Schroder International Smaller Companies Fund, a
Series of Schroder Capital Funds (DE)
Two Portland Square
Portland, ME 04101 393,695 99.99%
NUMBER OF UNITS % OF PORTFOLIO
OF BENEFICIAL INTERESTS
INTEREST OWNED
SCHRODER EM CORE PORTFOLIO
- ----------------------------------------------------------------- ----------------- ----------------
Norwest Growth Equity Fund, a series of 420,175 25.96%
Norwest Advantage Funds
Two Portland Square
Portland, ME 04101
Norwest International Fund, a series of 396,430 24.49%
Norwest Advantage Funds
Two Portland Square
Portland, ME 04101
Norwest Diversified Equity Fund, a series of 372,771 23.03%
Norwest Advantage Funds
Two Portland Square
Portland, ME 04101
Schroder Emerging Markets Fund, a series of 251,926 15.56%
Schroder Capital Funds (DE)
Two Portland Square
Portland, Me 04101
Norwest Growth Balanced Fund, a series of 112,483 6.95%
Norwest Advantage Funds
Two Portland Square
Portland, ME 04101
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C> <C>
NUMBER OF UNITS % OF PORTFOLIO
OF BENEFICIAL INTERESTS
INTEREST OWNED
SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
- ----------------------------------------------------------------- ----------------- ----------------
Norwest Small Cap Opportunities Fund, a series of 11,420,241 80.20%
Norwest Advantage Funds
Two Portland Square
Portland, ME 04101
Schroder U.S. Smaller Companies Fund, a series of 2,695,361 18.93%
Schroder Capital Funds (DE)
Two Portland Square
Portland, ME 04101
NUMBER OF UNITS % OF PORTFOLIO
OF BENEFICIAL INTERESTS
INTEREST OWNED
SCHRODER GLOBAL GROWTH PORTFOLIO
- ----------------------------------------------------------------- ----------------- ----------------
Schroders Incorporated 200,000 61.23%
787 Seventh Avenue, 6th Floor
New York, NY 10019
Performa Global Growth Fund, a series of 126,638 38.77%
Forum Funds
Two Portland Square
Portland, ME 04101
</TABLE>
<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.
54
<PAGE>
"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.
55
<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.
56
<PAGE>
"BBB" Fixed-income securities rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are considered
investment grade.
"BB" Fixed-income securities rated "BB" have less near-term vulnerability to
default than other speculative grade fixed-income securities. However, it faces
major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or willingness to
pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability to default
but presently have the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon favorable business,
financial and economic conditions to meet timely payments of interest and
repayments of principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities subordinated
to senior debt which is assigned an actual or implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on which no
interest is being paid.
"NR" Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are
regarded as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such fixed-income
securities will likely have some quality and protective characteristics, these
are out-weighed by large uncertainties or major risk exposures to adverse
conditions.
57
<PAGE>
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.
58
<PAGE>
<PAGE>
PART B
Schroder Asian Growth Portfolio, Schroder Japan Portfolio.
<PAGE>
FORM N-1A PART B
CONFIDENTIAL STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SCHRODER CAPITAL FUNDS
SCHRODER ASIAN GROWTH FUND PORTFOLIO
SCHRODER JAPAN PORTFOLIO
MARCH 1, 1999
Schroder Capital Funds (the "Trust"), acting through Forum Fund Services, LLC
(the "Placement Agent"), is making a private placement of shares of beneficial
interest ("Portfolio Interests") in separate series, each with a distinct
investment objective and policies. 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 eight series, two of which (each a
"Portfolio") are described in this Statement of Additional Information (the
"SAI"): Schroder Asian Growth Fund Portfolio and Schroder Japan Portfolio.
Schroder Capital Management International Inc. manages each 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 March
1, 1999 relating to the two Portfolios.
This SAI is not a Memorandum and is authorized for distribution only when
accompanied or preceded by the Memorandum. This SAI contains information that
may be useful to investors in a Portfolio ("Interestholders") but which is not
included in the Memorandum. You may obtain free copies of the Memorandum by
calling the Trust at (800) 730-2932 or the Placement Agent at (207) 879-1900.
Certain disclosure has been incorporated by reference into this SAI from the
Portfolios' annual reports. For a free copy of the annual reports, please call
(800) 730-2932.
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........................................................
PORTFOLIO CLASSIFICATION.............................................
CAPITAL STOCK AND OTHER SECURITIES...................................
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS............
INVESTMENT RESTRICTIONS..............................................
TRUSTEES AND OFFICERS................................................
SCHRODER AND ITS AFFILIATES..........................................
INVESTMENT ADVISORY AGREEMENTS.......................................
ADMINISTRATIVE SERVICES..............................................
PLACEMENT AGENT......................................................
PORTFOLIO ACCOUNTING.................................................
BROKERAGE ALLOCATION AND OTHER PRACTICES.............................
DETERMINATION OF NET ASSET VALUE.....................................
REDEMPTIONS IN KIND..................................................
TAXES
PRINCIPAL HOLDERS OF PORTFOLIO INTERESTS.............................
PERFORMANCE INFORMATION..............................................
CUSTODIAN............................................................
INDEPENDENT AUDITORS.................................................
LEGAL COUNSEL........................................................
INTERESTHOLDER LIABILITY.............................................
FINANCIAL STATEMENTS.................................................
APPENDIX A...........................................................
APPENDIX B
<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
Each of the two Portfolios described in and offered pursuant to the Memorandum
and this SAI has distinct investment objectives and policies. Each Portfolio is
a "non-diversified" investment company under the 1940 Act, and therefore may
invest its assets in a more limited number of issuers than may diversified
investment companies. 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 eight series (two being the Portfolios described in this SAI), and
the Trust reserves the right to create additional series.
Each Interestholder in a portfolio of the Trust (including the two Portfolios
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 each 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.
<PAGE>
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
In addition to the principal investment strategies and the principal
risks of the Portfolios described in the Memorandum, each Portfolio may employ
other investment practices and may be subject to additional risks, which are
described below. Because the following is a combined description of investment
strategies and risks for both of the Portfolios, certain strategies or risks
described below may not apply to a Portfolio. Unless a strategy or policy
described below is specifically prohibited by the investment restrictions listed
in the Memorandum, under "Investment Restrictions" in this SAI, or by applicable
law, a Portfolio may engage in each of the practices described below.
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, each 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 a Portfolio for hedging purposes
or, to the extent permitted by applicable law, to increase its current return.
The Portfolios may also engage in derivative transactions involving foreign
currencies. See "Foreign Currency Transactions."
OPTIONS
Each Portfolio may purchase and sell covered put and call options on its
portfolio securities to enhance investment performance and to protect against
changes in market prices.
COVERED CALL OPTIONS. A Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by a 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.
2
<PAGE>
A Portfolio may terminate a call option that it has written before it expires by
entering into a closing purchase transaction. A Portfolio may enter into closing
purchase transactions in order to free itself to sell the underlying security or
to write another call on the security, realize a profit on a previously written
call option, or protect a security from being called in an unexpected market
rise. Any profits from a closing purchase transaction may be offset by a decline
in the value of the underlying security. Conversely, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from a closing purchase
transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Portfolio.
COVERED PUT OPTIONS. A Portfolio may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.
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.
A Portfolio may terminate a put option that it has written before it expires by
a closing purchase transaction. Any loss from this transaction may be partially
or entirely offset by the premium received on the terminated option.
PURCHASING PUT AND CALL OPTIONS. A Portfolio may also purchase put options to
protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Portfolio, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Portfolio
must pay. These costs will reduce any profit the Portfolio might have realized
had it sold the underlying security instead of buying the put option.
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.
3
<PAGE>
A Portfolio may also purchase put and call options to enhance its current
return. A 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. A 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 a Portfolio may be unable at times to close out
such positions, or that hedging transactions may not accomplish their purpose
because of imperfect market correlations. The successful use of these strategies
depends on the ability of 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 a 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, a Portfolio may be
forced to continue to hold, or to purchase at a fixed price, a security on which
it has sold an option at a time when 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 Portfolios'
use of options. The exchanges have established limitations on the maximum number
of calls and puts of each class that may be held or written by an investor or
group of investors acting in concert. It is possible that the Portfolios and
other clients of Schroder may be considered such a group. These position limits
may restrict the Portfolios' ability to purchase or sell options on particular
securities.
As described below, each Portfolio generally expects that its options
transactions will be conducted on recognized exchanges. In certain instances,
however, a 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 a Portfolio. Furthermore, over-the-counter
options are not subject to the protection afforded purchasers of exchange-traded
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options by The Options Clearing Corporation. A 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. A Portfolio will treat over-the-counter options (and, in the case
of options sold by the Portfolio, the underlying securities held by the
Portfolio) as illiquid investments as required by applicable law.
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, each Portfolio
that 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, each Portfolio that may
invest in equity securities may purchase and sell stock index futures to hedge
against changes in stock market prices. Each Portfolio may also, to the extent
permitted by applicable law, buy and sell futures contracts and options on
futures contracts to increase the Portfolio's current return. All such futures
and related options will, as may be required by applicable law, be traded on
exchanges that are licensed and regulated by the 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 -- a Portfolio will
legally obligate itself to accept the future delivery of the underlying security
and pay the agreed price. By selling futures on debt securities - assuming a
"short" position - it will legally obligate itself to make the future delivery
of the security against payment of the agreed price. 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 a Portfolio will usually be
liquidated in this manner, a Portfolio may instead make or take delivery of the
underlying securities whenever it appears economically advantageous to the
Portfolio to do so. A clearing corporation associated with the exchange on which
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futures are traded assumes responsibility for such closing transactions and
guarantees that a Portfolio's sale and purchase obligations under closed-out
positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more certainly
than would otherwise be possible the effective rate of return on portfolio
securities. A Portfolio may, for example, take a "short" position in the futures
market by selling contracts for the future delivery of debt securities held by
the Portfolio (or securities having characteristics similar to those held by the
Portfolio) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Portfolio's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities may substantially be offset by appreciation in the value of
the futures position.
On other occasions, a Portfolio may take a "long" position by purchasing futures
on debt securities. This would be done, for example, when the Portfolio expects
to purchase particular securities when it has the necessary cash, but expects
the rate of return available in the securities markets at that time to be less
favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Portfolio of
purchasing the securities may be offset, at least to some extent, by the rise in
the value of the futures position taken in anticipation of the subsequent
securities purchase.
Successful use by a Portfolio of futures contracts on debt securities is subject
to Schroder's ability to predict correctly movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if a 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.
A Portfolio may purchase and write put and call options on certain debt futures
contracts, as they become available. Such options are similar to options on
securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. A
Portfolio will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements, and, in addition, net option premiums received will be
included as initial margin deposits. See "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 a Portfolio because the
maximum amount at risk is the premium paid for the options plus transactions
costs. However, there may be circumstances when the purchase of call or put
options on a futures contract would result in a loss to a Portfolio when the
purchase or sale of the futures contracts would not, such as when there is no
movement in the prices of debt securities. The writing of a put or call option
on a futures contract involves risks similar to those risks relating to the
purchase or sale of futures contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. A 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 a
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 a Portfolio enters into a futures contract to buy
100 units of the S&P 100 Index at a specified future date at a contract price of
$180 and the S&P 100 Index is at $184 on that future date, the Portfolio will
gain $400 (100 units x gain of $4). If a Portfolio enters into a futures
contract to sell 100 units of the stock index at a specified future date at a
contract price of $180 and the S&P 100 Index is at $182 on that future date, the
Portfolio will lose $200 (100 units x loss of $2).
A Portfolio may purchase or sell futures contracts with respect to any
securities 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 a Portfolio's investments successfully using futures contracts
and related options, a 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.
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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, each of the Portfolios 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".
A 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. A
Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on an index involves less potential risk to a Portfolio because the
maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
A 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 a Portfolio purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, U.S. Treasury bills,
or other permissible collateral equal to a small percentage of the amount of the
futures contract. This amount is known as "initial margin." The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to a Portfolio upon termination of the contract, assuming a Portfolio satisfies
its contractual obligations.
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Subsequent payments to and from the broker occur on a daily basis in a process
known as "marking to market." These payments are called "variation margin" and
are made as the value of the underlying futures contract fluctuates. For
example, when a Portfolio sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Portfolio's
position declines in value. The Portfolio then pays the broker a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the securities underlying the futures contract.
Conversely, if the price of the underlying security falls below the delivery
price of the contract, the Portfolio's futures position increases in value. The
broker then must make a variation margin payment equal to the difference between
the delivery price of the futures contract and the market price of the
securities underlying the futures contract.
When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only on an
exchange or board of trade that provides a secondary market for such futures.
Although each Portfolio intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, a Portfolio would continue to be required to make daily cash payments
of variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Portfolio generally will purchase only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that a Portfolio would have to exercise the
options in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by a Portfolio
of futures contracts and related options as a hedging device. One risk arises
because of the imperfect correlation between movements in the prices of the
futures contracts and options and movements in the underlying securities or
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index or in the prices of a 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 a
Portfolio's investments sought to be hedged.
Successful use of futures contracts and options by a 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 a Portfolio has
purchased puts on futures contracts to hedge its portfolio against a decline in
the market, the securities or index on which the puts are purchased may increase
in value and the value of securities held in the portfolio may decline. If this
occurred, the Portfolio would lose money on the puts and also experience a
decline in 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 a Portfolio may invest
(including markets located in foreign countries) are relatively new and still
developing and may be subject to regulatory restraints, a Portfolio's ability to
engage in transactions using such instruments may be limited. Suitable
derivative transactions may not be available in all circumstances and there is
no assurance that a Portfolio will engage in such transactions at any time or
from time to time. A Portfolio's ability to engage in hedging transactions may
also be limited by certain regulatory and tax considerations.
OTHER RISKS. Each 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 a Portfolio may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
correlation between the futures position and the portfolio position that is
intended to be protected, the desired protection may not be obtained and the
Portfolio may be exposed to risk of loss.
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FORWARD COMMITMENTS
Each Portfolio may enter into contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if the
Portfolio holds, and maintains until the settlement date in a segregated
account, cash or 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. 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 a Portfolio will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, a Portfolio may dispose of a commitment
prior to settlement if Schroder deems it appropriate to do so. A Portfolio may
realize short-term profits or losses upon the sale of forward commitments.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements. A repurchase agreement is a
contract under which the Portfolio acquires a security for a relatively short
period (usually not more than 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 a 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, a 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, a Portfolio may incur delay and costs
in selling the underlying security or may suffer a loss of principal and
interest if a Portfolio is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
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WHEN-ISSUED SECURITIES
Each Portfolio may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued on this basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time a
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by a Portfolio and no interest accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending the
settlement of a purchase of securities, that Portfolio would earn no income.
While a Portfolio may sell its right to acquire when-issued securities prior to
the settlement date, a Portfolio intends actually to acquire such securities
unless a sale prior to settlement appears desirable for investment reasons. At
the time a Portfolio makes the commitment to purchase a security on a
when-issued basis, it will record the transaction and reflect the amount due and
the value of the security in determining the Portfolio's net asset value. The
market value of the when-issued securities may be more or less than the purchase
price payable at the settlement date. Each Portfolio will establish a segregated
account in which it will maintain cash and U.S. government securities or other
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
A 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 a 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, a Portfolio retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by the Portfolio if the holders of such securities are asked to vote upon or
consent to matters materially affecting the investment. A Portfolio will not
lend portfolio securities to borrowers affiliated with that Portfolio.
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FOREIGN SECURITIES
Each Portfolio may invest without limit in securities principally traded in
foreign markets. Each 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 a 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 a
Portfolio's assets may be affected favorably or unfavorably by currency exchange
rates and exchange control regulations, and a 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 a 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 a Portfolio and its
Interestholders. Income received by a Portfolio from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to determine the effective rate
of foreign tax in advance since the amount of a Portfolio's assets to be
invested in various countries is not known, and tax laws and their
interpretations may change from time to time and may change without advance
notice. Any such taxes paid by a Portfolio will reduce its net income available
for distribution to Interestholders.
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FOREIGN CURRENCY TRANSACTIONS
Each Portfolio may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. A Portfolio may engage in both "transaction hedging"
and "position hedging."
When it engages in transaction hedging, a Portfolio enters into foreign currency
transactions with respect to specific receivables or payables of that Portfolio
generally arising in connection with the purchase or sale of its portfolio
securities. A Portfolio will engage in transaction hedging when it desires to
"lock in" the U.S. dollar price of a security it has agreed to purchase or sell,
or the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, a Portfolio will attempt to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
A Portfolio may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with transaction hedging. A Portfolio may
also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes, a Portfolio may also purchase exchange-listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. A put option on a futures contract gives a Portfolio
the right to assume a short position in the futures contract until expiration of
the option. A put option on currency gives a Portfolio the right to sell a
currency at an exercise price until the expiration of the option. A call option
on a futures contract gives a Portfolio the right to assume a long position in
the futures contract until the expiration of the option. A call option on
currency gives a Portfolio the right to purchase a currency at the exercise
price until the expiration of the option. A Portfolio will engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in 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, a Portfolio enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by a Portfolio are denominated or are quoted
in their principal trading markets or an increase in the value of currency for
securities which a Portfolio expects to purchase. In connection with position
hedging, a Portfolio may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. A Portfolio may also purchase or sell foreign
currency on a spot basis.
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The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the values of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of a Portfolio's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Portfolio is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of a Portfolio if the market value of such security or securities
exceeds the amount of foreign currency a Portfolio is obligated to deliver.
To offset some of the costs to a Portfolio of hedging against fluctuations in
currency exchange rates, a Portfolio may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities, which a Portfolio owns or intends to purchase or sell.
They simply establish a rate of exchange 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.
A Portfolio may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling options
on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
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<PAGE>
Forward foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the contract agreed
upon by the parties, rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Portfolio may either accept
or make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade, which provides a secondary
market in such contracts or options. Although a Portfolio will normally purchase
or sell foreign currency futures contracts and related options only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or option or at any particular time. In such
event, it may not be possible to close a futures or related option position and,
in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin on its futures
positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter market,
although options on foreign currencies have recently been listed on several
exchanges. Such options will be purchased or written only when 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.
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<PAGE>
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(less than $1 million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To the extent that
the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the U.S. options markets.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(the "spread") between prices at which they buy and sell various currencies.
Thus, a dealer may offer to sell a foreign currency to a Portfolio at one rate,
while offering a lesser rate of exchange should a Portfolio desire to resell
that currency to the dealer.
ZERO-COUPON SECURITIES
Zero-coupon securities in which a Portfolio may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest. As a result, the net asset value of Portfolio
Interests of a 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, a
Portfolio will be able to have its beneficial ownership of U.S. Treasury
16
<PAGE>
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.
TEMPORARY DEFENSIVE STRATEGIES
As described in the Memorandum, Schroder may at times judge that conditions in
the securities markets make pursuing a 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 a 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, a
Portfolio will use these alternate strategies.
INVESTMENT RESTRICTIONS
The Trust has adopted the following fundamental and non-fundamental
investment restrictions for each Portfolio. A Portfolio's Fundamental investment
restrictions may not be changed without the affirmative vote of a "majority of
the outstanding voting securities" of the affected 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.
FUNDAMENTAL RESTRICTIONS
The Portfolios will not:
1. Purchase any securities which would cause 25% or more of the value of its
total assets, taken at market value at the time of such purchase, to be
invested in securities of one or more issuers conducting their principal
business activities in the same industry, provided that there is no
limitation with respect to investment in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities. For purposes of
this restriction, a foreign government is deemed to be an "industry."
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<PAGE>
2. Borrow money except that the each Portfolio may borrow from banks up to 33
1/3% of its total assets (including the amount borrowed) for temporary or
emergency purposes or to meet redemption requests. The Portfolios may not
issue any class of securities which is senior to the Portfolio's shares of
beneficial interest; provided, however, that none of the following shall be
deemed to create senior securities: (1) any borrowing permitted by this
restriction or any pledge or encumbrance to secure such borrowing; (2) any
collateral arrangements with respect to options, futures contracts, options
on futures contracts or other financial instruments; or (3) any purchase,
sale or other permitted transaction in options, forward contracts, futures
contracts, options on futures contracts or other financial instruments.
(The following are not treated as borrowings to the extent they are fully
collateralized: (1) the delayed delivery of purchased securities (such as
the purchase of when-issued securities); (2) reverse repurchase agreements;
(3) dollar-roll transactions; and (4) the lending of securities.)
3. Purchase or sell real estate, real estate mortgage loans or real estate
limited partnership interests (other than securities secured by real estate
or interests therein or securities issued by companies that invest in real
estate or interests therein).
4. Make loans to other parties, except that each Portfolio may: (a) purchase
and hold debt instruments (including bonds, debentures or other obligations
and certificates of deposit, bankers' acceptances and fixed time deposits)
in accordance with its investment objective and policies, (b) enter into
repurchase agreements with respect to portfolio securities, and (c) make
loans of portfolio securities.
5. Purchase or sell commodities or commodity contracts, including futures
contracts and options thereon, except that the Fund may purchase or sell
financial futures contracts and related options, and futures contracts,
forward contracts, and options with respect to foreign currencies, and may
enter into swaps or other financial transactions.
6. Underwrite (as that term is defined in the Securities Act of 1933, as
amended) securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio securities, it may be
deemed to be an underwriter.
7. Invest for the purpose of exercising control over the management of any
company.
8. Make short sales of securities or maintain a short position.
9. Purchase securities on margin (except for delayed delivery or when-issued
transactions or such short-term credits as are necessary for the clearance
of transactions and for hedging purposes and margin deposits in connection
with transactions in futures contracts, options on futures contracts,
options on securities and securities indices, and currency transactions)
and other financial transactions.
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<PAGE>
Notwithstanding any other investment policy or restriction to the contrary, each
Portfolio may seek to achieve its investment objective by investing some or all
of its assets in the securities of one or more investment companies to the
extent permitted by the 1940 Act or an applicable exemptive order under such
Act; provided that, except to the extent a 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. (The
foregoing investment policy is fundamental.)
NON-FUNDAMENTAL LIMITATIONS
1. Underthese additional restrictions, a Fund may not invest more than 25% of
its total assets in obligations of any one issuer other than U.S.
Government securities and, with respect to 50% of its total assets, the
Fund may not invest more than 5% of its total assets in the securities of
any one issuer (except U.S. Government securities). Thus, a Portfolio may
invest up to 25% of its total assets in the securities of each of any two
issuers.
2. A Portfolio may not invest more than 15% of its net assets in: (1)
securities that cannot be disposed of within seven days at their
then-current value; (2) repurchase agreements not entitling the holder to
payment of principal within seven days; and (3) securities subject to
restrictions on the sale of the securities to the public without
registration under the Securities Act of 1933, as amended ("restricted
securities") that are not readily marketable. A Portfolio may treat certain
restricted securities as liquid pursuant to guidelines adopted by the
Board.
3. A Portfolio may not lend a security if, as a result, the amount of loaned
securities would exceed an amount equal to one third of the Portfolio's
total assets.
-------------------
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.
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<PAGE>
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 furnishes a continuing investment program for each Portfolio and makes
investment decisions on its behalf. Subject to the control of the Trustees,
Schroder also manages the Portfolios' 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.
David N. Dinkins, Trustee. 71. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), Schroder Capital Funds II, 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 Funds (Delaware), Schroder Capital Funds II, 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), Schroder Capital Funds II, 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 Capital Funds II, 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, Schroder Capital Management Inc. Executive Vice President and
Executive Director, Schroder Capital Management International Inc. Chairman and
Director, Schroder Fund Advisors Inc. Trustee, Schroder Capital Funds
(Delaware), Schroder Capital Funds II, and Schroder Series Trust.
William L. Means, Trustee. 59. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), Schroder Capital Funds II 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), Schroder Capital Funds II, and
Schroder Series Trust. Chairman of the Board of Directors, Josiah Macy, Jr.
Foundation.
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Hermann C. Schwab, Trustee. 79. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), Schroder Capital Funds II, and
Schroder Series Trust. Trustee, St. Luke's/Roosevelt Hospital Center. Formerly,
consultant to Schroder Capital Management International Inc.
(*) Mark J. Smith, President and Trustee of the Trust. 36. 787 Seventh
Avenue, New York, New York. Director and Senior Vice President, Schroder Capital
Management International Limited and Schroder Capital Management International
Inc. Director, Schroder Investment Management Ltd., Schroder Fund Advisors Inc.,
and Schroder Japanese Warrant Fund Ltd. Trustee, Schroder Capital Funds
(Delaware), Schroder Capital Funds II, and Schroder Series Trust. Vice
President, Schroder Series Trust II.
Mark Astley, Vice President of the Trust. 34. 787 Seventh Avenue, New York,
New York. First Vice President of Schroder Capital Management International Inc.
Formerly, employed by various affiliates of Schroder Capital Management
International Inc. in various positions in the investment research and portfolio
management areas since 1987.
Robert G. Davy, Vice President of the Trust. 37. 787 Seventh Avenue, New
York, New York. Director of Schroder Capital Management International Inc. and
Schroder Capital Management International Ltd. since 1994; First Vice President
of Schroder Capital Management International Inc. since July 1992. Formerly,
employed by various affiliates of Schroder Capital Management International Inc.
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 and Secretary of Schroder Capital
Management Inc.
Richard R. Foulkes, Vice President of the Trust. 53. 787 Seventh Avenue,
New York, New York. Deputy Chairman of Schroder Capital Management International
Inc. since October 1995; Director and Executive Vice President of Schroder
Capital Management International Ltd. since 1989.
John Y. Keffer, Vice President of the Trust. 56. Two Portland Square,
Portland, Maine. President of Forum Fund Services, LLC, the Portfolio's
placement agent, and other affiliated entities including Forum Accounting
Services, LLC, Forum Administrative Services, LLC, and Forum Investment
Advisors, LLC.
- --------
(*) Trustee who is an "interested person" (as defined in the 1940 Act) of the
Trust, Schroder, or Schroder Fund Advisors Inc.
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Michael Perelstein, Vice President of the Trust. 43. 787 Seventh Avenue,
New York, New York. Director since May 1997 and Senior Vice President of
Schroder Capital Management International Inc. since January 1997. Formerly,
Managing Director of MacKay - Shields Financial Corp.
Catherine A. Mazza, Vice President of the Trust. 39. 787 Seventh Avenue,
New York, New York. First Vice President, Schroder Capital Management
International Inc. and Schroder Capital Management Inc. President, Schroder Fund
Advisors Inc. Vice President, Schroder Capital Funds (Delaware), Schroder
Capital Funds II, and Schroder
Series Trust. Formerly, Vice President, Alliance Capital Management L.P.
Alexandra Poe, Secretary and Vice President of the Trust. 38. 787 Seventh
Avenue, New York, New York. Vice President, Schroder Capital Management
International Inc. Senior Vice President, Secretary, and General Counsel,
Schroder Fund Advisors Inc. Vice President and Secretary, Schroder Capital Funds
(Delaware), Schroder Capital Funds II, 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.
Jane E. Lucas, Vice President of the Trust. 38. 787 Seventh Avenue, New
York, New York. Senior Vice President, Schroder Capital Management International
Inc.
Fergal Cassidy, Treasurer and Principal Financial and Accounting Officer of
the Trust. 29. 787 Seventh Avenue, New York, New York. Vice President and
Treasurer, Schroder Capital Management Inc. Vice President and Comptroller,
Schroder Capital Management International Inc. Treasurer and Chief Financial
Officer, Schroder Fund Advisors Inc. Assistant Treasurer, Schroder Series Trust.
Formerly, Senior Accountant, Concurrency Management Corp.
Alan Mandel, Assistant Treasurer of the Trust. 41. 787 Seventh Avenue, New
York, New York. First Vice President of Schroder Capital Management
International Inc. since September 1998. Formerly, Director of Mutual Fund
Administration for Salomon Brothers Asset Management; Chief Financial Officer
and Vice President of Mutual Capital Management.
Carin Muhlbaum, Assistant Secretary of the Trust. 36. Vice President of
Schroder Capital Management International Inc. since 1998. 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. 35. 787 Seventh Avenue,
New York, New York. Associate of Schroder Capital Management International Inc.
since October 1997 and Assistant Vice President of Schroder Fund Advisors Inc.
since March 1998. Formerly, Mutual Fund Specialist, Willkie Farr & Gallagher;
Fund Administrator,
Furman Selz LLC since 1992.
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<PAGE>
Thomas G. Sheehan, Assistant Treasurer and Assistant Secretary of the
Trust. 44. Two Portland Square, Portland, Maine. Relationship Manager and
Counsel, Forum Financial Services, Inc. since 1993. Formerly, Special Counsel,
U.S. Securities and Exchange Commission, Division of Investment Management,
Washington, D.C.
John A. Troiano, Vice President of the Trust. 38. 787 Seventh Avenue, New
York, New York. Director of Schroder Capital Management Inc. since April 1997;
Chief Executive Officer, since July 1, 1997, of Schroder Capital Management
International Inc. and Managing Director and Senior Vice President of Schroder
Capital Management International Inc. since October 1995. Formerly, employed by
various affiliates of Schroder Capital Management International Inc. 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. Group Vice President of Schroder Capital Management
International Inc. since April 1998 and an Associate from July 1990 to April
1993.
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. or Forum Fund Services, LLC
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
for the fiscal year ended October 31, 1998 to the disinterested Trustees.
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<PAGE>
COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
(2) (3)
AGGREGATE TOTAL COMPENSATION FROM TRUST AND
(1) COMPENSATION FUND COMPLEX PAID TO TRUSTEES*
NAME OF FROM TRUST
TRUSTEE
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
David N. Dinkins $6,762 $14,250
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Peter E. Guernsey $7,365 $23,750
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
John I. Howell $7,365 $25,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Peter S. Knight $7,365 $15,500
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
William L. Means** $0 $9,500
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Clarence F. Michalis $7,365 $14,250
- -------------------------------------------------------------------------------------------------------------------
Hermann C. Schwab $7,365 $14,250
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Total Compensation listed in column (3) for each Trustee includes
compensation for services as a Trustee of the Trust, Schroder Capital
Funds II ("SCF II"), 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), SCF II,
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.
As of February 1, 1999, the Trustees of the Trust as a group owned less
than 1% of the Portfolio Interests.
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 each of the Portfolios since
their 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. Affiliates of Schroder U.S.
Holdings Inc. (or their predecessors) have been investment managers since 1927.
Schroder itself has been an investment manager since 1962, and served as
investment manager for approximately $27.1 billion as of December 31, 1998.
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 December 31, 1998, had
under management assets of approximately $195 billion.
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<PAGE>
INVESTMENT ADVISORY AGREEMENTS
Under Investment Advisory Agreements between the Trust and Schroder (the
"Advisory Agreements"), Schroder, at its expense, provides the Portfolios 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 each
Portfolio. The fees to be paid under the Advisory Agreements are set forth in
the Memorandum.
Under the Advisory Agreements, Schroder is required to regularly provide the
Portfolios with investment research, advice, and supervision and furnishes
continuously investment programs consistent with the investment objectives and
policies of the various Portfolios. Schroder also determines, for the various
Portfolios, what securities shall be purchased, what securities shall be held or
sold, and what portion of a 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 a Portfolio's investment objectives, 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 Agreements, 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 Forum Fund Services, LLC, 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 Portfolios' 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 Agreements may be reduced in any year
if a 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.
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<PAGE>
The Advisory Agreements may be terminated without penalty by vote of the
Trustees as to any Portfolio, by the Interestholders of that Portfolio, or by
Schroder on 60 days' written notice. Each Advisory Agreement also terminates
without payment of any penalty in the event of its assignment. In addition, each
Advisory Agreement may be amended only by a vote of the Interestholders of the
affected Portfolio(s), and each 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 a 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.
Forum Administrative Services, LLC ("FAdS") and Forum Accounting Services, LLC
("Forum Accounting") provide certain administrative, accounting, and other
services to the Trust. For these services, FAdS and Forum Accounting receive a
monthly fee at annual rates based on each Portfolio's average daily net assets,
as approved by the Trustees.
RECENT INVESTMENT ADVISORY FEES. The total investment advisory fees paid by the
Portfolios to Schroders during the three most recent fiscal years are set forth
in the following table. The fees listed in the following table reflects
reductions pursuant to expense limitations in effect during such periods.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
INVESTMENT ADVISORY FEES INVESTMENT ADVISORY FEES INVESTMENT ADVISORY FEES
PAID FOR FISCAL YEAR ENDED PAID FOR FISCAL YEAR PAID FOR FISCAL YEAR ENDED
PORTFOLIO 10/31/98 ENDED 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Asian Growth Fund $147,140 N/A N/A
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Japan Portfolio $63,136 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
FEE WAIVERS
Schroder voluntarily waived its fees during the three most recent fiscal years
pursuant to voluntary expense limitations and/or waivers in effect during such
periods. The table below reflects the amount of the investment advisory fees
scheduled to be paid by each Portfolio that was waived by Schroder.
27
<PAGE>
Portfolios with October 31 fiscal year end:
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
FEES WAIVED DURING FISCAL FEES WAIVED DURING FISCAL FEES WAIVED DURING FISCAL
YEAR ENDED 10/31/98 YEAR ENDED 10/31/97 YEAR ENDED 10/31/96
PORTFOLIO
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Asian Growth Fund $11,385 N/A N/A
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Japan Portfolio $7,699 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
ADMINISTRATIVE SERVICES
On behalf of each 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 Portfolios, 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 Portfolios, 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 of 0.05% (based upon each Portfolio's average daily net
assets). The administration agreement is terminable with respect to a 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 FadS. Under its
agreement, FAdS assists Schroder Fund Advisors Inc. with certain of its
responsibilities under the administration agreement, including Interestholder
reporting and regulatory compliance. For providing its services, FAdS is
entitled to receive a monthly fee from each of the Portfolios at the annual rate
of 0.05% (based upon each Portfolio's average daily net assets and subject to a
$25,000 minimum per Portfolio). The subadministration agreement is terminable
with respect to a Portfolio without penalty, at any time, by the Trust upon 60
days' written notice to FAdS or by FAdS upon 60 days' written notice to the
Trust.
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<PAGE>
Schroder Fund Advisors Inc. is contractually obligated to waive a portion of its
administration fee and has assumed certain expenses of each Portfoliountil
October 31, 1999 so that such Portfolio's total expenses would not exceed the
following rates (based on each of the respective Portfolio's average daily net
assets):
Schroder Asian Growth Fund Portfolio 1.16%
Schroder Japan Portfolio 0.99%
The expense limitations cannot be modified or withdrawn except by a majority
vote of the Trustees of the Trust who are not affiliated persons (as defined in
the 1940 Act ) of the Trust.
During the three most recent fiscal years, each 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
table reflects reductions pursuant to fee waivers and expense limitations in
effect during such periods.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
ADMINISTRATIVE FEES PAID ADMINISTRATIVE FEES PAID ADMINISTRATIVE FEES PAID
FOR FISCAL YEAR ENDED FOR FISCAL YEAR ENDED FOR FISCAL YEAR ENDED
PORTFOLIO 10/31/98 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Asian Growth Fund Schroder Fund Advisors N/A N/A
Portfolio Inc. $11,385
FAdS $11,385
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Japan Portfolio Schroder Fund Advisors N/A N/A
Inc. $7,699
FAdS $7,699
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
PLACEMENT AGENT
Forum Fund Services, LLC, Two Portland Square, Portland, Maine, 04101, serves as
the Trust's placement agent (underwriter). The Placement Agent receives no
compensation for its services.
29
<PAGE>
PORTFOLIO ACCOUNTING
Forum Accounting, an affiliate of FAds, performs fund accounting services for
each Portfolio pursuant to an agreement with the Trust. Under the Transfer
Agency and Fund Accounting Agreement, Forum Accounting prepares and maintains
the books and records of each Portfolio that are required to be maintained under
the 1940 Act, calculates the net asset value of each Portfolio, calculates the
distributive share of the Portfolio's income, expense, gain or loss allocable to
each Interestholder and prepares periodic reports to Interestholders and the
SEC.
For its services to each Portfolio, Forum Accounting is entitled to receive from
the Trust a fee of $48,000 per year plus $24,000 per year for global and
international Portfolios, and an additional $12,000 per year with respect to
tax-free money market funds, Portfolios with more than 25% of their total assets
invested in asset-backed securities, Portfolios that have more than 100 security
positions, and Portfolios that have a monthly turnover rate of 10% or more.
The tables below show the amount of fees paid by each Portfolio to
Forum Accounting during the three most recent fiscal years (or such shorter time
a Portfolio has been operational). The fees listed in the table below reflects
reductions pursuant to fee waivers during such periods.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
ACCOUNTING FEES PAID ACCOUNTING FEES PAID ACCOUNTING FEES PAID
DURING FISCAL YEAR ENDED DURING FISCAL YEAR ENDED DURING FISCAL YEAR ENDED
10/31/98 10/31/97 10/31/96
PORTFOLIO
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Asian Growth Fund $28,339 N/A N/A
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Japan Portfolio $27,339 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
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
30
<PAGE>
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 a Portfolio), although not all of these services are necessarily useful
and of value in managing a Portfolio. The investment advisory fee paid by a
Portfolio is not reduced because 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 a Portfolio to pay a
broker that provides brokerage and research services to Schroder an amount of
disclosed commission for effecting a securities transaction for a Portfolio in
excess of the commission which another broker would have charged for effecting
that transaction. Schroder's authority to cause a 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 Portfolios 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 Portfolios have
adopted procedures which are reasonably designed to provide that any commissions
or other remuneration the Portfolios pay to Schroder & Co. and Schroder
Securities do not exceed the usual and customary broker's commission. In
addition, the Portfolios will adhere to the rule, under the Securities Exchange
Act of 1934, governing floor trading. This rule permits the Portfolios 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 Portfolios 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.
None of the Portfolios has any understanding or arrangement to direct any
specific portion of its brokerage to Schroder & Co. or Schroder Securities, and
none will direct brokerage to Schroder & Co. or Schroder Securities in
recognition of research services.
The following table shows the aggregate brokerage commissions paid for the three
most recent fiscal years with respect to each Portfolio.
31
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
BROKERAGE COMMISSIONS PAID BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS PAID
DURING FISCAL YEAR ENDED PAID DURING FISCAL YEAR DURING FISCAL YEAR ENDED
PORTFOLIO 10/31/98 ENDED 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Asian Growth Fund $310,531 N/A N/A
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Japan Portfolio $ 45,502 N/A N/A
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
The following table shows the aggregate brokerage commissions paid to Schroder &
Co. and Schroder Securities for the three most recent fiscal years, as well as
the percentage such commissions represented of all transactions on which the
Portfolio paid brokerage commissions during such fiscal year.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
BROKERAGE COMMISSIONS PAID BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS PAID
DURING FISCAL YEAR ENDED PAID DURING FISCAL YEAR DURING FISCAL YEAR ENDED
10/31/98 ENDED 10/31/97 10/31/96
PORTFOLIO
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Asian Growth Fund Schroder & Co. $0 0% N/A N/A
Portfolio Schroder Securities $0 0%
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Japan Portfolio Schroder & Co. $0 0% N/A N/A
Schroder Securities $0 0%
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value per Portfolio Interest of each Portfolio 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. Any assets or
liabilities initially expressed in terms of foreign currencies are translated
into U.S. dollars at the prevailing market rates as quoted by one or more banks
32
<PAGE>
or dealers on the afternoon of valuation. The New York Stock Exchange is
normally closed on the following national holidays: New Years Day, Martin Luther
King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving, and Christmas.
The Trustees have established procedures for the valuation of a 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 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.
Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments 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 and various relationships between securities which are
generally recognized by institutional traders.
If any securities held by a 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.
33
<PAGE>
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 each 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 such
Portfolio, and constitute the underlying assets of that Portfolio. The
underlying assets of each Portfolio
Trust's books of account, and will be charged with the
liabilities in respect of such 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 a Portfolio in lieu of cash. The Trust does not
expect to redeem Portfolio Interests in kind under normal circumstances. If your
Portfolio Interests are redeemed in kind, you should expect to incur transaction
costs upon the disposition of the securities received in the distribution.
TAXES
Each Portfolio is classified for federal income tax purposes as a partnership
that is not a "publicly traded partnership." As a result, each Portfolio is not
subject to federal income tax; instead, each Interestholder in a Portfolio is
required to take into account in determining its federal income tax liability
its share of the Portfolio's income, gains, losses, deductions, and credits,
without regard to whether it has received any cash distributions from the
Portfolio. The Portfolio also is not subject to Delaware income or franchise
tax.
Each Interestholder in a Portfolio is deemed to own a proportionate share of the
Portfolio's assets and to earn a proportionate share of the Portfolio's income,
for, among other things, purposes of determining whether the Interestholder
satisfies the requirements to qualify as a regulated investment company ("RIC").
Accordingly, each Portfolio intends to conduct its operations so that its
34
<PAGE>
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 a 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 a Portfolio may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
that would reduce the return on the security 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 a 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 a 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. Each Portfolio will
report annually to its Interestholders their proportionate shares of such
withholding taxes.
Each 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
35
<PAGE>
PFIC income will be included in the RIC's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
If a Portfolio invests in a PFIC and elects to 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.
A Portfolio's transactions in foreign currencies, foreign currency-denominated
debt securities and certain foreign currency options, futures contracts and
forward contracts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value of
the foreign currency concerned.
OTHER PORTFOLIO INVESTMENTS
If a Portfolio engages in hedging transactions, including hedging transactions
in options, futures contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale,
mark-to-market, straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Portfolio, defer losses to the Portfolio,
cause adjustments in the holding periods of the Portfolio's securities, or
convert short-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 a 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.
36
<PAGE>
Each Portfolio may write, purchase or sell options or futures contracts. Unless
a Portfolio is eligible to, and does, make a special election, such options and
futures contracts that are "Section 1256 contracts" will be "marked to market"
for federal income tax purposes at the end of each taxable year (I.E., each
option or futures contract will be treated as sold for its fair market value on
the last day of the taxable year). In general, unless such special election is
made, gain or loss from transactions in options and futures contracts will be
60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the taxation
of a 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 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 a 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
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<PAGE>
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 a Portfolio is "effectively connected" with a U.S. trade or
business carried on by a non-U.S. Interestholder, then distributions of net
investment income (which includes short-term capital gains) whether received in
cash or reinvested in 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. 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 a
Portfolio also may be subject to foreign, state and local taxes, and their
treatment under foreign, state and local income tax laws may differ from the
federal income tax treatment. Interestholders should consult their tax advisors
with respect to particular questions of federal, foreign, state and local
taxation.
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PRINCIPAL HOLDERS OF PORTFOLIO INTERESTS
As of February 1, 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 each
Portfolio.
The table attached as Appendix A lists those Interestholders that owned 5% or
more of the Interests of each Portfolio as of February 1, 1999, and therefore
are controlling persons of such 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 a Portfolio for one-, five-, and ten-year periods
(or for such shorter periods as Portfolio Interests of the Portfolio have been
offered) 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 a
Portfolio to other mutual funds and other investment vehicles. Performance for
each Portfolio may be compared to various indices.
The table belows sets forth the total return of the Portfolios for the one-year
period ended October 31, 1998.
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AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED
OCTOBER 31, 1998
- ---------------------------- ----------------- ----------------- ---------------
SINCE INCEPTION INCEPTION DATE
PORTFOLIO 1 YEAR OF PORTFOLIO OF PORTFOLIO
- ---------------------------- ----------------- ----------------- ---------------
- ---------------------------- ----------------- ----------------- ---------------
Schroder Asian Growth Fund
Portfolio
N/A -29.20% 3/23/98
- ---------------------------- ----------------- ----------------- ---------------
- ---------------------------- ----------------- ----------------- ---------------
Schroder Japan Portfolio
N/A -6.00% 3/23/98
- ---------------------------- ----------------- ----------------- ---------------
From time to time, Schroder, Schroder Fund Advisors Inc., Forum Accounting or
FAds may reduce its compensation or assume expenses of a Portfolio in order to
reduce the Portfolio's expenses, as described in the current Memorandum. Any
such waiver or assumption would increase a Portfolio's yield or total return
during the period of the waiver or assumption.
CUSTODIAN
The Chase Manhattan Bank, through its Global Custody Division located at 125
London Wall, London EC2Y 5AJ, United Kingdom, acts as custodian of the assets of
the Portfolios (other than Schroder U.S. Smaller Companies Portfolio). Norwest
Bank, Sixth Street and Marquette, Minneapolis, Minnesota 55479, acts as
custodian of the assets of Schroder U.S. Smaller Companies Portfolio. The
custodians' responsibilities include safeguarding and controlling the
Portfolios' cash and securities, handling the receipt and delivery of
securities, and collecting interest and dividends on the Portfolios'
investments. Neither custodian determines the investment policies of the
Portfolios or decides which securities a Portfolio will buy or sell.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP, the Trust's independent auditors, 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.
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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 a Portfolio's
property for all loss and expense of any Interestholder held personally liable
for the obligations of a 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 Asian Growth Fund Portfolio and
Schroder Japan Portfolio is October 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 October 31,
1998, which was filed electronically with the Securities and Exchange Commission
on January 22, 1999 (Accession Number: 0000889812-99-000184).
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APPENDIX A
HOLDERS OF 5% OR MORE OF OUTSTANDING PORTFOLIO INTERESTS
As of February 1, 1999, the Interestholders listed below owned more than 5% of a
Portfolio as noted. Interestholders owning 25% or more of the interests of a
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>
<S> <C> <C> <C>
NUMBER OF % OF PORTFOLIO
SHARES OF INTERESTS
BENEFICIAL OWNED
SCHRODER ASIAN GROWTH FUND PORTFOLIO INTEREST
- ----------------------------------------------------------------- ----------------- ----------------
Schroder All Asia Fund, a series of
Schroder Series trust II
Two Portland Square
Portland, ME 04101 2,800,648 99.82%
NUMBER OF % OF PORTFOLIO
SHARES OF INTERESTS
BENEFICIAL OWNED
SCHRODER JAPAN PORTFOLIO INTEREST
- ----------------------------------------------------------------- ----------------- ----------------
Schroder All Asia Fund, a series of
Schroder Series trust II
Two Portland Square
Portland, ME 04101 1,826,651 99.72%
</TABLE>
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<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.
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Rating Refinements: Moody's may apply numerical modifiers, "1", "2",
and "3" in each generic rating classification from "Aa" through "B" in its
municipal fixed-income security rating system. The modifier "1" indicates that
the security ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and a modifier "3" indicates that
the issue ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: "Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of
short-term promissory obligations. Issuers rated "Prime-2" have a strong
capacity for repayment of short-term promissory obligations; and Issuers rated
"Prime-3" have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATING GROUP("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity to pay
interest and repay principal and differs from the highest-rated issues only in
small degree.
"A" Fixed-income securities rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than fixed-income
securities in higher-rated categories.
"BBB" Fixed-income securities rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
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<PAGE>
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are considered
investment grade.
"BB" Fixed-income securities rated "BB" have less near-term vulnerability to
default than other speculative grade fixed-income securities. However, it faces
major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or willingness to
pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability to default
but presently have the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon favorable business,
financial and economic conditions to meet timely payments of interest and
repayments of principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities subordinated
to senior debt which is assigned an actual or implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on which no
interest is being paid.
"NR" Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are
regarded as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such fixed-income
securities will likely have some quality and protective characteristics, these
are out-weighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be modified by the
addition of a plus or minus sign to show relative standing with the major
ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to purchase
or sell a security. The ratings are based upon current information furnished by
the issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation "1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is very
strong.
"A-2" Indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
<PAGE>
PART B
Schroder Emerging Markets Fund Institutional Portfolio.
<PAGE>
Form N-1A Part B
Confidential Statement of Additional Information
- ------------------------------------------------------------------------------
Schroder Capital Funds
Schroder Emerging Markets Fund Institutional Portfolio
March 1, 1999
Schroder Capital Funds (the "Trust"), acting through Forum Fund Services, LLC
(the "Placement Agent"), is making a private placement of shares of beneficial
interest ("Portfolio Interests") in Schroder Emerging Markets Fund Institutional
Portfolio (the "Portfolio"), a 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"). The Portfolio is described in this Statement of
Additional Information (the "SAI").
Schroder Capital Management International 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 March
1, 1999 relating to the Portfolio.
This SAI is not a Memorandum and is authorized for distribution only when
accompanied or preceded by the 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) 730-2932 or the Placement Agent at (207) 879-1900.
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) 730-2932.
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>
<S> <C>
Table of Contents
TRUST HISTORY..........................................................
PORTFOLIO CLASSIFICATION...............................................
CAPITAL STOCK AND OTHER SECURITIES.....................................
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS..............
INVESTMENT RESTRICTIONS................................................
TRUSTEES AND OFFICERS..................................................
SCHRODER AND ITS AFFILIATES............................................
INVESTMENT ADVISORY AGREEMENTS.........................................
ADMINISTRATIVE SERVICES................................................
PLACEMENT AGENT........................................................
PORTFOLIO ACCOUNTING...................................................
BROKERAGE ALLOCATION AND OTHER PRACTICES...............................
DETERMINATION OF NET ASSET VALUE.......................................
REDEMPTIONS IN KIND....................................................
TAXES
PRINCIPAL HOLDERS OF PORTFOLIO INTERESTS...............................
PERFORMANCE INFORMATION................................................
CUSTODIAN..............................................................
INDEPENDENT AUDITORS...................................................
LEGAL COUNSEL..........................................................
INTERESTHOLDER LIABILITY...............................................
FINANCIAL STATEMENTS...................................................
APPENDIX A.............................................................
APPENDIX B........
</TABLE>
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
The Portfolio described in and offered pursuant to the Memorandum and this SAI
has distinct investment objectives and policies. The Portfolio is a
"non-diversified" investment company under the 1940 Act, and therefore may
invest its assets in a more limited number of issuers than may diversified
investment companies. To the extent the 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 one series (the Portfolio described in this SAI), and the Trust
reserves the right to create additional series.
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 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 each portfolio. Upon liquidation of
the Portfolio, Interestholders will be entitled to share pro rata in the
Portfolio's net assets available for distribution to Interestholders.
<PAGE>
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. [Unless a strategy or policy described below is specifically
prohibited by the investment restrictions listed in the Memorandum, under
"Investment Restrictions" in this SAI, or by applicable law, the Portfolio may
engage in each of the practices described below.] [ do we need this sentence in
a document for only one portfolio?]
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."
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. The 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.
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 a Portfolio. Furthermore, over-the-counter
options are not subject to the protection afforded purchasers of exchange-traded
options by The Options Clearing Corporation. A 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. A Portfolio will treat over-the-counter options (and, in the case
of options sold by the Portfolio, the underlying securities held by the
Portfolio) as illiquid investments as required by applicable law.
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 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 the 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.
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, each of 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".
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.
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. 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, the 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 that Portfolio. [check
wording]
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 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 the 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 the 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, the 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 the 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 the 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 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 the 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.
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] [delete] 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 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.
Schroder Emerging Markets Fund Institutional Portfolio
Schroder Emerging Markets Fund Institutional Portfolio will not:
Fundamental Policies:
1. Underwrite securities of other companies (except insofar as the
Portfolio might be deemed to be an underwriter in the resale of any
securities held in its portfolio);
2. Invest in commodities or commodity contracts (other than hedging
instruments, which it may use as permitted by any of its other fundamental
policies, whether or not any such hedging instrument is considered to be a
commodity or a commodity contract);
3. Purchase securities on margin; however, the Portfolio may make margin
deposits in connection with any hedging instruments which it may use as
permitted by any of its other fundamental policies;
4. Purchase or write puts or calls except as permitted by any of its other
fundamental policies;
5. Lend money except in connection with the acquisition of debt securities
that the Portfolio's investment policies and restrictions permit it to
purchase. The Portfolio may make loans of portfolio securities and enter
into repurchase agreements;
6. Make short sales of securities;
7. Invest in interests in oil, gas or other mineral exploration or development
programs (but may purchase readily marketable securities of companies which
operate, invest in, or sponsor such programs);
8. Invest in real estate or in interests in real estate (but may purchase
readily marketable securities of companies holding real estate or interests
therein);
Non-Fundamental Policies:
1. The Portfolio will not invest in or hold securities of any issuer if
officers or Trustees of the Trust or Schroder individually owning more than
0.5% of the securities of such issuer together own more than 5% of the
securities of such issuer;
2. The Portfolio will not invest more than 5% of the value of its total assets
in securities of issuers having a record, together with predecessors, of
less than three years of continuous operation;
The Portfolio will not invest more than 15% of its assets in securities
determined by Schroder to be illiquid. Certain securities that are
restricted as to resale may nonetheless be resold by the Portfolio in
accordance with Rule 144A under the Securities Act of 1933, as amended.
Such securities may be determined by Schroder to be liquid for purposes of
compliance with the limitation on the Portfolio's investment in illiquid
securities.
-------------------
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 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.
David N. Dinkins, Trustee. 71. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), Schroder Capital Funds II, 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 Funds (Delaware), Schroder Capital Funds II, 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), Schroder Capital Funds II, 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 Capital Funds II, 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, Schroder Capital Management Inc. Executive Vice President and
Executive Director, Schroder Capital Management International Inc. Chairman and
Director, Schroder Fund Advisors Inc. Trustee, Schroder Capital Funds
(Delaware), Schroder Capital
Funds II, and Schroder Series Trust.
William L. Means, Trustee. 59. 787 Seventh Avenue, New York, New York.
Trustee, Schroder Capital Funds (Delaware), Schroder Capital Funds II, 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), Schroder Capital Funds II, 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), Schroder Capital Funds II, and
Schroder Series Trust. Trustee, St. Luke's/Roosevelt Hospital Center. Formerly,
consultant to Schroder Capital Management International Inc.
(*) Mark J. Smith, President and Trustee of the Trust. 36. 787 Seventh
Avenue, New York, New York. Director and Senior Vice President, Schroder Capital
Management International Limited and Schroder Capital Management International
Inc. Director, Schroder Investment Management Ltd., Schroder Fund Advisors Inc.,
and Schroder Japanese Warrant Fund Ltd. Trustee, Schroder Capital Funds
(Delaware), Schroder Capital Funds II, and
Schroder Series Trust. Vice President, Schroder Series Trust II.
Mark Astley, Vice President of the Trust. 34. 787 Seventh Avenue, New York,
New York. First Vice President of Schroder Capital Management International Inc.
Formerly, employed by various affiliates of Schroder Capital Management
International Inc. in various positions in the investment research and portfolio
management areas since 1987.
Robert G. Davy, Vice President of the Trust. 37. 787 Seventh Avenue, New
York, New York. Director of Schroder Capital Management International Inc. and
Schroder Capital Management International Ltd. since 1994; First Vice President
of Schroder Capital Management International Inc. since July 1992. Formerly,
employed by various affiliates of Schroder Capital Management International Inc.
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 and Secretary of Schroder Capital
Management Inc.
Richard R. Foulkes, Vice President of the Trust. 53. 787 Seventh Avenue,
New York, New York. Deputy Chairman of Schroder Capital Management International
Inc. since October 1995; Director and Executive Vice President of Schroder
Capital Management International Ltd. since 1989.
John Y. Keffer, Vice President of the Trust. 56. Two Portland Square,
Portland, Maine. President of Forum Fund Services, LLC, the Portfolio's
placement agent, and other affiliated entities including Forum Accounting
Services, LLC, Forum Administrative Services, LLC, and Forum Investment
Advisors, LLC.
Michael Perelstein, Vice President of the Trust. 43. 787 Seventh Avenue,
New York, New York. Director since May 1997 and Senior Vice President of
Schroder Capital Management International Inc. since January 1997. Formerly,
Managing Director of MacKay - Shields Financial Corp.
Catherine A. Mazza, Vice President of the Trust. 39. 787 Seventh Avenue,
New York, New York. First Vice President, Schroder Capital Management
International Inc. and Schroder Capital Management Inc. President, Schroder Fund
Advisors Inc. Vice President, Schroder Capital Funds (Delaware), Schroder
Capital Funds, and Schroder Series Trust. Formerly, Vice President, Alliance
Capital Management L.P.
Alexandra Poe, Secretary and Vice President of the Trust. 38. 787 Seventh
Avenue, New York, New York. Vice President, Schroder Capital Management
International Inc. Senior Vice President, Secretary, and General Counsel,
Schroder Fund Advisors Inc. Vice President and Secretary, Schroder Capital Funds
(Delaware), Schroder Capital Funds II, 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.
Jane E. Lucas, Vice President of the Trust. 38. 787 Seventh Avenue, New
York, New York. Senior Vice President, Schroder Capital Management International
Inc.
Fergal Cassidy, Treasurer and Principal Financial and Accounting Officer of
the Trust. 29. 787 Seventh Avenue, New York, New York. Vice President and
Treasurer, Schroder Capital Management Inc. Vice President and Comptroller,
Schroder Capital Management International Inc. Treasurer and Chief Financial
Officer, Schroder Fund Advisors Inc. Assistant Treasurer, Schroder Series Trust.
Formerly, Senior Accountant, Concurrency Management Corp.
Alan Mandel, Assistant Treasurer of the Trust. 41. 787 Seventh Avenue, New
York, New York. First Vice President of Schroder Capital Management
International Inc. since September 1998. Formerly, Director of Mutual Fund
Administration for Salomon Brothers Asset Management; Chief Financial Officer
and Vice President of Mutual Capital Management.
Carin Muhlbaum, Assistant Secretary of the Trust. 36. Vice President of
Schroder Capital Management International Inc. since 1998. 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. 35. 787 Seventh Avenue,
New York, New York. Associate of Schroder Capital Management International Inc.
since October 1997 and Assistant Vice President of Schroder Fund Advisors Inc.
since March 1998. Formerly, Mutual Fund Specialist, Willkie Farr & Gallagher;
Fund
Administrator, Furman Selz LLC since 1992.
Thomas G. Sheehan, Assistant Treasurer and Assistant Secretary of the
Trust. 44. Two Portland Square, Portland, Maine. Relationship Manager and
Counsel, Forum Financial Services, Inc. since 1993. Formerly, Special Counsel,
U.S. Securities and Exchange Commission, Division of Investment Management,
Washington, D.C.
John A. Troiano, Vice President of the Trust. 38. 787 Seventh Avenue, New
York, New York. Director of Schroder Capital Management Inc. since April 1997;
Chief Executive Officer, since July 1, 1997, of Schroder Capital Management
International Inc. and Managing Director and Senior Vice President of Schroder
Capital Management International Inc. since October 1995. Formerly, employed by
various affiliates of Schroder Capital Management International Inc. 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. Group Vice President of Schroder Capital Management
International Inc. since April 1998 and an Associate from July 1990 to April
1993.
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. or Forum Fund Services, LLC
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
for the fiscal year ended October 31, 1998 to the disinterested Trustees.
Compensation Table
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
(2) (3)
Aggregate Total Compensation from Trust and
(1) Compensation Fund Complex Paid to Trustees*
Name of from Trust
Trustee
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
David N. Dinkins $6,762 $14,250
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Peter E. Guernsey $7,365 $23,750
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
John I. Howell $7,365 $25,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Peter S. Knight $7,365 $15,500
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
William L. Means** $0 $9,500
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Clarence F. Michalis $7,365 $14,250
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Hermann C. Schwab $7,365 $14,250
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Total Compensation listed in column (3) for each Trustee includes
compensation for services as a Trustee of the Trust, Schroder Capital
Funds ("SCF"), 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), SCF, 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.
As of February 1, 1999, the Trustees of the Trust as a group owned less
than 1% of the Portfolio Interests.
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 each of the Portfolio since
their 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. Affiliates of Schroder U.S.
Holdings Inc. (or their predecessors) have been investment managers since 1927.
Schroder itself has been an investment manager since 1962, and served as
investment manager for approximately $27.1 billion as of December 31, 1998.
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 December 31, 1998, had
under management assets of approximately $195 billion.
INVESTMENT ADVISORY AGREEMENTS
Under Investment Advisory Agreements between the Trust and Schroder (the
"Advisory Agreements"), 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 Agreements are set forth in
the Memorandum.
Under the Advisory Agreements, Schroder is required to regularly provide the
Portfolio with investment research, advice, and supervision and furnishes
continuously investment programs consistent with the investment objectives 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 objectives, 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 Agreements, 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 Forum Fund Services, LLC, 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 Agreements 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 Agreements 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. Each Advisory Agreement also terminates
without payment of any penalty in the event of its assignment. In addition, each
Advisory Agreement may be amended only by a vote of the Interestholders of the
affected Portfolio, and each 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.
Forum Administrative Services, LLC ("FAdS") and Forum Accounting Services, LLC
("Forum Accounting") provide certain administrative, accounting, and other
services to the Trust. For these services, FAdS and Forum Accounting receive 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 the three most recent fiscal years are set forth
in the following table. The fees listed in the following table reflects
reductions pursuant to expense limitations in effect during such periods.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Investment Advisory Fees Investment Advisory Fees Investment Advisory Fees
Paid for Fiscal Year Ended Paid for Fiscal Year Paid for Fiscal Year Ended
Portfolio 10/31/98 Ended 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Emerging Markets $1,716,570 $2,013,421 $1,115,324
Fund Institutional Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
Fee Waivers
Schroder voluntarily waived its fees during the three most recent fiscal years
pursuant to voluntary expense limitations and/or waivers in effect during such
periods. The table below reflects the amount of the investment advisory fees
scheduled to be paid by each Portfolio that was waived by Schroder.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Fees Waived During Fiscal Fees Waived During Fiscal Fees Waived During Fiscal
Year Ended 10/31/98 Year Ended 10/31/97 Year Ended 10/31/96
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Emerging Markets $673,304 $534,861 $51,560
Fund Institutional Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</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 following annual rate (based upon the
Portfolio's average daily net assets) of 0.10% with respect to Schroder Emerging
Markets Fund Institutional Portfolio. 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 FAdS. Under its
agreement, FAdS assists Schroder Fund Advisors Inc. with certain of its
responsibilities under the administration agreement, including Interestholder
reporting and regulatory compliance. For providing its services, FAdS is
entitled to receive a monthly fee from each of the Portfolio at the annual rate
of 0.01% (based upon the Portfolio's average daily net assets and subject to a
$25,000 minimum per Portfolio). The subadministration agreement is terminable
with respect to the Portfolio without penalty, at any time, by the Trust upon 60
days' written notice to FAdS or by FAdS upon 60 days' written notice to the
Trust.
Schroder Fund Advisors Inc. has voluntarily waived a portion of its
administration fee and has assumed certain expenses of the Portfolio so that the
Portfolio's total expenses would not exceed the following rates (based on each
of the respective Portfolio's average daily net assets):
Schroder Emerging Markets Fund
Institutional Bond
Portfolio 1.18%
This expense limitations cannot be modified or withdrawn except by a majority
vote of the Trustees of the Trust who are not affiliated persons (as defined in
the 1940 Act ) of the Trust.
During the three 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 table
reflects reductions pursuant to fee waivers and expense limitations in effect
during such periods.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Administration Fees Paid Administration Fees Paid Administration Fees Paid
for Fiscal Year Ended for Fiscal Year Ended for Fiscal Year Ended
Portfolio 10/31/98 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- 28 -
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Emerging Markets Schroder Fund Advisors Schroder Fund Advisors Schroder Fund Advisors
Fund Institutional Portfolio Inc. $119,494 Inc. $127,414 Inc. $45,602
FAdS $238,987 FadS $254,828 FadS $116,688
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
PLACEMENT AGENT
Forum Fund Services, LLC, Two Portland Square, Portland, Maine, 04101, serves as
the Trust's placement agent (underwriter). The Placement Agent receives no
compensation for its services.
PORTFOLIO ACCOUNTING
Forum Accounting, [previously defined? check] an affiliate of FAds, performs
fund accounting services for the Portfolio pursuant to an agreement with the
Trust. Under the Transfer Agency and Fund Accounting Agreement, Forum Accounting
prepares and maintains the books and records of the Portfolio that are required
to be maintained under the 1940 Act, calculates the net asset value of the
Portfolio, calculates the distributive share of the Portfolio's income, expense,
gain or loss allocable to each Interestholder and prepares periodic reports to
Interestholders and the SEC.
For its services to the Portfolio, Forum Accounting is entitled to receive from
the Trust a fee of $36,000 per year plus $24,000 per year for global and
international Portfolios, and an additional $12,000 per year with respect to
tax-free money market funds, Portfolios with more than 25% of their total assets
invested in asset-backed securities, Portfolios that have more than 100 security
positions, and Portfolios that have a monthly turnover rate of 10% or more.
The table below shows the amount of fees paid by the Portfolio to Forum
Accounting during the three most recent fiscal years (or such shorter time the
Portfolio has been operational). The fees listed in the table below reflect
reductions pursuant to fee waivers during such periods.
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Accounting Fees Paid Accounting Fees Paid Accounting Fees Paid
During Fiscal Year Ended During Fiscal Year Ended During Fiscal Year Ended
Portfolio 10/31/98 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Emerging Markets $72,000 $73,000 $61,000
Fund Institutional Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
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 the Portfolio. The investment advisory fee paid
by the Portfolio is not 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 has
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 the
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 does not have 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 table shows the aggregate brokerage commissions paid for the three
most recent fiscal years with respect to the Portfolio.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Brokerage Commissions Paid Brokerage Commissions Brokerage Commissions Paid
During Fiscal Year Ended Paid During Fiscal Year During Fiscal Year Ended
Portfolio 10/31/98 Ended 10/31/97 10/31/96
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Emerging Markets $1,013,671 $1,413,998 $101,047
Fund Institutional Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
In the fiscal year ended October 31, 1998, Schroder, on behalf of the Trust,
placed agency and underwritten transactions having an approximate aggregate
dollar value of $________, (___% of the Trust's aggregate agency and
underwritten transactions, on which approximately $_______ 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 following table shows the aggregate brokerage commissions paid to Schroder &
Co. and Schroder Securities for the three most recent fiscal years, as well as
the percentage such commissions represented of all transactions on which the
Portfolio paid brokerage commissions during such fiscal year.
<TABLE>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Brokerage Commissions Paid Brokerage Commissions Brokerage Commissions Paid
During Fiscal Year Ended Paid During Fiscal Year During Fiscal Year Ended
10/31/98 Ended 10/31/97 10/31/96
Portfolio
- ------------------------------ ---------------------------- --------------------------- ----------------------------
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Schroder Emerging Markets Schroder & Co. $0 0% Schroder & Co. $0 0% Schroder & Co. $0 0%
Fund Institutional Portfolio Schroder Securities $0 0% Schroder Securities $0 0% Schroder Securities $0 0%
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value per Portfolio Interest of the Portfolio 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. Any assets or
liabilities initially expressed in terms of foreign currencies are translated
into U.S. dollars at the prevailing market rates as quoted by one or more banks
or dealers on the afternoon of valuation. The New York Stock Exchange is
normally closed on the following national holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving, and Christmas.
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 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.
Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments 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 and various relationships between securities which are
generally recognized by institutional traders.
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 that Portfolio. The underlying assets of the
Portfolio account, and will be charged with the liabilities in respect of such
Portfolio and with a share of the general liabilities of the Trust. [Expenses
with respect to any two or more Portfolio or classes may be allocated in
proportion to the net asset values of the respective Portfolio except where
allocations of direct expenses can otherwise be fairly made to a specific
Portfolio.] [do we need this b/c SCF II has but one 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 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. The Portfolio also is not subject to Delaware income or franchise
tax.
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.
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 the
Portfolio, will be subject to federal income tax on a portion of any "excess
distribution" received on the stock or of any gain on disposition of the stock
(collectively "PFIC income"), plus interest thereon, even if the RIC distributes
the PFIC income as a taxable dividend to its shareholders. The balance of the
PFIC income will be included in the RIC's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
If the Portfolio invests in a PFIC and elects to 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 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 the 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 the 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. 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 February 1, 1999, the Trustees of the Trust and, except a noted
below, the officers of the Trust, as a group owned less than 1% of the
outstanding Portfolio Interests of either class 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 February 1, 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-, five-, and ten-year
periods (or for such shorter periods as Portfolio Interests of the Portfolio
have been offered) 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 the 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 table below sets forth the total return of the Portfolio for the one-year
period ended October 31, 1998 and for the period from the commencement of the
Portfolio's operations until October 31, 1998.
Average Annual Total Return for Periods Ended October
31, 1998
<TABLE>
<S> <C> <C> <C>
- ----------------------------- -------------------------- --------------------------- --------------------------
Since Inception
of Portfolio Inception Date of
Portfolio 1 Year (Annualized) Portfolio
- ----------------------------- -------------------------- --------------------------- --------------------------
- ----------------------------- -------------------------- --------------------------- --------------------------
Schroder Emerging Markets -29.40% -9.77%
Fund Institutional Portfolio
- ----------------------------- -------------------------- --------------------------- --------------------------
</TABLE>
From time to time, Schroder, Schroder Fund Advisors Inc., Forum Accounting or
FAds may reduce its compensation or assume expenses of the Portfolio in order to
reduce the Portfolio's 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
The Chase Manhattan Bank, through its Global Custody Division located at 125
London Wall, London EC2Y 5AJ, United Kingdom, acts as custodian of the assets of
the Portfolio. The custodian's responsibilities include safeguarding and
controlling the Portfolio's cash and securities, handling the receipt and
delivery of securities, and collecting interest and dividends on the Portfolio's
investments. The custodian does not determine the investment policies of the
Portfolio or decide which securities the Portfolio will buy or sell.
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 Emerging Markets Fund Institutional
Portfolio is October 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 October 31, 1998, which was
filed electronically with the Securities and Exchange Commission on January 29,
1999 (Accession Number:
0001004402-99-0000510).
<PAGE>
A-4
APPENDIX A
Holders of 5% or More of Outstanding Portfolio Interests
As of February 1, 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>
<S> <C> <C>
% of Portfolio
Number of Interests
Shares Owned Owned
Schroder Emerging Markets Fund
Institutional Portfolio
- ----------------------------------------------------------------- ----------------- ----------------
</TABLE>
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.
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.
"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.
- --------
(*) Trustee who is an "interested person" (as defined in the 1940 Act) of the
Trust, Schroder, or Schroder Fund Advisors Inc.
<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) Investment Advisory Agreement between Registrant and Schroder Capital
Management International Inc. ("SCMI") dated as of March 15, 1996 with
respect to Schroder International Smaller Companies Portfolio and
Schroder Global Asset Allocation Portfolio (see Note 2).
(2) Investment Advisory Agreement between Registrant and SCMI dated as of
September 13, 1995 with respect to International Equity Fund and
Schroder Emerging Markets Fund Institutional Portfolio (see Note 3).
(3) Investment Advisory Agreement between Registrant and SCMI dated as of
September 18, 1997 with respect to Schroder Global Growth Portfolio
(see Note 3).
(4) Investment Advisory Agreement between Registrant and SCMI dated as of
May 16, 1996 with respect to Schroder U.S. Smaller Companies Portfolio,
Schroder EM Core Portfolio, Schroder Asian Growth Fund Portfolio, and
Schroder Japan Portfolio (see Note 4).
(5) Investment Subadvisory Agreement between Registrant, SCMI and Schroder
Investment Management International Ltd. ("SIMIL") dated as of June
15, 1998 with respect to Schroder International Smaller Companies
Portfolio (see Note 1).
(e) Not required.
(f) Not applicable.
(g) (1) Global Custody Agreement between Registrant and The Chase Manhattan
Bank, N.A. dated as of September 13, 1995 with respect to International
Equity Fund, Schroder Emerging Markets Fund Institutional Portfolio,
Schroder International Smaller Companies Portfolio, Schroder Global
Asset Allocation Portfolio, Schroder U.S. Smaller Companies Portfolio,
Schroder EM Core Portfolio, Schroder Japan Portfolio, Schroder European
Growth Portfolio, Schroder Asian Growth Fund Portfolio, Schroder United
Kingdom Portfolio, and Schroder Global Growth Portfolio (see Note 3).
(2) Custodian Contract between Registrant and Schroder Capital Funds dated
______ relating to Schroder U.S. Smaller Companies Portfolio (see Note
5).
(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).
(2) Subadministration Agreement between Registrant and Forum Administrative
Services, LLC dated as of February 1, 1997 with respect to
International Equity Fund, Schroder Emerging Markets Fund Institutional
Portfolio, Schroder U.S. Smaller Companies Portfolio, Schroder
International Smaller Companies Portfolio, Schroder Global Growth
Portfolio, Schroder EM Core Portfolio, Schroder Asian Growth Fund
Portfolio, and Schroder Japan Portfolio (see Note 4).
(3) Transfer Agency and Fund Accounting Agreement between Registrant and
Forum Financial Corp. dated as of September 13, 1995 with respect to
International Equity Fund, Schroder Emerging Markets Fund Institutional
Portfolio, Schroder International Smaller Companies Portfolio, Schroder
Global Asset Allocation Portfolio, Schroder U.S. Smaller Companies
Portfolio, Schroder EM Core Portfolio, Schroder Japan Portfolio,
Schroder European Growth Portfolio, Schroder Asian Growth Fund
Portfolio, Schroder United Kingdom Portfolio, and Schroder Global
Growth Portfolio (see Note 3).
<PAGE>
(4) Placement Agent Agreement between Registrant and Forum Fund Services,
LLC dated as of September 13, 1995 with respect to International Equity
Fund, Schroder Emerging Markets Fund Institutional Portfolio, Schroder
International Smaller Companies Portfolio, Schroder Global Asset
Allocation Portfolio, Schroder U.S. Smaller Companies Portfolio,
Schroder EM Core Portfolio, Schroder Japan Portfolio, Schroder European
Growth Portfolio, Schroder Asian Growth Fund Portfolio, Schroder United
Kingdom Portfolio, and Schroder Global Growth Portfolio (see Note 3).
(i) Not required
(j) Not required
(k) Not required.
(l) Not applicable.
(m) Not applicable.
(n) Financial Data Schedules (filed herewith).
(o) Not applicable.
- ---------------------
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
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 Capital Management International Inc.
The following is a description of any business, profession, vocation or
employment of a substantial nature in which the investment adviser of
the registrant, Schroder Capital Management International Inc.
("SCMI"), and each trustee or officer of the investment adviser is or
has been, at any time during the past two years, engaged for his or her
own account or in the capacity of trustee, officer or employee. The
address of each company listed, unless otherwise noted, is 787 Seventh
Avenue, 34th Floor, New York, NY 10019. Schroder Capital Management
International Limited ("Schroder Ltd."), a United Kingdom affiliate of
SCMI, provides investment management services to international clients
located principally in the United Kingdom.
<PAGE>
<TABLE>
<S> <C> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David M. Salisbury Chairman, Director SCMI
------------------------------------ ----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
Director Schroders plc.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SCMI
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
John A. Troiano Chief Executive, Director SCMI
------------------------------------
----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Sharon L. Haugh Executive Vice President, Director SCMI
----------------------------------
------------------------------------ ----------------------------------
Director, Chairman Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman, Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Gavin D. L. Ralston Senior Vice President, Managing SCMI
Director
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Mark J. Smith Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Robert G. Davy Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Jane P. Lucas Senior Vice President SCMI
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David R. Robertson Group Vice President SCMI
------------------------------------ ----------------------------------
Senior Vice President Schroder Fund Advisors Inc.
----------------------------------
------------------------------------
Director of Institutional Business Oppenheimer Funds, Inc.
resigned 2/98
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Michael M. Perelstein Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President, Director Schroders Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Louise Croset First Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ellen B. Sullivan Group Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Catherine A. Mazza Group Vice President SCMI
------------------------------------ ----------------------------------
President, Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Heather F. Crighton First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ira Unschuld Group Vice President SCMI
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Paul M. Morris Senior Vice President SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Susan B. Kenneally First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jennifer A. Bonathan First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
*Schroder Ltd. and Schroders plc. are located at 31 Gresham St., London
EC2V 7QA, United Kingdom.
<PAGE>
(b) Schroder Investment Management International Ltd.
The following is a description of any business, profession, vocation or
employment of a substantial nature in which the investment subadviser
of Schroder International Smaller Companies Portfolio, Schroder
Investment Management International Ltd. ("SIMIL"), and each trustee or
officer of the investment subadviser is or has been, at any time during
the past two years, engaged for his or her own account or in the
capacity of trustee, officer or employee. The address of each company
listed below is set forth in the note following the table. Schroder
Capital Management International Limited ("Schroder Ltd."), a United
Kingdom affiliate of SCMI, provides investment management services to
international clients located principally in the United Kingdom.
<TABLE>
<S> <C> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connections
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Hugh Westrope Bolland Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroders (C.I.) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(Hong Kong)
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Properties Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Personal Investment
Management
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director, Chief Executive Officer Schroder Investment Management
Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Schroder Investment Management
(Australasia) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Schroder Investment Management
(UK) Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jennifer A. Bonathan Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Capital Management
International Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Nigel J. Burnham Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Finance Officer, First Vice SCMI
President
------------------------------------ ----------------------------------
Finance Officer, First Vice Schroder Capital Management
President International Limited
------------------------------------ ----------------------------------
Assistant Vice President Schroder Fund Advisors, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Denis H. Clough Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management
International Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Robert G. Davy Director SIMIL
------------------------------------ ----------------------------------
Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Ltd.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SIMIL
------------------------------------ ----------------------------------
Deputy Chairman, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Phillipa J. Gould Director SIMIL
------------------------------------
----------------------------------
Director, Senior Vice President SCMI
------------------------------------ ----------------------------------
----------------------------------
Director Schroder Capital Management
International Limited
------------------------------------ ----------------------------------
----------------------------------
Director Schroder Investment Management
International Inc.
------------------------------------ ----------------------------------
----------------------------------
Director Schroder Investment Management
International (Europe) Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Madeleine S. Hall Director SIMIL
----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ----------------------------------
Assistant Director Schroder Investment Management
Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jeremy A. Hill Chairman, Director SIMIL
------------------------------------ ----------------------------------
Commissioner PT Schroder Investment
Management Indonesia
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Schroder Investment Management
(Hong Kong) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Schroder Investment Management
(Japan) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Korea Schroder Fund Management
Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director/Chairman Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Ian Johnson Secretary SIMIL
------------------------------------ ----------------------------------
Secretary Schroder Capital Management
International Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Assistant Secretary J. Henry Schroder & Co., Limited
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Jan Anthony Kingzett Director SIMIL
------------------------------------- ----------------------------------
Deputy Chairman Schroder Investment Management
(Japan) Limited
------------------------------------- ----------------------------------
Chairman Schroder Investment Trust
Management Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Schroder Investment Management
(Singapore) Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Schroder Investment Management
Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Maggie Lay Wah Lee Director SIMIL
------------------------------------- ----------------------------------
Director Schroder Investment Management
(Singapore) Limited
----------------------------------
-------------------------------------
Director Schroder Investment Management
Limited
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Richard A. Mountford Chief Executive Officer, Chief SIMIL
Operating Officer, Director
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director, Deputy Chairman Schroder Investment Management
(Singapore) Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Schroder Investment Management
Limited
----------------------------------- ------------------------------------- ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Nicola Ralston Deputy Chairman, Director SIMIL
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Nicola Jane Richards Director SIMIL
------------------------------------ ----------------------------------
Division Director Schroder Investment Management
Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Christopher N. Rodgers Director SIMIL
------------------------------------ ----------------------------------
Director Schroder Investment Management
Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David M. Salisbury Director SIMIL
------------------------------------ ----------------------------------
Chairman, Director SCMI
------------------------------------ ----------------------------------
Chief Executive, Director Schroder Ltd.
------------------------------------ ----------------------------------
Director Schroders plc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Daniele Serruya Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Assistant Director, Investment Schroder Investment Management
Manager Limited
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Olaf N. Siedler Director SIMIL
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Manager Schroder Investment Management
Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Hugh M. Stewart Director SIMIL
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Investment Management
(UK) Limited
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Manager Schroder Investment Management
Limited
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Thomas J. Willoughby Chief Compliance Officer SIMIL
------------------------------------ ----------------------------------
Schroder Unit Trust Limited Director
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
Each of SCMI, Schroder Capital Management International Limited,
Schroder Investment Management Limited, Schroder Investment Management
(UK) Limited, Schroder Investment Management (Europe), Korea Schroder
Fund Management Limited and Schroder Personal Investment Management,
are located at 33 Gutter Lane, London EC2V 8AS United Kingdom.
Schroder Investment Management (Singapore) Limited is located at
#47-01 OCBC Centre, Singapore.
Schroder Investment Management (Hong Kong) Limited is located at 8
Connaight Place, Hong Kong.
Schroder Investment Management (Australasia) Limited is located at 225
George Place, Sydney Australia.
PT Schroder Investment Management Indonesia is located at Lippo Plaza
Bldg., 25 Jakarta, 12820.
Schroders (C.I.) Limited is located at St. Peter Port, Guernsey,
Channel Islands, GY1 3UF.
Schroder Properties Limited is located at Senator House, 85 Queen
Victoria Street, London EC4V 4EJ, United Kingdom.
Schroder Fund Advisors Inc. is located at 787 Seventh Avenue, 34th
Floor, New York, NY 10019.
Schroder Ltd. and Schroders plc. are located at 31 Gresham St., London
EC2V 7QA, United Kingdom.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Forum Fund Services, LLC 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 1940 Act and the Rules thereunder are maintained
at the offices of SCMI (investment management records) and Schroder
Fund Advisors, Inc. (administrator records), 787 Seventh Avenue, New
York, New York, 10019, except that certain items are maintained at the
following locations:
(a) Forum Accounting Services, LLC, Two Portland Square, Portland, Maine
04101 (portfolio accounting records).
(b) Forum Administrative Services, LLC, Two Portland Square, Portland,
Maine 04101 (corporate minutes and all other records required under
the Subadministration Agreement).
(c) Forum Shareholder Services, LLC, Two Portland Square, Portland, Maine
04101 (unitholder records).
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as amended,
the Registrant has duly caused this amendment to its registration statement to
be signed on its behalf by the undersigned, duly authorized in the City of New
York, State of New York on February 26, 1999.
SCHRODER CAPITAL FUNDS
By: /s/ Catherine A Mazza
_________________________
Catherine A. Mazza, Vice President
<PAGE>
INDEX TO EXHIBITS
Exhibit
(n) Financial Data Schedules.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SCHRODER EMERGING MARKETS FUND INSTITUTIONAL PORTFOLIO
(PORTFOLIO) ANNUAL REPORT DATED OCTOBER 31, 1998.
</LEGEND>
<CIK> 0001003159
<NAME> SCHRODER CAPITAL FUNDS
<SERIES><NUMBER> 002
<NAME> SCHRODER EMERGING MARKETS INSTITUTIONAL PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-1-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 216,889,661
<INVESTMENTS-AT-VALUE> 178,724,549
<RECEIVABLES> 1,495,619
<ASSETS-OTHER> 5,054,453
<OTHER-ITEMS-ASSETS> 4,947
<TOTAL-ASSETS> 185,279,568
<PAYABLE-FOR-SECURITIES> 1,481,940
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 265,557
<TOTAL-LIABILITIES> 1,747,497
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 183,532,071
<DIVIDEND-INCOME> 4,966,590
<INTEREST-INCOME> 944,615
<OTHER-INCOME> 0
<EXPENSES-NET> 2,823,177
<NET-INVESTMENT-INCOME> 3,088,028
<REALIZED-GAINS-CURRENT> (48,773,965)
<APPREC-INCREASE-CURRENT> (37,120,346)
<NET-CHANGE-FROM-OPS> (82,806,282)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (75,543,821)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,389,875
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,496,481
<AVERAGE-NET-ASSETS> 238,987,455
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>