SCHRODER CAPITAL FUNDS II, N-1A, 1996-12-31

SCHRODER CAPITAL FUNDS II
N-1A, 1996-12-31

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As filed with the Securities and Exchange Commission on December 31, 1996

File No. 811-7993
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940

Amendment No.

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SCHRODER CAPITAL FUNDS II
(Exact Name of Registrant as Specified in its Charter)

Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office)

Registrant's Telephone Number, including Area Code: 207-879-1900
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Thomas G. Sheehan, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
(Name and Address of Agent for Service)

Copies to:

R. Darrell Mounts, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036

Alexandra Poe, 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
(PROSPECTUS)

SCHRODER CAPITAL FUNDS II

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SCHRODER INTERNATIONAL BOND PORTFOLIO

INTRODUCTION

Schroder Capital Funds II (the "Trust") is registered as an open end management
investment company under the Investment Company Act of 1940 (the "1940 Act").
The Trust offers shares of beneficial interest in multiple series , each of
which has distinct investment objectives and policies. Investors may invest
their assets in a subtrust or "series" of the Trust (each a "portfolio" and
collectively the "portfolios"). The Trust consists of one portfolio: Schroder
International Bond Portfolio (the "Portfolio"). This Part A relates solely to
the Portfolio. Additional portfolios may be added in the future.

The Trust does not offer its shares directly to the public; shares are offered
on a no-load basis exclusively to various institutional investors (including
other investment companies) as described in Item 4 below. An investor that is an
investment company or other collective investment vehicle typically will have
investment objectives and polices substantially similar to those of the
portfolio in which it invests and typically will seek to achieve its investment
objective by holding shares of a portfolio, instead of separately managing its
own portfolio of investment securities and related assets.

Shares of the Trust are not offered publicly and, accordingly, are not
registered under the Securities Act of 1933 (the "1933 Act"). Due to this, in
accordance with paragraph 4 of Instruction F of the General Instructions to Form
N-1A adopted by the Securities and Exchange Commission (the "Commission"),
responses to Items 1, 2, 3 and 5A of this Part A of the Trust's registration
statement on Form N-1A have been omitted.

ITEM 1. COVER PAGE.

Omitted. See "Introduction" above.

ITEM 2. SYNOPSIS.

Omitted. See "Introduction" above.

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ITEM 3. CONDENSED FINANCIAL INFORMATION.

Omitted. See "Introduction" above.

ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.

The Trust was organized as a business trust under the laws of the State of
Delaware pursuant to a Trust Instrument dated December 26, 1996. The Trust is
authorized to issue an unlimited number of shares of beneficial interest.
Beneficial interests in the Trust currently consist of one series, the Schroder
International Bond Portfolio which has a distinct investment objective and
distinct investment policies. The assets of each portfolio belong only to that
portfolio, and the assets belonging to a portfolio shall be charged with the
liabilities of that portfolio and all expenses, costs, charges and reserves
attributable to that portfolio. The Trust is empowered to establish, without
investor approval, additional portfolios which may have different investment
objectives and policies.

The International Bond Portfolio is classified as a "non-diversified" investment
company under the 1940 Act and is expected to commence operations on or about
January 1, 1997.

Beneficial interests in the Portfolio are offered solely in private placement
transactions which do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Portfolio may only be made by
certain institutional investors, whether organized within or without the U.S.
(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 "security" within the meaning of the 1933 Act.

INVESTMENT OBJECTIVE

The investment objective of the Portfolio is to seek to provide a high rate of
total return by investing primarily in a portfolio of non-U.S. debt securities.
There can be no assurance that the Portfolio will achieve its investment
objective. The investment objective of the Portfolio may not be changed without
approval of the holders of a majority of the outstanding voting interests
(defined in the same manner as the phrase "vote of a majority of the outstanding
voting securities" is defined in the 1940 Act) of the Portfolio.

INVESTMENT POLICIES

The Portfolio will seek to achieve its investment objective by investing in debt
securities and debt-related investments, which may be domestic or foreign, and
may be denominated in foreign or U.S. currency.

The Portfolio will, under normal market conditions, invest at least 65% of its
total assets in foreign bonds, primarily debt securities of foreign governments,
agencies and supranational organizations denominated in foreign currencies.
These could have fixed, variable, floating or

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inverse floating rates of interest. The Portfolio may also purchase debt
securities of corporate issuers. Some of these securities may be privately
issued and/or convertible into common stock or they may be traded together with
warrants for the purchase of common stock.

The Portfolio may invest in a variety of countries, and under ordinary
circumstances, will invest in a minimum of 5 countries other than the U.S. This
includes countries with established economies as well as emerging market
countries, including, but not limited to those in Latin America and other newly
industrialized countries, such as South Korea and Taiwan, that the investment
adviser believes present favorable opportunities.

The Portfolio may invest up to 10% of its net assets in lower-rated debt
securities, including short-term instruments. Lower rated securities are rated
below BBB by Standard & Poor's ("S&P") or Baa by Moody's Investors Service
("Moodys"). (See "Appendix A - Description of Securities Ratings.")

In order to enhance returns, manage risk more efficiently, reduce trading costs,
and help protect against changes in securities prices and foreign exchange
rates, the Portfolio owns or may own, the Portfolio may invest in currency on a
spot or forward basis, securities or securities index options, foreign currency
options, futures contracts and related options on futures contracts; and may
enter into swap agreements. Additionally, the Portfolio may sell interest rate
and bond index futures contracts, options on interest rate and bond index
futures contracts and options and futures on debt securities, in each case for
hedging purposes only.

The Portfolio may also (i) borrow up to 15% of total assets, (ii) lend its
securities to brokers, dealers and other financial institutions to earn income,
(iii) buy securities on a when-issued, firm, or standby commitment basis -- the
market value of these securities may change prior to their delivery to the
Portfolio, (iv) invest in repurchase agreements, and enter into reverse
repurchase agreements (which can create leverage and increase the Portfolio's
investment risk), and (v) invest in loan participation interests (which involve
certain risks, including credit and liquidity risks).(See "Loan Participation
Interests" for further details.).

INVESTMENT RESTRICTIONS

The investment objective and the investment policies of the Portfolio that are
designated as fundamental may not be changed without approval of the holders of
a majority of the outstanding voting securities of the Portfolio. A majority of
outstanding voting securities means the lesser of (1) 67% of the shares present
or represented at a shareholder meeting at which the holders of more than 50% of
the outstanding shares are present or represented, or (ii) more than 50% of
outstanding shares. Unless otherwise indicated, all investment policies of the
Portfolio are not fundamental and may be changed by the Board of Trustees
without approval of the shareholders of the Portfolio. Likewise, non-fundamental
investment policies of the Portfolio may be changed by the Board of Trustees
without approval of the Portfolio's interest holders.

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NON-DIVERSIFICATION

The Portfolio is classified as a "non-diversified" investment company under the
1940 Act. In contrast to a "diversified" company, a non-diversified investment
company may invest more than 5% of its total assets in the securities of any one
issuer. However, so that the Portfolio may continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), the Portfolio will limit its investments so that at the
close of each quarter of the taxable year, (i) not more than 25% of the market
value of the Portfolio's total assets will be invested in the securities of a
single issuer, and (ii) with respect to 50% of the market value of its total
assets not more than 5% will be invested in the securities of a single issuer
and the Portfolio will not own more than 10% of the outstanding voting
securities of a single issuer.

RISK CONSIDERATIONS

Generally, when interest rates fall, the market prices of bonds rise, and when
rates rise, the market prices of bonds generally fall.

Alone, this Portfolio is not a balanced investment plan. It is intended for
long-term investors seeking investments in markets outside the U.S., who are
willing to accept the risks of foreign investing discussed below.

Securities rated below BBB or Baa (sometimes called "junk bonds") are not
considered "investment grade" and run greater risks of price fluctuations, loss
of principal and interest, default or bankruptcy by the issuer and other risks,
which is why these securities are considered speculative. (See "High Yield
Securities, for additional risks.) Investments in foreign securities could be
more volatile and more difficult to sell than U.S. investments, and involve
additional risks. (For more on risks of investing in foreign securities, see
"Description of Investment Practices and Investments--"Foreign Currency
Transactions" and "Foreign Securities.")

There are certain risks associated with investment securities with floating or
inverse floating rates of interest. (See "Description of Investment Practices
and Investments"--"Floating and Variable Rate Securities and Inverse Floaters.")

Because the market value of the Portfolio's investments will change, the net
asset value (NAV) of the Portfolio will also change. Rapid changes in interest
rates can affect bond prices significantly. The value of the securities in the
Portfolio (and, therefore, its NAV) will fluctuate in response to factors such
as: (i) conditions in the securities markets, (ii) business success of the
security's issuer, (iii) creditworthiness of the issuer of the security, (iv)
changing interest rates, (v) average maturity of the Portfolio's investments,
(vi) real or perceived economic and competitive industry conditions, (vii)
foreign currency exchange rates, and (viii) other factors.

In unusual or adverse market conditions, for temporary defensive purposes, the
Portfolio may invest all or a portion of its assets in cash or cash equivalent
short-term obligations such as obligations issued or guaranteed by the U.S.
Government or any of its agencies or

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instrumentalities or by any of the States; or in money market funds, repurchase
and reverse repurchase agreements, time deposits, certificates of deposit,
bankers' acceptances and commercial paper.

The Portfolio's investments in the securities of issuers located in foreign
countries may involve certain risks, such as the possible imposition of exchange
controls or other foreign governments, laws or restrictions. Because the
Portfolio may invest up to 100% of its total assets in instruments denominated
in currencies other than U.S. dollars, the Portfolio is subject to the risk that
fluctuations in the exchanges rates between the U.S. dollar and foreign
currencies may negatively affect its investments. In addition, income from
foreign securities will be received and realized in foreign currencies, and the
Portfolio is required to compute and distribute income in U.S. dollars.
Accordingly, a decline in the value of a particular foreign currency against the
U.S. dollar will reduce the dollars available to make a distribution. Similarly,
if the exchange rate declines between the time after the Portfolio's income has
been earned and computed in U.S. dollars and the time it is paid, or between the
time the Portfolio incurs expenses in U.S. dollars and the time such expenses
are paid, the Portfolio may have to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. See "Considerations and Risks of
Investments in Foreign Securities" below.

CONSIDERATIONS AND RISKS OF INVESTMENTS IN FOREIGN SECURITIES.

GENERAL. Investments in foreign securities involve certain risks not associated
with domestic investing, including fluctuations in foreign exchange rates,
uncertain political and economic developments, and the possible imposition of
exchange controls or other foreign governmental laws or restrictions. Because
international investments generally involve risks in addition to those risks
associated with investments in the U.S., the Portfolio should be considered only
as a vehicles for international diversification and not as a complete investment
program.

Foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as economic growth rates, rates of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments positions.
Certain foreign investments may also be subject to foreign withholding taxes,
thereby reducing the income available for distribution to the Portfolio's
interestholders. Additionally, commission rates payable on foreign portfolio
transactions are generally higher than in the U.S.; accounting, auditing and
financial reporting standards differ from those in the U.S. and this may mean
that less information about foreign companies may be available than is generally
available about issuers of comparable securities in the U.S.; and foreign
securities often trade less frequently and with less volume than U.S. securities
and consequently may exhibit greater price volatility.

GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its total
assets in issuers located in any one country. To the extent it invests in
issuers located in one country, the Portfolio is susceptible to factors
adversely affecting that country. In particular, these factors may include the
political and economic developments and foreign exchange rate fluctuations
discussed above. As a result of investing substantially in one country, the
value of the Portfolio's

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assets may fluctuate more widely than the value of shares of a comparable fund a
lesser degree of geographic concentration.

FINANCIAL INFORMATION AND STANDARDS AND REGULATION OF ISSUERS. Issuers of
securities in foreign jurisdictions are generally not subject to the same degree
of regulation as are U.S. issuers with respect to such matters as insider
trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. Foreign companies may not be
subject to uniform accounting, auditing and financial reporting standards.
Often, available information about issuers and their securities is less
extensive in foreign markets, and particularly emerging market countries, than
in the United States. In addition, laws in foreign countries governing business
organizations, bankruptcy and insolvency may provide less protection to security
holders such as the Portfolio than that provided by U.S. laws.

CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will invest in
non-U.S. dollar denominated securities, changes in foreign currency exchange
rates will affect the value of the Portfolio's investments. A decline in the
value of currencies in which the Portfolio's investments are denominated against
the dollar will result in a corresponding decline in the dollar value of its
assets. This risk tends to be heightened in the case of investing in certain
emerging market countries. For example, some currencies of emerging market
countries have experienced repeated devaluations relative to the U.S. dollar,
and major adjustments have been made in certain of such currencies periodically.
Some emerging market countries may also have managed currencies which do not
float freely against the dollar. Exchange rates are influenced generally by the
forces of supply and demand in the foreign currency markets and by numerous
other political and economic events occurring outside the United States, many of
which may be difficult, if not impossible, to predict.

The Portfolio may enter into foreign currency forward contracts to purchase or
sell foreign currencies in anticipation of its currency requirements and to
protect against possible adverse movements in foreign exchange rates. Although
such contracts may reduce the risk of loss to the Portfolio due to a decline in
the value of the currency which is sold, they also limit any possible gain which
might result should the value of such currency rise. See "Foreign Currency
Transactions, "Futures, Options on Futures Contracts" and "Options on Foreign
Currencies" below.

RISKS OF EMERGING MARKETS. In any emerging market country, there is the
possibility of expropriation of assets, confiscatory taxation, foreign exchange
controls, foreign investment controls on daily stock market movements, default
in foreign government securities, political or social instability or diplomatic
developments which could affect investments in those countries. The economies of
developing countries generally are heavily dependent upon international trade
and, accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade.

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Certain emerging market countries may restrict investment by foreign entities.
For example, some of these countries may limit the size of foreign investment in
certain issuers, require prior approval of foreign investment by the government,
impose additional tax on foreign investors or limit foreign investors to
specific classes of securities of an issuer that have less advantageous rights
(with regard to price or convertibility, for example) than classes available to
domiciliaries of the country. These restrictions or controls may at times limit
or preclude investment in certain securities and may increase the costs and
expenses of the Portfolio.

Emerging markets generally present a greater risk of imposition of substantial
limitations to a foreign investor's ability to repatriate investment income,
capital or the proceeds of sales of securities. In the event of expropriation,
nationalization or other confiscation, the Portfolio could lose its entire
investment in the country involved.

Several emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation in recent years. Inflation and rapid
fluctuations in inflation rates may have very negative effects on the economies
and securities markets of certain emerging market countries. Further, inflation
accounting rules in some emerging market countries require, for companies that
keep accounting records in the local currency, that certain assets and
liabilities be restated on the Trust's balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation accounting may
indirectly generate losses or profits for certain emerging market companies.

DESCRIPTION OF INVESTMENT PRACTICES AND INVESTMENTS.

The investment adviser considers factors such as prospects for currency exchange
and interest rates, and inflation in each country, relative economic growth,
government policies influencing exchange rates and business conditions; and
quality of individual issuers. The investment adviser will also determine, using
good faith judgment, (1) country allocation, (2) currency exposure (asset
allocation across currencies), and (3) diversified security holdings within each
market.

Securities acquired by the Portfolio may be denominated in multinational
currency units such as the European Currency Unit ("ECU"). Securities of issuers
within a given country may be denominated in the currency of another country.

The investment adviser believes that active currency management can enhance
portfolio returns through opportunities arising from interest rate differentials
between securities denominated in different currencies and/or changes in value
between currencies. Moreover, the investment adviser believes active currency
management can be employed as an overall portfolio risk management tool. For
example, in its view, foreign currency management can provide overall portfolio
risk diversification when combined with a portfolio of foreign securities and
the market risks of investing in specific foreign markets can at times be
reduced by currency strategies which may not involve the currency in which the
foreign security is denominated.

Generally, the Portfolio's average maturity will be shorter when interest rates
worldwide or in a particular country are expected to rise, and longer when
interest rates are expected to fall. The

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Portfolio may use various techniques to shorten or lengthen the dollar-weighted
average maturity of its portfolio, including transactions in futures and options
on futures, interest rate swaps, caps, floors and short sales.

FIXED INCOME SECURITIES AND THEIR CHARACTERISTICS. Investments by the Portfolio
in fixed income securities, including money market instruments are subject to
risk even if all fixed income securities in the Portfolio's investment portfolio
are paid in full at maturity. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates or the issuer's actual or perceived creditworthiness or ability to meet
its obligations.

The market value of the interest-bearing debt securities held by the Portfolio
will be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, an increase
in interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. The possibility exists, therefore, that, the ability
of any issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.

RATING MATTERS. The Portfolio may purchase unrated securities if SCMI determines
the security to be of comparable quality to a rated security that the Portfolio
may purchase. Unrated securities may not be as actively traded as rated
securities. The Portfolio may retain a security whose rating has been lowered if
SCMI determines that retaining the security is in the best interests of the
Portfolio.

The Portfolio's investments are subject to "credit risk" relating to the
financial condition of the issuers of the securities that the Portfolio holds. A
further description of the rating categories of certain NRSROs is contained in
the SAI. All these ratings are generally considered to be investment grade
ratings, although Moody's indicates that securities with long-term ratings of
Baa have speculative characteristics, and issuers whose securities are rated in
the lowest investment grade are more likely to have a weakened capacity to make
principal and interest payments due to changes in economic conditions or other
circumstances than is the case with issues of higher grade bonds.

For more information about the investments described in this section, please see
the Statement of Additional Information.

AMERICAN DEPOSITORY RECEIPTS ("ADRs")

The Portfolio may invest in certain emerging market issuers exclusively or
primarily through the purchase of sponsored and unsponsored American Depository
Receipts ("ADRs") or other similar securities, such as American Depository
Shares, Global Depository Shares or

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International Depository Receipts or through investment in government-approved
investment companies or other vehicles. ADRs are receipts typically issued by
U.S. banks evidencing ownership of the underlying securities, into which they
are convertible ADRs. These securities may or may not be denominated in the same
currency as the underlying securities. Unsponsored ADRs may be created without
the participation of the foreign issuer. Holders of unsponsored ADRs generally
bear all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.

ARBITRAGE

The Portfolio may sell in one market a security which it owns and simultaneously
purchase the same security in another market, or it may buy a security in one
market and simultaneously sell it in another market, in order to take advantage
of differences in the price of the security in the different markets. The
Portfolio does not actively engage in arbitrage. Such transactions may be
entered into only with respect to debt securities and will occur only in a
dealer's market where the buying and selling dealers involved confirm their
prices to the Portfolio at the time of the transaction, thus eliminating any
risk to the assets of the Portfolio.

BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS

The Portfolio may invest in certificates of deposit, time deposits, bankers'
acceptances, and other short-term debt obligations issued by commercial banks
and in certificates of deposit, time deposits, and other short-term obligations
issued by savings and loan associations ("S&Ls"). Certificates of deposit are
receipts from a bank or an S&L for funds deposited for a specified period of
time at a specified rate of return. Time deposits in banks or S&Ls are generally
similar to certificates of deposit, but are uncertificated. Bankers' acceptances
are time drafts drawn on commercial banks by borrowers, usually in connection
with international commercial transactions. The Portfolio may not invest in time
deposits maturing in more than seven days which are subject to withdrawal
penalties. The Portfolio will limit its investment in time deposits for which
there is a penalty for early withdrawal to 10% of its net assets.

BORROWING

The Portfolio may borrow from a bank up to a limit of 15% of its total assets,
but only for temporary or emergency purposes. Borrowing may exaggerate the
effect on the Portfolio's net asset value of any increase or decrease in the
value of the Portfolio's portfolio securities. Money borrowed will be subject to
interest costs (which may include commitment fees and/or the cost of maintaining
minimum average balances). The Portfolio will repay any money borrowed from a
bank in excess of 5% of its total assets prior to purchasing additional
securities. In addition, the Portfolio may invest up to one-third of its total
assets in reverse repurchase agreements subject to the limitations set forth
under "Repurchase Agreements and Reverse Repurchase Agreements".

BRADY BONDS

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The Portfolio may invest a portion of its assets in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with debt restructuring
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady. Brady Bonds have been issued only recently, and for
that reason do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (primarily
the dollar) and are actively traded in the over-the-counter secondary market.
Brady Bonds are not considered U.S. Government securities. In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.

There can be no assurance that Brady Bonds acquired by the Portfolio will not be
subject to restructuring arrangements or to requests for new credit, which may
cause the Portfolio to suffer a loss of interest or principal on any of its
holdings. (For further information see "Brady Bonds," in the Statement of
Additional Information.)

COMMERCIAL PAPER

The Portfolio may invest in commercial paper. The Portfolio will invest in
commercial paper only if rated at the time of investment Prime-1 by Moody's or
A-1 by S&P, or, if not rated by Moody's or S&P, if the Portfolio's investment
adviser determines that the commercial paper is of comparable quality.
Commercial paper represents short-term unsecured promissory notes issued by
banks or bank holding companies, corporations and finance companies. (See
"Appendix A--Description of Securities Ratings.").

CORPORATE DEBT SECURITIES

The Portfolio's investments in U.S. dollar- or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments) which meet the credit quality and maturity criteria
set forth for the Portfolio. The rate of return or return of principal on some
debt obligations may be linked to indexes or stock prices or indexed to the
level of exchange rates between the U.S. dollar and foreign currency or
currencies.

Corporate debt securities with a rating lower than BBB by S&P, and corporate
debt securities rated Baa or lower by Moody's, have speculative characteristics
and changes in economic conditions or individual corporate developments are more
likely to lead to a weakened capacity to make principal and interest payments
than in the case of high grade bonds. The Portfolio may invest up to 25% of its
net assets in debt securities which are rated below investment grade. (See "High
Yield Securities ("Junk Bonds").")

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FIRM AND STANDBY COMMITMENT AGREEMENTS AND
WHEN-ISSUED SECURITIES

New issues of certain debt securities are often offered on a when-issued basis.
That is, the payment obligation and the interest rate are fixed at the time the
Buyer enters into the commitment, but delivery and payment for the securities
normally take place after the date of the commitment to purchase. Firm and
standby commitment agreements call for the purchase of securities at an agreed-
upon price on a specified future date. The transactions are entered into in
order to secure what is considered to be an advantageous price and yield to the
Portfolio and not for purposes of leveraging the Portfolio's assets. However,
the Portfolio will not accrue any income on these securities prior to delivery.
The value of when- issued securities and firm and standby commitment agreements
may vary prior to and after delivery depending on market conditions and changes
in interest rate levels. There is a risk that a party with whom the Portfolio
has entered into such transactions will not perform its commitment, which could
result in a gain or loss to the Portfolio.

FLOATING AND VARIABLE RATE SECURITIES AND
INVERSE FLOATERS

Variable and floating rate securities provide for a periodic adjustment in the
interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.

The Portfolio may, to the extent permitted by law, invest in floating rate debt
instruments ("floaters"). The interest rate on a floater is a variable rate
which is tied to another interest rate, such as a money market index or Treasury
bill rate.

The Portfolio may, to the extent permitted by law, invest in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities.

FOREIGN CURRENCY TRANSACTIONS

Forward foreign currency exchange contracts ("forward contracts") are intended
to minimize the risk of loss to the Portfolio from adverse changes in the
relationship between the U.S. dollar and foreign currencies. A forward contract
is an obligation to purchase or sell a specific currency for an agreed price at
a future date which is individually negotiated and privately traded by currency
traders and their customers. A forward contract may be used, for example, when
the Portfolio

<PAGE>

enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of the security.

Such contracts do not eliminate fluctuations in the underlying prices of
securities held by the Portfolio. Although such contracts tend to minimize the
risk of loss due to a decline in the value of a currency that has been sold
forward, and the risk of loss due to an increase in the value of a currency that
has been purchased forward, at the same time they tend to limit any potential
gain that might be realized should the value of such currency increase.

Successful use of forward contracts depends on the investment adviser's skill in
analyzing and predicting relative currency values. Forward contracts alter the
Portfolio's exposure to currency exchange rate activity and could result in
losses to the Portfolio if currencies do not perform as the investment adviser
anticipates. The Portfolio may also incur significant costs when converting
assets from one currency to another.

FOREIGN INDEX-LINKED INSTRUMENTS

As part of its investment program, and to maintain greater flexibility, the
Portfolio may invest in instruments which have the investment characteristics of
particular securities, securities indexes, futures contracts or currencies. Such
instruments may take a variety of forms, such as debt instruments with interest
or principal payments determined by reference to the value of a currency or
commodity at a future point in time. A foreign index may be based upon the
exchange rate of a particular currency or currencies or the differential between
two currencies, or the level of interest rates in a particular country or
countries or the differential in interest rates between particular countries. In
the case of foreign index-linked instruments linking the interest components to
a foreign index, the amount of interest payable will adjust periodically in
response to changes in the level of the foreign index during the term of the
foreign index-linked instrument. The risks of such investments would reflect the
risks of investing in the index or other instrument, the performance of which
determines the return for the instrument. Tax considerations may limit the
Portfolio's ability to invest in foreign index-linked instruments.

FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS

The Portfolio may enter into futures contracts and related options which may be
used for any legal purpose including to reduce trading costs. An interest rate
or stock index futures contract is an agreement to take or make delivery of an
amount of cash based on the difference between the value of the index at the
beginning and at the end of the contract period. A futures contract on a foreign
currency is an agreement to buy or sell a specified amount of a currency for a
set price on a future date. There are several risks associated with the use of
futures and related options for hedging purposes. There can be no assurance that
a liquid market will exist at a time when the Portfolio seeks to close out a
futures contract or a futures option position. Most futures exchanges and boards
of trade limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a particular
contract, no trades may be made that day at a price beyond that limit. In
addition, certain of these instruments are

<PAGE>

relatively new and without a significant trading history. As a result, there is
no assurance that an active secondary market will develop or continue to exist.
Lack of a liquid market for any reason may prevent the Portfolio from
liquidating an unfavorable position and the Portfolio would remain obligated to
meet margin requirements until the position is closed. There can be no guarantee
that there will be a correlation between price movements in the hedging vehicle
and in the securities or currencies being hedged. An incorrect correlation could
result in a loss on both the hedged securities or currencies and the hedging
vehicle so that the portfolio return might have been better had hedging not been
attempted. Use of options on securities, options on stock or bond indices and
warrants is subject to similar risk considerations (See "Options on Securities
and Options on Stock or Bond Indices" below.)

GOVERNMENT SECURITIES

Government securities are obligations of, or guaranteed by, the U.S. government
or its agencies or instrumentalities. Some U.S. government securities, such as
Treasury bills, notes and bonds, are supported by the full faith and credit of
the United States; others, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality.

HIGH YIELD SECURITIES

Securities rated below BBB or Baa (sometimes called "junk bonds") are not
considered "investment grade". There is more price volatility, more risk of
losing your principal and interest, a greater possibility of the issuer going
bankrupt, plus additional risks. These securities are considered speculative.

The Portfolio may invest up to 10% of its net assets in debt securities,
including short-term instruments, which are rated below investment grade (i.e.,
below BBB by S&P or Baa by Moody's) or, if not rated, deemed to be of equivalent
quality by the investment adviser. The lower the ratings of such securities, the
greater their risks render them like equity securities. Moody's considers bonds
it rates Baa to have speculative elements as well as investment grade
characteristics. The Portfolio may invest in securities which are rated D by S&P
or, if unrated, are of equivalent quality. Securities rated D may be in default
with respect to payment of principal or interest. (See "Appendix A--Description
of Securities Ratings.")

Investors should consider, and be willing to accept, the following risks
associated with high yield bonds before investing. Investment in high yield
bonds involves special risks in addition to the risks associated with
investments in higher rated debt securities. High yield bonds may be regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments.

<PAGE>

Analysis of the creditworthiness of issuers of high yield bonds may be more
complex than for issuers of higher quality debt securities, and the ability of
the Portfolio to achieve its investment objective may, to the extent of its
investment in high yield bonds, be more dependent upon such credit analysis than
would be the case if the Portfolio were investing in higher quality bonds.

High yield bonds may be more susceptible to real or perceived adverse economic
and competitive industry conditions than higher grade bonds. The prices of high
yield bonds have been found to be less sensitive to interest rate changes than
more highly rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. If the issuer of high yield bonds
defaults, the Portfolio may incur additional expenses to seek recovery. In the
case of high yield bonds structured as zero coupon or payment-in-kind
securities, the market prices of such securities are affected to a greater
extent by interest rate changes and, therefore, tend to be more volatile than
securities which pay interest periodically and in cash.

The secondary market on which high yield bonds are traded may be less liquid
than the market for higher grade bonds. Less liquidity in the secondary trading
market could adversely affect the price at which the Portfolio could sell a high
yield bond, and could adversely affect and cause large fluctuations in the daily
net asset value of the Portfolio's shares.

The use of credit ratings as the sole method for evaluating high yield bonds
also involves certain risks. For example, credit ratings evaluate the safety of
principal and interest payments, not the market value risk of high yield bonds.
Also, credit rating agencies may fail to change credit ratings on a timely basis
to reflect subsequent events.

LENDING OF PORTFOLIO SECURITIES

The Portfolio may lend its investment securities to brokers, dealers and
financial institutions for the purpose of realizing additional income. The total
market value of securities loaned will not at any time exceed one-third of the
total assets of the Portfolio. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially. In determining whether to lend
securities, the Portfolio's investment adviser will consider all relevant facts
and circumstances, including the creditworthiness of the borrower.

LOAN PARTICIPATION INTERESTS

In a typical corporate loan syndication, a number of institutional lenders lend
a corporate borrower a specified sum pursuant to the terms and conditions of a
loan agreement. One of the co-lenders usually agrees to act as the agent bank
with respect to the loan. The loan agreement among the corporate borrower and
the co-lenders identifies the agent bank as well as sets forth the rights and
duties of the parties. The agreement often (but not always) provides for the
collateralization of the corporate borrower's obligations thereunder and
includes various types of restrictive covenants which must be met by the
borrower.

<PAGE>

The principal credit risk associated with acquiring participation interests from
a co-lender or another participant is the credit risk associated with the
underlying corporate borrower. The Portfolio may incur additional credit risk,
however, when it is in the position of participant rather than a co-lender
because the Portfolio must assume the risk of insolvency of the co-lender from
which the participation interest was acquired and that of any person
interpositioned between the Portfolio and the co-lender.

MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES

The value of some mortgage-related or asset-backed securities in which the
Portfolio invests may be particularly sensitive to changes in prevailing
interest rates, and, like the other investments of the Portfolio, the ability of
the Portfolio to utilize these instruments successfully may depend in part upon
the ability of an investment adviser to forecast interest rates and other
economic factors correctly. While principal and interest payments on some
mortgage-related securities may be guaranteed by the U.S. government, government
agencies or other guarantors, the market value of such securities is not
guaranteed.

MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-through securities are
securities representing interest in "pools" of mortgages in which payments of
both interest and principal on the securities are made monthly, in effect
"passing through" monthly payments made by the individual borrowers on the
residential mortgage loans which underlie the securities (net of fees paid to
the issuer or guarantor of the securities). Early repayment of principal on
mortgage pass-through securities (arising from prepayments of principal due to
sale of the underlying property, refinancing, or foreclosure, net of fees and
costs which may be incurred) may expose the Portfolio to a lower rate of return
upon reinvestment of principal. Also, if a security subject to repayment has
been purchased at a premium, in the event of prepayment the value of the premium
would be lost.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE INVESTMENT
CONDUITS ("REMICS"). CMOs are hybrid instruments with characteristics of both
mortgage-backed bonds and mortgage pass-through securities. Similar to a bond,
interest and pre-paid principal on a CMO are paid, in most cases, semiannually.
CMOs may be collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
Government National Mortgage Association ("GNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") or Federal National Mortgage Association ("FNMA"). CMOs
are structured into multiple classes, with each class bearing a different stated
maturity. Monthly payments of principal, including prepayments, are first
returned to investors holding the shortest maturity class; investors holding the
longer maturity classes receive principal only after the first class has been
retired. REMICs are similar to CMOs and are fixed pools of mortgages with
multiple classes of interests held by investors. The cash flow generated by the
mortgage assets underlying a series of CMOs is applied first to make required
payments of principal and interest on the CMOs and second to pay the related
administrative expenses of the issuer. The residual interest in a CMO structure
generally represents the interest in any excess cash flow remaining after making
the foregoing payments. The Portfolio limits its investment in CMO residuals to
less than 5% of its net assets.

<PAGE>

OTHER MORTGAGE-RELATED SECURITIES. The Portfolio's investment adviser expects
that governmental, government-related or private entities may create mortgage
loan pools and other mortgage-related securities offering mortgage pass-through
and mortgage-collateralized investments in addition to those described above. As
new types of mortgage-related securities are developed and offered to investors,
the Portfolio's investment adviser will, consistent with the Portfolio's
investment objective, policies and quality standards, consider making
investments in such new types of mortgage-related securities.

OTHER ASSET-BACKED SECURITIES. Other asset-backed securities (unrelated to
mortgage loans) have been offered to investors, such as "CARs" ("Certificates
for Automobile Receivables"). CARs represent undivided fractional interests in a
trust whose assets consist of a pool of motor vehicle retail installment sales
contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARs are "passed-through" monthly to
certificate holders, and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the trust. Underlying sales contracts are
subject to prepayment, which may reduce the overall return to certificate
holders. If the letter of credit is exhausted, certificate holders may also
experience delays in payment or losses on CARs, if the full amounts due on
underlying sales contracts are not realized by the trust because of
unanticipated legal or administrative costs of enforcing the contracts, or
because of depreciation, damage or loss of the vehicles securing the contracts,
or other factors. If consistent with its investment objective and policies, the
Portfolio may invest in CARs and in other asset-backed securities that may be
developed in the future.

The Portfolio will invest only in mortgage-related (or other asset-backed)
securities either (i) issued by U.S. government-sponsored corporations
(currently GNMA, FHLMC and FNMA), or (ii) rated Baa or better by Moody's or BBB
by S&P or, if not rated, of comparable investment quality as determined by the
Portfolio's investment adviser.

OPTIONS ON FOREIGN CURRENCIES

The Portfolio may purchase and write put and call options on foreign currencies
for the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the U.S. dollar cost of foreign
securities to be acquired. The Portfolio may also use foreign currency options
to protect against potential losses in positions denominated in one foreign
currency against another foreign currency in which the Portfolio's assets are or
may be invested. As with other kinds of option transactions, however, the
writing of an option on foreign currency will constitute only a partial hedge up
to the amount of the premium received and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations, although, in the event of
rate movements adverse to the Portfolio's position, the Portfolio may forfeit
the entire amount of the premium plus related transaction costs. Options on
foreign currencies to be written or purchased by a Portfolio will be traded on
U.S. and foreign exchanges or over-the-counter.

<PAGE>

OPTIONS ON SECURITIES AND OPTIONS ON STOCK OR
BOND INDICES

A put option is a short-term contract which gives the purchaser of the put
option, in return for a premium, the right to sell the underlying security to
the seller of the option at a specified price during the term of the option. A
call option is a short-term contract which gives the purchaser the right to buy
from the seller of the option the underlying security at a specified price
during the term of the option. A call option on a stock or bond index gives the
purchaser of the option, in return for the premium paid, the right to receive
from the seller cash equal to the difference between the closing price of the
index and the exercise price of the option. The Portfolio will only write
"covered" call options and "secured" put options. A "covered" call option means
generally that so long as the Portfolio is obligated as the writer of a call
option, the Portfolio will either own the underlying securities subject to the
call, or hold a call at the same exercise price, for the same exercise period,
and on the same securities as the call written. A "secured" put option means
generally that so long as the Portfolio is obligated as the writer of the put
option, the Portfolio will maintain liquid assets with a value equal to the
exercise price in a segregated account, or hold a put on the same underlying
security at an equal or greater exercise price. Options in which the Portfolio
may invest may be traded on exchanges and in the over-the-counter market.

REPURCHASE AGREEMENTS AND
REVERSE REPURCHASE AGREEMENTS

The Portfolio may enter into repurchase agreements, which entail the purchase of
a portfolio eligible security from a bank or broker-dealer that agrees to
repurchase the security at the Portfolio's cost plus interest within a specified
time (normally one day). If the party agreeing to repurchase should default, as
a result of bankruptcy or otherwise, the Portfolio will seek to sell the
securities which it holds, which action could involve costs or delays in
addition to a loss on the securities if their value should fall below their
repurchase price. The Portfolio will not invest more than 10% of its net assets
(taken at current market value) in repurchase agreements maturing in more than
seven days.

The Portfolio may enter into reverse repurchase agreements with banks or broker-
dealers, which involves the sale of a security by the Portfolio and its
agreement to repurchase the instrument at a specified time and price. The
Portfolio will maintain a segregated account consisting of cash, U.S. government
securities, foreign government securities provided they are of high liquidity
and quality, or other high-grade debt obligations, maturing not later than the
expiration of the reverse repurchase agreement, to cover its obligations under
reverse repurchase agreements. The Portfolio will limit its investments in
reverse repurchase agreements and other borrowing to no more than one-third of
its total assets. The use of reverse repurchase agreements by the Portfolio
creates leverage which increases the Portfolio's investment risk. If the income
and gains on securities purchased with the proceeds of reverse repurchase
agreements exceed the cost of the agreements, the Portfolio's earnings or net
asset value will increase faster than otherwise would be the case; conversely,
if the income and gains fail to exceed the costs, earnings or net asset value
would decline faster than otherwise would be the case.

<PAGE>

RESTRICTED SECURITIES

To the extent that they invest in restricted securities, the Portfolio may be
exposed to additional risks. "Restricted" securities are those securities which
have not been registered under the Securities Act of 1933. Because they are
unregistered, only a limited number of investors are qualified to invest in such
securities, which imposes the risk that the Portfolio investing in restricted
securities may not be able to easily dispose of them. In disposing of restricted
securities may incur additional transaction costs in finding a buyer or, in an
extreme case, the cost of registering the security.

SWAP AGREEMENTS

The Portfolio may enter into interest rate, index and currency exchange rate
swap agreements for purposes of attempting to obtain a particular desired return
at a lower cost to the Portfolio than if the Portfolio had invested directly in
an instrument that yielded that desired return. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or "swapped" between the parties are calculated
with respect to a "notional amount," i.e., the return on or increase in value of
a particular dollar amount invested at a particular interest rate, in a
particular foreign currency or in a "basket" of securities representing a
particular index. Commonly used swap agreements include interest rate caps,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates exceed a specified rate, or "cap";
interest rate floors, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates fall below a
specified level, or "floor"; and interest rate collars, under which a party
sells a cap and purchases a floor or vice versa in an attempt to protect itself
against interest rate movements exceeding given minimum or maximum levels.

Whether the Portfolio's use of swap agreements will be successful in furthering
its investment objective will depend on the investment adviser's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid.

Moreover, the Portfolio bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty. An investment adviser will cause the Portfolio to
enter into swap agreements only with counterparties that would be eligible for
consideration as repurchase agreement counterparties under the Portfolio's
repurchase agreement guidelines. Certain restrictions imposed on the Portfolio
by the Internal Revenue Code may limit the Portfolio's ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swap market and the laws
relating to swaps, including potential government

<PAGE>

regulation, could adversely affect the Portfolio's ability to terminate existing
swap agreements or to realize amounts to be received under such agreements, or
to enter into swap agreements or could have tax consequences. (See "Tax
Information" in the Statement of Additional Information for information
regarding the tax considerations relating to swap agreements.)

TEMPORARY DEFENSIVE INVESTMENTS

For temporary defensive purposes, the Portfolio may invest without limitation in
(or enter into repurchase agreements maturing in seven days or less with U.S.
banks and broker-dealers with respect to) short-term debt securities, including
commercial paper, U.S. Treasury bills, other short-term U.S. Government
securities, certificates of deposit and bankers' acceptances of U.S. banks. The
Portfolio also may hold cash and time deposits in U.S. banks. In transactions
involving "repurchase agreements," the Portfolio purchases securities from a
bank or broker-dealer who agrees to repurchase the security at the Portfolio's
cost plus interest within a specified time. The securities purchased by the
Portfolio have a total value in excess of the value of the repurchase agreement
and are held by the Portfolio's custodian bank until repurchased. See
"Investment Policies" in Part B for further information about all these
securities.

ZERO COUPON BONDS

Zero coupon bonds are debt obligations issued without any requirement for the
periodic payment of interest. Zero coupon bonds are issued at a significant
discount from the face value. The discount approximates the total amount of
interest the bonds would accrue and compound over the period until maturity at a
rate of interest reflecting the market rate at the time of issuance. Cash to pay
dividends representing unpaid, accrued interest may be obtained from sales
proceeds of portfolio securities and Portfolio interests and from loan proceeds.
Because interest on zero coupon obligations is not paid to the Portfolio on a
current basis but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly. Zero
coupon bonds tend to be subject to greater market risk than interest paying
securities of similar maturities. The discount represents income a portion of
which the Portfolio must accrue and distribute every year even though the
Portfolio receives no payment on the investment in that year.

ITEM 5. MANAGEMENT OF THE TRUST.

TRUSTEES AND OFFICERS

The business and affairs of the Portfolio are managed under the direction of the
Board of Trustees. The Board of Trustees formulates the general policies of the
Portfolio and the Trust and meets periodically to review the results of the
Portfolio, monitor investment activities and practices and discuss other matters
affecting the Portfolio and the Trust. Additional information regarding the
Trustees and executive officers of the Trust may be found in Part B.

INVESTMENT ADVISER AND PORTFOLIO MANAGER

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Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New
York, New York 10019, serves as Investment Adviser to the Portfolio. SCMI
manages the investment and reinvestment of the assets in the Portfolio and
continuously reviews, supervises and administers the Portfolio's investments. In
this regard, it is the responsibility of SCMI to make decisions relating to the
Portfolio's investments and to place purchase and sale orders regarding
investments with brokers or dealers selected by it in its discretion. For its
services with respect to the Portfolio, the Investment Advisory Agreement
between SCMI and the Trust provides that SCMI will receive a monthly advisory
fee at the annual rate of 0.50% of the Portfolio's average daily net assets.
SCMI has agreed , however, to limit its fee to an annual rate of 0.00% of the
Portfolio's average daily net assets. Such fee limitation arrangement shall
remain in effect until its elimination is approved by the Board of Trustees.

SCMI is a wholly owned U.S. subsidiary of Schroders Incorporated, the wholly-
owned U.S. holding company subsidiary of Schroders plc. Schroders plc is the
holding company parent of a large world-wide group of banks and financial
services companies (the "Schroder Group"), with associated companies and branch
and representative offices located in eighteen countries world-wide. The
investment management subsidiaries of the Schroder Group had assets under
management of approximately $130 billion as of June 30, 1996.

Mr. Michael Perelstein, with the assistance of an investment committee, is
primarily responsible for the day-to-day management of the Portfolio's
investment portfolio. Mr. Perelstein has been a Senior Vice President of SCMI
since December 31, 1996. Prior thereto, Mr. Perelstein was a Managing Director
at MacKay-Shields. Mr. Perelstein has more than twelve years of international
and global investment experience.

ADMINISTRATIVE SERVICES

TRANSFER AGENT AND PORTFOLIO ACCOUNTANT

Forum Financial Corp., P.O. Box 446, Portland, Maine 04112, acts as the
Portfolio's transfer agent and portfolio accountant.

EXPENSES

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The Portfolio is obligated to pay all of its expenses. These expenses include:
governmental fees; interest charges; taxes; brokerage fees and commissions;
insurance premiums; investment advisory, custodial, administrative and transfer
agency and fund accounting fees, as described above; compensation of certain of
the Trust's Trustees; costs of membership trade associations; fees and expenses
of independent auditors and legal counsel to the Trust; and expenses associated
with calculating the net asset value and the net income of the Portfolio. The
Portfolio's expenses are comprised of Trust expenses attributable to the
Portfolio, which are allocated to the Portfolio, and expenses not attributable
to the Portfolio, which are allocated among the series of the Trust in
proportion to their average net assets or as otherwise determined by the Board
of Trustees.

PORTFOLIO TRANSACTIONS

SCMI places orders for the purchase and sale of the Portfolio's investments with
brokers and dealers selected by SCMI in its discretion and seeks "best
execution" of such portfolio transactions. The Portfolio may pay higher than the
lowest available commission rates when SCMI believes it is reasonable to do so
in light of the value of the brokerage and research services provided by the
broker effecting the transaction. Commission rates for brokerage transactions
are fixed on many foreign securities exchanges, and this may cause higher
brokerage expenses to accrue to the Portfolio than would be the case for
comparable transactions effected on U.S. securities exchanges.

Subject to the Portfolio's policy of obtaining the best price consistent with
quality of execution on transactions, SCMI may employ Schroder Securities
Limited and its affiliates (collectively, "Schroder Securities"), affiliates of
SCMI, to effect transactions of the Portfolio on certain foreign securities
exchanges. Because of the affiliation between SCMI and Schroder Securities, the
Portfolio's payment of commissions to Schroder Securities is subject to
procedures adopted by the Trust's Board of Trustees designed to ensure that such
commissions will not exceed the usual and customary brokers' commissions. No
specific portion of the Portfolio's brokerage will be directed to Schroder
Securities and in no event will Schroder Securities receive such brokerage in
recognition of research services.

Although the Portfolio does not currently engage in directed brokerage
arrangements to pay expenses, it may do so in the future. These arrangements,
whereby brokers executing the Portfolio's portfolio transactions would agree to
pay designated expenses of the Portfolio if brokerage commissions generated by
the Portfolio reached certain levels, might reduce the Portfolio's expenses. As
anticipated, these arrangements would not materially increase the brokerage
commissions paid by the Portfolio. Brokerage commissions are not deemed to be
Fund expenses. In the Fund's fee table, per share table, and financial
highlights, however, directed brokerage arrangements might cause Fund expenses
to appear lower than actual expenses incurred.

CUSTODIAN

<PAGE>

The Chase Manhattan Bank, N.A., Global Custody Division, Woolgate House, Coleman
Street, London EC2P 2HD, United Kingdom, acts as custodian of the Portfolio's
assets.

ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.

Omitted. See "Introduction" above.

ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.

The Trust was organized as a business trust under the laws of the State of
Delaware. Under the Trust Instrument, the Trustees are authorized to issue
beneficial interests in separate series of the Trust.

Each investor in the Portfolio is entitled to participate equally in the
Portfolio's earnings and assets and to a vote in proportion to the amount of its
investment in the Portfolio. Investments in the Portfolio may not be
transferred, but an investor may withdraw all or any portion of its investment
at any time at net asset value ("NAV").

Investments in the Portfolio have no preemptive or conversion rights and are
fully paid and non-assessable, except as set forth below. The Trust is not
required and has no current intention to hold annual meetings of investors, but
the Trust will hold special meetings of investors when in the Trustees' judgment
it is necessary or desirable to submit matters to an investor vote. Generally,
interests will be voted in the aggregate without reference to a particular
series, except if the matter affects only one series or series voting is
required, in which case interests will be voted separately by series. Investors
have the right to remove one or more Trustees without a meeting by a declaration
in writing by a specified number of investors.

Under the Federal securities laws, any person or entity that signs a
registration statement may be liable for a misstatement or omission of a
material fact in the registration statement. The Trust, its Trustees and certain
of its officers are required to sign the registration statement of certain
publicly offered investors in the Portfolio. In addition, under the Federal
securities laws, the Trust could be liable for misstatements or omissions of a
material fact in any proxy soliciting material of a publicly offered investor in
the Trust. Under the Trust's Trust Instrument, each investor in the Portfolio
indemnifies the Trust and its Trustees and officers (the "Trust Indemnitees")
against certain claims. Indemnified claims are those brought against Trust
Indemnitees but based on a misstatement or omission of a material fact in the
investor's registration statement or proxy materials, except to the extent such
claim is based on a misstatement or omission of a material fact relating to
information about the Trust in the investor's registration statement or proxy
materials that was supplied to the investor by the Trust. Similarly, the Trust
indemnifies each investor in the Portfolio for any claims brought against the
investor with respect to the investor's registration statement or proxy
materials, to the extent the claim is based on a misstatement or omission of a
material fact relating to information about a series of the registered
investment company that did not invest in the Trust. The purpose of these cross-
indemnity provisions is principally to limit the liability of the Trust to
information that it knows or should know and can control. With respect to other
prospectuses and other offering

<PAGE>

documents and proxy materials of investors in the Trust, the Trust's liability
is similarly limited to information about and supplied by the Trust.

The Portfolio's net income consists of (1) all dividends, accrued interest
(including earned discount, both original issue and market discounts), and other
income, including any net realized gains on the Portfolio's assets, less (2) all
actual and accrued expenses of the Portfolio, amortization of any premium, and
net realized losses on the Portfolio's assets, all as determined in accordance
with generally accepted accounting principles. All of the Portfolio's net income
is allocated pro rata among the investors in the Portfolio. The Portfolio's net
income generally is not distributed to the investors in the Portfolio, except as
determined by the Trustees from time to time, but instead is included in the NAV
of the investors' respective beneficial interests in the Portfolio.

Under the anticipated method of the Portfolio's operations, it will not be
subject to any income tax. However, each investor in the Portfolio will be taxed
on its proportionate share (as determined in accordance with the Trust's Trust
Instrument and the Internal Revenue Code of 1986, as amended (the "Code")) of
the Portfolio's ordinary income and net capital gains, to the extent that the
investor is subject to tax on its income. It is intended that the Portfolio's
assets, income, and distributions will be managed in such a way that an investor
in the Portfolio will be able to satisfy the requirements of Subchapter M of the
Code, assuming that the investor invested all of its assets in the Portfolio.
The Trust will inform investors of the amount and nature of such income or gain.

ITEM 7. PURCHASE OF SECURITIES.

Beneficial interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. See "General Description of Registrant" above. All
investments in the Portfolio are made without a sales load, at the NAV next
determined after an order is received by the Portfolio.

The net asset value is calculated separately for each class of Shares of the
Fund at 4:00 p.m. (Eastern time), Monday through Friday, each day that the New
York Stock Exchange is open for trading ("Fund Business Day"), which excludes
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per Share is calculated by dividing the aggregate value of the Portfolio's
assets less all Portfolio liabilities, if any, by the number of Shares of the
Fund outstanding.

Securities held by the Portfolio that are listed on recognized stock exchanges
are valued at the last reported sale price, prior to the time when the
securities are valued, on the exchange on which the securities are principally
traded. Listed securities traded on recognized stock exchanges where last sale
prices are not available are valued at mid- market prices. Securities traded in
over-the-counter markets, or listed securities for which no trade is reported on
the valuation date, are valued at the most recent reported mid-market price.
Other securities and

<PAGE>

assets for which market quotations are not readily available are valued at fair
value as determined in good faith using methods approved by the Trust's Board of
Trustees.

The Trust reserves the right to cease accepting investments in the Portfolio at
any time or to reject any investment order.

The exclusive placement agent for the Trust is Forum. Forum receives no
compensation for serving as the exclusive placement agent for the Trust.

ITEM 8. REDEMPTION OR REPURCHASE.

An investor in the Portfolio may withdraw all or any portion of its investment
in the Portfolio at the NAV next determined after a withdrawal request in proper
form is furnished by the investor to the Trust. The proceeds of a withdrawal
normally will be paid by the Portfolio in federal funds on the business day
after the withdrawal is effected, but in any event within seven days.
Investments in the Portfolio may not be transferred. The right of redemption may
not be suspended nor the payment dates postponed for more than seven days except
when the New York Stock Exchange is closed (or when trading thereon is
restricted) for any reason other than its customary weekend or holiday closings
or under any emergency or other circumstances as determined by the Commission.

Redemptions from the Portfolio may be made wholly or partially in portfolio
securities if the Board determines that payment in cash would be detrimental to
the best interests of the Portfolio. The Trust has filed an election with the
Commission pursuant to which the Portfolio will only consider effecting a
redemption in portfolio securities if the particular interestholder is redeeming
more than $250,000 or 1% of the Portfolio's NAV, whichever is less, during any
90-day period.

ITEM 9. PENDING LEGAL PROCEEDINGS.

Not applicable.

<PAGE>

APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

MOODY'S INVESTORS SERVICE, INC.

CORPORATE AND MUNICIPAL BOND RATINGS

Aaa: Bonds 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
edged." 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: Bonds 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
bonds. They are rated lower than the best bonds 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 the Aaa securities.

A: Bonds 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: Bonds 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 bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds 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 thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds 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: Bonds 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.

<PAGE>

Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classified from Aa through B in its corporate bond 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 the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.

DESIGNATIONS APPLICABLE TO MUNICIPAL BOND RATINGS

In its municipal bond rating system, Moody's designates those bonds within the
Aa, A, Baa, Ba and B categories that it believes possess the strongest credit
attributes with the symbols Aa1, A1, Baa1, Ba1 and B1.

Advance refunded issues that are secured by escrowed funds held in cash, held in
trust, reinvested in direct non-callable United States government obligations or
non-callable obligations unconditionally guaranteed by the U.S. government are
identified with a hatchmark (#) symbol, i.e., #Aaa.

Moody's assigns conditional ratings to bonds for which the security depends upon
the completion of some act or the fulfillment of some condition. These are bonds
secured by: (a) earnings of projects under construction; (b) earnings of
projects unseasoned in operating experience; (c) rentals that begin when
facilities are completed; or (d) payments to which some other limiting condition
attaches. The parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition, e.g.,
Con.(Baa).

Issues that are subject to a periodic reoffer and resale in the secondary market
in a "dutch auction" are assigned a long-term rating based only on Moody's
assessment of the ability and willingness of the issuer to make timely principal
and interest payments. Moody's expresses no opinion as to the ability of the
holder to sell the security in a secondary market "dutch auction." Such issues
are identified by the insertion of the words "dutch auction" into the name of
the issue.

MUNICIPAL SHORT-TERM LOAN RATINGS

Issues or the features associated with MIG, VMIG or SQ ratings are identified by
date of issue, date of maturity or maturities or rating expiration date and
description to distinguish each rating from other ratings. Each rating
designation is unique with no implication as to any other similar issue of the
same obligor. MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issue's specific structural or
credit features.

<PAGE>

MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing. MIG 2/VMIG 2: This designation
denotes high quality. Margins of protection are ample although not so large as
in the preceding group.

MIG 3/VMIG 3: This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

MIG 4/VMIG 4: This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.

SQ: This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.

CORPORATE SHORT-TERM DEBT RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year. Obligations relying upon support mechanisms such as letters-of-credit
and bonds of indemnity are excluded unless explicitly rated.

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:

PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well- established
access to a range of financial markets and assured sources of alternate
liquidity.

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

<PAGE>

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.

STANDARD & POOR'S

CORPORATE AND MUNICIPAL DEBT RATINGS

INVESTMENT GRADE

AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB: Debt rated BBB is 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
debt in this category than in higher rated categories.

SPECULATIVE GRADE

Debt rated BB, B, CCC, CC, and C is 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. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or
BB-rating.

<PAGE>

CCC: Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment 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. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.

CC: The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.

C: The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

C1: The rating C1 is reserved for income bonds on which no interest is being
paid.

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

Provisional ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.

r: The "r" is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and interest only and
principal only mortgage securities.

The absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.

N.R.: Not rated.

<PAGE>

Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

NOTE RATING DEFINITIONS

SP-1: Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

SP-3: Speculative capacity to pay principal and interest.

COMMERCIAL PAPER RATING DEFINITIONS

A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

B: Issues rated B are regarded as having only speculative capacity for timely
payment.

C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.

A commercial paper rating is not a recommendation to purchase, sell or hold a
security in as much as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P 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.

No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus and in the related Statement of Additional Information, in connection
with the offer contained in this Prospectus,

<PAGE>

and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Trust or the Distributor. This
Prospectus and the related Statement of Additional Information do not constitute
an offer by the Trust or by the Distributor to sell or a solicitation of any
offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful to make such offer in such jurisdiction.
<PAGE>

PART B
(STATEMENT OF ADDITIONAL INFORMATION)

SCHRODER CAPITAL FUNDS II
________

SCHRODER INTERNATIONAL BOND PORTFOLIO

ITEM 10. COVER PAGE.

Not applicable.

ITEM 11. TABLE OF CONTENTS.

General Information and History..............................................B-_
Investment Objectives and Policies...........................................B-_
Management of the Trust......................................................B-_
Control Persons and Principal Holders of Securities..........................B-_
Investment Advisory and Other Services.......................................B-_
Brokerage Allocation and Other Practices.....................................B-_
Capital Stock and Other Securities..........................................B-__
Purchase, Redemption and Pricing of Securities..............................B-__
Tax Status..................................................................B-__
Underwriters................................................................B-__
Calculations of Performance Data............................................B-__
Financial Statements........................................................B-__

ITEM 12. GENERAL INFORMATION AND HISTORY.

Not applicable.

ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.

INVESTMENT POLICIES

INTRODUCTION

Part A contains information about the investment objective, policies and
restrictions of Schroder International Bond Portfolio (the "Portfolio"), a
series of Schroder Capital Funds II (the "Trust"). The following discussion is
intended to supplement the disclosure in Part A concerning the Portfolio's
investments, investment techniques and strategies utilized by the Portfolio and
certain risks involved with those investments, policies and strategies. This
Part B should be read only in conjunction with Part A.

DEFINITIONS

As used in Part B, the following terms shall have the meanings listed:

"Board" shall mean the Board of Trustees of the Trust.

"1933 Act" shall mean the Securities Act of 1933, as amended.

"1940 Act" shall mean the Investment Company Act of 1940, as amended.

<PAGE>

"Commission" shall mean the U.S. Securities and Exchange Commission.

FOREIGN SECURITIES

Investment in the securities of foreign issuers may involve risks in addition to
those normally associated with investments in the securities of U.S. issuers.
There may be less publicly available information about foreign issuers than is
available for U.S. issuers, and foreign auditing, accounting and financial
reporting practices may differ from U.S. practices. Foreign securities markets
may be less active than U.S. markets, trading may be thin and consequently
securities prices may be more volatile. The Portfolio's investment adviser,
Schroder Capital Management International Inc. ("SCMI" or "Adviser") will, in
general, invest only in securities of companies and governments of countries
that, in its judgment, are both politically and economically stable.
Nevertheless, all foreign investments are subject to risks of foreign political
and economic instability, adverse movements in foreign exchange rates, the
imposition or tightening of exchange controls or other limitations on the
repatriation of foreign capital and changes in foreign governmental attitudes
toward private investment, possibly leading to nationalization, increased
taxation, or confiscation of Portfolio assets.

DEPOSITORY RECEIPTS

Investments in securities of foreign issuers may on occasion be in the form of
sponsored or unsponsored American Depository Receipts ("ADRs") or European
Depository Receipts ("EDRs") or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued in the United States by a bank or
trust company evidencing ownership of the underlying securities. EDRs are
typically issued in Europe under a similar arrangement. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets and EDRs,
in bearer form, are designed for use in European securities markets. Unsponsored
ADRs may be created without the participation of the foreign issuer. Holders of
unsponsored ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depository of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights.

USE OF FORWARD CONTRACTS IN FOREIGN EXCHANGE TRANSACTIONS

In order to enhance returns, manage risk, reduce trading costs, and help protect
against changes in securities prices and foreign exchange rates, the Portfolio
may invest in forward contracts to purchase or sell an agreed-upon amount of a
specified currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. Such 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. Although such contracts tend to
minimize the risk of loss due to a decline in the value of the currency that is
sold, they expose the Portfolio to the risk that the counterparty is unable to
perform and they tend to limit commensurately any potential gain which might
result should the value of such currency increase during the contract period.

U.S. GOVERNMENT SECURITIES

The Portfolio may invest in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities that have remaining maturities
not exceeding one year. Agencies and instrumentalities that issue or guarantee
debt securities and that have been established or sponsored by the U.S.
Government include the Bank for Cooperatives, the Export-Import Bank, the
Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land
Banks, the Federal National Mortgage Association, the Government National
Mortgage Association and the Student Loan Marketing Association. Except for
obligations issued by the U.S. Treasury and the Government National Mortgage
Association, none of the obligations of the other agencies or instrumentalities
referred to above is backed by the full faith and credit of the U.S. Government.

<PAGE>

BANK OBLIGATIONS

The Portfolio may invest in obligations of U.S. banks (including certificates of
deposit and bankers' acceptances) having total assets at the time of purchase in
excess of $1 billion. Such banks must be insured by the Federal Deposit
Insurance Corporation or the Federal Savings and Loan. The Portfolio also may
invest in certificates of deposit issued by foreign banks, denominated in any
major foreign currency. The Portfolio will invest in instruments issued by
foreign banks that, in the view of SCMI and the Board of Trustees of the Trust,
are of creditworthiness and financial stature in their respective countries
comparable to certificates of deposit issued by U.S. banks in which the
Portfolio would invest. A certificate of deposit is an interest-bearing
negotiable certificate issued by a bank against funds deposited in the bank. A
bankers' acceptance is a short-term draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction.
Although the borrower is liable for payment of the draft, the bank
unconditionally guarantees to pay the draft at its face value on the maturity
date.

SHORT-TERM DEBT SECURITIES

The Portfolio may invest in commercial paper, that is, short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations
and finance companies. The commercial paper purchased by the Portfolio for
temporary defensive purposes consists of direct obligations of domestic issuers
that, at the time of investment, are rated "P-1" by Moody's Investors Service,
Inc. ("Moody's") or "A-1" by Standard & Poor's Ratings Services ("S&P"), or
securities that, if not rated, are issued by companies having an outstanding
debt issue currently rated Aa by Moody's or AAA or AA by S&P. The rating "P-1"
is the highest commercial paper rating assigned by Moody's and the rating "A-1"
is the highest commercial paper rating assigned by S&P.

REPURCHASE AGREEMENTS

The Portfolio may enter into repurchase agreements with U.S. banks or
broker-dealers maturing in seven days or less. In a typical repurchase agreement
the seller of a security commits itself at the time of the sale to repurchase
that security from the buyer at a mutually agreed-upon time and price. The
repurchase price exceeds the sale price, reflecting an agreed-upon interest rate
effective for the period the buyer owns the security subject to repurchase. The
agreed-upon rate is unrelated to the interest rate on that security. SCMI, the
Portfolio's Investment Adviser, will monitor the value of the underlying
security at the time the transaction is entered into and at all times during the
term of the repurchase agreement to insure that the value of the security always
equals or exceeds the repurchase price. In the event of default by the seller
under the repurchase agreement, the Portfolio may have difficulties in
exercising its rights to the underlying securities and may incur costs and
experience time delays in connection with the disposition of such securities. To
evaluate potential risks, SCMI reviews the creditworthiness of those banks and
dealers with which the Portfolio enters into repurchase agreements.

BORROWING

The Portfolio may borrow from a bank up to a limit of 15% of its total assets,
but only for temporary or emergency purposes. This borrowing may be unsecured.
The Investment Company Act of 1940, as amended (the "1940 Act") requires the
Portfolio to maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Portfolio may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time and could cause the Portfolio to be
unable to meet certain requirements for qualification as a regulated investment
company for Federal tax purposes. To avoid the potential leveraging effects of
the Portfolio's borrowings, the Portfolio will repay any money borrowed in
excess of 5% of its total assets prior to purchasing additional securities.
Borrowing may exaggerate the effect on the Portfolio's net asset value of any
increase or decrease in the market value of the Portfolio's portfolio
securities. Money borrowed will be subject to interest costs which may or may
not be recovered by appreciation of the securities purchased. The Portfolio also
may be required to maintain minimum average balances in connection with such
borrowing or to pay

<PAGE>

a commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.

REPURCHASE AGREEMENTS

The Portfolio may enter into domestic or foreign repurchase agreements with
certain sellers deemed to be creditworthy pursuant to guidelines adopted by the
Trustees. A repurchase agreement, which provides a means for the Portfolio to
earn income on uninvested cash for periods as short as overnight, is an
arrangement under which the purchaser (i.e., the Portfolio) purchases securities
(the "Obligation") and the seller agrees, at the time of sale, to repurchase the
Obligation at a specified time and price. A repurchase agreement with foreign
banks may be available with respect to government securities of the particular
foreign jurisdiction. The custody of the Obligation will be maintained by the
Portfolio's Custodian. The repurchase price may be higher than the purchase
price, the difference being income to the Portfolio, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Portfolio together with the repurchase price upon repurchase. In either case,
the income to the Portfolio is unrelated to the interest rate on the Obligation
subject to the repurchase agreement.

In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Portfolio may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. The Adviser seeks to minimize the risk of
loss from repurchase agreements by analyzing the creditworthiness of the
obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the security. However, if the market value of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including accrued interest), the Portfolio will direct the seller of the
Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement equals or exceeds the repurchase
price.

LENDING OF PORTFOLIO SECURITIES

The Portfolio may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions, such
as broker-dealers, and would be required to be secured continuously by
collateral in cash, letters of credit, cash equivalents or U.S. Government
securities maintained on a current basis at an amount at least equal to 100% of
the current market value of the securities loaned. The Portfolio would have the
right to call a loan and obtain the securities loaned at any time on five days'
notice. For the duration of a loan, the Portfolio would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive compensation from the investment of the
collateral. The Portfolio would not, however, have the right to vote any
securities having voting rights during the existence of the loan, but the
Portfolio would call the loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or withholding of their consent
on a material matter affecting the investment. As with other extensions of
credit there are risks of delay in recovery of, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Adviser to be of good standing,
and when, in the judgment of the Adviser, the consideration which can be earned
currently from securities loans of this type justifies the attendant risk. If
the Adviser determines to make securities loans, it is intended that the value
of the securities loaned would not exceed one-third of the value of the total
assets of the Portfolio.

BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS

The Portfolio will not invest in any obligation of a domestic or foreign bank
unless (i) the bank has capital, surplus, and individual profits (as of the date
of the most recently published financial statements) in excess of $100 million,
or the equivalent in other currencies, and (ii) in the case of a U.S. bank, its
deposits are insured by the Federal Deposit Insurance Corporation. These
limitations do not prohibit investments in the securities issued by foreign
branches of U.S. banks, provided such U.S. banks meet the foregoing
requirements.

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FLOATING AND VARIABLE RATE SECURITIES

The interest rate on a floating rate debt instrument ("floater") is a variable
rate which is tied to another interest rate, such as a money-market index or
Treasury bill rate. The interest rate on a floater resets periodically,
typically every six months. While, because of the interest rate reset feature,
floaters provide the Portfolio with a certain degree of protection against rises
in interest rates, the Portfolio will participate in any declines in interest
rates as well.

FOREIGN SECURITIES

The Portfolio may invest, without limit, subject to the other investment
policies applicable to the Portfolio, in U.S. dollar-denominated and non-dollar
denominated foreign debt securities and in certificates of deposit issued by
foreign banks and foreign branches of United States banks, to any extent deemed
appropriate by the Adviser.

Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and lower
liquidity, the possible imposition of withholding, confiscatory and other taxes,
the possible adoption of foreign governmental restrictions affecting the payment
of principal and interest, changes in currency exchange rates and currency
exchange control regulations, expropriation, or other adverse political or
economic developments. In addition, it may be more difficult to obtain and
enforce a judgment against a foreign issuer or a foreign branch of a domestic
bank. Further, to the extent investments in foreign securities are denominated
in currencies of foreign countries, the Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates and in exchange control
regulations and may incur costs in connection with conversion between
currencies.

FIRM AND STANDBY COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES

The Portfolio, as specified in Part A, may from time to time purchase securities
on a "when-issued" or "firm commitment" or "standby commitment" basis. Debt
securities are often issued in this manner. 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 of and payment for the when- issued, or firm or standby
commitment 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;
however, it is the Trust's intention that each Portfolio will be fully invested
to the extent practicable and subject to the policies stated herein. Although
when-issued, or firm or standby commitment securities may be sold prior to the
settlement date, the Trust intends to purchase such securities with the purpose
of actually acquiring them unless a sale appears desirable for investment
reasons.

At the time the Trust makes the commitment on behalf of the Portfolio to
purchase a security on a when-issued, or firm or standby commitment 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, or firm or standby commitment securities may be more or less than
the purchase price payable at the settlement date. The Trustees do not believe
that the Portfolio's net asset value or income will be exposed to additional
risk by the purchase of securities on a when-issued or firm commitment basis.
Each Portfolio will establish a segregated account in which it will maintain
liquid assets, such as cash and U.S. Government securities or other high-grade
debt obligations at least equal in value to any commitments to purchase
securities on a when-issued, firm, or standby commitment basis. Such segregated
securities either will mature or, if necessary, be sold on or before the
settlement date.

MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES

MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees paid to the
issuer or guarantor of such
<PAGE>

securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by the Government National Mortgage
Association) are described as "modified pass- through." These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, at the scheduled payment dates regardless of whether
or not the mortgagor actually makes the payment. The principal governmental
guarantor of mortgage-related securities is the Government National Mortgage
Association ("GNMA"). GNMA is a wholly owned U.S. Government corporation within
the Department of Housing and Urban Development. GNMA is authorized to
guarantee, with the full faith and credit of the U.S. Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of Federal Housing Administration-insured or
Veterans Administration-guaranteed mortgages.

Government-related guarantors (i.e., not backed by the full faith and credit of
the U.S. Government) include the Federal National Mortgage Association ("FNMA")
and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks, credit unions and mortgage bankers. Pass-
through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.

FHLMC is a corporate instrumentality of the U.S. Government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("Pcs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but Pcs are not backed by the full faith and credit of the U.S. Government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of these pools may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance and letters of credit. The insurance and guarantees are issued
by governmental entities, private insurers and the mortgage poolers. Such
insurance and guarantees and the creditworthiness of the issuers thereof will be
considered in determining whether a mortgage-related security meets the
Portfolio's investment quality standards. There can be no assurance that the
private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable. The Portfolio will not purchase mortgage-related
securities or any other assets which in the opinion of the Portfolio's
investment adviser are illiquid if, as a result, more than 15% of the value of
the Portfolio's net assets will be illiquid.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive

<PAGE>

principal only after the first class has been retired. An investor is partially
guarded against a sooner than desired return of principal because of the
sequential payments.

In a typical CMO transaction, a corporation ("issuer") issues multiple series
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third-party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.

FHLMC COLLATERALIZED MORTGAGE OBLIGATIONS. FHLMC CMOs are debt obligations of
FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC Pcs, payments of principal and interest on the CMOs are made
semiannually, as opposed to monthly. The amount of principal payable on each
semiannual payment date is determined in accordance with FHLMC's mandatory
sinking Portfolio schedule, which, in turn, is equal to approximately 100% of
Federal Housing Administration ("FHA") prepayment experience applied to the
mortgage collateral pool. All sinking Portfolio payments in the CMOs are
allocated to the retirement of the individual classes of bonds in the order of
their stated maturities. Payment of principal on the mortgage loans in the
collateral pool in excess of the amount of FHLMC's minimum sinking Portfolio
obligation for any payment date are paid to the holders of the CMOs as
additional sinking Portfolio payments. Because of the "pass-through" nature of
all principal payments received on the collateral pool in excess of FHLMC's
minimum sinking Portfolio requirement, the rate at which principal of the CMOs
is actually repaid is likely to be such that each class of bonds will be retired
in advance of its scheduled maturity date.

If collection of principal (including prepayments) on the mortgage loans during
any semiannual payment period is not sufficient to meet FHLMC's minimum sinking
Portfolio obligation on the next sinking Portfolio payment date, FHLMC agrees to
make up the deficiency from its general Portfolios.

Criteria for the mortgage loans in the pool backing the CMOs are identical to
those of FHLMC Pcs. FHLMC has the right to substitute collateral in the event of
delinquencies and/or defaults. Other Mortgage-Related Securities. The
Portfolio's investment adviser expects that governmental, government-related or
private entities may create mortgage loan pools and other mortgage-related
securities offering mortgage pass-through and mortgage-collateralized
investments in addition to those described above. The mortgages underlying these
securities may include alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, the
Portfolio's investment adviser will, consistent with the Portfolio's investment
objective, policies and quality standards, consider making investments in such
new types of mortgage-related securities.

CMO RESIDUALS. CMO residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing. The cash flow generated by the mortgage
assets underlying a series of CMOs is applied first to make required payments of
principal and interest on the CMOs and second to pay the related administrative
expenses of the issuer. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making the foregoing payments.
Each payment of such excess cash flow to a holder of the related CMO residual
represents income and/or a return of capital. The amount of residual cash flow
resulting from a CMO will depend on, among other things, the characteristics of
the mortgage assets, the coupon rate of each class of CMO, prevailing interest
rates, the amount of administrative expenses and the prepayment experience on
the mortgage assets. In particular, the yield to maturity on CMO residuals is
extremely sensitive to prepayments on the related underlying mortgage assets, in
the same manner as an interest-only ("IO") class of stripped mortgage-backed
securities. See

<PAGE>

"Stripped Mortgage-Backed Securities." In addition, if a series of a CMO
includes a class that bears interest at an adjustable rate, the yield to
maturity on the related CMO residual will also be extremely sensitive to changes
in the level of the index upon which interest rate adjustments are based. As
described below with respect to stripped mortgage-backed securities, in certain
circumstances a portfolio may fail to recoup fully its initial investment in a
CMO residual.

CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may or, pursuant to an exemption therefrom, may not have
been registered under the 1933 Act. CMO residuals, whether or not registered
under such Act, may be subject to certain restrictions on transferability, and
may be deemed "illiquid" and subject to a portfolio's limitations on investment
in illiquid securities.

STRIPPED MORTGAGE-BACKED SECURITIES

("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing. SMBS are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the IO
class), while the other class will receive all of the principal (the principal-
only or "PO" class). The yield to maturity on an IO class is extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying mortgage assets, and a rapid rate of principal payments may have a
material adverse effect on the Portfolio's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Portfolio may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.

Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be deemed "illiquid" and
subject to the Portfolio's limitations on investment in illiquid securities.

Risks Associated with Mortgage-Backed Securities. Like other fixed income
securities, when interest rates rise the value of a mortgage-related security
generally will decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed income securities. The value of some mortgage-backed securities in
which the Portfolio may invest may be particularly sensitive to changes in
prevailing interest rates, and, like the other investments of the Portfolio, the
ability of the Portfolio to successfully utilize these instruments may depend in
part upon the ability of the Adviser to forecast interest rates and other
economic factors correctly. If the Adviser incorrectly forecasts such factors
and has taken a position in mortgage-backed securities that is or becomes
contrary to prevailing market trends, the Portfolio could be exposed to the risk
of a loss.

Investment in mortgage-backed securities poses several risks, including
prepayment, market, and credit risk. Prepayment risk reflects the chance that
borrowers may prepay their mortgages faster than expected, thereby affecting the
investment's average life and perhaps its yield. Whether or not a mortgage loan
is prepaid is almost entirely controlled by the borrower. Borrowers are most
likely to exercise their prepayment options at a time when it is least
advantageous to investors, generally prepaying mortgages as interest rates fall,
and slowing payments as interest rates rise. Besides the effect of prevailing
interest rates, the rate of prepayment and refinancing of mortgages may also be
affected by home value appreciation, ease of the refinancing process and local
economic conditions.

<PAGE>
Market risk reflects the chance that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and the Portfolio invested in such securities wishing to sell them
may find it difficult to find a buyer, which may in turn decrease the price at
which they may be sold.

Credit risk reflects the chance that the Portfolio may not receive all or part
of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. Government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. Government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions.

Other Asset-Backed Securities. The Portfolio's investment adviser expects that
other asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including Certificates for Automobile Receivables
("CARs"). CARs represent undivided fractional interests in a trust ("trust")
whose assets consist of a pool of motor vehicle retail installment sales
contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARs are passed-through monthly to
certificate holders, and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the trust. An investor's return on CARs may be
affected by early prepayment of principal on the underlying vehicle sales
contracts. If the letter of credit is exhausted, the trust may be prevented from
realizing the full amount due on a sales contract because of state law
requirements and restrictions relating to foreclosure sales of vehicles and the
obtaining of deficiency judgments following such sales or because of
depreciation, damage or loss of a vehicle, the application of Federal and state
bankruptcy and insolvency laws, or other factors. As a result, certificate
holders may experience delays in payments or losses if the letter of credit is
exhausted.

Consistent with the Portfolio's investment objective and policies, the
Portfolio's investment adviser also may invest in other types of asset-backed
securities. Certain asset-backed securities may present the same types of risks
that may be associated with mortgage-backed securities.

BRADY BONDS

The Portfolio may invest a portion of its assets in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds are not considered
U.S. Government securities. Brady Plan debt restructurings have been implemented
in a number of countries, including Argentina, Bolivia, Bulgaria, Costa Rica,
the Dominican Republic, Ecuador, Jordan, Mexico, Niger, Nigeria, the
Philippines, Poland, Uruguay, and Venezuela (collectively, the "Brady
countries"). In addition, Brazil has concluded a Brady-like plan. It is expected
that other countries will undertake a Brady Plan in the future, including Panama
and Peru.

Brady Bonds have been issued only recently, and accordingly do not have a long
payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the over-the-counter secondary market. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are generally collateralized in full as to principal by U.S.
Treasury zero coupon bonds having the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized on a one- year or
longer rolling-forward basis by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of interest payments or,
in the case of floating rate bonds, initially is equal to at least one year's
interest payments based on the applicable interest rate at that time and is
adjusted at regular intervals thereafter. Certain Brady Bonds are entitled to
"value recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady Bonds
are often viewed as having three or four valuation components: (i) the
collateralized repayment of principal at final maturity; (ii) the collateralized
interest payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk").
<PAGE>

Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by Portfolios held in escrow
by an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments at
final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.

In light of the residual risk of Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds, investments in Brady Bonds are to be
viewed as speculative. There can be no assurance that Brady Bonds in which the
Portfolio may invest will not be subject to restructuring arrangements or to
requests for new credit, which may cause the Portfolio to suffer a loss of
interest or principal on any of its holdings.

LOAN PARTICIPATION INTERESTS

The Portfolio's investment in loan participation interests may take the form of
participation interests in, assignments or novations of a corporate loan
("Participation Interests"). The Participation Interests may be acquired from an
agent bank, co-lenders or other holders of Participation Interests
("Participants"). In a novation, the Portfolio would assume all of the rights of
the lender in a corporate loan, including the right to receive payments of
principal and interest and other amounts directly from the borrower and to
enforce its rights as a lender directly against the borrower. As an alternative,
the Portfolio may purchase an assignment of all or a portion of a lender's
interest in a corporate loan, in which case, the Portfolio may be required
generally to rely on the assigning lender to demand payment and enforce its
rights against the borrower, but would otherwise be entitled to all of such
lender's rights in the corporate loan. The Portfolio also may purchase a
Participation Interest in a portion of the rights of a lender in a corporate
loan. In such a case, the Portfolio will be entitled to receive payments of
principal, interest and fees, if any, but generally will not be entitled to
enforce its rights directly against the agent bank or the borrower; rather the
Portfolio must rely on the lending institution for that purpose. The Portfolio
will not act as an agent bank, a guarantor or sole negotiator or a structure
with respect to a corporate loan.

In a typical corporate loan involving the sale of Participation Interests, the
agent bank administers the terms of the corporate loan agreement and is
responsible for the collection of principal and interest and fee payments to the
credit of all lenders which are parties to the corporate loan agreement. The
agent bank in such cases will be qualified under the 1940 Act to serve as a
custodian for a registered investment company such as the Trust. The Portfolio
generally will rely on the agent bank or an intermediate Participant to collect
its portion of the payments on the corporate loan. The agent bank monitors the
value of the collateral and, if the value of the collateral declines, may take
certain action, including accelerating the corporate loan, giving the borrower
an opportunity to provide additional collateral or seeking other protection for
the benefit of the Participants in the corporate loan, depending on the terms of
the corporate loan agreement. Furthermore, unless under the terms of a
participation agreement the Portfolio has direct recourse against the borrower
(which is unlikely), the Portfolio will rely on the agent bank to use
appropriate creditor remedies against the borrower. The agent bank also is
responsible for monitoring compliance with covenants contained in the corporate
loan agreement and for notifying holders of corporate loans of any failures of
compliance. Typically, under corporate loan agreements, the agent bank is given
broad discretion in enforcing the corporate loan agreement, and is obligated to
use only the same care it would use in the management of its own property. For
these services, the borrower compensates the agent bank. Such compensation may
include special fees paid on structuring and Portfolioing the corporate loan and
other fees paid on a continuing basis.

A financial institution's employment as an agent bank may be terminated in the
event that it fails to observe the requisite standard of care or becomes
insolvent, or has a receiver, conservator, or similar official appointed for it
by the appropriate bank regulatory authority or becomes a debtor in a bankruptcy
proceeding. A successor agent bank generally will be appointed to replace the
terminated bank, and assets held by the agent bank under the corporate loan
agreement should remain available to holders of corporate loans. If, however,
assets held by the agent bank for
<PAGE>
the benefit of the Portfolio were determined by an appropriate regulatory
authority or court to be subject to the claims of the agent bank's general or
secured creditors, the Portfolio might incur certain costs and delays in
realizing payment on a corporate loan, or suffer a loss of principal and/or
interest. In situations involving intermediate Participants similar risks may
arise.

When the Portfolio acts as co-lender in connection with a participation interest
or when the Portfolio acquires a participation interest the terms of which
provide that the Portfolio will be in privity of contract with the corporate
borrower, the Portfolio will have direct recourse against the borrower in the
event the borrower fails to pay scheduled principal and interest. In all other
cases, the Portfolio will look to the agent bank to enforce appropriate credit
remedies against the borrower. In acquiring participation interests the
Portfolio will conduct analysis and evaluation of the financial condition of
each such co-lender and participant to ensure that the participation interest
meets the Portfolio's qualitative standards. There is a risk that there may not
be a readily available market for loan participation interests and, in some
cases, this could result in the Portfolio disposing of such securities at a
substantial discount from face value or holding such security until maturity.
When the Portfolio is required to rely upon a lending institution to pay the
Portfolio principal, interest, and other amounts received by the lending
institution for the loan participation, the Portfolio will treat both the
borrower and the lending institution as an "issuer" of the loan participation
for purposes of certain investment restrictions pertaining to the
diversification and concentration of the Portfolio's investment portfolio. The
Portfolio considers loan participation interests not subject to puts to be
illiquid.

OPTIONS ON SECURITIES

Writing Call Options. The Portfolio, as specified in Part A, may sell ("write")
covered call options on its portfolio securities in an attempt to enhance
investment performance. A call option sold by the Portfolio is a short-term
contract, having a duration of nine months or less, which gives the purchaser of
the option the right to buy, and the writer of the option--in return for a
premium received--the obligation to sell, the underlying security at the
exercise price upon the exercise of the option at any time prior to the
expiration date, regardless of the market price of the security during the
option period. A call option may be covered by, among other things, the writer's
owning the underlying security throughout the option period, or by holding, on a
share-for-share basis, a call on the same security as the call written, where
the exercise price of the call held is equal to or less than the price of the
call written, or greater than the exercise price of a call written if the
difference is maintained by the Portfolio in cash or high grade liquid debt
securities in a segregated account with its custodian.

The Portfolio will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium income, the
Portfolio will give up the opportunity to profit from an increase in the market
price of the underlying security above the exercise price so long as its
obligations under the contract continue, except insofar as the premium
represents a profit. Moreover, in writing the call option, the Portfolio will
retain the risk of loss should the price of the security decline, which loss the
premium is intended to offset in whole or in part. The Portfolio, in writing
"American Style" call options, must assume that the call may be exercised at any
time prior to the expiration of its obligations as a writer, and that in such
circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing market
price. In contrast, "European Style" options may only be exercised on the
expiration date of the option. Covered call options and the securities
underlying such options will be listed on national securities exchanges, except
for certain transactions in options on debt securities and foreign securities.

The Portfolio may protect itself from further losses due to a decline in value
of the underlying security or from the loss of ability to profit from
appreciation by buying an identical option, in which case the purchase cost may
offset the premium. In order to do this, the Portfolio makes a "closing purchase
transaction"-- the purchase of a call option on the same security with the same
exercise price and expiration date as the covered call option which it has
previously written on any particular security. The Portfolio will realize a gain
or loss from a closing purchase transaction if the amount paid to purchase a
call option in a closing transaction is less or more than the amount received
from the sale of the covered call option. Also, 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 the closing out of a
<PAGE>

call option is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Portfolio. When a security
is to be sold from the Portfolio's investment portfolio, the Portfolio will
first effect a closing purchase transaction so as to close out any existing
covered call option on that security.

A closing purchase transaction may be made only on a national or foreign
securities exchange (an "Exchange") which provides a secondary market for an
option with the same exercise price and expiration date. There is no assurance
that a liquid secondary market on an Exchange or otherwise will exist for any
particular option, or at any particular time, and for some options no secondary
market on an Exchange or otherwise may exist. If the Portfolio is unable to
effect a closing purchase transaction involving an exchange-traded option, the
Portfolio will not sell the underlying security until the option expires or the
Portfolio delivers the underlying security upon exercise. Over-the-counter
options differ from exchange-traded options in that they are two-party contracts
with price and other terms negotiated between buyer and seller, and generally do
not have as much market liquidity as exchange-traded options. Therefore, a
closing purchase transaction for an over-the-counter option may in many cases
only be made with the other party to the option.

The Portfolio pays brokerage commissions and dealer spreads in connection with
writing covered call options and effecting closing purchase transactions, as
well as for purchases and sales of underlying securities. The writing of covered
call options could result in significant increases in the Portfolio's portfolio
turnover rate, especially during periods when market prices of the underlying
securities appreciate. Subject to the limitation that all call and put option
writing transactions be covered, the Portfolio may, to the extent determined
appropriate by the Adviser, engage without limitation in the writing of options
on their portfolio securities.

Writing Put Options. The Portfolio, as specified in Part A, may also write
covered put options. A put option written by the Portfolio is "covered" if the
Portfolio maintains cash or cash equivalents (high quality liquid debt
securities) with a value equal to the exercise price in a segregated account
with its custodian. A put option is also "covered" if the Portfolio holds on a
share-for-share basis a put on the same security as the put written, where the
exercise price of the put held is equal to or greater than the exercise price of
the put written, or less than the exercise price of the put written if the
difference is maintained by the Portfolio in cash or high grade liquid debt
securities in a segregated account with its custodian.

The premium which the Portfolio receives from writing a put option will reflect,
among other things, the current market price of the underlying security, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security, the option period, supply and demand and
interest rates.

The Portfolio may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised. If the Portfolio is able to enter into a closing purchase
transaction, the Portfolio will realize a profit or loss from such transaction
if the cost of such transaction is less or more than the premium received from
the writing of the option. After writing a put option, the Portfolio may incur a
loss equal to the difference between the exercise price of the option and the
sum of the market value of the underlying security plus the premium received
from the sale of the option.

In addition, the Portfolio, as specified in Part A, may also write straddles
(combinations of covered puts and calls on the same underlying security). The
extent to which the Portfolio may write covered call options and enter into
so-called "straddle" transactions involving put or call options may be limited
by the requirements of the Code for qualification as a regulated investment
company and the Portfolio's intention that each feeder qualify as such.

Purchasing Options. The Portfolio, as specified in Part A, may purchase put or
call options which are traded on an Exchange or in the over-the-counter market.
Options traded in the over-the-counter market may not be as actively traded as
those listed on an Exchange. Accordingly, it may be more difficult to value such
options and to be assured that they can be closed out at any time. The Portfolio
will engage in such transactions only with firms of sufficient creditworthiness
so as to minimize these risks.

The Portfolio may purchase put options on securities to protect its holdings in
an underlying or related security against a substantial decline in market value.
Securities are considered related if their price movements generally

<PAGE>

correlate with one another. The purchase of put options on securities held in
the portfolio or related to such securities will enable the Portfolio to
preserve, at least partially, unrealized gains occurring prior to the purchase
of the option on a portfolio security without actually selling the security. In
addition, the Portfolio will continue to receive interest or dividend income on
the security.

The Portfolio may also purchase call options on securities the Portfolio intends
to purchase to protect against substantial increases in prices of such
securities pending its ability to invest in an orderly manner in such
securities. In order to terminate an option position, the Portfolio may sell put
or call options identical to those previously purchased, which could result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put or call option
when it was purchased.

Special Risks Associated With Options On Securities. There can be no assurance
that viable markets will develop or continue in the United States or abroad for
options on securities. If a put or call option purchased by the Portfolio is not
sold when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price, or, in the case of a call, remains less than or equal to the exercise
price, the Portfolio will not be able to exercise profitably the option and will
lose its entire investment in the option. Also, the price of a put or call
option purchased to hedge against price movements in a related security may move
more or less than the price of the related security.

OPTIONS ON FOREIGN CURRENCIES

The Portfolio, as specified in Part A, may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that of the Portfolio's
transactions in currency futures contracts or forward contracts. For example, a
decline in the dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Portfolio may purchase put
options on the foreign currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed amount of
dollars which exceeds the market value of such currency, resulting in a gain
that may offset, in whole or in part, the negative effect of currency
depreciation on the value of the Portfolio's securities denominated in that
currency.

Conversely, if a rise in the dollar value of a currency in which securities to
be acquired are denominated is projected, thereby increasing the cost of such
securities, the Portfolio may purchase call options on such currency. If the
value of such currency does increase, the purchase of such call options would
enable the Portfolio to purchase currency for a fixed amount of dollars which is
less than the market value of such currency, resulting in a gain that may
offset, at least partially, the effect of any currency-related increase in the
price of securities the Portfolio intends to acquire. As in the case of other
types of options transactions, however, the benefit the Portfolio derives from
purchasing foreign currency options will be reduced by the amount of the premium
and related transaction costs. In addition, if currency exchange rates do not
move in the direction or to the extent anticipated, the Portfolio could sustain
losses on transactions in foreign currency options which would deprive it of a
portion or all of the benefits of advantageous changes in such rates.

The Portfolio, as specified in Part A, may also write options on foreign
currencies for hedging purposes. For example, if the Portfolio anticipates a
decline in the dollar value of foreign currency-denominated securities due to
declining exchange rates, it could, instead of purchasing a put option, write a
call option on the relevant currency. If the expected decline occurs, the option
will most likely not be exercised, and the diminution in value of portfolio
securities will be offset by the amount of the premium received by the
Portfolio.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Portfolio could
write a put option on the relevant currency. If rates move in the manner
projected, the put option will expire unexercised and allow the Portfolio to
offset such increased cost up to the amount of the premium. As in the case of
other types of options transactions, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of the premium, and
only if rates move in the expected direction. If unanticipated exchange rate
fluctuations occur, the option may be exercised and the Portfolio

<PAGE>

would be required to purchase or sell the underlying currency at a loss which
may not be fully offset by the amount of the premium. As a result of writing
options on foreign currencies, the Portfolio also may be required to forego all
or a portion of the benefits which might otherwise have been obtained from
favorable movements in currency exchange rates.

A call option written on foreign currency by the Portfolio is "covered" if the
Portfolio owns the underlying foreign currency subject to the call or securities
denominated in that currency or has an absolute and immediate right to acquire
that foreign currency without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currency held in its portfolio. A call
option is also covered if the Portfolio holds a call on the same foreign
currency for the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call written if
the amount of the difference is maintained by the Portfolio in cash and liquid
high grade debt securities in a segregated account with its custodian.

Options on foreign currencies to be written or purchased by the Portfolio will
be traded on U.S. and foreign exchanges or over-the-counter. Exchange-traded
options generally settle in cash, whereas options traded over-the-counter may
settle in cash or result in delivery of the underlying currency upon exercise of
the option.

FUTURES TRANSACTIONS

The Portfolio, as specified in Part A, may purchase and sell futures contracts
on securities, interest rates, foreign currency and on indexes of securities, to
hedge against anticipated changes in interest rates and other economic factors
that might otherwise have an adverse effect upon the value of the Portfolio's
portfolio securities. The Portfolio may also enter into such futures contracts
in order to lengthen or shorten the average maturity or duration of the
Portfolio's investment portfolio. For example, the Portfolio may purchase
futures contracts as a substitute for the purchase of longer-term debt
securities to lengthen the average duration of the Portfolio's investment
portfolio of fixed-income securities. The Portfolio may purchase and sell stock
index futures to hedge its securities portfolio with regard to market
(systematic) risk (involving the market's assessment of overall economic
prospects), as distinguished from stock-specific risk (involving the market's
evaluation of the merits of the issuer of a particular security).

The Portfolio, as specified in Part A, may also purchase and sell other futures
when deemed appropriate, in order to hedge the equity or non-equity portions of
its portfolio. In addition, the Portfolio, as specified in Part A, may enter
into contracts for the future delivery of foreign currencies to hedge against
changes in currency exchange rates. The Portfolio may also purchase and write
put and call options on futures contracts of the type into which the Portfolio
is authorized to enter and may engage in related closing transactions. In the
United States, all such futures on securities, debt index futures, stock index
futures, foreign currency futures and related options will be traded on
exchanges that are regulated by the Commodity Futures Trading Commission
("CFTC"). Subject to compliance with applicable CFTC rules, the Portfolio also
may enter into futures contracts traded on foreign futures exchanges as long as
trading on the aforesaid foreign futures exchanges does not subject the
Portfolio to risks that are materially greater than the risks associated with
trading on U.S. exchanges.

A futures contract is an agreement to buy or sell a security or currency (or to
deliver a final cash settlement price in the case of a contract relating to an
index or otherwise not calling for physical delivery at the end of trading in
the contracts), for a set price in a future month. In the United States, futures
contracts are traded on boards of trade which have been designated "contract
markets" by the CFTC. Futures contracts trade on these markets through an "open
outcry" auction on the exchange floor. Currently, there are futures contracts
based on a variety of instruments, indexes and currencies. When a purchase or
sale of a futures contract is made by the Portfolio, the Portfolio is required
to deposit with its custodian (or broker, if legally permitted) a specified
amount of cash or U.S. Government securities ("initial margin") as a partial
guarantee of its performance under the contract. The margin required for a
futures contract is set by the exchange on which the contract is traded and may
be modified during the term of the contract. The initial margin is in the nature
of a performance bond or good faith deposit on the futures contract which is
returned to the Portfolio upon termination of the contract assuming all
contractual obligations have been satisfied. The Portfolio expects to earn
interest income on its initial margin deposits. A futures contract held by

<PAGE>

the Portfolio is valued daily at the official settlement price of the exchange
on which it is traded. Each day, as the value of the security, currency or index
fluctuates, the Portfolio pays or receives cash, called "variation margin,"
equal to the daily change in value of the futures contract. This process is
known as "marking to market." Variation margin does not represent a borrowing or
loan by the Portfolio but is instead a settlement between the Portfolio and the
broker of the amount one would owe the other if the futures contract expired. In
computing daily net asset value, each Portfolio will mark to market its open
futures positions.

The Portfolio is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Portfolio.

Positions taken in the futures markets are not normally held until delivery or
final cash settlement is required, but are instead liquidated through offsetting
transactions which may result in a gain 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 underlying securities or currencies whenever it
appears economically advantageous to the Portfolio to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing-out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.

Futures on Debt Securities. 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 future 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-upon 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-upon price. Open futures positions on
debt securities will be valued at the most recent settlement price, unless such
price does not appear to the Trustees to reflect the fair value of the contract,
in which case the positions will be valued by or under the direction of the
Trustees.

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 investment portfolio securities will be substantially 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
intends to purchase particular securities and 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 will 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. The Portfolio may also purchase futures contracts as a
substitute for the purchase of longer-term securities to lengthen the average
duration of the Portfolio's investment portfolio.

The Portfolio could accomplish similar results by selling securities with long
maturities and investing in securities with short maturities when interest rates
are expected to increase or by buying securities with long maturities and
selling securities with short maturities when interest rates are expected to
decline. However, by using futures contracts as a risk management technique,
given the greater liquidity in the futures market than in the cash market, it
may be possible to accomplish the same result more easily and more quickly.

<PAGE>

Securities Index Futures. A securities index futures contract does not require
the physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes in
the specified index of equity securities on which the contract is based. A stock
index is designed to reflect overall price trends in the market for equity
securities.

Stock index futures may be used to hedge the Portfolio's securities portfolio
with regard to market (systematic) risk, as distinguished from stock-specific
risk. Similarly, the Portfolio, as specified in Part A, may enter into futures
on debt securities indexes to the extent it has debt securities in its
investment portfolio. By establishing an appropriate "short" position in
securities index futures, the Portfolio may seek to protect the value of its
portfolio against an overall decline in the market for securities.
Alternatively, in anticipation of a generally rising market, the Portfolio can
seek to avoid losing the benefit of apparently low current prices by
establishing a "long" position in securities index futures and later liquidating
that position as particular securities are in fact acquired. To the extent that
these hedging strategies are successful, the Portfolio will be affected to a
lesser degree by adverse overall market price movements, unrelated to the merits
of specific portfolio securities, than would otherwise be the case. The
Portfolio may also purchase futures on debt securities or indexes as a
substitute for the purchase of longer-term debt securities to lengthen the
average duration of the Portfolio's debt portfolio.

Currency Futures. A sale of a currency futures contract creates an obligation by
the Portfolio, as seller, to deliver the amount of currency called for in the
contract at a specified future time for a specified price. A purchase of a
currency futures contract creates an obligation by the Portfolio, as purchaser,
to take delivery of an amount of currency at a specified future time at a
specified price. The Portfolio may sell a currency futures contract if the
Adviser anticipates that exchange rates for a particular currency will fall, as
a hedge against a decline in the value of the Portfolio's securities denominated
in such currency. If the Adviser anticipates that exchange rates will rise, the
Portfolio may purchase a currency futures contract to protect against an
increase in the price of securities denominated in a particular currency the
Portfolio intends to purchase. Although the terms of currency futures contracts
specify actual delivery or receipt, in most instances the contracts are closed
out before the settlement date without the making or taking of delivery of the
currency. Closing out of a currency futures contract is effected by entering
into an offsetting purchase or sale transaction. To offset a currency futures
contract sold by the Portfolio, the Portfolio purchases a currency futures
contract for the same aggregate amount of currency and delivery date. If the
price in the sale exceeds the price in the offsetting purchase, the Portfolio is
immediately paid the difference. Similarly, to close out a currency futures
contract purchased by the Portfolio, the Portfolio sells a currency futures
contract. If the offsetting sale price exceeds the purchase price, the Portfolio
realizes a gain, and if the offsetting sale price is less than the purchase
price, the Portfolio realizes a loss.

A risk in employing currency futures contracts to protect against the price
volatility of portfolio securities denominated in a particular currency is that
changes in currency exchange rates or in the value of the futures position may
correlate imperfectly with changes in the cash prices of the Portfolio's
securities. The degree of correlation may be distorted by the fact that the
currency futures market may be dominated by short-term traders seeking to profit
from changes in exchange rates. This would reduce the value of such contracts
for hedging purposes over a short-term period. Such distortions are generally
minor and would diminish as the contract approached maturity. Another risk is
that the Adviser could be incorrect in its expectation as to the direction or
extent of various exchange rate movements or the time span within which the
movements take place.

Options on Futures. For bona fide hedging and other appropriate risk management
purposes, the Portfolio may purchase and write call and put options on futures
contracts which are traded on exchanges that are licensed and regulated by the
CFTC for the purpose of options trading, or, subject to applicable CFTC rules,
on foreign exchanges. A "call" option on a futures contract gives the purchaser
the right, in return for the premium paid, to purchase a futures contract
(assume a "long" position) at a specified exercise price at any time before the
option expires. A "put" option gives the purchaser the right, in return for the
premium paid, to sell a futures contract (assume a "short" position), for a
specified exercise price at any time before the option expires.

<PAGE>

Upon the exercise of a "call," the writer of the option is obligated to sell the
futures contract (to deliver a "long" position to the option holder) at the
option exercise price, which will presumably be lower than the current market
price of the contract in the futures market. Upon exercise of a "put," the
writer of the option is obligated to purchase the futures contract (deliver a
"short" position to the option holder) at the option exercise price, which will
presumably be higher than the current market price of the contract in the
futures market. When an entity exercises an option and assumes a long futures
position, in the case of a "call," or a short futures position, in the case of a
"put," its gain will be credited to its futures margin account, while the loss
suffered by the writer of the option will be debited to its account. However, as
with the trading of futures, most participants in the options markets do not
seek to realize their gains or losses by exercise of their option rights.
Instead, the writer or holder of an option will usually realize a gain or loss
by buying or selling an offsetting option at a market price that will reflect an
increase or a decrease from the premium originally paid.

Options on futures contracts can be used by the Portfolio to hedge substantially
the same risks and for the same duration and risk management purposes as might
be addressed or served by the direct purchase or sale of the underlying futures
contracts. If the Portfolio purchases an option on a futures contract, it may
obtain benefits similar to those that would result if it held the futures
position itself.

The purchase of put options on futures contracts is a means of hedging the
Portfolio's investment portfolio against the risk of rising interest rates,
declining securities prices or declining exchange rates for a particular
currency. The purchase of a call option on a futures contract represents a means
of hedging against a market advance affecting securities prices or currency
exchange rates when the Portfolio is not fully invested or of lengthening the
average maturity or duration of the Portfolio's investment portfolio. Depending
on the pricing of the option compared to either the futures contract upon which
it is based or upon the price of the underlying securities or currencies, it may
or may not be less risky than ownership of the futures contract or underlying
securities or currencies.

In contrast to a futures transaction, in which only transaction costs are
involved, benefits received in an option transaction will be reduced by the
amount of the premium paid as well as by transaction costs. In the event of an
adverse market movement, however, the Portfolio will not be subject to a risk of
loss on the option transaction beyond the price of the premium it paid plus its
transaction costs, and may consequently benefit from a favorable movement in the
value of its portfolio securities or the currencies in which such securities are
denominated that would have been more completely offset if the hedge had been
effected through the use of futures.

If the Portfolio writes options on futures contracts, the Portfolio will receive
a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Portfolio will realize a gain in
the amount of the premium, which may partially offset unfavorable changes in the
value of securities held by or to be acquired for the Portfolio. If the option
is exercised, the Portfolio will incur a loss in the option transaction, which
will be reduced by the amount of the premium it has received, but which may
partially offset favorable changes in the value of its portfolio securities or
the currencies in which such securities are denominated.

The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the underlying securities or the currencies in which
such securities are denominated. If the futures price at expiration is below the
exercise price, the Portfolio will retain the full amount of the option premium,
which provides a partial hedge against any decline that may have occurred in the
Portfolio's holdings of securities or the currencies in which such securities
are denominated.

The writing of a put option on a futures contract is analogous to the purchase
of a futures contract. For example, if the Portfolio writes a put option on a
futures contract on debt securities related to securities that the Portfolio
expects to acquire and the market price of such securities increases, the net
cost to the Portfolio of the debt securities acquired by it will be reduced by
the amount of the option premium received. Of course, if market prices have
declined, the Portfolio's purchase price upon exercise may be greater than the
price at which the debt securities might be purchased in the securities market.

<PAGE>

While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the same
series, the Portfolio's ability to establish and close out options positions at
fairly established prices will be subject to the maintenance of a liquid market.
The Portfolio will not purchase or write options on futures contracts unless the
market for such options has sufficient liquidity such that the risks associated
with such options transactions are not at unacceptable levels.

Limitations on Purchase and Sale of Futures Contracts and Options on Futures
Contracts. The Portfolio will only enter into futures contracts or related
options which are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. In
general, the Portfolio will engage in transactions in futures contracts and
related options only for bona fide hedging and other appropriate risk management
purposes, and not for speculation. The Portfolio will not enter into futures
contracts for which the aggregate contract amounts exceed 100% of the
Portfolio's net assets. In addition, with respect to positions in futures and
related options that do not constitute bona fide hedging positions, the
Portfolio will not enter into a futures contract of futures option contract if,
immediately thereafter, the aggregate initial margin deposits relating to such
positions plus premiums paid by it for open futures option positions, less the
amount by which any such options are "in-the-money," would exceed 5% of the
Portfolio's total assets. A call option is "in-the-money" if the value of the
futures contract that is the subject of the option exceeds the exercise price. A
put option is "in-the- money" if the exercise price exceeds the value of the
futures contract that is the subject of the option.

When purchasing a futures contract, the Portfolio will maintain with its
custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other high quality liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, are equal to the
market value of the futures contract. Alternatively, the Portfolio may "cover"
its position by purchasing a put option on the same futures contract with a
strike price as high or higher than the price of the contract held by the
Portfolio.

When selling a futures contract, the Portfolio will maintain with its custodian
(and mark-to-market on a daily basis) liquid assets that, when added to the
amount deposited with a futures commission merchant as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the
Portfolio may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Portfolio to
purchase the same futures contract at a price no higher than the price of the
contract written by the Portfolio (or at a higher price if the difference is
maintained in liquid assets with the Portfolio's custodian).

When selling a call option on a futures contract, the Portfolio will maintain
with its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other high quality liquid debt securities that, when added to the
amounts deposited with a futures commission merchant as margin, equal the total
market value of the futures contract underlying the call option. Alternatively,
the Portfolio may cover its position by entering into a long position in the
same futures contract at a price no higher than the strike price of the call
option, by owning the instruments underlying the futures contract, or by holding
a separate call option permitting the Portfolio to purchase the same futures
contract at a price not higher than the strike price of the call option sold by
the Portfolio.

When selling a put option on a futures contract, the Portfolio will maintain
with its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other high quality liquid debt securities that equal the purchase
price of the futures contract, less any margin on deposit. Alternatively, the
Portfolio may cover the position either by entering into a short position in the
same futures contract, or by owning a separate put option permitting it to sell
the same futures contract so long as the strike price of the purchased put
option is the same or higher than the strike price of the put option sold by the
Portfolio.

Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no guarantee
that there will be a correlation between price movements in the hedging vehicle
and in the Portfolio's securities being hedged. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation

<PAGE>

between the markets, causing a given hedge not to achieve its objectives. The
degree of imperfection of correlation depends on circumstances such as
variations in speculative market demand for futures and futures options on
securities, including technical influences in futures trading and futures
options, and differences between the financial instruments being hedged and the
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers. A
decision as to whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends.

Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.

There can be no assurance that a liquid market will exist at a time when the
Portfolio seeks to close out a futures or a futures option position, and the
Portfolio would remain obligated to meet margin requirements until the position
is closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.

Additional Risks of Options on Securities, Futures Contracts, Options on Futures
Contracts, and Forward Currency Exchange Contracts and Options Thereon.

Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees; and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the United States of data on which to
make trading decisions, (iii) delays in the Portfolio's ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States, and (v) lesser
trading volume.

SWAP AGREEMENTS

The Portfolio may enter into interest rate, index and currency exchange rate
swap agreements for purposes of attempting to obtain a particular desired return
at a lower cost to the Portfolio than if the Portfolio had invested directly in
an instrument that yielded that desired return or for other portfolio management
purposes. Swap agreements are two party contracts entered into primarily by
institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency, or in
a "basket" of securities representing a particular index. The "notional amount"
of the swap agreement is only a fictive basis on which to calculate the
obligations which the parties to a swap agreement have agreed to exchange. Most
swap agreements entered into by the Portfolio would calculate the obligations of
the parties to the agreement on a "net" basis. Consequently, the Portfolio's
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
The Portfolio's obligations under a swap agreement will be accrued daily (offset
against any amounts owing to the Portfolio) and any accrued

<PAGE>

but unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of cash, U.S. Government
securities, or high grade debt obligations, to avoid any potential leveraging of
the Portfolio's investment portfolio. The Portfolio will not enter into a swap
agreement with any single party if the net amount owed or to be received under
existing contracts with that party would exceed 5% of the Portfolio's assets.

Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the
Commodity Futures Trading Commission ("CFTC") effective February 22, 1993. To
qualify for this exemption, a swap agreement must be entered into by "eligible
participants," which includes the following, provided the participants' total
assets exceed established levels: a bank or trust company, savings association
or credit union, insurance company, investment company subject to regulation
under the Investment Company Act of 1940, commodity pool, corporation,
partnership, proprietorship, organization, trust or other entity, employee
benefit plan, governmental entity, broker-dealer, futures commission merchant,
natural person, or regulated foreign person. To be eligible, natural persons and
most other entities must have total assets exceeding $10 million; commodity
pools and employee benefit plans must have assets exceeding $5 million. In
addition, an eligible swap transaction must meet three conditions. First, the
swap agreement may not be part of a fungible class of agreements that are
standardized as to their material economic terms. Second, the creditworthiness
of parties with actual or potential obligations under the swap agreement must be
a material consideration in entering into or determining the terms of the swap
agreement, including pricing, cost or credit enhancement terms. Third, swap
agreements may not be entered into and traded on or through a multilateral
transaction execution facility.

This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.

FORWARD FOREIGN CURRENCY CONTRACTS

A forward foreign currency contract (a "forward contract") is an obligation to
purchase or sell a specific currency for an agreed price at a future date
(usually less than a year), which is individually negotiated and privately
traded by currency traders and their customers. A forward contract generally has
no deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.

While the Portfolio may enter into forward contracts to reduce currency exchange
risks, changes in currency exchange rates may result in poorer overall
performance for the Portfolio than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Portfolio's
portfolio holdings of securities denominated in a particular currency and
forward contracts entered into by the Portfolio. Such imperfect correlation may
prevent the Portfolio from achieving the intended hedge or expose the Portfolio
to the risk of currency exchange loss.

The Portfolio will not enter into forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate the
Portfolio to deliver an amount of currency in excess of the value of the
Portfolio's investment portfolio securities or other assets denominated in that
currency.

The Portfolio will hold cash, cash items or U.S. Government securities and other
liquid assets in a segregated account with its custodian in an amount equal (on
a daily marked-to-market basis) to the amount of the commitments under these
contracts. At the maturity of a forward contract, the Portfolio may either
accept or make

<PAGE>

delivery of the currency specified in the contract, or prior to maturity, enter
into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. The Portfolio will only enter into such a forward
contract if it is expected that there will be a liquid market in which to close
out the contract. However, there can be no assurance that a liquid market will
exist in which to close a forward contract, in which case the Portfolio may
suffer a loss.

Normally, consideration of the prospect for currency parities will be
incorporated in a longer term investment decision made with regard to overall
diversification strategies. However, each Adviser believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that the best interest of the Portfolio will be served. For example, when the
Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying security transaction, the Portfolio will be able to
insulate itself from a possible loss resulting from a change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received, although the Portfolio would also forego any
gain it might have realized had rates moved in the opposite direction. This
technique is sometimes referred to as a "settlement" hedge or "transaction"
hedge.

When the Adviser believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward contract to sell, for a fixed amount of dollars, the amount of foreign
currency approximating the value of some or all of the Portfolio's portfolio
securities denominated in such foreign currency. Such a hedge (sometimes
referred to as a "position hedge") will tend to offset both positive and
negative currency fluctuations, but will not offset changes in security values
caused by other factors. The Portfolio also may hedge the same position by using
another currency (or a basket of currencies) expected to perform in a manner
substantially similar to the hedged currency ("proxy" hedge). The precise
matching of the forward contract amounts and the value of the 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 value of those securities between the date the forward contract
is entered into and the date it matures. With respect to positions that
constitute "transaction" or "position" hedges (including "proxy" hedges), the
Portfolio will not enter into forward contracts to sell currency or maintain a
net exposure to such contracts if the consummation of such contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's portfolio securities or other assets denominated in
that currency (or the related currency, in the case of a "proxy" hedge).

Finally, the Portfolio may enter into forward contracts to shift its investment
exposure from one currency into another currency that is expected to perform
inversely with respect to the hedged currency relative to the U.S. dollar. This
type of strategy, sometimes known as a "cross-currency" hedge, will tend to
reduce or eliminate exposure to the currency that is sold, and increase exposure
to the currency that is purchased, much as if the Portfolio had sold a security
denominated in one currency and purchased an equivalent security denominated in
another. "Cross-currency" hedges protect against losses resulting from a decline
in the hedged currency, but will cause the Portfolio to assume the risk of
fluctuations in the value of the currency it purchases.

At the consummation of the forward contract, the Portfolio may either make
delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract obligating it
to purchase at the same maturity date the same amount of such foreign currency.
If the Portfolio chooses to make delivery of the foreign currency, it may be
required to obtain such currency for delivery through the sale of portfolio
securities denominated in such currency or through conversion of other assets of
the Portfolio into such currency. If the Portfolio engages in an offsetting
transaction, the Portfolio will realize a gain or a loss to the extent that
there has been a change in forward contract prices. Closing purchase
transactions with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract.

The Portfolio's dealing in forward contracts will be limited to the transactions
described above. Of course, the Portfolio is not required to enter into such
transactions with regard to its foreign currency-denominated securities

<PAGE>

and will not do so unless deemed appropriate by the Adviser. The Portfolio
generally will not enter into a forward contract with a term of greater than one
year.

In cases of transactions which constitute "transaction" or "settlement" hedges
or "position" hedges (including "proxy" hedges) or "cross-currency" hedges that
involve the purchase and sale of two different foreign currencies directly
through the same forward foreign currency contact, the Portfolio may deem its
forward currency hedge position to be covered by underlying Portfolio investment
portfolio securities or may establish a Segregated Account with its Custodian in
an amount equal to the value of the Portfolio's total assets committed to the
consummation of the subject hedge. The assets in the Segregated Account will
consist of cash (denominated in U.S. dollars or foreign currency), U.S.
government securities, liquid domestic or foreign debt rated in one of the top
three categories by a U.S. nationally recognized rating organization, or any
other asset which may be deemed by the Securities and Exchange Commission's
Division of Investment Management to be permissible for such purpose. In the
case of "anticipatory" hedges and "cross-currency" hedges that involve the
purchase and sale of two different foreign currencies indirectly through
separate forward currency contracts, the Portfolio will establish a Segregated
Account with its Custodian as described above. In the event the Portfolio
establishes a Segregated Account, the Portfolio will mark-to-market the value of
the assets in the Segregated Account. If the value of the securities placed in
the separate account declines, additional cash or securities will be placed in
the account by the Portfolio on a daily basis so that the value of the account
will equal the amount of the Portfolio's commitments with respect to such
contracts.

It should be realized that this method of protecting the value of the
Portfolio's investment portfolio securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which can be achieved at
some future point in time. It also reduces any potential gain which may have
otherwise occurred had the currency value increased above the settlement price
of the contract.

The Portfolio's foreign currency transactions may be limited in order to allow a
feeder Portfolio to comply with the requirements of Subchapter M of the Code for
qualification as a regulated investment company.

WARRANTS

The Portfolio may not invest more than 5% of the Portfolio's net assets, nor
exceed 2% of assets if a warrant's underlying securities are not traded on a
principal domestic or foreign exchange.

The holder of a warrant has the right to purchase a given number of shares of a
particular issuer at a specified price until expiration of the warrant. Such
investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move in tandem with the prices of the underlying securities, and are
speculative investments. Warrants pay no dividends and confer no rights other
than a purchase option. If a warrant is not exercised by the date of its
expiration, the Portfolio will lose its entire investment in such warrant.

SHORT SALES AGAINST THE BOX

A short sale is a transaction in which the Portfolio sells through a broker a
security it does not own in anticipation of a decline in market price. A short
sale "against the box" is a short sale in which, at the time of the short sale,
the Portfolio owns or has the right to obtain securities equivalent in kind and
amount. The Portfolio may enter into a short sale against the box among other
reasons, to hedge against a possible market decline in the value of a security
owned or to defer recognition of a gain or loss for federal income tax purposes
on the security owned by the Portfolio. Short sales "against the box" will be
limited to no more than 5% of the Portfolio's net assets.

If the value of a security sold short against the box increases, the Portfolio
would suffer a loss when it purchases or delivers to the selling broker the
security sold short. If a broker, with which the Portfolio has open short sales,
were to become bankrupt, the Portfolio could experience losses or delays in
recovering gains on short sales. The Portfolios will only enter into short sales
against the box with brokers they believe are creditworthy.

<PAGE>

HIGH YIELD SECURITIES

A projection of an economic downturn or of a period of rising interest rates,
for example, could cause a decline in high yield bond prices because the advent
of a recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of high yield bonds, especially in a thinly traded
market.

Legislation designed to limit the use of high yield bonds in corporate
transactions may have a material adverse effect on the Portfolio's net asset
value and investment practices. In addition, there may be special tax
considerations associated with investing in high yield bonds structured as zero
coupon or payment-in-kind securities. Interest on these securities is recorded
annually as income even though no cash interest is received until the security's
maturity or payment date. As a result, the amounts which have accrued each year
are required to be distributed to shareholders and, such amounts will be taxable
to shareholders. Therefore, the Portfolio may have to sell some of its assets to
distribute cash to shareholders. These actions are likely to reduce the
Portfolio's assets and may thereby increase its expense ratios and decrease its
rate of return.

INVESTMENT RESTRICTIONS

The following investment restrictions, except where stated to be fundamental
policies, are non-fundamental policies of the Portfolio. The policies defined as
fundamental cannot be changed without the vote of a "majority" of the
Portfolio's outstanding voting interests. Under the 1940 Act, such a "majority"
vote is defined as the vote of the holders of the lesser of (i) 67% or more of
the interests present or represented by proxy at a meeting of interestholders,
if the holders of more than 50% of the outstanding interests are present, or
(ii) more than 50% of the outstanding interests.

The following investment restrictions of the Portfolio are fundamental policies:

(a) The Portfolio is classified as a "non-diversified" investment company, as
defined under Section 5(b)(2) of the Investment Company Act of 1940.

(b) The Portfolio may not concentrate investments in any particular industry;
therefore, the Portfolio will not purchase the securities of companies in any
one industry if, thereafter, 25% or more of the Portfolio's total assets would
consist of securities of companies in that industry. This restriction does not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities (or repurchase agreements with respect thereto). 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.

(c) The Portfolio may not borrow money in excess of 33-1/3% of its total assets
taken at market value (including the amount borrowed) and then only from a bank
as a temporary measure for extraordinary or emergency purposes, including to
meet redemptions or to settle securities transactions that may otherwise require
untimely dispositions of Portfolio securities.

(d) The Portfolio may not purchase or sell real estate, provided that the
Portfolio may invest in securities issued by companies which invest in real
estate or interests therein.

(e) The Portfolio may not make loans to other persons, provided that for
purposes of this restriction, entering into repurchase agreements or acquiring
any otherwise permissible debt securities shall not be deemed to be the making
of a loan.

(f) The Portfolio may not invest in commodities or commodity contracts, except
that, subject to the restrictions described in Part A and elsewhere in this Part
B, the Portfolio may (I) enter into futures contracts and options on futures
contracts, (ii) enter into foreign currency forward contracts and foreign
currency options, and (iii) purchase

<PAGE>

or sell currencies on a spot or forward basis and may enter into futures
contracts on securities, currencies or on indexes of such securities or
currencies, or any other financial instruments, and may purchase and sell
options on such futures contracts.

(g) The Portfolio may not underwrite securities issued by other persons except
to the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under U.S. securities laws.

(h) The Portfolio may not issue senior securities except to the extent permitted
by the 1940 Act.

The following investment restrictions of the Portfolio are non-fundamental
policies:

(a) The Portfolio may not purchase or retain securities of any issuer if, to the
knowledge of the Portfolio, any of the Trustees or Officers of the Trust, or any
of the Trustees or Officers of any of the Portfolio's investment advisers,
individually own more than 1/2 of 1% of the outstanding securities of the issuer
and together own beneficially more than 5% of such issuer's securities.

(b) The Portfolio may not invest more than 5% of the value of its total assets
in securities of issuers (other than issuers of Federal agency obligations)
having a record, together with predecessors or unconditional guarantors, of less
than three years.

(c) The Portfolio may not acquire securities or invest in repurchase agreements
with respect to any securities if, as a result, more than 15% of its net assets
(taken at current value) would be invested in illiquid securities (securities
that cannot be disposed of within seven days at their then-current value) or in
repurchase agreements not entitling the holder to payment of principal within
seven days and in securities that are not readily marketable by virtue of
restrictions on the sale of such securities to the public without registration
under the Securities Act of 1933, as amended ("Restricted Securities"). This
policy does not include restricted securities that can be sold to the public in
foreign markets or that may be eligible for resale to qualified institutional
purchasers pursuant to Rule 144A under the Securities Act of 1933 that are
determined to be liquid by the Adviser pursuant to guidelines adopted by the
Trust's Board of Trustees.

(d) The Portfolio may not make investments for the purpose of exercising control
or management. (Investments by the Portfolio in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making of
investments for the purpose of exercising control or management.)

(e) The Portfolio may not invest in interests in oil, gas or other mineral
exploration, resource, lease, or arbitrage transactions or development programs
but may purchase readily marketable securities of companies which operate,
invest in, or sponsor such programs.

(f) The Portfolio may not sell securities short, except for covered short sales
or unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that transactions in options,
futures and forward contracts are deemed not to constitute short sales of
securities.

(g) The Portfolio may not purchase securities on margin, except that the
Portfolio may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments in connection with futures
contracts and options on futures contracts shall not constitute the purchase of
securities on margin;

(h) The Portfolio may not purchase warrants, valued at the lower of cost or
market, in excess of 5% of the Portfolio's net assets. Included within that
amount, but not to exceed 2% of net assets, are warrants whose underlying
securities are not traded on principal domestic or foreign exchanges. Warrants
acquired by the Portfolio in units or attached to securities are not subject to
these restrictions.

(i) The Portfolio may not acquire or retain the securities of any other
investment company if, as a result, more than 3% of such investment company's
outstanding shares would be held by the Portfolio, more than 5% of the value of
the Portfolio's total assets would be invested in shares of such investment
company or more than 10% of the value

<PAGE>

of the Portfolio's assets would be invested in shares of investment companies in
the aggregate, except in connection with a merger, consolidation, acquisition,
or reorganization.

(j) The Portfolio will not purchase more than 3% of the outstanding securities
of any closed-end investment company.

(k) The Portfolio will not purchase securities while borrowings exceed 5% of
total assets.

Except for the policies on borrowing and illiquid securities, the percentage
restrictions described above apply only at the time of investment and require no
action by the Portfolio as a result of subsequent changes in value of the
investments or the size of the Portfolio.

ITEM 14. MANAGEMENT OF THE TRUST.

The following information relates to the principal occupations of each Trustee
and executive officer of the Trust during the past five years.

HERMANN C. SCHWAB, age 76, 787 Seventh Avenue, New York, New York - Chairman and
a Trustee of the Trust - retired since March, 1988; prior thereto, consultant to
SCMI since February 1, 1984.

ALEXANDRA POE, age 36, 787 Seventh Avenue, New York, New York - Secretary and a
Trustee of the Trust- Vice President of SCMI since August 1996; Fund Counsel and
Senior Vice President of Schroder Advisors since August 1996; prior thereto an
investment management attorney with Gordon Altman Butowsky Weitzen Shalov & Wein
since July 1994; prior thereto counsel and Vice President of Citibank, N.A.
since 1989.

ABDALLAH NAUPHAL (a) (b), age 35, 787 Seventh Avenue, New York, New York - a
Trustee of the Trust and Group Vice President and Director of SCMI; prior
thereto _______________________for the last ten years.

LAURA E. LUCKYN-MALONE (a) (b) (c), age 43, 787 Seventh Avenue, New York, New
York - President and Chief Executive Officer - Managing Director of SCMI since
October 1995; Director of SWIS since July 1995; prior thereto, Director and
Senior Vice President of SCMI since February 1990; Director and President,
Schroder Advisors.

MARK J. SMITH (b), age 34, 33 Gutter Lane, London, England - a Vice President of
the Trust - First Vice President of SCMI since April 1990; Director and Vice
President, Schroder Advisors.

ROBERT G. DAVY, age 35, 787 Seventh Avenue, New York, New York - a Vice-
President of the Trust - Director of SCMI and Schroder Capital Management
International Ltd. since 1994; First Vice President of SCMI since July, 1992;
prior thereto, employed by various affiliates of Schroders plc in various
positions in the investment research and portfolio management areas since 1986.

RICHARD R. FOULKES, age 50, 787 Seventh Avenue, New York, New York - a Vice
President of the Trust; Deputy Chairman of SCMI since October 1995; Director of
SCMI since 1979, Director of Schroder Capital Management International Ltd.
since 1989, and Executive Vice President of both of these entities.

JOHN Y. KEFFER, age 53, 2 Portland Square, Portland, Maine - a Vice President of
the Trust. President of Forum Financial Services, Inc., the Fund's
administrator, and Forum Financial Corp., a transfer and dividend disbursing
agent and fund accountant.

JANE P. LUCAS (c), age 34, 787 Seventh Avenue, New York, New York - Vice
President of the Trust - Director and Senior Vice President SCMI; Director of
SWIS since September 1995; Director of Schroder Advisors since September 1996,
Assistant Director Schroder Investment Management Ltd. since June 1991.

<PAGE>

CATHERINE A. MAZZA, age 36, 787 Seventh Avenue, New York, New York - a Vice
President of the Trust - Senior Vice President Schroder Advisors since December
1995; First Vice President of SCMI since March 19__, and, prior thereto, Vice
President of SCMI since October 1994; prior thereto, held various marketing
positions at Alliance Capital, an investment adviser, since July 1985.

FARIBA TALEBI, age 35, 787 Seventh Avenue, New York, New York - a Vice President
of the Trust - Group Vice President of SCMI since April 1993, employed in
various positions in the investment research and portfolio management areas
since 1987.

JOHN A. TROIANO (b), age 37, 787 Seventh Avenue, New York, New York - a Vice
President of the Trust - Managing Director of SCMI since October 1995; Director
of Schroder Advisors since October 1992, Director and Senior Vice President of
SCMI since 1991; prior thereto, employed by various affiliates of SCMI in
various positions in the investment research and portfolio management areas
since 1981.

IRA L. UNSCHULD, age 31, 787 Seventh Avenue, New York, New York - a Vice
President of the Trust - a Vice President of SCMI since April, 1993 and an
Associate from July, 1990 to April, 1993; prior to July, 1990, employed by
various financial institutions as a securities or financial analyst.

ROBERT JACKOWITZ (b) (c), age 29, 787 Seventh Avenue, New York, New York -
Treasurer of the Trust - Vice President of SWIS since September 1995; Treasurer
of SWIS and Schroder Advisers since July 1995; Vice President of SCMI since June
1995; and Assistant Treasurer of Schroders Incorporated since January 1993.

MARGARET H. DOUGLAS-HAMILTON (c), age 55, 787 Seventh Avenue, New York, New
York, Secretary of SWIS since July 1995; First Vice President and General
Counsel of Schroders Incorporated since May 1987; prior thereto, partner of
Sullivan & Worcester, a law firm.

CATHERINE S WOOLEDGE, age 54, 2 Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust - Counsel, Forum Financial
Services, Inc. Prior thereto, associate at Morrison & Foerster since September
1994, prior thereto associate corporate counsel at Franklin Resources, Inc.
since September 1993, and prior thereto associate at Drinker Biddle & Reath,
Washington, D.C.

THOMAS G. SHEEHAN, age 42, 2 Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust - Counsel, Forum Financial
Services, Inc. since 1993; prior thereto, Special Counsel, U.S. Securities and
Exchange Commission, Division of Investment Management, Washington, D.C.

BARBARA GOTTLIEB (c), age 42, 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust - Assistant Vice President of SWIS since July 1995; prior
thereto held various positions with SWIS affiliates.

GERARDO MACHADO, age 58, 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust - Associate, SCMI.

MARY KUNKEMUELLER, age __, 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust.

(a) Interested Trustee of the Trust within the meaning of the 1940 Act by virtue
of positions with SCMI and its affiliates.

(b) Schroder Fund Advisors Inc. ("Schroder Advisors") is a wholly owned
subsidiary of SCMI, which is a wholly owned subsidiary of Schroders
Incorporated, which in turn is an indirect, wholly owned U.S. subsidiary of
Schroders plc.

(c) Schroder Wertheim Investment Services, Inc. ("SWIS") is a wholly owned
subsidiary of Schroder Wertheim Holdings Incorporated which is a wholly owned
subsidiary of Schroders, Incorporated, which in turn is an indirect wholly owned
U.S. subsidiary of Schroders plc.

<PAGE>

Officers and Trustees who are interested persons of the Trust receive no salary,
fees or compensation from the Portfolio. Independent Trustees of the Portfolio
receive a fee of $1,000 for each meeting of the Board attended. The Portfolio
has no bonus, profit sharing, pension or retirement plans.

The following table provides estimated fees to be paid to each Trustee of the
Trust for the fiscal year ended December 31, 1997.

<TABLE>
Caption>

Name of Trustee Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
From Trust Benefits Accrued Retirement From Trust And
As Part of Portfolio Complex
Portfolio Expenses Paid To Trustees*
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mr. Nauphal 0 0 0 0
Ms. Poe 0 0 0 0
Mr. Schwab 4,000 0 0 7,500
</TABLE>

* In addition to the Trust, "Fund Complex" includes Schroder Capital Funds, an
open-end investment company for which SCMI serves as investment adviser,
Schroder Capital Funds (Delaware), an open-end investment company for which SCMI
serves as investment adviser, and Schroder Asian Growth Fund, Inc., a closed-end
investment company for which SCMI serves as investment adviser.

As of December 31, 1996, the officers and Trustees of the Trust owned, in the
aggregate, less than 1% of the Portfolio's outstanding shares.

Although the Trust is a Delaware business trust, certain of its Trustees or
officers are residents of the United Kingdom and substantially all of their
assets may be located outside of the U.S. As a result, it may be difficult for
U.S. investors to effect service upon such persons within the United States or
to realize judgments of courts of the United States predicated upon civil
liabilities of such persons under the federal securities laws. The Trust has
been advised that there is substantial doubt as to the enforceability in the
United Kingdom of such civil remedies and criminal penalties as are afforded by
the federal securities laws. Also it is unclear if extradition treaties now in
effect between the U.S. and the United Kingdom would subject such persons to
effective enforcement of criminal penalties.

ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.

Upon commencement of the Portfolio's operations, SCMI, as initial investor in
the Portfolio, will own substantially all of the value of the outstanding
interests in the Portfolio. It is anticipated that whenever any registered
investment company that may, in the future, become an interestholder of the
Portfolio is requested to vote on matters pertaining to the Portfolio, such
investment company will hold a meeting of its shareholders and will cast its
vote as instructed by its shareholders. This only applies to matters for which
such investment company would be required to have a shareholder meeting if it
directly held investment securities rather than invested in the Portfolio.

ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.

INVESTMENT ADVISORY SERVICES

Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New
York, New York 10019, serves as investment adviser to the Portfolio pursuant to
an Investment Advisory Contract SCMI is a wholly owned U.S. subsidiary of
Schroders Incorporated, the wholly-owned U.S. holding subsidiary of Schroders
plc. Schroders plc is the holding company parent of a large worldwide group of
banks and financial service companies (referred to as the "Schroder Group"),
with associated companies and branch and representative offices located in
eighteen

<PAGE>

countries worldwide. The Schroder Group specializes in providing investment
management services and had assets under management of approximately $130
billion as of June 30, 1996.

Pursuant to the Investment Advisory Contract, SCMI is responsible for managing
the investment and reinvestment of the Portfolio's assets and for continuously
reviewing, supervising and administering the Portfolio's investments In this
regard, it is the responsibility of SCMI to make decisions relating to the
Portfolio's investments and to place purchase and sale orders regarding such
investments with brokers or dealers selected by it in its discretion SCMI also
furnishes to the Board periodic reports on the investment performance of the
Portfolio.

Under the terms of the Investment Advisory Contract, SCMI is required to manage
the Portfolio's investment portfolio in accordance with applicable laws and
regulations In making its investment decisions, SCMI does not use material
information that may be in its possession or in the possession of its
affiliates.

The Investment Advisory Contract will continue in effect provided such
continuance is approved annually (i) by the holders of a majority of the
outstanding voting securities of the Portfolio or by the Board and (ii) by a
majority of the Trustees who are not parties to such contract or "interested
persons" (as defined in the 1940 Act) of any such party The Investment Advisory
Contract may be terminated without penalty by vote of the Trustees or the
shareholders of the Portfolio on 60 days' written notice to SCMI, or by SCMI on
60 days' written notice to the Trust and it will terminate automatically if
assigned The Investment Advisory Contract also provides that, with respect to
the Portfolio, neither SCMI nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
or their duties to the Portfolio, except for willful misfeasance, bad faith or
gross negligence in the performance of the SCMI's or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Investment Advisory Contract.

ADMINISTRATIVE SERVICES

On behalf of the Portfolio, the Trust has entered into an administrative
services contract with Schroder Fund Advisors Inc. ("Schroder Advisors"), 787
Seventh Avenue, New York, New York 10019 Schroder Advisors is a wholly-owned
subsidiary of SCMI On behalf of the Portfolio, the Trust has also entered
into an sub-administration agreement with Forum Administrative Services, LLC
("Forum"), Two Portland Square, Portland, Maine 04101. Pursuant to these
agreements, Schroder Advisors and Forum provide certain management and
administration services necessary for the Portfolio's operations, other than
the investment management and administrative services provided to the
Portfolio by SCMI pursuant to the investment advisory contract, including
among other things, (i) preparation of shareholder reports and
communications, (ii) regulatory compliance, such as reports to and filings
with the Commission and state securities commissions, and (iii) general
supervision of the operation of the Portfolio, including coordination of the
services performed by the Portfolio's investment adviser, transfer agent,
custodian, independent accountants, legal counsel and others. Schroder
Advisors is compensated at the annual rate of 0.10% of the Portfolio's
average daily net assets. FAS is compensated at the annual rate of 0.075% of
the Portfolio's average daily net assets.

The administrative services agreements are terminable with respect to the
Portfolio without penalty, at any time, by vote of a majority of the Trustees of
the Trust, upon 60 days' written notice to Schroder or Forum, or, upon 60 days'
notice by Schroder or Forum. The administrative services agreements will
terminate automatically in the event of their assignment.

CUSTODIAN

The Chase Manhattan Bank, N.A., through its Global Securities Services division
located in London, England, acts as custodian of the Portfolio's assets, but
plays no role in making decisions as to the purchase or sale of portfolio
securities for the Portfolio. Pursuant to rules adopted under the 1940 Act, the
Portfolio may maintain its foreign securities and cash in the custody of certain
eligible foreign banks and securities depositories. Selection of these foreign
custodial institutions is made by the Board following a consideration of a
number of factors, including (but not limited to) the reliability and financial
stability of the institution; the ability of the institution to perform capably
custodial services for the Portfolio; the reputation of the institution in its
national market; the political and economic

<PAGE>

stability of the country in which the institution is located; and further risks
of potential nationalization or expropriation of Portfolio assets.

INDEPENDENT AUDITORS

Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109,
serves as independent auditors for the Trust.

PORTFOLIO ACCOUNTANT

On behalf of the Portfolio, the Trust has entered into a Transfer Agency and
Fund Accounting Agreement with Forum Financial Corp. ("FFC"), an affiliate of
Forum. Pursuant to this agreement, FFC performs transfer agency and portfolio
accounting services. FFC receives a base fee per year, plus additional amounts
depending upon the assets of the Portfolio, the number and type of securities
held by the Portfolio and the portfolio turnover rate of the Portfolio.

ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.

INVESTMENT DECISIONS

Investment decisions for the Portfolio and for the other investment advisory
clients of SCMI are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved. Thus, a particular
security may be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which in SCMI's opinion is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio securities
for one or more clients will have an adverse effect on other clients.

BROKERAGE AND RESEARCH SERVICES

Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Portfolio of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities generally involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States. Since most brokerage transactions for the Portfolio will be placed with
foreign broker-dealers, certain portfolio transaction costs for the Portfolio
may be higher than fees for similar transactions executed on U.S. securities
exchanges. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, but the price paid by the Portfolio
usually includes an undisclosed dealer commission or mark-up. In underwritten
offerings, the price paid by the Portfolio includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.

The Investment Advisory Contract authorizes and directs SCMI to place orders for
the purchase and sale of the Portfolio's investments with brokers or dealers
selected by SCMI in its discretion and to seek "best execution" of such
portfolio transactions. SCMI places all such orders for the purchase and sale of
portfolio securities and buys and sells securities for the Portfolio through a
substantial number of brokers and dealers. In so doing, SCMI uses its best
efforts to obtain for the Portfolio the most favorable price and execution
available. The Portfolio may, however, pay higher than the lowest available
commission rates when SCMI believes it is reasonable to do so in light of the
value of the brokerage and research services provided by the broker effecting
the transaction. In seeking the most favorable price and execution, SCMI, having
in mind the Portfolio's best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security,

<PAGE>

the amount of the commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker-dealers involved and the quality of service rendered by the
broker-dealers in other transactions.

It has for many years been a common practice in the investment advisory business
as conducted in certain countries, including the United States, for advisers of
investment companies and other institutional investors to receive research
services from broker-dealers which execute portfolio transactions for the
clients of such advisers. Consistent with this practice, SCMI may receive
research services from broker-dealers with which SCMI places the Portfolio's
portfolio transactions. These services, which in some cases may also be
purchased for cash, include such items as general economic and security market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services are of value to SCMI in advising various of its clients (including the
Portfolio), although not all of these services are necessarily useful and of
value in managing the Portfolio. The investment advisory fee paid by the
Portfolio is not reduced because SCMI and its affiliates receive such services.

As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), SCMI may cause the Portfolio to pay a broker-dealer which provides
"brokerage and research services" (as defined in the Act) to SCMI an amount of
disclosed commission for effecting a securities transaction for the Portfolio in
excess of the commission which another broker-dealer would have charged for
effecting that transaction.

Subject to the general policies regarding allocation of portfolio brokerage as
set forth above, the Board has authorized SCMI to employ Schroder Wertheim &
Company, Incorporated ("Schroder Wertheim") an affiliate of SCMI, to effect
securities transactions of the Portfolio, on the New York Stock Exchange only,
provided certain other conditions are satisfied as described below.

Payment of brokerage commissions to Schroder Wertheim for effecting such
transactions is subject to Section 17(e) of the 1940 Act, which requires, among
other things, that commissions for transactions on a national securities
exchange paid by a registered investment company to a broker which is an
affiliated person of such investment company or an affiliated person of another
person so affiliated not exceed the usual and customary broker's commissions for
such transactions. It is the Portfolio's policy that commissions paid to
Schroder Wertheim will in the judgment of the officers of the Trust responsible
for making portfolio decisions and selecting brokers, be (i) at least as
favorable as commissions contemporaneously charged by Schroder Wertheim on
comparable transactions for its most favored unaffiliated customers and (ii) at
least as favorable as those which would be charged on comparable transactions by
other qualified brokers having comparable execution capability. The Board,
including a majority of the non-interested Trustees, has adopted procedures
pursuant to Rule 17e-1 promulgated by the Securities and Exchange Commission
under Section 17(e) to ensure that commissions paid to Schroder Wertheim by the
Portfolio satisfy the foregoing standards. The Board will review all
transactions at least quarterly for compliance with such procedures.

The Portfolio has no understanding or arrangement to direct any specific portion
of its brokerage to Schroder Wertheim and will not direct brokerage to Schroder
Wertheim in recognition of research services.

ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.

Under the Trust Instrument, the Trustees are authorized to issue beneficial
interest in one or more separate and distinct series. Investments in the
Portfolio have no preference, preemptive, conversion or similar rights and are
fully paid and nonassessable, except as set forth below. Each investor in the
Portfolio is entitled to a vote in proportion to the amount of its investment
therein. Investors in the Portfolio and other series (collectively, the
"portfolios") of the Trust will all vote together in certain circumstances
(e.g., election of the Trustees and ratification of auditors, as required by the
1940 Act and the rules thereunder). One or more portfolios could control the
outcome of these votes. Investors do not have cumulative voting rights, and
investors holding more than 50% of the aggregate interests in the Trust or in
the Portfolio, as the case may be, may control the outcome of votes. The Trust
is not required and has no current intention to hold annual meetings of
investors, but the Trust will hold special meetings of investors when (1) a
majority of the Trustees determines to do so or (2) investors holding at

<PAGE>

least 10% of the interests in the Trust (or the Portfolio) request in writing a
meeting of investors in the Trust (or Portfolio). Except for certain matters
specifically described in the Trust Instrument, the Trustees may amend the
Trust's Trust Instrument without the vote of investors.

The Trust, with respect to the Portfolio, may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved by
the Trust's Board. The Portfolio may be terminated (1) upon liquidation and
distribution of its assets, if approved by the vote of a majority of the
Portfolio's outstanding voting securities (as defined in the 1940 Act) or (2) by
the Trustees on written notice to the Portfolio's investors. Upon liquidation or
dissolution of any Portfolio, the investors therein would be entitled to share
pro rata in its net assets available for distribution to investors.

The Trust is organized as a business trust under the laws of the State of
Delaware. The Trust's interestholders are not personally liable for the
obligations of the Trust under Delaware law. The Delaware Business Trust Act
provides that an interestholder of a Delaware business trust shall be entitled
to the same limitation of liability extended to shareholders of private
corporations for profit. However, no similar statutory or other authority
limiting business trust interestholder liability exists in many other states,
including Texas. As a result, to the extent that the Trust or an interestholder
is subject to the jurisdiction of courts in those states, the courts may not
apply Delaware law, and may thereby subject the Trust to liability. To guard
against this risk, the Trust Instrument of the Trust disclaims liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation and instrument entered into by the Trust or
its Trustees, and provides for indemnification out of Trust property of any
interestholder held personally liable for the obligations of the Trust. Thus,
the risk of an interestholder incurring financial loss beyond his investment
because of shareholder liability is limited to circumstances in which (1) a
court refuses to apply Delaware law, (2) no contractual limitation of liability
is in effect, and (3) the Trust itself is unable to meet its obligations. In
light of Delaware law, the nature of the Trust's business, and the nature of its
assets, the Board believes that the risk of personal liability to a Trust
interestholder is remote.

ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.

Interests in the Portfolio are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of section 4(2) of
the 1933 Act. All investments in the Portfolio are made and withdrawn at the net
asset value ("NAV") next determined after an order is received by the Portfolio.
NAV per share is calculated by dividing the aggregate value of the Portfolio's
assets less all liabilities by the number of shares of the Portfolio
outstanding. See Items 6, 7 and 8 in Part A.

ITEM 20. TAX STATUS.

The Portfolio will be classified for federal income tax purposes as a
partnership that will not be a "publicly traded partnership." As a result, the
Portfolio will not be subject to federal income tax; instead, each investor in
the Portfolio will be required to take into account in determining its federal
income tax liability its share of the Portfolio's income, gains, losses,
deductions, and credits, without regard to whether it has received any cash
distributions from the Portfolio. The Portfolio also will not be subject to
Delaware income or franchise tax.

Each investor in the Portfolio will be deemed to own a proportionate share of
the Portfolio's assets, and to earn a proportionate share of the Portfolio's
income, for, among other things, purposes of determining whether the investor
satisfies the requirements to qualify as a regulated investment company ("RIC").
Accordingly, the Portfolio intends to conduct its operations so that its
investors that intend to qualify as RICs ("RIC investors") will be able to
satisfy all those requirements.

Distributions to an investor from the Portfolio (whether pursuant to a partial
or complete withdrawal or otherwise) will not result in the investor's
recognition of any gain or loss for federal income tax purposes, except that (1)
gain will be recognized to the extent any cash that is distributed exceeds the
investor's basis for its interest in the Portfolio before the distribution, (2)
income or gain will be recognized if the distribution is in liquidation of the
investor's entire interest in the Portfolio and includes a disproportionate
share of any unrealized receivables held by the Portfolio, (3) loss will be
recognized if a liquidation distribution consists solely of cash and/or
unrealized receivables, and (4) gain or loss may be

<PAGE>

recognized on a distribution to an investor that contributed property to the
Portfolio. An investor's basis for its interest in the Portfolio generally will
equal the amount of cash and the basis of any property it invests in the
Portfolio, increased by the investor's share of the Portfolio's net income and
gains and decreased by (a) the amount of cash and the basis of any property the
Portfolio distributes to the investor and (b) the investor's share of the
Portfolio's losses.

Dividends and interest received by the Portfolio may be subject to income,
withholding, or other taxes imposed by foreign countries and U.S. possessions
("foreign taxes") that would reduce the yield on its securities. Tax conventions
between certain countries and the United States may reduce or eliminate these
foreign taxes, however, and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors. If more than 50%
of the value of a RIC investor's total assets (taking into account its
proportionate share of the Portfolio's assets) at the close of any taxable year
consists of securities of foreign corporations, the RIC investor will be
eligible to, and may, file an election with the Internal Revenue Service that
will enable its shareholders, in effect, to receive the benefit of the foreign
tax credit with respect to its proportionate share of any foreign taxes paid by
the Portfolio ("RIC investor's foreign taxes"). Pursuant to that election, the
RIC investor would treat its foreign taxes as dividends paid to its
shareholders, and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his proportionate share of the RIC investor's
foreign taxes, (2) treat his share of those taxes and of any dividend paid by
the RIC investor that represents its proportionate share of the Portfolio's
income from foreign or U.S. possessions sources as his own income from those
sources, and (3) either deduct the taxes deemed paid by him in computing his
taxable income or, alternatively, use the foregoing information in calculating
the foreign tax credit against his Federal income tax.

The Portfolio may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a RIC investor will be subject
to Federal income tax on its proportionate share of a part of any "excess
distribution" received by the Portfolio on the stock of a PFIC or of any gain on
the Portfolio's disposition of the stock (collectively "PFIC income"), plus
interest thereon, even if the RIC investor distributes its share of the PFIC
income as a taxable dividend to its shareholders. The balance of the RIC
investor's share of the PFIC income will be included in its investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders.

If the Portfolio invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund," then in lieu of the foregoing tax and interest obligation, a RIC
investor would be required to include in income each year its proportionate
share of the Portfolio's pro rata share of the qualified electing fund's annual
ordinary earnings and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) -- which probably would have to be distributed
by the RIC investor to satisfy certain distribution requirements -- even if the
RIC investor's share of those earnings and gain were not received by it. In most
instances it will be very difficult, if not impossible, to make this election
because of certain requirements thereof.

Pursuant to proposed regulations, open-end RIC investors, would be entitled to
elect to "mark-to-market" their stock in certain PFICs. "Marking-to-market," in
this context, means recognizing as gain for each taxable year the excess, as of
the end of that year, of the fair market value of each such PFIC's stock over
the adjusted basis in that stock (including mark-to-market gain for each prior
year for which an election was in effect).

Gains or losses (1) from the disposition of foreign currencies, (2) on the
disposition of a debt security denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Portfolio accrues interest, dividends, or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time it
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of investment
company taxable income available to a RIC investor for distribution to its
shareholders.

<PAGE>

The Portfolio's use of hedging strategies, such as entering into forward
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses it realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
forward contracts derived by the Portfolio with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income for its RIC investors under the requirement that at least 90% of a RIC's
gross income each taxable year consist of specified types of income. However,
income from the disposition of foreign currencies and forward contracts thereon
will be subject to the requirement applicable to its RIC investors that less
than 30% of a RIC's gross income each taxable year consist of certain short-term
gains if they are held for less than three months and are not directly related
to the Portfolio's principal business of investing in securities (or options and
futures with respect thereto).

ITEM 21. UNDERWRITERS.

Forum Financial Services, Inc., Two Portland Square, Portland, Maine 04101, the
Portfolio's administrator, serves as the Trust's placement agent. Forum receives
no compensation for such placement agent services.

ITEM 22. CALCULATIONS OF PERFORMANCE DATA.

Not applicable.

ITEM 23. FINANCIAL STATEMENTS.

Not applicable.
<PAGE>

PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits.
----------------------------------

(a) Financial Statements.

(1) Included in Part A

Not applicable

(2) Included in Part B

Not applicable

(b) Exhibits:

(1) Trust Instrument of Schroder Capital Funds II (the "Trust") (to be
filed).

(2) Not applicable.

(3) Not applicable.

(4) Not applicable.

(5) Investment Advisory Agreement between the Trust and Schroder Capital
Management International Inc. ("SCMI") with respect to Schroder
International Bond Portfolio (to be filed).

(6) Not required.

(7) Not applicable.

(8) Custodian Agreement between the Trust and The Chase Manhattan Bank,
N.A. with respect to Schroder International Bond Portfolio (to be
filed).

(9) (a) Administration Agreement between the Trust and Schroder Fund
Advisors Inc. with respect to Schroder International Bond
Portfolio (to be filed).

(b) Sub-Administration Agreement between the Trust and Forum
Administrative Services LLC ("Forum") with respect to Schroder
International Bond Portfolio (to be filed).

<PAGE>

(c) Form of Transfer Agency and Portfolio Accounting Agreement
between the Trust and Forum Financial Corp. with respect to
Schroder International Bond Portfolio (to be filed).

(d) Form of Placement Agent Agreement between the Trust and Forum
with respect to Schroder International Bond Portfolio (to be
filed).

(10) Not required.

(11) Not required.

(12) Not required.

(13) Not applicable.

(14) Not applicable.

(15) Not applicable.

(16) Not applicable.

Item 25. Persons Controlled by or Under Common Control with Registrant.
--------------------------------------------------------------

None

Item 26. Number of Holders of Securities as of December 30, 1996.
--------------------------------------------------------

Title of Class of Shares Number of
of Beneficial Interest Holders
- ------------------------ -------------

Schroder International Bond Portfolio 0

Item 27. Indemnification.
----------------

The Trust will hold a directors' and officers' or errors and omissions insurance
policy. Additionally, the Trust's trustees and officers are insured under the
Trust's fidelity bond purchased pursuant to Rule 17j-1 under the Investment
Company Act of 1940, as amended (the "Act").

The general effect of Article 5 of Registrant's Trust Instrument is to indemnify
existing or former trustees and officers of the Trust to the fullest extent
permitted by law against liability and

<PAGE>

expenses. There is no indemnification if, among other things, any such person is
adjudicated liable to the Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. This description is modified in its
entirety by the provisions of Article 5 of Registrant's Trust Instrument
contained in this Registration Statement as Exhibit 1 and incorporated herein by
reference.

Provisions of Registrant's investment advisory agreements provide that the
respective investment adviser shall not be liable for any mistake of judgment or
in any event whatsoever, except for lack of good faith, provided that nothing
shall be deemed to protect, or purport to protect, the investment adviser
against any liability to Registrant or to Registrant's interestholders to which
the investment adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the investment
adviser's duties, or by reason of the investment adviser's reckless disregard of
its obligations and duties hereunder. This description is modified in its
entirety by the provisions of Registrant's Investment Advisory Agreement
contained in this Registration Statement as Exhibit 5 and incorporated herein by
reference. Likewise, Registrant has agreed to indemnify (1) Forum Financial
Services, Inc. in the Administration and Sub-Administration Agreements, (2)
Forum Financial Corp. in the Transfer Agency and Fund Accounting Agreement, and
(3) Forum Financial Services, Inc. in the Placement Agent Agreement for certain
liabilities and expenses arising out of their acts or omissions under the
respective agreements.

Item 28. Business and Other Connections of Investment Advisers.
------------------------------------------------------

The following are the directors and principal officers of SCMI, including their
business connections which are of a substantial nature. The address of each
company listed, unless otherwise noted, is 33 Gutter Lane, London EC2V 8AS,
United Kingdom. Schroder Capital Management International Limited ("Schroder
Ltd.") is a United Kingdom affiliate of SCMI which provides investment
management services international clients located principally in the United
States.

David M. Salisbury, Chairman and CEO. Mr. Salisbury is also Chief Executive
Officer and Director of Schroder Ltd. and Director of Dimensional Fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, California, an investment
advisory company and DFA Securities Inc., a broker dealer subsidiary of
Dimensional Fund Advisors Inc. located at the same address. Until October
1992 Mr. Salisbury was Chairman of Schroder Fund Advisors Inc. ("Schroder
Advisors"), 787 Seventh Avenue, New York, New York, a broker dealer. Mr.
Salisbury is a director or former director of various investment trust
companies and closed end investment companies for which SCMI and/or its
affiliates provide investment services.

Richard R. Foulkes, Deputy Chairman and Executive Vice President and
Executive Vice President of Schroder Capital Management International Ltd.
Mr. Foulkes is also a Director of Schroder Ltd.

<PAGE>

John S. Ager, Director and Senior Vice President. Mr. Ager is also a
Director of Schroder Ltd.

Louise Croset, Director and First Vice President. Ms. Croset is also First
Vice President of Schroder Ltd. and, until October 1993, was Vice President
of Wellington Management, an investment adviser.

David Gibson, Director and Senior Vice President. Mr. Gibson is also a
Director of Schroder Ltd., Director of Schroder Investment Management
Limited, Director of Schroder Wertheim Investment Services Inc. and Senior
Vice President of Schroder Ltd.

Phillipa Gould, Director and Senior Vice President.

C. John Govett, Director. Mr. Govett is also a Director of Schroder Ltd.,
Schroder Investment Management Limited, Schroder Personal Investment
Management (investment adviser), Schroder Ventures Limited (investment
adviser) and Schroder Venture International Holdings Limited (investment
adviser). He is Chairman and Director of Schroder Properties Limited. He is
also Director of several investment companies for which SCMI and/or its
affiliates provide investment services.

Sharon L. Haugh, Director and Senior Vice President. Ms. Haugh is also a
Director of Schroder Ltd.

Laura E. Luckyn-Malone, Director. Ms. Luckyn-Malone is also a Director of
Schroder Ltd. and President and Director of a closed-end investment company
and President and Director of open end investment companies for which SCMI
and/or its affiliates provide investment services. Ms. Luckyn-Malone is
also Chairman, President and Director of Schroder Advisors.

Gavin D.L. Ralston, Director and First Vice President. Mr. Ralston is also
a Director of Schroder Ltd.

Mark J. Smith, Director and Senior Vice President. Mr. Smith is also
Director, Schroder Ltd. and Schroder Investment Management (Guernsey)
Limited, an investment management company, and Director and Vice President
of Schroder Advisors. Mr. Smith is also a director of various investment
trusts and open end investment companies for which SCMI and/or its
affiliates provide investment services.

John A. Troiano, Managing Director and Senior Vice President. Mr. Troiano
is also a Director of Schroder Ltd.

Andrew R. Barker, First Vice President. Mr. Barker is also First Vice
President of Schroder Ltd.

<PAGE>

J. Ann Bonathan, First Vice President. Ms. Bonathan is also First Vice
President of Schroder Ltd. During the last two years, Ms. Bonathan has been
Deputy Head of Custody Operations of SG Warburg, 1 Finsbury Avenue, London,
merchant bankers.

John D. Burns, First Vice President and Treasurer. During the last two
years, Mr. Burns has been First Vice President of Schroder Ltd. and
Assistant Director of Morgan Grenfell Asset Management Ltd., 20 Finsbury
Circus, London EC2M 1NB, an investment adviser. Mr. Burns is also a Vice
President of Schroder Advisors.

Heather F. Crighton, Vice President. Ms. Crighton is also Vice President of
Schroder Ltd.

Robert G. Davy, Senior Vice President. Mr. Davy is also a Director of
Schroder Ltd. and an officer of open end investment companies for which
SCMI and/or its affiliates provide investment services.

Margaret H. Douglas-Hamilton, Secretary. Ms. Douglas-Hamilton is also First
Vice President and General Counsel of Schroders Incorporated, 787 Seventh
Avenue, New York, New York, the holding company for various United States
based SCMI affiliates. Ms. Douglas-Hamilton is also Secretary to various
SCMI affiliates and Secretary of a closed-end Fund advised by SCMI.

Catherine A. Mazza, First Vice President. Ms. Mazza is also Vice President
of open-end investment companies for which SCMI and/or its affiliates
provide investment services and is Senior Vice President of Schroder
Advisors.

Abdallah Nauphal, Group Vice President and Director.

Joshua Shapiro, First Vice President.

John Stainsby, First Vice President. Mr. Stainsby is also First Vice
President of Schroder Ltd.

Ellen B. Sullivan, First Vice President.

Fariba Talebi, Group Vice President. Ms. Talebi is also an officer of
various open end investment companies for which SCMI and/or its affiliates
provide investment services.

Jan Kees van Heusde, First Vice President. Mr. van Heusde is also First
Vice President of Schroder Ltd.

Patrick Vermeulen, First Vice President. Mr. Vermeulen is also First Vice
President of Schroder Ltd.

Kathleen Adams, Vice President. Ms. Adams is also Vice President of
Schroder Advisors.

<PAGE>

Mark J. Astley, First Vice President.

Herve van Caloen, First Vice President.

William H. Barnes, Vice President. During the last two years, Mr. Barnes
has been a marketer at Nomura Capital Management Ltd., 180 Maiden Lane New
York, NY 10038, and investment adviser.

Susan M. Belson, Vice President.

James L. Gray, Vice President.

Robert A. Jackowitz, Treasurer and Chief Financial Officer. Mr. Jackowitz
also serves as Vice President and Treasurer or CFO of open-end investment
companies and a closed-end investment company for which SCMI and/or its
affiliates provide investment services and for Schroder Advisors.

Clare L. Latham, Vice President. During the last two years, Ms. Latham has
been First Vice President of Schroder Ltd. and Analyst at the Bank of
England, Threadneedle Street, London EC2R 8AH.

Thomas Melendez, Vice President. During the last two years, Mr. Melendez
has been a Vice President of Natwest Securities, 175 Water Street, New
York, NY, an investment adviser.

Alexandra Poe, Vice President. During the last two years, Ms. Poe has been
an investment management lawyer in private practice with Gordon Altman
Butowsky Weitzen Shalov & Wein, 114 West 47th street, New York, New York
10036. Ms. Poe also serves as Vice President and/or Secretary of open-end
funds and is a Senior Vice President and Secretary of Schroder Advisors.

Ira L. Unschuld, Vice President. Mr. Unschuld is also an officer of various
open end investment companies for which SCMI and/or its affiliates provide
investment services.

Dawn M. Vroegop, Vice President. During the last two years, Ms. Vroegop has
been an Associate of A.T. Keaney, Inc., 153 East 53rd Street, New York, NY,
management consultants.

Anita L. Whelan, Vice President and Compliance Officer. Ms. Whelan is also
Vice President of Schroder Advisors.

Item 29. Principal Underwriters.
------------------------------

<PAGE>

(a) Not applicable.

(b) Not applicable.

Item 30. Location of Books and Records.
--------------------------------------

The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Act and the Rules thereunder are maintained
at the offices of Forum Administrative Services LLC and Forum Financial Corp.,
Two Portland Square, Portland, Maine 04101. The records required to be
maintained under Rule 31a-1(b)(1) with respect to journals of receipts and
deliveries of securities and receipts and disbursements of cash are maintained
at the offices of the Registrant's custodian, which is named under "Custodian"
in Part B to this Registration Statement. The records required to be maintained
under Rule 31a-1(b)(5), (6) and (9) are maintained at the offices of
Registrant's investment adviser, which is named in Item 28 hereof.

Item 31. Management Services.
----------------------------

Not applicable.

Item 32. Undertakings.
---------------------

Registrant undertakes to contain in its Trust Instrument provisions for
assisting shareholder communications and for the removal of trustees
substantially similar to those provided for in Section 16(c) of the Act, except
to the extent such provisions are mandatory or prohibited under applicable
Delaware law.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of New York and
the State of New York on the 30th day of December, 1996.

SCHRODER CAPITAL FUNDS II

By:
--------------------------------
Catherine A. Mazza
Vice President

<PAGE>

SIGNATURES

SCHRODER CAPITAL FUNDS II

By: /s/ CATHERINE A. MAZZA
-------------------------------
Catherine A. Mazza
Vice President

<PAGE>

EXHIBIT INDEX

(a) Financial Statements.

(1) Included in Part A

Not applicable

(2) Included in Part B

Not applicable

(b) Exhibits:

(1) Trust Instrument of Schroder Capital Funds II (the "Trust") (to be
filed).

(2) Not applicable.

(3) Not applicable.

(4) Not applicable.

(5) Investment Advisory Agreement between the Trust and Schroder Capital
Management International Inc. ("SCMI") with respect to Schroder
International Bond Portfolio (to be filed).

(6) Not required.

(7) Not applicable.

(8) Custodian Agreement between the Trust and The Chase Manhattan Bank,
N.A. with respect to Schroder International Bond Portfolio (to be
filed).

(9) (a) Administration Agreement between the Trust and Schroder Fund
Advisors Inc. with respect to Schroder International Bond
Portfolio (to be filed).

(b) Sub-Administration Agreement between the Trust and Forum
Administrative Services LLC ("Forum") with respect to Schroder
International Bond Portfolio (to be filed).

(c) Form of Transfer Agency and Portfolio Accounting Agreement
between the Trust and Forum Financial Corp. with respect to
Schroder International Bond Portfolio (to be filed).

<PAGE>

(d) Form of Placement Agent Agreement between the Trust and Forum
with respect to Schroder International Bond Portfolio (to be
filed).

(10) Not required.

(11) Not required.

(12) Not required.

(13) Not applicable.

(14) Not applicable.

(15) Not applicable.

(16) Not applicable.