As filed with the Securities and Exchange Commission on August 18, 1997
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. 1
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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) (Zip Code)
Registrant's Telephone Number, including Area Code: 207-879-1900
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Catherine S. Wooledge, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies of Communications to:
Timothy W. Diggins, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 10005
Alexandra Poe, Esq.
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
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PART A
(PRIVATE PLACEMENT MEMORANDUM)
SCHRODER CAPITAL FUNDS II
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SCHRODER INTERNATIONAL BOND PORTFOLIO
AUGUST 18, 1997
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 is authorized to offer beneficial interests ("Interests") in separate
series, each with a distinct investment objective and policies (each a
"portfolio" and collectively the "portfolios"). The Trust currently offers one
investment portfolio, Schroder International Bond Portfolio (the "Portfolio").
Additional portfolios may be added in the future. This Part A relates solely to
the Portfolio.
The Trust does not offer its Interests directly to the public; Interests are
offered on a no-load basis exclusively to various qualified investors (including
other investment companies) as described in Item 4 below. An investor that is an
investment company or other collective investment vehicle seeks to achieve its
investment objective by holding Interests in another investment portfolio,
instead of separately managing its own portfolio of investment securities and
related assets.
Interests of the Trust are not offered publicly and, accordingly, are not
registered under the Securities Act of 1933 (the "1933 Act"). In accordance with
paragraph 4 of Instruction F of the General Instructions to Form N-1A, responses
to Items 1, 2, 3 and 5A of that Form have been omitted.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
The Trust was organized as a business trust under the laws of the State of
Delaware on December 27, 1996 under a Trust Instrument dated December 26, 1996.
The Trust has an unlimited number of authorized Interests. The assets of the
Portfolio, and of any additional portfolio created in the future, belong only to
that portfolio. The assets belonging to a portfolio are charged with the
liabilities of and all expenses, costs, charges and reserves attributable to
that portfolio. The Trust is empowered to establish, without investor approval,
additional portfolios, each with a different investment objective and policies.
The Portfolio is classified as "non-diversified" under the 1940 Act and
commenced operations on December 31, 1996.
Interests in the Portfolio are offered solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in the Portfolio may only be made by certain
institutional investors (excluding S corporations, partnerships, and grantor
trusts beneficially owned by any individuals, S corporations, or partnerships).
Investors may be organized within or outside the U.S. This registration
statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to seek a high rate of total return. It
seeks to achieve its objective by investing by investing at least 65%, and
normally intends to invest substantially all, of its assets in non-U.S. debt
securities and debt-related investments, which may be denominated in foreign or
U.S. currency. It is intended for long-term investors seeking international
diversification and willing to accept the risks of foreign investing. There can
be no assurance that the Portfolio will achieve its investment objective.
INVESTMENT POLICIES
The Portfolio's investment objective and fundamental investment policies 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. Unless otherwise indicated, investment policies are not fundamental
and may be changed by the Tryst's Board of Trustees (the "Board") without prior
investor approval. Additional investment techniques, features and restrictions
concerning the Portfolio's investments are described below and under "Investment
Restrictions" and in Part B.
The Portfolio invests in foreign bonds, including debt securities of foreign
governments, agencies and supranational organizations and corporate bonds. These
bonds may have fixed, variable, floating or inverse-floating-rates of interest.
Securities of issuers within a given country may be denominated in the currency
of another country. 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 rate of return on some debt obligations may be
linked to indices or stock prices or indexed to the level of exchange rates
between the U.S. dollar and foreign currency or currencies.
Schroder Capital Management International Inc. ("SCMI") as investment adviser
considers factors such as prospects for currency exchange and interest rates,
inflation in each country, relative economic growth, government policies
influencing exchange rates and business conditions, and the quality of
individual issuers. The investment adviser also determines, using good faith
judgment: (1) country allocation; (2) currency exposure; (3) duration
management; and (4) diversified security holdings within each market.
The Portfolio may invest in a variety of countries, and under ordinary
circumstances, invests in a minimum of 5 countries other than the U.S. To the
extent that the Portfolio concentrates its assets in a foreign country, it
incurs greater risks.
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. Foreign
currency management can also provide overall portfolio risk diversification.
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 may invest in currency on a spot or forward basis,
securities or securities index options, foreign currency options, and futures
contracts, and related options on futures contracts and may enter into swap
agreements. Additionally, the Portfolio may buy or sell interest-rate and
bond-index futures contracts, options on interest-rate and bond-index futures
contracts, and options and futures on debt securities.
The Portfolio also may: (1) buy securities on a when-issued, firm-, or
standby-commitment basis (whose market value may change prior to their delivery
to the Portfolio); and (2) invest in countries with established economies as
well as emerging market countries that the investment adviser believes present
favorable opportunities.
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. SCMI may use various techniques to
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shorten or lengthen the duration of the portfolio, including transactions in
futures and options on futures, interest rate swaps, caps, floors and short
sales, each as more fully described below.
The Portfolio may also: (1) borrow up to 15% of total assets; (2) lend its
securities to brokers, dealers and other financial institutions to earn income;
(3) 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; (4) invest in repurchase agreements, and enter into reverse
repurchase agreements (which can create leverage and increase the Portfolio's
investment risk); and (5) invest in loan participation interests (which involve
certain risks, including credit and liquidity risks). (See "Loan Participation
Interests" for further details).
The following pages contain additional information about the securities in which
the Portfolio may invest, strategies SCMI may employ in pursuit of the
Portfolio's objective, and a summary of related risks. A complete listing of the
Portfolio's investment restrictions and more detailed information about the
Portfolio's investments is contained in Part B. Policy limitations and
investment restrictions generally are considered at the time of purchase.
CORPORATE OBLIGATIONS. The Portfolio may purchase debt securities of foreign
corporate issuers. The Portfolio's investments in U.S. dollar- or
foreign-currency-denominated corporate debt securities of domestic or foreign
issuers are limited to corporate bonds, debentures, notes and other similar debt
instruments that meet the credit quality and other criteria set forth for the
Portfolio. 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 debt securities issued or
guaranteed by foreign corporations or by international organizations designated
or supported by multiple foreign governmental entities (which are not
obligations of foreign governments) to promote economic reconstruction or
development; and debt securities issued by corporations or financial
institutions. The rate of return of principal on some debt obligations may be
linked to indices or stock prices or indexed to the level of exchange rates
between the U.S. dollar and foreign currency or currencies. The Portfolio may
invest up to 10% of its net assets in lower-rated, high-risk debt securities
rated below "BBB" by Standard and Poor's ("S&P") or "Baa" by Moody's Investor
Service ("Moody's"). (For further information, see "Foreign Government Bonds",
"High-Yield, High-Risk Securities", "Rating Matters", "Risk Considerations",
"Commercial Paper" and "Appendix A -- Description of Securities Ratings" to Part
B.)
FOREIGN GOVERNMENT BONDS. The Portfolio may purchase U.S. dollar- or
foreign-denominated debt obligations issued or guaranteed by foreign sovereign
governments, their agencies, instrumentalities and political subdivisions. The
Portfolio also may purchase obligations issued or guaranteed by supranational
organizations (such as the World Bank) or securities backed exclusively by loans
to certain public sector institutions. Debt obligations of foreign government
issuers are limited to government bonds, notes and other similar debt
instruments that meet the credit quality and maturity criteria set forth for the
Portfolio. The Portfolio has no limit on the amount of its assets that may be
invested in any one type of foreign instrument or foreign country.
RATING MATTERS. The Portfolio may purchase unrated securities. In order to do
so, SCMI must determine that the security is of comparable quality to a rated
security that the Portfolio may purchase. If SCMI determines that the unrated is
comparable to a security rated below investment grade, such security shall be
subject to the Portfolio's 10% limit on high-yield, high-risk 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. A further
description of the rating categories of certain nationally recognized
statistical rating organizations (each a "NRSRO") is contained in Appendix A to
Part B. 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 issuers of higher-grade bonds.
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
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 therefore do not have a long payment history. Brady
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Bonds may have collateralized and uncollateralized components, are issued in
various currencies and are actively traded in the over-the-counter secondary
market. Brady Bonds are not considered U.S. government securities. In light of
the residual risk associated with the uncollateralized portions of Brady Bonds
and, among other factors, the history of defaults with respect to commercial
bank loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are considered speculative. Brady Bonds acquired by
the Portfolio could be subject to restructuring arrangements or to requests for
new credit, which could cause the Portfolio to suffer a loss of interest or
principal on its holdings. (For further information, see "Brady Bonds" in Part
B.)
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. The Portfolio may
invest in floating- and variable-rate securities, which are securities that
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, or tied to another interest rate, such as a money market index or
Treasury bill rate.
The Portfolio also may invest in 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. A higher degree of leverage may be
associated with greater volatility in the market value of an inverse floater.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity. Certain inverse floaters may be deemed to be illiquid 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 their 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. The discount represents income, which must be accrued and distributed
every year even though the Portfolio receives no payment on the investment in
that year. Because interest 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 that distribute income regularly. Cash to pay dividends
representing unpaid, accrued interest may be obtained from sales proceeds of
portfolio securities and from loan proceeds.
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
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 limits its investment in time deposits
for which there is a penalty for early withdrawal to 15% of its net assets.
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HIGH-YIELD, HIGH-RISK SECURITIES. The Portfolio may invest up to 10% of its
assets in debt securities that are rated below investment grade (I.E., below
"BBB" by S&P or "Baa" by Moody's). These debt securities 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 is the case of higher-grade bonds (See "Risk
Considerations" and "Commercial Paper".)
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Forward foreign currency
exchange contracts ("forward contracts") may be used 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 that is
individually negotiated and privately traded by currency traders and their
customers. A forward contract may be used, for example, when the Portfolio
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.
The Portfolio also may enter into forward contracts to adjust the Portfolio's
exposure to various foreign currencies, either pending anticipated investments
in securities denominated in those currencies or as a hedge against anticipated
market changes. To a limited extent, the Portfolio may purchase forward
contracts to increase exposure in foreign currencies that are expected to
appreciate and thereby increase total return.
Successful use of forward contracts depends on the investment adviser's skill in
analyzing and predicting relative currency values. Forward 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, at the same time
they tend to limit any potential gain that might be realized should the value of
such currency change. Likewise, forward contracts tend to minimize the risk of
loss due to an increase in the value of a currency that has been purchased
forward, though they may result in overpayment if the value of such currency
declines. In short, 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 that have
the investment characteristics of particular securities, securities indices,
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, the differential between two currencies, the level of interest rates
in a particular country or countries, or the differential in interest rates
between particular countries. In the case of instruments linking the interest
components to a foreign index, the amount of interest payable generally adjusts
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, futures contract or currency, the
performance of which determines the return for the linked 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 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 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. These instruments may be
used for hedging purposes, but 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
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both the hedged securities or currencies and the hedging vehicle so that the
Portfolio's return might have been better had hedging not been attempted.
OPTIONS. A put option is a short-term contract that 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 that gives the purchaser, in return for a
premium, the right to buy from the seller of the option the underlying security
at a specified price during the term 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 or lower 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 or in the over-the-counter
market. Options may be used for hedging purposes, but 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's return might have been better had hedging not
been attempted.
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 SECURITIES AND OPTIONS ON BOND INDICES. The Portfolio may purchase
and write put and call options on securities and bond indices. Options on
securities give the Portfolio the right to buy, or the obligation to sell,
eligible portfolio securities. A call option on a bond index gives the purchaser
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.
ARBITRAGE. The Portfolio may sell a security in one market and simultaneously
purchase the same security 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.
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
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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.
BORROWING. The Portfolio may borrow up to a limit of 15% of its total assets
from a bank for temporary or emergency purposes or to meet redemptions. The
Portfolio also may enter into reverse repurchase agreements (which may be deemed
borrowings under the 1940 Act unless assets are properly segregated) with banks
or broker-dealers subject to the limitations of the 1940 Act. Reverse repurchase
agreements involve 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 liquid, 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 that are not covered by properly segregated assets
and other borrowing to no more 15% of its total assets. The use of reverse
repurchase agreements by the Portfolio may create leverage that could increase
the Portfolio's investment risk. If the income and gain on securities purchased
with the proceeds of reverse repurchase agreements exceed the cost of the
agreements, the Portfolio's earnings or net asset value would increase faster
than otherwise would be the case; conversely, if the income and gain fail to
exceed the costs, earnings or net asset value would decline faster than
otherwise would be the case. 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 is subject to interest costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances).
ILLIQUID AND RESTRICTED SECURITIES. As a non-fundamental policy, the Portfolio
will not purchase or otherwise acquire any security if, as a result, more than
15% of its net assets (taken at current value) would be invested in securities
that are illiquid by virtue of the absence of a readily available market or
because of legal or contractual restrictions on resale ("restricted
securities"). There may be undesirable delays in selling illiquid securities at
prices representing their fair value. This policy includes over-the-counter
options held by the Portfolio and the "in the money" portion of the assets used
to cover such options. The limitation on investing in restricted securities does
not include securities that may not be resold to the general public but may be
resold to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933, as amended. If SCMI determines that a "Rule 144A
security" is liquid pursuant to guidelines adopted by the Trust Board, the
security will not be deemed illiquid. These guidelines take into account trading
activity for the securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, that security may become illiquid, which could
affect the Portfolio's liquidity. (See "Investment Policies -- Illiquid and
Restricted Securities" in Part B for further information.)
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 risk
in lending portfolio securities, as with other extensions of credit, is the
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.
COMMERCIAL PAPER. The Portfolio may invest in commercial paper, which represents
short-term unsecured promissory notes issued by banks or bank holding companies,
corporations and finance companies. The Portfolio may invest in commercial paper
primarily rated at the time of investment "P-1" by Moody's or "A-1" by S&P, or,
if unrated by Moody's or S&P, deemed comparable in quality by the Portfolio's
investment adviser. The Portfolio may also invest in commercial paper rated
below "A-1"/ "P-1"; however, such investments are subject to the Portfolio's 10%
limit on high-yield, high-risk securities. (See "Appendix A -- Description of
Securities Ratings" to Part B.)
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase agreements. A
repurchase agreement is a means of investing monies for a short period. In a
repurchase agreement, a seller -- a U.S. bank or recognized broker-dealer --
sells securities to the Portfolio and agrees to repurchase the securities at the
Portfolio's cost plus interest within a specified period (normally one day). In
these transactions, the values of the underlying securities
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purchased by the Portfolio are monitored at all times by SCMI to ensure that the
total value of the securities equals or exceeds the value of the repurchase
agreement, and the Portfolio `s custodian bank holds the securities until they
are repurchased. 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
disposing of them. To evaluate potential risks, SCMI reviews the
creditworthiness of those banks and dealers with which the Portfolio enters into
repurchase 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. U.S. government securities are obligations
of, or guaranteed by, the U.S. Government or its agencies, instrumentalities or
government-sponsored enterprises. 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.)
INVESTMENT RESTRICTIONS
The following fundamental restrictions of the Portfolio are designed to reduce
its exposure in specific situations. The Portfolio will not:
(a) 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 assets in the
securities of issuers located in one country does not contravene this
policy.
(b) 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.
(c) make loans to other persons, provided that for purposes of this
restriction, entering into repurchase agreements or acquiring any otherwise
permissible debt securities including engaging in securities lending shall
not be deemed to be the making of a loan.
(d) invest in commodities or commodity contracts, except that, subject to the
restrictions described in this Part A and in the Part B (Additional
Information), the Portfolio may: (1) enter into futures contracts and
options on futures contracts; (2) enter into foreign forward currency
exchange contracts and foreign currency options; (3) purchase and sell
currencies on a spot or forward basis; and (4) may enter into futures
contracts on securities, currencies or on indices of such securities or
currencies, or any other financial instruments, and may purchase and sell
options on such futures contracts.
(e) issue senior securities except to the extent permitted by the 1940 Act.
Except for the policy on borrowing, the percentage restrictions described above
and in Part B apply only at the time of investment and require no action by the
Portfolio as a result of subsequent changes in value of the investment or the
size of the Portfolio. A comprehensive list of investment restrictions is
contained in Part B.
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LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS.
Although the Portfolio will not be a commodity pool, certain derivative
instruments that it uses subject it to the rules of the CFTC, which limit the
extent to which the Portfolio may use such derivatives. The Portfolio may enter
into futures contracts or related options for hedging purposes without limit.
The Portfolio may not engage in exchange-traded futures contracts and related
options for other purposes if, immediately thereafter, the aggregate initial
margin deposits relating to such positions plus premiums paid by the Portfolio
for unexpired options, less the amount by which any such options are
"in-the-money," would exceed 5% of the liquidation value of the Portfolio's
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.
RISK CONSIDERATIONS
NON-DIVERSIFICATION. The Portfolio is classified as "non-diversified" 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 registered investment companies (or series of those
companies) that invest in the Portfolio may 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: (1) 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 (2) 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.
FIXED-INCOME SECURITIES AND THEIR CHARACTERISTICS. Fixed-income securities
generally are subject to market risk and credit risk. Market risk refers to the
change in the market value of investments by the Portfolio in fixed-income
securities, including money market instruments, when there is a change in
interest rates or the issuer's actual or perceived creditworthiness or ability
to meet its obligations. There normally is an inverse relationship between the
market value of fixed-rate debt securities and 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. The
Portfolio's investments are subject to "credit risk" relating to the financial
condition of the issuers of the securities that the Portfolio holds. Credit risk
refers to changes in the ability of an issuer to make payments of interest and
principal when due and changes in the market's perception of an issuer's
creditworthiness that affect the value of the debt securities of that issuer.
FOREIGN INVESTMENTS. Investments in foreign securities involve certain risks not
associated with domestic investments, 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.
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 may often be higher than in the U.S. 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 vehicle
for international diversification and not as a complete investment program.
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. Often, available information
about issuers and their securities is less extensive in foreign markets,
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.
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Moreover: (1) interest payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income earned by the Portfolio; (2)
accounting, auditing and financial reporting standards differ from those in the
U.S., which means that less information about foreign companies may be available
than is generally available about issuers of comparable securities in the U.S.;
(3) foreign securities may trade less frequently and/or with less volume than
U.S. securities and consequently may exhibit greater price volatility; and (4)
foreign securities trading practices, including those involving securities
settlement, may expose the Portfolio to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer or registrar.
GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its total
assets in issuers located in any one country. To the extent that it invests in
issuers located in one country, the Portfolio is susceptible to factors
adversely affecting that country, including 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 assets
may fluctuate more widely than the value of shares of a comparable fund with a
lesser degree of geographic concentration.
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 against
the dollar in the value of currencies in which the Portfolio's investments are
denominated 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 periodically been made in certain of such currencies.
Some emerging market countries may also have managed currencies that 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 sold, they also limit any possible gain that might
result should the value of such currency rise. (See "Foreign Currency
Transactions", "Futures, Options on Futures Contracts" and "Options on Foreign
Currencies".)
SWAPS. The Portfolio may enter into swap agreements. Whether the Portfolio's use
of swap agreements will be successful in furthering its investment objective
depends upon SCMI's ability to predict whether certain types of investments will
produce greater returns than other investments. Because swaps are two-party
contracts that 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. SCMI 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 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 regulation, could adversely affect the
Portfolio's ability to terminate existing swap agreements, to realize amounts to
be received under such agreements, or to enter into swap agreements or could
have tax consequences. (See "Tax Information" in Part B for information
regarding the tax considerations relating to swap agreements.)
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, all of 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. Certain emerging market countries may restrict
investment by
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foreign investors. These restrictions or controls may at times limit or preclude
investment in certain securities and may increase the costs and expenses of the
Portfolio. 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 may indirectly
generate losses or profits for certain emerging market companies.
HIGH-YIELD, HIGH-RISK SECURITIES. Securities rated below "BBB" or "Baa" are
characterized by greater price volatility, greater risk of loss of principal and
interest, a greater possibility of the issuer going bankrupt, and other
additional risks than securities rated investment grade or higher. Moody's
considers bonds it rates "Baa" to have speculative elements as well as
investment-grade characteristics. The lower the ratings of securities, the
greater their risks. The Portfolio may invest in securities that are rated "D"
by S&P or, if unrated, deemed comparable in quality. Securities rated "D" may be
in default with respect to payment of principal or interest. 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 more
sensitive to interest rate changes and, therefore, tend to be more volatile than
securities which pay interest periodically and in cash. The secondary market in
which high yield bonds trade may be less liquid than the market for higher grade
bonds. This thinner secondary market trading could adversely affect the price at
which the Portfolio could sell a high yield bond.
Analysis of the creditworthiness of issuers of high yield securities 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. 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. Investors should consider and be willing to accept
the risks associated with a limited allocation to high yield securities before
investing. (See "Appendix A -- Description of Securities Ratings" to Part B for
further information.)
ITEM 5. MANAGEMENT OF THE TRUST.
TRUSTEES AND OFFICERS. The Trust's business and affairs are managed under the
Board's direction. The Board formulates the Trust's and Portfolio's general
policies and meets periodically to review the Portfolio's results, 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
Schroder Capital Management International Inc., 787 Seventh Avenue, New York,
New York 10019, serves as investment adviser to the Portfolio under an advisory
agreement with the Trust. SCMI manages the investment and reinvestment of the
Portfolio's investment portfolio and continuously reviews, supervises and
administers the Portfolio's investments. In this regard, SCMI is responsible for
making decisions relating to the Portfolio's investments and for placing
purchase and sale orders regarding investments with brokers or dealers selected
by SCMI in its discretion.
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 worldwide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices located in eighteen countries
world-wide. The Schroder Group specializes in providing investment management
services. As of June 30, 1997, the Schroder Group managed over $150 billion in
assets worldwide.
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The investment advisory agreement provides that SCMI is entitled to receive an
advisory fee at an annual rate of 0.50% of the Portfolio's average daily net
assets. SCMI has agreed, however, to waive all of the advisory fees payable
under the Investment Advisory Agreement by the Portfolio. Such fee limitation
arrangements shall remain in effect until its elimination is approved by the
Schroder Core II Board.
The Investment Advisory Contract authorizes and directs SCMI to place orders for
the purchase and sale of the Portfolio's investments with brokers and dealers
selected by SCMI in its discretion and to seek "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. It should be noted that costs associated with transactions in
foreign securities are generally higher than with transactions in U.S.
securities. However, SCMI seeks to achieve the best net results in effecting
such transactions for the Portfolio.
Subject to the 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
Board to provide 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 these expenses. As
anticipated, these arrangements would not materially increase the brokerage
commissions paid by a Portfolio. Because brokerage commissions are not reflected
in Portfolio expenses, however, certain expenses might not be fully set forth in
the fee table, per share table, and financial statements of registered open-end
investment companies that invest in the Portfolio and might therefore appear
lower than actual expenses incurred.
PORTFOLIO MANAGER. The Portfolio is managed by the International Fixed Income
Committee of SCMI. The individuals responsible for the day-to-day implementation
of the Committee's investment decisions are Michael Perelstein and Mark Astley.
Mr. Perelstein and Mark Astley have managed the Portfolio since inception. Mr.
Perelstein was appointed a Senior Vice President and director of SCMI on January
2, 1997. Prior thereto, Mr. Perelstein was a Managing Director at
MacKay-Shields. Mr. Perelstein has more than twelve years of international and
global investment experience. Mr. Astley, a First Vice President of SCMI, has
been with the firm for 10 years. In addition to serving as a global fixed-income
portfolio manager, Mr. Astley serves as a currency specialist for SCMI's
International Fixed Income Committee.
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. For these services Schroder Advisors is entitled to receive
an administration fee at the annual rate of 0.10% of the Portfolio's average
daily net assets. From time to time, Schroder Advisors voluntarily may agree to
waive all or a portion of its fees. In addition, the Trust has entered into a
subadministration agreement with Forum Administrative Services, Limited
Liability Company ("Forum"), Two Portland Square, Portland, Maine 04101. For
these sub-administration services, Forum is entitled to receive a
subadministration fee at an annual rate of 0.075% of the Portfolio's average
daily net assets. From time to time, Schroder Advisors or Forum voluntarily may
agree to waive all or a portion of its fees.
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INTERESTHOLDER RECORDKEEPER AND FUND ACCOUNTANT
Forum Financial Corp. ("FFC"), Two Portland Square, Portland, Maine 04101, is
the Trust's interestholder recordkeeper and fund accountant. FFC is an affiliate
of Forum. For recordkeeping services for the Portfolio's Interests, FFC is
entitled to receive a fee of $16,000 per year plus $25 per interestholder
account. For fund accounting services for the Portfolio, FFC is entitled to
receive a base fee of $60,000 per year ($36,000 plus $24,000 for international
portfolios) plus additional amounts depending on the Portfolio's assets, the
number and type of securities it holds and its portfolio turnover rate. From
time to time, FFC voluntarily may agree to waive all or a portion of its fees.
EXPENSES
The Portfolio is obligated to pay for 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 of calculating the net asset value of and the net income of the
Portfolio. The Portfolio's expenses comprise Trust expenses attributable to the
Portfolio, which are allocated to the Portfolio, and expenses not attributable
to the Portfolio, which are allocated among all the Trust's portfolios in
proportion to their average net assets or as otherwise determined by the Board.
CUSTODIAN
The Chase Manhattan Bank, through its Global Securities Services division,
located in London, England, acts as custodian of the Portfolio's assets and
employs foreign subcustodians to maintain the Portfolio's foreign assets outside
the U.S.
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
Interests in separate series of the Trust. The Trust currently has one
portfolio, and the Trust reserves the right to create additional portfolios.
Each investor in the Portfolio is entitled to participate equally in the
Portfolio's earnings and assets and to a vote in proportion to the amount of its
investment in the Portfolio. Investments in the Portfolio may not be
transferred, but an investor may withdraw all or any portion of its investment
at any time at net asset value.
Investments in the Portfolio have no preemptive or conversion rights and are
fully paid and non-assessable, except as set forth below. The Trust is not
required and has no current intention to hold annual meetings of investors, but
the Trust will hold special meetings of investors when in the Trustees' judgment
it is necessary or desirable to submit matters to an investor vote. Generally,
Interests are voted in the aggregate without reference to a particular
portfolio, except if the matter affects only one portfolio or portfolio voting
is required, in which case Interests are voted separately by portfolio.
Investors have the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of investors. Upon liquidation of
the Portfolio, investors will be entitled to share pro rata in the Portfolio's
net assets available for distribution to investors.
The Portfolio's net income consists of: (1) all dividends, accrued interest
(including earned discount, both original issue and market discount), and other
income, including any net realized gain on the Portfolio's assets; less (2) all
actual and accrued expenses of the Portfolio, amortization of any premium, and
net realized loss 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 net asset value of the investors' respective Interests in the
Portfolio.
The Portfolio intends to continue to comply with the provisions of Subchapter M
of the Code. As a regulated investment company, the Portfolio intends to
distribute substantially all of its net investment income and its net
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realized long-term capital gain at least annually and therefore intends not to
be subject to federal income tax to the extent it distributes such income and
capital gain in the manner required under the Code.
The Portfolio is not required to pay federal income taxes on its ordinary income
and capital gain, as it is treated as a partnership for federal income tax
purposes. All interest, dividends and gain and loss of the Portfolio are deemed
to "pass through" to its investors, regardless of whether such interest,
dividends or gain are distributed by the Portfolio or loss are realized by the
Portfolio.
Under the Portfolio's operational methods, it is not subject to any income tax.
However, each investor in the Portfolio will be taxed on the investor's
proportionate share (as determined in accordance with the Trust's Trust
Instrument and the Code) of the Portfolio's ordinary income and capital gain, to
the extent that the investor is subject to tax on its income. The Portfolio's
assets, income, and distributions are 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.
Investor inquiries may be directed to Forum Financial Services, Inc. (FFSI).
ITEM 7. PURCHASE OF SECURITIES.
Portfolio Interests are issued solely in private placement transactions that do
not involve any "public offering" within the meaning of Section 4(2) of the 1933
Act. See "General Description of Registrant" above. All investments are made
without a sales load, at the Portfolio's net asset value next determined after
an order is received.
A Subscription Agreement must be completed before the Portfolio will accept a
new interestholder.
Net asset value is calculated as of 4:00 p.m. (Eastern time), Monday through
Friday, on each day that the New York Stock Exchange is open for trading (which
excludes the following national business holidays: New Year's Day, Martin Luther
King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day) ("Portfolio Business Day").
Net asset value per Interest is calculated by dividing the aggregate value of
the Portfolio's assets less all liabilities by the number of Interests
outstanding. Portfolio securities listed on recognized stock exchanges are
valued at the last reported trade price, prior to the time when the assets are
valued, on the exchange on which the securities are principally traded. Listed
securities traded on recognized stock exchanges where last trade prices are not
available are valued at mid-market prices. Securities traded in over-the-counter
markets, or listed securities for which no trade is reported on the valuation
date, are valued at the most recent reported mid-market price. Other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using methods approved by the Board.
Trading in securities on non-U.S. exchanges and over-the-counter markets may not
take place on every day that the New York Stock Exchange is open for trading.
Furthermore, trading takes place in various foreign markets on days on which the
Portfolio's net asset value is not calculated. If events materially affecting
the value of foreign securities occur between the time when their price is
determined and the time when net asset value is calculated, such securities will
be valued at fair value as determined in good faith by using methods approved by
the Schroder Core II Board. All assets and liabilities of the Portfolio
denominated in foreign currencies are valued in U.S. dollars based on the
exchange rate last quoted by a major bank prior to the time when the net asset
value of the Portfolio is calculated.
Registered investment companies are subject to no minimum initial or subsequent
investment amount. For other qualified investors, the minimum initial investment
amount is $10 million, and there is no minimum subsequent investment amount.
However, since the Portfolio seeks to be as fully invested at all times as is
reasonably practicable in order to enhance the return on its assets, investments
must be made in federal funds (i.e., monies credited to the account of the
Trust's custodian by a Federal Reserve Bank). Minimum investment amounts may be
waived at the discretion of the Portfolio's investment adviser, SCMI.
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Qualified investors may transmit purchase payments by Federal Reserve Bank wire
directly to the Portfolio as follows:
THE CHASE MANHATTAN BANK
NEW YORK, NY
ABA NO.: 021000021
FOR CREDIT TO: FORUM FINANCIAL CORP.
ACCOUNT. NO.: 910-2-783637
REF.: SCHRODER INTERNATIONAL BOND PORTFOLIO
ACCOUNT OF: (INTERESTHOLDER NAME)
ACCOUNT NUMBER: (INTERESTHOLDER ACCOUNT NUMBER)
The wire order must specify the name of the Portfolio, the account name and
number, address, confirmation number, amount to be wired, name of the wiring
bank, and name and telephone number of the person to be contacted in connection
with the order. If the initial investment is by wire, an account number is
assigned, and a Subscription Agreement must be completed and mailed to the
Portfolio before any account becomes active. Wire orders received prior to 4:00
p.m. (Eastern time) on each Portfolio day that the New York Stock Exchange is
open for trading (a "Business Day") are processed at the net asset value
determined as of that day. Wire orders received after 4:00 p.m. (Eastern time)
are processed at the net asset value determined as of the next Business Day. The
Trust reserves the right to cease accepting investments in the Portfolio at any
time or to reject any investment order.
Forum is the exclusive placement agent for the Trust. Forum receives no
compensation for serving as the Trust's exclusive placement agent.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor may withdraw all or any portion of its investment in the Portfolio
at the net asset value next determined after the investor furnishes a withdrawal
request in proper form to the Trust. Withdrawal proceeds are paid by the
Portfolio in federal funds normally on the business day after the withdrawal is
effected but, in any event, within seven days. Investments in 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 on the Exchange is restricted) for any reason other
than its customary weekend or holiday closings or under any emergency or other
circumstances as determined by the Securities and Exchange Commission.
Interests are redeemed at their next determined net asset value after receipt by
the Trust (at the address set forth above under "Purchase of Shares") of a
redemption request in proper form. Redemption requests may be made between 9:00
a.m. and 6:00 p.m. (Eastern time) on each Business Day. Redemption requests that
are received prior to 4:00 p.m. (Eastern time) are processed at the net asset
value determined as of that day. Redemption requests that are received after
4:00 p.m. (Eastern time) are processed at the net asset value determined on the
next Business Day.
Telephone redemption requests may be made by telephoning the transfer agent at
(800) 344-8332. An interestholder must provide the transfer agent with the
Portfolio's name, the dollar amount or number of Interests to be redeemed,
interestholder account number, and some additional form of identification such
as a password. A telephone redemption may be made only if the telephone
redemption privilege option has been elected on the Subscription Agreement or
otherwise in writing. In an effort to prevent unauthorized or fraudulent
redemption requests by telephone, reasonable procedures will be followed by the
transfer agent to confirm that telephone instructions are genuine. The transfer
agent and the Trust generally will not be liable for any losses due to
unauthorized or fraudulent redemption requests, but either may be liable if it
does not follow these procedures. In times of drastic economic or market change
it may be difficult to make redemptions by telephone. If an interestholder
cannot reach the transfer agent by telephone, redemption requests may be mailed
or hand- delivered to the transfer agent.
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Redemption proceeds normally are paid in cash. Redemptions from the Portfolio
may be made wholly or partially in portfolio securities, however, if the Board
determines that payment in cash would be detrimental to the best interests of
the Portfolio. The Trust has filed an election with the 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 net asset value, whichever is less, during any 90-day
period.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
<PAGE>
PART B
(ADDITIONAL INFORMATION)
SCHRODER CAPITAL FUNDS II
--------
AUGUST 18, 1997
SCHRODER INTERNATIONAL BOND PORTFOLIO
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
General Information and History..............................................B-_
Investment Objective 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 OBJECTIVE AND POLICIES.
INVESTMENT POLICIES
INTRODUCTION
Part A contains information about the investment objective, policies and
restrictions of Schroder International Bond Portfolio (the "Portfolio"), a
non-diversified series of Schroder Capital Funds II (the "Trust"). The
Portfolio's investment objective is to seek a high rate of total return.
Investments in foreign securities involve certain risks not associated with
domestic investing, and there can be no assurance that the Portfolio's
investment objective will be achieved. As described in Part A, the Portfolio
invests at least 65%, and normally intends to invest substantially all, of its
assets in non-U.S. debt securities and debt-related investments, which may be
denominated in foreign or U.S. currency. The following discussion supplements
Part A disclosure concerning the Portfolio's investments, investment techniques
and strategies and related risks. This Part B should be read only in conjunction
with Part A.
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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.
FOREIGN SECURITIES
The Portfolio may invest, without limit (subject to its other investment
policies), in U.S. dollar-denominated and foreign-currency denominated foreign
debt securities and in certificates of deposit issued by foreign banks and
foreign branches of U.S. banks to any extent deemed appropriate by SCMI.
Investment in the securities of non-U.S. 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 have lower volume or activity than U.S. markets, resulting in thin trading
and lower liquidity than for U.S. issues. Consequently, securities prices may be
more volatile. In general, SCMI invests 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 adoption
of foreign governmental restrictions affecting the payment of principal and
interest, nationalization, increased withholding, taxation, or confiscation of
portfolio assets, and other possible adverse political or economic developments
that would affect portfolio assets. 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.
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 will be unable
to perform, and they tend to limit commensurably any potential gain that might
result if the value of such currency increased during the contract period.
U.S. GOVERNMENT SECURITIES
The Portfolio may invest in obligations that have remaining maturities not
exceeding one year issued or guaranteed by the U.S. Government or its agencies
or instrumentalities. Agencies and instrumentalities established or sponsored by
the U.S. Government that issue or guarantee debt 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. There can be no assurance that the U.S.
Government will provide financial support to these obligations where it is not
obligated to do so.
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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 Association. The Portfolio
may also 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, 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
As described in Part A, the Portfolio may invest in commercial paper. The
Portfolio also may invest in variable rate master demand notes, which are
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payer of such notes. Generally both parties have
the right to vary the amount of the outstanding indebtedness on the notes.
ILLIQUID AND RESTRICTED SECURITIES
"Illiquid and Restricted Securities" in Part A sets forth the circumstances in
which the Portfolio may invest in illiquid and restricted securities. In
connection with the Portfolios original purchase of restricted securities, SCMI
may negotiate rights with the issuer to have such securities registered for sale
at a later time. Further, the expenses of registration of restricted securities
that are illiquid may also be negotiated by the Portfolio with the issuer at the
time such securities are purchased by the Portfolio. When registration is
required, however, a considerable period may elapse between a decision to sell
the securities and the time to sell such securities. A similar delay might be
experienced in attempting to sell such securities pursuant to an exemption from
registration. Thus, the Portfolio may not be able to obtain as favorable a price
as that prevailing at the time of the decision
BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS
The Portfolio will not invest in any obligation of a domestic or foreign bank
unless: (1) 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 (2) 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.
FIRM AND STANDBY COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
As discussed in Part A, the Portfolio 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, firm or standby
commitment securities take place at a later date. Normally, 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;
it is the Trust's intention, however, that the 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.
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At the time the Portfolio makes the commitment to purchase a security on a
when-issued, firm or standby commitment basis, it records the transaction and
reflects the amount due and the value of the security in determining the
Portfolio's net asset value. The market value of the when-issued, firm or
standby commitment securities may be more or less than the purchase price
payable at the settlement date. The Portfolio will purchase such securities only
when, in SCMI's opinion, there is minimal credit risk for the Portfolio. To the
extent so required by the Securities and Exchange Commission ("SEC"), the
Portfolio will establish a segregated account in which it will maintain liquid
assets, such as cash and U.S. government securities or other liquid securities
or assets deemed permissible by the SEC for such purpose (collectively, the
"Segregable Assets"), at least equal in value to any commitments to purchase
securities on a when-issued, firm or standby commitment basis. Securities held
as Segregable Assets will mature or, if necessary, be sold on or before the
settlement date. When-issued securities may include bonds purchased on a "when,
as and if issued" basis under which the issuance of the securities depends upon
the occurrence of a subsequent event. Any significant commitment of the
Portfolio's assets to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of its net asset value. For purposes of the
Portfolio's investment policies, the purchase of securities with a settlement
date occurring on a Public Securities Association approved settlement date is
considered a normal delivery and not a when-issued or forward commitment
purchase.
BRADY BONDS
As discussed in Part A, the Portfolio may invest in Brady Bonds. 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 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: (1)
the collateralized repayment of principal at final maturity; (2) the
collateralized interest payments; (3) the uncollateralized interest payments;
and (4) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). 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 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.
OPTIONS ON SECURITIES
WRITING CALL OPTIONS. As discussed in Part A, the Portfolio 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, that 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 Segregable Assets in a segregated
account with its custodian.
The Portfolio may 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 gives
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 retains 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
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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 realizes 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 generally reflect increases in the market price of the
underlying security, any loss resulting from the closing out of a 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") that 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 SCMI, engage without limitation in the writing of options on its
portfolio securities.
WRITING PUT OPTIONS. The Portfolio, as discussed in Part A, may also write
covered put options. A put option written by the Portfolio is "covered" if the
Portfolio maintains Segregable Assets 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 Segregable
Assets in a segregated account with its custodian.
The premium that 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.
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In addition, the Portfolio, also discussed in Part A, may 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 Internal Revenue Code for qualification as a
regulated investment company and the Fund's intention to qualify as such.
PURCHASING OPTIONS. The Portfolio, as discussed in Part A, may purchase put or
call options that 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 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 upon 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 U.S. 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
As discussed in Part A, the Portfolio 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 U.S. 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 such currency
declines, the Portfolio will have the right to sell such currency for a fixed
amount exceeding 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 is projected in the dollar value of a currency
denominating securities to be acquired (thereby increasing the cost of such
securities) the Portfolio may purchase call options on such currency. If the
value of such currency increases, the purchase of such call options enables the
Portfolio to purchase currency for a fixed amount that 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 that would deprive it of some or all of
the benefits of advantageous changes in such rates.
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The Portfolio 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 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 consideration (or for additional
consideration comprised of Segregable Assets 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: (1) is equal to or less than the exercise
price of the call written; or (2) is greater than the exercise price of the call
written if the amount of the difference is maintained by the Portfolio in
Segregable Assets 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 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 also purchase and sell other futures when deemed appropriate
in order to hedge portions of its portfolio. In addition, the Portfolio 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 U.S., all such futures on securities, debt index futures, foreign
currency futures and related options are 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 of a security or currency
at the end of trading in the contracts) for a set price in a future month. In
the U.S., futures contracts are traded on boards of trade that 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
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instruments, indices 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 and is returned to the
Portfolio upon termination of the contract if all contractual obligations have
been satisfied. The Portfolio expects to earn interest income on its initial
margin deposits. A futures contract held by 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 for it 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 month, of securities having a
standardized face value and rate of return. By purchasing futures on debt
securities (I.E., 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 (I.E., 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.
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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.
The Portfolio 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 SCMI
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 SCMI 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. To a limited extend, the Portfolio may purchase currency futures to
increase exposure in foreign currencies, which are expected to appreciate and
thereby increase total return. 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 generally 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 SCMI 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 that are traded on exchanges licensed and regulated by the CFTC for
the purpose of options trading, or, subject to applicable CFTC rules, on foreign
exchanges. Over-the- counter options are not subject to CFTC limits. 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.
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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 generally realizes a gain or loss by
buying or selling an offsetting option at a market price that reflects 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.
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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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract (a "forward contract") is an
obligation individually negotiated and privately traded by currency traders and
their customers to purchase or sell a specific currency for an agreed price at a
future date (usually less than a year). 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 prices 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, they also limit any potential gain that 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 that contradict the Adviser's
expectations 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 holds Segregable 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 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 are incorporated
in a longer term investment decision made with regard to overall diversification
strategies. However, SCMI 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 is 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 SCMI 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 is not generally possible since the future value of such securities in
foreign
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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.
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, tends 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 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 realizes 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 are 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 and will
not do so unless deemed appropriate by SCMI. The Portfolio generally will not
enter into a forward contract with a term of greater than one year.
In cases of transactions that 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 exchange contract, the Portfolio may
deem its forward currency hedge position to be covered by underlying Portfolio
investment portfolio securities or may establish a segregated account comprised
of Segregable Assets with its Custodian in an amount equal to the value of the
Portfolio's total assets committed to the consummation of the subject hedge. 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, to the extent required by the SEC the
Portfolio will establish a segregated account with its Custodian as described
above. In the event the Portfolio establishes a segregated account, the
Portfolio marks-to-market the value of the Segregable Assets. If the value of
any securities placed in the segregated account declines, additional Segregable
Assets 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 that can be achieved at
some future point in time. It also reduces any potential gain that may have
otherwise occurred had the currency value increased above the settlement price
of the contract. The Portfolio's forward foreign currency transactions may be
limited by the requirements of Subchapter M of the Code for qualification as a
regulated investment company.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS.
In addition to the limits described in Part A, the Portfolio may invest up to 5%
of its assets, represented by the premium paid, in the purchase of call and put
options. The Portfolio may write (I.E. sell) covered call and put option
contracts in an amount not to exceed 20% of the value of the Portfolio's net
assets at the time such options are written. When so required by the SEC, the
Portfolio will set aside Segregable Assets in a segregated account to cover its
obligations relating to investments in derivatives. To maintain this required
cover, the Portfolio may have to sell portfolio securities at disadvantageous
prices or times since it may not be possible to liquidate a derivative position
at a reasonable price.
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When purchasing a futures contract, the Portfolio will maintain with its
custodian (and mark-to-market on a daily basis) Segregable Assets 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 Segregable 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) Segregable Assets 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) Segregable Assets 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 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.
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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 FOREIGN FORWARD CURRENCY EXCHANGE CONTRACTS AND OPTIONS
Futures contracts, options on futures contracts, options on securities,
currencies, and options on currencies may be traded on foreign exchanges or in
over-the-counter markets. Such transactions may not be regulated as effectively
as similar transactions in the U.S.; 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: (1) other complex foreign
political, legal and economic factors; (2) lesser availability than in the U.S.
of data on which to make trading decisions; (3) delays in the Portfolio's
ability to act upon economic events occurring in foreign markets during
non-business hours in the U.S.; (4) the imposition of different exercise and
settlement terms and procedures and different margin requirements than in the
U.S.; and (5) lesser trading volume.
SWAP AGREEMENTS
As discussed in Part A, the Portfolio may enter into interest-rate, index and
currency exchange-rate swap agreements. The "notional amount" of the swap
agreement is only a fictive basis on which to calculate the obligations that 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 are generally 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 but unpaid net
amounts owed to a swap counterparty will be covered by maintaining a segregated
account comprised of Segregable Assets 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. 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 1940 Act, 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
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clearing organization or margin system; (3) are undertaken in conjunction with a
line of business; and (4) are not marketed to the public.
WARRANTS
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 to, among
other reasons, 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 Portfolio will only enter into short sales
against-the-box with brokers it believes are creditworthy.
HIGH-RISK, 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 that 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 restate or are in addition to those
described under "Investment Restrictions" and "Investment Policies" in Part A.
These restrictions, unless otherwise indicated, are fundamental policies of the
Portfolio and cannot be changed without the vote of a "majority" of the
Portfolio's outstanding shares. Under the 1940 Act, such a "majority" vote is
defined as the vote of the holders of the lesser of: (1) 67% of more of the
shares present or represented by proxy at a meeting of shareholders, if the
holders of more than 50% of the outstanding shares are present; or (2) more than
50% of the outstanding shares.
Under these restrictions, the Portfolio will not:
(a) 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
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investment of more than 25% of the Portfolio's assets in the securities
of issuers located in one country does not contravene this policy.
(b) 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.
(c) purchase or sell real estate, provided that the Portfolio may invest in
securities issued by companies that invest in real estate or interests
therein.
(d) make loans to other persons, provided that for purposes of this
restriction, entering into repurchase agreements or acquiring any otherwise
permissible debt securities including engaging in securities lending shall
not be deemed to be the making of a loan.
(e) invest in commodities or commodity contracts, except that, subject to the
restrictions described in Part A and elsewhere in this SAI, the Portfolio
may: (1) enter into futures contracts and options on futures contracts; (2)
enter into foreign forward currency exchange contracts and foreign currency
options; (3) purchase or sell currencies on a spot or forward basis; and
(4) may enter into futures contracts on securities, currencies or on
indices of such securities or currencies, or any other financial
instruments, and may purchase and sell options on such futures contracts.
(f) 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.
(g) issue senior securities except to the extent permitted by the 1940 Act.
(h) 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),
including repurchase agreements not entitling the holder to payment of
principal within seven days and 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"). Illiquid securities do not include 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
investment adviser pursuant to guidelines adopted by the Trust's Board of
Trustees. (Non-fundamental)
(i) make investments for the purpose of exercising control or management,
except in connection with a merger, consolidation, acquisition, or
reorganization with another investment company or series thereof.
(Investments by the Portfolio in wholly owned investment entities created
under the laws of certain foreign countries will not be deemed the making
of investments for the purpose of exercising control or management.)
(Non-fundamental)
(j) invest in interests in oil, gas or other mineral exploration, resource, or
lease transactions or development programs but may purchase readily
marketable securities of companies that operate, invest in, or sponsor such
programs. (Non-fundamental)
As a non-fundamental policy, the Portfolio may acquire or retain the securities
of any other investment company to the extent permitted by the 1940 Act,
including in connection with a merger, consolidation, acquisition, or
reorganization.
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.
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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 and shows the
nature of any affiliation with SCMI. Each of these individuals currently serves
in the same capacity for Schroder Capital Funds (Delaware), an investment
company with a series that invests all of its assets in the Portfolio.
PETER E. GUERNSEY, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Insurance Consultant since August 1986; prior thereto
Senior Vice President, Marsh & McLennan, Inc., insurance brokers.
JOHN I. HOWELL, 80, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Private Consultant since February 1987; Honorary Director,
American International Group, Inc.; Director, American International Life
Assurance Company of New York.
CLARENCE F. MICHALIS, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Chairman of the Board of Directors, Josiah Macy, Jr.
Foundation (charitable foundation).
HERMANN C. SCHWAB, 77, c/o the Trust, Two Portland Square, Portland, Maine -
Chairman and Trustee of the Trust; retired since March, 1988; prior thereto,
consultant to SCMI since February 1, 1984.
MARK J. SMITH*, 35, 33 Gutter Lane, London, England - President and Trustee of
the Trust; Senior Vice President and Director of SCMI since April 1990; Director
and Senior Vice President, Schroder Advisors.
MARK ASTLEY, 33, 787 Seventh Avenue, New York, New York - Vice President of the
Trust; First Vice President of SCMI, prior thereto, employed by various
affiliates of SCMI in various positions in the investment research and portfolio
management areas since 1987.
ROBERT G. DAVY, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior thereto,
employed by various affiliates of SCMI in various positions in the investment
research and portfolio management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON, 55, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Secretary of SCM since July 1995; Senior Vice President
(since April 1997) and General Counsel of Schroders Incorporated since May 1987;
prior thereto, partner of Sullivan & Worcester, a law firm.
RICHARD R. FOULKES, 51, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Deputy Chairman of SCMI since October 1995; Director and Executive
Vice President of Schroder Capital Management International Ltd.
since 1989.
ROBERT JACKOWITZ, 30, 787 Seventh Avenue, New York, New York - Treasurer of the
First Trust; Vice President of SCM since September 1995; Treasurer of SCM and
Schroder Advisors since July 1995; Vice President of SCMI and SCM since April
1997; and Assistant Treasurer of Schroders Incorporated since January 1990.
JOHN Y. KEFFER, 54, Two Portland Square, Portland, Maine - Vice President of the
Trust; President of FFC, the Fund's transfer and dividend disbursing agent and
other affiliated entities including Forum Financial Services, Inc. and Forum
Advisors, Inc.
JANE P. LUCAS, 35, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director and Senior Vice President SCMI; Director of SCM since
September 1995; Director of Schroder Advisors since September 1996; Assistant
Director Schroder Investment Management Ltd. since June 1991.
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<PAGE>
CATHERINE A. MAZZA, 37, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; President of Schroder Advisors since 1997; First Vice President of
SCMI and SCM since 1996; prior thereto, held various marketing positions at
Alliance Capital, an investment adviser, since July 1985.
MICHAEL PERELSTEIN, 41, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Director since May 1997 and Senior Vice President of SCMI since
January 1997; prior thereto, Managing Director of MacKay - Shields Financial
Corp.
ALEXANDRA POE, 36, 787 Seventh Avenue, New York, New York - Secretary and Vice
President of the Trust; Vice President of SCMI since August 1996; Fund Counsel
and Senior Vice President of Schroder Advisors since August 1996; Secretary of
Schroder Advisors; prior thereto, an investment management attorney with Gordon
Altman Butowsky Weitzen Shalov & Wein since July 1994; prior thereto counsel and
Vice President of Citibank, N.A. since 1989.
THOMAS G. SHEEHAN, 42, Two 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.
FARIBA TALEBI, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Group Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas since 1987;
Director of SCM since April 1997.
JOHN A. TROIANO, 38, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCM since April 1997; Managing Director and Senior Vice
President of SCMI since October 1995; prior thereto, employed by various
affiliates of SCMI in various positions in the investment research and portfolio
management areas since 1981.
IRA L. UNSCHULD, 31, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Vice President of SCMI since April, 1993 and an Associate from July,
1990 to April, 1993.
CATHERINE S. WOOLEDGE, 55, Two Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust - Counsel, Forum Financial
Services, Inc. since November 1996. Prior thereto, associate at Morrison &
Foerster, Washington, D.C. from October 1994 to November 1996, associate
corporate counsel at Franklin Resources, Inc. from September 1993 to September
1994, and prior thereto associate at Drinker Biddle & Reath, Philadelphia, PA.
(a) Interested Trustee of the Trust within the meaning of the 1940 Act.
(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 Capital Management, Inc. ("SCM") 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.
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 an annual fee of $2,000 and a fee of $500 for each meeting of the Board
attended by them except in the case of Mr. Schwab, who receives an annual fee of
$3,000 and a fee of $1,000 for each meeting attended. The Portfolio has no
bonus, profit sharing, pension or retirement plans.
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The following table provides the aggregate compensation estimated to be paid to
the Trustees by the Trust and Schroder Asian Growth Fund, Inc. Information is
presented for the fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
Name of Trustee Aggregate Pension or Estimated Annual Total Compensation
Compensation From Retirement Benefits Benefits Upon From Trust And
Trust Accrued As Part of Retirement Portfolio Complex
Portfolio Expenses Paid To Trustees*
- ------------------------------- -------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Mr. Guernsey $1,750 $0 $0 $1,750
Mr. Howell 1,750 0 0 1,750
Mr. Michalis 1,750 0 0 1,750
Mr. Schwab 3,000 0 0 3,000
Mr. Smith 0 0 0 0
</TABLE>
* In addition to the Trust, "Portfolio 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 Portfolio, Inc., a
closed-end investment company for which SCMI serves as investment adviser.
As of June 30, 1997, the Trust's Trustees and officers owned, in the aggregate,
less than 1% of the Portfolio's outstanding shares.
While 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 U.S. or to realize
judgments of courts of the U.S. predicated upon civil liabilities of such
persons under the federal securities laws of the U.S.. 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 of the U.S.. 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 of such acts.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of June 30, 1997, the Thomas Carter Lupton Trust, a private institutional
client of SCMI may be deemed to control the Portfolio for purposes of the 1940
Act. 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
SCMI, 787 Seventh Avenue, New York, New York 10019, serves as Adviser to the
Portfolio pursuant to an investment advisory agreement. 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 countries worldwide. The Schroder Group specializes
in providing investment management services and had assets under management of
approximately $50 billion as of December 31, 1996.
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Pursuant to the investment advisory agreement, SCMI is responsible for managing
the investment and reinvestment of the assets included in the Portfolio 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, which has overall responsibility
for the business and affairs of the Trust, periodic reports on the investment
performance of the Portfolio.
Under the terms of the investment advisory agreement, 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 agreement continues in effect provided such continuance
is approved annually: (1) by the holders of a majority of the outstanding voting
securities of the Portfolio (as defined by the 1940 Act) or by the Board; and
(2) by a majority of the Trustees who are not parties to such agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
investment advisory agreement may be terminated without penalty by vote of the
Trustees or the interestholders of the Portfolio on 60 days' written notice to
the Adviser, or by the Adviser on 60 days' written notice to the Trust, and it
terminates automatically if assigned. The investment advisory agreement also
provides that, with respect to the Portfolio, neither SCMI nor its personnel
shall be liable for any error of judgment or mistake of law or for any act or
omission in the performance of its or their duties to the Portfolio, except for
willful misfeasance, bad faith or gross negligence in the performance of SCMI's
or their duties or by reason of reckless disregard of its or their obligations
and duties under the investment advisory agreement. For its services, SCMI is
entitled to receive a fee at an annual rate of 0.50% of the Portfolio's average
daily net assets.
ADMINISTRATIVE SERVICES
On behalf of the Portfolio, the Trust has entered into an administration
agreement with Schroder Fund Advisors Inc. ("Schroder Advisors"), 787 Seventh
Avenue, New York, New York 10019. The Trust has also entered into a
subadministration agreement with Forum Administrative Services, Limited
Liability Company ("Forum"). Pursuant to their agreements, Schroder Advisors and
Forum provide certain management and administrative 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
agreement, including among other things: (1) preparation of shareholder reports
and communications; (2) regulatory compliance, such as reports to and filings
with the SEC and state securities commissions; and (3) general supervision of
the operation of the 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 a wholly owned
subsidiary of SCMI and is a registered broker-dealer organized to act as
administrator and distributor of mutual funds.
For these services, Schroder Advisors is entitled to receive a fee at the annual
rate of 010% of the Portfolio's average daily net assets. Forum is entitled to
receive a fee at the annual rate of 0.075% of the Portfolio's average daily net
assets for its services.
The Administration Agreement and Subadministration Agreements are terminable
without penalty, at any time, by the Board, upon 60 days' written notice to
Schroder Advisors, or by Schroder Advisors upon 60 days' written notice to the
Trust.
CUSTODIAN
The Chase Manhattan Bank ("Chase"), through its Global Securities Services
division located in London, England, acts as custodian of the Portfolio's
assets. Chase 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
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capably custodial services for the Portfolio; the reputation of the institution
in its national market; the political and economic stability of the country in
which the institution is located; and further risks of potential nationalization
or expropriation of Portfolio assets.
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109,
serves as independent auditors for the Trust.
INTERESTHOLDER RECORDKEEPER AND FUND 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. Under this agreement, FFC performs transfer agency and fund accounting
services. FFC is entitled to receive a base fee per year, plus additional
amounts depending upon the Portfolio's assets, the number and type of securities
it holds, and its portfolio turnover rate.
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 agreement 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
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<PAGE>
security, the amount of the commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience and financial
stability of the broker-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 exchanges 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 SCMI responsible for making portfolio decisions and
selecting brokers, be: (1) at least as favorable as commissions
contemporaneously charged by Schroder Wertheim on comparable transactions for
its most favored unaffiliated customers; and (2) at least as favorable as those
which would be charged on comparable transactions by other qualified brokers
having comparable execution capability. The Board of Trustees, including a
majority of the non-interested Trustees, has adopted procedures pursuant to Rule
17e-1 promulgated by the SEC 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.
It is further a policy of the Portfolio that all such transactions effected for
the Portfolio by Schroder Wertheim on the New York Stock Exchange be in
accordance with Rule 11a2-2(T) promulgated under the 1934 Act, which requires in
substance that a member of such exchange not associated with Schroder Wertheim
actually execute the transaction on the exchange floor or through the exchange
facilities. Thus, while Schroder Wertheim will bear responsibility for
determining important elements of execution such as timing and order size,
another firm will actually execute the transaction.
Schroder Wertheim pays a portion of the brokerage commissions it receives from
the Portfolio to the brokers executing the Portfolio's transactions on the New
York Stock Exchange. In accordance with Rule 11a2-2(T), Schroder Core II has
entered into an agreement with Schroder Wertheim permitting it to retain a
portion of the brokerage commissions paid to it by the Portfolio. This agreement
has been approved by the Schroder Core II Board, including a majority of the
non-interested Trustees.
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.
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From time to time, the Portfolio may purchase securities of a broker or dealer
through which its regularly engages in securities transactions.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Trust Instrument, the Trustees are authorized to issue beneficial
interest in one or more separate 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 Portfolio investor 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 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 may enter into a merger or consolidation, or sell all or substantially
all of the Portfolio's assets, if approved by the 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 (iii) 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 is classified for federal income tax purposes as a partnership
that is not a "publicly traded partnership". As a result, the Portfolio is not
subject to federal income tax; instead, each investor in the Portfolio is
required to take into account in determining its federal income tax liability
its share of the Portfolio's income, gain, loss, deductions, and
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credits, without regard to whether it has received any cash distributions from
the Portfolio. The Portfolio also is not subject to Delaware income or franchise
tax.
Each investor in the Portfolio is deemed to own a proportionate share of the
Portfolio's assets and to earn a proportionate share of the Portfolio's income,
for, among other things, purposes of determining whether the investor satisfies
the requirements to qualify as a regulated investment company ("RIC").
Accordingly, the Portfolio conducts 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 (iv) gain or loss may be recognized on a
distribution to an investor that contributed property to the Portfolio. An
investor's basis for its interest in the Portfolio generally will equal the
amount of cash and the basis of any property it invests in the Portfolio,
increased by the investor's share of the Portfolio's net income and gains and
decreased by: (1) the amount of cash and the basis of any property the Portfolio
distributes to the investor; and (2) 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
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.
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 that holds stock of a
PFIC (including a RIC investor's indirect holding thereof through its interest
in the Portfolio) will be subject to federal income tax on a portion of any
"excess distribution" received on the stock or of any gain on disposition of the
stock (collectively "PFIC income"), plus interest thereon, even if the RIC
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the RIC's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders.
If the Portfolio invests in a PFIC and elects to treat the PFIC as a "qualified
electing Portfolio," then in lieu of the foregoing tax and interest obligation,
the Portfolio would be required to include in income each year its pro rata
share of the qualified electing fund's annual ordinary earnings and net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
- -- which most likely would have to be distributed by the Portfolio`s RIC
investors to satisfy the distribution requirements to them -- even 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.
Bills passed by Congress in 1991 and 1992 and vetoed by President Bush would
have substantially modified the taxation of U.S. shareholders of foreign
corporations, including eliminating the provisions described above dealing with
PFICs and replacing them (and other provisions) with a regulatory scheme
involving entities called "passive foreign corporations." The "Tax
Simplification and Technical Corrections Bill of 1993," passed in May 1994 by
the House of Representatives, contains the same modifications. It is unclear at
this time whether, and in what form, the proposed modifications may be enacted
into law.
Proposed regulations have been published pursuant to which certain RICs 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 marked-to-market gain for
each prior year for which an election was in effect).
24
<PAGE>
The Portfolio's use of hedging strategies, such as writing (selling) and
purchasing options and futures and 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 the Portfolio realizes in
connection therewith. The Portfolio's income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and income
from transactions in hedging instruments derived by it 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 by the Portfolio of hedging instruments
(other than those on foreign currencies) held for less than three months 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
("Short-Short Limitation"). Income from the disposition of foreign currencies,
and hedging instruments on foreign currencies, that are not directly related to
the Portfolio's principal business of investing in securities (or options and
futures with respect thereto) also will be subject to the Short-Short Limitation
for its RIC investors if they are held for less than three months.
If the Portfolio satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether its RIC investors
satisfy the Short-Short Limitation. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. The Portfolio will consider whether it should seek to qualify for
this treatment for its hedging transactions. To the extent the Portfolio does
not so qualify, it may be forced to defer the closing out of certain hedging
instruments beyond the time when it otherwise would be advantageous to do so, in
order for its RIC investors to qualify or continue to qualify as RICs.
ITEM 21. UNDERWRITERS.
Forum Financial Services, Inc. ("FFSI"), Two Portland Square, Portland, Maine
04101, 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.
25
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
CORPORATE AND MUNICIPAL BOND RATINGS
"Aaa": Bonds that 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 that 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 that 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 that 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 that 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 that 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 that are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
"Ca": Bonds that 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 that 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.
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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 U.S. 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: (1) earnings of projects under construction; (2) earnings of
projects unseasoned in operating experience; (3) rentals that begin when
facilities are completed; or (4) 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 is a function of each issue's specific structural or
credit features.
"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 often is evidenced by many of the following
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<PAGE>
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 normally is
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.
"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 likely has 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
A-3
<PAGE>
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.
"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.
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.
A-4
<PAGE>
"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.
A-5
<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")
(filed herewith).
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) Investment Advisory Agreement between the Trust and Schroder
Capital Management International Inc. ("SCMI") for Schroder
International Bond Portfolio (filed herewith).
(6) Placement Agent Agreement between the Trust and Forum for
Schroder International Bond Portfolio (filed herewith).
(7) Not applicable.
(8) Custodian Agreement between the Trust and The Chase Manhattan
Bank for Schroder International Bond Portfolio
(filed herewith).
(9) (a) Administration Agreement between the Trust and
Schroder Fund Advisors Inc. for Schroder
International Bond Portfolio (filed herewith).
(b) Sub-Administration Agreement between the Trust and
Forum Administrative Services LLC ("Forum")
for Schroder International Bond Portfolio
(filed herewith).
(c) Form of Transfer Agency and Portfolio Accounting
Agreement between the Trust and Forum Financial Corp.
for Schroder International Bond Portfolio
(filed herewith).
(10) Not required.
(11) Not required.
<PAGE>
(12) Not required.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Not applicable.
Item 25. Persons Controlled by or Under Common Control with Registrant.
----------------------------------------------------------------
None
Item 26. Number of Holders of Securities as of June 30, 1997.
-------------------------------------------------------
Title of Class of Shares Number of Holders
of Beneficial Interest -----------------
- ------------------------
Schroder International Bond Portfolio 3
Item 27. Indemnification.
------------------------
The Trust holds 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 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.
--------------------------------------------------------
<PAGE>
The following are the directors and principal officers of SCMI, including their
business connections that 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 that provides investment
management services international clients located principally in the United
States.
David M. Salisbury, Director and Chairman. 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/Executive Vice President and
Director. Mr. Foulkes is also an Executive Vice President of Schroder
Capital Management International Ltd.and a Director of Schroder Ltd.
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 Capital Management 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, Executive Vice President and Director. Ms. Haugh is
also a Director of Schroder Ltd.
Gavin D.L. Ralston, Director and Senior 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 Senior
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, Chief Executive and Director. 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.
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.
Heather F. Crighton, First Vice President. Ms. Crighton is also Vice
President of Schroder Ltd.
<PAGE>
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
Senior 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 President of Schroder
Advisors.
Abdallah Nauphal, Group Vice President and also Director of Schroder
Capital Managment Inc.
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.
Mark J. Astley, 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.
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, First Vice President. During the last two years, Mr.
Melendez has been a Vice President of Natwest Securities (an
investment adviser), 175 Water Street, New York, NY.
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, First Vice President. Mr. Unschuld is also an officer
of various open end investment companies for which SCMI and/or its
affiliates provide investment services.
<PAGE>
Dawn M. Vroegop, First 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, First Vice President and Compliance Officer. Ms.
Whelan is also Vice President of Schroder Advisors.
Michael M. Perelstein, Senior Vice President and Director. Mr.
Perelstein has been Senior Vice President as of January, 1997 and
Director since May 1997; prior thereto he was Managing Director of
MacKay - Shields Financial Corp.
Item 29. Principal Underwriters.
-------------------------
(a) Not applicable.
(b) Not applicable.
(c) 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, Limited Liability Company 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 11th day of August, 1997.
SCHRODER CAPITAL FUNDS II
By: /S/ Catherine A. Mazza
--------------------------
Catherine A. Mazza
Vice President
<PAGE>
EXHIBIT INDEX
Exhibits:
(1) Trust Instrument of Schroder Capital Funds II (the "Trust") (filed
herewith).
(5) Investment Advisory Agreement between the Trust and Schroder Capital
Management International Inc. ("SCMI") with respect to Schroder
International Bond Portfolio (filed herewith).
(6) Placement Agent Agreement between the Trust and Forum for
Schroder International Bond Portfolio (filed herewith).
(8) Custodian Agreement between the Trust and The Chase Manhattan Bank, N.A.
with respect to Schroder International Bond Portfolio (filed herewith).
(9) (a) Administration Agreement between the Trust and Schroder Fund Advisors
Inc. with respect to Schroder International Bond Portfolio (filed
herewith).
(b) Sub-Administration Agreement between the Trust and Forum Administrative
Services LLC ("Forum") with respect to Schroder International Bond
Portfolio (filed herewith).
(c) Transfer Agency and Portfolio Accounting Agreement between the Trust
and Forum Financial Corp. with respect to Schroder International Bond
Portfolio (filed herewith).
<PAGE>
EXHIBIT (1)
<PAGE>
SCHRODER CAPITAL FUNDS II
TRUST INSTRUMENT
DATED DECEMBER 26, 1996
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I -- THE TRUST
Section 1.1 Name........................................................................... 1
Section 1.2 Definitions.................................................................... 1
ARTICLE II -- TRUSTEES AND OFFICERS
Section 2.1 Number and Qualification....................................................... 3
Section 2.2 Term and Election.............................................................. 3
Section 2.3 Resignation and Removal........................................................ 3
Section 2.4 Vacancies...................................................................... 3
Section 2.5 Meetings....................................................................... 3
Section 2.6 Committees..................................................................... 4
Section 2.7 By-Laws........................................................................ 5
Section 2.8 Officers of the Trust.......................................................... 5
Section 2.9 Election, Tenure and Removal of Officers....................................... 5
Section 2.10 Chairman, President and Vice Presidents....................................... 5
Section 2.11 Secretary..................................................................... 6
Section 2.12 Treasurer..................................................................... 6
Section 2.13 Other Officers and Duties..................................................... 6
ARTICLE III -- POWERS OF TRUSTEES
Section 3.1 General........................................................................ 6
Section 3.2 Investments.................................................................... 6
Section 3.3 Legal Title.................................................................... 7
Section 3.4 Sale of Interests.............................................................. 7
Section 3.5 Borrow Money................................................................... 7
Section 3.6 Delegation..................................................................... 7
Section 3.7 Collection and Payment......................................................... 7
Section 3.8 Expenses....................................................................... 7
Section 3.9 Miscellaneous Powers........................................................... 8
Section 3.10 Further Powers................................................................ 8
Section 3.11 Principal Transactions........................................................ 8
ARTICLE IV -- INVESTMENT MANAGEMENT, CUSTODIAL AND PRIVATE
PLACEMENT ARRANGEMENTS
Section 4.1 Investment Management and Other Arrangements................................... 8
Section 4.2 Custodial Arrangements......................................................... 9
Section 4.3 Parties to Contract............................................................ 9
Section 4.4 Compliance with 1940 Act....................................................... 9
ARTICLE V -- LIMITATIONS OF LIABILITY
Section 5.1 No Personal Liability of Trustees, Holders..................................... 9
Section 5.2 Indemnification................................................................ 10
Section 5.3 No Bond Required of Trustees................................................... 11
Section 5.4 No Duty of Investigation; Notice in Trust Instruments, etc..................... 11
Section 5.5 Reliance on Experts, etc....................................................... 12
<PAGE>
ARTICLE VI -- INTERESTS OF THE TRUST
Section 6.1 Interests...................................................................... 12
Section 6.2 Rights of Holders.............................................................. 12
Section 6.3 Purchase of or Increase in Interests........................................... 12
Section 6.4 Register of Interests.......................................................... 12
Section 6.5 Non-Transferability............................................................ 12
Section 6.6 Notices........................................................................ 12
Section 6.7 Assent to Trust Instrument..................................................... 13
Section 6.8 Establishment of Series........................................................ 13
Section 6.9 Assets and Liabilities of Series............................................... 13
ARTICLE VII -- DECREASES AND WITHDRAWALS
Section 7.1 Decreases and Withdrawals...................................................... 14
ARTICLE VIII -- DETERMINATION OF BOOK CAPITAL ACCOUNT
BALANCES, NET ASSET VALUE, ALLOCATIONS
AND DISTRIBUTIONS
Section 8.1 Book Capital Account Balances.................................................. 14
Section 8.2 Net Asset Value................................................................ 14
Section 8.3 Allocation of Net Profits and Net Losses....................................... 15
Section 8.4 Distributions.................................................................. 15
Section 8.5 Power to Modify Foregoing Procedures........................................... 15
ARTICLE IX -- HOLDERS
Section 9.1 Meetings of Holders............................................................ 15
Section 9.2 Notice of Meetings............................................................. 16
Section 9.3 Record Date for Meetings....................................................... 16
Section 9.4 Proxies, etc................................................................... 16
Section 9.5 Inspectors of Election......................................................... 16
Section 9.6 Inspection of Records.......................................................... 17
Section 9.7 Holder Action by Written Consent............................................... 17
Section 9.8 Voting Powers.................................................................. 17
ARTICLE X -- DURATION; TERMINATION; DISSOLUTION; AMENDMENT;
MERGERS; ETC.
Section 10.1 Termination of Trust or any Series............................................ 17
Section 10.2 Dissolution................................................................... 18
Section 10.3 Amendment Procedure........................................................... 18
Section 10.4 Merger or Consolidation....................................................... 19
Section 10.5 Incorporation................................................................. 19
ARTICLE XI -- MISCELLANEOUS
Section 11.1 Governing Law................................................................. 19
Section 11.2 Counterparts.................................................................. 20
Section 11.3 Reliance by Third Parties..................................................... 20
Section 11.4 Provisions in Conflict with Law on Regulations................................ 20
Section 11.5 Signatures.................................................................... 20
Section 11.6 Seal.......................................................................... 20
Section 11.7 Fiscal Year................................................................... 20
Section 11.8 Waivers of Notice............................................................. 20
Section 11.9 Reports....................................................................... 20
</TABLE>
<PAGE>
SCHRODER CAPITAL FUNDS II
This TRUST INSTRUMENT of SCHRODER CAPITAL FUNDS II is executed as of
the 26th day of December, 1996 by the parties signatory hereto, as Trustees.
WHEREAS, the Trustees desire to form a business trust under the law of
Delaware for the investment and reinvestment of the Trust's assets; and
WHEREAS, it is proposed that the trust assets be composed of money and
property contributed hereto by the holders of interests in the trust entitled to
ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust all money and property contributed to the trust fund to manage and dispose
of the same for the benefit of the holders of interests in the trust and subject
to the provisions hereof, to wit:
ARTICLE I
THE TRUST
1.1. NAME. The name of the trust created hereby (the "Trust") shall be
"Schroder Capital Funds II" and so far as may be practicable the Trustees shall
conduct the Trust's activities, execute all documents and sue or be sued under
that name, which name (and the word "Trust" wherever hereinafter used) shall
refer to the Trustees as Trustees, and not individually, and shall not refer to
the officers, agents, employees or holders of interests in the Trust. However,
should the Trustees determine that the use of the name of the Trust is not
advisable, they may select such other name for the Trust as they deem proper and
the Trust may hold its property and conduct its activities under such other
name.
1.2. DEFINITIONS. As used in this Trust Instrument, the following
terms shall have the following meanings:
The terms "Affiliated Person," "Assignment" and "Interested Person"
shall have the meanings given them in the 1940 Act, as modified by any
applicable order or orders of the Commission or interpretive releases of the
Commission thereunder.
"Book Capital Account" shall mean, for any Holder of Interests in a
particular Series at any time, the Book Capital Account of the Holder with
respect to that Series for such day, determined in accordance with Article VIII
of this Instrument.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Delaware Act" shall mean Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as it may be amended from time
to time.
<PAGE>
"Fiscal Year" shall mean, with respect to any Series, an annual period
as determined by the Trustees.
"Holders" shall mean as of any particular time all holders of record of
Interests of a Series of the Trust at such time.
"Instrument" shall mean this Trust Instrument as amended from time to
time. References in this Instrument to "Instrument," "hereof," "herein" and
"hereunder" shall be deemed to refer to the Instrument rather than the article
or section in which such words appear.
"Interest(s)" shall mean, with respect to each Series or the Trust, the
interest of a Holder in that Series or the Trust, as applicable, including all
rights, powers and privileges accorded to such Holders in this Instrument, which
interest (i) in a Series, may be expressed as a percentage, determined by
calculating, at such times and on such basis, as the Trustees shall from time to
time determine, the ratio of each Holder's Book Capital Account balance to the
total of all Holders' Book Capital Account balances in that Series and (ii) in
the Trust, may be expressed as a percentage, determined by calculating, at such
times and on such basis, as the Trustees shall from time to time determine, the
ratio of each Holder's aggregate capital account balance in all Series of the
Trust to the total of all Holders' capital account balances in all Series of the
Trust. Reference herein to a specified percentage in, or fraction of, Interests
of the Holders in a Series means Holders whose combined Book Capital Accounts
represent such specified percentage or fraction of the Book Capital Accounts of
all Holders in that Series.
"Investment Manager" shall mean any person furnishing services to the
Trust or any Series pursuant to any investment management contract as described
in Section 4.1 hereof.
"Majority Interests Vote" shall mean, with respect to the Trust or a
Series thereof, the vote, at a meeting of the Holders of the Trust or Series, as
the case may be, of (i) 67% or more of the Interests present or represented at
such meeting, if the Holders of more than 50% of the Interests of the Trust or
Series, as the case may be, are present or represented by proxy or (ii) more
than 50% of the Interests of the Trust or Series, as the case may be, whichever
is less.
"Net Asset Value" shall have the meaning assigned to that term in
Section 8.2 hereof.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"Registration Statement" shall mean the Registration Statement of the
Trust under the 1940 Act, as amended from time to time.
"Series" shall mean a series of Interests of the Trust established in
accordance with the provisions of Article VI, Section 6.8 hereof.
"Trustees" shall mean the signatories to this Instrument, so long as
they shall continue in office in accordance with the terms hereof, and all other
persons who at the time in question have been duly elected or appointed and have
qualified as trustees in accordance with the provisions hereof and are then in
office, who are herein referred to as the "Trustees," and reference in this
Instrument to a Trustee or Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or any Series, or the Trustees on
behalf of the Trust or any Series.
The "1940 Act" refers to the Investment Company Act of 1940, as amended
from time to time, and the rules and regulations thereunder.
<PAGE>
ARTICLE II
TRUSTEES AND OFFICERS
2.1. NUMBER AND QUALIFICATION. The number of Trustees shall be fixed
from time to time by the Trustees then in office, provided, however, that the
number of Trustees shall in no event be less than three or more than twelve. Any
vacancy created by an increase in Trustees may be filled by the appointment of
an individual having the qualifications described in this Article. Any such
appointment shall not become effective, however, until the individual appointed
shall have accepted such appointment and agreed to be bound by the terms of this
Instrument. No reduction in the number of Trustees shall have the effect of
removing any Trustee from office. Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided in Section 2.4 hereof, the
Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Instrument.
2.2. TERM AND ELECTION. Each Trustee named herein, or elected or
appointed hereunder, shall (except in the event of resignations or removals or
vacancies pursuant to Section 2.3 or 2.4 hereof) hold office until the Trustee's
successor has been elected and has qualified to serve as Trustee. Beginning with
the Trustees elected at the first meeting of Holders, each Trustee shall hold
office during the lifetime of this Trust and until its termination as
hereinafter provided unless such Trustee resigns or is removed as provided in
Section 2.3 below.
2.3. RESIGNATION AND REMOVAL. Any Trustee may resign their trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered or mailed to the Chairman, if any, the President or
the Secretary and such resignation shall be effective upon such delivery, or at
a later date according to the terms of the instrument. Any of the Trustees may
be removed by the affirmative vote of the Holders of two-thirds (2/3) of the
Interests or (provided the aggregate number of Trustees, after such removal and
after giving effect to any appointment made to fill the vacancy created by such
removal, shall not be less than the number required by Section 2.1 hereof) with
cause, by the action of two-thirds of the remaining Trustees. Removal with cause
includes, but is not limited to, the removal of a Trustee due to physical or
mental incapacity. Upon the resignation or removal of a Trustee, or the
Trustee's otherwise ceasing to be a Trustee, the Trustee shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Trust or the remaining Trustees any Trust Property held in
the name of the resigning or removed Trustee. Upon the death of any Trustee or
upon removal or resignation due to any Trustee's incapacity to serve as trustee,
the Trustee's legal representative shall execute and deliver on the Trustee's
behalf such documents as the remaining Trustees shall require as provided in the
preceding sentence.
2.4. VACANCIES. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, adjudicated
incompetence or other incapacity to perform the duties of the office, or
removal, of a Trustee or increase in the number of Trustees. No such vacancy
shall operate to annul this Instrument or to revoke any existing agency created
pursuant to the terms of this Instrument. In the case of a vacancy, the Holders
of at least a majority of the Interests entitled to vote, acting at any meeting
of the Holders held in accordance with Section 9.1 hereof, or a majority vote of
the Trustees continuing in office, may fill such vacancy, and any Trustee so
elected by the Trustees or the Holders shall hold office as provided in this
Instrument.
2.5. MEETINGS.
(a) Meetings of the Trustees shall be held from time to time upon the
call of the Chairman, if any, the President, the Secretary, or any two Trustees.
The Trustees may act with or without a meeting. A quorum for all meetings of the
Trustees shall be a majority of the Trustees. Unless provided otherwise in this
Instrument, any action of the Trustees may be taken by vote of a majority of the
Trustees present (a quorum being present) at a meeting duly called or by
unanimous written consent of the Trustees without a meeting. In the absence of a
quorum, a majority of the Trustees present may adjourn the meeting from time to
time until a quorum shall be present. Notice of an adjourned meeting need not be
given. The Trustees by majority vote may delegate to any one or more of their
number their authority to approve particular matters or take particular actions
on behalf of the Trust.
<PAGE>
(b) Regular meetings of the Trustees may be held without call or notice
at a time and place fixed by the Trustees. Notice of any other meeting shall be
given by mail, facsimile or telegram (which term shall include a cablegram) or
delivered personally, which shall include by telephone. Notice of a meeting
designating the time, date and place of such meeting shall be mailed not less
than 72 hours or otherwise given not less than 24 hours before the meeting but
may be waived in writing by any Trustee either before or after such meeting. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of
objecting, at the commencement of such meeting, to the transaction of any
business on the ground that the meeting has not been lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Trustees need be stated in the notice or waiver of
notice of such meeting, and no notice need be given of action proposed to be
taken by unanimous written consent.
(c) All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting pursuant to such
communications system shall constitute presence in person at such meeting.
(d) The Chairman, if any, shall act as chairman at all meetings of the
Trustees; in the Chairman's absence the President shall act as chairman; and, in
the absence of the Chairman and the President, the Trustees present shall elect
one of their number to act as temporary chairman. The results of all actions
taken at a meeting of the Trustees, or by unanimous written consent of the
Trustees, shall be recorded by the Secretary.
(e) With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 2.5, or with respect to committees, Section 2.6 of this Instrument,
and shall be entitled to vote to the extent permitted by the 1940 Act.
2.6. COMMITTEES.
(a) Any committee of the Trustees may act with or without a meeting. A
quorum for all meetings of any committee shall be a majority of the members
thereof or such lesser number as determined by the Trustees. Unless provided
otherwise in this Instrument, any action of any committee may be taken by a vote
of a majority of the members present (a quorum being present) at a meeting or by
unanimous written consent of the members without a meeting or by telephone
meeting.
(b) The Trustees by vote of a majority of all the Trustees may elect
from their own number an Executive Committee to consist of not less than two (2)
to hold office at the pleasure of the Trustees, which shall have the power to
conduct the current and ordinary business of the Trust while the Trustees are
not in session, including the purchase and sale of securities and the
designation of securities to be delivered upon decrease or withdrawal of
Interests of the Trust or any Series, and such other powers of the Trustees as
the Trustees may, from time to time, delegate to them except those powers which
by law or this Instrument they are prohibited from delegating. The Trustees may
also elect from their own number other Committees from time to time, the number
composing such Committees, the powers conferred upon the same (subject to the
same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees may
designate a Chairman of any such Committee. In the absence of such designation,
the Committee may elect its own Chairman. Each Committee shall keep regular
minutes of its meetings and records of decisions taken without a meeting and
cause them to be recorded in a book designated for that purpose and kept in the
Office of the Trust.
(c) The Trustees may (1) provide for stated meetings of any Committee;
(2) specify the manner of calling and notice required for special meetings of
any Committee; (3) specify the number of members of a Committee required to
constitute a quorum and the number of members of a Committee required to
exercise specified powers delegated to such Committee; (4) authorize the making
of decisions to exercise specified powers by written assent of the requisite
number of members of a Committee without a meeting; and (5) authorize the
members of a Committee to meet by means of a telephone conference circuit.
<PAGE>
2.7. BY-LAWS. The Trustees may, but need not, adopt By-Laws for the
conduct of the business of the Trust and may from time to time amend or repeal
any By-Laws.
2.8. OFFICERS OF THE TRUST. The Trustees shall, from time to time,
elect a President, a Secretary and a Treasurer. The Trustees may elect or
appoint, from time to time, a Chairman of the Board. The Trustees may elect or
appoint such other officers or assistant officers, including Vice Presidents, as
the business of the Trust may require. The Trustees may delegate to any officer
or committee the power to appoint any subordinate officers or agents. Any two or
more of the offices may be held by the same person, except that the same person
may not be both President and Secretary. The Trustees may designate a Vice
President as an Executive Vice President and may designate the order in which
the other Vice Presidents may act. The Chairman and the President shall be
Trustees, but no other officer of the Trust need be a Trustee. Any officer may
be required by the Trustees to be bonded for the faithful performance of the
officer's duties in such amount and with such sureties as the Trustees may
determine.
2.9. ELECTION, TENURE AND REMOVAL OF OFFICERS. At the initial
organization meeting and thereafter at each annual meeting of the Trustees, the
Trustees shall elect the Chairman, if any, President, Secretary, Treasurer. The
Trustees may from time to time elect or appoint such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust and such officers shall hold office until the next annual meeting
of the Trustees and until their successors have been duly elected and qualified.
The Trustees also may authorize or appoint the President to appoint such other
officers as the Trustees shall deem necessary or appropriate in order to carry
out the business of the Trust. The Trustees may fill any vacancy in office or
add any additional officers at any time. Any officer may be removed at any time,
with or without cause, by action of a majority of the Trustees. This provision
shall not prevent the making of a contract of employment for a definite term
with any officer and shall have no effect upon any cause of action which any
officer may have as a result of removal in breach of a contract of employment.
Any officer may resign at any time by notice in writing signed by such officer
and delivered or mailed to the Chairman, if any, President, or Secretary, and
such resignation shall take effect immediately, or at a later date according to
the terms of such notice in writing.
2.10. CHAIRMAN, PRESIDENT, AND VICE PRESIDENTS. The Chairman, if any,
shall, if present, preside at all meetings of the Holders and of the Trustees
and shall exercise and perform such other powers and duties as may be from time
to time assigned to him by the Trustees. Subject to such supervisory powers, if
any, as may be given by the Trustees to the Chairman, if any, the President
shall be the chief executive officer of the Trust and, subject to the control of
the Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of President of a
corporation. In the absence of the Chairman, if any, the President shall preside
at all meetings of the Holders and the Trustees. Subject to direction of the
Trustees, the Chairman, if any, and the President shall each have power in the
name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages, and other instruments in writing, and
to employ and discharge employees and agents of the Trust. Unless otherwise
directed by the Trustees, the Chairman, if any, and the President shall each
have full authority and power, on behalf of all of the Trustees, to attend and
to act and to vote, on behalf of the Trust, at any meetings of business
organizations in which the Trust holds an interest, or to confer such powers
upon any other persons, by executing any proxies duly authorizing such persons.
The Chairman, if any, and the President shall have such further authorities and
duties as the Trustees shall from time to time determine. In the absence or
disability of the President, the Vice Presidents in order of their rank or the
Vice President designated by the Trustees, shall perform all of the duties of
President, and when so acting shall have all the powers of and be subject to all
of the restrictions upon the President. Subject to the direction of the
President, each Vice President shall have the power in the name and on behalf of
the Trust to execute any and all loan documents, contracts, agreements, deeds,
mortgages and other instruments in writing, and, in addition, shall have such
other duties and powers as shall be designated from time to time by the Trustees
or by the President.
2.11. SECRETARY. The Secretary shall keep the minutes of all meetings
of, and record all votes of, Holders, Trustees and the Executive Committee, if
any. The Secretary shall be custodian of the seal of the Trust, if any, and the
Secretary (and any other person so authorized by the Trustees) shall affix the
seal or, if permitted, a facsimile thereof, to any instrument executed by the
Trust which would be sealed by a Delaware corporation
<PAGE>
executing the same or a similar instrument and shall attest the seal and the
signature or signatures of the officer or officers executing such instrument on
behalf of the Trust. The Secretary shall also perform any other duties commonly
incident to such office in a Delaware business corporation, and shall have such
other authorities and duties as the Trustees shall from time to time determine.
2.12. TREASURER. Except as otherwise directed by the Trustees, the
Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable and other valuable papers and documents of the Trust, and shall
have and exercise under the supervision of the Trustees and of the President all
powers and duties normally incident to the President's office. The Treasurer may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. The Treasurer shall deposit all funds of
the Trust as may be ordered by the Trustees or the Treasurer. The Treasurer
shall deliver all funds of the Trust which may come into the Treasurer's hands
to such Custodian as the Trustees may employ pursuant to Article V of these
By-Laws. The Treasurer shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust, and which together with
all other property of the Trust in the Treasurer's possession, shall be subject
at all times to the inspection and control of the Trustees. Unless the Trustees
shall otherwise determine, the Treasurer shall be the principal accounting
officer of the Trust and shall also be the principal financial officer of the
Trust. The Treasurer shall have such other duties and authorities as the
Trustees or President shall from time to time determine. Notwithstanding
anything to the contrary herein contained, the Trustees may authorize any
investment adviser, administrator or manager to maintain bank accounts and
deposit and disburse funds on behalf of the Trust.
2.13. OTHER OFFICERS AND DUTIES. The Trustees may elect such other
officers and assistant officers as they shall from time to time determine to be
necessary or desirable in order to conduct the business of the Trust. Assistant
officers shall act generally in the absence of the officer whom they assist and
shall assist that officer in the duties of their office. Each officer, employee
and agent of the Trust shall have such other duties and authority as may be
conferred upon him by the Trustees or delegated to him by the President.
ARTICLE III
POWERS OF TRUSTEES
3.1. GENERAL. The Trustees shall have exclusive and absolute control
over the Trust Property and over the business of the Trust to the same extent as
if the Trustees were the sole owners of the Trust Property and business in their
own right, but with such powers of delegation as may be permitted by this
Instrument. The Trustees may perform such acts as in their sole discretion are
proper for conducting the business of the Trust. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid power. Such powers
of the Trustees may be exercised without order of or resort to any court.
3.2. INVESTMENTS. The Trustees shall have power to:
(a) Conduct, operate and carry on the business of an investment
company;
(b) Subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
deal in or dispose of any form of property including United States and foreign
currencies and related instruments including forward contracts, and securities,
including common and preferred stocks, warrants, bonds, debentures, time notes
and all other evidences of indebtedness, negotiable or non-negotiable
instruments, obligations, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, reverse repurchase agreements, convertible
securities, forward contracts, options, futures contracts, and other securities,
including, without limitation, those issued, guaranteed or sponsored by any
state, territory or possession of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, or by the
United States Government, any foreign government, or any agency, instrumentality
or political subdivision of the United States Government or any foreign
government, or international instrumentalities, or by any bank, savings
institution, corporation or other business entity organized under the laws of
the United States or under foreign laws; and to exercise any and all rights,
powers and privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without limitation, the
right to consent and otherwise act with respect thereto, with power to designate
one or more persons, firms, associations or
<PAGE>
corporations to exercise any of said rights, powers and privileges in respect of
any of said instruments; and the Trustees shall be deemed to have the foregoing
powers with the respect to any additional securities in which the Trustees may
determine to invest.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3. LEGAL TITLE. Legal title to all the Trust Property shall be vested
in the Trustees as joint tenants except that the Trustees shall have the power
to cause legal title to any Trust Property to be held by or in the name of one
or more of the Trustees, or in the name of the Trust, or in the name of any
other Person on behalf of the Trust, on such terms as the Trustees may
determine.
The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each person who may hereafter become a Trustee upon
the Trustee's due election and qualification. Upon the resignation, removal or
death of a Trustee, the Trustee shall automatically cease to have any right,
title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
3.4. SALE OF INTERESTS. Subject to the more detailed provisions set forth
in Articles VII and VIII, the Trustees shall have the power to permit persons to
purchase Interests and to add to or reduce, in whole or in part, their Interest
in the Trust or any Series thereof.
3.5. BORROW MONEY. The Trustees shall have power to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, including the lending
of portfolio securities, and to endorse, guarantee or undertake the performance
of any obligation, contract or engagement of any other person, firm, association
or corporation.
3.6. DELEGATION. The Trustees shall have power, consistent with their
continuing exclusive authority over the management of the Trust and the Trust
Property, to delegate from time to time to such of their number or to officers,
employees or agents of the Trust the doing of such things and the execution of
such instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
3.7. COLLECTION AND PAYMENT. The Trustees shall have power to collect
all property due to the Trust; and to pay all claims, including taxes, against
the Trust Property; to prosecute, defend, compromise or abandon any claims
relating to the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.
3.8. EXPENSES. The Trustees shall have power to incur and pay all
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Instrument, and to pay reasonable
compensation from the funds of the Trust or the assets of the appropriate Series
to themselves as Trustees. The Trustees shall fix the compensation of all
officers, employees and Trustees. The Trustees may pay themselves such
compensation for special services, including legal and brokerage services, as
they in good faith may deem reasonable, and reimbursement for expenses
reasonably incurred by themselves on behalf of the Trust or any Series thereof.
3.9. MISCELLANEOUS POWERS. The Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property or the assets of the appropriate Series,
insurance policies insuring the Investment Manager, placement agent, Holders,
Trustees, officers, employees, agents, or independent contractors of the Trust
against all claims arising by reason of holding any such position or by reason
of any action taken or omitted by any such Person in such capacity, whether or
not the Trust would have the power to indemnify such Person against such
liability; (d) establish pension, profit-sharing
<PAGE>
and other retirement, incentive and benefit plans for any Trustees, officers,
employees and agents of the Trust; (e) make donations, irrespective of benefit
to the Trust, for charitable, religious, educational, scientific, civic or
similar purposes; (f) to the extent permitted by law, indemnify any Person with
whom the Trust has dealings, including the Investment Manager, placement agent,
Holders, Trustees, officers, employees, agents or independent contractors of the
Trust, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
Fiscal Year of each Series of the Trust and the method in which its accounts
shall be kept; (i) adopt a seal for the Trust, but the absence of such seal
shall not impair the validity of any instrument executed on behalf of the Trust;
(j) establish separate and distinct Series with separately defined investment
objectives and policies and distinct investment purposes in accordance with the
provisions of Article VI hereof; (k) subject to the provisions of Section 3804
of the Delaware Act, allocate assets, liabilities and expenses of the Trust to a
particular Series or apportion the same between or among two or more Series,
provided that any liabilities or expenses incurred by a particular Series shall
be payable solely out of the assets belonging to that Series as provided for in
Article VI hereof; (l) establish, from time to time, a minimum investment for
Holders in the Trust or in one or more Series, and require the withdrawal of any
Holder whose investment is less than such minimum upon giving notice to such
Holder and; (m) appoint, or authorize any officer or officers to appoint, one or
more registrars of the Trust.
3.10. FURTHER POWERS. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices, whether within or without the State of Delaware, in any
and all states of the United States of America, in the District of Columbia, and
in any and all commonwealths, territories, dependencies, colonies, possessions,
agencies or instrumentalities of the United States of America and of foreign
governments, and to do all such other things and execute all such instruments as
they deem necessary, proper or desirable in order to promote the interests of
the Trust although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of this
Instrument, the presumption shall be in favor of a grant of power to the
Trustees. The Trustees will not be required to obtain any court order to deal
with Trust Property.
3.11. PRINCIPAL TRANSACTIONS. The Trustees may, on behalf of the Trust,
buy any securities from or sell any securities to, or lend any assets of the
Trust or any Series to, any Trustee or officer of the Trust or any firm of which
any such Trustee or officer is a member acting as principal, or have any such
dealings with any investment manager, placement agent or transfer agent for the
Trust or with any Interested Person of such person; and the Trust may employ any
such person, or firm or company in which such person is an Interested Person, as
broker, legal counsel, registrar, investment manager, placement agent, transfer
agent, dividend disbursing agent, custodian or in any other capacity upon
customary terms.
ARTICLE IV
INVESTMENT MANAGEMENT, CUSTODIAL
AND PLACEMENT AGENT ARRANGEMENTS
4.1. INVESTMENT MANAGEMENT AND OTHER ARRANGEMENTS. The Trustees may in
their discretion, from time to time, enter into investment management contracts
or placement agent agreements with respect to the Trust or any Series whereby
the other party to such contract or agreement shall undertake to furnish the
Trustees such investment management, placement agent and/or other services as
the Trustees shall, from time to time, consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Instrument, the Trustees may authorize
any Investment Manager (subject to such general or specific instruments as the
Trustees may, from time to time, adopt) to effect purchases, sales, loans or
exchanges of Trust Property on behalf of the Trustees or may authorize any
officer, employee or Trustee to effect such purchases, sales, loans or exchanges
pursuant to recommendations of any such Investment Manager (and all without
further action by the Trustees). Any such purchases, sales, loans and exchanges
shall be deemed to have been authorized by all of the Trustees.
<PAGE>
4.2. CUSTODIAL ARRANGEMENTS.
(a) The Trustees shall at all times employ a bank, a company that is a
member of a national securities exchange, or a trust company, each having
capital, surplus and undivided profits of at least two million dollars
($2,000,000) as custodian with authority as the Trust's agent, but subject to
such restrictions, limitations and other requirements as the Trustees shall
determine (i) to hold the securities owned by the Trust and deliver the same
upon written order or oral order confirmed in writing; (ii) to receive and
receipt for any monies due to the Trust and deposit the same in its own banking
department or elsewhere as the Trustees may direct; and (iii) to disburse such
funds upon orders or vouchers.
(b) The Trustees may direct the custodian to deposit all or any part of
the securities owned by the Trust in a system for the central handling of
securities established by a national securities exchange or a national
securities association registered with the Commission under the Securities
Exchange Act of 1934, as amended, or such other person as may be permitted by
the Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust or its custodians, subcustodians or other agents.
(c) The funds of the Trust shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any
investment adviser, administrator or manager), as the Trustees may from time to
time authorize.
4.3. PARTIES TO CONTRACT. Any contract may be entered into with any
corporation, firm, trust or association, although one or more of the Trustees or
officers of the Trust may be an officer, director, trustee, shareholder, or
member of such other party to the contract, and no such contract shall be
invalidated or rendered void or voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be disqualified
from voting on or executing the same in the Holder's and/or Trustee's capacity
as Holder and/or Trustee, nor shall any person holding such relationship be
liable merely by reason of such relationship for any loss or expense to the
Trust under or by reason of said contract or accountable for any profit realized
directly or indirectly therefrom. The same person (including a firm,
corporation, trust, or association) may be the other party to contracts entered
into pursuant to Sections 4.1 or 4.2 above or otherwise, and any person may be
financially interested or otherwise affiliated with persons who are parties to
any or all of the contracts mentioned in this Section 4.3.
4.4. COMPLIANCE WITH 1940 ACT. Any contract entered into pursuant to
Section 4.1 shall be consistent with and subject to the requirements of Section
15 of the 1940 Act, as modified by any applicable order or orders of the
Commission or interpretive releases of the Commission thereunder, with respect
to its continuance in effect, its termination and the method of authorization
and approval of such contract or renewal thereof.
ARTICLE V
LIMITATIONS OF LIABILITY
5.1. NO PERSONAL LIABILITY OF TRUSTEES, HOLDERS. No Trustee, when
acting in such capacity, shall be subject to any personal liability whatsoever
to any Person, other than the Trust or its Holders, in connection with Trust
Property or the affairs of the Trusts. No Trustee, when acting in such capacity,
shall be subject to any personal liability whatsoever, provided that nothing
contained herein or in the Delaware Act shall protect any Trustee against any
liability to the Trust or its Holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustees hereunder. No
Holder shall be subject to any personal liability whatsoever to any Person in
connection with Trust Property or the affairs of the Trust. The Trustees shall
have no power to bind any Holder personally or to call upon any Holder for the
payment of any sum of money or assessment whatsoever other than such as the
Holder may at any time personally agree to pay by way of purchase of or increase
in Interests or otherwise.
<PAGE>
5.2. INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Section
(b) below:
(i) Every Person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of being or having
been a Trustee or officer and against amounts paid or incurred by him
in the settlement thereof;
(ii) The words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) Who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Holders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of the
Covered Person's office or (B) not to have acted in good faith in the
reasonable belief that Covered Person's action was in the best interest
of the Trust; or
(ii) In the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the Trustee's or officer's office,
(A)By the court or other body approving the settlement;
(B) By at least a majority of those Trustees who are
neither Interested Persons of the Trust nor are parties to the
matter based upon a review of readily available facts (as
opposed to a full trial-type inquiry); or
(C) By written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to
a full trial-type inquiry);
provided, however, that any Holder may, by appropriate legal
proceedings, challenge any such determination by the Trustees or by
independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 5.2 may be paid by the Trust or Series from time
to time prior to final disposition thereof upon receipt of an undertaking by or
on behalf of such Covered Person that such amount will be paid over by him to
the Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 5.2; provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance payments
or (c) either a majority of the Trustees who are neither Interested Persons of
the Trust nor parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of
<PAGE>
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 5.2.
(e) Conditional advancing of indemnification monies under this Section
5.2 for actions based upon the 1940 Act may be made only on the following
conditions: (i) the advances must be limited to amounts used, or to be used, for
the preparation or presentation of a defense to the action, including costs
connected with the preparation of a settlement; (ii) advances may be made only
upon receipt of a written promise by, or on behalf of, the recipient to repay
that amount of the advance which exceeds that amount which it is ultimately
determined that he is entitled to receive from the Trust by reason of
indemnification; and (iii) (a) such promise must be secured by a surety bond,
other suitable insurance or an equivalent form of security which assures that
any repayments may be obtained by the Trust without delay or litigation, which
bond, insurance or other form of security must be provided by the recipient of
the advance, or (b) a majority of a quorum of the Trust's disinterested,
non-party Trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that the recipient of
the advance ultimately will be found entitled to indemnification.
(f) In case any Holder or former Holder of any Series shall be held to
be personally liable solely by reason of the Holder or former Holder being or
having been a Holder of that Series and not because of the Holder or former
Holder acts or omissions or for some other reason, the Holder or former Holder
(or the Holder or former Holder's heirs, executors, administrators or other
legal representatives, or, in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the assets
belonging to the applicable Series to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust, on behalf
of the affected Series, shall, upon request by the Holder, assume the defense of
any claim made against the Holder for any act or obligation of the Series and
satisfy any judgment thereon from the assets of the Series.
5.3. NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as such, be obligated
to give any bond or surety or other security for the performance of any of the
Trustee's duties hereunder.
5.4. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC. No
purchaser, lender, or other person dealing with the Trustees or any officer,
employee or agent of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by said
officer, employee or agent or be liable for the application of money or property
paid, loaned, or delivered to or on the order of the Trustees or of said
officer, employee or agent. Every obligation, contract, instrument, certificate
or other interest or undertaking of the Trust or any Series, and every other act
or thing whatsoever executed in connection with the Trust or any Series, shall
be conclusively taken to have been executed or done by the executors thereof
only in their capacity as Trustees, officers, employees or agents of the Trust.
Every written obligation, contract, instrument, certificate or other interest or
undertaking of the Trust or any Series made or sold by the Trustees or by any
officer, employee or agent of the Trust, in their capacity as such, shall
contain an appropriate recital to the effect that the Trustee, officer, employee
and agent of the Trust shall not personally be bound by or liable thereunder,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim thereunder, and appropriate references shall be made therein
to the Instrument, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, officers, employees or agents of the
Trust. The Trustees may maintain insurance for the protection of the Trust
Property, its Holders, Trustees, officers, employees and agents in such amount
as the Trustees shall deem adequate to cover possible tort liability, and such
other insurance as the Trustees in their sole judgment shall deem advisable.
5.5. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or employee of
the Trust shall, in the performance of the Trustee's, officer's and employee's
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or any Series, upon an opinion of counsel,
or upon reports made to the Trust or any Series by any of its officers or
employees or by any Investment Manager, accountant, appraiser or other experts
or consultants selected with reasonable care by the Trustees, officers or
employees of the Trust, regardless of whether such counsel or expert may also be
a Trustee.
<PAGE>
ARTICLE VI
INTERESTS OF THE TRUST
6.1. INTERESTS. The beneficial interest in the property of the Trust
shall be divided into Interests of one or more separate and distinct Series as
the Trustees shall from time to time create and establish. The Trustees may
permit the purchase of Interests in any Series by any number of Persons. Subject
to applicable law and to such restrictions as may be adopted by the Trustees, a
Holder may increase or decrease its Interest in any Series without limitation.
6.2. RIGHTS OF HOLDERS. The ownership of the Trust Property of every
description and the right to conduct any business hereinbefore described are
vested exclusively in the Trustees, and the Holders shall have no right or title
therein other than the beneficial interest conferred by their Interests and they
shall have no right to call for any partition or division of any property,
profits or rights of the Trust. The Interests shall be personal property giving
only the rights specifically set forth in this Instrument.
6.3. PURCHASE OF OR INCREASE IN INTERESTS. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit the
purchase of Interests of any Series by such party or parties (or increase in the
Interest of a Holder in any Series) and for such type of consideration,
including cash or property, at such time or times (including, without
limitation, each business day), and on such terms as the Trustees may deem best,
and may in such manner acquire other assets (including the acquisition of assets
subject to, and in connection with the assumption of, liabilities) and
businesses; provided, however, that the Trustees may not permit the purchase of
Interests of any Series if any Series would have more than 500 Holders. The
Trustees may make such additional rules and regulations, not inconsistent with
this Instrument, as they may deem expedient concerning the purchase or increase
of Interests.
6.4. REGISTER OF INTERESTS. A register shall be kept at the principal
office of the Trust under the direction of the Trustees which shall contain the
names and addresses of the Holders of each Series and the Book Capital Account
balances of each Holder of each Series. Each such register shall be conclusive
as to who are the Holders of each Series of the Trust and who shall be entitled
to payments of distributions or otherwise to exercise or enjoy the rights of
Holders. No Holder shall be entitled to receive payment of any distribution, or
to have notice given to it as herein provided, until it has given its address to
such officer or agent of the Trustees as shall keep the said register for entry
thereon.
6.5. NON-TRANSFERABILITY. Interests of a Series shall not be
transferable, unless the prospective transferor obtains the prior unanimous
consent of the Holders of that Series to the transfer. Except as otherwise
provided by law, the Trust shall be entitled to recognize the exclusive right of
a person in whose name any Interest stands on the record of Holders as the
holder of such Interest for all purposes, including, without limitation, the
rights to receive distributions, and to vote as such holder, and the Trust shall
not be bound to recognize any equitable or legal claim to or interest in any
such Interest on the part of any other person.
6.6. NOTICES. Any and all notices to which any Holder hereunder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Holder of record at its last known
address as recorded on the register of the Trust.
6.7. ASSENT TO TRUST INSTRUMENT. Every Holder, by virtue of having become a
Holder, shall be held to have expressly assented and agreed to the terms hereof
and to have become a party hereto.
6.8. ESTABLISHMENT OF SERIES. The Trust created hereby shall consist of
one or more Series and separate and distinct records shall be maintained by the
Trust for each Series and the assets associated with any such Series shall be
held and accounted for separately from the assets of the Trust or any other
Series. The Trustees shall have full power and authority, in their sole
discretion, and without obtaining any prior authorization or vote of the Holders
of any Series of the Trust, to establish and designate and to change in any
manner any such Series of Interests and to fix such preferences, voting powers,
right and privileges of such Series as the Trustees may from time to time
determine, to classify or reclassify any unissued Interests or any Series into
one or more Series, and to
<PAGE>
take such other action with respect to the Interests as the Trustees may deem
desirable. The establishment and designation of any Series shall be effective
upon the adoption of a resolution by a majority of the Trustees setting forth
such establishment and designation and the relative rights and preferences of
the Interests of such Series. At any time that there are no Interests
outstanding of any particular Series previously established and designated, the
Trustees may by a majority vote abolish that Series and the establishment and
designation thereof.
All references to Interests in this Trust Instrument shall be deemed to
be Interests of any or all Series, as the context may require. All provisions
herein relating to the Trust shall apply equally to each Series of the Trust,
except as the context otherwise requires.
6.9. ASSETS AND LIABILITIES OF SERIES. All consideration received by
the Trust for the issuance or sale of Interests of a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall be held and accounted for separately from the other assets of the Trust
and of every other Series and may be referred to herein as "assets belonging to"
that Series. The assets belonging to a particular Series shall belong to that
Series for all purposes, and to no other Series, subject only to the rights of
creditors of that Series. In addition, any assets, income, earnings, profits or
funds, or payments and proceeds with respect thereto, which are not readily
identifiable as belonging to any particular Series shall be allocated by the
Trustees between and among one or more of the Series in such manner as the
Trustees, in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Holders of all Series for
all purposes, and such assets, income, earnings, profits or funds, or payments
and proceeds with respect thereto shall be assets belonging to that Series. The
assets belonging to a particular Series shall be so recorded upon the books of
the Trust, and shall be held by the Trustees in trust for the benefit of the
Holders of Interests of that Series. The assets belonging to each particular
Series shall be charged with the liabilities of that Series and all expenses,
costs, charges and reserves attributable to that Series. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees between or among any one or more of the Series in
such manner as the Trustees in their sole discretion deem fair and equitable.
Each such allocation shall be conclusive and binding upon the Holders of all
Series for all purposes. Without limitation of the foregoing provisions of this
Section 6.9, but subject to the right of the Trustees in their discretion to
allocate general liabilities, expenses, costs, changes or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against assets of such Series only, and not against the assets of
the Trust generally. Notice of this contractual limitation on inter-Series
liabilities may, in the Trustee's sole discretion, be set forth in the
certificate of trust of the Trust (whether originally or by amendment) as filed
or to be filed in the Office of the Secretary of State of the State of Delaware
pursuant to the Delaware Act, and upon the giving of such notice in the
certificate of trust, the statutory provisions of Section 3804 of the Delaware
Act relating to limitations on inter-Series liabilities (and the statutory
effect under Section 3804 of the Delaware Act setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any debt
with respect to that Series. No Holder or former Holder of any Series shall have
a claim on or any right to any assets allocated or belonging to any other
Series.
ARTICLE VII
DECREASES AND WITHDRAWALS
7.1. DECREASES AND WITHDRAWALS. A Holder shall have the authority to
decrease or withdraw its Interest in any Series of the Trust, at such Holder's
option, subject to the terms and conditions provided in this Article VII. The
Trust shall, upon application of any Holder or pursuant to authorization from
any Holder, and subject to this Article VII, decrease or withdraw such Holder's
Interest for an amount (which shall be treated as a distribution for purposes of
Section 8.1) determined by the application of a formula adopted for such purpose
by resolution of the Trustees; provided that (a) such amount shall not exceed
the positive balance in such Holder's Book Capital Account (determined after
taking into account such adjustments as are required by Treasury Department
Regulation. 1.704-1(b) (2) (ii) (B) (2) but before reduction thereo to
reflect the distribution of such
<PAGE>
amount) and (b) if so authorized by the Trustees, the Trust may, at any time and
from time to time, charge fees for effecting such decrease or withdrawal, at
such rates as the Trustees may establish, and may, at any time and from time to
time, suspend such right of decrease or withdrawal. The procedures for effecting
decreases or withdrawals shall be as determined by the Trustees from time to
time.
ARTICLE VIII
DETERMINATION OF BOOK CAPITAL ACCOUNT
BALANCES, NET ASSET VALUE, ALLOCATIONS AND DISTRIBUTIONS
8.1. BOOK CAPITAL ACCOUNT BALANCES. A Book Capital Account shall be
maintained for each Holder of each Series. With respect to each Series, each
Book Capital Account shall be credited with the amounts of consideration paid by
the Holder to purchase or increase its Interest in the Series and with its share
of the Series' Net Profits (defined below), shall be charged with such Holder's
share of the Series' Net Losses (defined below), distributions and withholding
taxes (if any) and shall otherwise appropriately reflect transactions of the
Series and the Holders. No interest shall be paid on any amount of consideration
paid to the Trust to purchase or increase Interests.
"Net Profits" of a Series for any given time period shall mean the
excess of the Net Asset Value of the Series (defined in Section 8.2) at the
close of business on the last day of the period, prior to any distribution being
made with respect to such period, over the Net Asset Value of the Series as of
the opening of business on the first day of such period, after any additional
contributions made on such date.
"Net Losses" of a Series for any given time period shall mean the
excess of the Net Asset Value of the Series as of the opening of business on the
first day of the period, after any additional contributions made on such date,
over the Net Asset Value of the Series at the close of business on the last day
of such period, prior to any distribution being made with respect to such
period.
The Book Capital Account balances of Holders of each Series shall be
determined periodically at such time or times as the Trustees may determine. The
power and duty to make calculations necessary to determine these balances may be
delegated by the Trustees to the Investment Manager, custodian, or such other
person as the Trustees may determine.
Notwithstanding anything herein to the contrary, the Book Capital
Accounts and any related accounts (including without limitation tax capital
accounts, gross appreciation [unrealized gain] accounts, and gross depreciation
[unrealized loss] accounts) of the Holders and of any series shall at all times
during the full term of such Series be determined and maintained in accordance
with the rules of Treasury Department Regulation ss. 1.704-1 (b) (2) (iv). The
Trustees are authorized to prescribe, in their absolute discretion, such
policies for the establishment and maintenance of such accounts ("Policies") as
they, in consultation with the Trust's professional advisers, consider to be in
accordance with the requirements of such rules.
8.2. NET ASSET VALUE. The term "Net Asset Value" shall mean, with
respect to any Series, that amount by which the assets of the Series exceed its
liabilities, all as determined by or under the direction of the Trustees. In
making this determination, the Trustees, without Holder approval, may alter the
method of valuing portfolio securities insofar as permitted under the 1940 Act
and the rules, regulations and interpretations thereof promulgated or issued by
the Commission or insofar as permitted by any order of the Commission applicable
to the Series. The Trustees may delegate any of their powers and duties under
this Section 8.2 with respect to valuation of assets and liabilities.
8.3. ALLOCATION OF NET PROFITS AND NET LOSSES.
(a) Net Profits and Net Losses of each Series shall be determined and
allocated daily as of the close of business to and among the Holders of that
Series in proportion to their respective Interests in the Series, determined as
of the opening of business on such day.
<PAGE>
(b) Except as otherwise provided in this Section 8.3, for each fiscal
year, items of income, deduction, gain, loss or credit that are recognized by a
Series for tax purposes shall be allocated pursuant to Treasury Department
Regulations ss. 1.704-1(b) in such manner as to equitably reflect amounts
credited or debited to the Book Capital Account of each Holder of that Series
for such year. Allocations of such items also shall be made, where appropriate,
in accordance with section 704(c) of the Code and the regulations thereunder, as
may be provided in any Policies adopted by the Trustees pursuant to Section 8.1.
(c) Expenses of a Series, if any, which are borne by any Holder of that
Series in its individual capacity shall be specially allocated to that Holder.
(d) Notwithstanding anything in Section 8.3(b) or (c) to the contrary,
in the event any Holder of a Series unexpectedly receives any adjustments,
allocations or distributions described in Treasury Department Regulations
ss.1.704-1(b)(2)(ii)(d)(4), ss.1.704-1(b)(2)(ii)(d)(5) or
ss.1.704-1(b)(2)(ii)(d)(6), items of income (including gross income) and gain of
that Series shall be specially allocated to such Holder in an amount and manner
sufficient to eliminate the deficit balance in the Holder's Book Capital Account
(as determined in accordance with Treasury Department Regulation ss. 1.704-1
(b)(2)(ii)(D)) created by such adjustments, allocations or distributions as
quickly as possible. Any special allocations of income and gain of a Series
pursuant to this Section 8.3(d) shall be taken into account in computing
subsequent allocations of income and gain of that Series pursuant to this
Article VIII, so that the net amount of any items of that Series so allocated
and the income, gain, loss, deduction and all other items of that Series
allocated to each Holder pursuant to this Article VIII shall, to the extent
possible, equal the net amount that would have been allocated to each such
Holder pursuant to the provisions of this Article VIII if such special
allocations had not been made.
8.4. DISTRIBUTIONS. The Trustees may from time to time agree to the payment
of distributions to Holders of a Series. The amount of such distributions and
the payment of them and whether they are in cash or in any other assets of the
Series shall be wholly in the discretion of the Trustees.
8.5. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any of the
foregoing provisions of this Article VIII, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining, for financial
reporting and/or tax accounting purposes, (a) the Net Profits, Net Losses,
taxable income, tax loss, and/or net assets of any Series (or, where appropriate
in the Trustees' judgment, of the Trust as a whole), and/or (b) the allocation
of the Net profits or Net Losses and taxable income or tax loss so determined
among, or the payment of distributions to, the Holders of any Series as they
deem necessary or desirable to enable the Trust or any Series to comply with any
provision of the 1940 Act, the Code, any rule or regulation thereunder, or any
order of exemption issued by the Commission, all as in effect now or as
hereafter amended or modified.
ARTICLE IX
HOLDERS
9.1. MEETINGS OF HOLDERS. Meetings of the Holders of any Series may be
called at any time by a majority of the Trustees and shall be called by any
Trustee upon written request of Holders holding, in the aggregate, not less than
10% of the Interests of that Series, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall be held
within or without the State of Delaware on such day and at such time as the
Trustees shall designate. Holders of one-third of the Interests entitled to
vote, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by law or by
this Instrument. The Chairman, if any, shall act as chairman at all meetings of
the Holders; in the Chairman's absence, the President shall act as chairman; and
in the absence of the Chairman and the President, the Trustee or Trustees
present at each meeting may elect a temporary chairman for the meeting, who may
be one of themselves. Holders may vote either in person or by duly executed
proxy and each Holder shall be entitled to vote proportionate to the Holder's
Interest in the Trust or affected Series. If a quorum is present at a meeting, a
Majority Interests Vote of the Holders present and entitled to vote thereon,
either in person or by proxy, at such meeting constitutes the action of the
Holders, unless law or this Instrument requires a greater number of affirmative
votes.
<PAGE>
9.2. NOTICE OF MEETINGS. Notice of all meetings of the Holders of any
Series, stating the time, place and purposes of the meeting, shall be given by
the Trustees by mail to each Holder of that Series, at the Holder's registered
address, mailed at least 10 days and not more than 90 days before the meeting.
At any such meeting, any business properly before the meeting may be considered
whether or not stated in the notice of the meeting. Any adjourned meeting may be
held as adjourned without further notice. No notice need be given to any Holder
who shall have failed to inform the Trust of the Holder's current address or if
a written waiver of notice, executed before or after the meeting by the Holder
or the Holder's attorney thereunto authorized, is filed with the records of the
meeting.
9.3. RECORD DATE FOR MEETINGS. For the purpose of determining the
Holders who are entitled to notice of and to vote at any meeting, including any
adjournment thereof, or to participate in any distribution, or for the purpose
of any other action, the Trustees may from time to time fix a date, not more
than 90 days prior to the date of any meeting of the Holders or payment of
distributions or other action, as the case may be, as a record date for the
determination of the Persons to be treated as Holders of record for such
purposes. If the Trustees do not, prior to any meeting of Holders, so fix a
record date, then the date of mailing notice of the meeting shall be the record
date.
9.4. PROXIES, ETC. At any meeting of Holders, any Holder entitled to
vote thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Secretary, or with
such other officer or agent of the Trust as the Secretary may direct, for
verification prior to the time at which such vote shall be taken. A proxy may be
given in writing, by any electronic or telecommunications device or in any other
manner. Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or one or more of the officers of
the Trust. Only Holders of record shall be entitled to vote. Each Holder shall
be entitled to a vote proportionate to its Interest in the Trust or applicable
Series, as the case may be. When Interests are held jointly by several persons,
any one of them may vote at any meeting in person or by proxy in respect of such
Interest, but if more than one of them shall be present at such meeting in
person or by proxy, and such joint owners or their proxies so present disagree
as to any vote to be cast, such vote shall not be received in respect of such
Interest. A proxy purporting to be executed by or on behalf of a Holder shall be
deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger. If the Holder is a minor or a
person of unsound mind, and subject to guardianship or to the legal control of
any other person as regards the charge or management of its Interest, the Holder
may vote by the Holder's guardian or such other person appointed or having such
control, and such vote may be given in person or by proxy. No proxy shall be
valid after eleven (11) months from the date of its execution, unless a longer
period is expressly stated in such proxy.
9.5. INSPECTORS OF ELECTION. In advance of any meeting of Holders, the
Trustees may appoint Inspectors of Election to act at the meeting or any
adjournment thereof. If Inspectors of Election are not so appointed, the
Chairman, if any, of any meeting of Holders may, and on the request of any
Holder or the Holder's proxy shall, appoint Inspectors of Election of the
meeting. The number of Inspectors shall be either one or three. If appointed at
the meeting on the request of one or more Holders or proxies, a majority of the
Interests present shall determine whether one or three Inspectors are to be
appointed, but failure to allow such determination by the Holders shall not
affect the validity of the appointment of Inspectors of Election. In case any
person appointed as Inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the Trustees in advance of the
convening of the meeting or at the meeting by the person acting as Chairman. The
Inspectors of Election shall determine the percentage of the total Interests
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents, shall
hear and determine all challenges and questions in any way arising in connection
with the right to vote, shall count and tabulate all votes or consents,
determine the results, and do such other acts as may be proper to conduct the
election or vote with fairness to all Holders. If there are three Inspectors of
Election, the decision, act or certificate of a majority is effective in all
respects as the decision, act or certificate of all. On request of the Chairman,
if any, of the meeting, or of any Holder or a Holder's proxy, the Inspectors of
Election shall make a report in writing of any challenge or question or matter
determined by them and shall execute a certificate of any facts found by them.
<PAGE>
9.6. INSPECTION OF RECORDS. The records of the Trust shall be open to
inspection by Holders during normal business hours for any purpose not harmful
to the Trust. At each meeting of the Holders of the Trust or any Series there
shall be open for inspection the minutes of the last previous meeting of Holders
of the Trust or Series, as the case may be, and a list of the Holders of the
Trust or Series, certified to be true and correct by the Secretary or other
proper agent of the Trust, as of the record date of the meeting. Such list of
Holders shall contain the name of each Holder and the address and the percentage
of the total Interests owned by such Holder.
9.7. HOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken by
Holders may be taken without a meeting if Holders shall unanimously consent to
the action in writing and the written consents are filed with the records of the
meetings of Holders. Such consent shall be treated for all purposes as a vote
taken at a meeting of Holders.
9.8. VOTING POWERS. The Holders shall have power to vote only (i) for
the election of Trustees as provided in Sections 2.2 and 2.4; (ii) for the
removal of Trustees as provided in Section 2.3; (iii) with respect to any
investment management contract entered into pursuant to Section 4.1; (iv) with
respect to termination of the Trust as provided in Section 10.1; and (v) with
respect to any such additional matters relating to the Trust as may be required
by this Instrument or any registration of the Trust as an investment company
under the 1940 Act with the Commission (or any successor agency) or as the
Trustees may consider necessary or desirable. On any matter submitted to a vote
of the Holders, all Interests shall be voted separately by individual Series,
except (i) when required by the 1940 Act, Interests shall be voted in the
aggregate and not by individual Series; and (ii) when the Trustees have
determined that the matter affects the interests of more than one Series, then
the Holders of all such Series shall be entitled to vote thereon. There shall be
no cumulative voting in the election of Trustees. Until Interests are issued and
at any time wherein no Interests are outstanding, the Trustees may exercise all
rights of Holders and may take any action required by law or this Instrument to
be taken by Holders.
ARTICLE X
DURATION; TERMINATION; DISSOLUTION;
AMENDMENT; MERGERS; ETC.
10.1. TERMINATION OF TRUST OR ANY SERIES.
(a) The Trust or any Series may be terminated by (i) a Majority Interests
Vote of each Series affected by the matter or, if applicable, a Majority
Interests vote of the Trust, or (ii) the Trustees by written notice to the
Holders. Upon any such termination,
(i) The Trust or any affected Series shall carry on no
business except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust or any affected Series and all of the powers of the Trustees
under this Instrument with respect to the Trust or any affected Series
shall continue until the affairs of the Trust or any such Series shall
have been wound up, including the power to fulfill or discharge the
contracts of the Trust or any such Series, collect its assets, sell,
convey, assign, exchange, or otherwise dispose of all or any part of
the remaining assets of the Trust or any such Series to one or more
persons at public or private sale for consideration which may consist
in whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and do all other acts appropriate to
liquidate its business.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary for their protection, the
Trustees shall distribute the remaining assets of the Trust or any
affected Series, in cash or in kind or partly each, among the Holders
of the Trust or the affected Series in proportion to their respective
Interests in the Trust or Series (that is, in accordance with the
positive Book Capital Account balances of the Holders), after taking
into account such adjustments as are required by Treasury Department
Regulation ss. 1.704-1(b) (2) (ii) (B) (2).
<PAGE>
(b) Upon termination of the Trust or any Series and distribution to the
Holders as herein provided, a majority of the Trustees shall execute and lodge
among the records of the Trust an instrument in writing setting forth the fact
of such termination. Upon termination of the Trust or any Series, the Trustees
shall thereupon be discharged from all further liabilities and duties hereunder
with respect to the Trust or Series, and the rights and interests of all Holders
of the Trust or Series shall thereupon cease.
10.2. DISSOLUTION. Any Series shall be dissolved 120 days after a
Holder of an Interest in such Series either (a) makes an assignment for the
benefit of creditors, (b) files a voluntary petition in bankruptcy, (c) is
adjudicated a bankrupt or insolvent, (d) files any pleading admitting or failing
to contest the material allegations of a petition filed against it in any
bankruptcy or insolvency proceeding, or (e) seeks, consents to, or acquiesces in
the appointment of a trustee, receiver, or liquidator of such Holder or of all
or any substantial part of its assets, unless, within such 120 days, Holders
(excluding the Holder with respect to whom such event occurs) owning a majority
of the Interests in such Series vote to continue the Series. Upon any
dissolution pursuant to this section, the provisions of Section 10.1(a) (i),
(ii), and (iii) shall apply as if such dissolution were a termination described
in Section 10.1.
10.3. AMENDMENT PROCEDURE.
(a) Except as specifically provided herein, the Trustees may, without
the vote or consent of Holders, amend or otherwise supplement this Instrument by
making an amendment, a trust instrument supplemental hereto or an amended and
restated trust instrument. Holders shall have the right to vote (i) on any
amendment which would affect their right to vote granted in Section 9.8, (ii) on
any amendment to this Section 10.3, (iii) on any amendment as may be required by
law or by the Trust's registration statement filed with the Commission, and (iv)
on any amendment submitted to them by the Trustees. Any amendment required or
permitted to be submitted to Holders which, as the Trustees determine, shall
affect the Holders of one or more Series shall be authorized by vote of the
Holders of each Series affected, and no vote of Holders of a Series not affected
shall be required.
(b) Notwithstanding anything else herein, any Amendment to Article 5
hereof shall not limit the rights to indemnification or insurance provided
therein with respect to action or omission of Covered Persons prior to such
amendment. Nothing contained in this Instrument shall permit the amendment of
this Instrument to impair the exemption from personal liability of the Holders
or Trustees of the Trust.
(c) A certification signed by a majority of the Trustees setting forth
an amendment and reciting that it was duly adopted by the Holders or by the
Trustees as aforesaid or a copy of the Instrument, as amended, executed by a
majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Instrument may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
10.4. MERGER OR CONSOLIDATION. Notwithstanding anything else herein,
the Trustees may, without the prior consent or vote of the Holders, cause the
Trust or any Series to merge or consolidate with any other partnership, trust or
other organization. Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the contrary
contained in this Instrument, any such agreement of merger or consolidation may
effect any amendment to the Instrument or effect the adoption of a new trust
instrument of the Trust if the Trust or Series is the surviving or resulting
entity in the merger or consolidation.
10.5. INCORPORATION. Notwithstanding anything else herein, the Trustees
may, without the prior consent or vote of the Holders, cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all of the Trust Property or the assets of any Series or to carry
on any business in which the Trust or any Series shall directly or indirectly
have any interest, and to sell, convey and transfer the Trust Property or the
assets of any Series to any such corporation, trust, association or organization
in exchange for the equity interests thereof or otherwise, and to
<PAGE>
lend money to, subscribe for the equity interests of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization, or any corporation, partnership, trust, association or
organization in which the Trust or any Series holds or is about to acquire
equity interests. The Trustees may also cause a merger or consolidation between
the Trust or any Series or any successor thereto and any such corporation,
trust, partnership, association or other organization if and to the extent
permitted by law, as provided under the law then in effect. In addition, nothing
contained herein shall be construed as requiring approval of the Holders for the
Trustees to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property or the assets of any Series to such
organizations or entities.
ARTICLE XI
MISCELLANEOUS
11.1. GOVERNING LAW. The trust set forth in this instrument is made in
the State of Delaware, and the Trust and this Instrument, and the rights and
obligations of the Trustees and Holders hereunder, are to be governed by and
construed and administered according to the Delaware Act and the laws of said
State; provided, however, that there shall not be applicable to the Trust, the
Trustees or this Instrument (a) the provisions of Section 3540 of Title 12 of
the Delaware Code or (b) any provisions of the laws (statutory or common) of the
State of Delaware (other than the Delaware Act) pertaining to trusts which
relate to or regulate (i) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and charges, (ii)
affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards or responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Instrument. The Trust shall be of the type commonly called a "business
trust," and without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust under Delaware law. The
trust specifically reserves the right to exercise any of the powers or
privileges afforded to trusts or actions that may be engaged in by trusts under
the Delaware Act, and the absence of a specific reference herein to any such
power, privilege or action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
11.2. COUNTERPARTS. This Instrument may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
11.3. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust or of any recording office
in which this Instrument may be recorded, appears to be a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Holders; (b) the due
authorization of the execution of any instrument or writing; (c) the form of any
vote passed at a meeting of Trustees or Holders; (d) the fact that the number of
Trustees or Holders present at any meeting or executing any written instrument
satisfies the requirements of this Instrument; (e) the form of any By-Laws
adopted by or the identity of any officers elected by the Trustees, or; (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.
11.4. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Instrument are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with any applicable laws or regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Instrument; provided, however, that such
<PAGE>
determination shall not affect any of the remaining provisions of this
Instrument or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Instrument shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Instrument in any jurisdiction.
(c) It is intended that each Series of the Trust be classified as a
partnership for federal income tax purposes. The Trustees, in their sole
discretion and without the vote or consent of the Holders, may amend this
Instrument and do whatever else they determine to be necessary to ensure that
this objective is achieved.
11.5. SIGNATURES. All contracts and other instruments shall be executed on
behalf of the Trust by such officer, officers, agent or agents, as provided in
this Instrument or as the Trustees may from time to time by resolution provide.
11.6. SEAL. The seal of the Trust, if any, may be affixed to any
document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same effect
as if done by a Delaware business corporation.
11.7. FISCAL YEAR. The fiscal year of the Trust and each Series shall begin
on November 1, provided, however, that the Trustees may from time to time change
the fiscal year of the Trust or of any Series.
11.8. WAIVERS OF NOTICE. Whenever any notice whatever is required to be
given by law or this Instrument, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed to
have been telegraphed, cabled or wirelessed for the purposes of this Instrument
when it has been delivered to a representative of any telegraph, cable or
wireless company with instructions that it be telegraphed, cabled or wirelessed.
11.9. REPORTS. The Trustees shall cause to be prepared, at least
annually, a report of operations containing those financial statements as may be
required by laws or as the Trustees may direct for each Series prepared in
conformity with generally accepted accounting principles and an opinion of an
independent public accountant on such financial statements. The Trustees shall,
in addition, furnish to the Holders of each Series at least semi-annually
interim reports containing unaudited financial statements as may be required by
laws or as the Trustees may direct.
IN WITNESS WHEREOF, the undersigned have caused this amended and
restated Trust Instrument to be executed as of the day and year first above
written.
------------------------------
John Y. Keffer
as Trustee and not individually
------------------------------
Don L. Evans
as Trustee and not individually
------------------------------
Dana A. Lukens
as Trustee and not individually
<PAGE>
APPENDIX A
ESTABLISHED PORTFOLIOS
----------------------
The following Series have been created by the Trustees in accordance
with section 6.8 of the Trust Instrument:
Portfolio Date Established
--------- ----------------
1. Schroder International Bond Portfolio December 26, 1997
EXHIBIT (5)
<PAGE>
SCHRODER CAPITAL FUNDS II
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 27th day of December, 1996, between Schroder
Capital Funds II (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Schroder Capital Management International Inc. (the
"Adviser"), a corporation organized under the laws of the State of New York with
its principal place of business at One State Street, New York, New York.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series;
WHEREAS, the Adviser provides investment advice and is registered with
the Securities and Exchange Commission (the "SEC") as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is registered with the United Kingdom Investment Management Regulatory
Organization ("IMRO");
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for the series listed in Appendix A, (the "Portfolio") and the Adviser
is willing to provide those services on the terms and conditions set forth in
this Agreement; and
WHEREAS, the Adviser is willing to render suc investment advisory
services to the Portfolio;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument and Registration Statement filed with the
Securities and Exchange Commission (the "Commission") under the Act, as may be
supplemented from time to time, all in such manner and to such extent as may
from time to time be authorized by the Trust's Board of Trustees (the "Board").
The Trust is currently authorized to issue two series of interests, and the
Trust is authorized to issue interests in any number of additional series upon
approval of the Board. The Trust has delivered to the Adviser copies of the
Trust's Trust Instrument and Registration Statement and will from time to time
furnish Adviser with any amendments thereof.
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs Adviser, subject to the direction and control
of the Board, to manage the investment and reinvestment of the assets in the
Portfolio and, without limiting the generality of the foregoing, to provide
other services specified in Section 3 hereof.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser shall make decisions with respect to all purchases and
sales of securities and other investment assets in the Portfolio. To carry out
such decisions, the Adviser is hereby authorized, as agent and attorney-in-fact
for the Trust, for the account of, at the risk of and in the name of the Trust,
to place orders and issue instructions with respect to those transactions of the
Portfolio. In all purchases, sales and other transactions in securities for the
Portfolio, the Adviser is authorized to exercise full discretion and act for the
Trust in the same manner and with the same force and effect as the Trust might
or could do with respect to such purchases, sales or
<PAGE>
other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(b) The Adviser will report to the Board at each meeting thereof all
changes in the Portfolio since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Portfolio and the
Adviser, and on its own initiative, will furnish the Board from time to time
with such information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included in the
Portfolio's holdings, the industries in which they engage, or the economic,
social or political conditions prevailing in each country in which the Portfolio
maintains investments. The Adviser will also furnish the Board with such
statistical and analytical information with respect to securities in the
Portfolio as the Adviser may believe appropriate or as the Board reasonably may
request. In making purchases and sales of securities for the Portfolio, the
Adviser will bear in mind the policies set from time to time by the Board as
well as the limitations imposed by the Trust's Trust Instrument and Registration
Statement under the Act, the limitations in the Act and in the Internal Revenue
Code of 1986, as amended, in respect of regulated investment companies and the
investment objectives, policies and restrictions of the Portfolio.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect.
(d) The Adviser shall maintain records for the Portfolio relating to
portfolio transactions and the placing and allocation of brokerage orders as are
required to be maintained by the Trust under the Act. The Adviser shall prepare
and maintain, or cause to be prepared and maintained, in such form, for such
periods and in such locations as may be required by applicable law, all
documents and records relating to the services provided by the Adviser pursuant
to this Agreement required to be prepared and maintained by the Trust pursuant
to the rules and regulations of any national, state, or local government entity
with jurisdiction over the Trust, including the Commission and the Internal
Revenue Service. The books and records pertaining to the Trust that are in
possession of the Adviser shall be the property of the Trust. The Trust, or the
Trust's authorized representatives, shall have access to such books and records
at all times during the Adviser's normal business hours. Upon the reasonable
request of the Trust, copies of any such books and records shall be provided
promptly by the Adviser to the Trust or the Trust's authorized representatives.
SECTION 4. EXPENSES
The Trust hereby confirms that the Trust shall be responsible and shall
assume the obligation for payment of all the Trust's expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian and
transfer agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of the Trust's formation and maintaining its existence; costs of
preparing the Trust's registration statement, account application forms and
interestholder reports and delivering them to existing and prospective
interestholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of interests in the Trust; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and costs
of other personnel performing services for the Trust who are not officers of the
Adviser or of Schroder Fund Advisors Inc. or affiliated persons of either; costs
of Trust meetings; registration fees and related expenses for registration with
the Commission and the securities regulatory authorities of other countries in
which the Trust's interests are sold; state securities law registration fees and
related expenses; and fees and out-of-pocket expenses payable to Schroder Fund
Advisors Inc. under any placement agent, management or similar agreement.
SECTION 5. STANDARD OF CARE
(a) The Trust shall expect of the Adviser, and the Adviser will give
the Trust the benefit of, the Adviser's best judgment and efforts in rendering
its services to the Trust, and as an inducement to the Adviser's undertaking
these services the Adviser shall not be liable hereunder for any mistake of
judgment or in any event
<PAGE>
whatsoever, except for lack of good faith, provided that nothing herein shall be
deemed to protect, or purport to protect, the Adviser against any liability to
the Trust or to the Trust's interestholders to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of the Adviser's duties hereunder, or by reason of the Adviser's
reckless disregard of its obligations and duties hereunder. As used in this
Section 5, the term "Adviser" shall include any affiliates of the Adviser
performing services for the Portfolio contemplated hereby and directors,
officers and employees of the Adviser as well as the Adviser itself.
(b) The Adviser shall not be liable for any losses caused by
disturbances of its operations by virtue of force majeure, war, riot, or damage
caused by nature or due to other events for which the Adviser is not responsible
(e.g., strike, lock-out or losses caused by the imposition of foreign exchange
controls, expropriation of assets or other acts of domestic or foreign
authorities) except under the circumstances provided for in Section 5(a).
The presence of exculpatory language in this Agreement shall not in any
way limit or be deemed by anyone to limit the Trust, the Trustees of the Trust,
the Portfolio, the Adviser, or any other party appointed pursuant to this
Agreement, including without limitation any custodian, as in any way limiting
causes of action and remedies which may, notwithstanding such language, be
available to the Trust, the Trustees of the Trust, the Portfolio or any other
party appointed pursuant to this Agreement, either under common law or statutory
law principles applicable to fiduciary relationships or under the Federal
securities laws.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to the average daily net assets of the Portfolio, a fee at an
annual rate as listed in Appendix A hereto. Such fees shall be accrued by the
Trust daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed hereunder during the prior calendar month.
SECTION 7. EFFECTIVENESS, DURATION, AND TERMINATION
(a) This Agreement shall become effective with respect to the Portfolio
immediately upon approval by a majority of the outstanding voting interests of
the Portfolio.
(b) This Agreement shall remain in effect with respect to the Portfolio
for a period of two years from the date of its effectiveness and shall continue
in effect for successive twelve-month periods (computed from each anniversary
date of the approval) with respect to the Portfolio; provided that such
continuance is specifically approved at least annually (i) by the Board or by
the vote of a majority of the outstanding voting interests of the Portfolio,
and, in either case, (ii) by a majority of the Trust's trustees who are not
parties to this Agreement or interested persons of any such party (other than as
trustees of the Trust); provided further, however, that if this Agreement or the
continuation of this Agreement is not approved as to the Portfolio, the Adviser
may continue to render to the Portfolio the services described herein in the
manner and to the extent permitted by the Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated with respect to the Portfolio at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting interests of the Portfolio on 60 days'
written notice to the Adviser or (ii) by the Adviser on 60 days' written notice
to the Trust. This agreement shall terminate upon assignment.
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm, individual or association. It is specifically
understood that officers, directors and employees of the Adviser and its
affiliates may
<PAGE>
continue to engage in providing portfolio management services and advice to
other investment companies, whether or not registered, and to other investment
advisory clients. When other clients of the Adviser desire to purchase or sell a
security at the same time such security is purchased or sold for the Portfolio,
such purchases and sales will, to the extent feasible, be allocated among the
Portfolios and such clients in a manner believed by the Adviser to be equitable
to the Portfolio and such clients.
SECTION 9. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees or officers of the Trust and the interestholders of the
Portfolio shall not be liable for any obligations of the Trust or of the
Portfolio under this Agreement, and the Adviser agrees that, in asserting any
rights or claims under this Agreement, it shall look only to the assets and
property of the Trust or the Portfolio to which the Adviser's rights or claims
relate in settlement of such rights or claims, and not to the Trustees or
officers of the Trust or the interestholders of the Portfolio.
SECTION 10. NOTICE
Any notice or other communication required to be given pursuant to this
Agreement shall be in writing or by telex and shall be effective upon receipt.
Notices and communications shall be given, if to the Trust, at:
Schroder Capital Funds II
Two Portland Square
Portland, Maine 04101
Attention: Thomas G. Sheehan
and if to the Adviser, at:
Schroder Capital Management International Inc.
787 Seventh Avenue, 29th Floor
New York, New York 10019
Attention: Laura Luckyn-Malone
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting interests of the Portfolio thereby affected. No amendment to
this Agreement or the termination of this Agreement with respect to the
Portfolio shall effect this Agreement as it pertains to any other Portfolio.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Delaware.
<PAGE>
(f) The Adviser confirms that the Portfolio is a "Non-private Customer"
as defined in the rules of IMRO.
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS II
/S/ Alexandra Poe
-------------------------
Alexandra Poe
Vice President
SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC.
/S/ Catherine A. Mazza
-------------------------
Catherine A. Mazza
First Vice President
<PAGE>
SCHRODER CAPITAL FUNDS II
INVESTMENT ADVISORY AGREEMENT
Appendix A
Annual Fee as a % of
the Average Daily
Portfolios Of The Trust Net Assets Of The Portfolio
- ----------------------- ---------------------------
Schroder International Bond Portfolio 0.50%
EXHIBIT (6)
<PAGE>
SCHRODER CAPITAL FUNDS II
PLACEMENT AGENT AGREEMENT
AGREEMENT made this 27th day of December, 1996, between Schroder
Capital Funds II (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Forum Financial Services, Inc. ("Forum"), a
corporation organized under the laws of State of Delaware with its principal
place of business at Two Portland Square, Portland, Maine 04101.
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "Act"), and is
authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series; and
WHEREAS, the Trust desires that Forum perform placement agent services
for each of the portfolios of the Trust as listed in Appendix A hereto (each a
"Portfolio," and collectively the "Portfolios") and Forum is willing to provide
those services on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. SERVICES AS PLACEMENT AGENT
(a) Forum will act as Placement Agent of the Interests covered by the
Trust's registration statement then in effect under the 1940 Act. As Placement
Agent, Forum shall have the right to sell Interests of the Portfolios upon the
terms set forth in the Trust's registration statement, as such registration
statement is amended and in effect from time to time. In acting as Placement
Agent under the Placement Agency Agreement, neither Forum nor its employees nor
any agents thereof shall make any offer or sale of Interests in a manner which
would require the Interests to be registered under the Securities Act of 1933,
as amended (the "1933 Act"). As used in this Agreement the term "registration
statement" shall mean any registration statement filed with the Securities and
Exchange Commission (the "Commission") as modified by any amendments thereto
that at any time shall have been filed with the Commission by or on behalf of
the Trust.
(b) All activities by Forum and its agents and employees as Placement
Agent of Interests shall comply with all applicable laws, rules and regulations,
including without limitation, all rules and regulations adopted pursuant to the
1940 Act by the Commission.
(c) Nothing herein shall be construed to require the Trust to accept
any offer to purchase any Interests, all of which shall be subject to approval
by the Trust's Board of Trustees.
(d) The Trust shall furnish from time to time for use in connection
with the sale of Interests such information with respect to the Trust and
Interests as Forum may reasonably request. The Trust shall also furnish Forum
upon request with: (a) audited annual and unaudited semiannual statements of the
Trust's books and accounts prepared by the Trust, and (b) such additional
information regarding the Trust's financial or regulatory condition as Forum may
from time to time reasonably request.
(e) The Trust represents to Forum that all registration statements
filed by the Trust with the Commission under the 1940 Act with respect to
Interests have been prepared in conformity with the requirements of such statute
and rules and regulations of the Commission thereunder. The Trust represents and
warrants to Forum that any registration statement will contain all statements
required to be stated herein in conformity with both such statute and the rules
and regulations of the Commission; that all statements of fact contained in any
registration statement will be true and correct in all material respects at the
time of filing of such registration statements or amendments thereto; and that
no registration statement will include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of Interests. The Trust
may, but
<PAGE>
shall not be obligated to, propose from time to time such amendment to any
registration statement as in the light of future developments may, in the
opinion of the Trust's counsel, be necessary or advisable. If the Trust shall
not propose such amendment and/or supplement within fifteen days after receipt
by the Trust of a written request from Forum to do so, Forum may, at its option,
terminate this Agreement. The Trust shall not file any amendment to any
registration statement without giving Forum reasonable notice thereof in
advance; provided, however, that nothing contained in this Agreement shall in
any way limit the Trust's right to file at any time such amendment to any
registration statement as the Trust may deem advisable, such right being in all
respects absolute and unconditional.
(f) The Trust agrees to indemnify, defend and hold Forum, its several
officers and directors, and any person who controls Forum within the meaning of
Section 15 of the 1933 Act or Section 20 of the Securities Exchange Act of 1934
(the "1934 Act") (for purposes of this Section 1(f), collectively, "Covered
Persons") free and harmless from and against any and all claims, demands,
liabilities and any counsel fees incurred in connection therewith) which any
Covered Person may incur under the 1933 Act, the 1934 Act, common law or
otherwise, arising out of or based on any untrue statement of a material fact
contained in any registration statement, private placement memorandum or other
offering material ("Offering Material") or arising out of or based on any
omission to state a material fact required to be stated in any Offering Material
or necessary to make the statements in any Offering Material not misleading,
provided, however, that the Trust's agreement to indemnify Covered Persons shall
not be deemed to cover any claims, demands, liabilities or expenses arising out
of any financial and other statements as are furnished in writing to the Trust
by Forum in its capacity as Placement Agent for use in the answers to any items
of any registration statement or in any statements made in any Offering
Material, or arising out of or based on any omission or alleged omission to
state a material fact in connection with the giving of such information required
to be stated in such answers or necessary to make the answers not misleading;
and further provided that the Trust's agreement to Section 1(e) shall not be
deemed to cover any liability to the Trust or its investors to which a Covered
Person would otherwise be subject by reason or willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of a Covered
Person's reckless disregard of its obligations and duties under this Agreement.
The Trust shall be notified of any action brought against a Covered Person, such
notification to be given by letter or by telegram addressed to the Secretary of
the Trust, promptly after the summons or other first legal process shall have
been duly and completely served upon such Covered Person. The failure to notify
the Trust of any such action shall not relieve the Trust from any liability
except to the extent that the Trust shall have been prejudiced by such failure,
or from any liability that the Trust may have to the Covered Person against whom
such action is brought by reason of any such untrue statement or omission,
otherwise than on account of the Trust's indemnity agreement contained in this
Section 1(f). The Trust will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but in such case such
defense shall be conducted by counsel chosen by the Trust and approved by Forum,
the defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Trust does not elect
to assume the defense of any such suit, or in case Forum reasonably does not
approve of counsel chosen by the Trust, the Trust will reimburse the Covered
Person named as defendant in such suit, for the fees and expenses of any counsel
retained by Forum or such Covered Person. The Trust's indemnification agreement
contained in this Section (f) and the Trust's representations and warranties in
this Agreement shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of Covered Persons, and shall survive the
delivery of any Interests. This agreement of indemnity will inure exclusively to
Covered Persons and their successors. The Trust agrees to notify Forum promptly
of the commencement of any litigation or proceedings against the Trust or any of
its officers or Trustees in connection with the issue and sale of any Interests.
(g) Forum agrees to indemnify, defend and hold the Trust, its several
officers and trustees, and any person who controls the Trust within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act (for purposes of
this Section 1(g) collectively, "Covered Persons") free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands, liabilities and any
counsel fees incurred in connection therewith) that Covered Persons may incur
under the 1933 Act, the 1934 Act, or common law or otherwise, but only to the
extent that such liability or expense incurred by a Covered Person resulting
from such claims or demands shall arise out of or be based on any untrue
statement of a material fact contained in information furnished in writing by
Forum in its capacity as Placement Agent to the Trust for use in the answers to
any of the items of any registration statement or in any statements in any
Offering Material or shall arise out of or be based on any omission to state a
material fact in connection with such information furnished in writing by Forum
to the Trust required to be stated in such answers or necessary to make such
information not misleading. Forum
<PAGE>
shall be notified of any action brought against a Covered Person, such
notification to be given by letter or telegram addressed to Forum, Attention:
Legal Department, promptly after the summons or other first legal process shall
have been duly and completely served upon such Covered Person. Forum shall have
the right of first control of the defense of the action with counsel of its own
choosing satisfactory to the Trust if such action is based solely on such
alleged misstatement or omission on Forum's part, and in any other event each
Covered Person shall have the right to participate in the defense or preparation
of the defense of any such action. The failure to so notify Forum of any such
action shall not relieve Forum from any liability except to the extent that
Forum shall have been prejudiced by such failure, or from any liability that
Forum may have to Covered Persons by reason of any such untrue or alleged untrue
statement, or omission or alleged omission, otherwise than on account of Forum's
indemnity agreement contained in this Section 1(g).
(h) No Interests shall be offered by either Forum or the Trust under
any of the provisions of this Agreement and no orders for the purchase or sale
of Interests hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement or any necessary amendments thereto
shall be suspended under any of the provisions of the 1940 Act; provided,
however, that nothing contained in this Section 1(h) shall in any way restrict
or have an application to or bearing on the Trust's obligation to redeem
Interests from any investor in accordance with the provisions of the Trust's
registration statement or Trust Instrument, as amended from time to time.
(i) The Trust agrees to advise Forum as soon as reasonably practical by
a notice in writing delivered to Forum or its counsel:
(i) of any reques by the Commission for amendment to the
registratio statement then in effect or for additional
information;
(ii) in the event of the issuance by the Commission of any
stop order suspending the effectiveness of the registration
statement then in effect or the initiation by service of
process on the Trust of any proceeding for that purpose;
(iii) of the happening of any event that makes untrue any
statement of a material fact made in the registration
statement then in effect or that requires the making of a
change in such registration statement in order to make the
statements therein not misleading; and
(iv) of all action of the Commission with respect to any
amendment to any registration statement that may from time to
time be filed with the Commission.
For purposes of this Section 1(i), informal requests by or acts of the
Staff of the Commission shall not be deemed actions or requests by the
Commission.
(j) Forum agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trust all records and other
information not otherwise publicly available relative to the Trust and its
prior, present or potential investors and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Trust, which approval shall not be unreasonably withheld and may not be
withheld where Forum may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
(k) In addition to Forum's duties as Placement Agent, the Trust
understands that Forum may, in its discretion, perform additional functions in
connection with transactions in Interests.
(l) Forum shall receive no fee for its services hereunder.
(m) The processing of Interest transactions may include, but is not
limited to, compilation of all transactions; creation of a transaction tape and
timely delivery of it to the Trust's transfer agent for processing;
reconciliation of all transactions delivered to the Trust's transfer agent; and
the recording and reporting of these
<PAGE>
transactions executed by the Trust's transfer agent in customer statements; and
rendering of periodic customer statements.
(n) Forum may also provide other investor services, such as
communicating with Trust investors and other functions in administering customer
accounts for Trust investors.
(o) Nothing herein is intended, nor shall be construed, as requiring
Forum to perform any of the foregoing functions.
SECTION 2. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each
Portfolio on the later of the date hereof or the date of commencement of
operations of the Trust, and with respect to each future portfolio of the Trust,
on the date this Agreement or Appendix A hereto is amended. Upon effectiveness
of this Agreement, it shall supersede all previous agreements between the
parties hereto covering the subject matter hereof insofar as such Agreement may
have been deemed to relate to the Portfolios.
(b) This Agreement shall continue in effect with respect to a Portfolio
for a period of one year from its effectiveness and shall continue in effect for
successive twelve-month periods; provided, however, that continuance is
specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting interests of the Portfolio and (ii) by a vote
of a majority of Trustees of the Trust who are not parties to this agreement or
interested persons of any such party (other than as Trustees of the Trust);
provided further, however, that if the continuation of this agreement is not
approved as to a Portfolio, Forum may continue to render to the Portfolio the
services described herein in the manner and to the extent permitted by the Act
and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Portfolio at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Trust. This
agreement shall terminate upon assignment.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Forum and the Trust each hereby represents and warrants to the other
that it has all requisite authority to enter into, execute, deliver and perform
its obligations under this Agreement and that, with respect to it, this
Agreement is legal, valid and binding, and enforceable in accordance with its
terms.
SECTION 4. ACTIVITIES OF FORUM
Except to the extent necessary to perform Forum's obligations
hereunder, nothing herein shall be deemed to limit or restrict Forum's right, or
the right of any of Forum's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm, individual or association.
SECTION 5. LIMITATION OF INTEREST HOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the interestholders of each Portfolio
shall not be liable for any obligations of the Trust or of the Portfolios under
this Agreement, and Forum agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Trust or
the Portfolio to which Forum's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the interestholders of
the Portfolios.
SECTION 6. MISCELLANEOUS
<PAGE>
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New York.
(f) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS II
/S/ Alexandra Poe
------------------------
Alexandra Poe
Vice President
FORUM FINANCIAL SERVICES, INC.
/S/ John Y. Keffer
------------------------
John Y. Keffer
President
<PAGE>
SCHRODER CAPITAL FUNDS II
PLACEMENT AGENT AGREEMENT
APPENDIX A
Schroder International Bond Portfolio
EXHIBIT (8)
<PAGE>
SCHRODER CAPITAL FUNDS II
GLOBAL CUSTODY AGREEMENT
AGREEMENT, dated as of December 27, 1996 between The Chase Manhattan
Bank (the "Bank") and Schroder Capital Funds II (the "Customer") on behalf of
each series of the Customer listed in Schedule A hereto (each series, a "Fund").
SECTION 1. CUSTOMER ACCOUNTS
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody
Account") for any and all stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment of
money, bullion, coin and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any
other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by
the Bank or its Subcustodian (as defined in Section 3) for the
account of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit
Account") for any and all cash in any currency received by the
Bank or its Subcustodian for the account of the Customer,
which cash shall not be subject to withdrawal by draft or
check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. The Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
SECTION 2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction
in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment
or where such Securities are acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is
the legal currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balances on deposit for
the Customer with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as the Customer may direct, if acceptable to the Bank.
If the Customer wishes to have any of its Assets held in the custody of
an institution other than the established Subcustodians as defined in Section 3
(or their securities depositories), such arrangement must be authorized by a
written agreement, signed by the Bank and the Customer.
SECTION 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES
<PAGE>
The Bank may act under this Agreement through the Subcustodians listed
in Schedule B of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank to
hold Assets in the Accounts in accounts which the Bank has established with one
or more of its branches or Subcustodians. The Bank and Subcustodians are
authorized to hold any of the Securities in their account with any securities
depository in which they participate.
The Bank reserves the right to add new, replace or remove
Subcustodians. The Customer will be given reasonable notice by the Bank of any
amendment to Schedule B. Upon request by the Customer, the Bank will identify
the name, address and principal place of business of any Subcustodian of the
Customer's Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined
in Rule 17f-5 under the Act;
(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company incorporated or organized under the laws of a
country other than the United States that is regulated as such by
that country's government or an agency thereof and that has
shareholders' equity in excess of $200 million in U.S. currency
(or a foreign currency equivalent thereof), (ii) a majority owned
direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws
of a country other than the United States and that has
shareholders' equity in excess of $100 million in U.S. currency
(or a foreign currency equivalent thereof) (iii) a banking
institution or trust company incorporated or organized under the
laws of a country other than the United States or a majority
owned direct or indirect subsidiary of a qualified U.S. bank or
bank holding company that is incorporated or organized under the
laws of a country other than the United States which has such
other qualifications as shall be specified in Instructions and
approved by the Bank; or (iv) any other entity that shall have
been so qualified by exemptive order, rule or other appropriate
action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under
the laws of a country other than the United States, which
operates (i) the central system for handling securities or
equivalent book-entries in that country, or (ii) a transnational
system for the central handling of securities or equivalent
book-entries.
The Customer represents that its Board of Trustees has approved each of
the Subcustodians listed in Schedule B to this Agreement and the terms of the
subcustody agreements between the Bank and each Subcustodian, which are attached
as Exhibits I through ___ of Schedule B, and further represents that its Board
has determined that the use of each Subcustodian and the terms of each
subcustody agreement are consistent with the best interests of the Fund(s) and
its (their) shareholders. The Bank will supply the Customer with any amendment
to Schedule B for approval. The Customer has supplied or will supply the Bank
with certified copies of its Board of Trustees resolutions(s) with respect to
the foregoing prior to placing Assets with any Subcustodian so approved.
SECTION 4. USE OF SUBCUSTODIAN
(a) The Bank will identify such Assets on its books as belonging
to the Customer.
(b) A Subcustodian will hold such Assets together with assets
belonging to other customers of the Bank in accounts
identified on such Subcustodian's books as special custody
accounts for the exclusive benefit of customers of the Bank.
<PAGE>
(c) Any Assets in the Accounts held by a Subcustodian will be
subject only to the instructions of the Bank or its agent. Any
Securities held in a securities depository for the account of
a Subcustodian will be subject only to the instructions of
such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for
holding its customer's assets shall provide that such assets
will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of such Subcustodian except
for safe custody or administration, and that the beneficial
ownership of such assets will be freely transferable without
the payment of money or value other than for safe custody or
administration. The foregoing shall not apply to the extent of
any special agreement or arrangement made by the Customer with
any particular Subcustodian.
SECTION 5. DEPOSIT ACCOUNT TRANSACTIONS
(a) The Bank or its Subcustodians will make payments from a Deposit
Account upon receipt of Instructions which include all
information required by the Bank. Instructions bust be received
from one or more Authorized Person(s) and countersigned or
confirmed in writing by one or more Authorized Person(s) who are
different than the Authorized Person(s) that originated or
drafted the Instructions.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in a Deposit Account, the Bank, in
its discretion, may advance the Customer such excess amount which
shall be deemed a loan payable on demand, bearing interest at the
rate customarily charged by the Bank on similar loans.
(c) If the Bank credits a Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to that
Deposit Account, with interest, dividends, redemptions or any
other amount due, the Customer will promptly return any such
amount upon oral or written notification: (i) that such amount
has not been received in the ordinary course of business or (ii)
that such amount was incorrectly credited. If the Customer does
not promptly return any amount upon such notification, the Bank
shall be entitled, upon oral or written notification to the
Customer, to reverse such credit by debiting the Deposit Account
for the amount previously credited. The Bank or its Subcustodian
shall have no duty or obligation to institute legal proceedings,
file a claim or a proof of claim in any insolvency proceeding or
take any other action with respect to the collection of such
amount, but may act for the Customer upon Instructions after
consultation with the Customer.
SECTION 6. CUSTODY ACCOUNT TRANSACTIONS
(a) Securities will be transferred, exchanged or delivered by the
Bank or its Subcustodian upon receipt by the Bank of Instructions
which include all information required by the Bank. Settlement
and payment for Securities received for, and delivery of
Securities out of, a Custody Account may be made in accordance
with the customary or established securities trading or
securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs,
including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery.
Delivery of Securities out of a Custody Account may also be made
in any manner specifically required by Instructions acceptable to
the Bank.
(b) The Bank, in its discretion, may credit or debit an Account on a
contractual settlement date with cash or Securities with respect
to any sale, exchange or purchase of Securities. Otherwise, such
transactions will be credited or debited to the Account on the
date cash or Securities are actually received by the Bank and
reconciled to the Account.
<PAGE>
(i) The Bank may reverse credits or debits made to an
Account in its discretion if the related transaction
fails to settle within a reasonable period,
determined by the Bank in its discretion, after the
contractual settlement date for the related
transaction.
(ii) If any Securities delivered pursuant to this Section
6 are returned by the recipient thereof, the Bank may
reverse the credits and debits of the particular
transaction at any time.
SECTION 7. ACTIONS OF THE BANK
The Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other
income items which call for payment upon presentation, to the
extent that the Bank or Subcustodian is actually aware of such
opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of
Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank
or any Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer sends the Bank a written exception or objection to
any Bank statement within sixty (60) days of receipt, the Customer shall be
deemed to have approved such statement. In such event, or where the Customer has
otherwise approved any such statement, the Bank shall, to the extent permitted
by law, be released, relieved and discharged with respect to all matters set
forth in such statement or reasonably implied therefrom as though it had been
settled by the decree of a court of competent jurisdiction in an action where
the Customer and all persons having or claiming an interest in the Customer or
the Customer's Accounts were parties.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. The Bank shall have no liability for any loss occasioned by delay in
the actual receipt of notice by the Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Securities in the Custody Account in
respect of which the Bank has agreed to take any action under this Agreement.
SECTION 8. CORPORATE ACTIONS; PROXIES
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities (other
than a proxy), such as subscription rights, bonus issues, stock repurchase plans
and rights offerings, or legal notices or other material intended to be
transmitted to securities holders ("Corporate Actions"), the Bank will give the
Customer notice of such Corporate Actions to the extent that the Bank's central
corporate actions department has actual knowledge of a Corporate Action in time
to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person as defined in Section
10, but if Instructions are not received in time for
<PAGE>
the Bank to take timely actions, or actual notice of such Corporate Action was
received too late to seek Instructions, the Bank is authorized to sell such
rights entitlement or fractional interest and to credit the Deposit Account with
the proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing. Such
proxies shall be executed in the appropriate nominee name relating to Securities
in the Custody Account registered in the name of such nominee but without
indicating the manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance with
Instructions.
SECTION 9. NOMINEES
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities depository,
as the case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising from their status as a mere record
holder of Securities in the Custody Account.
SECTION 10. AUTHORIZED PERSONS.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer or
its designated agent that any such employee or agent is no longer an Authorized
Person.
SECTION 11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold the
Bank harmless for the failure of an Authorized Person to send such confirmation
in writing, the failure of such confirmation to conform to the telephone
instructions received or the Bank's failure to produce such confirmation at any
subsequent time. The Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall make
available to the Customer or its Authorized Persons.
Deposit Account Payments and Custody Account Transactions made pursuant
to Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is to be
made and Customer shall be solely responsible to assure that Instructions are in
accord with any limitations or restrictions applicable to the Customer by law or
as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at price
as confirmed by Instructions;
<PAGE>
(b) When Securities are called, redeemed or retired, or otherwise
become payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses;
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts
borrowed;
(h) In connection with any loans, but only against receipt of
adequate collateral as specified in Instructions which shall
reflect any restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of,
the Bank, its Subcustodian or the Customer's transfer agent, such
shares to be purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer
against delivery to the Bank, its Subcustodian or the Customer's
transfer agent of such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Bank and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Customer;
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be
released only upon payment to the Bank of monies for the premium
due and a receipt for the Securities which are to be held in
escrow. Upon exercise of the option, or at expiration, the Bank
will receive from brokers the Securities previously deposited.
The Bank will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no
responsibility or liability for any such Securities which are not
returned promptly when due other than to make proper request for
such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions
issued by an officer of the Customer which shall include a
statement of the purpose for which the delivery or payment is to
be made, the amount of the payment or specific Securities to be
delivered, the name of the person or persons to whom delivery or
payment is to be made, and a certification that the purpose is a
proper purpose under the instruments governing the Customer; and
(o) Upon the termination of this Agreement as set forth in Section
14(i).
SECTION 12. STANDARD OF CARE; LIABILITIES
<PAGE>
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly
contained in Instructions which are consistent with the
provisions of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
Assets. The Bank shall be liable to the Customer for any
loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that the Bank
would be liable to the Customer if the Bank were holding
such Assets in New York. In the event of any loss to the
Customer by reason of the failure of the Bank or its
Subcustodian to utilize reasonable care, the Bank shall be
liable to the customer only to the extent of the Customer's
direct damages, to be determined based on the market value
of the property which is the subject of the loss at the date
of discovery of such loss and without reference to any
special conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent which it
or a Subcustodian appoints unless such appointment was made
negligently or in bad faith.
(iii)The Bank shall be indemnified by, and without liability to
the Customer for any actions taken or omitted by the Bank
whether pursuant to Instructions or otherwise within the
scope of this Agreement if such act or omission was in good
faith, without negligence. In performing its obligations
under this Agreement, the Bank may rely on the genuineness
of any document which it believes in good faith to have been
validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless
from any liability or loss resulting from the imposition or
assessment of any taxes or other governmental charges, and
any related expenses with respect to income from or Assets
in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
(vi) The Bank need not maintain any insurance for the benefit of
the Customer.
(vii)Without limiting the foregoing, the Bank shall not be
liable for any loss which results from: 1) the general risk
of investing, or 2) investing or holding Assets in a
particular country including, but not limited to, losses
resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or
securities industry; currency restrictions, devaluations or
fluctuations; and market conditions which prevent the
orderly execution of securities transactions or affect the
value of Assets.
(viii) Neither party shall be liable to the other for any loss
due to forces beyond their control including, but not
limited to strikes or work
<PAGE>
stoppages, acts of war or terrorism, revolution, nuclear
fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have
no duty or responsibility to:
(i) question Instructions or make any suggestions to the
Customer or an Authorized Person regarding such
Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii)advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any
security other than as provided in Section 5(c) of this
Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or
other party (except for brokers, agents other than
subcustodians or depositories or other parties selected by
the Bank, except in markets where there is only one
registered or otherwise qualified broker, agent or other
party) to which Securities are delivered or payments are
made pursuant to this Agreement; or
(v) review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined
in Section 10) issuing Instructions shall bear any
responsibility to review such confirmations against
Instructions issued to and statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates
may have a material interest in a transaction, or circumstances are
such that the Bank may have a potential conflict of duty or interest
including the fact that the Bank or any of its affiliates may provide
brokerage services to other customers, act as financial advisor to the
issuer of Securities, act as a lender to the issuer of Securities, act
in the same transaction as agent for more than one customer, have a
material interest in the issue of Securities, or earn profits from any
of the activities listed herein.
(d) The Bank hereby warrants to the Customer that in its opinion, after
due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign
custodian and each eligible foreign securities depository holding the
Customer's Securities pursuant to this Agreement afford protection for
such Securities at least equal to that afforded by the Bank's
established procedures with respect to similar securities held by the
Bank and its securities depositories in New York.
SECTION 13. FEES AND EXPENSES
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing, together with the Bank's
reasonable out-of-pocket or incidental expenses, including, but not limited to,
legal fees. The Bank shall have a lien on and is authorized to charge any
Accounts of the Customer for any amount owing to the Bank under any provision of
this Agreement, so long as such lien does not contravene the provisions of
S.E.C. Release #40-12053, as amended from time to time. No fee shall be payable
hereunder with respect to any Fund during any period in which such Fund invests
all (or substantially all) of its investment assets in a registered, open-end
management investment company, or separate series thereof, in accordance with
section 12(d)(1)(E) under the Investment Company Act of 1940.
<PAGE>
SECTION 14. MISCELLANEOUS
(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration of the
Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the
Customer or an Authorized Person for the Customer and may also provide
foreign exchange through its subsidiaries, affiliates or
Subcustodians. Instructions, including standing instructions, may be
issued with respect to such contracts, but the Bank may establish
rules or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates
or Subcustodians enter into a foreign exchange contract related to an
Account, the terms and conditions of the then current foreign exchange
contract of the Bank, its subsidiary, affiliate or Subcustodian and,
to the extent not inconsistent, this Agreement shall apply to such
transaction.
(b) CERTIFICATION OF RESIDENCY, ETC. The Customer certifies that it is a
resident of the United States and agrees to notify the Bank of any
changes in residency. The Bank may rely upon this certification or the
certification of such other facts as may be required to administer the
Bank's obligations under this Agreement. The Customer will indemnify
the Bank against all losses, liability, claims or demands arising
directly or indirectly from any such certifications.
(c) ACCESS TO RECORDS. The Bank shall allow the Customer's independent
public accountant reasonable access to the records of the Bank
relating to the Assets as is required in connection with their
examination of books and records pertaining to the customer's affairs.
Subject to restrictions under applicable law, the Bank shall also
obtain an undertaking to permit the Customer's independent public
accountants reasonable access to the records of any Subcustodian which
has physical possession of any Assets as may be required in connection
with the examination of the Customer's books and records. Upon
reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of
internal accounting controls applicable to the Bank's duties under
this Agreement. The Bank shall endeavor to obtain and furnish the
Customer with such similar reports as it may reasonably request with
respect to each Subcustodian and securities depository holding the
Customer's assets.
(d) GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall be
governed by the laws of the State of New York and shall not be
assignable by either party, but shall bind the successors in interest
of the Customer and the Bank.
(e) ENTIRE AGREEMENT; APPLICABLE RIDERS. Customer represents that the
Assets deposited in the Accounts are (Check one):
___ Employee Benefit Plan or other assets subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA");
_X_ Mutual Fund assets subject to certai Securities an
Exchange Commission ("SEC")rules and regulations;
___ Neither of the above.
This Agreement consists exclusively of this document together with Schedule A,
Schedule B, Exhibits I-___ and the following Rider(s) [Check applicable
rider(s)]:
___ ERISA
_X_ MUTUAL FUND
<PAGE>
_X_ SPECIAL TERMS AND CONDITIONS
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.
(f) SEVERABILITY. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any
respect on the basis of any particular circumstances or in any
jurisdiction, the validity, legality and enforceability of
such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions will not
in any way be affected or impaired.
(g) WAIVER. Except as otherwise provided in this Agreement, no
failure or delay on the part of either party in exercising any
power or right under this Agreement operates as a waiver, nor
does any single or partial exercise of any power or right
preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party or any provision of
this Agreement, or waiver of any breach or default, is
effective unless in writing and signed by the party against
whom the waiver is to be enforced.
(h) NOTICES. All notices under this Agreement shall be effective
when actually received. Any notices or other communications
which may be required under this Agreement are to be sent to
the parties at the following addresses or such other addresses
as may subsequently be given to the other party in writing:
Bank: The Chase Manhattan Bank
Attention: Global Custody Division
Woolgate House, Coleman Street
London, EC2P 2HD, United Kingdom
or telex:
Customer: Schroder Capital Funds II
c/o Forum Financial Services, Inc., Legal Dept.
Two Portland Square
Portland, Maine 04101
or telex: (207) 879-6050
(i) TERMINATION. This Agreement may be terminated by the Customer or the
Bank by giving sixty (60) days written notice to the other, provided
that such notice to the Bank shall specify the names of the persons to
whom the Bank shall deliver the assets in the Accounts. If notice of
termination is given by the Bank, the Customer shall, within sixty
(60) days following receipt of the notice, deliver to the Bank
Instructions specifying the names of the persons to whom the Bank
shall deliver the Assets. In either case, the Bank will deliver the
Assets to the persons so specified, after deducting any amounts which
the Bank determines in good faith to be owed to it under Section 13.
If within sixty (60) days following receipt of a notice of termination
by the Bank, the Bank does not receive Instructions from the Customer
specifying the names of the persons to whom the Bank shall deliver the
Assets, the Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be held and
disposed of pursuant to the provisions of this Agreement, or to
Authorized Persons, or may continue to hold the Assets until
Instructions are provided to the Bank.
(j) A copy of the Trust Instrument of the Schroder Capital Funds II is on
file with the Secretary of the State of Delaware and notice is hereby
given that the Agreement is not binding upon any of the trustees,
officers, or shareholders of the Customer individually, but are
binding only upon the
<PAGE>
assets and property of the applicable Fund. The Bank agrees that no
shareholder, trustee, or officer of the Customer or any Fund may be
held personally liable or responsible for any obligations of any fund
arising out of the Agreement. With respect to the obligations of a
Fund arising out of the Agreement, the Bank shall look for payment or
satisfaction of any claim solely to the assets and property of that
Fund, and not to the assets of any other series of the Trust.
SCHRODER CAPITAL FUNDS II
On behalf of each fund
listed in Schedule A.
By:________________________
Alexandra Poe
Vice President
THE CHASE MANHATTAN BANK,
By:________________________
Caroline Willson
Vice President
<PAGE>
SCHRODER CAPITAL FUNDS II
GLOBAL CUSTODY AGREEMENT
SCHEDULE A
(as of December 27, 1996)
Schroder International Bond Portfolio
<PAGE>
SCHRODER CAPITAL FUNDS II
GLOBAL CUSTODY AGREEMENT
SCHEDULE B
(List of authorized Subcustodians)
<PAGE>
SPECIAL TERMS AND CONDITIONS
----------------------------
These Special Terms and Conditions supplement the Agreement by and
between The Chase Manhattan Bank (the "Bank") and Schroder Capital
Funds II (the "Customer") effective December 27, 1996. To the extent
that any term or provision of the Agreement is inconsistent with these
Special Terms and Conditions, the Special Terms and Conditions shall
control.
In order to properly allocate the responsibilities of the parties, the
term "Customer" shall have the meanings designated below.
a) In the following sections of the Agreement, the term "Customer"
shall mean "each Fund":
-- Section 1(a) & (b)
-- Section 2
-- Section 4
-- Section 13, and
-- Section 14(c)
b) In the following sections of the Agreement the term "Customer"
shall refer to the Customer on behalf of a Fund.
-- Section 1; the last paragraphs
-- Section 3
-- Section 4
-- Section 5(c)
-- Section 7(b) & (e)
-- Section 7; the last paragraph
-- Section 8
-- Section 10
-- Section 11, and
-- Section 14(a) & (i)
c) In sections 9 and 12 of the Agreement,the term "Customer" shall
mean the Customer or the Fund.
EXHIBIT (9)(A)
<PAGE>
SCHRODER CAPITAL FUNDS II
ADMINISTRATION AGREEMENT
AGREEMENT made this 27th day of December, 1996, between Schroder
Capital Funds II (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Schroder Fund Advisors Inc. ("Schroder").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series; and
WHEREAS, the Trust desires that Schroder perform administrative
services for each of the portfolios of the Trust as listed in Appendix A hereto
(each a "Portfolio," and collectively the "Portfolios") and Schroder is willing
to provide those services on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument and Registration Statement filed with the
Securities and Exchange Commission (the "Commission") under the Act, as may be
supplemented from time to time, all in such manner and to such extent as may
from time to time be authorized by the Trust's Board of Trustees (the "Board").
The Trust is currently authorized to issue two series of interests and the Board
is authorized to issue interests in any number of additional series. The Trust
has delivered to Schroder copies of the Trust's Trust Instrument and
Registration Statement and will from time to time furnish Schroder with any
amendments thereof.
SECTION 2. APPOINTMENT
The Trust hereby employs Schroder, subject to the direction and control
of the Board, to manage all aspects of the Trust's operations with respect to
each Portfolio except those which are the responsibility of Schroder Capital
Management International Inc. (the "Adviser"), the Trust's investment adviser.
SECTION 3. ADMINISTRATIVE DUTIES
(a) With respect to the Trust or each Portfolio, as applicable,
Schroder shall:
(i) oversee (A) the preparation and maintenance by the Adviser and the
Trust's sub-administrator, custodian, transfer agent and fund
accountant (or if appropriate, prepare and maintain) in such form, for
such periods and in such locations as may be required by applicable
law, of all documents and records relating to the operation of the
Trust required to be prepared or maintained by the Trust or its agents
pursuant to applicable law; (B) the reconciliation of account
information and balances among the Adviser and the Trust's custodian,
transfer agent and fund accountant; (C) the transmission of purchase
and redemption orders for interests in the Portfolios; (D) the
notification to the Adviser of available funds for investment; and (E)
the performance of fund accounting, including the calculation of the
net asset value of the Trust's interests;
(ii) oversee the performance of administrative and professional
services rendered to the Trust by others, including its
sub-administrator, custodian, transfer agent and fund accountant as
well as legal, auditing and interestholder servicing and other services
performed for the Portfolios;
<PAGE>
(iii) be responsible for the preparation and the printing of the
periodic updating of the Registration Statement, tax returns, and
reports to interestholders and the Commission;
(iv) be responsible for the preparation of proxy and information
statements and any other communications to interestholders;
(v) at the request of the Board, provide the Trust with adequate
general office space and facilities and provide persons suitable to the
Board to serve as officers of the Trust;
(vi) provide the Trust, at the Trust's expense, with the services of
persons, who may be officers of the Trust, competent to perform such
supervisory, administrative and clerical functions as are necessary to
provide effective operations of the Trust;
(vii) prepare, file and maintain the Trust's governing documents,
including the Trust Instrument and minutes of meetings of Trustees and
interestholders;
(viii) with the approval of the Trust's counsel and cooperation from
the Adviser and other relevant parties, prepare and disseminate
materials for meetings of the Board;
(ix) oversee the calculation of performance data for dissemination to
information services covering the investment company industry, for
sales literature of the Trust or its interestholders and other
appropriate purposes;
(x) oversee the determination of the amount of and supervise
distributions to interestholders as necessary to, among other things,
maintain the qualification of each interestholder that may be a
regulated investment company under the Internal Revenue Code of 1986,
as amended; and
(xi) advise the Trust and the Board on matters concerning the Trust
and its affairs.
(b) The books and records pertaining to the Trust which are in
possession of Schroder shall be the property of the Trust. The Trust, or the
Trust's authorized representatives, shall have access to such books and records
at all times during Schroder's normal business hours. Upon the reasonable
request of the Trust, copies of any such books and records shall be provided
promptly by Schroder to the Trust or the Trust's authorized representatives. In
the event the Trust designates a successor to any of Schroder's obligations
hereunder, Schroder shall, at the expense and direction of the Trust, transfer
to such successor all relevant books, records and other data established or
maintained by Schroder under this Agreement.
SECTION 4. STANDARD OF CARE
The Trust shall expect of Schroder, and Schroder will give the Trust
the benefit of, Schroder's best judgment and efforts in rendering these services
to the Trust, and the Trust agrees as an inducement to Schroder's undertaking
these services that Schroder shall not be liable hereunder for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing herein shall be deemed to protect, or purport to protect, Schroder
against any liability to the Trust or to its interestholders to which Schroder
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of Schroder's duties hereunder, or by reason of
Schroder's reckless disregard of its obligations and duties hereunder. As used
in this Section 4, the term "Schroder" shall include any affiliates of Schroder
performing services for the Portfolios contemplated hereby and directors,
officers and employees of Schroder as well as Schroder itself.
SECTION 5. COMPENSATION; EXPENSES
(a) In consideration of the administrative services performed by
Schroder as described herein, the Trust will pay Schroder, with respect to each
Portfolio a fee at the annual rate as listed in Appendix A hereto. Such
<PAGE>
fee shall be accrued by the Trust daily and shall be payable monthly in arrears
on the first day of each calendar month for services performed hereunder during
the prior calendar month.
(b) The Trust hereby confirms that the Trust shall be responsible and shall
assume the obligation for payment of all the Trust's expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian and
transfer agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of the Trust's formation and maintaining its existence; costs of
preparing the Trust's registration statement, account application forms and
interestholder reports and delivering them to existing and prospective
interestholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of interests in the Trust; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and the
costs of other personnel performing services for the Trust who are not officers
of the Adviser or of Schroder or affiliated persons of either; costs of Trust
meetings; registration fees and related expenses for registration with the
Commission and the securities regulatory authorities of other countries in which
the Trust's interests are sold; state securities law registration fees and
related expenses; and fees and out-of-pocket expenses payable to each investment
adviser under any investment advisory or similar agreement.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each
Portfolio on the date hereof and with respect to each future portfolio of the
Trust on the date this Agreement or Appendix A hereto is amended. Upon
effectiveness of this Agreement, it shall supersede all previous agreements
between the parties hereto covering the subject matter hereof insofar as such
Agreement may have been deemed to relate to the Portfolios.
(b) This Agreement shall continue in effect with respect to a Portfolio
for a period of one year from its effectiveness and shall continue in effect for
successive twelve-month periods; provided, however, that continuance is
specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting interests of the Portfolio and (ii) by a vote
of a majority of Trustees of the Trust who are not parties to this agreement or
interested persons of any such party (other than as Trustees of the Trust);
provided further, however, that if the continuation of this agreement is not
approved as to a Portfolio, Schroder may continue to render to the Portfolio the
services described herein in the manner and to the extent permitted by the Act
and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Portfolio at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to Schroder or (ii) by Schroder on 60 days' written notice to the Trust.
This agreement shall terminate upon assignment.
SECTION 7. ACTIVITIES OF SCHRODER
Except to the extent necessary to perform Schroder's obligations
hereunder, nothing herein shall be deemed to limit or restrict Schroder's right,
or the right of any of Schroder's officers, directors or employees who may also
be a trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm, individual or association.
SECTION 8. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the interestholders of each Portfolio
shall not be liable for any obligations of the Trust or of the Portfolios under
this Agreement, and Schroder agrees that, in asserting any rights or claims
under this Agreement, it shall look only to the assets and property of the Trust
or the Portfolio to which Schroder's rights or claims relate in settlement of
such rights or claims, and not to the Trustees of the Trust or the
interestholders of the Portfolios.
<PAGE>
SECTION 9. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the state of New York.
(f) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS II
/S/ Alexandra Poe
--------------------------
Alexandra Poe
Vice President
SCHRODER FUND ADVISORS INC.
/S/ Catherine A. Mazza
--------------------------
Catherine A. Mazza
Senior Vice President
<PAGE>
SCHRODER CAPITAL FUNDS II
ADMINISTRATION AGREEMENT
APPENDIX A
Annual Fee as a % of
the Average Daily
Portfolios Of The Trust Net Assets Of The Portfolio
- ----------------------- ---------------------------
Schroder International Bond Portfolio 0.10%
EXHIBIT (9)(B)
<PAGE>
SCHRODER CAPITAL FUNDS II
SUB-ADMINISTRATION AGREEMENT
AGREEMENT made this 27th day of December, 1996, between Schroder
Capital Funds II, a business trust organized under the laws of the State of
Delaware with its principal place of business at 2 Portland Square, Portland,
Maine 04101 (the "Trust") and Forum Administrative Services, LLC ("FAS" or
"Sub-Administrator"), a corporation organized under the laws of the State of
Delaware with its principal place of business at 61 Broadway, New York, New York
10006.
WHEREAS, the Trust is registered under the Investment Company Act of
1940 (the "Act") as an open-end management investment company and is authorized
to issue interests in separate series ("Interests");
WHEREAS, the Trust desires that Schroder perform sub-administrative
services for the portfolio of the Trust as listed in Appendix A hereto (each a
"Portfolio", and collectively the "Portfolios") and Schroder is willing to
provide those services on the terms and conditions set forth in this Agreement;
WHEREAS, the Trust has entered into an Administration Agreement
("Administration Agreement") with Administrator, pursuant to which Administrator
provides certain management and administrative services for the Trust and any
series thereof;
WHEREAS, the Trust and Administrator desire that FAS perform certain
administrative services for the Trust, and each of its series that now exist or
may in the future be created, and FAS is willing to provide those services on
the terms and conditions set forth in this Agreement; and
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, Trust and FAS agree as follows:
SECTION 1. APPOINTMENT. The Trust hereby appoints FAS as
Sub-Administrator of the Trust and FAS hereby accepts such appointment, all in
accordance with the terms and conditions of this Agreement. In connection
therewith, the Trust has delivered to the Sub-Administrator copies of its Trust
Instrument, the Trust's Registration Statement and all amendments thereto filed
pursuant to the Act (the "Registration Statement") and the current Parts A and C
of the Registration Statement covering each Series of the Trust and, shall
promptly furnish the Sub-Administrator with all amendments of or supplements to
the foregoing.
SECTION 2. DEFINITIONS. Whenever used in this Agreement, the following
terms shall have the meanings specified, insofar as the context will allow:
a) ACT: The term Act shall mean the Investment Company Act of 1940, as
amended from time to time.
b) ADMINISTRATOR. The term Administrator shall mean Schroder Fund Advisors
Inc., or any successor thereto who acts as the administrator of the Trust
or any series thereof.
c) ADVISER. The term Adviser shall mean Schroder Capital Management
International Inc., or any successor thereto who acts as the investment
adviser of the Trust or any series thereof;
d) BOARD: The term Board shall mean the Board of Trustees of the Trust.
e) CUSTODIAN: The term Custodian shall mean Chase Manhattan Bank, NA, or
any successor or other custodian acting as such for any current or future
Series of the Trust.
f) DIVIDEND DISBURSING AGENT: The term Dividend Disbursing Agent shall mean
Forum Financial Corp., or any successor thereto that is responsible for
determining the amount of, and declaring, dividends and other distributions
to Interestholders, subject to approval by the Board;
<PAGE>
g) FUND ACCOUNTANT: The term Fund Accountant shall mean Forum Financial
Corp., or any successor thereto that is responsible for calculating the net
asset value of each series of the Trust and maintaining its accounting
books and records.
h) FUND BUSINESS DAY: The term Fund Business Day shall mean each day that
the New York Stock Exchange is open for trading (which excludes the
following national business holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day).
i) INTERESTHOLDERS: The term Interestholders shall mean the registered
owners from time to time of the Interests, as reflected on the registry
records of the Trust.
j) INTERESTS: The term Interests shall mean the issued and outstanding
interests of the Trust, or any series of the Trust, including any fractions
thereof.
k) PROSPECTUS: The term Prospectus shall mean the then-current Part A of an
effective Registration Statement of the Trust under the Act covering any
Series of the Trust, as the same may be amended or supplemented from time
to time.
l) SERIES: The term Series shall mean each series listed in Schedule A or
any series that the Trust shall subsequently establish;
m) SUB-ADMINISTRATOR: The term Sub-Administrator shall mean Forum
Administrative Services, LLC or any successor thereto who provides
administrative services to the Trust.
n) TRANSFER AGENT. The term Transfer Agent shall mean Forum Financial
Corp., or any successor thereto who provides transfer agent services to the
Trust.
o) TRUST: The term Trust shall mean Schroder Capital Funds II.
SECTION 3. FURNISHING OF EXISTING ACCOUNTS AND RECORDS. The Trust shall
promptly turn over to FAS such of the Accounts and Records previously maintained
by or for it as are necessary for FAS to perform its functions under this
Agreement. The Trust authorizes FAS to rely on such Accounts and Records turned
over to it and hereby indemnifies and will hold FAS, its successors and assigns,
harmless of and from any and all expenses, damages, claims, suits, liabilities,
actions, demands and losses whatsoever arising out of or in connection with any
error, omission, inaccuracy or other deficiency of such Accounts and Records or
in the failure of the Trust to provide any portion of such or to provide any
information needed by FAS to knowledgeably perform its functions.
SECTION 4. ADMINISTRATIVE DUTIES
(a) Subject to the direction and control of the Board and the
Administrator, the Sub-Administrator shall manage certain aspects of operations
of the Trust, and any existing or future series thereof, except those functions
which are the responsibility of the Adviser, the Administrator, Custodian,
Transfer Agent, Dividend Disbursing Agent, or Fund Accountant, all in such
manner and to such extent as may be authorized by the Board or the
Administrator;
(b) With respect to the Trust and each series thereof, as applicable,
the Sub-Administrator shall:
(i) oversee (A) the preparation and maintenance by the Adviser and
the Trust's Custodian, Transfer Agent, Dividend Disbursing Agent
and Fund Accountant (or if appropriate, prepare and maintain) in
such form, for such periods and in such locations as may be
required by applicable law, of all documents and records relating
to the operation of the Trust required to be prepared or
maintained by the Trust or its agents pursuant to applicable law;
(B) the reconciliation of account information
<PAGE>
and balances among the Adviser and the Trust's Custodian,
Transfer Agent, Dividend Disbursing Agent and Fund Accountant;
(C) the transmission of purchase and redemption orders for
Interests; (D) the notification to the Adviser of available funds
for investment; and (E) the performance of fund accounting,
including the calculation of the net asset value of the
Interests;
(ii) oversee the performance of administrative and professional
services rendered to the Trust by others, including its
Custodian, Transfer Agent, Dividend Disbursing Agent, and Fund
Accountant, as well as legal, auditing and shareholder servicing
and other services performed for each existing or future Series
of the Trust;
(iii)be responsible for the preparation and the printing of the
periodic updating of the Registration Statement and Prospectus,
tax returns, and reports to Interestholders, the Securities and
Exchange Commission and state securities commissions;
(iv) be responsible for the preparation of proxy and information
statements and any other communications to Interestholders;
(v) at the request of the Board, provide the Trust with adequate
general office space and facilities and provide persons suitable
to the Board to serve as officers of the Trust;
(vi) provide the Trust, at the Trust's request, with the services of
persons who are competent to perform such supervisory or
administrative functions as are necessary for effective operation
of the Trust;
(vii) prepare, file and maintain the Trust's governing documents,
including the Trust Instrument and minutes of meetings of
Trustees and Interestholders;
(viii) with the cooperation of the Trust's counsel, the
Administrator, the Adviser, and other relevant parties,
prepare and disseminate materials for meetings of the Board of
Trustees;
(ix) monitor sales of Interests and ensure that such Interests are
properly and duly registered with the Securities and Exchange
Commission and applicable state securities commissions;
(x) oversee the calculation of performance data for dissemination
to information services covering the investment company
industry, for sales literature of the Trust and other
appropriate purposes;
(xi) oversee the determination of the amount of, and supervise the
declaration of, dividends and other distributions to
Interestholders as necessary to, among other things, maintain
the qualification of each Series as a regulated investment
company under the Internal Revenue Code of 1986, as amended,
and prepare and distribute to appropriate parties notices
announcing the declaration of dividends and other
distributions to Interestholders; and
(xii)advise the Trust and its Board of Trustees on matters concerning
the Trust and its affairs.
(c) FAS shall prepare and maintain or cause to be prepared and
maintained records in such form for such periods and in such locations as may be
required by applicable regulations, all documents and records relating to the
services provided to the Trust pursuant to this Agreement required to be
maintained pursuant to the Act, rules and regulations of the Securities and
Exchange Commission, the Internal Revenue Service and any other national, state
or local government entity with jurisdiction over the Trust. The accounts and
records pertaining to the Trust which are in possession of the Sub-Administrator
shall be the property of the Trust. The Trust, or the Trust's authorized
representatives, shall have access to such accounts and records at all times
during the Sub-Administrator's normal business hours. Upon the reasonable
request of the Trust, copies of any such accounts and records shall be provided
promptly by the Sub-Administrator to the Trust or the Trust's authorized
representatives. In the event the Trust designates a successor to any of the
Sub-Administrator's obligations hereunder, the
<PAGE>
Sub-Administrator shall, at the expense and direction of the Trust, transfer to
such successor all relevant books, records and other data established or
maintained by the Sub-Administrator under this Agreement.
SECTION 5. STANDARD OF CARE. FAS, in performing under the terms and
conditions of this Agreement, shall use its best judgment and efforts in
rendering the services described herein, and shall incur no liability for its
status hereunder or for any reasonable actions taken or omitted in good faith.
As an inducement to FAS's undertaking to render these services, the Trust hereby
agrees to indemnify and hold harmless FAS, its employees, agents, officers and
directors, from any and all loss, liability and expense, including any legal
expenses, arising out of FAS's performance under this Agreement, or status, or
any act or omission of FAS, its employees, agents, officers and directors;
provided that this indemnification shall not apply to FAS's actions taken or
failures to act in cases of FAS's own bad faith, willful misconduct or gross
negligence in the performance of its duties under this Agreement; and provided
further that FAS shall give the Trust notice and reasonable opportunity to
defend against any such loss, claim, damage, liability or expense in the name of
the Trust or FAS, or both. The Trust will be entitled to assume the defense of
any suit brought to enforce any such claim or demand, and to retain counsel of
good standing chosen by the Trust and approved by FAS, which approval shall not
be withheld unreasonably. In the event the Trust does elect to assume the
defense of any such suit and retain counsel of good standing approved by FAS,
the defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Trust does not elect
to assume the defense of any such suit, or in case FAS does not approve of
counsel chosen by the Trust or FAS has been advised that it may have available
defenses or claims which are not available or conflict with those available to
the Trust, the Trust will reimburse FAS, its officers or directors or the
controlling person or persons named as defendant or defendants in such suit, for
the fees and expenses of any one law firm retained as counsel by FAS or them.
FAS may, at any time, waive its right to indemnification hereunder and assume
its own defense. Without limitation of the foregoing:
a) FAS may rely upon the advice of the Trust or of counsel, who may be
counsel for the Trust or counsel for FAS, and upon statements of
accountants, brokers and other persons believed by it in good faith to
be expert in the matters upon which they are consulted, and FAS shall
not be liable to anyone for any actions taken in good faith upon such
statements.
b) FAS may act upon any oral instruction which it receives and which it
believes in good faith was transmitted by the person or persons
authorized by the Board of the Trust to give such oral instruction. FAS
shall have no duty or obligation to make any inquiry or effort of
certification of such Oral Instruction.
c) FAS shall not be liable for any action taken in good faith reliance
upon any written instruction or certified copy of any resolution of the
Board of the Trust, and FAS may rely upon the genuineness of any such
document or copy thereof reasonably believed in good faith by FAS to
have been validly executed.
d) FAS may rely and shall be protected in acting upon any signature,
instruction, request, letter of transmittal, certificate, opinion of
counsel, statement, instrument, report, notice, consent, order, or
other paper document believed by it to be genuine and to have been
signed or presented by the purchaser, Trust or other proper party or
parties.
SECTION 6. EXPENSES. Subject to any agreement by the Sub-Administrator
or other person to reimburse any expenses of the Trust that relate to any
Series, the Trust shall be responsible for and assumes the obligation for
payment of all of its other expenses, including: (a) the fee payable under
Section 7 hereof; (b) the fees payable to the Adviser under the Advisory
Agreement; (c) the fees payable to the Administrator under the Administration
Agreement; (d) expenses of issue, repurchase and redemption of Interests; (e)
interest charges, taxes and brokerage fees and commissions, including the fees
and commissions of introducing brokers; (f) premiums of insurance for the Trust,
its Trustees and officers and fidelity bond premiums; (g) fees, interest charges
and expenses of third parties, including the Trust's Custodian, Transfer Agent,
Dividend Disbursing Agent and Fund Accountant; (h) fees of pricing, interest,
dividend, credit and other reporting services; (i) costs of membership in trade
associations; (j) telecommunications expenses; (k) funds transmission expenses;
(l) auditing, legal and compliance expenses; (m) costs of forming the Trust and
maintaining its existence; (n) to the extent permitted by rule 12b-1 under the
1940 Act, costs of preparing and printing the Series' Prospectuses, subscription
application forms and
<PAGE>
shareholder reports and delivering them to existing Interestholders; (o)
expenses of meetings of Interestholders and proxy solicitations therefore; (p)
costs of maintaining books of original entry for portfolio and fund accounting
and other required books and accounts, of calculating the net asset value of
Interests of the Trust and of preparing tax returns; (q) costs of reproduction,
stationery and supplies; (r) fees and expenses of the Trust's Trustees; (s)
compensation of the Trust's officers and employees who are not employees of the
Adviser, Administrator or Sub-Administrator or their respective affiliated
persons and costs of other personnel (who may be employees of the Adviser,
Administrator, or Sub-Administrator or their respective affiliated persons)
performing services for the Trust; (t) costs of Trustee meetings; (u) Securities
and Exchange Commission registration fees and related expenses; (v) state or
foreign securities laws registration fees and related expenses; and (w) all fees
and expenses paid by the Trust in accordance with any distribution plan adopted
pursuant to Rule 12b-1 under the Act or under any shareholder service plan or
agreement.
In the event that this agreement is terminated, FAS shall be reimbursed
for reasonable charges and disbursements associated with promptly transferring
to the Administrator or successor sub-administrator the original or copies of
all accounts and records maintained by FAS hereunder, and cooperating with, and
providing reasonable assistance to, the Administrator or successor
sub-administrator in the establishment of the accounts and records necessary to
carry out the Administrator's or successor sub-administrators responsibilities.
SECTION 7. COMPENSATION
(a) In consideration of the administrative services performed by
Schroder as described herein, the Trust will pay Schroder, with respect to each
Portfolio a fee at the annual rate as listed in Appendix A hereto. Such fee
shall be accrued by the Trust daily and shall be payable monthly in arrears on
the first day of each calendar month for services performed hereunder during the
prior calendar month.
The Trust shall pay the sub-Administrator a fee at the annual rate as listed in
Appendix A hereto. upon authorization by the Administrator and the deduction of
an equivalent amount from the fees paid to the Administrator. Such fees shall be
accrued daily and shall be payable monthly in arrears on the first day of each
calendar month for services performed under this Agreement during the prior
calendar month. If the fees payable to the Sub-Administrator pursuant to this
paragraph 7 begin to accrue before the end of any month or if this Agreement
terminates before the end of any month, the fees for the period from that date
to the end of that month or from the beginning of that month to the date of
termination, as the case may be, shall be prorated according to the proportion
that the period bears to the full month in which the effectiveness or
termination occurs. For purposes of calculating the monthly fees, the value of
the net assets of each Series shall be computed in the manner specified in its
Prospectus for the computation of net asset value. Upon the termination of this
Agreement, the Trust shall pay to the Sub-Administrator such compensation as
shall be payable prior to the effective date of such termination.
(b) Notwithstanding anything in this Agreement to the contrary, the
Sub-Administrator and its affiliated persons may receive compensation or
reimbursement from the Trust with respect to (i) the provision of services on
behalf of the Series in accordance with any distribution plan adopted by the
Trust pursuant to Rule 12b-1 under the Act, or (ii) the provision of shareholder
support or other services, including fund accounting services.
SECTION 8. EFFECTIVENESS, DURATION AND TERMINATION
(a) EFFECTIVENESS. This Agreement shall become effective on the date
first above written with respect to existing series of the Trust and shall
relate to every other Series as of the date on which the Trust's Registration
Statement relating to such Series becomes effective.
(b) DURATION: This Agreement shall continue in effect for twelve months
and, thereafter, shall be automatically renewed each year for an additional term
of one year.
(c) TERMINATION. This Agreement may be terminated with respect to a
Series at any time, without the payment of any penalty, (i) by the Board and the
Administrator on 60 days' written notice to the Sub-Administrator or (ii) by the
Sub-Administrator on 60 days' written notice to the Trust and the Administrator.
Upon
<PAGE>
receiving notice of termination by FAS, the Trust shall use its best efforts to
obtain a successor sub-administrator. Upon receipt of written notice from the
Trust of the appointment of the successor sub-administrator, and upon payment to
FAS of all fees owed through the effective termination date, and reimbursement
for reasonable charges and disbursements (as described in Section 6), FAS shall
promptly transfer to the successor sub-administrator the original or copies of
all accounts and records maintained by FAS hereunder including, in the case of
records maintained on computer systems, copies of such records in
machine-readable form, and shall cooperate with, and provide reasonable
assistance to, the successor sub-administrator in the establishment of the
accounts and records necessary to carry out the successor sub-administrator's
responsibilities. For so long as FAS continues to perform any of the services
contemplated by this Agreement after termination of this Agreement (as agreed to
by the Trust and FAS), the provisions of Sections 5 and 7 hereof shall continue
in full force and effect.
SECTION 9. ACTIVITIES OF SUB-ADMINISTRATOR. Except to the extent
necessary to perform its obligations under this Agreement, nothing herein shall
be deemed to limit or restrict the Sub-Administrator's right, or the right of
any of its officers, directors or employees (whether or not they are a Trustee,
officer, employee or other affiliated person of the Trust) to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, fund, firm,
individual or association.
SECTION 10. COOPERATION WITH INDEPENDENT ACCOUNTANTS. FAS shall
cooperate with the Trust's independent public accountants and shall take
reasonable action to make all necessary information available to such
accountants for the performance of their duties.
SECTION 11. SERVICE DAYS. Nothing contained in this Agreement is
intended to or shall require FAS, in any capacity hereunder, to perform any
functions or duties on any day other than a Fund Business Day. Functions or
duties normally scheduled to be performed on any day which is not a Fund
Business Day shall be performed on, and as of, the next Fund Business Day,
unless otherwise required by law.
SECTION 12. NOTICES. Any notice or other communication required by or
permitted to be given in connection with this Agreement shall be in writing and
shall be delivered in person, or by first-class mail, postage prepaid, or by
overnight or two-day private mail service to the respective party. Notice to the
Trust shall be given as follows until further notice:
Schroder Capital Funds II
2 Portland Square
Portland, Maine 04101
Notice to FAS shall be given as follows until further notice:
Forum Administrative Services, LLC
2 Portland Square
Portland, Maine 04101
<PAGE>
SECTION 13. MISCELLANEOUS
(a) MODIFICATIONS AND AMENDMENTS. No provisions of this Agreement may be
amended or modified in any manner except by a written agreement properly
authorized and executed by both parties hereto.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which, when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same instrument
(c) CONSTRUCTION IF PROVISION DEEMED ILLEGAL OR INVALID. If any part, term
or provision of this Agreement is held to be illegal, in conflict with any law
or otherwise invalid, the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations of the parties
shall be construed and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or invalid.
(d) SECTION AND PARAGRAPH HEADINGS. Section and Paragraph headings in this
Agreement are included for convenience only and are not to be used to construe
or interpret this Agreement.
(e) NOTICES. Notices, requests, instructions and communications received by
the parties at their respective principal addresses, or at such other address as
a party may have designated in writing, shall be deemed to have been properly
given.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall extend to and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the Trust
without the written consent of FAS, or by FAS, without the written consent of
the Trust authorized or approved by a resolution of the Board.
(g) GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS II SCHRODER FUND ADVISORS INC.
/S/ Alexandra Poe /S/ Catherine A. Mazza
- ------------------------- ---------------------------
Alexandra Poe, Vice President Catherine A. Mazza,
Senior Vice President
FORUM ADMINISTRATIVE SERVICES, LLC
/S/ John Y. Keffer
- ----------------------------
John Y. Keffer, President
<PAGE>
SCHRODER CAPITAL FUNDS II
SUB-ADMINISTRATION AGREEMENT
SCHEDULE A
SERIES OF THE TRUST
Schroder International Bond Portfolio
SCHEDULE B
SUB-ADMINISTRATION FEES
SERIES FEE AS % OF THE AVERAGE ANNUAL
DAILY NET ASSETS
Schroder International Bond Portfolio 0.075%
The minimum administration fee per series is $25,000.
EXHIBIT (9)(C)
<PAGE>
SCHRODER CAPITAL FUNDS II
TRANSFER AGENCY AND FUND ACCOUNTING AGREEMENT
AGREEMENT made this 27th day of December, 1996, between Schroder
Capital Funds II (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Forum Financial Corp., a corporation organized under
the laws of the State of Delaware, having its principal place of business at Two
Portland Square, Portland, Maine 04101 ("Forum").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series;
WHEREAS, the Trust desires that Forum perform interestholder and fund
accounting services for each of the portfolios of the Trust as listed in
Appendix A hereto (each a "Portfolio," and collectively the "Portfolios"), and
for other series that may be created in the future, and Forum is willing to
provide those services on the terms and conditions set forth in this Agreement;
and
WHEREAS, the Trust on behalf of each Portfolio desires to appoint Forum
as its transfer agent and fund accountant, and Forum desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. TERMS OF APPOINTMENT; DUTIES OF FORUM
(a) Subject to the terms and conditions set forth in this Agreement,
the Trust, on behalf of each Portfolio, hereby employs and appoints Forum to act
as, and Forum agrees to act as, its transfer agent and fund accountant for the
authorized and issued interests of the Trust representing interests in each of
the respective Portfolios ("Interests").
(b) Forum shall be responsible for performing as agent, as of the date
of this Agreement, the services described in Appendix B attached hereto and made
a part hereof, as said appendix may be amended from time to time.
(c) Forum shall provide additional services to the Trust on behalf of
the Portfolios which may be agreed upon in writing between the Trust and Forum.
SECTION 2. FEES AND EXPENSES
(a) For its services hereunder Forum shall receive from the Trust, with
respect to each Portfolio, such transfer agency and fund accounting fees as are
listed in Appendix C attached hereto, as amended from time to time.
(b) Each Portfolio shall reimburse Forum for its ancillary costs (or
appropriate share of the costs) incurred in providing to that Portfolio any
transfer agency and fund accounting services hereunder, including but not
limited to (i) any and all forms and stationery used or specially prepared for
the purpose, (ii) postage, (iii) telephone services, (iv) bank fees, and (v)
electronic or facsimile transmission. Each Portfolio shall reimburse Forum for
all expenses and employee time attributable to any review of the Portfolio's
accounts and records by the Trust's independent public accountants or any
regulatory body outside of routine and normal periodic reviews and for all
expenses for services in connection with Forum's activities in effecting any
termination of this Agreement (except the termination of Forum for cause),
including expenses incurred by Forum to deliver the property of the Portfolio in
the possession of Forum to the Trust or other persons.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF FORUM
Forum represents and warrants to the Trust that:
<PAGE>
(a) It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware.
(b) It is registered as a transfer agent under the Securities Exchange Act
of 1934, as amended ("1934 Act") and it is empowered under applicable laws and
by its Articles of Incorporation and By-Laws to enter into and perform this
Agreement.
(c) All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
(d) It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants to Forum that:
(a) It is a business trust duly organized and existing and in good standing
under the laws of the State of Delaware.
(b) It is empowered under applicable laws and by its Trust Instrument to
enter into and perform this Agreement.
(c) All proceedings required by said Trust Instrument have been taken to
authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the 1940 Act.
(e) All interests of the Portfolios, when issued, shall be validly issued,
fully paid and non-assessable.
SECTION 5. RECORDKEEPING; INSPECTION OF RECORDS
(a) Forum shall prepare and maintain in such form and in such locations
as may be required by applicable regulation all records and documents relating
to the services provided to the Trust pursuant to this Agreement required to be
prepared and maintained by Forum or the Trust pursuant to the 1940 Act, the 1934
Act and the rules and regulations of the Securities and Exchange Commission and
the Internal Revenue Service.
(b) Forum shall notify the Trust of any request or demand for the
inspection of the Trust's interestholder records. Forum shall abide by the
Trust's instructions for granting or denying the inspection; provided, however,
Forum may grant the inspection without such instructions if it is advised by its
counsel that failure to do so will result in liability to Forum.
(c) Forum shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. The Trust, or the
Trust's authorized representatives, shall have access to such books and records
at all times during Forum's normal business hours. Upon the reasonable request
of the Trust, copies of any such books and records shall be provided promptly by
Forum to the Trust or the Trust's authorized representatives. In the event the
Trust designates a successor to any of Forum's obligations hereunder, Forum
shall, at the expense and direction of the Trust, transfer to such successor all
relevant books, records and other data established or maintained by Forum under
this Agreement. To the extent required by Section 31 of the 1940 Act and the
Rules thereunder, Forum agrees that all such records prepared or maintained by
Forum relating to the services to be performed by Forum hereunder are the
property of the Trust and will be preserved, maintained and made available in
accordance with such Section and Rules, and will be surrendered promptly to the
Trust on and in accordance with its request.
<PAGE>
SECTION 6. INDEMNIFICATION
(a) The Trust shall, on behalf of the applicable Portfolio, indemnify
and hold Forum harmless against any losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from:
(i) any claim, demand, action or suit brought by any person other than
the Trust, including by an interestholder, which names Forum and/or the
Trust as a party and is not based on and does not result from Forum's
willful misfeasance, bad faith or gross negligence or reckless
disregard of duties, and arises out of or in connection with Forum's
performance hereunder; or
(ii) any claim, demand, action or suit (except to the extent
contributed to by Forum's willful misfeasance, bad faith or gross
negligence or reckless disregard of duties) which results from the
negligence of the Trust, or from Forum's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Trust, or as a result of Forum's acting
in reliance upon advice reasonably believed by Forum to have been given
by counsel for the Trust, or as a result of Forum's acting in reliance
upon any instrument reasonably believed by it to have been genuine and
signed, countersigned or executed by the proper person.
(b) Forum shall indemnify and hold the Trust harmless against any
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any claim, demand, action or suit brought by
any person other than Forum, which names the Trust and/or Forum as a party and
is based upon and arises out of Forum's willful misfeasance, bad faith or gross
negligence or reckless disregard of duties in connection with its performance
hereunder.
(c) In the event that either party requests the other to indemnify or
hold it harmless hereunder, the party requesting indemnification (the
Indemnified Party) shall inform the other party (the Indemnifying Party) of the
relevant facts known to Indemnified Party concerning the matter in question. The
Indemnified Party shall use reasonable care to identify and to promptly notify
the Indemnifying Party concerning any matter which presents, or appears likely
to present, a claim for indemnification. The Indemnifying Party shall have the
election of defending the Indemnified Party against any claim which may be the
subject of indemnification or of holding the Indemnified Party harmless
hereunder. In the event the Indemnifying Party so elects, it will so notify the
Indemnified Party and thereupon the Indemnifying Party shall take over defense
of the claim and, if so requested by the Indemnifying Party, the Indemnified
Party shall incur no further legal or other expenses related thereto for which
it shall be entitled to indemnity or to being held harmless hereunder; provided,
however, that nothing herein shall prevent the Indemnified Party from retaining
counsel at its own expense to defend any claim. Except with the Indemnifying
Party's prior written consent, the Indemnified Party shall in no event confess
any claim or make any compromise in any matter in which the Indemnifying Party
will be asked to indemnify or hold Indemnified Party harmless hereunder.
SECTION 7. STANDARD OF CARE; LIMITATION OF LIABILITY
(a) Forum shall not be liable for any action taken or not taken in good
faith and reasonably believed by Forum to be within the powers conferred upon it
under this Agreement; provided that nothing herein shall be deemed to protect,
or purport to protect, Forum against any liability to the Trust or to the
interestholders of the Trust to which it would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties hereunder or by reason of Forum's reckless disregard of its obligations
and duties hereunder.
(b) In the event of equipment failures beyond Forum's control, Forum
shall, at no additional expense to the Trust, take reasonable steps to minimize
service interruptions, but shall have no liability with respect thereto. Forum
shall enter into and shall maintain in effect with appropriate parties one or
more agreements making reasonable provision for emergency use of electronic data
processing equipment to the extent appropriate equipment is available or shall
maintain a secondary site with processing capability.
<PAGE>
(c) Subject to Section 7(b), Forum shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication equipment of common carriers or power supply.
SECTION 8. COVENANTS OF THE TRUST AND FORUM
(a) The Trust, on behalf of Portfolio, promptly shall furnish to
Forum the following:
(i) A certified copy of the resolution of the Trustees of the
Trust authorizing the appointment of Forum and the execution
and delivery of this Agreement.
(ii) A copy of the Trust Instrument of the Trust and al
amendments thereto.
(b) Forum hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Trust for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
(c) Forum and the Trust agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
(d) In case of any requests or demands for the inspection of the
interestholder records of the Trust, Forum will endeavor to notify the Trust and
to secure instructions from an authorized officer of the Trust as to such
inspection. Forum reserves the right, however, to exhibit the interestholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the interestholder records to such person.
SECTION 9. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each
Portfolio on the later of the date of this Agreement or the date of commencement
of operations of the Trust, and with respect to each future portfolio of the
Trust on the date this Agreement or Appendix A hereto is amended. Upon
effectiveness of this Agreement, it shall supersede all previous agreements
between the parties hereto covering the subject matter hereof insofar as such
Agreement may have been deemed to relate to the Portfolios.
(b) This Agreement shall continue in effect with respect to a Portfolio
for a period of one year from its effectiveness and shall continue in effect for
successive twelve-month periods; provided, however, that continuance is
specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting interests of the Portfolio and (ii) by a vote
of a majority of Trustees of the Trust who are not parties to this agreement or
interested persons of any such party (other than as Trustees of the Trust);
provided further, however, that if the continuation of this agreement is not
approved as to a Portfolio, Forum may continue to render to the Portfolio the
services described herein in the manner and to the extent permitted by the Act
and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Portfolio at any
time, without the payment of any penalty, (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Trust.
SECTION 10. ASSIGNMENT; DELEGATION
(a) This Agreement shall extend to and shall bind the parties hereto
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Trust without the written consent of
Forum or by Forum without the written consent of the Trust, authorized or
approved by a resolution of the Board.
<PAGE>
Notwithstanding the foregoing, either party may assign this Agreement without
the consent of the other party so long as the assignee is an affiliate, parent
or subsidiary of the assigning party and is qualified to act under applicable
law.
(b) Forum may contract with other qualified service providers to
perform any of the services contemplated by this Agreement; provided, that Forum
shall not thereby be relieved of any of its obligations hereunder. Forum may
subcontract any or all of its functions to one or more qualified sub-transfer
agents or processing agents. Forum may pay those agents for their service, but
not such payment will increase Forum's compensation from the Trust.
SECTION 11. NOTICES
Any notice or other communication required by or permitted to be given
in connection with this Agreement shall be in writing, and shall be delivered in
person, sent by first-class mail, postage prepaid, or sent by overnight
delivery, postage prepaid, to the respective parties at the following addresses
or such other address as the parties may designate in writing by the same
methods:
If to the Trust:
Schroder Capital Funds II
Two Portland Square
Portland, Maine 04101
Attn: Thomas G. Sheehan
<PAGE>
If to Forum:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
Attn: David I. Goldstein
SECTION 12. LIMITATION OF LIABILITY OF THE TRUSTEES AND INTERESTHOLDERS
The Trustees of the Trust and the interestholders of the Portfolios
shall not be liable for any obligations of the Trust or of the Portfolios under
this Agreement, and Forum agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Trust or
the Portfolio to which Forum's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the interestholders of
the Portfolios.
SECTION 13. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Delaware.
(f) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SCHRODER CAPITAL FUNDS II
/S/ Alexandra Poe
------------------------
Alexandra Poe
Vice President
FORUM FINANCIAL CORP.
/S/ John Y. Keffer
------------------------
John Y. Keffer
President
<PAGE>
SCHRODER CAPITAL FUNDS II
TRANSFER AGENCY AND FUND ACCOUNTING AGREEMENT
APPENDIX A
PORTFOLIOS
Schroder International Bond Portfolio
<PAGE>
SCHRODER CAPITAL FUNDS II
TRANSFER AGENCY AND FUND ACCOUNTING AGREEMENT
APPENDIX B
SERVICES
A. Forum shall prepare and maintain, on behalf of the Trust, the following books
and records of each Portfolio pursuant to Rule 31a-1 under the Act (the "Rule"):
(i) Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of
cash and all other debits and credits, as required by sub-section
(b)(1) of the Rule;
(ii) Journals and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, as required by
subsection (b)(2) of the Rule;
(iii) A record of each brokerage order given by or on behalf of the
Trust for, or in connection with, the purchase or sale of securities,
and all other portfolio purchases or sales, as required by sub-sections
(b)(5) and (b)(6) of the Rule;
(iv) A record of all options, if any, in which the Trust has any direct
or indirect interest or which the Trust has granted or guaranteed and a
record of any contractual commitments to purchase, sell, receive or
deliver any property as required by subsection (b)(7) of the Rule;
(v) A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by sub-section (b)(8) of the Rule; and
(vi) Other records required by the Rule or any successor rule or
pursuant to interpretations thereof to be kept by open-end management
investment companies, but limited to these provisions of the Rule
applicable to portfolio and interestholder transactions and as agreed
upon between the parties hereto.
B. Forum shall perform the following accounting services:
(i) Calculate the net asset value of each Portfolio and each
interestholder thereof with the frequency prescribed in each
Portfolio's then-current Registration Statement;
(ii) Calculate and track each item of income, gain, loss, deduction and
credit, if any, and apply such items to each interestholder as required
by applicable accounting rules;
(iii) Maintain such accounts and perform such allocations as is
required by each Portfolio's Capital Account Establishment and
Maintenance Policies;
(iv) Calculate the yield, effective yield, tax equivalent yield and
total return for each Portfolio, as applicable, and such other measure
of performance as may be agreed upon between the parties hereto;
(v) Provide the Trust and such other persons as the Trust's
administrator or sub-administrator may direct with the following
reports: (a) a current security position report, (b) a summary report
of transactions and pending maturities (including the principal, cost,
and accrued interest on each portfolio security in maturity date
order), and (c) a current cash position and projection report;
(vi) Prepare and record, as of each time when the net asset value of a
Portfolio is calculated or as otherwise directed by the Trust's
administrator or sub-administrator, either: (a) a valuation of the
assets in the Portfolio (based upon the use of outside services
normally used and contracted for this purpose by Forum in the case of
securities for which information and market price or yield quotations
are readily
<PAGE>
available and based upon evaluations conducted in accordance with the
Trust's or the Trust's administrator's instructions in the case of all
other assets) or (b) a calculation confirming that the market value of
the Portfolio's assets does not deviate from the amortized cost value
of those assets by more than a specified percentage agreed to from
time to time by Forum and the Trust;
(vii)Obtain necessary information from the Trust and the Trust's
administrator in order to prepare the Trust's Form N-SAR;
(viii) Assist in the preparation of support schedules necessary for
the completion of Federal and State income tax returns of the
Portfolios;
(ix) Monitor each Portfolio's status as if it were a regulated
investment company under Subchapter M of the Internal Revenue Code of
1986, as amended;
(x) Assist the Trust's independent accountants and, upon approval of
the Trust or the Trust's administrator, any regulatory body in any
requested review of the Trust's books and records maintained by Forum;
(xi) Prepare semi-annual financial statements of each Portfolio; and
(xii) Prepare other periodic reports to shareholders and the Securities
and Exchange Commission and such other reports as may be agreed to from
time to time and provide information typically supplied in the
investment company industry to companies that track or report the
price, performance or other information with respect to investment
companies.
<PAGE>
SCHRODER CAPITAL FUNDS II
TRANSFER AGENCY AND FUND ACCOUNTING AGREEMENT
APPENDIX C
COMPENSATION
TRANSFER AGENCY SERVICES
For its transfer agency services, Forum shall receive a fee of $6,000 per year
with respect to each Portfolio, plus $25 per interestholder account, such
amounts to be computed and paid monthly in advance by the Trust.
FUND ACCOUNTING SERVICES
Standard Fee per Series $36,000/year
Plus additional surcharges for each of:
Global or International Funds $24,000/year
Tax Free Money Market Funds $12,000/year
Series with more than 25% of
net assets invested in asset
backed securities $1000/month
Series with more than 50% of
net assets invested in asset
backed securities $1000/month
Series with more than 100
security positions $1,000/month
Series with a monthly portfolio
turnover rate of 10% or greater $1,000/month
Monthly surcharges are determined based upon the total assets or
security positions as of the end of the prior month and on the portfolio
turnover rate for the prior month. Portfolio turnover rate shall have the
meaning ascribed thereto in Securities and Exchange Commission Form N-1A.
The rates set forth above shall remain fixed through December 31, 1997.
On January 1, 1998, and on each successive January 1, the rates shall be
adjusted to reflect changes in the Consumer Price Index for the preceding
calendar year, as published by the U.S. Department of Labor, Bureau of Labor
Statistics.
<PAGE>
