SCHRODER ALL-ASIA FUND
CLASS A SHARES
The investment objective of Schroder All-Asia Fund is to seek long-term capital
appreciation through investment primarily in equity securities of Asian
companies. The Fund invests primarily in equity securities of Asian companies,
namely, companies domiciled or doing business in established and emerging
markets in Asia. Asian markets include China, Hong Kong SAR, India, Indonesia,
Japan, Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan,
Thailand, and others in the region that permit foreign investors to participate
in their stock markets. The Fund is a non-diversified management investment
company. The Fund is intended for investors who seek the aggressive growth
potential of foreign markets and are willing to bear the special investment
risks of investing in those markets.
The Fund currently invests substantially all of its assets in Schroder Asian
Growth Fund Portfolio and Schroder Japan Portfolio, separately managed,
non-diversified investment companies. Schroder Capital Management International
Inc. ("SCMI") is the investment adviser to the Fund and each of the Portfolios.
The Fund is a series of Schroder Series Trust II, a Delaware business trust (the
"Trust").
This Prospectus explains concisely the information you should know before
investing in the Fund's Class A shares. Please read it carefully and keep it for
future reference. You can find more detailed information about the Trust and
Fund in the March 20, 1998 Statement of Additional Information ("SAI"), as
amended from time to time. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is available along with other related materials
for reference on the SEC's Internet Web Site (http://www.sec.gov). A free copy
may be obtained without charge from the Trust by writing to P.O. Box 8507,
Boston, Massachusetts 02266-8507 or by calling 1-800-464-3108. The SAI has been
incorporated into this Prospectus by reference. The Fund has not authorized
anyone to provide you with information that is different from what is contained
in this Prospectus or in other documents to which this Prospectus refers you.
FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, THE
FEDERAL RESERVE SYSTEM OR ANY OTHER GOVERNMENT AGENCY AND ALSO ARE NOT
OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR
ITS AFFILIATES. FUND INVESTMENTS INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN CANADA.
PROSPECTUS
MARCH 20, 1998
<PAGE>
================================================================================
FUNDS AVAILABLE THROUGH SCHRODER FUND ADVISORS INC.
PLEASE CALL FOR COMPLETE INFORMATION AND TO OBTAIN A PROSPECTUS.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
SCHRODER SERIES TRUST II 1-800-464-3108
SCHRODER ALL-ASIA FUND
<TABLE>
<S> <C>
SCHRODER CAPITAL FUNDS (DELAWARE) 1-800-290-9826 SCHRODER SERIES TRUST 1-800-464-3108
SCHRODER INTERNATIONAL FUND SCHRODER LARGE CAPITALIZATION EQUITY FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER INTERNATIONAL BOND FUND SCHRODER MIDCAP VALUE FUND
SCHRODER EMERGING MARKETS FUND SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER U.S. EQUITY FUND SCHRODER SHORT-TERM INVESTMENT FUND
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER MICRO CAP FUND
</TABLE>
================================================================================
2
<PAGE>
EXPENSES OF INVESTING IN THE FUND
Expenses are one of several factors to consider when investing in the
Fund's Class A Shares. The "Shareholder Transaction Expenses" table below
summarizes the maximum transaction costs you would incur by investing in the
Fund. The "Annual Operating Expenses" table and related "Example" estimate the
expenses that your investment in Class A Shares would incur based upon the
Fund's anticipated expenses for its first fiscal year operating as an open-end
investment company. Annual Operating Expenses include the Fund's pro rata
portion of all anticipated operating expenses of the Portfolios in which the
Fund invests. The Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in the Fund over specified periods. See
"Management of the Fund -- Expenses".
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchase
(as a percentage of offering price)(1)...........................................................5.25%
Maximum Deferred Sales Load (as a percentage)........................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage).................................None
Redemption Fee (based on net asset value of shares redeemed)(2)......................................None
Exchange Fee None
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
Management Fees (after waivers)(3)..................................................................0.90%
12b-1 Fees...........................................................................................None
Other Expenses:
Shareholder Servicing Fee.......................................................................0.25%
Other Expenses (after waivers)(4)...............................................................0.80%
-----
Total Other Expenses (after waivers)(4).............................................................1.05%
-------------------- -----
TOTAL FUND OPERATING EXPENSES(3).........................................................................1.95%
</TABLE>
(1) Maximum sales charge applicable to purchases of less than $25,000.
(2) Shares received in connection with the conversion of Schroder Asian
Growth Fund, Inc. are subject to a redemption fee of 2.00% for the
six-month period following the conversion on March 20, 1998.
(3) Management Fees include amounts the Fund expects to pay to SCMI for
asset allocation and administrative services. The Fund pays asset
allocation fees and administration fees to SCMI at the annual rates of
0.20% and 0.05%, respectively, of its average daily net assets.
Management Fees also include: the Fund's pro rata portion of investment
advisory fees paid by Schroder Asian Growth Fund Portfolio and Schroder
Japan Portfolio at the annual rates of 0.70% and 0.55%, respectively,
of their average daily net assets, and the Fund's pro rata portion of
administration fees paid to SCMI by those Portfolios at the annual rate
of 0.05% of their average daily net assets. Until October 31, 1998,
SCMI, the administrator, and the fund accounting agent have volunteered
to waive their compensation (and, if necessary, SCMI and the fund
administrator have agreed to pay Fund expenses) to the extent that the
Fund's total expenses would otherwise exceed an annual rate of 1.95%.
In the absence of such waivers, Management Fees would be 0.94% and
Total Fund Operating Expenses would be 2.03%. The expenses shown above
have been calculated on the basis of an allocation of 60% investment in
Schroder Asian Growth Fund Portfolio and 40%
3
<PAGE>
investment in Schroder Japan Portfolio. If all of the Fund's assets
were invested in Schroder Asian Growth Fund Portfolio, Management Fees
would be 1.00%. Allocations of the Fund's assets between the two
Portfolios will vary; SCMI does not presently intend to allocate all
of the Fund's assets to Schroder Asian Growth Fund Portfolio.
(4)Includes a pro rata portion of "Other Expenses" anticipated to be
incurred by Schroder Asian Growth Fund Portfolio and Schroder Japan
Portfolio at the annual rates of 0.46% and 0.44%, respectively, of
their average daily net assets. In the absence of voluntary waivers,
"Other Expenses" would be 0.84%.
EXAMPLE
The table below indicates how much you would pay in total expenses on a
$1,000 investment in the Fund, assuming: (1) a 5% annual return; and (2)
redemption at the end of each time period. The example is based on the expenses
listed above, assumes reinvestment of all dividends and other distributions, and
assumes payment of the maximum sales charge. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS. FEDERAL
REGULATIONS REQUIRE THE EXAMPLE TO ASSUME A 5% ANNUAL RETURN, BUT ACTUAL RETURNS
WILL VARY.
Assuming
Period 5.25% Load
------ ----------
1 Year ....................................... $71
3 Years ...................................... $111
4
<PAGE>
FINANCIAL HIGHLIGHTS
Presented below are financial highlights for Schroder Asian Growth Fund,
Inc., a closed-end management investment company. On March 20, 1998, the Fund,
which had no previous operating history, acquired substantially all of the
assets and liabilities of Schroder Asian Growth Fund, Inc.
The financial information below may not be indicative of the Fund's
performance as an open-end fund. The fees and expenses of the Fund will differ
from those of Schroder Asian Growth Fund, Inc. The Fund is an open-end
investment company whose shares generally are purchased at the public offering
price (which is based on net asset value and which includes a sales load except
in certain instances). Shares are redeemed at net asset value. In any case, the
total investment return on an investment in the Fund in the future will be based
only on the net asset value of the Class A Shares and not on any market value.
The financial statements of Schroder Asian Growth Fund, Inc. for the year
ended October 31, 1997 (including the financial highlights presented below) have
been audited by its independent accountants and are, together with the report of
the independent accountants, incorporated by reference into the Statement of
Additional Information. Further information about the performance of Schroder
Asian Growth Fund, Inc. also is contained in that Fund's Annual Report to
Shareholders, which may be obtained without charge by writing the Fund at P.O.
Box 8507, Boston, Massachusetts 02266-8507 or by calling 1-800-464-3108. See
"Management of the Fund" and "Other Information -- Fund Structure".
<TABLE>
<S> <C> <C> <C> <C>
For the Year Ended December 30,
October 31, 1993(1) to
-------------------------------------------- October 31,
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.15 $12.62 $13.84 $14.01(2)
Investment Operations:
Net investment income (loss) (0.05) (0.03) 0.02 (0.01)
Net realized and unrealized gain (loss) on
investments (net of estimated tax liability
on Indian investments) and foreign currencies
and forward currency contracts. (3.66) 0.56 (1.24) (0.16)
------------ ------------ ------------ ---------------
Total from investment operations (3.71) 0.53 (1.22) (0.17)
------------ ------------ ------------ ---------------
Less dividends from investment income-net (0.09) - - -
------------ ------------ ------------ ---------------
Tender offer costs charged to
paid-in-capital
in excess of par -(3) - -
(0.01) (7)
Net asset value, end of period $9.34 $13.15 $12.62 $13.84
Market value, end of period $8.50 $12.00 $11.125 $12.00
Total investment return based on (4):
Market value (28.62)% 7.87% (7.29)% (20.00)%
Net asset value (28.43)% 4.20% (8.82)% (1.21)%
Ratio/Supplementary Data:
Net assets, end of period (Millions) $150.41 $257.84 $247.49 $271.42
Ratio of expenses to average net assets 1.78% 1.57% 1.65% 1.59%(5)
Ratio of expenses to average net assets
excluding conversion costs 1.59% - - -
Ratio of net investment income (loss) to
average net assets (0.31)% (0.19)% 0.12% (0.10)%(5)
Portfolio turnover rate 39.14% 34.71% 66.79% 19.76%
Average commission rate per share(6) $0.0142 $0.0224 N/A N/A
</TABLE>
- --------------
(1) Commencement of investment operations of Schroder Asian Growth Fund, Inc.,
the "Predecessor Fund".
(2) Net of $0.09 offering expenses per share.
(3) Less than $0.01 per share.
(4) For the Predecessor Fund, total investment return is calculated assuming a
purchase of common stock on the opening of the first day and a sale on the
closing of the last day of each period reported. Dividends and
<PAGE>
distributions, if any, are assumed for the purposes of this calculation, to be
reinvested at prices obtained under the Predecessor Fund's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions charged on
the purchase or sale of the Predecessor Fund's outstanding shares. Generally, a
closed-end fund's total investment return based on net asset value will be
higher than its total investment return based on market value in periods where
there is an increase in the discount or a decrease in the premium of the market
value to the net asset value from the beginning to the end of such periods.
Conversely, a closed-end fund's total investment return based on net asset value
will be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of the
market value to the net asset value from the beginning to the end of such
periods. Total investment returns for periods of less than one full year are not
annualized.
(5) Annualized.
(6) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which a
commission is charged.
(7) Pursuant to a tender offer approved by the Board of Directors of the
Predecessor Fund on February 10, 1997, the Predecessor Fund purchased 3.5
million shares for a total of $45,640,000.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term capital
appreciation through investment primarily in equity securities of Asian
companies. The Fund is intended for investors who seek the aggressive growth
potential of foreign markets and are willing to bear the special investment
risks of investing in those markets. Investments in the securities of foreign
issuers generally involve risks in addition to the risks associated with
investments in the securities of U.S. issuers. The Fund is not intended for
investors whose objective is assured income or preservation of capital. See
"Other Investment Practices and Risk Considerations."
The Fund currently seeks to achieve its investment objective by
allocating its assets between Schroder Asian Growth Fund Portfolio ("Asia
ex-Japan Portfolio") and Schroder Japan Portfolio ("Japan Portfolio"),
separately managed non-diversified investment companies. Japan and Asia ex-Japan
Portfolios both have as their investment objectives to seek long-term capital
appreciation; the Japan Portfolio focuses its investment in Japan, while the
Asia ex-Japan Portfolio focuses its investment in Asia excluding Japan. SCMI
will increase or decrease the Fund's exposure to Japan relative to the rest of
Asia by increasing or decreasing the amount of its assets allocated to the Japan
Portfolio. (For example, the Fund expects initially to allocate 60% of its
assets to Asia ex-Japan Portfolio and 40% of its assets to Japan Portfolio; SCMI
will change this allocation from time to time based on market conditions and
other factors.) There can be no assurance that the Fund or a Portfolio will
achieve its investment objective.
The following information describes the investment policies of the Fund
and the responsibilities of the Trust's Board of Trustees (the "Trust Board"),
and applies generally to the Portfolios and the Board of Trustees of Schroder
Capital Funds.
The Fund invests primarily in equity securities of Asian companies.
"Asian companies" are: (1) companies that are organized under the laws of China,
Hong Kong SAR, India, Indonesia, Japan, Korea, Malaysia, Pakistan, the
Philippines, Singapore, Sri Lanka, Taiwan, or Thailand, or any other countries
in the Asian region located south of the border of the former Soviet Union, east
of the borders of Afghanistan and Iran, north of the Australian sub-continent,
and west of the International Date Line and that, in the future, permit foreign
investors to participate in their stock markets (collectively, the " Asian
countries," and each, an "Asian country,"); and (2) companies, wherever
organized, that are determined by SCMI at the time of investment, either: (a) to
derive at least 75% of their revenues from goods produced or sold, investments
made, or services performed in Asian countries; or (b) to maintain at least 75%
of their assets in Asian countries.
Under normal market conditions, the Fund will be invested in companies
located in at least five Asian countries. As a matter of fundamental policy,
under normal market conditions the Fund invests at least 65% of its total assets
in equity securities of Asian companies.
Equity securities in which the Fund may invest include common stocks,
preferred stocks, convertible preferred stocks, convertible debt securities, and
stock rights and warrants to purchase any of the foregoing, as well as equity
interests in trusts, partnerships, joint ventures, or similar enterprises, and
American or Global Depositary Receipts, and other similar instruments providing
for indirect investment in securities of foreign issuers. Under certain
circumstances, the
7
<PAGE>
Fund may invest indirectly in equity securities by investing in other investment
companies or similar pooled vehicles. See "Other Investment Practices and Risk
Considerations --Investments in Other Investment Companies or Vehicles."
The Fund may also invest up to 10% of its total assets in debt
securities of governments or governmental agencies of Asian countries or of
Asian companies. It may also invest in debt securities of certain international
organizations. Debt securities in which the Fund invests may be unrated or may
be rated below investment grade, which entail special risks. See "Other
Investment Practices and Risk Considerations --.Debt Securities."
For temporary defensive purposes, or in anticipation of redemptions,
the Fund may invest without limit in (or enter into repurchase agreements
maturing in seven days or less with respect to) U.S. Government securities and
other high-quality debt instruments. The Fund also may hold cash and time
deposits in U.S. banks.
All percentage limitations on investments apply at the time of
investment and will not be considered violated unless an excess or a deficiency
occurs or exists immediately after and as a result of the investment, except
that the policies stated with regard to borrowing and liquidity will be observed
at all times. See the SAI for additional information concerning the investment
policies and restrictions of the Fund and Portfolios. The investment policies of
the Fund may, unless otherwise specifically stated, be changed by the Trustees
of the Trust without a shareholder vote.
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The Fund may also engage in the following investment practices, each of
which involves certain risks. The SAI contains more detailed information about
these practices (some of which may be considered "derivative" investments),
including limitations designed to reduce these risks.
FOREIGN SECURITIES
Investments in foreign securities entail certain risks. Since foreign
securities are normally denominated and traded in foreign currencies, the values
of the Fund's assets may be affected favorably or unfavorably by currency
exchange rates, exchange control regulations, foreign withholding taxes, and
restrictions or prohibitions on the repatriation of foreign currencies. There
may be less information publicly available about a foreign issuer than about a
U.S. issuer, and foreign issuers are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or in delivery of securities or in the
recovery of assets held abroad) and expenses not present in the settlement of
domestic investments. The willingness and ability of sovereign issuers to pay
principal and interest on government securities depends on various economic
factors, including without limitation the issuer's balance of payments, overall
debt level, and cash flow considerations related to the availability of tax or
other revenues to satisfy the issuer's obligations.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial
8
<PAGE>
instability, currency devaluations, and diplomatic developments that could
affect the value of the Fund's investments in certain foreign countries. Legal
remedies available to investors in certain foreign countries may be more limited
than those available with respect to investments in the United States or in
other foreign countries. In the case of securities issued by a foreign
governmental entity, the issuer may in certain circumstances be unable or
unwilling to meet its obligations on the securities in accordance with their
terms, and the Fund may have limited recourse available to it in the event of
default. The laws of some foreign countries may limit the Fund's ability to
invest in securities of issuers located in those countries.
Because the Fund's investments will be concentrated in Asian countries,
political, economic, market and other factors affecting those countries will
likely affect the values of the Fund's investments more than if the Fund's
investments were invested elsewhere or in a greater range of geographic regions.
In addition, the Fund may invest more than 25% of its total assets in issuers
located in any one of the Asian countries hereafter named: China, Hong Kong SAR,
India, Indonesia, Japan, Korea, Malaysia, Pakistan, the Philippines, Singapore,
Sri Lanka, Taiwan, and Thailand. To the extent that it does so, the Fund is more
exposed to factors that could adversely affect that country, including political
and economic developments and foreign exchange rate fluctuations as discussed
above. As a result of investing substantially in one country, the value of the
Fund's assets may fluctuate more widely than the value of shares of a comparable
fund with a lesser degree of geographic concentration.
Most of the Fund's assets and income are expected to be denominated in
foreign currencies. Currency values are affected by a wide variety of economic
forces and events; thus, fluctuations in values can be difficult, if not
impossible, to predict. If the Fund purchases securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and the
Fund's income. Further, if the value of a particular currency declines between
the time the Fund incurs expenses in U.S. dollars and the time such expenses are
paid, the amount of such other currency required to be converted into U.S.
dollars in order to pay such expenses will be greater than the amount that would
have been needed at the time the expenses were incurred. The Fund may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
Special tax considerations apply to foreign securities. In determining
whether to invest in foreign securities, SCMI considers the likely impact of
foreign taxes on the net investment return available to the Fund and its
shareholders. Income and/or gains received by the Fund from sources within
foreign countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by the Fund will reduce the
net income available for distribution to shareholders.
EMERGING MARKETS
The Fund intends to invest in securities of issuers in Asian emerging
market countries and may at times invest a substantial portion of its assets in
such securities. The prices of securities of issuers in emerging market
countries are subject to greater volatility than those of issuers in more
developed countries. Investments in emerging market countries
9
<PAGE>
are subject to the same risks applicable to foreign investments generally,
although those risks may be increased due to conditions in such countries. For
example, the securities markets and legal systems in emerging market countries
may only be in a developmental stage and may provide few, or none, of the
advantages or protections of markets or legal systems available in more
developed countries. Although many of the securities in which the Fund may
invest are traded on securities exchanges, they may trade in limited volume, and
the exchanges may not provide all of the conveniences or protections provided by
securities exchanges in more developed markets. The Fund may also invest a
substantial portion of its assets in securities traded in the over-the-counter
markets in Asian countries and not on any exchange, which may affect the
liquidity of the investment and expose the Fund to the credit risk of its
counterparties in trading those investments. Emerging market countries may
experience extremely high rates of inflation, which may adversely affect those
countries' economies and securities markets.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Changes in currency exchange rates will affect the U.S. dollar values
of securities denominated in foreign currencies. Exchange rates between the U.S.
dollar and other currencies fluctuate in response to forces of supply and demand
in the foreign exchange markets. These forces are affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation, and other factors, many of which may be difficult (if
not impossible) to predict. The Fund may engage in foreign currency exchange
transactions to protect against uncertainty in the level of future exchange
rates. Although the strategy of engaging in foreign currency exchange
transactions could reduce the risk of loss due to a decline in the value of the
hedged currency, it could also limit the potential gain from an increase in the
value of the currency.
In particular, the Fund may enter into foreign currency exchange
transactions: (1) to protect against a change in exchange rates that may occur
between the date on which the Fund contracts to trade a security and the
settlement date or to "lock in" the U.S. dollar value of interest and dividends
to be paid in a foreign currency ("transaction hedging"); or (2) to hedge
against the possibility that a foreign currency in which portfolio securities
are denominated or quoted may suffer a decline against the U.S. dollar
("position hedging"). When investing in foreign securities, the Fund usually
effects currency exchange transactions on a spot (I.E., cash) basis at the spot
rate prevailing in the foreign exchange market. The Fund incurs foreign exchange
expenses in converting assets from one currency to another.
The Fund may also enter into forward currency contracts. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date (which may be any fixed number of days from the date of the contract
agreed upon by the parties) at a price set at the time of the contract. Forward
contracts do not eliminate fluctuations in the underlying prices of securities
and expose the Fund to the risk that the counterparty is unable to perform. The
Fund may also purchase and sell currency futures contracts and related options.
See "Options and Futures Transactions."
The Fund does not intend to maintain a net exposure to forward
contracts if the fulfillment of obligations under such contracts would obligate
it to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in the currency. The Fund will
not
10
<PAGE>
enter into these contracts for speculative purposes and will not enter into
non-hedging currency contracts. The Fund will generally not enter into a forward
contract with a term greater than one year. Forward contracts are not exchange
traded, and there can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a forward contract. Currently, only a limited
market, if any, exists for exchange transactions relating to currencies in
certain emerging markets. This may limit the Fund's ability to hedge its
investments in those markets. These contracts involve a risk of loss if SCMI
fails to predict accurately changes in relative currency values, the directions
of securities prices or interest rates, and other factors.
From time to time, the Fund's currency hedging transactions may call
for the delivery of one foreign currency in exchange for another foreign
currency and may at times involve currencies in which its portfolio securities
are then denominated ("cross hedging"). Cross hedging transactions involve the
risk of imperfect correlation between changes in the values of the currencies to
which such transactions related and changes in the value of the currency or
other asset or liability which was the subject of the hedge.
INVESTMENTS IN SMALLER COMPANIES
The Fund may invest a portion of its assets in securities issued by
small companies. Such companies may offer greater opportunities for capital
appreciation than larger companies, but investments in such companies may
involve certain special risks. Such companies may have limited product lines,
markets, or financial resources and may be dependent on a limited management
group. While the markets in securities of such companies have grown rapidly in
recent years, such securities may trade less frequently and in smaller volume
than more widely held securities. The values of these securities may fluctuate
more sharply than those of other securities, and the Fund may experience some
difficulty in establishing or closing out positions in these securities at
prevailing market prices. There may be less publicly available information about
the issuers of these securities or less market interest in such securities than
in the case of larger companies, and it may take a longer period of time for the
prices of such securities to reflect the full value of their issuers' underlying
earnings potential or assets. Some securities of smaller issuers may be
restricted as to resale or may otherwise be highly illiquid. The ability of the
Fund to dispose of such securities may be greatly limited, and the Fund may have
to continue to hold such securities during periods when SCMI would otherwise
have sold the security.
NON-DIVERSIFICATION
The Fund is a "non-diversified" investment company under the Investment
Company Act of 1940, as amended. This means that it may invest its assets in a
more limited number of issuers than may other investment companies. Under the
Internal Revenue Code, an investment company, including a non-diversified
investment company, generally may not invest more than 25% of its assets in
securities of any one issuer other than U.S. government securities and, with
respect to 50% of its total assets, the Fund may not invest more than 5% of its
total assets in the securities of any one issuer (except U.S. government
securities). Thus, the Fund may invest up to 25% of its total assets in the
securities of each of any two issuers. To the extent the Fund invests in
securities of a relatively few issuers, the value of its shares will be affected
by changes in the values of those securities more than if it had invested in a
more diversified portfolio.
11
<PAGE>
DEBT SECURITIES
The Fund may invest up to 10% of its total assets in convertible or
non-convertible debt securities. The Fund may invest in debt securities issued
or guaranteed by Asian governments (including countries, provinces and
municipalities) or their agencies and instrumentalities ("governmental
entities"); debt securities issued or guaranteed by international organizations
designated or supported by multiple foreign governmental entities (which are not
obligations of foreign governments) to promote economic reconstruction or
development; and debt securities issued by Asian companies.
The Fund may invest in lower-quality, high-yielding debt securities
that may be rated below investment grade and in unrated debt securities
determined by SCMI to be of comparable quality. Debt securities are subject to
market risk (the risk of fluctuation of market value in response to changes in
interest rates) and to credit risk (the risk that the issuer may become unable
or unwilling to make timely payments of principal or interest). Lower-rated debt
securities (commonly called "junk bonds") are considered to be of poor standing
and predominantly speculative. Securities in the lowest rating categories may
have extremely poor prospects of attaining any real investment standing, and
some of those securities in which the Fund may invest may be in default. The
rating services' descriptions of securities in the various rating categories,
including speculative characteristics, are set forth in the SAI.
The values of lower-rated securities fluctuate in response to changes
in interest rates like those of other fixed-income securities. In addition, the
lower ratings of such securities reflect a greater possibility that adverse
changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. Changes by
recognized rating services in their ratings of any fixed-income security and in
the ability or perceived inability of an issuer to make payments of interest and
principal may also affect the value of these investments. See the SAI.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may engage in a variety of transactions including options and
futures contracts for hedging against market changes. Although the Fund does not
presently intend to do so, the Fund may: (1) write covered call options on
portfolio securities, and the U.S. dollar and foreign currencies without limit;
(2) write covered put options on portfolio securities and the U.S. dollar and
foreign currencies with the limitation that the aggregate value of the
obligations underlying the puts determined as of the date the options are sold
will not exceed 50% of the Fund's net assets; (3) purchase call and put options
on securities, currencies, or indices of securities or currencies, provided that
the aggregate premiums paid for such options held by the Fund at any time do not
exceed 5% of the Fund's total assets; and (4)(a) purchase and sell futures
contracts on underlying portfolio securities, any foreign currency, U.S. and
foreign fixed-income securities and such indices of U.S. or foreign equity or
fixed-income securities as may exist or come into being, and (b) purchase and
write call and put options on such futures contracts, and provided that the Fund
generally may not enter into exchange-traded futures contracts or purchase or
sell related options, if, immediately thereafter, the amount committed to margin
plus the amount paid for premiums for unexpired options on futures contracts
exceeds 5% of the value of the Fund's total assets. All of the
12
<PAGE>
foregoing are referred to as "Hedging Instruments".
The Fund may use Hedging Instruments: (1) to protect against declines
in the market value of the Fund's portfolio securities and the currencies in
which they are denominated; or (2) to establish a position in securities markets
as a temporary substitute for purchasing securities. The Fund will not use
Hedging Instruments for speculation.
Hedging Instruments have certain risks associated with them, including:
(1) the possible failure of such instruments as hedging techniques in cases
where the price movement of the securities or currencies underlying the options
or futures does not follow the price movements of the portfolio securities
subject to the hedge; (2) potentially unlimited loss associated with such
transactions and the possible lack of a liquid secondary markets for closing out
positions in futures or options; and (3) possible losses resulting from the
inability of SCMI to predict the direction of stock prices, interest rates,
relative currency values and other economic factors.
In addition, only a limited market, if any, currently exists for
hedging transactions relating to currencies in many emerging market countries or
to securities of issuers domiciled or principally engaged in business in
emerging market countries. This may limit the Fund's ability to hedge its
investments in such emerging markets.
The Fund generally expects that its options and futures contract
transactions will be conducted on recognized exchanges. In certain instances,
however, the Fund may purchase and sell options in the over-the-counter markets.
The Fund's ability to terminate options in the over-the-counter markets may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to the Fund. The Fund will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of SCMI, the pricing mechanism and
liquidity of the over-the-counter markets are satisfactory and the participants
are responsible parties likely to meet their contractual obligations. The Fund
will treat over-the-counter options (and, in the case of options sold by the
Fund, the underlying securities held by the Fund) as illiquid investments as
required by applicable law.
For more information about any of the options or futures portfolio
transactions described above, see "Options and Futures Transactions" in the SAI.
SECURITIES LOANS, REPURCHASE AGREEMENTS, AND FORWARD COMMITMENTS
The Fund may lend portfolio securities amounting to not more than
one-third of its assets to brokers, dealers and financial institutions meeting
specified credit conditions, and may enter into repurchase agreements without
limit. These transactions must be fully collateralized at all times but involve
some risk to the Fund if the other party should default on its obligation and
the Fund is delayed or prevented from recovering its assets or realizing on the
collateral. The Fund may also purchase securities for future delivery, which may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date.
INVESTMENTS IN OTHER INVESTMENT COMPANIES OR VEHICLES
The Fund is permitted to invest in other investment companies or pooled
vehicles, including closed-end funds, that are advised
13
<PAGE>
by SCMI or its affiliates or by unaffiliated parties. The Fund may invest in the
shares of other investment companies that invest in securities in which the Fund
is permitted to invest. Pursuant to the Investment Company Act of 1940, as
amended (the "1940 Act"), the Fund may invest up to 10% of its total assets in
the shares of other investment companies and up to 5% of its total assets in any
one investment company, as long as each investment does not represent more than
3% of the outstanding voting stock of the investment company at the time of such
investment. When investing through investment companies, the Fund may pay a
premium above such investment companies' net asset value per share. As a
shareholder in an investment company, the Fund would bear its ratable share of
the investment company's expenses, including its advisory and administrative
fees. At the same time, the Fund would continue to pay its own fees and
expenses. The Fund does not intend to invest in other investment companies
unless, in SCMI's judgment, the potential benefits of such investment justify
the payments of any applicable premiums or sales charges.
LIQUIDITY
The Fund will not invest more than 15% of its net assets in securities
determined by SCMI to be illiquid. Certain securities that are restricted as to
resale may nonetheless be resold by the Fund in accordance with Rule 144A under
the Securities Act of 1933, as amended. Such securities may be determined by
SCMI to be liquid for purposes of compliance with the limitation on the Fund's
investment in illiquid securities. There can, however, be no assurance that the
Fund will be able to sell such securities at any time when SCMI deems it
advisable to do so or at prices prevailing for comparable securities that are
more widely held.
PORTFOLIO TURNOVER
The Fund may engage in short-term trading, but its portfolio turnover
rate is not expected to exceed 100% (although the portfolio turnover rate for
the current fiscal year may be higher due to the effect of the conversion of
Schroder Asian Growth Fund, Inc. in to the Fund). High portfolio turnover and
short-term trading involve correspondingly greater commission expenses,
transaction costs and potentially higher amounts of taxable income. See
"Taxation" in the SAI.
MANAGEMENT OF THE FUND
BOARDS OF TRUSTEES
The business and affairs of the Fund are managed under the direction of
the Board of Trustees of the Trust. The business and affairs of the Portfolios
are managed under the direction of the Board of Trustees of Schroder Capital
Funds, a Delaware business trust of which each Portfolio is a series.
Information regarding the Trustees and executive officers of the Trust, as well
as the Trustees and executive officers of Schroder Capital Funds, is contained
in the SAI under "Management, Trustees and Officers."
INVESTMENT ADVISER AND PORTFOLIO MANAGERS
SCMI is a wholly owned U.S. subsidiary of Schroder U.S. Holdings Inc., an
indirect, wholly owned U.S. subsidiary of Schroders plc. Schroders plc is the
holding company parent of a large world-wide group of banks and financial
services companies.
SCMI serves as investment adviser to the Fund under an investment
advisory and asset allocation agreement with the Trust (the "Fund Advisory
Agreement"). Under the Fund Advisory Agreement, SCMI is entitled to receive a
monthly investment advisory fee for asset allocation services at the annual rate
of
14
<PAGE>
0.20% of the Fund's average daily net assets with respect to assets invested in
the Portfolios (or another registered investment company). SCMI does not receive
an additional investment advisory fee directly from the Fund for any of the
Fund's assets invested in Asia ex-Japan Portfolio or Japan Portfolio. The Board
of Trustees may at any time determine that the Fund should cease investing in
one or both of those Portfolios. In that event, the Fund would pay SCMI a
monthly fee at an annual rate of 0.90% of the Fund's average daily net assets
managed by SCMI directly at the Fund level. The Fund Advisory Agreement is the
same in all material respects as the advisory agreements under which SCMI acts
as investment adviser to the Portfolios (except as to the parties and the fees).
Subject to such policies as the Board of Trustees of Schroder Capital
Funds may determine, SCMI also furnishes a continuous investment program for
each Portfolio and makes investment decisions on its behalf. For these services,
the Investment Advisory Agreement between SCMI and Schroder Capital Funds
provides that SCMI is entitled to receive monthly advisory fees at the annual
rates of 0.70% and 0.55%, respectively, of Asia ex-Japan Portfolio's and Japan
Portfolio's average daily net assets.
The Fund currently pursues its investment objective through investment
in Asia ex-Japan and Japan Portfolios. The Fund's investments may be withdrawn
from the Portfolios at any time if the Trust Board determines that it is in the
best interests of the Fund and its shareholders to do so. See "Other Information
- --Fund Structure".
The current investment management team at SCMI with primary responsibility
for managing the Fund and the Portfolios includes Louise Croset, a Trustee and
President of the Trust; Heather F. Crighton, Vice President of the Trust; and
Donald M. Farquharson, Vice President of the Trust. Ms. Croset and Ms. Crighton
are primarily responsible for management of Asian securities excluding Japan,
while Ms. Croset and Mr. Farquharson are primarily responsible for management of
Japanese securities.
Ms. Croset has managed the assets of Schroder Asian Growth Fund, Inc. (the
Predecessor Fund) since January 1997 and has managed the Fund's and Portfolios'
assets since inception. She has been a First Vice President and Director of SCMI
since 1993. She served as a Vice President at Wellington Management Co. from
1987 to 1993. Ms. Crighton, a manager of the Predecessor Fund and the Fund since
inception, is a Vice President of SCMI and has been employed by SCMI in the
investment research and portfolio management areas since 1992. Mr. Farquharson
is a First Vice President of SCMI. He originally joined SCMI as an equity
analyst in 1988, served as the head of SCMI's Japanese Equity Research group in
Tokyo from 1993 to 1995, and thereafter has served as fund manager.
ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an administration
agreement with Schroder Fund Advisors Inc. ("Schroder Advisors"), and a
subadministration agreement with Forum Administrative Services, LLC ("Forum").
Under these agreements, Schroder Advisors and Forum provide certain management
and administrative services necessary for the Fund's operations. For providing
services to the Fund, Schroder Advisors and Forum are each entitled to a monthly
fee at the annual rate of 0.05% of the Fund's average daily net assets. Schroder
Advisors and Forum provide similar services to each Portfolio, for which each is
entitled to a monthly fee at the annual rate of 0.05% of each Portfolio's
average daily net assets.
15
<PAGE>
DISTRIBUTOR
Schroder Advisors, 787 Seventh Avenue, New York, New York 10019, serves
as Distributor of Fund shares under a Distribution Agreement. Schroder Advisors
was organized in 1989 as a registered broker-dealer to serve as an administrator
and distributor of the Fund and other mutual funds.
SHAREHOLDER SERVICE PLAN
The Trust has adopted a shareholder service plan (the "Plan") for the
Fund's Class A Shares. Under the Plan, the Fund may pay Schroder Advisors or
other broker-dealers or financial institutions ("Service Organizations") a
servicing fee. Payments under the Plan may be for various types of services,
including: (1) answering customer inquiries regarding the manner in which
purchases, exchanges and redemptions of shares of the Fund may be effected and
other matters pertaining to the Fund's services; (2) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records; (3) assisting shareholders in arranging for processing purchase,
exchange and redemption transactions; (4) arranging for the wiring of funds; (5)
guaranteeing shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; (6) integrating
periodic statements with other customer transactions; and (7) providing such
other related services as the shareholder may request. Fees are payable under
the Plan at the annual rate of 0.25% of the Fund's average daily net assets
attributable to the Class A Shares.
Payments to a particular Service Organization under the Plan are
calculated by reference to the average daily net assets of Class A Shares owned
beneficially by investors who have a service relationship with the Service
Organization. Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more than
the minimum or subsequent investments specified by the Fund or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
which might be paid to the Service Organization by Schroder Advisors.
Shareholders using Service Organizations are urged to consult them regarding any
such fees or conditions.
EXPENSES
The Fund bears all costs of its operations other than expenses
specifically assumed by SCMI, Schroder Advisors, or Forum. The costs borne by
the Fund include legal and accounting expenses; Trustees' fees and expenses;
insurance premiums, custodian and transfer agent fees and expenses; expenses of
registering and qualifying the Fund's shares for sale with the SEC and with
various state securities commissions; expenses of obtaining quotations on
portfolio securities and pricing of the Fund's shares; expenses of maintaining
the Trust's and the Fund's legal existence and of shareholders' meetings; and
expenses of preparation and distribution to existing shareholders of reports,
proxies and prospectuses. For assets invested in a Portfolio, the Fund also
bears its ratable share of the Portfolio's expenses, including any investment
advisory fees payable to SCMI. From time to time, SCMI, Schroder Advisors or
Forum may waive voluntarily all or a portion of its fees.
PORTFOLIO TRANSACTIONS
SCMI places orders for the purchase and sale of the Fund's investments
with brokers and dealers it selects and seeks "best execution" of such portfolio
transactions. The Fund may pay brokers higher than the lowest available
commission rates when SCMI
16
<PAGE>
believes it is reasonable to do so in light of the value of the brokerage and
research services provided. Commission rates for brokerage transactions are
fixed on many foreign securities exchanges, which may cause higher brokerage
expenses to accrue to the Fund than would be the case for comparable
transactions effected on U.S. securities exchanges.
Subject to the Fund's policy of obtaining the best price consistent
with quality of execution on transactions, SCMI may employ Schroder Securities
Limited and its affiliates (collectively, "Schroder Securities"), affiliates of
Schroder, to effect transactions for the Fund or a Portfolio on certain foreign
securities exchanges. Because of the affiliation between SCMI and Schroder
Securities, payment of commissions by the Fund or a Portfolio to Schroder
Securities is subject to procedures adopted by the Board of Trustees of Schroder
Capital Funds designed to ensure that commissions will not exceed the usual and
customary brokers' commissions. No specific portion of the Fund's brokerage will
be directed to Schroder Securities, and in no event will Schroder Securities
receive any brokerage fees in recognition of research services.
INVESTMENT IN THE FUND
PURCHASE OF SHARES
Investors may purchase Class A Shares directly from the Trust.
Prospectuses, sales material and account applications can be obtained from the
Trust or through Boston Financial Data Services, Inc., the Fund's transfer agent
(the "Transfer Agent"). See "Other Information -- Shareholder Inquiries".
Investments also may be made through broker-dealers and other financial
institutions that assist their customers in purchasing Class A Shares ("Service
Organizations"). Service Organizations may charge their customers a service fee
for processing orders to purchase, redeem or exchange shares. Investors wishing
to purchase Class A Shares through their accounts at a Service Organization
should contact that organization directly for appropriate instructions.
The Fund's Class A Shares are offered at the applicable offering price
(the next-determined net asset value per share plus an initial sales charge
assessed as described below) after receipt of a completed account application
(at the address set forth below). The minimum initial investment is $2,500, and
the minimum subsequent investment is $250. All purchase payments are invested in
full and fractional shares. The Fund is authorized to reject any purchase order.
Purchases may be made by mailing a check (in U.S. dollars), payable to
Schroder All-Asia Fund to:
Schroder All-Asia Fund -- Class A Shares
Schroder Series Trust II
Boston Financial Data Services
P.O. Box 8507
Boston, Massachusetts 02266-8507
For initial purchases, the check must be accompanied by a completed
account application in proper form. Further documentation, such as corporate
resolutions and instruments of authority, may be requested from corporations,
administrators, executors, personal representatives, directors or custodians to
evidence the authority of the person or entity making the subscription request.
No third party checks will be accepted.
Subsequent purchases may be made by mailing a check, by sending a bank
wire, or through a shareholder's Service Organization, as indicated above. All
payments should clearly indicate the shareholder's name and account number.
17
<PAGE>
Investors and Service Organizations (on behalf of their customers) may
transmit purchase payments by Federal Reserve Bank wire directly to the Fund as
follows:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts
ABA No.: 011000028
Ref.: Schroder All-Asia Fund -- Class A Shares
DDA No.: 9904-650-0
FBO: (shareholder name)
Account No.: (shareholder account number)
The wire order must specify the name of the Fund, the shares' class
(I.E., Class A Shares), 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 will be assigned and a
completed account application must be mailed to the Fund before any transaction
will be effected. Wire orders received prior to the close of the New York Stock
Exchange (the "Exchange") on any day that the Exchange is open for trading are
processed at the NAV determined as of that day. Wire orders received after the
close of the Exchange are processed at the NAV next determined. See "Net Asset
Value".
The Fund's Transfer Agent establishes for each shareholder of record an
open account to which all shares purchased and all reinvested dividends and
other distributions are credited. Although most shareholders elect not to
receive share certificates, certificates for full shares can be obtained by
written request to the Fund's Transfer Agent. No certificates are issued for
fractional shares.
The Transfer Agent will deem an account lost if six months have passed
since correspondence to the shareholder's address of record is returned, unless
the Transfer Agent determines the shareholder's new address. When an account is
deemed lost, dividends and other distributions will automatically be reinvested.
In addition, the amount of any outstanding checks for dividends and other
distributions that have been returned to the Transfer Agent will be reinvested
and the checks will be canceled.
SALES CHARGES AND DISCOUNTS
The public offering price of the Fund's Class A Shares is their
next-determined NAV plus an initial sales charge assessed as follows (no sales
charge is assessed on the reinvestment of dividends or distributions):
<TABLE>
<S> <C> <C> <C>
BROKER-
DEALERS'
SALES CHARGE REALLOWANCE
AS A PERCENTAGE OF AS A
------------------------------------------------- PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE NET ASSET VALUE* OFFERING PRICE
---------------------------------------------------------------------------------------------------------------------
Less than $25,000 5.25% 5.54% 5.00%
At least $25,000 but less than $50,000 4.75% 4.99% 4.50%
At least $50,000 but less than $100,000 4.00% 4.17% 3.75%
At least $100,000 but less than $250,000 3.00% 3.09% 2.75%
At least $250,000 but less than $1,000,000 2.00% 2.04% 1.80%
$1,000,000 and over 1.00% 1.01% 1.00%
------------------------------------------------
*Rounded to the nearest one-hundredth percent.
</TABLE>
18
<PAGE>
Schroder Advisors may pay a broker-dealers' reallowance to selected
broker-dealers purchasing Class A Shares as principal or agent, which may
include Service Organizations. Normally, Schroder Advisors reallows discounts to
selected broker-dealers in the amounts indicated in the table above. In
addition, Schroder Advisors may elect to reallow the entire sales charge to
selected broker-dealers for all sales wherein orders are placed with the
Transfer Agent. The broker-dealers' reallowance may be changed from time to
time.
In addition, from time to time and at its own expense, Schroder
Advisors may provide compensation, including financial assistance, to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns or other dealer-sponsored special
events. Compensation may include: (1) the provision of travel arrangements and
lodging; (2) tickets for entertainment events; and (3) merchandise. SCMI and/or
Schroder Advisors may make additional payments (out of their respective
resources) to selected broker-dealers or other Service Organizations. This
compensation may be made available only to certain dealers or other financial
intermediaries who have sold or are expected to sell significant amounts of
Class A Shares or who charge an asset based fee to their clients (whether or not
they have a fiduciary relationship with their clients).
REDUCED INITIAL SALES CHARGES. To qualify for a reduced sales charge,
you or your Service Organization must notify the Transfer Agent at the time of
purchase of your intention to qualify and must provide the Transfer Agent with
sufficient information to verify that the purchase qualifies for a reduced sales
charge. Reduced sales charges may be modified or terminated at any time and are
subject to confirmation of your holdings. For purposes of calculating the
eligibility for sales charge break points, shareholders shall be credited with
the number of Class A Shares held as a result of the conversion of Schroder
Asian Growth Fund, Inc., the predecessor fund.
SALES AT NET ASSET VALUE. Class A Shares are sold at net asset value
without imposition of sales charges when investments are made by the following
classes of investors: (1) trustees or other fiduciaries purchasing shares for
employee benefit plans which are sponsored by organizations which have at least
100 employees; (2) current or retired Trustees, directors and officers of the
investment companies for which SCMI serves as investment adviser; employees or
retired employees of SCMI or its affiliates; the spouses, children, siblings,
and parents of the persons in the foregoing categories; and trusts primarily for
the benefit of such persons; (3) registered representatives or full-time
employees of broker-dealers that have entered into dealer or shareholder
servicing agreements with Schroder Advisors, and the spouses, children,
siblings, and parents of such persons; and full-time employees of financial
institutions that directly, or indirectly through their affiliates, have entered
into dealer agreements with Schroder Advisors ( or that otherwise have an
arrangement with respect to sales of Fund shares with a broker-dealer that has
entered into a dealer agreement with Schroder Advisors) and the spouses,
children, siblings and parents of such employees; (4) companies exchanging
shares with or selling assets to the Fund pursuant to a merger, acquisition or
exchange offer ( or similar transaction); (5) registered investment advisors and
bank trust departments exercising discretionary investment authority with
respect to the assets invested in the Fund; (6) persons participating in a "wrap
account" or similar fee-
19
<PAGE>
based program sponsored and maintained by a registered broker-dealer which has
entered into an agreement with Schroder Advisors; (7) clients of administrators
of tax-qualified employee benefit plans which have entered into agreements with
Schroder Advisors; and (8) retirement plan participants who borrow from their
retirement accounts by redeeming shares of the Fund and subsequently repay such
loans via purchase of Fund shares.
The Fund may require appropriate documentation concerning an investor's
eligibility to purchase Fund shares without a sales charge. If you invest
through a broker-dealer or other financial institution, your broker-dealer or
other financial institution will be responsible for electing on your behalf to
take advantage of any of these reduced sales charges or waivers described above.
Please instruct your broker-dealer or other financial institution accordingly.
REINSTATEMENT PRIVILEGE. If you have redeemed the Fund's Class A
Shares, you may, within 60 days after the redemption, repurchase them without
paying additional sales charges. You or your Service Organization should contact
the Transfer Agent for further information if you wish to exercise this
reinstatement privilege. Consult your tax advisor about the potential tax
consequences of reinstatement.
INVESTORS IN OTHER FUND FAMILIES. You may make purchases at NAV
(without a sales charge) if: (1) you are investing the proceeds from a
redemption of shares of another open-end investment company; (2) on which you
paid a front-end sales charge; and (3) the redemption occurred within 60 days
prior to the date of your purchase of Class A Shares. You or your Service
Organization should contact the Transfer Agent for further information.
RIGHTS OF ACCUMULATION. If you notify the Transfer Agent or your
Service Organization, you may include the Class A Shares you already own (valued
at the maximum offering price) in calculating the price applicable to your
current purchase.
STATEMENT OF INTENTION. You may obtain reduced sales charges based on
cumulative purchases by executing a written Statement of Intention that
expresses your intent to invest $25,000 or more in the Fund's Class A Shares
within a period of 13 months. The applicable sales charge will be determined by
the aggregate Statement of Intention amount; the public offering price of each
investment will vary based on the then-current net asset value of the Fund. If
you wish to enter into a Statement of Intention in conjunction with your initial
investment in the Fund's Class A Shares, please complete the appropriate portion
of the account application form. Current Fund shareholders may obtain a
Statement of Intention form by contacting the Transfer Agent.
RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
Fund Class A Shares are offered in connection with tax-deferred
retirement plans. Application forms and further information about these plans,
including applicable fees, are available upon request. Before investing in the
Fund through one of these plans, investors should consult their tax advisors.
The Fund may be used as an investment vehicle for an IRA including
SEP-IRA. An IRA naming State Street Bank and Trust Company as custodian is
available from the Trust or the Transfer Agent. The minimum initial investment
for an IRA is $2,000; the minimum subsequent investment is $250. Under certain
circumstances contributions to an IRA may be
20
<PAGE>
tax deductible. IRAs are available to individuals (and their spouses) who
receive compensation or earned income whether or not they are active
participants in a tax-qualified or government-approved retirement plan. An IRA
contribution by an individual or spouse who participates in a tax-qualified or
government-approved retirement plan may not be deductible, depending upon the
individual's income. Individuals also may establish an IRA to receive a
"rollover" contribution of distributions from another IRA or qualified plan. Tax
advice should be obtained before effecting a rollover.
EXCHANGES
In most cases, shareholders may exchange the Fund's Class A Shares for
"Advisor" class shares of any fund offered by the Schroder family of funds so
long as your investment meets the initial investment minimum of the fund being
purchased and the respective minimum account balance remains in each fund owned.
Exchanges between funds are at NAV with respect to the Fund purchased.
For federal income tax purposes an exchange is considered to be a sale
of shares on which you may realize a capital gain or loss. If you hold Class A
Shares through a Service Organization, you must make an exchange through your
Service Organization. If you hold Class A Shares directly, you may make an
exchange by calling the Transfer Agent at 1-800-464-3108 (see "Redemption of
Shares -- By Telephone") or by mailing written instructions to Schroder Series
Trust II, Boston Financial Data Services, P.O. Box 8007, Boston, Massachusetts
02266-8507. Exchange privileges may be exercised only in those states where
shares of the other funds of the Schroder family of funds may legally be sold.
Exchange privileges may be amended or terminated at any time upon sixty (60)
days' notice.
REDEMPTION OF SHARES
Class A Shares are redeemed at their NAV next determined after receipt
by the Fund (see the address set forth under "Purchase of Shares") of a
redemption request in proper form. Redemption requests that are received prior
to the close of the Exchange on any day are processed at the NAV determined on
that day. Redemption requests that are received after the close of the Exchange
are processed at the NAV next determined. See "Net Asset Value."
TELEPHONE REQUESTS. Redemption requests may be made by telephoning the
Transfer Agent at 1-800-464-3108. A shareholder must provide the Transfer Agent
with the class of shares, the dollar amount or number of shares to be redeemed,
shareholder account number, and some additional form of identification. A
redemption by telephone may be made only if the telephone redemption privilege
option has been elected on the account application 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 or both may be liable if they do not
follow these procedures. Shares for which certificates have been issued may not
be redeemed by telephone. In times of drastic economic or market change it may
be difficult to make redemptions by telephone. If a shareholder cannot reach the
Transfer Agent by telephone, redemption requests may be mailed or hand-delivered
to the Transfer Agent.
21
<PAGE>
WRITTEN REQUESTS. Redemptions may be made by letter to the Fund
specifying the class of Shares, the dollar amount or number of Shares to be
redeemed, and the shareholder account number. The letter must also be signed in
exactly the same way the account is registered (if there is more than one owner
of the Shares, all must sign) and, in certain cases, signatures must be
guaranteed by an institution that is acceptable to the Transfer Agent. Such
institutions include certain banks, brokers, dealers (including municipal and
government securities brokers and dealers), credit unions and savings
associations. Notaries public are not acceptable. Further documentation may be
requested to evidence the authority of the person or entity making the
redemption request. Questions concerning the need for signature guarantees or
documentation of authority should be directed to the Fund at the above address
or by calling the telephone number appearing on the cover of this Prospectus.
If Class A Shares to be redeemed are held in certificate form, the
certificates must be enclosed with the redemption request and the assignment
form on the back of the certificates (or an assignment separate from the
certificates but accompanied by the certificates) must be signed by all owners
in exactly the same way the owners' names are written on the face of the
certificates. Requirements for signature guarantees and/or documentation of
authority as described above could also apply. For your protection, the Trust
suggests that certificates be sent by registered mail.
ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds
normally are mailed within seven days. No redemption proceeds are mailed until
checks in payment for the purchase of the Class A Shares to be redeemed have
been cleared, which may take up to 15 calendar days from the purchase date.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption are sent to the shareholder's address of record.
The Fund may suspend the right of redemption during any period when:
(1) trading on the New York Stock Exchange is restricted or the New York Stock
Exchange is closed; (2) the SEC has by order permitted such suspension; or (3)
an emergency (as defined by rules of the SEC) exists making disposal of
portfolio investments or determination of the Fund's NAV not reasonably
practicable.
If the Board of Trustees determines that it would be detrimental to the
best interest of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may redeem Class A Shares in whole or in part by a
distribution in kind of portfolio securities in lieu of cash. The Fund will,
however, redeem Class A Shares solely in cash up to the lesser of $250,000 or 1%
of net assets during any 90-day period for any one shareholder. In the event
that payment for redeemed Class A Shares is made wholly or partly in portfolio
securities, the shareholder may be subject to additional risks and costs in
converting the securities to cash.
See "Additional Purchase and Redemption Information" in the SAI.
The proceeds of a redemption may be more or less than the amount
invested and, therefore, a redemption may result in a gain or loss for federal
income tax purposes.
MINIMUM ACCOUNT BALANCE. Due to the relatively high cost of maintaining
smaller accounts, the Fund reserves the right to redeem shares in any account
(other than an IRA) if at any time the account does not have a value of at least
$2,000, unless the value of the account falls below that amount solely as a
result of market activity. Shareholders will
22
<PAGE>
be notified that the value of the account is less than the required minimum and
be allowed at least 30 days to make an additional investment to increase the
account balance to at least the required minimum amount.
NET ASSET VALUE
The net asset value per share of the Fund is calculated for Class A
Shares as of the close of trading on the New York Stock Exchange, on each day
the Exchange is open, which excludes the following U.S. holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per share is calculated by dividing the aggregate value of the Fund's assets,
less its liabilities, by the number of outstanding shares of the Fund.
Generally, securities that are listed on recognized stock exchanges are
valued at the last reported sale price, on the day when the securities are
valued (the "Valuation Day"), on the primary exchange on which the securities
are principally traded. Listed securities traded on recognized stock exchanges
for which there were no sales on the Valuation Day are valued at the last sale
price on the preceding trading day or at closing mid-market prices. Securities
traded in over-the-counter markets are valued at the most recent reported
mid-market price. 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 of Trustees of Schroder Capital Funds.
Trading in securities on non-U.S. exchanges and over-the-counter
markets may not take place on every day that the Exchange is open for trading.
Furthermore, trading takes place in various foreign markets on days on which the
Fund's NAV 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 NAV is calculated, such securities may be valued at fair value as
determined in good faith by using methods approved by the Board of Trustees of
Schroder Capital Funds.
All assets and liabilities of the Fund 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 Fund's NAV is calculated.
DIVIDENDS, DISTRIBUTIONS AND TAXES
THE FUND
The Fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies. By
complying therewith, the Fund will not have to pay federal income tax on that
part of its income or net realized capital gain that is distributed to
shareholders. The Fund intends to distribute substantially all of its income and
net realized capital gain, and therefore, intends not to be subject to federal
income tax.
Dividends and capital-gain distributions on Class A Shares are
reinvested in additional Class A Shares at NAV unless the shareholder has
elected in the account application, or otherwise in writing, to receive
dividends and other distributions in cash.
Dividends from the Fund's income generally will be taxable to
shareholders as ordinary income, whether the dividends are invested in
additional Class A Shares or received in cash. Distributions by the Fund of any
net long-term capital gain will be taxable to a shareholder as long-term capital
gain regardless of how long the shareholder has held the Class A Shares. Such
distributions
23
<PAGE>
will qualify for the new reduced rates for capital gains on assets held for more
than 18 months to the extent they represent gains on the sale of such assets.
Each year the Trust will notify shareholders of the tax status of dividends and
other distributions.
Dividends from the Fund are generally not expected to qualify for the
dividends-received deduction for corporate shareholders because the Fund does
not generally expect to receive dividends from domestic corporations.
A redemption of Class A Shares may result in taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds are more
or less than the shareholder's basis in the redeemed Class A Shares. If Class A
Shares are redeemed at a loss after being held for six months or less, the loss
will be treated as a long-term, rather than a short-term, capital loss to the
extent of any capital gain distributions received on those Class A Shares.
The Fund must withhold 31% from dividends, capital gain distributions
and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and capital gain distributions payable to such shareholders who otherwise are
subject to backup withholding. Depending on the residence of a shareholder for
tax purposes, distributions from the Fund may also be subject to state and local
taxes, including withholding taxes.
In an effort to adhere to certain tax requirements, the Fund may have
to limit its investment activity in some types of instruments.
If the Fund's dividends exceed its taxable income in any year, all or a
portion of the Fund's dividends may be treated as a return of capital to
shareholders for tax purposes. Any return of capital will reduce the cost basis
of your shares, which will result in a higher reported capital gain or a lower
reported capital loss when you sell your shares. Shareholders will be notified
by the Trust if a distribution included a return of capital.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on the Fund
and its investments, which generally reduce the Fund's income.
Pursuant to the tax convention between the U.S. and Japan (the
"Convention"), a Japanese withholding tax at the maximum rate of 15% is, with
certain exceptions, imposed upon dividends paid by Japanese corporations to the
Fund. Pursuant to the present terms of the Convention, interest received by the
Fund from sources within Japan is subject to a Japanese withholding tax at a
maximum rate of 10%. Capital gains of the Fund arising from its investments as
described herein are not taxable in Japan.
Generally, the Fund will be subject to the Japanese securities
transaction tax on its sale of certain securities in Japan. The current rates of
such tax range from 0.03% to 0.30% depending upon the particular type of
securities involved. Transactions involving equity securities are currently
taxed at the highest rate.
If the Fund is eligible to do so, it ordinarily expects to elect to
permit its shareholders to take a credit (or a deduction), subject to certain
limitations, for the Fund's share of foreign income taxes paid by the Fund. If
the Fund does make such an election, its shareholders would include as gross
income in their federal income tax returns both: (1) distributions received from
the Fund; and (2) the amount that the Fund advises is their pro rata portion of
foreign income taxes paid
24
<PAGE>
with respect to or withheld from, dividends and interest paid to the Fund from
its foreign investments. Shareholders then would be entitled, subject to certain
limitations, to take a foreign tax credit against their federal income tax
liability for the amount of such foreign taxes or else to deduct such foreign
taxes as an itemized deduction from gross income.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its U.S. shareholders; see the
SAI for further information. Shareholders should consult their own tax advisors
as to the tax consequences of their ownership of Class A Shares, including with
respect to the applicability of state, local and non-U.S. taxes.
THE PORTFOLIOS
Neither Portfolio is required to pay federal income tax because it is
classified as a partnership for federal income tax purposes. All interest,
dividends, gains and losses of a Portfolio will be deemed to have been "passed
through" to the Fund in proportion to the Fund's holdings in the Portfolio,
regardless of whether such interest, dividends or gains have been distributed by
the Portfolio.
Each Portfolio intends to conduct its operations so as to enable the
Fund, if it invests all of its assets in the Portfolios, to qualify as a
regulated investment company.
OTHER INFORMATION
CAPITALIZATION AND VOTING
The Trust was formed on December 5, 1997, as a Delaware business trust.
The Trust has authority to issue an unlimited number of shares of beneficial
interest. The Trust Board may, without shareholder approval, divide the
authorized shares into an unlimited number of separate portfolios or series
(such as the Fund) and may divide such portfolios or series into classes of
shares (such as the Class A Shares), and the costs of doing so are borne by the
Trust or series in accordance with the Trust Instrument. The Trust currently
consists of one series, the Fund.
When issued in accordance with the terms of the Trust Instrument and
Prospectus, Class A Shares are fully paid, non-assessable, and have no
preemptive rights. Shareholders have non-cumulative voting rights, which means
that the holders of more than 50% of the Trust's outstanding shares voting for
the election of Trustees can elect 100% of the Trustees if they choose to do so.
A shareholder is entitled to one vote for each full share held (and a fractional
vote for each fractional share held). Each Class A Share has equal voting
rights.
There normally are no meetings of shareholders to elect Trustees unless
and until such time as less than a majority of the Trustees holding office have
been elected by shareholders. However, the holders of not less than a majority
of the outstanding Shares of the Trust may remove any person serving as a
Trustee.
REPORTS
The Trust will send each Fund shareholder a semi-annual report and an
audited financial statement, when available, containing the Fund's financial
statements.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, Global Custody Division, is custodian of the
Fund's and of the Portfolios' assets. Boston Financial Data Services, Inc.
serves as the Fund's transfer agent and dividend disbursing agent.
25
<PAGE>
SHAREHOLDER INQUIRIES
Inquiries about the Fund should be directed to:
Schroder All-Asia Fund
Schroder Series Trust II
Boston Financial Data Services
P.O. Box 8507
Boston, Massachusetts 02266-8507
Information about specific shareholder accounts may be obtained from
the Transfer Agent by calling 1-800-464-3108 or 1-617-328-5000, extension 6584.
FUND STRUCTURE
CLASSES OF SHARES. The Fund has one class of shares, Class A Shares.
Class A Shares are offered to individual investors, in most cases through
Service Organizations. Other classes of shares may be issued in the future with
different investment minimums, sales loads (if any), and expenses. Each Share is
entitled to participate equally in dividends and other distributions and the
proceeds of any liquidation of the Fund.
THE PORTFOLIOS. The Fund currently seeks to achieve its investment
objective by allocating all of its investable assets in two Portfolios.
Accordingly, each Portfolio directly acquires its own securities, and the Fund
acquires an indirect interest in those securities. Each Portfolio is a separate
series of Schroder Capital Funds, a business trust organized under the laws of
the State of Delaware in September 1995. Schroder Capital Funds is registered
under the 1940 Act as an open-end, management investment company and currently
has eight separate series. The assets of each Portfolio belong only to, and the
liabilities of the Portfolio are borne solely by, the Portfolio and no other
portfolio of Schroder Capital Funds.
The Fund's investment in a Portfolio is in the form of a
non-transferable beneficial interest. It is expected that as of March 20, 1998,
the Fund will be one of three institutional investors in each Portfolio. A
Portfolio may permit other investment companies or other qualified investors to
invest in it. All investors in a Portfolio invest at the NAV per interest of the
Portfolio and generally on the same terms and conditions as the Fund (except as
described below regarding indemnification of the Portfolio and of the Trustees
of Schroder Capital Funds by certain investors including registered investment
companies, under certain circumstances). All investors in a Portfolio bear a
proportionate share of the Portfolio's expenses.
Neither Portfolio normally holds meetings of investors except as
required by the 1940 Act. Each investor in a Portfolio is entitled to vote in
proportion to its relative beneficial interest in the Portfolio. On issues
subject to a vote of investors, as permitted under the 1940 Act and other
applicable law, the Board may solicit proxies from the Fund's shareholders and
vote the Fund's interest in a Portfolio based upon the vote of its shareholders
or the Board may determine to vote the Fund's interests in a Portfolio in the
same proportion as the vote of all other interestholders in the Portfolio. If
there are other investors in a Portfolio, there can be no assurance that any
issue that receives a majority of the votes cast by Fund shareholders would
receive a majority of votes cast by all investors in the Portfolio; indeed, if
other investors hold a majority interest in the Portfolio, they would have
voting control of the Portfolio.
Neither Portfolio sells its shares directly to members of the general
public. Another investor in the Portfolios, such as an investment company, that
would offer its shares to members of the general public would not be required to
sell its shares at the same public offering price as the Fund and could have a
26
<PAGE>
different asset allocation in the Portfolios and different expenses and other
fees than the Fund. Fund shareholders, therefore, are likely to have different
returns than shareholders in another investment company that invests in the
Portfolios. There are currently no such other investment companies that offer
shares to the general public. Information regarding any such fund in the future
will be available from Schroder Capital Funds by calling Schroder Advisors at
1-800-730-2932.
CERTAIN RISKS OF INVESTING IN A PORTFOLIO. The Fund's investment in a
Portfolio may be affected by the actions of other large investors in the
Portfolio, if any. For example, if a Portfolio had a large investor other than
the Fund that redeemed its interest in the Portfolio, its remaining investors
(including the Fund) might, as a result, experience higher pro rata operating
expenses, thereby producing lower returns.
The Fund may withdraw its entire investment from a Portfolio at any
time, if the Trust Board determines that it is in the best interests of the Fund
and its shareholders to do so. The Fund might withdraw, for example, if there
were other investors in a Portfolio with power to, and who did by a vote of the
shareholders of all investors (including the Fund), change the investment
objective or policies of the Portfolio in a manner not acceptable to the Trust
Board. A withdrawal could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) by a Portfolio. That distribution
could result in a less diversified portfolio of investments for the Fund and
could affect adversely the liquidity of the Fund's investment portfolio. If the
Fund decided to convert those securities to cash, it would likely incur
brokerage fees or other transaction costs. If the Fund withdrew its investment
from a Portfolio, the Trust Board would consider appropriate alternatives,
including the management of the Fund's assets in accordance with its investment
objective and policies by SCMI or the investment of all of the Fund's investable
assets in another pooled investment entity having substantially the same
investment objective as the Fund. The inability of the Fund to find a suitable
replacement investment, if the Board decided not to permit SCMI to manage the
Fund's assets, could have a significant impact on shareholders of the Fund.
Each investor in a Portfolio, including the Fund, may be liable for all
obligations of the Portfolio. The risk to an investor in a Portfolio of
incurring financial loss on account of such liability, however, is limited to
circumstances in which the Portfolio is unable to meet its obligations, the
occurrence of which SCMI considers to be remote. Upon liquidation of a
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
27
<PAGE>
INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
TRANSFER AND DIVIDEND DISBURSING AGENT
Boston Financial Data Services, Inc.
P.O. Box 8507
Boston, Massachusetts 02266-8507
ADMINISTRATOR & DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
SUBADMINISTRATOR
Forum Administrative Services, LLC
Two Portland Square
Portland, Maine 04101
CUSTODIAN
The Chase Manhattan Bank
Global Custody Division
125 London Wall
London EC2Y 5AJ United Kingdom
COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
One Post Office Square
Boston, Massachusetts 02109
TABLE OF CONTENTS
EXPENSES OF INVESTING
IN THE FUND.................................. 3
FINANCIAL HIGHLIGHTS........................... 5
INVESTMENT OBJECTIVE and POLICIES.............. 7
OTHER INVESTMENT PRACTICES AND
RISK CONSIDERATIONS.......................... 8
MANAGEMENT OF THE FUND......................... 14
INVESTMENT IN THE FUND......................... 17
DIVIDENDS, DISTRIBUTIONS
AND TAXES.................................... 23
OTHER INFORMATION.............................. 25
<PAGE>
[Logo] SCHRODERS
=======================
SCHRODER
ALL-ASIA
FUND
CLASS A SHARES
PROSPECTUS
MARCH 20, 1998
SCHRODER SERIES TRUST II
<PAGE>
SCHRODER ALL-ASIA FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 20, 1998
[GRAPHIC OF WORLD]
INVESTMENT ADVISER
- ------------------
Schroder Capital Management International Inc. ("SCMI")
ADMINISTRATOR AND DISTRIBUTOR
- -----------------------------
Schroder Fund Advisors Inc. ("Schroder Advisors")
SUBADMINISTRATOR
- ----------------
Forum Administrative Services, LLC ("Forum")
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
- --------------------------------------------
Boston Financial Data Services, Inc. ("BFDS")
GENERAL INFORMATION: 1-800-464-3108
ACCOUNT INFORMATION: 1-800-464-3108
FAX: 1-617-774-2579
Class A Shares of Schroder All-Asia Fund (the "Fund") are offered for sale at
the offering price (net asset value plus the applicable sales charge) as an
investment vehicle for individual investors, in most cases through Service
Organizations (as defined in the prospectus).
This Statement of Additional Information ("SAI") is not a prospectus and is
authorized for distribution only when preceded or accompanied by the Fund's
current prospectus dated March 20, 1998, as may be amended from time to time
(the "Prospectus"). This SAI contains additional and more detailed information
than that set forth in the Prospectus and should be read in conjunction with the
Prospectus and retained for future reference. The Prospectus and this SAI are
available along with other related materials for reference on the SEC's Internet
Web Site (http://www.sec.gov). All terms used in this SAI that are defined in
the Prospectus have the meaning assigned in the Prospectus. You may obtain an
additional copy of the Prospectus without charge by writing to the Fund at P.O.
Box 8507, Boston, Massachusetts 02266-8507 or calling the numbers listed above.
<PAGE>
TABLE OF CONTENTS
INTRODUCTION........................................3
INVESTMENT OBJECTIVES AND
POLICIES OF THE TRUST AND
RISK CONSIDERATIONS...............................3
Warrants and Stock Rights...........................3
American Depositary Receipts ("ADRs")...............3
Convertible Securities..............................3
Debt-to-Equity Conversions..........................3
Brady Bonds.........................................4
Zero-coupon and Payment in Kind Bonds...............4
Indexed Securities..................................4
Forward Foreign Currency Exchange Contracts.........4
Options and Futures Transactions....................5
Options on Foreign Currencies.......................5
Covered Call Writing................................6
Covered Put Writing.................................7
Purchasing Call and Put Options.....................8
Risks of Options Transactions.......................8
Futures Contracts..................................10
Interest-Rate Futures Contracts....................10
Currency Futures Contracts.........................11
Index Futures Contracts............................11
Options on Futures Contracts.......................11
Limitations on Futures Contracts and
Options on Futures Contracts.....................12
Risks of Transactions in Futures Contracts
and Related Options..............................12
Interest-Rate Transactions.........................14
When-Issued and Delayed Delivery Securities
and Forward Commitments..........................14
When, As and If Issued Securities..................14
Temporary Investments..............................15
Short-Term Debt Securities.........................15
Repurchase Agreements..............................15
Restricted Securities..............................16
Rule 144A Securities...............................16
U.S. Government Securities.........................16
Bank Obligations...................................16
Loans of Portfolio Securities......................17
Loans of Fund Securities...........................17
High Yield/High Risk Securities....................17
Sovereign Debt.....................................18
INVESTMENT RESTRICTIONS............................18
MANAGEMENT.........................................20
Officers and Trustees..............................20
Investment Adviser.................................22
Administrative Services............................23
Distribution of Fund Shares........................24
Fund Accounting....................................24
PORTFOLIO TRANSACTIONS.............................25
Investment Decisions...............................25
Brokerage and Research Services....................25
ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION........................27
Determination of NAV Per Share.....................27
Redemption In-Kind.................................27
TAXATION...........................................27
OTHER INFORMATION..................................31
Organization.......................................31
Capitalization and Voting..........................32
Principal Shareholders.............................32
Custodian..........................................32
Transfer Agent and Dividend Disbursing Agent.......33
Legal Counsel......................................33
Independent Accountant.............................33
Year 2000 Disclosure .............................33
Registration Statement.............................33
Financial Statements...............................33
APPENDIX A.........................................A-1
Description of Securities Ratings
APPENDIX B.........................................B-1
Audited Financial Statements of Schroder Asian Growth
Fund, Inc. for year ended October 31, 1997
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
OF THE TRUST AND RISK CONSIDERATION
WARRANTS AND STOCK RIGHTS. Warrants, which are options to purchase an
equity security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance). Investments in warrants involve certain risks, including
the possible lack of a liquid market for the resale of the warrants, potential
price fluctuations as a result of speculation or other factors and failure of
the price of the underlying security to reach a level at which the warrant can
be prudently exercised (in which case the warrant may expire without being
exercised, resulting in the loss of the Fund's entire investment therein). The
prices of warrants do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer.
In addition, the Fund may invest to a limited degree in stock rights. A
stock right is an option given to a shareholder to buy additional shares at a
predetermined price during a specified time period. Currently, the Fund does not
intend to invest more than 5% of its total net assets (at the time of
investment) in stock rights.
AMERICAN DEPOSITARY RECEIPTS ("ADRS"). As described in the Prospectus,
the Fund may invest in American Depositary Receipts, European Depositary
Receipts, and other similar instruments provide for indirect investment in
securities of foreign issuers. Due to the absence of established securities
markets in certain foreign countries and restrictions in certain countries on
direct investment by foreign entities, the Fund may invest in certain issuers
through the purchase of sponsored and unsponsored ADRs or other similar
securities, such as American Depositary Shares, Global Depositary Shares or
International Depositary Receipts. ADRs are receipts typically issued by U.S.
banks evidencing ownership of the underlying securities into which they are
convertible. These securities may or may not be denominated in the same currency
as the underlying securities. Unsponsored ADRs may be created without the
participation of the foreign issuer. Holders of unsponsored ADRs generally bear
all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
CONVERTIBLE SECURITIES. The Fund may invest in convertible preferred
stocks and convertible debt securities ("convertible securities"). A convertible
security is a bond, debenture, note, preferred stock or other security that may
be converted into or exchanged for a prescribed amount of common stock of the
same or a different issuer within a particular period of time at a specified
price or formula. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, carry less risk than the
corporation's common stock. The value of a convertible security is a function of
its "investment value" (its value as if it did not have a conversion privilege),
and its "conversion value" (the security's worth if it were to be exchanged for
the underlying security, at market value, pursuant to its conversion privilege).
Because convertible debt is convertible into stock under specified conditions,
the value of convertible debt also is affected normally by changes in the value
of the issuer's equity securities.
DEBT-TO-EQUITY CONVERSIONS. The Fund may invest up to 5% of its net
assets in debt-to-equity conversions. Debt-to-equity conversion programs are
sponsored in varying degrees by certain foreign countries and permit investors
to use external debt of a country to make equity investments in local companies.
Many conversion programs relate primarily to investments in transportation,
communication, utilities and similar infrastructure-related areas. The terms of
the programs vary from country to country but include significant restrictions
on the application of proceeds received in the conversion and on the
repatriation of investment profits and capital. When inviting conversion
applications by holders of eligible debt, a government usually specifies the
minimum discount from par value that it will accept for conversion. SCMI
believes that debt-to-equity conversion programs may offer opportunities to
invest in otherwise restricted equity securities that have a potential for
significant capital appreciation. SCMI, therefore, may invest the Fund's assets
to a limited extent in such programs under appropriate
3
<PAGE>
circumstances. There can be no assurance that debt-to-equity conversion programs
will continue to be successful or that the Fund will be able to convert all or
any of its emerging market debt portfolio into equity investments.
BRADY BONDS. The Fund may invest a portion of its assets in Brady
Bonds, which are securities created through the exchange of existing commercial
bank loans to sovereign entities for new obligations in connection with debt
restructurings. Brady Bonds have been issued only recently and, therefore, do
not have a long payment history. Brady Bonds may have collateralized and
uncollateralized components, are issued in various currencies, and are actively
traded in the over-the-counter secondary market. Brady Bonds are not considered
U.S. government securities. In light of the residual risk associated with the
uncollateralized portions of Brady Bonds and, among other factors, the history
of defaults with respect to commercial bank loans by public and private entities
of countries issuing Brady Bonds, investments in Brady Bonds are considered
speculative. Brady Bonds acquired by the Fund could be subject to restructuring
arrangements or to requests for new credit, which could cause the Fund to suffer
a loss of interest or principal on its holdings.
ZERO-COUPON AND PAYMENT IN KIND BONDS. The Fund may at times invest in
" zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued
at a significant discount from face value and pay interest only at maturity
rather than at intervals during the life of the security. Payment-in-kind bonds
allow the issuer, at its option, to make current interest payments on the bonds
either in cash or in additional bonds. The values of zero-coupon bonds and
payment-in-kind bonds are subject to greater fluctuation in response to changes
in market interest rates than bonds which pay interest currently, and may
involve greater credit risk than such bonds.
The Fund will not necessarily dispose of a security when its debt
rating is reduced below its rating at the time of purchase, although SCMI will
monitor the investment to determine whether continued investment in the security
will assist in meeting the Fund's investment objective. If a security's rating
is reduced below investment grade, an investment in that security may entail the
risks of lower-rated securities described below.
INDEXED SECURITIES. The Fund may invest in indexed securities, the
values of which are linked to currencies, interest rates, commodities, indices,
or other financial indicators. Investment in indexed securities involves certain
risks. In addition to the credit risk of the securities issuer and normal risks
of price changes in response to changes in interest rates, the principal amount
of indexed securities may decrease as a result of changes in the value of the
reference instruments. Also, in the case of certain indexed securities where the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Further, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS CONTRACTS. Changes in currency
exchange rates will affect the U.S. dollar values of securities denominated in
foreign currencies. Exchange rates between the U.S. dollar and other currencies
fluctuate in response to forces of supply and demand in the foreign exchange
markets. These forces are affected by the international balance of payments and
other economic and financial conditions, government intervention, speculation,
and other factors, many of which may be difficult (if not impossible) to
predict. The Fund may engage in foreign currency exchanges transactions to
protect against uncertainty in the level of future exchange rates. Although the
strategy of engaging in foreign currency transactions could reduce the risk of
loss due to a decline in the value of the hedged currency, it could also limit
the potential gain from an increase in the value of the currency.
When investing in foreign securities, the Fund usually effects currency
exchange transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign exchange market. The Fund incurs foreign exchange expenses in
converting assets from one currency to another.
4
<PAGE>
The Fund may also enter into forward currency contracts. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date (which may be any fixed number of days from the date of the contract
agreed upon by the parties) at a price set at the time of the contract. Forward
contracts do not eliminate fluctuations in the underlying prices of securities
and expose the Fund to the risk that the counterparty is unable to perform.
Forward contracts are not exchange traded, and there can be no
assurance that a liquid market will exist at a time when the Fund seeks to close
out a forward contract. Currently, only a limited market, if any, exists for
hedging transactions relating to currencies in certain emerging markets or to
securities of issuers domiciled or principally engaged in business in certain
emerging markets. This may limit the Fund's ability to hedge its investments in
those markets. These contracts involve a risk of loss if SCMI fails to predict
accurately changes in relative currency values.
From time to time, the Fund's currency hedging transactions may call
for the delivery of one foreign currency in exchange for another foreign
currency and may at times involve currencies in which its portfolio securities
are then denominated ("cross hedging"). Cross hedging transactions involve the
risk of imperfect correlation between changes in the values of the currencies to
which such transactions related and changes in the value of the currency or
other asset or liability which was the subject of the hedge.
OPTIONS AND FUTURES TRANSACTIONS. Call and put options on U.S. Treasury
notes, bonds and bills and on various foreign currencies are listed on several
U.S. and foreign securities exchanges and are written in over-the-counter
transactions ("OTC Options"). Listed options are issued or guaranteed by the
exchange on which they trade or by a clearing corporation such as the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the Fund
the right to buy from the OCC (in the U.S.) or other clearing corporation or
exchange, the underlying security or currency covered by the option at the
stated exercise price (the price per unit of the underlying security or
currency) by filing an exercise notice prior to the expiration date of the
option. The writer (seller) of the option would then have the obligation to
sell, to the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency at that exercise price prior to the expiration
date of the option, regardless of its then current market price. Ownership of a
listed put option would give the Fund the right to sell the underlying security
or currency to the OCC (in the U.S.) or other clearing corporation or exchange
at the stated exercise price. Upon notice of exercise of the put option, the
writer of the option would have the obligation to purchase the underlying
security or currency from the OCC (in the U.S.) or other clearing corporation or
exchange at the exercise price. The OCC or other clearing corporation or
exchange that issues listed options ensures that all transactions in such
options are properly executed.
OTC options are purchased from or sold (written) to dealers or
financial institutions that have entered into direct agreements with the Fund.
With OTC options, variables such as expiration date, exercise price and premium
are agreed between the Fund and the transacting dealer. If the transacting
dealer fails to make or take delivery of the securities or amount of foreign
currency underlying an option it has written, the Fund would lose the premium
paid for the option as well as any anticipated benefit of the transaction. The
Fund will engage in OTC option transactions only with member banks of the
Federal Reserve System or primary dealers in U.S. government securities or with
affiliates of such banks or dealers which have capital of at least $50 million
or whose obligations are guaranteed by an entity having capital of at least $50
million.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options
on foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities that are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be able to sell the foreign
currency for a fixed amount of U.S. dollars, thereby securing the dollar value
of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to
5
<PAGE>
secure a set U.S. dollar price for such securities and protect against a decline
in the value of the U.S. dollar against such foreign currency. The Fund may also
purchase call and put options to close out written option positions.
The Fund also may write covered call options on foreign currency to
protect against potential declines in its portfolio securities that are
denominated in foreign currencies. If the U.S. dollar value of the portfolio
securities falls as a result of a decline in the exchange rate between the
foreign currency in which it is denominated and the U.S. dollar, then a loss to
the Fund occasioned by such value decline would be ameliorated by receipt of the
premium on the option sold. At the same time, however, the Fund gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio securities
falls below the price of the premium received. The Fund also may write options
to close out long call option positions. A covered put option on a foreign
currency would be written by the Fund for the same reason it would purchase a
call option, namely, to hedge against an increase in the U.S. dollar value of a
foreign security that the Fund anticipates purchasing. In this case, the receipt
of the premium would offset, to the extent of the size of the premium, any
increased cost to the Fund resulting from an increase in the U.S. dollar value
of the foreign security. However, the Fund could not benefit from any decline in
the cost of the foreign security that is greater than the price of the premium
received. The Fund also may write options to close out long put option
positions.
Markets in foreign currency options are relatively new, and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the opinion of the SCMI, the market for
them has developed sufficiently to ensure that their risks are not greater than
the risks in connection with the underlying currency, there can be no assurance
that a liquid secondary market will exist for a particular option at any
specific time. In addition, options on foreign currencies are affected by all of
those factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar, with the result that the price
of the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a foreign
security, including foreign securities held in a "hedged" investment portfolio.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and, thus, may not reflect relatively smaller transactions
(I.E., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
COVERED CALL WRITING. The Fund may write covered call options.
Generally, a call option is "covered" if the Fund owns or has the right to
acquire without additional cash consideration (or for additional cash
consideration held for the Fund by its custodian in a segregated account) the
underlying security (currency) subject to the option. In the case of call
options on U.S. Treasury Bills, however, the Fund might own U.S. Treasury Bills
of a different series from those underlying the call option but with a principal
amount and value corresponding to the exercise price and a maturity date no
later than that of the security (currency) deliverable under the call option. A
call option is also covered if the Fund holds a call on the same security as the
underlying security (currency) of the written option, where the exercise price
of the call used for coverage is equal to or less than the exercise price of
6
<PAGE>
the call or greater than the exercise price of the call written if the
mark-to-market difference is maintained by the Fund in cash, U.S. government or
other high-grade debt obligations, or other high-quality liquid securities, held
by the Fund in a segregated account maintained with its custodian.
The Fund receives a premium from the purchaser in return for a call it
has written. Receipt of such premiums may enable the Fund to earn a higher level
of current income than it would earn from only holding the underlying securities
(currencies). Moreover, the premium received offsets a portion of the potential
loss incurred by the Fund if the securities (currencies) underlying the option
are ultimately sold (exchanged) by the Fund at a loss. Furthermore, a premium
received on a call written on a foreign currency ameliorates any potential loss
of value on the portfolio security due to a decline in the value of the
currency. However, during the option period, the covered call writer has, in
return for the premium, given up the opportunity for capital appreciation above
the exercise price should the market price of the underlying security (or the
exchange rate of the currency in which it is denominated) increase but has
retained the risk of loss should the price of the underlying security (or the
exchange rate of the currency in which it is denominated) decline. The premium
received fluctuates with varying economic market conditions. If the market value
of the portfolio securities (or the currencies in which they are denominated)
upon which call options have been written increases, the Fund may receive a
lower total return from the portion of its portfolio upon which calls have been
written than it would have received had such calls not been written.
With respect to listed options and certain OTC options, during the
option period the Fund may be required, at any time, to deliver the underlying
security (currency) against payment of the exercise price on any calls it has
written (exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation terminates upon the expiration of the option
period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund is unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a
profit on an outstanding call option, to prevent an underlying security
(currency) from being called, to permit the sale of an underlying security (or
the exchange of the underlying currency) or to enable the Fund to write another
call option on the underlying security (currency) with either a different
exercise price or expiration date or both. The Fund may realize a net gain or
loss from a closing purchase transaction depending upon whether the amount of
the premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Fund realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received on the option less the commission paid.
Options written by the Fund normally have expiration dates of up to
eighteen months from the date written. The exercised price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written.
COVERED PUT WRITING. As a writer of a covered put option, the Fund
would incur an obligation to buy the security underlying the option from the
purchaser of the put, at the option's exercise price at any time during the
option period, at the purchaser's election (certain listed and OTC put options
written by the
7
<PAGE>
Fund will be exercisable by the purchaser only on a specific date). A put is
"covered" if at all times the Fund maintains with its custodian (in a segregated
account) cash, U.S. government or other high-grade obligations, or other
high-quality liquid securities, in an amount equal to at least the exercise
price of the option. Similarly, a short put position could be covered by the
Fund by its purchase of a put option on the same security (currency) as the
underlying security of the written option, where the exercise price of the
purchased option is equal to or more than the exercise price of the put written
or less than the exercise price of the put written if the marked to market
difference is maintained by the Fund in cash, U.S. government or other
high-grade debt obligations, or other high-quality liquid securities, that the
Fund holds in a segregated account maintained at its custodian. In writing puts,
the Fund assumes the risk of loss should the market value of the underlying
security (currency) decline below the exercise price of the option (any loss
being decreased by the receipt of the premium on the option written). In the
case of listed options, during the option period the Fund may be required, at
any time, to make payment of the exercise price against delivery of the
underlying security (currency). The operation of and limitations on covered put
options in other respects are substantially identical to those of call options.
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when SCMI wishes to
purchase the security (or a security denominated in the currency underlying the
option) underlying the option at a price lower than its current market price (in
which case it will write the covered put at an exercise price reflecting the
lower purchase price sought); and (3) to close out a long put option position.
The potential gain on a covered put option is limited to the premium received on
the option (less the commissions paid on the transaction) while the potential
loss equals the differences between the exercise price of the option and the
current market price of the underlying securities (currencies) when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC
call and put options. The Fund may purchase a call option in order to close out
a covered call position, see "Covered Call Writing", to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution that purchased
the call written by the Fund.
The Fund may purchase put options on securities (currencies) that it
holds in its portfolio to protect itself against a decline in the value of the
security and to close out written put option positions. If the value of the
underlying security (currency) were to fall below the exercise price of the put
purchased in an amount greater then the premium paid for the option, the Fund
would incur no additional loss. In addition, the Fund may sell a put option it
has previously purchased prior to the sale of the securities (currencies)
underlying such option. Such a sale would result in a net gain or loss depending
upon whether the amount received on the sale is more or less than the premium
and other transaction costs paid on the put option that is sold. Any such gain
or loss could be offset in whole or in part by a change in the market value of
the underlying security (currency). If a put option purchased by the Fund
expired without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered
call writer has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price if the market
price of the underlying security (or the value of its denominated currency)
increases, but the writer has retained the risk of loss if the price of the
underlying security (or the value of its denominated currency) declines. The
writer has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing
8
<PAGE>
purchase transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. If a covered
call option writer is unable to effect a closing purchase transaction or to
purchase an offsetting OTC option, it cannot sell the underlying security until
the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell an underlying security at a time when it
might otherwise be advantageous to do so. A covered put option writer who is
unable to effect a closing purchase transaction or to purchase an offsetting OTC
option would continue to bear the risk of decline in the market price of the
underlying security until the option expires or is exercised. In addition, a
covered put writer would be unable to utilize the amount held in cash, U.S.
government or other high-grade short-term obligations, or other high-quality
liquid securities, as security for the put option for other investment purposes
until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option
is dependent upon the existence of a liquid secondary market on option
exchanges. There is no assurance that such a market will exist, particularly in
the case of OTC options, since such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
However, the Fund may be able to purchase an offsetting option that does not
close out its position as a writer but constitutes an asset of equal value to
the obligation under the option written. If the Fund is not able to either enter
into a closing purchase transaction or purchase an offsetting position, it will
be required to maintain the securities subject to the call, or the collateral
underlying the put, even though it might not be advantageous to do so, until a
closing transaction can be entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market
on an exchange are: (1) insufficient trading interest in certain options; (2)
restrictions on transactions imposed by an exchange; (3) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (4) interruption of the normal
operations on an exchange; (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume; or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist.
In the event of the bankruptcy of a broker through which the Fund
engages in transactions in options, the Fund could experience delays and/or
losses in liquidating open positions purchased or sold through the broker and/or
incur a loss of all or part of its margin deposits with the broker. Similarly,
in the event of the bankruptcy of the writer of an OTC option purchased by the
Fund, the Fund could experience a loss of all or part of the value of the
option. Transactions will be entered into by the Fund only with brokers or
financial institutions deemed creditworthy by SCMI.
Exchanges have established limitations governing the maximum number of
options on the same underlying security or futures contract (whether or not
covered) that may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more accounts or through
one or more brokers). An exchange may order the liquidation of positions found
to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Fund may write.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. If the option markets close before
the markets for the underlying securities, significant price and rate movements
can take place in the underlying markets that cannot be reflected in the option
markets.
The extent to which the Fund may enter into transactions involving
options may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the
9
<PAGE>
Portfolio's intention to operate in such a manner as to permit a fund invested
in the Portfolio to qualify as such, see "Taxation".
FUTURES CONTRACTS. The Fund may purchase and sell interest-rate,
currency, and index futures contracts ("futures contracts") that are traded on
U.S. and foreign commodity exchanges, on such underlying securities as U.S.
Treasury bonds, notes and bills, and/or any foreign government fixed-income
security ("interest-rate futures contracts"), on various currencies ("currency
futures contracts"), and on such indices of U.S. and foreign securities as may
exist or come into being ("index futures contracts").
The Fund may purchase or sell interest-rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If SCMI anticipates that interest rates may rise and, concomitantly, that the
price of certain of its portfolio securities fall, the Fund may sell an
interest-rate futures contract. If declining interest rates are anticipated, the
Fund may purchase an interest-rate futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by the Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts.
The Fund may purchase or sell currency futures contracts on currencies
in which its portfolio securities (or anticipated portfolio securities) are
denominated for the purposes of hedging against anticipated changes in currency
exchange rates. The Fund may enter into currency futures contracts for the same
reasons as set forth above for entering into forward foreign currency exchange
contracts; namely, to secure the value of a security purchased or sold in a
given currency vis-a-vis a different currency or to hedge against an adverse
currency exchange rate movement of a portfolio security's (or anticipated
portfolio security's) denominated currency vis-a-vis a different currency.
The Fund may purchase or sell index futures contracts for the purpose
of hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices. If SCMI anticipates that the prices of
securities the Fund holds may fall, the Fund may sell an index futures contract.
Conversely, if SCMI wishes to hedge the portfolio against anticipated price
rises in those securities that the Fund intends to purchase, the Fund may
purchase an index futures contract.
In addition to the above, interest-rate, currency and index futures
contracts will be bought or sold in order to close out short or long positions
maintained by the Fund in corresponding futures contracts.
Although most interest-rate futures contracts call for actual delivery
or acceptance of securities, the contracts usually are closed out before the
settlement date without making or taking delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Fund will be able to enter into a closing
transaction.
INTEREST-RATE FUTURES CONTRACTS. When the Fund enters into an
interest-rate futures contract, it is initially required to deposit with its
custodian (in a segregated account in the name of the broker performing the
transaction) an "initial margin" of cash, U.S. government or other high-grade
short-term obligations, or other high-quality liquid securities, equal to
approximately 2% of the contract amount. Initial margin requirements are
established by the exchanges on which futures contracts trade and may change. In
addition, brokers may establish margin deposit requirements in excess of those
required by the exchanges.
10
<PAGE>
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
money by a brokers' client but is, rather, a good faith deposit on the futures
contract that will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily, and the
Fund may be required to make subsequent deposits with its futures contract
clearing broker of cash or U.S. government securities (called "variation
margin") that are reflective of price fluctuations in the futures contract.
CURRENCY FUTURES CONTRACTS. Generally, foreign currency futures
contracts provide for the delivery of a specified amount of a given currency, on
the exercise date, for a set exercise price denominated in U.S. dollars or other
currency. Foreign currency futures contracts would be entered into for the same
reason and under the same circumstances as forward foreign currency exchange
contracts. SCMI assesses such factors as cost spreads, liquidity and transaction
costs in determining whether to use futures contracts or forward contracts in
its foreign currency transactions and hedging strategy.
Purchasers and sellers of foreign currency futures contracts are
subject to the same risks that apply generally to the buying and selling of
futures contracts. In addition, there are risks associated with foreign currency
futures contracts and their use as a hedging device similar to those associated
with options on foreign currencies described above. Further, settlement of a
foreign currency futures contract must occur within the country issuing the
underlying currency. Thus, the Fund must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign restrictions
or regulations regarding the maintenance of foreign banking arrangements by U.S.
residents and may be required to pay any fees, taxes or charges associated with
such delivery that are assessed in the issuing country.
INDEX FUTURES CONTRACTS. The Fund may invest in index futures
contracts. An index futures contract sale creates an obligation by the Fund, as
seller, to deliver cash at a specified future time. An index futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of
cash at a specified future time. Futures contracts on indices do not require the
physical delivery of securities but provide for a final cash settlement on the
expiration date that reflects accumulated profits and losses credited or debited
to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest-rate futures contracts. In addition, due to current
industry practice, daily variations in gain and loss on open contracts are
required to be reflected in cash in the form of variation margin payments. The
Fund may be required to make additional margin payments during the term of the
contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is then made, additional cash may be required to be paid by
or released to the Fund, and it realizes a loss or gain.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and
put options on futures contracts traded on an exchange and may enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the position in the futures contract by
the writer of the option to the holder of the option is accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract at the
time of exercise exceeds, in case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
11
<PAGE>
The Fund may purchase and write options on futures contracts for
purposes identical to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of a
futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, SCMI
wished to protect against an increase in interest rates and the resulting
negative impact on the value of a portion of its fixed-income portfolio, the
Fund might write a call option on an interest-rate futures contract, the
underlying security of which correlates with the portion of the portfolio that
SCMI seeks to hedge. Any premiums received in the writing of options on futures
contracts may provide a further hedge against losses resulting from price
declines in portions of the Fund's investment portfolio.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. To reduce this risk,
the Fund will not purchase or write options on foreign currency futures
contracts unless and until, in SCMI's opinion, the market for such options has
developed sufficiently that the risks in connection with them are not greater
than the risks in connection with transactions in the underlying foreign
currency futures contracts.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The
Fund may not enter into futures contracts or purchase related options thereon
if, immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the value
of the Fund's total assets, after taking into account unrealized gain and
unrealized loss on such contracts it has entered into, provided, however, that
in the case of an option that is in-the-money (the exercise price of the call
(put) option is less (more) than the market price of the underlying security) at
the time of purchase, the in-the-money amount may be excluded in calculating the
5%. However, there is no overall limitation on the percentage of the Fund's
assets that may be subject to a hedge position. In addition, in accordance with
the regulations of the Commodity Futures Trading Commission under which each
Portfolio is excluded from registration as a commodity pool operator, the Fund
may only enter into futures contracts and options on futures contracts
transactions for purposes of hedging a part or all of its portfolio. Except as
described above, there are no other limitations on the use of futures and
options thereon by the Fund.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an option
on a futures contract are included in initial margin deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
Fund may sell a futures contract to protect against the decline in the value of
securities (or the currency in which they are denominated) it holds. However, it
is possible that the futures market may advance and the value of the Fund's
securities (or the currency in which they are denominated) may decline. If this
occurs, the Fund will lose money on the futures contract and also experience a
decline in value of its portfolio securities. While this might occur for only a
very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase
in value of securities it intends to buy (or the currency in which they are
denominated) and the value of such securities (currencies) decreases, then the
Fund may determine not to invest in the securities as planned and will realize a
loss on the futures contract that is not offset by a reduction in the price of
the securities.
If the Fund has sold a call option on a futures contract, it will cover
this position by holding (in a segregated account maintained by its custodian)
cash, U.S. government securities or other high-grade debt obligations, or other
high-quality liquid securities, equal in value (when added to any initial or
variation margin on deposit) to the market value of the securities (currencies)
underlying the futures contract or the exercise price of the option. Such a
position may also be covered by owning the securities (currencies)
12
<PAGE>
underlying the futures contract or by holding a call option permitting the Fund
to purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if the Fund holds a long position in a futures contract,
it will hold cash, U.S. government or other high-grade debt obligations, or
other high-quality liquid securities, equal to the purchase price of the
contract (less the amount of initial or variation margin on deposit) in a
segregated account maintained by the Fund's custodian. Alternatively, the Fund
could cover its long position by purchasing a put option on the same futures
contract with an exercise price as high or higher than the price of the contract
held by the Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin on open
futures contract positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to take or make delivery of the instruments underlying
interest-rate futures contracts it holds at a time when it is disadvantageous to
do so. The inability to close out options and futures contract positions could
also have an adverse impact on the Fund's ability to effectively hedge its
portfolio.
Futures contracts and options thereon that are purchased or sold on
foreign commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges, and brokerage
commissions, clearing costs and other transaction costs may be higher. Greater
margin requirements may limit the Fund's ability to enter into certain commodity
transactions on foreign exchanges. Moreover, differences in clearance and
delivery requirements on foreign exchanges may cause delays in the settlement of
the Fund's foreign exchange transactions.
In the event of the bankruptcy of a broker through which the Fund
engages in transactions in futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by SCMI.
While the futures contracts and options transactions in which the Fund
engages for the purpose of hedging its portfolio securities are not speculative
in nature, there are risks inherent in the use of such instruments. One such
risk that may arise in employing futures contracts to protect against the price
volatility of portfolio securities (and the currencies in which they are
denominated) is that the prices of securities and indices subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities (and the
currencies in which they are denominated). Another such risk is that prices of
interest-rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Fund seeks a hedge. A correlation
may also be distorted by the fact that the futures market is dominated by
short-term traders seeking to profit from the difference between a contract or
security price objective and their cost of borrowed funds. Such distortions are
generally minor and are expected to diminish as the contract approaches
maturity.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities (currencies) that are the subject of the hedge. If participants in
the futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the debt securities or currency markets and futures
markets could result. Price distortions could also result
13
<PAGE>
if investors in futures contracts choose to make or take delivery of underlying
securities rather than engage in closing transactions due to the resultant
reduction in the liquidity of the futures market. In addition, because the
deposit requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market can be anticipated with the resulting speculation causing
temporary price distortions. Due to the possibility of price distortions in the
futures contracts market and because of the imperfect correlation between
movements in the prices of securities and movements in the prices of futures
contracts, a correct forecast of interest-rate trends may still not result in a
successful hedging transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts and related options in which the Fund may invest. In the event
a liquid market does not exist, it may not be possible to close out a futures
position, and, in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel the Fund to close, or prevent it from closing, out a
contract, which may result in reduced gain or increased loss to the Fund. The
absence of a liquid market in futures contracts might cause the Fund to make or
take delivery of the underlying securities (currencies) at a time when it may be
disadvantageous to do so.
The extent to which the Fund may enter into transactions involving
futures contracts and options thereon may be limited by the Internal Revenue
Code's requirements for qualification as a regulated investment company and the
Fund's intention to operate in such a manner as to permit a fund invested in the
Fund to qualify as such, see "Taxation".
INTEREST-RATE TRANSACTIONS. In order to attempt to protect the value of
its portfolio from interest-rate fluctuations and to adjust the interest-rate
sensitivity of its portfolio, each Portfolio may enter into interest-rate swaps
and other interest-rate transactions, such as interest-rate caps, floors, and
collars. Interest-rate swaps involve the exchange by the Fund with another party
of different types of interest-rate streams (E.G., an exchange of floating-rate
payments for fixed-rate payments with respect to a notional amount of
principal). The purchase of an interest-rate cap entitles the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling the floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined rate of interest rates or values. The Portfolios intend to use
these interest-rate transactions as a hedge and not as a speculative investment.
The Fund's ability to engage in certain interest rate transactions is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If SCMI
were incorrect in its forecasts of market values, interest rates, or other
applicable factors, the Fund's investment performance would be less favorable
than it would have been if this investment technique were not used.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS.
The Fund may purchase securities on a when-issued or delayed delivery basis or
may purchase or sell securities on a forward commitment basis. When such
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment may take place a month or more after the date of the
commitment. There is no overall limit on the percentage of the Fund's assets
that may be committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of the Fund's
net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on
a "when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an
14
<PAGE>
investment opportunity. There is no overall limit to the percentage of the
Fund's assets that may be committed to the purchase of securities on a "when, as
and if issued" basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value.
TEMPORARY INVESTMENTS. As described in the Prospectus, the Fund may
hold and/or invest its assets without limitation in cash and/or Temporary
Investments (as defined below) for cash management purposes, pending initial
investment in accordance with the Fund's investment objective and policies. In
addition, the Fund may hold these investments for temporary defensive purposes.
The Fund may assume a temporary defensive posture when, owing to political,
market or other factors broadly affecting markets in one or more Asian
Countries, SCMI determines either that opportunities for capital appreciation in
those markets may be significantly limited or that significant diminution in
value of the securities traded in those markets may occur. The Fund may invest
without limitation in (or enter into repurchase agreements maturing in seven
days or less with banks and broker-dealers with respect to) short-term debt
securities, including commercial paper, U.S. Treasury bills, other short-term
U.S. government securities, certificates of deposit, and bankers' acceptances of
U.S. or foreign banks. The Fund also may hold cash and time deposits denominated
in any major foreign currency in foreign banks. To the extent that the Fund
invests in Temporary Investments, it may not achieve its investment objective.
Temporary Investments are high quality debt securities (rated "AA" or
above by Standard & Poor's Corporation ("S&P") or "Aa" or above by Moody's
Investors Services, Inc. ("Moody's") or with an equivalent rating by other
nationally recognized securities rating organizations) denominated in U.S.
dollars or in another freely convertible currency including: (1) short-term
(less than 12 months to maturity) and medium-term (not more than five years to
maturity) obligations issued or guaranteed by: (a) the U.S. Government, its
agencies instrumentalities, or government-sponsored enterprises; or (b)
international organizations designated or supported by multiple foreign
governmental entities to promote economic reconstruction or development
("supranational entities"); (2) U.S. finance company obligations, corporate
commercial paper and other short-term commercial obligations; (3) obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks; and (4) repurchase agreements with respect to securities
in which the Fund may invest. The banks whose obligations may be purchased by
the Fund and the banks and broker-dealers with which the Fund may enter into
repurchase agreements include any member bank of the Federal Reserve System and
any U.S. broker-dealer or any foreign bank that has been determined by the
investment adviser to be creditworthy.
SHORT-TERM DEBT SECURITIES. For cash management, pending investment or
other temporary purposes, the Fund may invest in commercial paper -- short-term
unsecured promissory notes issued in bearer form by bank holding companies,
corporations and finance companies. The commercial paper purchased by the Fund
for temporary defensive purposes consists of direct obligations of domestic
issuers that at the time of investment are rated "P-1" by Moody's Investors
Service ("Moody's") or "A-1" by Standard & Poor's ("S&P"), or securities that,
if not rated, are issued by companies having an outstanding debt issue currently
rated "Aaa" or "Aa" by Moody's or "AAA" or "AA" by S&P. The rating "P-1" is the
highest commercial paper rating assigned by Moody's, and the rating "A-1" is the
highest commercial paper rating assigned by S&P. The Fund also may invest in
variable rate master demand notes, which are obligations that permit the
investment of fluctuating amounts at varying market rates of interest pursuant
to arrangements between the issuer and a commercial bank acting as agent for the
payer of such notes. Generally both parties have the right to vary the amount of
the outstanding indebtedness on the notes.
REPURCHASE AGREEMENTS. The Fund may invest in securities subject to
repurchase agreements that mature or may be terminated by notice in seven days
or less with banks or broker-dealers. In a typical repurchase agreement, the
seller of a security commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed-upon time and price. The repurchase
price exceeds the sale price, reflecting an agreed-upon interest rate effective
for the period the buyer owns the security subject to repurchase. The
agreed-upon rate is unrelated to the interest rate on that security. SCMI
monitors the value of the underlying security at the time the transaction is
entered into and at all times during the term of
15
<PAGE>
the repurchase agreement to insure that the value of the security always equals
or exceeds the repurchase price. If a seller defaults under a repurchase
agreement, the Fund may have difficulty exercising its rights to the underlying
securities and may incur costs and experience time delays in connection with the
disposition of such securities. To evaluate potential risks, SCMI reviews the
credit-worthiness of banks and dealers with which the Fund enters into
repurchase agreements.
RESTRICTED SECURITIES. "Liquidity" under "Investment Policies" in the
Prospectus sets forth the circumstances in which the Fund may invest in
"restricted securities". In connection with the Fund's original purchase of
restricted securities, SCMI may negotiate rights with the issuer to have such
securities registered for sale at a later time. Further, the registration
expenses of illiquid restricted securities may also be negotiated by the Fund
with the issuer at the time such securities are purchased by the Portfolio. When
registration is required, however, a considerable period may elapse between the
decision to sell the securities and the time the Fund would be permitted to sell
such securities. A similar delay might be experienced in attempting to sell such
securities pursuant to an exemption from registration. Thus, the Fund may not be
able to obtain as favorable a price as that prevailing at the time of the
decision to sell.
If SCMI determines that a "restricted security" is liquid pursuant to
guidelines adopted by Board of Trustees of Schroder Capital Funds (the "Schroder
Core Board"), the security is not deemed illiquid. These guidelines take into
account trading activity for the securities and the availability of reliable
pricing information, among other factors. If there is a lack of trading interest
in a particular restricted security, that security may become illiquid, which
could affect the Fund's liquidity.
RULE 144A SECURITIES. The Fund may purchase certain restricted
securities ("Rule 144A securities") for which there is a secondary market of
qualified institutional buyers, as contemplated by rule 144A under the
Securities Act of 1933 (the "Securities Act"). Rule 144A provides an exemption
from the registration requirements of the Securities Act for resale of certain
restricted securities to qualified institutional buyers. One effect of Rule 144A
is that certain restricted securities may now be deemed to be liquid, though
there is no assurance that a liquid market for any particular Rule 144A security
will develop or be maintained. SCMI will make liquidity determinations subject
to guidelines approved by the Schroder Core Board. If any Rule 144A security
previously determined to be liquid is later determined to be illiquid, such
security will be subject to the Fund's 15% limitation on illiquid securities.
U.S. GOVERNMENT SECURITIES. The Fund may invest in securities issued or
guaranteed by the U.S. Government (or its agencies, instrumentalities or
government-sponsored enterprises). Agencies, instrumentalities and
government-sponsored enterprises that have been established or sponsored by the
U.S. Government and issue or guarantee debt securities include the Bank for
Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal
Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage
Association, the Government National Mortgage Association and the Student Loan
Marketing Association. Except for obligations issued by the U.S. Treasury and
the Government National Mortgage Association, none of the obligations of the
other agencies, instrumentalities or government-sponsored enterprises referred
to above are backed by the full faith and credit of the U.S. Government. There
can be no assurance that the U.S. Government will provide financial support to
these obligations where it is not obligated to do so.
BANK OBLIGATIONS. The Fund may invest in obligations of U.S. and
foreign banks (including certificates of deposit and bankers' acceptances) whose
total assets at the time of purchase exceed $1 billion. The Fund also may hold
cash and time deposits denominated in any major currency in foreign banks. A
certificate of deposit is an interest-bearing negotiable certificate issued by a
bank against funds deposited in the bank. A bankers' acceptance is a short-term
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction. Although the borrower is liable for
payment of the draft, the bank unconditionally guarantees to pay the draft at
its face value on the maturity date. A time deposit is a non-negotiable receipt
issued by a bank in exchange for the deposit of
16
<PAGE>
funds. Similar to a certificate of deposit, a time deposit earns a specified
rate of interest over a definite time period; however, it cannot be traded in
the secondary markets.
LOANS OF FUND SECURITIES. The Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral must:
(1) on each business day, at least equal the market value of the loaned
securities; and (2) consist of cash, bank letters of credit, U.S. government
securities, other cash equivalents or liquid securities in which the Fund is
permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. When lending portfolio securities, the Fund receives from the borrower an
amount equal to the interest paid or the dividends declared on the loaned
securities during the term of the loan plus the interest on the collateral
securities (less any finders' or administrative fees the Fund pays in arranging
the loan). The Fund may share the interest it receives on the collateral
securities with the borrower if it realizes at least a minimum amount of
interest required by the lending guidelines established by the Schroder Core
Board. The Fund will not lend its portfolio securities to any officer, trustee,
employee or affiliate of the Fund or SCMI. The terms of the Fund's loans must
meet certain tests under the Internal Revenue Code and permit the Fund to
reacquire loaned securities on five business days' notice or in time to vote on
any important matter.
The market value of portfolio securities purchased with cash collateral
may decline. Loans of securities by the Fund are subject to termination at the
Fund's or the borrower's option. The Fund may pay reasonable negotiated fees in
connection with loaned securities, so long as such fees are set forth in a
written contract and approved by the Schroder Core Board.
HIGH YIELD/HIGH RISK SECURITIES. High yield/high risk securities'
market values are affected more by individual issuer developments and are more
sensitive to adverse economic changes than are higher-rated securities. Issuers
of high yield/high risk securities may be highly leveraged and may not have more
traditional methods of financing available to them. During economic downturns or
substantial periods of rising interest rates, issuers of high yield/high risk
securities, especially highly leveraged ones, may be less able to service their
principal and interest payment obligations, meet their projected business goals,
or obtain additional financing. The risk of loss due to default by the issuer is
significantly greater for holders of high yield/high risk securities because
such securities may be unsecured and may be subordinated to other creditors of
the issuer. In addition, the Fund may incur additional expenses if it is
required to seek recovery upon a default by the issuer of such an obligation or
participate in the restructuring of such obligation.
Periods of economic uncertainty and change are likely to cause
increased volatility in the market prices of high yield/high risk securities
and, correspondingly, in the Fund's net asset value if it invests in such
securities. Market prices of such securities structured as zero coupon or
pay-in-kind securities are more affected by interest-rate changes and, thus,
tend to be more volatile than securities that pay interest periodically and in
cash.
High yield/high risk securities may have call or redemption features
that would permit an issuer to repurchase the securities from the Fund. If a
call were exercised by the issuer during a period of declining interest rates,
the Fund would likely have to replace called securities with lower yielding
securities, thus decreasing the Fund's net investment income and dividends to
shareholders.
While a secondary trading market for high yield/high risk securities
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. In periods of reduced secondary market liquidity,
prices of high yield/high risk securities may become volatile and experience
sudden and substantial price declines. The Fund may, therefore, have difficulty
disposing of particular issues to meet its liquidity needs or in response to a
specific economic event (such as a deterioration in the creditworthiness of the
issuer). Reduced secondary market liquidity for certain high yield/high risk
securities also may make it more difficult for the Fund to obtain accurate
market quotations (for purposes
17
<PAGE>
of valuing the Fund's investment portfolio): market quotations generally are
available on many high yield/high risk securities only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales. Under such conditions, high yield/high risk securities may
have to be valued at fair value as determined by the Schroder Core Board or SCMI
under Board-approved guidelines.
Adverse publicity and investor perceptions (which may not be based on
fundamental analysis) may decrease the value and liquidity of high yield/high
risk securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield/high risk securities are likely to
adversely affect the Fund's, and thus the Fund's, net asset value.
SOVEREIGN DEBT. Investment in sovereign debt carries high risk. Certain
foreign countries are large debtors to commercial banks and foreign governments.
At times, certain foreign countries have declared moratoria on the payment of
principal and/or interest on outstanding debt. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest
when it is due may be affected by many factors, such as its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange, the relative size of the debt service burden to the economy as a
whole, and political restraints. The Fund, as a holder of sovereign debt, may be
asked to participate in the rescheduling of such debt and to extend further
loans to governmental entities. There is no bankruptcy proceeding by which
defaulted sovereign debt may be collected.
The sovereign debt instruments in which the Fund may invest involve
great risk, are deemed to be the equivalent in terms of quality to high
yield/high risk securities discussed above and are subject to many of the same
risks as such securities. Similarly, the Fund may have difficulty disposing of
certain sovereign debt obligations because there may be a thin trading market
for such securities. The Fund will not invest in sovereign debt that is in
default.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies of the
Fund and cannot be changed without the vote of a "majority" of the Fund's
outstanding shares. Except as noted, these restrictions also are fundamental
investment restrictions of each Portfolio and cannot be changed without the vote
of a "majority" of its outstanding interests. 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 additional
restrictions, the Fund will not:
FUNDAMENTAL RESTRICTIONS
1. INDUSTRY CONCENTRATION
purchase any securities which would cause 25% or more of the
value of its total assets, taken at market value at the time
of such purchase, to be invested in securities of one or more
issuers conducting their principal business activities in the
same industry, provided that there is no limitation with
respect to investment in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. For
purposes of this restriction, a foreign government is deemed
to be an "industry."
2. BORROWING AND SENIOR SECURITIES
borrow money except that the Fund may borrow from banks up to
33 1/3% of its total assets (including the amount borrowed )
for temporary or emergency purposes or to meet redemption
18
<PAGE>
requests. The Fund may not issue any class of securities which
is senior to the Fund's shares of beneficial interest;
provided, however, that none of the following shall be deemed
to create senior securities: (1) any borrowing permitted by
this restriction or any pledge or encumbrance to secure such
borrowing; (2) any collateral arrangements with respect to
options, futures contracts, options on future contracts or
other financial instruments; or (3) any purchase, sale or
other permitted transaction in options, forward contracts,
futures contracts, options on future contracts or other
financial instruments. (The following are not treated as
borrowings to the extent they are fully collateralized: (1)
the delayed delivery of purchased securities (such as the
purchase of when-issued securities); (2) reverse repurchase
agreements; (3) dollar-roll transactions; and (4) the lending
of securities.)
3. REAL ESTATE
purchase or sell real estate, real estate mortgage loans or
real estate limited partnership interests (other than
securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or
interests therein )
4. LENDING
make loans to other parties, except that the Fund may: (a)
purchase and hold debt instruments (including bonds,
debentures or other obligations and certificates of deposit,
bankers' acceptances and fixed time deposits) in accordance
with its investment objective and policies, (b) enter into
repurchase agreements with respect to portfolio securities,
and (c) make loans of portfolio securities.
5. COMMODITIES
purchase or sell commodities or commodity contracts,
including futures contracts and options thereon, except that
the Fund may purchase or sell financial futures conracts and
related options, and futures contracts, forward contracts,
and options with respect to foreign currencies, and may
enter into swaps or other financial transactions.
6. UNDERWRITING
underwrite (as that term is defined in the Securities Act of
1933, as amended) securities issued by other persons except
to the extent that, in connection with the disposition of
its portfolio securities, it may be deemed to be an
underwriter.
7. EXERCISING CONTROL OF ISSUERS
invest for the purpose of exercising control over the
management of any company.
8. SHORT SALES AND PURCHASING ON MARGIN
make short sales of securities or maintain a short position;
or
purchase securities on margin (except for delayed delivery
or when-issued transactions or such short-term credits as
are necessary for the clearance of transactions and for
hedging purposes and margin deposits in connection with
transactions in futures contracts, options on futures
contracts, options on securities and securities indices, and
currency transactions) and other financial transactions.
19
<PAGE>
Notwithstanding any other investment policy or restriction to the
contrary, the Fund may seek to achieve its investment objective by investing
some or all of its assets in the securities of one or more investment
companies to the extent permitted by the 1940 Act or an applicable exemptive
order under such Act; provided that, except to the extent the Fund invests in
other investment companies pursuant to Section 12(d)(1)(A) of the 1940 Act,
the Fund treats the assets of the investment companies in which it invests as
its own. (The foregoing investment policy is fundamental.)
NONFUNDAMENTAL LIMITATIONS
The Fund and the Portfolios have each adopted the following
nonfundamental investment limitations. Non-fundamental limitations may be
changed by the Trustees without shareholder approval.
1. NON -DIVERSIFICATION
Under these additional restrictions, the Fund may not invest
more than 25% of its total assets in obligations of any one
issuer other than U.S. Government securities and, with respect
to 50% of its total assets, the Fund may not invest more than
5% of its total assets in the securities of any one issuer
(except U.S. Government securities). Thus, the Fund may invest
up to 25% of its total assets in the securities of each of any
two issuers.
2. LIQUIDITY
The Fund may not invest more than 15% of its net assets in:
(1) securities that cannot be disposed of within seven days at
their then-current value; (2) repurchase agreements not
entitling the holder to payment of principal within seven
days; and (3) securities subject to restrictions on the sale
of the securities to the public without registration under the
1933 Act ("restricted securities") that are not readily
marketable. The Fund may treat certain restricted securities
as liquid pursuant to guidelines adopted by the Board.
3. LENDING
The Fund may not lend a security if, as a result, the amount
of loaned securities would exceed an amount equal to one third
of the Fund's total assets.
MANAGEMENT
OFFICERS AND TRUSTEES. The following information relates to the
principal occupations during the past five years of each Trustee and executive
officer of the Trust and shows the nature of any affiliation with SCMI. Except
as noted, each of these individuals currently serves in the same capacity for
Schroder Capital Funds, Schroder Capital Funds II, Schroder Capital Funds
(Delaware) and Schroder Series Trust II, other registered investment companies
in the Schroder family of funds.
I. PETER SEDGWICK*,62, 33 Gutter Lane, London, England - Chairman and Trustee of
the Trust; Group Managing Director, Schroders plc; Chairman and Director, SCMI
and Schroder Capital Management International Ltd.; Chief Executive and
Director, Schroder Investment Management Ltd.; Director, various offshore funds
for which a member of the Schroder group of companies serves as manager.
DAVID M. SALISBURY*, 46, 33 Gutter Lane, London, England - Vice Chairman and
Trustee of the Trust; Chairman, SCMI and Schroder Capital Management
International Ltd.; Director, Schroders plc.
20
<PAGE>
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.
WILLIAM L. MEANS, 59. c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Chief Investment Officer, Alaska Permanent Fund
Corporation, 1983-1994. Investment Officer, State of Alaska, Department of
Revenue, 1973-83.
LOUISE CROSET,* 42, 33 Gutter Lane, London, England - Trustee and President of
the Trust; First Vice President and Director of SCMI since 1993. Vice President,
Wellington Management, from 1987 to 1993.
MARK J. SMITH, 35, 33 Gutter Lane, London, England - Vice President of the
Trust; Senior Vice President and Director of SCMI since April 1990; Director and
Senior Vice President, Schroder Advisors.
HEATHER F. CRIGHTON, 31, 33 Gutter Lane, London, England - Vice President of the
Trust; Vice President of SCMI and Schroder Capital management International Ltd.
since 1994; prior thereto, Fund Manager with SCMI since 1993 and Fund Manager
with Mercantile and General Reinsurance Co., London, 1988-1992.
DONALD H.M. FARQUHARSON, 34, 33 Gutter Lane, London, England - Vice President of
the Trust; First Vice President and Assistant Director of SCMI since 1996; prior
thereto Vice President since 1995 and Fund Manager of SCMI since 1988.
FERGAL CASSIDY, 28, 787 Seventh Avenue, 34th Floor, New York, New York -
Treasurer and Chief Financial Officer of the Trust; Acting Controller and
Assistant Vice President of SCM and SCMI since September 1997; Assistant Vice
President of SCM and SCMI from April 1997 to September 1997; Associate, SCMI,
from August 1995 to March 1997; and prior thereto Senior Accountant of
Concurrency Mgt., Greenwich, Connecticut from November 1994 to August 1995, and
Senior Accountant, Schroder Properties, London, September 1990 to November 1993.
MARGARET H. DOUGLAS-HAMILTON, 55, 787 Seventh Avenue, 34th Floor, New York, New
York - Secretary of the Trust; Secretary of SCM since 1995; Senior Vice
President (since April 1997) and General Counsel of Schroders U.S. Holdings Inc.
since 1987.
CATHERINE A. MAZZA, 37, 787 Seventh Avenue, 34th Floor, New York, New York -
Vice President and Assistant Secretary of the Trust; President and Director of
Schroder Advisors since 1997 and 1998, respectively; First Vice President of
SCMI and SCM since 1996; prior thereto, held various marketing positions at
Alliance Capital, an investment adviser, since July 1985.
ALEXANDRA POE, 37, 787 Seventh Avenue, 34th Floor, New York, New York -
Assistant Secretary of the Trust; First 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 1994; prior
thereto counsel to 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 and Relationship
Manager-of Forum, the Trust's subadministrator; Counsel, Forum Financial
Services, Inc. since 1993; prior thereto, Special Counsel, U.S. Securities and
Exchange Commission, Division of Investment Management, Washington, D.C.
21
<PAGE>
CATHERINE S. WOOLEDGE, 55, Two Portland Square, Portland, Maine - 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.
* Interested Trustee of the Trust within the meaning of the 1940 Act.
Schroder Advisors is a wholly owned subsidiary of SCMI, which is a wholly
owned subsidiary of Schroders U.S. Holdings Inc., which in turn is an indirect,
wholly owned U.S. subsidiary of Schroders plc. Schroder Capital Management Inc.
("SCM") is also a wholly owned subsidiary of Schroders U.S. Holdings Inc..
Officers and Trustees who are interested persons of the Trust receive
no salary, fees or compensation directly from the Trust or Fund. The Trust's
independent Trustees of the Trust receive an annual fee of $7,500 and a fee of
$500 for each meeting of the Trust Board attended by them. The Fund has no
bonus, profit sharing, pension or retirement plans.
The following table provides the fees paid to each of the Trust's
independent Trustees by Schroder Asian Growth Fund, Inc. (the predecessor
closed-end fund) and the other funds in the Schroder family of funds for the
fiscal year ended October 31, 1997 (the most recent fiscal year of the
predecessor fund and many of the other funds in the Schroder family).
<TABLE>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation From
Aggregate Benefits Accrued Estimated Annual Trust And Fund
Compensation From As Part of Trust Benefits Upon Complex Paid To
Name of Trustee TrustSchroder Expenses Retirement Trustees
Asian Growth Fund,
Inc.
- -------------------------------- -------------------- -------------------- --------------------- -------------------
Mr. Guernsey $10,625 $0 $0 $21,875
Mr. Howell $10,625 $0 $0 $21,875
Mr. Means 10,625 $0 $0 $10,625
</TABLE>
As of March 1, 1998, the Fund had no outstanding shares.
INVESTMENT ADVISER
SCMI, 787 Seventh Avenue, New York, New York 10019, serves as
investment adviser to each Portfolio under an investment advisory agreement
between Schroder Core and SCMI (the "Core Advisory Agreement"). SCMI is a wholly
owned U.S. subsidiary of Schroders U.S. Holdings Inc., the wholly owned U.S.
holding company subsidiary of Schroders plc. Schroders plc is the holding
company parent of a large worldwide group of banks and financial service
companies (referred to as the "Schroder Group"), with associated companies and
branch and representative offices in eighteen countries. The Schroder Group
specializes in providing investment management services, with funds under
management currently in excess of $175 billion as of December 31, 1997.
Under the Core Advisory Agreement, SCMI is responsible for managing the
investment program for each Portfolio. In this regard, it is SCMI's
responsibility to make decisions relating to the Portfolios' investments and to
place purchase and sale orders regarding such investments with brokers or
dealers it
22
<PAGE>
selects. SCMI also furnishes Schroder Core and the Trust Board, which has
overall responsibility for the business and affairs of the Trust, with periodic
reports on the investment performance of the Portfolios and Fund.
The Core 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 Fund or by Schroder Core Board; and (2) by
a majority of the Trustees who are not parties to the Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Core Advisory
Agreement may be terminated without penalty by vote of the Trustees or the
shareholders of the Fund on 60 days' written notice to the investment adviser,
or by the investment adviser on 60 days' written notice to the Trust, and it
terminates automatically if assigned. The Core Advisory Agreement also provides
that, with respect to the Portfolios, 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 duties to the Portfolio, except for willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason of reckless
disregard of any obligations and duties under the Agreement
SCMI also serves as investment adviser to the Fund under an investment
advisory and asset allocation agreement with the Trust (the "Fund Advisory
Agreement"). Under the Fund Advisory Agreement, SCMI is entitled to receive an
investment advisory fee for asset allocation services of 0.20% of the Fund's
average daily net assets, on an annual basis, with respect to assets invested in
the Fund (or another registered investment company). The Fund Advisory
Agreement, however, provides that with respect to assets invested in a
Portfolio, SCMI is not entitled to receive an investment advisory fee from the
Fund for investment management services. The Fund's investment may be withdrawn
from a Portfolio at any time if the Trust Board determines that it is in the
best interests of the Fund and its shareholders to do so. In that event, under
the Fund Advisory Agreement, SCMI would be entitled to receive a monthly fee at
an annual rate of 0.90% of the Fund's average daily net assets, on assets
managed directly at the Fund level. The Fund Advisory Agreement between the
Trust and SCMI is the same in all material respects as the Portfolios' Core
Advisory Agreement (except as to the parties and the circumstances under which
fees will be paid).
ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an Administration
Agreement with Schroder Advisors, under which Schroder Advisors provides
management and administrative services necessary for the operation of the Fund,
including: (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
Fund, including coordination of the services performed by the Fund'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 providing administrative services Schroder Advisors is entitled to
receive from the Fund a fee, payable monthly, at the annual rate of 0.05% of the
Fund's average daily net assets. The Administration Agreement is terminable with
respect to the Fund without penalty, at any time, by the Trust Board, upon 60
days' written notice to Schroder Advisors or by Schroder Advisors upon 60 days'
written notice to the Trust.
The Trust has entered into a Subadministration Agreement with Forum.
Under its Agreement, Forum assists Schroder Advisors with certain of its
responsibilities under the Administration Agreement, including shareholder
reporting and regulatory compliance. For providing its services, Forum is
entitled to receive a monthly fee from the Fund at the annual rate of 0.05% of
the average daily net assets. The Subadministration Agreement is terminable with
respect to the Fund without penalty, at any time, by the Trust Board, upon 60
days' written notice to Forum or by Forum upon 60 days' written notice to the
Fund.
23
<PAGE>
Schroder Advisors and Forum provide similar services to the Portfolios
pursuant to administration and subadministration agreements between Schroder
Core and each of these entities, for which Schroder Advisors and Forum are each
compensated at the annual rate of 0.05% of the Fund's average daily net assets.
The administration and subadministration agreements are the same in all material
respects as the Fund's respective agreements (except as to the parties and the
fees payable thereunder).
The fees paid by the Fund and Portfolios to SCMI and Schroder Advisors
may equal up to 1.00% of the Fund's average daily net assets. Such fees as a
whole are higher than advisory and management fees charged to mutual funds which
invest primarily in U.S. securities but not necessarily higher than those
charged to funds with investment objectives similar to that of the Fund.
DISTRIBUTION OF FUND SHARES
Schroder Advisors, 787 Seventh Avenue, New York, New York 10019, serves
as Distributor of Fund shares under a Distribution Agreement. Schroder Advisors
is a wholly owned subsidiary of Schroders U.S. Holdings Inc., the parent company
of SCMI, and is a registered broker-dealer organized to act as administrator
and/or distributor of mutual funds.
Under the Distribution Agreement, Schroder Advisors has agreed to use
its best efforts to secure purchases of Fund shares in jurisdictions in which
such shares may be legally offered for sale. Schroder Advisors is not obligated
to sell any specific amount of Fund shares. Further, Schroder Advisors has
agreed in the Distribution Agreement to serve without compensation and to pay
from its own resources all costs and expenses incident to the sale and
distribution of Fund shares including expenses for printing and distributing
prospectuses and other sales materials to prospective investors, advertising
expenses, and the salaries and expenses of its employees or agents in connection
with the distribution of Fund shares.
FUND ACCOUNTING
Forum Accounting Services, LLC ("Forum Accounting"), an affiliate of
Forum, performs fund accounting services for the Fund pursuant to an agreement
with the Trust. The Accounting Agreement is terminable with respect to the Fund
without penalty, at any time, by the Trust Board upon 60 days' written notice to
Forum Accounting or by Forum Accounting upon 60 days' written notice to the
Trust.
Under its agreement, Forum Accounting prepares and maintains the books
and records of the Fund that are required to be maintained under the 1940 Act,
calculates the net asset value per share of the Fund, calculates dividends and
capital-gain distributions, and prepares periodic reports to shareholders and
the SEC. For its services to the Fund, Forum Accounting is entitled to receive
from the Trust a fee of $36,000 per year plus $12,000 per year for each class of
the Fund above one. Forum Accounting is entitled to an additional $24,000 per
year with respect to global and international funds.
Forum Accounting is required to use its best judgment and efforts in
rendering fund accounting services and is not liable to the Trust for any action
or inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in
performance of its fund accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control. The
Trust has agreed to indemnify and hold harmless Forum Accounting and its
employees, agents, officers and directors against and from any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and all other expenses arising out of or in any way
related to Forum Accounting's actions taken or failures to act with respect to a
Fund or based, if applicable, upon information, instructions or requests with
respect to a Fund given or made to Forum Accounting by an officer of the Trust
duly authorized. This indemnification does not apply to Forum Accounting's
actions taken or failures to act in cases of Forum Accounting's own bad faith,
willful misconduct or gross negligence.
24
<PAGE>
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for the Fund or the Portfolios and for SCMI's
other investment advisory clients are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved, and
a particular security may be bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner that, in
SCMI's opinion, is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients. Each Portfolio's portfolio transaction costs are borne prorata by
its investors, including the Fund.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions
involve the payment of negotiated brokerage commissions. Such commissions vary
among brokers. Also, a particular broker may charge different commissions
according to the difficulty and size of the transaction; for example,
transactions in foreign securities generally involve the payment of fixed
brokerage commissions, which are generally higher than those in the U.S. Since
most brokerage transactions for the Fund are placed with foreign broker-dealers,
certain portfolio transaction costs for the Fund may be higher than fees for
similar transactions executed on U.S. securities exchanges. However, SCMI seeks
to achieve the best net results in effecting its portfolio transactions. There
is generally less governmental supervision and regulation of foreign stock
exchanges and brokers than in the U.S. There is generally no stated commission
in the case of securities traded in the over-the-counter markets, but the price
paid usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid includes a disclosed, fixed commission or
discount retained by the underwriter or dealer.
The Fund and Core Advisory Agreements authorize and direct SCMI to
place orders for the purchase and sale of the Fund's or a Portfolio's
investments with brokers or dealers it selects 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 through a substantial
number of brokers and dealers. In so doing, SCMI uses its best efforts to obtain
the most favorable price and execution available. The Fund or a Portfolio may,
however, pay higher than the lowest available commission rates when SCMI
believes it is reasonable to do so in light of the value of the brokerage and
research services provided by the broker effecting the transaction. In seeking
the most favorable price and execution, SCMI considers all factors it deems
relevant (including price, transaction size, the nature of the market for the
security, the commission amount, the timing of the transaction (taking into
account market prices and trends), the reputation, experience and financial
stability of the broker-dealers involved, and the quality of service rendered by
the broker-dealers in other transactions).
Historically, investment advisers, including advisers of investment
companies and other institutional investors, have received research services
from broker-dealers that execute portfolio transactions for the advisers'
clients. Consistent with this practice, SCMI may receive research services from
broker-dealers with which it places portfolio transactions. These services,
which in some cases may also be purchased for cash, include such items as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to SCMI in advising various of
its clients (including the Fund or a Portfolio), although not all of these
services are necessarily useful and of value in managing the
25
<PAGE>
Fund or a Portfolio. The investment advisory fee paid by the Fund or a Portfolio
is not reduced because SCMI and its affiliates receive such services.
As permitted by Section 28(e) of the 1934 Act, SCMI may cause the Fund
or a Portfolio to pay a broker-dealer that provides SCMI with "brokerage and
research services" (as defined in the 1934 Act) an amount of disclosed
commission for effecting a securities transaction in excess of the commission
which another broker-dealer would have charged for effecting that transaction.
In addition, although it does not do so currently SCMI may allocate brokerage
transactions to broker-dealers who have entered into arrangements under which
the broker-dealer allocates a portion of the commissions paid by the Fund or a
Portfolio toward payment of Fund or Portfolio expenses, such as custodian fees.
Subject to the general policies of the Fund or a Portfolio regarding
allocation of portfolio brokerage as set forth above, the Core Board has
authorized SCMI to employ: (1) Schroder & Co. Inc. ("Schroder Inc.") an
affiliate of SCMI, to effect securities transactions of the Fund or a Portfolio
on the New York Stock Exchange only; and (2) Schroder Securities Limited and its
affiliates (collectively, "Schroder Securities"), affiliates of SCMI, to effect
securities transactions of the Fund or a Portfolio on various foreign securities
exchanges on which Schroder Securities has trading privileges, provided certain
other conditions are satisfied as described below.
Payment of brokerage commissions to Schroder Inc. or Schroder
Securities for effecting such transactions is subject to Section 17(e) of the
1940 Act, which requires, among other things, that commissions for transactions
on a securities exchange paid by a registered investment company to a broker
that is an affiliated person of such investment company (or an affiliated person
of another person so affiliated) not exceed the usual and customary broker's
commissions for such transactions. It is the Fund's and Portfolios' policy that
commissions paid to Schroder Inc. or Schroder Securities will, in SCMI's
opinion, be: (1) at least as favorable as commissions contemporaneously charged
by Schroder Inc. or Schroder Securities, as the case may be, on comparable
transactions for their most favored unaffiliated customers; and (2) at least as
favorable as those which would be charged on comparable transactions by other
qualified brokers having comparable execution capability. The Trust Board and
Core Board, including a majority of the respective non-interested Trustees, have
each adopted procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that
commissions paid to Schroder Inc. or Schroder Securities by the Fund or a
Portfolio satisfy the foregoing standards. Such procedures are reviewed
periodically by the applicable Board, including a majority of the non-interested
Trustees. Each Board also reviews all transactions at least quarterly for
compliance with such procedures.
It is further a policy of the Fund and Portfolios that all such
transactions effected by Schroder Inc. 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 Inc.
actually execute the transaction on the exchange floor or through the exchange
facilities. Thus, while Schroder Inc. will bear responsibility for determining
important elements of execution such as timing and order size, another firm will
actually execute the transaction.
Schroder Inc. pays a portion of the brokerage commissions it receives
from the Fund or a Portfolio to the brokers executing the transactions on the
New York Stock Exchange. In accordance with Rule 11a2-2(T), Schroder Core has
entered into an agreement with Schroder Inc. permitting it to retain a portion
of the brokerage commissions paid to it by the Fund or a Portfolio. Each Board,
including a majority of the non-interested Trustees, have approved this
agreement.
Neither the Fund nor a Portfolio has any understanding or arrangement
to direct any specific portion of its brokerage to Schroder Inc. or Schroder
Securities, and neither will direct brokerage to Schroder Inc. or Schroder
Securities in recognition of research services.
From time to time, the Fund or a Portfolio may purchase securities of a
broker or dealer through which it regularly engages in securities transactions.
26
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
DETERMINATION OF NAV PER SHARE
The NAV per share of the Fund is determined as of the close of trading
on the New York Stock Exchange each day that the Exchange is open. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the afternoon of valuation. The Exchange's most recent
holiday schedule (which is subject to change) states that it will close on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Core Board has established procedures for the valuation of the
Portfolio's securities: (1) equity securities listed or traded on the New York
or American Stock Exchange or other domestic or foreign stock exchange are
valued at their latest sale prices on such exchange that day prior to the time
when assets are valued; in the absence of sales that day, such securities are
valued at the last sale price on the preceding trading day or at closing
mid-market prices (in cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by the Fund's investment adviser); (2) unlisted equity securities for
which over-the-counter market quotations are readily available are valued at the
latest available mid-market prices prior to the time of valuation; (3)
securities (including restricted securities) not having readily-available market
quotations are valued at fair value under the Core Board's procedures; (4) debt
securities having a maturity in excess of 60 days are valued at the mid-market
prices determined by a portfolio pricing service or obtained from active market
makers on the basis of reasonable inquiry; and (5) short-term debt securities
(having a remaining maturity of 60 days or less) are valued at cost, adjusted
for amortization of premiums and accretion of discount.
When an option is written, an amount equal to the premium received is
recorded in the books as an asset, and an equivalent deferred credit is recorded
as a liability. The deferred credit is adjusted ("marked-to-market") to reflect
the current market value of the option. Options are valued at their mid-market
prices in the case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the average of the last bid price as obtained
from two or more dealers unless there is only one dealer, in which case that
dealer's price is used. Futures contracts and related options are stated at
market value.
REDEMPTIONS IN-KIND
In the event that payment for redeemed shares is made wholly or partly
in portfolio securities, shareholders may incur brokerage costs in converting
the securities to cash. An in-kind distribution of portfolio securities is
generally less liquid than cash. The shareholder may have difficulty finding a
buyer for portfolio securities received in payment for redeemed shares.
Portfolio securities may decline in value between the time of receipt by the
shareholder and conversion to cash. A redemption in-kind of portfolio securities
could result in a less diversified portfolio of investments for the Fund and
could affect adversely the liquidity of its investment portfolio.
TAXATION
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
Fund and each other series established from time to time by the Trust Board is
treated as a separate taxpayer for federal income tax purposes with the result
that: (1) each such series must meet separately the income and distribution
requirements for qualification as a regulated investment company; and (2) the
amounts of investment income and capital gain earned are determined on a
series-by-series (rather than on a Trust-wide) basis.
The Predecessor Fund qualified in its last fiscal year as a regulated
investment company under Subchapter M of the Code. The Fund intends to qualify
as a regulated investment company under
27
<PAGE>
Subchapter M of the Code each year so long as such qualification is in the best
interests of its shareholders. To do so, the Fund intends to distribute to
shareholders at least 90% of its "investment company taxable income" as defined
in the Code (which includes, among other items, dividends, interest and the
excess of any net short-term capital gain over net long-term capital loss), and
to meet certain diversification of assets, source of income, and other
requirements of the Code. By so doing, the Fund will not be subject to federal
income tax on its investment company taxable income and "net capital gain" (the
excess of net long-term capital gain over net short-term capital loss)
distributed to shareholders. If the Fund does not meet all of these Code
requirements, it will be taxed as an ordinary corporation, and its distributions
will be taxable to shareholders as ordinary income.
Amounts not distributed on a timely basis (in accordance with a
calendar year distribution requirement) are subject to a 4% nondeductible excise
tax. To prevent this, the Fund must distribute for each calendar year an amount
equal to the sum of: (1) at least 98% of its ordinary income (excluding any
capital gain or loss) for the calendar year; (2) at least 98% of the excess of
its capital gain over capital loss realized during the one-year period ending
October 31 of such year; and (3) all such ordinary income and capital gain for
previous years that were not distributed during such years. A distribution will
be treated as paid during the calendar year if it is declared by the Fund in
October, November or December of the year with a record date in such month and
paid by the Fund during January of the following year. Such distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
Distributions of investment company taxable income (including net
realized short-term capital gain) are taxable to shareholders as ordinary
income. Generally, it is not expected that such distributions will be eligible
for the dividends received deduction available to corporations. However, if the
Fund acquires at least 10% of the stock of a foreign corporation that has U.S.
source income, a portion of the Fund's ordinary income dividends attributable to
such income may be eligible for such deduction, if certain requirements are met.
Distributions of net long-term capital gain are taxable to shareholders
as long-term capital gain, regardless of the length of time Fund shares have
been held by a shareholder and are not eligible for the dividends received
deduction. Such distributions will qualify for the new reduced rates for capital
gains on assets held for more than 18 months to the extent they represent gains
on the sale of such assets. A loss realized by a shareholder on the sale of Fund
shares with respect to which capital-gain distributions have been paid will, to
the extent of such capital-gain distributions, be treated as long-term capital
loss (even though such shares may have been held by the shareholder for one year
or less). Further, a loss realized on a disposition will be disallowed to the
extent the shares disposed of are replaced (whether by reinvestment or
distribution or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
All distributions to shareholders are taxable whether reinvested in
additional shares or received in cash. Shareholders that reinvest distributions
will have for federal income tax purposes a cost basis in each share received
equal to the net asset value of a share of the Fund on the reinvestment date.
Shareholders will be notified annually as to the federal tax status of
distributions.
Distributions by the Fund reduce the net asset value of the Fund's
shares. If a distribution reduces the net asset value below a shareholder's cost
basis, such distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution, which will be returned to the investor
in the form of a taxable distribution.
28
<PAGE>
Upon redemption or sale of shares, a shareholder will realize a taxable
gain or loss, which will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands. Such gain or loss generally will be
long-term or short-term depending upon the shareholder's holding period for the
shares, and generally will qualify for the new reduced rates for capital gains
if the shares have been held for more than 18 months.
Ordinary income dividends paid to Fund shareholders who are nonresident
aliens are subject to a 30% U.S. withholding tax under existing provisions of
the Code applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Nonresident shareholders are urged to consult their own tax advisors concerning
the applicability of the U.S. withholding tax.
Dividends and interest received (and, in certain circumstances,
realized capital gain) by the Fund may give rise to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
U.S. may reduce or eliminate such taxes. If more than 50% in value of the Fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and ordinarily expects, to file an
election with the Internal Revenue Service ("IRS") pursuant to which
shareholders of the Fund will be required to include their proportionate share
of such withholding taxes in their U.S. income tax returns as gross income;
treat such proportionate share as taxes paid by them; and, subject to certain
limitations, deduct such proportionate share in computing their taxable incomes
or, alternatively, use them as foreign tax credits against their U.S. income
taxes. No deductions for foreign taxes, however, may be claimed by noncorporate
shareholders who do not itemize deductions. A shareholder that is a nonresident
alien individual or a foreign corporation may be subject to U.S. withholding tax
on the income resulting from the Fund's election described in this paragraph but
may not be able to claim a credit or deduction against such U.S. tax for the
foreign taxes treated as having been paid by such shareholder. The Fund will
report annually to its shareholders the amount per share of such withholding
taxes.
Pursuant to the tax convention between the U.S. and Japan ( the "
Convention "), a Japanese withholding tax at the maximum rate of 15% is, with
certain exceptions, imposed upon dividends paid by Japanese corporations to the
Fund. Pursuant to the present terms of the Convention, interest received by the
Fund from sources within Japan is subject to a Japanese withholding tax at a
maximum rate of 10%. Capital gains of the Fund arising from its investments as
described herein are not taxable in Japan.
Generally, the Fund will be subject to the Japanese securities
transaction tax on its sale of certain securities in Japan. The current rates of
such tax range from 0.03% to 0.30% depending upon the particular type of
securities involved. Transactions involving equity securities are currently
taxed at the highest rate.
Due to investment laws in certain emerging market countries, it is
anticipated that the Fund's investments in equity securities in such countries
will consist primarily of shares of investment companies (or similar investment
entities) organized under foreign law or of ownership interests in special
accounts, trusts or partnerships. If the Fund purchases shares of an investment
company (or similar investment entity) organized under foreign law, the Fund
will be treated as owning shares in a passive foreign investment company
("PFIC") for U.S. federal income tax purposes. The Fund may be subject to U.S.
federal income tax, and an additional tax in the nature of interest, on a
portion of distributions from such company and on gain from the disposition of
such shares (collectively referred to as "excess distributions"), even if such
excess distributions are paid by the Fund as a dividend to its shareholders.
The Fund may make an election with respect to PFICs in which it owns
shares that will allow it to avoid the taxes on excess distributions. However,
such election may cause the Fund to recognize income in a particular year in
excess of the distributions received from such PFICs.
29
<PAGE>
The Fund may write, purchase or sell options or futures contracts.
Unless the Fund is eligible to, and does, make a special election, such options
and futures contracts that are "Section 1256 contracts" will be "marked to
market" for federal income tax purposes at the end of each taxable year (I.E.,
each option or futures contract will be treated as sold for its fair market
value on the last day of the taxable year). In general, unless such special
election is made, gain or loss from transactions in options and futures
contracts will be 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's transactions in options and futures contracts. Under
Section 1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain closing transactions in options and futures.
In general, gain from "foreign currencies" and from foreign currency
options, foreign currency futures contracts and forward foreign exchange
contracts relating to investments in stock, securities or foreign currencies
will be qualifying income for purposes of determining whether the Fund qualifies
as a regulated investment company. It is currently unclear, however, who will be
treated as the issuer of a foreign currency instrument or how foreign currency
options, futures contracts or forward foreign currency contracts will be valued
for purposes of the regulated investment company diversification requirements
applicable to the Fund.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional currency
(I.E., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gain or loss from certain forward
contracts not traded in the interbank market, from futures contracts that are
not "regulated futures contracts," and from unlisted options will be treated as
ordinary income or loss under Code Section 988. In certain circumstances, the
Fund may elect capital gain or loss treatment for such transactions. In general,
however, Code Section 988 gain or loss will increase or decrease the amount of
the Fund's investment company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if the Code Section 988 loss
exceeds other investment company taxable income during a taxable year, the Fund
would not be able to make any ordinary dividend distributions, and any
distributions made before the loss was realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing each shareholder's basis in his or her Fund shares.
The Trust is required to report to the Internal Revenue Service ("IRS")
all distributions and gross proceeds from the redemption of Fund shares (except
in the case of certain exempt shareholders). All such distributions and proceeds
generally will be subject to the withholding of federal income tax at a rate of
31% ("backup withholding") in the case of non-exempt shareholders if: (1) the
shareholder fails to furnish the Trust with and to certify the shareholder's
correct taxpayer identification number or social security number; (2) the IRS
notifies the Trust that the shareholder has failed to report properly certain
interest and dividend income to the IRS and to respond to notices to that
effect; or (3) when required to do so, the shareholder fails to certify that it
is not subject to backup withholding. If the withholding provisions are
applicable, any such distributions or proceeds, whether reinvested in additional
shares or taken in cash, will be reduced by the amount required to be withheld.
Any amounts withheld may be credited against the shareholder's federal income
tax liability. Investors may wish to consult their tax advisors about the
applicability of the backup withholding provisions.
U.S. federal income taxation of a shareholder who, under the Code, is a
non-resident alien individual, a foreign trust or estate, foreign corporation or
foreign partnership ("non-U.S. shareholder") depends on whether the income form
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. Ordinarily, income from the Fund will not be treated as so
"effectively connected."
If the income from the Fund is not treated as "effectively connected"
with a U.S. trade or business carried on by the non-U.S. shareholder dividends
of net investment income (which includes short-term capital gains), whether
received in cash or reinvested in shares, will be subject to a U.S. federal
income tax of 30% (or lower treaty rate), which tax is generally withheld from
such dividends. Furthermore, such
30
<PAGE>
non-U.S. shareholders may be subject to U.S. federal income tax at the rate of
30% (or lower treaty rate) on their income resulting from the Fund's election
(described above) to "pass through" the amount of non-U.S. taxes paid by the
Fund, but may not be able to claim a credit or deduction with respect to the
non-U.S. income taxes treated as having been paid by them.
A non-U.S. shareholder whose income is not treated as "effectively
connected" with a U.S. trade or business generally will not be subject to U.S.
federal income taxation on distributions of net long-term capital gains and any
gain realized upon the sale of Fund shares. If the non-U.S. shareholder is
treated as a non-resident alien individual but is physically present in the
United States for more than 182 days during the taxable year, then in certain
circumstances such distributions of net long-term capital gains amounts retained
by the Fund which are designated as undistributed capital gains and grain from
the sale of Fund shares will be subject to a U.S. federal income tax of 30% (or
lower treaty rate). In the case of a non-U.S. shareholder who is a non-resident
alien individual, the Fund may be required to withhold U.S. federal income tax
at a rate of 31% of distributions (including distributions of net long-term
capital gains) unless IRS Form W-8 is provided. See "backup withholding," above.
If the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by a non-U.S. shareholder, then distributions of net
investment income (which includes short-term capital gains) whether received in
cash or reinvested in shares net long-term capital gains and amounts otherwise
includable in income, such as amounts retained by the Fund which are designated
as undistributed capital gains and any gains realized upon the sale of shares of
the Fund will be subject to U.S. federal income tax at the graduated rates
applicable to U.S. taxpayers. Non-U.S. shareholders that are corporations may
also be subject to the branch profits tax.
Transfers of shares of the Fund by gift by a non-U.S. shareholder will
generally not be subject to U.S. federal gift tax, but the value of shares of
the Fund held by such a shareholder at death will be includable in the
shareholder's gross estate for U.S. federal income tax purposes.
The income tax and estate tax consequences to a non-U.S. shareholder
entitled to claim the benefits of an applicable tax treaty may be different from
those described herein. Non-U.S. shareholders may be required to provide
appropriate documentation to establish their entitlement to the benefits of such
a treaty.
Non-U.S. shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in shares of
the Fund.
* * * * * *
The foregoing discussion relates only to federal income tax law as
applicable to U.S. persons (I.E., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by the Fund also
may be subject to state and local taxes, and their treatment under state and
local income tax laws may differ from the federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of federal, foreign, state and local taxation.
OTHER INFORMATION
ORGANIZATION
The Trust was formed as a Delaware business trust on December 5, 1997.
The Trust is registered as an open-end management investment company under the
1940 Act.
Delaware law provides that shareholders shall be entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. Securities regulators of some states, however, have
indicated that they and the courts in their state may decline to apply Delaware
law on this
31
<PAGE>
point. To guard against this risk, the Trust Instrument contains an express
disclaimer of shareholder liability for the debts, liabilities, obligations, and
expenses of the Trust. The Trust Instrument provides for indemnification out of
each series' property of any shareholder or former shareholder held personally
liable for the obligations of the series. The Trust Instrument also provides
that each series shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the series and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which Delaware
law does not apply (or no contractual limitation of liability was in effect) and
the series is unable to meet its obligations. Forum believes that, in view of
the above, there is no risk of personal liability to shareholders.
CAPITALIZATION AND VOTING
The Trust has authorized an unlimited number of shares of beneficial
interest. The Trust Board may, without shareholder approval, divide the
authorized shares into an unlimited number of separate series (such as the Fund)
and may divide series into classes of shares, and the costs of doing so may be
borne by a series or a class or the Trust in accordance with the Trust
Instrument. The Trust currently consists of one series. The Fund offers one
class of shares, Class A Shares.
When issued for the consideration described in the Prospectus or under
the dividend reinvestment plan, shares are fully paid, nonassessable, and have
no preferences as to conversion, exchange, dividends, retirement or other
features. Shares have no preemptive rights and have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Trustees can elect 100% of the Trustees if they choose to do so.
Each shareholder of record is entitled to one vote for each full share held (and
a fractional vote for each fractional share held).
The Trust does not hold annual meetings of shareholders. The matters
considered at an annual meeting typically include the reelection of Trustees,
approval of an investment advisory agreement, and the ratification of the
selection of independent accountants. These matters are not submitted to
shareholders unless a meeting of shareholders is held for some other reason,
such as those indicated below. Each Trustee serves until death, resignation or
removal. Vacancies are filled by the remaining Trustees, subject to the
provisions of the 1940 Act requiring a meeting of shareholders for election of
Trustees to fill vacancies. Similarly, the selection of independent accountants
and renewal of investment advisory agreements for future years is performed
annually by the Trust Board. Future shareholder meetings will be held to elect
Trustees if required by the 1940 Act, to obtain shareholder approval of changes
in fundamental investment policies, to obtain shareholder approval of material
changes in investment advisory agreements, to select new independent accountants
if the employment of the Trust's independent accountants has been terminated,
and to seek any other shareholder approval required under the 1940 Act. The
Trust Board has the power to call a meeting of shareholders at any time when it
believes it is necessary or appropriate.
In addition to the foregoing rights, the Trust Instrument provides that
holders of at least two-thirds of the outstanding shares of the Trust may remove
any person serving as a Trustee at any meeting of the shareholders.
PRINCIPAL SHAREHOLDERS
As of March 10, 1998, the Fund had no outstanding shares.
CUSTODIAN
The Chase Manhattan Bank, through its Global Custody Division located
in London, England, acts as custodian of the Fund's and the Portfolios' assets
but plays no role in making decisions as to the purchase or sale of portfolio
securities for the Fund or the Portfolios. Pursuant to rules adopted under the
1940 Act, the Fund may maintain its foreign securities and cash in the custody
of certain eligible foreign
32
<PAGE>
banks and securities depositories. Selection of these foreign custodial
institutions is made currently by the Core Trust Board following a consideration
of a number of factors, including (but not limited to) the reliability and
financial stability of the institution; the ability of the institution to
perform capably custodial services for the Fund; 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.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
BFDS, Two Heritage Drive, North Quincy, Massachusetts 02171, acts as the
Fund's transfer agent and dividend disbursing agent.
LEGAL COUNSEL
Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624,
serves as counsel to the Trust.
INDEPENDENT ACCOUNTANT
Coopers & Lybrand L.L.P. serves as independent accountants for the Trust.
Coopers & Lybrand L.L.P. provides audit services and consultation in connection
with review of U.S. SEC filings. Their address is One Post Office Square,
Boston, Massachusetts 02109.
YEAR 2000 DISCLOSURE
The Fund receives services from the investment advisor, administrators,
distributor, transfer agent and custodian which rely on the smooth functioning
of their respective systems and the systems of others to perform those services.
It is generally recognized that certain systems in use today may not perform
their intended functions adequately after the Year 1999 because of the inability
of the software to distinguish the year 2000 from the year 1900. Schroder
Advisors is taking steps that it believes are reasonably designed to address
this potential "Year 2000" problem and to obtain satisfactory assurances that
comparable steps are being taken by each of the Fund's other major service
providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Fund from this problem.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included
in the Trust's registration statement filed with the SEC under the Securities
Act of 1933 with respect to the securities offered hereby, certain portions of
which have been omitted pursuant to the rules and regulations of the SEC. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The fiscal year end of the Fund is October 31. Financial statements for
the Fund's semi-annual period and fiscal year will be distributed to
shareholders of record. The Board in the future may change the fiscal year end
of the Fund.
33
<PAGE>
The audited financial statements of Schroder Asian Growth Fund, Inc. for
the fiscal year ended October 31, 1997, including Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets, Notes
to Financial Statements, Financial Highlights, Portfolio of Investments and
Report of Independent Accountants are set forth herein as Appendix B.
34
<PAGE>
A-1
APPENDIX A
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they comprise what are
generally known as high grade fixed-income securities. They are rated lower than
the best fixed-income securities because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" Fixed-income securities which are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
"Baa" Fixed-income securities which are rated "Baa" are considered as medium
grade obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such fixed-income securities lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Fixed-income securities rated "Aaa", "Aa", "A" and "Baa" are considered
investment grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate, and
therefore not well safeguarded during both good and bad times in the future.
Uncertainty of position characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa" Fixed-income securities which are rated "Caa" are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
"Ca" Fixed-income securities which are rated "Ca" present obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
A-1
<PAGE>
"C" Fixed-income securities which are rated "C" are the lowest rated class of
fixed-income securities, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, "1", "2",
and "3" in each generic rating classification from "Aa" through "B" in its
municipal fixed-income security rating system. The modifier "1" indicates that
the security ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and a modifier "3" indicates that
the issue ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers:
"Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of
short-term promissory obligations. Issuers rated "Prime-2" have a strong
capacity for repayment of short-term promissory obligations; and Issuers rated
"Prime-3" have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATING GROUP("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity to pay
interest and repay principal and differs from the highest-rated issues only in
small degree.
"A" Fixed-income securities rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than fixed-income
securities in higher-rated categories.
A-2
<PAGE>
"BBB" Fixed-income securities rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are considered
investment grade.
"BB" Fixed-income securities rated "BB" have less near-term vulnerability to
default than other speculative grade fixed-income securities. However, it faces
major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or willingness to
pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability to default
but presently have the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon favorable business,
financial and economic conditions to meet timely payments of interest and
repayments of principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities subordinated
to senior debt which is assigned an actual or implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on which no
interest is being paid.
"NR" Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are
regarded as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such fixed-income
securities will likely have some quality and protective characteristics, these
are out-weighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be modified by
the addition of a plus or minus sign to show relative standing with the major
ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to purchase
or sell a security. The ratings are based upon current information furnished by
the issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
A-3
<PAGE>
Issues assigned "A" ratings are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation "1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is very
strong.
"A-2" Indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
A-4
<PAGE>
APPENDIX B
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - ------------------------------------------------------------
PORTFOLIO CHARACTERISTICS AS OF OCTOBER 31, 1997
COUNTRY WEIGHTINGS
<TABLE>
<CAPTION>
COUNTRY % OF NET ASSETS
<S> <C>
- - ------------------------------------------------------------------------------
Hong Kong 27.3%
Japan 18.7%
Singapore 9.7%
Malaysia 8.0%
India 7.4%
Korea 3.8%
Philippines 3.5%
Indonesia 3.0%
China 1.8%
Thailand 1.6%
Cash 15.2%
------------------------------------------------------------------------------
Total 100.0%
</TABLE>
INVESTMENT BY INDUSTRY
<TABLE>
<CAPTION>
INDUSTRY % OF NET ASSETS
<S> <C>
- - ------------------------------------------------------------------------------
Real Estate 20.3%
Capital Equipment 17.6%
Services 14.9%
Energy 8.5%
Finance 7.2%
Multi-Industry 6.8%
Materials 4.7%
Consumer Goods 3.2%
Insurance 1.6%
Cash 15.2%
- - ------------------------------------------------------------------------------
Total 100.0%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
SECURITY % OF NET ASSETS
<S> <C>
- - ----------------------------------------------------------------------------------------------
Citic Pacific Ltd. (HK) 4.4%
Hutchison Whampoa (HK) 3.7%
Cheung Kong Holdings Ltd. (HK) 2.8%
Sun Hung Kai Properties Ltd. (HK) 2.5%
Swire Pacific Ltd. 'A' (HK) 2.4%
China Resources Enterprise Ltd. (HK) 2.4%
Singapore Press Holdings Ltd. (SGD) 2.3%
Cheung Kong Infrastucture Holdings (HK) 2.3%
New World Infrastucture Ltd. (HK) 2.0%
Hong Kong & China Gas Company Ltd. (HK) 1.9%
- --------------------------------------------------------------------------------
Total 26.7%
</TABLE>
- --------------------------------------------------------------------------------
B-1
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS - 84.8%
CHINA - 1.8%
SHARES VALUE US$
- - --------- ------------
121,000 UTILITIES ELECTRICAL & GAS - 1.8%
Huaneng Power International,
Ltd. (a)*
(Cost $2,050,520)
HONG KONG - 27.3%
2,662,000
------------
1,331,000 BUILDING & CONSTRUCTION - 2.3%
Cheung Kong Infrastructure
Holdings
3,443,726
------------
3,160,000 CHEMICALS - 0.8%
Chen Hsong Holdings Ltd.
1,226,391
------------
1,376,000 COMMERCE/INDUSTRIAL - 6.8%
672,000 Citic Pacific Ltd.
Swire Pacific Ltd. 'A'
6,586,287
3,590,375
------------
10,176,662
------------
1,486,000 ELECTRICITY & GAS - 1.8%
Hong Kong and China Gas
Company Ltd.
2,806,675
------------
767,250 FOODS - 0.1%
Guangdong Brewery Holdings
Ltd.*
140,944
------------
616,000 REAL ESTATE - 14.7%
1,290,000 Cheung Kong Holdings Ltd.
811,000 China Resources Enterprise
77,000 Ltd.
1,501,000 Hutchison Whampoa
509,000 New World Development Company
825,000 Ltd.
New World Infrastructure Ltd.*
Sun Hung Kai Properties Ltd.
Wharf (Holdings) Ltd.
4,283,312
3,537,904
5,613,001
270,944
3,019,476
3,753,299
1,686,287
------------
22,164,223
------------
1,214,000 SERVICES - 0.5%
Guangdong Investments
773,474
------------
430,000 WHOLESALE - 0.3%
Guangnan Holdings
TOTAL HONG KONG
(COST $43,034,303)
INDIA - 7.4%
394,955
------------
41,127,050
------------
BANKING - 0.8%
State Bank of India
COMMON STOCKS
1,191,460
165,000 ------------
SHARES VALUE US$
- - --------- ------------
<C> <S> <C>
INDIA (CONCLUDED)
HOUSEHOLD GOODS - 1.6%
69,000 Hindustan Lever Ltd. 2,435,032
------------
LEISURE AND TOURISM - 0.0%
125 Indian Hotels Co., Ltd. 2,019
------------
MACHINERY & ENGINEERING - 1.2%
72,000 Bajaj Auto Ltd. 1,142,327
36,000 Bajaj Auto Ltd. Bonus Shares 571,140
227 Tata Engineering & Locomotive
Company Ltd. 1,992
------------
1,715,459
------------
OIL, INTEGRATED - 1.0%
127,000 Bharat Petroleum Corporation
Ltd. 1,523,720
------------
PHARMACEUTICALS - 0.0%
1,779 Ranbaxy Laboratories Ltd. 34,701
------------
TELECOMMUNICATIONS - 2.8%
393,000 Mahanagar Telephone Nigam Ltd. 2,742,024
63,000 Videsh Sanchar Nigam Ltd. 1,473,583
------------
4,215,607
------------
TOTAL INDIA
(COST $9,361,192) 11,117,998
------------
INDONESIA - 3.0%
COMMUNICATIONS - 1.0%
46,000 P.T. Indosat 104,109
1,430,000 P.T. Telekomunikasi Indonesia 1,334,401
------------
1,438,510
------------
FOODS - 0.5%
774,680 P.T. Indofood Sukses Makmur 776,838
------------
MISC. MANUFACTURING - 0.8%
435,000 P.T. Gudang Garam 1,235,933
------------
RETAIL SALES - 0.4%
82,500 P.T. Unilever Indonesia 643,454
------------
TRANSPORTATION EQUIPMENT - 0.3%
551,000 P.T. Astra International 410,564
------------
TOTAL INDONESIA
(COST $6,075,219) 4,505,299
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
B-2
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - ------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS
SHARES VALUE US$
- - --------- ------------
JAPAN - 18.7%
<C> <S> <C>
CHEMICALS - 0.1%
38,000 Sakata Inx Corp. 175,127
------------
CONSTRUCTION - 1.4%
54,000 Daiwa House Industry Co., Ltd. 521,088
73,000 Higashi Nihon House Co. 546,544
48,000 Kinden Corporation 590,966
42,000 Sanki Engineering Co. 349,389
8,000 Tostem Corporation 111,139
------------
2,119,126
------------
ELECTRICAL APPLIANCES - 3.9%
27,000 Fuji Photo Film Co. 979,286
142,000 Hitachi Ltd. 1,092,671
6,000 Kyocera Corporation 343,898
77,000 Matsushita Electrical
Industrial Company, Ltd. 1,293,902
88,000 Mitsubishi Electric
Corporation 293,553
16,000 Murata Manufacturing Co., Ltd. 644,206
30,000 Omron Corporation 514,100
7,700 SMC Corporation 666,168
------------
5,827,784
------------
INSURANCE - 1.6%
181,000 Koa Fire & Marine Insurance
Co., Ltd. 941,061
90,000 Sumitomo Marine & Fire
Insurance 600,449
162,000 Yasuda Fire & Marine Insurance 898,877
------------
2,440,387
------------
IRON & STEEL - 0.6%
411,000 Sumitomo Metal Industries 823,983
------------
LAND TRANSPORTATION - 1.1%
123 East Japan Railway Company 598,577
317,000 Hanshin Electric Railway Co. 1,073,280
------------
1,671,857
------------
MACHINERY - 1.5%
63,000 Amada Metrics Co. Ltd. 463,813
106,000 Glory Ltd. 1,737,127
------------
2,200,940
------------
MINING - 0.1%
31,000 Nittetsu Mining Co. 173,813
------------
MISC. FINANCIAL - 0.7%
40,700 Credit Saison Co., Ltd. 1,093,595
------------
MISC. MANUFACTURING - 0.6%
72,000 Toppan Printing Company Ltd. 904,417
------------
<CAPTION>
COMMON STOCKS
SHARES VALUE US$
- - --------- ------------
<C> <S> <C>
JAPAN (CONCLUDED)
OIL - 0.3%
72,000 Showa Shell Sekiyu 504,916
------------
PAPER & PULP - 0.2%
66,000 Oji Paper Co., Ltd. 334,914
------------
PHARMECEUTICALS - 0.9%
51,000 Takeda Chemical Industries 1,391,565
------------
REAL ESTATE - 0.4%
133,100 Airport Facilities Co., Ltd. 476,108
17,000 T.O.C Co. 171,117
------------
647,225
------------
RETAIL SALES - 0.4%
12,000 Ito-Yokado Co., Ltd. 596,955
------------
RUBBER GOODS - 1.0%
66,000 Bridgestone Corp. 1,427,502
------------
SECURITIES - 0.4%
51,000 Nomura Securities Company Ltd. 593,961
------------
SERVICES - 0.1%
9,000 Chubu-Nippon Broadcasting Co.,
Ltd. 157,225
------------
TEXTILES - 0.4%
67,000 Kuraray Company Limited 601,947
------------
TRANSPORTATION EQUIPMENT - 0.8%
40,000 Toyota Motor Corporation 1,114,716
------------
WHOLESALE - 2.2%
100,000 Inaba Denkisangyo Co. 1,123,035
15,000 Meiko Shokai Co. 461,692
81,000 Mitsubishi Corporation 694,035
143,000 Mitsui & Company 1,086,091
------------
3,364,853
------------
TOTAL JAPAN
(COST $35,979,550) 28,166,808
------------
KOREA - 3.8%
BANKING - 0.5%
86,979 Shinhan Bank 670,463
------------
COMMUNICATIONS - 0.4%
1,833 SK Telecom Co. Ltd.(1) 623,755
------------
ELECTRICAL APPLIANCES - 0.9%
35,000 LG Electronics 473,958
22,784 Samsung Electronics Co.(1) 901,748
------------
1,375,706
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
B-3
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- - ------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS
SHARES VALUE US$
- - --------- ------------
KOREA (CONCLUDED)
<C> <S> <C>
ELECTRICITY & GAS - 0.5%
49,000 Korea Electric & Power Corp. 699,271
------------
IRON-STEEL - 0.6%
21,000 Pohang Iron & Steel Co., Ltd.
(1) 927,631
------------
OILS - 0.4%
46,020 Yukong Ltd. 623,188
------------
SECURITIES - 0.5%
64,000 Daewoo Securities Co.* 793,333
------------
TOTAL KOREA
(COST $12,929,984) 5,713,347
------------
MALAYSIA - 8.0%
BANKING - 1.2%
354,000 Malayan Banking Berhad 1,365,202
465,000 RHB Capital Berhad 389,238
83,400 RHB Sakura Merchant Bankers
Berhad* 52,359
------------
1,806,799
------------
CONSTRUCTION - 1.6%
665,000 Gamuda Berhad 1,013,901
615,000 United Engineers (Malaysia)
Ltd. 1,452,466
------------
2,466,367
------------
ELECTRICITY & GAS - 1.4%
65,000 Petronas Gas Berhad 174,888
888,000 Tenaga Nasional Berhad 1,911,390
------------
2,086,278
------------
GLASS & CERAMICS - 0.2%
100,000 Fraser & Neave Ltd. 224,963
------------
MISC. MANUFACTURING - 0.8%
820,000 R.J. Reynolds Berhad 1,262,481
------------
REAL ESTATE - 1.7%
2,779,000 Island & Peninsular Berhad 2,575,456
------------
SERVICES - 1.1%
561,500 Genting Berhad 1,577,907
------------
TOTAL MALAYSIA
(COST $26,018,189) 12,000,251
------------
PHILIPPINES - 3.5%
COMMUNICATION - 1.6%
96,340 Philippine Long Distance
Telephone 2,401,638
------------
<CAPTION>
COMMON STOCKS
SHARES VALUE US$
- - --------- ------------
<C> <S> <C>
PHILIPPINES (CONCLUDED)
ELECTRICITY & GAS - 0.7%
315,315 Manila Electric Co. 'B' 970,200
------------
MINING - 0.3%
5,496,000 Belle Corporation* 501,060
1,099,200 Belle Corporation Wts. (2)* 203
------------
501,263
------------
REAL ESTATE - 0.9%
3,323,768 Ayala Land, Inc. 'B' 1,302,046
------------
TOTAL PHILIPPINES
(COST $7,831,441) 5,175,147
------------
SINGAPORE - 9.7%
BANKING - 3.1%
576,000 Overseas Union Bank Ltd. 1,923,664
500,880 United Overseas Bank Ltd. 2,772,046
------------
4,695,710
------------
GLASS & CERAMICS - 0.4%
110,000 Fraser & Neave Ltd. 552,799
------------
MACHINERY & ENGINEERING - 1.6%
760,000 Keppel Corp., Ltd. 2,407,634
------------
REAL ESTATE - 2.3%
522,000 City Developments Ltd. 2,191,603
748,000 DBS Land Ltd. 1,275,216
------------
3,466,819
------------
SERVICES - 2.3%
253,200 Singapore Press Holdings Ltd. 3,495,191
------------
TOTAL SINGAPORE
(COST $22,240,842) 14,618,153
------------
THAILAND - 1.6%
COMMUNICATIONS - 0.4%
630,000 TelecomAsia Corp.* 277,262
183,000 Total Access Communication
Co., Ltd. 349,530
------------
626,792
------------
ELECTRICITY & GAS - 0.6%
582,200 Electricity Generating Public
Co., Ltd. 953,726
------------
MINING - 0.3%
49,000 PTT Exploration and Production
Public Company Limited 491,198
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
B-4
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONCLUDED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS
SHARES VALUE US$
----------- ------------
REAL ESTATE - 0.3%
Land & House Corp. Limited
TOTAL THAILAND 364,694
(COST $7,720,378) ------------
TOTAL COMMON STOCKS
(COST $173,241,618) 2,436,410
COMMON STOCKS ------------
426,171 127,522,463
PRINCIPAL ------------
AMOUNT VALUE US$
- - ----------- ------------
<C> <S> <C>
(000)
SHORT-TERM INVESTMENTS - 12.6%
REPURCHASE AGREEMENT - 12.6%
U.S.$19,000 With Chase Securities
Incorporated dated 10/31/97
5.55%, due 11/03/97
(repurchase proceeds
$19,008,788); collateralized
by: $17,885,000 U.S.
Treasury Note, 6.875%, due
5/15/06 (value $19,947,546)
(COST $19,000,000) 19,000,000
------------
TOTAL INVESTMENTS
(COST $192,241,618) - 97.4% 146,522,463
Other assets less
liabilities - 2.6% 3,883,112
------------
Net Assets - 100% $150,405,575
------------
------------
</TABLE>
* Non-income producing security.
(a) American Depositary Receipt.
(1) Priced at fair value as determined by the Investment Adviser and approved by
the Board of Directors.
(2) The warrants enable the holder to subscribe to one share for every warrant
held at PHP 8.50 per share. The warrants can be exercised from 10/06/98 thru
12/31/00.
Percentages are based on net assets.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
B-5
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $173,241,618) $ 127,522,463
Repurchase agreement 19,000,000
Cash 3,514,982
Foreign currency, at value (cost $14,556) 14,556
Receivable for securities sold 1,755,433
Receivable for dividends 225,566
Receivable for interest 19,383
Unrealized appreciation on forward foreign currency
contracts 1,260
Deferred organization expenses 39,567
Prepaid expenses 9,924
-------------
Total Assets 152,103,134
-------------
LIABILITIES:
Payable for securities purchased 991,206
Estimated tax liability on Indian investments (Note 5) 209,820
Investment advisory fee payable 142,321
Administration fee payable 35,580
Unrealized depreciation on forward foreign currency
contracts 205
Accrued expenses payable and other liabilities 318,427
-------------
Total Liabilities 1,697,559
-------------
Net Assets $ 150,405,575
-------------
-------------
NET ASSETS WERE COMPOSED OF:
Capital Stock, par value ($.01 per share, applicable to
19,607,100 shares issued: authorized 100,000,000
shares) $ 196,071
Paid-in-capital in excess of par 270,878,538
Treasury Stock at cost (3,500,000 shares--Note 6) (45,640,000)
Accumulated net investment loss (245,643)
Accumulated net realized losses from investments (28,855,504)
Net unrealized depreciation of investments (net of
estimated tax liability on Indian investments of
$209,820 - Note 5) (45,928,975)
Net unrealized appreciation on translation of assets and
liabilities in foreign currencies and forward foreign
currency contracts 1,088
-------------
Net Assets $ 150,405,575
-------------
-------------
Net asset value per share ($150,405,575
divided by 16,107,100 shares outstanding) $ 9.34
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
B-6
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $133,393) $ 2,597,793
Interest and discount earned 784,509
------------
Total Investment Income 3,382,302
------------
EXPENSES:
Investment advisory fee 2,301,847
Administration fee 575,461
Legal fees and expenses 385,107
Custodian's fees and expenses 282,580
Transfer agent's fees and expenses 183,596
Reports to shareholders 138,858
Directors' fees and expenses 72,116
Insurance expense 53,295
Independent accountants' fees and expenses 35,791
Amortization of deferred organization expenses 33,981
Registration fees 24,260
Miscellaneous expenses 12,235
------------
Total Expenses 4,099,127
------------
NET INVESTMENT LOSS (716,825)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments (net of taxes paid on Indian Investments of
$212,364) 3,269,878
Foreign currency transactions and forward foreign currency
contracts (160,676)
Net change in unrealized appreciation (depreciation) on:
Investments (net of change in estimated tax liability on
Indian investments of $56,530 - Note 5) (62,130,824)
Translation of assets and liabilities in foreign
currencies and forward foreign currency contracts 3,541
------------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS (59,018,081)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(59,734,906)
------------
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
B-7
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
<S> <C> <C>
- --------------------------------------------------------------------------------
INCREASE(DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (716,825) $ (508,543)
Net realized gain from investment
transactions 3,269,878 21,946
Net realized gain (loss) from
foreign currency transactions and
forward foreign currency contracts (160,676) 2,568,860
Net change in unrealized
appreciation (depreciation) on
investments (net of estimated tax
liability on Indian investments of
$209,820 and $266,350,
respectively - Note 5) (62,130,824) 8,574,019
Net change in unrealized
appreciation (depreciation) on
translation of assets and
liabilities in foreign currencies
and forward foreign currency
contracts 3,541 (245,390)
----------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (59,734,906) 10,410,892
----------------- -----------------
DIVIDENDS TO SHAREHOLDERS:
Investment income-net (1,826,573) -
----------------- -----------------
CAPITAL STOCK TRANSACTIONS (NOTE 6):
Cost of shares redeemed pursuant to
tender offer (45,640,000) -
Tender offer costs charged to paid
in capital in excess of par (237,658) (53,304)
----------------- -----------------
TOTAL CAPITAL STOCK TRANSACTIONS (45,877,658) (53,304)
----------------- -----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (107,439,137) 10,357,588
----------------- -----------------
NET ASSETS:
Beginning of year 257,844,712 247,487,124
----------------- -----------------
End of year (including undistributed
(accumulated) net investment
income (loss) of $(245,643) and
$1,826,585 for the years ended
1997 and 1996, respectively) $ 150,405,575 $ 257,844,712
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
B-8
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR YEAR YEAR DECEMBER 30,
ENDED ENDED ENDED 1993* TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.15 $ 12.62 $ 13.84 $ 14.01**
Investment Operations:
Net investment income (loss) (0.05) (0.03) 0.02 (0.01)
Net realized and unrealized gain (loss) on
investments (net of estimated tax
liability on Indian investments) and
foreign currency transactions and foreign
currency contracts (3.66) 0.56 (1.24) (0.16)
----------- ----------- ----------- -------
Total from investment operations (3.71) 0.53 (1.22) (0.17)
----------- ----------- ----------- -------
Less dividends from investment income-net (0.09) - - -
----------- ----------- ----------- -------
Tender offer costs charged to
paid-in-capital in excess of par (0.01) -+ - -
----------- ----------- ----------- -------
Net asset value, end of period $ 9.34 $ 13.15 $ 12.62 $ 13.84
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Market value, end of period $ 8.50 $ 12.00 $ 11.125 $ 12.00
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Total investment return based on (1):
Market value (28.62 )% 7.87% (7.29 )% (20.00 )%
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Net asset value (28.43 )% 4.20% (8.82 )% (1.21 )%
----------- ----------- ----------- -------
----------- ----------- ----------- -------
Ratio/Supplementary Data:
Net assets, end of period (Millions) $ 150.41 $ 257.84 $ 247.49 $ 271.42
Ratio of expenses to average net assets 1.78 % 1.57 % 1.65 % 1.59 %***
Ratio of expenses to average net assets
excluding conversion costs (Note 7) 1.59 % - - -
Ratio of net investment income (loss) to
average net assets (0.31 )% (0.19 )% 0.12 % (0.10 )%***
Portfolio turnover rate 39.14 % 34.71 % 66.79 % 19.76 %
Average commission rate per share**** $ 0.0142 $ 0.0224 N/A N/A
</TABLE>
* Commencement of investment operations.
** Net of $.09 offering expenses.
*** Annualized.
**** For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for trades on
which a commission is charged.
+ Less than $0.01 per share.
(1) Total investment return is calculated assuming a purchase of common
stock on the opening of the first day and a sale on the closing of the last
day of each period reported. Dividends and distributions, if any, are
assumed for the purposes of this calculation, to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Total investment
return does not reflect brokerage commissions paid to purchase shares of the
Fund. Generally, total investment return based on net asset value will be
higher than total investment return based on market value in periods where
there is an increase in the discount or a decrease in the premium of the
market value to the net asset value from the beginning to the end of such
periods. Conversely, total investment return based on net asset value will
be lower than total investment return based on market value in periods where
there is a decrease in the discount or an increase in the premium of the
market value to the net asset value from the beginning to the end of such
periods. Total investment returns for periods of less than one full year are
not annualized.
- --------------------------------------------------------------------------------
B-9
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES:
Schroder Asian Growth Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as a
non-diversified, closed-end management investment company. The Fund was
incorporated in Maryland on November 5, 1993 and investment operations
commenced on December 30, 1993. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of
its financial statements.
SECURITY VALUATION
Portfolio securities listed or traded on a recognized stock exchange or
NASDAQ National Market System are valued at the last reported sales price on
the exchange on which the securities are principally traded. Other
securities for which market quotations are readily available are valued at
the last sales price prior to the time of determination. If there is no
sales price on such date, and if bid and asked quotations are available,
such securities are valued at the mean between the last current bid and
asked prices. The value of a foreign security is determined in its national
currency as of 9:00 a.m., New York time, and that value is then converted
into its U.S. dollar equivalent on the day of valuation as of 11:30 a.m.,
New York time. Securities for which market quotations are not readily
available, and securities for which, in the judgment of the Investment
Adviser, the prices or values available do not represent the fair value of
the instrument, are valued at fair value, pursuant to the Fund's pricing
procedures as determined by the Adviser and approved in good faith by the
Board of Directors. In determining the fair value of such securities, the
Adviser and the Board consider all relevant information, including but not
limited to types of securities, current financial and market information and
restrictions on dispositions. The values assigned to the securities holdings
do not necessarily represent amounts which might ultimately be realized upon
their sale or other disposition, since such amounts depend on future
circumstances and cannot reasonably be determined until the actual
disposition occurs. However, because of the inherent uncertainty of such
valuations, those estimated values may differ significantly from the values
that would have been used had a ready market for the investments existed,
and the differences could be material. At October 31, 1997, the portfolio
contained three securities for which market quotations were not readily
available and which were fair valued pursuant to the Fund's procedures.
These securities had a total value of $2,453,134 representing 1.6% of the
Fund's net assets.
The Fund may enter into repurchase agreements whereby the Fund, through
its custodian, receives delivery of the underlying securities. The
underlying collateral is valued daily on a marked-to-market basis to assure
that the value, including accrued interest, is at least equal to the
repurchase price. In the event of a default of the obligation to repurchase,
the Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. If the seller defaults and the value of the
collateral declines, realization of the collateral by the Fund may be
delayed or limited.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on trade date. Dividend income is
recorded on the ex-dividend date except for certain dividends from foreign
securities which are recorded as soon as the Fund is informed of the
ex-dividend date. Interest income (including accretion of discount) is
recorded on the accrual basis. Realized gains and losses from security
transactions are determined on the identified cost basis.
FOREIGN CURRENCY TRANSLATION
Foreign currency amounts denominated in or expected to settle in foreign
currencies ("FC") are translated into U.S. dollars on the following basis:
market value of investment securities and other assets and liabilities at
- --------------------------------------------------------------------------------
B-10
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the rate of exchange at the end of the respective period, purchases and
sales of investment securities and income and expenses at the rate of
exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from the investment.
Reported net realized foreign exchange gains or losses arise from sales
of portfolio securities, sales and maturities of short-term securities,
sales of FCs, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books, and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses include
changes in the value of assets and liabilities, other than investments in
securities at fiscal year end, arising as a result of changes in the
exchange rate.
DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions payable by the Fund, if any, are accrued on
the ex-dividend date. Dividends from net investment income and capital gain
distributions are determined in accordance with U.S. Federal income tax
regulations, which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign
currency transactions, passive foreign investment companies and net
investment losses. As a result of these differences, at October 31, 1997,
the Fund decreased paid-in-capital by $549,102, decreased accumulated net
investment loss by $471,170, decreased accumulated net realized losses from
investments by $20,769 and decreased accumulated net realized losses from
foreign currency transactions and forward foreign currency contracts by
$57,163. Net assets were not affected by the reclassification.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward contracts to purchase or sell FCs to
protect against the effect of possible adverse movements in foreign exchange
rates on the U.S. dollar value of the underlying portfolio. Risks associated
with such contracts include the movement in value of the FC relative to the
U.S. dollar and the ability of the counterparty to perform. Forward foreign
currency contracts are valued at the forward rate and are marked-to-market
weekly. Fluctuations in the value of such contracts are recorded as
unrealized gains or losses; realized gains or losses include net gains or
losses on contracts which have terminated by settlement.
ORGANIZATIONAL COSTS
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized on a straight line basis over a
five-year period from the commencement of investment operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
2. PURCHASES AND SALES OF SECURITIES:
The aggregate cost of securities purchased and the proceeds from sales
of securities, excluding short-term investments, for the year ended October
31, 1997 were $83,156,326 and $149,297,647, respectively.
- --------------------------------------------------------------------------------
B-11
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FORWARD FOREIGN CURRENCY CONTRACTS AS OF OCTOBER 31, 1997:
<TABLE>
<CAPTION>
CONTRACTS TO UNREALIZED
DELIVER/ SETTLEMENT IN EXCHANGE APPRECIATION/
RECEIVE DATE FOR VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------
CONTRACTS TO BUY:
Hong Kong Dollar USD 331,191 11/03/97 HKD 2,560,505 $ 331,242 $ 51
Hong Kong Dollar USD 273,378 11/03/97 HKD 2,113,543 273,420 42
Japanese Yen USD 48,201 11/04/97 JPY 5,815,412 48,377 176
Japanese Yen USD 13,864 11/06/97 JPY 1,664,057 13,843 (21)
Malaysian Ringit USD 177,931 11/06/97 MYR 596,995 178,474 543
Malaysian Ringit USD 145,401 11/07/97 MYR 487,865 145,849 448
------
Total $ 1,239
------
------
CONTRACTS TO SELL:
Hong Kong Dollar HKD 2,403,436 11/03/97 USD (310,875) (310,923) (48)
Malaysian Ringit MYR 149,715 11/06/97 USD (44,622) (44,758) (136)
------
Total $ (184 )
------
------
</TABLE>
4. INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES:
The Fund retains Schroder Capital Management International, Inc. as
Investment Adviser (the "Adviser"). The Investment Advisory Agreement, as
amended on May 16, 1996, provides for a monthly fee at the annual rate of
(1) 1.00% of the Fund's average weekly net assets up to and including $300
million, and (2) 0.85% of the Fund's average weekly net assets in excess of
$300 million. The Fund paid or accrued fees to the Adviser of $2,301,847 for
the year ended October 31, 1997.
The Fund retains Princeton Administrators, L.P. as the Administrator.
Pursuant to the administration agreement, as amended on May 16, 1996, the
Administrator receives a monthly fee equal to the greater of (a) $150,000
per annum or (b) an annual rate of (1) 0.25% of the Fund's average weekly
net assets up to and including $300 million, and (2) 0.22% of the Fund's
average weekly net assets in excess of $300 million.The Fund paid or accrued
fees to the Administrator of $575,461 for the year ended October 31, 1997.
Several individuals who are directors and/or officers of the Fund are
also directors or officers of the Investment Advisor or its affiliates.
5. FEDERAL INCOME TAXES:
Since it is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its stockholders, no
Federal income tax provision is required.
For Federal income tax purposes, the tax basis of investment securities
owned is $192,677,609. At October 31, 1997, net unrealized depreciation on
investments was $(46,155,146). This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market value
over tax cost was $11,066,950 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over market
value was $57,222,096.
- --------------------------------------------------------------------------------
B-12
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
For Federal income tax purposes, the Fund had a capital loss carry
forward as of October 31, 1997 of $28,664,146 ($2,615,657 expiring in 2002
and $26,048,489 expiring in 2003) which is available to offset future
capital gains, subject to limitations imposed under the Internal Revenue
Code.
Under the applicable foreign tax law, a withholding tax may be imposed
on interest, dividends, and capital gains at various rates. Indian tax
regulateons require that taxes be paid on capital gains realized by the
Fund. At October 31, 1997, the Fund decreased net unrealized appreciation by
the estimated tax liability attributable to Indian investments of $209,820.
6. CAPITAL STOCK:
There are 100,000,000 shares of $.01 par value common stock authorized.
There are 16,107,100 shares issued and outstanding as of October 31, 1997.
On February 18, 1997, the Fund's Board of Directors approved a tender
offer (the "Tender Offer") to purchase up to 3.5 million shares of
outstanding common stock. The offer commenced on February 19, 1997 and
expired on March 20, 1997. The Fund received tenders representing 13,268,062
shares of common stock. Pursuant to the terms of the Tender Offer, the Fund
determined to accept 3.5 million common shares. As a result of the Tender
Offer, the Fund purchased 3.5 million shares for a total of $45,640,000.
As of October 31,1997 and October 31, 1996, costs incurred in connection
with the tender offer in the amount of $237,658 and $53,304, respectively,
have been charged to paid-in-capital in excess of par.
7. SUBSEQUENT EVENT:
On October 24, 1997, the shareholders of the Fund approved management's
proposal to convert the Fund from a closed-end to an open-end investment
company (the "Conversion"). Approval of this proposal included approval of
(1) amendments to the fundamental policies of the Fund to enable the Fund to
participate in an open-end Core and Gateway fund structure, (2) new
investment advisory agreements with the Investment Adviser to take effect
upon the Conversion, (3) changing the Fund's subclassification under the
Investment Company Act from a closed-end to an open-end company, and (4)
adopting an Agreement and Plan of Reorganization pursuant to which the Fund
would reorganize from a Maryland corporation into a Delaware business trust.
Following the Conversion, shares of the Fund will be subject to an
asset-based shareholder servicing fee of 0.25% per annum, and, for shares
purchased after the Conversion through brokers or other financial
intermediaries, a front-end sales charge based on the size of the purchase.
In addition, during the first six months after the conversion, open-end
shares received by stockholders of the Fund in the Conversion will be
subject to a redemption fee of 2.00%. Following the Conversion, stockholders
will be able to buy and sell at a price based on net asset value, subject
for the first six months to a redemption fee of 2.00%. In the course of
converting to an open-end fund, the Fund will also (a) convert from a
Maryland corporation to a Delaware business trust; and (b) commence
operating in a Core-and-Gateway fund-of-funds structure. There will be no
change in the Fund's investment objective and strategy. Schroder Capital
Management International, Inc. will continue to serve as investment adviser
for the Fund's investments.
As of October 31, 1997, costs incurred in connection with the Conversion
amounted to $431,366, the majority of which related to legal and transfer
agent fees.
- --------------------------------------------------------------------------------
B-13
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
PROXY RESULTS
During the year ended October 31, 1997, Schroder Asian Growth Fund, Inc.
shareholders voted on the following proposals. The proposals were approved at
the annual meeting of shareholders held on June 3, 1997. The description of the
proposals and number of shares voted are as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
SHARES
VOTED FOR ABSTENTIONS
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. To elect certain Directors: John I. Howell(1) 12,144,007 639,784
12,148,287 635,504
David M.
Salisbury(1)
12,146,872 636,919
Louise Croset(2)
(1) Nominee for Class II director to serve until 2000 annual meeting of stockholders
(2) Nominee for Class III director to serve until 1998 annual meeting of stockholders
- - -------------------------------------------------------------------------------------------------------
<CAPTION>
SHARES
SHARES VOTED
VOTED FOR AGAINST ABSTENTIONS
<S> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------
2. To ratify the selection of Coopers & Lybrand L.L.P.
as the Fund's independent accountants. 12,366,765 268,458 148,568
- - -------------------------------------------------------------------------------------------------------
</TABLE>
The following proposals were voted on at the Special Meeting of
Stockholders, October 24, 1997. The proposal to approve the Conversion of the
Fund to an open-end Core and Gateway Fund Structure, which required the
affirmative vote of holders of two-thirds of the outstanding shares of the Fund,
was approved. The proposal to eliminate the tender offer undertaking set forth
in the Fund's prospectus dated December 22, 1993, which required the affirmative
vote of a majority of the outstanding voting securities of the Fund, as defined
by the Investment Company Act of 1940, was not approved.
<TABLE>
<CAPTION>
SHARES SHARES
VOTED VOTED
FOR AGAINST ABSTAIN
----------- ----------- ---------
<S> <C> <C> <C> <C>
1. TO APPROVE THE CONVERSION OF THE FUND TO AN OPEN-END CORE AND 10,834,272 312,118 134,720
GATEWAY FUND STRUCTURE
2. TO ELIMINATE THE TENDER OFFER UNDERTAKING SET FORTH IN THE 7,121,328 437,017 253,171
FUND'S PROSPECTUS
</TABLE>
DIVIDEND REINVESTMENT PLAN
Shareholders whose shares are registered in their own names may elect to be
participants in the Dividend Reinvestment Plan (the "Plan"), pursuant to which
dividends and capital gain distributions to shareholders will be paid in or
reinvested in additional shares of the Fund (the "Dividend Shares"). State
Street Bank and Trust Company (the "Plan Agent") will act as agent for
participants under the Plan. Shareholders whose shares are held in the name of a
brokerage firm, bank, or other nominee should contact such nominee to see if it
will participate in the Plan on the shareholders' behalf. If the nominee is
unable to do so, the shareholder may wish to request that their shares be
reregistered in the shareholder's own name.
A shareholder may elect to withdraw from the Plan without penalty at any
time upon written notice to the Plan Agent. When a participant withdraws from
the Plan, or upon termination of the Plan, certificates for whole Dividend
Shares credited to the shareholder's account under the Plan will be issued and
cash payment will be made for any fractional Dividend Shares credited to such
account. An election to withdraw from the Plan will, until such election is
changed, be deemed to be an election by a shareholder to take all subsequent
dividends and distributions in cash. Elections will be effective immediately if
notice is received by the Plan Agent not less than ten days prior to any
dividend or distribution record date; otherwise, such termination will be
effective after the investment of the then current dividend or distribution. If
a withdrawing shareholder requests the Plan Agent to sell the
- --------------------------------------------------------------------------------
B-14
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
shareholder's Dividend Shares upon withdrawal from participation in the Plan,
the withdrawing shareholder will be required to pay a $2.50 fee plus brokerage
commission.
Whenever the Fund declares a distribution from capital gains or an income
dividend either in cash or in shares of the Fund, participants in the Plan will
receive shares of the Fund. Whenever the market price per share is equal to or
exceeds the net asset value of the valuation date, participants will be issued
shares of the Fund at a price per share equal to the greater of (a) the net
asset value per share on the date or (b) 95% of the market price of the Fund's
shares on the date. The valuation date will be the dividend or distribution
payment date or, if that date is not a trading day on the New York Stock
Exchange, the immediately preceding trading day. The Fund will not issue
Dividend Shares under the Plan at a price below net asset value. If net asset
value exceeds the market price of Fund shares as of the valuation date, or if
the Fund should declare a dividend or capital gains distribution payable only in
cash, the Plan Agent will, as agent for the participants, buy Fund shares in the
open market, on the New York Stock Exchange or elsewhere, for the participants'
accounts on or shortly after the payment date. If, before the Plan Agent has
completed its purchase, the market price exceeds the net asset value of a Fund
share, the average per share purchase price paid by the Plan Agent may exceed
the net asset value of the Fund's shares, resulting in the acquisition of fewer
Dividend Shares than if the dividend or capital gains distribution had been paid
in shares issued by the Fund.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in noncertificated form in
the name of the participant, and each shareholder's proxy will include those
Dividend Shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fee for the handling of reinvestment of
dividends and distributions will be paid by the Fund. There will be no brokerage
charges with respect to Dividend Shares issued directly by the Fund as a result
of dividends or capital gains distributions payable either in shares or in cash.
However, each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or capital gains distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any U.S. Federal income tax that may be payable on such
dividends or distributions. To the extent dividends and distributions are
reinvested in additional Shares issued by the Fund, participants should be
treated for U.S. Federal income tax purposes as receiving a distribution in an
amount equal the fair market value, determined as of the valuation date, of the
shares received (regardless of the net asset value of the shares on the
valuation date), and should have a cost basis in such shares equal to such fair
market value.
Experience under the plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to notice of the change
sent to participants in the plan at least 90 days before the record date for
such dividend or distribution. The Plan may also be amended or terminated by the
Plan Agent at least 90 days prior written notice to participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at
State Street Bank and Trust Company, P.O. Box 8200, Boston, Massachusetts
02266-8200, at 1-800-426-5523.
- --------------------------------------------------------------------------------
B-15
<PAGE>
- --------------------------------------------------------------------------------
SCHRODER ASIAN GROWTH FUND, INC.
- ------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Schroder Asian Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Schroder Asian Growth Fund, Inc., including the schedule of investments, as of
October 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the three years in the
period then ended, and for the period December 30, 1993 (commencement of
operations) to October 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Schroder Asian Growth Fund, Inc. as of October 31, 1997, the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended, and financial highlights for the
three years in the period then ended and for the period December 30, 1993
(commencement of operations) to October 31, 1994, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
December 4, 1997
B-16
