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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
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Two Portland Square, Portland, Maine 04101 Fund Literature: (800) 290-9826
Adviser Information: (800) 730-2932 Account Information: (800) 344-8332
General Information: (207) 879-8903 Fax: (207) 879-6206
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - PORTFOLIO INVESTMENT ADVISER
SCHRODER FUND ADVISORS INC. - ADMINISTRATOR & DISTRIBUTOR
This Prospectus offers Investor Shares of Schroder International Smaller
Companies Fund (the "Fund"), a separately managed, diversified portfolio of
Schroder Capital Funds (Delaware) (the "Trust"), an open-end, management,
investment company currently consisting of seven separate portfolios, each of
which has different investment objectives and policies. The Fund's investment
objective is long-term capital appreciation through investment in securities
markets outside the United States. There can be no assurance that the Fund will
achieve its investment objective.
THE FUND CURRENTLY SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY HOLDING, AS ITS
ONLY INVESTMENT SECURITIES, AN INTEREST IN SCHRODER INTERNATIONAL SMALLER
COMPANIES PORTFOLIO (THE "PORTFOLIO"), A SEPARATE PORTFOLIO OF SCHRODER CAPITAL
FUNDS ("CORE TRUST"), A REGISTERED OPEN-END, MANAGEMENT, INVESTMENT COMPANY WITH
THE SAME INVESTMENT OBJECTIVE AND SUBSTANTIALLY SIMILAR INVESTMENT POLICIES AS
THE FUND. ACCORDINGLY, THE FUND'S INVESTMENT EXPERIENCE WILL CORRESPOND DIRECTLY
WITH THE PORTFOLIO'S INVESTMENT EXPERIENCE. SEE "OTHER INFORMATION -- FUND
STRUCTURE." THE PORTFOLIO SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING, UNDER NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS TOTAL ASSETS IN
EQUITY SECURITIES OF COMPANIES DOMICILED OUTSIDE THE U.S. THAT, AT THE TIME OF
PURCHASE, HAVE MARKET CAPITALIZATIONS OF $1.5 BILLION OR LESS. INVESTMENTS IN
FOREIGN SECURITIES INVOLVE SPECIAL RISKS IN ADDITION TO THE RISKS ASSOCIATED
WITH INVESTMENTS IN GENERAL AND INVESTMENTS IN SMALLER CAPITALIZATION COMPANIES
INVOLVE GREATER RISKS THAN THOSE ASSOCIATED WITH INVESTMENTS IN LARGER
CAPITALIZATION COMPANIES.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
(the "SAI") dated November 1, 1996, and as amended from time to time, containing
additional information about the Fund, the Trust and Core Trust has been filed
with the Securities and Exchange Commission ("SEC") and is hereby incorporated
by reference into this Prospectus. It is available without charge and may be
obtained by writing or calling the Fund at the address and telephone numbers
printed above.
This Prospectus should be read and retained for information about the Fund.
THE SHARES OFFERED HEREBY ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE SYSTEM, OR ANY FEDERAL AGENCY.
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ANY INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT 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 is dated November 1, 1996.
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PROSPECTUS SUMMARY
THE FUND. The Fund is a separately managed, diversified portfolio of the Trust,
a Delaware business trust registered as an open-end, management, investment
company under the Investment Company Act of 1940 (the "Act"). The Fund's
investment objective is long-term capital appreciation through investment in
securities markets outside the U.S. Currently, the Fund seeks to achieve its
investment objective by investing all of its investable assets in Schroder
International Smaller Companies Portfolio ("the "Portfolio"), a series of Core
Trust, itself a registered open-end, management, investment company. The
Portfolio has the same investment objective and substantially similar investment
policies as the Fund. Accordingly, the investment experience of the Fund will
correspond directly with the investment experience of the Portfolio. The Fund
currently offers two separate classes of shares: Advisor Shares and Investor
shares. Only Investor Shares are offered through this Prospectus and are
sometimes referred to as the "Shares."
INVESTMENT ADVISER. The Portfolio's investment adviser is Schroder Capital
Management International Inc. ("Schroder Capital" or the "Adviser"), 787 Seventh
Avenue, New York, New York 10019. The investment advisory fee paid to Schroder
Capital by the Portfolio is borne indirectly by the Fund. See "Management of the
Fund -- Investment Adviser and Portfolio Manager." Prior to November 1, 1996,
the Fund had no operating history. The historical performance of the Adviser's
commingled investment fund for tax-exempt pension and profit sharing trusts
which has substantially similar policies, strategies and risks, managed by
Schroder Capital, the portfolio manager of the Portfolio, is presented in
Appendix A.
ADMINISTRATOR AND DISTRIBUTOR. Schroder Fund Advisors Inc. ("Schroder Advisors")
serves as administrator and distributor of the Fund and Forum Financial
Services, Inc. ("Forum") serves as the Fund's sub-administrator.
PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed by
mail, by bank-wire or through an investor's broker-dealer or other financial
institution. The minimum initial investment is $100,000, except that the minimum
for an Individual Retirement Account ("IRA") is $25,000. There is no minimum
amount for subsequent investments. See "Investment in the Fund -- Purchase of
Shares" and "-- Redemption of Shares."
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund declares annually and pays as a
dividend substantially all of its net investment income and realized net short-
term capital gain, and at least annually distributes any net realized long-term
capital gain and gains from foreign currency transactions. Dividends and capital
gain distributions are reinvested automatically in additional Investor Shares of
the Fund at net asset value unless the shareholder has notified the Fund in an
Account Application or otherwise in
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writing of the shareholder's election to receive dividends or other
distributions in cash. See "Dividends, Other Distributions and Taxes."
RISK CONSIDERATIONS. There can be no assurance that the Portfolio will achieve
its investment objective. The Fund's net asset value and total return will
fluctuate based upon changes in the value of the securities in which the
Portfolio invests so that upon redemption, an investment in the Fund may be
worth more or less than its original value. The Portfolio's policy of investing
in the securities of foreign issuers entails certain risks in addition to those
normally associated with investments in the securities of U.S. issuers,
including risks of foreign political and economic instability, adverse movements
in exchange rates, and the imposition or tightening of limitations on the
repatriation of capital. Investments in smaller capitalization companies involve
greater risks than those associated with investments in larger capitalization
companies. Accordingly, the Fund is not a complete investment program. See
"Additional Investment Policies and Risk Considerations." By investing solely in
the Portfolio, the Fund may achieve certain efficiencies and economies of scale.
Nonetheless, this investment could also have potential adverse effects on the
Fund. Investors in the Fund should consider these risks, as described under
"Other Information - Fund Structure."
FEE TABLE
The table below is intended to assist investors in understanding the
expenses that an investor in Investor Shares would incur. There are no
transaction expenses associated with purchases or redemptions of Investor
Shares.
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees(1). . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
12b-1 Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00%
Other Expenses(3) . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%
Total Fund Operating Expenses (after reimbursements)(4) . . . . . . 1.50%
(1) Management Fees include the investment advisory fee of 0.75% payable
to Schroder Capital and administrative fees of 0.25% payable to
Schroder Advisors. As long as the Fund's assets are invested in the
Portfolio, the Fund pays no advisory fees directly. See "Management".
For its services with respect to the Portfolio, the Investment
Advisory Agreement between Schroder Capital and the Trust provides
that Schroder Capital will receive a monthly advisory fee at the
annual rate of 0.85% of the Portfolio's average daily net assets.
Schroder Capital has agreed, however, to limit its fee to an annual
rate of 0.75% of the Portfolio's average daily net assets. Such
partial fee waiver shall remain in effect until its elimination
is approved by the Core Trust Board.
(2) The Fund has adopted a distribution plan, pursuant to rule 12b-1 under
the 1940 Act which authorizes payment of up to 0.50% of the Fund's
average daily net assets attributable to Investor Shares. Although
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the Fund currently does not pay 12b-1 fees, the Board in the future
may authorize payment of these fees. See "Distribution Plan and
Shareholder Services Plan" below.
(3) The amount of Other Expenses is an estimate of expenses relating to
Investor Shares for the Fund's first fiscal year assuming that net
assets of the Fund are at least $50 million.
(4) Total Fund Operating Expenses include the Fund's pro rata portion of
all operating expenses of the Portfolio. The Fund estimates that the
aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to the expenses the Fund would incur if its assets
were invested directly in portfolio securities.
Schroder Capital and Schroder Advisors have voluntarily undertaken to waive a
portion of their fees or assume certain expenses of the Fund to the extent that
the Fund's total expenses relating to Investor Shares exceed 1.50% of the Fund's
average net assets. This undertaking cannot be withdrawn except by a majority
vote of the Trust's Board of Trustees. See "Management -- Other Expenses."
EXAMPLE
Based on the expenses listed above, you would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return, (2) redemption at the end of
each time period, and (3) reinvestment of all dividends and other distributions:
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1 year. . . . . . . . . . . . $15
3 years . . . . . . . . . . . $47
5 year. . . . . . . . . . . . $82
10 years . . . . . . . . . . . $179
The 5% annual return is not a prediction of the Fund's return, but is required
by the SEC for purposes of these calculations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS, AND ACTUAL
EXPENSES OR RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
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INVESTMENT OBJECTIVE AND POLICIES
The Fund is designed for U.S. investors who seek capital appreciation and
international diversification of their investments by participating in foreign
securities markets. The Fund is not a complete investment program. Investments
in smaller capitalization companies involve greater risks than those associated
with investments in larger capitalization companies and investments in the
securities of foreign issuers generally involve risks in addition to risks
associated with investments in the securities of U.S. issuers.
INVESTMENT OBJECTIVE AND THE PORTFOLIO
The investment objective of the Fund is long-term capital appreciation through
investment in securities markets outside the United States. There can be no
assurance that the Fund will achieve its investment objective.
The Fund currently seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio, which has the same investment objective
and substantially similar investment policies. Therefore, although the following
discusses the investment policies of the Portfolio (and the responsibilities of
Core Trust Board), it applies equally to the Fund (and the Trust's Board of
Trustees). Additional information concerning the investment policies of the Fund
and the Portfolio is contained below and in the Statement of Additional
Information ("SAI").
INVESTMENT POLICIES
The Portfolio normally invests at least 65% of its total assets in equity
securities of companies domiciled outside the United States that have market
capitalizations under $1.5 billion at the time of investment. Investments by the
Portfolio are selected by Schroder Capital on the basis of their potential for
capital appreciation without regard for current income. Schroder Capital will
consider the following factors in determining the potential for capital
appreciation: (i) issuers' potential for long-term growth; (ii) issuers'
financial conditions; (iii) valuation; (iv) issuers' sensitivity to cyclical
factors; and (v) whether issuers' management holds a significant equity position
in the issuer.
The Portfolio may purchase preferred stock and convertible securities, including
warrants and convertible preferred stock, and may purchase American Depository
Receipts, European Depository Receipts, Global Depository Receipts or other
similar securities of foreign issuers. Depository receipts typically are
receipts issued by a financial institution or trust company evidencing ownership
of underlying securities. For temporary defensive purposes, the Portfolio may
invest without limitation in (or enter into repurchase agreements maturing in
seven days or less with U.S. banks and broker-dealers with respect to) short-
term debt securities, including U.S.
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Government securities, certificates of deposit and bankers' acceptances of U.S.
banks. The Portfolio may also hold cash and time deposits in foreign banks
denominated in any major foreign currency. See "Additional Investment Policies
and Risk Considerations" in the Prospectus and "Investment Policies" in the SAI
for further information about all these types of investments.
Countries in which the Portfolio may invest include, but are not limited to,
Japan, Germany, the United Kingdom, France, Italy, Belgium, Austria, Finland,
Ireland, New Zealand, Switzerland, the Netherlands, Hong Kong, Singapore,
Malaysia, Australia, Sweden, Norway, Denmark and Spain. The Portfolio has a non-
fundamental policy to invest in the securities of foreign issuers domiciled in
at least three foreign countries. In general, the Portfolio will invest only in
securities of companies and governments in countries that Schroder Capital, in
its judgment, considers both politically and economically stable. The Portfolio
may invest more than 25% of its total assets in issuers located in any one
country. To the extent it invests in issuers located in one country, the
Portfolio may be susceptible to factors adversely affecting that country. See
"Additional Investment Policies and Risk Considerations."
In selecting securities denominated in foreign currencies, Schroder Capital will
consider, among other factors, the effect of movement in currency exchange rates
on the U.S. dollar value of such securities. An increase in the value of a
currency will increase the total return to the Portfolio of securities
denominated in such currency. Conversely, a decline in the value of the currency
will reduce the total return. The Portfolio may also enter into foreign exchange
contracts, including forward contracts to purchase or sell foreign currencies,
in anticipation of its currency requirements and to protect against possible
adverse movements in foreign exchange rates. Although such contracts may reduce
the risk of loss to the Portfolio from adverse movements in currency values, the
contracts also limit possible gains from favorable movements. See "Additional
Investment Policies and Risk Considerations" below.
ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
INVESTMENT RESTRICTIONS
The investment objective and all investment policies of the Fund and the
Portfolio that are designated as fundamental may not be changed without approval
of the holders of a majority of the outstanding voting securities of the Fund or
the Portfolio "(shares"), as applicable. A majority of outstanding voting
securities means the lesser of (i) 67% of the shares present or represented at a
shareholder meeting at which the holders of more than 50% of the outstanding
shares are present or represented, or (ii) more than 50% of outstanding shares.
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Unless otherwise indicated, all investment policies of the Fund are not
fundamental and may be changed by the Trust Board without approval of the
shareholders of the Fund. Likewise, non-fundamental investment policies of the
Portfolio may be changed by the Core Trust Board without approval of the
Portfolio's interest holders. For more information concerning shareholder /
interestholder voting, see "Other Information -- Capitalization and Voting" and
"Other Information -- Fund Structure."
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INVESTMENT TYPES
COMMON AND PREFERRED STOCK AND WARRANTS. The Portfolio may invest in common and
preferred stock. Common stockholders are the owners of the company issuing the
stock and, accordingly, vote on various corporate governance matters such as
mergers. They are not creditors of the company, but rather, upon liquidation of
the company, are entitled to their pro rata share of the company's assets after
creditors (including fixed income security holders) and preferred stockholders,
if any, are paid. Preferred stock is a class of stock having a preference over
common stock as to dividends and, generally, as to the recovery of investment. A
preferred stockholder is a shareholder in a company and not a creditor of the
company, as is a holder of the company's fixed income securities. Dividends paid
to common and preferred stockholders are distributions of the earnings of the
company and not interest payments, which are expenses of the company. Equity
securities owned by the Portfolio may be traded in the over-the counter market
or on a securities exchange, but may not be traded every day or in the volume
typical of securities traded on a major U.S. national securities exchange. As a
result, disposition by the Portfolio of a security to meet withdrawals by
interest holders or otherwise may require the Portfolio to sell these securities
at a discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over a lengthy period of time. The market
value of all securities, including equity securities, is based upon the market's
perception of value and not necessarily the book value of an issuer or other
objective measure of a company's worth.
The Portfolio may also invest in 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) and usually during a specified period of time. The Portfolio
may not invest in warrants if, as a result, more than 5% of its net assets would
be so invested or if, more than 2% of its net assets would be invested in
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. These limitations notwithstanding, the Portfolio shall not be
prohibited from receiving warrants obtained involuntarily through corporate
actions of foreign issuers in connection with stock of such issuers held by
the Portfolio.
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase agreements. A
repurchase agreement is a means of investing monies for a short period. In a
repurchase agreement, a seller - a U.S. bank or recognized broker-dealer - sells
securities to the Portfolio and agrees to repurchase the securities at the
Portfolio 's cost plus interest within a specified period (normally one day). In
these transactions, the values of the underlying securities purchased by the
Portfolio are monitored at all times by Schroder Capital to ensure that the
total value of the securities equals or exceeds the value of the repurchase
agreement, and the Portfolio 's custodian bank holds the securities until they
are repurchased. In the event of default by the seller under the repurchase
agreement, the Portfolio may have difficulties in exercising its rights to the
underlying securities and may incur costs and experience time delays in
disposing of them. To evaluate potential risks, Schroder Capital reviews the
creditworthiness of those banks and dealers with which the Portfolio enters into
repurchase agreements.
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ILLIQUID AND RESTRICTED SECURITIES. As a non-fundamental policy, the Portfolio
will not purchase or otherwise acquire any security if, as a result, more than
15% of its net assets (taken at current value) would be invested in securities
that are illiquid by virtue of the absence of a readily available market or
because of legal or contractual restrictions on resale ("restricted
securities"). There may be undesirable delays in selling illiquid securities at
prices representing their fair value. This policy includes over-the-counter
options held by the Portfolio and the "in the money" portion of the assets used
to cover such options. The limitation on investing in restricted securities does
not include securities that may not be resold to the general public but may be
resold to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933, as amended. If Schroder Capital determines that a "Rule
144A security" is liquid pursuant to guidelines adopted by the Board, the
security will not be deemed illiquid. These guidelines take into account trading
activity for the securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, that security may become illiquid, which could
affect the Portfolio's liquidity. See "Investment Policies - Illiquid and
Restricted Securities" in the SAI for further information.
LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend portfolio securities
(other than in repurchase transactions) to brokers, dealers and other financial
institutions meeting specified credit conditions, if the loan is collateralized
in accordance with applicable regulatory requirements and if, after any loan,
the value of the securities loaned does not exceed 25% of the value of the
Portfolio 's total assets. By so doing, the Portfolio attempts to earn income
through the receipt of interest on the loan. In the event of the bankruptcy of
the other party to a securities loan, the Portfolio could experience delays in
recovering the securities it lent. To the extent that, in the meantime, the
value of the securities the Portfolio lent has increased, the Portfolio could
experience a loss.
The Portfolio may lend securities from its portfolio if liquid assets in an
amount at least equal to the current market value of the securities loaned
(including accrued interest thereon) plus the interest payable to the Portfolio
with respect to the loan is maintained as collateral by the Portfolio in a
segregated account. Any securities that the Portfolio may receive as collateral
will not become a part of its portfolio at the time of the loan, and, in the
event of a default by the borrower, the Portfolio will, if permitted by law,
dispose of such collateral except for such part thereof that is a security in
which the Portfolio is permitted to invest. During the time that the securities
are on loan, the borrower will pay the Portfolio any accrued income on those
securities, and the Portfolio may invest the cash collateral and earn income or
receive an agreed upon fee from a borrower that has delivered cash equivalent
collateral. Cash collateral received by the Portfolio will be invested in U.S.
Government securities and liquid high grade debt obligations. The value of
securities loaned will be marked to market daily. Portfolio securities purchased
with cash collateral are subject to possible depreciation. Loans of securities
by the Portfolio will be subject to termination at the Portfolio's or the
borrower's option. The Portfolio 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 Trust's Board of Trustees.
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OPTIONS AND FUTURES TRANSACTIONS. While the Portfolio does not presently intend
to do so, it may write covered call options and purchase certain put and call
options, stock index futures, and options on stock index futures and broadly-
based stock indices, all of which are referred to as "Hedging Instruments". In
general, the Portfolio may use Hedging Instruments: (1) to attempt to protect
against declines in the market value of the portfolio's securities, and thus
protect the Fund's net asset value per share against downward market trends, or
(2) to establish a position in the equities markets as a temporary substitute
for purchasing particular equity securities. The Portfolio will not use Hedging
Instruments for speculation. The Hedging Instruments which the Portfolio is
authorized to use have certain risks associated with them. Principal among such
risks are: (a) the possible failure of such instruments as hedging techniques
in cases where the price movements of the securities underlying the options or
futures do not follow the price movements of the portfolio securities subject to
the hedge; (b) potentially unlimited loss associated with futures transactions
and the possible lack of a liquid secondary market for closing out a futures
position; and (c) possible losses resulting from the inability of Schroder
Capital to correctly predict the direction of stock prices, interests rates and
other economic factors. The Hedging Instruments the Portfolio may use and the
risks associated with them are described in greater detail under "Options and
Futures Transactions" in the SAI.
SHORT SALES AGAINST-THE-BOX. The Portfolio may not sell securities short except
in "short sales against-the-box". For Federal income tax purposes, short sales
against-the-box may be made to defer recognition of gain or loss on the sale of
securities "in the box" and no income can result and no gain can be realized
from securities sold short against-the-box until the short position is closed
out. Such short sales are subject to the limits described under "Fundamental
Restrictions" above. See "Short Sales Against-the-Box" in the SAI for further
details.
DEPOSITORY RECEIPTS. The Portfolio may invest in certain issuers exclusively
or primarily through the purchase of sponsored and unsponsored American
Depository Receipts ("ADRs") or other similar securities, such as European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") or
International Depository Receipts ("IDRs") or through investment in
government-approved investment companies or other vehicles. ADRs are receipts
typically issued by U.S. banks evidencing ownership of the underlying
securities, into which they are convertible. 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 these 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. EDRs, GDRs and IDRs are similar to ADRs and are
designed for use in foreign markets.
FOREIGN EXCHANGE CONTRACTS. Changes in foreign currency exchange rates will
affect the U.S. dollar values of securities denominated in currencies other than
the U.S. dollar. The rate of exchange between the U.S. dollar and other
currencies fluctuates 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. When investing in foreign securities, the Portfolio usually effects
currency exchange transactions on a
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spot (I.E., cash) basis at the spot rate prevailing in the foreign exchange
market. The Portfolio incurs foreign exchange expenses in converting assets from
one currency to another.
The Portfolio may enter into foreign currency forward contracts or currency
futures or options contracts for the purchase or sale of foreign currency to
"lock in" the U.S. dollar price of the securities denominated in a foreign
currency or the U.S. dollar value of interest and dividends to be paid on such
securities, or to hedge against the possibility that the currency of a foreign
country in which the Portfolio has investments may suffer a decline against the
U.S. dollar. 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. This method of attempting to hedge the value of portfolio
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities and may expose the
Portfolio to the risk that the counterparty is unable to perform. 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. The
Portfolio does not intend to maintain a net exposure to such contracts where
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 Portfolio will not
enter into these contracts for speculative purposes and will not enter into
non-hedging currency contracts. These contracts involve a risk of loss if
Schroder Capital fails to predict currency values correctly.
The Portfolio will be required to distribute substantially all of its investment
income in U.S. dollars. Because most of the Portfolio's income will be received
and realized in foreign currencies; a decline in the value of a particular
foreign currency against the U.S. dollar occurring after the Portfolio's income
has been earned may require the Portfolio to liquidate some portfolio securities
to acquire sufficient U.S. dollars to make such distributions. Similarly, if the
exchange rate declines between the time the Portfolio incurs expenses in U.S.
dollars and the time such expenses are paid, the Portfolio may be required to
liquidate additional foreign securities to purchase the U.S. dollars required to
meet such expenses.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From time
to time, in the ordinary course of business, the Portfolio 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 can
take place a month or more after the date of the commitment. There is no overall
limit on the percentage of the Portfolio'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 Portfolio's assets committed to the
purchase of securities on a
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when-issued, delayed delivery or forward commitment basis may increase the
volatility of the Portfolio's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Portfolio 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
Portfolio will have lost an investment opportunity. There is no overall limit on
the percentage of the Portfolio'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 Portfolio'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.
DEBT SECURITIES. The Portfolio may also invest in debt obligations of the United
States and its subdivisions, foreign governments, international organizations
and foreign corporations. The Portfolio may from time to time invest up to 5% of
its total assets in debt securities with high risk and high yields (as compared
to other debt securities meeting the Portfolio's investment criteria). The debt
securities in which the Portfolio invests may be unrated, but will not be in
default at the time of purchase. The value of debt securities generally varies
inversely with interest rate changes. See "Additional Investment Policies and
Risk Considerations."
RISK CONSIDERATIONS
FOREIGN INVESTMENTS. All investments, domestic and foreign, involve certain
risks. Investment in the securities of foreign issuers may involve risks in
addition to those normally associated with investments in the securities of U.S.
issuers. In general, the Portfolio will invest only in securities of companies
and governments in countries that Schroder Capital, in its judgment, considers
both politically and economically stable. Nevertheless, all foreign investments
are subject to risks of foreign political and economic instability, adverse
movements in foreign exchange rates, the imposition or tightening of exchange
controls or other limitations on repatriation of foreign capital and changes in
foreign governmental attitudes towards private investment possibly leading to
nationalization, increased taxation or confiscation of Portfolio assets. To the
extent the Portfolio invests substantially in issuers located in one country or
area, such investments may be subject to greater risk in the event of political
or social instability or adverse economic developments affecting that country or
area.
Moreover, (i) dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income earned by the Portfolio, and thus
available for distribution to the Fund's, shareholders; (ii) commission rates
payable on foreign portfolio transactions are generally higher than in the
United States; (iii) accounting, auditing and financial reporting standards
differ from those in the United States, which means that less information about
foreign companies may be available than is generally available about issuers of
comparable securities in the U.S.; (iv) foreign securities often trade less
frequently and with less volume than U.S. securities and consequently may
exhibit greater price volatility; and (v) foreign securities trading practices,
including those involving
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securities settlement, may expose the Portfolio to increased risk in the event
of a failed trade or the insolvency of a foreign broker-dealer or registrar.
CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will invest
heavily in non-U.S. currency denominated securities, changes in foreign currency
exchange rates will affect the value of the Portfolio's investments. A decline
in the value of currencies in which the Portfolio's investments are denominated
against the U.S. dollar will result in a corresponding decline in the U.S.
dollar value of its assets
SMALLER COMPANIES. Investments in smaller capitalization companies involve
greater risks than those associated with investments in larger capitalization
companies. Smaller capitalization companies generally experience higher growth
rates and higher failure rates than do larger capitalization companies. The
trading volume of securities of smaller capitalization companies is normally
less than that of larger capitalization companies and, consequently, generally
has a disproportionate effect on their market price, tending to make them rise
more in response to buying demand and fall more in response to selling pressure
than is the case with larger capitalization companies.
Investments in small, unseasoned issuers generally involve greater risk than is
customarily associated with larger, more seasoned companies. Such issuers often
have products and management personnel which have not been thoroughly tested by
time or the marketplace and their financial resources may not be as substantial
as those of more established companies. Their securities, which the Portfolio
may purchase when they are offered to the public for the first time,
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may have a limited trading market, which may adversely affect their sale by the
Portfolio and can result in such securities being priced lower than otherwise
might be the case. If other institutional investors engage in trading this type
of security, the Portfolio may be forced to dispose of its holdings at prices
lower than might otherwise be obtained.
GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its total
assets in issuers located in any one country. See "Investment Policies" above.
To the extent it invests in issuers located in one country, the Portfolio is
susceptible to factors adversely affecting that country. In particular, these
factors may include the political and economic developments and foreign exchange
rate fluctuations discussed above. As a result of investing substantially in one
country, the value of the Portfolio's assets may fluctuate more widely than the
value of shares of a comparable portfolio having a lesser degree of geographic
concentration.
PORTFOLIO TURNOVER. Although the Portfolio does not currently intend to do so,
it may in the future engage in short-term trading, but its portfolio turnover
rate is not expected to exceed 100%.
MANAGEMENT OF THE FUND
BOARDS OF TRUSTEES
The business and affairs of the Fund are managed under the direction of the
Trust Board. The business and affairs of the Portfolio are managed under the
direction of the Core Trust Board. The Trustees of both Trust and Core Trust
(collectively the "Trusts") are Peter E. Guernsey, John I. Howell, Laura E.
Luckyn-Malone, Clarence F. Michalis, Hermann C. Schwab and Mark J. Smith.
Additional information regarding the Trustees and the respective executive
officers of the Trusts may be found in the SAI under the heading "Management --
Trustees and Officers." The Trust Board and the Core Trust Board have
separately adopted written procedures reasonably appropriate to deal with
potential conflicts of interest.
INVESTMENT ADVISER AND PORTFOLIO MANAGER
The Fund currently invests all of its investment assets in the Portfolio.
Schroder Capital serves as investment adviser to the Portfolio. Schroder
Capital manages the investment and reinvestment of the Portfolio's assets and
continuously reviews, supervises and administers the Portfolio's investments.
In this regard, it is the responsibility of Schroder Capital to make decisions
relating to the Portfolio's investments and to place
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purchase and sale orders regarding investments with brokers or dealers selected
by it in its discretion. For its services provided to the Portfolio, Schroder
Capital receives a monthly advisory fee at the annual rate of 0.75% of the
Portfolio's average daily net assets. The Fund indirectly bears Schroder
Capital's advisory fees through its investment in the Portfolio. The Investment
Advisory Agreement between Schroder Capital and the Trust provides that
Schroder Capital may receive a monthly advisory fee at the annual rate of
0.85% of the Portfolio's average daily net assets. Schroder Capital has
agreed, however, to limit its fee to an annual rate of 0.75% of such assets.
Such partial fee waiver shall remain in effect until its elimination is
approved by the Core Trust Board.
Schroder Capital is a wholly-owned U.S. subsidiary of Schroders Incorporated,
the wholly-owned U.S. subsidiary of Schroders plc, a publicly owned company
organized under the laws of England. Schroders plc is the holding company parent
of a large world-wide group of banks and financial services companies (referred
to as the "Schroder Group"), with associated companies and branch and
representative offices located in eighteen countries world-wide. The Schroder
Group specializes in providing investment management services with assets under
management as of June 30, 1996, in excess of $130 billion.
As of the date of this Prospectus, Schroder Capital has been investing in
international small companies as a specialist area for over 20 years and has
14 analysts dedicated to following small company stock. Schroders' analysts
maintain contact with over 1,500 small companies in a typical year and conduct
over 900 exclusive on-site company visits.
Laura Luckyn-Malone, a Trustee and President of the Trusts, with the assistance
of an investment committee, is primarily responsible for the day-to-day
management of the Portfolio's investments. Ms. Luckyn-Malone has been a Managing
Director of Schroder Capital since October 1995 and has been a Senior Vice
President and Director of Schroder Capital since 1990.
The Fund began pursuing its investment objective through investment in the
Portfolio upon commencement of operations. The Fund may withdraw its investment
from the 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. See "Other Information
- -- Fund Structure." Accordingly, the Trust has retained Schroder Capital as its
investment adviser to manage the Fund's assets in the event the Fund withdraws
its investment. Schroder Capital does not receive an investment advisory fee
from the Fund so long as the Fund remains completely invested in the Portfolio
or any other investment company. If the Fund resumes directly investing in
portfolio securities, it will pay Schroder Capital a monthly advisory fee equal
on an annual basis to 0.75% of the Fund's average daily net assets. The
investment advisory contract between Schroder Capital and the Trust with respect
to the Fund is the same in all material respects as Core Trust's Investment
Advisory Contract with respect to the portfolios, except as to the parties, the
fees payable thereunder, the circumstances under which fees will be paid and the
jurisdiction whose laws govern the contract.
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ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an administrative services
agreement with Schroder Advisors, 787 Seventh Avenue, New York, New York
10019. Schroder Advisors is a wholly-owned subsidiary of Schroder Capital. On
behalf of the Fund, the Trust has also entered into an administrative services
agreement with Forum, Two Portland Square, Portland, Maine 04101. Pursuant to
these agreements, Schroder Advisors and Forum provide certain management and
administrative services necessary for the Fund's operations, other than the
administrative services provided to the Fund by Schroder Capital. For these
services, the Fund pays Schroder Advisors a monthly fee at the rate of of
0.10% of the Fund's average daily net assets and pays Forum a monthly fee at
an annual rate of 0.075% of the Fund's average daily net assets.
Schroder Advisors and Forum provide similar services to the Portfolio, for
which the Portfolio pays Schroder Advisors at an annual rate of 0.15% and pays
Forum a monthly fee at the annual rate of 0.075% of the Portfolio's average
daily net assets.
DISTRIBUTION PLAN
Schroder Advisors acts as distributor of the Fund's shares. Schroder Advisors
was organized in 1989 and registered as a broker-dealer to serve as an
administrator and distributor of the Fund and other mutual funds. Under a
distribution plan, pursuant to Rule 12b-1 under the Act (the "Distribution
Plan") adopted by the Trust on behalf of the Fund, which is in the form of a
reimbursement plan, the Trust each month may potentially reimburse Schroder
Advisors, as distributor, for costs and expenses incurred in connection with the
distribution of Investor Shares. Such reimbursement is subject to a limit on an
annual basis to 0.50% of the Fund's average daily net assets attributable to
Investor Shares. The Fund will not make any payments under the Distribution Plan
with respect to Investor Shares until the Board so authorizes.
Payment or reimbursement under the Distribution Plan may be for various types of
costs, including: (1) advertising expenses, (2) costs of printing prospectuses
and other materials to be given or sent to prospective investors, (3) expenses
of sales employees or agents of Schroder Advisors, including salary,
commissions, travel and related expenses in connection with the distribution of
Investor Shares, (4) payments to broker-dealers who advise shareholders
regarding the purchase, sale, or retention of Investor Shares, and (5) payments
to banks, trust companies, broker-dealers (other than Schroder Advisors) or
other financial organizations (collectively, "Service Organizations"). Payments
to Service Organizations under the Distribution Plan are calculated by reference
to the average daily net assets of
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Investor Shares held by shareholders who have a brokerage or other service
relationship with the Service Organization. The Fund will not be liable for
distribution expenditures made by Schroder Advisors in any given year in excess
of the maximum amount payable under the Distribution Plan in that year. Costs or
expenses in excess of the per annum limit may not be carried forward to future
years. Salary expenses of sales personnel who are responsible for marketing
various shares of portfolios of the Trust may be allocated to those portfolios,
including the Investor Shares of the Fund, that have adopted a plan similar to
that of the Fund on the basis of average daily net assets. Travel expenses may
be allocated to, or divided among, the particular portfolios of the Trust for
which they are incurred.
EXPENSES
Schroder Capital and Schroder Advisors have voluntarily undertaken to waive a
portion of their fees or assume certain expenses of the Fund.
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This undertaking is designed to place a maximum limit on total Fund expenses
(excluding taxes, interest, brokerage commissions and other portfolio
transaction expenses and extraordinary expenses) chargeable to Investor Shares
of 1.50% of the average daily net assets of the Fund attributable to those
shares. This expense limitation cannot be modified or withdrawn except by a
majority vote of the Trustees of the Trust who are not affiliated persons (as
defined in the Act) of the Trust. If expense reimbursements are required, they
will be made on a monthly basis. Forum agrees to waive, up to 0.025%, a pro
rate portion of its fees at the Fund level to the extent necessary to keep the
total expense ratio for the Schroder International Smaller Companies Fund,
including indirect expenses borne by the Fund as a result of investing in the
Core Portfolio, at or below 1.50% of average daily net assets in the Fund.
PORTFOLIO TRANSACTIONS
Schroder Capital places orders for the purchase and sale of the Portfolio's
investments with brokers and dealers selected by Schroder Capital in its
discretion and seeks "best execution" of such portfolio transactions. The
Portfolio may pay higher than the lowest available commission rates when
Schroder Capital believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction. Commission rates for brokerage transactions are fixed on many
foreign securities exchanges, and this may cause higher brokerage expenses to
accrue to the Portfolio than would be the case for comparable transactions
effected on U.S. securities exchanges.
Subject to the Portfolio's policy of obtaining the best price consistent with
quality of execution on transactions, Schroder Capital may employ Schroder
Securities Limited and its affiliates (collectively, "Schroder Securities"),
affiliates of Schroder Capital, to effect transactions of the Portfolio on
certain foreign securities exchanges. Because of the affiliation between
Schroder Capital and Schroder Securities, the Portfolio's payment of commissions
to Schroder Securities is subject to procedures adopted by Core Trust Board
designed to ensure that such commissions will not exceed the usual and
customary brokers' commissions. No specific portion of the Portfolio's brokerage
will be directed to Schroder Securities and in no event will Schroder Securities
receive such brokerage in recognition of research services.
Consistent with the Rules of the Association of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Core Trust Board may
determine, Schroder Capital may consider sales of shares of the Fund or any
other entity that invests in the Portfolio as a factor in the selection of
broker-dealers to execute portfolio transactions for the Portfolio.
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Although the Portfolio does not currently engage in directed brokerage
arrangements to pay expenses, it may do so in the future. These are arrangements
whereby brokers executing the Portfolio's portfolio transactions would agree to
pay designated expenses of the Portfolio if brokerage commissions generated by
the Portfolio reached certain levels. These arrangements might reduce the
Portfolio's expenses (and, indirectly, the Fund's expenses). As anticipated,
these arrangements would not materially increase the brokerage commissions paid
by the Portfolio.
CODE OF ETHICS
The Trust, Core Trust, Schroder Capital, Schroder Advisors, and Schroders
Incorporated have adopted codes of ethics that contain a policy on personal
securities transactions by "access persons," including portfolio managers and
investment analysts. That policy complies in all material respects with the
recommendations set forth in the Report of the Advisory Group on Personal
Investing of the Investment Company Institute, of which the Trust is a member.
INVESTMENT IN THE FUND
PURCHASE OF SHARES
Investors may purchase Investor Shares directly from the Trust. Prospectuses,
sales material and Account Applications can be obtained from the Trust or
through Forum Financial Corp., the Fund's transfer agent ("Transfer Agent"). See
"Other Information -- Shareholder Inquiries." Investments may also be made
through Service Organizations that assist their customers in purchasing shares
of the Fund. Such Service Organizations may charge their customers a service fee
for processing orders to purchase or sell shares of the Fund. Investors wishing
to purchase shares through their accounts at a Service Organization should
contact that organization directly for appropriate instructions.
Shares of the Fund are offered at the net asset value next determined after
receipt of a completed Account Application (at the address set forth below). The
minimum initial investment is $100,000, except that the minimum for an IRA is
$25,000. There is no minimum amount for subsequent investments. Schroder
Capital reserves the right to waive the minimum initial investment at its
discretion. All purchase payments are invested in full and fractional shares.
The Fund is authorized to reject any purchase order.
Initial and subsequent purchases may be made by mailing a check (in U.S.
dollars), payable to "Schroder International Smaller Companies Fund", to:
Schroder International Smaller Companies Fund
P.O. Box 446
Portland, Maine 04112
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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.
Investors and Service Organizations (on behalf of their customers) may transmit
purchase payments by Federal Reserve Bank wire directly to the Fund as follows:
Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Financial Corp.
Acct. No.: 910-2-718187
Ref.: Schroder International Smaller Companies Fund - Investor Shares
Account of: (shareholder name)
Account Number: (shareholder account number)
The wire order must specify the name of the Fund, the Investor Shares class, 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 an Account Application must be completed and mailed
to the Fund. Wire orders received prior to 4:00 p.m. (Eastern Time) on each day
that the New York Stock Exchange is open for trading (a "Fund Business Day")
will be processed at the net asset value determined as of that day. Wire orders
received after 4:00 p.m. (Eastern Time) will be processed at the net asset value
determined as of the next Fund Business Day. See "Net Asset Value" below.
For each shareholder of record, the Fund's Transfer Agent, as the shareholder's
agent, establishes an open account to which all shares purchased are credited,
together with any dividends and capital gain distributions that are reinvested
in additional shares. Although most shareholders elect not to receive share
certificates, certificates for full shares can be obtained by specific 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 capital gains will be reinvested. In addition, the
amount of any outstanding checks for dividends and capital gains that have been
returned to the Transfer Agent will be reinvested and such checks will be
canceled.
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RETIREMENT PLANS
Shares of the Fund are offered in connection with tax-deferred retirement plans.
Applications 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.
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund may be used as an investment vehicle for an IRA including SEP-IRA. An
IRA naming The First National Bank of Boston as custodian is available from the
Trust or the Transfer Agent. The minimum initial investment for an IRA is
$25,000. Under certain circumstances contributions to an IRA may be tax
deductible. IRAs are available to individuals who receive compensation or earned
income and their spouses, whether or not they are active participants in a tax-
qualified or government-approved retirement plan. An IRA contribution by an
individual who participates, or whose spouse 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 a qualified plan.
Tax advice should be obtained before effecting a rollover.
REDEMPTION OF SHARES
Shares of the Fund are redeemed at their next determined net asset value
following receipt by the Fund (at the address set forth above under "Purchase of
Shares") of a redemption request in proper form. See "Net Asset Value."
Redemption requests may be made between 9:00 a.m. and 6:00 p.m. (Eastern Time)
on each Fund Business Day. Redemption requests that are received prior to 4:00
p.m. (Eastern Time) will be processed at the net asset value determined as of
that day. Redemption requests that are received after 4:00 p.m. (Eastern Time)
on a Fund Business Day will be processed at the net asset value determined the
next Fund Business Day. See "Net Asset Value" below.
BY TELEPHONE. Redemption requests may be made by telephoning the Transfer Agent
at the Account Information telephone number on the cover page of this
Prospectus. 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 such as a password. 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
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such 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 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 changes, 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.
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 Account
Information telephone number appearing on the cover of this Prospectus.
If 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 Fund suggests that certificates be sent by
registered mail.
ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds will normally
be mailed within seven days. No redemption proceeds will be mailed until checks
in payment for the purchase of the 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
will be sent to the shareholder's address of record.
The Fund may suspend the right of redemption during any period when (i) trading
on the New York Stock Exchange is restricted or that exchange is closed, (ii)
the SEC has by order permitted such suspension, or (iii) an emergency, as
defined by rules of the SEC, exists making disposal of portfolio investments or
determination of the Fund's net asset value not reasonably practicable.
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If the Trust Board 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 Shares in whole or in part by a distribution in kind
of portfolio securities (from the investment portfolio of the Portfolio or of
the Fund), in lieu of cash, in conformity with applicable rules of the SEC. The
Fund will, however, redeem 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 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 -- Redemption in Kind" 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.
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 fell below that amount solely as a result of market activity.
Shareholders will be notified that the value of the account is less than $2,000
and be allowed at least 30 days to make an additional investment to increase the
account balance to at least $2,000.
NET ASSET VALUE
The net asset value per share of the Fund is calculated separately for each
class of Shares of the Fund at 4:00 p.m. (Eastern Time), Monday through Friday,
each Fund Business Day, which excludes the following U.S. holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share is calculated by
dividing the aggregate value of the Fund's assets less all Fund liabilities, if
any, by the number of Shares of the Fund outstanding.
Generally, securities held by the Portfolio 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 proceeding 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 Core Trust Board.
Trading in securities on non-U.S. exchanges and over-the-counter markets may not
take place on every day that the New York Stock Exchange is open for trading.
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Furthermore, trading takes place in various foreign markets on days on which the
Fund's net asset value is not calculated. If events materially affecting the
value of foreign securities occur between the time when their price is
determined and the time when net asset value is calculated, such securities will
be valued at fair value as determined in good faith by using methods approved by
the Core Trust Board.
All assets and liabilities of the Portfolio denominated in foreign currencies
are valued in U.S. dollars based on the exchange rate last quoted by a major
bank prior to the time when the net asset value of the Fund is calculated.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
THE FUND
The Fund intends to comply with the provisions of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable to regulated
investment companies. By complying therewith, the Fund will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of its share of the Portfolio's net investment income, net
short-term capital gain and gain from certain foreign currency transactions) and
net long-term capital gain that is distributed to its shareholders. The Fund
intends to distribute substantially all of its net investment income and its net
realized long-term capital gain at least annually and, therefore, intends not to
be subject to Federal income tax.
If the Fund is eligible to do so, it intends to elect to permit its shareholders
to take a credit ( or a deduction) for the Fund's share of foreign income taxes
paid by the Portfolio. If the Fund makes such an election its shareholders would
include as gross income in their Federal income tax returns both distributions
received from the Fund and the amount that the Fund advises is their pro rata
portion of foreign income taxes paid with respect to or withheld from, dividends
and interest paid to the Portfolio 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 Fund intends to declare annually and pay as a dividend substantially
all of its net investment income and net short-term capital gain and to
distribute annually any net capital gain (the excess of net long-term capital
gain over net short-term capital loss) and net realized gains from foreign
currency transactions. The Fund also may make an additional dividend or other
distribution if necessary to avoid a 4% excise tax on certain undistributed
income and gain. Dividends and capital gain distributions on Investor Shares are
reinvested automatically in additional Investor Shares at net asset value unless
the shareholder has elected in the Account Application, or otherwise in writing,
to receive distributions in cash.
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After every dividend and other distribution, the value of a Share declines by
the amount of the distribution. Purchases made shortly before a dividend or
other distribution include in the purchase price the amount of the distribution,
which will be returned to the investor in the form of a taxable distribution.
Dividends and other distributions paid by the Fund with respect to both classes
of its shares will be calculated in the same manner and at the same time. The
per share dividends on Advisor Shares are expected to be lower than the per
share dividends on Investor Shares as a result of any 12b-1 fees and other
compensation payable to Service Organizations for distribution assistance and
shareholder servicing for the Advisor Shares.
Dividends from the Fund's taxable income generally will be taxable to its
shareholders as ordinary income whether they are invested in additional Shares
or received in cash. Distributions by the Fund of any net capital gain
designated by the Fund as such will be taxable to a shareholder as long-term
capital gain, regardless of how long the shareholder has held the Shares and
whether they are invested in additional Shares or received in cash. Each year
the Trust will notify shareholders of the tax status of dividends and other
distributions.
As of the date of this Prospectus, and subject to changes in the tax law, a
redemption of 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 adjusted basis for the redeemed Shares. If 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 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
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<PAGE>
Fund may also be subject to state and local taxes, including withholding taxes.
Shareholders should consult their own tax advisors as to the tax consequences of
ownership of Shares in their particular circumstances.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the SAI
for further information.
THE PORTFOLIO
The Portfolio will not be required to pay Federal income tax on its net
investment income and capital foreign currency gains because it is classified as
a partnership for Federal income tax purposes. All interest, dividends and gains
and losses of the Portfolio will be deemed to have been "passed through" to the
Fund in proportion to its holdings in the Portfolio, regardless of whether such
interest, dividends or gains have been distributed by the Portfolio.
The Portfolio intends to conduct its operations so as to enable the Fund to
qualify as a RIC. Investment income received by the Portfolio from sources
within foreign countries may be subject to foreign income or other taxes, which
will reduce the yield on its securities.
OTHER INFORMATION
CAPITALIZATION AND VOTING
The Trust was organized as a Maryland corporation ("Schroder Capital Funds,
Inc.") on July 30, 1969 and on January 9, 1996 was reorganized 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 portfolios or series into classes of
shares (such as the Investor Shares), and the costs of doing so will be borne by
the Trust. The Trust currently consists of seven separate portfolios, each of
which has separate investment objectives and policies. The Fund currently
consists of two classes of Shares.
Each share of the Fund is entitled to participate equally in dividends and other
distributions and the proceeds of any liquidation except that, due to the
differing expenses borne by the classes, dividends and liquidation proceeds for
each class will likely differ. Shares are fully paid and non-
-29-
<PAGE>
assessable, and have no pre-emptive rights. Shareholders 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. A shareholder is entitled to one vote for each full share held
(and a fractional vote for each fractional share held). On matters requiring
shareholder approval, shareholders of the Trust are entitled to vote only with
respect to matters that affect the interests of the Fund or the class of shares
they hold, except as otherwise required by applicable law.
There will normally be 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 and
the Trust Board will call a special meeting of shareholders to consider removal
of one or more Trustees if requested in writing to do so by the holders of not
less than 10% of the outstanding shares of the Trust. Each share of the Fund has
equal voting rights, except that if a matter affects only the shareholders of a
particular class only shareholders of that class shall have a right to vote.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote.
REPORTS
The Trust sends to each shareholder of the Fund a semi-annual report and an
audited annual report.
PERFORMANCE INFORMATION
The Fund may, from time to time include quotations of its total return in
advertisements or reports to shareholders or prospective investors. The return
is calculated separately for each class of the Fund. Quotations of average
annual total return will be expressed in terms of the average annual compounded
rate of return of a hypothetical investment in a class of Shares over a period
of 1, 5 and 10 years or over the life of the Fund, if shorter. Total return
quotations assume that all dividends and other distributions are reinvested when
paid.
Performance information for the Fund may be compared to various unmanaged
securities indices, groups of mutual funds tracked by mutual fund ratings
services, other general economic indicators, or the prior performance of the
Adviser (SEE Appendix A). Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for the Fund represents only past performance and does
not necessarily indicate future results. Performance information should be
considered in light of the Fund's
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<PAGE>
investment objective and policies, and the market conditions during the given
time period and should not be considered as a representation of what may be
achieved in the future. For a description of the methods used to determine total
return for the Fund, see the SAI.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. is custodian of the Fund's and of the Portfolio's
assets. Forum Financial Corp. serves as the Fund's transfer and dividend
disbursing agent.
SHAREHOLDER INQUIRIES
Inquiries about the Fund, including its past performance, should be directed to:
Schroder International Smaller Companies Fund
P.O. Box 446
Portland, Maine 04112
Information about specific shareholder accounts may be obtained from the
Transfer Agent by calling (800) 344-8332.
CERTAIN SERVICE ORGANIZATIONS
The Glass-Steagall Act and other applicable laws and regulations provide that
banks may not engage in the business of underwriting, selling or distributing
securities. There is currently no precedent prohibiting banks from performing
administrative and shareholder servicing functions as Service Organizations.
However, judicial or administrative decisions or interpretations of such laws,
as well as changes in either Federal or state regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, could
prevent a bank Service Organization from continuing to perform all or part of
its servicing activities. If a bank were prohibited from so acting, its
shareholder clients would be permitted to remain shareholders of the Fund and
alternative means for continuing the servicing of such shareholders would be
sought. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
FUND STRUCTURE
CLASSES OF SHARES. The Fund has two classes of shares, Investor Shares and
Advisor Shares. Advisor Shares are offered by a separate prospectus to
individual investors, in most cases through Service Organizations. Advisor
Shares incur more expenses than Investor Shares. Except for certain differences,
each share of each class represents an undivided, proportionate interest in the
Fund. Each share of the Fund is entitled to participate equally in dividends and
other distributions and the proceeds of any liquidation of the Fund
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<PAGE>
except that, due to the differing expenses borne by the two classes, the amount
of dividends and other distributions will differ between the classes.
Information about Advisor Shares is available from the Fund by calling Schroder
Advisors at (800) 730-2932.
THE PORTFOLIO. The Fund seeks to achieve its investment objective by investing
all of its investable assets in the Portfolio, which has substantially the same
investment objective and policies as the Fund. Accordingly, the Portfolio
directly acquires its own securities and the Fund acquires an indirect interest
in those securities. The Portfolio is a separate series of Core Trust, a
business trust organized under the laws of the State of Delaware in September
1995. Core Trust is registered under the Act as an open-end management
investment company and currently has four separate portfolios. The assets of the
Portfolio, a diversified portfolio, belong only to, and the liabilities of the
Portfolio are borne solely by, the Portfolio and no other portfolio of Core
Trust.
The investment objective and fundamental investment policies of the Fund and the
Portfolio can be changed only with shareholder or interestholder approval,
respectively. See "Investment Objective and Policies," and "Management of the
Fund" for a complete description of the Portfolio's investment objective,
policies, restrictions, management, and expenses.
The Fund's investment in the Portfolio is in the form of a non-transferable
beneficial interest. As of November 1, 1996, the Fund is the only institutional
investor in the Portfolio. The Portfolio may permit other investment companies
or institutional investors to invest in it. All other investors in the Portfolio
will invest on the same terms and conditions as the Fund and will pay a
proportionate share of the Portfolio's expenses.
The Portfolio normally will not hold meetings of investors except as required by
the Act. Each investor in the Portfolio will be entitled to vote in proportion
to its relative beneficial interest in the Portfolio. On most issues subject to
a vote of investors, as required by the Act and other applicable law, the Fund
will solicit proxies from its shareholders and will vote its interest in the
Portfolio in proportion to the votes cast by its shareholders. If there are
other investors in the Portfolio, there can be no assurance that any issue that
receives a majority of the votes cast by Fund shareholders will receive a
majority of votes cast by all investors in the Portfolio; indeed, if other
investors hold a majority interest in the Portfolio, they could have voting
control of the Portfolio.
The Portfolio will not sell its shares directly to members of the general
public. Another investor in the Portfolio, such as an investment company, that
might sell 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
different advisory and other fees and expenses than the Fund. Therefore, Fund
shareholders may have different returns than shareholders in another investment
company that invests exclusively in the Portfolio. There is currently no such
other investment company
-32-
<PAGE>
that offers its shares to members of the general public. Information regarding
any such funds in the future will be available from Core Trust by calling Forum
Financial Corp. at (207) 879-8903.
Under the federal securities laws, any person or entity that signs a
registration statement may be liable for a misstatement or omission of a
material fact in the registration statement. Core Trust, its Trustees and
certain of its officers are required to sign the registration statement of the
Trust and may be required to sign the registration statements of certain other
future publicly offered investors in the Portfolio. In addition, under the
federal securities laws, Core Trust could be liable for misstatements or
omissions of a material fact in any proxy soliciting material of a publicly
offered investor in Core Trust, including the Fund. Under the Trust Instrument
for Core Trust, each investor in the Portfolio, including the Trust, will
indemnify Core Trust and its Trustees and officers ("Core Trust Indemnitees")
against certain claims.
Indemnified claims are those brought against Core Trust Indemnitees but based on
a misstatement or omission of a material fact in the investor's registration
statement or proxy materials, except to the extent such claim is based on a
misstatement or omission of a material fact relating to information about Core
Trust in the investor's registration statement or proxy materials that was
supplied to the investor by Core Trust. Similarly, Core Trust will indemnify
each investor in the Portfolio, including the Fund, for any claims brought
against the investor with respect to the investor's registration statement or
proxy materials, to the extent the claim is based on a misstatement or omission
of a material fact relating to information about Core Trust that is supplied to
the investor by Core Trust. In addition, each registered investment company
investor in the Portfolio will indemnify each Core Trust Indemnitee against any
claim based on a misstatement or omission of a material fact relating to
information about a series of the registered investment company that did not
invest in the Core. The purpose of these cross-indemnity provisions is
principally to limit the liability of Core Trust to information that it knows or
should know and can control. With respect to other prospectuses and other
offering documents and proxy materials of investors in Core Trust, its liability
is similarly limited to information about and supplied by it.
CERTAIN RISKS OF INVESTING IN THE PORTFOLIO. The Fund's investment in the
Portfolio may be affected by the actions of other large investors in the
Portfolio, if any. For example, if the Portfolio had a large investor other than
the Fund that redeemed its interest in the Portfolio, the Portfolio's 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 the Portfolio at any time, if
the 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 the 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 the 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 portfolio. If the
Fund decided to convert those securities to cash, it usually would incur
brokerage fees or other
-33-
<PAGE>
transaction costs. If the Fund withdrew its investment from the Portfolio, the
Trust Board would consider what action might be taken, including the management
of the Fund's assets in accordance with its investment objective and policies by
Schroder Capital, the Fund's investment adviser and subadviser, respectively, 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, in
the event the Board decided not to permit Schroder Capital to manage the Fund's
assets, could have a significant impact on shareholders of the Fund.
Each Investor in the Portfolio, including the Fund, will be liable for all
obligations of the Portfolio, but not any other portfolio of Core Trust. The
risk to an investor in the Portfolio of incurring financial loss on account of
such liability, however, would be limited to circumstances in which the
Portfolio was unable to meet its obligations, the occurrence of which Schroder
Capital considers to be quite remote. Upon liquidation of the Portfolio,
investors would be entitled to share pro rata in the net assets of the Portfolio
available for distribution to investors.
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<PAGE>
APPENDIX A
PRIOR PERFORMANCE OF THE ADVISER
The following table sets forth the Adviser's composite performance data
relating to the historical performance of a commingled investment fund for
tax-exempt pension and profit sharing trusts which is managed by the Adviser
and is the only account managed by the Adviser with investment objectives,
policies, strategies and risks substantially similar to those of the
Portfolio. The commingled fund commenced operations in May, 1989, and as of
September 30, 1996, had total net assets of approximately $980 million. THE
DATA IS PROVIDED TO ILLUSTRATE THE PAST PERFORMANCE OF THE ADVISER IN MANAGING
SUBSTANTIALLY SIMILAR ACCOUNTS AS MEASURED AGAINST SPECIFIED MARKET INDICES
AND DOES NOT REPRESENT THE PERFORMANCE OF THE PORTFOLIO. INVESTORS SHOULD NOT
CONSIDER THIS PERFORMANCE DATA AS AN INDICATION OF FUTURE PERFORMANCE OF THE
PORTFOLIO,OF THE FUND OR OF THE ADVISER.
The Adviser's composite performance data shown below was calculated in
accordance with recommended standards of the Association for Investment
Management and Research ("AIMR"), respectively applied to all time periods. AIMR
is a non-profit membership and education organization with more than 60,000
members worldwide that, among other things, has formulated a set of performance
presentation standards for investment advisers. These AIMR performance
presentation standards are intended to (i) promote full and fair presentations
by investment advisers of their performance results, and (ii) ensure uniformity
in reporting so that performance results of investment advisers are directly
comparable. All returns presented were calculated on a total return basis and
include all dividends and interest, accrued income and realized and unrealized
gains and losses. All returns do not reflect the deduction of investment
advisory fees, custody fees, brokerage commissions and execution costs paid by
the account, without provision for federal or state taxes. Securities
transactions are accounted for on the trade date and accrual accounting is
utilized. Cash and equivalents are included in performance returns. The monthly
returns combine the accounts' returns (calculated on a time-weighted rate of
return that is revalued whenever cash flows exceed $500) by asset-weighting each
account's asset value as of the beginning of the month. Quarterly and yearly
returns are calculated by linking the monthly and quarterly returns,
respectively, in accordance with AIMR standards.
The commingled investment fund that is included in the Adviser's composite is
not subject to the same types of expenses to which the Portfolio is subject
nor to the diversification requirements, specific tax restrictions and
investment limitations imposed on the Portfolio by the Investment Company Act
of 1940 or the Internal Revenue Code. The performance results for the
Adviser's composite could have been adversely affected if the commingled
investment fund had been subject to such regulation.
The investment results of the commingled investment fund are audited annually.
Presenting the performance of such fund here is not intended to predict or
suggest the returns that might be experienced by the Portfolio, the Fund or an
individual investor investing in the Fund. Investors should also be aware that
the use of a methodology different from that used below to calculate
performance could result in different performance data.
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<PAGE>
ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
1/1/96- 5/31/89-
9/30/96 1995 1994 1993 1992 1991 1990 12/31/89
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adviser's Composite 13.6% 6.2% 4.4% 30.0% -9.3% 8.4% -2.3% 36.8%
Salomon Brothers
Extended Market Index (1) 7.7% 4.8% 9.4% 30.7% -15.3% 6.5% -22.6% 24.9%
</TABLE>
(1) The Salomon Brothers Extended Market Index ("EMI") is the portion of the
Salomon Brothers Broad Market Index ("BMI") related to companies with small
market capitalization in approximately 22 countries. Only issues that
non-local investors may purchase are included. In establishing the EMI,
Salomon Brothers ranks all companies in the BMI (i.e., companies with
available market capital greater than U.S. $100 million) within each country
by their total (unadjusted) market capital. The EMI represents the smallest
companies in each country based on total market capital having in the
aggregate 20% of the cumulative available market capital in such country.
-36-
<PAGE>
INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue
New York, New York 10019
ADMINISTRATOR & DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue
New York, New York 10019
SUB-ADMINISTRATOR
Forum Financial Services, Inc.
Two Portland Square
Portland, Maine 04101
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Custody Division
Woolgate House, Coleman Street
London EC2P 2HD, United Kingdom
TRANSFER AND DIVIDEND DISBURSING AGENT
Forum Financial Corp.
P.O. Box 446
Portland, Maine 04112
INDEPENDENT ACCOUNTANTS
L.L.P.
One Post Office Square
Boston, Massachusetts 02109
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<PAGE>
Table of Contents
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . .
The Fund . . . . . . . . . . . . . . . . . . . . . . .
Investment Adviser . . . . . . . . . . . . . . . . . .
Administrator and Distributor. . . . . . . . . . . . .
Purchases and Redemptions of Shares. . . . . . . . . .
Dividends and Distributions. . . . . . . . . . . . . .
Risk Considerations. . . . . . . . . . . . . . . . . .
Fee Table. . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . .
INVESTMENT OBJECTIVE
AND POLICIES . . . . . . . . . . . . . . . . . . . .
Investment Objective of the Portfolio. . . . . . . . .
Investment Policies. . . . . . . . . . . . . . . . . .
ADDITIONAL INVESTMENT POLICIES
AND RISK CONSIDERATIONS. . . . . . . . . . . . . . .
Investment Restrictions. . . . . . . . . . . . . . . .
Investment Types . . . . . . . . . . . . . . . . . . .
Risk Considerations. . . . . . . . . . . . . . . . . .
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . .
Board of Trustees. . . . . . . . . . . . . . . . . . .
Investment Adviser and Portfolio Manager . . . . . . .
Administrative Services. . . . . . . . . . . . . . . .
Distribution Plan . . . . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Transactions
Code of Ethics . . . . . . . . . . . . . . . . . . . .
INVESTMENT IN THE FUND . . . . . . . . . . . . . . . .
Purchase of Shares . . . . . . . . . . . . . . . . . .
Retirement Plans . . . . . . . . . . . . . . . . . . .
Individual Retirement Accounts . . . . . . . . . . . .
Redemption of Shares . . . . . . . . . . . . . . . . .
Net Asset Value. . . . . . . . . . . . . . . . . . . .
DIVIDENDS, OTHER DISTRIBUTIONS
AND TAXES. . . . . . . . . . . . . . . . . . . . . .
The Fund . . . . . . . . . . . . . . . . . . . . . . .
The Portfolio. . . . . . . . . . . . . . . . . . . . .
OTHER INFORMATION. . . . . . . . . . . . . . . . . . .
Capitalization and Voting. . . . . . . . . . . . . . .
Reports. . . . . . . . . . . . . . . . . . . . . . . .
Performance Information. . . . . . . . . . . . . . . .
Custodian and Transfer Agent . . . . . . . . . . . . .
Shareholder Inquires . . . . . . . . . . . . . . . . .
Certain Service Organization . . . . . . . . . . . . .
Fund Structure . . . . . . . . . . . . . . . . . . . .
Appendix A . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
TWO PORTLAND SQUARE
PORTLAND, MAINE 04101
- --------------------------------------------------------------------------------
GENERAL INFORMATION: (207) 879-8903
ACCOUNT INFORMATION: (800) 344-8332
FAX: (207) 879-6206
- --------------------------------------------------------------------------------
SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.
- PORTFOLIO INVESTMENT ADVISER ("SCHRODER CAPITAL OR THE "ADVISER")
SCHRODER FUND ADVISORS INC.
- ADMINISTRATOR AND DISTRIBUTOR ("SCHRODER ADVISORS")
STATEMENT OF ADDITIONAL INFORMATION
Schroder International Smaller Companies Fund (the "Fund") is a diversified,
separately-managed portfolio of Schroder Capital Funds (Delaware) (the "Trust"),
an open-end management investment company currently consisting of seven separate
portfolios, each of which has different investment objectives and policies.
Schroder International Smaller Companies Fund is described in this Statement of
Additional Information ("SAI").
The Fund's investment objective is long-term capital appreciation through
investment in securities markets outside the United States. The Fund currently
seeks to achieve its investment objective by holding, as its only investment
securities, an interest in Schroder International Smaller Companies Portfolio
(the "Portfolio"), a separate portfolio of Schroder Capital Funds ("Core
Trust"), a registered open-end management investment company having the same
investment objective and substantially similar investment policies as the Fund.
The Portfolio will seek to achieve its investment objective by investing, under
normal market conditions, at least 65% of its total assets in equity securities
of companies
<PAGE>
domiciled outside the United States that, at the time of purchase, have market
capitalizations of $1.5 billion or less. Investments in foreign securities
involve special risks in addition to those associated with investments in
general and investments in smaller capitalization companies involve greater
risks than those risks associated with investments in larger capitalization
companies. There can be no assurance that the Fund will achieve its investment
objective. See "The Fund - Special Risk Considerations."
Investor Shares of the Fund are offered for sale at net asset value with no
sales charge as an investment vehicle for individuals, institutions,
corporations and fiduciaries. Advisor Shares of the Fund are offered to
individual investors, in most cases through Service Organizations (as defined
herein). Advisor Shares incur greater expenses than Institutional Shares.
This SAI is not a prospectus and is only authorized for distribution when
preceded or accompanied by the Prospectus for the Fund dated November 1, 1996
(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. The Prospectus and SAI for the Fund may be obtained without charge
by writing or calling the Fund at the address and information numbers printed
above.
November 1, 1996
TABLE OF CONTENTS
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . .
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign Securities. . . . . . . . . . . . . . . . . . . . . . . . . .
Depository Receipts . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Forward Contracts in Foreign Exchange Transactions . . . . . .
U.S. Government Securities. . . . . . . . . . . . . . . . . . . . . .
Bank Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-Term Debt Securities. . . . . . . . . . . . . . . . . . . . . .
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Officers and Trustees . . . . . . . . . . . . . . . . . . . . . . . .
Investment Adviser. . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative Services . . . . . . . . . . . . . . . . . . . . . . .
Distribution of Fund Shares . . . . . . . . . . . . . . . . . . . . .
Service Organizations . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Accounting. . . . . . . . . . . . . . . . . . . . . . . . .
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . .
Investment Decisions. . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage and Research Services . . . . . . . . . . . . . . . . . . .
ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION
Redemption in Kind. . . . . . . . . . . . . . . . . . . . . . . . . .
TAXATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . .
Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization and Voting . . . . . . . . . . . . . . . . . . . . . .
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent and Dividend Disbursing Agent. . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . . . . . . . . . . . .
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . .
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Registration Statement. . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
INVESTMENT POLICIES
INTRODUCTION
The Fund's investment objective and policies authorize it to invest in certain
types of securities and to engage in certain investment techniques identified in
"Investment Objective and Policies" and "Additional Investment Policies and Risk
Considerations" in the Prospectus. The Fund currently seeks to achieve its
investment objective by investing all of its investment assets in the Portfolio,
which has the same investment objective and policies. As the Fund has the same
investment policies as the Portfolio and currently invests all of its assets in
the Portfolio, investment policies are discussed herein with respect to the
Portfolio only. Therefore, although the following discusses the investment
policies of the Portfolio and the responsibilities of the Core Trust Board of
Trustees ("Core Trust Board"), it applies equally to the Fund and the Trust's
Board of Trustees (the "Board"). The following supplements the discussion found
in those sections by providing additional information or elaborating upon the
discussion with respect to certain of those securities and techniques.
FOREIGN SECURITIES
Investment in the securities of foreign issuers may involve risks in addition to
those normally associated with investments in the securities of U.S. issuers.
There may be less publicly available information about foreign issuers than is
available for U.S. issuers, and foreign auditing, accounting and financial
reporting practices may differ from U.S. practices. Foreign securities markets
may be less active than U.S. markets, trading may be thin and consequently
securities prices may be more volatile. Schroder Capital will, in general,
invest only in securities of companies and governments of countries which, in
its judgment, are both politically and economically stable. Nevertheless, all
foreign investments are subject to risks of foreign political and economic
instability, adverse movements in foreign exchange rates, the imposition or
tightening of exchange controls or other limitations on the repatriation of
foreign capital and changes in foreign governmental attitudes toward private
investment, possibly leading to nationalization, increased taxation, or
confiscation of Portfolio assets.
EMERGING MARKETS
The Portfolio may invest in securities of issuers located in countries
considered by some to be emerging market countries. The risks of investing in
foreign securities may be greater with respect to securities of issuers in, or
denominated in the currencies of, emerging market countries. The economies of
emerging market countries generally are heavily dependent upon international
trade and, accordingly, have been and may continue to be adversely affected by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade. The securities markets of emerging market countries are substantially
smaller, less developed, less liquid and more volatile than the securities
markets of the United States and other developed countries. Disclosure and
regulatory standards in many respects are less stringent in emerging market
countries than in the United States and other major markets. There also may be a
lower level of monitoring and regulation of emerging market countries than in
the United States and other major markets. There also may be a lower level of
monitoring and regulation of emerging markets and the activities of investors in
such markets, and enforcement of existing regulations may be extremely limited.
Investing in local markets, particularly in emerging market countries, may
require the Portfolio to adopt special procedures, seek local government
approvals or take other actions, each of which may involve additional costs to
the Portfolio. Certain emerging market countries may also restrict investment
opportunities in issuers in
<PAGE>
industries deemed important to national interests or in all issuers with respect
to foreign investors. Currency risk tends to be heightened in the case of
investing in certain emerging market countries.
DEPOSITORY RECEIPTS
Investments in securities of foreign issuers may on occasion be in the form of
sponsored or unsponsored American Depository Receipts ("ADRs") or European
Depository Receipts ("EDRs"), or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued in the United States by a bank or
trust company, evidencing ownership of the underlying securities. EDRs are
typically issued in Europe under a similar arrangement. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets and EDRs,
in bearer form, are designed for use in European securities markets. Unsponsored
ADRs may be created without the participation of the foreign issuer. Holders of
these ADRs generally bear all the costs of the ADR facility, whereas foreign
issuers typically bear certain costs in a sponsored ADR. The bank or trust
company depository of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights.
USE OF FORWARD CONTRACTS IN FOREIGN EXCHANGE TRANSACTIONS
In anticipation of foreign exchange requirements and to protect or "hedge"
against adverse movements in foreign currency exchange rates, the Portfolio may
invest in forward contracts to purchase or sell an agreed-upon amount of a
specified currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. Such contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. Although such contracts tend to
minimize the risk of loss due to a decline in the value of the currency which is
sold, they expose the Portfolio to the risk that the counterparty is unable to
perform and they tend to limit commensurately any potential gain which might
result should the value of such currency increase during the contract period.
U.S. GOVERNMENT SECURITIES
The Portfolio may invest in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities which have remaining maturates
not exceeding one year. Agencies and instrumentalities which issue or guarantee
debt securities and that have been established or sponsored by the U.S.
Government include the Bank for Cooperatives, the Export-Import Bank, the
Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land
Banks, the Federal National Mortgage Association, the Government National
Mortgage Association and the Student Loan Marketing Association. Except for
obligations issued by the U.S. Treasury and the Government National Mortgage
Association, none of the obligations of the other agencies or instrumentalities
referred to above are backed by the full faith and credit of the U.S.
Government.
BANK OBLIGATIONS
The Portfolio may invest in obligations of U.S. banks (including certificates of
deposit and bankers' acceptances) having total assets at the time of purchase in
excess of $1 billion. Such banks must be insured by the Federal Deposit
Insurance Corporation.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. The Portfolio may also invest in
certificates of deposit issued by foreign banks, denominated in any major
foreign currency. The Portfolio will invest in instruments issued by foreign
banks which, in the view of Schroder Capital and the Trustees of Core Trust,
are of credit-worthiness and financial stature in their respective countries
comparable to U.S. banks used by the Portfolio.
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.
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SHORT-TERM DEBT SECURITIES
The Portfolio may invest in commercial paper, that is short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations
and finance companies. The commercial paper purchased by the Portfolio for
temporary defensive purposes consists of direct obligations of domestic issuers
which, at the time of investment, are rated "P-1" by Moody's Investors Service,
Inc. ("Moody's") or "A-1" by Standard & Poor's Ratings Services ("S&P"), or
securities that, if not rated, are issued by companies having an outstanding
debt issue currently rated Aa by Moody's or AAA or AA by S&P. The rating "P-1"
is the highest commercial paper rating assigned by Moody's and the rating "A-1"
is the highest commercial paper ratings assigned by S&P.
For temporary defensive purposes, to accumulate cash for investments, or to meet
anticipated redemptions, the Portfolio may invest in (or enter into repurchase
agreements with banks and broker dealers with respect to) short-term debt
securities, including Treasury bills and other U.S. Government securities, and
certificates of deposit and bankers' acceptances of U.S. banks. The Portfolio
may also hold cash and time deposits in foreign banks, denominated in any major
foreign currency.
REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements with U.S. banks or broker-
dealers maturing in seven days or less. In a typical repurchase agreement the
seller of a security commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed-upon time and price. The repurchase
price exceeds the sale price, reflecting an agreed-upon interest rate effective
for the period the buyer owns the security subject to repurchase. The agreed-
upon rate is unrelated to the interest rate on that security. Schroder Capital
will monitor the value of the underlying security at the time the transaction
is entered into and at all times during the term of the repurchase agreement to
insure that the value of the security always equals or exceeds the repurchase
price. In the event of default by the seller under the repurchase agreement,
the Portfolio may have difficulties in exercising its rights to the underlying
securities and may incur costs and experience time delays in connection with
the disposition of such securities. To evaluate potential risks, Schroder
Capital reviews the creditworthiness of those banks and dealers with which the
Portfolio enters into repurchase agreements.
WARRANTS
The Portfolio may invest in warrants. Warrants are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices
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. The Portfolio may not invest in warrants
if, as a result, more than 5% of its net assets would be so invested or if, more
than 2% of its net assets would be so invested in warrants that are not listed
on the New York or American Stock Exchanges.
ILLIQUID AND RESTRICTED SECURITIES
"Illiquid and Restricted Securities" under "Additional Investment Policies and
Risk Considerations" in the Prospectus sets forth the circumstances in which the
Portfolio may invest in illiquid and restricted securities. In connection with
the Portfolio s original purchase of restricted securities it may negotiate
rights with the issuer to have such securities registered for sale at a later
time. Further, the expenses of registration of restricted securities that are
illiquid may also be negotiated by the Portfolio with the issuer at the time
such securities are purchased by the Portfolio. When registration is required,
however, a considerable period may elapse between a decision to sell the
securities and the time the to sell such securities. A similar delay might be
experienced in attempting to sell such securities pursuant to an exemption from
registration. Thus, the Portfolio may not be able to obtain as favorable a price
as that prevailing at the time of the decision
LOANS OF PORTFOLIO SECURITIES
The Portfolio 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, on each business day, at least
equal the market value of the loaned securities and must consist of cash, bank
letters of credit, U.S. Government
<PAGE>
securities, or other cash equivalents in which the Portfolio is permitted to
invest. To be acceptable as collateral, letters of credit must obligate a bank
to pay amounts demanded by the Portfolio if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Portfolio.
In a portfolio securities lending transaction, the Portfolio 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 as well as the interest on the
collateral securities, less any finders or administrative fees the Portfolio
pays in arranging the loan. The Portfolio may share the interest it receives on
the collateral securities with the borrower as long as it realizes at least a
minimum amount of interest required by the lending guidelines established by the
Core Trust Board. The Portfolio will not lend its portfolio securities to any
officer, director, employee or affiliate of the Portfolio, the Fund or Schroder
Capital. The terms of the Portfolio s loans must meet certain tests under the
Internal Revenue Code and permit the Portfolio to reacquire loaned securities
on five business days notice or in time to vote on any important matter.
COVERED CALLS AND HEDGING
As described in the Prospectus, while the Portfolio does not presently intend to
do so, it may write covered calls on up to 100% of its total assets or employ
one or more types of Hedging Instruments (as defined in the Prospectus). When
hedging to attempt to protect against declines in the market value of the
Portfolio s securities, to permit the Portfolio to retain unrealized gains in
the value of portfolio securities that have appreciated, or to facilitate
selling securities for investment reasons, the Portfolio would (i) sell Stock
Index Futures (as defined below), (ii) purchase puts on such futures or on
securities, or (iii) write covered calls on securities or such futures. When
hedging to establish a position in the equities markets as a temporary
substitute for purchasing particular equity securities (which the Portfolio will
normally purchase and then terminate the hedging position), the Portfolio would
(i) purchase Stock Index Futures or (ii) purchase calls on such futures or on
securities. The Portfolio s strategy of hedging with Stock Index Futures and
options on such futures will be incidental to the Portfolio s activities in the
underlying cash market.
WRITING COVERED CALL OPTIONS. The Portfolio may write (i.e., sell) call options
("calls") if (i) the calls are listed on a domestic securities or commodities
exchange and (ii) the calls are "covered" (i.e., the Portfolio owns the
securities subject to the call or other securities acceptable for applicable
escrow arrangements) while the call is outstanding. A call written on a Stock
Index Future must be covered by deliverable securities or segregated liquid
assets. If a call written by the Portfolio is exercised, the Portfolio forgoes
any profit from any increase in the market price above the call price of the
underlying investment on which the call was written.
When the Portfolio writes a call on a security, it receives a premium and agrees
to sell the underlying securities to a purchaser of a corresponding call on the
same security during the call period (usually not more than nine months) at a
fixed exercise price (which may differ from the market price of the underlying
security), regardless of market price changes during the call period. The risk
of loss will have been retained by the Portfolio if the price of the underlying
security should decline during the call period, which may be offset to some
extent by the premium.
To terminate its obligation on a call it has written, the Portfolio may be
purchase a corresponding call in a "closing purchase transaction". A profit or
loss will be realized, depending upon whether the net of the amount of option
transaction costs and the premium previously received on the call written was
more or less than the price of the call subsequently purchased. A profit may
also be realized if the call lapses unexercised, because the Portfolio retains
the underlying security and the premium received. If the Portfolio could not
effect a closing purchase transaction due to the lack of a market, it would have
to hold the callable securities until the call lapsed or was exercised.
The Portfolio may also write calls on Stock Index Futures without owning a
futures contract or a deliverable bond, provided that at the time the call is
written, the Portfolio covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The fund will segregate additional liquid assets
if the value of the escrowed assets drops below 100% of the current value of the
Stock Index Future. In no circumstances would an exercise notice require the
Portfolio to deliver a futures contract; it would simply put the Portfolio in a
short futures position, which is permitted by the Portfolio s hedging policies.
PURCHASING CALLS AND PUTS. The Portfolio may purchase put options ("puts") that
relate to (i) securities held by it, (ii) Stock Index Futures (whether or not it
holds such futures in its portfolio), or (iii) broadly based stock indices. The
Portfolio may not sell puts other than those it previously purchased nor
purchase puts on securities it does not hold. The Portfolio may purchase calls
(i) as to securities, broadly based stock indices or Stock Index Futures or (ii)
<PAGE>
to effect a "closing purchase transaction" to terminate its obligation on a call
it has previously written. A call or put may be purchased only if, after such
purchase, the value of all put and call options held by the Portfolio would not
exceed 5% of its total assets.
When the Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock indices, has
the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price. The
Portfolio benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the
call price plus the transaction costs and the premium paid for the call and the
call is exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Portfolio will
lose its premium payments and the right to purchase the underlying investment.
When the Portfolio purchases a call on a stock index, it pays a premium, but
settlement is in cash rather than by delivery of an underlying investment.
When the Portfolio purchases a put, it pays a premium and, except as to puts on
stock indices, has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on a security or Stock Index Future the Portfolio
owns enables it to attempt to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price by
selling the underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is equal to
or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date and the Portfolio
will lose its premium payment and the right to sell the underlying investment;
the put may, however, be sold prior to expiration (whether or not at a profit).
Purchasing a put on either a stock index or on a Stock Index Future not held by
the Portfolio permits it either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price of the put will
vary inversely with the price of the underlying investment. If the market price
of the underlying investment is above the exercise price and, as a result, the
put is not exercised, the put will become worthless on its expiration date. In
the event of a decline in price of the underlying investment, the Portfolio
could exercise or sell the put at a profit to attempt to offset some or all of
its loss on its portfolio securities. When the Portfolio purchases a put on a
stock index, or on a Stock Index Future not held by it, the put protects the
Portfolio to the extent that the index moves in a similar pattern to the
securities held. In the case of a put on a stock index or Stock Index Future,
settlement is in cash rather than by the Portfolio s delivery of the underlying
investment.
STOCK INDEX FUTURES. The Portfolio may buy and sell futures contracts only if
they relate to broadly based stock indices ("Stock Index Futures"). A stock
index is "broadly based" if it includes stocks that are not limited to issuers
in any particular industry or group of industries. Stock Index Futures obligate
the seller to deliver (and the purchaser to take) cash to settle the futures
transaction or to enter into an offsetting contract. No physical delivery of the
underlying stocks in the index is made.
No price is paid or received upon the purchase or sale of a Stock Index Future.
Upon entering into a futures transaction, the Portfolio will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with a futures
commission merchant (the "futures broker"). The initial margin will be deposited
with the Portfolio s custodian in an account registered in the futures broker s
name; however the futures broker can gain access to that account only under
specified conditions. As the future is marked to market to reflect changes in
its market value, subsequent margin payments, called variation margin, will be
paid to or by the futures broker on a daily basis. Prior to expiration of the
future, if the Portfolio elects to close out its position by taking an opposite
position, a final determination of variation margin is made, additional cash is
required to be paid by or released to the Portfolio, and any loss or gain is
realized for tax purposes. Although Stock Index Futures by their terms call for
settlement by the delivery of cash, in most cases the obligation is fulfilled
without such delivery, by entering into an offsetting transaction. All futures
transactions are effected through a clearinghouse associated with the exchange
on which the contracts are traded.
Puts and calls on broadly based stock indices or Stock Index Futures are similar
to puts and calls on securities or other futures contracts except that all
settlements are in cash and gain or loss depends on changes in the index in
question (and thus on price movements in the stock market generally) rather than
on price movements in individual securities or futures contracts. When the
Portfolio buys a call on a stock index or Stock
<PAGE>
Index Future, it pays a premium. During the call period, upon exercise of a call
by the Portfolio, a seller of a corresponding call on the same index will pay
the Portfolio an amount of cash to settle the call if the closing level of the
stock index or Stock Index Future upon which the call is based is greater than
the exercise price of the call; that cash payment is equal to the difference
between the closing price of the index and the exercise price of the call times
a specified multiple (the "multiplier") that determines the total dollar value
for each point of difference. When the Portfolio buys a put on a stock index or
Stock Index Future, it pays a premium and has the right during the put period to
require a seller of a corresponding put, upon the Portfolio s exercise of its
put, to deliver to the Portfolio an amount of cash to settle the put if the
closing level of the stock index or Stock Index Future upon which the put is
based is less than the exercise price of the put; that cash payment is
determined by the multiplier, in the same manner as described above as to calls.
ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE. The Portfolio s
custodian, or a securities depository acting for the custodian, will act as the
Portfolio s escrow agent, through the facilities of the Options Clearing
Corporation ("OCC"), as to the securities on which the Portfolio has written
options, or as to other acceptable escrow securities, so that no margin will be
required for such transactions. OCC will release the securities on the
expiration of the option or upon the Portfolio s entering into a closing
transaction. An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option.
The Portfolio s option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Portfolio may cause
it to sell related portfolio securities, thus increasing its turnover rate in a
manner beyond its control. The exercise by the Portfolio of puts on securities
or Stock Index Futures may cause the sale of related investments, also
increasing portfolio turnover. Although such exercise is within the Portfolio s
control, holding a put might cause the Portfolio to sell the underlying
investment for reasons that would not exist in the absence of the put. The
Portfolio will pay a brokerage commission each time it buys or sells a call, a
put or an underlying investment in connection with the exercise of a put or
call. Such commissions may be higher than those that would apply to direct
purchases or sales of the underlying investments. Premiums paid for options are
small in relation to the market value of such investments, and, consequently,
put and call options offer large amounts of leverage. The leverage offered by
trading in options could result in the Portfolio s net asset value being more
sensitive to changes in the value of the underlying investments.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS AND COVERED CALLS. The Portfolio must
operate within certain restrictions as to its long and short positions in Stock
Index Futures and options thereon under a rule (the "CFTC Rule") adopted by the
Commodity Futures Trading Commission (the "CFTC") under the Commodity Exchange
Act (the "CEA"), which excludes the Portfolio from registration with the CFTC as
a "commodity pool operator" (as defined in the CEA) if it complies with the CFTC
Rule. Under these restrictions the Portfolio will not, as to any positions,
whether short, long or a combination thereof, enter into Stock Index Futures and
options thereon for which the aggregate initial margins and premiums exceed 5%
of the fair market value of its total assets, with certain exclusions as defined
in the CFTC Rule. Under the restrictions, the Portfolio also must, as to its
short positions, use Stock Index Futures and options thereon solely for bona-
fide hedging purposes within the meaning and intent of the applicable provisions
under the CEA.
Transactions in options by the Portfolio are subject to limitations established
by each of the exchanges governing the maximum number of options that may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
exchanges or brokers. Thus, the number of options that the Portfolio may write
or hold may be affected by options written or held by other entities, including
other investment companies having the same or an affiliated investment adviser.
Position limits also apply to Stock Index Futures. An exchange may order the
liquidation of positions found to be in violation of those limits and may impose
certain other sanctions. Due to requirements under the Investment Company Act of
1940, as amended ("1940 Act"), when the Portfolio purchases a Stock Index
Future, the Portfolio will maintain, in a segregated account or accounts with
its custodian bank, cash or readily marketable, short- term (maturing in one
year or less) debt instruments in an amount equal to the market value of the
securities underlying such Stock Index Future, less the margin deposit
applicable to it.
LIMITS ON USE OF HEDGING INSTRUMENTS. Due to the Short-Short Limitation
described under "Taxation," the Portfolio will limit the extent to which it
engages in the following activities but will not be precluded from them: (i)
selling investments, including Stock Index Futures, held for less than three
months, whether or not they were purchased on the exercise of a call held by the
Portfolio; (ii) purchasing calls or puts that expire in less than three months;
(iii)
<PAGE>
effecting closing transactions with respect to calls or puts purchased less than
three months previously; (iv) exercising puts held for less than three months;
and (v) writing calls on investments held for less than three months.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks discussed above,
there is a risk in using short hedging by selling Stock Index Futures or
purchasing puts on stock indices that the prices of the applicable index (thus
the prices of the Hedging Instruments) will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of the Portfolio s equity
securities. The ordinary spreads between prices in the cash and futures markets
are subject to distortions due to differences in the natures of those markets.
First, all participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions that could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures markets may
cause temporary price distortions.
The risk of imperfect correlation increases as the composition of the Portfolio
diverges from the securities included in the applicable index. To compensate for
the imperfect correlation of movements in the price of the equity securities
being hedged and movements in the price of the Hedging Instruments, the
Portfolio may use Hedging Instruments in a greater dollar amount than the dollar
amount of equity securities being hedged if the historical volatility of the
prices of such equity securities being hedged is more than the historical
volatility of the applicable index. It is also possible that where the Portfolio
has used Hedging Instruments in a short hedge, the market may advance and the
value of equity securities held in the Portfolio may decline. If this occurred,
the Portfolio would lose money on the Hedging Instruments and also experience a
decline in value in its equity securities. However, while this could occur for a
very brief period or to a very small degree, the value of a diversified
portfolio of equity securities will tend to move over time in the same direction
as the indices upon which the Hedging Instruments are based.
If the Portfolio uses Hedging Instruments to establish a position in the
equities markets as a temporary substitute for the purchase of individual equity
securities (long hedging) by buying Stock Index Futures and/or calls on such
futures, on securities or on stock indices, it is possible that the market may
decline. If the Portfolio then concluded not to invest in equity securities at
that time because of concerns as to possible further market decline or for other
reasons, it would realize a loss on the Hedging Instruments that is not offset
by a reduction in the price of the equity securities purchased.
SHORT SALES AGAINST-THE-BOX.
After the Portfolio makes a short sale against-the-box, while the short position
is open, it must own an equal amount of the securities sold short or by virtue
of ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold short. Short
sales against-the-box may be made to defer recognition of gain or loss for
federal income tax purposes on the sale of securities "in the box" until the
short position is closed out.
<PAGE>
INVESTMENT RESTRICTIONS
The following investment restrictions, except where stated to be fundamental
policies, are non-fundamental policies of the Portfolio. Except as noted, the
Fund's policies are the same as those of the Portfolio. The policies defined
as fundamental, together with the fundamental policies and investment
objective described in the Prospectus, cannot be changed without the vote of a
"majority" of the Portfolio's outstanding voting interests. Under the 1940
Act, such a "majority" vote is defined as the vote of the holders of the
lesser of (i) 67% or more of the interests present or represented by proxy at
a meeting of interestholders, if the holders of more than 50% of the
outstanding interests are present, or (ii) more than 50% of the outstanding
interests.
The following investment restrictions of the Portfolio are fundamental policies:
(a) The Portfolio may not, with respect to 75% of its assets, purchase a
security other than a security issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or a security of an
investment company if, as a result, more than 5% of the Portfolio's
total assets would be invested in the securities of a single issuer or
the Portfolio would own more than 10% of the outstanding voting
securities of any single issuer.
(b) The Portfolio may not concentrate investments in any particular
industry; therefore, the Portfolio will not purchase the securities of
companies in any one industry if, thereafter, 25% or more of the
Portfolio's total assets would consist of securities of companies in
that industry. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. An
investment of more than 25% of the Portfolio's assets in the securities
of issuers located in one country does not contravene this policy.
(c) The Portfolio may not borrow money in excess of 33 1/3% of its total
assets taken at market value (including the amount borrowed) and then
only from a bank as a temporary measure for extraordinary or emergency
purposes, including to meet redemptions or to settle securities
transactions that may otherwise require untimely dispositions of
Portfolio securities.
<PAGE>
(d) The Portfolio may not purchase or sell real estate, provided that the
Portfolio may invest in securities issued by companies which invest in
real estate or interests therein.
(e) The Portfolio may not make loans to other persons, provided that for
purposes of this restriction, entering into repurchase agreements or
acquiring any otherwise permissible debt securities shall not be deemed
to be the making of a loan.
(f) The Portfolio may not invest in commodities or commodity contracts other
than foreign currency forward contracts.
(g) The Portfolio may not underwrite securities issued by other persons
except to the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter under U.S.
securities laws.
(h) The Portfolio may not issue senior securities except to the extent
permitted by the 1940 Act.
The following investment restrictions of the Portfolio or the Fund, if
applicable, are non-fundamental policies:
(a) The Portfolio will not purchase more than 3% of the outstanding
securities of any closed-end investment company.
(b) The Portfolio will not purchase securities while borrowings exceed 5% of
total assets.
(c) The Portfolio may not acquire securities or invest in repurchase
agreements with respect to any securities if, as result, more than 15%
of its net assets (taken at current value) would be invested in illiquid
securities (securities that cannot be disposed of within seven days at
their then-current value) or in repurchase agreements not entitling the
holder to payment of principal within seven days and in securities that
are not readily marketable by virtue of restrictions on the sale of
such securities to the public without registration under the Securities
Act of 1933, as amended ("Restricted Securities").This policy does not
include restricted securities that can be sold to the public in foreign
markets or that may eligible for resale to qualified institutional
purchasers pursuant to Rule 144A under the Securities Act of 1933 that
are determined to be liquid by the Adviser pursuant to guidelines
adopted by Core Trust's Board of Trustees.
(d) The Portfolio may not make investments for the purpose of exercising
control or management. (Investments by the Portfolio in wholly-owned
investment entities created under the laws of certain countries will not
be deemed the making of investments for the purpose of exercising
control or management.)
(e) The Portfolio may not purchase securities on margin, or make short sales
of securities (except short sales against the box), except for the use
of short-term credit necessary for the clearance of purchases and sales
<PAGE>
of portfolio securities. The Portfolio may make margin deposits in
connection with permitted transactions in options, futures contracts and
options on futures contracts.
(f) The Portfolio may not invest in oil, gas and other mineral resource,
lease, or arbitrage transactions.
(g) The Portfolio may not invest in warrants if, as a result, more than 5%
of its net assets would be so invested or if, more than 2% of its net
assets would be invested in warrants that are not listed on the New York
or American Stock Exchanges.
(h)(1) The Portfolio may not purchase a security, other than a security issued
or guaranteed by the U.S. Government, its agencies or instrumentalities
if, as a result, more than 5% of the Portfolio's total assets would be
invested in the securities of a single issuer or the Portfolio would own
more than 10% of the outstanding voting securities of any single
issuer.
(h)(2) The Fund may not purchase a security, other than a security issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
an interest in Schroder International Smaller Companies Portfolio if,
as a result, more than 5% of the Fund's total assets would be invested
in the securities of a single issuer or the Fund would own more than 10%
of the outstanding voting securities of any single issuer.
Except for the policies on borrowing and illiquid securities, the percentage
restrictions described above apply only at the time of investment and require no
action by the Portfolio as a result of subsequent changes in value of the
investments or the size of the Portfolio.
<PAGE>
MANAGEMENT
OFFICERS AND TRUSTEES
The following information relates to the principal occupations of each Trustee
and executive officer of the Trust during the past five years and shows the
nature of any affiliation with Schroder Capital. Each of these individuals
currently serves in the same capacity for Core Trust.
Peter E. Guernsey, age 75, Oyster Bay, New York - a Trustee of the Trust and
Core Trust - Insurance Consultant since August 1986; prior thereto Senior Vice
President, Marsh & McLennan, Inc., insurance brokers.
John I. Howell, age 79, 7 Riverside Road, Greenwich, Connecticut - a Trustee of
the Trust and Core Trust - Private Consultant since February 1987; Director,
American International Group, Inc.; Director, American International Life
Assurance Company of New York.
Laura E. Luckyn-Malone (a) (b) (c), age 43, 787 Seventh Avenue, New York, New
York - President and a Trustee of the Trust and Core Trust - Managing Director
of Schroder Capital since October 1995; Director of SWIS since July 1995;
prior thereto, Director and Senior Vice President of Schroder Capital since
February 1990; Director and President, Schroder Advisors.
Clarence F. Michalis, age 74, 44 East 64th Street, New York, New York - a
Trustee of the Trust and Core Trust - Chairman of the Board of Directors, Josiah
Macy, Jr. Foundation (charitable foundation).
Hermann C. Schwab, age 76, 787 Seventh Avenue, New York, New York - Chairman
(Honorary) and a Trustee of the Trust and Core Trust - retired since March,
1988; prior thereto, consultant to Schroder Capital since February 1, 1984.
Mark J. Smith (a) (b), age 34, 33 Gutter Lane, London, England - a Vice
President and a Trustee of the Trust and Core Trust - First Vice President of
Schroder Capital since April 1990; Director and Vice President, Schroder
Advisors.
Robert G. Davy, age 35, 787 Seventh Avenue, New York, New York - a Vice-
President of the Trust and Core Trust - Director of Schroder Capital and
Schroder Capital Management International Ltd. since 1994; First Vice President
of Schroder Capital since July, 1992; prior thereto, employed by various
affiliates of Schroders plc in various positions in the investment research and
portfolio management areas since 1986.
Richard R. Foulkes, age 50, 787 Seventh Avenue, New York, New York - a Vice
President of the Trust and Core Trust ; Deputy Chairman of Schroder Capital
since October 1995; Director of Schroder Capital since 1979, Director of
Schroder Capital Management International Ltd. since 1989, and Executive
Vice President of both of these entities.
John Y. Keffer, age 53, 2 Portland Square, Portland, Maine - a Vice President of
the Trust and Core Trust . President of Forum Financial Services, Inc., the Fund
s sub-administrator, and Forum Financial Corp., the Fund's transfer and dividend
disbursing agent and fund accountant.
Jane P. Lucas (c), age 34, 787 Seventh Avenue, New York, New York - Vice
President of the Trust and Core Trust - Director and Senior Vice President
Schroder Capital; Director of SWIS since September 1995; Assistant Director
Schroder Investment Management Ltd. since June 1991.
Catherine A. Mazza, age 36, 787 Seventh Avenue, New York, New York - a Vice
President of the Trust and Core Trust - Senior Vice President Schroder Advisors
since December 1995; Vice President of Schroder Capital since October 1994;
prior thereto, held various marketing positions at Alliance Capital, an
investment adviser, since July 1985.
Fariba Talebi, age 35, 787 Seventh Avenue, New York, New York - a Vice President
of the Trust and Core Trust - Group Vice President of Schroder Capital since
April 1993, employed in various positions in the investment research and
portfolio management areas since 1987.
<PAGE>
John A. Troiano (b), age 37, 787 Seventh Avenue, New York, New York - a Vice
President of the Trust and Core Trust - Managing Director of Schroder Capital
since October 1995; Director of Schroder Advisors since October 1992, Director
and Senior Vice President of Schroder Capital since 1991; prior thereto,
employed by various affiliates of Schroder Capital in various positions in the
investment research and portfolio management areas since 1981.
Ira L. Unschuld, age 31, 787 Seventh Avenue, New York, New York - a Vice
President of the Trust and Core Trust - a Vice President of Schroder Capital
since April, 1993 and an Associate from July, 1990 to April, 1993; prior to
July, 1990, employed by various financial institutions as a securities or
financial analyst.
Robert Jackowitz (b) (c), age 29, 787 Seventh Avenue, New York, New York -
Treasurer of the Trust and Core Trust - Vice President of SWIS since September
1995; Treasurer of SWIS and Schroder Advisers since July 1995; Vice President
of Schroder Capital since June 1995; and Assistant Treasurer of Schroders
Incorporated since January 1993.
Margaret H. Douglas-Hamilton (b) (c), age 55, 787 Seventh Avenue, New York, New
York - Secretary of the Trust and Core Trust - Secretary of SWIS since July
1995; Secretary of Schroder Advisers since April 1990; First Vice President and
General Counsel of Schroders Incorporated since May 1987; prior thereto, partner
of Sullivan & Worcester, a law firm.
David I. Goldstein, age 34, 2 Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust and Core Trust - Counsel, Forum
Financial Services, Inc. Since 1991; prior thereto, associate at Kirkpatrick &
Lockhart LLP, Washington, D.C.
Thomas G. Sheehan, age 42, 2 Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust and Core Trust - Counsel, Forum
Financial Services, Inc. since 1993; prior thereto, Special Counsel, U.S.
Securities and Exchange Commission, Division of Investment Management,
Washington, D.C.
Barbara Gottlieb (c), age 42, 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust and Core Trust - Assistant Vice President of SWIS since
July 1995 prior thereto held various positions with SWIS affiliates.
Gerardo Machado, age 58, 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust and Core Trust - Associate, Schroder Capital.
Officers and Trustees who are interested persons of the Trust and Core Trust
receive no salary, fees or compensation from the Fund or the Portfolio.
Independent Trustees of the Trust and Core Trust receive an annual fee of $1,000
and a fee of $250 for each meeting of the Board attended by them except in the
case of Mr. Schwab, who receives an annual fee of $1,500 and a fee of $500 for
each meeting attended. The Fund has no bonus, profit sharing, pension or
retirement plans.
<PAGE>
As of November 1, 1996 the officers and Trustees of the Trust owned, in the
aggregate, less than 1% of the Fund's outstanding shares.
Although the Trust is a Delaware business trust, certain of its Trustees or
officers are residents of the United Kingdom and substantially all of their
assets may be located outside of the U.S. As a result it may be difficult for
U.S. investors to effect service upon such persons within the U.S., or to
realize judgments of courts of the U.S. predicated upon civil liabilities of
such persons under the Federal securities laws of the U.S. The Trust has been
advised that there is substantial doubt as to the enforceability in the United
Kingdom of such civil remedies and criminal penalties as are afforded by the
Federal securities laws of the U.S. Also it is unclear if extradition treaties
now in effect between the U.S. and the United Kingdom would subject such persons
to effective enforcement of the criminal penalties of such acts.
INVESTMENT ADVISER
Schroder Capital, 787 Seventh Avenue, New York, New York, 10019, serves as
investment adviser to the Portfolio pursuant to an Investment Advisory Contract
dated March 15, 1996. Schroder Capital is a wholly-owned U.S. subsidiary of
Schroders Incorporated, the wholly-owned U.S. holding company subsidiary of
Schroders plc. Schroders plc is the holding company parent of a large worldwide
group of banks and financial service companies (referred to as the "Schroder
Group"), with associated companies and branch and representative offices
located in eighteen countries worldwide. The investment management subsidiaries
of the Schroder Group had assets under management of over $130 billion as of
June 30, 1996.
Pursuant to the Investment Advisory Contract, Schroder Capital is responsible
for managing the investment and reinvestment of the Portfolio's assets and for
continuously reviewing, supervising and administering the Portfolio's
investments. In this regard, it is the responsibility of Schroder Capital to
make decisions relating to the Portfolio's investments and to place purchase
and sale orders regarding such investments with brokers or dealers selected by
it in its discretion. Schroder Capital also furnishes to the Core Trust Board,
which has overall responsibility for the business and affairs of Core Trust,
periodic reports on the investment performance of the Portfolio.
Under the terms of the Investment Advisory Contract, Schroder Capital is
required to manage the Portfolio's investment portfolio in accordance with
applicable laws and regulations. In making its investment decisions, Schroder
Capital does not use material information that may be in its possession or in
the possession of its affiliates.
The Investment Advisory Contract will continue in effect provided such
continuance is approved annually (i) by the holders of a majority of the
outstanding voting securities of the Portfolio or by the Core Trust Board and
(ii) by a majority of the Trustees who are not parties to such Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The
Investment Advisory Contract may be terminated without penalty by vote of the
Trustees or the shareholders of the Portfolio on 60 days' written notice to
Schroder Capital, or by Schroder Capital on 60 days' written notice to Core
Trust and it will terminate automatically if assigned. The Investment Advisory
Contract also provides that, with respect to the
<PAGE>
Portfolio, neither Schroder Capital nor its personnel shall be liable for
any error of judgment or mistake of law or for any act or omission in the
performance of its or their duties to the Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of the Schroder
Capital's or their duties or by reason of reckless disregard of its or their
obligations and duties under the Investment Advisory Contract.
For its services, the Portfolio pays Schroder Capital a fee of 0.75% of its
average daily net assets.
The Fund currently invests all of its assets in the Portfolio. Schroder
Capital will not receive an investment advisory fee with respect to the Fund
so long as the Fund remains completely invested in the Portfolio or any other
investment company. The Fund may withdraw its investment from the Portfolio
at any time if the Board determines that it is in the best interests of the
Fund and its shareholders to do so. Accordingly, the Fund retains Schroder
Capital as its investment adviser to manage the Fund's assets in the event the
Fund so withdraws its investment.
The investment advisory contract between Core Trust and Schroder Capital with
respect to the Portfolio is the same in all material respects as the Fund's
Investment Advisory Contract except as to the parties, the circumstances under
which fees will be paid, the jurisdiction whose laws govern the agreement
and fees payable thereunder. For its investment advisory services under the
Investment Advisory Contract with respect to the Portfolio, Schroder Capital
receives an advisory fee of 0.75% of the Portfolio's average daily net assets.
ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an Administrative Services
Contract with Schroder Fund Advisors Inc. ("Schroder Advisors"), 787 Seventh
Avenue, New York, New York 10019. Schroder Advisors is a wholly-owned
subsidiary of Schroder Capital, and is a registered broker-dealer organized
to act as administrator and distributor of mutual funds. Effective July 5,
1995, Schroder Advisors changed its name from Schroder Capital Distributors
Inc. On behalf of the Fund, the Trust has also entered into aa administration
services agreement with Forum Financial Services, Inc. ("Forum"). Pursuant to
their agreements, Schroder Advisors and Forum provide certain management and
administrative services necessary for the Fund's operations, other than the
investment management and administrative services provided to the Fund by
Schroder Capital pursuant to the Investment Advisory Contract, including
among other things, (i) preparation of shareholder reports and
communications, (ii) regulatory compliance, such as reports to and filings
with the Securities and Exchange Commission and state securities commissions,
and (iii) 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.
For these services, Schroder Advisors receives from the Fund a fee, payable
monthly, at the annual rate of 0.40% of the Fund's average daily net assets.
Payment for Forum's services is made by Schroder Advisors and is not a separate
expense of the Fund.
The Administrative Services Contract and Sub-Administration Agreement are
terminable with respect to the Fund without penalty, at any time, by vote of a
majority of the Trustees who are not "interested persons" of the Trust and who
have no direct or indirect financial interest in the operation of the Fund's
Distribution Plan or in the Administrative Services Contract or Sub-
Administration Agreement, upon not more than 60 days' written notice to Schroder
Advisors or Forum, as appropriate, or by vote of the holders of a majority of
the shares of the Fund, or, upon 60 days' notice, by Schroder Advisors or Forum.
The Administrative Services Contract will terminate automatically in the event
of its assignment. The Sub-Administration Agreement is terminable with respect
to the Fund without penalty, at any time, by the Board, Schroder Advisors and
the Adviser upon 60 days' written notice to Forum or by Forum upon 60 days'
written notice to the Fund and Schroder Advisors, and the Adviser, as
appropriate.
Schroder Advisors and Forum provide similar services to the Portfolio pursuant
to administrative services agreements between Core Trust and each of these
entities, for which Schroder Advisors is separately compensated at an annual
rate of 0.15% of the average daily net assets of the Portfolio, a portion of
which Forum receives for its services with respect to the Portfolio. The fees
paid by the Fund to Schroder Capital and Schroder Advisors therefore may equal
up to 0.35% of the Fund's average daily net assets. The administrative services
agreements are the same in
<PAGE>
all material respects as the Fund's respective agreements except as to the
parties, the circumstances under which fees will be paid, the fees payable
thereunder and the jurisdiction whose laws govern the agreement.
DISTRIBUTION OF FUND SHARES
Under a Distribution Plan (the "Plan") adopted by the Fund, the Trust may pay
directly or may reimburse the Investment Adviser or a broker-dealer registered
under the Securities Exchange Act of 1934 (the Investment Adviser or such
registered broker-dealer, if so designated, to be a "Distributor" of the Fund's
shares) monthly (subject to a limit of 0.50% per annum of the Fund's average
daily net assets) for the sum of (a) advertising expenses including advertising
by radio, television, newspapers, magazines, brochures, sales literature or
direct mail, (b) costs of printing prospectuses and other materials to be given
or sent to prospective investors, (c) expenses of sales employees or agents of
the Distributor, including salary, commissions, travel and related expenses in
connection with the distribution of Fund shares, and (d) payments to broker-
dealers (other than the Distributor) or other organizations (other than banks)
for services rendered in the distribution of the Fund's shares, including
payments in amounts based on the average daily value of Fund shares owned by
shareholders in respect of which the broker-dealer or organization has a
distributing relationship. The Fund will make no payments or reimbursements
under the Distribution Plan until the Board specifically further so authorizes.
The Fund will not be liable for distribution expenditures made by the
Distributor in any given year in excess of the maximum amount (0.50% per annum
of the Fund's average daily net assets) payable under the Plan in that year.
Salary expense of salesmen who are responsible for marketing shares of the Fund
may be allocated to various portfolios of the Trust that have adopted a Plan
similar to that of the Fund on the basis of average net assets; travel expense
is allocated to, or divided among, the particular portfolios of the Trust for
which it is incurred. The Board of Trustees has concluded that there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
Schroder Advisors was appointed Distributor of the Fund's shares under the Plan
pursuant to an agreement approved by the Board of Trustees of the Trust at a
meeting held on November 2, 1992. Under such agreement, Schroder Advisors is not
obligated to sell any specific amount of Fund shares.
The Plan provides that it may not be amended to increase materially the costs
which the Fund may bear pursuant to the Plan without shareholder approval and
that other material amendments of the Plan must be approved by the Board of
Trustees, and by the Trustees who are neither "interested persons" (as defined
in the 1940 Act) of the Trust nor have any direct or indirect financial interest
in the operation of the Plan or in any related agreement, by vote cast in person
at a meeting called for the purpose of considering such amendments. The
selection and nomination of the Trustees of the Trust has been committed to the
discretion of the Trustees who are not "interested persons" of the Trust. The
Plan has been approved, and is subject to annual approval, by the Board of
Trustees and by the Trustees who are neither "interested persons" nor have any
direct or indirect financial interest in the operation of the Plan, by vote cast
in person at a meeting called for the purpose of voting on the Plan. The Fund
has no intention of implementing the Distribution Plan with respect to
institutional investors, and in any event will make no payments under the
Distribution Plan until the Board specifically further so authorizes. The Plan
is terminable with respect to the Fund at any time by a vote of a majority of
the Trustees who are not "interested persons" of the Trust and who have no
direct or indirect financial interest in the operation of the Plan or by vote of
the holders of a majority of the shares of the Fund.
Schroder Advisors acts as Distributor of the Fund's shares.
SERVICE ORGANIZATIONS
The Fund may also contracts with banks, trust companies, broker-dealers or other
financial organizations ("Service Organizations") to provide certain
administrative services for the Fund. The Fund may pay fees to Service
Organizations (which vary depending upon the services provided) in amounts up to
an annual rate of 0.25% of the daily net asset value of the Fund's shares owned
by shareholders with whom the Service Organization has a servicing relationship.
Services provided by Service Organization may include, among other things:
providing necessary personnel and facilities to establish and maintain certain
shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with client orders to purchase or redeem shares;
verifying and guaranteeing client signatures in connection with redemption
orders, transfers among and changes in client-designated accounts; providing
periodic statements showing a client's account balances and, to the extent
practicable, integrating such information with other client transactions;
furnishing periodic and annual statements and confirmations of all purchases and
redemption's of shares in a client's account; transmitting proxy statements,
annual reports, and updating prospectuses and other communications from the Fund
to clients; and such other services as the Fund or a client reasonably may
request, to the extent
<PAGE>
permitted by applicable statute, rule or regulation. Neither Schroder Capital
nor Schroder Advisors will be a Service Organization or receive fees for
servicing. The Fund will make no such payments to service organizations until
the Board specifically further so authorizes.
Some Service Organizations could impose additional or different conditions on
their clients, such as requiring their clients to invest more than the minimum
initial 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 the Fund. Each Service Organization
has agreed to transmit to its clients a schedule of any such fees. Shareholders
using Service Organizations are urged to consult them regarding any such fees or
conditions.
The Glass-Steagall Act and other applicable laws provide that banks may not
engage in the business of underwriting, selling or distributing securities.
There currently is no precedent prohibiting banks from performing administrative
and shareholder servicing functions as Service Organizations. However, judicial
or administrative decisions or interpretations of such laws, as well as changes
in either federal or state statutes or regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, could prevent a bank
service organization from continuing to perform all or a part of its servicing
activities. If a bank were prohibited from so acting, its shareholder clients
would be permitted to remain shareholders of the Fund and alternative means for
continuing the servicing of such shareholders would be sought. In that event,
changes in the operation of the Fund might occur and a shareholder serviced by
such a bank might no longer be able to avail itself of any services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these occurrences.
PORTFOLIO ACCOUNTING
Forum Financial Corp. ("FFC"), an affiliate of Forum, performs portfolio
accounting services for the Fund pursuant to a Fund Accounting Agreement with
the Trust. The Fund Accounting Agreement will continue in effect only if such
continuance is specifically approved at least annually by the Board of Trustees
or by a vote of the shareholders of the Trust and in either case by a majority
of the Trustees who are not parties to the Fund Accounting Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Fund Accounting Agreement.
Under its agreement, FFC prepares and maintains books and records of the Fund on
behalf of the Trust that are required to be maintained under the 1940 Act,
calculates the net asset value per share of the Fund and dividends and capital
gain distributions and prepares periodic reports to shareholders and the
Securities and Exchange Commission. For its services, FFC receives from the
Trust with respect to the Fund a fee of $36,000 per year plus, for each class of
the Fund above one, $12,000 per year. FFC is paid an additional $24,000 per year
with respect to global and international funds. In addition, FFC is paid an
additional $12,000 per year with respect to tax-free money market funds and
funds with more than 25% of their total assets invested in asset backed
securities, that have more than 100 security positions or that have a monthly
portfolio turnover rate of 10% or greater.
FFC is required to use its best judgment and efforts in rendering fund
accounting services and is not be liable to the Trust for any action or inaction
in the absence of bad faith, willful misconduct or gross negligence. FFC 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 and the Trust has agreed to
indemnify and hold harmless FFC, 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 other expenses of
every nature and character arising out of or in any way related to FFC'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
FFC by an officer of the Trust duly authorized. This indemnification does not
apply to FFC's actions taken or failures to act in cases of FFC's own bad faith,
willful misconduct or gross negligence.
FEES AND EXPENSES
<PAGE>
As compensation for the advisory, administrative and management services
rendered to the Fund, Schroder Capital and Schroder Advisors each earn
monthly fees as set forth above. Schroder Capital and Schroder Advisors have
voluntarily undertaken to assume certain expenses of the Fund (or waive their
respective fees). This undertaking is designed to place a limit on the
maximum limit on Fund expenses (including all fees to be paid to Schroder
Capital and Schroder Advisors but excluding taxes, interest, brokerage
commissions and other portfolio transaction expenses and extraordinary
expenses) of 1.50% and 2.00% of the average daily net assets of the Fund
attributable to Investor Shares and Adviser Shares, respectively. These
expense limitations cannot be withdrawn except by a majority vote of the
Trustees of the Trust who are not interested persons of the Trust. If expense
reimbursements are required, they will be made on a monthly basis. Schroder
Capital will reimburse the Fund for four-fifths of the amount required and
Schroder Advisors, the remaining one-fifth; provided, however, that neither
Schroder Capital nor Schroder Advisors will be required to make any
reimbursements or waive any fees in excess of the fees payable to them by the
Fund on a monthly basis for their respective advisory and administrative
services. This undertaking to reimburse expenses supplements any applicable
state expense limitations.
Certain of the states in which the shares of the Fund may be qualified for sale
impose limitations on the expenses of the Fund. If, in any fiscal year, the
total expenses of the Fund (excluding taxes, interest, expenses under the Plan,
brokerage commissions and other portfolio transaction expenses, other
expenditures which are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the advisory
and administrative fees) exceed the expense limitations applicable to the Fund
imposed by the securities regulations of any state, Schroder Capital will
reimburse the Fund for four-fifths of the excess, and Schroder Advisors, the
remaining one-fifth of the excess. As of the date of this SAI, the Fund
believes that the most restrictive state expense limitation which might be
applicable to the Fund requires reimbursement of expenses in any year that
applicable Fund expenses exceed 2 1/2% of the first $30 million of the average
daily value of Fund net assets, 2% of the next $70 million of the average daily
value of Fund net assets and 1 1/2% of the remaining average daily value of
Fund net assets.
Except for the expenses paid by Schroder Capital or Schroder Advisors, the Fund
bears all costs of its operations.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for the Portfolio and for the other investment advisory
clients of Schroder Capital are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors
in addition to basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise,
a particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as is possible, averaged
as to price and allocated between such clients in a manner which in Schroder
Capital's opinion is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales
of portfolio securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Portfolio of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may
<PAGE>
charge different commissions according to such factors as the difficulty and
size of the transaction. Transactions in foreign securities generally involve
the payment of fixed brokerage commissions, which are generally higher than
those in the United States. Since most brokerage transactions for the Portfolio
will be placed with foreign broker-dealers, certain portfolio transaction costs
for the Portfolio may be higher than fees for similar transactions executed on
U.S. securities exchanges. There is generally no stated commission in the case
of securities traded in the over-the-counter markets, but the price paid by the
Portfolio usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Portfolio includes a disclosed,
fixed commission or discount retained by the underwriter or dealer.
The Investment Advisory Contract authorizes and directs Schroder Capital to
place orders for the purchase and sale of the Portfolio's investments with
brokers or dealers selected by Schroder Capital in its discretion and to seek
"best execution" of such portfolio transactions. Schroder Capital places all
such orders for the purchase and sale of portfolio securities and buys and
sells securities for the Portfolio through a substantial number of brokers and
dealers. In so doing, Schroder Capital uses its best efforts to obtain for the
Portfolio the most favorable price and execution available. The Portfolio may,
however, pay higher than the lowest available commission rates when Schroder
Capital 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, Schroder
Capital, having in mind the Portfolio's best interests, considers all factors
it deems relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices
and trends, the reputation, experience and financial stability of the broker-
dealers involved and the quality of service rendered by the broker-dealers in
other transactions.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
Schroder Capital may receive research services from broker-dealers with which
Schroder Capital places the Portfolio's portfolio transactions. These services,
which in some cases may also be purchased for cash, include such items as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to Schroder Capital in advising
various of its clients (including the Portfolio), although not all of these
services are necessarily useful and of value in managing the Portfolio. The
management fee paid by the Portfolio is not reduced because Schroder Capital
and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), Schroder Capital may cause the Portfolio to pay a broker-dealer which
provides "brokerage and research services" (as defined in the Act) to Schroder
Capital an amount of disclosed commission for effecting a securities
transaction for the Portfolio in excess of the commission which another broker-
dealer would have charged for effecting that transaction.
Consistent with the Rules of the Association of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine,
Schroder Capital may consider sales of shares of the Portfolio as a factor in
the selection of broker-dealers to execute portfolio transactions for the
Portfolio.
Subject to the general policies of the Portfolio regarding allocation of
portfolio brokerage as set forth above, the Core Trust Board has authorized
Schroder Capital to employ Schroder Securities Limited and its affiliates
(collectively, "Schroder Securities"), which are affiliated with Schroder
Capital, to effect securities transactions of the 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 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 securities exchanges paid by
a registered investment company to a broker which is an affiliated person of
such investment company or an affiliated person of another person so affiliated
not exceed the usual and customary broker's commissions for such transactions.
It is the Portfolio's policy that commissions paid to Schroder Securities will
in the judgment of the officers of Schroder Capital responsible for making
portfolio decisions and selecting brokers, be (i) at least as favorable as
commissions contemporaneously charged by Schroder Securities on comparable
transactions for its most favored unaffiliated customers and (ii) at least as
favorable as those which would be charged on comparable transactions by
<PAGE>
other qualified brokers having comparable execution capability. The Core Trust
Board, including a majority of the non-interested Trustees, has adopted
procedures pursuant to Rule 17e-1 promulgated by the Securities and Exchange
Commission under Section 17(e) to ensure that commissions paid to Schroder
Securities by the Portfolio satisfy the foregoing standards. The Core Trust
Board will review all transactions at least quarterly for compliance with these
procedures.
The Portfolio has no understanding or arrangement to direct any specific portion
of its brokerage to Schroder Securities and will not direct brokerage to
Schroder Securities in recognition of research services.
The annual portfolio turnover rate of the Portfolio may exceed 50% but will not
ordinarily exceed 100%.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Management reserves the right to waive, in its sole discretion, the minimum
investment requirements for certain related accounts. Detailed information
pertaining to the purchase of shares of the Fund, redemption of shares and the
determination of the net asset value of Fund shares is set forth in the
Prospectus under "Investment in the Fund".
REDEMPTION IN KIND
In the event that payment for redeemed shares is made wholly or partly in
portfolio securities, brokerage costs may be incurred by the shareholder in
converting the securities to cash. An in kind distribution of portfolio
securities will be less liquid than cash. The distributee (or shareholder
receiving the distribution) may have difficulty in 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 and could affect adversely the liquidity of
the portfolio.
TAXATION OF THE FUND
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company the Fund intends to distribute to shareholders at
least 90% of its net investment income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains over net
long-term capital losses), 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 net investment income and net realized
capital gains (the excess of net long-term capital gains over net short-term
capital losses) 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 imposition of the excise tax, the Fund must distribute for each calendar
year an amount equal to the sum of (1) at least 98% its ordinary income
(excluding any capital gains or losses) for the calendar year, (2) at least 98%
of the excess of its capital gains over capital losses realized during the one-
year period ending April 30, of such year, and (3) all such ordinary income and
capital gains 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.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues interest or other receivable or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivable or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, gains or
losses on disposition of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition as well as gains
or losses from certain foreign currency transactions and options on certain
foreign currency transactions, generally are treated as ordinary gain or loss.
These gains or losses, referred to under
<PAGE>
the Code as "Section 988" gains or losses, may increase or decrease the amount
of the Fund's net investment income to be distributed to its shareholders as
ordinary income.
Generally, the hedging transactions undertaken by the Fund may be deemed
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or long-
term capital gain, may be increased or decreased as compared to a fund that did
not engage in such hedging transactions.
The requirements applicable to regulated investment companies such as the Fund
may limit the extent to which the Fund will be able to engage in transactions in
options and forward contracts.
Distributions of net investment income (including realized net short-term
capital gain) are taxable to shareholders as ordinary income. It is not expected
that such distributions will be eligible for the dividends received deduction
available to corporations.
Distributions of net long-term capital gain are taxable to shareholders as long-
term capital gain, regardless of the length of time the Fund shares have been
held by a shareholder, and are not eligible for the dividends received
deduction. A loss realized by a shareholder on the sale of shares of the Fund
with respect to which capital gain dividends have been paid will, to the extent
of such capital gain dividends, be treated as long-term capital loss although
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 distributions 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 are taxable to the shareholder whether reinvested in
additional shares or received in cash. Shareholders receiving distributions in
the form of additional shares will have a cost basis for Federal income tax
purposes 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.
Should a distribution reduce 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 be careful to 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. Those purchasing
just prior to a distribution will receive a distribution which will nevertheless
be taxable to them.
Upon redemption or sale of his shares, a shareholder will realize a taxable gain
or loss depending upon his basis in his shares. Such gain or loss generally 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.
<PAGE>
The Fund intends to minimize foreign income and withholding taxes by investing
in obligations the payments with respect to which will be subject to minimal or
no such taxes insofar as this objective is consistent with the Fund's income
objective. However, since the Fund may incur foreign taxes, it intends, if it is
eligible to do so, to elect under Section 853 of the Code to treat each
shareholder as having received an additional distribution from the Fund, in the
amount indicated in a notice furnished to him, as his pro rata portion of income
taxes paid to or withheld by foreign governments with respect to interest,
dividends and gain on the Fund's foreign portfolio investments. The shareholder
then may take the amount of such foreign taxes paid or withheld as a credit
against his Federal income tax, subject to certain limitations. If the
shareholder finds it more to his advantage to do so, he may, in the alternative,
deduct the foreign tax withheld as an itemized deduction, in computing his
taxable income. Each shareholder is referred to his tax adviser with respect to
the availability of the foreign tax credit.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all distributions as well as gross proceeds from the redemption of the Fund
shares, except in the case of certain exempt shareholders. All such
distributions and proceeds generally will be subject to withholding of Federal
income tax at a rate of 31% ("backup withholding") in the case of nonexempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Fund 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 he 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 advisers about the applicability of the backup withholding provisions.
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,
state and local taxation. Shareholders who are not U.S. persons should consult
their tax advisors regarding U.S. and foreign tax consequences of ownership of
shares of the Fund including the likelihood that distributions to them would be
subject to withholding of U.S. tax at a rate of 30% (or a lower rate under a tax
treaty).
OTHER INFORMATION
ORGANIZATION
The Trust was originally organized as a Maryland corporation on July 30, 1969.
On February 29, 1988, the Trust was recapitalized to enable the Board to
establish a series of separately managed investment portfolios, each having
different investment objectives and policies. At the time of the
recapitalization, the Trust's name was changed from "The Cheapside Dollar Fund
Limited" to "Schroder Capital Funds, Inc." On January 9, 1996, the Trust was
reorganized as a Delaware business trust. At that time, the Trust's name was
changed from "Schroder Capital Funds, Inc." to its present name. The Trust is
registered as an open-end management investment company under the Act.
Delaware law provides that shareholders shall be entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. The securities regulators of some states, however, have
indicated that they and the courts in their state may decline to apply Delaware
law on this 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 portfolio 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 an unlimited number of authorized shares of beneficial interest.
The 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 portfolios or series into classes of shares, and the costs of doing so
will be borne by the Trust. The Trust currently consists of five separate
portfolios, each of which has separate investment objectives and policies, and
five classes, two of which pertain to the Fund.
The shares of the Trust are fully paid and nonassessable, and have no
preferences as to conversion, exchange, dividends, retirement or other features.
The shares have no preemptive rights. They 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. A
shareholder is entitled to one vote for each full share held (and a fractional
vote for each fractional share held), then standing in his name on the books of
the Trust. Shares of each class would vote separately to approve investment
advisory agreements or changes in investment objectives and other fundamental
policies affecting the portfolio to which they pertain, but all classes would
vote together in the election of Trustees and ratification of the selection of
independent accountants. Shareholders of any particular class would not be
entitled to vote on any matters as to which such class were not affected.
The Trust will 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 will not be submitted to shareholders
unless a meeting of shareholders is held for some other reason, such as those
indicated below. Each of the Trustees will serve until death, resignation or
removal. Vacancies will be 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 when less than a majority of Trustees then in office
have been elected by shareholders. Similarly, the selection of accountants and
renewal of investment advisory agreements for future years will be performed
annually by the 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 accountants if the
employment of the Trust's accountants has been terminated, and to seek any other
shareholder approval required under the 1940 Act. The Board has the power to
call a meeting of shareholders at any time when it believes it is necessary or
appropriate. In addition, Trust Instrument provides that a special meeting of
shareholders may be called at any time for any purpose by the holders of at
least 10% of the outstanding shares entitled to be voted at such meeting.
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 either by declaration in writing or at a meeting
called for such purpose. Further, the Board is required to call a shareholders
meeting for the purpose of considering the removal of one or more Trustees if
requested in writing to do so by the holders of not less than 10% of the
outstanding shares of the Trust. In addition, the Board is required to provide
certain assistance if requested in writing to do so by ten or more shareholders
of record (who have been such for at least six months), holding in the aggregate
the lesser of shares of the Trust having a total net asset value of at least
$25,000 or 1% of the outstanding shares of the Trust, for the purpose of
enabling such holders to communicate with other shareholders of the Trust with a
view to obtaining the requisite signatures to request a special meeting to
consider such removal.
PERFORMANCE INFORMATION
The Fund may, from time to time, include quotations of its average annual total
return in advertisement or reports to shareholders or prospective investors.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years, calculated pursuant to the following
formula:
n
P(1+T) =ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n= the number of years, and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period). All
<PAGE>
total return figures will reflect the deduction of Fund expenses (net of certain
reimbursed expenses) on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Quotations of total return will reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. Total return for
the Fund will vary based on changes in market conditions and the level of the
Fund's expenses, and no reported performance figure should be considered an
indication of performance which may be expected in the future. Total return will
be calculated separately for each class of the Fund.
In connection with communicating total return to current or prospective
investors, the Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to other unmanaged
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Investors who purchase and redeem shares of the Fund through a customer account
maintained at a Service Organization may be charged one or more of the following
types of fees as agreed upon by the Services Organization and the investor, with
respect to the customer services provided by the Service Organization: account
fees (a fixed amount per month or per year); transaction fees (a fixed amount
per transaction processed); compensating balance requirements (a minimum dollar
amount a customer must maintain in order to obtain the services offered); or
account maintenance fees (a periodic charge based upon a percentage of the
assets in the account or of the dividends paid on these assets). Such fees will
have the effect of reducing the average annual total return of the Fund for
those investors.
CUSTODIAN
The Chase Manhattan Bank, N.A., through its Global Custody Division located in
London, England, acts as custodian of the Fund's assets, but plays no role in
making decisions as to the purchase or sale of portfolio securities for the
Fund. Pursuant to rules adopted under the 1940 Act, the Fund may maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board of Trustees 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 Fund
assets.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Forum Financial Corp., P.O. Box 446, Portland, Maine 04112, acts as the Fund's
transfer agent and dividend disbursing agent.
LEGAL COUNSEL
[LAW FIRM], 77 Water Street, New York, New York 10005, counsel to the Fund,
passes upon certain legal matters in connection with the shares offered by the
Fund.
INDEPENDENT ACCOUNTANTS
[ACCOUNTANT] L.L.P. ("ACCOUNTANT") serves as independent accountants for the
Fund and the Portfolio. ACCOUNTANT provides audit services and consultation in
connection with review of U.S. Securities and Exchange Commission filings.
ACCOUNTANT'S address is One Post Office Square, Boston, Massachusetts 02109.
REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Fund's registration statement filed with the Securities and Exchange Commission
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 Securities and
<PAGE>
Exchange Commission. The registration statement, including the exhibits filed
therewith, may be examined at the office of the Securities and Exchange
Commission 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 April 30. 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.
