As filed with the Securities and Exchange Commission on July 18, 1997
File No. 2-34215
File No. 811-1911
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 63
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 44
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SCHRODER CAPITAL FUNDS (DELAWARE)
(formerly Schroder Capital Funds, Inc.)
(Exact Name of Registrant as Specified in Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: 207-879-1900
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Catherine S. Wooledge, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies of Communications to:
Timothy W. Diggins, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 10005
Alexandra Poe, Esq.
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
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It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Rule 485, paragraph (b)
_____ on [ ] pursuant to Rule 485, paragraph (b)
_____ 60 days after filing pursuant to Rule 485, paragraph (a)(i)
_____ on _________ pursuant to Rule 485, paragraph (a)(i)
__X__ 75 days after filing pursuant to Rule 485, paragraph (a)(ii)
_____ on [ ] pursuant to Rule 485, paragraph (a)(ii)
_____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 (the "1933 Act") pursuant to Rule
24f-2 under the Investment Company Act of 1940 (the "1940 Act"). Accordingly, no
fee is payable herewith. A Rule 24f-2 Notice for the Registrant's fiscal year
ending: (i) December 31, 1997 will be filed with the Commission on or about
February 25, 1998 (for Schroder Emerging Markets Fund), and (ii) May 31, 1998
will be filed on or about July 22, 1998 (for Schroder Micro Cap Fund). Schroder
Emerging Markets Fund of Registrant is structured as a master-feeder fund. This
amendment is executed for the master fund.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(a))
PART A
(Prospectuses offering Advisor Shares and Investor Shares
of Schroder Emerging Markets Fund.)
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
- ---------- ------------- --------------------------------
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial Highlights; Other
Information - Performance
Information
4. General Description of Investment Objective and
Registrant Policies; Additional Investment
Policies and Risk Considerations
5. Management of the Fund Management of the Fund - Board
of Trustees; Investment Adviser
and Portfolio Manager;
Administrative Services;
Distribution Plan & Shareholder
Services Plan; Expenses;
Portfolio Transactions
5A. Management's Discussion of` Not Applicable
Fund Performance
6. Capital Stock and Other Securities Other Information -
Capitalization and Voting;
Shareholder Inquiries;Dividends,
Other Distributions and Taxes
7. Purchase of Securities Investment in the Fund -
Purchase of Shares; Retirement
Plans; Individual Retirement
Accounts; Net Asset Value
8. Redemption or Repurchase Investment in the Fund -
Redemption of Shares; Net Asset
Value
9. Pending Legal Proceedings Not Applicable
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(a))
PART A
(Prospectuses offering Shares of Schroder Micro Cap Fund.)
Form N-1A
Item No. (Caption) Location in Prospectus (Caption)
- ---------- --------- --------------------------------
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial Highlights; Other
Information - Performance
Information
4. General Description of Investment Objective and
Registrant Policies; Additional Investment
Policies and Risk Considerations
5. Management of the Fund Management of the Fund - Board
of Trustees; Investment Adviser
and Portfolio Manager;
Administrative Services;
Distribution Plan & Shareholder
Services Plan; Expenses;
Portfolio Transactions
5A. Management's Discussion of` Not Applicable
Fund Performance
6. Capital Stock and Other Securities Other Information -
Capitalization and Voting;
Shareholder Inquiries;Dividends,
Other Distributions and Taxes
7. Purchase of Securities Investment in the Fund -
Purchase of Shares; Retirement
Plans; Individual Retirement
Accounts; Net Asset Value
8. Redemption or Repurchase Investment in the Fund -
Redemption of Shares; Net Asset
Value
9. Pending Legal Proceedings Not Applicable
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(a))
PART A
(All other Prospectuses)
Not Applicable in this Filing
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(a))
PART B
(SAI offering shares of Schroder Emerging Markets Fund)
Form N-1A Location in Statement of Additional
Item No. (Caption) Information (Caption)
- --------- --------- ------------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Other Information - Organization
and History
13. Investment Objectives Investment Policies; Investment
and Policies Restrictions
14. Management of the Fund Management - Officers and Directors
15. Control Persons and Principal Not Applicable
Holders of Securities
16. Investment Advisory and Management - Investment Adviser;
Other Services Officers and Trustees;
Administrative Services;
Distribution of Fund Shares;
Service Organizations; Portfolio
Accounting; Fees and Expenses;
Portfolio Transactions-Investment
Decisions; Brokerage and Research
Services; Other Information -
Custodian; Transfer Agent and
Dividend Disbursing Agent; Legal
Counsel; Independent Accountants
17. Brokerage Allocation and Portfolio Transactions
Other Practices
18. Capital Stock and Other Other Information - Capitalization
Securities and Voting
19. Purchase, Redemption and Determination of Net Asset Value
Pricing of Securities Being Per Share
Offered
20. Tax Status Taxation
21. Underwriters Management - Distribution of Fund
Shares; Fees and Expenses
22. Calculation of Performance Other Information - Performance
Data Information
23. Financial Statements Not Applicable
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(a))
PART B
(SAI offering shares of Schroder Micro Cap Fund)
Form N-1A Location in Statement of Additional
Item No. (Caption) Information (Caption)
- ---------- --------- -----------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Other Information - Organization
History
13. Investment Objectives and Investment Policies; Investment
Policies Restrictions
14. Management of the Fund Management - Officers and Directors
15. Control Persons and Principal Not Applicable
Holders of Securities
16. Investment Advisory and Management - Investment Adviser;
Other Services Officers and Trustees;
Administrative Services;
Distribution of Fund Shares;
Service Organizations; Portfolio
Accounting; Fees and Expenses;
Portfolio Transactions -
Investment Decisions; Brokerage
and Research Services; Other
Information - Custodian; Transfer
Agent and Dividend Disbursing
Agent; Legal Counsel; Independent
Accountants
17. Brokerage Allocation and Portfolio Transactions
Other Practices
18. Capital Stock and Other Other Information - Capitalization
Securities and Voting
19. Purchase, Redemption and Determination of Net Asset Value
Pricing of Securities Being Per Share
Offered
20. Tax Status Taxation
21. Underwriters Management - Distribution of Fund
Shares; Fees and Expenses
22. Calculation of Performance Other Information - Performance
Data Information
23. Financial Statements Not Applicable
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(a))
PART B
(All other SAIs)
Not Applicable in this Filing
<PAGE>
SCHRODER EMERGING MARKETS FUND
ADVISOR SHARES
This fund's investment objective is to seek long-term capital appreciation. It
seeks to achieve this objective through direct or indirect investment in equity
securities of issuers domiciled or doing business in emerging market countries
in regions such as Southeast Asia, Latin America, and Eastern and Southern
Europe. It is designed for investors who seek the aggressive growth potential of
emerging world markets and are willing to bear the special risks of investing in
those markets.
Schroder Emerging Markets Fund (the "Fund"), a series of Schroder Capital Funds
(Delaware) (the "Trust"), seeks to achieve its investment objective by investing
substantially all of its assets in Schroder Emerging Markets Fund (the
"Portfolio"), a series of Schroder Capital Funds ("Schroder Core. The Portfolio
has an identical investment objective and substantially similar investment
policies as the Fund. Accordingly, the Fund's investment experience corresponds
directly with the Portfolio's investment experience. (See "Other Information
- --Fund Structure").
This Prospectus sets forth concisely the information you should know before
investing and should be retained for future reference. To learn more about the
Fund, you may obtain a copy of the Fund's current Statement of Additional
Information (the "SAI"), which is incorporated by reference into this
Prospectus. The SAI dated October 1, 1997, as amended from time to time, has
been filed with the Securities and Exchange Commission ("SEC") and is available
along with other related materials for reference on its Internet Web Site
(http://www.sec.gov) or may be obtained without charge from the Trust by writing
to Two Portland Square, Portland, Maine 04101 or by calling (800) 290-9826. The
Fund has not authorized anyone to provide you with information that is different
from what is contained in this Prospectus or in other documents to which this
Prospectus refers you.
MUTUAL FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE
FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER GOVERNMENT AGENCY AND ALSO ARE NOT
OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR
ITS AFFILIATES. MUTUAL FUND INVESTMENTS ARE 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.
PROSPECTUS
October 1, 1997
<PAGE>
[OUTLINED BOX NAMING ALL FUNDS]
FUNDS AVAILABLE THROUGH SCHRODER FUND ADVISORS INC.
PLEASE CALL FOR COMPLETE INFORMATION AND TO OBTAIN A PROSPECTUS.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
SCHRODER CAPITAL FUNDS (DELAWARE) (800) 290-9826
SCHRODER INTERNATIONAL BOND FUND
SCHRODER EMERGING MARKETS FUND
SCHRODER EMERGING MARKETS FUND INSTITUTIONAL
PORTFOLIO
SCHRODER INTERNATIONAL FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER MICRO CAP FUND
SCHRODER U.S. EQUITY FUND
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER CASH RESERVES FUND
SCHRODER SERIES TRUST (800) 464-3108
SCHRODER LARGE CAPITALIZATION EQUITY FUND
SCHRODER MID CAP GROWTH FUND
SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER SHORT-TERM INVESTMENT FUND
<PAGE>
PROSPECTUS SUMMARY
This Prospectus offers Advisor Class shares ("Advisor Shares" or
"Shares") of the Fund, which is a separately managed, non-diversified series of
the Trust, an open-end, management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Fund invests substantially
all of its assets in the Portfolio, a separately managed, non-diversified series
of Schroder Core, an open-end management company registered under the 1940 Act.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS.
OBJECTIVE. Long-term capital appreciation. The Fund seeks to achieve
the objective through direct or indirect investment in equity and debt
securities of issuers domiciled or doing business in emerging market countries
in regions such as Southeast Asia, Latin America, and Eastern and Southern
Europe. Current income is incidental to the Fund's objective.
INVESTMENT ADVISER. The Portfolio's investment adviser is Schroder
Capital Management International Inc. ("SCMI"), 787 Seventh Avenue,
New York, New York 10019. The Fund (and indirectly its shareholders) bears a
pro rata portion of the investment advisory fee the Portfolio pays to
SCMI. (See "Management of the Fund -- Investment Adviser and Portfolio
Managers".)
ADMINISTRATIVE SERVICES. Schroder Fund Advisors Inc. ("Schroder
Advisors") serves as administrator and distributor of the Fund, and Forum
Administrative Services, Limited Liability Company ("Forum") serves as the
Fund's subadministrator. (See "Management of the Fund -- Administrative
Services.")
PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or
redeemed by mail, by bank-wire and through your broker-dealer or other
financial institution. (See "Distribution Plan and Shareholder Service
Plan".) The minimum initial investment is $10,000, and the minimum
subsequent investment is $2,500. (See "Investment in the Fund -- Purchase of
Shares" and "--Redemption of Shares".)
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund annually declares and pays
as a dividend substantially all of its net investment income and at least
annually distributes any net realized long-term capital gain. Dividends and
long-term capital-gain distributions are reinvested automatically in additional
Advisor Shares of the Fund at net asset value unless you elect in your account
application, or otherwise in writing, to receive dividends and other
distributions in cash. (See "Dividends, Distributions and Taxes".)
RISK CONSIDERATIONS. Alone, the Fund is not a balanced investment plan.
It is intended for investors who seek the aggressive growth potential of
emerging world markets and are willing to bear their special investment risks,
including but not limited to tightening of exchange controls and expropriation,
nationalization or confiscation of assets by local governments. The Fund is not
intended for investors whose objective is assured income or preservation of
capital: investments in the securities of foreign issuers, particularly in
countries with smaller, emerging capital markets, involve risks in addition to
risks associated with investments in the securities of U.S. issuers. Of course,
as with any mutual fund, there is no assurance that the Fund or Portfolio will
achieve its investment objective.
The Fund's net asset value ("NAV") will vary because the market value
of the Portfolio's investments will change with changes in the value of the
securities in which the Portfolio invests and with changes in market conditions,
interest rates, currency rates, or political or economic events. The Fund is
non-diversified, which means that it may invest a greater portion of its assets
in securities of individual issuers than a diversified fund. Consequently,
changes in the market value of a single issuer could cause greater fluctuations
in the Fund's NAV than would occur in a diversified fund. When you sell your
shares, they may be worth more or less than what you paid for them. (See "Risk
Considerations".)
<PAGE>
EXPENSES OF INVESTING IN THE FUND
FEE TABLE
The table below is intended to assist you in understanding the expenses
that an investor in Advisor Shares of the Fund would incur. There are no
transaction expenses associated with purchases or redemptions of Advisor Shares.
The Annual Fund Operating Expenses have been estimated to reflect projected
fees, expenses and waivers for the Fund's current fiscal year ending December
31, 1997.
Annual Fund Operating Expenses (as a percentage of average net assets)(1)
Management Fees (after fee waivers)(2)(3)............................ 1.00%
12b-1 Fees........................................................... None
Other Expenses (after fee waivers and expense reimbursements)(3)..... 1.00%
----------------------------------------------------------------
Total Fund Operating Expenses (after fee waivers and expense
reimbursements)(3)................................................... 2.00%
(1) The Fund's expenses include the Fund's pro rata portion of all
operating expenses of the Portfolio.
(2) Management Fees reflect the fees paid by the Portfolio and the Fund
to SCMI and Schroder Advisors for investment advisory and
administrative services.
(3) SCMI and Schroder Advisors have voluntarily undertaken to waive a
portion of their fees and assume certain expenses of the Fund during
the current fiscal year in order to limit the Fund's total expenses to
2.00% of the Fund's average daily net assets. This undertaking cannot
be withdrawn except by a majority vote of the Trust's Board of
Trustees. (See "Management of the Fund -- Expenses".) Without fee
waivers, Management Fees, Other Expenses and Total Operating Expenses
would be 1.15%, 2.02% and 3.17%, respectively.
EXAMPLE
The table below indicates how much you would pay in total expenses on a
$1,000 investment in the Fund, assuming: (i) a 5% annual return; and (ii)
redemption at the end of each time period. The example is based on the expenses
listed above and assumes reinvestment of all dividends and other distributions.
The example should not be considered a representation of past or future expenses
or returns; actual expenses or returns may vary from those shown. The 5% annual
return is not a prediction of the Fund's return, but is the percentage required
by the SEC for use in this example.
1 YEAR..............................................................$20
3 YEARS.............................................................$63
5 YEARS............................................................$108
10 YEARS...........................................................$232
[NOTE: NEED TO DETERMINE WHETHER PRIOR HISTORY FOR EMERGING MARKETS FUND -
INSTITUTIONAL PORTFOLIO WILL BE USED WITH RESPECT TO EXPENSE PROJECTIONS AND/OR
PERFORMANCE HISTORY (CF. INT'L SMALLER COMPANIES AS A MODEL).]
<PAGE>
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek to achieve long-term
capital appreciation through direct or indirect investment in equity and debt
securities of issuers domiciled or doing business in emerging market countries
in regions such as Southeast Asia, Latin America, and Eastern and Southern
Europe. Current income is incidental to the Fund's objective.
The Fund is designed for investors who seek the aggressive growth
potential of emerging markets and are willing to bear the special risks of
investing a portion of their assets in those markets. The Fund is not a complete
investment program and investments in the securities of foreign issuers
generally involve risks in addition to the risks associated with investments in
the securities of U.S. issuers. The Fund is not intended for investors whose
objective is assured income or preservation of capital. (See "Risk
Considerations".)
The Fund currently seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, which has substantially
the same investment objective and substantially similar policies as the Fund.
There can be no assurance that the Fund or Portfolio will achieve its investment
objective.
INVESTMENT POLICIES
Although the following information describes the investment policies of
the Portfolio and the responsibilities of Schroder Core's Board of Trustees (the
"Schroder Core Board"), it applies equally to the Fund and the Trust's Board of
Trustees (the "Trust Board"). Additional information concerning the investment
policies of the Fund and the Portfolio is contained in the SAI.
The investment objective and fundamental investment policies of the
Portfolio may not be changed without approval of the holders of a majority of
the outstanding voting securities of the Portfolio. A majority of outstanding
voting securities means the lesser of: (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. Non-fundamental investment policies may be changed by the
Schroder Core Board without approval of the investors in the Portfolio. All
investment policies are non-fundamental unless stated otherwise.
Under normal market conditions, the Portfolio will invest at least 65%
of its total assets in emerging market equity and debt securities, including
common stocks; preferred stocks; convertible preferred stocks; stock rights and
warrants; convertible debt securities; and non-convertible debt securities.
(Investments in stock rights and warrants will not be considered for purposes of
determining compliance with this policy.) The Portfolio may invest up to 35% of
its total assets in high-risk debt securities that are unrated or rated below
investment grade. (See "Risk Considerations".) Under certain circumstances, the
Portfolio may invest indirectly in emerging market securities by investing in
other investment companies or vehicles. (See "Risk Considerations -- Investment
in Other Investment Companies or Vehicles".)
In recent years, many emerging market countries have begun programs of
economic reform: removing import tariffs, dismantling trade barriers,
deregulating foreign investment, privatizing state-owned industries, permitting
the value of their currencies to float against the dollar and other major
currencies, and generally reducing the level of state intervention in industry
and commerce. Important intra-regional economic integration also holds the
promise of greater trade and growth. At the same time, significant progress has
been made in restructuring the heavy external debt burden that certain emerging
market countries accumulated during the 1970s and 1980s. While there is no
assurance that these trends will continue, the Portfolio's investment adviser
will seek out attractive investment opportunities in these countries. The
Portfolio may acquire emerging market securities that are not denominated in
emerging market currency.
<PAGE>
"Emerging market" countries are all those not included in the Morgan
Stanley Capital International World Index ("MSCI World") of major world
economies. If, however, the investment adviser determines that the economy of a
MSCI World-listed country is an emerging market economy, the adviser may include
such country in the emerging market category. The following countries are
currently excluded from the Portfolio's emerging market category: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, United Kingdom, and the United States of America. The Portfolio
will not necessarily seek to diversify investments on a geographic basis and may
invest more than 25% of its total assets in issuers located in any one country.
(See "Risk Considerations --Geographic Concentration".)
An issuer of a security will be considered to be domiciled or doing
business in an emerging market when: (i) it is organized under the laws of an
emerging market country; (ii) its primary securities trading market is in an
emerging market country; (iii) in the judgment of the investment adviser, at
least 50% of the issuer's revenues or profits are derived from goods produced or
sold, investments made, or services performed in emerging market countries; or
(iv) it has at least 50% of its assets situated in emerging market countries.
The Portfolio may consider investment companies to be located in the country or
countries in which they primarily invest.
The following information relates to specific policies and limitations
of the Fund. These policies and limitations (unless otherwise noted) are
considered at the time of any purchase.
COMMON AND PREFERRED STOCK AND WARRANTS. The Portfolio's investments
consist primarily of the common or preferred stock of established emerging
market companies that are listed on recognized securities exchanges or traded in
other established markets. However, the Portfolio may make limited investment in
convertible preferred stock, warrants and stock rights.
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 they would be 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 also a shareholder and not a creditor
of the company. Equity securities owned by the Portfolio may be traded in the
over-the counter market or on a securities exchange, but are not 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 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.
Convertible preferred stock generally may be converted at a stated
price within a specific amount of time into a specified number of shares of
common stock. A convertible security entitles the holder to receive the dividend
paid on preferred stock until the convertible security is converted or
exchanged. Before conversion, convertible securities have characteristics
similar to non-convertible debt securities in that they ordinarily provide a
stream of income with generally higher yields than those of common stocks of the
same or similar issuers. These securities are usually senior to common stock in
a company's capital structure, but usually are subordinated to non-convertible
debt securities. In general, the value of a convertible security is the higher
of its investment value (its value as a fixed income security) and its
conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock.
The Portfolio may also invest in warrants. Warrants 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.
<PAGE>
AMERICAN DEPOSITARY RECEIPTS ("ADRS"). Due to the absence of
established securities markets in certain emerging market countries and
restrictions in certain countries on direct investment by foreign entities, the
Portfolio may invest in certain emerging market issuers through the purchase of
sponsored and unsponsored American Depositary Receipts ("ADRs") or other similar
securities, such as American Depositary Shares, Global Depositary Shares or
International Depositary Receipts. ADRs are receipts typically issued by U.S.
banks evidencing ownership of the underlying securities into which they are
convertible. These securities may or may not be denominated in the same currency
as the underlying securities. Unsponsored ADRs may be created without the
participation of the foreign issuer. Holders of unsponsored ADRs generally bear
all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
DEBT SECURITIES. The Portfolio may seek capital appreciation through
investment in emerging market convertible or non-convertible debt securities.
Capital appreciation in debt securities may arise as a result of a favorable
change in relative foreign exchange rates, in relative interest rate levels, or
in the creditworthiness of issuers. The receipt of income from such debt
securities is incidental to the Portfolio's objective of long-term capital
appreciation. Such income can be used, however, to offset the operating expenses
of the Portfolio. In accordance with its investment objective, the Portfolio
will not seek to benefit from anticipated short-term fluctuations in currency
exchange rates. The Portfolio also may invest to a certain extent in debt
securities in order to participate in debt-to-equity conversion programs
incident to corporate reorganizations.
Debt securities are generally subject to two kinds of risk -- Credit
risk and market risk. Credit risk refers to the ability of the debtor, and any
other obligor, to pay principal and interest on the debt as it becomes due. The
Portfolio may, from time to time, invest 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. Market risk refers
to the tendency of the value of debt securities to vary inversely with interest
rate changes. Certain debt instruments may also be subject to extension risk,
which refers to change in total return on a debt instrument resulting from
extension or abbreviation of the instrument's maturity.
The Portfolio may invest in debt securities issued or guaranteed by
emerging market governments (including countries, provinces and municipalities)
or their agencies and instrumentalities ("governmental entities"); debt
securities issued or guaranteed by international organizations designated or
supported by multiple foreign governmental entities (which are not obligations
of foreign governments) to promote economic reconstruction or development; and
debt securities issued by corporations or financial institutions.
BRADY BONDS. The Portfolio may invest a portion of its assets in Brady
Bonds, which are securities created through the exchange of existing commercial
bank loans to sovereign entities for new obligations in connection with debt
restructuring (under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady). Brady Bonds have been issued only
recently, and therefore do not have a long payment history. Brady Bonds may have
collateralized and uncollateralized components, are issued in various currencies
and are actively traded in the over-the-counter secondary market. Brady Bonds
are not considered U.S. Government securities. In light of the residual risk
associated with the uncollateralized portions of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds are considered speculative. Brady Bonds acquired by the Portfolio could be
subject to restructuring arrangements or to requests for new credit, which could
cause the Portfolio to suffer a loss of interest or principal on its holdings.
(For further information see "Brady Bonds," in the Statement of Additional
Information.)
<PAGE>
TEMPORARY DEFENSIVE INVESTMENTS. For temporary defensive purposes, the
Portfolio may invest without limitation in (or enter into repurchase agreements
maturing in seven days or less with U.S. banks and broker-dealers with respect
to) short-term debt securities, including commercial paper, U.S. Treasury bills,
other short-term U.S. Government securities, certificates of deposit, and
bankers' acceptances of U.S. banks. The Portfolio also may hold cash and time
deposits denominated in any major foreign currency in foreign banks.
(See the SAI for further information about these securities.)
FOREIGN EXCHANGE CONTRACTS. Changes in currency exchange rates will
affect the U.S. dollar values of securities denominated in foreign currencies.
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 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 forward contracts for the purchase or sale
of foreign currency: (i) 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 (ii) to hedge against the possibility
that a foreign currency 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 against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of securities and exposes
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 if the
fulfillment of obligations under such contracts would obligate it to deliver an
amount of foreign currency in excess of the value of its portfolio securities or
other assets denominated in the currency. The Portfolio will not enter into
these contracts for speculative purposes and will not enter into non-hedging
currency contracts. The Portfolio will generally not enter into a forward
contract with a term of greater than one year. Forward contracts are not
exchange traded, and there can be no assurance that a liquid market will exist
at a time when the Portfolio seeks to close out a forward contract. Currently,
only a limited market, if any, exists for hedging transactions relating to
currencies in certain emerging markets or to securities of issuers domiciled or
principally engaged in business in certain emerging markets. This may limit the
Portfolio's ability to effectively hedge its investments in those markets. These
contracts involve a risk of loss if SCMI fails to predict currency values. The
Portfolio has no plan to enter into currency futures or options contracts, but
may do so in the future.
(See "Risk Considerations--Currency Fluctuations and Devaluations".)
OPTIONS AND FUTURES TRANSACTIONS. Although the Portfolio does not
presently intend to do so, it may: (i) write covered call options on portfolio
securities, and the U.S. dollar and emerging market currencies without limit;
(ii) write covered put options on portfolio securities, the U.S. dollar and
emerging market currencies with the limitation that the aggregate value of the
obligations underlying the puts determined as of the date the options are sold
will not exceed 50% of the Portfolio's net assets; (iii) purchase call and put
options in amounts up to 5% of its total assets; and (iv) purchase and sell
futures contracts that are traded on U.S. and foreign commodity exchanges on
underlying portfolio securities, any emerging market currency, U.S. and emerging
market fixed-income securities and such indices of U.S. or emerging market
equity or fixed-income securities as may exist or come into being and (v)
purchase and write call and put options on such futures contracts, in all cases
involving such futures contracts or options on futures contracts for hedging
purposes only, and without limit, except that the Portfolio may not enter into
futures contracts or purchase related options if, immediately thereafter, the
amount committed to margin plus the amount paid for premiums for unexpired
options on futures contracts generally exceeds 5% of the value of the
Portfolio's total assets. All of the foregoing are referred to as "Hedging
Instruments."
<PAGE>
In general, the Portfolio may use Hedging Instruments: (i) to protect
against declines in the market value of the Portfolio's portfolio securities or
stock index futures, and the currencies in which they are denominated, or (ii)
to establish a position in securities markets as a temporary substitute for
purchasing particular equity securities. The Portfolio will not use Hedging
Instruments for speculation. Hedging Instruments have certain risks associated
with them including: (i) the possible failure of such instruments as hedging
techniques in cases where the price movement of the securities underlying the
options or futures does not follow the price movements of the portfolio
securities subject to the hedge; (ii) potentially unlimited loss associated with
futures transactions and the possible lack of a liquid secondary market for
closing out a futures position; and (iii) possible losses resulting from the
inability of the Portfolio's investment adviser to predict the direction of
stock prices, interest rates and other economic factors. In addition, only a
limited market, if any, currently exists for hedging transactions relating to
currencies in many emerging markets or to securities of issuers domiciled or
principally engaged in business in emerging markets. This may limit the
Portfolio's ability to effectively hedge its investments in such emerging market
countries. 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS.
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 may 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 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 to
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.
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase
agreements, which are a means of investing monies for a short period, whereby a
seller -- a U.S. bank or recognized broker-dealer -- sells securities to the
Portfolio and agrees to repurchase them (at the Portfolio's cost plus interest)
within a specified period (normally one day). The value of the underlying
securities purchased by the Portfolio is monitored at all times by SCMI to
ensure that the total value of the securities equals or exceeds the value of the
repurchase agreement. The Portfolio's custodian bank holds the securities until
they are repurchased. If the seller defaults under a repurchase agreement, the
Portfolio may have difficulty exercising its rights to the underlying securities
and may incur costs and experience time delays in disposing of them. To evaluate
potential risk, SCMI reviews the creditworthiness of banks and dealers with
which the Portfolio enters into repurchase agreements.
LOANS OF FUND SECURITIES. The Fund may loan portfolio securities
(otherwise 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
Fund's total asset value. By so doing, the Fund attempts to earn interest
income. In the event of the other party's bankruptcy, the Fund could experience
delays in recovering the securities it loaned if, in the meantime, the value of
the loaned securities has increased, the Fund could experience a loss.
The Fund may loan its securities if it maintains Segregable Assets in a
segregated account equal to the current market value of the securities loaned
(including accrued interest thereon) plus the loan interest payable to the Fund.
Any securities that the Fund receives as collateral do not become part of its
investment portfolio at the time of the loan; in the event of a default by the
borrower, the Fund (to the extent permitted by law) will dispose of such
collateral except for such part thereof that is a security in which the Fund is
permitted to invest. While
<PAGE>
securities are on loan, the borrower pays the Fund any accrued income on those
securities. The Fund invests any cash collateral and earns income or receives an
agreed upon fee from a borrower that has delivered securities that are
permissible collateral. Cash collateral received by the Fund is invested in U.S.
government securities and liquid high grade debt obligations. The value of
securities loaned is marked to market daily. The market value of any securities
purchased with cash collateral is subject to decline. Securities loans are
subject to termination at SCMI's or the borrower's option. The Fund may pay
reasonable negotiated fees in connection with loaned securities, so long as such
fees are set forth in a written contract and approved by the Trust Board.
ILLIQUID AND RESTRICTED SECURITIES. The Fund will not invest more than
15% of its assets in securities that SCMI's determines to be illiquid.
Securities that may be resold to certain institutional customers under Rule 144A
of the Securities act of 1933 or Section 4(2) paper issued under that Act that
may have an active secondary market may be determined by SCMI to be liquid for
purposes of compliance with the Fund's limitations on illiquid investments.
There is no guarantee that the Fund will be able to sell such securities at any
time when SCMI deems it advisable to do so or at prices prevailing for
comparable securities that are more widely held. (See "Investment Policies --
Illiquid and Restricted Securities" in the SAI for further information.)
INVESTMENT IN OTHER INVESTMENT COMPANIES OR VEHICLES. The Portfolio may
be able to invest in certain emerging markets solely or primarily through
governmentally authorized investment vehicles or companies. Pursuant to the 1940
Act, the Portfolio may invest in the shares of other investment companies up to
the limits permitted under the 1940 Act or any orders, rules or regulations
thereunder. When investing through investment companies, the Portfolio may pay
substantial premiums above such investment companies' net asset value per share.
Such investments are subject to limitations under the 1940 Act and market
availability. The Portfolio does not intend to invest in other investment
companies unless, in the judgment of SCMI, the potential benefits of such
investment justify the payments of any applicable premiums or sales charges. As
a shareholder in an investment company, the Portfolio would bear its ratable
share of the investment company's expenses, including its advisory and
administrative fees. At the same time, the Portfolio would continue to pay its
own fees and expenses.
RISK CONSIDERATIONS
FOREIGN INVESTMENTS. All investments, domestic and foreign, involve
risk. 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. While the Portfolio will generally invest only in securities of
companies and governments in countries that SCMI considers both politically and
economically stable, 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. Foreign investments are subject to the risk of
changes in foreign governmental attitudes towards private investment that could
lead to nationalization, increased taxation or confiscation of Portfolio assets.
Moreover: (i) dividends payable on foreign securities may be subject to
foreign withholding taxes, thereby reducing the income earned by the Portfolio;
(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 lower volume than U.S.
securities and consequently may exhibit greater price volatility; and (v)
foreign securities trading practices, including those involving securities
settlement, may expose the Portfolio to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer or registrar.
<PAGE>
REGULATION AND LIQUIDITY OF MARKETS. Government supervision and
regulation of exchanges and brokers in emerging market countries is typically
less extensive than in the United States. These markets may have different
clearance and settlement procedures, and in certain cases, settlements have not
kept pace with the volume of securities transactions, making them difficult to
conduct. Delays in settlement could adversely affect or interrupt the
Portfolio's intended investment program or result in investment losses due to
intervening declines in security values.
Securities markets in emerging market countries are substantially
smaller than U.S. securities markets and have substantially lower trading
volume, resulting in diminished liquidity and greater price volatility. Reduced
secondary market liquidity may make it more difficult for the Portfolio to
determine the value of its portfolio securities or dispose of particular
instruments when necessary. Brokerage commissions and other transaction costs on
foreign securities exchanges are also generally higher.
EMERGING MARKETS. In any emerging market country, there is the
possibility of expropriation of assets, confiscatory taxation, nationalization
of companies or industries, foreign exchange controls, foreign investment
controls on daily stock market movements, default in foreign government
securities, political or social instability, or diplomatic developments that
could affect investments in those countries. In the event of expropriation,
nationalization or other confiscation, the Portfolio could lose its entire
investment in a country. The economies of developing countries generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. There may also be less
monitoring and regulation of emerging markets and the activities of brokers
there. Investing may require that the Portfolio adopt special procedures, seek
local government approvals or take other actions that may incur costs for the
Portfolio.
Certain emerging market countries may restrict investment by foreign
entities by limiting the size of foreign investment in certain issuers;
requiring prior approval of foreign investment by the government; imposing
additional tax on foreign investors; or limiting foreign investors to specific
classes of securities of an issuer that have less advantageous rights (with
regard to price or convertibility, for example) than classes available to
domiciliaries of the country. These restrictions or controls may at times limit
or preclude investment in certain securities and may increase the costs and
expenses of the Portfolio.
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 against the dollar in the value of currencies in which the Portfolio's
investments are denominated will result in a corresponding decline in the dollar
value of the Portfolio's assets. This risk is heightened in some emerging market
countries. Some emerging market countries may also have managed currencies that
do not freely float against the dollar.
The Portfolio is 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 that occurs 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.
INFLATION. Several emerging market countries have experienced high, and
in some periods extremely high, rates of inflation in recent years. Inflation
and rapid fluctuations in inflation rates may adversely affect these countries'
economies and securities markets. Further, inflation accounting rules in some
emerging market countries require, for companies that keep accounting records in
the local currency, that certain assets and liabilities be restated on the
company's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits for certain emerging market companies.
<PAGE>
NON-DIVERSIFIED INVESTMENTS. Because suitable investments in emerging
market countries may be limited, the Portfolio, like the Fund, has classified
itself as a "non-diversified investment company" under the 1940 Act so that it
may invest more than 5% of its total assets in the securities of a single
issuer. This classification may not be changed without a shareholder vote.
However, so that the Portfolio may continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended at the close of each quarter of the taxable year: (i) not more than 25%
of the market value of the Portfolio's total assets will be invested in the
securities of a single issuer; and (ii) with respect to 50% of the market value
of its total assets, not more than 5% will be invested in the securities of a
single issuer; and the Portfolio will not own more than 10% of the outstanding
voting securities of a single issuer. (See "Dividends, Distributions and
Taxes".)
To the extent the Portfolio makes investments in excess of 5% of its
assets in a particular issuer, its exposure to credit and market risks
associated with that issuer is increased. Also, since a relatively high
percentage of the Portfolio's assets may be invested in the securities of a
limited number of issuers, the Portfolio may be more susceptible to any single
economic, political or regulatory occurrence than a diversified investment
company.
GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its
total assets in issuers located in any one country. To the extent it invests in
issuers of one country, the Portfolio is susceptible to factors adversely
affecting that country, including political and economic developments and
foreign exchange rate fluctuations as discussed above. The value of the
Portfolio's assets may fluctuate more widely than the value of shares of a
comparable fund with less geographic concentration.
CERTAIN RISKS OF DEBT SECURITIES. The Portfolio may invest without
limitation in investment grade emerging market debt securities; it may invest up
to 35% of its total assets in debt securities that are unrated or are rated
below investment grade (below "Baa" by Moody's or "BBB" by S&P; (for a further
description of S&P's and Moody's securities ratings please see the Appendix to
the SAI). Note that even debt securities rated "Baa" by Moody's are considered
to have speculative characteristics. Below investment grade securities (and
unrated securities of comparable quality) ("high yield/high risk securities")
are predominantly speculative with respect to the capacity to pay interest and
repay principal, and generally involve a greater volatility of price than
securities in higher rating categories. These securities are commonly referred
to as "junk" bonds. The risks associated with junk bonds are generally greater
than those associated with higher-rated securities. The Portfolio is not
obligated to dispose of securities due to rating changes by Moody's, S&P or
other rating agencies. The Portfolio is not authorized to purchase debt
securities that are in default, except for sovereign debt (discussed below) in
which the Portfolio may invest no more than 5% of its total assets while such
sovereign debt securities are in default.
In purchasing high yield/high risk securities, the Portfolio will rely
on the investment adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. Nonetheless, investors should
review the investment objective and policies of the Fund and consider their
willingness to assume risk before making an investment.
High yield/high risk securities' market values are affected more by
individual issuer developments and are more sensitive to adverse economic
changes than are higher-rated securities. Issuers of high yield/high risk
securities may be highly leveraged and may not have more traditional methods of
financing available to them. During economic downturns or substantial periods of
rising interest rates, issuers of high yield/high risk securities, especially
highly leveraged ones, may be less able to service their principal and interest
payment obligations, meet their projected business goals, or obtain additional
financing. The risk of loss due to default by the issuer is significantly
greater for holders of high yield/high risk securities because such securities
may be unsecured and may be subordinated to other creditors of the issuer. In
addition, the Portfolio may incur additional expenses if it is required to seek
recovery upon a default by the issuer of such an obligation or participate in
the restructuring of such obligation.
<PAGE>
Periods of economic uncertainty and change will likely cause increased
volatility in the market prices of high yield/high risk securities and,
correspondingly, the Portfolio's net asset value if it invests in such
securities; market prices of such securities structured as zero coupon or
pay-in-kind securities are more affected by interest rate changes and thus tend
to be more volatile than securities that pay interest periodically and in cash.
High yield/high risk securities may have call or redemption features
which would permit an issuer to repurchase the securities from the Portfolio. If
a call were exercised by the issuer during a period of declining interest rates,
the Portfolio would likely have to replace called securities with lower yielding
securities, thus decreasing the Portfolio's net investment income and dividends
to shareholders.
While a secondary trading market for high yield/high risk securities
does exist, it is generally not as liquid as the secondary market for higher
rated securities. In periods of reduced secondary market liquidity, prices of
high yield/high risk securities may become volatile and experience sudden and
substantial price declines. The Portfolio may, therefore, have difficulty
disposing of particular issues to meet its liquidity needs or in response to a
specific economic event (such as a deterioration in the creditworthiness of the
issuer). Reduced secondary market liquidity for certain high yield/high risk
securities also may make it more difficult for the Portfolio to obtain accurate
market quotations (for purposes of valuing the Portfolio's investment
portfolio): market quotations are generally available on many high yield/high
risk securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales. Under such
conditions, high yield/high risk securities may have to be valued at fair value
as determined by the Schroder Core Board or SCMI under Board-approved
guidelines.
Adverse publicity and investor perceptions (which may not be based on
fundamental analysis) may decrease the value and liquidity of high yield/high
risk securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield/high risk securities are likely to
adversely affect the Portfolio's, and thus the Fund's, net asset value.
SOVEREIGN DEBT. Investment in sovereign debt carries high risk. Certain
emerging market countries such as Argentina, Brazil and Mexico are among the
largest debtors to commercial banks and foreign governments. At times, certain
emerging market countries have declared moratoria on the payment of principal
and/or interest on outstanding debt. The governmental entity that controls the
repayment of sovereign debt may not be able or willing to repay the principal
and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest
when it is due may be affected by many factors, such as its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange, the relative size of the debt service burden to the economy as a
whole, and political restraints. The Portfolio, as a holder of sovereign debt,
may be asked to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which defaulted sovereign debt may be collected.
The sovereign debt instruments in which the Portfolio may invest
involve great risk and are deemed to be the equivalent in terms of quality to
high yield/high risk securities discussed above and are subject to many of the
same risks as such securities. Similarly, the Portfolio may have difficulty
disposing of certain sovereign debt obligations because there may be a thin
trading market for such securities. The Portfolio will not invest more than 5%
of its total assets in sovereign debt in default.
PORTFOLIO TURNOVER. The Portfolio may engage in short-term trading but
its portfolio turnover rate is not expected to exceed 100%. High portfolio
turnover and short-term trading involve correspondingly greater commission
expenses and transaction costs. Also, higher portfolio turnover rates may cause
shareholders of the Portfolio to recognize gains for federal income tax
purposes. (See "Taxation" in the SAI.)
<PAGE>
MANAGEMENT OF THE FUND
Schroder Group Assets Under Management Worldwide
As of June 30, 1997 -- Over $150 Billion
[GRAPHIC OF WORLD MAP]
THE SCHRODER INVESTMENT MANAGEMENT GROUP INVESTMENT AND REPRESENTATIVE OFFICES
WORLDWIDE INCLUDE NEW YORK, LONDON, BOSTON, ZURICH, WARSAW, TOKYO, HONG KONG,
BEIJING, SHANGHAI, TAIPEI, SEOUL, BANGKOK, KUALA LUMPUR, SINGAPORE, JAKARTA,
SYDNEY, BUENOS AIRES, SAO PAULO, AND BOGOTA.
TOGETHER, SCHRODER CAPITAL MANAGEMENT INTERNATIONAL AND
SCHRODER CAPITAL MANAGEMENT INC. MANAGE OVER $23 BILLION.
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 Schroder Core Board. Information regarding the trustees and
executive officers of the Trust, as well as Schroder Core's trustees and
executive officers, may be found in the SAI under "Management, Trustees and
Officers."
INVESTMENT ADVISER AND PORTFOLIO MANAGERS
As investment adviser to the Portfolio, SCMI manages the Portfolio and
continuously reviews, supervises and administers its investments. SCMI is
responsible for making decisions relating to the Portfolio's investments and
placing purchase and sale orders regarding such investments with brokers or
dealers it selects. For these services, the Investment Advisory Agreement
between SCMI and Schroder Core provides that SCMI is entitled to receive a
monthly advisory fee at the annual rate of 1.00% of the Portfolio's average
daily net assets, which the Fund indirectly bears through its investment in the
Portfolio. The Fund bears no separate investment advisory fee directly.
SCMI is a wholly owned U.S. subsidiary of Schroders Incorporated, the
wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large world-wide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices in eighteen countries. The
Schroder Group specializes in providing investment management services.
The Fund's current investment managers include John A. Troiano, a Vice
President of the Trust and Schroder Core, who managed the Fund's investment
portfolio from its inception until it invested its assets in the Portfolio and
has managed the Portfolio's assets since its inception. Mr. Troiano is assisted
by the management team of Heather Crighton and Mark Bridgeman, who are
responsible for the day-to-day management of the investment portfolio. Mr.
Troiano, Chief Executive Officer of SCMI since April 1, 1997, has been a
Managing Director of SCMI since October 1995 and has been employed by various
Schroder Group companies in the
<PAGE>
investment research and portfolio management areas since 1981. Ms. Crighton is a
Vice President of SCMI and has been employed by SCMI/various Schroder Group
companies in the investment research and portfolio management areas since 1992.
Mr. Bridgeman, also a Vice President of SCMI, has been employed by various
Schroder Group companies in the investment research and portfolio management
areas since 1990.
The Fund pursues its investment objective through investment in the
Portfolio. 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. (See "Other Information -- Fund Structure.") Accordingly,
the Fund has retained SCMI as its investment adviser to manage the Fund's assets
in the event the Fund withdraws its investment. SCMI does 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). If the
Fund resumes directly investing in portfolio securities, SCMI will be entitled
to a monthly advisory fee at the annual rate of 1.00% of the Fund's average
daily net assets. The investment advisory agreement between SCMI and the Trust
with respect to the Fund is the same in all material respects as the investment
advisory contract between SCMI and Schroder Core with respect to the Portfolio
(except as to the parties, the circumstances under which fees will be paid and
the jurisdiction whose laws govern the agreement).
ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an administration
agreement with Schroder Advisors and a subadministration agreement with Forum.
Pursuant to these agreements, Schroder Advisors and Forum provide certain
management and administrative services necessary for the Fund's operations. For
providing services for the Fund, Schroder Advisors and Forum are entitled to
compensation at the annual rates of 0.15% and 0.075%, respectively, of the
Fund's average daily net assets
Schroder Advisors and Forum provide similar services to the Portfolio,
for which Schroder Advisors and Forum are entitled to monthly fees at annual
rates of 0.15% and 0.075%, respectively, of the Portfolio's average daily net
assets.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICE 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 for mutual funds. The Trust may compensate
Schroder Advisors under a distribution plan, adopted pursuant to Rule 12b-1
under the 1940 Act (the "Distribution Plan") by the Trust on behalf of the
Fund's Advisor Shares. Schroder Advisors, in turn, may use these payments to
compensate others for services provided, or to reimburse others for expenses
incurred, in connection with the distribution of Advisor Shares. The
Distribution Plan authorizes monthly payments at an annual rate of up to 0.50%
of the Fund's average daily net assets attributable to Advisor Shares. No
payments will be made under the Distribution Plan until the Board so authorizes.
Payments under the Distribution Plan may be for various types of costs,
including: (i) advertising expenses; (ii) costs of printing prospectuses and
other materials to be given or sent to prospective investors; (iii) expenses of
sales employees or agents of Schroder Advisors, including salary, commissions,
travel and related expenses in connection with the distribution of Advisor
Shares; (iv) payments to broker-dealers who advise shareholders regarding the
purchase, sale, or retention of Advisor Shares; and (v) payments to banks, trust
companies, broker-dealers (other than Schroder Advisors) or other financial
organizations (collectively, "Service Organizations"). Payments to a particular
Service Organization under the Distribution Plan will be calculated by reference
to the average daily net assets of Advisor Shares owned beneficially by
investors 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
annual 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 Advisor Shares
of the Fund, that have adopted a plan similar to that of
<PAGE>
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.
The Trust, on behalf of the Fund's Advisor Shares, also has adopted a
shareholder service plan (the "Shareholder Service Plan"), under which the Trust
is authorized to pay Schroder Advisors or Service Organizations a servicing fee.
Payments under the Shareholder Service Plan may be for various types of
services, including: (i) answering customer inquiries regarding the manner in
which purchases, exchanges and redemptions of shares of the Fund may be effected
and other matters pertaining to the Fund's services; (ii) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records; (iii) assisting shareholders in arranging for processing purchase,
exchange and redemption transactions; (iv) arranging for the wiring of funds;
(v) guaranteeing shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; (vi) integrating
periodic statements with other customer transactions; and (vii) providing such
other related services as the shareholder may request. The maximum amount
payable under the Shareholder Service Plan is 0.25% of the Fund's average daily
net assets attributable to Advisor Shares.
Payments to a particular Service Organization under the Shareholder
Service Plan are calculated by reference to the average daily net assets of
Advisor Shares owned beneficially by investors who have a service relationship
with the Service Organization. Some Service Organizations may impose additional
or different conditions on their clients, such as requiring their clients to
invest more than the minimum or subsequent investments specified by the Fund or
charging a direct fee for servicing. If imposed, these fees would be in addition
to any amounts which might be paid to the Service Organization by Schroder
Advisors. 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.
EXPENSES
The Fund bears all costs of its operations other than expenses
specifically assumed by Schroder Advisors or SCMI. The costs borne by the Fund
include legal and accounting expenses; Trustees' fees and expenses; insurance
premiums, custodian and transfer agent fees and expenses; brokerage fees and
expenses; expenses of registering and qualifying the Fund's shares for sale with
the SEC and with various state securities commissions; expenses of obtaining
quotations on portfolio securities and pricing of the Fund's shares; a portion
of the expenses of maintaining the Fund's legal existence and of shareholders'
meetings; and expenses of preparation and distribution to existing shareholders
of reports, proxies and prospectuses. Advisor Shares bear the expenses of any
distribution plan or shareholder service plan adopted for such Shares. Trust
expenses directly attributed to the Fund are charged to the Fund; other expenses
are allocated proportionately among all the series of the Trust in relation to
the net assets of each series. SCMI and Schroder Advisors have undertaken
voluntarily to waive a portion of their fees or assume certain expenses of the
Fund in order to limit total Fund expenses, excluding taxes, interest, brokerage
commissions and other Fund transaction expenses and extraordinary expenses
chargeable to Advisor Shares, to 2.00% of the average daily net assets of the
Fund attributable to those shares. This expense limitation can be modified or
withdrawn except by a vote of the Trust Board. If expense reimbursements are
required, they will be made on a monthly basis. Forum may waive voluntarily all
or a portion of their fees, from time to time.
PORTFOLIO TRANSACTIONS
SCMI places orders for the purchase and sale of the Portfolio's
investments with brokers and dealers selected by SCMI and seeks "best execution"
of such portfolio transactions. The Portfolio may pay brokers higher than the
lowest available commission rates when SCMI believes it is reasonable to do so
in light of the value of the brokerage and research services provided.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, which may cause higher brokerage expenses to accrue to the Portfolio
than would be the case for comparable transactions effected on U.S. securities
exchanges.
<PAGE>
Subject to the Portfolio's policy of obtaining the best price consistent
with quality of execution on transactions, SCMI may employ Schroder Securities
Limited and its affiliates (collectively, "Schroder Securities"), affiliates of
SCMI, to effect transactions of the Portfolio on certain foreign securities
exchanges. Because of the affiliation between SCMI and Schroder Securities, the
Portfolio's payment of commissions to Schroder Securities is subject to
procedures adopted by the Schroder Core Board designed to ensure that
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 any brokerage in
recognition of research services.
Although the Portfolio does not currently engage in directed brokerage
arrangements to pay expenses, it may do so in the future. These arrangements,
(whereby brokers executing the Portfolio's portfolio transactions agree to pay
designated expenses of the Portfolio if brokerage commissions generated by the
Portfolio reached certain levels) might reduce the Portfolio's expenses (and,
indirectly, the Fund's expenses), and would not be expected to materially
increase the brokerage commissions paid by the Portfolio.
CODE OF ETHICS
The Trust, Schroder Core, SCMI, Schroder Advisors, and Schroders
Incorporated have each adopted a code of ethics that contains 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 Advisor 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 (the "Transfer
Agent"). (See "Other Information -- Shareholder Inquiries".) Investments may
also be made through financial institutions and other organizations that assist
their customers in purchasing Fund Shares, which organizations may charge their
customers a service fee for processing orders to purchase or sell shares.
Investors wishing to purchase Shares through an organization should contact that
organization directly for appropriate instructions.
Fund Shares 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 $10,000, and the minimum subsequent investment is
$2,500. All purchase payments are invested in full and fractional shares. The
Fund is authorized to reject any purchase order.
Purchases may be made by mailing a check (in U.S. dollars), payable to
Schroder Emerging Markets Fund along with a completed account application (or
the investor's account number) to:
Schroder Emerging Markets Fund -- Advisor Shares
P.O. Box 446
Portland, Maine 04112
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.
<PAGE>
Purchase payments may be transmitted by Federal Reserve Bank wire
directly to the Fund as follows:
The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Financial Corp.
Account. No.: 910-2-718187
Ref.: Schroder Emerging Markets Fund -- Advisor Shares
Account of: (shareholder name)
Account No: (shareholder account number)
The wire order must specify the name of the Fund, the shares' class
(i.e., Advisor Shares), the account name and number, address, confirmation
number, amount to be wired, name of the wiring bank, and name and telephone
number of the person to be contacted in connection with the order. If the
initial investment is by wire, an account number will be assigned and an account
application must be completed and mailed to the Fund before any transaction will
be effected. 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") are
processed at the net asset value determined as of that day. Wire orders received
after 4:00 p.m. (Eastern time) are processed at the net asset value determined
as of the next Fund Business Day. (See "Net Asset Value".)
The Fund's Transfer Agent establishes for each shareholder of record an
open account to which all shares purchased and all reinvested dividends and
other distributions are credited. Although most shareholders elect not to
receive share certificates, certificates for full shares can be obtained by
written request to the Fund's Transfer Agent. No certificates are issued for
fractional shares.
The Transfer Agent will deem an account lost if six months have passed
since correspondence to the shareholder's address of record is returned, unless
the Transfer Agent determines the shareholder's new address. When an account is
deemed lost, dividends and other distributions will automatically be reinvested.
In addition, the amount of any outstanding checks for dividends and other
distributions that have been returned to the Transfer Agent will be reinvested
and the checks will be canceled.
RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
Fund Shares are offered in connection with tax-deferred retirement
plans. Application forms and further information about these plans, including
applicable fees, are available upon request. Before investing in the Fund
through one of these plans, investors should consult their tax advisors.
The Fund may be used as an investment vehicle for an IRA including
SEP-IRA. An IRA naming 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 $2,000; the minimum subsequent investment is $250. Under certain
circumstances contributions to an IRA may be tax deductible. IRAs are available
to individuals (and their spouse) who receive compensation or earned income
whether or not they are active participants in a tax-qualified or
government-approved retirement plan. An IRA contribution by an individual or
spouse who participates in a tax-qualified or government-approved retirement
plan may not be deductible, depending upon the individual's income. Individuals
also may establish an IRA to receive a "rollover" contribution of distributions
from another IRA or qualified plan. Tax advice should be obtained before
effecting a rollover.
EXCHANGES
Shareholders may exchange Fund Shares for shares of any other fund of
the Trust so long as they meet the initial investment minimum of the fund being
purchased and maintain the respective minimum account balance in each fund in
which they own shares. Exchanges between each fund are at net asset value.
<PAGE>
Federal income tax purposes an exchange is considered to be a sale of
shares for on which a shareholder may realize a capital gain or loss. An
exchange may be made by calling the Transfer Agent at (800) 344-8332 or by
mailing written instructions to Schroder Capital Funds (Delaware), P.O. Box 446,
Portland, Maine 04112. Exchange privileges may be exercised only in those states
where shares of the other funds of the Trust may legally be sold. Exchange
privileges may be amended or terminated at any time upon sixty (60) days'
notice.
REDEMPTION OF SHARES
Fund Shares are redeemed at their next determined net asset value after
receipt by the Fund see the address set forth above under "Purchase of Shares"
of a redemption request in proper form. Redemption requests may be made between
9:00 a.m. and 6:00 p.m. (Eastern time) on each Fund Business Day. Redemption
requests that are received prior to 4:00 p.m. (Eastern time) are processed at
the net asset value determined as of that day. Redemption requests that are
received after 4:00 p.m. (Eastern time) are processed at the net asset value
determined the next Fund Business Day. (See "Net Asset Value" below.)
BY TELEPHONE. Redemption requests may be made by telephoning the
Transfer Agent at the 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 telephone
instructions are genuine. The Transfer Agent and the Trust generally will not be
liable for any losses due to unauthorized or fraudulent redemption requests, but
may be liable if they do not follow these procedures. Shares for which
certificates have been issued may not be redeemed by telephone. In times of
drastic economic or market change it may be difficult to make redemptions by
telephone. If a shareholder cannot reach the Transfer Agent by telephone,
redemption requests may be mailed or hand-delivered to the Transfer Agent.
WRITTEN REQUESTS. Redemptions may be made by letter to the Fund
specifying the class of shares, the dollar amount or number of Shares to be
redeemed, and the shareholder account number. The letter must also be signed in
exactly the same way the account is registered (if there is more than one owner
of the Shares, all must sign) and, in certain cases, signatures must be
guaranteed by an institution that is acceptable to the Transfer Agent. Such
institutions include certain banks, brokers, dealers (including municipal and
government securities brokers and dealers), credit unions and savings
associations. Notaries public are not acceptable. Further documentation may be
requested to evidence the authority of the person or entity making the
redemption request. Questions concerning the need for signature guarantees or
documentation of authority should be directed to the Fund at the above address
or by calling the telephone number appearing on the cover of this Prospectus.
If 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
normally are mailed within seven days. No redemption proceeds are 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 are 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.
<PAGE>
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. 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" 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 falls below that amount solely as a result of market
activity. Shareholders will be notified that the value of the account is less
than the required minimum and be allowed at least 30 days to make an additional
investment to increase the account balance to at least the required minimum
amount.
NET ASSET VALUE
The net asset value per share of the Fund is calculated 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, , Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Net asset value per share for a class of shares is calculated by dividing the
aggregate value of the Fund's assets allocable to a particular class, less the
liabilities charged to that class, if any, by the number of outstanding shares
of that class.
Generally, securities that are listed on recognized stock exchanges are
valued at the last reported sale price, on the day when the securities are
valued (the "Valuation Day"), on the primary exchange on which the securities
are principally traded. Listed securities traded on recognized stock exchanges
for which there were no sales on the Valuation Day are valued at the last sale
price on the preceding trading day or at closing mid-market prices. Securities
traded in over-the-counter markets are valued at the most recent reported
mid-market price. Other securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith using
methods approved by the Schroder Core Board.
Trading in securities on non-U.S. exchanges and over-the-counter
markets may not take place on every day that the New York Stock Exchange is open
for trading. Furthermore, trading takes place in various foreign markets on days
on which the 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 Schroder Core 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, DISTRIBUTIONS AND TAXES
THE FUND
The Fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies. By
complying therewith, the Fund will not have to pay federal income tax on that
part of its income or net realized capital gain that is distributed to
shareholders. The Fund intends to distribute substantially all of its income and
net realized capital gain, and therefore, intends not to be subject to federal
income tax.
<PAGE>
Dividends and capital-gain distributions on Advisor Shares are
reinvested automatically in additional Advisor Shares at net asset value unless
the shareholder has elected in the account application or otherwise in writing,
to receive dividends and other distributions in cash.
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 Advisor Shares as a result of compensation payable to
service organizations for shareholder servicing for the Advisor Shares.
Dividends from the Fund's income generally will be taxable to
shareholders as ordinary income, whether the dividends are invested in
additional Shares or received in cash. Distributions by the Fund of any net
long-term capital gain will be taxable to a shareholder as long-term capital
gain regardless of how long the shareholder has held the Shares. Each year the
Trust will notify shareholders of the tax status of dividends and other
distributions.
Dividends from the Fund will qualify for the dividends-received
deduction for corporate shareholders to the extent dividends do not exceed the
aggregate amount of dividends received by the Fund from domestic corporations,
provided the Fund shares are held for more than 45 days. If securities held by
the Fund are considered to be debt-financed (generally, acquired with borrowed
funds); are held by the Fund for fewer than 46 days (91 days in the case of
certain preferred stock); or are subject to certain forms of hedges or short
sales, then the portion of the dividends paid by the Fund attributable to such
securities will not be eligible for the dividends-received deduction.
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 basis in 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 Fund may also be subject to state and local
taxes, including withholding taxes.
In an effort to adhere to certain tax requirements, the Fund may have
to limit its investment activity in some types of instruments.
If the Fund's dividends exceed its taxable income in any year, all or a
portion of the Fund's dividends may be treated as a return of capital to
shareholders for tax purposes. Any return of capital will reduce the cost basis
of your shares, which will result in a higher reported capital gain or a lower
reported capital loss when you sell your shares. Shareholders will be notified
by the Trust if a distribution included a return of capital.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on the
Portfolio and its investments, which generally reduce the Fund's income.
However, an offsetting tax credit or deduction may be available to you. If so,
your tax statement will show more taxable income or capital gain than was
actually distributed by the Fund but will also show the amount of the available
offsetting credit or deduction.
<PAGE>
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 does make such an election, its
shareholders would include as gross income in their federal income tax returns
both: (i) distributions received from the Fund and (ii) 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 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.) Shareholders should consult their own tax advisors as
to the tax consequences of their ownership of Shares.
THE PORTFOLIO
The Portfolio is not required to pay federal income tax because it is
classified as a partnership for federal income tax purposes. All interest,
dividends, gains and losses of the Portfolio will be deemed to have been "passed
through" to the Fund in proportion to the Fund's holdings in the Portfolio,
regardless of whether such interest, dividends or gains have been distributed by
the Portfolio.
The Portfolio intends to conduct its operations so as to enable the
Fund to qualify as a regulated investment company.
OTHER INFORMATION
CAPITALIZATION AND VOTING
The Trust was organized as a Maryland corporation on July 30, 1969;
reorganized on February 29,1988, as Schroder Capital Funds, Inc.; and
reorganized on January 9, 1996, as a Delaware business trust. The Trust has
authority to issue an unlimited number of shares of beneficial interest. The
Trust Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Fund) and may
divide such portfolios or series into classes of shares (such as the Advisor
Shares), and the costs of doing so are borne by the Trust or series in
accordance with the Trust Instrument. The Trust currently consists of eight
separate Funds, each of which has a separate investment objective and policies.
The Fund currently consists of two classes of shares, Investor Shares
and Advisor 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.
When issued in accordance with the terms of the Prospectus, shares are
fully paid, non-assessable, and have no preemptive rights. Shareholders have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees if
they choose to do so. A shareholder is entitled to one vote for each full share
held (and a fractional vote for each fractional share held). Each 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. On Trust 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.
<PAGE>
REPORTS
The Trust sends each Fund shareholder a semi-annual report and an
audited annual report containing the Fund's financial statements.
PERFORMANCE
The Fund may include quotations of average annual total return,
cumulative total return and other performance measures for a class of shares in
advertisements or reports to shareholders or prospective investors. Average
annual total return of a class of shares is based upon the overall dollar or
percentage change in value of a hypothetical investment each year over specified
periods. Average annual total returns reflect the deduction of a proportional
share of a Fund's expenses (on an annual basis) and assumes investment and
reinvestment of all dividends and distributions at NAV. Cumulative total returns
are calculated similarly except that the total return is aggregated over the
relevant period instead of annualized.
Performance quotations are calculated separately for each class of
shares of the Fund. Performance calculations may also be compared to various
unmanaged securities indices, groups of mutual funds tracked by mutual fund
ratings services, or other general economic indicators. Unmanaged indices may
assume the reinvestment of dividends but do not reflect deductions for
administrative and management costs and expenses.
Performance information represents only past performance and does not
necessarily indicate future results. (For a description of the methods used to
determine total return and other performance measures for the Fund, see the
SAI.)
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank 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 should be directed to:
Schroder Emerging Markets 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 or (207) 879-1900.
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.
<PAGE>
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 but generally have lower investment minimums than
Investor Shares. Except for certain class 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 except that, due to the differing
expenses borne by the two classes, the amount of dividends and other
distributions differs between the classes. Information about the other class of
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 the same
investment objective and substantially similar 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 Schroder Core, a business trust organized under the laws of the State
of Delaware in September 1995. Schroder Core is registered under the 1940 Act as
an open-end, management investment company and currently has four separate
series. 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 Schroder Core.
The Fund's investment in the Portfolio is in the form of a
non-transferable beneficial interest. As of October 1, 1997, the Fund is the
only institutional investor in the Portfolio. The Portfolio may permit other
investment companies or other qualified 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 1940 Act. Each investor in the Portfolio is 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 1940 Act and other applicable
law, the Fund solicits proxies from its shareholders and votes 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 would receive a
majority of votes cast by all investors in the Portfolio; indeed, if other
investors hold a majority interest in the Portfolio, they could have voting
control of the Portfolio.
The Portfolio does 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 that offers its shares to members of
the general public. Information regarding any such funds in the future is
available from Schroder Core by calling Forum Financial Corp. at (800) 730-2932.
Under federal securities law, 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. Schroder Core, its Trustees and
certain of its officers are required to sign the registration statement and
amendments thereto of the Trust and may be required to sign the registration
statements of certain other investors in the Portfolio. In addition, under
federal securities law, Schroder Core may be liable for misstatements or
omissions of a material fact in any proxy soliciting material of a publicly
offered investor in Schroder Core, including the Fund. Each investor in the
Portfolio, including the Trust, has agreed to indemnify Schroder Core and its
Trustees and officers ("Schroder Core Indemnitees") against certain claims.
Indemnified claims are those brought against Schroder Core Indemnitees
based on a misstatement or omission of a material fact in the investor's
registration statement or proxy materials. No indemnification need be made,
however, if such alleged misstatement or omission relates to information about
Schroder Core and was supplied to the investor by Schroder Core. Similarly,
Schroder Core will indemnify each investor in the Portfolio,
<PAGE>
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 Schroder Core that is supplied to the investor by Schroder
Core. In addition, each registered investment company investor in the Portfolio
will indemnify each Schroder Core 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 Schroder
Core. The purpose of these cross-indemnity provisions is principally to limit
the liability of Schroder Core 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 Schroder Core, 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 Trust Board determines that it is in the best interests of the Fund
and its shareholders to do so. The Fund might withdraw, for example, if there
were other investors in 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 would likely incur
brokerage fees or other transaction costs. If the Fund withdrew its investment
from the Portfolio, the Trust Board would consider appropriate alternatives,
including the management of the Fund's assets in accordance with its investment
objective and policies by SCMI or the investment of all of the Fund's investable
assets in another pooled investment entity having substantially the same
investment objective as the Fund. The inability of the Fund to find a suitable
replacement investment, if the Board decided not to permit SCMI to manage the
Fund's assets, could have a significant impact on shareholders of the Fund.
Each investor in the Portfolio, including the Fund, may be liable for
all obligations of the Portfolio. The risk to an investor in the Portfolio of
incurring financial loss on account of such liability, however, is limited to
circumstances in which the Portfolio is unable to meet its obligations, the
occurrence of which SCMI considers to be 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.
<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
SUBADMINISTRATOR
Forum Administrative Services, Limited Liability Company
Two Portland Square
Portland, Maine 04101
CUSTODIAN
The Chase Manhattan Bank
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
Coopers & Lybrand, L.L.P.
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................
EXPENSES OF INVESTING
IN THE FUND....................................
Fee Table......................................
Example........................................
INVESTMENT OBJECTIVE...........................
INVESTMENT POLICIES............................
RISK CONSIDERATIONS............................
MANAGEMENT OF THE FUND.........................
Boards of Trustees.............................
Investment Adviser and Portfolio Managers......
Administrative Services........................
Distribution Plan and Shareholder
Servicve Plan..................................
Expenses.......................................
Portfolio Transactions.........................
Code of Ethics.................................
INVESTMENT IN THE FUND.........................
Purchase of Shares.............................
Retirement Plans and Individual
Retirement Accounts..........................
Exchanges......................................
Redemption of Shares...........................
Net Asset Value................................
DIVIDENDS, DISTRIBUTIONS
AND TAXES......................................
The Fund.......................................
The Portfolio..................................
OTHER INFORMATION..............................
Capitalization and Voting......................
Reports........................................
Performance....................................
Custodian and Transfer Agent...................
Shareholder Inquiries..........................
Service Organization...........................
Fund Structure.................................
<PAGE>
SCHRODER EMERGING MARKETS FUND
Investor Shares
This fund's investment objective is to seek long-term capital appreciation. It
seeks to achieve this objective through direct or indirect investment in equity
securities of issuers domiciled or doing business in emerging market countries
in regions such as Southeast Asia, Latin America, and Eastern and Southern
Europe. It is designed for investors who seek the aggressive growth potential of
emerging world markets and are willing to bear the special risks of investing in
those markets.
Schroder Emerging Markets Fund (the "Fund"), a series of Schroder Capital Funds
(Delaware) (the "Trust"), seeks to achieve its investment objective by investing
substantially all of its assets in Schroder Emerging Markets Fund (the
"Portfolio"), a series of Schroder Capital Funds ("Schroder Core. The Portfolio
has an identical investment objective and substantially similar investment
policies as the Fund. Accordingly, the Fund's investment experience corresponds
directly with the Portfolio's investment experience. (See "Other Information
- --Fund Structure").
This Prospectus sets forth concisely the information you should know before
investing and should be retained for future reference. To learn more about the
Fund, you may obtain a copy of the Fund's current Statement of Additional
Information (the "SAI"), which is incorporated by reference into this
Prospectus. The SAI dated October 1, 1997, as amended from time to time, has
been filed with the Securities and Exchange Commission ("SEC") and is available
along with other related materials for reference on its Internet Web Site
(http://www.sec.gov) or may be obtained without charge from the Trust by writing
to Two Portland Square, Portland, Maine 04101 or by calling (800) 290-9826. The
Fund has not authorized anyone to provide you with information that is different
from what is contained in this Prospectus or in other documents to which this
Prospectus refers you.
MUTUAL FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE
FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER GOVERNMENT AGENCY AND ALSO ARE NOT
OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR
ITS AFFILIATES. MUTUAL FUND INVESTMENTS ARE 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.
PROSPECTUS
October 1, 1997
<PAGE>
[OUTLINED BOX NAMING ALL FUNDS]
FUNDS AVAILABLE THROUGH SCHRODER FUND ADVISORS INC.
PLEASE CALL FOR COMPLETE INFORMATION AND TO OBTAIN A PROSPECTUS.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
SCHRODER CAPITAL FUNDS (DELAWARE) (800) 290-9826
SCHRODER INTERNATIONAL BOND FUND
SCHRODER EMERGING MARKETS FUND
SCHRODER EMERGING MARKETS FUND INSTITUTIONAL
PORTFOLIO
SCHRODER INTERNATIONAL FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER MICRO CAP FUND
SCHRODER U.S. EQUITY FUND
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER CASH RESERVES FUND
SCHRODER SERIES TRUST (800) 464-3108
SCHRODER LARGE CAPITALIZATION EQUITY FUND
SCHRODER MID CAP GROWTH FUND
SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER SHORT-TERM INVESTMENT FUND
2
<PAGE>
PROSPECTUS SUMMARY
This Prospectus offers Investor Class shares ("Investor Shares" or
"Shares") of the Fund, which is a separately managed, non-diversified series of
the Trust, an open-end, management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Fund invests substantially
all of its assets in the Portfolio, a separately managed, non-diversified series
of Schroder Core, an open-end management company registered under the 1940 Act.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS.
OBJECTIVE. Long-term capital appreciation. The Fund seeks to achieve
the objective through direct or indirect investment in equity and debt
securities of issuers domiciled or doing business in emerging market countries
in regions such as Southeast Asia, Latin America, and Eastern and Southern
Europe. Current income is incidental to the Fund's objective.
INVESTMENT ADVISER. The Portfolio's investment adviser is Schroder Capital
Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York
10019. The Fund (and indirectly its shareholders) bears a pro rata portion of
the investment advisory fee the Portfolio pays to SCMI. (See "Management of the
Fund -- Investment Adviser and Portfolio Managers".)
ADMINISTRATIVE SERVICES. Schroder Fund Advisors Inc. ("Schroder Advisors")
serves as administrator and distributor of the Fund, and Forum Administrative
Services, Limited Liability Company ("Forum") serves as the Fund's
subadministrator. (See "Management of the Fund -- Administrative Services.")
PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or
redeemed by mail, by bank-wire and through your broker-dealer or other financial
institution. The minimum initial investment is $10,000, and the minimum
subsequent investment is $2,500. (See "Investment in the Fund -- Purchase of
Shares" and "--Redemption of Shares".)
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund annually declares and pays
as a dividend substantially all of its net investment income and at least
annually distributes any net realized long-term capital gain. Dividends and
long-term capital-gain distributions are reinvested automatically in additional
Investor Shares of the Fund at net asset value unless you elect in your account
application, or otherwise in writing, to receive dividends and other
distributions in cash. (See "Dividends, Distributions and Taxes".)
RISK CONSIDERATIONS. Alone, the Fund is not a balanced investment plan.
It is intended for investors who seek the aggressive growth potential of
emerging world markets and are willing to bear their special investment risks,
including but not limited to tightening of exchange controls and expropriation,
nationalization or confiscation of assets by local governments. The Fund is not
intended for investors whose objective is assured income or preservation of
capital: investments in the securities of foreign issuers, particularly in
countries with smaller, emerging capital markets, involve risks in addition to
risks associated with investments in the securities of U.S. issuers. Of course,
as with any mutual fund, there is no assurance that the Fund or Portfolio will
achieve its investment objective.
The Fund's net asset value ("NAV") will vary because the market value
of the Portfolio's investments will change with changes in the value of the
securities in which the Portfolio invests and with changes in market conditions,
interest rates, currency rates, or political or economic events. The Fund is
non-diversified, which means that it may invest a greater portion of its assets
in securities of individual issuers than a diversified fund. Consequently,
changes in the market value of a single issuer could cause greater fluctuations
in the Fund's NAV than would occur in a diversified fund. When you sell your
shares, they may be worth more or less than what you paid for them. (See "Risk
Considerations".)
3
<PAGE>
EXPENSES OF INVESTING IN THE FUND
FEE TABLE
The table below is intended to assist you in understanding the expenses
that an investor in Investor Shares of the Fund would incur. There are no
transaction expenses associated with purchases or redemptions of Investor
Shares. The Annual Fund Operating Expenses have been estimated to reflect
projected fees, expenses and waivers for the Fund's current fiscal year ending
December 31, 1997.
Annual Fund Operating Expenses (as a percentage of average net assets)(1)
Management Fees (after fee waivers)(2)(3)............................ 1.00%
12b-1 Fees........................................................... None
Other Expenses (after fee waivers and expense reimbursements)(3)..... 0.75%
----------------------------------------------------------------
Total Fund Operating Expenses (after fee waivers and expense
reimbursements)(3)................................................... 1.75%
(1) The Fund's expenses include the Fund's pro rata portion of all
operating expenses of the Portfolio.
(2) Management Fees reflect the fees paid by the Portfolio and the Fund to
SCMI and Schroder Advisors for investment advisory and administrative
services.
(3) SCMI and Schroder Advisors have voluntarily undertaken to waive a
portion of their fees and assume certain expenses of the Fund during
the current fiscal year in order to limit the Fund's total expenses to
1.75% of the Fund's average daily net assets. This undertaking cannot
be withdrawn except by a majority vote of the Trust's Board of
Trustees. (See "Management of the Fund -- Expenses".) Without fee
waivers, Management Fees, Other Expenses and Total Operating Expenses
would be 1.15%, 1.77% and 2.92%, respectively.
EXAMPLE
The table below indicates how much you would pay in total expenses on a
$1,000 investment in the Fund, assuming: (i) a 5% annual return; and (ii)
redemption at the end of each time period. The example is based on the expenses
listed above and assumes reinvestment of all dividends and other distributions.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURNS; ACTUAL EXPENSES OR RETURNS MAY VARY FROM THOSE SHOWN. The 5% annual
return is not a prediction of the Fund's return, but is the percentage required
by the SEC for use in this example.
1 YEAR..............................................................$18
3 YEARS.............................................................$55
5 YEARS.............................................................$95
10 YEARS...........................................................$206
[NOTE: NEED TO DETERMINE WHETHER PRIOR HISTORY FOR EMERGING MARKETS FUND -
INSTITUTIONAL PORTFOLIO WILL BE USED WITH RESPECT TO EXPENSE PROJECTIONS AND/OR
PERFORMANCE HISTORY (CF. INT'L SMALLER COMPANIES AS A MODEL).]
4
<PAGE>
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek to achieve long-term
capital appreciation through direct or indirect investment in equity and debt
securities of issuers domiciled or doing business in emerging market countries
in regions such as Southeast Asia, Latin America, and Eastern and Southern
Europe. Current income is incidental to the Fund's objective.
The Fund is designed for investors who seek the aggressive growth
potential of emerging markets and are willing to bear the special risks of
investing a portion of their assets in those markets. The Fund is not a complete
investment program and investments in the securities of foreign issuers
generally involve risks in addition to the risks associated with investments in
the securities of U.S. issuers. The Fund is not intended for investors whose
objective is assured income or preservation of capital. (See "Risk
Considerations".)
The Fund currently seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, which has substantially
the same investment objective and substantially similar policies as the Fund.
There can be no assurance that the Fund or Portfolio will achieve its investment
objective.
INVESTMENT POLICIES
Although the following information describes the investment policies of
the Portfolio and the responsibilities of Schroder Core's Board of Trustees (the
"Schroder Core Board"), it applies equally to the Fund and the Trust's Board of
Trustees (the "Trust Board"). Additional information concerning the investment
policies of the Fund and the Portfolio is contained in the SAI.
The investment objective and fundamental investment policies of the
Portfolio may not be changed without approval of the holders of a majority of
the outstanding voting securities of the Portfolio. A majority of outstanding
voting securities means the lesser of: (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. Non-fundamental investment policies may be changed by the
Schroder Core Board without approval of the investors in the Portfolio. All
investment policies are non-fundamental unless stated otherwise.
Under normal market conditions, the Portfolio will invest at least 65%
of its total assets in emerging market equity and debt securities, including
common stocks; preferred stocks; convertible preferred stocks; stock rights and
warrants; convertible debt securities; and non-convertible debt securities.
(Investments in stock rights and warrants will not be considered for purposes of
determining compliance with this policy.) The Portfolio may invest up to 35% of
its total assets in high-risk debt securities that are unrated or rated below
investment grade. (See "Risk Considerations".) Under certain circumstances, the
Portfolio may invest indirectly in emerging market securities by investing in
other investment companies or vehicles. (See "Risk Considerations -- Investment
in Other Investment Companies or Vehicles".)
In recent years, many emerging market countries have begun programs of
economic reform: removing import tariffs, dismantling trade barriers,
deregulating foreign investment, privatizing state-owned industries, permitting
the value of their currencies to float against the dollar and other major
currencies, and generally reducing the level of state intervention in industry
and commerce. Important intra-regional economic integration also holds the
promise of greater trade and growth. At the same time, significant progress has
been made in restructuring the heavy external debt burden that certain emerging
market countries accumulated during the 1970s and 1980s. While there is no
assurance that these trends will continue, the Portfolio's investment adviser
will seek out attractive investment opportunities in these countries. The
Portfolio may acquire emerging market securities that are not denominated in
emerging market currency.
5
<PAGE>
"Emerging market" countries are all those not included in the Morgan
Stanley Capital International World Index ("MSCI World") of major world
economies. If, however, the investment adviser determines that the economy of a
MSCI World-listed country is an emerging market economy, the adviser may include
such country in the emerging market category. The following countries are
currently excluded from the Portfolio's emerging market category: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, United Kingdom, and the United States of America. The Portfolio
will not necessarily seek to diversify investments on a geographic basis and may
invest more than 25% of its total assets in issuers located in any one country.
(See "Risk Considerations --Geographic Concentration".)
An issuer of a security will be considered to be domiciled or doing
business in an emerging market when: (i) it is organized under the laws of an
emerging market country; (ii) its primary securities trading market is in an
emerging market country; (iii) in the judgment of the investment adviser, at
least 50% of the issuer's revenues or profits are derived from goods produced or
sold, investments made, or services performed in emerging market countries; or
(iv) it has at least 50% of its assets situated in emerging market countries.
The Portfolio may consider investment companies to be located in the country or
countries in which they primarily invest.
The following information relates to specific policies and limitations
of the Fund. These policies and limitations (unless otherwise noted) are
considered at the time of any purchase.
COMMON AND PREFERRED STOCK AND WARRANTS. The Portfolio's investments
consist primarily of the common or preferred stock of established emerging
market companies that are listed on recognized securities exchanges or traded in
other established markets. However, the Portfolio may make limited investment in
convertible preferred stock, warrants and stock rights.
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 they would be 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 also a shareholder and not a creditor
of the company. Equity securities owned by the Portfolio may be traded in the
over-the counter market or on a securities exchange, but are not 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 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.
Convertible preferred stock generally may be converted at a stated
price within a specific amount of time into a specified number of shares of
common stock. A convertible security entitles the holder to receive the dividend
paid on preferred stock until the convertible security is converted or
exchanged. Before conversion, convertible securities have characteristics
similar to non-convertible debt securities in that they ordinarily provide a
stream of income with generally higher yields than those of common stocks of the
same or similar issuers. These securities are usually senior to common stock in
a company's capital structure, but usually are subordinated to non-convertible
debt securities. In general, the value of a convertible security is the higher
of its investment value (its value as a fixed income security) and its
conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock.
The Portfolio may also invest in warrants. Warrants 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.
6
<PAGE>
AMERICAN DEPOSITARY RECEIPTS ("ADRS"). Due to the absence of
established securities markets in certain emerging market countries and
restrictions in certain countries on direct investment by foreign entities, the
Portfolio may invest in certain emerging market issuers through the purchase of
sponsored and unsponsored American Depositary Receipts ("ADRs") or other similar
securities, such as American Depositary Shares, Global Depositary Shares or
International Depositary Receipts. ADRs are receipts typically issued by U.S.
banks evidencing ownership of the underlying securities into which they are
convertible. These securities may or may not be denominated in the same currency
as the underlying securities. Unsponsored ADRs may be created without the
participation of the foreign issuer. Holders of unsponsored ADRs generally bear
all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
DEBT SECURITIES. The Portfolio may seek capital appreciation through
investment in emerging market convertible or non-convertible debt securities.
Capital appreciation in debt securities may arise as a result of a favorable
change in relative foreign exchange rates, in relative interest rate levels, or
in the creditworthiness of issuers. The receipt of income from such debt
securities is incidental to the Portfolio's objective of long-term capital
appreciation. Such income can be used, however, to offset the operating expenses
of the Portfolio. In accordance with its investment objective, the Portfolio
will not seek to benefit from anticipated short-term fluctuations in currency
exchange rates. The Portfolio also may invest to a certain extent in debt
securities in order to participate in debt-to-equity conversion programs
incident to corporate reorganizations.
Debt securities are generally subject to two kinds of risk -- Credit
risk and market risk. Credit risk refers to the ability of the debtor, and any
other obligor, to pay principal and interest on the debt as it becomes due. The
Portfolio may, from time to time, invest 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. Market risk refers
to the tendency of the value of debt securities to vary inversely with interest
rate changes. Certain debt instruments may also be subject to extension risk,
which refers to change in total return on a debt instrument resulting from
extension or abbreviation of the instrument's maturity.
The Portfolio may invest in debt securities issued or guaranteed by
emerging market governments (including countries, provinces and municipalities)
or their agencies and instrumentalities ("governmental entities"); debt
securities issued or guaranteed by international organizations designated or
supported by multiple foreign governmental entities (which are not obligations
of foreign governments) to promote economic reconstruction or development; and
debt securities issued by corporations or financial institutions.
BRADY BONDS. The Portfolio may invest a portion of its assets in Brady
Bonds, which are securities created through the exchange of existing commercial
bank loans to sovereign entities for new obligations in connection with debt
restructuring (under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady). Brady Bonds have been issued only
recently, and therefore do not have a long payment history. Brady Bonds may have
collateralized and uncollateralized components, are issued in various currencies
and are actively traded in the over-the-counter secondary market. Brady Bonds
are not considered U.S. Government securities. In light of the residual risk
associated with the uncollateralized portions of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds are considered speculative. Brady Bonds acquired by the Portfolio could be
subject to restructuring arrangements or to requests for new credit, which could
cause the Portfolio to suffer a loss of interest or principal on its holdings.
(For further information see "Brady Bonds," in the Statement of Additional
Information.)
7
<PAGE>
TEMPORARY DEFENSIVE INVESTMENTS. For temporary defensive purposes, the
Portfolio may invest without limitation in (or enter into repurchase agreements
maturing in seven days or less with U.S. banks and broker-dealers with respect
to) short-term debt securities, including commercial paper, U.S. Treasury bills,
other short-term U.S. Government securities, certificates of deposit, and
bankers' acceptances of U.S. banks. The Portfolio also may hold cash and time
deposits denominated in any major foreign currency in foreign banks.
(See the SAI for further information about these securities.)
FOREIGN EXCHANGE CONTRACTS. Changes in currency exchange rates will
affect the U.S. dollar values of securities denominated in foreign currencies.
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 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 forward contracts for the purchase or sale
of foreign currency: (i) 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 (ii) to hedge against the possibility
that a foreign currency 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 against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of securities and exposes
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 if the
fulfillment of obligations under such contracts would obligate it to deliver an
amount of foreign currency in excess of the value of its portfolio securities or
other assets denominated in the currency. The Portfolio will not enter into
these contracts for speculative purposes and will not enter into non-hedging
currency contracts. The Portfolio will generally not enter into a forward
contract with a term of greater than one year. Forward contracts are not
exchange traded, and there can be no assurance that a liquid market will exist
at a time when the Portfolio seeks to close out a forward contract. Currently,
only a limited market, if any, exists for hedging transactions relating to
currencies in certain emerging markets or to securities of issuers domiciled or
principally engaged in business in certain emerging markets. This may limit the
Portfolio's ability to effectively hedge its investments in those markets. These
contracts involve a risk of loss if SCMI fails to predict currency values. The
Portfolio has no plan to enter into currency futures or options contracts, but
may do so in the future.
(See "Risk Considerations--Currency Fluctuations and Devaluations".)
OPTIONS AND FUTURES TRANSACTIONS. Although the Portfolio does not
presently intend to do so, it may: (i) write covered call options on portfolio
securities, and the U.S. dollar and emerging market currencies without limit;
(ii) write covered put options on portfolio securities, the U.S. dollar and
emerging market currencies with the limitation that the aggregate value of the
obligations underlying the puts determined as of the date the options are sold
will not exceed 50% of the Portfolio's net assets; (iii) purchase call and put
options in amounts up to 5% of its total assets; and (iv) purchase and sell
futures contracts that are traded on U.S. and foreign commodity exchanges on
underlying portfolio securities, any emerging market currency, U.S. and emerging
market fixed-income securities and such indices of U.S. or emerging market
equity or fixed-income securities as may exist or come into being and (v)
purchase and write call and put options on such futures contracts, in all cases
involving such futures contracts or options on futures contracts for hedging
purposes only, and without limit, except that the Portfolio may not enter into
futures contracts or purchase related options if, immediately thereafter, the
amount committed to margin plus the amount paid for premiums for unexpired
options on futures contracts generally exceeds 5% of the value of the
Portfolio's total assets. All of the foregoing are referred to as "Hedging
Instruments."
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In general, the Portfolio may use Hedging Instruments: (i) to protect
against declines in the market value of the Portfolio's portfolio securities or
stock index futures, and the currencies in which they are denominated, or (ii)
to establish a position in securities markets as a temporary substitute for
purchasing particular equity securities. The Portfolio will not use Hedging
Instruments for speculation. Hedging Instruments have certain risks associated
with them including: (i) the possible failure of such instruments as hedging
techniques in cases where the price movement of the securities underlying the
options or futures does not follow the price movements of the portfolio
securities subject to the hedge; (ii) potentially unlimited loss associated with
futures transactions and the possible lack of a liquid secondary market for
closing out a futures position; and (iii) possible losses resulting from the
inability of the Portfolio's investment adviser to predict the direction of
stock prices, interest rates and other economic factors. In addition, only a
limited market, if any, currently exists for hedging transactions relating to
currencies in many emerging markets or to securities of issuers domiciled or
principally engaged in business in emerging markets. This may limit the
Portfolio's ability to effectively hedge its investments in such emerging market
countries. 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS.
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 may 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 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 to
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.
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase
agreements, which are a means of investing monies for a short period, whereby a
seller -- a U.S. bank or recognized broker-dealer -- sells securities to the
Portfolio and agrees to repurchase them (at the Portfolio's cost plus interest)
within a specified period (normally one day). The value of the underlying
securities purchased by the Portfolio is monitored at all times by SCMI to
ensure that the total value of the securities equals or exceeds the value of the
repurchase agreement. The Portfolio's custodian bank holds the securities until
they are repurchased. If the seller defaults under a repurchase agreement, the
Portfolio may have difficulty exercising its rights to the underlying securities
and may incur costs and experience time delays in disposing of them. To evaluate
potential risk, SCMI reviews the creditworthiness of banks and dealers with
which the Portfolio enters into repurchase agreements.
LOANS OF FUND SECURITIES. The Fund may loan portfolio securities
(otherwise 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
Fund's total asset value. By so doing, the Fund attempts to earn interest
income. In the event of the other party's bankruptcy, the Fund could experience
delays in recovering the securities it loaned if, in the meantime, the value of
the loaned securities has increased, the Fund could experience a loss.
The Fund may loan its securities if it maintains Segregable Assets in a
segregated account equal to the current market value of the securities loaned
(including accrued interest thereon) plus the loan interest payable to the Fund.
Any securities that the Fund receives as collateral do not become part of its
investment portfolio at the time of the loan; in the event of a default by the
borrower, the Fund (to the extent permitted by law) will dispose of such
collateral except for such part thereof that is a security in which the Fund is
permitted to invest. While
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securities are on loan, the borrower pays the Fund any accrued income on those
securities. The Fund invests any cash collateral and earns income or receives an
agreed upon fee from a borrower that has delivered securities that are
permissible collateral. Cash collateral received by the Fund is invested in U.S.
government securities and liquid high grade debt obligations. The value of
securities loaned is marked to market daily. The market value of any securities
purchased with cash collateral is subject to decline. Securities loans are
subject to termination at SCMI's or the borrower's option. The Fund may pay
reasonable negotiated fees in connection with loaned securities, so long as such
fees are set forth in a written contract and approved by the Trust Board.
ILLIQUID AND RESTRICTED SECURITIES. The Fund will not invest more than
15% of its assets in securities that SCMI's determines to be illiquid.
Securities that may be resold to certain institutional customers under Rule 144A
of the Securities act of 1933 or Section 4(2) paper issued under that Act that
may have an active secondary market may be determined by SCMI to be liquid for
purposes of compliance with the Fund's limitations on illiquid investments.
There is no guarantee that the Fund will be able to sell such securities at any
time when SCMI deems it advisable to do so or at prices prevailing for
comparable securities that are more widely held. (See "Investment Policies --
Illiquid and Restricted Securities" in the SAI for further information.)
INVESTMENT IN OTHER INVESTMENT COMPANIES OR VEHICLES. The Portfolio may
be able to invest in certain emerging markets solely or primarily through
governmentally authorized investment vehicles or companies. Pursuant to the 1940
Act, the Portfolio may invest in the shares of other investment companies up to
the limits permitted under the 1940 Act or any orders, rules or regulations
thereunder. When investing through investment companies, the Portfolio may pay
substantial premiums above such investment companies' net asset value per share.
Such investments are subject to limitations under the 1940 Act and market
availability. The Portfolio does not intend to invest in other investment
companies unless, in the judgment of SCMI, the potential benefits of such
investment justify the payments of any applicable premiums or sales charges. As
a shareholder in an investment company, the Portfolio would bear its ratable
share of the investment company's expenses, including its advisory and
administrative fees. At the same time, the Portfolio would continue to pay its
own fees and expenses.
RISK CONSIDERATIONS
FOREIGN INVESTMENTS. All investments, domestic and foreign, involve
risk. 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. While the Portfolio will generally invest only in securities of
companies and governments in countries that SCMI considers both politically and
economically stable, 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. Foreign investments are subject to the risk of
changes in foreign governmental attitudes towards private investment that could
lead to nationalization, increased taxation or confiscation of Portfolio assets.
Moreover: (i) dividends payable on foreign securities may be subject to
foreign withholding taxes, thereby reducing the income earned by the Portfolio;
(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 lower volume than U.S.
securities and consequently may exhibit greater price volatility; and (v)
foreign securities trading practices, including those involving securities
settlement, may expose the Portfolio to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer or registrar.
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REGULATION AND LIQUIDITY OF MARKETS. Government supervision and
regulation of exchanges and brokers in emerging market countries is typically
less extensive than in the United States. These markets may have different
clearance and settlement procedures, and in certain cases, settlements have not
kept pace with the volume of securities transactions, making them difficult to
conduct. Delays in settlement could adversely affect or interrupt the
Portfolio's intended investment program or result in investment losses due to
intervening declines in security values.
Securities markets in emerging market countries are substantially
smaller than U.S. securities markets and have substantially lower trading
volume, resulting in diminished liquidity and greater price volatility. Reduced
secondary market liquidity may make it more difficult for the Portfolio to
determine the value of its portfolio securities or dispose of particular
instruments when necessary. Brokerage commissions and other transaction costs on
foreign securities exchanges are also generally higher.
EMERGING MARKETS. In any emerging market country, there is the
possibility of expropriation of assets, confiscatory taxation, nationalization
of companies or industries, foreign exchange controls, foreign investment
controls on daily stock market movements, default in foreign government
securities, political or social instability, or diplomatic developments that
could affect investments in those countries. In the event of expropriation,
nationalization or other confiscation, the Portfolio could lose its entire
investment in a country. The economies of developing countries generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. There may also be less
monitoring and regulation of emerging markets and the activities of brokers
there. Investing may require that the Portfolio adopt special procedures, seek
local government approvals or take other actions that may incur costs for the
Portfolio.
Certain emerging market countries may restrict investment by foreign
entities by limiting the size of foreign investment in certain issuers;
requiring prior approval of foreign investment by the government; imposing
additional tax on foreign investors; or limiting foreign investors to specific
classes of securities of an issuer that have less advantageous rights (with
regard to price or convertibility, for example) than classes available to
domiciliaries of the country. These restrictions or controls may at times limit
or preclude investment in certain securities and may increase the costs and
expenses of the Portfolio.
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 against the dollar in the value of currencies in which the Portfolio's
investments are denominated will result in a corresponding decline in the dollar
value of the Portfolio's assets. This risk is heightened in some emerging market
countries. Some emerging market countries may also have managed currencies that
do not freely float against the dollar.
The Portfolio is 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 that occurs 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.
INFLATION. Several emerging market countries have experienced high, and
in some periods extremely high, rates of inflation in recent years. Inflation
and rapid fluctuations in inflation rates may adversely affect these countries'
economies and securities markets. Further, inflation accounting rules in some
emerging market countries require, for companies that keep accounting records in
the local currency, that certain assets and liabilities be restated on the
company's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits for certain emerging market companies.
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NON-DIVERSIFIED INVESTMENTS. Because suitable investments in emerging
market countries may be limited, the Portfolio, like the Fund, has classified
itself as a "non-diversified investment company" under the 1940 Act so that it
may invest more than 5% of its total assets in the securities of a single
issuer. This classification may not be changed without a shareholder vote.
However, so that the Portfolio may continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended at the close of each quarter of the taxable year: (i) not more than 25%
of the market value of the Portfolio's total assets will be invested in the
securities of a single issuer; and (ii) with respect to 50% of the market value
of its total assets, not more than 5% will be invested in the securities of a
single issuer; and the Portfolio will not own more than 10% of the outstanding
voting securities of a single issuer. (See "Dividends, Distributions and
Taxes".)
To the extent the Portfolio makes investments in excess of 5% of its
assets in a particular issuer, its exposure to credit and market risks
associated with that issuer is increased. Also, since a relatively high
percentage of the Portfolio's assets may be invested in the securities of a
limited number of issuers, the Portfolio may be more susceptible to any single
economic, political or regulatory occurrence than a diversified investment
company.
GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its
total assets in issuers located in any one country. To the extent it invests in
issuers of one country, the Portfolio is susceptible to factors adversely
affecting that country, including political and economic developments and
foreign exchange rate fluctuations as discussed above. The value of the
Portfolio's assets may fluctuate more widely than the value of shares of a
comparable fund with less geographic concentration.
CERTAIN RISKS OF DEBT SECURITIES. The Portfolio may invest without
limitation in investment grade emerging market debt securities; it may invest up
to 35% of its total assets in debt securities that are unrated or are rated
below investment grade (below "Baa" by Moody's or "BBB" by S&P; (for a further
description of S&P's and Moody's securities ratings please see the Appendix to
the SAI). Note that even debt securities rated "Baa" by Moody's are considered
to have speculative characteristics. Below investment grade securities (and
unrated securities of comparable quality) ("high yield/high risk securities")
are predominantly speculative with respect to the capacity to pay interest and
repay principal, and generally involve a greater volatility of price than
securities in higher rating categories. These securities are commonly referred
to as "junk" bonds. The risks associated with junk bonds are generally greater
than those associated with higher-rated securities. The Portfolio is not
obligated to dispose of securities due to rating changes by Moody's, S&P or
other rating agencies. The Portfolio is not authorized to purchase debt
securities that are in default, except for sovereign debt (discussed below) in
which the Portfolio may invest no more than 5% of its total assets while such
sovereign debt securities are in default.
In purchasing high yield/high risk securities, the Portfolio will rely
on the investment adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. Nonetheless, investors should
review the investment objective and policies of the Fund and consider their
willingness to assume risk before making an investment.
High yield/high risk securities' market values are affected more by
individual issuer developments and are more sensitive to adverse economic
changes than are higher-rated securities. Issuers of high yield/high risk
securities may be highly leveraged and may not have more traditional methods of
financing available to them. During economic downturns or substantial periods of
rising interest rates, issuers of high yield/high risk securities, especially
highly leveraged ones, may be less able to service their principal and interest
payment obligations, meet their projected business goals, or obtain additional
financing. The risk of loss due to default by the issuer is significantly
greater for holders of high yield/high risk securities because such securities
may be unsecured and may be subordinated to other creditors of the issuer. In
addition, the Portfolio may incur additional expenses if it is required to seek
recovery upon a default by the issuer of such an obligation or participate in
the restructuring of such obligation.
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Periods of economic uncertainty and change will likely cause increased
volatility in the market prices of high yield/high risk securities and,
correspondingly, the Portfolio's net asset value if it invests in such
securities; market prices of such securities structured as zero coupon or
pay-in-kind securities are more affected by interest rate changes and thus tend
to be more volatile than securities that pay interest periodically and in cash.
High yield/high risk securities may have call or redemption features
which would permit an issuer to repurchase the securities from the Portfolio. If
a call were exercised by the issuer during a period of declining interest rates,
the Portfolio would likely have to replace called securities with lower yielding
securities, thus decreasing the Portfolio's net investment income and dividends
to shareholders.
While a secondary trading market for high yield/high risk securities
does exist, it is generally not as liquid as the secondary market for higher
rated securities. In periods of reduced secondary market liquidity, prices of
high yield/high risk securities may become volatile and experience sudden and
substantial price declines. The Portfolio may, therefore, have difficulty
disposing of particular issues to meet its liquidity needs or in response to a
specific economic event (such as a deterioration in the creditworthiness of the
issuer). Reduced secondary market liquidity for certain high yield/high risk
securities also may make it more difficult for the Portfolio to obtain accurate
market quotations (for purposes of valuing the Portfolio's investment
portfolio): market quotations are generally available on many high yield/high
risk securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales. Under such
conditions, high yield/high risk securities may have to be valued at fair value
as determined by the Schroder Core Board or SCMI under Board-approved
guidelines.
Adverse publicity and investor perceptions (which may not be based on
fundamental analysis) may decrease the value and liquidity of high yield/high
risk securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield/high risk securities are likely to
adversely affect the Portfolio's, and thus the Fund's, net asset value.
SOVEREIGN DEBT. Investment in sovereign debt carries high risk. Certain
emerging market countries such as Argentina, Brazil and Mexico are among the
largest debtors to commercial banks and foreign governments. At times, certain
emerging market countries have declared moratoria on the payment of principal
and/or interest on outstanding debt. The governmental entity that controls the
repayment of sovereign debt may not be able or willing to repay the principal
and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest
when it is due may be affected by many factors, such as its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange, the relative size of the debt service burden to the economy as a
whole, and political restraints. The Portfolio, as a holder of sovereign debt,
may be asked to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which defaulted sovereign debt may be collected.
The sovereign debt instruments in which the Portfolio may invest
involve great risk and are deemed to be the equivalent in terms of quality to
high yield/high risk securities discussed above and are subject to many of the
same risks as such securities. Similarly, the Portfolio may have difficulty
disposing of certain sovereign debt obligations because there may be a thin
trading market for such securities. The Portfolio will not invest more than 5%
of its total assets in sovereign debt in default.
PORTFOLIO TURNOVER. The Portfolio may engage in short-term trading but
its portfolio turnover rate is not expected to exceed 100%. High portfolio
turnover and short-term trading involve correspondingly greater commission
expenses and transaction costs. Also, higher portfolio turnover rates may cause
shareholders of the Portfolio to recognize gains for federal income tax
purposes. (See "Taxation" in the SAI.)
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MANAGEMENT OF THE FUND
Schroder Group Assets Under Management Worldwide
As of June 30, 1997 -- Over $150 Billion
[GRAPHIC OF WORLD MAP]
THE SCHRODER INVESTMENT MANAGEMENT GROUP INVESTMENT AND REPRESENTATIVE OFFICES
WORLDWIDE INCLUDE NEW YORK, LONDON, BOSTON, ZURICH, WARSAW, TOKYO, HONG KONG,
BEIJING, SHANGHAI, TAIPEI, SEOUL, BANGKOK, KUALA LUMPUR, SINGAPORE, JAKARTA,
SYDNEY, BUENOS AIRES, SAO PAULO, AND BOGOTA.
TOGETHER, SCHRODER CAPITAL MANAGEMENT INTERNATIONAL AND
SCHRODER CAPITAL MANAGEMENT INC. MANAGE OVER $23 BILLION.
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 Schroder Core Board. Information regarding the trustees and
executive officers of the Trust, as well as Schroder Core's trustees and
executive officers, may be found in the SAI under "Management, Trustees and
Officers."
INVESTMENT ADVISER AND PORTFOLIO MANAGERS
As investment adviser to the Portfolio, SCMI manages the Portfolio and
continuously reviews, supervises and administers its investments. SCMI is
responsible for making decisions relating to the Portfolio's investments and
placing purchase and sale orders regarding such investments with brokers or
dealers it selects. For these services, the Investment Advisory Agreement
between SCMI and Schroder Core provides that SCMI is entitled to receive a
monthly advisory fee at the annual rate of 1.00% of the Portfolio's average
daily net assets, which the Fund indirectly bears through its investment in the
Portfolio. The Fund bears no separate investment advisory fee directly.
SCMI is a wholly owned U.S. subsidiary of Schroders Incorporated, the
wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large world-wide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices in eighteen countries. The
Schroder Group specializes in providing investment management services.
The Fund's current investment managers include John A. Troiano, a Vice
President of the Trust and Schroder Core, who managed the Fund's investment
portfolio from its inception until it invested its assets in the Portfolio and
has managed the Portfolio's assets since its inception. Mr. Troiano is assisted
by the management team of Heather Crighton and Mark Bridgeman, who are
responsible for the day-to-day management of the investment portfolio. Mr.
Troiano, Chief Executive Officer of SCMI since April 1, 1997, has been a
Managing Director of SCMI since October 1995 and has been employed by various
Schroder Group companies in the
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investment research and portfolio management areas since 1981. Ms. Crighton is a
Vice President of SCMI and has been employed by SCMI/various Schroder Group
companies in the investment research and portfolio management areas since 1992.
Mr. Bridgeman, also a Vice President of SCMI, has been employed by various
Schroder Group companies in the investment research and portfolio management
areas since 1990.
The Fund pursues its investment objective through investment in the
Portfolio. 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. (See "Other Information -- Fund Structure.") Accordingly,
the Fund has retained SCMI as its investment adviser to manage the Fund's assets
in the event the Fund withdraws its investment. SCMI does 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). If the
Fund resumes directly investing in portfolio securities, SCMI will be entitled
to a monthly advisory fee at the annual rate of 1.00% of the Fund's average
daily net assets. The investment advisory agreement between SCMI and the Trust
with respect to the Fund is the same in all material respects as the investment
advisory contract between SCMI and Schroder Core with respect to the Portfolio
(except as to the parties, the circumstances under which fees will be paid and
the jurisdiction whose laws govern the agreement).
ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an administration
agreement with Schroder Advisors and a subadministration agreement with Forum.
Pursuant to these agreements, Schroder Advisors and Forum provide certain
management and administrative services necessary for the Fund's operations. For
providing services for the Fund, Schroder Advisors and Forum are entitled to
compensation at the annual rates of 0.15% and 0.075%, respectively, of the
Fund's average daily net assets
Schroder Advisors and Forum provide similar services to the Portfolio,
for which Schroder Advisors and Forum are entitled to monthly fees at annual
rates of 0.15% and 0.075%, respectively, of the Portfolio's average daily net
assets.
EXPENSES
The Fund bears all costs of its operations other than expenses
specifically assumed by Schroder Advisors or SCMI. The costs borne by the Fund
include legal and accounting expenses; Trustees' fees and expenses; insurance
premiums, custodian and transfer agent fees and expenses; brokerage fees and
expenses; expenses of registering and qualifying the Fund's shares for sale with
the SEC and with various state securities commissions; expenses of obtaining
quotations on portfolio securities and pricing of the Fund's shares; a portion
of the expenses of maintaining the Fund's legal existence and of shareholders'
meetings; and expenses of preparation and distribution to existing shareholders
of reports, proxies and prospectuses. Trust expenses directly attributed to the
Fund are charged to the Fund; other expenses are allocated proportionately among
all the series of the Trust in relation to the net assets of each series. SCMI
and Schroder Advisors have undertaken voluntarily to waive a portion of their
fees or assume certain expenses of the Fund in order to limit total Fund
expenses, excluding taxes, interest, brokerage commissions and other Fund
transaction expenses and extraordinary expenses chargeable to Investor Shares,
to 1.75% of the average daily net assets of the Fund attributable to those
shares. This expense limitation can be modified or withdrawn except by a vote of
the Trust Board. If expense reimbursements are required, they will be made on a
monthly basis. Forum may waive voluntarily all or a portion of their fees, from
time to time.
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PORTFOLIO TRANSACTIONS
SCMI places orders for the purchase and sale of the Portfolio's
investments with brokers and dealers selected by SCMI and seeks "best execution"
of such portfolio transactions. The Portfolio may pay brokers higher than the
lowest available commission rates when SCMI believes it is reasonable to do so
in light of the value of the brokerage and research services provided.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, which may cause higher brokerage expenses to accrue to the Portfolio
than would be the case for comparable transactions effected on U.S. securities
exchanges.
Subject to the Portfolio's policy of obtaining the best price
consistent with quality of execution on transactions, SCMI may employ Schroder
Securities Limited and its affiliates (collectively, "Schroder Securities"),
affiliates of SCMI, to effect transactions of the Portfolio on certain foreign
securities exchanges.
Because of the affiliation between SCMI and Schroder Securities, the
Portfolio's payment of commissions to Schroder Securities is subject to
procedures adopted by the Schroder Core Board designed to ensure that
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 any brokerage in
recognition of research services.
Although the Portfolio does not currently engage in directed brokerage
arrangements to pay expenses, it may do so in the future. These arrangements,
(whereby brokers executing the Portfolio's portfolio transactions agree to pay
designated expenses of the Portfolio if brokerage commissions generated by the
Portfolio reached certain levels) might reduce the Portfolio's expenses (and,
indirectly, the Fund's expenses), and would not be expected to materially
increase the brokerage commissions paid by the Portfolio.
CODE OF ETHICS
The Trust, Schroder Core, SCMI, Schroder Advisors, and Schroders
Incorporated have each adopted a code of ethics that contains 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 (the "Transfer
Agent"). (See "Other Information -- Shareholder Inquiries".) Investments may
also be made through financial institutions and other organizations that assist
their customers in purchasing Fund Shares, which organizations may charge their
customers a service fee for processing orders to purchase or sell shares.
Investors wishing to purchase Shares through an organization should contact that
organization directly for appropriate instructions.
Fund Shares 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 $10,000, and the minimum subsequent investment is
$2,500. All purchase payments are invested in full and fractional shares. The
Fund is authorized to reject any purchase order.
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Purchases may be made by mailing a check (in U.S. dollars), payable to
Schroder Emerging Markets Fund along with a completed account application (or
the investor's account number) to:
Schroder Emerging Markets Fund -- Investor Shares
P.O. Box 446
Portland, Maine 04112
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.
Purchase payments may be transmitted by Federal Reserve Bank wire
directly to the Fund as follows:
The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Financial Corp.
Account. No.: 910-2-718187
Ref.: Schroder Emerging Markets Fund -- Investor Shares
Account of: (shareholder name)
Account No: (shareholder account number)
The wire order must specify the name of the Fund, the shares' class
(i.e., Investor Shares), the account name and number, address, confirmation
number, amount to be wired, name of the wiring bank, and name and telephone
number of the person to be contacted in connection with the order. If the
initial investment is by wire, an account number will be assigned and an account
application must be completed and mailed to the Fund before any transaction will
be effected. 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") are
processed at the net asset value determined as of that day. Wire orders received
after 4:00 p.m. (Eastern time) are processed at the net asset value determined
as of the next Fund Business Day. (See "Net Asset Value".)
The Fund's Transfer Agent establishes for each shareholder of record an
open account to which all shares purchased and all reinvested dividends and
other distributions are credited. Although most shareholders elect not to
receive share certificates, certificates for full shares can be obtained by
written request to the Fund's Transfer Agent. No certificates are issued for
fractional shares.
The Transfer Agent will deem an account lost if six months have passed
since correspondence to the shareholder's address of record is returned, unless
the Transfer Agent determines the shareholder's new address. When an account is
deemed lost, dividends and other distributions will automatically be reinvested.
In addition, the amount of any outstanding checks for dividends and other
distributions that have been returned to the Transfer Agent will be reinvested
and the checks will be canceled.
RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
Fund Shares are offered in connection with tax-deferred retirement
plans. Application forms and further information about these plans, including
applicable fees, are available upon request. Before investing in the Fund
through one of these plans, investors should consult their tax advisors.
The Fund may be used as an investment vehicle for an IRA including
SEP-IRA. An IRA naming 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 $2,000; the minimum subsequent investment is $250. Under certain
circumstances contributions to an IRA may be tax deductible. IRAs are available
to individuals (and their spouse) who receive compensation or earned income
whether or not they are active participants in a tax-qualified or
government-
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approved retirement plan. An IRA contribution by an individual or spouse who
participates in a tax-qualified or government-approved retirement plan may not
be deductible, depending upon the individual's income. Individuals also may
establish an IRA to receive a "rollover" contribution of distributions from
another IRA or qualified plan. Tax advice should be obtained before effecting a
rollover.
STATEMENT OF INTENTION
Investor Share investors also may meet the minimum initial investment
requirement based on cumulative purchases by means of a written Statement of
Intention, expressing the investor's intention to invest $250,000 or more in
Investor Shares of the Fund within a period of 13 months.
Investors wishing to enter into a Statement of Intention in conjunction
with their initial investment in shares of the Fund should complete the
appropriate portion to the account application form. Current Fund shareholders
can obtain a Statement of Intention form by contacting the Transfer Agent.
The Fund reserves the right to redeem Shares in any account if, at the
end of the Statement of Intention period, the account does not have a value of
at least the minimum investment amount.
EXCHANGES
Shareholders may exchange Fund Shares for shares of any other fund of
the Trust so long as they meet the initial investment minimum of the fund being
purchased and maintain the respective minimum account balance in each fund in
which they own shares. Exchanges between each fund are at net asset value.
Federal income tax purposes an exchange is considered to be a sale of
shares for on which a shareholder may realize a capital gain or loss. An
exchange may be made by calling the Transfer Agent at (800) 344-8332 or by
mailing written instructions to Schroder Capital Funds (Delaware), P.O. Box 446,
Portland, Maine 04112. Exchange privileges may be exercised only in those states
where shares of the other funds of the Trust may legally be sold. Exchange
privileges may be amended or terminated at any time upon sixty (60) days'
notice.
REDEMPTION OF SHARES
Fund Shares are redeemed at their next determined net asset value after
receipt by the Fund see the address set forth above under "Purchase of Shares"
of a redemption request in proper form. Redemption requests may be made between
9:00 a.m. and 6:00 p.m. (Eastern time) on each Fund Business Day. Redemption
requests that are received prior to 4:00 p.m. (Eastern time) are processed at
the net asset value determined as of that day. Redemption requests that are
received after 4:00 p.m. (Eastern time) are processed at the net asset value
determined the next Fund Business Day. (See "Net Asset Value" below.)
By Telephone. Redemption requests may be made by telephoning the
Transfer Agent at the 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 telephone
instructions are genuine. The Transfer Agent and the Trust generally will not be
liable for any losses due to unauthorized or fraudulent redemption requests, but
may be liable if they do not follow these procedures. Shares for which
certificates have been issued may not be redeemed by telephone. In times of
drastic economic or market change it may be difficult to make redemptions by
telephone. If a shareholder cannot reach the Transfer Agent by telephone,
redemption requests may be mailed or hand-delivered to the Transfer Agent.
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<PAGE>
WRITTEN REQUESTS. Redemptions may be made by letter to the Fund
specifying the class of shares, the dollar amount or number of Shares to be
redeemed, and the shareholder account number. The letter must also be signed in
exactly the same way the account is registered (if there is more than one owner
of the Shares, all must sign) and, in certain cases, signatures must be
guaranteed by an institution that is acceptable to the Transfer Agent. Such
institutions include certain banks, brokers, dealers (including municipal and
government securities brokers and dealers), credit unions and savings
associations. Notaries public are not acceptable. Further documentation may be
requested to evidence the authority of the person or entity making the
redemption request. Questions concerning the need for signature guarantees or
documentation of authority should be directed to the Fund at the above address
or by calling the telephone number appearing on the cover of this Prospectus.
If 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
normally are mailed within seven days. No redemption proceeds are 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 are 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.
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. 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" 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 falls below that amount solely as a result of market
activity. Shareholders will be notified that the value of the account is less
than the required minimum and be allowed at least 30 days to make an additional
investment to increase the account balance to at least the required minimum
amount.
NET ASSET VALUE
The net asset value per share of the Fund is calculated 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, , Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Net asset value per share for a class of shares is calculated by dividing the
aggregate value of the Fund's assets allocable to a particular class, less the
liabilities charged to that class, if any, by the number of outstanding shares
of that class.
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Generally, securities that are listed on recognized stock exchanges are
valued at the last reported sale price, on the day when the securities are
valued (the "Valuation Day"), on the primary exchange on which the securities
are principally traded. Listed securities traded on recognized stock exchanges
for which there were no sales on the Valuation Day are valued at the last sale
price on the preceding trading day or at closing mid-market prices. Securities
traded in over-the-counter markets are valued at the most recent reported
mid-market price. Other securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith using
methods approved by the Schroder Core Board.
Trading in securities on non-U.S. exchanges and over-the-counter
markets may not take place on every day that the New York Stock Exchange is open
for trading. Furthermore, trading takes place in various foreign markets on days
on which the 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 Schroder Core 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, DISTRIBUTIONS AND TAXES
THE FUND
The Fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies. By
complying therewith, the Fund will not have to pay federal income tax on that
part of its income or net realized capital gain that is distributed to
shareholders. The Fund intends to distribute substantially all of its income and
net realized capital gain, and therefore, intends not to be subject to federal
income tax.
Dividends and capital-gain distributions on 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 dividends and other distributions in cash.
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 compensation payable
to service organizations for shareholder servicing for the Advisor Shares.
Dividends from the Fund's income generally will be taxable to
shareholders as ordinary income, whether the dividends are invested in
additional Shares or received in cash. Distributions by the Fund of any net
long-term capital gain will be taxable to a shareholder as long-term capital
gain regardless of how long the shareholder has held the Shares. Each year the
Trust will notify shareholders of the tax status of dividends and other
distributions.
Dividends from the Fund will qualify for the dividends-received
deduction for corporate shareholders to the extent dividends do not exceed the
aggregate amount of dividends received by the Fund from domestic corporations,
provided the Fund shares are held for more than 45 days. If securities held by
the Fund are considered to be debt-financed (generally, acquired with borrowed
funds); are held by the Fund for fewer than 46 days (91 days in the case of
certain preferred stock); or are subject to certain forms of hedges or short
sales, then the portion of the dividends paid by the Fund attributable to such
securities will not be eligible for the dividends-received deduction.
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<PAGE>
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 basis in 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 Fund may also be subject to state and local
taxes, including withholding taxes.
In an effort to adhere to certain tax requirements, the Fund may have
to limit its investment activity in some types of instruments.
If the Fund's dividends exceed its taxable income in any year, all or a
portion of the Fund's dividends may be treated as a return of capital to
shareholders for tax purposes. Any return of capital will reduce the cost basis
of your shares, which will result in a higher reported capital gain or a lower
reported capital loss when you sell your shares. Shareholders will be notified
by the Trust if a distribution included a return of capital.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on the
Portfolio and its investments, which generally reduce the Fund's income.
However, an offsetting tax credit or deduction may be available to you. If so,
your tax statement will show more taxable income or capital gain than was
actually distributed by the Fund but will also show the amount of the available
offsetting credit or deduction.
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 does make such an election, its
shareholders would include as gross income in their federal income tax returns
both: (i) distributions received from the Fund and (ii) 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 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.) Shareholders should consult their own tax advisors as
to the tax consequences of their ownership of Shares.
THE PORTFOLIO
The Portfolio is not required to pay federal income tax because it is
classified as a partnership for federal income tax purposes. All interest,
dividends, gains and losses of the Portfolio will be deemed to have been "passed
through" to the Fund in proportion to the Fund's holdings in the Portfolio,
regardless of whether such interest, dividends or gains have been distributed by
the Portfolio.
The Portfolio intends to conduct its operations so as to enable the
Fund to qualify as a regulated investment company.
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OTHER INFORMATION
CAPITALIZATION AND VOTING
The Trust was organized as a Maryland corporation on July 30, 1969;
reorganized on February 29,1988, as Schroder Capital Funds, Inc.; and
reorganized on January 9, 1996, as a Delaware business trust. The Trust has
authority to issue an unlimited number of shares of beneficial interest. The
Trust Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Fund) and may
divide such portfolios or series into classes of shares (such as the Investor
Shares), and the costs of doing so are borne by the Trust or series in
accordance with the Trust Instrument. The Trust currently consists of eight
separate Funds, each of which has a separate investment objective and policies.
The Fund currently consists of two classes of shares, Investor Shares
and Advisor 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.
When issued in accordance with the terms of the Prospectus, shares are
fully paid, non-assessable, and have no preemptive rights. Shareholders have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees if
they choose to do so. A shareholder is entitled to one vote for each full share
held (and a fractional vote for each fractional share held). Each 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. On Trust 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.
REPORTS
The Trust sends each Fund shareholder a semi-annual report and an
audited annual report containing the Fund's financial statements.
PERFORMANCE
The Fund may include quotations of average annual total return,
cumulative total return and other performance measures for a class of shares in
advertisements or reports to shareholders or prospective investors. Average
annual total return of a class of shares is based upon the overall dollar or
percentage change in value of a hypothetical investment each year over specified
periods. Average annual total returns reflect the deduction of a proportional
share of a Fund's expenses (on an annual basis) and assumes investment and
reinvestment of all dividends and distributions at NAV. Cumulative total returns
are calculated similarly except that the total return is aggregated over the
relevant period instead of annualized.
Performance quotations are calculated separately for each class of
shares of the Fund. Performance calculations may also be compared to various
unmanaged securities indices, groups of mutual funds tracked by mutual fund
ratings services, or other general economic indicators. Unmanaged indices may
assume the reinvestment of dividends but do not reflect deductions for
administrative and management costs and expenses.
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Performance information represents only past performance and does not
necessarily indicate future results. (For a description of the methods used to
determine total return and other performance measures for the Fund, see the
SAI.)
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank 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 should be directed to:
Schroder Emerging Markets 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 or (207) 879-1900.
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 but have lower investment minimums than Investor
Shares. Except for certain class 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 except that, due to the differing
expenses borne by the two classes, the amount of dividends and other
distributions differs between the classes. Information about the other class of
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 the same
investment objective and substantially similar 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 Schroder Core, a business trust organized under the laws of the State
of Delaware in September 1995. Schroder Core is registered under the 1940 Act as
an open-end, management investment company and currently has four separate
series. 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 Schroder Core.
The Fund's investment in the Portfolio is in the form of a
non-transferable beneficial interest. As of October 1, 1997, the Fund is the
only institutional investor in the Portfolio. The Portfolio may permit other
investment companies or other qualified 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 1940 Act. Each investor in the Portfolio is 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 1940 Act and other applicable
law, the Fund solicits proxies from its shareholders and votes 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 would receive a
majority of votes cast by all investors in the Portfolio; indeed, if other
investors hold a majority interest in the Portfolio, they could have voting
control of the Portfolio.
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The Portfolio does 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 that offers its shares to members of
the general public. Information regarding any such funds in the future is
available from Schroder Core by calling Forum Financial Corp. at (800) 730-2932.
Under federal securities law, 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. Schroder Core, its Trustees and
certain of its officers are required to sign the registration statement and
amendments thereto of the Trust and may be required to sign the registration
statements of certain other investors in the Portfolio. In addition, under
federal securities law, Schroder Core may be liable for misstatements or
omissions of a material fact in any proxy soliciting material of a publicly
offered investor in Schroder Core, including the Fund. Each investor in the
Portfolio, including the Trust, has agreed to indemnify Schroder Core and its
Trustees and officers ("Schroder Core Indemnitees") against certain claims.
Indemnified claims are those brought against Schroder Core Indemnitees
based on a misstatement or omission of a material fact in the investor's
registration statement or proxy materials. No indemnification need be made,
however, if such alleged misstatement or omission relates to information about
Schroder Core and was supplied to the investor by Schroder Core. Similarly,
Schroder Core 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
Schroder Core that is supplied to the investor by Schroder Core. In addition,
each registered investment company investor in the Portfolio will indemnify each
Schroder Core 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 Schroder Core. The purpose of
these cross-indemnity provisions is principally to limit the liability of
Schroder Core 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 Schroder Core, 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 Trust Board determines that it is in the best interests of the Fund
and its shareholders to do so. The Fund might withdraw, for example, if there
were other investors in 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 would likely incur
brokerage fees or other transaction costs. If the Fund withdrew its investment
from the Portfolio, the Trust Board would consider appropriate alternatives,
including the management of the Fund's assets in accordance with its investment
objective and policies by SCMI or the investment of all of the Fund's investable
assets in another pooled investment entity having substantially the same
investment objective as the Fund. The inability of the Fund to find a suitable
replacement investment, if the Board decided not to permit SCMI to manage the
Fund's assets, could have a significant impact on shareholders of the Fund.
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Each investor in the Portfolio, including the Fund, may be liable for
all obligations of the Portfolio. The risk to an investor in the Portfolio of
incurring financial loss on account of such liability, however, is limited to
circumstances in which the Portfolio is unable to meet its obligations, the
occurrence of which SCMI considers to be 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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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
SUBADMINISTRATOR
Forum Administrative Services, Limited Liability Company
Two Portland Square
Portland, Maine 04101
CUSTODIAN
The Chase Manhattan Bank
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
Coopers & Lybrand, L.L.P.
One Post Office Square
Boston, Massachusetts 02109
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Table of Contents
PROSPECTUS SUMMARY.............................
EXPENSES OF INVESTING
IN THE FUND....................................
Fee Table......................................
Example........................................
INVESTMENT OBJECTIVE...........................
INVESTMENT POLICIES............................
RISK CONSIDERATIONS............................
MANAGEMENT OF THE FUND.........................
Boards of Trustees.............................
Investment Adviser and Portfolio Managers......
Administrative Services........................
Expenses.......................................
Portfolio Transactions.........................
Code of Ethics.................................
INVESTMENT IN THE FUND.........................
Purchase of Shares.............................
Retirement Plans and Individual
Retirement Accounts..........................
Statement of Intention.........................
Exchanges......................................
Redemption of Shares...........................
Net Asset Value................................
DIVIDENDS, DISTRIBUTIONS
AND TAXES......................................
The Fund.......................................
The Portfolio..................................
OTHER INFORMATION..............................
Capitalization and Voting......................
Reports........................................
Performance....................................
Custodian and Transfer Agent...................
Shareholder Inquiries..........................
Fund Structure.................................
<PAGE>
SCHRODER MICRO CAP FUND
Investor Shares
This fund's investment objective is long-term capital appreciation. It seeks to
achieve its objective by investing primarily in equity securities of
U.S.-domiciled companies that, at the time of initial purchase, have market
capitalizations up to the greater of: (i) $300 million; or (ii) the market
capitalization at the top of the bottom 30% of companies comprising the Russell
2000 Growth Index (approximately $300 million as of October 1, 1997). The fund
is intended for long-term investors seeking to diversify their growth
investments who are willing to accept the risks associated with investments in
small companies. Current income is incidental to the objective of long-term
capital appreciation.
This Prospectus sets forth concisely the information you should know before
investing in Schroder Micro Cap Fund (the "Fund") and should be retained for
further reference. To learn more about the Fund, a series of Schroder Capital
Funds (Delaware) (the "Trust"), you may obtain a copy of the Fund's current
Statement of Additional Information (the "SAI"), which is incorporated by
reference into this Prospectus. The SAI dated October 1, 1997, as amended from
time to time, has been filed with the Securities and Exchange Commission ("SEC")
and is available along with other related materials for reference on its
Internet Web Site (http://www.sec.gov) or may be obtained without charge from
the Trust by writing to Two Portland Square, Portland, Maine 04101 or by calling
(800) 290-9826. The Fund has not authorized anyone to provide you with
information that is different from what is contained in this Prospectus or in
other documents to which this Prospectus refers you.
MUTUAL FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE
FDIC, THE FEDERAL RESERVE SYSTEM OR ANY OTHER GOVERNMENT AGENCY AND ALSO ARE NOT
OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR
ITS AFFILIATES. MUTUAL FUND INVESTMENTS ARE 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.
PROSPECTUS
October 1, 1997
<PAGE>
[OUTLINED BOX NAMING ALL FUNDS]
FUNDS AVAILABLE THROUGH SCHRODER FUND ADVISORS INC.
PLEASE CALL FOR COMPLETE INFORMATION AND TO OBTAIN A PROSPECTUS.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
SCHRODER CAPITAL FUNDS (DELAWARE) (800) 290-9826
SCHRODER INTERNATIONAL BOND FUND
SCHRODER EMERGING MARKETS FUND
SCHRODER EMERGING MARKETS FUND
INSTITUTIONAL PORTFOLIO
SCHRODER INTERNATIONAL FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER MICRO CAP FUND
SCHRODER U.S. EQUITY FUND
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER CASH RESERVES FUND
SCHRODER SERIES TRUST (800) 464-3108
[SCHRODER LARGE CAPITALIZATION EQUITY FUND]
SCHRODER MID CAP GROWTH FUND
SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER SHORT-TERM INVESTMENT FUND
2
<PAGE>
PROSPECTUS SUMMARY
This Prospectus offers Investor Class shares ("Investor Shares" or, at
times, "Shares") of the Fund which is a separately managed, diversified series
of the Trust, an open-end, management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). THE FOLLOWING SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED IN THIS
PROSPECTUS.
OBJECTIVE. Long-term capital appreciation.
STRATEGY. Invests at least 65% of its total assets in equity securities
of U.S.-domiciled companies that, at the time of initial purchase, have market
capitalizations up to the greater of: (i) $300 million, or (ii) the market
capitalization at the top of the bottom 30% of companies comprising the Russell
2000 Growth Index (approximately $300 million as of October 1, 1997).
INVESTMENT ADVISER. The Fund's investment adviser is Schroder Capital
Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York
10019. (See "Management of the Fund -- Investment Adviser and Fund Manager.")
ADMINISTRATIVE SERVICES. Schroder Fund Advisors Inc. ("Schroder Advisors")
serves as administrator and distributor of the Fund, and Forum Administrative
Services, Limited Liability Company ("Forum") serves as the Fund's
subadministrator. (See "Management of the Fund -- Administrative Services.")
PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or
redeemed by mail, by bank-wire and through your broker-dealer or other financial
institution. The minimum initial investment is $10,000, and the minimum
subsequent investment is $2,500. (See "Investment in the Fund -- Purchase of
Shares" and "-- Redemption of Shares.")
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund annually declares and pays
as a dividend substantially all of its net investment income and at least
annually distributes any net realized long-term capital gain. Dividends and
long-term capital-gain distributions are reinvested automatically in additional
Investor Shares of the Fund at net asset value unless you elect in your account
application, or otherwise in writing, to receive dividends and other
distributions in cash. (See "Dividends, Distributions and Taxes.")
RISK CONSIDERATIONS. Alone, the Fund is not a balanced investment plan.
It is intended for long-term investors seeking to diversify their growth
investments and willing to accept the risks associated with investments in small
companies. Investments in small capitalization companies involve risks in
addition to those normally associated with investments in equity securities of
large capitalization companies. Up to 10% of the Fund's assets may be invested
in lower-rated bonds, commonly known as "junk bonds". Such investments are
subject to greater risk of loss of principal and non-payment of interest than
higher-rated securities. Of course, as with any mutual fund, there is no
assurance that the Fund will achieve its investment objective.
The Fund's net asset value ("NAV") varies because the market value of
the Fund's investments will change with changes in the value of the securities
in which the Fund invests and with changes in market conditions, interest rates,
currency rates, or political or economic situations. When you sell your shares,
they may be worth more or less than what you paid for them. (See "Risk
Considerations".)
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<PAGE>
EXPENSES OF INVESTING IN THE FUND
FEE TABLE
The table below is intended to assist you in understanding the expenses
that an investor in Investor Shares of the Fund would incur. There are no
transaction expenses associated with purchases or redemptions of Investor
Shares. The Annual Fund Operating Expenses have been estimated to reflect
projected fees, expenses and waivers for the Fund's current fiscal year ending
May 31, 1998.
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after waivers)(1)(2) 0.36
12b-1 Fees None
Other Expenses 1.64%
--------------- -----
Total Fund Operating Expenses (after waivers and reimbursements)(2) 2.00%
(1) Management Fees reflect the fees paid by the Fund to SCMI and Schroder
Advisors for investment advisory and administrative services.
(2) SCMI and Schroder Advisors have undertaken voluntarily to waive all or a
portion of their fees and assume certain expenses of the Fund during the
current fiscal year in order to limit the Fund's Total Fund Operating
Expenses to 2.00% of its average daily net assets. This undertaking cannot
be withdrawn except by a majority vote of the Trust's Board of Trustees
(the "Trust Board"). (See "Management of the Fund --Expenses".) Without fee
waivers and expenses reimbursements, Management Fees and Total Fund
Operating Expenses would be 1.50% and 2.89%, respectively.
EXAMPLE
The table below indicates how much you would pay in total expenses on a
$1,000 investment in the Fund, assuming: (i) a 5% annual return; and (ii)
redemption at the end of each time period. The example is based on the expenses
listed above and assumes the reinvestment of all dividends and other
distributions. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURNS; ACTUAL EXPENSES OR RETURNS MAY VARY FROM THOSE
SHOWN. The 5% annual return is not a prediction of the Fund's return but is the
percentage required by the SEC for use in this example.
1 YEAR..................................................................$ 20
3 YEARS.................................................................$ 63
5 YEARS.................................................................$108
10 YEARS................................................................$233
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<PAGE>
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation. It
seeks to achieve its investment objective by investing at least 65% of its total
assets in equity securities of U.S.-domiciled companies that, at the time of
initial purchase, have market capitalizations up to the greater of: (i) $300
million, or (ii) the market capitalization at the top of the bottom 30% of
companies comprising the Russell 2000 Growth Index (approximately $300 million
as of October 1, 1997). (Market capitalization means the market value of a
company's outstanding stock.) Current income is incidental to the objective of
long-term capital appreciation.
In the future the Fund may seek to achieve its investment objective by
investing all or a portion of its assets in one or more registered investment
companies having substantially the same investment objective and similar
investment policies as the Fund (in accordance with the provisions of the 1940
Act or any orders, rules or regulations thereunder).
INVESTMENT POLICIES
The Fund's investment objective and fundamental investment policies may
not be changed without approval of the holders of a majority of the Fund's
outstanding voting securities. 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.
Non-fundamental investment policies of the Fund may be changed by the Trust
Board without approval of the Fund's shareholders. All investment policies are
non-fundamental unless stated otherwise.
SCMI's investment approach is to identify securities of companies that
it believes offer the potential for long-term capital appreciation, based on
novel, superior or niche products or services, operating characteristics,
quality of management, an entrepreneurial management team, companies that have
gone public in recent years, opportunities provided by mergers, divestitures or
new management, or other factors. The Fund may invest in securities of small,
unseasoned companies (which, together with any predecessors, have been in
operation for less than three years), as well as in securities of more
established companies. These criteria are not rigid, and up to 35% of the Fund's
assets may comprise other investments, including equity securities of larger
capitalization companies, if SCMI believes that they could help the Fund attain
its objective. These criteria can be changed by the Trust Board without
shareholder approval.
The Fund invests principally in equity securities, namely, common
stocks, securities convertible into common stocks or rights or warrants to
subscribe for or purchase common stocks. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. The
Fund may also invest to a limited degree in non-convertible debt securities and
preferred stocks when SCMI believes that such investments are warranted to
achieve the Fund's investment objective.
The following information relates to specific policies and limitations
of the Fund. These policies and limitations (unless otherwise noted) are
considered at the time of any purchase.
COMMON AND PREFERRED STOCK AND WARRANTS. The Fund 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, they would be 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 also a shareholder and not a creditor
of the company. Dividends paid to common and preferred stockholders are
distributions of the earnings of the company and are not interest payments
(which are expenses of the company). Equity securities owned by the Fund may be
traded in the over-the counter market or on a securities exchange, but are not
necessarily traded every day or in the volume typical of securities traded on a
major U.S. national securities exchange. The market value of all securities,
including equity securities, is based upon the
5
<PAGE>
market's perception of value and not necessarily the "book value" of an issuer
or other objective measure of a company's worth.
Convertible preferred stock generally may be converted at a stated
price within a specific amount of time into a specified number of shares of
common stock. A convertible security entitles the holder to receive the dividend
paid on preferred stock until the convertible security is converted or
exchanged. Before conversion, convertible securities have characteristics
similar to non-convertible debt securities in that they ordinarily provide a
stream of income with generally higher yields than those of common stocks of the
same or similar issuers. These securities are usually senior to common stock in
a company's capital structure, but are usually subordinated to non-convertible
debt securities. In general, the value of a convertible security is the higher
of its investment value (its value as a fixed income security) and its
conversion value (the value of the underlying shares of common stock if the
security is converted). As a fixed income security, the value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise. The value of a convertible security is, however, also
influenced by the value of the underlying common stock.
The Fund may also invest in warrants. Warrants 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.
OPTIONS AND FUTURES TRANSACTIONS. The Fund 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 Fund may use Hedging
Instruments: (i) to protect against declines in the market value of the Fund's
securities, or (ii) to establish a position in the equities markets as a
temporary substitute for purchasing particular equity securities. The effective
use of Hedging Transactions depends upon SCMI's ability to forecast market
movements correctly. The Fund's Hedging Transactions generally are conducted on
recognized exchanges, although the Fund may use the over-the-counter markets at
times. The ability to effect transactions in the over-the-counter markets may be
more limited than on recognized exchanges and also may involve the risk that a
securities dealer participating in such transactions may be unable to meet its
obligations to the Fund. The Fund will engage in over-the-counter transactions
only when appropriate exchange-traded transactions are unavailable and when, in
SCMI's opinion, the pricing mechanism and liquidity of the over-the-counter
markets are satisfactory and the participants are responsible parties likely to
meet their contractual obligations. The Fund will not use Hedging Instruments
for speculation. Hedging Instruments the Fund may use and associated risks are
described in greater detail under "Risk Considerations" below and "Options and
Futures Transactions" in the SAI.
SHORT SALES. The Fund may engage in "short sales", which are
transactions in which the Fund sells a security that it does not own in
anticipation of a decline in the market value of that security, To complete the
transaction, the Fund must borrow the security to make delivery to the
purchaser. The Fund is then obligated to replace the borrowed security through a
purchase of it at the market price at the time of replacement. The price at that
time may be more or less than the security was sold by the Fund. The Fund incurs
a loss as a result of the short sale if the price of the security increases
between the date of the short sale and the date on which the Fund replaces the
borrowed security. The Fund realizes a gain if the security declines in price
between those dates. The result is the opposite of what one would expect from a
cash purchase of a long position in a security.
Until the security is replaced, the Fund is required to pay the lender
amounts equal to any dividend that accrues during the period of the loan. To
borrow the security, the Fund also may be required to pay a premium or specified
amounts in lieu of interest. The amount of any gain is decreased, and the amount
of any loss is increased, by any premium or amounts in lieu of interest the Fund
is required to pay. The proceeds of the short sale are retained by the broker,
to the extent necessary to meet margin requirements, until the short position is
closed out.
Until the Fund replaces a borrowed security in connection with a short
sale, the Fund will: (a) maintain a segregated account, containing cash, cash
equivalents or other liquid debt or equity securities ("Segregable Assets") at
such a level that: (i) the amount deposited in the account plus the amount
deposited with the broker as collateral will equal the current value of the
security sold short, and (ii) the amount deposited in the segregated account
plus
6
<PAGE>
the amount deposited with the broker as collateral will not be less than the
market value of the security at the time it was sold short; or (b) otherwise
cover its short position in accordance with positions taken by the SEC staff.
SCMI anticipates that the frequency of any short sales will vary
substantially in different periods, and it does not intend that any specified
portion of the Fund's assets will be invested in short sales. No securities will
be sold short, however, if thereafter the total market value of all securities
sold short would exceed 25% of the value of the Fund's assets. The value of the
securities of any single issuer sold short by the Fund may not exceed the lesser
of 2% of the value of the Fund's net assets or 2% of the outstanding securities
of any class of that issuer. Short sales may be made only in securities that are
fully listed on a national securities exchange or have an established
over-the-counter trading market.
In addition, the Fund may make short sales "against-the-box", which
means that the Fund sells short a security that it already owns. The proceeds of
the short sale are held by a broker until the settlement date, at which time the
Fund delivers the security to close the short position. The Fund receives the
net proceeds from the short sale. It is anticipated that the Fund will make
short sales against-the-box to protect the value of its net assets. 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 "Investment Restrictions" in the SAI. (See
"Short Sales" in the SAI for further details.)
LOANS OF FUND SECURITIES. The Fund may loan portfolio securities
(otherwise 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
Fund's total asset value. By so doing, the Fund attempts to earn interest
income. In the event of the other party's bankruptcy, the Fund could experience
delays in recovering the securities it loaned if, in the meantime, the value of
the loaned securities has increased, the Fund could experience a loss.
The Fund may loan its securities if it maintains Segregable Assets in a
segregated account equal to the current market value of the securities loaned
(including accrued interest thereon) plus the loan interest payable to the Fund.
Any securities that the Fund receives as collateral do not become part of its
investment portfolio at the time of the loan; in the event of a default by the
borrower, the Fund (to the extent permitted by law) will dispose of such
collateral except for such part thereof that is a security in which the Fund is
permitted to invest. While securities are on loan, the borrower pays the Fund
any accrued income on those securities. The Fund invests any cash collateral and
earns income or receives an agreed upon fee from a borrower that has delivered
securities that are permissible collateral. Cash collateral received by the Fund
is invested in U.S. government securities and liquid high grade debt
obligations. The value of securities loaned is marked to market daily. The
market value of any securities purchased with cash collateral is subject to
decline. Securities loans are subject to termination at SCMI's or the borrower's
option. The Fund may pay reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the Trust Board.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements,
which are a means of investing monies for a short period whereby a seller -- a
U.S. bank or recognized broker-dealer -- sells securities to the Fund and agrees
to repurchase them (at the Fund's cost plus interest) within a specified period
(normally one day). The values of the underlying securities purchased by the
Fund are monitored at all times by SCMI to ensure that the total value of the
securities equals or exceeds the value of the repurchase agreement. The Fund's
custodian bank holds the securities until they are repurchased. If a seller
defaults under a repurchase agreement, the Fund may have difficulty exercising
its rights to the underlying securities and may incur costs and experience time
delays in disposing of them. To evaluate potential risk, SCMI reviews the
creditworthiness of banks and dealers with which the Fund enters into repurchase
agreements.
ILLIQUID AND RESTRICTED SECURITIES. The Fund will not invest more than
15% of its assets in securities that SCMI's determines to be illiquid.
Securities that may be resold to certain institutional customers under Rule 144A
of the Securities act of 1933 or Section 4(2) paper issued under that Act that
may have an active secondary market may be determined by SCMI to be liquid for
purposes of compliance with the Fund's limitations on illiquid
7
<PAGE>
investments. There is no guarantee that the Fund will be able to sell such
securities at any time when SCMI deems it advisable to do so or at prices
prevailing for comparable securities that are more widely held. (See "Investment
Policies -- Illiquid and Restricted Securities" in the SAI for further
information.)
Although there is no minimum rating for debt securities (convertible or
non-convertible) in which the Fund may invest, the Fund intends to invest no
more than 10% of its net assets in debt securities rated below "Baa" by Moody's
Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's ("S&P") or in
unrated securities that SCMI determines deemed to be of comparable quality (such
securities are commonly known as "high yield/high risk" securities or "junk
bonds"). The Fund may invest in securities that are high yield/high risk or in
default if SCMI believes that there are prospects for an upgrade in a security's
rating, a favorable conversion of a security into another security, or, upon
completion of a contemplated exchange offer or reorganization involving a
security or its issuer, the Fund would receive securities or other assets
offering significant opportunities for capital appreciation, although the Fund
generally will not invest in debt securities that are in default. The Fund is
not obligated to dispose of securities due to rating changes by Moody's, S&P or
other rating agencies. (See "Risk Considerations" and the Appendix to the SAI
for information about high yield/high risk securities.)
Securities ratings are based largely upon the issuer's historical
financial condition and the rating agency's investment analysis at the time of
rating. Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which may
be better or worse than the ratings would indicate. Although SCMI considers
security ratings when making investment decisions, it performs its own
investment analysis and does not rely principally upon the ratings assigned by a
rating service. SCMI's analysis may include consideration of the issuer's
experience and managerial strength, changing financial condition, borrowing
requirements or debt-maturity schedules, and its responsiveness to changes in
business conditions and interest rates. SCMI also may consider relative values
based upon anticipated cash flow, interest or dividend coverage, asset coverage,
and earnings prospects. Because of the greater number of investment
considerations involved in investing in lower-rated securities, the achievement
of the Fund's objective depends more on SCMI's analytical abilities than would
be the case if it were investing primarily in securities in the higher rating
categories.
For temporary defensive purposes, the Fund may invest without
limitation in (or enter into repurchase agreements maturing in seven days or
less with U.S. banks and broker-dealers with respect to) short-term debt
securities, including commercial paper, U.S. Treasury bills, other short-term
U.S. Government securities, certificates of deposit, and bankers' acceptances of
U.S. banks. The Fund also may hold cash and time deposits in U.S. banks. (See
"Investment Policies" in the SAI for further information about these
securities.)
PORTFOLIO TURNOVER. The Fund may be subject to a greater degree of
portfolio turnover and, thus, a higher incidence of short-term capital gain
taxable as ordinary income than might be expected from a portfolio that invests
substantially all or its assets on a long-term basis. Accordingly, brokerage
commissions borne by the Fund can be expected to be larger than those typically
borne by a mutual fund. Federal income tax law may restrict the extent that the
Fund may engage in short-term trading activities. (See "Taxes".) SCMI
anticipates that the Fund's annual portfolio turnover will range from 100% to
300%.]
RISK CONSIDERATIONS
The Fund is not intended for investors whose objective is assured
income or preservation of capital. The Fund is not designed to provide investors
with a means of speculating on short-term stock movements. The Fund may be
subject to high portfolio turnover rates. It is appropriate for investors who
can bear the special risks associated with investment in small capitalization
companies and have a longer time-frame for their investment. Investors should be
able tolerate sudden, sometimes substantial fluctuations in the value of their
investment. The equity securities in which the Fund primarily invests are not
necessarily 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 Fund of
a security to meet withdrawals by shareholders may require the Fund 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. There can be no assurance that the Fund will achieve its investment
objective.
8
<PAGE>
MICRO AND SMALL COMPANIES. While all investments have risks,
investments in micro and small capitalization companies carry greater risk than
investments in large capitalization companies. Micro and small capitalization
companies generally experience higher growth rates and higher failure rates than
do large capitalization companies; and micro and small cap companies may lack
management depth. In addition, many micro cap companies are not well known to
the investing public, do not have significant institutional ownership, and are
followed by relatively few securities analysts, with the result that there may
tend to be less publicly available information concerning such companies in
contract with large cap companies. Securities of micro and small cap companies
traded in the OTC markets may have fewer market makers, wider spreads between
their quoted bid and asked prices and lower trading volumes, resulting in
greater volatility of market price and less liquidity. Moreover, micro and small
cap stocks have, on occasion, fluctuated in the opposite direction of large cap
stocks or the general stock market. Consequently, micro and small cap stocks
tend to be more volatile than those of large cap companies.
UNSEASONED ISSUERS. Investments in small, unseasoned issuers generally
carry greater risk than is customarily associated with larger, more seasoned
companies. Such issuers often have products and management personnel that have
not been 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 Fund may purchase when they are offered to the public for the first
time) may have a limited trading market which can adversely affect their sale by
the Fund and can result in such securities being priced lower than otherwise
might be the case. If other institutional investors also seek to sell these
securities at the same time, the Fund may be forced to dispose of its holdings
at prices lower than might otherwise be obtained.
The Hedging Instruments the Fund is authorized to use involve costs and
may result in losses. Risks for the Fund include the risk that hedging
transactions may not accomplish their purpose because of imperfect market
correlations, the Fund's inability to close out a futures position because of
limited market liquidity, or possible losses resulting from SCMI's inability to
predict the direction of stock prices, interest rates and other economic
factors.
HIGH YIELD/HIGH RISK SECURITIES. Bonds rated "Baa" or "BBB" are
described by Moody's and S&P as having speculative characteristics; changes in
economic conditions or other circumstances are more likely to weaken the ability
of issuers of such bonds to repay principal and make interest payments than is
the case with higher grade bonds. Prices of high yield/high risk securities are
generally more volatile than prices of higher rated securities; and junk bonds
are generally deemed more vulnerable to default on interest and principal
payments. Such securities (i.e., rated below "Baa" by Moody's or "BBB" by S&P)
are considered to be of poor standing and predominately speculative. Securities
in the lowest rating categories may have extremely poor prospects of attaining
any real investment standing and may be in default. The rating services'
descriptions of securities in the lower rating categories, including their
speculative characteristics, are set forth in the Appendix to the SAI.
9
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MANAGEMENT OF THE FUND
Schroder Group Assets Under Management Worldwide
As of June 30, 1997 -- Over $150 Billion
[GRAPHIC OF WORLD MAP]
THE SCHRODER INVESTMENT MANAGEMENT GROUP INVESTMENT AND REPRESENTATIVE OFFICES
WORLDWIDE INCLUDE NEW YORK, LONDON, BOSTON, ZURICH, WARSAW, TOKYO, HONG KONG,
BEIJING, SHANGHAI, TAIPEI, SEOUL, BANGKOK, KUALA LUMPUR, SINGAPORE, JAKARTA,
SYDNEY, BUENOS AIRES, SAO PAULO, AND BOGOTA.
TOGETHER, SCHRODER CAPITAL MANAGEMENT INTERNATIONAL AND
SCHRODER CAPITAL MANAGEMENT INC. MANAGE OVER $23 BILLION.
BOARD OF TRUSTEES
The business and affairs of the Fund are managed under the direction of
the Trust Board. Additional information regarding the Trustees and executive
officers of the Trust may be found in the SAI under the heading "Management,
Trustees and Officers".
INVESTMENT ADVISER AND FUND MANAGER
As investment adviser to the Fund, SCMI manages the Fund and
continuously reviews, supervises and administers its investments. SCMI is
responsible for making decisions relating to the Fund's investments and placing
purchase and sale orders regarding such investments with brokers or dealers it
selects. For these services, the Investment Advisory Agreement between SCMI and
the Trust provides that SCMI is entitled to receive a monthly advisory fee at
the annual rate of 1.25% of the Fund's average daily net assets. SCMI has
agreed, however, to waive all or a portion of the advisory fees payable under
the Investment Advisory Agreement. Such fee limitation arrangement shall remain
in effect until its elimination is approved by the Trust Board.
SCMI is a wholly owned U.S. subsidiary of Schroders Incorporated, the
wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large world-wide group of banks and financial
services companies (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.
Ira Unschuld (a Vice President of the Trust and a First Vice President
of SCMI), with the assistance of a team of analysts, is primarily responsible
for the day-to-day management of the Fund's investments and has so managed the
Fund since its inception. Mr. Unschuld has been employed by SCMI in the
investment research and portfolio management areas since 1990.
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ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an administration
agreement with Schroder Advisors and a subadministration agreement with Forum.
Pursuant to these agreements, Schroder Advisors and Forum Administrative
Services, Limited Liability Company ("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 SCMI.
For providing these services, Schroder Advisors and Forum are entitled to
compensation at the annual rates of 0.25% and 0.10%, respectively, of the Fund's
average daily net assets. Schroder Advisors has agreed, however, to waive all or
a portion of the administration fees payable under the Administration Agreement.
Such fee limitation arrangement shall remain in effect until its elimination is
approved by the Trust Board. From time to time, Forum may agree voluntarily to
waive all or a portion of its subadministration fee.
EXPENSES
The Fund bears all costs of its operations other than expenses
specifically assumed by Schroder Advisors or SCMI. The costs borne by the Fund
include legal and accounting expenses; Trustees' fees and expenses; insurance
premiums, custodian and transfer agent fees and expenses; brokerage fees and
expenses; expenses of registering and qualifying the Fund's shares for sale with
the SEC and with various state securities commissions; expenses of obtaining
quotations on portfolio securities and pricing of the Fund's shares; a portion
of the expenses of maintaining the Fund's legal existence and of shareholders'
meetings; and expenses of preparation and distribution to existing shareholders
of reports, proxies and prospectuses. Trust expenses directly attributed to the
Fund are charged to the Fund; other expenses are allocated proportionately among
all the series of the Trust in relation to the net assets of each series. SCMI
and Schroder Advisors have undertaken voluntarily to waive a portion of their
fees and or assume certain expenses of the Fund in order to limit total Fund
expenses, excluding taxes, interest, brokerage commissions and other Fund
transaction expenses and extraordinary expenses chargeable to Investor Shares to
2.00% of the average daily net assets of the Fund. This expense limitation
cannot be modified or withdrawn except by a majority vote of the Trust Board. If
expense reimbursements are required, they will be made on a monthly basis. Forum
may waive voluntarily all or a portion of its fees from time to time.
FUND TRANSACTIONS
SCMI places orders for the purchase and sale of the Fund's investments
with brokers and dealers selected by SCMI in its discretion and seeks "best
execution" of such Fund transactions. The Fund may pay higher than the lowest
available commission rates when SCMI believes it is reasonable to do so in light
of the value of the brokerage and research services provided by the broker
effecting the transaction. Commission rates for brokerage transactions are fixed
on many foreign securities exchanges, and this may cause higher brokerage
expenses to accrue to the Fund than would be the case for comparable
transactions effected on U.S. securities exchanges.
Subject to the Fund's policy of obtaining the best price consistent
with quality of execution on transactions, SCMI may employ Schroder Securities
Limited and its affiliates (collectively, "Schroder Securities"), affiliates of
SCMI, to effect transactions of the Fund on certain foreign securities
exchanges. Because of the affiliation between SCMI and Schroder Securities, the
Fund's payment of commissions to Schroder Securities is subject to procedures
adopted by the Trust Board designed to ensure that such commissions will not
exceed the usual and customary brokers' commissions. No specific portion of the
Fund's brokerage will be directed to Schroder Securities and in no event will
Schroder Securities receive such brokerage in recognition of research services.
Although the Fund 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 Fund's portfolio transactions would agree to pay
designated expenses of the Fund if brokerage commissions generated by the Fund
reached certain levels. These arrangements might reduce the Fund's expenses
(and, indirectly, the Fund's expenses). As anticipated, these arrangements would
not materially increase the brokerage commissions paid by the Fund.
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CODE OF ETHICS
The Trust, SCMI, Schroder Advisors, and Schroders Incorporated have
each adopted a code of ethics that contains a policy on personal securities
transactions by "access persons," including Fund 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 certain financial institutions and other organizations that
assist their customers in purchasing Fund Shares, which organizations may charge
their customers a service fee for processing orders to purchase or sell shares.
Investors wishing to purchase Shares through an organization should contact that
organization directly for appropriate instructions.
Fund Shares 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 $10,000. The minimum subsequent investment is
$2,500. All purchase payments are invested in full and fractional shares. The
Fund is authorized to reject any purchase order.
Purchases may be made by mailing a check (in U.S. dollars), payable to
"Schroder Micro Cap Fund" along with a completed account application (or the
investor's account number) to:
Schroder Micro Cap Fund - Investor Shares
P.O. Box 446
Portland, Maine 04112
For initial purchases, the check must be accompanied by a completed
account application in proper form. Further documentation, may be requested from
corporations, administrators, executors, personal representatives, directors or
custodians to evidence the authority of the person or entity making the
investment.
Purchase payments may be transmitted by Federal Reserve Bank wire
directly to the Fund as follows:
The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Financial Corp.
Account No.: 910-2-718187
Ref.: Schroder Micro Cap Fund - Investor Shares
Account of: (shareholder name)
Account No: (shareholder account number)
The wire order must specify the name of the Fund, the shares' class
(i.e., Investor Shares), the account name and number, address, confirmation
number, amount to be wired, name of the wiring bank and name and telephone
number of the person to be contacted in connection with the order. If the
initial investment is by wire, the Transfer Agent must assign an account number,
and the investor must complete an account application and mail it to the Fund,
before any transaction is effected. 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") are processed at the net asset value determined as of
that day. Wire orders received after 4:00 p.m. (Eastern time) are processed at
the net asset value determined as of the next Fund Business Day. (See "Net Asset
Value".)
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The Fund's Transfer Agent establishes for each shareholder of record an
open account to which all shares purchased and all reinvested dividends and
other distributions are credited. Although most shareholders elect not to
receive share certificates, certificates for full shares can be obtained by
specific written request to the Fund's Transfer Agent. No certificates are
issued for fractional shares.
The Transfer Agent deems an account lost if six months have passed
since correspondence to the shareholder's address of record is returned, unless
the Transfer Agent determines the shareholder's new address. When an account is
deemed lost, dividends and other distributions will be reinvested automatically.
In addition, the amount of any outstanding checks for dividends and capital-gain
distributions that have been returned to the Transfer Agent will be reinvested,
and the checks will be canceled.
RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
Fund Shares 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.
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 $2000; the minimum subsequent investment is $250. Under certain
circumstances contributions to an IRA may be tax deductible. IRAs are available
to individuals (and their spouses) who receive compensation or earned income
whether or not they are active participants in a tax-qualified or
government-approved retirement plan. An IRA contribution by an individual or
spouse who participates in a tax-qualified or government-approved retirement
plan may not be deductible, depending upon the individual's income. Individuals
also may establish an IRA to receive a "rollover" contribution of distributions
from another IRA or a qualified plan. Tax advice should be obtained before
effecting a rollover.
STATEMENT OF INTENTION
Investors in Investor Shares also may meet the minimum initial
investment requirement based on cumulative purchases by means of a written
Statement of Intention, expressing the investor's intention to invest $10,000 or
more in the Fund's Investor Shares within a period of 13 months.
Investors wishing to enter into a Statement of Intention in conjunction
with their initial investment in Fund Shares should complete the appropriate
portion of the account application form. Current Fund shareholders can obtain a
Statement of Intention form by contacting the Transfer Agent.
The Fund reserves the right to redeem shares in any account if, at the
end of the Statement of Intention period, the account does not have a value of
at least the minimum investment amount.
EXCHANGES
Shareholders may exchange the Fund's Investor Shares for Investor
Shares of any other fund of the Trust made available through their respective
organization so long as they meet the initial investment minimum of the fund
being purchased and maintain the respective minimum account balance in each fund
in which they own shares.
Exchanges between each fund are at net asset value.
For federal income tax purposes an exchange is considered to be a sale
of shares on which a shareholder may realize a capital gain or loss. An exchange
may be made by calling the Transfer Agent at (800) 344-8332 or by mailing
written instructions to Schroder Capital Funds (Delaware), P.O. Box 446,
Portland, Maine 04112. Exchange privileges may be exercised only in those states
where shares of the other series of the Trust may legally be sold. Exchange
privileges may be amended or terminated at any time upon sixty (60) days'
notice.
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REDEMPTION OF SHARES
Fund Shares are redeemed at their next determined net asset value after
receipt by the Fund (at the address set forth above under "Purchase of Shares")
of a redemption request in proper form. Redemption requests may be made between
9:00 a.m. and 6:00 p.m. (Eastern time) on each Fund Business Day. Redemption
requests that are received prior to 4:00 p.m. (Eastern time) are processed at
the net asset value determined as of that day. Redemption requests that are
received after 4:00 p.m. (Eastern time) are processed at the net asset value
determined the next Fund Business Day. (See "Net Asset Value".)
BY TELEPHONE. Redemption requests may be made by telephoning the Transfer
Agent at the 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 telephone
instructions are genuine. The Transfer Agent and the Trust generally will not be
liable for any losses due to unauthorized or fraudulent redemption requests, but
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 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 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 are
normally mailed within seven days. No redemption proceeds are 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 are 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 Fund
investments or determination of the Fund's net asset value not reasonably
practicable.
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 Fund securities (from the investment Fund of the Fund or of the
Fund), in lieu of cash. 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 Fund
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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 falls below that amount solely as a result of market
activity. Shareholders will be notified that the value of the account is less
than the required minimum and be allowed at least 30 days to make an additional
investment to increase the account balance to at least the required minimum
amount.
NET ASSET VALUE
The net asset value per share of the Fund is calculated for Fund Shares
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, Martin Luther King,
Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Net asset value 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 that are listed on recognized stock exchanges are
valued at the last reported sale price, on the day when the securities are
valued (the "Valuation Day"), on the primary exchange on which the securities
are principally traded. Listed securities traded on recognized stock exchanges
for which there were no sales on the Valuation Day are valued at the last sale
price on the preceding trading day or at closing mid-market prices. Securities
traded in over-the-counter markets are valued at the most recent reported
mid-market price. Other securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith using
methods approved by the Trust Board.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to comply with the provisions of Internal Revenue Code
of 1986, as amended, applicable to regulated investment companies. By complying
therewith, the Fund will not have to pay federal income tax on that part of its
investment income or net realized capital gain that is distributed to
shareholders. The Fund intends to distribute substantially all of its income and
net realized capital gain and, therefore, intends not to be subject to federal
income tax.
Dividends and capital-gain distributions on Fund Shares are reinvested
automatically in additional Shares at net asset value unless the shareholder has
elected in the account application, or otherwise in writing, to receive
dividends and other distributions in cash.
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 from income generally are taxable to shareholders as ordinary
income whether dividends are invested in additional shares or received in cash.
Distributions by the Fund of any net long-term capital gain is taxable to a
shareholder as long-term capital gain, regardless of how long the shareholder
has held the shares. Each year the Trust will notify shareholders of the tax
status of dividends and other distributions.
Dividends from the Fund will qualify for the dividends-received
deduction for corporate shareholders to the extent dividends do not exceed the
aggregate amount of dividends received by the Fund from domestic corporations,
provided the investor has held Fund Shares for more than 45 days. If securities
held by the Fund are considered to be debt-financed (generally, acquired with
borrowed funds); are held by the Fund for fewer than 46 days (91 days in the
case of certain preferred stock); or are subject to certain forms of hedges or
short sales, then the
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portion of the dividends paid by the Fund attributable to such securities will
not be eligible for the dividends-received deduction.
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 basis in 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 Fund may also be subject to state and local
taxes, including withholding taxes.
In an effort to adhere to certain tax requirements, the Fund may have
to limit its investment activity in some types of instruments.
If the Fund's dividends exceed its taxable income in any year, all or a
portion of the Fund's dividends may be treated as a return of capital to
shareholders for tax purposes. Any return of capital will reduce the cost basis
of your shares, which will result in a higher reported capital gain or a lower
reported capital loss when you sell your shares. Shareholders will be notified
by the Trust if a distribution included a return of capital.
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.) Shareholders should consult their own tax advisors as
to the tax consequences of their ownership of shares.
OTHER INFORMATION
CAPITALIZATION AND VOTING
The Trust was organized as a Maryland corporation on July 30, 1969;
reorganized on February 29, 1988, as Schroder Capital Funds, Inc.; and
reorganized on January 9, 1996, 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 funds or series (such as the Fund) and may
divide Funds or series into classes of shares, and certain costs of doing so may
be borne by the Trust or series in accordance with the Trust Instrument. The
Trust currently consists of eight separate Funds, each of which has a separate
investment objective and policies.
The Fund currently consists of one class of shares, Investor Shares.
Each Fund Share is entitled to participate equally in dividends and other
distributions and the proceeds of any liquidation.
When issued in accordance with the terms of the Prospectus, shares are
fully paid, non-assessable, and have no preemptive rights. Shareholders have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees if
they choose to do so. A shareholder is entitled to one vote for each full share
held (and a fractional vote for each fractional share held). Each share of the
funds has equal voting rights, except that if a matter affects only the
shareholders of a particular fund or class, only shareholders of that fund or
class shall have a right to vote. On Trust 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
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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. 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 each shareholder a semi-annual report and an audited
annual report containing the Fund's financial statements.
PERFORMANCE
The Fund may include quotations of its average annual total return,
cumulative total return and other performance measures in advertisements or
reports to shareholders or prospective investors. Average annual total return of
Fund Shares is based upon the overall dollar or percentage change in value of a
hypothetical investment each year over specified periods. Average annual total
returns reflect the deduction of a proportional share of the Fund's expenses (on
an annual basis) and assumes investment and reinvestment of all dividends and
distributions at NAV. Cumulative total returns are calculated similarly except
that the total return is aggregated over the relevant period instead of
annualized.
The performance of the Fund's Shares may be compared to various
unmanaged securities indices, groups of mutual funds tracked by mutual fund
ratings services, or other general economic indicators. Unmanaged indices may
assume the reinvestment of dividends but do not reflect deductions for
administrative and management costs and expenses.
Performance information represents only past performance and does not
necessarily indicate future results. For a description of the methods used to
determine total return and other performance measures for the Fund, see the SAI.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank is custodian of the Fund's and of the Fund's assets.
Forum Financial Corp. serves as the Fund's transfer and dividend disbursing
agent.
SHAREHOLDER INQUIRIES
Inquiries about the Fund should be directed to:
Schroder Micro Cap 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 or (207) 879-1900.
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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
SUBADMINISTRATOR
Forum Administrative Services, Limited Liability Company
Two Portland Square
Portland, Maine 04101
CUSTODIAN
The Chase Manhattan Bank
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
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
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TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................
EXPENSES OF INVESTING
IN THE FUND................................
Fee Table......................................
Example........................................
INVESTMENT OBJECTIVE...........................
INVESTMENT POLICIES ...........................
RISK CONSIDERATIONS............................
MANAGEMENT OF THE FUND.........................
Board of Trustees..............................
Investment Adviser and Fund Manager............
Administrative Services........................
Expenses.......................................
Fund Transactions..............................
Code of Ethics.................................
INVESTMENT IN THE FUND.........................
Purchase of Shares.............................
Retirement Plans and Individual
Retirement Accounts..........................
Statement of Intention.........................
Exchanges......................................
Redemption of Shares...........................
Net Asset Value................................
DIVIDENDS, DISTRIBUTIONS
AND TAXES....................................
OTHER INFORMATION..............................
Capitalization and Voting......................
Reports........................................
Performance....................................
Custodian and Transfer Agent...................
Shareholder Inquiries..........................
<PAGE>
SCHRODER EMERGING MARKETS FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1997
[GRAPHIC OF WORLD MAP]
INVESTMENT ADVISER
Schroder Capital Management International Inc. ("SCMI")
ADMINISTRATOR AND DISTRIBUTOR
Schroder Fund Advisors, Inc. ("Schroder Advisors")
SUBADMINISTRATOR
Forum Administrative Services, Limited Liability Company ("Forum")
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Forum Financial Corp. ("FFC")
GENERAL INFORMATION: (207) 879-8903
ACCOUNT INFORMATION: (800) 344-8332
FAX: (207) 879-6206
Investor Shares of Schroder Emerging Market Fund (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 also are offered for sale at net asset value to individual investors, in
most cases through Service Organizations (as defined in the prospectuses) at
lower investment minimums but higher expenses than Investor Shares.
This Statement of Additional Information ("SAI") is not a prospectus and is
authorized for distribution only when preceded or accompanied by the Fund's
current prospectuses dated October 1, 1997, as amended from time to time (the
"Prospectus"). This SAI contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus and retained for future reference. All terms used in this SAI that
are defined in the Prospectus have the meaning assigned in the Prospectus. You
may obtain an additional copy of the Prospectus without charge by writing to the
Fund at Two Portland Square, Portland, Maine 04101 or calling the numbers listed
above.
<PAGE>
TABLE OF CONTENTS
INTRODUCTION..................................................
INVESTMENT POLICIES...........................................
Forward Foreign Currency Exchange Contracts...................
Options and Futures Transactions..............................
Warrants and Stock Rights.....................................
Convertible Securities........................................
Debt-to-Equity Conversions....................................
U.S. Government Securities....................................
Bank Obligations..............................................
Short-Term Debt Securities....................................
Repurchase Agreements.........................................
Illiquid and Restricted Securities............................
Loans of Portfolio Securities.................................
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...................................
Determination of Net Asset Value Per Share....................
Redemption In-Kind............................................
TAXATION......................................................
OTHER INFORMATION.............................................
Organization..................................................
Capitalization and Voting.....................................
Performance Information.......................................
Principal Shareholders........................................
Custodian.....................................................
Transfer Agent and Dividend Disbursing Agent..................
Legal Counsel.................................................
Independent Accountant........................................
Registration Statement........................................
Financial Statements..........................................
APPENDIX......................................................
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INTRODUCTION
Schroder Emerging Markets Fund is a non-diversified, separately managed series
of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management
investment company currently consisting of eight separate series, each of which
has a different investment objective and policies.
The Fund's investment objective is to seek to achieve long-term capital
appreciation. It seeks to achieve this objective through direct or indirect
investment in equity securities of issuers domiciled or doing business in
emerging market countries in regions such as Southeast Asia, Latin America, and
Eastern and Southern Europe. There is no assurance that the Fund will achieve
this objective. Furthermore, investing in securities of emerging market issuers
involves special risks in addition to those associated with investments in
securities of U.S. issuers.
INVESTMENT POLICIES
The Fund's investment objective and policies authorize it to invest in certain
types of securities and to engage in certain investment techniques as identified
under "Investment Objective" and "Investment Policies" in the Prospectus. The
following information supplements the discussion found in those sections by
providing additional information or elaborating upon the discussion there. The
Fund currently seeks to achieve its investment objective by substantially all of
its assets in Schroder Emerging Markets Fund (the "Portfolio"), a separate
series of Schroder Capital Funds ("Schroder Core"). Since the Fund has the same
investment objective and substantially similar policies as the Portfolio and
currently invests all of its assets in the Portfolio, investment policies are
discussed with respect to the Portfolio only.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
To hedge against adverse price movements in the securities held in its portfolio
and the currencies in which they are denominated (as well as in the securities
it might wish to purchase and their denominated currencies), the Portfolio may
engage in transactions in forward foreign currency exchange contracts.
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell a 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. The Portfolio may enter into forward
contracts as a hedge against fluctuations in future foreign exchange rates.
Currently, only a limited market, if any, exists for hedging transactions
relating to currencies in many emerging market countries or to securities of
issuers domiciled or principally engaged in business in emerging market
countries. This may limit the Portfolio's ability to hedge its investments
effectively in those emerging markets. Hedging against a decline in the value of
a currency does not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Such transactions
also limit the opportunity for gain if the value of the hedged currencies should
rise. In addition, it may not be possible for the Portfolio to
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hedge against a devaluation that is so generally anticipated that the Portfolio
is not able to contract to sell the currency at a price above the devaluation
level it anticipates.
The Portfolio will enter into forward contracts under certain instances. When
the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, wish to secure the price
of the security in U.S. dollars or some other foreign currency which the
Portfolio is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale (for a fixed amount of dollars or other
currency) of the amount of foreign currency involved in the underlying security
transactions, the Portfolio will be able to protect itself against possible loss
(resulting from adverse changes in the relationship between the U.S. dollar or
other currency being used for the security purchase and the foreign currency in
which the security is denominated) during the period between the date on which
the security is purchased or sold and the date on which payment is made or
received. In addition, when the Portfolio anticipates purchasing securities at
some future date, and wishes to secure the current exchange rate of the currency
in which those securities are denominated against the U.S. dollar or some other
foreign currency, it may enter into a forward contract to purchase an amount of
currency equal to part or all of the value of the anticipated purchase, for a
fixed amount of U.S. dollars or other currency.
In all of the above instances, if the currency in which the Portfolio's
portfolio securities (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased, then the
Portfolio will have realized fewer gain than if the Portfolio had not entered
into the forward contracts. Furthermore, the precise matching of the forward
contract amounts and the value of the securities involved is not generally
possible, since the future value of such securities in foreign currencies
changes as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
To the extent that the Portfolio enters into forward contracts to hedge against
a decline in the value of portfolio holdings denominated in a particular foreign
currency resulting from currency fluctuations, there is a risk that the
Portfolio may nevertheless realize a gain or loss as a result of currency
fluctuations after such portfolio holdings are sold should the Portfolio be
unable to enter into an "offsetting" forward foreign currency contract with the
same party or another party. The Portfolio may be limited in its ability to
enter into hedging transactions involving forward contracts by the Internal
Revenue Code requirements relating to qualifications as a regulated investment
company (see "Taxation").
The Portfolio is not required to enter into such transactions with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the investment adviser. Generally, the Portfolio will not enter
into a forward contract with a term of greater than one year.
OPTIONS AND FUTURES TRANSACTIONS
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As discussed in the Prospectus, the Portfolio may write covered call options
against securities held in its portfolio and covered put options on eligible
portfolio securities and may purchase options of the same series to effect
closing transactions, and may hedge against potential changes in the market
value of its investments (or anticipated investments), by purchasing put and
call options on portfolio (or eligible portfolio) securities (and the currencies
in which they are denominated) and engaging in transactions involving futures
contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and on various
foreign currencies are listed on several U.S. and foreign securities exchanges
and are written in over-the-counter transactions ("OTC Options"). Listed options
are issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives the Portfolio the right to buy from the OCC (in the
U.S.) or other clearing corporation or exchange, the underlying security or
currency covered by the option at the stated exercise price (the price per unit
of the underlying security or currency) by filing an exercise notice prior to
the expiration date of the option. The writer (seller) of the option would then
have the obligation to sell, to the OCC (in the U.S.) or other clearing
corporation or exchange, the underlying security or currency at that exercise
price prior to the expiration date of the option, regardless of its then current
market price. Ownership of a listed put option would give the Portfolio the
right to sell the underlying security or currency to the OCC (in the U.S.) or
other clearing corporation or exchange at the stated exercise price. Upon notice
of exercise of the put option, the writer of the option would have the
obligation to purchase the underlying security or currency from the OCC (in the
U.S.) or other clearing corporation or exchange at the exercise price.
The OCC or other clearing corporation or exchange that issues listed options
ensures that all transactions in such options are properly executed. OTC options
are purchased from or sold (written) to dealers or financial institutions that
have entered into direct agreements with the Portfolio. With OTC options,
variables such as expiration date, exercise price and premium are agreed between
the Portfolio and the transacting dealer. If the transacting dealer fails to
make or take delivery of the securities or amount of foreign currency underlying
an option it has written, the Portfolio would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Portfolio will
engage in OTC option transactions only with member banks of the Federal Reserve
System or primary dealers in U.S. Government securities or with affiliates of
such banks or dealers which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities that are
denominated in a foreign currency, the Portfolio may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Portfolio would be able to sell the
foreign currency for a fixed amount of U.S. dollars, thereby securing the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Portfolio may purchase call
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options on foreign currencies in which securities it anticipates purchasing are
denominated to secure a set U.S. dollar price for such securities and protect
against a decline in the value of the U.S. dollar against such foreign currency.
The Portfolio may also purchase call and put options to close out written option
positions.
The Portfolio also may write covered call options on foreign currency to protect
against potential declines in its portfolio securities that are denominated in
foreign currencies. If the U.S. dollar value of the portfolio securities falls
as a result of a decline in the exchange rate between the foreign currency in
which it is denominated and the U.S. dollar, then a loss to the Portfolio
occasioned by such value decline would be ameliorated by receipt of the premium
on the option sold. At the same time, however, the Portfolio gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio securities
falls below the price of the premium received. The Portfolio also may write
options to close out long call option positions. A covered put option on a
foreign currency would be written by the Portfolio for the same reason it would
purchase a call option, namely, to hedge against an increase in the U.S. dollar
value of a foreign security that the Portfolio anticipates purchasing. In this
case, the receipt of the premium would offset, to the extent of the size of the
premium, any increased cost to the Portfolio resulting from an increase in the
U.S. dollar value of the foreign security. However, the Portfolio could not
benefit from any decline in the cost of the foreign security that is greater
than the price of the premium received. The Portfolio also may write options to
close out long put option positions.
Markets in foreign currency options are relatively new, and the Portfolio's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Portfolio will not
purchase or write such options unless and until, in the opinion of the SCMI, the
market for them has developed sufficiently to ensure that their risks are not
greater than the risks in connection with the underlying currency, there can be
no assurance that a liquid secondary market will exist for a particular option
at any specific time. In addition, options on foreign currencies are affected by
all of those factors that influence foreign exchange rates and investments
generally.
The value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar, with the result that the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
available is generally representative of very large
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transactions in the interbank market and, thus, may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are closed
while the markets for the underlying currencies remain open, significant price
and rate movements may take place in the underlying markets that are not
reflected in the options market.
COVERED CALL WRITING. The Portfolio is permitted to write covered call options
on portfolio securities, and on the U.S. dollar and foreign currencies in which
they are denominated, without limit. Generally, a call option is "covered" if
the Portfolio owns (or has the right to acquire without additional cash
consideration (or for additional cash consideration held for the Portfolio by
its custodian in a segregated account) the underlying security (currency)
subject to the option. In the case of call options on U.S. Treasury Bills,
however, the Portfolio might own U.S. Treasury Bills of a different series from
those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the security (currency) deliverable under the call option. A call option is also
covered if the Portfolio holds a call on the same security as the underlying
security (currency) of the written option, where the exercise price of the call
used for coverage is equal to or less than the exercise price of the call or
greater than the exercise price of the call written if the mark-to-market
difference is maintained by the Portfolio in cash, U.S. Government or other
high-grade debt obligations, or other high-quality liquid securities, held by
the Portfolio in a segregated account maintained with its custodian.
The Portfolio receives a premium from the purchaser in return for a call it has
written. Receipt of such premiums may enable the Portfolio to earn a higher
level of current income than it would earn from holding the underlying
securities (currencies) alone. Moreover, the premium received offsets a portion
of the potential loss incurred by the Portfolio if the securities (currencies)
underlying the option are ultimately sold (exchanged) by the Portfolio at a
loss. Furthermore, a premium received on a call written on a foreign currency
ameliorates any potential loss of value on the portfolio security due to a
decline in the value of the currency. However, during the option period, the
covered call writer has, in return for the premium, given up the opportunity for
capital appreciation above the exercise price should the market price of the
underlying security (or the exchange rate of the currency in which it is
denominated) increase but has retained the risk of loss should the price of the
underlying security (or the exchange rate of the currency in which it is
denominated) decline. The premium received fluctuates with varying economic
market conditions. If the market value of the portfolio securities (or the
currencies in which they are denominated) upon which call options have been
written increases, the Portfolio may receive a lower total return from the
portion of its portfolio upon which calls have been written than it would have
had such calls not been written.
With respect to listed options and certain OTC options, during the option period
the Portfolio may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation terminates upon the expiration of the option
period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option
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previously written. However, once the Portfolio has been assigned an exercise
notice, the Portfolio is unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on an
outstanding call option, to prevent an underlying security (currency) from being
called, to permit the sale of an underlying security (or the exchange of the
underlying currency) or to enable the Portfolio to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. The Portfolio may realize a net gain or loss from a
closing purchase transaction depending upon whether the amount of the premium
received on the call option is more or less than the cost of effecting the
closing purchase transaction. Any loss incurred in a closing purchase
transaction may be wholly or partially offset by unrealized appreciation in the
market value of the underlying security (currency). Conversely, a gain resulting
from a closing purchase transaction could be offset in whole or in part or
exceeded by a decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Portfolio realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the underlying
security (currency) and the proceeds of the sale of the security (currency) plus
the premium received on the option less the commission paid.
Options written by the Portfolio normally have expiration dates of up to
eighteen months from the date written. The exercised price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written.
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COVERED PUT WRITING. As a writer of a covered put option, the Portfolio would
incur an obligation to buy the security underlying the option from the purchaser
of the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed and OTC put options written by the
Portfolio will be exercisable by the purchaser only on a specific date). A put
is "covered" if at all times the Portfolio maintains with its custodian (in a
segregated account) cash, U.S. Government or other high-grade obligations, or
other high-quality liquid securities, in an amount equal to at least the
exercise price of the option. Similarly, a short put position could be covered
by the Portfolio by its purchase of a put option on the same security (currency)
as the underlying security of the written option, where the exercise price of
the purchased option is equal to or more than the exercise price of the put
written or less than the exercise price of the put written if the marked to
market difference is maintained by the Portfolio in cash, U.S. Government or
other high-grade debt obligations, or other high-quality liquid securities, that
the Portfolio holds in a segregated account maintained at its custodian. In
writing puts, the Portfolio assumes the risk of loss should the market value of
the underlying security (currency) decline below the exercise price of the
option (any loss being decreased by the receipt of the premium on the option
written). In the case of listed options, during the option period the Portfolio
may be required, at any time, to make payment of the exercise price against
delivery of the underlying security (currency). The operation of and limitations
on covered put options in other respects are substantially identical to those of
call options.
The Portfolio will write put options for three purposes: (i) to receive the
income derived from the premiums paid by purchasers; (ii) when the investment
adviser wishes to purchase the security (or a security denominated in the
currency underlying the option) underlying the option at a price lower than its
current market price (in which case it will write the covered put at an exercise
price reflecting the lower purchase price sought); and (iii) to close out a long
put option position. The potential gain on a covered put option is limited to
the premium received on the option (less the commissions paid on the
transaction) while the potential loss equals the differences between the
exercise price of the option and the current market price of the underlying
securities (currencies) when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. The Portfolio may purchase listed and OTC call
and put options in amounts equaling up to 5% of its total assets. The Portfolio
may purchase a call option in order to close out a covered call position (see
"Covered Call Writing"), to protect against an increase in price of a security
it anticipates purchasing or, in the case of a call option on foreign currency,
to hedge against an adverse exchange rate move of the currency in which the
security it anticipates purchasing is denominated vis-++-vis the currency in
which the exercise price is denominated. The purchase of the call option to
effect a closing transaction on a call written over-the-counter may be a listed
or an OTC option. In either case, the call purchased is likely to be on the same
securities (currencies) and have the same terms as the written option. If
purchased over-the-counter, the option would generally be acquired from the
dealer or financial institution which purchased the call written by the
Portfolio.
The Portfolio may purchase put options on securities (currencies) that it holds
in its portfolio to protect itself against a decline in the value of the
security and to close out written put option
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positions. If the value of the underlying security (currency) were to fall below
the exercise price of the put purchased in an amount greater then the premium
paid for the option, the Portfolio would incur no additional loss. In addition,
the Portfolio may sell a put option it has previously purchased prior to the
sale of the securities (currencies) underlying such option. Such a sale would
result in a net gain or loss depending upon whether the amount received on the
sale is more or less than the premium and other transaction costs paid on the
put option that is sold. Any such gain or loss could be offset in whole or in
part by a change in the market value of the underlying security (currency). If a
put option purchased by the Portfolio expired without being sold or exercised,
the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call writer
has, in return for the premium on the option, given up the opportunity for
capital appreciation above the exercise price if the market price of the
underlying security (or the value of its denominated currency) increases but has
retained the risk of loss if the price of the underlying security (or the value
of its denominated currency) declines. The writer has no control over the time
when it may be required to fulfill its obligation as a writer of the option.
Once an option writer has received an exercise notice, it cannot effect a
closing purchase transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the exercise
price.
Prior to exercise or expiration, an option position can only be terminated by
entering into a closing purchase or sale transaction. If a covered call option
writer is unable to effect a closing purchase transaction or to purchase an
offsetting OTC option, it cannot sell the underlying security until the option
expires or the option is exercised. Accordingly, a covered call option writer
may not be able to sell an underlying security at a time when it might otherwise
be advantageous to do so. A covered put option writer who is unable to effect a
closing purchase transaction or to purchase an offsetting OTC option would
continue to bear the risk of decline in the market price of the underlying
security until the option expires or is exercised. In addition, a covered put
writer would be unable to utilize the amount held in cash, U.S. Government or
other high-grade short-term obligations, or other high-quality liquid
securities, as security for the put option for other investment purposes until
the exercise or expiration of the option.
The Portfolio's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, since such options will generally only be closed out by entering
into a closing purchase transaction with the purchasing dealer. However, the
Portfolio may be able to purchase an offsetting option that does not close out
its position as a writer but constitutes an asset of equal value to the
obligation under the option written. If the Portfolio is not able to either
enter into a closing purchase transaction or purchase an offsetting position, it
will be required to maintain the securities subject to the call, or the
collateral underlying the put, even though it might not be advantageous to do
so, until a closing transaction can be entered into (or the option is exercised
or expires).
Among the possible reasons for the absence of a liquid secondary market on an
exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an
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exchange; (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities;
(iv) interruption of the normal operations on an exchange; (v) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist.
In the event of the bankruptcy of a broker through which the Portfolio engages
in transactions in options, the Portfolio could experience delays and/or losses
in liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the
Portfolio, the Portfolio could experience a loss of all or part of the value of
the option. Transactions will be entered into by the Portfolio only with brokers
or financial institutions deemed creditworthy by SCMI.
Exchanges have established limitations governing the maximum number of options
on the same underlying security or futures contract (whether or not covered)
that may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different exchanges or are held or written on one or more accounts or through
one or more brokers). An exchange may order the liquidation of positions found
to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Portfolio may write.
The hours of trading for options may not conform to the hours during which the
underlying securities are traded. If the option markets close before the markets
for the underlying securities, significant price and rate movements can take
place in the underlying markets that cannot be reflected in the option markets.
The extent to which the Portfolio may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Portfolio's intention to qualify as such
(see "Taxation").
FUTURES CONTRACTS. The Portfolio may purchase and sell interest-rate, currency,
and index futures contracts ("futures contracts") that are traded on U.S. and
foreign commodity exchanges, on such underlying securities as U.S. Treasury
bonds, notes and bills, and/or any foreign government fixed-income security
("interest-rate futures contracts"), on various currencies ("currency futures
contracts") and on such indices of U.S. and foreign securities as may exist or
come into being ("index futures contracts").
The Portfolio may purchase or sell interest-rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If the investment adviser anticipates that interest rates may rise and,
concomitantly, that the price of certain of its portfolio securities fall, the
Portfolio may sell an interest-rate futures contract. If declining interest
rates are anticipated, the Portfolio may purchase an interest-rate futures
contract to protect against a potential increase in the price of
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securities the Portfolio intends to purchase. Subsequently, appropriate
securities may be purchased by the Portfolio in an orderly fashion; as
securities are purchased, corresponding futures positions would be terminated by
offsetting sales of contracts.
The Portfolio may purchase or sell currency futures contracts on currencies in
which its portfolio securities (or anticipated portfolio securities) are
denominated for the purposes of hedging against anticipated changes in currency
exchange rates. The Portfolio may enter into currency futures contracts for the
same reasons as set forth above for entering into forward foreign currency
exchange contracts; namely, to secure the value of a security purchased or sold
in a given currency vis-++-vis a different currency or to hedge against an
adverse currency exchange rate movement of a portfolio security's (or
anticipated portfolio security's) denominated currency vis-++-vis a different
currency.
The Portfolio may purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices. If it anticipates that the prices of securities
it holds may fall, the Portfolio may sell an index futures contract. Conversely,
if the Portfolio wishes to hedge against anticipated price rises in those
securities which it intends to purchase, the Portfolio may purchase an index
futures contract.
In addition to the above, interest-rate, currency and index futures contracts
will be bought or sold in order to close out short or long positions maintained
by the Portfolio in corresponding futures contracts.
Although most interest-rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without making or taking delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Portfolio will be able to enter into a
closing transaction.
INTEREST-RATE FUTURES CONTRACTS. When the Portfolio enters into an interest-rate
futures contract, it is initially required to deposit with the Portfolio's
custodian (in a segregated account in the name of the broker performing the
transaction) an "initial margin" of cash, U.S. Government or other high-grade
short-term obligations, or other high-quality liquid securities, equal to
approximately 2% of the contract amount. Initial margin requirements are
established by the exchanges on which futures contracts trade and may change. In
addition, brokers may establish margin deposit requirements in excess of those
required by the exchanges.
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Initial margin in futures transactions is different from margin in securities
transactions in that initial margin does not involve the borrowing of money by a
brokers' client but is, rather, a good faith deposit on the futures contract
that will be returned to the Portfolio upon the proper termination of the
futures contract. The margin deposits made are marked to market daily, and the
Portfolio may be required to make subsequent deposits with the Portfolio's
futures contract clearing broker of cash or U.S. Government securities (called
"variation margin") that are reflective of price fluctuations in the futures
contract.
CURRENCY FUTURES CONTRACTS. Generally, foreign currency futures contracts
provide for the delivery of a specified amount of a given currency, on the
exercise date, for a set exercise price denominated in U.S. dollars or other
currency. Foreign currency futures contracts would be entered into for the same
reason and under the same circumstances as forward foreign currency exchange
contracts. SCMI assesses such factors as cost spreads, liquidity and transaction
costs in determining whether to use futures contracts or forward contracts in
its foreign currency transactions and hedging strategy.
Purchasers and sellers of foreign currency futures contracts are subject to the
same risks that apply generally to the buying and selling of futures contracts.
In addition, there are risks associated with foreign currency futures contracts
and their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Portfolio must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by U.S. residents and
may be required to pay any fees, taxes or charges associated with such delivery
that are assessed in the issuing country.
INDEX FUTURES CONTRACTS. The Portfolio may invest in index futures contracts. An
index futures contract sale creates an obligation by the Portfolio, as seller,
to deliver cash at a specified future time. An index futures contract purchase
would create an obligation by the Portfolio, as purchaser, to take delivery of
cash at a specified future time. Futures contracts on indices do not require the
physical delivery of securities but provide for a final cash settlement on the
expiration date that reflects accumulated profits and losses credited or debited
to each party's account.
The Portfolio is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest-rate futures contracts. In addition, due to current
industry practice, daily variations in gain and loss on open contracts are
required to be reflected in cash in the form of variation margin payments. The
Portfolio may be required to make additional margin payments during the term of
the contract.
At any time prior to expiration of the futures contract, the Portfolio may elect
to close the position by taking an opposite position, which will operate to
terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash may be required
to be paid by or released to the Portfolio and the Portfolio realizes a loss or
gain.
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OPTIONS ON FUTURES CONTRACTS. The Portfolio may purchase and write call and put
options on futures contracts traded on an exchange and may enter into closing
transactions with respect to such options to terminate an existing position. An
option on a futures contract gives the purchaser the right (in return for the
premium paid) to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the position in the futures contract by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in case of a call, or is less than, in the case of a put, the exercise
price of the option on the futures contract.
The Portfolio may purchase and write options on futures contracts for purposes
identical to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the investment
adviser wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest-rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the investment adviser seeks to hedge. Any premiums received in the writing of
options on futures contracts may provide a further hedge against losses
resulting from price declines in portions of the Portfolio's investment
portfolio.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Portfolio
will not purchase or write options on foreign currency futures contracts unless
and until, in SCMI's opinion, the market for such options has developed
sufficiently that the risks in connection with them are not greater than the
risks in connection with transactions in the underlying foreign currency futures
contracts.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio
may not enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Portfolio's total assets, after taking into account unrealized gain and
unrealized loss on such contracts it has entered into, provided, however, that
in the case of an option that is in-the-money (the exercise price of the call
(put) option is less (more) than the market price of the underlying security) at
the time of purchase, the in-the-money amount may be excluded in calculating the
5%. However, there is no overall limitation on the percentage of the Portfolio's
assets that may be subject to a hedge position. In addition, in accordance with
the regulations of the Commodity Futures Trading Commission ("CFTC") under which
the Portfolio is exempted from registration as a commodity pool operator, the
Portfolio may only enter into futures contracts and options on futures contracts
transactions for purposes of hedging a part or all of its portfolio. Except as
described above, there are no other limitations on the use of futures and
options thereon by the Portfolio.
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The writer of an option on a futures contract is required to deposit initial and
variation margin pursuant to requirements similar to those applicable to futures
contracts. Premiums received from the writing of an option on a futures contract
are included in initial margin deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The Portfolio
may sell a futures contract to protect against the decline in the value of
securities (or the currency in which they are denominated) held by the
Portfolio. However, it is possible that the futures market may advance and the
value of the Portfolio's securities (or the currency in which they are
denominated) may decline. If this occurs, the Portfolio will lose money on the
futures contract and also experience a decline in value of its portfolio
securities. While this might occur for only a very brief period or to a very
small degree, over time the value of a diversified portfolio will tend to move
in the same direction as the futures contracts.
If the Portfolio purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated) and the value of such securities (currencies) decreases, then the
Portfolio may determine not to invest in the securities as planned and will
realize a loss on the futures contract that is not offset by a reduction in the
price of the securities.
If the Portfolio has sold a call option on a futures contract, it will cover
this position by holding (in a segregated account maintained at its custodian)
cash, U.S. Government securities or other high-grade debt obligations, or other
high-quality liquid securities, equal in value (when added to any initial or
variation margin on deposit) to the market value of the securities (currencies)
underlying the futures contract or the exercise price of the option. Such a
position may also be covered by owning the securities (currencies) underlying
the futures contract or by holding a call option permitting the Portfolio to
purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if the Portfolio holds a long position in a futures contract, it
will hold cash, U.S. Government or other high-grade debt obligations, or other
high-quality liquid securities, equal to the purchase price of the contract
(less the amount of initial or variation margin on deposit) in a segregated
account maintained for the Portfolio by its custodian. Alternatively, the
Portfolio could cover its long position by purchasing a put option on the same
futures contract with an exercise price as high or higher than the price of the
contract held by the Portfolio.
Exchanges limit the amount by which the price of a futures contract may move on
any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin on open
futures contract positions. In such situations, if the Portfolio has
insufficient cash, it may have to sell portfolio securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do so.
In addition, the Portfolio may be required to take or make delivery of the
instruments underlying interest-rate futures contracts it holds at a time when
it is disadvantageous to do so. The inability to close out options and
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futures contract positions could also have an adverse impact on the Portfolio's
ability to effectively hedge its portfolio.
Futures contracts and options thereon that are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges, and brokerage
commissions, clearing costs and other transaction costs may be higher. Greater
margin requirements may limit the Portfolio's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may cause delays in the
settlement of the Portfolio's foreign exchange transactions.
In the event of the bankruptcy of a broker through which the Portfolio engages
in transactions in futures or options thereon, the Portfolio could experience
delays and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Portfolio, the Portfolio could experience a loss of all or part
of the value of the option. Transactions are entered into by the Portfolio only
with brokers or financial institutions deemed creditworthy by SCMI.
While the futures contracts and options transactions in which the Portfolio
engages for the purpose of hedging its portfolio securities are not speculative
in nature, there are risks inherent in the use of such instruments. One such
risk that may arise in employing futures contracts to protect against the price
volatility of portfolio securities (and the currencies in which they are
denominated) is that the prices of securities and indices subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Portfolio's portfolio securities
(and the currencies in which they are denominated). Another such risk is that
prices of interest-rate futures contracts may not move in tandem with the
changes in prevailing interest rates against which the Portfolio seeks a hedge.
A correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between a
contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and are expected to diminish as the contract
approaches maturity.
There may exist an imperfect correlation between the price movements of futures
contracts purchased by the Portfolio and the movements in the prices of the
securities (currencies) which are the subject of the hedge. If participants in
the futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the debt securities or currency markets and futures
markets could result. Price distortions could also result if investors in
futures contracts choose to make or take delivery of underlying securities
rather than engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, because the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market can be
anticipated with the resulting speculation causing temporary price distortions.
Due to the possibility of price distortions in the
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futures contracts market and because of the imperfect correlation between
movements in the prices of securities and movements in the prices of futures
contracts, a correct forecast of interest-rate trends may still not result in a
successful hedging transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which the Portfolio may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position, and in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin. In
addition, limitations imposed by an exchange or board of trade on which futures
contracts are traded may compel the Portfolio to or prevent it from closing out
a contract, which may result in reduced gain or increased loss to the Portfolio.
The absence of a liquid market in futures contracts might cause the Portfolio to
make or take delivery of the underlying securities (currencies) at a time when
it may be disadvantageous to do so.
The extent to which the Portfolio may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the
Portfolio's intention to qualify as such (see "Taxation").
WARRANTS AND STOCK RIGHTS
The Portfolio may 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). Investments in warrants involve certain risks, including
the possible lack of a liquid market for the resale of the warrants, potential
price fluctuations as a result of speculation or other factors and failure of
the price of the underlying security to reach a level at which the warrant can
be prudently exercised (in which case the warrant may expire without being
exercised, resulting in the loss of the Portfolio's entire investment therein).
The prices of warrants do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer.
In addition, the Portfolio may invest up to 5% of its assets (at the time of
investment) in stock rights. A stock right is an option given to a shareholder
to buy additional shares at a predetermined price during a specified time
period.
CONVERTIBLE SECURITIES
The Portfolio may invest in convertible preferred stocks and convertible debt
securities ("convertible securities"). A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, carry less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion
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privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
DEBT-TO-EQUITY CONVERSIONS
The Portfolio may invest up to 5% of its net assets in debt-to-equity
conversions. Debt-to-equity conversion programs are sponsored in varying degrees
by certain emerging market countries, particularly in Latin America, and permit
investors to use external debt of a country to make equity investments in local
companies. Many conversion programs relate primarily to investments in
transportation, communication, utilities and similar infrastructure-related
areas. The terms of the programs vary from country to country, but include
significant restrictions on the application of proceeds received in the
conversion and on the repatriation of investment profits and capital. When
inviting conversion applications by holders of eligible debt, a government
usually specifies the minimum discount from par value that it will accept for
conversion. SCMI believes that debt-to-equity conversion programs may offer
investors opportunities to invest in otherwise restricted equity securities that
have a potential for significant capital appreciation and intends to invest
assets of the Portfolio to a limited extent in such programs under appropriate
circumstances. There can be no assurance that debt-to-equity conversion programs
will continue to be successful or that the Portfolio will be able to convert all
or any of its emerging market debt portfolio into equity investments.
U.S. GOVERNMENT SECURITIES
The Portfolio may invest in securities issued or guaranteed by the U.S.
Government (or its agencies, instrumentalities or government-sponsored
enterprises). Agencies, instrumentalities and government-sponsored enterprises
that have been established or sponsored by the U.S. Government and issue or
guarantee debt securities include the Bank for Cooperatives, the Export-Import
Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal
Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association, the Government
National Mortgage Association and the Student Loan Marketing Association. Except
for obligations issued by the U.S. Treasury and the Government National Mortgage
Association, none of the obligations of the other agencies, instrumentalities or
government-sponsored enterprises referred to above are backed by the full faith
and credit of the U.S. Government. There can be no assurance that the U.S.
Government will provide financial support to these obligations where it is not
obligated to do so.
BANK OBLIGATIONS
The Portfolio may invest in obligations of U.S. banks (including certificates of
deposit and bankers' acceptances) whose total assets at the time of purchase
exceed $1 billion. Such banks must be members of the Federal Deposit Insurance
Corporation. The Portfolio also may hold cash and time deposits denominated in
any major currency in foreign banks.
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A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. A time deposit is a non-negotiable
receipt issued by a bank in exchange for the deposit of funds. Similar to a
certificate of deposit, a time deposit earns a specified rate of interest over a
definite time period; however, it cannot be traded in the secondary markets.
SHORT-TERM DEBT SECURITIES
The Portfolio may invest in commercial paper -- short-term unsecured promissory
notes issued in bearer form by bank holding companies, corporations and finance
companies. The commercial paper purchased by the Portfolio for temporary
defensive purposes consists of direct obligations of domestic issuers that at
the time of investment are rated "P-1" by Moody's Investors Service ("Moody's")
or "A-1" by Standard & Poor's ("S&P"), or securities that, if not rated, are
issued by companies having an outstanding debt issue currently rated "Aaa" or
"Aa" by Moody's or "AAA" or "AA" by S&P. The rating "P-1" is the highest
commercial paper rating assigned by Moody's and the rating "A-1" is the highest
commercial paper rating assigned by S&P. The Portfolio also may invest in
variable rate master demand notes, which are obligations that permit the
investment of fluctuating amounts at varying market rates of interest pursuant
to arrangements between the issuer and a commercial bank acting as agent for the
payer of such notes. Generally both parties have the right to vary the amount of
the outstanding indebtedness on the notes.
REPURCHASE AGREEMENTS
The Portfolio may invest in securities subject to repurchase agreements that
mature or may be terminated by notice in seven days or less with U.S. banks or
broker-dealers. In a typical repurchase agreement the seller of a security
commits itself at the time of the sale to repurchase that security from the
buyer at a mutually agreed-upon time and price. The repurchase price exceeds the
sale price, reflecting an agreed-upon interest rate effective for the period the
buyer owns the security subject to repurchase. The agreed-upon rate is unrelated
to the interest rate on that security. SCMI monitors the value of the underlying
security at the time the transaction is entered into and at all times during the
term of the repurchase agreement to insure that the value of the security always
equals or exceeds the repurchase price. If a seller defaults under a repurchase
agreement, the Portfolio may have difficulty exercising its rights to the
underlying securities and may incur costs and experience time delays in
connection with the disposition of such securities. To evaluate potential risks,
SCMI reviews the credit-worthiness of banks and dealers with which the Portfolio
enters into repurchase agreements.
ILLIQUID AND RESTRICTED SECURITIES
"Illiquid and Restricted Securities" under "Investment Policies" in the
Prospectus sets forth the circumstances in which the Portfolio may invest in
"restricted securities". In connection with the
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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 registration expenses of illiquid restricted securities 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 the decision to sell the securities and
the time the Portfolio would be permitted to sell such securities. A similar
delay might be experienced in attempting to sell such securities pursuant to an
exemption from registration. Thus, the Portfolio may not be able to obtain as
favorable a price as that prevailing at the time of the decision to sell. If
SCMI determines that a "restricted security" is liquid pursuant to guidelines
adopted by the Trust Board, the security is not deemed illiquid. These
guidelines take into account trading activity for the securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular restricted security, that security may
become illiquid, which could affect the Fund's liquidity.
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: (i) on each business day, at least
equal the market value of the loaned securities; and (ii) consist of cash, bank
letters of credit, U.S. Government securities, other cash equivalents or liquid
securities 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. When lending portfolio
securities, 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 plus 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 if
it realizes at least a minimum amount of interest required by the lending
guidelines established by the Trust's Board of Trustees (the "Trust Board"). The
Portfolio will not lend its portfolio securities to any officer, director,
employee or affiliate of the Portfolio or SCMI. 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.
The market value of portfolio securities purchased with cash collateral may
decline. Loans of securities by the Portfolio are 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 Schroder Core's Board of
Trustees (the "Schroder Core Board").
INVESTMENT RESTRICTIONS
The following investment restrictions, except where stated to be non-fundamental
policies, are also fundamental policies of the Portfolio and, together with the
fundamental policies and investment objective described in the Prospectus,
cannot be changed without the vote of a
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"majority" of the Portfolio's outstanding shares. Under the Investment Company
Act of 1940 (the "1940 Act"), such a "majority" vote is defined as the vote of
the holders of the lesser of: (i) 67% of more of the shares present or
represented by proxy at a meeting of shareholders, if the holders of more than
50% of the outstanding shares are present; or (ii) more than 50% of the
outstanding shares. Under these additional restrictions, the Portfolio cannot:
1. Underwrite securities of other companies (except insofar as the
Portfolio might be deemed to be an underwriter in the resale of
any securities held in its portfolio);
2. Invest in commodities or commodity contracts (other than Hedging
Instruments, which it may use as permitted by any of its other
fundamental policies, whether or not any such Hedging Instrument
is considered to be a commodity or a commodity contract);
3. Purchase securities on margin; however, the Portfolio may make
margin deposits in connection with any Hedging Instruments which
it may use as permitted by any of its other fundamental policies;
4. Purchase or write puts or calls except as permitted by any of its
other fundamental policies;
5. Lend money except in connection with the acquisition of debt
securities that the Portfolio's investment policies and
restrictions permit it to purchase (see "Investment Objective" and
"Investment Policies" in the Prospectus). The Portfolio may make
loans of portfolio securities (see "Loans of Portfolio
Securities") and enter into repurchase agreements (see "Repurchase
Agreements");
6. Make short sales of securities;
7. Invest in interests in oil, gas or other mineral exploration or
development programs (but may purchase readily marketable
securities of companies which operate, invest in, or sponsor such
programs);
8. Invest in real estate or in interests in real estate (but may
purchase readily marketable securities of companies holding real
estate or interests therein).
MANAGEMENT
OFFICERS AND TRUSTEES
The following information relates to the principal occupations during the past
five years of each Trustee and executive officer of the Trust and shows the
nature of any affiliation with SCMI. Each of these individuals currently serves
in the same capacity for Schroder Core.
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PETER E. GUERNSEY, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Insurance Consultant since August 1986; prior thereto
Senior Vice President, Marsh & McLennan, Inc., insurance brokers.
JOHN I. HOWELL, 80, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Private Consultant since February 1987; Honorary Director,
American International Group, Inc.; Director, American International Life
Assurance Company of New York.
CLARENCE F. MICHALIS, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Chairman of the Board of Directors, Josiah Macy, Jr.
Foundation (charitable foundation).
HERMANN C. SCHWAB, 77, c/o the Trust, Two Portland Square, Portland, Maine -
Chairman and Trustee of the Trust; retired since March, 1988; prior thereto,
consultant to SCMI since February 1, 1984.
MARK J. SMITH*, 35, 33 Gutter Lane, London, England - President and Trustee of
the Trust; Senior Vice President and Director of SCMI since April 1990; Director
and Senior Vice President, Schroder Advisors.
MARK ASTLEY, 33, 787 Seventh Avenue, New York, New York - Vice President of the
Trust; First Vice President of SCMI, prior thereto, employed by various
affiliates of SCMI in various positions in the investment research and portfolio
management areas since 1987.
ROBERT G. DAVY, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior thereto,
employed by various affiliates of SCMI in various positions in the investment
research and portfolio management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON, 55, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Secretary of SCM since July 1995; Senior Vice President
(since April 1997) and General Counsel of Schroders Incorporated since May 1987;
prior thereto, partner of Sullivan & Worcester, a law firm.
RICHARD R. FOULKES, 51, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Deputy Chairman of SCMI since October 1995; Director and Executive
Vice President of Schroder Capital Management International Ltd. since 1989.
ROBERT JACKOWITZ, 30, 787 Seventh Avenue, New York, New York - Treasurer of the
First Trust; Vice President of SCM since September 1995; Treasurer of SCM and
Schroder Advisors since July 1995; Vice President of SCMI and SCM since April
1997; and Assistant Treasurer of Schroders Incorporated since January 1990.
JOHN Y. KEFFER, 54, Two Portland Square, Portland, Maine - Vice President of the
Trust; President of FFC, the Fund's transfer and dividend disbursing agent and
other affiliated entities including Forum Financial Services, Inc. and Forum
Advisors, Inc.
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JANE P. LUCAS, 35, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director and Senior Vice President SCMI; Director of SCM since
September 1995; Director of Schroder Advisors since September 1996; Assistant
Director Schroder Investment Management Ltd. since June 1991.
CATHERINE A. MAZZA, 37, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; President of Schroder Advisors since 1997; First Vice President of
SCMI and SCM since 1996; prior thereto, held various marketing positions at
Alliance Capital, an investment adviser, since July 1985.
MICHAEL PERELSTEIN, 41, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Director since May 1997 and Senior Vice President of SCMI since
January 1997; prior thereto, Managing Director of MacKay - Shields Financial
Corp.
ALEXANDRA POE, 36, 787 Seventh Avenue, New York, New York - Secretary and Vice
President of the Trust; Vice President of SCMI since August 1996; Fund Counsel
and Senior Vice President of Schroder Advisors since August 1996; Secretary of
Schroder Advisors; prior thereto, an investment management attorney with Gordon
Altman Butowsky Weitzen Shalov & Wein since July 1994; prior thereto counsel and
Vice President of Citibank, N.A. since 1989.
THOMAS G. SHEEHAN, 42, Two Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust; Counsel, Forum Financial
Services, Inc. since 1993; prior thereto, Special Counsel, U.S. Securities
and Exchange Commission, Division of Investment Management, Washington, D.C.
FARIBA TALEBI, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Group Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas since 1987;
Director of SCM since April 1997.
JOHN A. TROIANO, 38, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCM since April 1997; Chief Executive Officer, since
April 1, 1997, of SCMI and Managing Director and Senior Vice President of SCMI
since October 1995; prior thereto, employed by various affiliates of SCMI in
various positions in the investment research and portfolio management areas
since 1981.
IRA L. UNSCHULD, 31, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Vice President of SCMI since April, 1993 and an Associate from July,
1990 to April, 1993.
CATHERINE S. WOOLEDGE, 55, Two Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust Counsel, Forum Financial
Services, Inc. since November 1996. Prior thereto, associate at Morrison &
Foerster, Washington, D.C. from October 1994 to November 1996, associate
corporate counsel at Franklin Resources, Inc. from September 1993 to September
1994, and prior thereto associate at Drinker Biddle & Reath, Philadelphia, PA.
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* Interested Trustee of the Trust within the meaning of the 1940 Act.
Schroder Advisors is a wholly owned subsidiary of SCMI, which is a wholly owned
subsidiary of Schroders Incorporated, which in turn is an indirect, wholly owned
U.S. subsidiary of Schroders plc. Schroder Capital Management Inc. ("SCM") is
also a wholly owned subsidiary of Schroders Incorporated.
Officers and Trustees who are interested persons of the Trust receive no salary,
fees or compensation from the Fund. Independent Trustees of the Trust receive an
annual fee of $1,000 and a fee of $250 for each meeting of the Trust 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.
The following table provides the fees paid to each Trustee of the Trust for
certain funds' fiscal year ended October 31, 1996.
<TABLE>
Name of Trustee Aggregate Pension or Estimated Annual Total
Compensation From Retirement Benefits Upon Compensation From
Trust Benefits Accrued Retirement Trust And Fund
As Part of Trust Complex Paid To
Expenses Trustees
- -------------------------------- -------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Mr. Guernsey $1,750 $0 $0 $1,750
Mr. Hansmann 1,375 0 0 1,375
Mr. Howell 1,750 0 0 1,750
Mr. Michalis 1,750 0 0 1,750
Mr. Schwab 3,000 0 0 3,000
Mr. Smith 0 0 0 0
</TABLE>
As of July 1, 1997, the Fund had no 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
U.S. civil judgments against them. Civil remedies and criminal penalties under
U.S. federal securities law may be unenforceable in the United Kingdom
Extradition treaties now in effect between the U.S. and the United Kingdom might
not subject such persons to effective enforcement of the criminal penalties of
such acts.
24
<PAGE>
INVESTMENT ADVISER
SCMI, 787 Seventh Avenue, New York, New York 10019, serves as investment adviser
to the Portfolio under an Investment Advisory Agreement between Schroder Core
and SCMI. SCMI is a wholly owned U.S. subsidiary of Schroders Incorporated, the
wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large worldwide group of banks and financial
service companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices in eighteen countries. The
Schroder Group specializes in providing investment management services, with
funds under management currently in excess of $150 billion as of June 30, 1997.
Under the Investment Advisory Agreement, SCMI is responsible for managing the
investment and reinvestment of the Portfolio's assets and continuously reviews,
supervises and administers its investments. In this regard, it is the
responsibility of SCMI to make decisions relating to the Portfolio's investments
and to place purchase and sale orders regarding such investments with brokers or
dealers it selected. SCMI also furnishes to Schroder Core and the Trust Board,
which has overall responsibility for the business and affairs of the Trust,
periodic reports on the investment performance of the Portfolio and the Fund.
Under the terms of the Investment Advisory Agreement, SCMI is required to manage
the Portfolio's investment portfolio in accordance with applicable laws and
regulations. In making its investment decisions, SCMI does not use material
inside information that may be in its possession or in the possession of its
affiliates.
The Investment Advisory Agreement continues in effect provided such continuance
is approved annually: (i) by the holders of a majority of the outstanding voting
securities of the Portfolio or by Schroder Core Board; and (ii) by a majority of
the Trustees who are not parties to the Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Investment Advisory Agreement
may be terminated without penalty by vote of the Trustees or the shareholders of
the Fund on 60 days' written notice to the investment adviser, or by the
investment adviser on 60 days' written notice to the Trust, and it terminates
automatically if assigned. The Investment Advisory Agreement also provides that,
with respect to the Portfolio, neither SCMI nor its personnel shall be liable
for any error of judgment or mistake of law or for any act or omission in the
performance of duties to the Portfolio, except for willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason of reckless
disregard of any obligations and duties under the Agreement. Under the terms of
the Investment Advisory Agreement, SCMI is entitled to receive a monthly fee on
an annual basis equal to 1.00% of its average daily net assets.
The Fund currently invests all of its assets in the Portfolio. As long as the
Fund remains completely invested in the Portfolio (or any other investment
company), SCMI is not entitled to receive an investment advisory fee with
respect to the Fund. 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. Accordingly, the Trust retains SCMI as
investment adviser to manage the Fund's assets in the event the Fund so
withdraws its
25
<PAGE>
investment. The investment advisory agreement between the Trust and SCMI with
respect to the Fund is the same in all material respects as the Portfolio's
Investment Advisory Agreement (except as to the parties, the circumstances under
which fees will be paid, and the jurisdiction whose laws govern the agreement).
During a time that the Fund did not have substantially all of its assets
invested in the Portfolio or another investment company, for providing
investment advisory services under the investment advisory agreement for the
Fund, SCMI would be entitled to receive an advisory fee of 1.00% of the Fund's
average daily net assets.
ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an [Administration Agreement]
with Schroder Advisors, under which Schroder Advisors provides management and
administrative services necessary for the operation of the Fund, including: (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, if any, transfer agent, custodian, independent
accountants, legal counsel and others. Schroder Advisors is a wholly owned
subsidiary of SCMI and is a registered broker-dealer organized to act as
administrator and distributor of mutual funds.
During any period in which the Fund invests substantially all of its assets in
the Portfolio, for providing administrative services Schroder Advisors is
entitled to receive from the Fund a fee, payable monthly, at the annual rate of
0.15% of the Fund's average daily net assets. During any period in which the
Fund invests substantially all of its assets directly in securities, for
providing administrative services SCMI would be entitled to receive from the
Fund a monthly fee at the annual rate of 0.15% of the Fund's average daily net
assets. The Administration Agreement is terminable with respect to the Fund
without penalty, at any time, by the Trust Board, upon 60 days' written notice
to Schroder Advisors or by Schroder Advisors upon 60 days' written notice to the
Trust.
The Trust has entered into a Subadministration Agreement with Forum. Pursuant to
its Agreement, Forum assists Schroder Advisors with certain of its
responsibilities under the Administration Agreement, including shareholder
reporting and regulatory compliance. During any period in which the Fund invests
substantially all of its assets in the Portfolio, for providing administrative
services Forum is entitled to a fee at the annual rate of 0.05% of the average
daily net assets. During any period in which the Fund invests substantially all
of its assets directly in securities, for providing administrative services
Forum would be entitled to receive a monthly fee from the Fund at the annual
rate of 0.075% of the average daily net assets. The Subadministration Agreement
is terminable with respect to the Fund without penalty, at any time, by the
Trust Board, upon 60 days' written notice to Forum or by Forum upon 60 days'
written notice to the Fund.
Schroder Advisors and Forum provide similar services to the Portfolio pursuant
to administration and subadministration agreements between Schroder Core and
each of these entities, for which Schroder Advisors and Forum are separately
compensated at annual rates of
26
<PAGE>
0.05% and 0.075%, respectively, of the Portfolio's average daily net
assets. The administration and subadministration agreements are the same in
all material respects as the Fund's respective agreements except as to the
parties, the circumstances under which fees will be paid, the fees payable
thereunder and the jurisdiction whose laws govern the agreements.
The fees paid by the Fund and Portfolio to SCMI and Schroder Advisors may equal
up to 1.15% of the Fund's average daily net assets. Such fees as a whole are
higher than advisory and management fees charged to mutual funds which invest
primarily in U.S. securities but not necessarily higher than those charged to
funds with investment objectives similar to that of the Fund.
DISTRIBUTION OF FUND SHARES
Schroder Advisors, 787 Seventh Avenue, New York, New York 10019, serves as
Distributor of the Fund shares under a Distribution Agreement. Schroder Advisors
is a wholly owned subsidiary of Schroders Incorporated, the parent company of
SCMI, and is a registered broker-dealer organized to act as administrator and/or
distributor of mutual funds.
Under the Distribution Agreement, Schroder Advisors has agreed to use its best
efforts to secure purchases of Fund shares in jurisdictions in which such shares
may be legally offered for sale. Schroder Advisors is not obligated to sell any
specific amount of Fund shares. Further, Schroder Advisors has agreed in the
Distribution Agreement to serve without compensation and to pay from its own
resources all costs and expenses incident to the sale and distribution of Fund
shares including expenses for printing and distributing prospectuses and other
sales materials to prospective investors, advertising expenses, and the salaries
and expenses of its employees or agents in connection with the distribution of
Fund shares.
Under a Distribution Plan (the "Plan") adopted by the Fund with respect to
Advisor Shares only, the Trust may pay directly or may reimburse the investment
adviser or a broker-dealer registered under the Securities Exchange Act of 1934
(the "1934 Act") (the investment adviser or such registered broker-dealer, if so
designated, being 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: (i)
advertising expenses including advertising by radio, television, newspapers,
magazines, brochures, sales literature or direct mail; (ii) costs of printing
prospectuses and other materials to be given or sent to prospective investors;
(iii) 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 (iv) payments to broker-dealers (other than the
Distributor) or other organizations 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 maximum annual amount
currently payable under the Plan is 0.25%, but no payments may be made under the
Plan until the Trust Board so authorizes. Any payment made pursuant to the Plan
is contingent upon the Trust Board's approval. The Fund is not liable for
distribution expenditures of 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 expenses of sales staff responsible for
27
<PAGE>
marketing shares of the Fund may be allocated among various series of the Trust
that have adopted a Plan similar to that of the Fund on the basis of average net
assets; travel expenses are allocated among the series of the Trust. The Trust
Board has concluded that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders.
Without shareholder approval, the Plan may not be amended to increase materially
the costs that the Fund may bear. Other material amendments to the Plan must be
approved by the Trust , and by the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and who have no 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
Trust Board and by the Trustees who are not "interested persons" and have no
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 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. During the periods ended
October 31, 1995 and 1996, the Fund neither accrued nor paid any dollars under
the Plan.
SERVICE ORGANIZATIONS
The Fund may also contract with banks, trust companies, broker-dealers or other
financial organizations ("Service Organizations") to provide certain
administrative services for Advisor Shares of the Fund. The Fund may pay fees
(which may vary depending upon the services provided) to Service Organizations
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 had a
servicing relationship. Services provided by Service Organizations may include:
(i) providing personnel and facilities necessary to establish and maintain
certain shareholder accounts and records; (ii) assisting in processing purchase
and redemption transactions; (iii) arranging for the wiring of funds;
transmitting and receiving funds in connection with client orders to purchase or
redeem shares; (iv) verifying and guaranteeing client signatures in connection
with redemption orders, transfers among and changes in client-designated
accounts; (v) providing periodic statements of a client's account balances and,
to the extent practicable, integrating such information with other client
transactions; (vi) furnishing periodic and annual statements and confirmations
of all purchases and redemptions of shares in a client's account; (vii)
transmitting proxy statements, annual reports, and updating prospectuses and
other communications from the Fund to clients; and (viii) such other services as
the Fund or a client reasonably may request, to the extent permitted by
applicable statute, rule or regulation. Neither SCMI nor Schroder Advisors will
be a Service Organization or receive fees for servicing. The Fund has no
intention of making any such payments to Service Organizations with respect to
accounts of institutional investors and, in any event, will make no such
payments until the Trust Board specifically so authorizes.
28
<PAGE>
Some Service Organizations may impose additional or different conditions on
their clients, such as requiring them to invest more than the minimum
investments specified by the Fund or charging a direct fee for servicing. If
imposed, these fees would be in addition to any amounts that might be paid to
the Service Organization by the Fund. Each Service Organization agrees to
transmit to its clients a schedule of any such fees. Shareholders using Service
Organizations would be 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
FFC, an affiliate of Forum, performs portfolio accounting services for the Fund
pursuant to a Fund Accounting Agreement with the Trust. The Accounting Agreement
is terminable with respect to the Fund without penalty, at any time, by the
Trust Board, upon 60 days' written notice to FFC or by FFC upon 60 days' written
notice to the Trust.
Under its agreement, FFC prepares and maintains the books and records of the
Fund that are required to be maintained under the 1940 Act, calculates the net
asset value per share of the Fund, calculates dividends and capital-gain
distributions, and prepares periodic reports to shareholders and the Securities
and Exchange Commission. For its services to the Fund, FFC is entitled to
receive from the Trust a fee of $36,000 per year plus $12,000 per year for each
class of the Fund above one. FFC is entitled to an additional $24,000 per year
with respect to global and international funds. In addition, FFC is also is
entitled to an additional $12,000 per year with respect to tax-free money market
funds, funds with more than 25% of their total assets invested in asset-backed
securities, funds that have more than 100 security positions, or funds 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 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. The Trust has agreed to indemnify
and hold harmless FFC and its employees, agents, officers and directors against
and from any and all claims, demands, actions,
29
<PAGE>
suits, judgments, liabilities, losses, damages, costs, charges, counsel fees and
all other expenses 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
The Fund bears all costs of its operations other than expenses specifically
assumed by Schroder Advisors or SCMI, including those expenses it indirectly
bears through its investment in the Portfolio. The costs borne by the Fund
include a pro rata portion of legal and accounting expenses; Trustees' fees and
expenses; insurance premiums, custodian and transfer agent fees and expenses;
brokerage fees and expenses; expenses of registering and qualifying the Fund's
shares for sale with the SEC and with various state securities commissions;
expenses of obtaining quotations on portfolio securities, if any, and pricing of
the Fund's shares; a portion of the expenses of maintaining the Fund's legal
existence and of shareholders' meetings; expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses; and
a proportionate amount of the total operating expenses of the Portfolio,
including advisory fees paid to SCMI. Advisor Shares or Investor Shares also
bear any class-specific expenses, such as fees payable to Service Organizations.
Trust expenses directly attributed to the Fund are charged to the Fund; other
expenses are allocated proportionately among all the series of the Trust in
relation to the net assets of each series.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for the Portfolio and for the other investment advisory
clients of SCMI are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved, and a particular security
may be bought or sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which in SCMI's opinion is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio securities
for one or more clients will have an adverse effect on other clients. The
Portfolio's portfolio transaction costs are borne prorata by its investors,
including the Fund.
30
<PAGE>
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment of negotiated brokerage commissions. Such commissions vary among
brokers. Also, a particular broker may charge different commissions according to
the difficulty and size of the transaction; for example, transactions in foreign
securities generally involve the payment of fixed brokerage commissions, which
are generally higher than those in the U.S. Since most brokerage transactions
for the Portfolio are 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. However, the Portfolio's
investment adviser seeks to achieve the best net results in effecting its
portfolio transactions. There is generally less governmental supervision and
regulation of foreign stock exchanges and brokers than in the U.S. There is
generally no stated commission in the case of securities traded in the
over-the-counter markets, but the price paid usually includes an undisclosed
dealer commission or mark-up. In underwritten offerings, the price paid includes
a disclosed, fixed commission or discount retained by the underwriter or dealer.
The Investment Advisory Agreement authorizes and directs SCMI to place orders
for the purchase and sale of the Portfolio's investments with brokers or dealers
it selects and to seek "best execution" of such portfolio transactions. SCMI
places all such orders for the purchase and sale of portfolio securities and
buys and sells securities through a substantial number of brokers and dealers.
In so doing, SCMI uses its best efforts to obtain for the Portfolio the most
favorable price and execution available. The Portfolio may, however, pay higher
than the lowest available commission rates when SCMI believes it is reasonable
to do so in light of the value of the brokerage and research services provided
by the broker effecting the transaction. In seeking the most favorable price and
execution, SCMI considers all factors it may deem relevant (including price,
transaction size, the nature of the market for the security, the commission
amount, the timing of the transaction (taking into account market prices and
trends), the reputation, experience and financial stability of the
broker-dealers involved, and the quality of service rendered by the
broker-dealers in other transactions).
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 that execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
SCMI may receive research services from broker-dealers with which SCMI places
the Fund's portfolio transactions. These services, which in some cases may also
be purchased for cash, include such items as general economic and security
market reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services are of value to SCMI in advising various of its clients (including the
Portfolio), although not all of these services are necessarily useful and of
value in managing the Portfolio. The investment advisory fee paid by the
Portfolio is not reduced because SCMI and its affiliates receive such services.
As permitted by Section 28(e) of the 1934 Act, SCMI may cause the Portfolio to
pay a broker-dealer that provides SCMI with "brokerage and research services"
(as defined in the 1934 Act)
31
<PAGE>
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. In addition, SCMI may allocate brokerage
transactions to broker-dealers who have entered into arrangements under which
the broker-dealer allocates a portion of the commissions paid by the Portfolio
toward payment of Portfolio expenses, such as custodian fees.
Subject to the general policies of the Portfolio regarding allocation of
portfolio brokerage as set forth above, the Schroder Core Board has authorized
SCMI to employ: (i) Schroder Wertheim & Company, Incorporated ("Schroder
Wertheim") an affiliate of SCMI, to effect securities transactions of the
Portfolio on the New York Stock Exchange only; and (ii) Schroder Securities
Limited and its affiliates (collectively, "Schroder Securities"), affiliates of
SCMI, 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 Wertheim or Schroder Securities for
effecting such transactions is subject to Section 17(e) of the 1940 Act, which
requires, among other things, that commissions for transactions on a securities
exchange paid by a registered investment company to a broker that is an
affiliated person of such investment company (or an affiliated person of another
person so affiliated) not exceed the usual and customary broker's commissions
for such transactions. It is the Portfolio's policy that commissions paid to
Schroder Wertheim or Schroder Securities will in SCMI's opinion be: (i) at least
as favorable as commissions contemporaneously charged by Schroder Wertheim or
Schroder Securities, as the case may be, on comparable transactions for their
most favored unaffiliated customers; and (ii) at least as favorable as those
which would be charged on comparable transactions by other qualified brokers
having comparable execution capability. The Schroder Core Board, including a
majority of the non-interested Trustees, has adopted procedures pursuant to Rule
17e-1 promulgated by the Securities and Exchange Commission under Section 17(e)
to ensure that commissions paid to Schroder Wertheim or Schroder Securities by
the Portfolio satisfy the foregoing standards. Such procedures will be reviewed
at least annually by the Schroder Core Board, including a majority of the
non-interested Trustees. The Schroder Core Board will also review all
transactions at least quarterly for compliance with such procedures.
It is further a policy of the Portfolio that all such transactions effected for
the Portfolio by Schroder Wertheim on the New York Stock Exchange be in
accordance with Rule 11a2-2(T) promulgated under the 1934 Act, which requires in
substance that a member of such exchange not associated with Schroder Wertheim
actually execute the transaction on the exchange floor or through the exchange
facilities. Thus, while Schroder Wertheim will bear responsibility for
determining important elements of execution such as timing and order size,
another firm will actually execute the transaction.
Schroder Wertheim pays a portion of the brokerage commissions it receives from
the Portfolio to the brokers executing the Portfolio's transactions on the New
York Stock Exchange. In accordance with Rule 11a2-2(T), Schroder Core has
entered into an agreement with Schroder Wertheim permitting it to retain a
portion of the brokerage commissions paid to it by the
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<PAGE>
Portfolio. This agreement has been approved by the Schroder Core Board,
including a majority of the non-interested Trustees.
The Portfolio has no understanding or arrangement to direct any specific portion
of its brokerage to Schroder Wertheim or Schroder Securities and will not direct
brokerage to Schroder Wertheim or Schroder Securities in recognition of research
services.
From time to time, the Portfolio may purchase securities of a broker or dealer
through which its regularly engages in securities transactions. During the
fiscal year ended October 31, 1996, the purchased securities of Global
Securities, one of its regular broker-dealers. Such securities had a value of
$110,979 as of the end of the Fund's fiscal year.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
The net asset value per share of the Fund is determined as of 4:00 p.m. (Eastern
time) each day the New York Stock Exchange (the "Exchange") is open. Any assets
or liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the afternoon of valuation. The Exchange's most recent
holiday schedule (which is subject to change) states that it will close on New
Year's Day, Martin Luther King, Jr.'s Birthday, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Schroder Core Board has established procedures for the valuation of the
Portfolio's securities: (i) equity securities listed or traded on the New York
or American Stock Exchange or other domestic or foreign stock exchange are
valued at their latest sale prices on such exchange that day prior to the time
when assets are valued; in the absence of sales that day, such securities are
valued at the mid-market prices (in cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by the Fund's investment adviser); (ii) unlisted equity
securities for which over-the-counter market quotations are readily available
are valued at the latest available mid-market prices prior to the time of
valuation; (iii) securities (including restricted securities) not having
readily-available market quotations are valued at fair value under the Schroder
Core Board's procedures; (iv) debt securities having a maturity in excess of 60
days are valued at the mid-market prices determined by a portfolio pricing
service or obtained from active market makers on the basis of reasonable
inquiry; and (v) short-term debt securities (having a remaining maturity of 60
days or less) are valued at cost, adjusted for amortization of premiums and
accretion of discount.
When an option is written, an amount equal to the premium received by the
Portfolio is recorded in the books as an asset, and an equivalent deferred
credit is recorded as a liability. The deferred credit is adjusted
("marked-to-market") to reflect the current market value of the option. Options
are valued at their mid-market prices in the case of exchange-traded options or,
in the case of options traded in the over-the-counter market, the average of the
last bid price as obtained from
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<PAGE>
two or more dealers unless there is only one dealer, in which case that dealer's
price is used. Futures contracts and related options are stated at market value.
REDEMPTIONS IN-KIND
In the event that payment for redeemed shares is made wholly or partly in
portfolio securities, shareholders may incur brokerage costs in converting the
securities to cash. An in-kind distribution of portfolio securities is generally
less liquid than cash. The shareholder may have difficulty finding a buyer for
portfolio securities received in payment for redeemed shares. Portfolio
securities may decline in value between the time of receipt by the shareholder
and conversion to cash. A redemption in-kind of portfolio securities could
result in a less diversified portfolio of investments for the Portfolio and
could affect adversely the liquidity of the investment portfolio of the
Portfolio.
TAXATION
Under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund and
each other series established from time to time by the Trust Board is treated as
a separate taxpayer for federal income tax purposes with the result that: (i)
each such series must meet separately the income and distribution requirements
for qualification as a regulated investment company; and (ii) the amounts of
investment income and capital gain earned are determined on a series-by-series
(rather than on a Trust-wide) basis.
The Fund qualified for its last fiscal year as a regulated investment company
under Subchapter M of the Code and intends to so qualify each year so long as
such qualification is in the best interests of its shareholders. To do so, the
Fund intends to distribute to shareholders at least 90% of its "investment
company taxable income" as defined in the Code (which includes, among other
items, dividends, interest and the excess of any net short-term capital gain
over net long-term capital loss), and to meet certain diversification of assets,
source of income, and other requirements of the Code. By so doing, the Fund will
not be subject to federal income tax on its investment company taxable income
and "net capital gain" (the excess of net long-term capital gain over net
short-term capital loss) distributed to shareholders. If the Fund does not meet
all of these Code requirements, it will be taxed as an ordinary corporation, and
its distributions will be taxable to shareholders as ordinary income.
Amounts not distributed on a timely basis (in accordance with a calendar year
distribution requirement) are subject to a 4% nondeductible excise tax. To
prevent this, the Fund must distribute for each calendar year an amount equal to
the sum of: (i) at least 98% of its ordinary income (excluding any capital gain
or loss) for the calendar year; (ii) at least 98% of the excess of its capital
gain over capital loss realized during the one-year period ending October 31 of
such year; and (iii) all such ordinary income and capital gain for previous
years that were not distributed during such years. A distribution will be
treated as paid during the calendar year if it is declared by the Fund in
October, November or December of the year with a record date in such month and
paid by the Fund during January of the following year. Such distributions will
be
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taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
Distributions of investment company taxable income (including net realized
short-term capital gain) are taxable to shareholders as ordinary income.
Generally, it is not expected that such distributions will be eligible for the
dividends received deduction available to corporations. However, if the Fund
acquires at least 10% of the stock of a foreign corporation that has U.S. source
income, a portion of the Fund's ordinary income dividends attributable to such
income may be eligible for such deduction, if certain requirements are met.
Distributions of net long-term capital gain are taxable to shareholders as
long-term capital gain, regardless of the length of time Fund shares have been
held by a shareholder and are not eligible for the dividends received deduction.
A loss realized by a shareholder on the sale of shares of the Fund with respect
to which capital-gain distributions have been paid will, to the extent of such
capital-gain distributions, be treated as long-term capital loss (even though
such shares may have been held by the shareholder for one year or less).
Further, a loss realized on a disposition will be disallowed to the extent the
shares disposed of are replaced (whether by reinvestment or distribution or
otherwise) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
All distributions to shareholders are taxable whether reinvested in additional
shares or received in cash. Shareholders that reinvest distributions will have
for federal income tax purposes a cost basis in each share received equal to the
net asset value of a share of the Fund on the reinvestment date. Shareholders
will be notified annually as to the federal tax status of distributions.
Distributions by the Fund reduce the net asset value of the Fund's shares. If a
distribution reduces the net asset value below a shareholder's cost basis, such
distribution nevertheless would be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
consider the tax implications of buying shares just prior to a distribution. The
price of shares purchased at that time includes the amount of the forthcoming
distribution, which will be returned to the investor in the form of a taxable
distribution.
Upon redemption or sale of shares, a shareholder will realize a taxable gain or
loss, which will be treated as capital gain or loss if the shares are capital
assets in the shareholder's hands. Such gain or loss generally will be long-term
or short-term depending upon the shareholder's holding period for the shares.
Ordinary income dividends paid by the Fund to shareholders who are nonresident
aliens is subject to a 30% U.S. withholding tax under existing provisions of the
Code applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Nonresident shareholders are urged to consult their own tax advisors concerning
the applicability of the U.S. withholding tax.
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Dividends and interest received (and, in certain circumstances, realized capital
gain) by the Fund may give rise to withholding and other taxes imposed by
foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service ("IRS") pursuant to which shareholders of the Fund
will be required to include their proportionate share of such withholding taxes
in their U.S. income tax returns as gross income; treat such proportionate share
as taxes paid by them; and, subject to certain limitations, deduct such
proportionate share in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their U.S. income taxes. No deductions for
foreign taxes, however, may be claimed by noncorporate shareholders who do not
itemize deductions. A shareholder that is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the Fund's election described in this paragraph but may not be
able to claim a credit or deduction against such U.S. tax for the foreign taxes
treated as having been paid by such shareholder. The Fund will report annually
to its shareholders the amount per share of such withholding taxes.
Due to investment laws in certain emerging market countries, it is anticipated
that the Fund's investments in equity securities in such countries will consist
primarily of shares of investment companies (or similar investment entities)
organized under foreign law or of ownership interests in special accounts,
trusts or partnerships. If the Fund purchases shares of an investment company
(or similar investment entity) organized under foreign law, the Fund will be
treated as owning shares in a passive foreign investment company ("PFIC") for
U.S. federal income tax purposes. The Fund may be subject to U.S. federal income
tax, and an additional tax in the nature of interest, on a portion of
distributions from such company and on gain from the disposition of such shares
(collectively referred to as "excess distributions"), even if such excess
distributions are paid by the Fund as a dividend to its shareholders.
The Fund may be eligible to make an election with respect to certain PFICs in
which it owns shares that will allow it to avoid the taxes on excess
distributions. However, such election may cause the Fund to recognize income in
a particular year in excess of the distributions received from such PFICs.
The Fund may write, purchase or sell options or futures contracts. Unless the
Fund is eligible to, and does, make a special election, such options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
federal income tax purposes at the end of each taxable year (i.e., each option
or futures contract will be treated as sold for its fair market value on the
last day of the taxable year). In general, unless such special election is made,
gain or loss from transactions in options and futures contracts will be 60%
long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the taxation
of the Fund's transactions in options and futures contracts. Under Section 1092,
the Fund may be required to
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postpone recognition for tax purposes of losses incurred in certain closing
transactions in options and futures.
One of the requirements for qualification as a regulated investment company is
that less than 30% of the Fund's gross income may be derived from gain from the
sale or other disposition of securities held for less than three months.
Accordingly, the Fund may be restricted in effecting closing transactions within
three months after entering into an option or futures contract.
In general, gain from "foreign currencies" and from foreign currency options,
foreign currency futures contracts and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
regulated investment company. It is currently unclear, however, who will be
treated as the issuer of a foreign currency instrument or how foreign currency
options, futures contracts or forward foreign currency contracts will be valued
for purposes of the regulated investment company diversification requirements
applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions in a
foreign currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
foreign currency gain or loss from certain forward contracts not traded in the
interbank market, from futures contracts that are not "regulated futures
contracts," and from unlisted options will be treated as ordinary income or loss
under Code Section 988. In certain circumstances, the Fund may elect capital
gain or loss treatment for such transactions. In general, however, Code Section
988 gain or loss will increase or decrease the amount of the Fund's investment
company taxable income available to be distributed to shareholders as ordinary
income. Additionally, if the Code Section 988 loss exceeds other investment
company taxable income during a taxable year, the Fund would not be able to make
any ordinary dividend distributions, and any distributions made before the loss
was realized but in the same taxable year would be recharacterized as a return
of capital to shareholders, thereby reducing each shareholder's basis in his or
her Fund shares.
The Trust is required to report to the Internal Revenue Service ("IRS") all
distributions and gross proceeds from the redemption of Fund shares (except in
the case of certain exempt shareholders). All such distributions and proceeds
generally will be subject to the withholding of federal income tax at a rate of
31% ("backup withholding") in the case of non-exempt shareholders if: (i) the
shareholder fails to furnish the Trust with and to certify the shareholder's
correct taxpayer identification number or social security number; (ii) the IRS
notifies the Trust that the shareholder has failed to report properly certain
interest and dividend income to the IRS and to respond to notices to that
effect; or (iii) when required to do so, the shareholder fails to certify that
it is not subject to backup withholding. If the withholding provisions are
applicable, any such distributions or proceeds, whether reinvested in additional
shares or taken in cash, will be reduced by the amount required to be withheld.
Any amounts withheld may be credited against the shareholder's federal income
tax liability. Investors may wish to consult their tax advisors about the
applicability of the backup withholding provisions.
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The foregoing discussion relates only to federal income tax law as applicable to
U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Fund also may be subject
to state and local taxes, and their treatment under state and local income tax
laws may differ from the federal income tax treatment. Shareholders should
consult their tax advisors with respect to particular questions of federal,
foreign, state and local taxation.
OTHER INFORMATION
ORGANIZATION
The Trust was originally organized as a Maryland corporation on July 30, 1969.
On February 29, 1988, the Trust was recapitalized to enable the Trust Board to
establish a series of separately managed investment series, each having a
different investment objective 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 to its present name. The Trust is registered as an open-end management
investment company under the 1940 Act.
Delaware law provides that shareholders shall be entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. 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 series is unable to meet its obligations.
Forum believes that, in view of the above, there is no risk of personal
liability to shareholders.
CAPITALIZATION AND VOTING
The Trust has authorized an unlimited number of shares of beneficial interest.
The Trust Board may, without shareholder approval, divide the authorized shares
into an unlimited number of separate series (such as the Fund) and may divide
series into classes of shares, and the costs of doing so may be borne by the
fund or Trust in accordance with the Trust Instrument. The Trust currently
consists of eight separate series, each of which has a separate investment
objective and policies. Some of the series offer two classes of shares, Investor
Shares and Advisor Shares.
When issued for the consideration described in the prospectuses or under the
applicable dividend reinvestment plan, shares are fully paid, nonassessable, and
have no preferences as to conversion, exchange, dividends, retirement or other
features. Shares have no preemptive rights and have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Trustees can elect 100% of the Trustees if they choose to do so.
Each
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shareholder of record is entitled to one vote for each full share held (and a
fractional vote for each fractional share held). Shares of each class 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 vote together in the election of Trustees and
ratification of the selection of independent accountants. Shareholders of any
particular class are not be entitled to vote on any matters as to which such
class are not affected.
The Trust does not hold annual meetings of shareholders. The matters considered
at an annual meeting typically include the reelection of Trustees, approval of
an investment advisory agreement, and the ratification of the selection of
independent accountants. These matters are not submitted to shareholders unless
a meeting of shareholders is held for some other reason, such as those indicated
below. Each of the Trustees serves until death, resignation or removal.
Vacancies are filled by the remaining Trustees, subject to the provisions of the
1940 Act requiring a meeting of shareholders for election of Trustees to fill
vacancies. Similarly, the selection of independent accountants and renewal of
investment advisory agreements for future years is performed annually by the
Trust Board. Future shareholder meetings will be held to elect Trustees if
required by the 1940 Act, to obtain shareholder approval of changes in
fundamental investment policies, to obtain shareholder approval of material
changes in investment advisory agreements, to select new independent accountants
if the employment of the Trust's independent accountants has been terminated,
and to seek any other shareholder approval required under the 1940 Act. The
Trust Board has the power to call a meeting of shareholders at any time when it
believes it is necessary or appropriate. In addition, the 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 Trust 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 Trust Board is required,
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: (i)
shares of the Trust having a total net asset value of at least $25,000; or (ii)
1% of the outstanding shares of the Trust, to help such holders communicate with
other shareholders of the Trust with a view to obtaining the requisite
signatures to request a special meeting to consider Trustee removal.
PERFORMANCE INFORMATION
Performance quotations of the average annual total return and cumulative total
return of each class of shares is provided in advertisements or reports to
shareholders or prospective investors.
Quotations of average annual total return are expressed in terms of the average
annual compounded rate of return of a hypothetical investment in a class of the
Fund over periods of 1,
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5 and 10 years (since commencement of operations), calculated pursuant to the
following formula:
P (1+T)n = 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 total
return figures reflect the deduction of Fund and any class expenses (net of
certain reimbursed expenses) on an annual basis and will assume that all
dividends and distributions are reinvested in shares of the same class when
paid.
Quotations of cumulative total return will reflect only the performance of a
hypothetical investment in a class of the Fund during the particular time period
shown. Cumulative total returns vary based on changes in market conditions and
the level of the Fund's and any applicable class expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.
In connection with communicating cumulative total return to current or
prospective investors, these figures may also be compared with the performance
of other mutual funds tracked by mutual fund rating services or to unmanaged
indexes that may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Investors who purchase and redeem shares of a class 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 Service Organization and
the investor, with respect to the customer services provided by the Service
Organization: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii) compensating
balance requirements (a minimum dollar amount a customer must maintain in order
to obtain the services offered); or (iv) 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 have the effect of reducing the average annual
or cumulative total returns for those investors.
PRINCIPAL SHAREHOLDERS
As of July 1, 1997, the Fund had no outstanding shares.
CUSTODIAN
The Chase Manhattan Bank, through its Global Custody Division located in London,
England, acts as custodian of the Portfolio's assets but plays no role in making
decisions as to the purchase or sale of portfolio securities for the Portfolio.
Pursuant to rules adopted under the 1940 Act, the Portfolio may maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Core Trust Board following a consideration of a number of factors,
including (but not limited to)
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the reliability and financial stability of the institution; the ability of the
institution to perform capably custodial services for the Fund; the reputation
of the institution in its national market; the political and economic stability
of the country in which the institution is located; and further risks of
potential nationalization or expropriation of Portfolio assets.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
FFC, Portland, Maine, acts as the Fund's transfer agent and dividend disbursing
agent.
LEGAL COUNSEL
ROPES & GRAY, One International Place, Boston, Massachusetts 02110-2624, counsel
to the Fund, passes upon certain legal matters in connection with the shares
offered by the Funds.
INDEPENDENT ACCOUNTANT
Coopers & Lybrand L.L.P. serves as independent accountants for the Fund. Coopers
& Lybrand L.L.P. provides audit services and consultation in connection with
review of U.S. Securities and Exchange Commission filings. Their 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
Trust'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 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 December 31. Financial statements for the
Fund's semi-annual period and fiscal year will be distributed to shareholders of
record. The Board in the future may change the fiscal year end of the Fund.
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APPENDIX
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE
FIXED-INCOME SECURITY RATINGS
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be of
high quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high-grade
fixed-income securities. They are rated lower than the best
fixed-income securities because margins of protection may not be
as large as in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability to repay punctually
promissory obligations not having an original maturity in excess of nine months.
The ratings apply to municipal commercial paper as well as taxable commercial
paper. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
"Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of short-term
promissory obligations. Issuers rated "Prime-2" have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated "Prime-3" have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated "Not Prime" do not fall within any of the Prime rating categories.
STANDARD & POOR'S
FIXED-INCOME SECURITY RATINGS
An S&P's fixed-income security rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or obtained
by S&P's from other sources it considers reliable. The ratings are based, in
varying degrees, on the following considerations: (i) likelihood of
default-capacity and willingness of the obligor as to the timely payment of
interest and repayment of principal in accordance with the terms of the
obligation; (ii) nature of and provisions of the obligation; and (iii)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating
assigned by S&P. Capacity to pay interest and repay principal
is extremely strong.
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"AA" Fixed-income securities rated "AA" have a very strong capacity
to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
COMMERCIAL PAPER RATINGS
S&P commercial paper rating is a current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. The
commercial paper rating is not a recommendation to purchase or sell a security.
The ratings are based upon current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. The ratings may be
changed, suspended, or withdrawn as a result of changes in or unavailability of
such information. Ratings are graded into group categories, ranging from "A" for
the highest quality obligations to "D" for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
"1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is
very strong.
"A-2" Indicates capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is
not as overwhelming as for issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment.
Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
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COUNTRIES EXCLUDED FROM EMERGING MARKET CATEGORY
Australia Japan
Austria Malaysia
Belgium Netherlands
Canada New Zealand
Denmark Norway
Finland Singapore
France Spain
Germany Sweden
Hong Kong Switzerland
Ireland United Kingdom
Italy USA
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SCHRODER MICRO CAP FUND
Statement of Additional Information
October 1, 1997
[GRAPHIC OF WORLD MAP]
INVESTMENT ADVISER
Schroder Capital Management International Inc. ("SCMI")
ADMINISTRATOR AND DISTRIBUTOR
Schroder Fund Advisors, Inc. ("Schroder Advisors")
SUBADMINISTRATOR
Forum Administrative Services, Limited Liability Company ("Forum")
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Forum Financial Corp. ("FFC")
GENERAL INFORMATION: (207) 879-8903
ACCOUNT INFORMATION: (800) 344-8332
FAX: (207) 879-6206
Investor Shares of Schroder Micro Cap Fund (the "Fund") are offered for sale at
net asset value with no sales charge as an investment vehicle for individuals,
institutions, corporations and fiduciaries.
This Statement of Additional Information ("SAI") is not a prospectus and is
authorized for distribution only when preceded or accompanied by the Fund's
current prospectus dated October 1, 1997, as amended from time to time (the
"Prospectus"). This SAI contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus and retained for future reference. All terms used in this SAI that
are defined in the Prospectus have the meaning assigned in the Prospectus. You
may obtain an additional copy of the Prospectus without charge by writing to the
Fund at Two Portland Square, Portland, Maine 04101 or calling the numbers
printed above.
<PAGE>
TABLE OF CONTENTS
INTRODUCTION..................................................
INVESTMENT POLICIES...........................................
Convertible Securities........................................
Covered Calls and Hedging.....................................
Short Sales...................................................
U.S. Government Securities....................................
Bank Obligations..............................................
Short-Term Debt Securities....................................
Repurchase Agreements.........................................
High Yield/Junk Bonds ........................................
Illiquid and Restricted Securities............................
Loans of Portfolio Securities.................................
INVESTMENT RESTRICTIONS.......................................
MANAGEMENT....................................................
Officers and Trustees.........................................
Investment Adviser............................................
Administrative Services.......................................
Distribution of Fund Shares...................................
Glass-Steagall Provisions.....................................
Portfolio Accounting..........................................
Fees and Expenses.............................................
PORTFOLIO TRANSACTIONS........................................
Investment Decisions..........................................
Brokerage and Research Services...............................
ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION....................................
Determination of Net Asset Value Per Share....................
Redemption In-Kind............................................
TAXATION......................................................
OTHER INFORMATION.............................................
Organization..................................................
Capitalization and Voting.....................................
Principal Shareholders........................................
Performance Information.......................................
Custodian.....................................................
Transfer Agent and Dividend Disbursing Agent..................
Legal Counsel.................................................
Independent Accountants.......................................
Registration Statement........................................
Financial Statements..........................................
APPENDIX......................................................
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INTRODUCTION
Schroder Micro Cap Fund (the "Fund") is a diversified, separately managed series
of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management
investment company currently consisting of eight series, each of which has
different investment objectives and policies.
The Fund's investment objective is long-term capital appreciation. It seeks to
achieve its objective by investing primarily in equity securities of
U.S.-domiciled companies that, at the time of initial purchase, have market
capitalizations up to the greater of: (i) $300 million, or (ii) the market
capitalization at the top of the bottom 30% of companies comprising the Russell
2000 Growth Index (approximately $300 million as of October 1, 1997). Current
income is incidental to the objective of capital appreciation. There can be no
assurance that the Fund's investment objective will be achieved.
INVESTMENT POLICIES
The Fund's investment objective and policies authorize it to invest in certain
types of securities and to engage in certain investment techniques as identified
in "Investment Objective" and "Investment Policies" in the Prospectus. The
following information 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.
The Fund generally purchases securities that are believed to have potential for
capital appreciation. Securities, however, are disposed of in situations where
the Fund's investment adviser believes that such potential is no longer feasible
or the risk of decline in market price is too great. Pursuant to this policy,
the Fund has invested, and normally will invest, at least 65% of its assets in
common stocks and also invests in securities convertible into common stock. The
Fund also may invest in other securities with common stock purchase warrants
attached or in such warrants or other rights to purchase common stock. The Fund
also may invest to a limited degree in non-convertible preferred and debt
securities. Such investments might be made at such times as in the opinion of
management substantially greater yields could be earned on such securities of
investment grade than on U.S. Government securities and bank certificates of
deposit. As a non-fundamental policy, the Fund will not invest more than 15% of
its total assets in such non-convertible preferred and debt securities.
CONVERTIBLE SECURITIES
The Fund may invest in convertible preferred stocks and convertible debt
securities ("convertible securities"). A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula.
Convertible securities rank senior to common stocks in a corporation's capital
structure and, therefore, carry less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its
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"conversion value" (the security's worth if it were to be exchanged for the
underlying security, at market value, pursuant to its conversion privilege).
COVERED CALLS AND HEDGING
As described in the Prospectus, the Fund may write covered calls on up to 100%
of its total assets or employ one or more types of Hedging Instruments. When
hedging to attempt to protect against declines in the market value of the Fund's
portfolio, to permit the Fund to retain unrealized gain in the value of
portfolio securities which have appreciated, or to facilitate selling securities
for investment reasons, the Fund may: (i) sell Stock Index Futures; (ii)
purchase puts on such Futures or securities; or (iii) write covered calls on
securities or on Stock Index Futures. When hedging to establish a position in
the equities markets as a temporary substitute for purchasing particular equity
securities (which the Fund will normally purchase and then terminate the hedging
position), the Fund may: (i) purchase Stock Index Futures; or (ii) purchase
calls on such Futures or on securities. The Fund's strategy of hedging with
Stock Index Futures and options on such Futures will be incidental to the Fund's
activities in the underlying cash market.
WRITING COVERED CALL OPTIONS. The Fund 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 Fund 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 Fund is exercised, the Fund 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 Fund 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 Fund 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 Fund may 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 Fund retains the underlying security
and the premium received. Any such profits are considered short-term capital
gain for federal income tax purposes, and when distributed by the Fund are
taxable as ordinary income. If the Fund 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 Fund 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 Fund covers the call by
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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 Fund to deliver a futures
contract; it would simply put the Fund in a short futures position, which is
permitted by the Fund's hedging policies.
PURCHASING CALLS AND PUTS. The Fund may purchase put options ("puts") that
relate to: (i) securities it holds; (ii) Stock Index Futures (whether or not it
holds such Stock Index Futures in its portfolio); or (iii) broadly-based stock
indices. The Fund may not sell puts other than those it previously purchased,
nor purchase puts on securities it does not hold. The fund may purchase calls:
(i) as to securities, broadly-based stock indices or Stock Index Futures; or
(ii) 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 Fund would not
exceed 5% of the Fund's total assets.
When the Fund 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 Fund 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 Fund will lose its premium
payments and the right to purchase the underlying investment. When the Fund
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 Fund 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 Fund owns
enables the Fund to attempt to protect itself during the put period against a
decline below the exercise price in the value of the underlying investment 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 exceeds 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 Fund 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 Fund permits the Fund 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 Fund 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 Fund purchases a put on a stock
index, or on a Stock Index Future not held by it, the put protects the Fund to
the extent
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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 Fund's delivery of the underlying investment.
STOCK INDEX FUTURES. The Fund 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 Fund 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 Fund's Custodian in an account registered in the futures broker's name;
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 Fund 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 Fund, 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 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 Fund buys a
call on a stock index or Stock Index Future, it pays a premium. During the call
period, upon exercise of a call by the Fund, a seller of a corresponding call on
the same index will pay the Fund 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") which determines the
total dollar value for each point of difference. When the Fund 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 Fund's
exercise of its put, to deliver to the Fund 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 Fund's
Custodian, or a securities depository acting for the Custodian, acts as the
Fund's escrow agent, through the
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facilities of the Options Clearing Corporation ("OCC"), as to the securities on
which the Fund has written options (or as to other acceptable escrow securities)
so that no margin is required for such transactions. OCC releases the securities
on the expiration of the option or upon the Fund'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 Fund's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate in
a manner beyond the Fund's control. The exercise by the Fund 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 Fund's
control, holding a put might cause the Fund to sell the underlying investment
for reasons that would not exist in the absence of the put. The Fund pays 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 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 Fund's net asset value being more sensitive to changes in the
value of the underlying investment.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS AND COVERED CALLS. The Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 which the Fund 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 (the "1940 Act"), when the Fund purchases a Stock Index Future, the Fund
maintains, in a segregated account or accounts with its custodian bank,
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Segregable Assets (which comprise cash, cash equivalents or other liquid debt or
equity securities as described in the Prospectus) in an amount equal to the
market value of the securities underlying such Stock Index Future, less the
margin deposit applicable to it.
TAX ASPECTS OF HEDGING INSTRUMENTS. The Fund intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986 (the "Code"). One of
the tests for such qualification is that less than 30% of its gross income must
be derived from gain realized on the sale of securities held for less than three
months. Due to this limitation, the Fund limits the extent to which it engages
in the following activities but is not 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 Fund;
(ii) purchasing calls or puts that expire in less than three months; (iii)
effecting closing transactions with respect to calls or puts purchased less than
three months previously; (iv) exercising puts held by the Fund 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 Fund'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 which 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 Fund's
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 Fund 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 Fund has
used Hedging Instruments in a short hedge, the market may advance and the value
of equity securities held in the Fund's portfolio may decline. If this occurred,
the Fund 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.
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<PAGE>
If the Fund 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 Fund then concludes not to invest in equity securities at that
time because of concerns as to possible further market decline or for other
reasons, the Fund will realize a loss on the Hedging Instruments that is not
offset by a reduction in the price of the equity securities purchased.
SHORT SALES
The Prospectus describes the Fund's policies with respect to engaging in short
sales. In a short sale, the Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Fund also may engage in short sales if, at the time of the short sale, it owns
or has the right to obtain, at no additional cost, an equal amount of the
security being sold short. This investment technique is known as a short sale
"against-the-box." In such a short sale, a seller does not immediately deliver
the securities sold and is said to have a short position in those securities
until delivery occurs. If the Fund engages in a short sale, the collateral for
the short position is maintained by the Fund's custodian or a qualified
sub-custodian. While the short sale is open, the Fund maintains in a segregated
account an amount of securities equal in kind and amount to the securities sold
short or securities convertible into or exchangeable for such equivalent
securities. These securities constitute the Fund's long position. The Fund does
not engage in short sales against-the-box for speculative purposes but may,
however, make a short sale as a hedge, when SCMI believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Fund (or a security convertible or exchangeable for such security) or when SCMI
wants to sell the security at an attractive current price but also wishes to
defer recognition of gain or loss for federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In such case, any future losses in
the Fund's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced depends
upon the amount of the security sold short relative to the amount the Fund owns.
There are certain additional transaction costs associated with short sales
against-the-box, but SCMI endeavors to offset these costs with the income from
the investment of the cash proceeds of short sales.
U.S. GOVERNMENT SECURITIES
The Fund may invest in obligations issued or guaranteed by the U.S. Government
(or its agencies, instrumentalities or government-sponsored enterprises) that
have remaining maturities not exceeding one year. Agencies, instrumentalities
and government-sponsored enterprises that issue or guarantee debt securities
have been established or sponsored by the U.S. Government and 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 United States
Treasury and the Government
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National Mortgage Association. There can be no assurance that the U.S.
Government will provide financial support to these obligations where it is not
obligated to do so.
BANK OBLIGATIONS
The Fund may invest in obligations of U.S. banks (including certificates of
deposit and bankers' acceptances) whose total assets at the time of purchase in
exceed $1 billion. Such banks must be members of 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. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date.
SHORT-TERM DEBT SECURITIES
The Fund may invest in commercial paper -- short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. Commercial paper purchased by the Fund for temporary defensive
purposes consists of direct obligations of domestic issuers that at the time of
investment are rated "P-1" by Moody's Investors Service ("Moody's") or "A-1" by
Standard & Poor's ("S&P"), or securities which, if not rated, are issued by
companies having an outstanding debt issue currently rated "Aaa" or "Aa" by
Moody's or "AAA" or "AA" by S&P or are deemed comparable in quality to
securities rated by Moody's or S&P. The rating "P-1" is the highest commercial
paper rating assigned by Moody's and the rating "A-1" is the highest commercial
paper rating assigned by S&P.
REPURCHASE AGREEMENTS
The Fund may invest in securities subject to repurchase agreements that mature
in seven days or less with U.S. banks or broker-dealers. In a typical repurchase
agreement the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon time and
price. The repurchase price exceeds the sale price, reflecting an agreed-upon
interest rate effective for the period the buyer owns the security subject to
repurchase. The agreed-upon rate is unrelated to the interest rate on that
security. SCMI monitors the value of the underlying security at the time the
transaction is entered into and at all times during the term of the repurchase
agreement to insure that the value of the security always equals or exceeds the
repurchase price. If a seller defaults under a repurchase agreement, the Fund
may have difficulty exercising its rights to the underlying securities and may
incur costs and experience time delays in connection with the disposition of
such securities. To evaluate potential risks, SCMI reviews the credit-worthiness
of banks and dealers with which the Fund enters into repurchase agreements.
HIGH YIELD/HIGH RISK SECURITIES
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The Fund may invest up to 10% of its assets in bonds rated below "Baa" by
Moody's or "BBB" by S&P (commonly known as "high yield/high risk securities" or
"junk bonds"). Securities rated lower than "Baa" by Moody's or "BBB" by S&P are
classified as non-investment grade securities and are considered speculative.
Junk bonds may be issued as a consequence of corporate restructurings (such as
leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar
events) or by smaller or highly leveraged companies. Although the growth of the
high yield securities market in the 1980's paralleled a long economic expansion,
recently many issuers have been affected by adverse economic and market
conditions. It should be recognized that an economic downturn or increase in
interest rates is likely to have a negative effect on: (i) the high yield bond
market; (ii) the value of high yield securities; and (iii) the ability of the
securities' issuers to service their principal and interest payment obligations,
to meet their projected business goal, or to obtain additional financing. In
addition, the market for high yield securities, which is concentrated in
relatively few market makers, may not be as liquid as the market for investment
grade securities. Under adverse market or economic conditions, the market for
high yield securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, the Fund
could find it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Prices realized upon the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices used in calculating the Fund's
net asset value.
In periods of reduced market liquidity, junk bond prices may become more
volatile and may experience sudden and substantial price declines. Also, there
may be significant disparities in the prices quoted for junk bonds by various
dealers. Under such conditions, a Fund may have to use subjective rather than
objective criteria to value its junk bond investments accurately and rely more
heavily on the judgment of the Fund's investment adviser.
Prices for junk bonds also may be affected by legislative and regulatory
developments. For example, new federal laws require the divestiture by federally
insured savings and loans associations of their investments in high yield bonds.
Also, from time to time, Congress has considered legislation to restrict or
eliminate the corporate tax deduction for interest payments or to regulate
corporate restructurings such as takeovers, mergers or leveraged buyouts. These
laws could adversely affect the Fund's net asset value and investment practices,
the market for high yield securities, the financial condition of issuers of
these securities, and the value of outstanding high yield securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's portfolio and increasing
the exposure of the Fund to the risks of high yield securities.
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ILLIQUID AND RESTRICTED SECURITIES
"Illiquid and Restricted Securities" under "Investment Policies" in the
Prospectus sets forth the circumstances in which the Fund may invest in
"restricted securities". In connection with the Fund's original purchase of
restricted securities, it may negotiate rights with the issuer to have such
securities registered for sale at a later time. Further, the registration
expenses of illiquid restricted securities may also be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund. When
registration is required, however, a considerable period may elapse between the
decision to sell the securities and the time the Fund would be permitted to sell
such securities. A similar delay might be experienced in attempting to sell such
securities pursuant to an exemption from registration. Thus, the Fund may not be
able to obtain as favorable a price as that prevailing at the time of the
decision to sell. If SCMI determines that a "restricted security" is liquid
pursuant to guidelines adopted by the Trust Board, the security is not deemed
illiquid. These guidelines take into account trading activity for the securities
and the availability of reliable pricing information, among other factors. If
there is a lack of trading interest in a particular restricted security, that
security may become illiquid, which could affect the Fund's liquidity.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities subject to the restrictions stated in
the Prospectus. Under applicable regulatory requirements (which are subject to
change), the loan collateral must: (i) on each business day, at least equal the
market value of the loaned securities; and (ii) must consist of cash, bank
letters of credit, U.S. Government securities, other cash equivalents or liquid
securities in which the Fund is permitted to invest. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by
the Fund if the demand meets the terms of the letter. Such terms and the issuing
bank must be satisfactory to the Fund. When lending portfolio securities, the
Fund receives from the borrower an amount equal to the interest paid or the
dividends declared on the loaned securities during the term of the loan plus the
interest on the collateral securities.(less any finders' or administrative fees
the Fund pays in arranging the loan). The Fund may share the interest it
receives on the collateral securities with the borrower as long as it realizes
at least a minimum amount of interest required by the lending guidelines
established by the Trust Board. The Fund will not lend its portfolio securities
to any officer, director, employee or affiliate of the Fund or SCMI. The terms
of the Fund's loans must meet certain tests under the Internal Revenue Code and
permit the Fund to reacquire loaned securities on five business days' notice or
in time to vote on any important matter.
The market value of portfolio securities purchased with cash collateral may
decline. Loans of securities by the Fund are subject to termination at the
Fund's or the borrower's option. The Fund may pay reasonable negotiated fees in
connection with loaned securities, so long as such fees are set forth in a
written contract and approved by the Trust Board.
INVESTMENT RESTRICTIONS
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The Fund's significant investment restrictions are described in the Prospectus.
The following investment restrictions, except where stated to be non-fundamental
policies, are also fundamental policies of the Fund and, together with the
fundamental policies and investment objective described in the Prospectus,
cannot be changed without the vote of a "majority" of the Fund's outstanding
shares. 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 shares present or represented
by proxy at a meeting of shareholders, if the holders of more than 50% of the
outstanding shares are present; or (ii) more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
1. Underwrite securities of other companies (except insofar as the Fund
might be deemed to be an underwriter in the resale of any securities
held in its portfolio);
2. Invest in commodities or commodity contracts (other than Hedging
Instruments, which it may use as permitted by any of its other
fundamental policies, whether or not any such Hedging Instrument is
considered to be a commodity or a commodity contract);
3. Purchase securities on margin; however, the Fund may make margin
deposits in connection with any Hedging Instruments, which it may use
as permitted by any of its other fundamental policies;
4. Purchase or write puts or calls except as permitted by any of its other
fundamental policies;
5. Lend money except in connection with the acquisition of that portion
of publicly-distributed debt securities that the Fund's investment
policies and restrictions permit it to purchase (see "Investment
Objective" and "Investment Policies" in the Prospectus); the Portfolio
may also make loans of portfolio securities (see "Loans of Portfolio
Securities") and enter into repurchase agreements (see "Repurchase
Agreements");
6. Pledge, mortgage or hypothecate its assets to an extent greater than
10% of the value of the total assets of the Fund; however, this does
not prohibit the escrow arrangements contemplated by the put and call
activities of the Fund or other collateral or margin arrangements in
connection with any of the Hedging Instruments, which it may use as
permitted by any of its other fundamental policies;
7. Invest in companies for the purpose of acquiring control or management
thereof, except that the Fund may invest in other investment companies
to the extent permitted under the 1940 Act or by rule or exemption
thereunder.
8. Invest in interests in oil, gas or other mineral exploration or
development programs (but may purchase readily marketable securities of
companies which operate, invest in, or sponsor such programs); or
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<PAGE>
9. Invest in real estate or in interests in real estate, but may purchase
readily marketable securities of companies holding real estate or
interests therein.
MANAGEMENT
OFFICERS AND TRUSTEES
The following information relates to the principal occupations during the past
five years of each Trustee and executive officer of the Trust and shows the
nature of any affiliation with SCMI.
PETER E. GUERNSEY, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Insurance Consultant since August 1986; prior thereto
Senior Vice President, Marsh & McLennan, Inc., insurance brokers.
JOHN I. HOWELL, 80, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Private Consultant since February 1987; Honorary Director,
American International Group, Inc.; Director, American International Life
Assurance Company of New York.
CLARENCE F. MICHALIS, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Chairman of the Board of Directors, Josiah Macy, Jr.
Foundation (charitable foundation).
HERMANN C. SCHWAB, 77, c/o the Trust, Two Portland Square, Portland, Maine -
Chairman and Trustee of the Trust; retired since March, 1988; prior thereto,
consultant to SCMI since February 1, 1984.
MARK J. SMITH*, 35, 33 Gutter Lane, London, England - President and Trustee of
the Trust; Senior Vice President and Director of SCMI since April 1990; Director
and Senior Vice President, Schroder Advisors.
MARK ASTLEY, 33, 787 Seventh Avenue, New York, New York - Vice President of the
Trust; First Vice President of SCMI, prior thereto, employed by various
affiliates of SCMI in various positions in the investment research and portfolio
management areas since 1987.
ROBERT G. DAVY, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior thereto,
employed by various affiliates of SCMI in various positions in the investment
research and portfolio management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON, 55, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Secretary of SCM since July 1995; Senior Vice President
(since April 1997) and General Counsel of Schroders Incorporated since May 1987;
prior thereto, partner of Sullivan & Worcester, a law firm.
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<PAGE>
RICHARD R. FOULKES, 51, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Deputy Chairman of SCMI since October 1995; Director and Executive
Vice President of Schroder Capital Management International Ltd. since 1989.
ROBERT JACKOWITZ, 30, 787 Seventh Avenue, New York, New York - Treasurer of the
First Trust; Vice President of SCM since September 1995; Treasurer of SCM and
Schroder Advisors since July 1995; Vice President of SCMI and SCM since April
1997; and Assistant Treasurer of Schroders Incorporated since January 1990.
JOHN Y. KEFFER, 54, Two Portland Square, Portland, Maine - Vice President of the
Trust; President of FFC, the Fund's transfer and dividend disbursing agent and
other affiliated entities including Forum Financial Services, Inc. and Forum
Advisors, Inc.
JANE P. LUCAS, 35, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director and Senior Vice President SCMI; Director of SCM since
September 1995; Director of Schroder Advisors since September 1996; Assistant
Director Schroder Investment Management Ltd. since June 1991.
CATHERINE A. MAZZA, 37, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; President of Schroder Advisors since 1997; First Vice President of
SCMI and SCM since 1996; prior thereto, held various marketing positions at
Alliance Capital, an investment adviser, since July 1985.
MICHAEL PERELSTEIN, 41, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Director since May 1997 and Senior Vice President of SCMI since
January 1997; prior thereto, Managing Director of MacKay - Shields Financial
Corp.
ALEXANDRA POE, 36, 787 Seventh Avenue, New York, New York - Secretary and Vice
President of the Trust; Vice President of SCMI since August 1996; Fund Counsel
and Senior Vice President of Schroder Advisors since August 1996; Secretary of
Schroder Advisors; prior thereto, an investment management attorney with Gordon
Altman Butowsky Weitzen Shalov & Wein since July 1994; prior thereto counsel and
Vice President of Citibank, N.A. since 1989.
THOMAS G. SHEEHAN, 42, Two Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust; Counsel, Forum Financial
Services, Inc. since 1993; prior thereto, Special Counsel, U.S. Securities and
Exchange Commission, Division of Investment Management, Washington, D.C.
FARIBA TALEBI, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Group Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas since 1987;
Director of SCM since April 1997.
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<PAGE>
JOHN A. TROIANO, 38, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCM since April 1997; Chief Executive Officer, since
April 1, 1997, of SCMI and Managing Director and Senior Vice President of SCMI
since October 1995; prior thereto, employed by various affiliates of SCMI in
various positions in the investment research and portfolio management areas
since 1981.
IRA L. UNSCHULD, 31, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Vice President of SCMI since April, 1993 and an Associate from July,
1990 to April, 1993.
CATHERINE S. WOOLEDGE, 55, Two Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust Counsel, Forum Financial
Services, Inc. since November 1996. Prior thereto, associate at Morrison &
Foerster, Washington, D.C. from October 1994 to November 1996, associate
corporate counsel at Franklin Resources, Inc. from September 1993 to September
1994, and prior thereto associate at Drinker Biddle & Reath, Philadelphia, PA.
* Interested Trustee of the Trust within the meaning of the 1940 Act.
Schroder Advisors is a wholly owned subsidiary of SCMI, which is a wholly owned
subsidiary of Schroders Incorporated, which in turn is an indirect, wholly owned
U.S. subsidiary of Schroders plc. Schroder Capital Management Inc. ("SCM") is
also a wholly owned subsidiary of Schroders Incorporated.
Officers and Trustees who are interested persons of the Trust receive no salary,
fees or compensation from the Fund. Independent Trustees of the Trust receive an
annual fee of $1,000 and a fee of $250 for each meeting of the Trust 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.
The following table provides the fees paid to each Trustee of the Trust for
certain funds' fiscal year ended October 31, 1996.
<TABLE>
Name of Trustee Aggregate Pension or Estimated Annual Total Compensation
Compensation From Retirement Benefits Benefits Upon From Trust And Fund
Trust Accrued As Part of Retirement Complex Paid To
Trust Expenses Trustees
- ------------------------------- -------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Mr. Guernsey $1,750 $0 $0 $1,750
Mr. Hansmann 1,375 0 0 1,375
Mr. Howell 1,750 0 0 1,750
Mr. Michalis 1,750 0 0 1,750
Mr. Schwab 3,000 0 0 3,000
Mr. Smith 0 0 0 0
</TABLE>
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<PAGE>
As of June 30, 1997, the officers and Trustees of the Trust owned, in the
aggregate, less than 1% of the Fund's outstanding shares. Each of the Trustees
and officers serves the same position for Schroder Capital Funds and Schroder
Capital Funds II.
While the Trust is a Delaware business trust, certain of its Trustees or
officers are residents of the United Kingdom and substantially all of their
assets may be located outside of the U.S. As a result it may be difficult for
U.S. investors to effect service upon such persons within the U.S. or to realize
U.S. civil judgments against them. Civil remedies and criminal penalties under
U.S. federal securities law may be unenforceable in the United Kingdom
Extradition treaties now in effect between the U.S. and the United Kingdom might
not subject such persons to effective enforcement of the criminal penalties of
such acts.
INVESTMENT ADVISER
SCMI, 787 Seventh Avenue, New York, New York 10019, serves as investment adviser
to the Fund under an Investment Advisory Agreement between Schroder Core and
SCMI. SCMI is a wholly owned U.S. subsidiary of Schroders Incorporated, the
wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large worldwide group of banks and financial
service companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices in eighteen countries. The
Schroder Group specializes in providing investment management services, with
funds under management currently in excess of $150 billion as of March 31, 1997.
Under the Investment Advisory Agreement, SCMI manages the investment and
reinvestment of the Fund's assets and continuously reviews, supervises and
administers its investments. In this regard, it is the responsibility of SCMI to
make decisions relating to the Fund's investments and to place purchase and sale
orders regarding such investments with brokers or dealers selected by it in its
discretion. SCMI also furnishes to the Trust Board, which has overall
responsibility for the business and affairs of the Trust, periodic reports on
the investment performance of the Fund. For providing advisory services, SCMI is
entitled to a fee of 1.25% of the Fund's average daily net assets
Under the terms of the Investment Advisory Agreement, SCMI is required to manage
the Fund's investment portfolio in accordance with applicable laws and
regulations. In making its investment decisions, SCMI does not use material
inside information that may be in its possession or in the possession of its
affiliates.
The Investment Advisory Agreement continues in effect provided such continuance
is approved annually: (i) by the holders of a majority of the outstanding voting
securities of the Fund or by Trust Board; and (ii) by a majority of the Trustees
who are not parties to the Agreement or "interested persons" (as defined in the
1940 Act) of any such party. The Investment Advisory Agreement may be terminated
without penalty by vote of the Trustees or the shareholders of the Fund on 60
days' written notice to the investment adviser, or by the investment adviser on
60 days' written notice to the Trust, and it terminates automatically if
assigned. The Investment
17
<PAGE>
Advisory Agreement also provides that, with respect to the Fund, neither SCMI
nor its personnel shall be liable for any error of judgment or mistake of law or
for any act or omission in the performance of its or their duties to the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its or their duties or by reason of reckless disregard of its or their
obligations and duties under the Agreement.
ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an Administration Agreement
with Schroder Advisors, 787 Seventh Avenue, New York, New York 10019. Under the
Administration Agreement, Schroder Advisors provides management and
administrative services necessary for the operation of the Fund, including: (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, if any, transfer agent, custodian, independent
accountants, legal counsel and others. Schroder Advisors is a wholly owned
subsidiary of SCMI and is a registered broker-dealer organized to act as
administrator and distributor of mutual funds. For providing administrative
services, Schroder Advisors is entitled to receive a fee, payable monthly, at
the annual rate of 0.25% of the Fund's average daily net assets. The
Administration Agreement is terminable with respect to the Fund without penalty,
at any time, by the Trust Board, upon 60 days' written notice to Schroder
Advisors or by Schroder Advisors upon 60 days' written notice to the Trust.
The Trust has entered into a Subadministration Agreement with Forum. Under the
Subadministration Agreement, Forum assists Schroder Advisors with certain of its
responsibilities under the Administration Agreement, including shareholder
reporting and regulatory compliance. For providing administrative services,
Forum is entitled to receive a monthly fee from the Fund at the annual rate of
0.10% of the Fund's average daily net assets. The Subadministration Agreement is
terminable with respect to the Fund without penalty, at any time, by the Trust
Board, upon 60 days' written notice to Forum or by Forum upon 60 days' written
notice to the Trust.
DISTRIBUTION OF FUND SHARES
Schroder Advisors, 787 Seventh Avenue, New York, New York 10019, serves as
Distributor of the Fund shares pursuant to a Distribution Agreement. Schroder
Advisors is a wholly owned subsidiary of Schroders Incorporated, the parent
company of SCMI, and is a registered broker-dealer organized to act as
administrator and/or distributor of mutual funds.
Under the Distribution Agreement, Schroder Advisors has agreed to use its best
efforts to secure purchases of Fund shares in jurisdictions in which such shares
may be legally offered for sale. Schroder Advisors is not obligated to sell any
specific amount of Fund shares. Further, Schroder Advisors has agreed in the
Distribution Agreement to serve without compensation and to pay from its own
resources all costs and expenses incident to the sale and distribution of Fund
shares including expenses for printing and distributing prospectuses and other
sales materials to
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<PAGE>
prospective investors, advertising expenses, and the salaries and expenses of
its employees or agents in connection with the distribution of Fund shares.
GLASS-STEAGALL PROVISIONS
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
FFC, an affiliate of Forum, performs portfolio accounting services for the Fund
pursuant to a Fund Accounting Agreement with the Trust. The Accounting Agreement
is terminable with respect to the Fund without penalty, at any time by the Trust
Board upon 60 days' written notice to FFC or by FFC upon 60 days' written notice
to the Trust.
Under its agreement, FFC prepares and maintains the 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; calculates dividends
and capital gain distributions; and prepares periodic reports to shareholders
and the Securities and Exchange Commission. For its services to the Fund, FFC is
entitled to receive from the Trust a fee of $36,000 per year plus $12,000 per
year also for each class of the Fund above one. 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, funds with more than 25% of their total assets invested in asset backed
securities, funds 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. The Trust has agreed to indemnify
and hold harmless FFC and its employees, agents, officers and directors against
and from any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, counsel fees and all other expenses arising out
of or in any way related to FFC's actions taken or failures to act with respect
to a
19
<PAGE>
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.
FFC assumed responsibility for fund accounting on August 15, 1994. Previously,
these services were performed by Schroders Incorporated, the parent company of
SCMI. For the fiscal years ended October 31, 1994, 1995 and 1996, the Fund and
the Portfolio paid fund accounting fees of $28,797, $36,000, and $37,972,
respectively.
FEES AND EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by Schroder Advisors or SCMI. The costs borne by the Fund include legal
and accounting expenses; Trustees' fees and expenses; insurance premiums,
custodian and transfer agent fees and expenses; brokerage fees and expenses;
expenses of registering and qualifying the Fund's shares for sale with the SEC
and with various state securities commissions; expenses of obtaining quotations
on portfolio securities, if any, and pricing of the Fund's shares; a portion of
the expenses of maintaining the Fund's legal existence and of shareholders'
meetings; expenses of preparation and distribution to existing shareholders of
reports, proxies and prospectuses; and a proportionate amount of the total
operating expenses of the Portfolio, including advisory fees paid to SCMI. Trust
expenses directly attributed to the Fund are charged to the Fund; other expenses
are allocated proportionately among all the series of the Trust in relation to
the net assets of each series. SCMI and Schroder Advisors have undertaken
voluntarily to waive a portion of their fees and/or assume certain expenses of
the Fund in order to limit total Fund expenses excluding taxes, interest,
brokerage commissions and other Fund transaction expenses and extraordinary
expenses chargeable to Investor Shares to 2.00% of the average daily net assets
of the Fund. This expense limitation cannot be modified or withdrawn except by a
majority vote of the Trust Board. If expense reimbursements are required, they
will be made on a monthly basis. Forum may waive voluntarily all or a portion of
its fees from time to time.
20
<PAGE>
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for the Fund and for the other investment advisory clients
of SCMI are made to achieve their respective investment objectives. Investment
decisions are the product of many factors in addition to basic suitability for
the particular client involved and a particular security may be bought or sold
for certain clients and not bought or sold for other clients. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as is possible, averaged
as to price and allocated between such clients in a manner which in SCMI's
opinion is equitable to each and in accordance with the amount being purchased
or sold by each. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions vary
among brokers. Also, a particular broker may charge different commissions
according to the difficulty and size of the transaction, for example. There is
generally no stated commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Fund usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid by the Fund includes a disclosed, fixed commission or discount retained by
the underwriter or dealer.
The Investment Advisory Agreement authorizes and directs SCMI to place orders
for the purchase and sale of the Fund's investments with brokers or dealers it
selects and to seek "best execution" of such portfolio transactions. SCMI places
all such orders for the purchase and sale of portfolio securities and buys and
sells securities for the Fund through a substantial number of brokers and
dealers. In so doing, SCMI uses its best efforts to obtain for the Fund the most
favorable price and execution available. The Fund may, however, pay higher than
the lowest available commission rates when SCMI believes it is reasonable to do
so in light of the value of the brokerage and research services provided by the
broker effecting the transaction. In seeking the most favorable price and
execution, SCMI, considers all factors it deems relevant (including, by way of
illustration, price, transaction size, the nature of the market for the
security, commission amount, the timing of the transaction (taking into account
market prices and trends), the reputation, experience and financial stability of
the broker-dealers involved, and the quality of service rendered by the
broker-dealers in other transactions).
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 that execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
SCMI may receive research services from broker-dealers with which SCMI places
the
21
<PAGE>
Fund's portfolio transactions. These services, which in some cases may also be
purchased for cash, include such items as general economic and security market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services are of value to SCMI in advising various of its clients (including the
Fund), although not all of these services are necessarily useful and of value in
managing the Fund. The management fee paid by the Fund is not reduced because
SCMI and its affiliates receive such services.
As permitted by Section 28(e) of the 1934 ACT, SCMI may cause the Fund to pay a
broker-dealer that provides "brokerage and research services" (as defined in the
1934 Act) to SCMI with an amount of disclosed commission for effecting a
securities transaction for the Fund in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
Subject to the general policies of the Fund regarding allocation of portfolio
brokerage as set forth above, the Trust Board has authorized the Fund to employ
Schroder Wertheim & Company, Incorporated ("Schroder Wertheim") an affiliate of
SCMI, to effect securities transactions of the Fund on the New York Stock
Exchange only, provided certain other conditions are satisfied as described
below.
Payment of brokerage commissions to Schroder Wertheim or Schroder Securities or
effecting such transactions is subject to Section 17(e) of the 1940 Act, which
requires, among other things, that commissions for transactions on a national
securities exchange paid by a registered investment company to a broker which is
an affiliated person of such investment company (or an affiliated person of
another person so affiliated) not exceed the usual and customary broker's
commissions for such transactions. It is the Fund's policy that commissions paid
to Schroder Wertheim or Schroder Securities will in SCMI's judgment be: (i) at
least as favorable as commissions contemporaneously charged by Schroder Wertheim
or 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 other qualified brokers having comparable
execution capability. The 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 Wertheim by the Fund satisfy the
foregoing standards. The Trust Board will review all transactions at least
quarterly for compliance with such procedures.
The Fund has no understanding or arrangement to direct any specific portion of
its brokerage to Schroder Wertheim. The Fund will not direct brokerage to
Schroder Wertheim in recognition of research services.
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<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
The net asset value per share of the Fund is determined each day the New York
Stock Exchange (the "Exchange") is open, as of 4:00 P.M.(Eastern time), by
dividing the value of the Fund's net assets by the total number of Fund shares
outstanding. The Exchange's most recent holiday schedule (which is subject to
change) states that it will close on New Year's Day, Martin Luther King, Jr.'s
Birthday, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The Trust Board has established procedures for the valuation of the Fund's
securities: (i) equity securities traded on a securities exchange or on the
NASDAQ National Market System for which last sale information is regularly
reported are valued at the last reported sales prices on their primary exchange
or the NASDAQ National Market System that day (or, in the absence of sales that
day, at values based on the last sale prices on the preceding trading day or
closing mid-market prices); (ii) NASDAQ and other unlisted equity securities for
which last sale prices are not regularly reported but for which over-the-counter
market quotations are readily available are valued at the most recently reported
mid-market prices; (iii) securities (including restricted securities) not having
readily-available market quotations are valued at fair value under the Trust
Board's procedures; (iv) debt securities having a maturity in excess of 60 days
are valued at the mid-market prices determined by a portfolio pricing service or
obtained from active market makers on the basis of reasonable inquiry; and (v)
short-term debt securities (having a remaining maturity of 60 days or less) are
valued at cost, adjusted for amortization of premiums and accretion of discount.
Puts, calls and Stock Index Futures are valued at the last sales price on the
principal exchange on which they are traded, or, if there are no transactions,
in accordance with (i) above. When the Fund writes an option, an amount equal to
the premium received by the Fund is recorded in the Fund's books as an asset,
and an equivalent deferred credit is recorded as a liability. The deferred
credit is adjusted ("marked-to-market") to reflect the current market value of
the option.
REDEMPTION IN-KIND
In the event that payment for redeemed shares is made wholly or partly in
portfolio securities, the shareholder may incur brokerage costs in converting
the securities to cash. An in kind distribution of portfolio securities will be
less liquid than cash. The shareholder may have difficulty finding a buyer for
portfolio securities received in payment for redeemed shares. Portfolio
securities may decline in value between the time of receipt by the shareholder
and conversion to cash. A redemption in kind of the Fund's portfolio securities
could result in a less diversified portfolio of investments for the Fund and
could affect adversely the liquidity of the Fund's portfolio.
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<PAGE>
TAXATION
Under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund and
each other series established from time to time by the Trust Board is treated as
a separate taxpayer for federal income tax purposes with the result that: (i)
each such series must meet separately the income and distribution requirements
for qualification as a regulated investment company; and (ii) the amounts of
investment income and capital gain earned are determined on a series-by-series
(rather than on Trust-wide) basis.
The Fund qualified for its last fiscal year as a regulated investment company
under Subchapter M of the Code and intends to so qualify each year so long as
such qualification is in the best interests of its shareholders. To do so, the
Fund intends to distribute to shareholders at least 90% of its "investment
company taxable income" as defined in the Code (which includes, dividends,
interest and the excess of any net short-term capital gain over net long-term
capital loss), and to meet certain diversification of assets, source of income,
and other requirements of the Code. The Fund will therefore not be subject to
federal income tax on its investment company taxable income and "net capital
gain" (the excess of net long-term capital gain over net short-term capital
loss) distributed to shareholders. If the Fund does not meet all of these Code
requirements, it will be taxed as an ordinary corporation, and its distributions
will be taxable to shareholders as ordinary income.
Amounts not distributed on a timely basis (in accordance with a calendar year
distribution requirement) are subject to a 4% nondeductible excise tax. To
prevent this, the Fund must distribute for each calendar year an amount equal to
the sum of: (i) at least 98% of its ordinary income (excluding any capital gain
or loss) for the calendar year; (ii) at least 98% of the excess of its capital
gain over capital loss realized during the one-year period ending October 31 of
such year; and (iii) all such ordinary income and capital gain for previous
years that were not distributed during such years. A distribution will be
treated as paid during the calendar year if it is declared by the Fund in
October, November or December of the year with a record date in such month and
paid by the Fund during January of the following year. Such distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
Distributions of investment company taxable income (including realized net
short-term capital gain) are taxable to shareholders as ordinary income.
Generally, dividends of investment income (but not capital gain) from the Fund
will qualify for the federal dividends-received deduction for corporate
shareholders to the extent such dividends do not exceed the aggregate amount of
dividends received by the Fund from domestic corporations, provided the Fund
shares are held by said shareholders for more than 45 days. If securities held
by the Fund are considered to be "debt-financed" (generally, acquired with
borrowed funds), are held by the Fund for less than 46 days (91 days in the case
of certain preferred stock), or are subject to certain forms of hedges or short
sales, the portion of the dividends paid by the Fund that corresponds to the
dividends paid with respect to such securities will not be eligible for the
corporate dividends-received deduction.
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<PAGE>
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 (even
though such shares may have been held by the shareholder for one year or less).
Further, a loss realized on a disposition will be disallowed to the extent the
shares disposed of are replaced (whether by reinvestment of 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 to shareholders are taxable whether reinvested in additional
shares or received in cash. Shareholders that reinvest distributions in
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. If a
distribution reduces the net asset value below a shareholder's cost basis, such
distribution nevertheless would be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
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 which will be returned to the investor in the form
of a taxable distribution.
Upon redemption or sale of shares, a shareholder will realize a taxable gain or
loss which 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.
The Trust will be required to report to the IRS all distributions and gross
proceeds from the redemption of Fund shares (except in the case of certain
exempt shareholders). All such distributions and proceeds generally will be
subject to the withholding of federal income tax at a rate of 31% ("backup
withholding") in the case of non-exempt shareholders if: (i) the shareholder
fails to furnish the Trust with and to certify the shareholder's correct
taxpayer identification number or social security number; (ii) the IRS notifies
the Trust that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect; or
(iii) when required to do so, the shareholder fails to certify that they are not
subject to backup withholding. If the withholding provisions are applicable, any
such distributions or proceeds, whether reinvested in additional shares or taken
in cash, will be reduced by the amount required to be withheld. Any amounts
withheld may be credited against the shareholder's federal income tax liability.
Investors may wish to consult their tax advisors about the applicability of the
backup withholding provisions.
25
<PAGE>
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 its Trust 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, and the Trust's name was changed to
its present name. The Trust is registered as an open-end management investment
company under the 1940 Act.
Delaware law provides that shareholders shall be entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. 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 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 the authorized shares into an unlimited number of separate funds or
series (such as the Fund) and may divide Funds or series into classes of shares,
and certain costs of doing so may be borne by the Trust or series in accordance
with the Trust Instrument. The Trust currently consists of eight separate
portfolios, each of which has a separate investment objective and policies, and
six of which have two classes of shares, Investor shares and Advisor shares. The
Fund currently offers only one class of shares, Investor shares.
26
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When issued for the consideration described in the prospectuses or under the
applicable dividend reinvestment plan, shares are fully paid, nonassessable, and
have no preferences as to conversion, exchange, dividends, retirement or other
features. Shares have no preemptive rights and have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Trustees can elect 100% of the Trustees if they choose to do so.
Each shareholder of record is entitled to one vote for each full share held (and
a fractional vote for each fractional share held). Shares of each class 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 vote together in the election of Trustees and
ratification of the selection of independent accountants. Shareholders of any
particular class are not be entitled to vote on any matters as to which such
class are not affected.
The Trust does not hold annual meetings of shareholders. The matters considered
at an annual meeting typically include the reelection of Trustees, approval of
an investment advisory agreement, and the ratification of the selection of
independent accountants. These matters are not submitted to shareholders unless
a meeting of shareholders is held for some other reason, such as those indicated
below. Each Trustee serves until death, resignation or removal. Vacancies are
filled by the remaining Trustees, subject to the provisions of the 1940 Act
requiring a meeting of shareholders for election of Trustees to fill vacancies
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 is performed annually by the Trust Board.
Future shareholder meetings will be held to elect Trustees if required by the
1940 Act, to obtain shareholder approval of changes in fundamental investment
policies, to obtain shareholder approval of material changes in investment
advisory agreements, to select new 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 Trust 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 Trust 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 Trust Board is required:,
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: (i)
shares of the Trust having a total net asset value of at least $25,000; or (ii)
1% of the outstanding shares of the Trust, to help such holders communicate with
other shareholders of the Trust with a view to obtaining the requisite
signatures to request a special meeting to consider Trustee removal.
27
<PAGE>
PRINCIPAL SHAREHOLDERS
As of June 30, 1997, the Fund had no outstanding shares.
PERFORMANCE INFORMATION
The Fund may, from time to time, include quotations of its average annual total
return in advertisements or reports to shareholders or prospective investors.
Quotations of average annual total return are 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 (up to the life of the Fund), calculated pursuant
to the following formula:
P (1+T)n = 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 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 reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. The Fund's total
return are expected to vary based on changes in market conditions and the level
of the Fund's expenses. No reported performance figure should be considered an
indication of performance that may be expected in the future.
In connection with communicating total return to current or prospective
investors, the Fund's figures also may be compared 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 financial institution may be charged one or more of the
following types of fees as agreed upon by the financial institution and the
investor, with respect to customer services provided by the financial
institution: 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.
28
<PAGE>
CUSTODIAN
All securities and cash of the Fund are held by The Chase Manhattan Bank, Chase
MetroTech Center, Brooklyn, New York 11245.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Forum Financial Corp., Portland, Maine, acts as the Fund's transfer agent and
dividend disbursing agent.
LEGAL COUNSEL
Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624, counsel
to the Fund, passes upon certain legal matters in connection with the shares
offered by the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as independent accountants for the Fund. Coopers
& Lybrand L.L.P. provides audit services and consultation in connection with
review of U.S. Securities and Exchange Commission filings. Their 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
Trust'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 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 May 31. Financial statements for the Fund's
semi-annual period and fiscal year will be distributed to shareholders of
record. The Board in the future may change the fiscal year end of the Fund.
29
<PAGE>
APPENDIX
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE
FIXED-INCOME SECURITY RATINGS
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be of
high quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade
fixed-income securities. They are rated lower than the best
fixed-income securities because margins of protection may not be
as large as in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
"A" Fixed-income securities which are rated "A" possess many
favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime
in the future.
"Baa" Fixed-income securities which are rated "Baa" are considered as
medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Such fixed-income securities lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Fixed-income securities rated "Aaa", "Aa", "A" and "Baa" are
considered investment grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate, and therefore not well safeguarded during
both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
30
<PAGE>
"Caa" Fixed-income securities which are rated "Caa" are of poor
standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
"Ca" Fixed-income securities which are rated "Ca" present obligations
which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
"C" Fixed-income securities which are rated "C" are the lowest rated
class of fixed-income securities, and issues so rated can be
regarded as having extremely poor prospects of ever attaining
any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, "1",
"2", and "3" in each generic rating classification from "Aa" through "B" in its
municipal fixed-income security rating system. The modifier "1" indicates that
the security ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and a modifier "3" indicates that
the issue ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability to repay punctually
promissory obligations not having an original maturity in excess of nine months.
The ratings apply to municipal commercial paper as well as taxable commercial
paper. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
"Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of short-term
promissory obligations. Issuers rated "Prime-2" have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated "Prime-3" have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated "Not Prime" do not fall within any of the Prime rating categories.
STANDARD & POOR'S
FIXED-INCOME SECURITY RATINGS
An S&P fixed-income security rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. The ratings are based, in
varying degrees, on the following considerations: (i) likelihood of
default-capacity and willingness of the obligor as to the timely payment of
interest and repayment of principal in accordance with the terms of the
obligation; (ii) nature of and provisions of the obligation; and (iii)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
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<PAGE>
"AAA" Fixed-income securities rated "AAA" have the highest rating
assigned by S&P. Capacity to pay interest and repay principal
is extremely strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity
to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
"A" Fixed-income securities rated "A" have a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than fixed-income securities in
higher-rated categories.
"BBB" Fixed-income securities rated "BBB" are regarded as having an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are
considered investment grade.
"BB" Fixed-income securities rated "BB" have less near-term
vulnerability to default than other speculative grade
fixed-income securities. However, obligations with this rating
face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions that could lead to
inadequate capacity or willingness to pay interest and repay
principal.
"B" Fixed-income securities rated "B" have a greater vulnerability
to default but presently have the capacity to meet interest
payments and principal repayments. Adverse business, financial
or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon
favorable business, financial and economic conditions to meet
timely payments of interest and repayments of principal. In the
event of adverse business, financial or economic conditions, it
is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or
implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or
implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on which
no interest is being paid.
"NR" Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are
regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and repay principal.
"BB" indicates the least degree of speculation and "C"
32
<PAGE>
the highest degree of speculation. While such fixed-
income securities will likely have some quality and
protective characteristics, these are out-weighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be
modified by the addition of a plus or minus sign to show
relative standing with the major ratings categories.
COMMERCIAL PAPER RATINGS
S&P commercial paper rating is a current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. The
commercial paper rating is not a recommendation to purchase or sell a security.
The ratings are based upon current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. The ratings may be
changed, suspended, or withdrawn as a result of changes in or unavailability of
such information. Ratings are graded into group categories, ranging from "A" for
the highest quality obligations to "D" for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
"1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is
very strong.
"A-2" Indicates capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is
not as overwhelming as for issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment.
Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
33
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
No financial statements are included in Parts A or B of this Registration
Statement.
(B) EXHIBITS:
Exhibit Page Number
- ------- -----------
(1) Trust Instrument of Schroder Capital Funds (Delaware) (filed as Exhibit 1
to Registrant's Post Effective Amendment No. 46 via EDGAR on January 10,
1996, accession number 0000912057-96-000285,and incorporated herein by
reference).
(2) BYLAWS dated September 8, 1995 (filed as Exhibit 2 to Registrant's Post-
Effective Amendment No. 61 via EDGAR on April 18, 1997, accession number
0000912057-97-013527, and incorporated herein by reference).
(4) Sections 2.04 and 2.06 of Registrant's Trust Instrument provide as follows:
SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by
the record holder thereof or by such record holders agent thereunto duly
authorized in writing, upon delivery to the Trustees or the Trust's
transfer agent of a duly executed instrument of transfer and such evidence
of the genuineness of such execution and authorization and of such other
matters as may be required by the Trustees. Upon such delivery the transfer
shall be recorded on the register of the Trust. Until such record is made,
the Shareholder of record shall be deemed to be the holder of such Shares
for all purposes hereunder and neither the Trustees nor the Trust, nor any
transfer agent or registrar nor any officer, employee or agent of the Trust
shall be affected by any notice of the proposed transfer.
SECTION 2.06 ESTABLISHMENT OF SERIES. The Trust created hereby shall
consist of one or more Series and separate and distinct records shall be
maintained by the Trust for each Series and the assets associated with any
such Series shall be held and accounted for separately from the assets of
the Trust or any other Series. The Trustees shall have full power and
authority, in their sole discretion, and without obtaining any prior
authorization or vote of the Shareholders of any Series of the Trust, to:
establish and designate and to change in any manner any such Series of
Shares or any classes of initial or additional Series; to fix such
preferences, voting powers, rights and privileges of such Series or classes
thereof as the Trustees may from time to time determine; to divide or
combine the Shares or any Series or classes thereof into a greater or
lesser number; to classify or reclassify any issued Shares or any Series or
classes thereof into one or more Series or classes of Shares; and to take
such other action with respect to the Shares as the Trustees may deem
desirable. The establishment and designation of any Series shall be
effective upon the adoption of a resolution by a majority of the Trustees
setting forth such establishment and designation and the relative rights
and preferences of the Shares of such Series. A Series may issue any number
of Shares, and need not issue any shares. At any time that there are no
Shares outstanding of any particular Series previously established and
designated, the Trustees may by a majority vote abolish that Series and the
establishment and designation thereof.
All references to Shares in this Trust Instrument shall be deemed to be
Shares of any or all Series, or classes thereof, as the context may
require. All provisions herein relating to the
<PAGE>
Trust shall apply equally to each Series of the Trust, and each class
thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a
Series shall be entitled to receive his pro rata share of all distributions
made with respect to such Series. Upon redemption of his Shares, such
Shareholder shall be paid solely out of the funds and property of such
Series of the Trust.
(5)(a) Investment Advisory Agreement between the Trust and Schroder Capital
Management International Inc. dated January 9, 1996, with respect to
Schroder U.S. Equity Fund (filed as Exhibit 5 to Registrant's Post-
Effective Amendment No. 61 via EDGAR on April 18, 1997, accession number
0000912057-97-013527, and incorporated herein by reference).
(5)(b) Investment Advisory Agreement between the Trust and Schroder Capital
Management International Inc. dated January 9, 1996, with respect to
Schroder Emerging Markets Fund Institutional Portfolio, (filed as Exhibit
5(a) to Registrant's Post Effective Amendment No. 46 via EDGAR on January
10, 1996, accession number 0000912057-96-000285, and incorporated herein by
reference).
(5)(c) Investment Advisory Agreement between the Trust and Schroder Capital
Management International, Inc. dated January 9, 1996, with respect to
Schroder U.S. Smaller Companies Fund, Schroder Latin America Fund and
International Equity Fund (filed herewith).
(5)(d) Investment Advisory Agreement between the Trust and Schroder Capital
Management International Inc. dated March 15, 1996, with respect to
Schroder International Smaller Companies Fund and Schroder Global Asset
Allocation Fund (filed herewith).
(6)(a) Distribution Agreement between the Trust and Schroder Fund Advisors Inc.
dated January 9, 1996, with respect to Schroder U.S. Equity Fund (filed as
Exhibit 6 to Registrant's Post-Effective Amendment No. 61 via EDGAR on
April 18, 1997, accession number 0000912057-97-013527, and incorporated
herein by reference).
(6)(b) Distribution Agreement between the Trust and Schroder Fund Advisors Inc.
dated January 9, 1996, as amended, with respect to Schroder Emerging
Markets Fund Institutional Portfolio, Schroder U.S. Smaller Companies Fund,
Schroder Latin American Fund, Schroder International Fund, Schroder
International Smaller Companies Fund and Schroder Global Asset Allocation
Fund (filed as Exhibit 6 to Registrant's Post Effective Amendment No. 46
via EDGAR on January 10, 1996, accession number 0000912057-96-000285, and
incorporated herein by reference).
(8) Global Custody Agreement between the Trust and The Chase Manhattan Bank,
N.A. dated January 9, 1996, as amended May 3, 1996 (filed as Exhibit 8 to
Registrant's Post-Effective Amendment No. 61 via EDGAR on April 18, 1997,
accession number 0000912057-97-013527, and incorporated herein by
reference).
(9)(a) Administration Agreement between the Trust and Schroder Fund Advisors
Inc. dated November 26, 1996, with respect to Schroder International Fund,
Schroder U.S. Smaller Companies Fund, Schroder Latin American Fund,
Schroder Emerging Markets Fund Institutional Portfolio, Schroder
International Smaller Companies Fund and Schroder Global Asset Allocation
Fund (filed herewith).
<PAGE>
(9)(b) Subadministration Agreement between the Trust and Forum Administrative
Services, Limited Liability Company dated February 1, 1997, with respect to
Schroder International Fund, Schroder U.S. Equity Fund, Schroder U.S.
Smaller Companies Fund, Schroder Latin American Fund, Schroder Emerging
Markets Fund Institutional Portfolio, Schroder International Smaller
Companies Fund and Schroder Global Asset Allocation Fund (filed as Exhibit
9(b) to Registrant's Post-Effective Amendment No. 61 via EDGAR on April 18,
1997, accession number 0000912057-97-013527, and incorporated herein by
reference).
(9)(c) Transfer Agency Agreement between the Trust and Forum Financial Corp.
dated January 9, 1996, as amended, with respect to Schroder International
Fund, Schroder U.S. Equity Fund, Schroder U.S. Smaller Companies Fund,
Schroder Latin American Fund, Schroder Emerging Markets Fund Institutional
Portfolio, Schroder International Smaller Companies Fund and Schroder
Global Asset Allocation Fund (filed as Exhibit 9(c) to Registrant's
Post-Effective Amendment No. 46 and via EDGAR on January 10, 1996,
accession number 0000912057-96-000285, and incorporated herein by
reference).
(9)(d) Fund Accounting Agreement between the Trust and Forum Financial Corp.
dated January 9, 1996, as amended, with respect to Schroder International
Fund, Schroder U.S. Equity Fund, Schroder U.S. Smaller Companies Fund,
Schroder Latin American Fund, Schroder Emerging Markets Fund Institutional
Portfolio, Schroder International Smaller Companies Fund and Schroder
Global Asset Allocation Fund (filed as Exhibit 9(d) to Registrant's
Post-Effective Amendment No. 61 via EDGAR on April 18, 1997, accession
number 0000912057-97-013527, and incorporated herein by reference).
(10) Opinion of counsel will be filed with Registrant's 24f-2 notice: (i) on or
about July 25, 1998 for Schroder Micro Cap Fund, and (ii) on or about
February 25, 1998 for Schroder Emerging Markets Fund.
(15)(a) Form of Master Distribution Plan adopted by Registrant (filed as Exhibit
15(a) to Registrant's Post Effective Amendment No. 46 via EDGAR on January
10, 1996, accession number 0000912057-96-000285, and incorporated herein by
reference).
(15)(b) Form of Distribution Plan Supplement with respect to each Fund (filed as
Exhibit 15(b) to Registrant's Post Effective Amendment No. 46 via EDGAR on
January 10, 1996, accession number 0000912057-96-000285, and incorporated
herein by reference).
(16) Schedule of Sample Performance Calculations -- Schroder U.S. Equity Fund
(filed as Exhibit 16 to Registrant's Post-Effective Amendment No. 61 via
EDGAR on April 18, 1997, accession number 0000912057-97-013527, and
incorporated herein by reference).
Other Copy of Power of Attorney pursuant to which the Trustees and
Exhibits President have signed this Post-Effective Amendment filed herewith.
Copy of Power of Attorney pursuant to which Mr. Jackowitz has signed this
Post-Effective Amendment (filed as an Other Exhibit to Post-Effective
Amendment No. 45 and incorporated herein by reference).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
Number of Record Holders
Title of Class as of June 2, 1997
- ---------------------- ------------------------
<S> <C>
Schroder U.S. Equity Fund 598
Schroder International Fund 822
Schroder U.S. Smaller Companies Fund 242
Schroder Emerging Markets Fund Institutional Portfolio 28
Schroder International Smaller Companies Fund 3
Schroder Latin America Fund 1
Schroder Global Asset Allocation Fund N/A
</TABLE>
ITEM 27. INDEMNIFICATION.
In accordance with Section 3803 of the Delaware Business Trust Act, SECTION 5.2
of the Registrant's Trust Instrument provides as follows:
"5.2. Indemnification.
"(a) Subject to the exceptions and limitations contained in Section (b) below:
"(i) Every person who is, or has been, a Trustee or officer of the Trust
(hereinafter referred to as a "Covered Person") shall be indemnified by the
Trust to the fullest extent permitted by law against liability and against all
expenses reasonably incurred or paid by them in connection with any claim,
action, suit or proceeding in which they become involved as a party or otherwise
by virtue of being or having been a Trustee or officer and against amounts paid
or incurred by them in the settlement thereof;
"(ii) The words "claim," "action," "suit," or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened while in office or thereafter, and the words
"liability" and "expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
"(b) No indemnification shall be provided hereunder to a Covered Person:
"(i) Who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its Holders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the Covered Person's office or (B) not to have
acted in good faith in the reasonable belief that Covered Person's action was in
the best interest of the Trust; or
"(ii) In the event of a settlement, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
Trustee's or officer's office,
"(A) By the court or other body approving the settlement;
"(B) By at least a majority of those Trustees who are neither Interested Persons
of the Trust nor are parties to the matter based upon a review of readily
available facts (as opposed to a full trial-type inquiry); or
"(C) By written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry); provided,
however, that any Holder may, by appropriate legal proceedings, challenge any
such determination by the Trustees or by independent counsel.
<PAGE>
"(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
"(d) Expenses in connection with the preparation and presentation of a defense
to any claim, action, suit or proceeding of the character described in paragraph
(a) of this Section 5.2 may be paid by the Trust or Series prior to final
disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by Covered Person to the Trust
or Series if it is ultimately determined that the Covered Person is not entitled
to indemnification under this Section 5.2; provided, however, that either (a)
such Covered Person shall have provided appropriate security for such
undertaking, (b) the Trust is insured against losses arising out of any such
advance payments or (c) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 5.2.
"(e) Conditional advancing of indemnification monies under this Section 5.2 for
actions based upon the 1940 Act may be made only on the following conditions:
(i) the advances must be limited to amounts used, or to be used, for the
preparation or presentation of a defense to the action, including costs
connected with the preparation of a settlement; (ii) advances may be made only
upon receipt of a written promise by, or on behalf of, the recipient to repay
that amount of the advance which exceeds that amount which it is ultimately
determined that he is entitled to receive from the Trust by reason of
indemnification; and (iii) (a) such promise must be secured by a surety bond,
other suitable insurance or an equivalent form of security which assures that
any repayments may be obtained by the Trust without delay or litigation, which
bond, insurance or other form of security must be provided by the recipient of
the advance, or (b) a majority of a quorum of the Trust's disinterested,
non-party Trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that the recipient of
the advance ultimately will be found entitled to indemnification.
"(f) In case any Holder or former Holder of any Series shall be held to be
personally liable solely by reason of the Holder or former Holder being or
having been a Holder of that Series and not because of the Holder or former
Holder acts or omissions or for some other reason, the Holder or former Holder
(or the Holder or former Holder's heirs, executors, administrators or other
legal representatives, or, in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the assets
belonging to the applicable Series to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust, on behalf
of the affected Series, shall, upon request by the Holder, assume the defense of
any claim made against the Holder for any act or obligation of the Series and
satisfy any judgment thereon from the assets of the Series."
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The following are the directors and principal officers of SCMI, including their
business connections of a substantial nature. The address of each company
listed, unless otherwise noted, is 33 Gutter Lane, London EC2V 8AS, United
Kingdom. Schroder Capital Management International Limited ("Schroder Ltd.") is
a United Kingdom affiliate of SCMI that provides investment management services
to international clients located principally in the United States.
David M. Salisbury. Director and Chairman of SCMI; Joint Chief
Executive and Director of Schroder Ltd.
Richard R. Foulkes. Deputy Chairman/Executive Vice President of SCMI.
John A. Troiano. Chief Executive Officer and Director of SCMI.
Mr. Troiano is also a Director of Schroder Ltd.
David Gibson. Senior Vice President and Director of SCMI. Director of
Schroder Capital Management.
<PAGE>
John S. Ager. Senior Vice President and Director of SCMI.
Sharon L. Haugh. Senior Vice President and Director of SCMI, Director
and Chairman of Schroder Advisors Inc.
Gavin D.L. Ralston. Senior Vice President and Managing Director of
SCMI.
Mark J. Smith. Senior Vice President and Director of SCMI.
Robert G. Davy. Senior Vice President. Mr. Davy is also a Director of
Schroder Ltd. and an officer of open end investment companies for which
SCMI and/or its affiliates provide investment services.
Jane P. Lucas. Senior Vice President and Director of SCMI;
Director of Schroder Advisors Inc.; Director of Schroder Capital
Management.
C. John Govett. Director of SCMI; Group Managing Director of Schroder
Ltd. And Director of Schroders plc.
Phillipa J. Gould. Senior Vice President and Director of SCMI.
Louise Croset. First Vice President and Director of SCMI.
Abdallah Nauphal, Group Vice President and Director of SCMI.
ITEM 29. PRINCIPAL UNDERWRITERS.
(A) Schroder Fund Advisors Inc., the Registrant's principal underwriter, also
serves as principal underwriter for WSIS Series Trust.
(B) Following is information with respect to each officer and director of
Schroder Fund Advisors Inc., the Distributor of the shares of Schroder
International Fund, Schroder U.S. Equity Fund, Schroder U.S. Smaller Companies
Fund, Schroder Emerging Markets Fund Institutional Portfolio, Schroder
International Smaller Companies Fund, Schroder International Bond Fund and
Schroder Latin American Fund (each a series of the Registrant):
Catherine A. Mazza, President.
Mark J. Smith, Director and Senior Vice President.
Sharon L. Haugh, Chairman and Director.
Robert Jackowitz, Treasurer and CFO.
Alexandra Poe, Secretary and Senior Vice President.
Jane E. Lucas, Director.
* Address for each is 787 Seventh Avenue, New York, New York 10019 except for
Mark J. Smith, whose address is 33 Gutter Lane, London, England, EC2V 8AS.
(C) Inapplicable.
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by Registrant
with respect to Registrant's series pursuant to Section 31(a) of the Investment
Company Act of 1940 and the Rules thereunder are maintained at the offices of
Schroder Capital Management International Inc. (investment management records)
and Schroder Fund Advisors Inc. (administrator and distributor records), 787
Seventh Avenue, New York, New York 10019, except that certain items will be
maintained at the following locations:
(a) Forum Financial Corp., Two Portland Square, Portland, Maine 04101
(shareholder and fund accounting records).
(b) Forum Administrative Services, Limited Liability Company, Two Portland
Square, Portland, Maine 04101 (corporate minutes and all other records required
under the Subadministration Agreement).
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
(a) Registrant undertakes to file a post-effective amendment, using
financial statements that need not be certified, within four to six
months from the latter of the effective date of Registrant's Securities
Act of 1933 Registration Statement relating to the prospectuses
offering those shares or the commencement of public shares of the
respective shares; and,
(b) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof to which the
prospectus relates upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 with respect to rule 485(a) under the Securities Act of
1933, the Registrant has duly caused this amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, and State of New York on the 17th day of
July, 1997.
SCHRODER CAPITAL FUNDS (DELAWARE)
By:/s/ Catherine A. Mazza
---------------------------
Catherine A. Mazza
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement amendment has been signed below by the following persons on the 26th
day of June, 1997.
Signatures Title
---------- ------
(a) Principal Executive Officer
Mark J. Smith President
By: /s/ Thomas G. Sheehan
---------------------
Thomas G. Sheehan, Attorney-in-Fact
(b) Principal Financial and
Accounting Officer
Robert Jackowitz* Treasurer
*By: /s/ Thomas G. Sheehan
---------------------
Thomas G. Sheehan, Attorney-in-Fact
(c) Majority of the Trustees
Peter E. Guernsey* Trustee
John I. Howell* Trustee
Hermann C. Schwab* Trustee
Clarence F. Michalis* Trustee
*By: /s/ Thomas G. Sheeehan
-----------------------
Thomas G. Sheehan, Attorney-in-Fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement for Schroder Capital
Funds (Delaware) to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York and the State of New York on the 17th day of
July, 1997.
SCHRODER CAPITAL FUNDS
By: /s/ Catherine A. Mazza
-----------------------
Catherine A. Mazza
Vice President
<PAGE>
Index to Exhibits
Sequential
Exhibit Page Number
- ------- -----------
(5)(c) Investment Advisory Agreement between the Trust and Schroder Capital
Management International, Inc. dated January 9, 1996, with respect to
Schroder U.S. Smaller Companies Fund, Schroder Latin America Fund and
International Equity Fund.
(5)(d) Investment Advisory Agreement between the Trust and Schroder Capital
Management International Inc. dated March 15, 1996, with respect to
Schroder International Smaller Companies Fund and Schroder Global Asset
Allocation Fund.
<PAGE>
SCHRODER CAPITAL FUNDS (DELAWARE)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the 9th day of January, 1996, between Schroder
Capital Funds (Delaware) (the "Trust") and Schroder Capital Management
International Inc. (the "Adviser") as follows:
1. The Trust is an open-end investment company which currently has five
separate investment portfolios, three of which are subject to this agreement:
Schroder U.S. Smaller Companies Fund, Schroder Latin American Fund and
International Equity Fund (each a "Fund" and collectively, the "Funds"). A
separate class of shares of common stock of the Trust is offered to investors in
each Fund. The Trust engages in the business of investing and reinvesting the
assets of each Fund in the manner and in accordance with the investment
objectives and restrictions specified in the Funds' Prospectuses in effect from
time to time relating to the Fund included in the Trust's Registration
Statement, as amended from time to time (the "Registration Statement"), filed by
the Trust under the Investment Company Act of 1940 (the "1940 Act") and the
Securities Act of 1933 (the "1933 Act"). Copies of the documents referred to in
the preceding sentence have been furnished to the Adviser. Any amendments to
those documents shall be furnished to the Adviser promptly. Pursuant to an
Administrative Services Agreement between the Trust and Schroder Fund Advisors
Inc. (the "Administrator"), the Trust has employed the Administrator to provide
to the Trust management and other services.
2. The Trust hereby appoints the Adviser to provide the investment
advisory services specified in this agreement and the Adviser hereby accepts
such appointment.
3. (a) The Adviser shall, at its expense, (i) employ or associate with
itself such persons as it believes appropriate to assist it in performing its
obligations under this agreement and (ii) provide all services, equipment and
facilities necessary to perform its obligations under this agreement.
(b) The Trust shall be responsible for all of its expenses and
liabilities, including compensation of its trustees who are not affiliated with
the Adviser, the Administrator or any of their affiliates; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent accountants and legal counsel; trade association membership dues;
fees and expenses of any custodian (including maintenance of books and accounts
and calculation of the net asset value of shares of the Funds), transfer agent,
registrar and dividend disbursing agent of the Trust; expenses of issuing,
redeeming, registering and qualifying for sale shares of common stock in the
Trust; expenses of preparing and printing share certificates, prospectuses and
reports to shareholders, notices, proxy statements and reports to regulatory
agencies; the cost of office supplies, including stationery; travel expenses of
all officers, trustees and employees; insurance premiums; brokerage and other
expenses of executing portfolio transactions; expenses of shareholders'
meetings; organizational expenses; and extraordinary expenses.
<PAGE>
4. (a) The Adviser shall provide to the Trust investment guidance and
policy direction in connection with the management of the portfolio of each
Fund, including oral and written research, analysis, advice, statistical and
economic data and information and judgments, of both a macroeconomic and
microeconomic character.
The Adviser will determine the securities to be purchased or sold by
each Fund and will place orders with broker-dealers pursuant to its
determinations. The Adviser will determine what portion of the Funds' portfolios
shall be invested in securities described by the policies of the Funds and what
portion, if any, should be invested otherwise or held uninvested.
The Trust will have the benefit of the investment analysis and
research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to investment
advisory customers of the Adviser. In making investment decisions, hereunder, it
is understood that the Adviser will not use any inside information that may be
in its possession or in the possession of any of its affiliates, nor will the
Adviser seek to obtain any such information.
(b) The Adviser also shall provide to the Trust's officers
administrative assistance and office space, if required, in connection with the
operation of the Trust and the Funds. The administrative assistance shall
include (i) compliance with all reasonable requests of the Trust for
information, including information required in connection with the Trust's
filings with the Securities and Exchange Commission and state securities
commissions, and (ii) such other services as the Adviser shall from time to time
determine, upon consultation with the Administrator, to be necessary or useful
to the administration of the Trust and the Funds.
(c) As manager of the assets of the Funds, the Adviser shall
make investments for the account of the Funds in accordance with Adviser's best
judgment and within the investment objectives and restrictions set forth in the
Prospectuses, the 1940 Act and the provisions of the Internal Revenue Code
relating to regulated investment companies, subject to policy decisions adopted
by the Trust's Board of Trustees. The Trust will promptly notify the Adviser in
writing of any changes in the Funds' investment objectives and restrictions.
(d) The Adviser shall furnish to the Trust's Board of Trustees
periodic reports on the investment performance of the Funds and on the
performance of its obligations under this contract and shall supply such
additional reports and information as the Trust's officers or Board of Trustees
shall reasonably request.
(e) On occasions when the Adviser deems the purchase or sale
of a security to be in the best interest of the Funds as well as other
customers, the Adviser, to the extent permitted by applicable law, may aggregate
the securities to be so sold or purchased in order to obtain the best execution
or lower brokerage commissions, if any. The Adviser may also on occasion
purchase or sell a particular security for one or more customers in different
amounts. On either occasion, and to the extent permitted by applicable law and
regulations, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transactions, will be
<PAGE>
made by the Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Funds and to such other
customers.
(f) The Adviser may cause the Funds to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker might
have charged. Such higher commissions may not be paid unless the Adviser
determines in good faith that the amount paid is reasonable in relation to the
services received in terms of the particular transaction or the Adviser's
overall responsibilities to the Funds and any other of the Adviser's clients.
5. The Adviser shall give the Trust the benefit of the Adviser's best
judgment and efforts in rendering services under this agreement. As an
inducement to the Adviser's undertaking to render these services, the Trust
agrees that the Adviser shall not be liable under this agreement for any mistake
in judgment or in any other event whatsoever, provided that nothing in this
agreement shall be deemed to protect or purport to protect the Adviser against
any liability to the Trust or its shareholders to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties under this agreement or by
reason of the Adviser's reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be rendered by the Adviser under
this agreement, each Fund shall pay the Adviser a monthly fee on the first
business day of each month at the annual rate of 0.50% of the average daily
value as determined on each business day (at the time set forth in the
Prospectus for determining net asset value per share) of the first $100 million
of the net assets of the Fund during the preceding month; 0.40% of the next $150
million of average daily net assets; and 0.35% of average daily net assets in
excess of $250 million. If the fees payable to the Adviser pursuant to this
paragraph 6 begin to accrue before the end of any month or if this contract
terminates before the end of any month, the fees for the period from that date
to the end of that month or from the beginning of that month to the date of
termination, as the case may be, shall be prorated according to the proportion
which the period bears to the full month in which the effectiveness or
termination occurs. For purposes of calculating the monthly fees, the value of
the net assets of each Fund shall be computed in the manner specified in its
Prospectus for the computation of net asset value. For purposes of this
agreement, a "business day" is any day the New York Stock Exchange is open for
trading. No fee shall be payable hereunder with respect to a Fund during any
period in which the Fund invests all (or substantially all) of its investment
assets in a registered, open-end management investment company, or separate
series thereof, in accordance with Section 12(d)(1)(E) under the Investment
Company Act of 1940.
7. If the aggregate expenses of every character incurred by, or
allocated to, a Fund in any fiscal year, other than interest, taxes, expenses
under the Plan, brokerage commissions and other portfolio transaction expenses,
other expenditures which are capitalized in accordance with generally accepted
accounting principles and any extraordinary expense (including, without
limitation, litigation and indemnification expense), but including the fees
payable under this agreement and the fees payable to the Administrator under the
Administrative Services
<PAGE>
Agreement ("includable expenses"), shall exceed the expense limitations
applicable to the Fund imposed by state securities law or regulations
thereunder, as these limitations may be raised or lowered from time to time,
the Adviser shall pay the Fund an amount equal to 66 2/3% of that excess,
provided, however, that the Adviser shall not be required to pay any
amount in excess of fees received by the Adviser from the Trust under this
agreement. With respect to portions of a fiscal year in which this agreement
shall be in effect, the foregoing limitations shall be prorated according to the
proportion which that portion of the fiscal year bears to the full fiscal year.
At the end of each month of the Trust's fiscal year, the Administrator will
review the includable expenses accrued during that fiscal year to the end of the
period and shall estimate the contemplated includable expenses for the balance
of that fiscal year. If, as a result of that review and estimation, it appears
likely that the includable expenses will exceed the limitations referred to in
this paragraph 7 for a fiscal year with respect to the Fund, the monthly fees
relating to the Fund payable to the Adviser under this agreementt for such month
shall be reduced, subject to a later reimbursement to reflect actual expenses,
by an amount equal to 66 2/3% of a pro rata portion (prorated on the basis of
the remaining months of the fiscal year, including the month just ended) of the
amount by which the includable expenses for the fiscal year (less an amount
equal to the aggregate of actual reductions made pursuant to this provision with
respect to prior months of the fiscal year) are expected to exceed the
limitations provided in this paragraph 7. For purposes of the foregoing, the
value of the net assets of the Fund shall be computed in the manner specified in
paragraph 6, and any payments required to be made by the Adviser shall be made
once a year promptly after the end of the Trust's fiscal year.
8. (a) This contract shall become effective on January 9, 1996 and
shall continue in effect until the second anniversary of the effective date of
this Agreement first set forth above and from year to year thereafter, with
respect to each Fund only so long as the continuance is specifically approved at
least annually (i) by the vote of a majority of the outstanding voting
securities of the Funds (as defined in the 1940 Act) or by the Trust's Board of
Trustees and (ii) by the vote, cast in person at a meeting called for the
purpose, of a majority of the Trust's Trustees who are not parties to this
agreement or "interested persons" (as defined in the 1940 Act) of any such
party.
(b) This agreement may be terminated with respect to a Fund at
any time, without the payment of any penalty, by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act) or by a
vote of a majority of the outstanding voting securities of the Fund (as defined
in the 1940 Act) or by a vote of a majority of the Trust's entire Board of
Trustees on 60 days' written notice to the Adviser or by the Adviser on 60 days'
written notice to the Trust. This agreement shall terminate automatically in the
event of its assignment (as defined in the 1940 Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this agreement, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
<PAGE>
10. The investment management services of the Adviser to the Trust
under this Agreement are not to be deemed exclusive as to the Adviser and the
Adviser will be free to render similar services to others.
11. The Adviser consents to the use by the Fund in its name of the name
"Schroder," or any variant thereof, but only on condition that (a) any change in
such name which continues to use the "Schroder" name or variant is approved in
writing by the Adviser and (b) so long as this Agreement shall comply with all
the provisions expressed herein to be performed, fulfilled or complied with by
it. No such name shall be used by the Fund at any time or in any place for any
<PAGE>
purposes or under any conditions except as provided in this paragraph 11. Upon
any termination of this Agreement by either party or upon the violation of any
of its provisions by the Fund, the Fund will at the request of the Adviser made
within 60 days after the Adviser has knowledge of such termination or violation,
change its name so as to eliminate all reference to "Schroder" or any variant
thereof and will not thereafter transact any business in a name containing such
name or variant, or otherwise use such name or variant.
12. This Agreement shall be construed in accordance with the laws of
the State of New York, provided that nothing herein shall be construed in a
manner inconsistent with the 1940 Act.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
SCHRODER CAPITAL FUNDS (DELAWARE)
By: /s/ Laura E. Luckyn-Malone
----------------------
Title: President
SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC.
By: /s/ Jane P. Lucas
-------------------------------
Title: Director and Senior Vice President
<PAGE>
SCHRODER CAPITAL FUNDS (DELAWARE)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 15th day of March, 1996, between Schroder Capital
Funds (Delaware) (the "Trust"), a business trust organized under the laws of the
State of Delaware with its principal place of business at Two Portland Square,
Portland, Maine 04101, and Schroder Capital Management International Inc. (the
"Adviser"), a corporation organized under the laws of the State of New York with
its principal place of business at One State Street, New York, New York.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue interests (as defined in the Trust's Trust Instrument) in
separate series;
WHEREAS, the Adviser provides investment advice and is registered with
the Securities and Exchange Commission (the "SEC") as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is registered with the United Kingdom Investment Management Regulatory
Organization ("IMRO");
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for Schroder International Smaller Companies Fund and Global Asset
Allocation Fund (each a "Fund," and collectively the "Funds"), and the Adviser
is willing to provide those services on the terms and conditions set forth in
this Agreement; and
WHEREAS, the Adviser is willing to render such investment advisory
services to the Portfolios;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument and Registration Statement filed with the
Securities and Exchange Commission (the "Commission") under the Act, as may be
supplemented from time to time, all in such manner and to such extent as may
from time to time be authorized by the Trust's Board of Trustees (the "Board").
The Trust is currently authorized to issue seven series of interests and the
Board is authorized to issue interests in any number of additional series. The
Trust has delivered to the Adviser copies of the Trust's Trust Instrument and
Registration Statement and will from time to time furnish Adviser with any
amendments thereof.
<PAGE>
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs Adviser, subject to the direction and control
of the Board, to manage the investment and reinvestment of the assets in each
Fund and, without limiting the generality of the foregoing, to provide other
services specified in Section 3 hereof.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser shall make decisions with respect to all purchases and
sales of securities and other investment assets in the Funds. To carry out such
decisions, the Adviser is hereby authorized, as agent and attorney-in-fact for
the Trust, for the account of, at the risk of and in the name of the Trust, to
place orders and issue instructions with respect to those transactions of the
Funds. In all purchases, sales and other transactions in securities for the
Funds, the Adviser is authorized to exercise full discretion and act for the
Trust in the same manner and with the same force and effect as the Trust might
or could do with respect to such purchases, sales or other transactions, as well
as with respect to all other things necessary or incidental to the furtherance
or conduct of such purchases, sales or other transactions.
(b) The Adviser will report to the Board at each meeting thereof all
changes in the Funds since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Funds and the
Adviser, and on its own initiative, will furnish the Board from time to time
with such information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included in a
Fund's holdings, the industries in which they engage, or the economic, social or
political conditions prevailing in each country in which the Fund maintains
investments. The Adviser will also furnish the Board with such statistical and
analytical information with respect to securities in the Funds as the Adviser
may believe appropriate or as the Board reasonably may request. In making
purchases and sales of securities for a Fund, the Adviser will bear in mind the
policies set from time to time by the Board as well as the limitations imposed
by the Trust's Trust Instrument and Registration Statement under the Act, the
limitations in the Act and in the Internal Revenue Code of 1986, as amended, in
respect of regulated investment companies and the investment objectives,
policies and restrictions of the Funds.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect.
(d) The Adviser shall maintain records for each Fund relating to
portfolio transactions and the placing and allocation of brokerage orders as are
required to be maintained by the Trust under the Act. The Adviser shall prepare
and maintain, or cause to be prepared and maintained, in such form, for such
periods and in such locations as may be required by applicable law, all
documents and records relating to the services provided by the Adviser pursuant
to this Agreement required to be prepared and maintained by the Trust pursuant
to the rules and regulations of any national, state, or local government entity
with jurisdiction over the Trust,
1
<PAGE>
including the Commission and the Internal Revenue Service. The books and
records pertaining to the Trust which are in possession of the Adviser shall
be the property of the Trust. The Trust, or the Trust's authorized
representatives, shall have access to such books and records at all times
during the Adviser's normal business hours. Upon the reasonable request of
the Trust, copies of any such books and records shall be provided promptly
by the Adviser to the Trust or the Trust's authorized representatives.
SECTION 4. EXPENSES
The Trust hereby confirms that the Trust shall be responsible and shall
assume the obligation for payment of all the Trust's expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the Trust's custodian and
transfer agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of the Trust's formation and maintaining its existence; costs of
preparing the Trust's registration statement, account application forms and
interestholder reports and delivering them to existing and prospective
interestholders; costs of maintaining books of original entry for portfolio and
fund accounting and other required books and accounts and of calculating the net
asset value of interests in the Trust; costs of reproduction, stationery and
supplies; compensation of the Trust's trustees, officers and employees and costs
of other personnel performing services for the Trust who are not officers of the
Adviser or of Forum Financial Services, Inc. or affiliated persons of either;
costs of Trust meetings; registration fees and related expenses for registration
with the Commission and the securities regulatory authorities of other countries
in which the Trust's interests are sold; state securities law registration fees
and related expenses; and fees and out-of-pocket expenses payable to Forum
Financial Services, Inc. under any placement agent, management or similar
agreement.
SECTION 5. STANDARD OF CARE
(a) The Trust shall expect of the Adviser, and the Adviser will give
the Trust the benefit of, the Adviser's best judgment and efforts in rendering
its services to the Trust, and as an inducement to the Adviser's undertaking
these services the Adviser shall not be liable hereunder for any mistake of
judgment or in any event whatsoever, except for lack of good faith, provided
that nothing herein shall be deemed to protect, or purport to protect, the
Adviser against any liability to the Trust or to the Trust's interestholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties
hereunder, or by reason of the Adviser's reckless disregard of its obligations
and duties hereunder. As used in this Section 5, the term "Adviser" shall
include any affiliates of the Adviser performing services for the Funds
contemplated hereby and directors, officers and employees of the Adviser as well
as the Adviser itself.
(b) The Adviser shall not be liable for any losses caused by
disturbances of its operations by virtue of force majeure, war, riot, or damage
caused by nature or due to other events for which the Adviser is not responsible
(e.g., strike, lock-out or losses caused by the imposition of foreign exchange
controls, expropriation of assets or other acts of domestic or foreign
authorities) except under the circumstances provided for in Section 5(a).
<PAGE>
The presence of exculpatory language in this Agreement shall not in any
way limit or be deemed by anyone to limit the Trust, the Trustees of the Trust,
the Funds, the Adviser, or any other party appointed pursuant to this Agreement,
including without limitation any custodian, as in any way limiting causes of
action and remedies which may, notwithstanding such language, be available to
the Trust, the Trustees of the Trust, Funds or any other party appointed
pursuant to this Agreement, either under common law or statutory law principles
applicable to fiduciary relationships or under the Federal securities laws.
SECTION 6. COMPENSATION
In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to each of the Funds, a fee at an annual rate as listed in Appendix
A hereto. Such fees shall be accrued by the Trust based on average daily net
assets and shall be payable monthly in arrears on the first day of each calendar
month for services performed hereunder during the prior calendar month. No fee
shall be payable hereunder with respect to a Fund during any period in which the
Fund invests all (or substantially all) of its investment assets in a
registered, open-end management investment company, or separate series thereof,
in accordance with Section 12(d)(1)(E) under the Investment Company Act of 1940.
SECTION 7. EFFECTIVENESS, DURATION, AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon approval by a majority of the outstanding voting interests of
that Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive twelve-month periods (computed from each anniversary date
of the approval) with respect to the Fund; provided that such continuance is
specifically approved at least annually (i) by the Board or by the vote of a
majority of the outstanding voting interests of the Fund, and, in either case,
(ii) by a majority of the Trust's trustees who are not parties to this Agreement
or interested persons of any such party (other than as trustees of the Trust);
provided further, however, that if this Agreement or the continuation of this
Agreement is not approved as to a Fund, the Adviser may continue to render to
that Fund the services described herein in the manner and to the extent
permitted by the Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting interests of a Fund on 60 days' written
notice to the Adviser or (ii) by the Adviser on 60 days' written notice to the
Trust. This agreement shall terminate upon assignment.
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers,
<PAGE>
directors or employees who may also be a trustee, officer or employee of the
Trust, or persons otherwise affiliated persons of the Trust to engage in
any other business or to devote time and attention to the management or
other aspects of any other business, whether of a similar or dissimilar nature,
or to render services of any kind to any other corporation, trust, firm,
individual or association. It is specifically understood that officers,
directors and employees of the Adviser and its affiliates may continue to
engage in providing portfolio management services and advice to other investment
companies, whether or not registered, and to other investment advisory
clients. When other clients of the Adviser desire to purchase or sell a
security at the same time such security is purchased or sold for the Funds,
such purchases and sales will, to the extent feasible, be allocated among
the Funds and such clients in a manner believed by the Adviser to be equitable
to the Funds and such clients.
SECTION 9. LIMITATION OF INTERESTHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the interestholders of the Funds shall
not be liable for any obligations of the Trust or of the Funds under this
Agreement, and the Adviser agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Trust or
the Funds to which the Adviser's rights or claims relate in settlement of such
rights or claims, and not to the Trustees of the Trust or the interestholders of
the Funds.
SECTION 10. NOTICE
Any notice or other communication required to be given pursuant to this
Agreement shall be in writing or by telex and shall be effective upon receipt.
Notices and communications shall be given, if to the Trust, at:
Schroder Capital Funds (Delaware)
Two Portland Square
Portland, Maine 04101
Attention: Thomas G. Sheehan
and if to the Adviser, at:
Schroder Capital Management International Inc.
787 Seventh Avenue, 29th Floor
New York, New York 10019
Attention: Laura Luckyn-Malone
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting interests of the Funds
<PAGE>
thereby affected. No amendment to this Agreement or the termination of this
Agreement with respect to a Fund shall effect this Agreement as it pertains to
any other Fund.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(d) Section headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
(e) This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Delaware.
(f) The Adviser confirms that each Fund is a "Non-private
Customer" as defined in the rules of IMRO.
(g) The terms "vote of a majority of the outstanding voting interests,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act to the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated person" and
"assignment," respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SCHRODER CAPITAL FUNDS (DELAWARE)
_/s/ Laura E. Luckyn-Malone
-----------------------------------
Laura E. Luckyn-Malone
President
SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC.
_/s/ David Gobson
------------------------------------
David Gibson
Director
<PAGE>
SCHRODER CAPITAL FUNDS (DELAWARE)
INVESTMENT ADVISORY AGREEMENT
Appendix A
Annual Fee as a % of
the Average Daily
Funds of the Trust Net Assets of the Fund
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Schroder International Smaller Companies Fund 0.85%
Schroder Global Asset Allocation Fund 0.75%