<PAGE>
[GRAPHIC]
SCHRODERS
SCHRODER U.S. EQUITY FUND
INVESTOR SHARES
PROSPECTUS
MARCH 1, 1997
SCHRODER CAPITAL FUNDS (DELAWARE)
<PAGE>
FUNDS AVAILABLE THROUGH SCHRODER FUND ADVISORS INC.
PLEASE CALL FOR COMPLETE INFORMATION AND TO OBTAIN A PROSPECTUS.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
SCHRODER CAPITAL FUNDS (DELAWARE) (1-800-290-9826)
SCHRODER INTERNATIONAL FUND
SCHRODER EMERGING MARKETS FUND--INSTITUTIONAL PORTFOLIO
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER U.S. EQUITY FUND
SCHRODER SERIES TRUST (1-800-464-3108)
SCHRODER EQUITY VALUE FUND
SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER HIGH YIELD INCOME FUND
SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER SHORT-TERM INVESTMENT FUND
<PAGE>
SCHRODER U.S. EQUITY FUND
INVESTOR SHARES
This fund's investment objective is to seek growth of capital. It seeks to
achieve its objective by investing in common stock and securities convertible
into common stock.
This Prospectus sets forth concisely the information you should know before
investing in Schroder U.S. Equity Fund (the "Fund") and should be retained for
future 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 March 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 their
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
1-800-290-9826. 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
MARCH 1, 1997
<PAGE>
PROSPECTUS SUMMARY
This Prospectus offers Investor Class shares ("Investor Shares" or
"Shares") of the Fund. The Fund 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. Growth of capital.
STRATEGY. Invests at least 65% of its total assets, and normally expects to
invest substantially all of its assets, in common stock, and in securities
convertible into common stock, of U.S. issuers.
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 Portfolio
Managers".
ADMINISTRATIVE SERVICES. SCMI is also the administrator of the Fund.
Schroder Fund Advisors Inc. ("Schroder Advisors"), an affiliate of SCMI, serves
as 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, except that the minimum
for an Individual Retirement Account ("IRA") is $2,000. The minimum subsequent
investment is $2,500 except that for IRAs the minimum is $250. 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 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 growth of capital and are willing to
accept the risks associated with investments in equity securities of large
capitalization securities. The Fund's net asset value and total return will
fluctuate with changes in the value of the securities in which the Fund invests.
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 changes with changes in the value of the securities in which
the Fund invests and with changes in market conditions, interest rates, or
political or economic situations. When you sell your shares, they may be worth
more or less than what you paid for them. For further information see "Risk
Considerations".
2
<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 restated to reflect
projected fees, expenses and waivers for the current fiscal year.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
Management Fees (after waivers) (1)(2). . . . . . . . . . . . . . . 0.65%
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 0.83%
Total Fund Operating Expenses (after waivers)(2). . . . . . . . . . 1.48%
(1) Management Fees reflect the fees paid by the Fund to SCMI for
investment advisory and administrative services.
(2) Without fee waivers, Management Fees and Total Operating Expenses
would be 0.75% and 1.58%, respectively.
SCMI has voluntarily undertaken to waive a portion of its fees during the
current fiscal year. This undertaking cannot be withdrawn except by a
majority vote of the Trust's Board of Trustees. See "Management of the Fund
--Expenses".
EXAMPLE
The table below indicates how much you would pay in total expenses on a
$1,000 investment in Investor Shares of 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 . . . . . . . . . . . $15
3 YEARS. . . . . . . . . . . $47
5 YEARS. . . . . . . . . . . $81
10 YEARS . . . . . . . . . . $177
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights of the Fund are presented below to assist you in
evaluating per share performance of the Fund's Investor Shares for the periods
shown. This information is part of the Fund's financial statements and has been
audited by Coopers & Lybrand L.L.P., independent accountants to the Fund. The
Fund's financial statements for the year ended October 31, 1996 and the related
independent accountants' report are contained in the Fund's Annual Report to
Shareholders and are incorporated by reference into the SAI. Further information
about the performance of the Fund's Investor Shares is contained in the Annual
Report to Shareholders, which may be obtained without charge by writing the Fund
at Two Portland Square, Portland, Maine 04101 or by calling 1-800-290-9826.
<TABLE>
<CAPTION>
Year Ended October 31,
1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.41 $ 8.52 $ 11.28 $ 10.51 $ 9.56
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.04 0.07 0.04 0.05 0.02
Unrealized Gain (Loss) 1.62 1.33 (0.27) 1.86 1.61
Total From Investment Operations 1.66 1.40 (0.23) 1.91 1.63
------- ------- ------- ------- -------
Distributions from Net Investment Income (0.07) (0.05) (0.01) (0.04) (0.04)
Distributions from Net Realized Capital Gain (1.24) (0.46) (2.52) (1.10) (0.58)
Distributions from Paid-In Capital -- -- -- -- (0.06)
-----
Total Distributions (1.31) (0.51) (2.53) (1.14) (0.68)
------- ------- ------- ------- -------
Net Asset Value, End of Period
$ 9.76 $ 9.41 $ 8.52 $ 11.28 $ 10.51
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return 19.45% 17.68% (2.01)% 19.49% 17.74%
Ratios/Supplementary Data:
Net Assets, End of Year (thousands) $17,187 $19,688 $18,483 $21,865 $19,882
Ratio of Expenses to Average Net Assets 1.40%(a) 1.40% 1.31% 1.18% 1.40%
Ratio of Net Investment
Income to Average Net Assets
0.43%(a) 0.78% 0.41% 0.51% 0.42%
Portfolio Turnover Rate 56.8% 57.21% 27.43% 57.78% 31.33%
Average Brokerage Commission Rate (b) $0.0599 N/A N/A N/A N/A
<CAPTION>
Year Ended October 31,
1991 1990 1989 1988 1987
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.05 $ 8.35 $ 7.49 $ 10.15 $ 12.55
------- ------- ------- ------- -------
Investment Operations:
Net Investment Income 0.09 0.11 0.17 0.18 0.20
Net Realized and Unrealized Gain (Loss) 2.57 (0.77) 1.30 0.28 0.18
Total From Investment Operations 2.66 (0.66) 1.47 0.46 0.38
------- ------- ------- ------- -------
Distributions from Net Investment Income (0.11) (0.11) (0.15) (0.18) (0.25)
Distributions from Net Realized Capital Gain -- (0.53) (0.46) (2.94) (2.53)
Distributions from Paid-In Capital (0.04) -- -- -- --
-------
Total Distributions (0.15) (0.64) (0.61) (3.12) (2.78)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 9.56 $ 7.05 $ 8.35 $ 7.49 $ 10.15
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return 38.16% (8.78)% 21.05% 7.74% 2.55%
Ratios/Supplementary Data:
Net Assets, End of Year (thousands) $20,234 $18,290 $23,838 $25,569 $29,749
Ratio of Expenses to Average Net Assets 1.39% 1.34% 1.49% 1.60% 1.30%
Ratio of Net Investment
Income to Average Net Assets 1.30% 1.59% 1.99% 1.89% 1.60%
Portfolio Turnover Rate 29.98% 28.31% 40.35% 18.42% 43.11%
Average Brokerage Commission Rate (b) N/A N/A N/A N/A N/A
</TABLE>
(a) During the year ended October 31, 1996, the investment adviser waived a
portion of its fee. Had such waiver not occurred, the ratio of expenses to
average net assets would have been 1.43% and the ratio of net investment
income to average net assets would have been 0.40%.
(b) Amount represents the average commission per share paid to brokers on the
purchase and sale of portfolio securities.
4
<PAGE>
INVESTMENT OBJECTIVE
The primary investment objective of the Fund is to seek growth of capital.
The Fund is not intended for investors whose objective is assured income or
preservation of capital. There can be no assurance that the Fund will achieve
its investment objective.
The Fund in the future may seek to achieve its investment objective by
holding, as its only investment securities, the securities of another investment
company having substantially the same investment objective and policies as the
Fund (in accordance with the provisions of the 1940 Act or any orders, rules or
regulations thereunder adopted by the Securities and Exchange Commission).
INVESTMENT POLICIES
The investment objective, and the investment policies of the Fund that are
designated as fundamental, may not be changed without approval of the holders of
a majority of the outstanding voting securities of the Fund. 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's Board of Trustees (the "Trust Board") without approval of
the Fund's shareholders.
The Fund seeks to achieve its investment objective by investing at least
65% of its total assets, and normally expects to invest substantially all of its
assets, in common stock, and securities convertible into common stock, of U.S.
issuers. As part of this policy, the Fund may also invest in other securities
with common stock purchase warrants attached, in such warrants themselves, or in
other rights to purchase common stock.
The Fund may also invest up to 15% of its assets in investment grade non-
convertible preferred securities and non-convertible debt securities when
management believes that they will yield greater returns than U.S. Government
securities or bank certificates of deposit.
The Fund generally purchases securities that SCMI believes have potential
for capital appreciation. Securities generally are sold when SCMI believes that
such potential no longer exists or the risk of market-price decline is too
great.
Management may pursue a temporary defensive strategy when it believes that
the market appears relatively fully priced or when facing uncertain economic
conditions. For temporary defensive purposes, the Fund may invest all or any
portion of its assets in investment-grade corporate bonds or debentures (meaning
for these purposes bonds or debentures rated "A" or better by Standard & Poor's
Rating Group or the equivalent thereof); preferred stock; U.S. Government
securities; or bank certificates of deposit.
The Fund may also invest temporarily in certain short-term fixed-income
securities. Such securities (which may include U.S. Government securities,
commercial paper, bank certificates of deposit and bankers' acceptances, and
repurchase agreements collateralized by these securities) may be used to invest
uncommitted cash balances or to maintain liquidity to meet shareholder
redemptions or other Fund obligations. The Fund will limit its total investment
at any time in these securities for this operating purpose to not more than 25%
of its total assets.
The Fund may from time to time acquire securities that are subject to legal
or contractual restrictions on resale ("restricted securities"). The risk
involved is that a considerable delay might occur between the time a decision is
made to sell the restricted securities and the time the Fund is permitted to
sell all or part of such securities (publicly under a registration statement or
an exemption from registration, or privately to a suitable purchaser). That
delay could lower the price the Fund obtains for the securities and, in a
registration, the Fund could be required to pay registration expenses.
5
<PAGE>
Current holdings and recent investment strategies are described in the
Fund's Annual and Semi-Annual Reports. For a free Annual or Semi-Annual Report
or SAI, please call (800) 290-9826.
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; they 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. 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 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, which are options to purchase an
equity security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time.
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 the 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. As a non-fundamental policy, the Fund
will not purchase or otherwise acquire any security if, as a result, more than
10% of its net assets (taken at current value) would be invested in securities
that are illiquid by virtue of (i) the absence of a readily available market or
(ii) being restricted securities. There may be undesirable delays in selling
illiquid securities at prices representing their fair value. This policy
includes over-the-counter options held by the Fund and the portion of its assets
used to cover such options. The limitation on investing in restricted securities
does not include securities that may not be resold to the general public but may
be resold to qualified institutional purchasers (pursuant to Rule 144A under the
Securities Act of 1933, as
6
<PAGE>
amended). If SCMI determines that a "Rule 144A 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 Rule 144A security, that security may
become illiquid, which could affect the Fund's liquidity. See "Investment
Policies -- Illiquid and Restricted Securities" in the SAI for further
information.
LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend portfolio securities
(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
Portfolio's total asset value. By so doing, the Portfolio attempts to earn
interest income. In the event of the other party's bankruptcy, the Portfolio
could experience delays in recovering the securities it lent; if in the
meantime, the value of the securities the Portfolio lent has increased, the
Portfolio could experience a loss.
RISK CONSIDERATIONS
The net asset value of the Fund is expected to fluctuate, and Fund shares
are neither insured nor guaranteed by the U.S. Government. To the extent that
the Fund holds both equity and fixed-income securities, it is subject to equity
market risk as well as credit and interest-rate risks. Equity market risk is
the risk that common stock prices will fluctuate or decline over short or even
extended periods of time. Credit risk is the risk that an issuer of a debt
instrument is unable, due to financial constraints, to make timely payments on
its obligations. Interest-rate risk is the risk that increases in market
interest rates and may adversely affect the value of the debt obligations held
by the Fund. The value of debt obligations generally changes inversely to
changes in market interest rates. Of course, as with all mutual funds, there is
no assurance that the Fund will achieve its investment objective.
MANAGEMENT OF THE FUND
SCHRODER GROUP ASSETS UNDER MANAGEMENT WORLDWIDE AS OF DECEMBER 31, 1996
-- OVER $130 BILLION
[GRAPHIC]
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, BOGOTA AND CARACAS.
TOGETHER, SCHRODER CAPITAL MANAGEMENT INTERNATIONAL AND
SCHRODER CAPITAL MANAGEMENT INC. MANAGE OVER $24 BILLION.
7
<PAGE>
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 PORTFOLIO MANAGERS
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 fee at the annual rate of
0.75% of the Fund's average daily net assets for the first $100 million and
0.50% of the Fund's average daily net assets in excess of $100 million. For the
fiscal year ended October 31, 1996, the total advisory fees paid by the Fund to
SCMI represented an annual effective rate of 0.75% of the Fund's average daily
net assets.
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 investment management team of Jane P. Lucas, Vice President of the
Trust and a Director and Senior Vice President of SCMI, and Paul Morris, a
Senior Vice President of SCMI (with the assistance of an investment committee),
is primarily responsible for the day-to-day management of the Fund's
investments. Ms. Lucas, who has managed the Fund's portfolio since November
1995, has been a Senior Vice President and Director of SCMI since September
1995. She has been employed by various Schroder Group companies in the
investment research and portfolio management areas since 1987. Mr. Morris has
been a Senior Vice President of SCMI and a Director of Schroder Capital
Management Inc. since January 1997. Prior thereto he was Principal and Senior
Portfolio Manager, at Weiss Peck & Greer, L.L.C.; Managing Director (Equity
Division) UBS Asset Management and Equity Portfolio Manager, at Chase Investors
Management Corp. Mr. Morris has co-managed the Fund since January 1997.
ADMINISTRATIVE SERVICES
SCMI provides administration services for the Fund. The Trust has entered
into a subadministration agreement with Forum, Two Portland Square, Portland,
Maine 04101. SCMI and Forum provide certain management and administrative
services necessary for the Fund's operations. Forum is compensated at the
annual rate of 0.10% of the Fund's average daily net assets.
EXPENSES
SCMI voluntarily has undertaken to waive a portion of its fees in order to
limit fees paid for the Fund's investment advisory services to 0.65% of its
average daily net assets. This fee waiver cannot be withdrawn except by a
majority vote of the Trustees of the Trust who are not affiliated persons (as
defined in the 1940 Act) of the Trust. Forum may waive voluntarily all or a
portion of its fees, from time to time.
8
<PAGE>
PORTFOLIO TRANSACTIONS
SCMI places orders for the purchase and sale of the Fund's investments with
brokers and dealers selected by SCMI and seeks "best execution" of such
portfolio 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.
Subject to the Fund's policy of obtaining the best price consistent with
quality of execution on transactions, SCMI may employ Schroder Wertheim &
Company, Incorporated ("Schroder Wertheim"), an affiliate of SCMI, to effect
transactions of the Fund on the New York Stock Exchange. Because of the
affiliation between SCMI and Schroder Wertheim, the Fund's payment of
commissions to Schroder Wertheim 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 is
directed to Schroder Wertheim and, in no event, will Schroder Wertheim receive
any brokerage in recognition of research services.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking the most favorable price and execution
available and such other policies as the Trust Board may determine, SCMI may
consider sales of shares of the Fund as a factor in the selection of broker-
dealers to execute transactions for the Fund.
Although the Fund does not currently engage in directed brokerage
arrangements to pay expenses, it may do so in the future. These 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) might reduce the Fund's expenses and would not be
expected to increase materially the brokerage commissions paid by the Fund.
Brokerage commissions are not deemed to be Fund expenses.
CODE OF ETHICS
The Trust, SCMI 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 service organizations that assist their
customers in purchasing shares of the Fund ("Service Organizations") Service
Organizations may charge their customers a service fee for processing orders to
purchase or sell shares of the Fund. Investors wishing to purchase shares
through their accounts at a Service Organization should contact that
organization directly for appropriate instructions.
Shares of the Fund are offered at the net asset value next determined after
receipt of a completed account application (at the address set forth below). The
minimum initial investment is $10,000, except that the minimum for an IRA is
$2,000. The minimum subsequent investment is $2,500, except that for IRAs the
minimum is $250.
9
<PAGE>
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 U.S. Equity Fund, to:
Schroder U.S. Equity 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
subscription request.
Investors and Service Organizations (on behalf of their customers) may
transmit purchase payments by Federal Reserve Bank wire directly to the Fund as
follows:
Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Financial Corp.
Account No.: 910-2-718187
Ref.: Schroder U.S. Equity Fund C Investor Shares
Account of: (shareholder name)
Account Number: (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 account can
become active. 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
capital-gain 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 capital gains will be automatically reinvested. In
addition, the amount of any outstanding checks for dividends and capital gains
that have been returned to the Transfer Agent will be reinvested, and such
checks will be canceled.
RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the Fund 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.
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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, and 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 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 $10,000 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 shares of the Fund for shares of any other series
of Schroder Capital Funds (Delaware) so long as they maintain the respective
minimum account balance in each Fund in which they own shares. Exchanges between
each Fund are at net asset value, subject to any applicable transaction charges
imposed by either Fund involved in the exchange.
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) 334-8332 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 series being acquired may legally be sold. Exchange
privileges may be amended or terminated at any time upon sixty (60) days'
notice.
REDEMPTION OF SHARES
Shares of the Fund 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
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Transfer Agent to confirm that such instructions are genuine. The Transfer Agent
and the Trust generally will not be liable for any losses due to unauthorized or
fraudulent redemption requests, but may be liable if they do not follow these
procedures. Shares for which certificates have been issued may not be redeemed
by telephone. In times of drastic economic or market changes, it may be
difficult to make redemptions by telephone. If a shareholder cannot reach the
Transfer Agent by telephone, redemption requests may be mailed or hand-delivered
to the Transfer Agent.
WRITTEN REQUESTS. Redemptions may be made by letter to the Fund specifying
the class of shares, the dollar amount or number of shares to be redeemed, and
the shareholder account number. The letter must also be signed in exactly the
same way the account is registered (if there is more than one owner of the
shares, all must sign) and, in certain cases, signatures must be guaranteed by
an institution that is acceptable to the Transfer Agent. Such institutions
include certain banks, brokers, dealers (including municipal and government
securities brokers and dealers), credit unions and savings associations.
Notaries public are not acceptable. Further documentation may be requested to
evidence the authority of the person or entity making the redemption request.
Questions concerning the need for signature guarantees or documentation of
authority should be directed to the Fund at the above address or by calling the
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
is 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 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 -- 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 $10,000, 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 $10,000
and be allowed at least 30 days to make an additional investment to increase the
account balance to at least $10,000.
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<PAGE>
NET ASSET VALUE
The net asset value per share is calculated separately for each class of
shares of the Fund at 4:00 p.m. (Eastern Time), Monday through Friday, each Fund
Business Day, which excludes the following U.S. holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per share of each class is
calculated by dividing the aggregate value of the Fund's assets allocable to a
particular class, less the liabilities charged to that class, by the total
number of outstanding shares of that class less all Fund liabilities.
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. Prices used for such valuations may be provided by independent
pricing services. 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 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
net income or net realized capital gain that is distributed to shareholders. The
Fund intends to distribute substantially all of its net income and net realized
capital gain and, therefore, intends not to be subject to federal income tax. In
its effort to adhere to these requirements, the Fund may have to limit its
investment activity in some types of instruments.
Dividends and capital-gain distributions on shares of a class are
reinvested automatically in additional shares of the same class 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 and distributions on Advisor Shares are expected
to be lower than the per share dividends and distributions 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 dividends are invested in additional shares or
received in cash. Distributions by the Fund of any net 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.
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 includes 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 28, 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 series (such as the Fund) and may divide such series into
classes of shares (such as the Investor Shares), and the costs of doing so will
be borne by the Trust. The Trust currently consists of eight separate series,
each of which has separate investment objectives 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.
Shares are fully paid and 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 series or class, only shareholders of that
series or class shall have a right to vote. On Trust matters requiring
shareholder approval, shareholders are entitled to vote only with respect to
matters that affect the interests of the series and class of shares they hold,
except as otherwise required by applicable law.
There normally will 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. The Board will call a
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<PAGE>
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 Fund shareholder a semi-annual report and an audited
annual report containing the Fund's financial statements.
PERFORMANCE
Quotations of the average annual total return, cumulative total return and
other non-standard performance measures for a class of shares may be included 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 and any class 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 of a class of shares also 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 average annual and cumulative total returns and other performance
measures for the Fund's classes, please see the SAI.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. is custodian of the Fund's assets. Forum
Financial Corp. serves as the Fund's transfer and dividend disbursing agent.
SHAREHOLDER INQUIRIES
Inquiries about the Fund, including past performance of shares, should be
directed to:
Schroder U.S. Equity 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.
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
15
<PAGE>
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either federal or state regulations relating
to the permissible activities of banks and their subsidiaries or affiliates,
could prevent a bank Service Organization from continuing to perform all or part
of its servicing activities. If a bank were prohibited from so acting, its
shareholder clients would be permitted to remain shareholders of the Fund, and
alternative means for continuing the servicing of such shareholders would be
sought. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
FUND STRUCTURE
CLASSES OF SHARES. The Fund has two classes of shares, Investor Shares and
Advisor Shares. Advisor Shares are offered by a separate prospectus to
individual investors, in most cases through Service Organizations. Advisor
Shares incur more expenses than Investor Shares. Except for certain
administrative differences, shares of each class represent 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 is expected to
differ between the classes. Information about Advisor Shares is available from
the Fund by calling Schroder Advisors at (800) 730-2932.
16
<PAGE>
INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue
New York, New York 10019
ADMINISTRATOR & DISTRIBUTOR
Schroder Capital Management International 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, N.A.
Chase MetroTech Center
Brooklyn, New York 11245
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
EXPENSES OF INVESTING IN THE FUND. . . . . . . . . . . . . . . . . . . . .4
Fee Table. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Example. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . .5
INVESTMENT OBJECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
RISK CONSIDERATIONS......... . . . . . . . . . . . . . . . . . . . . . . .8
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . .8
Board of Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Investment Adviser and Portfolio Managers. . . . . . . . . . . . . . . . .9
Administrative Services. . . . . . . . . . . . . . . . . . . . . . . . . .9
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 10
Code of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
INVESTMENT IN THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . 10
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Retirement Plans and Individual Retirement Accounts. . . . . . . . . . . 11
Statement of Intention . . . . . . . . . . . . . . . . . . . . . . . . . 12
Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DIVIDENDS, DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . 14
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capitalization and Voting. . . . . . . . . . . . . . . . . . . . . . . . 15
Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . 16
Shareholder Inquiries. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Service Organizations. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Fund Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
SCHRODER U.S. EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1997
- --------------------------------------------------------------------------------
[GRAPHIC]
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 U.S. Equity 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 herein). Advisor Shares
incur more 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 current
Prospectus for the Fund dated March 1, 1997 (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. 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
INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . .
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Primary Investments . . . . . . . . . . . . . . . . . . . . . . . .
Temporary Defensive and Operating Investments . . . . . . . . . . .
Restricted Securities . . . . . . . . . . . . . . . . . . . . . . .
Leverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . .
Investment Adviser. . . . . . . . . . . . . . . . . . . . . . . . .
Subadministrator. . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of Fund Shares . . . . . . . . . . . . . . . . . . . .
Portfolio Accounting. . . . . . . . . . . . . . . . . . . . . . . .
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . .
Investment Decisions. . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Brokerage . . . . . . . . . . . . . . . . . . . . . . . .
SHARE OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION. . . . . . . . . . . . . . . . . . . . . .
Determination of Net Asset Value. . . . . . . . . . . . . . . . . .
Redemption in Kind. . . . . . . . . . . . . . . . . . . . . . . . .
TAXATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .
Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization and Voting . . . . . . . . . . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . . . . . . . . . . .
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent and Dividend Disbursing Agent. . . . . . . . . . . .
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Accountants . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . .
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INTRODUCTION
Schroder U.S. Equity Fund is a diversified, separately-managed portfolio of
Schroder Capital Funds (Delaware) (the "Trust"), an open-end management
investment company currently consisting of six separate portfolios, each of
which has a different investment objective and policies.
The Fund's investment objective is to seek growth of capital. There is no
assurance that this objective will be achieved. The Fund invests at least 65%
of its total assets, and normally expect to invest substantially all its assets,
in common stocks, and securities convertible into common stock, of U.S. issuers.
The Fund also may invest in warrants or other rights to purchase common stock,
and to a lesser extent in non-convertible preferred stock and debt securities.
INVESTMENT POLICIES
INTRODUCTION
The Fund's investment objective and policies authorize it to invest in certain
types of securities and to engage in certain investment techniques identified in
"Investment Objective" and "Investment Policies" in the Prospectus. The
following information supplements the discussion in those sections by providing
additional information or elaborating upon the discussion there.
The Fund is a "diversified" portfolio and, as such, at least 75% of its total
assets must be represented by cash and cash items, Government securities and
securities limited in respect of any one issuer to not more than 5% of the
Fund's total assets and to not more than 10% of the voting securities of such
issuer. The classification of the Fund as diversified under the Investment
Company Act of 1940 (the "1940 Act") cannot be changed without the majority
approval of the Fund's shareholders. As used in this SAI, "majority approval of
the Fund's shareholders" means approval of the lesser of (i) 67% or more of the
Fund's shares present at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the Fund.
The investment objective of the Fund set forth in the Prospectus is a
fundamental policy of the Fund, meaning that it cannot be changed without
majority approval of the Fund's shareholders. A non-fundamental policy could be
changed by the Trust's Board of Trustees (the "Trust Board") without such prior
shareholder approval. Unless otherwise indicated, all of the investment
policies of the Fund described below are also fundamental policies.
PRIMARY INVESTMENTS
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, substantially all its assets in
common stocks and 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 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
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structure and, therefore, carry less risk than the corporation's common stock.
The value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion value"
(the security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
TEMPORARY DEFENSIVE AND OPERATING INVESTMENTS
For temporary defensive purposes, the Fund may invest all or any portion of its
assets in investment-grade corporate bonds or debentures (meaning for these
purposes bonds or debentures rated "A" or better by Standard & Poor's Rating
Group ("S&P") or the equivalent thereof), preferred stock, U.S. Government
securities or bank certificates of deposit. (According to S&P, bonds rated "A"
have a strong capacity to pay principal and interest although they are somewhat
more susceptible to the adverse effect of changes in circumstances and economic
conditions.) The conditions under which the Fund may so invest for temporary
defensive purposes will be at times when in the opinion of the investment
adviser, the market appears relatively fully priced or uncertain economic
conditions indicate the advisability of assuming such a temporary defensive
position.
As an operating, non-fundamental policy, the Fund also may invest temporarily in
certain short-term fixed-income securities. Such securities may be used to
invest uncommitted cash balances or to maintain liquidity to meet shareholder
redemptions or other Fund obligations. Such securities might include U.S.
Government securities, commercial paper, bank certificates of deposit, time
deposits and bankers acceptances, and repurchase agreements collateralized by
such securities. The Fund will limit its total investment at any time in these
securities for this operating purpose to not more than 25% of its total assets.
Certain of the securities in which the Fund may invest for either of the
foregoing temporary purposes are more fully described as follows:
U.S. GOVERNMENT SECURITIES - These securities consist of obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Agencies and instrumentalities which issue or guarantee debt securities and that
have been established or sponsored by the U.S. Government include the Bank for
Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal
Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage
Association, the Government National Mortgage Association, and the Student Loan
Marketing Association.
BANK OBLIGATIONS - These securities consist of certificates of deposit and
bankers' acceptances issued by U.S. banks having total assets at the time of
purchase in excess of $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. The foregoing limitation as to banks in whose obligations the Fund may
invest is a non-fundamental policy of the Fund. The Fund also may invest in
time deposits 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 market.
COMMERCIAL PAPER - These instruments are short-term unsecured promissory
notes issued in bearer form by bank holding companies, corporations and finance
companies. The commercial paper purchased by the Fund for temporary purposes
consists of direct obligations of domestic issuers that, at the time of
investment, are rated "P-1" by Moody's Investor Services, Inc. ("Moody's") or
"A-1" by S&P, or securities, if not rated, are issued by companies having an
outstanding debt issue currently rated "Aa" by Moody's or "AAA" or "AA" by S&P.
The rating "P-1" is the highest commercial paper rating assigned by Moody's, and
the rating "A-1" is the highest commercial paper rating assigned by S&P. Such
limitations with respect to commercial paper constitute a non-fundamental policy
of the Fund.
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REPURCHASE AGREEMENTS - The Fund may invest in securities subject to
repurchase agreements that mature or may be terminated by notice in seven days
or less (normally one day) with member banks of the Federal Reserve System or
certain dealers listed on the Federal Reserve Bank of New York's list of
reporting dealers or their affiliates. In a typical repurchase agreement, the
seller of a security commits itself at the time of the sale to repurchase such
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 the underlying security.
The value of the underlying collateral is monitored by the Fund's investment
adviser at all times during the term of the repurchase agreement to insure that
the value of the collateral always equals or exceeds the repurchase price. In
the event of default by the seller under the repurchase agreement, the Fund may
have difficulties in exercising its rights to the underlying collateral and may
incur costs and experience time delays in connection with the disposition of
such collateral. To evaluate potential risks, the investment adviser reviews
the creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements. The foregoing policy with respect to repurchase
agreements is a non-fundamental policy of the Fund.
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 Portfolio
may not be able to obtain as favorable a price as that prevailing at the time of
the decision to sell.
LEVERAGE
The Fund is authorized to borrow money from a bank on its promissory note or
other evidence of indebtedness. Monies borrowed would be invested and any
appreciation thereon, to the extent it exceeded interest paid on the loan, would
cause the net assets value of Fund shares to rise faster than it would
otherwise. If, however, the investment performance of additional monies failed
to cover the Fund's interest charges, the net asset value would decrease faster
than would otherwise be the case. This is the speculative feature known as
"leverage". Any such borrowing (i) would not exceed one-third of the value of
the Fund's total assets after borrowing, (ii) if at any time it exceeded such
one-third limitation, the Fund would within three days thereafter (not including
Sundays or holidays) or such longer period as the Securities and Exchange
Commission may prescribe by rules and regulations, reduce its borrowings to the
limitation and (iii) might or might not be secured and, if secured, all or any
part of the Fund's assets could be pledged. To comply with such limitations,
the Fund might be required to dispose of certain assets when it might be
disadvantageous to do so. Any such borrowings would be subject to Federal
Reserve Board regulations. The Fund has not borrowed money for investment or
any other purpose during the last ten years and, as a non-fundamental policy,
will not borrow for investment in the future.
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) consist of cash, bank letters of
credit, U.S. Government securities, other cash equivalents or liquid equity
securities in which the Fund is permitted to invest. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by
the Fund if the demand meets the terms of the letter. Such terms and the
issuing bank must be satisfactory to the Fund. When lending portfolio
securities, the Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan plus the interest on the collateral securities (less any finders' or
administrative fees the Fund pays in arranging the loan). The Fund may share
the interest it receives on the collateral securities with the borrower if it
realizes at least a minimum amount of interest required by the lending
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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.
Portfolio securities purchased with cash collateral are subject to possible
depreciation. Loans of securities by the Fund will be 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 Schroder Core's Board of Trustees.
INVESTMENT RESTRICTIONS
The following investment restrictions are in addition to those described under
"The Fund -- Investment Restrictions" in the Prospectus. These restrictions,
which are fundamental policies (except as set forth), provide that the Fund:
1. Will not issue senior securities except that it may borrow money from
a bank on its promissory Fund's total assets after the borrowing, (ii) if at any
time it exceeded such one-third limitation, the Fund would within three days
thereafter (not including Sundays or holidays) or such longer period as the
Securities and Exchange Commission may prescribe by rules and regulations,
reduce its borrowings to the limitation and (iii) might or might not be secured
and, if secured, all or any part of the Fund's assets could be pledged. To
comply with such limitations, the Fund might be required to dispose of certain
assets when it might be disadvantageous to do so. Any such borrowings would be
subject to Federal Reserve Board regulations. (As a non-fundamental policy, the
Fund will not borrow for investment purposes.)
2. Will not effect short sales, purchase any security on margin or write
or purchase put and call options.
3. Will not acquire more than 10% of the voting securities of any one
issuer.
4. Will not invest 25% or more of the value of its total assets in any
one industry.
5. Will not engage in the purchase and sale of illiquid interests in real
estate, including illiquid interests in real estate investment trusts.
6. Will not engage in the purchase and sale of commodities or commodity
contracts.
7. Will not invest in companies for the purpose of exercising control or
management.
8. Will not underwrite securities of other issuers, except that the Fund
may acquire portfolio securities, not in excess of 10% of the value of its total
assets, under circumstances where if sold it might be deemed to be an
underwriter for the purposes of the Securities Act of 1933.
9. Will not make loans to other persons except that it may purchase
evidences of indebtedness of a type distributed privately to financial
institutions but not in excess of 10% of the value of its total assets.
10. Will not acquire securities described in 8 and 9 above which in the
aggregate exceed 10% of the value of the Fund's total assets.
11. Will not invest in other investment companies.
As non-fundamental policies, the Fund (i) will not invest more than 10% of its
total assets in illiquid securities, including securities described in items 8
and 9 above and repurchase agreements maturing more than seven days, and (ii)
will not engage in writing, buying or selling of stock index futures, options on
stock index futures, financial futures contracts or options thereon.
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MANAGEMENT
TRUSTEES AND OFFICERS
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, Oyster Bay, New York - Trustee of the Trust - Insurance
Consultant since August 1986; prior thereto Senior Vice President, Marsh &
McLennan, Inc., insurance brokers.
RALPH E. HANSMANN (Honorary), 40 Wall Street, New York, New York - Honorary
Trustee of the Trust - Private investor; Director, First Eagle Fund of America,
Inc.; Director, Verde Exploration, Ltd.; Trustee Emeritus, Institute for
Advanced Study; Trustee and Treasurer, New York Public Library; Life Trustee,
Hamilton College.
JOHN I. HOWELL, 7 Riverside Road, Greenwich, Connecticut - Trustee of the Trust
- - Private Consultant since February 1987; Director, American International
Group, Inc.; Director, American International Life Assurance Company of New
York.
CLARENCE F. MICHALIS, 44 East 64th Street, New York, New York - Trustee of the
Trust - Chairman of the Board of Directors, Josiah Macy, Jr. Foundation
(charitable foundation).
HERMANN C. SCHWAB, 787 Seventh Avenue, New York, New York - Chairman (Honorary)
and Trustee of the Trust - retired since March, 1988; prior thereto, consultant
to SCMI since February 1, 1984.
MARK J. SMITH (b), 33 Gutter Lane, London, England - President and Trustee of
the Trust - First Vice President of SCMI since April 1990; Director and Vice
President, Schroder Advisors.
ROBERT G. DAVY, 787 Seventh Avenue, New York, New York - a Vice President of the
Trust - Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior thereto,
employed by various affiliates of Schroders plc in various positions in the
investment research and portfolio management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON (b) (c), 787 Seventh Avenue, New York, New York -
Vice President of the Trust - Secretary of SCM since July 1995; Secretary of
Schroder Advisors since April 1990; First Vice President and General Counsel of
Schroders Incorporated(b) since May 1987; prior thereto, partner of Sullivan &
Worcester, a law firm.
RICHARD R. FOULKES, 787 Seventh Avenue, New York, New York - a 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.
CATHERINE S. WOOLEDGE, 2 Portland Square, Portland, Maine - Assistant Treasurer
and Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc.
Prior thereto, associate at Morrison & Foerster since September 1994, prior
thereto associate corporate counsel at Franklin Resources, Inc. since September
1993, and prior thereto associate at Drinker Biddle & Reath, Washington, D.C.
BARBARA GOTTLIEB (c), 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust - Assistant Vice President of SWIS since July 1995 prior
thereto held various positions with SWIS affiliates.
ROBERT JACKOWITZ (b) (c), 787 Seventh Avenue, New York, New York - Treasurer of
the Trust - Vice President of SCM since September 1995; Treasurer of SCM and
Schroder Advisors since July 1995; Vice President of SCMI since June 1995; and
Assistant Treasurer of Schroders Incorporated since January 1993.
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JOHN Y. KEFFER, 2 Portland Square, Portland, Maine - Vice President of the
Trust. President of FFC, the Fund's transfer and dividend disbursing agent and
fund accountantand other affiliated entities including Forum Financial Services,
Inc. and Forum Advisors, Inc.
JANE P. LUCAS (c), 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Director and Senior Vice President SCMI; Director of SCM since
September 1995; Assistant Director Schroder Investment Management Ltd. since
June 1991.
GERARDO MACHADO, 787 Seventh Avenue, New York, New York - Assistant Secretary of
the Trust - Associate, SCMI.
CATHERINE A. MAZZA, 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.
THOMAS G. SHEEHAN, 2 Portland Square, Portland, Maine - Assistant Treasurer and
Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc. since
1993; prior thereto, Special Counsel, U.S. Securities and Exchange Commission,
Division of Investment Management, Washington, D.C.
FARIBA TALEBI, 787 Seventh Avenue, New York, New York - Vice President of the
Trust - First Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas since 1987.
JOHN A. TROIANO (b), 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Managing Director and Senior Vice President of SCMI since October
1995; Director of Schroder Advisors since October 1992; Director of SCMI since
1991; prior thereto, employed by various affiliates of SCMI in various positions
in the investment research and portfolio management areas since 1981.
IRA L. UNSCHULD, 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; prior to July, 1990, employed by various financial
institutions as a securities or financial analyst.
ALEXANDRA POE, 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; 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.
MARY KUNKEMUELLER, 787 Seventh Avenue, New York, New York - Assistant Secretary
of the Trust.
(a) Interested Trustee of the Trust within the meaning of the 1940 Act.
(b) Schroder Advisors is a wholly owned subsidiary of SCMI, which is a wholly
owned subsidiary of Schroders Incorporated, which in turn is an indirect,
wholly owned U.S. subsidiary of Schroders plc.
(c) Schroder Capital Management, Inc. ("SCM") is a wholly owned subsidiary of
Schroder Wertheim Holdings Incorporated which is a wholly owned subsidiary
of Schroders, Incorporated, which in turn is an indirect wholly owned U.S.
subsidiary of Schroders plc.
Officers and Trustees who are interested persons of the Trust receive no salary,
fees or compensation from the 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 the
fiscal year ended October 31, 1996.
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Name of Trustee Aggregate Pension or Estimated Total
Compensation Retirement Annual Compensation
From Trust Benefits Benefits Upon From Trust
Accrued As Retirement And Fund
Part of Trust Complex Paid
Expenses To Trustees
- -------------------------------------------------------------------------------
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
As of February 15, 1997, the officers and Trustees of the Trust owned, in the
aggregate, less than 1% of the Fund's outstanding shares.
While the Trust is a Delaware business trust, certain of its Trustees or
officers are residents of the United Kingdom, and, accordingly, 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 laws 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 pursuant to an Investment Advisory Agreement between the Trust 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 world wide 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 $130 billion.
Under the Investment Advisory Agreement, SCMI regularly provides the Fund with
investment research, advice and supervision and furnishes continuously an
investment program for the Fund's investments consistent with the Fund's
investment objective. SCMI recommends what securities shall be bought or sold
by the Fund and what portion of the Fund's assets shall be held uninvested.
SCMI advises and assists the officers of the Trust in taking such steps as are
necessary or appropriate to carry out the decisions of its Board of Trustees
regarding the foregoing matters and general conduct of the investment business
of the Fund. SCMI pays directly any office rent of the Fund and furnishes or
causes to be furnished without expense to the Fund, the services of such of its
officers and employees and employees of its corporate affiliates as may be duly
elected officers or Trustees of the Trust. In addition, SCMI provides
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. The Fund pays
all of its other costs and expenses, including without limitation: brokers'
commissions; legal, auditing or accounting expenses, taxes or governmental fees;
cost of preparing share certificates or any other expenses (including clerical
expenses) of issue (not including sales or promotion expenses unless the Fund
shall in the future duly adopt a plan pursuant to Rule 12b-1 under the 1940
Act), distribution, redemption or repurchase of shares of the Fund; registration
expenses; the cost of preparing and distributing reports and notices to
shareholders; fees or disbursements of the custodian of the Fund's assets, of
the Fund's dividend disbursing agent and of the Fund's transfer agent. To the
extent employees of SCMI or its affiliates devote their time to the affairs of
the Fund, other than as officers or Trustees, the Fund will reimburse SCMI or
such affiliates the pro rate share of such individuals' salaries or wages and
expenses.
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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 the Trust Board, and (ii) by a majority of the
Trustees who are not parties to such Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Investment Advisory Agreement
may be terminated without penalty by vote of the Trustees or the 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 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 duties to the Fund, 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 Investment Advisory Agreement.
Under the terms of the Investment Advisory Agreement, SCMI is entitled to
receive a fee for its services, computed daily and payable monthly, at the
annual rate of 0.75% of the Fund's average daily net assets of the first $100
million and 0.50% of the Fund's average daily net assets in excess of $100
million. It is the Trust's understanding that although other mutual funds pay
investment advisory fees at annual rates of 0.75% or more of their average net
assets (or a portion thereof), the majority of other mutual funds, regardless of
size, pay advisory fees at rates lower than 0.75% of any portion of their
average net assets. For the fiscal years ended October 31, 1994, 1995 and 1996,
SCMI was paid an aggregate of $144,539, $140,988 and $139,483, respectively, in
advisory fees from the Fund. SCMI voluntarily has undertaken to waive its
advisory fees so that the effective fee rate does not exceed 0.65% of the Fund's
average daily net assets on the first $100 million. This undertaking may be
withdrawn only by a majority vote of the Trust's Trustees who are not
"interested persons".
SUBADMINISTRATOR
The Trust has entered into a Subadministration Agreement with Forum. Pursuant to
its agreement, Forum provides 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 pursuant to the Investment
Advisory Agreement, including among other things: (i) preparation of shareholder
reports and communications, (ii) regulatory compliance, such as reports to and
filings with the Securities and Exchange Commission and state securities
commissions, and (iii) general supervision of the operation of the Fund,
including coordination of the services performed by the Fund's investment
adviser, transfer agent, custodian, independent accountants, legal counsel and
others.
The Subadministration Agreement is terminable with respect to the Fund without
penalty, at any time, by the Board of Trustees and SCMI upon 60 days' written
notice to Forum or by Forum upon 60 days' written notice to the Fund and the
investment adviser.
Under the Subadministration Agreement, Forum is entitled to receive a fee,
computed daily and payable monthly, at the annual rate of 0.10% of the Fund's
average daily net assets. For the fiscal year ended October 31, 1996, Forum was
paid $18,597.70 for subadministration services.
DISTRIBUTION OF FUND SHARES
Under a Distribution Plan (the "Plan") adopted by the Fund with respect to
Advisor Shares only, the Trust may compensate or may reimburse the investment
adviser or a broker-dealer registered under the Securities Exchange Act of 1934
(the investment adviser or such registered broker-dealer, if so designated,
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. Any payment made pursuant to the Plan is
contingent upon the Trust
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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 marketing shares of the Fund may
be allocated among various portfolios 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 portfolios 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 Board, 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 Fund will make no payment under the
Distribution Plan until the Trust Board specifically so authorizes. The Plan is
terminable with respect to the Fund at any time by a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or by vote of the
holders of a majority of the shares of the Fund.
Schroder Advisors, 787 Seventh Avenue, New York, New York 10019, serves as
Distributor of the Fund shares pursuant 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 of printing and distribution to prospective investors
of prospectuses and other sales materials and advertising expenses, and the
salaries and expenses of its employees or agents in connection with the
distribution of Fund shares.
SERVICE ORGANIZATIONS
The Fund may also contract with banks, trust companies, broker-dealers or other
financial organizations ("Service Organizations") to provide certain
administrative services to the Fund. The Fund may pay fees (which 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.
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Some Service Organizations could 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 would agree 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 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 Fund Accounting
Agreement continues in effect unless terminated by the Board of Trustees or FFC,
in either case on 60 days' within written notice to the other party.
Under its agreement, FFC prepares and maintains books and records of the Fund on
behalf of the Trust that are required to be maintained under the 1940 Act,
calculates the net asset value per share of the Fund, calculates dividends and
capital-gain distributions, and prepares periodic reports to shareholders and
the Securities and Exchange Commission. For its services, 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 paid an
additional $12,000 per year with respect to tax-free money market funds and
funds with more than 25% of their total assets invested in asset-backed
securities, 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, suits, judgments, liabilities,
losses, damages, costs, charges, counsel fees and 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.
For the fiscal years ended October 31, 1994, 1995 and 1996, the Fund paid fund
accounting fees of $31,596, $38,000 and $36,000, respectively.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for the Fund 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
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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.
BROKERAGE AND RESEARCH SERVICES
Decisions with respect to allocation of portfolio brokerage are made by the
Trust's President, a Vice President or Treasurer.
The Investment Advisory authorizes and directs SCMI to place orders for the
purchase and sale of the Portfolio's investments with brokers and 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 is the Fund's policy, consistent with the best execution, to secure the
highest possible price on sales and the lowest possible price on purchases of
securities. Transactions on U.S. stock exchanges and other agency transactions
involve the payment of negotiated brokerage commissions. Over-the-counter
purchases and sales are transacted directly with principal market makers except
in those circumstances where in the opinion of the Trust's officers better
prices and executions are available elsewhere. Portfolio transactions are
frequently placed with broker-dealers who provide SCMI with research and
statistical assistance. The assistance may include advice as to the
advisability of investing in securities, security analysis and reports, economic
studies, industry studies, receipt of quotations for portfolio valuations and
similar services.
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 each, include such items as general economic and security
market review, 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 investment advisory fee paid by the Fund is not reduced
because SCMI and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, SCMI may
cause the Fund to pay a broker-dealer that provides SCMI with "brokerage and
research services" (as defined in the Act) 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.
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 commission paid by the Fund toward payment of Fund expenses, such as
custodian fees.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking the most favorable price and execution
available and such other policies as the Trustees may determine, SCMI may
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consider sales of shares of the Portfolio as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
Subject to the general policies of the Fund regarding allocation of portfolio
brokerage as set forth above, the Board of Trustees 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 for effecting such
transactions is subject to Section 17(e) of the 1940 Act, which requires, among
other things, that commissions for transactions on a national securities
exchange paid by a registered investment company to a broker which is an
affiliated person of such investment company or an affiliated person of another
person so affiliated not exceed the usual and customary broker's commissions for
such transactions. It is the Fund's policy that commissions paid to Schroder
Wertheim will in the judgment of the officers of the Trust responsible for
making portfolio decisions and selecting brokers, be (i) at least as favorable
as commissions contemporaneously charged by Schroder Wertheim on comparable
transactions for its most favored unaffiliated customers and (ii) at least as
favorable as those which would be charged on comparable transactions by other
qualified brokers having comparable execution capability. The Board of Trustees
of the Trust, 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 these procedures.
The Fund has no understanding or arrangement to direct any specific portion of
its brokerage to Schroder Wertheim and will not direct brokerage to Schroder
Wertheim in recognition of research services.
It is further a policy of the Fund that all such transactions effected for the
Fund by Schroder Wertheim on the New York Stock Exchange be in accordance 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 Fund to the brokers executing the Fund transactions on the New York Stock
Exchange. In accordance with Rule 11a2-2(T), the Trust Board has entered into
an agreement with Schroder Wertheim permitting it to retain a portion of the
brokerage commissions paid to it by the Fund. This agreement has been approved
by the Trust Board, including a majority of the non-interested Trustees.
During the fiscal years ended October 31, 1994, 1995 and 1996 the total
brokerage commissions paid by the Fund on portfolio transactions were $23,579,
$31,381 and $31,868 respectively. These amounts do not include any spreads or
concessions on principal transactions on a net trade basis. Substantially all
of such commissions were paid to firms which provided SCMI with research and
statistical assistance. No commissions were paid to Schroder Wertheim during
any of the fiscal years ended October 31, 1994, 1995 and 1996.
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SHARE OWNERSHIP
As of February 24, 1997, the following persons owned of record or beneficially
5% or more of the Fund's shares:
SHAREHOLDER SHARE BALANCE PERCENT OF FUND
- ----------- ------------- ---------------
Gracechurch Co. 191,211.439 11.22%
75 Wall Street
New York, NY 10265
Schroder Nominees Limited 152,044.768 8.93%
120 Cheapside
London EC2V 6DS England
Wendel & Co. 110,983.024 6.52%
c/o The Bank of New York
Wall Street Station
New York, NY 10268
Fox & Co. 101,539.373 5.96%
P.O. Box 976
New York, NY 10268
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is calculated at 4:00 p.m. (New York
City time), Monday through Friday, on each day that the New York Stock Exchange
is open for trading (which excludes the following national business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day).
Portfolio securities listed on the New York Stock Exchange are valued on the
basis of the last sale on that date on the basis of information obtained from
authoritative sources at the end of the business day. Lacking any sales, they
are valued at the average of the closing bid and asked prices. Securities not
listed on such exchange are valued by the use of quotations on any other
national stock exchange on which the securities are listed, or if unlisted,
published quotations in common use and/or quotations from a market maker or
makers in the security, in each case on the basis of information obtained from
authoritative sources, or if securities for which no quotations are available,
including restricted securities, by such other method as the Board of Trustees,
in good faith, shall deem to reflect their fair value. If securities are listed
on more than one national stock exchange (other than the New York Stock
Exchange), they are valued on the basis of quotations on the national stock
exchange in which the primary market for the securities exists.
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REDEMPTION IN-KIND
In the event that payment for redeemed shares is made wholly or partly in
portfolio securities, shareholders may incur brokerage costs in converting the
securities to cash. An in-kind distribution of portfolio securities is
generally less liquid than cash. The shareholder may have difficulty finding a
buyer for portfolio securities received in payment for redeemed shares.
Portfolio securities may decline in value between the time of receipt by the
shareholder and conversion to cash. A redemption in-kind of portfolio
securities could result in a less diversified portfolio of investments for the
Fund and could affect adversely the liquidity of the investment portfolio of the
Fund.
Under the terms of the Investment Advisory Agreement, SCMI is entitled to
receive a fee for its services, computed daily and payable monthly, at the
annual rate of 0.75% of the Fund's average daily net assets of the first $100
million and 0.50% of the Fund's average daily net assets in excess of $100
million.. It is the Trust's understanding that although other mutual funds pay
investment advisory fees at annual rates of 0.75% or more of their average net
assets (or a portion thereof), the majority of other mutual funds, regardless of
size, pay advisory fees at rates lower than 0.75% of any portion of their
average net assets. For the fiscal years ended October 31, 1994, 1995 and 1996,
SCMI was paid an aggregate of $144,539, $140,988 and $139,483, respectively, in
advisory fees from the Fund. SCMI voluntarily has undertaken to waive its
advisory fees so that the effective fee rate does not exceed 0.65% of the Fund's
average daily net assets on the first $100 million. This undertaking may be
withdrawn only by a majority vote of the Trust's Trustees who are not
"interested persons".
TAXATION
Under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund and
each other portfolio established from time to time by the Board of Trustees of
the Trust is treated as a separate taxpayer for federal income tax purposes with
the result that: (i) each such portfolio 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 will be
determined on a portfolio-by-portfolio (rather than on a Trust-wide) basis.
The Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Code. 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 gains" (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 imposition of the excise tax, 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 gains or losses) for the calendar year, (ii) at least 98%
of the excess of its capital gains over capital losses 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 net realized
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 70% 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
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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.
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 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 are taxable to the shareholder whether reinvested in
additional shares or received in cash. Shareholders receiving distributions in
the form of additional shares will have a cost basis for federal income tax
purposes in each share received equal to the net asset value of a share of the
Fund on the reinvestment date. Shareholders will be notified annually as to the
federal tax status of distributions.
Distributions by the Fund reduce the net asset value of the Fund's shares. 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 his 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.
The Trust is required to report to the Internal Revenue Service (the "IRS") all
distributions as well as gross proceeds from the redemption of the Fund shares,
except in the case of certain exempt shareholders. All such distributions and
proceeds generally will be subject to withholding of federal income tax at a
rate of 31% ("backup withholding") in the case of 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.
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).
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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 portfolios, 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 from "Schroder Capital Funds, Inc." 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 authorized 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 series (such as the Fund)
and may divide series into classes of shares, and the costs of doing so will be
borne by the Trust. The Trust currently consists of five separate series, each
of which has separate investment objectives and policies, and two classes,
Investor Shares and Advisor Shares, in each series.
The shares of the Fund are fully paid and 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 series vote
separately to approve investment advisory agreements or changes in investment
objectives and other fundamental policies affecting the series to which they
pertain, but all series vote together in the election of Trustees and
ratification of the selection of independent accountants. Shareholders of any
particular series or class would not be entitled to vote on any matters as to
which such series or class were not affected.
The Trust will not hold annual meetings of shareholders. The matters considered
at an annual meeting typically include the reelection of Trustees, approval of
an investment advisory agreement, and the ratification of the selection of
independent accountants. These matters will not be submitted to shareholders
unless a meeting of shareholders is held for some other reason, such as those
indicated below. Each of the Trustees will serve until death, resignation or
removal. Vacancies will be filled by the remaining Trustees, subject to the
provisions of the 1940 Act requiring a meeting of shareholders for election of
Trustees to fill vacancies when less than a majority of Trustees then in office
have been elected by shareholders. Similarly, the selection of independent
accountants and renewal of investment advisory agreements for future years will
be 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
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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
to provide certain assistance if requested in writing to do so by ten or more
shareholders of record (who have been such for at least six months), holding in
the aggregate the lesser of (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,
for the purpose of enabling such holders to communicate with other shareholders
of the Trust with a view to obtaining the requisite signatures to request a
special meeting to consider such removal.
PERFORMANCE INFORMATION
The Fund may, from time to time, include quotations of total return data in
advertisements, sales literature or reports to shareholders or prospective
investors.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years, calculated pursuant to the following
formula:
n
P (1+T) = ERV
(Where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period.) All total
return figures will reflect the deduction of Fund expenses on an annual basis,
and will assume that all dividends and distributions are reinvested when paid.
For the one year, five year and ten year periods ended October 31, 1995, the
average annual total returns of the Fund were 17.68%, 17.50% and 13.09%,
respectively.
Quotations of total return will reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. Total return
for the Fund will vary based on changes in market conditions and the level of
the Fund's expenses, and no reported performance figure should be considered an
indication of future performance.
In connection with communicating total return to current or prospective
investors, the Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to other unmanaged
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
CUSTODIAN
All securities and cash of the Fund are held by The Chase Manhattan Bank, N.A.,
Chase MetroTech Center, Brooklyn, New York 11245.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
FFC, Portland, Maine, acts as the Fund's transfer agent and dividend disbursing
agent.
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<PAGE>
LEGAL COUNSEL
Jacobs Persinger & Parker, 77 Water Street, New York, New York 10005, counsel
to the Fund, passes upon certain legal matters in connection with the shares
offered by the Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. ("Coopers & Lybrand") serves as independent accountants
for the Fund. Coopers & Lybrand provides audit services and consultation in
connection with review of U.S. Securities and Exchange Commission filings.
Coopers & Lybrand's address is One Post Office Square, Boston, Massachusetts
02109.
FINANCIAL STATEMENTS
The audited Statement of Assets and Liabilities, Statement of Operations,
Statements of Changes in Net Assets, Statement of Investments, notes thereto,
and Financial Highlights of the Fund for the fiscal year ended October 31, 1996
and the Report of Independent Accountants thereon (included in the Annual Report
to shareholders), which are delivered along with this SAI, are incorporated
herein by reference.
19
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SCHRODER EMERGING MARKETS FUND
INSTITUTIONAL PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1997
[GRAPHIC]
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 Institutional Portfolio (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
herein). Advisor Shares incur more expenses than Investor Shares. The Fund
imposes both purchase and redemption charges on investments. Please see the
Prospectuses for further information.
This Statement of Additional Information ("SAI") is not a prospectus and is
authorized for distribution only when preceded or accompanied by the current
Prospectus for the Fund dated March 1, 1997 (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. 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. . . . . . . . . . . . . . . . . . . . . . . .
Debt-to-Equity Conversions. . . . . . . . . . . . . . . . . . . . . .
U.S. Government Securities. . . . . . . . . . . . . . . . . . . . . .
Bank Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-Term Debt Securities. . . . . . . . . . . . . . . . . . . . . .
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . .
Illiquid and Restricted Securities. . . . . . . . . . . . . . . . . .
Loans of Portfolio Securities . . . . . . . . . . . . . . . . . . . .
Forward Foreign Currency Exchange Contracts . . . . . . . . . . . . .
Options and Hedging . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants and Stock Rights . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . .
Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . . .
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent and Dividend Disbursing Agent. . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . . . . . . . . . . . .
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Accountant. . . . . . . . . . . . . . . . . . . . . . . .
Registration Statements . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX - Ratings of Corporate Debt Instruments and Countries
Excluded from Emerging Markets Category. . . . . . . . . . . . . . .
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INTRODUCTION
Schroder Emerging Markets Fund Institutional Portfolio is a non-diversified,
separately-managed portfolio of Schroder Capital Funds (Delaware) (the "Trust"),
an open-end management investment company currently consisting of five separate
series, each of which has a different investment objective and policies.
The Fund's investment objective is 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. 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
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 there. The
Fund currently seeks to achieve its investment objective by holding, as its only
investment securities, the securities of Schroder Emerging Markets Fund
Institutional Portfolio (the "Portfolio"), a separate series of Schroder Capital
Funds ("Schroder Core"). Since the Fund has the same investment objective and
policies as the Portfolio and currently invests all of its assets in the
Portfolio, investment policies are discussed with respect to the Portfolio only.
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 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) that have remaining maturities not exceeding one year.
3
<PAGE>
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.
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, Inc.
("Moody's") or "A-1" by Standard & Poor's Rating Group ("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.
4
<PAGE>
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 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.
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 (a) on each business day, at least
equal the market value of the loaned securities and (b) consist of cash, bank
letters of credit, U.S. Government securities, other cash equivalents or liquid
equity 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.
Portfolio securities purchased with cash collateral are subject to possible
depreciation. Loans of securities by the Portfolio will be subject to
termination at the Portfolio's or the borrower's option. The Portfolio may pay
reasonable negotiated fees in connection with loaned securities, so long as such
fees are set forth in a written contract and approved by Schroder Core's Board
of Trustees.
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 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.
5
<PAGE>
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 gains 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
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.
6
<PAGE>
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 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.
7
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There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
available is generally representative of very large transactions in the
interbank market and, thus, may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the
extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that are not reflected in the options market.
COVERED CALL WRITING. The 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
securities or other high-grade debt obligations 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 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).
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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.
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 securities or other high-grade
obligations 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 securities or other high-
grade debt obligations which 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" above), to protect against an increase in price of a
security it anticipates purchasing or, in the case of a call option on foreign
currency, to hedge against an adverse exchange rate move of the currency in
which the security it anticipates purchasing is denominated vis-a-vis the
currency in which the exercise price is denominated. The purchase of the call
option to effect a closing transaction on a call written over-the-counter may be
a listed or an OTC option. In either case, the call purchased is likely to be
on the same securities (currencies) and have the same terms as the written
option. If purchased over-the-counter, the option would generally be acquired
from the dealer or financial institution 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 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
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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 or U.S. Government or
other high grade short-term obligations 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 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.
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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 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-a-vis a different currency or to hedge against an
adverse currency exchange rate movement of a portfolio security's (or
anticipated portfolio security's) denominated currency vis-a-vis a different
currency.
The 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 or U.S. Government securities or other
high grade short-term obligations
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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.
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 gains and losses 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.
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.
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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 gains and unrealized losses 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.
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 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.
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In addition, if the Portfolio holds a long position in a futures contract, it
will hold cash, U.S. Government securities or other high-grade debt obligations
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 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 futures contracts market and
because of the imperfect correlation between movements in the prices
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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.
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 "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;
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<PAGE>
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. As a non-fundamental policy, invest in or hold securities of any
issuer if officers or Trustees of the Trust or SCMI individually owning more
than 0.5% of the securities of such issuer together own more than 5% of the
securities of such issuer;
7. As a non-fundamental policy, invest more than 5% of the value of its
total assets in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation;
8. Make short sales of securities;
9. 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);
10. 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.
PETER E. GUERNSEY, Oyster Bay, New York - Trustee of the Trust - Insurance
Consultant since August 1986; prior thereto Senior Vice President, Marsh &
McLennan, Inc., insurance brokers.
RALPH E. HANSMANN (Honorary), 40 Wall Street, New York, New York - Honorary
Trustee of the Trust - Private investor; Director, First Eagle Fund of America,
Inc.; Director, Verde Exploration, Ltd.; Trustee Emeritus, Institute for
Advanced Study; Trustee and Treasurer, New York Public Library; Life Trustee,
Hamilton College.
JOHN I. HOWELL, 7 Riverside Road, Greenwich, Connecticut - Trustee of the Trust
- - Private Consultant since February 1987; Director, American International
Group, Inc.; Director, American International Life Assurance Company of New
York.
CLARENCE F. MICHALIS, 44 East 64th Street, New York, New York - Trustee of the
Trust - Chairman of the Board of Directors, Josiah Macy, Jr. Foundation
(charitable foundation).
HERMANN C. SCHWAB, 787 Seventh Avenue, New York, New York - Chairman (Honorary)
and Trustee of the Trust - retired since March, 1988; prior thereto, consultant
to SCMI since February 1, 1984.
MARK J. SMITH (b), 33 Gutter Lane, London, England - President and Trustee of
the Trust - First Vice President of SCMI since April 1990; Director and Vice
President, Schroder Advisors.
ROBERT G. DAVY, 787 Seventh Avenue, New York, New York - a Vice-President of the
Trust - Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior thereto,
employed by various affiliates of Schroders plc in various positions in the
investment research and portfolio management areas since 1986.
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<PAGE>
MARGARET H. DOUGLAS-HAMILTON (b) (c), 787 Seventh Avenue, New York, New York -
Vice President of the Trust - Secretary of SCM since July 1995; Secretary of
Schroder Advisors since April 1990; First Vice President and General Counsel of
Schroders Incorporated(b) since May 1987; prior thereto, partner of Sullivan &
Worcester, a law firm.
RICHARD R. FOULKES, 787 Seventh Avenue, New York, New York - a 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.
CATHERINE S. WOOLEDGE, 2 Portland Square, Portland, Maine - Assistant Treasurer
and Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc.
Prior thereto, associate at Morrison & Foerster since September 1994, prior
thereto associate corporate counsel at Franklin Resources, Inc. since September
1993, and prior thereto associate at Drinker Biddle & Reath, Washington, D.C.
BARBARA GOTTLIEB (c), 787 Seventh Avenue, New York, New York - Assistant
Secretary of the Trust - Assistant Vice President of SWIS since July 1995 prior
thereto held various positions with SWIS affiliates.
ROBERT JACKOWITZ (b) (c), 787 Seventh Avenue, New York, New York - Treasurer of
the Trust - Vice President of SCM since September 1995; Treasurer of SCM and
Schroder Advisors since July 1995; Vice President of SCMI since June 1995; and
Assistant Treasurer of Schroders Incorporated since January 1993.
JOHN Y. KEFFER, 2 Portland Square, Portland, Maine - Vice President of the
Trust. President of Forum Financial Services, Inc., the Fund's
subadministrator, and FFC, the Fund's transfer and dividend disbursing agent and
fund accountant.
JANE P. LUCAS (c), 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Director and Senior Vice President SCMI; Director of SCM since
September 1995; Assistant Director Schroder Investment Management Ltd. since
June 1991.
GERARDO MACHADO, 787 Seventh Avenue, New York, New York - Assistant Secretary of
the Trust - Associate, SCMI.
CATHERINE A. MAZZA, 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.
THOMAS G. SHEEHAN, 2 Portland Square, Portland, Maine - Assistant Treasurer and
Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc. since
1993; prior thereto, Special Counsel, U.S. Securities and Exchange Commission,
Division of Investment Management, Washington, D.C.
FARIBA TALEBI, 787 Seventh Avenue, New York, New York - Vice President of the
Trust - First Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas since 1987.
JOHN A. TROIANO (b), 787 Seventh Avenue, New York, New York - Vice President of
the Trust - Managing Director and Senior Vice President of SCMI since October
1995; Director of Schroder Advisors since October 1992; Director of SCMI since
1991; prior thereto, employed by various affiliates of SCMI in various positions
in the investment research and portfolio management areas since 1981.
IRA L. UNSCHULD, 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; prior to July, 1990, employed by various financial
institutions as a securities or financial analyst.
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<PAGE>
ALEXANDRA POE, 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; 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.
MARY KUNKEMUELLER, 787 Seventh Avenue, New York, New York - Assistant Secretary
of the Trust.
(a) Interested Trustee of the Trust within the meaning of the Investment
Company Act of 1940.
(b) Schroder Advisors is a wholly owned subsidiary of SCMI, which is a wholly
owned subsidiary of Schroders Incorporated, which in turn is an indirect,
wholly owned U.S. subsidiary of Schroders plc.
(c) Schroder Capital Management, Inc. ("SCM") is a wholly owned subsidiary of
Schroder Wertheim Holdings Incorporated which is a wholly owned subsidiary
of Schroders, Incorporated, which in turn is an indirect wholly owned U.S.
subsidiary of Schroders plc.
Officers and Trustees who are interested persons of the Trust receive no salary,
fees or compensation from the 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 the
fiscal year ended October 31, 1996.
Name of Trustee Aggregate Pension or Estimated Total
Compensation Retirement Annual Compensation
From Trust Benefits Benefits Upon From Trust
Accrued As Retirement And Fund
Part of Trust Complex Paid
Expenses To Trustees
- -------------------------------------------------------------------------------
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
As of February 15, 1997, the officers and Trustees of the Trust owned, in the
aggregate, less than 1% of the Fund's outstanding shares.
Although the Trust is a Delaware business trust, certain of its Trustees or
officers are residents of the United Kingdom, and, accordingly, 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 U.K.
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 Portfolio pursuant to 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 $130 billion.
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<PAGE>
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 the Trust Board periodic reports on
the investment performance of the Portfolio and 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 Fund or by the Trust Board, and (ii) by a majority of the
Trustees who are not parties to such Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Investment Advisory Agreement
may be terminated without penalty by vote of the Trustees or the 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 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 duties to the Fund, 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 Investment Advisory 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. For the period from commencement of operations through October 31, 1995
and for the fiscal year ended October 31, 1996, SCMI received an advisory fee of
$19,326 and $1,115,324 respectively.
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 Fund has retained SCMI to
serve as its investment adviser to manage the Fund's assets in the event the
Fund so withdraws its investment.
The investment advisory agreement between Schroder Core 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).
ADMINISTRATIVE SERVICES
The Trust has entered into an Administration Agreement with Schroder Advisors,
787 Seventh Avenue, New York, New York 10019, pursuant to which Schroder
Advisors provides management and administrative services necessary for the
operation of the Fund, other than those provided by SCMI, 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 these 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. From commencement of operations through October 31, 1995, and the
fiscal year ended October 31, 1996 Schroder Advisors received administrative
fees of $19,591 and $225,559,respectively.
The Administration Agreement is terminable with respect to the Fund without
penalty, at any time, by vote of a majority of the Trustees who are not
"interested persons" of the Trust and who have no direct or indirect financial
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<PAGE>
interest in the operation of the Fund's Distribution Plan or in the
Administration Agreement, upon not more than 60 days' written notice to Schroder
Advisors or by vote of the holders of a majority of the shares of the Fund, or
upon 60 days' notice by Schroder Advisors. The Administration Agreement
terminates automatically in the event of its assignment.
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. Under the Subadministration Agreement,
Forum is entitled to a fee at the annual rate of 0.10% 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 an annual rate of 0.075% of the average daily net assets of the
Portfolio. 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 to SCMI and Schroder Advisors may equal up to 1.25% 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
Under a Distribution Plan (the "Plan") adopted by the Fund with respect to
Advisor Shares only, the Trust may compensate or may reimburse the investment
adviser or a broker-dealer registered under the Securities Exchange Act of 1934
(the investment adviser or such registered broker-dealer, if so designated,
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. 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
marketing shares of the Fund may be allocated among various portfolios 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 portfolios 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 Board, 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 Fund will make no payments under the
Distribution Plan until the Trust Board specifically
20
<PAGE>
so authorizes. The Plan is terminable with respect to the Fund at any time by a
vote of a majority of the Trustees who are not "interested persons" of the Trust
and who have no direct or indirect financial interest in the operation of the
Plan or by vote of the holders of a majority of the shares of the Fund.
Schroder Advisors acts as Distributor of the Fund's shares.
During the periods indicated below the Fund spent pursuant to the Plan the
following amounts on:
Period Ended
October 31,
1996 1995
---- ----
advertising $ -0- $ -0-
printing and mailing of prospectuses to other than $ -0- $ -0-
current shareholders
compensation to underwriters $ -0- $ -0-
compensation to dealers $ -0- $ -0-
compensation to sales personnel $ -0- $ -0-
interest, carrying, or other financing charges $ -0- $ -0-
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 prospective investors, advertising expenses, and the salaries
and expenses of its employees or agents in connection with the distribution of
Fund shares.
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 the Fund. The Fund may pay fees (which 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
21
<PAGE>
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.
Some Service Organizations could 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 would agree 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 Fund Accounting
Agreement continues in effect unless terminated by the Board of Trustees or FFC,
in either case on 60 days' within written notice to the other party.
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, 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.
For the fiscal periods ended October 31, 1995 and 1996, the Fund paid fund
accounting fees of $35,667 and $12,000, respectively.
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<PAGE>
FEES AND EXPENSES
As compensation for the advisory, administrative and management services
rendered to the Fund, SCMI and Schroder Advisors are entitled to monthly fees at
the following annual rates:
Fee Rate
Portion of average daily value Advisory Administrative
of the Fund's net assets Fee Fee
------------------------ --- ---
100% 1.00% 0.25%
SCMI and Schroder Advisors voluntarily have undertaken to waive fees or assume
certain expenses of the Fund. This undertaking is designed to limit Fund
expenses (including all fees to be paid to SCMI and Schroder Advisors but
excluding taxes, interest, brokerage commissions and other portfolio transaction
expenses and extraordinary expenses) to 1.45% and 1.60% with respect to Investor
Shares and Advisor Shares, respectively, of the Fund's daily net assets. This
expense limitation may be withdrawn only by a majority vote of the Trust's
Trustees who are not "interested persons". If expense reimbursements are
required, they will be made on a monthly basis, with SCMI and Schroder Advisors
the remaining one-fifth each reimbursing the Fund proportionally based on their
respective compensation. This undertaking to reimburse expenses supplements any
applicable state expense limitation.
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 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 portfolios of the Trust in relation to the net assets of each portfolio.
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.
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
23
<PAGE>
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
United States. 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). For the period from commencement of operations through
October 31, 1995, and the fiscal year ended October 31, 1996, the Fund paid a
total of $101,087 and $1,163,478.72, respectively in brokerage commissions.
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 Securities Exchange Act of 1934, SCMI may
cause the Portfolio to pay a broker-dealer that provides SCMI with "brokerage
and research services" (as defined in the Act) 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.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking the most favorable price and execution
available and such other policies as the Trustees may determine, SCMI may
consider sales of shares of the Portfolio as a factor in the selection of
broker-dealers to execute portfolio transactions for the Portfolio.
Subject to the general policies of the Portfolio regarding allocation of
portfolio brokerage as set forth above, the 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
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<PAGE>
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 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, 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-
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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 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 portfolio 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 portfolio 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 will be determined on a
portfolio-by-portfolio (rather than on a Trust-wide) basis.
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Code. 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 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.
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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.
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.
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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 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 gains 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, gains 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.
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
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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 portfolios, 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 from "Schroder Capital Funds, Inc." 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 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 will be borne by the
Trust. The Trust currently consists of five separate series, each of which has
a separate investment objective and policies, and two classes, Investor Shares
and Advisor Shares, in each series.
Shares of the Fund are fully paid and 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 series vote separately to approve
investment advisory agreements or changes in investment objectives and other
fundamental policies affecting the series to which they pertain, but all series
vote together in the election of Trustees and ratification of the selection of
independent accountants. Shareholders of any particular series or class are not
entitled to vote on any matters as to which such series is not affected.
The Trust will not hold annual meetings of shareholders. The matters considered
at an annual meeting typically include the reelection of Trustees, approval of
an investment advisory agreement, and the ratification of the selection of
independent accountants. These matters will not be submitted to shareholders
unless a meeting of shareholders is held for some other reason, such as those
indicated below. Each of the Trustees will serve until death, resignation or
removal. Vacancies will be filled by the remaining Trustees, subject to the
provisions of the 1940 Act requiring a meeting of shareholders for election of
Trustees to fill vacancies. Similarly, the selection of independent accountants
and renewal of investment advisory agreements for future years will be performed
annually by the Trust Board. Future shareholder meetings will be held to elect
Trustees if required by the 1940 Act,
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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.
PRINCIPAL SHAREHOLDERS
As of February 24, 1997, the following persons owned of record or beneficially
5% or more of the Fund's shares:
SHAREHOLDER SHARE BALANCE PERCENT OF FUND
- ----------- ------------- ---------------
INVESTOR SHARES
The Robert Wood Johnson Foundation 4,917,050.504 30.17%
P.O. Box 2316
College Road at Route One
Princeton, NJ 08543
University of Chicago 3,388,253.056 20.79%
450 North Cityfront Plaza Drive
Chicago, IL 60611
GOOSS & CO 1,116,866.431 6.85%
c/o Chase Manhattan Bank
1211 6th Ave, 35th Floor
New York, NY 10036
Saxon & Co 1,604,506.853 6.53%
PO Box 7780-1888
Philadelphia, PA 19182
Northwest Area Foundation 822,372.923 5.05%
E-12-01 First National Bank Building
332 Minnesota Street
St Paul, MN 55101-1373
ADVISOR SHARES
Montgomery Securities 1,116,871.724 100.00%
600 Montgomery St., 4th Floor
San Francisco, CA 94111
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CUSTODIAN
The Chase Manhattan Bank, N.A., 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) 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.
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 a class of the
Fund over periods of 1, 5 and 10 years (since commencement of operations),
calculated pursuant to the following formula:
n
P (1+T) = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All 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.
For the one-year and since inception periods ended October 31, 1996, the average
annual total return of the Fund's Investor Shares was 4.22% and 6.66%,
respectively. For the same periods, no Advisor Shares were issued.
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
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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.
LEGAL COUNSEL
Jacobs Persinger & Parker, 77 Water Street, New York, New York 10005, counsel
to the Fund, passes upon certain legal matters in connection with the shares
offered by the Fund.
INDEPENDENT ACCOUNTANTS
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
Fund's registration statement filed with the Securities and Exchange Commission
under the Securities Act of 1933 with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and 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 audited Statement of Assets and Liabilities, Statement of Operations,
Statements of Changes in Net Assets, Statement of Investments, notes thereto,
and Financial Highlights of the Fund for the period from commencement of
operations through October 31, 1996 and the Report of Independent Accountants
thereon (included in the Annual Report to shareholders), which are delivered
along with this SAI, are incorporated herein by reference.
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