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SCHRODER INTERNATIONAL BOND FUND
INVESTOR SHARES
This fund's investment objective is to seek a high rate of total return. It
seeks to achieve its objective by investing at least 65%, and normally intends
to invest substantially all, of its assets in non-U.S. debt securities and
debt-related investments, which may be denominated in foreign or U.S. currency.
It is intended for long-term investors seeking international diversification and
willing to accept the risks of foreign investing.
Schroder International Bond Fund (the "Fund"), a series of Schroder Capital
Funds (Delaware) (the "Trust"), seeks to achieve its investment objective by
investing substantially all of its assets in Schroder International Bond
Portfolio, (the "Portfolio"), which has an identical investment objective and
substantially similar investment policies and strategies as the Fund.
Accordingly, the Fund's investment experience corresponds directly with the
Portfolio's investment experience. The Portfolio is a series of Schroder Capital
Funds II ("Schroder Core II").
(See "Other Information -- Fund Structure".)
This Prospectus sets forth concisely the information you should know before
investing and should be retained for future reference. To learn more about the
Fund, you may obtain a copy of the Fund's current Statement of Additional
Information (the "SAI"), which is incorporated by reference into this
Prospectus. The SAI dated April 15, 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 (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
APRIL 15, 1997
AS AMENDED
JUNE 20, 1997
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FUNDS AVAILABLE THROUGH SCHRODER FUND ADVISORS INC.
PLEASE CALL FOR COMPLETE INFORMATION AND TO OBTAIN A PROSPECTUS.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
SCHRODER CAPITAL FUNDS (DELAWARE) (800) 290-9826
SCHRODER EMERGING MARKETS FUND--
INSTITUTIONAL PORTFOLIO
SCHRODER INTERNATIONAL BOND FUND
SCHRODER INTERNATIONAL FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER U.S. EQUITY FUND
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER SERIES TRUST (800) 464-3108
SCHRODER EQUITY VALUE FUND
SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER SHORT-TERM INVESTMENT FUND
SCHRODER SMALL CAPITALIZATION VALUE FUND
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PROSPECTUS SUMMARY
This Prospectus offers Investor Class shares ("Investor Shares" or, at
times, "Shares") of the Fund, which is a separately managed, non-diversified
series of the Trust, an open-end, management investment company registered under
the Investment Company Act of 1940 (the "1940 Act"). The Fund invests
substantially all of its assets in the Portfolio, a separately managed,
non-diversified series of Schroder Core II, an open-end, management investment
company registered under the 1940 Act. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED IN THIS PROSPECTUS.
OBJECTIVE. Seeks a high rate of total return.
STRATEGY. Invests at least 65%, and normally intends to invest
substantially all, of its total assets in non-U.S. debt securities and
debt-related investments, which may be denominated in foreign or U.S. currency.
INVESTMENT ADVISER. The Portfolio's investment adviser is Schroder Capital
Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York
10019. The Fund (and indirectly its shareholders) bears a pro rata portion of
the investment advisory fee the Portfolio pays to SCMI. (See "Management of the
Fund -- Investment Adviser and Portfolio Managers".)
ADMINISTRATIVE SERVICES. Schroder Fund Advisors Inc. ("Schroder Advisors")
serves as administrator and distributor of the Fund, and Forum Administrative
Services, Limited Liability Company ("Forum") serves as the Fund's
subadministrator.
PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed by
mail, by bank-wire or 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 any net realized
short-term capital gain and at least annually distributes any net realized
long-term capital gain and gains from foreign currency transactions. Dividends
and capital-gain distributions are reinvested automatically in additional
Investor Shares of the Fund at net asset value unless 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 international diversification, who
are willing to accept the risks of foreign investing. The Portfolio is exposed
to the ordinary risks of debt-market investing, namely, credit risk and market
risk. In addition, investments in securities of non-U.S. issuers involve certain
risks not associated with domestic investing, such as uncertain political and
economic developments, and the possible imposition of exchange controls or other
foreign governmental, laws or restrictions. Of course, as with any mutual fund,
there is no assurance that the Fund or Portfolio will achieve its investment
objective. (See "Investment Policies" and "Risk Considerations".)
The Fund's net asset value ("NAV") varies because the market value of the
Portfolio's investments will change with changes in market conditions, interest
rates, currency rates, or political or economic events. The Fund is
non-diversified, which means that it may invest a greater portion of its assets
in securities of individual issuers than a diversified fund. Consequently,
changes in the market value of a single issuer could cause greater fluctuations
in the Fund's NAV than would occur in a diversified fund. When you sell your
shares, they may be worth more or less than what you paid for them. (For further
information, see "Risk Considerations".)
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4
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.
Annual Fund Operating Expenses (as a percentage of average net assets)(1)
Management Fees (after waivers)(2)(3).................................0.06%
12b-1 Fees ............................................................None
OTHER EXPENSES (AFTER WAIVERS AND REIMBURSEMENTS)(3)..................0.89%
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Total Fund Operating Expenses (AFTER WAIVERS AND REIMBURSEMENTS)(3)...0.95%
(1) Based on the Fund's projected annual operating expenses for the fiscal
year ending October 31, 1997. The Fund's projected expenses include its
pro rata portion of all operating expenses of the Portfolio.
(2) Management Fees reflect the fees paid by the Portfolio and the Fund for
investment advisory and administrative services.
(3) SCMI and Schroder Advisors have undertaken voluntarily to waive all or
a portion of their fees and assume certain expenses of the Fund during
the current fiscal year in order to limit the Fund's Total Fund
Operating Expenses to 0.95% of the Fund's average daily net assets.
This undertaking cannot be withdrawn except by a majority vote of the
Trust's Board of Trustees. (See "Management of the Fund --Expenses".)
Without waivers and reimbursements, Management Fees, Other Expenses and
Total Fund Operating Expenses would be 0.65%, 1.87%, and 2.52%,
respectively.
EXAMPLE
The table below indicates how much you would pay in total expenses on a
$1,000 investment in the Fund, assuming: (i) a 5% annual return; and (ii)
redemption at the end of each time period. The example is based on the expenses
listed above and assumes the reinvestment of all dividends and other
distributions. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURNS; ACTUAL EXPENSES OR RETURNS MAY VARY FROM THOSE
SHOWN. The 5% annual return is not a prediction of the Fund's return but is the
percentage required by the SEC for use in this example.
1 YEAR............................................................$10
3 YEARS...........................................................$30
5 YEARS...........................................................$53
10 YEARS..........................................................$117
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INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a high rate of total return.
It seeks to achieve its investment objective by investing at least 65%, and
normally intends to invest substantially all, of its assets in non-U.S. debt
securities and debt-related investments, which may be denominated in foreign or
U.S. currency.
The Fund currently seeks to achieve its investment objective by
investing substantially all of its assets in the Portfolio, which has an
identical investment objective and substantially similar policies and strategies
as the Fund. There can be no assurance that the Fund or Portfolio will achieve
its investment objective.
INVESTMENT POLICIES
Although the following information describes the investment policies of
the Portfolio and the responsibilities of Schroder Core II's Board of Trustees
(the "Schroder Core II Board"), it applies equally to the Fund and the Trust's
Board of Trustees (the "Trust Board"). Additional information concerning the
investment policies of the Fund and the Portfolio is contained in the SAI.
The investment objective and fundamental investment policies may not be
changed without approval of the holders of a majority of the outstanding voting
securities of the Portfolio. A majority of outstanding voting securities means
the lesser of: (i) 67% of the shares present or represented at a shareholder
meeting at which the holders of more than 50% of the outstanding shares are
present or represented; or (ii) more than 50% of outstanding shares. Unless
otherwise indicated, all investment policies of the Portfolio are not
fundamental. Non-fundamental investment policies may be changed by the Schroder
Core II Board without approval of the investors in the Portfolio.
The Portfolio invests in foreign bonds, including debt securities of
foreign governments, agencies and supranational organizations and corporate
bonds. These bonds may have fixed, variable, floating or inverse-floating-rates
of interest. Securities of issuers within a given country may be denominated in
the currency of another country. Some of these securities may be privately
issued and/or convertible into common stock, or they may be traded together with
warrants for the purchase of common stock. The rate of return on some debt
obligations may be linked to indices or stock prices or indexed to the level of
exchange rates between the U.S. dollar and foreign currency or currencies.
The investment adviser considers factors such as prospects for currency
exchange and interest rates, inflation in each country, relative economic
growth, government policies influencing exchange rates and business conditions,
and the quality of individual issuers. The investment adviser also determines,
using good faith judgment: (i) country allocation; (ii) currency exposure; (iii)
duration management; and (iv) diversified security holdings within each market.
The Portfolio may invest in a variety of countries and, under ordinary
circumstances, will invest in a minimum of 5 countries other than the U.S. To
the extent that the Portfolio concentrates its assets in a foreign country, it
will incur greater risks.
The investment adviser believes that active currency management can
enhance portfolio returns through opportunities arising from interest rate
differentials between securities denominated in different currencies and/or
changes in value between currencies. Moreover, the investment adviser believes
active currency management can be employed as an overall portfolio risk
management tool. Foreign currency management can also provide overall portfolio
risk diversification.
In order to enhance returns, manage risk more efficiently, reduce
trading costs, and help protect against changes in securities prices and foreign
exchange rates, the Portfolio may invest in currency on a spot or forward basis,
securities or securities index options, foreign currency options, and futures
contracts, and related options on futures contracts and may enter into swap
agreements. Additionally, the Portfolio may buy or sell interest-rate and
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bond-index futures contracts, options on interest-rate and bond-index futures
contracts, and options and futures on debt securities.
The Portfolio also may: (i) buy securities on a when-issued, firm-, or
standby-commitment basis (whose market value may change prior to their delivery
to the Portfolio); and (ii) invest in countries with established economies as
well as emerging market countries that the investment adviser believes present
favorable opportunities.
Generally, the Portfolio's average maturity will be shorter when
interest rates worldwide or in a particular country are expected to rise, and
longer when interest rates are expected to fall. SCMI may use various techniques
to shorten or lengthen the duration of the portfolio, including transactions in
futures and options on futures, interest rate swaps, caps, floors and short
sales, each as more fully described below.
Current holdings and recent investment strategies will be described in
the Fund's financial reports, which will be sent to shareholders twice a year.
For a free financial report or SAI, please call (800) 290-9826.
The following pages contain additional information about the securities
in which the Portfolio may invest, strategies SCMI may employ in pursuit of the
Portfolio's objective, and a summary of related risks. A complete listing of the
Portfolio's investment restrictions and more detailed information about the
Portfolio's investments is contained in the SAI. Policy limitations and
investment restrictions generally are considered at the time of purchase.
CORPORATE OBLIGATIONS. The Portfolio may purchase debt securities of
foreign corporate issuers. The Portfolio's investments in U.S. dollar- or
foreign-currency-denominated corporate debt securities of domestic or foreign
issuers are limited to corporate bonds, debentures, notes and other similar debt
instruments that meet the credit quality and other criteria set forth for the
Portfolio. Some of these securities may be privately issued and/or convertible
into common stock or they may be traded together with warrants for the purchase
of common stock. The Portfolio may invest in debt securities issued or
guaranteed by foreign corporations or by international organizations designated
or supported by multiple foreign governmental entities (which are not
obligations of foreign governments) to promote economic reconstruction or
development; and debt securities issued by corporations or financial
institutions. The rate of return of principal on some debt obligations may be
linked to indices or stock prices or indexed to the level of exchange rates
between the U.S. dollar and foreign currency or currencies. The Portfolio may
invest up to 10% of its net assets in lower-rated, high-risk debt securities
rated below "BBB" by Standard and Poor's ("S&P") or "Baa" by Moody's Investor
Service ("Moody's"). (For further information, see "Foreign Government Bonds",
"High-Yield, High-Risk Securities", "Rating Matters", "Risk Considerations",
"Commercial Paper" and "Appendix A -- Description of Securities Ratings" to the
SAI.)
FOREIGN GOVERNMENT BONDS. The Portfolio may purchase U.S. dollar- or
foreign-denominated debt obligations issued or guaranteed by foreign sovereign
governments, their agencies, instrumentalities and political subdivisions. The
Portfolio also may purchase obligations issued or guaranteed by supranational
organizations (such as the World Bank) or securities backed exclusively by loans
to certain public sector institutions. Debt obligations of foreign government
issuers are limited to government bonds, notes and other similar debt
instruments that meet the credit quality and maturity criteria set forth for the
Portfolio. The Portfolio has no limit on the amount of its assets that may be
invested in any one type of foreign instrument or foreign country.
RATING MATTERS. The Portfolio may purchase unrated securities. In order
to do so, SCMI must determine that the security is of comparable quality to a
rated security that the Portfolio may purchase. If SCMI determines that the
unrated is comparable to a security rated below investment grade, such security
shall be subject to the Portfolio's 10% limit on high-yield, high-risk
securities. The Portfolio may retain a security whose rating has been lowered if
SCMI determines that retaining the security is in the best interests of the
Portfolio. A further description of the rating categories of certain nationally
recognized statistical rating organizations (each a "NRSRO") is contained in
Appendix A to the SAI. All these ratings are generally considered to be
investment-grade ratings, although Moody's indicates that securities with
long-term ratings of "Baa" have speculative characteristics, and
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issuers whose securities are rated in the lowest investment grade are more
likely to have a weakened capacity to make principal and interest payments due
to changes in economic conditions or other circumstances than is the case with
issuers of higher-grade bonds.
BRADY BONDS. The Portfolio may invest a portion of its assets in Brady
Bonds, which are securities created through the exchange of existing commercial
bank loans to sovereign entities for new obligations in connection with debt
restructuring (under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady). Brady Bonds have been issued only
recently, and therefore do not have a long payment history. Brady Bonds may have
collateralized and uncollateralized components, are issued in various currencies
and are actively traded in the over-the-counter secondary market. Brady Bonds
are not considered U.S. Government securities. In light of the residual risk
associated with the uncollateralized portions of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds are considered speculative. Brady Bonds acquired by the Portfolio could be
subject to restructuring arrangements or to requests for new credit, which could
cause the Portfolio to suffer a loss of interest or principal on its holdings.
(For further information, see "Brady Bonds" in the SAI.)
FIRM- AND STANDBY-COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES. New
issues of certain debt securities are often offered on a when-issued basis. That
is, the payment obligation and the interest rate are fixed at the time the buyer
enters into the commitment, but delivery and payment for the securities normally
take place after the date of the commitment to purchase. Firm- and
standby-commitment agreements call for the purchase of securities at an
agreed-upon price on a specified future date. The transactions are entered into
in order to secure what is considered to be an advantageous price and yield to
the Portfolio and not for purposes of leveraging the Portfolio's assets.
However, the Portfolio will not accrue any income on these securities prior to
delivery. The value of when-issued securities and firm- and standby-commitment
agreements may vary prior to and after delivery depending on market conditions
and changes in interest-rate levels. There is a risk that a party with whom the
Portfolio has entered into such transactions will not perform its commitment,
which could result in a gain or loss to the Portfolio.
FLOATING- AND VARIABLE-RATE SECURITIES AND INVERSE FLOATERS. The
Portfolio may invest in floating- and variable-rate securities, which are
securities that provide for a periodic adjustment in the interest rate paid on
the obligations. The terms of such obligations must provide that interest rates
are adjusted periodically based upon an interest-rate adjustment index as
provided in the respective obligations. The adjustment intervals may be regular,
and range from daily up to annually, or may be event based, such as based on a
change in the prime rate, or tied to another interest rate, such as a money
market index or Treasury bill rate.
The Portfolio also may invest in inverse floating-rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. A higher degree of leverage may be
associated with greater volatility in the market value of an inverse floater.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity. Certain inverse floaters may be deemed to be illiquid securities.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from their face value. The discount
approximates the total amount of interest the bonds would accrue and compound
over the period until maturity at a rate of interest reflecting the market rate
at the time of issuance. The discount represents income, which must be accrued
and distributed every year even though the Portfolio receives no payment on the
investment in that year. Because interest is not paid to the Portfolio on a
current basis but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations that distribute income regularly. Cash to pay
dividends representing unpaid, accrued interest may be obtained from sales
proceeds of portfolio securities and from loan proceeds.
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BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS. The Portfolio may
invest in certificates of deposit, time deposits, bankers' acceptances, and
other short-term debt obligations issued by commercial banks and in certificates
of deposit, time deposits, and other short-term obligations issued by savings
and loan associations ("S&Ls"). Certificates of deposit are receipts from a bank
or S&L for funds deposited for a specified period of time at a specified rate of
return. Time deposits in banks or S&Ls are generally similar to certificates of
deposit, but are uncertificated. Bankers' acceptances are time drafts drawn on
commercial banks by borrowers, usually in connection with international
commercial transactions. The Portfolio will limit its investment in time
deposits for which there is a penalty for early withdrawal to 15% of its net
assets.
HIGH-YIELD, HIGH-RISK SECURITIES. The Portfolio may invest up to 10% of
its assets in debt securities that are rated below investment grade (I.E., below
"BBB" by S&P or "Baa" by Moody's). These debt securities have speculative
characteristics, and changes in economic conditions or individual corporate
developments are more likely to lead to a weakened capacity to make principal
and interest payments than is the case of higher-grade bonds (See "Risk
Considerations" and "Commercial Paper".)
FORWARD FOREIGN CURRENCY TRANSACTIONS. Forward foreign currency
exchange contracts ("forward contracts") may be used to minimize the risk of
loss to the Portfolio from adverse changes in the relationship between the U.S.
dollar and foreign currencies. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date which is
individually negotiated and privately traded by currency traders and their
customers. A forward contract may be used, for example, when the Portfolio
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of the security.
The Portfolio also may enter into forward contracts to adjust the Portfolio's
exposure to various foreign currencies, either pending anticipated investments
in securities denominated in those currencies or as a hedge against anticipated
market changes. To a limited extent, the Portfolio may purchase forward
contracts to increase exposure in foreign currencies that are expected to
appreciate and thereby increase total return.
Successful use of forward contracts depends on the investment adviser's
skill in analyzing and predicting relative currency values. Forward contracts do
not eliminate fluctuations in the underlying prices of securities held by the
Portfolio. Although such contracts tend to minimize the risk of loss due to a
decline in the value of a currency that has been sold forward, at the same time
they tend to limit any potential gain that might be realized should the value of
such currency change. Likewise, forward contracts tend to minimize the risk of
loss due to an increase in the value of a currency that has been purchased
forward, though they may result in overpayment if the value of such currency
declines. In short, forward contracts alter the Portfolio's exposure to currency
exchange-rate activity and could result in losses to the Portfolio if currencies
do not perform as the investment adviser anticipates. The Portfolio may also
incur significant costs when converting assets from one currency to another.
FOREIGN INDEX-LINKED INSTRUMENTS. As part of its investment program,
and to maintain greater flexibility, the Portfolio may invest in instruments
that have the investment characteristics of particular securities, securities
indices, futures contracts or currencies. Such instruments may take a variety of
forms, such as debt instruments with interest or principal payments determined
by reference to the value of a currency or commodity at a future point in time.
A foreign index may be based upon the exchange rate of a particular currency or
currencies, the differential between two currencies, the level of interest rates
in a particular country or countries, or the differential in interest rates
between particular countries. In the case of instruments linking the interest
components to a foreign index, the amount of interest payable generally adjusts
periodically in response to changes in the level of the foreign index during the
term of the foreign index-linked instrument. The risks of such investments would
reflect the risks of investing in the index, futures contract or currency, the
performance of which determines the return for the linked instrument. Tax
considerations may limit the Portfolio's ability to invest in foreign
index-linked instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may
enter into futures contracts and related options, which may be used for any
legal purpose including to reduce trading costs. An interest-rate index futures
contract is an agreement to take or make delivery of an amount of cash based on
the difference between the value of the index at the beginning and at the end of
the contract period. A futures contract on a
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foreign currency is an agreement to buy or sell a specified amount of a currency
for a set price on a future date. There are several risks associated with the
use of futures and related options for hedging purposes. There can be no
assurance that a liquid market will exist at a time when the Portfolio seeks to
close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day: once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent the Portfolio from liquidating an
unfavorable position, and the Portfolio would remain obligated to meet margin
requirements until the position is closed. These instruments may be used for
hedging purposes, but there can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the securities or
currencies being hedged. An incorrect correlation could result in a loss on both
the hedged securities or currencies and the hedging vehicle so that the
Portfolio's return might have been better had hedging not been attempted.
OPTIONS. A put option is a short-term contract that gives the purchaser
of the put option, in return for a premium, the right to sell the underlying
security to the seller of the option at a specified price during the term of the
option. A call option is a short-term contract that gives the purchaser, in
return for a premium, the right to buy from the seller of the option the
underlying security at a specified price during the term of the option. The
Portfolio will only write "covered" call options and "secured" put options. A
"covered" call option means generally that so long as the Portfolio is obligated
as the writer of a call option, the Portfolio will either own the underlying
securities subject to the call, or hold a call at the same or lower exercise
price, for the same exercise period, and on the same securities as the call
written. A "secured" put option means generally that so long as the Portfolio is
obligated as the writer of the put option, the Portfolio will maintain liquid
assets with a value equal to the exercise price in a segregated account, or hold
a put on the same underlying security at an equal or greater exercise price.
Options in which the Portfolio may invest may be traded on exchanges or in the
over-the-counter market. Options may be used for hedging purposes, but there can
be no guarantee that there will be a correlation between price movements in the
hedging vehicle and in the securities or currencies being hedged. An incorrect
correlation could result in a loss on both the hedged securities or currencies
and the hedging vehicle so that the Portfolio's return might have been better
had hedging not been attempted.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write put
and call options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. The
Portfolio may also use foreign currency options to protect against potential
losses in positions denominated in one foreign currency against another foreign
currency in which the Portfolio's assets are or may be invested. As with other
kinds of option transactions, however, the writing of an option on foreign
currency will constitute only a partial hedge up to the amount of the premium
received, and the Portfolio could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations, although, in the event of rate movements
adverse to the Portfolio's position, the Portfolio may forfeit the entire amount
of the premium plus related transaction costs.
OPTIONS ON SECURITIES AND OPTIONS ON BOND INDICES. The Portfolio may
purchase and write put and call options on securities and bond indices. Options
on securities give the Portfolio the right to buy, or the obligation to sell,
eligible portfolio securities. A call option on a bond index gives the purchaser
the right to receive from the seller cash equal to the difference between the
closing price of the index and the exercise price of the option.
ARBITRAGE. The Portfolio may sell a security in one market and
simultaneously purchase the same security in another market in order to take
advantage of differences in the price of the security in the different markets.
The Portfolio does not actively engage in arbitrage. Such transactions may be
entered into only with respect to debt securities and will occur only in a
dealer's market where the buying and selling dealers involved confirm their
prices to the Portfolio at the time of the transaction, thus eliminating any
risk to the assets of the Portfolio.
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SWAP AGREEMENTS. The Portfolio may enter into interest-rate, index and
currency-exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Portfolio than if the Portfolio
had invested directly in an instrument that yielded that desired return. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount" (I.E.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency or in a "basket" of
securities representing a particular index). Commonly used swap agreements
include interest-rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; interest-rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest-rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
BORROWING. The Portfolio may borrow up to a limit of 15% of its total
assets from a bank for temporary or emergency purposes or to meet redemptions.
The Portfolio also may enter into reverse repurchase agreements (which may be
deemed borrowings under the 1940 Act unless assets are properly segregated) with
banks or broker-dealers subject to the limitations of the 1940 Act. Reverse
repurchase agreements involve the sale of a security by the Portfolio and its
agreement to repurchase the instrument at a specified time and price. The
Portfolio will maintain a segregated account consisting of cash, U.S. government
securities, foreign government securities provided they are of high liquidity
and quality, or other liquid, high-grade debt obligations maturing not later
than the expiration of the reverse repurchase agreement, to cover its
obligations under reverse repurchase agreements. The Portfolio will limit its
investments in reverse repurchase agreements that are not covered by properly
segregated assets and other borrowing to no more 15% of its total assets. The
use of reverse repurchase agreements by the Portfolio may create leverage that
could increase the Portfolio's investment risk. If the income and gains on
securities purchased with the proceeds of reverse repurchase agreements exceed
the cost of the agreements, the Portfolio's earnings or net asset value would
increase faster than otherwise would be the case; conversely, if the income and
gains fail to exceed the costs, earnings or net asset value would decline faster
than otherwise would be the case. Borrowing may exaggerate the effect on the
Portfolio's net asset value of any increase or decrease in the value of the
Portfolio's portfolio securities. Money borrowed is subject to interest costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances).
ILLIQUID AND RESTRICTED SECURITIES. As a non-fundamental policy, the
Portfolio will not purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets (taken at current value) would be invested in
securities that are illiquid by virtue of the absence of a readily available
market or because of legal or contractual restrictions on resale ("restricted
securities"). There may be undesirable delays in selling illiquid securities at
prices representing their fair value. This policy includes over-the-counter
options held by the Portfolio and the "in the money" portion of the assets used
to cover such options. The limitation on investing in restricted securities does
not include securities that may not be resold to the general public but may be
resold to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933, as amended. If SCMI determines that a "Rule 144A
security" is liquid pursuant to guidelines adopted by the Trust Board, the
security will not be deemed illiquid. These guidelines take into account trading
activity for the securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, that security may become illiquid, which could
affect the Portfolio's liquidity. (See "Investment Policies -- Illiquid and
Restricted Securities" in the SAI for further information.)
LENDING OF PORTFOLIO SECURITIES. The Portfolio may lend its investment
securities to brokers, dealers and financial institutions for the purpose of
realizing additional income. The total market value of securities loaned will
not at any time exceed one-third of the total assets of the Portfolio. The risk
in lending portfolio securities, as with other extensions of credit, is the
possible loss of rights in the collateral should the borrower fail financially.
In determining whether to lend securities, the Portfolio's investment adviser
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower.
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COMMERCIAL PAPER. The Portfolio may invest in commercial paper, which
represents short-term unsecured promissory notes issued by banks or bank holding
companies, corporations and finance companies. The Portfolio may invest in
commercial paper primarily rated at the time of investment "P-1" by Moody's or
"A-1" by S&P, or, if unrated by Moody's or S&P, deemed comparable in quality by
the Portfolio's investment adviser. The Portfolio may also invest in commercial
paper rated below "A-1"/ "P-1"; however, such investments are subject to the
Portfolio's 10% limit on high-yield, high-risk securities. (See "Appendix A --
Description of Securities Ratings" to the SAI.)
REPURCHASE AGREEMENTS. The Portfolio may invest in repurchase
agreements. A repurchase agreement is a means of investing monies for a short
period. In a repurchase agreement, a seller -- a U.S. bank or recognized
broker-dealer -- sells securities to the Portfolio and agrees to repurchase the
securities at the Portfolio's cost plus interest within a specified period
(normally one day). In these transactions, the values of the underlying
securities purchased by the Portfolio are monitored at all times by SCMI to
ensure that the total value of the securities equals or exceeds the value of the
repurchase agreement, and the Portfolio `s custodian bank holds the securities
until they are repurchased. In the event of default by the seller under the
repurchase agreement, the Portfolio may have difficulties in exercising its
rights to the underlying securities and may incur costs and experience time
delays in disposing of them. To evaluate potential risks, SCMI reviews the
creditworthiness of those banks and dealers with which the Portfolio enters into
repurchase agreements.
TEMPORARY DEFENSIVE INVESTMENTS. For temporary defensive purposes, the
Portfolio may invest without limitation in (or enter into repurchase agreements
maturing in seven days or less with U.S. banks and broker-dealers with respect
to) short-term debt securities, including commercial paper, U.S. Treasury bills,
other short-term U.S. Government securities, certificates of deposit and
bankers' acceptances of U.S. banks. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government or its agencies, instrumentalities or
government-sponsored enterprises. The Portfolio also may hold cash and time
deposits in U.S. banks. In transactions involving "repurchase agreements," the
Portfolio purchases securities from a bank or broker-dealer who agrees to
repurchase the security at the Portfolio's cost plus interest within a specified
time. The securities purchased by the Portfolio have a total value in excess of
the value of the repurchase agreement and are held by the Portfolio's custodian
bank until repurchased. (See "Investment Policies" in Part B for further
information about all these securities.)
RISK CONSIDERATIONS
NON-DIVERSIFICATION. The Fund is classified as "non-diversified" under
the 1940 Act. In contrast to a "diversified" company, a non-diversified company
may invest more than 5% of its total assets in the securities of any one issuer.
However, so that the Fund may continue to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), the Portfolio will limit its investments so that at the close of
each quarter of the taxable year: (i) not more than 25% of the market value of
the Portfolio's total assets will be invested in the securities of a single
issuer; and (ii) with respect to 50% of the market value of its total assets,
not more than 5% will be invested in the securities of a single issuer and the
Portfolio will not own more than 10% of the outstanding voting securities of a
single issuer.
FIXED-INCOME SECURITIES AND THEIR CHARACTERISTICS. Fixed-income
securities generally are subject to market risk and credit risk. Market risk
refers to the change in the market value of investments by the Portfolio in
fixed income securities, including money market instruments, when there is a
change in interest rates or the issuer's actual or perceived creditworthiness or
ability to meet its obligations. There is normally an inverse relationship
between the market value of fixed-rate debt securities and changes in interest
rates. In other words, an increase in interest rates produces a decrease in
market value. Moreover, the longer the remaining maturity of a security, the
greater will be the effect of interest rate changes on the market value of that
security. The Portfolio's investments are subject to "credit risk" relating to
the financial condition of the issuers of the securities that the Portfolio
holds. Credit risk refers to changes in the ability of an issuer to make
payments of interest and principal when due and changes in the market's
perception of an issuer's creditworthiness that affect the value of the debt
securities of that issuer.
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FOREIGN INVESTMENTS. Investments in foreign securities involve certain
risks not associated with domestic investments, including fluctuations in
foreign exchange rates, uncertain political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws or
restrictions.
Foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as economic growth rates, rates of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments positions.
Certain foreign investments may also be subject to foreign withholding taxes,
thereby reducing the income available for distribution to the Portfolio's
interestholders. Additionally, commission rates payable on foreign portfolio
transactions may often be higher than in the U.S. Because international
investments generally involve risks in addition to those risks associated with
investments in the U.S., the Fund should be considered only as a vehicle for
international diversification and not as a complete investment program.
Issuers of securities in foreign jurisdictions are generally not
subject to the same degree of regulation as are U.S. issuers with respect to
such matters as insider trading rules, restrictions on market manipulation,
shareholder proxy requirements and timely disclosure of information. Often,
available information about issuers and their securities is less extensive in
foreign markets, particularly emerging market countries, than in the United
States. In addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Portfolio than that provided by U.S.
laws.
Moreover: (i) interest payable on foreign securities may be subject to
foreign withholding taxes, thereby reducing the income earned by the Portfolio;
(ii) accounting, auditing and financial reporting standards differ from those in
the U.S., which means that less information about foreign companies may be
available than is generally available about issuers of comparable securities in
the U.S.; (iii) foreign securities may trade less frequently and/or with less
volume than U.S. securities and consequently may exhibit greater price
volatility; and (iv) foreign securities trading practices, including those
involving securities settlement, may expose the Portfolio to increased risk in
the event of a failed trade or the insolvency of a foreign broker-dealer or
registrar.
GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its
total assets in issuers located in any one country. To the extent that it
invests in issuers located in one country, the Portfolio is susceptible to
factors adversely affecting that country, including the political and economic
developments and foreign exchange rate fluctuations discussed above. As a result
of investing substantially in one country, the value of the Portfolio's assets
may fluctuate more widely than the value of shares of a comparable fund with a
lesser degree of geographic concentration.
CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will
invest in non-U.S. dollar denominated securities, changes in foreign currency
exchange rates will affect the value of the Portfolio's investments. A decline
against the dollar in the value of currencies in which the Portfolio's
investments are denominated will result in a corresponding decline in the dollar
value of its assets. This risk tends to be heightened in the case of investing
in certain emerging market countries. For example, some currencies of emerging
market countries have experienced repeated devaluations relative to the U.S.
dollar, and major adjustments have periodically been made in certain of such
currencies. Some emerging market countries may also have managed currencies that
do not float freely against the dollar. Exchange rates are influenced generally
by the forces of supply and demand in the foreign currency markets and by
numerous other political and economic events occurring outside the United
States, many of which may be difficult, if not impossible, to predict.
The Portfolio may enter into foreign currency forward contracts to
purchase or sell foreign currencies in anticipation of its currency requirements
and to protect against possible adverse movements in foreign exchange rates.
Although such contracts may reduce the risk of loss to the Portfolio due to a
decline in the value of the currency sold, they also limit any possible gain
that might result should the value of such currency rise. (See "Foreign Currency
Transactions", "Futures, Options on Futures Contracts" and "Options on Foreign
Currencies".)
SWAPS. The Portfolio may enter into swap agreements. Whether the
Portfolio's use of swap agreements will be successful in furthering its
investment objective depends upon SCMI's ability to predict whether certain
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types of investments will produce greater returns than other investments.
Because swaps are two-party contracts that may have terms of greater than seven
days, swap agreements may be considered to be illiquid. Moreover, the Portfolio
bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. SCMI will cause the Portfolio to enter into swap agreements only
with counterparties that would be eligible for consideration as repurchase
agreement counterparties under the Portfolio's repurchase agreement guidelines.
Certain restrictions imposed on the Portfolio by the Internal Revenue Code may
limit the Portfolio's ability to use swap agreements. The swaps market is a
relatively new market and is largely unregulated. It is possible that
developments in the swap market and the laws relating to swaps, including
potential government regulation, could adversely affect the Portfolio's ability
to terminate existing swap agreements, to realize amounts to be received under
such agreements, or to enter into swap agreements or could have tax
consequences. (See "Tax Information" in the SAI for information regarding the
tax considerations relating to swap agreements.)
EMERGING MARKETS. In any emerging market country, there is the
possibility of expropriation of assets, confiscatory taxation, foreign exchange
controls, foreign investment controls on daily stock market movements, default
in foreign government securities, political or social instability or diplomatic
developments, all of which could affect investments in those countries. The
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. Certain emerging market countries may restrict
investment by foreign investors. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the costs
and expenses of the Portfolio. Several emerging market countries have
experienced substantial, and in some periods extremely high, rates of inflation
in recent years. Inflation and rapid fluctuations in inflation rates may have
very negative effects on the economies and securities markets of certain
emerging market countries. Further, inflation accounting rules in some emerging
market countries may indirectly generate losses or profits for certain emerging
market companies.
HIGH-YIELD, HIGH-RISK SECURITIES. Securities rated below "BBB" or "Baa"
are characterized by greater price volatility, greater risk of loss of principal
and interest, a greater possibility of the issuer going bankrupt, and other
additional risks than securities rated investment grade or higher. Moody's
considers bonds it rates "Baa" to have speculative elements as well as
investment-grade characteristics. The lower the ratings of securities, the
greater their risks. The Portfolio may invest in securities that are rated "D"
by S&P or, if unrated, deemed comparable in quality. Securities rated "D" may be
in default with respect to payment of principal or interest. If the issuer of
high yield bonds defaults, the Portfolio may incur additional expenses to seek
recovery. In the case of high yield bonds structured as zero coupon or
payment-in-kind securities, the market prices of such securities are more
sensitive to interest rate changes and, therefore, tend to be more volatile than
securities which pay interest periodically and in cash. The secondary market in
which high yield bonds trade may be less liquid than the market for higher grade
bonds. This thinner secondary market trading could adversely affect the price at
which the Portfolio could sell a high yield bond.
Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and the
ability of the Portfolio to achieve its investment objective may, to the extent
of its investment in high yield bonds, be more dependent upon such credit
analysis than would be the case if the Portfolio were investing in higher
quality bonds. The use of credit ratings as the sole method for evaluating high
yield bonds also involves certain risks. For example, credit ratings evaluate
the safety of principal and interest payments, not the market value risk of high
yield bonds. Also, credit rating agencies may fail to change credit ratings on a
timely basis to reflect subsequent events. Investors should consider and be
willing to accept the risks associated with a limited allocation to high yield
securities before investing. (See "Appendix A -- Description of Securities
Ratings" to the SAI for further information.)
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MANAGEMENT OF THE FUND
SCHRODER GROUP ASSETS UNDER MANAGEMENT WORLDWIDE AS OF DECEMBER 31,1996
- OVER $150 BILLION
[GRAPHIC OF WORLD MAP]
THE SCHRODER INVESTMENT MANAGEMENT GROUP INVESTMENT AND REPRESENTATIVE OFFICES
WORLDWIDE INCLUDE NEW YORK,LONDON, BOSTON, ZURICH, WARSAW, TOKYO, HONG KONG,
BEIJING, SHANGHAI, TAIPEI, SEOUL, BANGKOK, KUALA LUMPUR,
SINGAPORE, JAKARTA, SYDNEY, BUENOS AIRES, SAO PAULO, BOGOTA AND CARACAS.
TOGETHER, SCHRODER CAPITAL MANAGEMENT INTERNATIONAL AND SCHRODER CAPITAL
MANAGEMENT INC. MANAGE OVER $24 BILLION
BOARDS OF TRUSTEES
The business and affairs of the Fund are managed under the direction of
the Trust Board. The business and affairs of the Portfolio are managed under the
direction of the Schroder Core II Board. Additional information regarding the
Trustees and executive officers of the Trust, as well as Schroder Core II's
trustees and executive officers, may be found in the SAI under the heading
"Management, Trustees and Officers".
INVESTMENT ADVISER AND PORTFOLIO MANAGERS
As investment adviser to the Portfolio, SCMI manages the Portfolio and
continuously reviews, supervises and administers its investments. SCMI is
responsible for making decisions relating to the Portfolio's investments and
placing purchase and sale orders regarding such investments with brokers or
dealers it selects. For these services, the Investment Advisory Agreement
between SCMI and the Trust provides that SCMI is entitled to receive a monthly
advisory fee at the annual rate of 0.50% of the Portfolio's average daily net
assets, which the Fund indirectly bears through investment in the Portfolio.
SCMI has agreed, however, to waive all of the advisory fees payable under the
Investment Advisory Agreement by the Portfolio. Such fee limitation arrangement
shall remain in effect until its elimination is approved by the Schroder Core II
Board. The Fund bears no separate investment advisory fee directly.
SCMI is a wholly owned U.S. subsidiary of Schroders Incorporated, the
wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc is
the holding company parent of a large world-wide group of banks and financial
services companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices located in eighteen countries
world-wide. The Schroder Group specializes in providing investment management
services.
The Portfolio is managed by the International Fixed Income Committee of
SCMI. The individuals responsible for the day-to-day implementation of the
Committee's investment decisions are Michael Perelstein and
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Mark Astley. Mr. Perelstein and Mark Astley have managed the Portfolio since
inception. Mr. Perelstein was appointed a Senior Vice President and director of
SCMI on January 2, 1997. Prior thereto, Mr. Perelstein was a Managing Director
at MacKay-Shields. Mr. Perelstein has more than twelve years of international
and global investment experience. Mr. Astley, a First Vice President of SCMI,
has been with the firm for 10 years. In addition to serving as a global fixed
income portfolio manager, Mr. Astley serves as a currency specialist for SCMI's
International Fixed Income Committee.
The Fund pursues its investment objective through investment in the
Portfolio. The Fund may withdraw its investment from the Portfolio at any time
if the Trust Board determines that it is in the best interests of the Fund and
its shareholders to do so. (See "Other Information -- Fund Structure".)
Accordingly, the Fund has retained SCMI as its investment adviser to manage the
Fund's assets in the event the Fund withdraws its investment. SCMI does not
receive an investment advisory fee with respect to the Fund so long as the Fund
remains completely invested in the Portfolio (or any other investment company).
If the Fund resumes directly investing in portfolio securities, the Fund will
pay SCMI a monthly advisory fee at the annual rate of 0.50% of the Fund's
average daily net assets. The investment advisory agreement between SCMI and the
Trust with respect to the Fund is the same in all material respects as the
investment advisory contract between SCMI and Schroder Core II with respect to
the Portfolio (except as to the parties, the fees payable thereunder, the
circumstances under which fees will be paid and the jurisdiction whose laws
govern the agreement).
ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an administration
agreement with Schroder Advisors, 787 Seventh Avenue, 34th Floor, New York, New
York 10019. On behalf of the Portfolio, the Trust has also entered into a
subadministration agreement with Forum, Two Portland Square, Portland, Maine
04101. Pursuant to these agreements, Schroder Advisors and Forum provide certain
management and administrative services necessary for the Fund's operations,
other than the investment management and administrative services provided to the
Portfolio by SCMI. Schroder Advisors is compensated at the annual rate of 0. 05%
of the Fund's average daily net assets. Forum is compensated at the annual rate
of 0.075% of the Fund's average daily net assets.
Schroder Advisors and Forum provide similar services to the Portfolio,
for which the Portfolio pays Schroder Advisors at the annual rate of 0.10% of
the Portfolio's average daily net assets and pays Forum at the annual rate of
0.075% of the Portfolio's average daily net assets.
EXPENSES
SCMI and Schroder Advisors have undertaken voluntarily to waive a
portion of their fees or assume certain expenses of the Fund in order to limit
total Fund expenses excluding taxes, interest, brokerage commissions and other
portfolio transaction expenses and extraordinary expenses chargeable to Investor
Shares to 0.95% of the average daily net assets of the Fund attributable to
those shares. This expense limitation cannot be modified or withdrawn except by
a majority vote of the Trustees of the Trust who are not affiliated persons (as
defined in the 1940 Act) of the Trust. If expense reimbursements are required,
they will be made on a monthly basis. Forum may waive voluntarily all or a
portion of its fees from time to time.
PORTFOLIO TRANSACTIONS
SCMI places orders for the purchase and sale of the Portfolio's
investments with brokers and dealers selected by SCMI in its discretion and
seeks "best execution" of such portfolio transactions. The Portfolio may pay
higher than the lowest available commission rates when SCMI believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker effecting the transaction. Commission rates for brokerage
transactions are fixed on many foreign securities exchanges, and this may cause
higher brokerage expenses to accrue to the Portfolio than would be the case for
comparable transactions effected on U.S.
securities exchanges.
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Subject to the Portfolio's policy of obtaining the best price
consistent with quality of execution on transactions, SCMI may employ Schroder
Securities Limited and its affiliates (collectively, "Schroder Securities")
affiliates of SCMI to effect transactions of the Portfolio on certain foreign
securities exchanges. Because of the affiliation between SCMI and Schroder
Securities, the Portfolio's payment of commissions to Schroder Securities is
subject to procedures adopted by the Schroder Core II Board designed to ensure
that such commissions will not exceed the usual and customary brokers'
commissions. No specific portion of the Portfolio's brokerage will be directed
to Schroder Securities and in no event will Schroder Securities receive such
brokerage in recognition of research services.
Although the Portfolio does not currently engage in directed brokerage
arrangements to pay expenses, it may do so in the future. These are arrangements
whereby brokers executing the Portfolio's portfolio transactions would agree to
pay designated expenses of the Portfolio if brokerage commissions generated by
the Portfolio reached certain levels. These arrangements might reduce the
Portfolio's expenses (and, indirectly, the Fund's expenses). As anticipated,
these arrangements would not materially increase the brokerage commissions paid
by the Portfolio.
CODE OF ETHICS
The Trust, Schroder Core II, SCMI, Schroder Advisors, and Schroders
Incorporated have each adopted a code of ethics that contains a policy on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. That policy complies in all material respects
with the recommendations set forth in the Report of the Advisory Group on
Personal Investing of the Investment Company Institute, of which the Trust is a
member.
INVESTMENT IN THE FUND
PURCHASE OF SHARES
Investors may purchase Investor Shares directly from the Trust.
Prospectuses, sales material and account applications can be obtained from the
Trust or through Forum Financial Corp., the Fund's transfer agent ("Transfer
Agent"). (See "Other Information -- Shareholder Inquiries".) Investments may
also be made through Financial Institutions and other 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. The minimum subsequent
investment is $2,500. All purchase payments are invested in full and fractional
shares. The Fund is authorized to reject any purchase order.
Purchases may be made by mailing a check (in U.S. dollars), payable to
"Schroder International Bond Fund" to:
Schroder International Bond Fund - Investor Shares
P.O. Box 446
Portland, Maine 04112
For initial purchases, the check must be accompanied by a completed
account application in proper form. Further documentation, may be requested from
corporations, administrators, executors, personal representatives, directors or
custodians to evidence the authority of the person or entity making the
investment.
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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 International Bond Fund - Investor Shares
Account of: (shareholder name)
Account No.: (shareholder account number)
The wire order must specify the name of the Fund, the shares' class
(I.E., Investor Shares), the account name and number, address, confirmation
number, amount to be wired, name of the wiring bank and name and telephone
number of the person to be contacted in connection with the order. If the
initial investment is by wire, an account number will be assigned and an account
application must be completed and mailed to the Fund before any account becomes
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") will be
processed at the net asset value determined as of that day. Wire orders received
after 4:00 p.m. (Eastern Time) will be processed at the net asset value
determined as of the next Fund Business Day. (See "Net Asset Value".)
The Fund's Transfer Agent establishes for each shareholder of record an
open account to which all shares purchased and all reinvested dividends and
other distributions are credited. Although most shareholders elect not to
receive share certificates, certificates for full shares can be obtained by
specific written request to the Fund's Transfer Agent. No certificates are
issued for fractional shares.
The Transfer Agent will deem an account lost if six months have passed
since correspondence to the shareholder's address of record is returned, unless
the Transfer Agent determines the shareholder's new address. When an account is
deemed lost, dividends and other distributions will automatically be reinvested.
In addition, the amount of any outstanding checks for dividends and capital-gain
distributions that have been returned to the Transfer Agent will be reinvested,
and the checks will be canceled.
RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the Fund are offered in connection with tax-deferred
retirement plans. Applications forms and further information about these plans,
including applicable fees, are available upon request. Before investing in the
Fund through one of these plans, investors should consult their tax advisors.
The Fund may be used as an investment vehicle for an IRA including
SEP-IRA. An IRA naming The First National Bank of Boston as custodian is
available from the Trust or the Transfer Agent. The minimum initial investment
for an IRA is $2,000; the minimum subsequent investment is $250. Under certain
circumstances contributions to an IRA may be tax deductible. IRAs are available
to individuals (and their spouses) who receive compensation or earned income
whether or not they are active participants in a tax-qualified or
government-approved retirement plan. An IRA contribution by an individual or
spouse who participates in a tax-qualified or government-approved retirement
plan may not be deductible, depending upon the individual's income. Individuals
also may establish an IRA to receive a "rollover" contribution of distributions
from another IRA or a qualified plan. Tax advice should be obtained before
effecting a rollover.
STATEMENT OF INTENTION
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.
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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 of the account application form. Current Fund shareholders
can obtain a Statement of Intention form by contacting the Transfer Agent.
The Fund reserves the right to redeem shares in any account if, at the
end of the Statement of Intention period, the account does not have a value of
at least the minimum investment amount.
EXCHANGES
Shareholders may exchange Investor Shares of the Fund for Investor
Shares of any other fund of the Trust so long as they meet the initial
investment minimum of the fund being purchased and maintain the respective
minimum account balance in each fund in which they own shares. Exchanges between
each fund are at net asset value.
For federal income tax purposes an exchange is considered to be a sale
of shares on which a shareholder may realize a capital gain or loss. An exchange
may be made by calling the Transfer Agent at (800) 344-8332 or by mailing
written instructions to Schroder Capital Funds (Delaware), P.O. Box 446,
Portland, Maine 04112. Exchange privileges may be exercised only in those states
where shares of the other series of the Trust may legally be sold. Exchange
privileges may be amended or terminated at any time upon sixty (60) days'
notice.
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) will be
processed at the net asset value determined as of that day. Redemption requests
that are received after 4:00 p.m. (Eastern Time) will be processed at the net
asset value determined the next Fund Business Day. (See "Net Asset Value".)
BY TELEPHONE. Redemption requests may be made by telephoning the
Transfer Agent at the telephone number on the cover page of this Prospectus. A
shareholder must provide the Transfer Agent with the class of shares, the dollar
amount or number of shares to be redeemed, shareholder account number, and some
additional form of identification such as a password. A redemption by telephone
may be made only if the telephone redemption privilege option has been elected
on the account application or otherwise in writing. In an effort to prevent
unauthorized or fraudulent redemption requests by telephone, reasonable
procedures will be followed by the Transfer Agent to confirm that telephone
instructions are genuine. The Transfer Agent and the Trust generally will not be
liable for any losses due to unauthorized or fraudulent redemption requests, but
may be liable if they do not follow these procedures. Shares for which
certificates have been issued may not be redeemed by telephone. In times of
drastic economic or market changes, it may be difficult to make redemptions by
telephone.
If a shareholder cannot reach the Transfer Agent by telephone, redemption
requests may be mailed or hand-delivered to the Transfer Agent.
WRITTEN REQUESTS. Redemptions may be made by letter to the Fund
specifying the class of shares, the dollar amount or number of shares to be
redeemed and the shareholder account number. The letter must also be signed in
exactly the same way the account is registered (if there is more than one owner
of the shares, all must sign) and, in certain cases, signatures must be
guaranteed by an institution that is acceptable to the Transfer Agent. Such
institutions include certain banks, brokers, dealers (including municipal and
government securities brokers and dealers), credit unions and savings
associations. Notaries public are not acceptable. Further documentation may be
requested to evidence the authority of the person or entity making the
redemption request. Questions concerning the need for signature guarantees or
documentation of authority should be directed to the Fund at the above address
or by calling the telephone number appearing on the cover of this Prospectus.
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If shares to be redeemed are held in certificate form, the certificates
must be enclosed with the redemption request and the assignment form on the back
of the certificates and the assignment form on the back of the certificates (or
an assignment separate from the certificates but accompanied by the
certificates), must be signed by all owners in exactly the same way the owners'
names are written on the face of the certificates. Requirements for signature
guarantees and/or documentation of authority as described above could also
apply. For your protection, the Fund suggests that certificates be sent by
registered mail.
ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds will
normally be mailed within seven days. No redemption proceeds will be mailed
until checks in payment for the purchase of the shares to be redeemed have been
cleared, which may take up to 15 calendar days from the purchase date. Unless
other instructions are given in proper form, a check for the proceeds of a
redemption will be sent to the shareholder's address of record.
The Fund may suspend the right of redemption during any period when:
(i) trading on the New York Stock Exchange is restricted or that exchange is
closed; (ii) the SEC has by order permitted such suspension; or (iii) an
emergency (as defined by rules of the SEC) exists making disposal of portfolio
investments or determination of the Fund's net asset value not reasonably
practicable.
If the Trust Board determines that it would be detrimental to the best
interest of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may redeem shares in whole or in part by a distribution
in kind of portfolio securities (from the investment portfolio of the Portfolio
or of the Fund), in lieu of cash. The Fund will, however, redeem shares solely
in cash up to the lesser of $250,000 or 1% of net assets during any 90-day
period for any one shareholder. In the event that payment for redeemed shares is
made wholly or partly in portfolio securities, the shareholder may be subject to
additional risks and costs in converting the securities to cash. (See
"Additional Purchase and Redemption Information -- Redemption in Kind" in the
SAI.)
The proceeds of a redemption may be more or less than the amount
invested and, therefore, a redemption may result in a gain or loss for federal
income tax purposes.
Due to the relatively high cost of maintaining smaller accounts, the
Fund reserves the right to redeem shares in any account (other than an IRA) if
at any time the account does not have a value of at least $2,000, unless the
value of the account falls below that amount solely as a result of market
activity. Shareholders will be notified that the value of the account is less
than $2,000 and be allowed at least 30 days to make an additional investment to
increase the account balance to at least $2,000.
NET ASSET VALUE
The net asset value per share of the Fund is calculated separately for
each class of shares of the Fund at 4:00 p.m. (Eastern time), Monday through
Friday, each Fund Business Day, which excludes the following U.S. holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Net asset value per share is calculated
by dividing the aggregate value of the Fund's assets less all Fund liabilities,
if any, by the number of shares of the Fund outstanding.
Generally, debt securities are not exchange-listed and, therefore, are
valued at the most recent reported mid-market price. 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 proceeding trading day or
at closing mid-market prices. Securities traded in over-the-counter markets are
valued at the most recent reported mid-market price. Other securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith using methods approved by the Schroder Core II
Board.
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Trading in securities on non-U.S. exchanges and over-the-counter
markets may not take place on every day that the New York Stock Exchange is open
for trading. Furthermore, trading takes place in various foreign markets on days
on which the Fund's net asset value is not calculated. If events materially
affecting the value of foreign securities occur between the time when their
price is determined and the time when net asset value is calculated, such
securities will be valued at fair value as determined in good faith by using
methods approved by the Schroder Core II Board.
All assets and liabilities of the Portfolio denominated in foreign
currencies are valued in U.S. dollars based on the exchange rate last quoted by
a major bank prior to the time when the net asset value of the Fund is
calculated.
DIVIDENDS, DISTRIBUTIONS AND TAXES
THE FUND
The Fund intends to comply with the provisions of Internal Revenue Code
of 1986, as amended, applicable to regulated investment companies. By complying
therewith, the Fund will not have to pay federal income tax on that part of its
investment income or net realized capital gain that is distributed to
shareholders. The Fund intends to distribute substantially all of its income and
net realized capital gain and, therefore, intends not to be subject to federal
income tax.
Dividends and capital-gain distributions on a lass of shares 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 are calculated in the same manner and at the same time.
The per share dividends on Advisor Shares are expected to be lower than the per
share dividends on Investor Shares as a result of any compensation payable to
Service Organizations for shareholder servicing for the Advisor Shares.
Dividends from the Fund's income generally are taxable to shareholders
as ordinary income whether dividends are invested in additional shares or
received in cash. Distributions by the Fund of any net capital gain is taxable
to a shareholder as long-term capital gain, regardless of how long the
shareholder has held the shares. Each year the Trust will notify shareholders of
the tax status of dividends and other distributions.
Dividends from the Fund will qualify for the dividends-received
deduction for corporate shareholders to the extent dividends do not exceed the
aggregate amount of dividends received by the Fund from domestic corporations,
provided the Fund shares are held for more than 45 days. If securities held by
the Fund are considered to be debt-financed (generally, acquired with borrowed
funds); are held by the Fund for fewer than 46 days (91 days in the case of
certain preferred stock); or are subject to certain forms of hedges or short
sales, then the portion of the dividends paid by the Fund attributable to such
securities will not be eligible for the dividends-received deduction.
A redemption of shares may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are more or
less than the shareholder's basis in the redeemed shares. If shares are redeemed
at a loss after being held for six months or less, the loss will be treated as a
long-term, rather than a short-term, capital loss to the extent of any
capital-gain distributions received on those shares.
The Fund must withhold 31% from dividends, capital-gain distributions
and redemption proceeds payable to any individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and capital-gain distributions
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payable to such shareholders who otherwise are subject to backup withholding.
Depending on the residence of a shareholder for tax purposes, distributions from
the Fund may also be subject to state and local taxes, including withholding
taxes.
In an effort to adhere to certain tax requirements, the Fund may have
to limit its investment activity in some types of instruments.
If the Fund's dividends exceed its taxable income in any year, all or a
portion of the Fund's dividends may be treated as a return of capital to
shareholders for tax purposes. Any return of capital will reduce the cost basis
of your shares, which will result in a higher reported capital gain or a lower
reported capital loss when you sell your shares. Shareholders will be notified
by the Trust if a distribution included a return of capital.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on the
Portfolio and its investments, which generally reduce the Fund's income.
However, an offsetting tax credit or deduction may be available to you. If so,
your tax statement will show more taxable income or capital gain than was
actually distributed by the Fund but will also show the amount of the available
offsetting credit or deduction.
If the Fund is eligible to do so, it intends to elect to permit its
shareholders to take a credit (or a deduction) for the Fund's share of foreign
income taxes paid by the Portfolio. If the Fund does make such an election, its
shareholders would include as gross income in their federal income tax returns
both: (i) distributions received from the Fund; and (ii) the amount that the
Fund advises is their pro rata portion of foreign income taxes paid with respect
to or withheld from dividends and interest paid to the Portfolio from its
foreign investments. Shareholders then would be entitled, subject to certain
limitations, to take a foreign tax credit against their federal income tax
liability for the amount of such foreign taxes or else to deduct such foreign
taxes as an itemized deduction from gross income.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders; see the SAI
for further information. Shareholders should consult their own tax advisors as
to the tax consequences of their ownership of shares.
THE PORTFOLIO
The Portfolio is not required to pay federal income tax because it is
classified as a partnership for federal income tax purposes. All interest,
dividends and gains and losses of the Portfolio will be deemed to have been
"passed through" to the Fund in proportion to its holdings in the Portfolio,
regardless of whether such interest, dividends or gains have been distributed by
the Portfolio. The Portfolio intends to conduct its operations so as to enable
the Fund to qualify as a regulated investment company.
OTHER INFORMATION
CAPITALIZATION AND VOTING
The Trust was organized as a Maryland corporation on July 30, 1969;
reorganized on February 29, 1988, as Schroder Capital Funds, Inc.; and
reorganized on January 9, 1996, as a Delaware business trust. The Trust has
authority to issue an unlimited number of shares of beneficial interest. The
Trust Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate portfolios or series (such as the Fund) and may
divide portfolios or series into classes of shares (such as the Investor
Shares), and the costs of doing so will be borne by the Trust. The Trust
currently consists of eight separate portfolios, each of which has separate
investment objectives and policies.
The Fund currently consists of two classes of shares. Each share of the
Fund is entitled to participate equally in dividends and other distributions and
the proceeds of any liquidation except that, due to the differing expenses borne
by the classes, dividends and liquidation proceeds for each class will likely
differ.
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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 class only shareholders of
that class shall have a right to vote. On Trust matters requiring shareholder
approval, shareholders of the Trust are entitled to vote only with respect to
matters that affect the interests of the Fund or the class of shares they hold,
except as otherwise required by applicable law.
There will normally be no meetings of shareholders to elect Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by shareholders. However, the holders of not less than
a majority of the outstanding shares of the Trust may remove any person serving
as a Trustee and the Trust Board will call a special meeting of shareholders to
consider removal of one or more Trustees if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust. From time
to time, certain shareholders may own a large percentage of the shares of the
Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
REPORTS
The Trust sends each shareholder a semi-annual report and an audited
annual report containing the Fund's financial statements.
PERFORMANCE
The Fund may include quotations of its average annual total return,
cumulative total return and other performance measures in advertisements or
reports to shareholders or prospective investors. Average annual total return of
a class of shares is based upon the overall dollar or percentage change in value
of a hypothetical investment each year over specified periods. Average annual
total returns reflect the deduction of a proportional share of a Fund's expenses
(on an annual basis) and assumes investment and reinvestment of all dividends
and distributions at NAV. Cumulative total returns are calculated similarly
except that the total return is aggregated over the relevant period instead of
annualized.
Performance quotations are calculated separately for each class of
shares of the Fund. The Fund may also be compared to various unmanaged
securities indices, groups of mutual funds tracked by mutual fund ratings
services, or other general economic indicators. Unmanaged indices may assume the
reinvestment of dividends but do not reflect deductions for administrative and
management costs and expenses.
Performance information represents only past performance and does not
necessarily indicate future results. For a description of the methods used to
determine total return and other performance measures for the Fund, see the SAI.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. is custodian of the Fund's and of the
Portfolio's assets. Forum Financial Corp. serves as the Fund's transfer and
dividend disbursing agent.
SHAREHOLDER INQUIRIES
Inquiries about the Fund, including its past performance, should be
directed to:
Schroder International Bond Fund
P.O. Box 446
Portland, Maine 04112
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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
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 have lower investment minimums and incur more expenses than Investor
Shares. Except for certain differences, each share of each class represents an
undivided, proportionate interest in the Fund. Each share of the Fund is
entitled to participate equally in dividends and other distributions and the
proceeds of any liquidation of the Fund except that, due to the differing
expenses borne by the two classes, the amount of dividends and other
distributions will differ between the classes. Information about Advisor Shares
is available from the Fund by calling Schroder Advisors at (800) 730-2932.
THE PORTFOLIO. The Fund seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, which has substantially
the same investment objective and substantially similar policies as the Fund.
Accordingly, the Portfolio directly acquires its own securities and the Fund
acquires an indirect interest in those securities. The Portfolio is a separate
series of Schroder Core II, a business trust organized under the laws of the
State of Delaware in December 1996. Schroder Core II is registered under the
1940 Act as an open-end management investment company and currently has one
separate portfolio. The assets of the Portfolio, a non-diversified portfolio,
belong only to, and the liabilities of the Portfolio are borne solely by, the
Portfolio and no other portfolio of Schroder Core II.
The Fund's investment in the Portfolio is in the form of a
non-transferable beneficial interest. As of April 15, 1997, the Fund had not
commenced operations. There were two institutional investors in the Portfolio.
The Portfolio may permit other investment companies or qualified investors to
invest in it. All other investors in the Portfolio will invest on the same terms
and conditions as the Fund and will pay a proportionate share of the Portfolio's
expenses.
The Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in the Portfolio will be entitled to
vote in proportion to its relative beneficial interest in the Portfolio. On most
issues subject to a vote of investors, as required by the 1940 Act and other
applicable law, the Fund will solicit proxies from its shareholders and will
vote its interest in the Portfolio in proportion to the votes cast by its
shareholders. If there are other investors in the Portfolio, there can be no
assurance that any issue that receives a majority of the votes cast by Fund
shareholders will receive a majority of votes cast by all investors in the
Portfolio; indeed, if other investors hold a majority interest in the Portfolio,
they could have voting control of the Portfolio.
The Portfolio will not sell its shares directly to members of the
general public. Another investor in the Portfolio, such as an investment
company, that might sell its shares to members of the general public would not
be required to sell its shares at the same public offering price as the Fund and
could have different advisory and other fees and expenses than the Fund.
Therefore, Fund shareholders may have different returns than shareholders in
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another investment company that invests exclusively in the Portfolio. There is
currently no such other investment company that offers its shares to members of
the general public. Information regarding any such funds in the future will be
available from Schroder Core II by calling Forum Financial Corp. at (207)
879-8903.
Under federal securities law, any person or entity that signs a
registration statement may be liable for a misstatement or omission of a
material fact in the registration statement. Schroder Core II, its Trustees and
certain of its officers are required to sign the registration statement of the
Trust and may be required to sign the registration statements of certain other
investors in the Portfolio. In addition, under federal securities law, Schroder
Core II may be liable for misstatements or omissions of a material fact in any
proxy soliciting material of an investor in Schroder Core II, including the
Fund. Each investor in the Portfolio, including the Trust, will indemnify
Schroder Core II and its Trustees and officers ("Schroder Core II Indemnitees")
against certain claims.
Indemnified claims are those brought against Schroder Core II
Indemnitees based on a misstatement or omission of a material fact in the
investor's registration statement or proxy materials. No indemnification need be
made, however, if such alleged misstatement or omission relates to information
about Schroder Core II and was supplied to the investor by Schroder Core II.
Similarly, Schroder Core II will indemnify each investor in the Portfolio,
including the Fund, for any claims brought against the investor with respect to
the investor's registration statement or proxy materials, to the extent the
claim is based on a misstatement or omission of a material fact relating to
information about Schroder Core II that is supplied to the investor by Schroder
Core II. In addition, each registered investment company investor in the
Portfolio will indemnify each Schroder Core II Indemnitee against any claim
based on a misstatement or omission of a material fact relating to information
about a series of the registered investment company that did not invest in
Schroder Core II. The purpose of these cross-indemnity provisions is to limit
the liability of Schroder Core II to information that it knows or should know
and can control. With respect to other prospectuses and other offering documents
and proxy materials of investors in Schroder Core II, its liability is similarly
limited to information about and supplied by it.
CERTAIN RISKS OF INVESTING IN THE PORTFOLIO. The Fund's investment in
the Portfolio may be affected by the actions of other large investors in the
Portfolio, if any. For example, if the Portfolio had a large investor other than
the Fund that redeemed its interest in the Portfolio, the Portfolio's remaining
investors (including the Fund) might, as a result, experience higher pro rata
operating expenses, thereby producing lower returns.
The Fund may withdraw its entire investment from the Portfolio at any
time, if the Trust Board determines that it is in the best interests of the Fund
and its shareholders to do so. The Fund might withdraw, for example, if there
were other investors in the Portfolio with power to, and who did by a vote of
the shareholders of all investors (including the Fund), change the investment
objective or policies of the Portfolio in a manner not acceptable to the Trust
Board. A withdrawal could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) by the Portfolio. That
distribution could result in a less diversified portfolio of investments for the
Fund and could affect adversely the liquidity of the Fund's portfolio. If the
Fund decided to convert those securities to cash, it usually would likely incur
brokerage fees or other transaction costs. If the Fund withdrew its investment
from the Portfolio, the Trust Board would consider appropriate alternatives,
including the management of the Fund's assets in accordance with its investment
objective and policies by SCMI, or the investment of all of the Fund's
investable assets in another pooled investment entity having substantially the
same investment objective as the Fund. The inability of the Fund to find a
suitable replacement investment, in the event the Trust Board decided not to
permit SCMI to manage the Fund's assets, could have a significant impact on
shareholders of the Fund.
Each investor in the Portfolio, including the Fund, may be liable for
all obligations of the Portfolio. The risk to an investor in the Portfolio of
incurring financial loss on account of such liability, however, is limited to
circumstances in which the Portfolio is unable to meet its obligations, the
occurrence of which SCMI considers to be quite remote. Upon liquidation of the
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
<PAGE>
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INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue
New York, New York 10019
ADMINISTRATOR & DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue
New York, New York 10019
SUBADMINISTRATOR
Forum Administrative Services, Limited Liability Company
Two Portland Square
Portland, Maine 04101
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Custody Division
Woolgate House, Coleman Street
London EC2P 2HD, United Kingdom
TRANSFER AND DIVIDEND DISBURSING AGENT
Forum Financial Corp.
P.O. Box 446
Portland, Maine 04112
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
Table of Contents
PROSPECTUS SUMMARY.............................3
EXPENSES OF INVESTING
IN THE FUND................................4
Fee Table......................................4
Example........................................4
INVESTMENT OBJECTIVE...........................5
INVESTMENT POLICIES............................5
RISK CONSIDERATIONS...........................11
MANAGEMENT OF THE FUND........................14
Boards of Trustees............................14
Investment Adviser and
Portfolio Managers........................14
Administrative Services.......................15
Expenses......................................15
Portfolio Transactions........................15
Code of Ethics................................16
INVESTMENT IN THE FUND........................16
Purchase of Shares............................16
Retirement Plans and Individual
Retirement Accounts.........................17
Statement of Intention........................17
Exchanges.....................................18
Redemption of Shares..........................18
Net Asset Value...............................19
DIVIDENDS, DISTRIBUTIONS
AND TAXES...................................20
The Fund......................................20
The Portfolio.................................21
OTHER INFORMATION.............................21
Capitalization and Voting.....................21
Reports.......................................22
Performance...................................22
Custodian and Transfer Agent..................22
Shareholder Inquiries.........................22
Service Organizations.........................23
Fund Structure................................23
<PAGE>
SCHRODER CAPITAL FUNDS (DELAWARE)
INTERNATIONAL BOND FUND -- ADVISOR SHARES
Supplement dated June 20, 1997 to
the Prospectus dated April 15, 1997
The Prospectus is hereby supplemented by replacing the paragraphs under
"Investment Policies -- Forward Foreign Currency Transactions" with the
following paragraphs:
FORWARD FOREIGN CURRENCY TRANSACTIONS. Forward foreign currency
exchange contracts ("forward contracts") may be used to minimize the risk of
loss to the Portfolio from adverse changes in the relationship between the
U.S. dollar and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date,
which is individually negotiated and privately traded by currency traders
and their customers. A forward contract may be used, for example, when the
Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar
price of the security. The Portfolio also may enter into forward contracts
to adjust the Portfolio's exposure to various foreign currencies, either
pending anticipated investments in securities denominated in those
currencies or as a hedge against anticipated market changes. To a limited
extent, the Portfolio may purchase forward contracts to increase exposure in
foreign currencies that are expected to appreciate and thereby increase
total return.
Successful use of forward contracts depends on the investment adviser's
skill in analyzing and predicting relative currency values. Forward
contracts do not eliminate fluctuations in the underlying prices of
securities held by the Portfolio. Although such contracts tend to minimize
the risk of loss due to a decline in the value of a currency that has been
sold forward, at the same time they tend to limit any potential gain that
might be realized should the value of such currency change. Likewise,
forward contracts tend to minimize the risk of loss due to an increase in
the value of a currency that has been purchased forward, though they may
result in overpayment if the value of such currency declines. In short,
forward contracts alter the Portfolio's exposure to currency exchange-rate
activity and could result in losses to the Portfolio if currencies do not
perform as the investment adviser anticipates. The Portfolio may also incur
significant costs when converting assets from one currency to another
currency.
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