[Logo] Schroders
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---------------------------------
Prospectus
INVESTOR SHARES
October 1, 1998
[Pictures of map & compass, the earth
multiple countries flags and paper
money in the background.]
Schroder International Fund
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Schroder Emerging Markets Fund
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Schroder International Smaller
Companies Fund
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Schroder International Bond Fund
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Schroder U.S. Diversified
Growth Fund
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Schroder U.S. Smaller Companies
Fund
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Schroder Micro Cap Fund
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Schroders' Global Network
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Representative Offices:
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[LOGO] Schroders
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PROSPECTUS
October 1, 1998
SCHRODER CAPITAL FUNDS (DELAWARE)
INVESTOR SHARES
SCHRODER INTERNATIONAL FUND
SCHRODER EMERGING MARKETS FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER INTERNATIONAL BOND FUND
SCHRODER U.S. DIVERSIFIED GROWTH FUND
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER MICRO CAP FUND
The Schroder Capital Funds are mutual funds offering a wide range of investment
objectives: SCHRODER INTERNATIONAL FUND, SCHRODER INTERNATIONAL SMALLER
COMPANIES FUND, SCHRODER EMERGING MARKETS FUND, SCHRODER INTERNATIONAL BOND
FUND, SCHRODER U.S. DIVERSIFIED GROWTH FUND, SCHRODER U.S. SMALLER COMPANIES
FUND, and SCHRODER MICRO CAP FUND. Each Fund is a series of shares of Schroder
Capital Funds (Delaware), and each Fund (other than Schroder U.S. Diversified
Growth Fund and Schroder Micro Cap Fund) currently invests substantially all of
its assets in a separately managed portfolio of Schroder Capital Funds or
Schroder Capital Funds II, each of which is a registered, open-end management
investment company. Schroder Capital Management International Inc. serves as
investment adviser to each of the Funds and to each portfolio. Each of the
Funds, except the Schroder Emerging Markets Fund and the Schroder International
Bond Fund, is a diversified mutual fund.
This Prospectus explains concisely the information that a prospective investor
should know before investing in Investor Shares of the Funds. Please read it
carefully and keep it for future reference. INVESTORS CAN FIND MORE DETAILED
INFORMATION ABOUT SCHRODER CAPITAL FUNDS (DELAWARE) IN THE OCTOBER 1, 1998
STATEMENT OF ADDITIONAL INFORMATION, AS AMENDED FROM TIME TO TIME. FOR A FREE
COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, PLEASE CALL 1-800-290-9826. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference. The
Securities and Exchange Commission maintains an Internet World Wide Web site (at
http://www.sec.gov) that contains the Statement of Additional Information,
materials that are incorporated by reference into this Prospectus and the
Statement of Additional Information, and other information about the Funds.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
FUND STRUCTURE............................................. 3
FINANCIAL HIGHLIGHTS....................................... 6
INVESTMENT OBJECTIVES AND POLICIES......................... 15
HOW TO BUY SHARES.......................................... 26
HOW TO SELL SHARES......................................... 29
OTHER INFORMATION.......................................... 31
MANAGEMENT OF THE TRUST.................................... 32
APPENDIX A................................................. A-1
Description of Securities Ratings
2
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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.
<TABLE>
<S><C> <C>
SCHRODER CAPITAL FUNDS (DELAWARE) 1-800-290-9826 SCHRODER SERIES TRUST 1-800-464-3108
SCHRODER INTERNATIONAL FUND SCHRODER LARGE CAPITALIZATION EQUITY FUND
SCHRODER EMERGING MARKETS FUND SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER SMALL CAPITALIZATION VALUE FUND SCHRODER MIDCAP VALUE FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER INTERNATIONAL BOND FUND SCHRODER SHORT-TERM INVESTMENT FUND
SCHRODER U.S. DIVERSIFIED GROWTH FUND
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER MICRO CAP FUND
</TABLE>
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FUND STRUCTURE
Each of SCHRODER INTERNATIONAL FUND, SCHRODER EMERGING MARKETS FUND, SCHRODER
INTERNATIONAL SMALLER COMPANIES FUND, SCHRODER INTERNATIONAL BOND FUND and
SCHRODER U.S. SMALLER COMPANIES FUND seeks to achieve its investment objective
by investing all of its investable assets in a separate portfolio (a
"Portfolio") of either Schroder Capital Funds or Schroder Capital Funds II that
has the same investment objective as, and investment policies that are
substantially similar to those of, that Fund. Accordingly, the investment
experience of each Fund will correspond directly with the investment experience
of its corresponding Portfolio. See "Management of the Trust- Information about
the Portfolios." The Funds and the Portfolios in which they invest are:
<TABLE>
<S><C> <C>
FUNDS PORTFOLIOS
- ----- ----------
SCHRODER INTERNATIONAL FUND INTERNATIONAL EQUITY FUND
(Schroder Capital Funds)
SCHRODER EMERGING MARKETS FUND SCHRODER EM CORE PORTFOLIO*
(Schroder Capital Funds)
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND SCHRODER INTERNATIONAL SMALLER COMPANIES PORTFOLIO
(Schroder Capital Funds)
SCHRODER INTERNATIONAL BOND FUND SCHRODER INTERNATIONAL BOND PORTFOLIO*
(Schroder Capital Funds II)
SCHRODER U.S. SMALLER COMPANIES FUND SCHRODER U.S. SMALLER COMPANIES PORTFOLIO
(Schroder Capital Funds)
</TABLE>
Each of SCHRODER U.S. DIVERSIFIED GROWTH FUND and SCHRODER MICRO CAP FUND seeks
to achieve its investment objective by investing directly in securities.
* Each of SCHRODER EM CORE PORTFOLIO and SCHRODER INTERNATIONAL BOND PORTFOLIO
is a non-diversified series of an open-end management investment company. Each
of the other Portfolios is a diversified series of an open-end management
investment company. See "Other Investment Practices and Risk Considerations -
Non-Diversification and Geographic Concentration."
3
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in Investor
Shares of the Funds. There are no "Shareholder Transaction Expenses" associated
with a purchase or redemption of Investor Shares of the Funds. "Annual Operating
Expenses" for each Fund other than Schroder Emerging Markets Fund, Schroder
International Bond Fund and Schroder Micro Cap Fund show expenses incurred by
each Fund with respect to Investor Shares based on the Fund's expenses for the
most recent fiscal year. Annual Operating Expenses for Schroder Emerging Markets
Fund, Schroder International Bond Fund and Schroder Micro Cap Fund are estimated
based on anticipated expenses for the Funds' current fiscal years. Annual
Operating Expenses of each Fund (other than Schroder U.S. Diversified Growth
Fund and Schroder Micro Cap Fund) include the Fund's pro rata portion of all
operating expenses of the Portfolio of Schroder Capital Funds or Schroder
Capital Funds II in which the Fund invests. The Example shows the cumulative
expenses attributable to a hypothetical $1,000 investment in each Fund over
specified periods.
SHAREHOLDER TRANSACTION EXPENSES NONE
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
SCHRODER SCHRODER SCHRODER
SCHRODER INTERNATIONAL U.S. U.S.
SCHRODER EMERGING SMALLER SCHRODER DIVERSIFIED SMALLER SCHRODER
INTERNATIONAL MARKETS COMPANIES INTERNATIONAL GROWTH COMPANIES MICRO CAP
FUND FUND FUND BOND FUND FUND FUND FUND
---- ---- ---- --------- ---- ---- ----
Management Fees(1)
(after expense
limitation)(2) 0.61% 0.81% 0.00% 0.19% 0.57% 0.85% 0.61%
12b-1 Fees None None None None None None None
Other Expenses
(after expense
limitation)(2) 0.38% 0.89% 1.50% 0.76% 0.93% 0.52% 1.39%
----- ----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses (after
expense
limitation)(2) 0.99% 1.70% 1.50% 0.95% 1.50% 1.37% 2.00%
</TABLE>
(1) Management Fees reflect the fees paid by the Portfolio and the Fund for
investment advisory and administrative services.
(2) The Management Fees, Other Expenses, and Total Fund Operating Expenses for
each of the Funds reflect expense limitations currently in effect. See
"Management of the Trust." Without the limitations, Management Fees, Other
Expenses, and Total Fund Operating Expenses for Investor Shares would be
0.68%, 0.38%, and 1.06%, respectively, in the case of Schroder International
Fund; 1.25%, 10.69%, and 11.94%, respectively, in the case of Schroder
Emerging Markets Fund; 1.10%, 2.83%, and 3.93%, respectively, in the case of
Schroder International Smaller Companies Fund; 0.70%, 9.55%, and 10.25%,
respectively, in the case of Schroder International Bond Fund; 0.75%, 0.93%,
and 1.68%, respectively, in the case of Schroder U.S. Diversified Growth
Fund; and 1.50%, 1.42%, and 2.92%, respectively, in the case of Schroder
Micro Cap Fund. Other Expenses and Total Fund Operating Expenses for each of
Schroder Emerging Markets Fund, Schroder International Bond Fund and
Schroder Micro Cap Fund are estimated based on anticipated expenses for the
Funds' current fiscal years.
4
<PAGE>
EXAMPLE
Your investment of $1,000 would incur the following expenses, assuming 5% annual
return and redemption at the end of each period:
<TABLE>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
------ ------- ------- --------
Schroder International Fund $10 $32 $55 $121
Schroder Emerging Markets Fund $17 $54 N/A N/A
Schroder International Smaller Companies Fund $15 $47 $82 $179
Schroder International Bond Fund $10 $30 N/A N/A
Schroder U.S. Diversified Growth Fund $15 $47 $82 $179
Schroder U.S. Smaller Companies Fund $14 $43 $75 $164
Schroder Micro Cap Fund $20 $63 N/A N/A
</TABLE>
The Annual Operating Expenses table and Example are provided to help you
understand your share of the operating expenses of a Fund attributable to
Investor Shares. THE TABLE AND EXAMPLE DO NOT REPRESENT PAST OR FUTURE EXPENSE
LEVELS. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. FEDERAL
REGULATIONS REQUIRE THE EXAMPLE TO ASSUME A 5% ANNUAL RETURN, BUT ACTUAL ANNUAL
RETURNS WILL VARY.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights presented below for Schroder Micro Cap Fund, Schroder
U.S. Smaller Companies Fund and Schroder Emerging Markets Fund for the fiscal
year ended May 31, 1998 and for Schroder International Fund, Schroder
International Smaller Companies Fund and Schroder U.S. Diversified Growth Fund
for the fiscal year ended October 31, 1997 have been audited by
PricewaterhouseCoopers LLP, independent accountants to the Funds. The financial
statements for those Funds and the related independent accountants' reports are
contained in each Fund's Annual Report and are incorporated by reference into
the Statement of Additional Information ("SAI"). The audited financial
highlights for the period ended April 30, 1998 for each of Schroder
International Fund, Schroder International Smaller Companies Fund and Schroder
U.S. Diversified Growth Fund, and for the period ended June 30, 1998 for
Schroder International Bond Fund are unaudited. The unaudited financial
statements for the period ended April 30, 1998 for each of Schroder
International Fund, Schroder International Smaller Companies Fund and Schroder
U.S. Diversified Growth Fund, and for the period ended June 30, 1998 for
Schroder International Bond Fund, are contained in each of those Fund's
Semi-Annual Reports and are incorporated by reference into the SAI. Copies of
the Funds' Annual and Semi-Annual Reports may be obtained without charge by
writing the Funds at Two Portland Square, Portland, Maine 04101 or by calling
1-800-290-9826.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SCHRODER INTERNATIONAL FUND
Six Months Year Ended
Ended
April 30, October 31,
----------------------------------------------------------------------------------
1998 1997 1996(A) 1995 1994 1993
(unaudited) ---- ------- ---- ---- ----
-----------
NET ASSET VALUE, BEGINNING OF PERIOD $18.37 $20.01 $20.91 $23.17 $20.38 $15.15
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS:
Net Investment Income (Loss)(b) 0.06 0.14 0.15 0.46 0.18 0.08
Net Realized and Unrealized Gain
(Loss) on Investments 2.43 1.31 1.74 (0.18) 2.69 5.27
---- ---- ---- ------- ---- ----
Total from Investment Operations 2.49 1.45 1.89 0.28 2.87 5.35
---- ---- ---- ---- ---- ----
DISTRIBUTIONS FROM
Net Investment Income (0.29) (0.46) (0.47) -- (0.08) (0.12)
------
Net Realized Gain on Investments (1.55) (2.63) (2.32) (2.54) -- --
------ ------ ------ ------ -- --
Total Distributions (1.84) (3.09) (2.79) (2.54) (0.08) (0.12)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $19.02 $18.37 $20.01 $20.91 $23.17 $20.38
====== ====== ====== ====== ====== ======
Total Return(c) 15.48% 8.33% 10.05% 2.08% 14.10% 35.54%
Ratios/Supplementary Data
NET ASSETS, END OF PERIOD (IN $188,447 $191,219 $202,735 $212,330 $500,504 $320,550
THOUSANDS)
Ratios to Average Net Assets:
Expenses After Expense Limitation(b) 0.99% 0.99% 0.91% 0.90% 0.91%
0.99%(d)
Expenses Before Expense Limitation 1.06% 1.04% N/A N/A N/A
(b) 1.05%(d)
Net Investment Income (Loss) After
Expense Limitation(b) 0.76%(d) 0.67% 0.86% 0.99% 0.94% 0.87%
Average Commission Rate Per Share (e) $0.0280 $0.0256 N/A N/A N/A
$0.0244
Portfolio Turnover Rate (f) 20.25% 36.22% 56.20% 61.26% 25.17% 56.05%
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Month Ended Year Ended Year Ended
- ------------------------------------------ October 31, September 30, September 30,
1992 1991 1990 1989 1989 1988
---- ---- ---- ---- ---- ----
$16.22 $17.70 $18.20 $18.95 $14.40 $18.02
------ ------ ------ ------ ------ ------
0.25 0.25 0.15 0.03 0.20 0.05
(1.04) (0.25) (0.12) (0.78) 4.44 (2.34)
------ ------ ------ ------ ---- ------
(0.79) 0.00 0.03 (0.75) 4.64 (2.29)
------ ---- ---- ------ ---- ------
(0.23) (0.25) (0.16) 0.00 (0.04) 0.00
(0.05) (1.23) (0.37) 0.00 (0.05) (1.33)
------ ------ ------ ---- ------ ------
(0.28) (1.48) (0.53) 0.00 (0.09) (1.33)
------ ------ ------ ---- ------ -----
$15.15 $16.22 $17.70 $18.20 $18.95 $14.40
====== ====== ====== ====== ====== ======
(4.93%) 0.45% (0.07%) (4.01%) 32.2% (0.12%)
$159,556 $108,398 $62,438 $49,740 $48,655
$29,917
0.93% 1.07% 1.12% 1.12%(e) 1.12%
1.30%
N/A N/A N/A N/A N/A
N/A
1.62% 1.59% 0.83% 2.29%(e) 1.27% 0.38%
N/A N/A N/A N/A N/A
N/A
49.42% 50.58% 55.91% 21.98%(e) 72.25% 86.19%
</TABLE>
- ------------------------------------------------------
(a) On November 1, 1995, the Fund converted to Core and Gateway(R). On May 16,
1996, the Fund began offering two classes of shares, Investor Shares and
Advisor Shares, and all then outstanding shares of the Fund were designated
as Investor Shares.
(b) For the years ending after October 31, 1995, includes the Fund's
proportionate share of income and expenses of Schroder International Equity
Fund.
(c) Total returns would have been lower had certain expenses not been reduced
during the periods shown.
(d) Annualized
(e) For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose average commission per share paid to brokers on the
purchase and sale of equity securities on which commissions are charged.
For periods ending after October 31, 1995, the rate represents the average
commission per share paid by Schroder International Equity Fund.
(f) Portfolio turnover represents the rate of portfolio activity. For periods
ending after October 31, 1995, the rate represents the portfolio turnover
rate of Schroder International Equity Fund.
7
<PAGE>
<TABLE>
<S> <C>
SCHRODER EMERGING MARKETS FUND
Period Ended
May 31,
1998(a)
--------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INVESTMENT OPERATIONS:
Net Investment Income (Loss) 0.02
Net Realized and Unrealized Gain (Loss) on Investments (0.98)
Total from Investment Operations (0.96)
NET ASSET VALUE, END OF PERIOD $9.04
Total Return(a) (9.60)%
Ratios/Supplementary Data
NET ASSETS, END OF PERIOD (IN THOUSANDS) $18
Ratios to Average Net Assets:
Expenses After Expense Limitation(c)(d) 1.70%
Expenses Before Expense Limitation -- (e)
Net Investment Income (Loss) After Expense Limitation(c)(d) 1.72%
Average Commission Rate Per Share (f) 0.0039
Portfolio Turnover Rate(g) 22.97%
</TABLE>
- ----------------------------------------------------------------------
(a) The Fund commenced operations on October 31, 1997.
(b) Total returns would have been lower had certain expenses not been reduced
during the period shown.
(c) Includes the Fund's proportionate share of income and expenses of Schroder
EM Core Portfolio.
(d) Annualized.
(e) Amount is not meaningful due to short period of operations.
(f) Amount represents the average commission per share paid by Schroder EM Core
Portfolio to brokers on th purchase and sale of equity securities on which
commissions are charged.
(g) Portfolio turnover represents the rate of portfolio activity of Schroder EM
Core Portfolio.
8
<PAGE>
<TABLE>
<S> <C> <C>
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
For the Period Period Ended
November 1, 1997 October 31,
to April 30, 1998 1997 (a)
(unaudited)
-------------------- ---------------------
NET ASSET VALUE, BEGINNING OF PERIOD $9.22 $10.00
----- ------
INVESTMENT OPERATIONS:
Net Investment Income (Loss)(b) -- 0.02
Net Realized and Unrealized Gain (Loss) on Investments 1.41 (0.79)
---- ------
Total from Investment Operations 1.41 (0.77)
---- ------
DISTRIBUTIONS FROM
Net Investment Income (0.01) (0.01)
Net Realized Gain on Investments (0.51) --
NET ASSET VALUE, END OF PERIOD $10.11 $9.22
====== =====
Total Return(c) 16.64% (7.73)%
Ratios/Supplementary Data
NET ASSETS, END OF PERIOD (IN THOUSANDS) $6,413 $6,836
Ratios to Average Net Assets:
Expenses After Expense Limitation(b)(d) 1.50% 1.50%
Expenses Before Expense Limitation(b)(d) 4.79% 3.93%
Net Investment Income (Loss) After Expense Limitation (b)(d) (0.05)% 0.21%
Average Commission Rate Per Share(e) $0.0195 $0.0389
Portfolio Turnover Rate(f) 20.14% 32.30%
</TABLE>
- ----------------------------------------------------------------------
(a) The Fund commenced operations on November 4, 1996.
(b) Includes the Fund's proportionate share of income and expenses of Schroder
International Smaller Companies Portfolio.
(c) Total returns would have been lower had certain expenses not been reduced
during the period shown.
(d) Annualized.
(e) Amount represents the average commission per share paid to brokers on the
purchase and sale of the equity securities of Schroder International
Smaller Companies Portfolio on which commissions are charged.
(f) Portfolio turnover represents the rate of portfolio activity of Schroder
International Smaller Companies Portfolio.
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SCHRODER U.S. DIVERSIFIED GROWTH FUND(A)
Six Months Ended
April 30, Year Ended October 31,
1998 -----------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF YEAR $9.82 $9.76 $9.41 $8.52 $11.28 $10.51
----- ----- ----- ----- ------ ------
INVESTMENT OPERATIONS:
Net Investment Income (Loss) (0.02) (0.01) 0.04 0.07 0.04 0.05
Net Realized Income and Unrealized
Gain (Loss) on Investments 1.40 2.20 1.62 1.33 (0.27) 1.86
---- ---- ---- ---- ------ ----
Total From Investment Operations 1.38 2.19 1.66 1.40 (0.23) 1.91
---- ---- ---- ---- ------ ----
DISTRIBUTIONS FROM
Net Investment Income -- (0.02) (0.07) (0.05) (0.01) (0.04)
Net Realized Gain on Investments (2.74) (2.11) (1.24) (0.46) (2.52) (1.10)
Paid-In Capital -- -- -- -- -- --
-- -- -- -- -- --
Total Distributions (2.74) (2.13) (1.31) (0.51) (2.53) (1.14)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $8.46 $9.82 $9.76 $9.41 $8.52 $11.28
===== ===== ===== ===== ===== ======
Total Return(b) 18.24% 26.49% 19.45% 17.68% (2.01%) 19.49%
Ratios/Supplementary Data
NET ASSETS, END OF YEAR (IN THOUSANDS) $14,031 $13,861 $17,187 19,688 18,483 21,865
Ratios to Average Net Assets:
Expenses After Expense Limitations 1.50%(c) 1.50% 1.40% 1.40% 1.31% 1.18%
Expenses Before Expense Limitations 1.74%(c) 1.68% 1.43% N/A N/A N/A
Net Investment Income (Loss) After
Expense Limitation (0.44)%(c) (0.09)% 0.43% 0.78% 0.41% 0.51%
Average Commission Rate Per Share(d) $0.0427 $0.0563 $0.0599 N/A N/A N/A
Portfolio Turnover Rate 48.67% 44.28% 56.80% 57.21% 27.43% 57.78%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
$9.56 $7.05 $8.35 $7.49 $10.15
----- ----- ----- ----- ------
0.02 0.09 0.11 0.17 0.18
1.61 2.57 (0.77) 1.30 0.28
---- ---- ------ ---- ----
1.63 2.66 (0.66) 1.47 0.46
---- ---- ------ ---- ----
(0.04) (0.11) (0.11) (0.15) (0.18)
(0.58) -- (0.53) (0.46) (2.94)
(0.06) (0.04) -- -- --
------ ------ -- -- --
(0.68) (0.15) (0.64) (0.61) (3.12)
------ ------ ------ ------ ------
$10.51 $9.56 $7.05 $8.35 $7.49
====== ===== ===== ===== =====
17.74% 38.16% (8.78%) 21.05% 7.74%
19,882 20,234 18,290 23,838 25,569
1.40% 1.39% 1.34% 1.49% 1.60%
N/A N/A N/A N/A N/A
0.42% 1.30% 1.59% 1.99% 1.89%
N/A N/A N/A N/A N/A
31.33% 29.98% 28.31% 40.35% 18.42%
- ----------------------------------------------------------------
</TABLE>
(a) Prior to September 14, 1998, the name of the Fund was Schroder U.S. Equity
Fund.
(b) Total return would have been lower had certain expenses not been reduced
during the periods shown.
(c) Annualized.
(d) For the fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose the average commission per share paid to brokers on
the purchase and sale of portfolio securities.
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SCHRODER U.S. SMALLER COMPANIES FUND
Year Ended Period Ended
May 31, May 31, Year Ended October 31,
-------------- ------------ ------------------------------------------------------
1998 1997 1996(A)(B) 1995 1994 1993(B)
---- ---- ---------- ---- ---- -------
Net Asset Value, Beginning of $13.26 $17.23 $15.14 $11.81 $10.99 $10.00
------ ------ ------ ------ ------ ------
Period
Investment Operations
Net Investment Income (Loss) (0.06)(c) (0.02)(c) (0.06)(c) (0.04) (0.07) (0.02)
Net Realized and Unrealized Gain
(Loss) 2.82 1.88 4.10 3.78 0.97 1.01
---- ---- ---- ---- ---- ----
on Investments
Total from Investment Operations 2.76 1.86 4.04 3.74 0.90 0.99
---- ---- ---- ---- ---- ----
Distributions from Net Realized
Gain on Investments (1.26) (5.83) (1.95) (0.41) (0.08) --
------ ------ ------ ------ ------ --
Net Asset Value, End of Period $14.76 $13.26 $17.23 $15.14 $11.81 $10.99
====== ====== ====== ====== ====== ======
Total Return 21.63%(d) 14.73%(d) 29.35% 32.84% 8.26% 9.90%
Ratios/Supplementary Data
Net Assets, End of Period (in $51,679 $26,104 $13,743 $15,287 $13,324 $12,489
thousands)
Ratios to Average Net Assets:
Expenses After Expense 1.37%(c)(e) 1.49%(c)(e) 1.49%(c)(e) 1.49% 1.45% 2.03%(e)
Limitations
Expenses Before Limitations 1.37%((c)(e) 1.87%(c)(e) N/A N/A N/A N/A
Net Investment Income (Loss)
After (0.51%)(c)(e) (0.42%)(c)(e)(0.35%)(c)(e) (0.30%) (0.58%) (0.99%)(e)
Expense Limitation
Average Commission Rate Per $0.0582 $0.0584 $0.0583 N/A N/A N/A
Share(f)
Portfolio Turnover Rate(g) 54.98% 34.45% 58.50% 92.68% 70.82% 12.58%
-------------------------------------------------------------------
</TABLE>
(a) On May 17, 1996, the Fund began offering two classes of shares, Investor
Shares and Advisor Shares, and all then outstanding shares of the Fund were
designated as Investor Shares.
(b) The Fund commenced operations on August 6, 1993 and converted to Core and
Gateway on August 15, 1996.
(c) Includes the Fund's proportionate share of income and expenses of Schroder
U.S. Smaller Companies Portfolio.
(d) For the periods ended November 30, 1997 and May 31, 1997 the total returns
would have been lower had certain expenses not been reduced.
(e) Annualized.
(f) For the fiscal year beginning on or after September 1, 1995, the Fund is
required to disclose average commission per share paid by the Portfolio to
brokers on the purchase and sale of equity securities on which commissions
are charged. For the periods after October 31, 1996, the rate represents
the average commission per share paid by Schroder U.S. Smaller Companies
Portfolio.
(g) Portfolio turnover represents the rate of portfolio activity. For the
periods ending after October 31, 1996, the rate represents the portfolio
turnover rate of Schroder U.S. Smaller Companies Portfolio.
12
<PAGE>
<TABLE>
<S> <C>
SCHRODER MICRO CAP FUND
Year Ended
May 31,
1998 (a)
--------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INVESTMENT OPERATIONS:
Net Investment Income (Loss) (0.04)
Net Realized and Unrealized Gain (Loss) on Investments 4.50
Total from Investment Operations 4.46
DISTRIBUTIONS FROM:
Net Realized Gain on Investments (0.20)
NET ASSET VALUE, END OF PERIOD $14.26
Total Return(b) 45.41%
Ratios/Supplementary Data
NET ASSETS, END OF PERIOD (IN THOUSANDS) $6,340
Ratios to Average Net Assets:
Expenses After Expense Limitation(c) 2.00%
Expenses Before Expense Limitation(c) 6.02%
Net Investment Income (Loss) After Expense Limitation(c) (0.77)%
Average Commission Rate Per Share(d) $0.0590
Portfolio Turnover Rate 165.71%
- ----------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on October 15, 1997.
(b) Total returns would have been lower had certain expenses not been reduced
during the period shown.
(c) Annualized.
(d) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities on which commissions are charged.
13
<PAGE>
<TABLE>
<S> <C>
SCHRODER INTERNATIONAL BOND FUND
Period Ended
June 30,
1998
(unaudited)(a)
--------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INVESTMENT OPERATIONS:
Net Investment Income (Loss) 0.24
Net Realized and Unrealized Gain (Loss) on Investments (0.41)
Total from Investment Operations (0.17)
NET ASSET VALUE, END OF PERIOD $9.83
Total Return(b) (1.70)%
Ratios/Supplementary Data
NET ASSETS, END OF PERIOD (IN THOUSANDS) $58
Ratios to Average Net Assets:
Expenses After Expense Limitation(c)(d) 0.95%
Expenses Before Expense Limitation(c)(d) 150.09%
Net Investment Income (Loss) After Expense Limitation(c)(d) 5.35%
Portfolio Turnover Rate(e) 44.71%
</TABLE>
- ----------------------------------------------------------------------
(a) The Fund commenced operations on January 15, 1998.
(b) Total returns would have been lower had certain expenses not been reduced
during the period shown.
(c) Includes the Fund's proportionate share of income and expenses of Schroder
International Bond Portfolio.
(d) Annualized.
(e) Portfolio turnover represents the rate of portfolio activity of Schroder
International Bond Portfolio.
14
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has a different investment objective that it pursues through the
investment policies described below.
Because of the differences in objectives and policies among the Funds, the Funds
will achieve different investment returns and will be subject to varying degrees
of market and financial risk. There is no assurance that any Fund will achieve
its objective. None of the Funds is intended to be a complete investment
program.
EACH FUND (OTHER THAN THE U.S. DIVERSIFIED GROWTH FUND AND THE MICRO CAP FUND)
CURRENTLY INVESTS SUBSTANTIALLY ALL OF ITS ASSETS IN A MANAGED PORTFOLIO OF
SCHRODER CAPITAL FUNDS OR SCHRODER CAPITAL FUNDS II. EACH SUCH PORTFOLIO IS
REFERRED TO IN THIS PROSPECTUS AS A "PORTFOLIO." IN REVIEWING THE DESCRIPTION OF
A FUND'S INVESTMENT OBJECTIVE AND POLICIES BELOW, INVESTORS SHOULD ASSUME THAT
THE INVESTMENT OBJECTIVE AND POLICIES OF THE CORRESPONDING PORTFOLIO ARE THE
SAME IN ALL MATERIAL RESPECTS AS THOSE OF THE FUND. SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC. ("SCMI") IS THE INVESTMENT ADVISER TO EACH FUND AND TO EACH
PORTFOLIO.
A Fund's investment objective may not be changed without shareholder approval.
The investment policies of each Fund may, unless otherwise specifically stated,
be changed by the Trustees of Schroder Capital Funds (Delaware) (the "Trust")
without a vote of the shareholders. All percentage limitations on investments
will apply at the time of investment and will not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of
the investment except that the policies stated with regard to borrowing and
liquidity will be observed at all times.
SCHRODER INTERNATIONAL FUND
SCHRODER INTERNATIONAL FUND'S INVESTMENT OBJECTIVE IS LONG-TERM CAPITAL
APPRECIATION THROUGH INVESTMENT IN SECURITIES MARKETS OUTSIDE THE UNITED STATES.
Equity securities in which the Fund may invest include common stocks, preferred
stocks, securities convertible into common or preferred stocks, and rights or
warrants to purchase any of the foregoing. They may also include American
Depositary Receipts, European Depositary Receipts, and other similar instruments
providing for indirect investment in securities of foreign issuers. The Fund may
also invest in securities of closed-end investment companies that invest in turn
primarily in foreign securities.
The Fund normally will invest at least 65% of its assets in equity securities of
companies domiciled outside the United States and will invest in securities of
issuers domiciled in at least three countries other than the United States.
There is no limit on the amount of the Fund's assets that may be invested in
securities of issuers domiciled in any one country. When the Fund has invested a
substantial portion of its assets in the securities of companies domiciled in a
single country, it will be more susceptible to the risks of investing in that
country than would a fund investing in a geographically more diversified
portfolio. The Fund normally invests a substantial portion of its assets in
countries included in the Morgan Stanley Capital International EAFE Index, which
is a market capitalization-weighted index of companies in developed market
countries in Europe, Australia and the Far East. Other countries in which the
Fund may invest may be considered "emerging markets" and involve special risks.
See "Other Investment Practices and Risk Considerations - Foreign Securities."
The Fund may invest in debt securities, including, for example, securities of
foreign governments (including provinces and municipalities) or their agencies
or instrumentalities, securities issued or guaranteed by international
organizations designated or supported by multiple foreign governmental entities
to promote economic reconstruction or development, and debt securities of
foreign corporations or financial institutions. The Fund may invest up to 5% of
its net assets in lower-quality, high yielding debt securities, which entail
certain risks. See "Other Investment Practices and Risk Considerations- Debt
Securities."
15
<PAGE>
SCHRODER EMERGING MARKETS FUND
SCHRODER EMERGING MARKETS FUND'S INVESTMENT OBJECTIVE IS TO SEEK LONG-TERM
CAPITAL APPRECIATION. The Fund invests primarily in equity securities of issuers
domiciled or doing business in emerging market countries in regions such as
Southeast Asia, Latin America, and Eastern and Southern Europe. The Fund will
normally invest in at least three countries other than the United States.
An "emerging market" country is any country not included at the time of
investment in the Morgan Stanley Capital International World Index of major
world economies. Those economies currently include: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States of America. SCMI may at
times determine based on its own analysis that an economy included in the Index
should nonetheless be considered an emerging market country; any such country
would then constitute an emerging market country for purposes of investment by
the Fund.
The Fund normally invests at least 65% of its assets in equity securities of
issuers determined by SCMI to be emerging market issuers. Equity securities
include common stocks, preferred stocks, securities convertible into common or
preferred stocks, and rights or warrants to purchase any of the foregoing
(although such rights and warrants will not be taken into account in determining
compliance with the 65% requirement described in the preceding sentence.) They
may also include American Depositary Receipts, European Depositary Receipts, and
other similar instruments providing for indirect investment in securities of
foreign issuers. The Fund may also invest in securities of closed-end investment
companies that invest in turn primarily in foreign securities. The Fund is a
non-diversified mutual fund. See "Non-Diversification and Geographic
Concentration."
The remainder of the Fund's assets may be invested in securities of issuers
located anywhere in the world. The Fund may invest up to 35% of its assets in
debt securities, including lower-quality, high-yielding debt securities, which
entail certain risks. The Fund would invest in debt securities principally in an
effort to realize capital appreciation due, for example, to a favorable change
in currency exchange or control rates, or in the creditworthiness of their
issuers. The Fund may invest up to 5% of its assets in sovereign debt securities
that are in default. See "Other Investment Practices and Risk Considerations -
Debt Securities."
An issuer of a security will be considered to be an emerging market issuer if
SCMI determines that: (1) it is organized under the laws of an emerging market
country; (2) its primary securities trading market is in an emerging market
country; (3) at least 50% of the issuer's revenues or profits are derived from
goods produced or sold, investments made, or services performed in emerging
market countries; or (4) at least 50% of its assets are situated in emerging
market countries. The Fund may consider investment companies to be located in
the country or countries in which SCMI determines they focus their investments.
There is no limit on the amount of the Fund's assets that may be invested in
securities of issuers domiciled in any one country. When the Fund has invested a
substantial portion of its assets in the securities of companies domiciled in a
single country, it will be more susceptible to the risks of investing in that
country than would a Fund investing in a geographically more diversified
portfolio.
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND'S INVESTMENT OBJECTIVE IS
LONG-TERM CAPITAL APPRECIATION THROUGH INVESTMENT IN SECURITIES MARKETS OUTSIDE
THE UNITED STATES. The Fund normally invests at least 65% of its assets in
equity securities of companies domiciled outside the United States that have
market capitalizations of $1.5 billion or less at the time of investment. In
selecting investments for the Fund, SCMI considers a number of factors,
including, for example, the company's potential for long-term growth, the
company's financial condition, its sensitivity to cyclical factors, the relative
value of the company's securities (to those of other companies and to the market
as a whole), and the extent to which the company's management owns equity in the
company. Equity securities in which the Fund may invest include common
16
<PAGE>
stocks, preferred stocks, securities convertible into common or preferred
stocks, and rights or warrants to purchase any of the foregoing. They may also
include American Depositary Receipts, European Depositary Receipts, and other
similar instruments providing for indirect investment in securities of foreign
issuers. The Fund may also invest in securities of closed-end investment
companies that invest in turn primarily in foreign securities.
The Fund will invest in securities of issuers domiciled in at least three
countries other than the United States, although there is no limit on the amount
of the Fund's assets that may be invested in securities of issuers domiciled in
any one country. When the Fund has invested a substantial portion of its assets
in the securities of companies domiciled in a single country, it will be more
susceptible to the risks of investing in that country than would a fund
investing in a geographically more diversified portfolio. Certain countries in
which the Fund may invest may be considered "emerging markets" and involve
special risks. See "Other Investment Practices and Risk Considerations - Foreign
Securities."
Smaller companies may present greater opportunities for investment return than
do larger companies, but also involve greater risks. Smaller companies may have
limited product lines, markets, or financial resources, or may depend on a
limited management group. Their securities may trade less frequently and in
limited volume. As a result, the prices of these securities may fluctuate more
than prices of securities of larger, more widely traded companies. See "Other
Investment Practices and Risk Considerations - Investments in Smaller
Companies."
The Fund may invest in debt securities, including, for example, securities of
foreign governments, international organizations, and foreign corporations and
U.S. government securities. The Fund may invest up to 5% of its total assets in
lower-quality, high yielding debt securities, which entail certain risks. See
"Other Investment Practices and Risk Considerations - Debt Securities."
SCHRODER INTERNATIONAL BOND FUND
SCHRODER INTERNATIONAL BOND FUND'S INVESTMENT OBJECTIVE IS TO SEEK A HIGH RATE
OF TOTAL RETURN. The Fund normally invests substantially all of its assets in
debt securities and debt-related investments of issuers domiciled outside the
United States.
"Total return" consists of current income, including interest payments and
discount accruals, plus any increases in the values of the Fund's investments
(less any decreases in the values of any of its investments and amortizations of
premiums). SCMI considers expected changes in foreign currency exchange rates in
determining the anticipated returns on securities denominated in foreign
currencies.
The Fund may invest in debt securities of foreign governments (including
provinces or municipalities) and their agencies and instrumentalities, debt
securities of supranational organizations, and debt securities of private
issuers. These bonds may pay interest at fixed, variable, or floating rates.
Certain securities in which the Fund invests may be convertible into common or
preferred 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 a foreign currency or currencies. The Fund may invest up to 10%
of its net assets in lower quality, high-yielding debt securities. See "Other
Investment Practices and Risk Considerations - Debt Securities." The Fund is a
non-diversified mutual fund. See "Non-Diversification and Geographic
Concentration."
The Fund normally invests in securities of issuers in at least five countries
other than the United States, although there is no limit on the amount of the
Fund's assets that may be invested in securities of issuers domiciled in any one
country. When the Fund has invested a substantial portion of its assets in the
securities of companies domiciled in a single country, it will be more
susceptible to the risks of investing in that country than would a fund
investing in a geographically more diversified portfolio. The Fund has currently
invested approximately one-third of its assets in securities of issuers
domiciled in Germany. As a result, the Fund's investment performance will be
affected by economic, political, or other factors affecting issuers and
17
<PAGE>
investments in that country more than if it had invested a smaller portion of
its assets in issuers domiciled in Germany. The portion of the Fund's assets
invested in such issuers may change at any time. At times, the Fund may invest a
substantial portion of its assets in securities of issuers in emerging market
countries, which involves special risks. See "Other Investment Practices and
Risk Considerations - Foreign Securities."
Generally, the Fund's average maturity will be shorter when SCMI expects
interest rates in markets where the Fund has invested to rise, and longer when
SCMI expects interest rates in those markets to fall. SCMI may use various
techniques to increase the interest-rate sensitivity of the Fund's portfolio,
including transactions in futures and options on futures, interest-rate swaps,
caps, floors, and short sales of securities.
SCMI believes that active currency management, through the use of any of the
foreign currency exchange transactions described below, can enhance portfolio
returns through opportunities arising from, for example, interest-rate
differentials between securities denominated in different currencies or changes
in value between currencies. SCMI also believes that active currency management
can be employed as an overall portfolio risk management tool. Foreign currency
management can also provide increased overall portfolio risk diversification.
See "Other Investment Practices and Risk Considerations - Foreign Currency
Exchange Transactions." The Fund may also borrow money to invest in additional
securities. Use of leverage involves special risks. See "Other Investment
Practices and Risk Considerations - Leverage."
SCHRODER U.S. DIVERSIFIED GROWTH FUND
(FORMERLY, SCHRODER U.S. EQUITY FUND)
SCHRODER U.S. DIVERSIFIED GROWTH FUND'S INVESTMENT OBJECTIVE IS TO SEEK GROWTH
OF CAPITAL. The Fund normally invests substantially all of its assets in equity
securities of companies in the United States. Equity securities in which the
Fund may invest include common stocks, preferred stocks, securities convertible
into common or preferred stocks, and rights or warrants to purchase any of the
foregoing.
The Fund does not limit its investments to any particular type of company,
although the Fund will not normally invest in securities of small capitalization
companies (companies with market capitalizations of $1.5 billion or less). The
Fund may invest in companies, large or small, that SCMI believes offer the
potential for capital growth. They may, for example, include companies whose
earnings are believed to be in a relatively strong growth trend, companies with
a proprietary advantage, or companies that are in industry segments that are
experiencing rapid growth; the Fund may also invest in companies in which
significant further growth is not anticipated but whose market value per share
is thought to be undervalued. The Fund may invest in relatively less well-known
companies that meet any of these characteristics or other characteristics
identified by SCMI.
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER U.S. SMALLER COMPANIES FUND'S INVESTMENT OBJECTIVE IS CAPITAL
APPRECIATION. The Fund invests at least 65% of its assets in equity securities
of U.S.-domiciled companies that have at the time of purchase market
capitalizations of $1.5 billion or less. In selecting investments for the Fund,
SCMI seeks to identify securities of companies with strong management that it
believes can generate above average earnings growth, and are selling at
favorable prices in relation to book values and earnings. Equity securities in
which the Fund may invest include common stocks, preferred stocks, securities
convertible into common or preferred stocks, and rights or warrants to purchase
any of the foregoing.
The Fund may also invest in equity securities of larger companies and in debt
securities, if SCMI believes such investments are consistent with the Fund's
investment objective. In addition, the Fund may invest up to 5% of its assets in
lower-quality, high yielding debt securities, which entail certain risks. See
"Other Investment Practices and Risk Considerations - Debt Securities."
Smaller companies may present greater opportunities for investment return than
do larger companies, but also involve greater risks. They may have limited
product lines, markets, or financial resources, or may
18
<PAGE>
depend on a limited management group. Their securities may trade less frequently
and in limited volume. As a result, the prices of these securities may fluctuate
more than prices of securities of larger, widely traded companies. See "Other
Investment Practices and Risk Considerations - Investments in Smaller
Companies." The Fund intends to invest no more than 25% of its total assets in
securities of small companies that, together with their predecessors, have been
in operation for less than three years.
SCHRODER MICRO CAP FUND
SCHRODER MICRO CAP FUND'S INVESTMENT OBJECTIVE IS LONG-TERM CAPITAL
APPRECIATION. It seeks to achieve its investment objective by investing at least
65% of its total assets in equity securities of U.S.-domiciled micro cap
companies. A micro cap company is a company with, at the time of initial
purchase, a market capitalization in the bottom one third of companies in the
Russell 2000 Growth Index (measured by capitalization); in addition, any company
with a market capitalization of $300 million or less will be considered a micro
cap company.
In the future, the Fund may seek to achieve its investment objective by
investing all or a portion of its assets in one or more registered investment
companies having substantially the same investment objective and similar
investment policies as the Fund (in accordance with the provisions of the 1940
Act, as amended, (the "1940 Act") or any order, rule or regulation thereunder).
SCMI seeks to identify securities of companies that it believes offer the
potential for long-term capital appreciation, based on novel, superior or niche
products or services, operating characteristics, quality of management, an
entrepreneurial management team, companies that have gone public in recent
years, opportunities provided by mergers, divestitures or new management, or
other factors. The Fund may invest in securities of small, unseasoned companies,
as well as securities of more established companies. Up to 35% of the Fund's
assets may comprise other investments, including equity securities of larger
capitalization companies, if SCMI believes that they could help the Fund attain
its objective.
Equity securities in which the Fund may invest include common stocks, preferred
stocks, securities convertible into common or preferred stocks, or rights or
warrants to purchase any of the foregoing. The Fund may also invest to a limited
degree in non-convertible debt securities when SCMI believes that such
investments are warranted to achieve the Fund's investment objective.
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The Funds may engage in the following investment practices, each of which
involves certain special risks. The SAI contains more detailed information about
these practices (some of which may be considered "derivative" investments).
FOREIGN SECURITIES. Investments in foreign securities entail certain risks.
There may be a possibility of nationalization or expropriation of assets,
confiscatory taxation, political or financial instability, and diplomatic
developments that could affect the value of a Fund's investments in certain
foreign countries. Since foreign securities are normally denominated and traded
in foreign currencies, the values of the Fund's assets may be affected favorably
or unfavorably by currency exchange rates, currency exchange control
regulations, foreign withholding taxes and restrictions or prohibitions on the
repatriation of foreign currencies. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and foreign issuers
are not generally subject to accounting, auditing, and financial reporting
standards and practices comparable to those in the United States. The securities
of some foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions and other
fees are also generally higher than in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of a Fund's assets held
abroad) and expenses not present in the settlement of domestic investments.
19
<PAGE>
In addition, legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. The willingness and ability of
sovereign issuers to pay principal and interest on government securities depends
on various economic factors, including, without limitation, the issuer's balance
of payments, overall debt level, and cash-flow considerations related to the
availability of tax or other revenues to satisfy the issuer's obligations. If a
foreign governmental entity is unable or unwilling to meet its obligations on
the securities in accordance with their terms, a Fund may have limited recourse
available to it in the event of default. The laws of some foreign countries may
limit a Fund's ability to invest in securities of certain issuers located in
those foreign countries. Special tax considerations apply to foreign securities.
Except as otherwise provided in this Prospectus, there is no limit on the amount
of a Fund's assets that may be invested in foreign securities.
If a Fund purchases securities denominated in foreign currencies, a change in
the value of any such currency against the U.S. dollar will result in a change
in the U.S. dollar value of the Fund's assets and the Fund's income available
for distribution. In addition, although at times most of a Fund's income may be
received or realized in these currencies, the Fund will be required to compute
and distribute its income in U.S. dollars. Therefore, if the exchange rate for
any such currency declines after the Fund's income has been earned and
translated into U.S. dollars but before payment, the Fund could be required to
liquidate portfolio securities to make such distributions. Similarly, if an
exchange rate declines between the time the Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S. dollars will
be greater than the equivalent amount in any such currency of such expenses at
the time they were incurred. A Fund may buy or sell foreign currencies and
options and futures contracts on foreign currencies for hedging purposes in
connection with its foreign investments.
In determining whether to invest in debt securities of foreign issuers, SCMI
considers the likely impact of foreign taxes on the net yield available to the
Fund and its shareholders. Income received by a Fund from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by a Fund will reduce its
net income available for distribution to shareholders. In certain circumstances,
a Fund may be able to pass through to shareholders credits for foreign taxes
paid. See "Other Information - Dividends, Distributions and Taxes."
Certain Funds may invest in securities of issuers in emerging market countries
with respect to some or all of their assets. The securities' prices and relative
currency values of emerging market investments are subject to greater volatility
than those of issuers in many more developed countries. Investments in emerging
market countries are subject to the same risks applicable to foreign investments
generally, although those risks may be increased due to conditions in such
countries. For example, the securities markets and legal systems in emerging
market countries may only be in a developmental stage and may provide few, or
none, of the advantages or protections of markets or legal systems available in
more developed countries. Although many of the securities in which the Funds may
invest are traded on securities exchanges, they may trade in limited volume, and
the exchanges may not provide all of the conveniences or protections provided by
securities exchanges in more developed markets. The Funds may also invest a
substantial portion of their assets in securities traded in the over-the-counter
markets in such countries and not on any exchange, which may affect the
liquidity of the investment and expose the Funds to the credit risk of their
counterparties in trading those investments. Emerging market countries may
experience extremely high rates of inflation, which may adversely affect these
countries' economies and securities markets.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Changes in currency exchange rates will
affect the U.S. dollar values of securities denominated in foreign currencies.
Exchange rates between the U.S. dollar and other currencies fluctuate in
response to forces of supply and demand in the foreign exchange markets. These
forces are affected by the international balance of payments and other economic
and financial conditions,
20
<PAGE>
government intervention, speculation, and other factors, many of which may be
difficult (if not impossible) to predict. A Fund may engage in foreign currency
exchanges transactions to protect against uncertainty in the level of future
exchange rates. Although the strategy of engaging in foreign currency exchange
transactions could reduce the risk of loss due to a decline in the value of the
hedged currency, it could also limit the potential gain from an increase in the
value of the currency.
In particular, a Fund may enter into foreign currency exchange transactions to
protect against a change in exchange ratios that may occur between the date on
which the Fund contracts to trade a security and the settlement date
("transaction hedging") or in anticipation of placing a trade ("anticipatory
hedging"); to "lock in" the U.S. dollar value of interest and dividends to be
paid in a foreign currency; or to hedge against the possibility that a foreign
currency in which portfolio securities are denominated or quoted may suffer a
decline against the U.S. dollar ("position hedging"). Schroder International
Bond Fund may also enter into forward contracts to adjust the Fund's exposure to
various foreign currencies, either pending anticipated investments in securities
denominated in those currencies or as a hedge against anticipated market
changes.
SCMI may seek to enhance a Fund's investment return through active currency
management. SCMI may buy or sell foreign currencies for a Fund, on a spot or
forward basis, in an attempt to profit from inefficiencies in the pricing of
various currencies or of debt securities denominated in those currencies.
When investing in foreign securities, a Fund usually effects currency exchange
transactions on a "spot" (I.E., cash) basis at the spot rate prevailing in the
foreign exchange market. A Fund incurs foreign exchange expenses in converting
assets from one currency to another. In addition, Schroder International Bond
Fund may, to a limited extent, purchase forward contracts to increase exposure
in foreign currencies that are expected to appreciate and thereby increase total
return.
A forward currency contract is an obligation to purchase or sell a specific
currency at a future date (which may be any fixed number of days from the date
of the contract agreed upon by the parties) at a price set at the time of the
contract. Forward contracts do not eliminate fluctuations in the underlying
prices of securities and expose the Fund to the risk that the counterparty is
unable to perform.
Forward contracts are not exchange traded, and there can be no assurance that a
liquid market will exist at a time when a Fund seeks to close out a forward
contract. Currently, only a limited market, if any, exists for exchange
transactions relating to currencies in certain emerging markets or to securities
of issuers domiciled or principally engaged in business in certain emerging
markets. This may limit a Fund's ability to hedge its investments in those
markets. These contracts involve a risk of loss if SCMI fails to predict
accurately changes in relative currency values, the direction of stock prices or
interest rates and other economic factors.
From time to time, a Fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign currency and
may at times involve currencies in which its portfolio securities are not then
denominated ("cross hedging"). From time to time, a Fund may also engage in
"proxy" hedging, whereby the Fund would seek to hedge the value of portfolio
holdings denominated in one currency by entering into an exchange contract on a
second currency, the valuation of which SCMI believes correlates to the value of
the first currency. Cross hedging and proxy hedging transactions involve the
risk of imperfect correlation between changes in the values of the currencies to
which such transactions relate and changes in the value of the currency or other
asset or liability that is the subject of the hedge.
INVESTMENTS IN SMALLER COMPANIES. Certain Funds may invest all or a substantial
portion of their assets in securities issued by small companies. Such companies
may offer greater opportunities for capital appreciation than larger companies,
but investments in such companies may involve certain special risks. Such
companies may have limited product lines, markets, or financial resources and
may be dependent on a limited management group. While the markets in securities
of such companies have grown rapidly in recent years, such securities may trade
less frequently and in smaller volume than more widely held securities. The
values of these securities may fluctuate more sharply than those of other
securities, and a Fund may experience some difficulty in establishing or closing
out positions in these securities at prevailing market
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<PAGE>
prices. There may be less publicly available information about the issuers of
these securities or less market interest in such securities than in the case of
larger companies, and it may take a longer period of time for the prices of such
securities to reflect the full value of their issuers' underlying earnings
potential or assets.
Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The ability of a Fund to dispose of such
securities may be greatly limited, and a Fund may have to continue to hold such
securities during periods when SCMI would otherwise have sold the securities. It
is possible that SCMI or its affiliates or clients may hold securities issued by
the same issuers, and may in some cases have acquired the securities at
different times, on more favorable terms, or at more favorable prices, than a
Fund.
LEVERAGE. Schroder International Bond Fund may borrow money by engaging in
reverse repurchase agreements to invest in additional securities. "Reverse"
repurchase agreements generally involve the sale by the Fund of securities held
by it and an agreement to repurchase the securities at an agreed-upon price,
date, and interest payment. Certain other Funds may engage in forward
commitments, described below and in the SAI, which may have the same economic
effect as if the Funds had borrowed money.
The use of borrowed money, known as "leverage," increases Schroder International
Bond Fund's market exposure and risk and may result in losses. When the Fund has
borrowed money for leverage and its investments increase or decrease in value,
its net asset value will normally increase or decrease more than if it had not
borrowed money for this purpose. The interest that the Fund must pay on borrowed
money will reduce its net investment income, and may also either offset any
potential capital gains or increase any losses. The Fund will not always borrow
money for investment, and the extent to which the Fund will borrow money, and
the amount it may borrow, depend on market conditions and interest rates.
Successful use of leverage depends on SCMI's ability to predict market movements
correctly. The amount of leverage that can exist at any one time will not exceed
one-third of the value of the Fund's total assets (including the amount
borrowed). A Fund may be required to segregate certain assets against its
obligations under reverse repurchase agreements entered into by it.
DEBT SECURITIES. All of the Funds may invest in debt securities. A Fund may
invest in debt securities either to earn investment income or to benefit from
changes in the market values of such securities. Debt securities are subject to
market risk (the fluctuation of market value in response to changes in interest
rates) and to credit risks (the risk that the issuer may become unable or
unwilling to make timely payments of principal and interest).
Each Fund also may invest in lower-quality, high-yielding debt securities rated
below investment grade and in unrated debt securities determined by SCMI to be
of comparable quality. Lower-rated debt securities (commonly called "junk
bonds") are considered to be of poor standing and predominantly speculative.
Securities in the lowest rating categories may have extremely poor prospects of
attaining any real investment standing, and some of those securities in which a
Fund may invest may be in default. The rating services' descriptions of
securities in the lower rating categories, including their speculative
characteristics, are set forth in Appendix A to this Prospectus.
In addition, lower-rated securities reflect a greater possibility that adverse
changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. Changes by
recognized rating services in their ratings of any fixed-income security and in
the perceived ability of an issuer to make payments of interest and principal
may also affect the value of these investments. The inability (or perceived
inability) of issuers to make timely payments of interest and principal would
likely make the values of securities held by a Fund more volatile and could
limit a Fund's ability to sell its securities at prices approximating the values
the Fund had placed on such securities. In the absence of a liquid trading
market for securities held by it, a Fund may be unable at times to establish the
fair value of such securities. The rating assigned to a security by a rating
agency does not reflect an assessment of the volatility of the security's market
value or of the liquidity of an investment in the security.
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<PAGE>
Each Fund may at times invest in so-called "zero coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity, rather than at intervals
during the life of the security. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. The values of zero-coupon bonds and payment-in-kind bonds are
subject to greater fluctuation in response to changes in market interest rates
than bonds which pay interest currently, and may involve greater credit risk
than such bonds. From time to time, a Fund may invest a portion of its assets in
Brady Bonds, which are securities created through the exchange of existing
commercial bank loans to sovereign entities for new obligations in connection
with debt restructuring. Brady Bonds have been issued only recently and,
therefore, do not have a long payment history.
A Fund will not necessarily dispose of a security when its debt rating is
reduced below its rating at the time of purchase, although SCMI will monitor the
investment to determine whether continued investment in the security will assist
in meeting the Fund's investment objective.
OPTIONS AND FUTURES TRANSACTIONS. Each Fund may engage in a variety of
transactions involving the use of options and futures contracts. A Fund may
engage in such transactions for hedging purposes or, to the extent permitted by
applicable law, to increase its current return.
A Fund may seek to increase its current return by writing covered call options
and covered put options on its portfolio securities or other securities in which
it may invest. A Fund receives a premium from writing a call or put option,
which increases the Fund's return if the option expires unexercised or is closed
out at a net profit. A Fund may also buy and sell put and call options on such
securities for hedging purposes. When a Fund writes a call option on a portfolio
security, it gives up the opportunity to profit from any increase in the price
of the security above the exercise price of the option; when it writes a put
option, a Fund takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price of the
security. A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. A Fund may also from time
to time buy and sell combinations of put and call options on the same underlying
security to earn additional income.
A Fund may buy and sell index futures contracts. An "index future" is a contract
to buy or sell units of a particular index at an agreed price on a specified
future date. Depending on the change in value of the index between the time when
a Fund enters into and terminates an index future transaction, the Fund may
realize a gain or loss. A Fund may also purchase warrants, issued by banks or
other financial institutions, whose values are based on the values from time to
time of one or more securities indices.
A Fund may buy and sell futures contracts on U.S. Government securities or other
debt securities. A futures contract on a debt security is a contract to buy or
sell a certain amount of the debt security at an agreed price on a specified
future date. Depending on the change in the value of the security when the Fund
enters into and terminates a futures contract, the Fund realizes a gain or loss.
A Fund may purchase and sell options on futures contracts or on securities
indices in addition to or as an alternative to purchasing and selling futures
contracts.
A Fund may also purchase and sell put and call options on foreign currencies,
futures contracts on foreign currencies, and options on foreign currency futures
contracts as an alternative, or in addition to, the foreign currency exchange
transactions described above. Such transactions are similar to options and
futures contracts on securities, except that they typically contemplate that one
party to a transaction will deliver one foreign currency to the other in return
for another currency (which may or may not be the U.S. dollar).
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS. Options and futures
transactions involve costs and may result in losses. The use of options and
futures involves certain special risks, including the risks that a
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<PAGE>
Fund may be unable at times to close out such positions, that hedging
transactions may not accomplish their purpose because of imperfect market
correlations, or that SCMI may not forecast market movements correctly.
The effective use of options and futures strategies is dependent on, among other
things, a Fund's ability to terminate options and futures positions at times
when SCMI deems it desirable to do so. Although a Fund will enter into an option
or futures contract position only if SCMI believes that a liquid secondary
market exists for that option or futures contract, there is no assurance that a
Fund will be able to effect closing transactions at any particular time or at an
acceptable price.
Each Fund generally expects that its options and futures contract transactions
will be conducted on recognized exchanges. In certain instances, however, a Fund
may purchase and sell options in the over-the-counter markets. A Fund's ability
to terminate options in the over-the-counter markets may be more limited than
for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to a Fund. A Fund will, however, engage in over-the-counter
transactions only when appropriate exchange-traded transactions are unavailable
and when, in the opinion of SCMI, the pricing mechanism and liquidity of the
over-the-counter markets are satisfactory and the participants are responsible
parties likely to meet their contractual obligations. A Fund will treat over-
the-counter options (and, in the case of options sold by the Fund, the
underlying securities held by the Fund) as illiquid investments as required by
applicable law.
The use of options and futures strategies also involves the risk of imperfect
correlation between movements in the prices of options and futures contracts and
movements in the value of the underlying securities, index, or currency, or in
the prices of the securities or currencies that are the subject of a hedge. The
successful use of these strategies further depends on the ability of SCMI to
forecast market movements correctly.
Because the markets for certain options and futures contracts in which a Fund
will invest (including markets located in foreign countries) are relatively new
and still developing and may be subject to regulatory restraints, a Fund's
ability to engage in transactions using such investments may be limited. A
Fund's ability to engage in hedging transactions may be limited by certain
regulatory and tax considerations. A Fund's hedging transactions may affect the
character or amount of its distributions. The tax consequences of certain
hedging transactions have been modified by the Taxpayer Relief Act of 1997.
For more information about any of the options or futures portfolio transactions
described above, see the SAI.
SWAP AGREEMENTS. Schroder International Bond Fund 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 Fund than if the Fund
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
typical "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
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 a given minimum or maximum. The use of swap agreements is a highly
specialized activity that involves investment techniques and risks different
from those associated with ordinary portfolio securities
24
<PAGE>
transactions. If SCMI is incorrect in its forecast of market values, interest
rates, exchange rates, or other factors, the Fund's investment performance would
be less favorable than if the Fund had not used such agreements.
SHORT SALES. Schroder International Bond Fund and Schroder Micro Cap Fund may
engage in "short sales", which are transactions in which a Fund sells a security
that it does not own in anticipation of a decline in the market value of that
security. To complete the transaction, the Fund must borrow the security to make
delivery to the purchaser. The Fund is then obligated to replace the borrowed
security through a purchase of it at the market price at the time of
replacement. The price at that time may be more or less than the price at which
the security was sold by the Fund. The Fund incurs a loss as a result of the
short sale if the price of the security increases between the date of the short
sale and the date on which the Fund replaces the borrowed security. The Fund
realizes a gain if the security declines in price between those dates. The
result is the opposite of what one would expect from a cash purchase of a long
position in a security.
Until the security is replaced, the Fund is required to pay the lender amounts
equal to any dividend that accrues during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium or specified amounts in
lieu of interest. The amount of any gain is decreased, and the amount of any
loss is increased, by any premium or amounts in lieu of interest the Fund is
required to pay. The proceeds of the short sale are retained by the broker, to
the extent necessary to meet margin requirements, until the short position is
closed out. No securities will be sold short, however, if thereafter the total
market value of all securities sold short would exceed 25% of the value of the
Fund's assets.
Any of the Funds may make short sales "against-the-box", are transactions in
which the Fund sells short a security that it owns in anticipation of a decline
in the market value of that security. The proceeds of the short sale are held by
a broker until the settlement date, at which time the Fund delivers the security
to close the short position. The Fund receives the net proceeds from the short
sale. It is anticipated that a Fund will make short sales against-the-box only
to protect the value of its net assets.
NON-DIVERSIFICATION AND GEOGRAPHIC CONCENTRATION. Schroder Emerging Markets Fund
and Schroder International Bond Fund are "non-diversified" mutual funds, and
each Fund may invest its assets in a more limited number of issuers than may
other investment companies. Under the Internal Revenue Code, an investment
company, including a non-diversified investment company, generally may not
invest more than 25% of its total assets in obligations of any one issuer other
than U.S. Government obligations and, with respect to 50% of its total assets, a
Fund may not invest more than 5% of its total assets in the securities of any
one issuer (except U.S. Government obligations). Thus, each Fund may invest up
to 25% of its total assets in the securities of each of any two issuers. This
practice involves an increased risk of loss to a Fund if the market value of a
security should decline or its issuer were otherwise not to meet its
obligations.
Any of the Funds may invest more than 25% of its total assets in issuers located
in any one country. To the extent that it does so, the Fund is susceptible to a
range of factors that could adversely affect that country, including political
and economic developments and foreign exchange-rate fluctuations as discussed
above. As a result of investing substantially in one country, the value of the
Fund's assets may fluctuate more widely than the value of shares of a comparable
fund with a lesser degree of geographic concentration.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS. Each Fund may
lend portfolio securities to brokers, dealers and financial institutions meeting
specified credit conditions, and may enter into repurchase agreements without
limit. Such activities may create taxable income in excess of the cash they
generate. The percentage limitation on the amount of a Fund's total assets that
may be loaned in accordance with the approved procedures is as follows: SCHRODER
INTERNATIONAL FUND - 10%; SCHRODER INTERNATIONAL SMALLER COMPANIES FUND,
SCHRODER INTERNATIONAL BOND FUND, SCHRODER U.S. DIVERSIFIED GROWTH FUND,
SCHRODER U.S. SMALLER COMPANIES AND SCHRODER MICRO CAP FUND - 25%; AND SCHRODER
EMERGING MARKETS FUND - 33 1/3%. These transactions must be fully collateralized
at all times but involve some risk to a Fund if the other party should default
on its obligation and the Fund is delayed or prevented
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<PAGE>
from recovering its assets or realizing on the collateral. Each Fund may also
purchase securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of the securities
declines prior to the settlement date.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Fund is permitted to invest in
other investment companies or pooled vehicles, including closed-end funds, that
are advised by SCMI or its affiliates or by unaffiliated parties. A Fund may
invest in the shares of other investment companies that invest in securities in
which the Fund is permitted to invest, subject to the limits and conditions
required under the 1940 Act or any orders, rules or regulations thereunder. When
investing through investment companies, a Fund may pay a premium above such
investment companies' net asset value per share. As a shareholder in an
investment company, a Fund would bear its ratable share of the investment
company's expenses, including its advisory and administrative fees. At the same
time, the Fund would continue to pay its own fees and expenses.
LIQUIDITY. A Fund will not invest more than 15% (10%, in the case of Schroder
International Fund and Schroder U.S. Diversified Growth Fund) of its net assets
in securities determined by SCMI to be illiquid. Certain securities that are
restricted as to resale may nonetheless be resold by a Fund in accordance with
Rule 144A under the Securities Act of 1933, as amended. Such securities may be
determined by SCMI to be liquid for purposes of compliance with the limitation
on a Fund's investment in illiquid securities. There can, however, be no
assurance that a Fund will be able to sell such securities at any time when SCMI
deems it advisable to do so or at prices prevailing for comparable securities
that are more widely held.
ALTERNATIVE INVESTMENTS. At times, SCMI may judge that market conditions make
pursuing a Fund's basic investment strategy inconsistent with the best interests
of its shareholders. At such times, SCMI may temporarily use alternative
strategies, primarily designed to reduce fluctuations in the values of the
Fund's assets. In implementing these "defensive" strategies, a Fund may invest
without limit in U.S. government obligations and other high-quality debt
instruments and any other investment SCMI considers to be consistent with such
defensive strategies, and may hold any portion of its assets in cash.
PORTFOLIO TURNOVER
The length of time a Fund has held a particular security is not generally a
consideration in investment decisions. The investment policies of a Fund may
lead to frequent changes in the Fund's investments, particularly in periods of
volatile market movements. A change in the securities held by a Fund is known as
"portfolio turnover." Portfolio turnover generally involves some expense to a
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. Such
securities sales may result in realization of taxable capital gain. The
portfolio turnover rate for each Fund is reported under "Financial Highlights."
HOW TO BUY SHARES
Investors may purchase Investor Shares of each Fund directly from the Trust.
Prospectuses, sales material and account applications can be obtained from the
Trust or through Forum Shareholder Services, LLC, the Trust's transfer agent
(the "Transfer Agent"). Investments also may be made through broker-dealers and
other financial institutions ("Service Organizations"). Service Organizations
may charge their customers a service fee for processing orders to purchase or
sell shares. Investors wishing to purchase Shares through their accounts at a
Service Organization should contact that organization directly for appropriate
instructions. A Service Organization is responsible for forwarding all necessary
documentation to the Trust, and may charge for its services.
Each Fund's Investor Shares are offered at the net asset value next-determined
after receipt of your completed account application (at the address set forth
below) and your purchase request in good order. The
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minimum initial investment and the minimum subsequent investment for each Fund
is set forth in the table below. A Service Organization may impose higher
minimums on your initial or subsequent investment. The Trust is authorized to
reject any purchase order.
<TABLE>
<S> <C> <C>
Initial Subsequent
Fund Investment Investment
- ---- ---------- ----------
Schroder International Fund $10,000 $2,500
Schroder Emerging Markets Fund $10,000 $2,500
Schroder International Smaller Companies Fund $10,000 $2,500
Schroder International Bond Fund $10,000 $2,500
Schroder U.S. Diversified Growth Fund $10,000 $2,500
Schroder U.S. Smaller Companies Fund $10,000 $2,500
Schroder Micro Cap Fund $10,000 $2,500
</TABLE>
Purchases may be made by mailing a check (in U.S. dollars), payable to the Fund
to:
[Name of Fund] - Investor Shares
P.O. Box 446
Portland, Maine 04112
For initial purchases, the check must be accompanied by a completed account
application in proper form. Further documentation, such as corporate resolutions
and instruments of authority, may be requested from corporations,
administrators, executors, personal representatives, directors or custodians to
evidence the authority of the person or entity making the subscription request.
You may make subsequent purchases by mailing a check, by sending a bank wire, or
through your Service Organization, as indicated. All payments should clearly
indicate the shareholder's name and account number.
Investors and Service Organizations (on behalf of their customers) may transmit
purchase payments by Federal Reserve Bank wire directly to the Fund as follows:
The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Shareholder Services, LLC
Account. No.: 910-2-718187
Ref.: [Name of the 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 a completed
account application must be mailed to the Fund before any transaction will be
effected. Wire orders received prior to the close of the New York Stock Exchange
on a day when the Exchange is open for trading are processed at the net asset
value determined as of that day. Wire orders received after the close of the New
York Stock Exchange are processed at the net asset value next determined.
The Fund's Transfer Agent establishes for each shareholder of record an open
account to which all shares purchased and all reinvested dividends and other
distributions are credited. Although most shareholders elect not to receive
share certificates, certificates for full shares can be obtained by written
request to the Fund's Transfer Agent. No certificates are issued for fractional
shares.
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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 are automatically reinvested. In
addition, the amount of any outstanding checks for dividends and other
distributions that have been returned to the Transfer Agent are reinvested, and
the checks are canceled.
DISTRIBUTOR
Schroder Fund Advisors Inc. ("Schroder Advisors"), 787 Seventh Avenue, New York,
New York 10019, serves as Distributor of the Funds' shares. Schroder Advisors
was organized in 1989 as a registered broker-dealer to serve as an administrator
and distributor of each Fund and other mutual funds.
Schroder Advisors and its affiliates, at their own expense and out of their own
assets, may provide compensation to financial institutions in connection with
sales of the Funds' shares or the servicing of shareholder accounts.
RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
Investor Shares are offered in connection with tax-deferred retirement plans,
including traditional and Roth IRAs. Application forms and further information
about these plans, including applicable fees, are available upon request. Before
investing in a Fund through one of these plans, investors should consult their
tax advisors.
The Funds may be used as an investment vehicle for an IRA including a SEP-IRA.
An IRA naming Bank-Boston as custodian is available from the Trust or the
Transfer Agent. The minimum initial investment for an IRA and the minimum
subsequent investment for each Fund is set forth in the table below. Generally,
contributions and investment earnings in a traditional IRA grow tax-deferred
until withdrawn. In contrast, contributions to a Roth IRA are not
tax-deductible, but investment earnings generally grow tax-free. IRAs are
available to individuals (and their spouses) who receive compensation or earned
income whether or not they are active participants in a tax-qualified or
government-approved retirement plan. An IRA contribution by an individual or
spouse who participates in a tax-qualified or government-approved retirement
plan may not be deductible, depending upon the individual's income. Individuals
also may establish an IRA to receive a "rollover" contribution of distributions
from another IRA or qualified plan. Consult your tax advisor.
<TABLE>
<S> <C> <C>
Initial Subsequent
Fund Investment Investment
- ---- ---------- ----------
Schroder International Fund $2,000 $250
Schroder Emerging Markets Fund $2,000 $250
Schroder International Smaller Companies Fund $2,000 $250
Schroder International Bond Fund $2,000 $250
Schroder U.S. Diversified Growth Fund $2,000 $250
Schroder U.S. Smaller Companies Fund $2,000 $250
Schroder Micro Cap Fund $2,000 $250
</TABLE>
EXCHANGES
You may exchange a Fund's Investor Shares for Investor Shares of any fund
offered by the Schroder family of funds so long as your investment meets the
initial investment minimum of the fund being purchased, and you maintain the
respective minimum account balance in each fund in which you own shares.
Exchanges between funds are made at net asset value.
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For federal income tax purposes, an exchange is considered to be a sale of
shares on which you may realize a capital gain or loss. If you hold Investor
Shares directly, you may make an exchange by calling the Transfer Agent at
1-800-344-8332 (see "How to Sell Shares - Telephone Requests") or by mailing
written instructions to Schroder Capital Funds (Delaware), P.O. Box 446,
Portland, Maine 04112. If you hold Investor Shares through a Service
Organization, you must make an exchange through the Service Organization.
Exchange privileges may be exercised only in those states where shares of the
other funds of the Schroder family of funds may legally be sold. Exchange
privileges may be amended or terminated at any time upon sixty (60) days'
notice.
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 the minimum initial
investment or more in Investor Shares of a Fund within a period of 13 months.
Investors wishing to enter into a Statement of Intention in conjunction with
their initial investment in shares of a 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 Trust 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 initial investment amount.
HOW TO SELL SHARES
You can sell your Investor Shares in a Fund to that Fund any day the New York
Stock Exchange is open, either through your Service Organization or directly to
the Fund. If your shares are held in the name of a Service Organization, you may
only sell the shares through that Service Organization. The Trust will only
redeem shares for which it has received payment.
Investor Shares are redeemed at their net asset value next determined after
receipt by the Fund (see the address set forth under "How to Buy Shares") of a
redemption request in proper form. Redemption requests that are received in good
order prior to the close of the Exchange on a day on which the Exchange is open
are processed at the net asset value determined as of that day. Redemption
requests that are received after the close of the Exchange are processed at the
net asset value next determined.
TELEPHONE REQUESTS
Redemption requests may be made by a shareholder of record 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
either or both may be liable if they do not follow these procedures. Shares for
which certificates have been issued may not be redeemed by telephone. In times
of drastic economic or market change, it may be difficult to make redemptions by
telephone. If a shareholder cannot reach the Transfer Agent by telephone,
redemption requests may be mailed or hand-delivered to the Transfer Agent.
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<PAGE>
WRITTEN REQUESTS
Redemptions may be made by a shareholder of record by letter to a 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 1-800-290-9826.
If Investor Shares to be redeemed are held in certificate form, the certificates
must be enclosed with the redemption request, and the assignment form on the
back of the certificates (or an assignment separate from the certificates but
accompanied by the certificates) must be signed by all owners in exactly the
same way the owners' names are written on the face of the certificates.
Requirements for signature guarantees and/or documentation of authority as
described above could also apply. For your protection, the Trust suggests that
certificates be sent by registered mail.
ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds normally are
mailed within seven days. No redemption proceeds are mailed until checks in
payment for the purchase of Investor Shares to be redeemed have been cleared,
which may take up to 15 calendar days from the purchase date. Unless other
instructions are given in proper form, a check for the proceeds of a redemption
is sent to the shareholder's address of record.
A Fund may suspend the right of redemption during any period when: (1) trading
on the New York Stock Exchange is restricted or the New York Stock Exchange is
closed; (2) the SEC has by order permitted such suspension; or (3) an emergency
(as defined by rules of the SEC) exists making disposal of portfolio investments
or determination of the Fund's net asset value not reasonably practicable.
If the Board of Trustees determines that it would be detrimental to the best
interest of the remaining shareholders of a Fund to make payment wholly or
partly in cash, a Fund may redeem Investor Shares in whole or in part by a
distribution in kind of portfolio securities in lieu of cash. The Fund will,
however, redeem Investor 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 Investor Shares is made wholly or partly in portfolio
securities, the shareholder may be subject to additional risks and costs in
converting the securities to cash. See "Additional Purchase and Redemption
Information" in the SAI.
The proceeds of a redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account (other than an IRA) if at any
time the account does not have a value of at least $2,000, unless the value of
the account falls below that amount solely as a result of market activity.
Shareholders will be notified that the value of the account is less than the
required minimum and will be allowed at least 30 days to make an additional
investment to increase the account balance to at least the required minimum
amount.
The Trust may also redeem shares if you own shares of any Fund above a maximum
amount set by the Trustees. There is currently no maximum, but the Trustees may
establish one at any time, which could apply to both present and future
shareholders.
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OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
Each Fund calculates the net asset value of its Investor Shares by dividing the
total value of its assets attributable to its Investor Shares, less its
liabilities attributable to those shares, by the number of its Investor Shares
outstanding. Shares are valued as of the close of the New York Stock Exchange
(normally, 4:00 p.m. Eastern time) each day the Exchange is open. Portfolio
securities for which market quotations are readily available are stated at
market value. Short-term investments that will mature in 60 days or less are
stated at amortized cost, which approximates market value. All other securities
and assets are valued at their fair values determined in accordance with
procedures approved by the Board of Trustees. The net asset value of a Fund's
Investor Shares will generally differ from that of its other class of shares due
to the variance in daily net income realized by and dividends paid on each class
of shares, and differences in the expenses of the different classes. All assets
and liabilities of a Fund denominated in foreign currencies are valued in U.S.
dollars based on the exchange rate last quoted by a major bank prior to the time
when the net asset value of the Fund is calculated.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund distributes any net investment income and any net realized capital
gain at least annually. Distributions from net capital gain are made after
applying any available capital loss carryovers.
YOU CAN CHOOSE FROM FOUR DISTRIBUTION OPTIONS: (1) reinvest all distributions in
additional Investor Shares of your Fund; (2) receive distributions from net
investment income in cash while reinvesting capital-gain distributions in
additional Investor Shares of your Fund; (3) receive distributions from net
investment income in additional Investor Shares of your Fund while receiving
capital-gain distributions in cash; or (4) receive all distributions in cash.
You can change your distribution option by notifying the Transfer Agent in
writing. If you do not select an option when you open your account, all
distributions by a Fund will be reinvested in Investor Shares of that Fund. You
will receive a statement confirming reinvestment of distributions in additional
Fund shares promptly following the period in which the reinvestment occurs.
TAXES
Each Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements that are necessary for it
to be relieved of federal taxes on income and gain it distributes to
shareholders. A Fund will distribute substantially all of its net investment
income and net capital gain income on a current basis.
All Fund distributions will be taxable to you as ordinary income, except that
any distributions of net long-term capital gain will be taxed as such,
regardless of how long you have held the shares. Long-term capital gains will be
subject to a maximum rate of 28% or 20%, depending upon the holding period of
the portfolio investment generating the gains. Distributions will be taxable as
described above whether received in cash or in shares through the reinvestment
of distributions.
Early in each year the Trust will notify you of the amount and tax status of
distributions paid to you by each Fund for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in a Fund. You should consult your tax advisor to determine the
precise effect of an investment in a Fund on your particular tax situation.
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CERTAIN INFORMATION REGARDING FOREIGN TAXES. Foreign governments may impose
taxes on the Funds and the Portfolios and their investments, which generally
would reduce the income of the Fund or Portfolio. However, an offsetting tax
credit or deduction may be available to you.
Each Fund that is eligible to do so intends to elect to permit its shareholders
to take a credit (or a deduction) for the Fund's share of qualified foreign
income taxes paid by the Portfolio in which that Fund invests its assets. If the
Fund does make such an election, its shareholders would include as gross income
in their federal income tax returns both: (1) distributions received from the
Fund; and (2) the amount that the Fund advises is their pro rata portion of
foreign income taxes paid with respect to or withheld from dividends and
interest paid to the Fund from its foreign investments. Shareholders then would
be entitled, subject to certain limitations, (including, with respect to a
foreign tax credit, a holding period requirement) 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 PORTFOLIOS
The Portfolios are not required to pay federal income tax because they are
classified as partnerships for federal income tax purposes. All interest,
dividends, gain and losses of the Portfolios will be deemed to have been "passed
through" to the Funds in proportion to the Funds' holdings in the Portfolios
regardless of whether such interest, dividends or gain have been distributed by
the Portfolios.
Each Portfolio intends to conduct its operations so as to enable each Fund, if
each invests all of its assets in a Portfolio, to qualify as a regulated
investment company.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is responsible for generally overseeing the
conduct of the Trust's business. The business and affairs of each Portfolio are
managed under the direction of the Board of Trustees of Schroder Capital Funds
or of Schroder Capital Funds II. Information regarding the trustees and
executive officers of the Trust, as well as the Trustees and executive officers
of Schroder Capital Funds and Schroder Capital Funds II, may be found in the
SAI.
Schroder Capital Management International Inc. ("SCMI") is the investment
adviser to each of the Funds. SCMI is a wholly owned U.S. subsidiary of
Schroders U.S. Holdings Inc., which engages through its subsidiary firms in the
investment banking, asset management and securities businesses. Affiliates of
Schroders U.S. Holdings Inc. (or their predecessors) have been investment
managers since 1927. SCMI and its United Kingdom affiliate, Schroder Capital
Management International, Ltd., served as investment managers for over $27
billion in the aggregate as of June 30, 1998. Schroders U.S. Holdings Inc. is an
indirect, wholly owned U.S. subsidiary of Schroders plc, a publicly owned
holding company organized under the laws of England. Schroders plc and its
affiliates engage in international merchant banking and investment management
businesses, and as of June 30, 1998, had under management assets of
approximately $175 billion. Schroder Fund Advisors Inc. ("Schroder Advisors") is
a wholly owned subsidiary of SCMI.
SCMI also serves as investment adviser to each of the Portfolios of Schroder
Capital Funds and Schroder Capital Funds II. Each of those Portfolios pays
advisory fees to SCMI monthly at the following annual rates (based on the assets
of each Portfolio taken separately): INTERNATIONAL EQUITY FUND - 0.45% of the
Portfolio's average daily net assets; SCHRODER INTERNATIONAL BOND PORTFOLIO -
0.50% of the Portfolio's average daily net assets; SCHRODER INTERNATIONAL
SMALLER COMPANIES PORTFOLIO - 0.85% of the Portfolio's average daily net assets;
SCHRODER EM CORE PORTFOLIO - 1.00% of the Portfolio's average daily net assets;
and SCHRODER U.S. SMALLER COMPANIES PORTFOLIO - 0.60% of the Portfolio's average
daily net assets. SCMI has agreed to waive 0.10% of the advisory fees payable by
Schroder International Smaller Companies Portfolio. This fee limitation
arrangement shall remain in effect until its elimination is approved by the
Board of
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Trustees of Schroder Capital Funds. Each Fund, due to its investment in a
Portfolio, bears a proportionate part of the management fees paid by the
Portfolio (based on the percentage of the Portfolio's assets attributable to the
Fund).
Subject to the direction and control of SCMI, Schroder Investment Management
International, Ltd. ("SIMIL"), 31 Gresham Street, London, U.K. EC2V 7QA, an
affiliate of SCMI, serves as subadviser to Schroder International Smaller
Companies Portfolio pursuant to an Investment Subadvisory Agreement among SCMI,
SIMIL, and the Portfolio. SIMIL, a newly organized investment advisory firm, is
a wholly owned subsidiary of Schroders plc, and as of June 30, 1998 had under
management assets of approximately $42 billion. Under the Subadvisory Agreement,
SCMI pays SIMIL a monthly fee at the annual rate of 0.25% of the Portfolio's
average daily net assets.
Each Fund (except Schroder U.S. Diversified Growth Fund and Schroder Micro Cap
Fund) has entered into an investment advisory agreement with SCMI pursuant to
which SCMI would manage the Fund's assets directly in the event that the Fund
were to cease investing substantially all of its assets in a Portfolio. SCMI
will not receive any fees under that agreement so long as a Fund continues to
invest substantially all of its assets in a Portfolio (or another investment
company). For further information on these investment advisory agreements, see
the SAI.
SCHRODER U.S. DIVERSIFIED GROWTH FUND pays advisory fees to SCMI monthly at the
annual rates of 0.75% of the first $100 million of the Fund's average daily net
assets and 0.50% of the Fund's average daily net assets in excess of $100
million. Schroder Micro Cap Fund pays advisory fees monthly to SCMI at the
annual rate of 1.25% of the Fund's average daily net assets.
ADMINISTRATIVE SERVICES. The Trust, on behalf of each Fund (other than the
Schroder U.S. Diversified Growth Fund), has entered into an administration
agreement with Schroder Advisors, pursuant to which Schroder Advisors provides
certain management and administrative services to those Funds. The Trust, on
behalf of each Fund, has entered into subadministration agreements with Forum
Administrative Services, LLC, Two Portland Square, Portland, Maine 04101
("FAdS"), pursuant to which FAdS provides certain management and administrative
services necessary for the Funds' operations. The Trust pays fees to Schroder
Advisors and to FAdS monthly at the following annual rates: SCHRODER
INTERNATIONAL FUND - 0.15% and 0.05%, respectively, of the Fund's average daily
net assets; SCHRODER EMERGING MARKETS FUND - 0.15% and 0.075%, respectively, of
the Fund's average daily net assets; SCHRODER INTERNATIONAL SMALLER COMPANIES
FUND - 0.10% and 0.075%, respectively, of the Fund's average daily net assets;
SCHRODER INTERNATIONAL BOND FUND - 0.10% and 0.075%, respectively, of the Fund's
average daily net assets; SCHRODER U.S. SMALLER COMPANIES FUND - 0.25% and
0.075%, respectively, of the Fund's average daily net assets; and SCHRODER MICRO
CAP FUND - 0.25% and 0.10%, respectively, of the Fund's average daily net
assets. Each of the Emerging Markets Fund, the International Smaller Companies
Fund and Micro Cap Fund also is subject to a $25,000 minimum annual fee plus a
$12,000 charge per class under the subadministration agreement.
Schroder Advisors and FAdS also serve as administrator and subadministrator,
respectively, to each of the Portfolios of Schroder Capital Funds and Schroder
Capital Funds II. Each of those Portfolios pays administration fees to Schroder
Advisors and subadministration fees to FAdS monthly at the following annual
rates (based on the assets of each Portfolio taken separately): INTERNATIONAL
EQUITY FUND - 0.075% and 0.075%, respectively, of the Portfolio's average daily
net assets; SCHRODER INTERNATIONAL BOND PORTFOLIO - 0.10% and 0.75%,
respectively, of the Portfolio's average daily net assets; SCHRODER
INTERNATIONAL SMALLER COMPANIES PORTFOLIO - 0.15% and 0.075%, respectively, of
the Portfolio's average daily net assets; SCHRODER EM CORE PORTFOLIO - 0.10% and
0.075%, respectively, of the Portfolio's daily net assets; and SCHRODER U.S.
SMALLER COMPANIES PORTFOLIO - 0.00% and 0.075%, respectively, of the Portfolio's
average daily net assets. Each Portfolio is subject to a $25,000 minimum annual
fee under the subadministration agreement. Each Fund, due to its investment in a
Portfolio, bears a proportionate part of the administration and
subadministration fees paid by the Portfolio (based on the percentage of the
Portfolio's assets attributable to the Fund).
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In order to limit the Funds' expenses, SCMI and Schroder Advisors have
voluntarily agreed to reduce their compensation (and, if necessary, to pay
certain expenses of each of the Funds) with respect to each of the Funds to the
extent that a Fund's expenses chargeable to Investor Shares exceed the following
annual rates: SCHRODER INTERNATIONAL FUND - 0.99% of the Fund's average daily
net assets attributable to Investor Shares; SCHRODER Emerging MARKETS FUND -
1.70% of the Fund's average daily net assets attributable to Investor Shares;
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND - 1.50% of the Fund's average
daily net assets attributable to Investor Shares; SCHRODER INTERNATIONAL BOND
FUND - 0.95% of the Fund's average daily net assets attributable to Investor
Shares; SCHRODER U.S. DIVERSIFIED GROWTH FUND - 1.50% of the Fund's average
daily net assets attributable to Investor Shares; SCHRODER U.S. SMALLER
COMPANIES FUND - 1.49% of the Fund's average daily net assets attributable to
Investor Shares; and SCHRODER MICRO CAP FUND - 2.00% of the Fund's average daily
net assets attributable to Investor Shares. In addition, SCMI has agreed to
limit the advisory fees paid by THE U.S. DIVERSIFIED GROWTH FUND to 0.65% of the
Fund's average daily net assets. FAdS may waive voluntarily all or a portion of
its subadvisory fees, from time to time. The Trust pays all expenses not assumed
by SCMI and Schroder Advisors, including Trustees' fees, auditing, legal,
custodial, and investor servicing, and shareholder reporting expenses.
SCMI's investment decisions for each Portfolio in which a Fund invests (or, for
Schroder U.S. Diversified Growth Fund, for the Fund) are made by an investment
manager or an investment team, with the assistance of an investment committee at
SCMI. The Portfolio Managers for each Fund are as follows:
SCHRODER INTERNATIONAL FUND:
MICHAEL PERELSTEIN - Portfolio Manager since January 1997 of Schroder
International Equity Portfolio, in which Schroder International Fund
invests, and Portfolio Manager since 1997 of Schroder International Bond
Portfolio, in which Schroder International Bond Fund invests. Mr. Perelstein
is a Vice President of the Trust and of Schroder Capital Funds and is a
Director and Senior Vice President of SCMI. He was previously a Managing
Director, MacKay-Shields Financial Corp.
SCHRODER EMERGING MARKETS FUND:
JOHN A. TROIANO - Portfolio Manager since inception of Schroder EM Core
Portfolio, in which Schroder Emerging Markets Fund invests. Mr. Troiano is
a Vice President of the Trust and of Schroder Capital Funds. He is also the
Chief Executive of SCMI.
HEATHER CRIGHTON - Portfolio Manager since inception of Schroder EM Core
Portfolio, in which Schroder Emerging Markets Fund invests. Ms. Crighton is
a First Vice President of SCMI.
MARK BRIDGEMAN - Portfolio Manager since inception of Schroder EM Core
Portfolio, in which Schroder Emerging Markets Fund invests. Mr. Bridgeman
is a Vice President of SCMI.
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND:
JANE P. LUCAS - Portfolio Manager since September 1998 of Schroder
International Smaller Companies Portfolio, in which Schroder International
Smaller Companies Fund invests. Ms. Lucas is a Vice President of the Trust
and a Senior Vice President of SCMI.
NICHOLAS MELHUISH - Portfolio Manager since September 1998 of Schroder
International Smaller Companies Portfolio, in which Schroder International
Smaller Companies Fund invests. Mr. Melhuish is an investment manager of
SIMLI and of SCMI.
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SCHRODER INTERNATIONAL BOND FUND:
MICHAEL PERELSTEIN - Portfolio Manager since January 1997 of Schroder
International Equity Portfolio, in which Schroder International Fund
invests, and Portfolio Manager since inception of Schroder International
Bond Portfolio, in which Schroder International Bond Fund invests. Mr.
Perelstein is a Vice President of the Trust and of Schroder Capital Funds
and is a Director and Senior Vice President of SCMI. He was previously a
Managing Director, MacKay-Shields Financial Corp.
MARK ASTLEY - Portfolio Manager since inception of Schroder International
Bond Portfolio, in which Schroder International Bond Fund invests. Mr.
Astley is a Vice President of the Trust and of Schroder Capital Funds II.
He is also a First Vice President of SCMI.
SCHRODER U.S. DIVERSIFIED GROWTH FUND:
PAUL MORRIS - Portfolio Manager since January 1997 of Schroder U.S.
Diversified Growth Fund. Mr. Morris is Senior Vice President of SCMI. He
was previously Principal and Senior Portfolio Manager, Weiss Peck & Greer,
L.L.C., and Managing Director, Equity Division, UBS Asset Management.
SCHRODER U.S. SMALLER COMPANIES FUND:
IRA L. UNSCHULD --Resumed portfolio management in September 1998 of
Schroder U.S. Smaller Companies Portfolio, in which Schroder U.S. Smaller
Companies Fund invests. Mr. Unschuld was co-manager with Fariba Talebi
since inception through March 1997. Mr. Unschuld is a Vice President of the
Trust and Group Vice President of SCMI.
SCHRODER MICRO CAP FUND:
IRA UNSCHULD - Portfolio Manager since inception of Schroder Micro Cap
Fund. Mr. Unschuld is Vice President of the Trust and first Group President
of SCMI.
SCMI places all orders for purchases and sales of the Funds' securities. In
selecting broker-dealers, SCMI may consider research and brokerage services
furnished to it and its affiliates. Schroder & Co. Inc. and Schroder Securities
Limited, affiliates of SCMI, may receive brokerage commissions from the Funds in
accordance with procedures adopted by the Trustees under the 1940 Act which
require periodic review of these transactions. Subject to seeking the most
favorable price and execution available, SCMI may consider sales of shares of
the Funds as a factor in the selection of broker-dealers.
YEAR 2000
The Funds receive services from their investment adviser, administrators,
distributor, transfer agent and custodian which rely on the smooth functioning
of their respective systems and the systems of others to perform those services.
It is generally recognized that certain systems in use today may not perform
their intended functions adequately after the year 1999 because of the inability
of the software to distinguish the year 2000 form the year 1900. SCMI is taking
steps that it believes are reasonably designed to address this potential Year
2000 problem and to obtain satisfactory assurances that comparable steps are
being taken by each of the Funds' other major service providers. There can be no
assurance, however, that these steps will be sufficient to avoid any adverse
impact on the Funds from this problem.
PERFORMANCE INFORMATION
Yield (for Investor Shares of the International Bond Fund) and total return data
relating to Investor Shares of the Funds may from time to time be included in
advertisement about the Funds. The "yield" of a Fund's Investor Shares is
calculated by dividing the Fund's annualized net investment income per Investor
Shares during a recent 30-day period by the net asset value per Investor Shares
on the last day of that period. When a Fund's total return is advertised with
respect to Investor Shares, it will be calculated for the past year, the
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past five years, and the past ten years (or if a Fund's Investor Shares have
been offered for a period shorter than one, five, or ten years, that period will
be substituted) since the establishment of the Fund, as more fully described in
the SAI. Total return quotations assume that all dividends and distributions are
reinvested when paid.
ALL DATA ARE BASED ON PAST INVESTMENT RESULTS AND DO NOT PREDICT FUTURE
PERFORMANCE. Investment performance of a Fund's Investor Shares, which will
vary, is based on many factors, including market conditions, the composition of
the Fund's portfolio, and the Fund's operating expenses attributable to its
Investor Shares. Investment performance also often reflects the risks associated
with each Fund's investment objectives and policies. Quotations of yield or
total return for any period when an expense limitation is in effect will be
greater than if the limitation had not been in effect. These factors should be
considered when comparing the investment results of a Fund's Investor Shares to
those of various classes of other mutual funds and other investment vehicles.
Performance of each Fund's Investor Shares may be compared to various indices.
See the SAI for a fuller discussion of performance information.
ADDITIONAL INFORMATION ABOUT THE TRUST
The Trust was organized as a Maryland corporation on July 30, 1969, reorganized
on February 29, 1988 as Schroder Capital Funds, Inc. and reorganized as a
Delaware business trust on January 9, 1996. The Trust has an unlimited number of
shares of beneficial interest that may, without shareholder approval, be divided
into an unlimited number of series of such shares, which, in turn, may be
divided into an unlimited number of classes of such shares. The Trust's shares
of beneficial interest are presently divided into nine different series. Each
Fund's shares are presently divided into two classes, Investor Shares, which are
offered through this Prospectus, and Advisor Shares, which are offered through a
separate prospectus. Unlike Investor Shares, Advisor Shares are subject to
shareholder service and distribution fees, which will affect their performance
relative to Investor Shares. To obtain more information about Advisor Shares,
contact Schroder Capital Funds (Delaware) at 1-800-290-9826. The Trust's
principal office is located at Two Portland Square, Portland, Maine 04101, and
its telephone number is 1-207-879-8903.
Each share has one vote, with fractional shares voting proportionally.
Shareholders of a class of shares or series generally have separate voting
rights with respect to matters that affect only that class or series. See
"Organization and Capitalization" in the SAI. Shares are freely transferable and
are entitled to dividends and other distributions as declared by the Trustees.
Dividends paid by the Funds on their two classes of shares will normally differ
in amount due to the differing expenses borne by the two classes. If a Fund were
liquidated, each class of shares would receive the net assets of the Fund
attributable to that class. The Trust may suspend the sale of a Fund's shares at
any time and may refuse any order to purchase shares. Although the Trust is not
required to hold annual meetings of its shareholders, shareholders have the
right to call a meeting to elect or remove Trustees, or to take other actions as
provided in the Declaration of Trust.
INFORMATION ABOUT THE PORTFOLIOS
Each of the Funds (other than Schroder U.S. Diversified Growth Fund and Schroder
Micro Cap Fund) seeks to achieve its investment objective by investing all of
its investable assets in a Portfolio of Schroder Capital Funds or Schroder
Capital Funds II that has the same investment objective and similar policies. In
that way, a Portfolio acquires investment securities directly, and a Fund
acquires an indirect interest in those securities. Schroder Capital Funds is a
business trust organized under the laws of the State of Delaware in September
1995. Schroder Capital Funds II is a business trust organized under the laws of
the State of Delaware in December 1996. Each of Schroder Capital Funds and
Schroder Capital Funds II is registered under the 1940 Act as an open-end
management investment company. The assets of a Portfolio belong only to, and the
liabilities of a Portfolio are borne solely by, that Portfolio and no other
Portfolio of Schroder Capital Funds or Schroder Capital Funds II.
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A Fund's investment in a Portfolio is in the form of a non-transferable
beneficial interest. All other investors in a Portfolio invest on the same terms
and conditions as the Fund and pay a proportionate share of the Portfolio's
expenses.
The Portfolios normally will not hold meetings of investors except as required
by the 1940 Act. Each investor in a 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, in accordance with applicable law the Board of
Trustees will either: (1) solicit voting instructions from Fund shareholders
with regard to the voting of all proxies with respect to a Fund's shares and
vote such proxies in accordance with such instructions, or (2) vote the
interests held by a Fund in the same proportion as the vote of all other holders
of the Portfolio's interests. 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 Portfolios do not sell their shares directly to members of the general
public. Another investor in a 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 investing in that
Portfolio and could have different fees and expenses than the Fund. Therefore,
Fund shareholders may have different returns than shareholders in another
investment company that invests exclusively in the same Portfolio. Information
regarding any such funds in the future will be available by calling
1-800-730-2932.
Under federal securities law, any person or entity that signs a registration
statement may be liable for a misstatement of a material fact in, or omission of
a material fact from, the registration statement. Each of Schroder Capital Funds
and Schroder Capital Funds II, their Trustees, and certain of their 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, Schroder Capital Funds or Schroder Capital Funds II may be liable for
misstatements or omissions of a material fact in any proxy soliciting material
of an investor in a Portfolio, including a Fund. Each investor in a Portfolio,
including the Trust, is required to indemnify Schroder Capital Funds or Schroder
Capital Funds II, as the case may be, and their Trustees and officers ("SCF
Indemnitees") against certain claims.
Indemnified claims are those brought against SCF Indemnitees based on a
misstatement of a material fact in, or omission of a material fact from, a
registration statement or proxy materials. No indemnification need be made,
however, if such alleged misstatement or omission relates to information about
Schroder Capital Funds or Schroder Capital Funds II, as the case may be, and was
supplied to the investor by Schroder Capital Funds or Schroder Capital Funds II,
as the case may be. Similarly, Schroder Capital Funds or Schroder Capital Funds
II, as the case may be, is required to indemnify each investor in a Portfolio,
including a 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 Capital Funds or Schroder Capital Funds II, as the
case may be, that is supplied to the investor by Schroder Capital Funds or
Schroder Capital Funds II, as the case may be.
A Fund's investment in a Portfolio may be affected by the actions of other large
investors in the Portfolio; 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.
A Fund may withdraw its entire investment from a Portfolio at any time, if the
Trust Board determines that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if there were other
investors in the Portfolio who, by a vote of the shareholders of all investors
(including the Fund), changed 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
37
<PAGE>
distribution) by the Portfolio. That distribution could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it would likely incur brokerage fees or other transaction
costs. If a Fund should withdraw its investment from a Portfolio, the Trust
Board would consider appropriate alternatives, including the management of the
Fund's assets in accordance with its investment objective and policies by SCMI,
or the investment of all of the Fund's investable assets in another pooled
investment entity having substantially the same investment objective as the
Fund. The inability of a Fund to find a suitable replacement investment, if the
Board decided not to permit SCMI to manage the Fund's assets, could have a
significant adverse impact on shareholders of the Fund.
Each investor in a Portfolio, including a Fund, may be liable for all
obligations of the Portfolio. The risk to an investor in a Portfolio of
incurring financial loss on account of such liability, however, is limited to
circumstances in which the Portfolio is unable to meet its obligations, the
occurrence of which SCMI considers to be remote. Upon liquidation of a
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
38
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be
of high quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade fixed-
income securities. They are rated lower than the best
fixed-income securities because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
"A" Fixed-income securities which are rated "A" possess many
favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment
sometime in the future.
"Baa" Fixed-income securities which are rated "Baa" are considered as
medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such fixed-income
securities lack outstanding investment characteristics and in
fact have speculative characteristics as well. Fixed-income
securities rated "Aaa", "Aa", "A" and "Baa" are considered
investment grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate, and therefore not well
safeguarded during both good and bad times in the future.
Uncertainty of position characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be
small.
"Caa" Fixed-income securities which are rated "Caa" are of poor
standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
"Ca" Fixed-income securities which are rated "Ca" present
obligations which are speculative in a high degree. Such issues
are often in default or have other marked shortcomings.
"C" Fixed-income securities which are rated "C" are the lowest
rated class of fixed-income securities, and issues so rated can
be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, "1", "2", and "3" in
each generic rating classification from "Aa" through "B" in its municipal
fixed-income security rating system. The modifier "1" indicates that the
security ranks in the higher end of its generic rating category; the modifier
"2" indicates a mid-range ranking; and a modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
A-1
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay punctually
promissory obligations not having an original maturity in excess of nine months.
The ratings apply to Municipal Commercial Paper as well as taxable Commercial
Paper. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
"Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of short-term
promissory obligations. Issuers rated "Prime-2" have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated "Prime-3" have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated "Not Prime" do not fall within any of the Prime rating categories.
STANDARD & POOR'S RATING GROUP ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers reliable. The ratings are
based, in varying degrees, on the following considerations: (1) likelihood of
default-capacity and willingness of the obligor as to the timely payment of
interest and repayment of principal in accordance with the terms of the
obligation; (2) nature of and provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity
to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
"A" Fixed-income securities rated "A" have a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than fixed-income securities in
higher-rated categories.
"BBB" Fixed-income securities rated "BBB" are regarded as having an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and
repay principal for fixed-income securities in this category
than for fixed-income securities in higher-rated categories.
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are
considered investment grade.
"BB" Fixed-income securities rated "BB" have less near-term
vulnerability to default than other speculative grade
fixed-income securities. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or
willingness to pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability
to default but presently have the capacity to meet interest
payments and principal repayments. Adverse business, financial
or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
A-2
<PAGE>
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon
favorable business, financial and economic conditions to meet
timely payments of interest and repayments of principal. In the
event of adverse business, financial or economic conditions, it
is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or
implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or
implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on
which no interest is being paid.
"D" The rating "D" is reserved for fixed-income securities when
the issue is in payment default, or the obligor has filed for
bankruptcy. The D rating category is used when interest
payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless
S&P believes that such payments will made during such grace
period.
"NR" Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest degree of speculation. While such fixed-income securities will
likely have some quality and protective characteristics, these are out-weighed
by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be modified by the
addition of a plus or minus sign to show relative standing with the major
ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
"1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is
very strong.
"A-2" Indicates capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety
is not as overwhelming as for issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment.
Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
A-3
<PAGE>
INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
ADMINISTRATOR & DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
SUBADMINISTRATOR
Forum Administrative Services, LLC
Two Portland Square
Portland, Maine 04101
CUSTODIAN
The Chase Manhattan Bank
Chase MetroTech Center
Brooklyn, New York 11245
and
Global Custody Division
125 London Wall
London EC2Y 5AJ United Kingdom
TRANSFER AND DIVIDEND DISBURSING AGENT
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
[This page has been intentionally left blank.]
<PAGE>
Schroder Capital Funds (Delaware)
Schroders has a significant presence in the investment management field,
offering both equity and fixed income mutual funds. Schroder Capital Management
International offers a range of global, international and domestic products.
Our management style and our funds are designed to help investors seeking
long-term growth achieve their investment objectives. At the core of our
investment philosophy is an abiding faith in fundamental research. We believe
that many markets are inefficient, and that our proprietary research effort
gives us an edge in indentifying investment opportunities that are undervalued
or overlooked by our competitors. In addition, we use a range of quantitative
tools to ensure that we manage portfolio risk in line with the funds'
objectives.
[Pictures of people in a meeting, The
Wall Street Journal and a computer
disk and keyboard.]
Schroder Capital Funds (Delaware)
P.O. Box 446
Portland, Maine 04112
1-800-290-9826
<PAGE>
[Logo] Schroders
---------------------------------
---------------------------------
Prospectus
ADVISOR SHARES
October 1, 1998
[Pictures of map & compass, the earth
multiple countries flags and paper
money in the background.]
Schroder International Fund
-------------------------------
Schroder Emerging Markets Fund
-------------------------------
Schroder International Smaller
Companies Fund
-------------------------------
Schroder International Bond Fund
-------------------------------
Schroder U.S. Diversified
Growth Fund
-------------------------------
Schroder U.S. Smaller Companies
Fund
-------------------------------
<PAGE>
Schroders' Global Network
Your Window On The World
[Map of the world with points identifying Investment Offices and
Representative Offices.]
Investment Offices:
Boston Tokyo
New York Taipei
Mexico City Hong Kong
Sao Paulo Bangkok
Buenos Aires Kuala Lumpur
London Singapore
Zurich Jakarta
Cape Town Sydney
Seoul
Representative Offices:
Toronto Beijing
Bogota Shanghai
Warsaw Manila
<PAGE>
[LOGO] Schroders
- --------------------------------------------------------------------------------
PROSPECTUS
OCTOBER 1, 1998
SCHRODER CAPITAL FUNDS (DELAWARE)
ADVISOR SHARES
SCHRODER INTERNATIONAL FUND
SCHRODER EMERGING MARKETS FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER INTERNATIONAL BOND FUND
SCHRODER U.S. DIVERSIFIED GROWTH FUND
SCHRODER U.S. SMALLER COMPANIES FUND
The Schroder Capital Funds are mutual funds offering a wide range of investment
objectives: SCHRODER INTERNATIONAL FUND, SCHRODER EMERGING MARKETS FUND,
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND, SCHRODER INTERNATIONAL BOND FUND,
SCHRODER U.S. DIVERSIFIED GROWTH FUND, and SCHRODER U.S. SMALLER COMPANIES FUND.
Each of the Funds is a series of shares of Schroder Capital Funds (Delaware),
and each Fund (other than Schroder U.S. Diversified Growth Fund) invests
substantially all of its assets in a separately managed portfolio of Schroder
Capital Funds or Schroder Capital Funds II, each of which is a registered,
open-end management investment company. Schroder Capital Management
International Inc. serves as investment adviser to each of the Funds and to each
portfolio. Each of the Funds, except Schroder Emerging Markets Fund and Schroder
International Bond Fund, is a diversified mutual fund.
This Prospectus explains concisely the information that a prospective investor
should know before investing in Advisor Shares of the Funds. Please read it
carefully and keep it for future reference. INVESTORS CAN FIND MORE DETAILED
INFORMATION ABOUT SCHRODER CAPITAL FUNDS (DELAWARE) IN THE OCTOBER 1, 1998
STATEMENT OF ADDITIONAL INFORMATION, AS AMENDED FROM TIME TO TIME. FOR A FREE
COPY OF THE STATEMENT OF ADDITIONAL INFORMATION, PLEASE CALL 1-800-290-9826. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference. The
Securities and Exchange Commission maintains an Internet World Wide Web site (at
http://www.sec.gov) that contains the Statement of Additional Information,
materials that are incorporated by reference into this Prospectus and the
Statement of Additional Information, and other information about the Funds.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
FUND STRUCTURE................................................... 3
FINANCIAL HIGHLIGHTS............................................. 5
INVESTMENT OBJECTIVES AND POLICIES............................... 7
HOW TO BUY SHARES................................................ 18
HOW TO SELL SHARES............................................... 21
OTHER INFORMATION................................................ 22
MANAGEMENT OF THE TRUST.......................................... 23
APPENDIX A....................................................... A-1
Description of Securities Ratings
2
<PAGE>
================================================================================
FUNDS AVAILABLE THROUGH SCHRODER FUND ADVISORS INC.
PLEASE CALL FOR COMPLETE INFORMATION AND TO OBTAIN A PROSPECTUS.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
<TABLE>
<S><C> <C>
SCHRODER CAPITAL FUNDS (DELAWARE) 1-800-290-9826 SCHRODER SERIES TRUST 1-800-464-3108
SCHRODER INTERNATIONAL FUND SCHRODER LARGE CAPITALIZATION EQUITY FUND
SCHRODER EMERGING MARKETS FUND SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND SCHRODER MIDCAP VALUE FUND
SCHRODER INTERNATIONAL BOND FUND SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER U.S. DIVERSIFIED GROWTH FUND SCHRODER SHORT-TERM INVESTMENT FUND
SCHRODER U.S. SMALLER COMPANIES FUND
</TABLE>
================================================================================
FUND STRUCTURE
Each of SCHRODER INTERNATIONAL FUND, SCHRODER EMERGING MARKETS FUND, SCHRODER
INTERNATIONAL SMALLER COMPANIES FUND, SCHRODER INTERNATIONAL BOND FUND, and
SCHRODER U.S. SMALLER COMPANIES FUND seeks to achieve its investment objective
by investing all of its investable assets in a separate portfolio ( a
"Portfolio") of either Schroder Capital Funds or Schroder Capital Funds II that
has the same investment objective as, and investment policies that are
substantially similar to those of, that Fund. Accordingly, the investment
experience of each Fund will correspond directly with the investment experience
of its corresponding Portfolio. See "Management of the Trust - Information about
the Portfolios." The Funds and the Portfolios in which they invest are:
<TABLE>
<S> <C>
FUNDS PORTFOLIOS
- ----- ----------
Schroder International Fund International Equity Fund
(Schroder Capital Funds)
Schroder Emerging Markets Fund Schroder EM Core Portfolio*
(Schroder Capital Funds)
Schroder International Smaller Companies Fund Schroder International Smaller Companies Portfolio
(Schroder Capital Funds)
Schroder International Bond Fund Schroder International Bond Portfolio*
(Schroder Capital Funds II)
Schroder U.S. Smaller Companies Fund Schroder U.S. Smaller Companies Portfolio
(Schroder Capital Funds)
</TABLE>
SCHRODER U.S. DIVERSIFIED GROWTH FUND seeks to achieve its investment objective
by investing directly in securities.
* Each of SCHRODER EM CORE PORTFOLIO and SCHRODER INTERNATIONAL BOND PORTFOLIO
is a non-diversified series of an open-end management investment company. Each
of the other Portfolios is a diversified series of an open-end management
investment company. See "Other Investment Practices and Risk Considerations -
Non-Diversification and Geographic Concentration."
3
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in Advisor Shares
of the Funds. There are no "Shareholder Transaction Expenses" associated with a
purchase or redemption of Advisor Shares of the Funds. "Annual Operating
Expenses" for each Fund show the estimated expenses of the Fund with respect to
its Advisor Shares for the Fund's current fiscal year (except in the case of
Schroder U.S. Smaller Companies Fund, where Annual Operating Expenses are shown
with respect to its Advisor Shares based on the Fund's expenses for its most
recently completed fiscal year). Annual Operating Expenses of each Fund (other
than Schroder U.S. Diversified Growth Fund) include the Fund's pro rata portion
of all operating expenses of the Portfolio of Schroder Capital Funds or Schroder
Capital Funds II in which the Fund invests. The Example shows the cumulative
expenses attributable to a hypothetical $1,000 investment in each Fund over
specified periods.
SHAREHOLDER TRANSACTION EXPENSES NONE
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SCHRODER SCHRODER
SCHRODER INTERNATIONAL SCHRODER U.S. SCHRODER
SCHRODER EMERGING SMALLER INTERNATIONAL DIVERSIFIED U.S. SMALLER
INTERNATIONAL MARKETS COMPANIES BOND GROWTH COMPANIES
FUND FUND FUND FUND FUND FUND
=========================== =============== =============== =============== =============== ================= =================
Management Fees(1)
(after expense
limitation)(2) 0.61% 0.81% 0.00% 0.19% 0.57% 0.85%
12b-1 Fees(3) 0% 0% 0% 0% 0% 0%
OTHER EXPENSES (after
expense limitation)(2) 0.63% 1.14% 1.75% 1.01% 1.18% 0.74%
----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses (after expense
limitation)(2) 1.24% 1.95% 1.75% 1.20% 1.75% 1.58%
</TABLE>
(1) Management Fees reflect the fees paid by the Portfolio and the Fund for
investment advisory and administrative services.
(2) The Management Fees, Other Expenses, and Total Fund Operating Expenses for
each of the Funds reflect expense limitations currently in effect. See
"Management of the Trust." Without the limitations, Management Fees, Other
Expenses, and Total Fund Operating Expenses for Advisor Shares would be
0.68%, 4.22%, and 4.90%, respectively, in the case of International Fund;
1.25%, 1.16%, and 2.41%, respectively, in the case of Emerging Markets
Fund; 1.10%, 3.08%, and 4.18%, respectively, in the case of International
Smaller Companies Fund; 0.70%, 2.43%, and 3.13%, respectively, in the case
of International Bond Fund; 0.75%, 1.18%, and 1.93%, respectively, in the
case of U.S. Diversified Growth Fund; and 0.85%, 3.03%, and 3.88%,
respectively, in the case of U.S. Smaller Companies Fund. Other Expenses
and Total Fund Operating Expenses for each Fund other than Schroder U.S.
Smaller Companies Fund are estimated based on anticipated expenses for that
Fund's current fiscal year.
(3) Each Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, with respect to its Advisor
Shares. Although the Trustees have not currently authorized payments under
the Distribution Plan, payments by a Fund under the Shareholder Service
Plan, which will not exceed the annual rate of 0.25% of a Fund's average
daily net assets, will be deemed to have been made pursuant to the
Distribution Plan to the extent such payments may be considered to be
primarily intended to result in the sale of the Fund's Advisor Shares. See
"How to Buy Shares -- Distributor and Distribution Plan."
EXAMPLE
Your investment of $1,000 would incur the following expenses, assuming 5% annual
return and redemption at the end of each period:
<TABLE>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
------ ------- ------- --------
Schroder International Fund $13 $39 $68 $150
Schroder Emerging Markets Fund $20 $61 N/A N/A
Schroder International Smaller Companies Fund $18 $55 $95 $207
Schroder International Bond Fund $12 $38 N/A N/A
Schroder U.S. Diversified Growth Fund $18 $55 $95 $206
Schroder U.S. Smaller Companies Fund $16 $50 $87 $189
</TABLE>
The Annual Operating Expenses table and Example are provided to help you
understand your share of the operating expenses of a Fund attributable to
Advisor Shares. THE TABLE AND EXAMPLE DO NOT REPRESENT PAST OR FUTURE EXPENSE
LEVELS. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. FEDERAL
REGULATIONS REQUIRE THE EXAMPLE TO ASSUME A 5% ANNUAL RETURN, BUT ACTUAL ANNUAL
RETURNS WILL VARY.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights for Schroder U.S. Smaller Companies Fund presented
below for the fiscal year ended May 31, 1998 and for the period ended May 31,
1997 have been audited by PricewaterhouseCoopers LLP, independent accountants to
the Funds. The audited financial statements for Schroder U.S. Smaller Companies
Fund and the related independent accountants' report are contained in the Fund's
Annual Report to Shareholders and are incorporated by reference into the
Statement of Additional Information (the "SAI"). The financial highlights for
Schroder International Fund for the period ended April 30, 1998 are unaudited.
The unaudited financial statements of Schroder International Fund for the period
ended April 30, 1998 similarly are incorporated by reference into the SAI. None
of the other Funds had any Advisor Shares outstanding during those periods.
Copies of the Funds' Annual and Semi-Annual Reports may be obtained without
charge by writing the Funds at Two Portland Square, Portland, Maine 04101 or by
calling 1-800-290-9826.
<TABLE>
<S> <C> <C>
SCHRODER U.S. SMALLER COMPANIES FUND
For the For the
Year Ended Period Ended
May 31, May 31,
-------------------- --------------------
1998 1997 (a)
-------------------- --------------------
NET ASSET VALUE, BEGINNING OF PERIOD $13.24 $11.89
INVESTMENT OPERATIONS:
Net Investment Income (Loss)(b) (0.05) (0.03)
Net Realized and Unrealized Gain (Loss) on Investments 2.79 1.38
-------------------- --------------------
Total from Investment Operations 2.74 1.35
-------------------- --------------------
DISTRIBUTIONS FROM
Net Realized Gain on Investments (1.26) --
NET ASSET VALUE, END OF PERIOD $14.72 $13.24
==================== ====================
Total Return(c) 21.50% 11.35%
Ratios/Supplementary Data
NET ASSETS, END OF PERIOD (IN THOUSANDS) $4,544 $81
Ratios to Average Net Assets:
Expenses After Expense Limitation(b) 1.58% 1.74%(d)
Expenses Before Expense Limitation(b) 3.88% 57.02%(d)
Net investment income (loss) including waiver of fees(b) (0.78%) (0.67%)(d)
Average Commission Rate Per Share(e) $0.0582 $0.0584
Portfolio Turnover Rate (f) 54.98% 34.45%
</TABLE>
(a) Advisor Class shares were first issued on December 23, 1996.
(b) Includes the Fund's proportionate share of income and expenses of Schroder
U.S. Smaller Companies Portfolio.
(c) Total returns would have been lower had certain expenses not been reduced
during the period shown.
(d) Annualized.
(e) The rate represents the average commission per share paid by Schroder U.S.
Smaller Companies Portfolio to brokers on the purchase and sale of equity
securities on which commissions were charged.
(f) Portfolio turnover represents the rate of portfolio activity of Schroder
U.S. Smaller Companies Portfolio.
5
<PAGE>
<TABLE>
<S> <C>
SCHRODER INTERNATIONAL FUND
For the
Period Ended
April 30,
1998
(Unaudited)(a)
--------------------
NET ASSET VALUE, BEGINNING OF PERIOD $16.35
INVESTMENT OPERATIONS:
Net Investment Income (Loss)(b) 0.04
Net Realized and Unrealized Gain (Loss) on Investments 2.63
--------------------
Total from Investment Operations 2.67
--------------------
DISTRIBUTION FROM:
Net Investment Income --
Net Realized Gain on Investments --
--------------------
Total Distributions --
====================
NET ASSET VALUE, END OF PERIOD $19.02
====================
Total Return(c) 16.33%
Ratios/Supplementary Data
NET ASSETS, END OF PERIOD (IN THOUSANDS) $ 4
Ratios to Average Net Assets:
Expenses After Expense Limitation(b)(d) 1.24%
Expenses Before Expense Limitation(b)(d) 673.02%
Net investment income (loss) including waiver of fees(b)(d) 1.74%
Average Commission Rate Per Share(e) $0.0244
Portfolio Turnover Rate(f) 20.25%
</TABLE>
(a) Advisor Class shares were first issued on January 21, 1998.
(b) Includes the Fund's proportionate share of income and expenses of Schroder
International Equity Fund.
(c) Total returns would have been lower had certain expenses not been reduced
during the period shown.
(d) Annualized.
(e) Amount represents the average commissions per share paid by Schroder
International Equity Fund to brokers on the purchase and sale of equity
securities on which commissions are charged.
(f) Portfolio turnover represents the rate of portfolio activity of Schroder
International Equity Fund.
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INVESTMENT OBJECTIVES AND POLICIES
Each Fund has a different investment objective that it pursues through the
investment policies described below.
Because of the differences in objectives and policies among the Funds, the Funds
will achieve different investment returns and will be subject to varying degrees
of market and financial risk. There is no assurance that any Fund will achieve
its objective. None of the Funds is intended to be a complete investment
program.
EACH FUND (OTHER THAN SCHRODER U.S. DIVERSIFIED GROWTH FUND) CURRENTLY INVESTS
SUBSTANTIALLY ALL OF ITS ASSETS IN A MANAGED PORTFOLIO OF SCHRODER CAPITAL FUNDS
OR SCHRODER CAPITAL FUNDS II. EACH SUCH PORTFOLIO IS REFERRED TO IN THIS
PROSPECTUS AS A "PORTFOLIO." IN REVIEWING THE DESCRIPTION OF A FUND'S INVESTMENT
OBJECTIVE AND POLICIES BELOW, INVESTORS SHOULD ASSUME THAT THE INVESTMENT
OBJECTIVE AND POLICIES OF THE CORRESPONDING PORTFOLIO ARE THE SAME IN ALL
MATERIAL RESPECTS AS THOSE OF THE FUND. SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC. ("SCMI") IS THE INVESTMENT ADVISER TO EACH FUND AND TO EACH
PORTFOLIO.
A Fund's investment objective may not be changed without shareholder approval.
The investment policies of each Fund may, unless otherwise specifically stated,
be changed by the Trustees of Schroder Capital Funds (Delaware) (the "Trust")
without a vote of the shareholders. All percentage limitations on investments
will apply at the time of investment and will not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of
the investment.
SCHRODER INTERNATIONAL FUND
SCHRODER INTERNATIONAL FUND'S INVESTMENT OBJECTIVE IS LONG-TERM CAPITAL
APPRECIATION THROUGH INVESTMENT IN SECURITIES MARKETS OUTSIDE THE UNITED STATES.
Equity securities in which the Fund may invest include common stocks, preferred
stocks, securities convertible into common or preferred stocks, and rights or
warrants to purchase any of the foregoing. They may also include American
Depositary Receipts, European Depositary Receipts, and other similar instruments
providing for indirect investment in securities of foreign issuers. The Fund may
also invest in securities of closed-end investment companies that invest in turn
primarily in foreign securities.
The Fund normally invests at least 65% of its assets in equity securities of
companies domiciled outside the United States and will invest in securities of
issuers domiciled in at least three countries other than the United States.
There is no limit on the amount of the Fund's assets that may be invested in
securities of issuers domiciled in any one country. When the Fund has invested a
substantial portion of its assets in the securities of companies domiciled in a
single country, it will be more susceptible to the risks of investing in that
country than would a fund investing in a geographically more diversified
portfolio. The Fund normally invests a substantial portion of its assets in
countries included in the Morgan Stanley Capital International EAFE Index, which
is a market capitalization-weighted index of companies in developed market
countries in Europe, Australia and the Far East. Other countries in which the
Fund may invest may be considered "emerging markets" and involve special risks.
See "Other Investment Practices and Risk Considerations - Foreign Securities."
The Fund may invest in debt securities, including, for example, securities of
foreign governments (including provinces and municipalities) or their agencies
or instrumentalities, securities issued or guaranteed by international
organizations designated or supported by multiple foreign governmental entities
to promote economic reconstruction or development, and debt securities of
foreign corporations or financial institutions. The Fund may invest up to 5% of
its net assets in lower-quality, high yielding debt securities, which entail
certain risks. See "Other Investment Practices and Risk Considerations - Debt
Securities."
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<PAGE>
SCHRODER EMERGING MARKETS FUND
SCHRODER EMERGING MARKETS FUND'S INVESTMENT OBJECTIVE IS TO SEEK LONG-TERM
CAPITAL APPRECIATION. The Fund invests primarily in equity securities of issuers
domiciled or doing business in emerging market countries in regions such as
Southeast Asia, Latin America, and Eastern and Southern Europe. The Fund will
normally invest in at least three countries other than the United States.
An "emerging market" country is any country not included at the time of
investment in the Morgan Stanley Capital International World Index of major
world economies. Those economies currently include: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States of America. SCMI may at
times determine based on its own analysis that an economy included in the Index
should nonetheless be considered an emerging market country; any such country
would then constitute an emerging market country for purposes of investment by
the Fund.
The Fund normally invests at least 65% of its assets in equity securities of
issuers determined by SCMI to be emerging market issuers. Equity securities
include common stocks, preferred stocks, securities convertible into common or
preferred stocks, and rights or warrants to purchase any of the foregoing
(although such rights and warrants will not be taken into account in determining
compliance with the 65% requirement described in the preceding sentence). They
may also include American Depositary Receipts, European Depositary Receipts, and
other similar instruments providing for indirect investment in securities of
foreign issuers. The Fund may also invest in securities of closed-end investment
companies that invest in turn primarily in foreign securities. The Fund is a
non-diversified mutual fund. See "Non-Diversification and Geographic
Concentration."
The remainder of the Fund's assets may be invested in securities of issuers
located anywhere in the world. The Fund may invest up to 35% of its assets in
debt securities, including lower-quality, high yielding debt securities, which
entail certain risks. The Fund would invest in debt securities principally in an
effort to realize capital appreciation due, for example, to a favorable change
in currency exchange or control rates, or in the creditworthiness of their
issuers. The Fund may invest up to 5% of its assets in sovereign debt securities
that are in default. See "Other Investment Practices and Risk Considerations -
Debt Securities."
An issuer of a security will be considered to be an emerging market issuer if
SCMI determines that: (1) it is organized under the laws of an emerging market
country; (2) its primary securities trading market is in an emerging market
country; (3) at least 50% of the issuer's revenues or profits are derived from
goods produced or sold, investments made, or services performed in emerging
market countries; or (4) at least 50% of its assets are situated in emerging
market countries. The Fund may consider investment companies to be located in
the country or countries in which SCMI determines they focus their investments.
There is no limit on the amount of the Fund's assets that may be invested in
securities of issuers domiciled in any one country. When the Fund has invested a
substantial portion of its assets in the securities of companies domiciled in a
single country, it will be more susceptible to the risks of investing in that
country than would a fund investing in a geographically more diversified
portfolio.
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND'S INVESTMENT OBJECTIVE IS
LONG-TERM CAPITAL APPRECIATION THROUGH INVESTMENT IN SECURITIES MARKETS OUTSIDE
THE UNITED STATES. The Fund normally invests at least 65% of its assets in
equity securities of companies domiciled outside the United States that have
market capitalizations of $1.5 billion or less at the time of investment. In
selecting investments for the Fund, SCMI considers a number of factors,
including, for example, the company's potential for long-term growth, the
company's financial condition, its sensitivity to cyclical factors, the relative
value of the company's securities (to those of other companies and to the market
as a whole), and the extent to which the company's management owns equity in the
company.
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<PAGE>
Equity securities in which the Fund may invest include common stocks, preferred
stocks, securities convertible into common or preferred stocks, and rights or
warrants to purchase any of the foregoing. They may also include American
Depositary Receipts, European Depositary Receipts, and other similar instruments
providing for indirect investment in securities of foreign issuers. The Fund may
also invest in securities of closed-end investment companies that invest in turn
primarily in foreign securities.
The Fund will invest in securities of issuers domiciled in at least three
countries other than the United States, although there is no limit on the amount
of the Fund's assets that may be invested in securities of issuers domiciled in
any one country. When the Fund has invested a substantial portion of its assets
in the securities of companies domiciled in a single country, it will be more
susceptible to the risks of investing in that country than would a Fund
investing in a geographically more diversified portfolio. Certain countries in
which the Fund may invest may be considered "emerging markets" and involve
special risks. See "Other Investment Practices and Risk Considerations - Foreign
Securities."
Smaller companies may present greater opportunities for investment return than
do larger companies, but also involve greater risks. Smaller companies may have
limited product lines, markets, or financial resources, or may depend on a
limited management group. Their securities may trade less frequently and in
limited volume. As a result, the prices of these securities may fluctuate more
than prices of securities of larger, more widely traded companies. See "Other
Investment Practices and Risk Considerations - Investments in Smaller
Companies."
The Fund may invest in debt securities, including, for example, securities of
foreign governments, international organizations, and foreign corporations and
U.S. government securities. The Fund may invest up to 5% of its total assets in
lower-quality, high yielding debt securities, which entail certain risks. See
"Other Investment Practices and Risk Considerations - Debt Securities."
SCHRODER INTERNATIONAL BOND FUND
SCHRODER INTERNATIONAL BOND FUND'S INVESTMENT OBJECTIVE IS TO SEEK A HIGH RATE
OF TOTAL RETURN. The Fund normally invests substantially all of its assets in
debt securities and debt-related investments of issuers domiciled outside the
United States.
"Total return" consists of current income, including interest payments and
discount accruals, plus any increases in the values of the Fund's investments
(less any decreases in the values of any of its investments and amortizations of
premiums). SCMI considers expected changes in foreign currency exchange rates in
determining the anticipated returns on securities denominated in foreign
currencies.
The Fund may invest in debt securities of foreign governments (including
provinces and municipalities) and their agencies and instrumentalities, debt
securities of supranational organizations, and debt securities of private
issuers. These bonds may pay interest at fixed, variable, or floating rates.
Certain securities in which the Fund invests may be convertible into common or
preferred 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 a foreign currency or currencies. The Fund may invest up to 10%
of its net assets in lower-quality, high-yielding debt securities. See "Other
Investment Practices and Risk Considerations - Debt Securities." The Fund is a
non-diversified mutual fund. See "Non-Diversification and Geographic
Concentration."
The Fund normally invests in securities of issuers in at least five countries
other than the United States, although there is no limit on the amount of the
Fund's assets that may be invested in securities of issuers domiciled in any one
country. When the Fund has invested a substantial portion of its assets in the
securities of companies domiciled in a single country, it will be more
susceptible to the risks of investing in that country than would a fund
investing in a geographically more diversified portfolio. The Fund has currently
invested approximately one-third of its assets in securities of issuers
domiciled in Germany. As a result, the Fund's investment performance will be
affected by economic, political, or other factors affecting issuers and
investments in that country more than if it had invested a smaller portion of
its assets in issuers domiciled in
9
<PAGE>
Germany. The portion of the Fund's assets invested in such issuers may change at
any time. At times, the Fund may invest a substantial portion of its assets in
securities of issuers in emerging market countries, which involves special
risks. See "Other Investment Practices and Risk Considerations Foreign
Securities."
Generally, the Fund's average maturity will be shorter when SCMI expects
interest rates in markets where the Fund has invested to rise, and longer when
SCMI expects interest rates in those markets to fall. SCMI may use various
techniques to increase the interest-rate sensitivity of the Fund's portfolio,
including transactions in futures and options on futures, interest-rate swaps,
caps, floors, and short sales of securities.
SCMI believes that active currency management, through the use of any of the
foreign currency exchange transactions described below, can enhance portfolio
returns through opportunities arising from, for example, interest-rate
differentials between securities denominated in different currencies or changes
in value between currencies. SCMI also believes that active currency management
can be employed as an overall portfolio risk management tool. Foreign currency
management can also provide increased overall portfolio risk diversification.
See "Other Investment Practices and Risk Considerations - Foreign Currency
Exchange Transactions." The Fund may also borrow money to invest in additional
securities. Use of leverage involves special risks. See "Other Investment
Practices and Risk Considerations - Leverage."
SCHRODER U.S. DIVERSIFIED GROWTH FUND
(FORMERLY, SCHRODER U.S. EQUITY FUND)
SCHRODER U.S. DIVERSIFIED GROWTH FUND'S INVESTMENT OBJECTIVE IS GROWTH OF
CAPITAL. The Fund normally invests substantially all of its assets in equity
securities of companies in the United States. Equity securities in which the
Fund may invest include common stocks, preferred stocks, securities convertible
into common or preferred stocks, and rights or warrants to purchase any of the
foregoing.
The Fund does not limit its investments to any particular type of company
although the Fund will not normally invest in securities of small capitalization
companies (companies with market capitalizations of $1.5 billion or less). The
Fund may invest in companies, large or small, that SCMI believes offer the
potential for capital growth. They may, for example, include companies whose
earnings are believed to be in a relatively strong growth trend, companies with
a proprietary advantage, or companies that are in industry segments that are
experiencing rapid growth; the Fund may also invest in companies in which
significant further growth is not anticipated but whose market value per share
is thought to be undervalued. The Fund may invest in relatively less well-known
companies that meet any of these characteristics or other characteristics
identified by SCMI.
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER U.S. SMALLER COMPANIES FUND'S INVESTMENT OBJECTIVE IS TO SEEK CAPITAL
APPRECIATION. The Fund invests at least 65% of its assets in equity securities
of U.S.-domiciled companies that have at the time of purchase market
capitalizations of $1.5 billion or less. In selecting investments for the Fund,
SCMI seeks to identify securities of companies with strong management that it
believes can generate above average earnings growth, and are selling at
favorable prices in relation to book values and earnings. Equity securities in
which the Fund may invest include common stocks, preferred stocks, securities
convertible into common or preferred stocks, and rights or warrants to purchase
any of the foregoing.
The Fund may also invest in equity securities of larger companies and in debt
securities, if SCMI believes such investments are consistent with the Fund's
investment objective. In addition, the Fund may invest up to 5% of its assets in
lower-quality, high yielding debt securities, which entail certain risks. See
"Other Investment Practices and Risk Considerations - Debt Securities."
Smaller companies may present greater opportunities for investment return than
do larger companies, but also involve greater risks. They may have limited
product lines, markets, or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and in limited
volume. As a result, the prices of these securities may fluctuate more than
prices of securities of larger, widely traded
10
<PAGE>
companies. See "Other Investment Practices and Risk Considerations - Investments
in Smaller Companies." The Fund intends to invest no more than 25% of its total
assets in securities of small companies that, together with their predecessors,
have been in operation for less than three years.
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The Funds may engage in the following investment practices, each of which
involves certain special risks. The SAI contains more detailed information about
these practices (some of which may be considered "derivative" investments).
FOREIGN SECURITIES. Investments in foreign securities entail certain risks.
There may be a possibility of nationalization or expropriation of assets,
confiscatory taxation, political or financial instability, and diplomatic
developments that could affect the value of a Fund's investments in certain
foreign countries. Since foreign securities are normally denominated and traded
in foreign currencies, the values of the Fund's assets may be affected favorably
or unfavorably by currency exchange rates, currency exchange control
regulations, foreign withholding taxes and restrictions or prohibitions on the
repatriation of foreign currencies. There may be less information publicly
available about a foreign issuer than about a U.S. issuer, and foreign issuers
are not generally subject to accounting, auditing, and financial reporting
standards and practices comparable to those in the United States. The securities
of some foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage commissions and other
fees are also generally higher than in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of a Fund's assets held
abroad) and expenses not present in the settlement of domestic investments.
In addition, legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. The willingness and ability of
sovereign issuers to pay principal and interest on government securities depends
on various economic factors, including, without limitation, the issuer's balance
of payments, overall debt level, and cash-flow considerations related to the
availability of tax or other revenues to satisfy the issuer's obligations. If a
foreign governmental entity is unable or unwilling to meet its obligations on
the securities in accordance with their terms, a Fund may have limited recourse
available to it in the event of default. The laws of some foreign countries may
limit a Fund's ability to invest in securities of certain issuers located in
those foreign countries. Special tax considerations apply to foreign securities.
Except as otherwise provided in this Prospectus, there is no limit on the amount
of a Fund's assets that may be invested in foreign securities.
If a Fund purchases securities denominated in foreign currencies, a change in
the value of any such currency against the U.S. dollar will result in a change
in the U.S. dollar value of the Fund's assets and the Fund's income available
for distribution. In addition, although at times most of a Fund's income may be
received or realized in these currencies, the Fund will be required to compute
and distribute its income in U.S. dollars. Therefore, if the exchange rate for
any such currency declines after the Fund's income has been earned and
translated into U.S. dollars but before payment, the Fund could be required to
liquidate portfolio securities to make such distributions. Similarly, if an
exchange rate declines between the time the Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S. dollars will
be greater than the equivalent amount in any such currency of such expenses at
the time they were incurred. A Fund may buy or sell foreign currencies and
options and futures contracts on foreign currencies for hedging purposes in
connection with its foreign investments.
In determining whether to invest in debt securities of foreign issuers, SCMI
considers the likely impact of foreign taxes on the net yield available to the
Fund and its shareholders. Income received by a Fund from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any
11
<PAGE>
such taxes paid by a Fund will reduce its net income available for distribution
to shareholders. In certain circumstances, a Fund may be able to pass through to
shareholders credits for foreign taxes paid. See "Other Information - Dividends,
Distributions and Taxes."
Certain Funds may invest in securities of issuers in emerging market countries
with respect to some or all of their assets. The securities' prices and relative
currency values of emerging market investments are subject to greater volatility
than those of issuers in many more developed countries. Investments in emerging
market countries are subject to the same risks applicable to foreign investments
generally, although those risks may be increased due to conditions in such
countries. For example, the securities markets and legal systems in emerging
market countries may only be in a developmental stage and may provide few, or
none, of the advantages or protections of markets or legal systems available in
more developed countries. Although many of the securities in which the Funds may
invest are traded on securities exchanges, they may trade in limited volume, and
the exchanges may not provide all of the conveniences or protections provided by
securities exchanges in more developed markets. The Funds may also invest a
substantial portion of their assets in securities traded in the over-the-counter
markets in such countries and not on any exchange, which may affect the
liquidity of the investment and expose the Funds to the credit risk of their
counterparties in trading those investments. Emerging market countries may
experience extremely high rates of inflation, which may adversely affect these
countries' economies and securities markets.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Changes in currency exchange rates will
affect the U.S. dollar values of securities denominated in foreign currencies.
Exchange rates between the U.S. dollar and other currencies fluctuate in
response to forces of supply and demand in the foreign exchange markets. These
forces are affected by the international balance of payments and other economic
and financial conditions, government intervention, speculation, and other
factors, many of which may be difficult (if not impossible) to predict. A Fund
may engage in foreign currency exchanges transactions to protect against
uncertainty in the level of future exchange rates. Although the strategy of
engaging in foreign currency exchange transactions could reduce the risk of loss
due to a decline in the value of the hedged currency, it could also limit the
potential gain from an increase in the value of the currency.
In particular, a Fund may enter into foreign currency exchange transactions to
protect against a change in exchange ratios that may occur between the date on
which the Fund contracts to trade a security and the settlement date
("transaction hedging") or in anticipation of placing a trade ("anticipatory
hedging"); to "lock in" the U.S. dollar value of interest and dividends to be
paid in a foreign currency; or to hedge against the possibility that a foreign
currency in which portfolio securities are denominated or quoted may suffer a
decline against the U.S. dollar ("position hedging"). Schroder International
Bond Fund may also enter into forward contracts to adjust the Fund's exposure to
various foreign currencies, either pending anticipated investments in securities
denominated in those currencies or as a hedge against anticipated market
changes.
SCMI may seek to enhance a Fund's investment return through active currency
management. SCMI may buy or sell foreign currencies for a Fund, on a spot or
forward basis, in an attempt to profit from inefficiencies in the pricing of
various currencies or of debt securities denominated in those currencies.
When investing in foreign securities, a Fund usually effects currency exchange
transactions on a "spot" (I.E., cash) basis at the spot rate prevailing in the
foreign exchange market. A Fund incurs foreign exchange expenses in converting
assets from one currency to another. In addition, Schroder International Bond
Fund may, to a limited extent, purchase forward contracts to increase exposure
in foreign currencies that are expected to appreciate and thereby increase total
return.
A forward currency contract is an obligation to purchase or sell a specific
currency at a future date (which may be any fixed number of days from the date
of the contract agreed upon by the parties) at a price set at the time of the
contract. Forward contracts do not eliminate fluctuations in the underlying
prices of securities and expose the Fund to the risk that the counterparty is
unable to perform.
Forward contracts are not exchange traded, and there can be no assurance that a
liquid market will exist at a time when a Fund seeks to close out a forward
contract. Currently, only a limited market, if any, exists for
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<PAGE>
exchange transactions relating to currencies in certain emerging markets or to
securities of issuers domiciled or principally engaged in business in certain
emerging markets. This may limit a Fund's ability to hedge its investments in
those markets. These contracts involve a risk of loss if SCMI fails to predict
accurately changes in relative currency values, the direction of stock prices or
interest rates and other economic factors.
From time to time, a Fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign currency and
may at times involve currencies in which its portfolio securities are not then
denominated ("cross hedging"). From time to time, a Fund may also engage in
"proxy" hedging, whereby the Fund would seek to hedge the value of portfolio
holdings denominated in one currency by entering into an exchange contract on a
second currency, the valuation of which SCMI believes correlates to the value of
the first currency. Cross hedging and proxy hedging transactions involve the
risk of imperfect correlation between changes in the values of the currencies to
which such transactions relate and changes in the value of the currency or other
asset or liability that is the subject of the hedge.
INVESTMENTS IN SMALLER COMPANIES. Certain Funds may invest all or a substantial
portion of their assets in securities issued by small companies. Such companies
may offer greater opportunities for capital appreciation than larger companies,
but investments in such companies may involve certain special risks. Such
companies may have limited product lines, markets, or financial resources and
may be dependent on a limited management group. While the markets in securities
of such companies have grown rapidly in recent years, such securities may trade
less frequently and in smaller volume than more widely held securities. The
values of these securities may fluctuate more sharply than those of other
securities, and a Fund may experience some difficulty in establishing or closing
out positions in these securities at prevailing market prices. There may be less
publicly available information about the issuers of these securities or less
market interest in such securities than in the case of larger companies, and it
may take a longer period of time for the prices of such securities to reflect
the full value of their issuers' underlying earnings potential or assets.
Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The ability of a Fund to dispose of such
securities may be greatly limited, and a Fund may have to continue to hold such
securities during periods when SCMI would otherwise have sold the securities. It
is possible that SCMI or its affiliates or clients may hold securities issued by
the same issuers, and may in some cases have acquired the securities at
different times, on more favorable terms, or at more favorable prices, than a
Fund.
LEVERAGE. Schroder International Bond Fund may borrow money by engaging in
reverse repurchase agreements to invest in additional securities. "Reverse"
repurchase agreements generally involve the sale by the Fund of securities held
by it and an agreement to repurchase the securities at an agreed-upon price,
date, and interest payment. Certain other Funds may engage in forward
commitments, described below and in the SAI, which may have the same economic
effect as if the Funds had borrowed money.
The use of borrowed money, known as "leverage," increases Schroder International
Bond Fund's market exposure and risk and may result in losses. When the Fund has
borrowed money for leverage and its investments increase or decrease in value,
its net asset value will normally increase or decrease more than if it had not
borrowed money for this purpose. The interest that the Fund must pay on borrowed
money will reduce its net investment income, and may also either offset any
potential capital gains or increase any losses. The Fund will not always borrow
money for investments, and the extent to which the Fund will borrow money, and
the amount it may borrow, depend on market conditions and interest rates.
Successful use of leverage depends on SCMI's ability to predict market movements
correctly. The amount of leverage that can exist at any one time will not exceed
one-third of the value of the Fund's total assets (including the amount
borrowed). A Fund may be required to segregate certain assets against its
obligations under reverse repurchase agreements entered into by it.
DEBT SECURITIES. Each Fund may invest in debt securities. A Fund may invest in
debt securities either to earn investment income or to benefit from changes in
the market values of such securities. Debt securities are subject to market risk
(the fluctuation of market value in response to changes in interest rates) and
to credit risk (the risk that the issuer may become unable or unwilling to make
timely payments of principal and interest).
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Each Fund also may invest in lower-quality, high-yielding debt securities rated
below investment grade and in unrated debt securities determined by SCMI to be
of comparable quality. Lower-rated debt securities (commonly called "junk
bonds") are considered to be of poor standing and predominantly speculative.
Securities in the lowest rating categories may have extremely poor prospects of
attaining any real investment standing, and some of those securities in which a
Fund may invest may be in default. The rating services' descriptions of
securities in the lower rating categories, including their speculative
characteristics, are set forth in Appendix A to this Prospectus.
In addition, lower-rated securities reflect a greater possibility that adverse
changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. Changes by
recognized rating services in their ratings of any fixed-income security and in
the perceived ability of an issuer to make payments of interest and principal
may also affect the value of these investments. The inability (or perceived
inability) of issuers to make timely payments of interest and principal would
likely make the values of securities held by a Fund more volatile and could
limit a Fund's ability to sell its securities at prices approximating the values
the Fund had placed on such securities. In the absence of a liquid trading
market for securities held by it, a Fund may be unable at times to establish the
fair value of such securities. The rating assigned to a security by a rating
agency does not reflect an assessment of the volatility of the security's market
value or of the liquidity of an investment in the security.
Each Fund may at times invest in so-called "zero coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity, rather than at intervals
during the life of the security. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. The values of zero-coupon bonds and payment-in-kind bonds are
subject to greater fluctuation in response to changes in market interest rates
than bonds which pay interest currently, and may involve greater credit risk
than such bonds. From time to time, a Fund may invest a portion of its assets in
Brady Bonds, which are securities created through the exchange of existing
commercial bank loans to sovereign entities for new obligations in connection
with debt restructuring. Brady Bonds have been issued only recently and,
therefore, do not have a long payment history.
A Fund will not necessarily dispose of a security when its debt rating is
reduced below its rating at the time of purchase, although SCMI will monitor the
investment to determine whether continued investment in the security will assist
in meeting the Fund's investment objective.
OPTIONS AND FUTURES TRANSACTIONS. Each Fund may engage in a variety of
transactions involving the use of options and futures contracts. A Fund may
engage in such transactions for hedging purposes or, to the extent permitted by
applicable law, to increase its current return.
A Fund may seek to increase its current return by writing covered call options
and covered put options on its portfolio securities or other securities in which
it may invest. A Fund receives a premium from writing a call or put option,
which increases the Fund's return if the option expires unexercised or is closed
out at a net profit. A Fund may also buy and sell put and call options on such
securities for hedging purposes. When a Fund writes a call option on a portfolio
security, it gives up the opportunity to profit from any increase in the price
of the security above the exercise price of the option; when it writes a put
option, a Fund takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price of the
security. A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. A Fund may also from time
to time buy and sell combinations of put and call options on the same underlying
security to earn additional income.
A Fund may buy and sell index futures contracts. An "index future" is a contract
to buy or sell units of a particular index at an agreed price on a specified
future date. Depending on the change in value of the index
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<PAGE>
between the time when a Fund enters into and terminates an index future
transaction, the Fund may realize a gain or loss. A Fund may also purchase
warrants, issued by banks or other financial institutions, whose values are
based on the values from time to time of one or more securities indices.
A Fund may buy and sell futures contracts on U.S. Government securities or other
debt securities. A futures contract on a debt security is a contract to buy or
sell a certain amount of the debt security at an agreed price on a specified
future date. Depending on the change in the value of the security when the Fund
enters into and terminates a futures contract, the Fund realizes a gain or loss.
A Fund may purchase and sell options on futures contracts or on securities
indices in addition to or as an alternative to purchasing and selling futures
contracts.
A Fund may also purchase and sell put and call options on foreign currencies,
futures contracts on foreign currencies, and options on foreign currency futures
contracts as an alternative, or in addition to, the foreign currency exchange
transactions described above. Such transactions are similar to options and
futures contracts on securities, except that they typically contemplate that one
party to a transaction will deliver one foreign currency to the other in return
for another currency (which may or may not be the U.S. dollar).
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS. Options and futures
transactions involve costs and may result in losses. The use of options and
futures involves certain special risks, including the risks that a Fund may be
unable at times to close out such positions, that hedging transactions may not
accomplish their purpose because of imperfect market correlations, or that SCMI
may not forecast market movements correctly.
The effective use of options and futures strategies is dependent on, among other
things, a Fund's ability to terminate options and futures positions at times
when SCMI deems it desirable to do so. Although a Fund will enter into an option
or futures contract position only if SCMI believes that a liquid secondary
market exists for that option or futures contract, there is no assurance that a
Fund will be able to effect closing transactions at any particular time or at an
acceptable price.
Each Fund generally expects that its options and futures contract transactions
will be conducted on recognized exchanges. In certain instances, however, a Fund
may purchase and sell options in the over-the-counter markets. A Fund's ability
to terminate options in the over-the-counter markets may be more limited than
for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to a Fund. A Fund will, however, engage in over-the-counter
transactions only when appropriate exchange-traded transactions are unavailable
and when, in the opinion of SCMI, the pricing mechanism and liquidity of the
over-the-counter markets are satisfactory and the participants are responsible
parties likely to meet their contractual obligations. A Fund will treat over-
the-counter options (and, in the case of options sold by the Fund, the
underlying securities held by the Fund) as illiquid investments as required by
applicable law.
The use of options and futures strategies also involves the risk of imperfect
correlation between movements in the prices of options and futures contracts and
movements in the value of the underlying securities, index, or currency, or in
the prices of the securities or currency that are the subject of a hedge. The
successful use of these strategies further depends on the ability of SCMI to
forecast market movements correctly.
Because the markets for certain options and futures contracts in which a Fund
will invest (including markets located in foreign countries) are relatively new
and still developing and may be subject to regulatory restraints, a Fund's
ability to engage in transactions using such investments may be limited. A
Fund's ability to engage in hedging transactions may be limited by certain
regulatory and tax considerations. A Fund's hedging transactions may affect the
character or amount of its distributions. The tax consequences of certain
hedging transactions have been modified by the Taxpayer Relief Act of 1997.
For more information about any of the options or futures portfolio transactions
described above, see the SAI.
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<PAGE>
SWAP AGREEMENTS. Schroder International Bond Fund 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 Fund than if the Fund
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
typical "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 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 a given minimum or maximum. The use of swap agreements
is a highly specialized activity that involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
If SCMI is incorrect in its forecast of market values, interest rates, exchange
rates, or other factors, the Fund's investment performance would be less
favorable than if the Fund had not used such agreements.
SHORT SALES. Schroder International Bond Fund may engage in "short sales," which
are transactions in which the Fund sells a security that it does not own in
anticipation of a decline in the market value of that security. To complete the
transaction, the Fund must borrow the security to make delivery to the
purchaser. The Fund is then obligated to replace the borrowed security through a
purchase of it at the market price at the time of replacement. The price at that
time may be more or less than the price at which the security was sold by the
Fund. The Fund incurs a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund realizes a gain if the security
declines in price between those dates. The result is the opposite of what one
would expect from a cash purchase of a long position in a security.
Until the security is replaced, the Fund is required to pay the lender amounts
equal to any dividend that accrues during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium or specified amounts in
lieu of interest. The amount of any gain is decreased, and the amount of any
loss is increased, by any premium or amounts in lieu of interest the Fund is
required to pay. The proceeds of the short sale are retained by the broker, to
the extent necessary to meet margin requirements, until the short position is
closed out. No securities will be sold short, however, if thereafter the total
market value of all securities sold short would exceed 25% of the value of the
Fund's assets.
Any of the Funds may make short sales "against-the-box", which are transactions
in which the Fund sells short a security that it owns in anticipation of a
decline in the market value of that security. The proceeds of the short sale are
held by a broker until the settlement date, at which time the Fund delivers the
security to close the short position. The Fund receives the net proceeds from
the short sale. It is anticipated that a Fund will make short sales
against-the-box only to protect the value of its net assets.
NON-DIVERSIFICATION AND GEOGRAPHIC CONCENTRATION. Schroder Emerging Markets Fund
and Schroder International Bond Fund are "non-diversified" mutual funds, and
each Fund may invest its assets in a more limited number of issuers than may
other investment companies. Under the Internal Revenue Code, an investment
company, including a non-diversified investment company, generally may not
invest more than 25% of its total assets in obligations of any one issuer other
than U.S. Government obligations and, with respect to 50% of its total assets, a
fund may not invest more than 5% of its total assets in the securities of any
one issuer (except U.S. Government obligations). Thus, each Fund may invest up
to 25% of its total assets in the securities of each of any two issuers. This
practice involves an increased risk of loss to a Fund if the market value of a
security should decline or its issuer were otherwise not to meet its
obligations.
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Any of the Funds may invest more than 25% of its total assets in issuers located
in any one country. To the extent that it does so, a Fund is susceptible to a
range of factors that could adversely affect that country, including political
and economic developments and foreign exchange rate fluctuations as discussed
above. As a result of investing substantially in one country, the value of a
Fund's assets may fluctuate more widely than the value of shares of a comparable
fund with a lesser degree of geographic concentration.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS. Each Fund may
lend portfolio securities to brokers, dealers and financial institutions meeting
specified credit conditions, and may enter into repurchase agreements without
limit. Such activities may create taxable income in excess of the cash they
generate. The percentage limitation on the amount of a Fund's total assets that
may be loaned in accordance with the approved procedures is as follows: SCHRODER
INTERNATIONAL FUND - 10%; SCHRODER INTERNATIONAL SMALLER COMPANIES FUND,
SCHRODER INTERNATIONAL BOND FUND, SCHRODER U.S. DIVERSIFIED GROWTH FUND and
SCHRODER U.S. SMALLER COMPANIES FUND - 25%; and SCHRODER EMERGING MARKETS FUND -
33 1/3%. These transactions must be fully collateralized at all times but
involve some risk to a Fund if the other party should default on its obligation
and the Fund is delayed or prevented from recovering its assets or realizing on
the collateral. Each Fund may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Fund is permitted to invest in
other investment companies or pooled vehicles, including closed-end funds, that
are advised by SCMI or its affiliates or by unaffiliated parties. A Fund may
invest in the shares of other investment companies that invest in securities in
which the Fund is permitted to invest, subject to the limits and conditions
required under the Investment Company Act of 1940, as amended (the "1940 Act"),
or any orders, rules or regulations thereunder. When investing through
investment companies, a Fund may pay a premium above such investment companies'
net asset value per share. As a shareholder in an investment company, a Fund
would bear its ratable share of the investment company's expenses, including its
advisory and administrative fees. At the same time, the Fund would continue to
pay its own fees and expenses.
LIQUIDITY. A Fund will not invest more than 15% (10%, in the case of Schroder
International Fund and Schroder U.S. Diversified Growth Fund) of its net assets
in securities determined by SCMI to be illiquid. Certain securities that are
restricted as to resale may nonetheless be resold by a Fund in accordance with
Rule 144A under the Securities Act of 1933, as amended. Such securities may be
determined by SCMI to be liquid for purposes of compliance with the limitation
on a Fund's investment in illiquid securities. There can, however, be no
assurance that a Fund will be able to sell such securities at any time when SCMI
deems it advisable to do so or at prices prevailing for comparable securities
that are more widely held.
ALTERNATIVE INVESTMENTS. At times, SCMI may judge that market conditions make
pursuing a Fund's basic investment strategy inconsistent with the best interests
of its shareholders. At such times, SCMI may temporarily use alternative
strategies, primarily designed to reduce fluctuations in the values of the
Fund's assets. In implementing these "defensive" strategies, a Fund may invest
without limit in U.S. government obligations and other high-quality debt
instruments and any other investment SCMI considers to be consistent with such
defensive strategies, and may hold any portion of its assets in cash.
PORTFOLIO TURNOVER
The length of time a Fund has held a particular security is not generally a
consideration in investment decisions. The investment policies of a Fund may
lead to frequent changes in the Fund's investments, particularly in periods of
volatile market movements. A change in the securities held by a Fund is known as
"portfolio turnover." Portfolio turnover generally involves some expense to a
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. Such
securities sales may result in realization of taxable capital gain. The
portfolio turnover rates for each Fund for its most recently completed fiscal
year are as follows: Schroder International Fund,
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<PAGE>
36.22%; Schroder Emerging Markets Fund, 22.97%; Schroder International Smaller
Companies Fund, 32.30%; Schroder U.S. Diversified Growth Fund 44.28%; and
Schroder U.S. Smaller Companies Fund 54.98%.
HOW TO BUY SHARES
Investors may purchase Advisor Shares of each Fund directly from the Trust.
Prospectuses, sales material and account applications can be obtained from the
Trust or through Forum Shareholder Services, LLC, the Trust's transfer agent
(the "Transfer Agent"). Investments also may be made through broker-dealers and
other financial institutions ("Service Organizations"). Service Organizations
may charge their customers a service fee for processing orders to purchase or
sell shares. Investors wishing to purchase Shares through their accounts at a
Service Organization should contact that organization directly for appropriate
instructions. A Service Organization is responsible for forwarding all necessary
documentation to the Trust, and may charge for its services.
Each Fund's Advisor Shares are offered at the net asset value next-determined
after receipt of your completed account application (at the address set forth
below) and your purchase request in good order. The minimum initial investment
and the minimum subsequent investment for each Fund is set forth in the table
below. A Service Organization may impose higher minimums on your initial or
subsequent investment. The Trust is authorized to reject any purchase order.
<TABLE>
<S> <C> <C>
INITIAL SUBSEQUENT
FUND INVESTMENT INVESTMENT
- ---- ---------- ----------
Schroder International Fund $2,500 $250
Schroder Emerging Markets Fund $2,500 $250
Schroder International Smaller Companies Fund $2,500 $250
Schroder International Bond Fund $2,500 $250
Schroder U.S. Diversified Growth Fund $2,500 $250
Schroder U.S. Smaller Companies Fund $2,500 $250
</TABLE>
Purchases may be made by mailing your check (in U.S. dollars), payable to the
Fund to:
[Name of Fund] - Advisor Shares
P.O. Box 446
Portland, Maine 04112
For initial purchases, your check must be accompanied by a completed account
application in proper form. Further documentation, such as corporate resolutions
and instruments of authority, may be requested from corporations,
administrators, executors, personal representatives, directors or custodians to
evidence the authority of the person or entity making the purchase request.
You may make subsequent purchases by mailing a check, by sending a bank wire, or
through your Service Organization, as indicated. All payments should clearly
indicate the shareholder's name and account number.
Investors and Service Organizations (on behalf of their customers) may transmit
purchase payments by Federal Reserve Bank wire directly to the Fund as follows:
The Chase Manhattan Bank
New York, NY
ABA No.: 021000021
For Credit To: Forum Shareholder Services, LLC
Account. No.: 910-2-718187
Ref.: [Name of Fund] - Advisor Shares
Account of: (shareholder name)
Account No.: (shareholder account number)
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The wire order must specify the name of the Fund, the shares' class (i.e.,
Advisor Shares), the account name and number, address, confirmation number,
amount to be wired, name of the wiring bank, and name and telephone number of
the person to be contacted in connection with the order. If the initial
investment is by wire, an account number will be assigned, and a completed
account application must be mailed to the Fund before any transaction will be
effected. Wire orders received prior to the close of the New York Stock Exchange
on a day when the Exchange is open for trading are processed at the net asset
value next determined as of that day. Wire orders received after the close of
the New York Stock Exchange are processed at the net asset value next
determined.
The Fund's Transfer Agent establishes for each shareholder of record an open
account to which all shares purchased and all reinvested dividends and other
distributions are credited. Although most shareholders elect not to receive
share certificates, certificates for full shares can be obtained by written
request to the Fund's Transfer Agent. No certificates are issued for fractional
shares.
The Transfer Agent will deem an account lost if six months have passed since
correspondence to the shareholder's address of record is returned, unless the
Transfer Agent determines the shareholder's new address. When an account is
deemed lost, dividends and other distributions are automatically reinvested. In
addition, the amount of any outstanding checks for dividends and other
distributions that have been returned to the Transfer Agent are reinvested, and
the checks are canceled.
DISTRIBUTOR AND DISTRIBUTION PLAN
Schroder Fund Advisors Inc. ("Schroder Advisors"), 787 Seventh Avenue, New York,
New York 10019, serves as Distributor of the Funds' shares. Schroder Advisors
was organized in 1989 as a registered broker-dealer to serve as an administrator
and distributor of each Fund and other mutual funds.
Each Fund has adopted a Distribution Plan pursuant to which the Fund may pay
Schroder Advisors or others compensation in an amount limited in any fiscal year
to the annual rate of 0.50% of the Fund's average daily net assets attributable
to its Advisor Shares. The Trustees have not currently authorized payments under
the Distribution Plan, although payments by a Fund under the Shareholder Service
Plan, which will not exceed the annual rate of 0.25% of a Fund's average daily
net assets, will be deemed to have been made pursuant to the Distribution Plan
to the extent such payments may be considered to be primarily intended to result
in the sale of the Fund's Advisor Shares.
SHAREHOLDER SERVICE PLAN
The Trust has adopted a shareholder service plan (the "Service Plan") for the
Advisor Shares of each Fund. Under the Service Plan, each Fund pays fees to
Schroder Advisors or others at an annual rate of up to 0.25% of the average
daily net assets of the Fund represented by Advisor Shares. Schroder Advisors
may enter into shareholder service agreements with Service Organizations
pursuant to which the Service Organizations provide administrative support
services to their customers who are Fund shareholders. In return for providing
these support services, a Service Organization may receive payments from
Schroder Advisors at a rate not exceeding 0.25% of the average daily net assets
of the Advisor Shares of each Fund for which the Service Organization is the
Service Organization of record. These administrative services may include, but
are not limited to, the following functions: establishing and maintaining
accounts and records relating to clients of the Service Organization; answering
shareholder inquiries regarding the manner in which purchases, exchanges, and
redemptions of Advisor Shares of the Trust may be effected and other matters
pertaining to the Trust's services; providing necessary personnel and facilities
to establish and maintain shareholder accounts and records; assisting
shareholders in arranging for processing purchase, exchange, and redemption
transactions; arranging for the wiring of funds; guaranteeing shareholder
signatures in connection with redemption orders and transfers and changes in
shareholder-designated accounts; integrating periodic statements with other
customer transactions; and providing such other related services as the
shareholder may request. Payments to a particular Service Organization under the
Service Plan are calculated by reference to the average daily net assets of
Advisor Shares owned beneficially by investors who have a service relationship
with the Service Organization. Some Service Organizations may impose additional
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<PAGE>
conditions or fees, such as requiring clients to invest more than the minimum
amounts required by the Trust for initial or subsequent investments or charging
a direct fee for services. Such fees would be in addition to any amounts which
might be paid to the Service Organization by Schroder Advisors. Please contact
your Service Organization for details.
Schroder Advisors and its affiliates, at their own expense and out of their own
assets, may provide other compensation to financial institutions in connection
with sales of the Funds' shares of the servicing of shareholder accounts.
RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
Advisor Shares are offered in connection with tax-deferred retirement plans,
including traditional and Roth IRAs. Application forms and further information
about these plans, including applicable fees, are available upon request. Before
investing in a Fund through one of these plans, investors should consult their
tax advisors.
The Funds may be used as an investment vehicle for an IRA including a SEP-IRA.
An IRA naming Bank-Boston as custodian is available from the Trust or the
Transfer Agent. The minimum initial investment for an IRA and the minimum
subsequent investment for each Fund is set forth in the table below. Generally,
contributions and investment earnings in a traditional IRA grow tax-deferred
until withdrawn. In contrast, contributions to a Roth IRA are not
tax-deductible, but investment earnings generally grow tax-free. IRAs are
available to individuals (and their spouses) who receive compensation or earned
income whether or not they are active participants in a tax-qualified or
government-approved retirement plan. An IRA contribution by an individual or
spouse who participates in a tax-qualified or government-approved retirement
plan may not be deductible, depending upon the individual's income. Individuals
also may establish an IRA to receive a "rollover" contribution of distributions
from another IRA or qualified plan. Consult your tax advisor.
<TABLE>
<S> <C> <C>
INITIAL SUBSEQUENT
FUND INVESTMENT INVESTMENT
- ---- ---------- ----------
Schroder International Fund $250 $250
Schroder Emerging Markets Fund $250 $250
Schroder International Smaller Companies Fund $250 $250
Schroder International Bond Fund $250 $250
Schroder U.S. Diversified Growth Fund $250 $250
Schroder U.S. Smaller Companies Fund $250 $250
</TABLE>
EXCHANGES
You may exchange a Fund's Advisor Shares for Advisor Shares of any fund offered
by the Schroder family of funds so long as your investment meets the initial
investment minimum of the fund being purchased, and you maintain the respective
minimum account balance in each fund in which you own shares. Exchanges between
Funds are made at net asset value.
For federal income tax purposes, an exchange is considered to be a sale of
shares on which you may realize a capital gain or loss. If you hold Advisor
Shares directly, you may make an exchange by calling the Transfer Agent at
1-800-344-8332 (see "How to Sell Shares - Telephone Requests") or by mailing
written instructions to Schroder Capital Funds (Delaware), P.O. Box 446,
Portland, Maine 04112. If you hold Advisor Shares through a Service
Organization, you must make an exchange through the Service Organization.
Exchange privileges may be exercised only in those states where shares of the
other funds of the Schroder family of funds may legally be sold. Exchange
privileges may be amended or terminated at any time upon sixty (60) days'
notice.
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<PAGE>
HOW TO SELL SHARES
You can sell your Advisor Shares in a Fund to that Fund any day the New York
Stock Exchange is open, either through your Service Organization or directly to
the Fund. If your shares are held in the name of a Service Organization, you may
only sell shares through that Service Organization. The Trust will only redeem
shares for which it has received payment.
Advisor Shares are redeemed at their net asset value next determined after
receipt by the Fund (see the address set forth under "How to Buy Shares") of a
redemption request in proper form. Redemption requests that are received in good
order prior to the close of the Exchange on a day on which the Exchange is open
are processed at the net asset value determined as of that day. Redemption
requests that are received after the close of the Exchange are processed at the
net asset value next determined.
TELEPHONE REQUESTS
Redemption requests may be made by a shareholder of record 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
either or both may be liable if they do not follow these procedures. Shares for
which certificates have been issued may not be redeemed by telephone. In times
of drastic economic or market change, it may be difficult to make redemptions by
telephone. If a shareholder cannot reach the Transfer Agent by telephone,
redemption requests may be mailed or hand-delivered to the Transfer Agent.
WRITTEN REQUESTS
Redemptions may be made by a shareholder of record by letter to a 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 1-800-290-9826.
If Advisor Shares to be redeemed are held in certificate form, the certificates
must be enclosed with the redemption request, and the assignment form on the
back of the certificates (or an assignment separate from the certificates but
accompanied by the certificates) must be signed by all owners in exactly the
same way the owners' names are written on the face of the certificates.
Requirements for signature guarantees and/or documentation of authority as
described above could also apply. For your protection, the Trust suggests that
certificates be sent by registered mail.
ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds normally are
mailed within seven days. No redemption proceeds are mailed until checks in
payment for the purchase of the Advisor Shares to be redeemed have been cleared,
which may take up to 15 calendar days from the purchase date. Unless other
instructions are given in proper form, a check for the proceeds of a redemption
is sent to the shareholder's address of record.
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<PAGE>
A Fund may suspend the right of redemption during any period when: (1) trading
on the New York Stock Exchange is restricted or the New York Stock Exchange is
closed; (2) the Securities and Exchange Commission has by order permitted such
suspension; or (3) an emergency (as defined by rules of the SEC) exists making
disposal of portfolio investments or determination of the Fund's net asset value
not reasonably practicable.
If the Board of Trustees determines that it would be detrimental to the best
interest of the remaining shareholders of a Fund to make payment wholly or
partly in cash, the Fund may redeem Advisor Shares in whole or in part by a
distribution in kind of portfolio securities in lieu of cash. The Fund will,
however, redeem Advisor 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 Advisor Shares is made wholly or partly in portfolio
securities, the shareholder may be subject to additional risks and costs in
converting the securities to cash. See "Additional Purchase and Redemption
Information" in the SAI.
The proceeds of a redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account (other than an IRA) if at any
time the account does not have a value of at least $2,000, unless the value of
the account falls below that amount solely as a result of market activity.
Shareholders will be notified that the value of the account is less than the
required minimum and will be allowed at least 30 days to make an additional
investment to increase the account balance to at least the required minimum
amount.
The Trust may also redeem shares if you own shares of any Fund above a maximum
amount set by the Trustees. There is currently no maximum, but the Trustees may
establish one at any time, which could apply to both present and future
shareholders.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
EACH FUND CALCULATES THE NET ASSET VALUE OF ITS ADVISOR SHARES BY DIVIDING THE
TOTAL VALUE OF ITS ASSETS ATTRIBUTABLE TO ITS ADVISOR SHARES, LESS ITS
LIABILITIES ATTRIBUTABLE TO THOSE SHARES, BY THE NUMBER OF ITS ADVISOR SHARES
OUTSTANDING. Shares are valued as of the close of the New York Stock Exchange
(normally, 4:00 p.m. Eastern time) each day the New York Stock Exchange is open.
Portfolio securities for which market quotations are readily available are
stated at market value. Short-term investments that will mature in 60 days or
less are stated at amortized cost, which approximates market value. All other
securities and assets are valued at their fair values determined in accordance
with procedures approved by the Board of Trustees. The net asset value of a
Fund's Advisor Shares will generally differ from that of its other class of
shares due to the variance in daily net income realized by and dividends paid on
each class of shares, and differences in the expenses of the different classes.
All assets and liabilities of a Fund denominated in foreign currencies are
valued in U.S. dollars based on the exchange rate last quoted by a major bank
prior to the time when the net asset value of the Fund is calculated.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund distributes any net investment income and any net realized capital
gain at least annually. Distributions from net capital gain are made after
applying any available capital loss carryovers.
YOU CAN CHOOSE FROM FOUR DISTRIBUTION OPTIONS: (1) reinvest all distributions in
additional Advisor Shares of your Fund; (2) receive distributions from net
investment income in cash while reinvesting capital-gain distributions in
additional Advisor Shares of your Fund; (3) receive distributions from net
investment income in additional Advisor Shares of your Fund while receiving
capital-gain distributions in cash; or (4) receive all distributions in cash.
You can change your distribution option by notifying the Transfer Agent
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in writing. If you do not select an option when you open your account, all
distributions by a Fund will be reinvested in Advisor Shares of that Fund. You
will receive a statement confirming reinvestment of distributions in additional
Fund shares promptly following the period in which the reinvestment occurs.
TAXES
Each Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements that are necessary for it
to be relieved of federal taxes on income and gain it distributes to
shareholders. A Fund will distribute substantially all of its net investment
income and net capital-gain income on a current basis.
All Fund distributions will be taxable to you as ordinary income, except that
any distributions of net long-term capital gain will be taxed as such,
regardless of how long you have held the shares. Long-term capital gain will be
subject to a maximum rate of 28% or 20% depending upon the holding period of the
portfolio investment generating the gain. Distributions will be taxable as
described above whether received in cash or in shares through the reinvestment
of distributions.
Early in each year the Trust will notify you of the amount and tax status of
distributions paid to you by each Fund for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in a Fund. You should consult your tax advisor to determine the
precise effect of an investment in a Fund on your particular tax situation.
CERTAIN INFORMATION REGARDING FOREIGN TAXES. Foreign governments may impose
taxes on the Funds and the Portfolios and their investments, which generally
would reduce the income of the Fund or Portfolio. However, an offsetting tax
credit or deduction may be available to you.
Each Fund that is eligible to do so intends to elect to permit its shareholders
to take a credit (or a deduction) for the Fund's share of qualified foreign
income taxes paid by the Portfolio in which that Fund invests its assets. If the
Fund does make such an election, its shareholders would include as gross income
in their federal income tax returns both: (1) distributions received from the
Fund and (2) the amount that the Fund advises is their pro rata portion of
foreign income taxes paid with respect to or withheld from dividends and
interest paid to the Fund from its foreign investments. Shareholders then would
be entitled, subject to certain limitations (including, with respect to a
foreign tax credit, a holding period requirement), 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 PORTFOLIOS. The Portfolios are not required to pay federal income tax
because they are classified as partnerships for federal income tax purposes. All
interest, dividends, gain and losses of the Portfolios will be deemed to have
been "passed through" to the Funds in proportion to the Funds' holdings in the
Portfolios regardless of whether such interest, dividends or gain have been
distributed by the Portfolios.
Each Portfolio intends to conduct its operations so as to enable each fund, if
each invests all of its assets in a Portfolio, to qualify as a regulated
investment company.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust is responsible for generally overseeing the
conduct of the Trust's business. The business and affairs of each Portfolio are
managed under the direction of the Board of Trustees of Schroder Capital Funds
or of Schroder Capital Funds II. Information regarding the Trustees and
executive officers of the Trust, as well as the Trustees and executive officers
of Schroder Capital Funds and Schroder Capital Funds II, may be found in the
SAI.
Schroder Capital Management International Inc. ("SCMI") is the investment
adviser to each of the Funds. SCMI is a wholly owned U.S. subsidiary of
Schroders U.S. Holdings Inc., which engages through its subsidiary firms in the
investment banking, asset management and securities businesses. Affiliates of
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Schroders U.S. Holdings Inc. (or their predecessors) have been investment
managers since 1927. SCMI and its United Kingdom affiliate, Schroder Capital
Management International, Ltd., served as investment managers for over $27
billion in the aggregate as of June 30, 1998. Schroders U.S. Holdings Inc. is an
indirect, wholly owned U.S. subsidiary of Schroders plc, a publicly owned
holding company organized under the laws of England. Schroders plc and its
affiliates engage in international merchant banking and investment management
businesses, and as of June 30, 1998, had under management assets of
approximately $175 billion. Schroder Fund Advisors Inc. ("Schroder Advisors") is
a wholly owned subsidiary of SCMI.
SCMI also serves as investment adviser to each of the Portfolios of Schroder
Capital Funds and Schroder Capital Funds II. Each of those Portfolios pays
advisory fees to SCMI monthly at the following annual rates (based on the assets
of each Portfolio taken separately): SCHRODER INTERNATIONAL EQUITY FUND - 0.45%
of the Portfolio's average daily net assets; SCHRODER INTERNATIONAL BOND
PORTFOLIO - 0.50% of the Portfolio's average daily net assets; SCHRODER
INTERNATIONAL SMALLER COMPANIES PORTFOLIO - 0.85% of the Portfolio's average
daily net assets; SCHRODER EM CORE PORTFOLIO - 1.00% of the Portfolio's average
daily net assets; and SCHRODER U.S. SMALLER COMPANIES PORTFOLIO - 0.60% of the
Portfolio's average daily net assets. SCMI has agreed to waiver 0.10% of the
advisory fees payable by Schroder International Smaller Companies Portfolio.
This fee limitation arrangement shall remain in effect until its elimination is
approved by the Board of Trustees of Schroder Capital Funds. Each Fund, due to
its investment in a Portfolio, bears a proportionate part of the management fees
paid by the Portfolio (based on the percentage of the Portfolio's assets
attributable to the Fund).
Subject to the direction and control of SCMI Schroder Investment Management
International, Ltd. ("SIMIL"), 31 Gresham Street, London, U.K. EC2V 7QA, an
affiliate of SCMI, serves as subadviser to Schroder International Smaller
Companies Portfolio pursuant to an Investment Subadvisory Agreement among SCMI,
SIMIL, and the Portfolio. SIMIL, a newly organized investment advisory firm, is
a wholly owned subsidiary of Schroders plc, and as of June 30, 1998 had under
management assets of approximately $42 billion. Under the Subadvisory Agreement,
SCMI pays SIMIL a monthly fee at the annual rate of 0.25% of the Portfolio's
average daily net assets.
Each Fund (except Schroder U.S. Diversified Growth Fund) has entered into an
investment advisory agreement with SCMI pursuant to which SCMI would manage the
Fund's assets directly in the event that the Fund were to cease investing
substantially all of its assets in a Portfolio. SCMI will not receive any fees
under that agreement so long as a Fund continues to invest substantially all of
its assets in a Portfolio (or another investment company). For further
information on these investment advisory agreements, see the SAI.
SCHRODER U.S. DIVERSIFIED GROWTH FUND pays advisory fees to SCMI monthly at the
annual rates of 0.75% of the first $100 million of the Fund's average daily net
assets and 0.50% of the Fund's average daily net assets in excess of $100
million.
ADMINISTRATIVE SERVICES. The Trust, on behalf of each Fund (other than Schroder
U.S. Diversified Growth Fund), has entered into an administration agreement with
Schroder Advisors pursuant to which Schroder Advisors provides certain
management and administrative services to these Funds. The Trust, on behalf of
each Fund, has entered into subadministration agreements with Forum
Administrative Services, LLC, Two Portland Square, Portland, Maine 04101
("FAdS"), pursuant to which FAdS provides certain management and administrative
services necessary for the Funds' operations. The Trust pays fees to Schroder
Advisors and to FAdS monthly at the following annual rates: SCHRODER
INTERNATIONAL FUND - 0.15% and 0.05%, respectively, of the Fund's average daily
net assets; SCHRODER EMERGING MARKETS FUND - 0.15% and 0.075%, respectively, of
the Fund's average daily net assets; SCHRODER INTERNATIONAL SMALLER COMPANIES
FUND - 0.10% and 0.075%, respectively, of the Fund's average daily net assets;
SCHRODER INTERNATIONAL BOND FUND - 0.10% and 0.075%, respectively, of the Fund's
average daily net assets; and SCHRODER U.S. SMALLER
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COMPANIES FUND - 0.25% and 0.075%, respectively, of the Fund's average daily net
assets. Each of Emerging Markets Fund and International Smaller Companies Fund
also is subject to a $25,000 minimum annual fee plus a $12,000 charge per class
under the subadministration agreement.
Schroder Advisors and FAdS also serve as administrator and subadministrator,
respectively, to each of the Portfolios of Schroder Capital Funds and Schroder
Capital Funds II. Each of those Portfolios pays administration fees to Schroder
Advisors and subadministration fees to FAdS monthly at the following annual
rates (based on the assets of each Portfolio taken separately): INTERNATIONAL
EQUITY FUND - 0.075% and 0.075%, respectively, of the Portfolio's average daily
net assets; SCHRODER INTERNATIONAL BOND PORTFOLIO - 0.10% and 0.075%,
respectively, of the Portfolio's average daily net assets; SCHRODER
INTERNATIONAL SMALLER COMPANIES PORTFOLIO - 0.15% and 0.075%, respectively, of
the Portfolio's average daily net assets; SCHRODER EM CORE PORTFOLIO - 0.10% and
0.075%, respectively, of the Portfolio's daily net assets; and SCHRODER U.S.
SMALLER COMPANIES PORTFOLIO - 0.00% and 0.075%, respectively, of the Portfolio's
average daily net assets. Each Portfolio is subject to a $25,000 minimum annual
fee under the subadministration agreement. Each Fund, due to its investment in a
Portfolio, bears a proportionate part of the administration and
subadministration fees paid by the Portfolio (based on the percentage of the
Portfolio's assets attributable to the Fund).
In order to limit the Funds' expenses, SCMI and Schroder Advisors have
voluntarily agreed to reduce their compensation (and, if necessary, to pay
certain expenses of each of the Funds) with respect to each of the Funds to the
extent that a Fund's expenses chargeable to Advisor Shares exceed the following
annual rates: SCHRODER INTERNATIONAL FUND - 1.24% of the Fund's average daily
net assets attributable to Advisor Shares; SCHRODER EMERGING MARKETS FUND -
1.95% of the Fund's average daily net assets attributable to Advisor Shares;
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND - 1.75% of the Fund's average
daily net assets attributable to Advisor Shares; SCHRODER INTERNATIONAL BOND
FUND - 1.20% of the Fund's average daily net assets attributable to Advisor
Shares; SCHRODER U.S. DIVERSIFIED GROWTH FUND - 1.75% of the Fund's average
daily net assets attributable to Advisor Shares; and SCHRODER U.S. SMALLER
COMPANIES FUND - 1.74% of the Fund's average daily net assets attributable to
Advisor Shares. In addition, SCMI has agreed to limit the advisory fees paid by
SCHRODER U.S. DIVERSIFIED GROWTH FUND to 0.65% of the Fund's average daily net
assets. FAdS may waive voluntarily all or a portion of its subadvisory fees,
from time to time. The Trust pays all expenses not assumed by SCMI and Schroder
Advisors, including Trustees' fees, auditing, legal, custodial, and investor
servicing, and shareholder reporting expenses.
SCMI's investment decisions for each Portfolio in which a Fund invests (or, in
the case of Schroder U.S. Diversified Growth Fund, for the Fund) are made by an
investment manager or an investment team, with the assistance of an investment
committee at SCMI. The Portfolio Managers for each Fund are as follows:
SCHRODER INTERNATIONAL FUND:
MICHAEL PERELSTEIN --Portfolio Manager since January 1997 of Schroder
International Equity Portfolio, in which Schroder International Fund
invests, and Portfolio Manager since inception of Schroder International
Bond Portfolio, in which Schroder International Bond Fund invests. Mr.
Perelstein is a Vice President of the Trust and of Schroder Capital Funds
and is a Director and Senior Vice President of SCMI. He was previously a
Managing Director, MacKay-Shields Financial Corp.
SCHRODER EMERGING MARKETS FUND:
JOHN A. TROIANO --Portfolio Manager since inception of Schroder EM Core
Portfolio, in which Schroder Emerging Markets Fund invests. Mr. Troiano is
a Vice President of the Trust and of Schroder Capital Funds. He is also the
Chief Executive of SCMI.
HEATHER CRIGHTON --Portfolio Manager since inception of Schroder EM Core
Portfolio, in which Schroder Emerging Markets Fund invests. Ms. Crighton is
a First Vice President of SCMI.
MARK BRIDGEMAN --Portfolio Manager since inception of Schroder EM Core
Portfolio, in which Schroder Emerging Markets Fund invests. Mr. Bridgeman
is a Vice President of SCMI.
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND:
JANE P. LUCAS - Portfolio Manager since September 1998 of Schroder
International Smaller Companies Portfolio, in which Schroder International
Smaller Companies Fund invests. Ms. Lucas is a Vice President of the Trust
and a Senior Vice President of SCMI.
NICHOLAS MELHUISH --Portfolio Manager since September 1998 of Schroder
International Smaller Companies Portfolio, in which Schroder International
Smaller Companies Fund invests. Mr. Melhuish is an investment manager of
SIMIL and of SCMI.
SCHRODER INTERNATIONAL BOND FUND:
MICHAEL PERELSTEIN --Portfolio Manager since January 1997 of Schroder
International Equity Portfolio, in which Schroder International Fund
invests, and Portfolio Manager since inception of Schroder International
Bond Portfolio, in which Schroder International Bond Fund invests. Mr.
Perelstein is a Vice President of the Trust and of Schroder Capital Funds
and is a Director and Senior Vice President of SCMI. He was previously a
Managing Director, MacKay-Shields Financial Corp.
MARK ASTLEY --Portfolio Manager since inception of Schroder International
Bond Portfolio, in which Schroder International Bond Fund invests. Mr.
Astley is a Vice President of the Trust and of Schroder Capital Funds II.
He is also a First Vice President of SCMI.
SCHRODER U.S. DIVERSIFIED GROWTH FUND:
PAUL MORRIS --Portfolio Manager since January 1997 of Schroder U.S.
Diversified Growth Fund. Mr. Morris is Senior Vice President of SCMI. He
was previously Principal and Senior Portfolio Manager, Weiss Peck & Greer,
L.L.C., and Managing Director, Equity Division, UBS Asset Management.
SCHRODER U.S. SMALLER COMPANIES FUND:
IRA L. UNSCHULD --Resumed portfolio management in September 1998 of
Schroder U.S. Smaller Companies Portfolio, in which Schroder U.S. Smaller
Companies fund invest. Mr. Unschuld was co-manager with Fariba Talebi since
inception through March 1997. Mr. Unschuld is a Vice President of the Trust
and Group Vice President of SCMI.
SCMI places all orders for purchases and sales of the Funds' securities. In
selecting broker-dealers, SCMI may consider research and brokerage services
furnished to it and its affiliates. Schroder & Co. Inc. and Schroder Securities
Limited, affiliates of SCMI, may receive brokerage commissions from the Funds in
accordance with procedures adopted by the Trustees under the 1940 Act which
require periodic review of these transactions. Subject to seeking the most
favorable price and execution available, SCMI may consider sales of shares of
the Funds as a factor in the selection of broker-dealers.
YEAR 2000
The Funds receive services from their investment adviser, administrators,
distributor, transfer agent and custodian, which rely on the smooth functioning
of their respective systems and the systems of others to perform these services.
It is generally recognized that certain systems in use today may not perform
their intended functions adequately after the year 1999 because of the inability
of the software to distinguish the year 2000 from the year 1900. SCMI is taking
steps that it believes are reasonably designed to address this potential year
2000 problem and to obtain satisfactory assurances that comparable steps are
being taken by each of the Funds' other major service providers. There can be no
assurance, however, that these steps will be sufficient to avoid any adverse
impact on the Funds from this problem.
PERFORMANCE INFORMATION
Yield (for Advisor Shares of Schroder International Bond Fund) and total return
data relating to Advisor Shares of the Funds may from time to time be included
in advertisements about the Funds. The "yield" of a Fund's Advisor Shares is
calculated by dividing the Fund's annualized net investment income per Advisor
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Shares during a recent 30-day period by the net asset value per Advisor Shares
on the last day of that period. When a Fund's "total return" is advertised with
respect to Advisor Shares, it will be calculated for the past year, the past
five years, and the past ten years (or if a Fund's Advisor Shares have been
offered for a period shorter than one, five, or ten years, that period will be
substituted) through the most recent calendar quarter, as more fully described
in the SAI. Advertisements about a Fund may include total return information for
the Fund's Investor Shares for periods prior to the initial offering date of the
Fund's Advisor Shares; that information may be adjusted to reflect the actual
fees and expenses attributable to the Advisor Shares that were not applicable to
the Fund's Advisor Shares during the periods presented. Total return for any
period of one year or less represents the actual rate of return on such an
investment earned during the period, although annualized figures may also be
shown in advertisements. Total return quotations assume that all dividends and
distributions are reinvested when paid.
ALL DATA ARE BASED ON PAST INVESTMENT RESULTS AND DO NOT PREDICT FUTURE
PERFORMANCE. Investment performance of a Fund's Advisor Shares, which will vary,
is based on many factors, including market conditions, the composition of the
Fund's portfolio, and the Fund's operating expenses attributable to its Advisor
Shares. Investment performance also often reflects the risks associated with a
Fund's investment objectives and policies. Quotations of yield or total return
for any period when an expense limitation is in effect will be greater than if
the limitation had not been in effect. These factors should be considered when
comparing the investment results of a Fund's Advisor Shares to those of various
classes of other mutual funds and other investment vehicles. Performance for
each Fund's Advisor Shares may be compared to various indices. See the SAI for
more information.
ADDITIONAL INFORMATION ABOUT THE TRUST
The Trust was organized as a Maryland corporation on July 30, 1969, reorganized
on February 29, 1988 as Schroder Capital Funds, Inc. and reorganized as a
Delaware business trust on January 9, 1996. The Trust has an unlimited number of
shares of beneficial interest that may, without shareholder approval, be divided
into an unlimited number of series of such shares, which, in turn, may be
divided into an unlimited number of classes of such shares. The Trust's shares
of beneficial interest are presently divided into eight different series. Each
Fund's shares are presently divided into two classes, Advisor Shares, which are
offered through this Prospectus, and Investor Shares, which are offered through
a separate prospectus. Unlike Advisor Shares, Investor Shares are not subject to
shareholder service and distribution fees, which will affect their performance
relative to Advisor Shares. To obtain more information about Investor Shares,
contact Schroder Capital Funds (Delaware) at 1-800-290-9826. The Trust's
principal office is located at Two Portland Square, Portland, Maine 04101, and
its telephone number is 1-207-879-8903.
Each share has one vote, with fractional shares voting proportionally.
Shareholders of a class of shares or series generally have separate voting
rights with respect to matters that affect only that class or series. See "Other
Information - Capitalization and Voting" in the SAI. Shares are freely
transferable and are entitled to dividends and other distributions as declared
by the Trustees. Dividends paid by the Funds on their two classes of shares will
normally differ in amount due to the differing expenses borne by the two
classes. If a Fund were liquidated, each class of shares would receive the net
assets of the Fund attributable to that class. The Trust may suspend the sale of
a Fund's shares at any time and may refuse any order to purchase shares.
Although the Trust is not required to hold annual meetings of its shareholders,
shareholders have the right to call a meeting to elect or remove Trustees, or to
take other actions as provided in the Trust Instrument.
INFORMATION ABOUT THE PORTFOLIOS
Each of the Funds (other than Schroder U.S. Diversified Growth Fund) seeks to
achieve its investment objective by investing all of its investable assets in a
Portfolio of Schroder Capital Funds or Schroder Capital Funds II, that has the
same investment objective and similar policies. In that way, a Portfolio
acquires investment securities directly, and a Fund acquires an indirect
interest in those securities. Schroder Capital Funds is a business trust
organized under the laws of the State of Delaware in September 1995. Schroder
Capital Funds II is a business trust organized under the laws of the State of
Delaware in December 1996.
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Each of Schroder Capital Funds and Schroder Capital Funds II is registered under
the 1940 Act as an open-end management investment company. The assets of a
Portfolio belong only to, and the liabilities of a Portfolio are borne solely
by, that Portfolio and no other Portfolio of Schroder Capital Funds or Schroder
Capital Funds II.
A Fund's investment in a Portfolio is in the form of a non-transferable
beneficial interest. All other investors in a Portfolio invest on the same terms
and conditions as the Fund and pay a proportionate share of the Portfolio's
expenses.
The Portfolios normally will not hold meetings of investors except as required
by the 1940 Act. Each investor in a 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, in accordance with applicable law the Board of
Trustees will either: (1) solicit voting instructions from Fund shareholders
with regard to the voting of all proxies with respect to a Fund's shares and
vote such proxies in accordance with such instructions, or (2) vote the
interests held by a Fund in the same proportion as the vote of all other holders
of the Portfolio's interests. 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 Portfolios do not sell their shares directly to members of the general
public. Another investor in a 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 investing in that
Portfolio and could have different fees and expenses than the Fund. Therefore,
Fund shareholders may have different returns than shareholders in another
investment company that invests exclusively in the same Portfolio. Information
regarding any such funds in the future will be available by calling
1-800-730-2932.
Under federal securities law, any person or entity that signs a registration
statement may be liable for a misstatement of a material fact in, or omission of
a material fact from, the registration statement. Each of Schroder Capital Funds
and Schroder Capital Funds II, their Trustees, and certain of their 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, Schroder Capital Funds or Schroder Capital Funds II may be liable for
misstatements or omissions of a material fact in any proxy soliciting material
of an investor in a Portfolio, including a Fund. Each investor in a Portfolio,
including the Trust, is required to indemnify Schroder Capital Funds or Schroder
Capital Funds II, as the case may be, and their Trustees and officers ("SCF
Indemnitees") against certain claims.
Indemnified claims are those brought against SCF Indemnitees based on a
misstatement of a material fact in, or omission of a material fact from, a
registration statement or proxy materials. No indemnification need be made,
however, if such alleged misstatement or omission relates to information about
Schroder Capital Funds or Schroder Capital Funds II, as the case may be, and was
supplied to the investor by Schroder Capital Funds or Schroder Capital Funds II,
as the case may be. Similarly, Schroder Capital Funds or Schroder Capital Funds
II, as the case may be, is required to indemnify each investor in a Portfolio,
including a 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 Capital Funds or Schroder Capital Funds II, as the
case may be, that is supplied to the investor by Schroder Capital Funds or
Schroder Capital Funds II, as the case may be.
A Fund's investment in a Portfolio may be affected by the actions of other large
investors in the Portfolio; 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.
A Fund may withdraw its entire investment from a Portfolio at any time, if the
Trust Board determines that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if
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there were other investors in the Portfolio who, by a vote of the shareholders
of all investors (including the Fund), changed the investment objective or
policies of the Portfolio in a manner not acceptable to the Trust Board. A
withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) by the Portfolio. That distribution could result
in a less diversified portfolio of investments for the Fund and could affect
adversely the liquidity of the Fund's portfolio. If the Fund decided to convert
those securities to cash, it would likely incur brokerage fees or other
transaction costs. If a Fund should withdraw its investment from a Portfolio,
the Trust Board would consider appropriate alternatives, including the
management of the Fund's assets in accordance with its investment objective and
policies by SCMI, or the investment of all of the Fund's investable assets in
another pooled investment entity having substantially the same investment
objective as the Fund. The inability of a Fund to find a suitable replacement
investment, if the Board decided not to permit SCMI to manage the Fund's assets,
could have a significant adverse impact on shareholders of the Fund.
Each investor in a Portfolio, including a Fund, may be liable for all
obligations of the Portfolio. The risk to an investor in a Portfolio of
incurring financial loss on account of such liability, however, is limited to
circumstances in which the Portfolio is unable to meet its obligations, the
occurrence of which SCMI considers to be remote. Upon liquidation of a
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
Fixed-Income Security Ratings
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be
of high quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade
fixed-income securities. They are rated lower than the best
fixed-income securities because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
"A" Fixed-income securities which are rated "A" possess many
favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment
sometime in the future.
"Baa" Fixed-income securities which are rated "Baa" are considered as
medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Such fixed-income securities
lack outstanding investment characteristics and in fact have
speculative characteristics as well. Fixed-income securities
rated "Aaa", "Aa", "A" and "Baa" are considered investment
grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate, and therefore not well
safeguarded during both good and bad times in the future.
Uncertainty of position characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be
small.
"Caa" Fixed-income securities which are rated "Caa" are of poor
standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
"Ca" Fixed-income securities which are rated "Ca" present
obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
"C" Fixed-income securities which are rated "C" are the lowest
rated class of fixed-income securities, and issues so rated
can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, "1", "2", and "3" in
each generic rating classification from "Aa" through "B" in its municipal
fixed-income security rating system. The modifier "1" indicates that the
security ranks in the higher end of its generic rating category; the modifier
"2" indicates a mid-range ranking; and a modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
A-1
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay punctually
promissory obligations not having an original maturity in excess of nine months.
The ratings apply to Municipal Commercial Paper as well as taxable Commercial
Paper. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
"Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of short-term
promissory obligations.
Issuers rated "Prime-2" have a strong capacity for repayment of short-term
promissory obligations; and
Issuers rated "Prime-3" have an acceptable capacity for repayment of
short-term promissory obligations.
Issuers rated "Not Prime" do not fall within any of the Prime rating categories.
STANDARD & POOR'S RATING GROUP ("STANDARD & POOR'S")
Fixed-Income Security Ratings
A Standard & Poor's fixed-income security rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers reliable. The ratings are
based, in varying degrees, on the following considerations: (1) likelihood of
default-capacity and willingness of the obligor as to the timely payment of
interest and repayment of principal in accordance with the terms of the
obligation; (2) nature of and provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity
to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
"A" Fixed-income securities rated "A" have a strong capacity to
pay interest and repay principal although they are somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than fixed-income
securities in higher-rated categories.
"BBB" Fixed-income securities rated "BBB" are regarded as having an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are
considered investment grade.
"BB" Fixed-income securities rated "BB" have less near-term
vulnerability to default than other speculative grade
fixed-income securities. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or
willingness to pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability
to default but presently have the capacity to meet interest
payments and principal repayments. Adverse business, financial
or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
A-2
<PAGE>
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon
favorable business, financial and economic conditions to meet
timely payments of interest and repayments of principal. In the
event of adverse business, financial or economic conditions, it
is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income
securities subordinated to senior debt which is assigned an
actual or implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or
implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on
which no interest is being paid.
"D" The rating "D" is reserved for fixed-income securities when
the issue is in payment default, or the obligor has filed for
bankruptcy. The D rating category is used when interest
payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless
S&P believes that such payments will made during such grace
period.
"NR" Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest degree of speculation. While such fixed-income securities will
likely have some quality and protective characteristics, these are out-weighed
by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be modified by the
addition of a plus or minus sign to show relative standing with the major
ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
"1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment
is very strong.
"A-2" Indicates capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety
is not as overwhelming as for issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment.
Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
A-3
<PAGE>
INVESTMENT ADVISER
Schroder Capital Management International Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
ADMINISTRATOR AND DISTRIBUTOR
Schroder Fund Advisors Inc.
787 Seventh Avenue, 34th Floor
New York, New York 10019
SUBADMINISTRATOR
Forum Administrative Services, LLC
Two Portland Square
Portland, Maine 04101
CUSTODIAN
The Chase Manhattan Bank
Chase MetroTech Center
Brooklyn, New York 11245
and
The Chase Manhattan Bank
Global Custody Division
125 London Wall
London EC2Y 5AJ, United Kingdom
TRANSFER AND DIVIDEND DISBURSING AGENT
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
SCHRODER CAPITAL FUNDS (DELAWARE)
P.O. Box 446
Portland, Maine 04112
1-800-290-9826
<PAGE>
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<PAGE>
[This page has been intentionally left blank.]
<PAGE>
Schroder Capital Funds (Delaware)
Schroders has a significant presence in the investment management field,
offering both equity and fixed income mutual funds. Schroder Capital Management
International offers a range of global, international and domestic products.
Our management style and our funds are designed to help investors seeking
long-term growth achieve their investment objectives. At the core of our
investment philosophy is an abiding faith in fundamental research. We believe
that many markets are inefficient, and that our proprietary research effort
gives us an edge in indentifying investment opportunities that are undervalued
or overlooked by our competitors. In addition, we use a range of quantitative
tools to ensure that we manage portfolio risk in line with the funds'
objectives.
[Pictures of people in a meeting, The
Wall Street Journal and a computer
disk and keyboard.]
Schroder Capital Funds (Delaware)
P.O. Box 446
Portland, Maine 04112
1-800-290-9826
<PAGE>
SCHRODER CAPITAL FUNDS (DELAWARE)
SCHRODER INTERNATIONAL FUND
SCHRODER EMERGING MARKETS FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
SCHRODER INTERNATIONAL BOND FUND
SCHRODER U.S. DIVERSIFIED GROWTH FUND
SCHRODER U.S. SMALLER COMPANIES FUND
SCHRODER MICRO CAP FUND
COMBINED STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Schroder Capital Management International Inc. ("SCMI")
ADMINISTRATOR AND DISTRIBUTOR
Schroder Fund Advisors Inc. ("Schroder Advisors")
SUBADMINISTRATOR
Forum Administrative Services, LLC ("FAdS")
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Forum Shareholder Services, LLC ("Forum")
GENERAL INFORMATION: 1-207-879-8903
ACCOUNT INFORMATION: 1-800-344-8332
FAX: 1-207-879-6206
Investor Shares of SCHRODER INTERNATIONAL FUND, SCHRODER EMERGING MARKETS FUND,
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND, SCHRODER INTERNATIONAL BOND FUND,
SCHRODER U.S. DIVERSIFIED GROWTH FUND, SCHRODER U.S. SMALLER COMPANIES FUND, and
SCHRODER MICRO CAP FUND (each, a "Fund" and collectively, the "Funds") are
offered for sale at net asset value with no sales charge as an investment
vehicle for individuals, institutions, corporations and fiduciaries. The Funds'
Advisor Shares also are offered for sale at net asset value to individual
investors, in most cases through Service Organizations (as defined in the
prospectuses) at lower investment minimums but higher expenses than Investor
Shares.
This Combined Statement of Additional Information ("SAI") is not a prospectus
and is authorized for distribution only when preceded or accompanied by the
Funds' current combined prospectus dated October 1, 1998, as may be amended from
time to time for each of the Investor Shares and the Advisor Shares (each, a
"Prospectus" and, together, the "Prospectuses"). This SAI contains additional
and more detailed information than that set forth in each Prospectus and should
be read in conjunction with the applicable Prospectus and retained for future
reference. The Prospectuses and this SAI are available along with other related
materials for reference on the SEC's Internet Web Site (http://www.sec.gov). All
terms used in this SAI that are defined in the Prospectuses have the meaning
assigned in the Prospectuses. You may obtain an additional copy of the
applicable Prospectus(es) without charge by writing to the Trust at Two Portland
Square, Portland, Maine 04101 or calling the numbers listed above.
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES
OF THE TRUST AND RISK
CONSIDERATIONS....................................3
Options.............................................3
Futures Contracts...................................5
Special Risks of Transactions in Futures
Contracts and Related Options.....................8
Forward Commitments.................................9
Repurchase Agreements...............................9
When-Issued Securities..............................9
Loans of Fund Securities...........................10
Foreign Securities.................................10
Foreign Currency Transactions......................10
Zero-Coupon Securities.............................13
Short Sales........................................13
INVESTMENT RESTRICTIONS............................15
MANAGEMENT.........................................22
Officers and Trustees..............................22
Control Persons and Principal Holders
of Securities....................................25
Administrative Services............................27
Distribution of Fund Shares........................27
Shareholder Service Plan and
Service Organization.............................28
Fund Accounting....................................29
PORTFOLIO TRANSACTIONS.............................30
Investment Decisions...............................30
Brokerage and Research Services....................30
ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION...........................32
Determination of Net Asset Value Per Share.........32
Redemption In-Kind.................................32
TAXATION...........................................32
OTHER INFORMATION..................................35
Fund Structure.....................................35
Organization of the Trust..........................37
Capitalization and Voting..........................38
Performance Information............................38
Principal Shareholders.............................39
Custodian..........................................39
Transfer Agent and Dividend
Disbursing Agent.................................39
Legal Counsel......................................39
Independent Accountant.............................39
Year 2000 Disclosure...............................40
Registration Statement.............................40
Financial Statements...............................40
APPENDIX A - PERFORMANCE INFORMATION .............A-1
APPENDIX B - MISCELLANEOUS TABLES.................B-1
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
AND RISK CONSIDERATIONS
The Trust offers in the Prospectus shares of beneficial interest of
seven series (the "Funds") with separate investment objectives and policies. The
investment objectives and policies of the Funds are described in the
Prospectuses. This Statement contains additional information concerning certain
investment practices and investment restrictions of the Trust and the Funds.
Except as described below under "Investment Restrictions", the
investment objectives and policies described in the Prospectus and in this
Statement are not fundamental, and the Board of Trustees may change the
non-fundamental policies of a Fund without an affirmative vote of shareholders
of a Fund.
Except as otherwise noted below, the following descriptions of certain
investment policies and techniques are applicable to all of the Funds.
OPTIONS
Each Fund may purchase and sell covered put and call options on its
portfolio securities to enhance investment performance and to protect against
changes in market prices.
COVERED CALL OPTIONS. A Fund may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by the Fund.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call
option, the Fund gives up some or all of the opportunity to profit from an
increase in the market price of the securities covering the call option during
the life of the option. The Fund retains the risk of loss should the price of
such securities decline. If the option expires unexercised, the Fund realizes a
gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Fund realizes a gain or
loss equal to the difference between the Fund's cost for the underlying security
and the proceeds of sale (exercise price minus commissions) plus the amount of
the premium.
A Fund may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. A Fund may enter into
closing purchase transactions in order to free itself to sell the underlying
security or to write another call on the security, realize a profit on a
previously written call option, or protect a security from being called in an
unexpected market rise. Any profits from a closing purchase transaction may be
offset by a decline in the value of the underlying security. Conversely, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from a
closing purchase transaction is likely to be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Fund.
COVERED PUT OPTIONS. A Fund may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Fund plans to purchase. A put option gives the holder the right to sell, and
obligates the writer to buy, a security at the exercise price at any time before
the expiration date. A put option is "covered" if the writer segregates cash and
high-grade short-term debt obligations or other permissible collateral equal to
the price to be paid if the option is exercised.
3
<PAGE>
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Fund also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Fund assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
A Fund may terminate a put option that it has written before it expires by
a closing purchase transaction. Any loss from this transaction may be partially
or entirely offset by the premium received on the terminated option.
PURCHASING PUT AND CALL OPTIONS. A Fund may also purchase put options
to protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Fund, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Fund must
pay. These costs will reduce any profit the Fund might have realized had it sold
the underlying security instead of buying the put option.
A Fund may purchase call options to hedge against an increase in the
price of securities that the Fund wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security.
A Fund may purchase call options to hedge against an increase in the
price of securities that the Fund wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.
A Fund may also purchase put and call options to enhance its current
return.
OPTIONS ON FOREIGN SECURITIES. A Fund may purchase and sell options on
foreign securities if in SCMI's opinion the investment characteristics of such
options, including the risks of investing in such options, are consistent with
the Fund's investment objectives. It is expected that risks related to such
options will not differ materially from risks related to options on U.S.
securities. However, position limits and other rules of foreign exchanges may
differ from those in the U.S. In addition, options markets in some countries,
many of which are relatively new, may be less liquid than comparable markets in
the U.S.
RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve
certain risks, including the risks that SCMI will not forecast interest rate or
market movements correctly, that a Fund may be unable at times to close out such
positions, or that hedging transactions may not accomplish their purpose because
of imperfect market correlations. The successful use of these strategies depends
on the ability of SCMI to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Fund may be forced to continue to hold, or to
purchase at a fixed price, a security on which it has sold an option at a time
when SCMI believes it is inadvisable to do so.
4
<PAGE>
Higher than anticipated trading activity or order flow or other
unforeseen events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
Fund's use of options. The exchanges have established limitations on the maximum
number of calls and puts of each class that may be held or written by an
investor or group of investors acting in concert. It is possible that the Fund
and other clients of SCMI may be considered such a group. These position limits
may restrict the Fund's ability to purchase or sell options on particular
securities.
Options that are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that reason,
it may be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
FUTURES CONTRACTS
In order to hedge against the effects of adverse market changes, each
Fund that may invest in debt securities may buy and sell futures contracts on
debt securities of the type in which the Fund may invest and on indexes of debt
securities. In addition, each Fund that may invest in equity securities may
purchase and sell stock index futures to hedge against changes in stock market
prices. Each Fund may also, to the extent permitted by applicable law, buy and
sell futures contracts and options on futures contracts to increase the Fund's
current return. All such futures and related options will, as may be required by
applicable law, be traded on exchanges that are licensed and regulated by the
Commodity Futures Trading Commission (the "CFTC").
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- a Fund
will legally obligate itself to accept the future delivery of the underlying
security and pay the agreed price. By selling futures on debt securities --
assuming a "short" position -- it will legally obligate itself to make the
future delivery of the security against payment of the agreed price. Open
futures positions on debt securities will be valued at the most recent
settlement price, unless that price does not, in the judgment of persons acting
at the direction of the Trustees as to the valuation of the Fund's assets,
reflect the fair value of the contract, in which case the positions will be
valued by the Trustees or such persons.
Positions taken in the futures markets are not normally held to
maturity, but are instead liquidated through offsetting transactions that may
result in a profit or a loss. While futures positions taken by a Fund will
usually be liquidated in this manner, a Fund may instead make or take delivery
of the underlying securities whenever it appears economically advantageous to
the Fund to do so. A clearing corporation associated with the exchange on which
futures are traded assumes responsibility for such closing transactions and
guarantees that a Fund's sale and purchase obligations under closed-out
positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Fund may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Fund (or securities having characteristics similar to those held by
the Fund) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Fund's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities may substantially be offset by appreciation in the value of
the futures position.
On other occasions, a Fund may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Fund
expects to purchase particular securities when it has the necessary cash, but
expects the rate of return available in the securities markets at that time to
be less favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
5
<PAGE>
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities may be offset, at least to some extent, by the rise in the value
of the futures position taken in anticipation of the subsequent securities
purchase.
Successful use by a Fund of futures contracts on debt securities is
subject to SCMI's ability to predict correctly movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if a Fund has hedged against the possibility of an increase in interest
rates which would adversely affect the market prices of debt securities held by
it and the prices of such securities increase instead, the Fund will lose part
or all of the benefit of the increased value of its securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements. The Fund may have
to sell securities at a time when it may be disadvantageous to do so.
A Fund may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to options
on securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. A Fund
will be required to deposit initial margin and maintenance margin with respect
to put and call options on futures contracts written by it pursuant to brokers'
requirements, and, in addition, net option premiums received will be included as
initial margin deposits. See "Margin Payments" below. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options plus transactions costs. However, there
may be circumstances when the purchase of call or put options on a futures
contract would result in a loss to a Fund when the purchase or sale of the
futures contracts would not, such as when there is no movement in the prices of
debt securities. The writing of a put or call option on a futures contract
involves risks similar to those risks relating to the purchase or sale of
futures contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. Certain Funds may invest in debt
index futures contracts and stock index futures contracts, and in related
options. A debt index futures contract is a contract to buy or sell units of a
specified debt index at a specified future date at a price agreed upon when the
contract is made. A unit is the current value of the index. Debt index futures
in which the Funds are presently expected to invest are not now available,
although such futures contracts are expected to become available in the future.
A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one
contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Fund enters into a futures contract to buy 100 units of the
S&P 100 Index at a specified future date at a contract price of $180 and the S&P
100 Index is at $184 on that future date, the Fund will gain $400 (100 units x
gain of $4). If the Fund enters into a futures contract to sell 100 units of the
stock index at a specified future date at a contract price of $180 and the S&P
100 Index is at $182 on that future date, the Fund will lose $200 (100 units x
loss of $2).
A Fund may purchase or sell futures contracts with respect to any securities
indexes. Positions in index futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures.
6
<PAGE>
In order to hedge a Fund's investments successfully using futures
contracts and related options, a Fund must invest in futures contracts with
respect to indexes or sub-indexes the movements of which will, in its judgment,
have a significant correlation with movements in the prices of the Fund's
securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
As an alternative to purchasing and selling call and put options on
index futures contracts, each of the Funds that may purchase and sell index
futures contracts may purchase and sell call and put options on the underlying
indexes themselves to the extent that such options are traded on national
securities exchanges. Index options are similar to options on individual
securities in that the purchaser of an index option acquires the right to buy
(in the case of a call) or sell (in the case of a put), and the writer
undertakes the obligation to sell or buy (as the case may be), units of an index
at a stated exercise price during the term of the option. Instead of giving the
right to take or make actual delivery of securities, the holder of an index
option has the right to receive a cash "exercise settlement amount". This amount
is equal to the amount by which the fixed exercise price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing value
of the underlying index on the date of the exercise, multiplied by a fixed
"index multiplier".
A Fund may purchase or sell options on stock indices in order to close out
its outstanding positions in options on stock indices which it has purchased. A
Fund may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to a Fund because
the maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
MARGIN PAYMENTS. When a Fund purchases or sells a futures contract, it
is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the amount
of the futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to a Fund upon termination of the contract, assuming a Fund satisfies its
contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a Fund sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Fund's position
declines in value. The Fund then pays the broker a variation margin payment
equal to the difference between the delivery price of the futures contract and
the market price of the securities underlying the futures contract. Conversely,
if the price of the underlying security falls below the delivery price of the
contract, the Fund's futures position increases in value. The broker then must
make a variation margin payment equal to the difference between the delivery
price of the futures contract and the market price of the securities underlying
the futures contract.
When a Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.
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SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market for such
futures. Although each Fund intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular time.
If there is not a liquid secondary market at a particular time, it may not be
possible to close a futures position at such time and, in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event financial futures are used
to hedge portfolio securities, such securities will not generally be sold until
the financial futures can be terminated. In such circumstances, an increase in
the price of the portfolio securities, if any, may partially or completely
offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there
are several special risks relating to options on futures contracts. The ability
to establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Fund generally will purchase only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that a Fund would have to exercise the options
in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by a
Fund of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying securities or
index or movements in the prices of a Fund's securities which are the subject of
a hedge. SCMI will, however, attempt to reduce this risk by purchasing and
selling, to the extent possible, futures contracts and related options on
securities and indexes the movements of which will, in its judgment, correlate
closely with movements in the prices of the underlying securities or index and a
Fund's portfolio securities sought to be hedged.
Successful use of futures contracts and options by a Fund for hedging
purposes is also subject to SCMI's ability to predict correctly movements in the
direction of the market. It is possible that, where a Fund has purchased puts on
futures contracts to hedge its portfolio against a decline in the market, the
securities or index on which the puts are purchased may increase in value and
the value of securities held in the portfolio may decline. If this occurred, the
Fund would lose money on the puts and also experience a decline in value in its
portfolio securities. In addition, the prices of futures, for a number of
reasons, may not correlate perfectly with movements in the underlying securities
or index due to certain market distortions. First, all participants in the
futures market are subject to margin deposit requirements. Such requirements may
cause investors to close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying security or index
and futures markets. Second, the margin requirements in the futures markets are
less onerous than margin requirements in the securities markets in general, and
as a result the futures markets may attract more speculators than the securities
markets do. Increased participation by speculators in the futures markets may
also cause temporary price distortions. Due to the possibility of price
distortion, even a correct forecast of general market trends by SCMI may still
not result in a successful hedging transaction over a very short time period.
OTHER RISKS. The Funds will incur brokerage fees in connection with
their futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Fund may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures contracts
or options transactions. Moreover, in the event of an imperfect correlation
between the futures position and the portfolio position which is intended to be
protected, the desired protection may not be obtained and the Fund may be
exposed to risk of loss.
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FORWARD COMMITMENTS
Each Fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments")
if the Fund holds, and maintains until the settlement date in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the Fund enters into offsetting contracts for the forward
sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of the Fund's other assets. Where
such purchases are made through dealers, a Fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to the
Fund of an advantageous yield or price.
Although a Fund will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, a Fund may dispose of a commitment prior
to settlement if SCMI deems it appropriate to do so. A Fund may realize
short-term profits or losses upon the sale of forward commitments.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements. A repurchase agreement
is a contract under which the Fund acquires a security for a relatively short
period (usually not more than 7 days) subject to the obligation of the seller to
repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). It is the Trust's present
intention to enter into repurchase agreements only with member banks of the
Federal Reserve System and securities dealers meeting certain criteria as to
creditworthiness and financial condition established by the Trustees of the
Trust and only with respect to obligations of the U.S. government or its
agencies or instrumentalities or other high quality short term debt obligations.
Repurchase agreements may also be viewed as loans made by a Fund which are
collateralized by the securities subject to repurchase. SCMI will monitor such
transactions to ensure that the value of the underlying securities will be at
least equal at all times to the total amount of the repurchase obligation,
including the interest factor. If the seller defaults, a Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale including accrued interest are less than the resale price provided in the
agreement including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, a Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal and interest
if a Fund is treated as an unsecured creditor and required to return the
underlying collateral to the seller's estate.
WHEN-ISSUED SECURITIES
Each Fund may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued on this basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time a
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by a Fund and no interest accrues to the Fund. To
the extent that assets of a Fund are held in cash pending the settlement of a
purchase of securities, that Fund would earn no income. While a Fund may sell
its right to acquire when-issued securities prior to the settlement date, a Fund
intends actually to acquire such securities unless a sale prior to settlement
appears desirable for investment reasons. At the time a Fund makes the
commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the amount due and the value of the security in
determining the Fund's net asset value. The market value of the when-issued
securities may be more or less than the purchase price payable at the settlement
date. Each Fund will establish a segregated account in which it will maintain
cash and U.S. Government Securities or other high-grade debt obligations at
least equal in value to commitments for when-issued securities. Such segregated
securities either will mature or, if necessary, be sold on or before the
settlement date.
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LOANS OF FUND SECURITIES
A Fund may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. government securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Fund may at any time
call the loan and regain the securities loaned; (3) a Fund will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of portfolio securities loaned will not at any time exceed
one-third of the total assets of the Fund. In addition, it is anticipated that
the Fund may share with the borrower some of the income received on the
collateral for the loan or that it will be paid a premium for the loan. Before a
Fund enters into a loan, SCMI considers all relevant facts and circumstances
including the creditworthiness of the borrower. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Although voting rights or rights to consent with
respect to the loaned securities pass to the borrower, a Fund retains the right
to call the loans at any time on reasonable notice, and it will do so in order
that the securities may be voted by a Fund if the holders of such securities are
asked to vote upon or consent to matters materially affecting the investment. A
Fund will not lend portfolio securities to borrowers affiliated with a Fund.
FOREIGN SECURITIES
Each Fund may invest in foreign securities and in certificates of
deposit issued by United States branches of foreign banks and foreign branches
of United States banks.
Investments in foreign securities may involve considerations different
from investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other fees are generally higher than in the
United States. It may be more difficult to obtain and enforce a judgment against
a foreign issuer.
In addition, to the extent that any Fund's foreign investments are not
United States dollar-denominated, the Fund may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers, the
investment adviser of a Fund seeking current income will consider the likely
impact of foreign taxes on the net yield available to the Fund and its
shareholders. Income received by a Fund from sources within foreign countries
may be reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of a Fund's assets to be invested in
various countries is not known, and tax laws and their interpretations may
change from time to time and may change without advance notice. Any such taxes
paid by a Fund will reduce its net income available for distribution to
shareholders.
FOREIGN CURRENCY TRANSACTIONS
Each Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. A Fund may engage in both "transaction hedging" and
"position hedging."
When it engages in transaction hedging, a Fund enters into foreign
currency transactions with respect to specific receivables or payables of a Fund
generally arising in connection with the purchase or sale of its portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security
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it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend
or interest payment in a foreign currency. By transaction hedging a Fund will
attempt to protect against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold or
on which the dividend or interest payment is declared, and the date on which
such payments are made or received.
A Fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. A Fund
may also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes a Fund may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives a Fund the right to assume a short position in the futures contract until
expiration of the option. A put option on currency gives a Fund the right to
sell a currency at an exercise price until the expiration of the option. A call
option on a futures contract gives a Fund the right to assume a long position in
the futures contract until the expiration of the option. A call option on
currency gives a Fund the right to purchase a currency at the exercise price
until the expiration of the option. A Fund will engage in over-the-counter
transactions only when appropriate exchange-traded transactions are unavailable
and when, in SCMI's opinion, the pricing mechanism and liquidity are
satisfactory and the participants are responsible parties likely to meet their
contractual obligations.
When it engages in position hedging, a Fund enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by a Fund are denominated or are
quoted in their principal trading markets or an increase in the value of
currency for securities which a Fund expects to purchase. In connection with
position hedging, a Fund may purchase put or call options on foreign currency
and foreign currency futures contracts and buy or sell forward contracts and
foreign currency futures contracts. A Fund may also purchase or sell foreign
currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of a
Fund's portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for a Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Fund is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of a Fund if the market value of such security or securities exceeds
the amount of foreign currency a Fund is obligated to deliver.
To offset some of the costs to a Fund of hedging against fluctuations
in currency exchange rates, a Fund may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Fund owns or intends to purchase or
sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in the value of
such currency.
A Fund may also seek to increase its current return by purchasing and
selling foreign currencies on a spot basis, and by purchasing and selling
options on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
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CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, a Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when SCMI believes that a liquid secondary market exists for such options. There
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. Options on foreign currencies are affected by all
of those factors which influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
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FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should a Fund desire to resell
that currency to the dealer.
ZERO-COUPON SECURITIES
Zero-coupon securities in which a Fund may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest. As a result, the net asset value of shares of a Fund
investing in zero-coupon securities may fluctuate over a greater range than
shares of other Funds of the Trust and other mutual funds investing in
securities making current distributions of interest and having similar
maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly
by the U.S. Treasury or other short-term debt obligations, and longer-term bonds
or notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). CATS and TIGRS are not considered U.S. Government
Securities. The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(I.E., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under the
STRIPS program, a Fund will be able to have its beneficial ownership of U.S.
Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
SHORT SALES
In a short sale, a Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. A Fund
also may engage in short sales if, at the time of the short sale, it owns or has
the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale
"against-the-box." In such a short sale, a seller does not immediately deliver
the securities sold and is said to have a short position in those securities
until delivery occurs. If a Fund engages in a short sale, the collateral for the
short position is maintained by the Fund's custodian or a qualified
sub-custodian. While the short sale is open, the Fund maintains in a segregated
account an amount of securities equal in kind and amount to the securities sold
short or securities convertible into or exchangeable for such equivalent
securities. These securities constitute the Fund's long position. The Fund does
not engage in short sales against-the-box for speculative purposes but may,
however, make a short sale as a hedge, when SCMI believes that the price of a
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security may decline, causing a decline in the value of a security owned by the
Fund (or a security convertible or exchangeable for such security). There are
certain additional transaction costs associated with short sales
against-the-box, but SCMI endeavors to offset these costs with the income from
the investment of the cash proceeds of short sales. Under the Taxpayer Relief
Act of 1997, activities by the Fund which lock-in gain on an appreciated
financial instrument generally will be treated as a "constructive sale" of such
instrument which will trigger gain (but not loss) for federal income tax
purposes. Such activities may create taxable income in excess of the cash they
generate. For more information regarding the taxation of such activities, see
"Taxation."
ARBITRAGE. International Bond Fund 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 Fund 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
Fund at the time of the transaction, thus eliminating any risk to the assets of
the Fund.
SWAP AGREEMENTS. International Bond Fund 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 Fund than if the Fund
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.
The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations that the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Fund would
calculate the obligations of the parties to the agreement on a "net" basis.
Consequently, the Fund's obligations (or rights) under a swap agreement are
generally equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). The Fund's obligations under a swap agreement
will be accrued daily (offset against any amounts owing to the Fund) and any
accrued but unpaid net amounts owed to a swap counterparty will be covered by
maintaining a segregated account comprised of Segregable Assets to avoid any
potential leveraging of the Fund's investment portfolio. The Fund will not enter
into a swap agreement with any single party if the net amount owed or to be
received under existing contracts with that party would exceed 5% of the Fund's
assets.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA. To qualify for this exemption, a swap
agreement must be entered into by "eligible participants," which includes the
following, provided the participants' total assets exceed established levels: a
bank or trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.
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This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that: (1) have
individually tailored terms; (2) lack exchange style offset and the use of a
clearing organization or margin system; (3) are undertaken in conjunction with a
line of business; and (4) are not marketed to the public.
INVESTMENT RESTRICTIONS
These restrictions, unless otherwise indicated, are all fundamental
policies of each Fund and cannot be changed without the affirmative vote of a
majority of the outstanding shares of each Fund, which is defined in the 1940
Act as the affirmative vote of the holders of the lesser of: (1) 67% or more of
the shares present at a meeting of shareholders, if the holders of more than 50%
of the outstanding shares are represented at the meeting in person or by proxy;
or (2) more than 50% of the outstanding shares. A non-fundamental policy does
not override a fundamental limitation. The non-fundamental policies of a
Portfolio may be changed by the Board of Trustees of Schroder Capital Funds
without approval of its interestholders or Fund shareholders. The fundamental
and non-fundamental restrictions are set forth below for each of the Funds.
SCHRODER INTERNATIONAL FUND
Under the additional restrictions set forth below, Schroder
International Fund will not:
FUNDAMENTAL POLICIES:
1. Invest more than 5% of its assets in the securities of any single
issuer. This restriction does not apply to securities issued by the
U.S. Government, its agencies or instrumentalities;
2. Purchase more than 10% of the voting securities of any one issuer;
3. Invest more than 10% of its assets in "illiquid securities" (Securities
that cannot be disposed of within seven days at their then current
value). For purposes of this limitation, "illiquid securities"
includes, except in those circumstances described below: (1)
"restricted securities", which are securities that cannot be resold to
the public without registration under federal securities law; and (2)
securities of issuers (together with all predecessors) having a record
of less than three years of continuous operation;
4. Invest 25% or more of the value of its total assets in any one
industry;
5. Borrow money, except from banks for temporary emergency purposes, and
then only in an amount not exceeding 5% of the value of the total
assets of the Fund;
6. Pledge, mortgage or hypothecate its assets to an extent greater than
10% of the value of its total assets;
7. Purchase securities on margin or sell short;
8. Make investments for the purpose of exercising control or management;
9. Purchase or sell real estate (provided that the Fund may invest in
securities issued by companies that invest in real estate or interests
therein);
10. Make loans to other persons (provided that for purposes of this
restriction, entering into repurchase agreements, acquiring corporate
debt securities and investing in U.S. Government obligations,
short-term commercial paper, certificates of deposit and bankers'
acceptances shall not be deemed to be the making of a loan);
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11. Invest in commodities; commodity contracts other than foreign currency
forward contracts; or oil, gas and other mineral resource, lease, or
arbitrage transactions.
12. Write, purchase or sell options, puts, calls, straddles, spreads, or
combinations thereof.
13. Underwrite securities issued by other persons (except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under U.S. securities laws);
14. Invest in warrants, valued at the lower of cost or market, to more than
5% of the value of the Fund's net assets. Included within that
amount, but not to exceed 2% of the value of the Fund's net assets, may
be warrants that are not listed on the New York or American Stock
Exchange. Warrants acquired by the Portfolio in units or attached to
securities may be deemed to be without value;
15. Purchase more than 3% of the outstanding securities of any closed-end
investment company. Any such purchase of securities issued by a
closed-end investment company will otherwise be made in full compliance
with Sections 12(d)(1)(a)(i), (ii) and (iii) of the Investment Company
Act of 1940 (the "1940 Act").
NON-FUNDAMENTAL POLICY:
Schroder International Fund will not invest in restricted securities. This
policy does not include restricted securities eligible for resale to qualified
institutional purchasers pursuant to Rule 144A under the Securities Act of 1933
that are determined to be liquid by SCMI pursuant to guidelines adopted by the
Board of Trustees of Schroder Capital Funds. Such guidelines take into account
trading activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in
particular Rule 144A securities, these securities may be illiquid.
SCHRODER EMERGING MARKETS FUND
Under the additional restrictions set forth below, Schroder Emerging
Markets Fund will not:
FUNDAMENTAL POLICIES:
1. Purchase a security if, as a result, more than 25% of the Fund's total
assets would be invested in securities of issuers conducting their
principal business activities in the same industry. For purposes of
this limitation, there is no limit on: (1) investments in U.S.
Government Securities, in repurchase agreements covering U.S.
Government Securities, in securities issued by the states, territories
or possessions of the United States ("municipal securities") or in
foreign government securities; or (2) investment in issuers domiciled
in a single jurisdiction. Notwithstanding anything to the contrary, to
the extent permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the extent that it
invests in other investment companies pursuant to Section 12(d)(1)(A)
of the 1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of this policy.
2. Borrow money if, as a result, outstanding borrowings would exceed an
amount equal to one third of the Fund's total assets.
3. Purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate
business).
4. Make loans to other parties. For purposes of this limitation, entering
into repurchase agreements, lending securities and acquiring any debt
security are not deemed to be the making of loans.
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5. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities).
6. Underwrite (as that term is defined in the Securities Act of 1933, as
amended) securities issued by other persons except, to the extent that
in connection with the disposition of its assets, the Fund may be
deemed to be an underwriter.
7. Issue any class of senior securities except to the extent consistent
with the 1940 Act.
NONFUNDAMENTAL POLICIES
Schroder Emerging Markets Fund has adopted the following nonfundamental
investment limitations.
1. The Fund is "non-diversified" as that term is defined in the 1940 Act.
To the extent required to qualify as a regulated investment company
under the Code, the Fund may not purchase a security (other than a U.S.
Government Security or a security of an investment company) if, as a
result: (1) with respect to 50% of its assets, more than 5% of the
Fund's total assets would be invested in the securities of any single
issuer; (2) with respect to 50% of its assets, the Fund would own more
than 10% of the outstanding securities of any single issuer; or (3)
more than 25% of the Fund's total assets would be invested in the
securities of any single issuer.
2. For purposes of the limitation on borrowing, the following are not
treated as borrowings to the extent they are fully collateralized: (1)
the delayed delivery of purchased securities (such as the purchase of
when-issued securities); (2) reverse repurchase agreements; (3)
dollar-roll transactions; and (5) the lending of securities ("leverage
transactions").
In addition, Schroder Emerging Markets Fund will not:
3. Invest more than 15% of its net assets in: (1) securities that cannot
be disposed of within seven days at their then-current value; (2)
repurchase agreements not entitling the holder to payment of principal
within seven days; and (3) securities subject to restrictions on the
sale of the securities to the public without registration under the
1933 Act ("restricted securities") that are not readily marketable. The
Fund may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board of Trustees of the Trust or the Board
of Schroder Capital Funds, as the case may be.
4. Make investments for the purpose of exercising control of an issuer.
Investments by the Fund in entities created under the laws of foreign
countries solely to facilitate investment in securities in that country
will not be deemed the making of investments for the purpose of
exercising control.
5. Invest in securities of another investment company, except to the
extent permitted by the 1940 Act.
6. Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), and provided that transactions in
futures contracts and options are not deemed to constitute selling
securities short; and may not
Purchase securities on margin, except that the Fund may use short-term
credit for the clearance of its portfolio's transactions, and provided
that initial and variation margin payments in connection with futures
contracts and options on futures contracts shall not constitute
purchasing securities on margin.
7. Lend a security if, as a result, the amount of loaned securities would
exceed an amount equal to one third of the Fund's total assets.
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SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
Under the additional restrictions set forth below, Schroder
International Smaller Companies Fund will not:
FUNDAMENTAL POLICIES:
1. With respect to 75% of its assets, purchase a security other than a
security issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or a security of an investment company if, as a
result, more than 5% of the Fund's total assets would be invested in
the securities of a single issuer or the Fund would own more than 10%
of the outstanding voting securities of any single issuer.
2. Concentrate investments in any particular industry; therefore, the
Fund will not purchase the securities of companies in any one industry
if, thereafter, 25% or more of the Fund's total assets would consist
of securities of companies in that industry. This restriction does not
apply to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. An investment of more than 25% of the
Fund's assets in the securities of issuers located in one country does
not contravene this policy.
3. Borrow money in excess of 331/3% of its total assets taken at market
value (including the amount borrowed) and then only from a bank as a
temporary measure for extraordinary or emergency purposes, including
to meet redemptions or to settle securities transactions that may
otherwise require untimely dispositions of portfolio securities.
4. Purchase or sell real estate, provided that the Fund may invest in
securities issued by companies which invest in real estate or
interests therein.
5. Make loans to other persons, provided that for purposes of this
restriction, entering into repurchase agreements or acquiring any
otherwise permissible debt securities or engaging in securities loans
shall not be deemed to be the making of a loan.
6. Invest in commodities or commodity contracts other than forward
foreign currency exchange contracts.
7. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under U.S. securities laws.
8. Issue senior securities except to the extent permitted by the 1940
Act.
Except for the policies on borrowing and illiquid securities, the percentage
restrictions described above apply only at the time of investment and require no
action by the Fund as a result of subsequent changes in value of the investments
or the size of the Fund.
SCHRODER INTERNATIONAL BOND FUND
Under the additional restrictions set forth below, Schroder
International Bond Fund will not:
FUNDAMENTAL POLICIES:
1. Concentrate investments in any particular industry; therefore, the Fund
will not purchase the securities of companies in any one industry if,
thereafter, 25% or more of the Fund's total assets would consist of
securities of companies in that industry. This restriction does not
apply to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (or repurchase agreements with respect
thereto). An investment of more than 25% of the Fund's assets in the
securities of issuers located in one country does not contravene this
policy.
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2. Borrow money in excess of 33-1/3% of its total assets taken at market
value (including the amount borrowed) and then only from a bank as a
temporary measure for extraordinary or emergency purposes, including
to meet redemptions or to settle securities transactions that may
otherwise require untimely dispositions of portfolio securities.
3. Purchase or sell real estate, provided that the Fund may invest in
securities issued by companies that invest in real estate or interests
therein.
4. Make loans to other persons, provided that for purposes of this
restriction, entering into repurchase agreements or acquiring any
otherwise permissible debt securities including engaging in securities
lending shall not be deemed to be the making of a loan.
5. Invest in commodities or commodity contracts, except that, subject to
the restrictions described in the Prospectus and elsewhere in this
SAI, the Fund may: (1) enter into futures contracts and options on
futures contracts; (2) enter into foreign forward currency exchange
contracts and foreign currency options; (3) purchase or sell
currencies on a spot or forward basis; and (4) may enter into futures
contracts on securities, currencies or on indices of such securities
or currencies, or any other financial instruments, and may purchase
and sell options on such futures contracts.
6. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments,
it may be deemed to be an underwriter under U.S. securities laws.
7. Issue senior securities except to the extent permitted by the 1940
Act.
NON-FUNDAMENTAL POLICIES:
International Bond Fund has adopted the following nonfundamental
investment limitations. The Fund will not:
1. Acquire securities or invest in repurchase agreements with respect to
any securities if, as a result, more than 15% of its net assets (taken
at current value) would be invested in illiquid securities (securities
that cannot be disposed of within seven days at their then-current
value), including repurchase agreements not entitling the holder to
payment of principal within seven days and securities that are not
readily marketable by virtue of restrictions on the sale of such
securities to the public without registration under the Securities Act
of 1933, as amended ("Restricted Securities"). Illiquid securities do
not include securities that can be sold to the public in foreign
markets or that may be eligible for resale to qualified institutional
purchasers pursuant to Rule 144A under the Securities Act of 1933 that
are determined to be liquid by the investment adviser pursuant to
guidelines adopted by the Trust's Board of Trustees.
2. Make investments for the purpose of exercising control or management,
except in connection with a merger, consolidation, acquisition, or
reorganization with another investment company or series thereof.
(Investments by the Fund in wholly owned investment entities created
under the laws of certain foreign countries will not be deemed the
making of investments for the purpose of exercising control or
management.)
3. Invest in interests in oil, gas or other mineral exploration,
resource, or lease transactions or development programs but may
purchase readily marketable securities of companies that operate,
invest in, or sponsor such programs.
4. The Fund may acquire or retain the securities of any other investment
company except to the extent permitted by the 1940 Act, including in
connection with a merger, consolidation, acquisition, or
reorganization.
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<PAGE>
Except for the policies on borrowing and illiquid securities, the percentage
restrictions described above apply only at the time of investment and require no
action by the Fund as a result of subsequent changes in value of the investments
or the size of the Fund.
SCHRODER U.S. DIVERSIFIED GROWTH FUND
Under the additional restrictions set forth below, Schroder U.S.
Diversified Growth Fund will not:
FUNDAMENTAL POLICIES:
1. Issue senior securities except that: (1) it may borrow money from a
bank on its promissory note or other evidence of indebtedness. Any
such borrowing may not exceed one third of the Fund's total assets
after the borrowing; (2) if at any time it exceeded such one-third
limitation, the Fund would within three days thereafter (not including
Sundays or holidays) or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations, reduce its
borrowings to the limitation; and (3) might or might not be secured
and, if secured, all or any part of the Fund's assets could be
pledged. To comply with such limitations, the Fund might be required
to dispose of certain assets when it might be disadvantageous to do
so. Any such borrowings would be subject to Federal Reserve Board
regulations. (As a non-fundamental policy, the Fund does not borrow
for investment purposes.)
2. Effect short sales, purchase any security on margin or write or
purchase put and call options.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest 25% or more of the value of its total assets in any one
industry.
5. Engage in the purchase and sale of illiquid interests in real estate,
including illiquid interests in real estate investment trusts.
6. Engage in the purchase and sale of commodities or commodity contracts.
7. Invest in companies for the purpose of exercising control or
management.
8. Underwrite securities of other issuers, except that the Fund may
acquire portfolio securities, not in excess of 10% of the value of its
total assets, under circumstances where if sold it might be deemed to
be an underwriter for the purposes of the Securities Act of 1933.
9. Make loans to other persons except that it may purchase evidences of
indebtedness of a type distributed privately to financial institutions
but not in excess of 10% of the value of its total assets.
10. Acquire securities described in 8 and 9 above which in the aggregate
exceed 10% of the value of the Fund's total assets.
11. Invest in other investment companies.
NON-FUNDAMENTAL POLICIES:
Schroder U.S. Diversified Growth Fund: (1) will not invest more than
10% of its total assets in illiquid securities, including securities described
in items 8 and 9 above and repurchase agreements maturing more than seven days;
and (2) will not engage in writing, buying or selling of stock index futures,
options on stock index futures, financial futures contracts or options thereon.
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SCHRODER U.S. SMALLER COMPANIES FUND
Under the additional restrictions set forth below, Schroder U.S. Smaller
Companies Fund will not:
FUNDAMENTAL POLICIES:
1. Borrow money, except that the Fund may borrow from banks or by
entering into reverse repurchase agreements, provided that such
borrowings do not exceed 33 1/3% of the value of the Portfolio's total
assets (computed immediately after the borrowing).
2. Underwrite securities of other companies (except insofar as the Fund
might be deemed to be an underwriter in the resale of any securities
held in its portfolio);
3. Invest in commodities or commodity contracts (other than Hedging
Instruments, which it may use as permitted by any of its other
fundamental policies, whether or not any such Hedging Instrument is
considered to be a commodity or a commodity contract);
4. Purchase securities on margin; however, the Fund may make margin
deposits in connection with any Hedging Instruments, which it may use
as permitted by any of its other fundamental policies;
5. Purchase or write puts or calls except as permitted by any of its
other fundamental policies;
6. Lend money except in connection with the acquisition of that portion
of publicly-distributed debt securities which the Fund's investment
policies and restrictions permit it to purchase (see "Investment
Objectives and Policies" in the Prospectus); the Fund may also make
loans of portfolio securities (see "Loans of Portfolio Securities")
and enter into repurchase agreements (see "Repurchase Agreements");
7. Pledge, mortgage or hypothecate its assets to an extent greater than
10% of the value of the total assets of the Fund; however, this does
not prohibit the escrow arrangements contemplated by the put and call
activities of the Fund or other collateral or margin arrangements in
connection with any of the Hedging Instruments, which it may use as
permitted by any of its other fundamental policies;
8. Invest in companies for the purpose of acquiring control or management
thereof;
9. Invest in interests in oil, gas or other mineral exploration or
development programs (but may purchase readily marketable securities
of companies which operate, invest in, or sponsor such programs); or
10. Invest in real estate or in interests in real estate, but may purchase
readily marketable securities of companies holding real estate or
interests therein.
SCHRODER MICRO CAP FUND
Under the additional restrictions set forth below, Schroder Micro Cap
Fund will not:
FUNDAMENTAL POLICIES:
1. Underwrite securities of other companies (except insofar as the Fund
might be deemed to be an underwriter in the resale of any securities
held in its portfolio);
2. Invest in commodities or commodity contracts (other than Hedging
Instruments, which it may use as permitted by any of its other
fundamental policies, whether or not any such Hedging Instrument is
considered to be a commodity or a commodity contract);
21
<PAGE>
3. Purchase securities on margin; however, the Fund may make margin
deposits in connection with any Hedging Instruments, which it may use
as permitted by any of its other fundamental policies;
4. Purchase or write puts or calls except as permitted by any of its
other fundamental policies;
5. Lend money except in connection with the acquisition of that portion
of publicly-distributed debt securities that the Fund's investment
policies and restrictions permit it to purchase (see "Investment
Objective" and "Investment Policies" in the Prospectus); the Fund may
also make loans of portfolio securities (see "Loans of Portfolio
Securities") and enter into repurchase agreements (see "Repurchase
Agreements");
6. Pledge, mortgage or hypothecate its assets to an extent greater than
10% of the value of the total assets of the Fund; however, this does
not prohibit the escrow arrangements contemplated by the put and call
activities of the Fund or other collateral or margin arrangements in
connection with any of the Hedging Instruments, which it may use as
permitted by any of its other fundamental policies;
7. Invest in companies for the purpose of acquiring control or management
thereof, except that the Fund may invest in other investment companies
to the extent permitted under the 1940 Act or by rule or exemption
thereunder.
8. Invest in interests in oil, gas or other mineral exploration or
development programs (but may purchase readily marketable securities
of companies which operate, invest in, or sponsor such programs); or
9. Invest in real estate or in interests in real estate, but may purchase
readily marketable securities of companies holding real estate or
interests therein.
MANAGEMENT
OFFICERS AND TRUSTEES. The following information relates to the
principal occupations during the past five years of each Trustee and executive
officer of the Trust and shows the nature of any affiliation with SCMI. Except
as noted, each of these individuals currently serves in the same capacity for
Schroder Capital Funds, Schroder Capital Funds II and Schroder Series Trust,
other registered investment companies in the Schroder family of funds.
PETER E. GUERNSEY, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Insurance Consultant since August 1986; prior thereto
Senior Vice President, Marsh & McLennan, Inc., insurance brokers.
JOHN I. HOWELL, 80, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Private Consultant since February 1987; Honorary Director,
American International Group, Inc.; Director, American International Life
Assurance Company of New York.
CLARENCE F. MICHALIS, 75, c/o the Trust, Two Portland Square, Portland, Maine -
Trustee of the Trust; Chairman of the Board of Directors, Josiah Macy, Jr.
Foundation (charitable foundation).
HERMANN C. SCHWAB, 77, c/o the Trust, Two Portland Square, Portland, Maine -
Chairman and Trustee of the Trust; retired since March, 1988; prior thereto,
consultant to SCMI since February 1, 1984.
HON. DAVID N. DINKINS, 69, c/o the Trust, Two Portland Square, Portland, Maine,
Trustee of the Trust; Professor, Columbia University School of International and
Public Affairs; Director, American Stock Exchange, Carver Federal Savings Bank,
Transderm Laboratory Corporation, and The Cosmetic Center, Inc.; formerly,
Mayor, The City of New York.
PETER S. KNIGHT, 46, c/o the Trust, Two Portland Square, Portland, Maine,
Trustee of the Trust; Partner, Wunder, Knight, Levine, Thelen & Forcey;
Director, Comsat Corp., Medicis Pharmaceutical Corp., and Whitman Education
Group Inc., Formerly, Campaign Manager, Clinton/Gore `96.
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SHARON L. HAUGH*, 51, 787 Seventh Avenue, New York, New York, Trustee of the
Trust; Chairman, Schroder Capital Management Inc. ("SCM"), Executive Vice
President and Director, SCMI; Chairman and Director, Schroder Advisors.
MARK J. SMITH*, 35, 33 Gutter Lane, London, England - President and Trustee of
the Trust; Senior Vice President and Director of SCMI since April 1990; Director
and Senior Vice President, Schroder Advisors.
MARK ASTLEY, 33, 787 Seventh Avenue, New York, New York - Vice President of the
Trust; First Vice President of SCMI, prior thereto, employed by various
affiliates of SCMI in various positions in the investment research and portfolio
management areas since 1987.
FERGAL CASSIDY, 29, 787 Seventh Avenue, New York, New York - Treasurer of the
Trust; Acting Controller and Assistant Vice President of SCM and SCMI since
September 1997; Assistant Vice President of SCM and SCMI from April 1997 to
September 1997; Associate, SCMI, from August 1995 to March 1997; and prior
thereto Senior Accountant of Concurrency Mgt., Greenwich, Connecticut from
November 1994 to August 1995, and Senior Accountant, Schroder Properties,
London, September 1990 to November 1993.
ROBERT G. DAVY, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior thereto,
employed by various affiliates of SCMI in various positions in the investment
research and portfolio management areas since 1986.
MARGARET H. DOUGLAS-HAMILTON, 55, 787 Seventh Avenue, New York, New York - Vice
President of the Trust; Secretary of SCM since July 1995; Senior Vice President
(since April 1997) and General Counsel of Schroders U.S. Holdings Inc. since May
1987; prior thereto, partner of Sullivan & Worcester, a law firm.
RICHARD R. FOULKES, 51, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Deputy Chairman of SCMI since October 1995; Director and Executive
Vice President of Schroder Capital Management International Ltd. since 1989.
JOHN Y. KEFFER, 54, Two Portland Square, Portland, Maine - Vice President of the
Trust; President of FFC, the Fund's transfer and dividend disbursing agent and
other affiliated entities including Forum Financial Services, Inc., Forum
Administrative Services, LLC, and Forum Advisors, Inc.
JANE P. LUCAS, 35, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director and Senior Vice President of SCMI; Director of SCM since
September 1995; Director of Schroder Advisors since September 1996; Assistant
Director Schroder Investment Management Ltd. since June 1991.
ALAN MANDEL, 41, 787 Seventh Avenue, New York, New York - Assistant Treasurer of
the Trust; Vice President of SCMI since September 1998; prior thereto, Director
of Mutual Fund Administration for Salomon Brothers Asset Management since 1995;
prior thereto, Chief Financial Officer and Vice President of Mutual Capital
Management since 1991.
CATHERINE A. MAZZA, 37, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; President of Schroder Advisors since 1997; First Vice President of
SCMI and SCM since 1996; prior thereto, held various marketing positions at
Alliance Capital, an investment adviser, since July 1985.
CARIN MUHLBAUM, 36, 787 Seventh Avenue, New York, New York - Assistant Secretary
of the Trust; Vice President of SCMI since 1998; prior thereto, an investment
management attorney with Seward & Kissel since 1998; prior thereto, an
investment management attorney with Gordon Altman Butowsky Weitzen Shalov & Wein
since 1989.
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MICHAEL PERELSTEIN, 41, 787 Seventh Avenue, New York, New York - Vice President
of the Trust; Director since May 1997 and Senior Vice President of SCMI since
January 1997; prior thereto, Managing Director of MacKay - Shields Financial
Corp.
ALEXANDRA POE, 37, 787 Seventh Avenue, New York, New York - Secretary and Vice
President of the Trust; Vice President of SCMI since August 1996; Fund Counsel
and Senior Vice President of Schroder Advisors since August 1996; Secretary of
Schroder Advisors; prior thereto, an investment management attorney with Gordon
Altman Butowsky Weitzen Shalov & Wein since July 1994; prior thereto, counsel
and Vice President of Citibank, N.A. since 1989.
NICHOLAS ROSSI, 35, 787 Seventh Avenue, New York, New York - Assistant Secretary
of the Trust, Associate of SCMI since October 1997 and Assistant Vice President
Schroder Advisors since March 1998; prior thereto, Mutual Fund Specialist,
Willkie Farr & Gallagher since May 1996; prior thereto, Fund Administrator with
Furman Selz LLC since 1992.
THOMAS G. SHEEHAN, 44, Two Portland Square, Portland, Maine - Assistant
Treasurer and Assistant Secretary of the Trust; Relationship Manager and
Counsel, Forum Financial Services, Inc. since 1993; prior thereto, Special
Counsel, U.S. Securities and Exchange Commission, Division of Investment
Management, Washington, D.C.
FARIBA TALEBI, 36, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Group Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas since 1987;
Director of SCM since April 1997.
JOHN A. TROIANO, 38, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Director of SCM since April 1997; Chief Executive Officer, since July
1, 1997, of SCMI and Managing Director and Senior Vice President of SCMI since
October 1995; prior thereto, employed by various affiliates of SCMI in various
positions in the investment research and portfolio management areas since 1981.
CHERYL O. TUMLIN, 32, Two Portland Square, Portland, Maine - Assistant Treasurer
and Assistant Secretary of the Trust; Assistant Counsel, Forum Administrative
Services, LLC since July 1996, prior thereto, attorney with the U.S. Securities
and Exchange Commission, Division of Market Regulation since 1995; prior
thereto, attorney with Robinson Silverman Pearce Aronsohn & Berman since 1991.
IRA L. UNSCHULD, 31, 787 Seventh Avenue, New York, New York - Vice President of
the Trust; Vice President of SCMI since April, 1993 and an Associate from July,
1990 to April, 1993.
* Interested Trustee of the Trust within the meaning of the 1940 Act.
Schroder Advisors is a wholly owned subsidiary of SCMI, which is a wholly
owned subsidiary of Schroders U.S. Holdings Inc., which in turn is an indirect,
wholly owned U.S. subsidiary of Schroders plc. SCM is also a wholly owned
subsidiary of Schroders U.S. Holdings Inc..
Officers and Trustees who are interested persons of the Trust receive
no salary, fees or compensation from the Fund. Independent Trustees of the Trust
receive an annual retainer of $11,000 and additional fees of $1,250 per meeting
attended in person or $500 per meeting attended by telephone. Members of an
Audit Committee for one or more of the investment companies receive an
additional $1,000 per year. Payment of the annual retainer is allocated among
the various investment companies based on their relative net assets. Payment of
meeting fees is allocated only among those investment companies to which the
meeting relates. None of the registered investment companies in the Fund Complex
has any bonus, profit sharing, pension or retirement plans.
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The following table provides the total fees paid by the Trust to each
independent Trustee of the Trust for the fiscal year ended May 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation From
Aggregate Benefits Accrued Estimated Annual Trust And Fund
Compensation From As Part of Trust Benefits Upon Complex Paid To
Name of Trustee Trust Expenses Retirement Trustees
- -------------------------------- -------------------- -------------------- --------------------- -------------------
Mr. Guernsey $2,289 $0 $0 $7,000
Mr. Howell $1,680 $0 $0 $7,000
Mr. Michalis $2,289 $0 $0 $7,000
Mr. Schwab $2,539 $0 $0 $7,750
Mr. Dinkins $1,430 $0 $0 $5,000
Mr. Knight $1,430 $0 $0 $6,250
</TABLE>
* In addition to the Trust, the "Fund Complex" includes three other registered
investment companies (Schroder Capital Funds II, an open-end company; Schroder
Capital Funds, an open-end company; and Schroder Series Trust, an open-end
company) for which SCMI serves as investment adviser for each series.
As of August 31, 1998, the officers and Trustees of the Trust owned, in the
aggregate, less than 1% of the Trust's outstanding shares. Mr. Ira Unschuld,
principal advisor with regard to Micro Cap Fund, held 8.01% of the Investor
Shares of that Fund, as set forth in Table 4 of Appendix B.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Table 5 in Appendix B to this SAI sets forth certain information with
regard to the holders of more than 5% of the beneficial interests in each Fund,
together with information regarding the holders of more than 25% of the
beneficial interests in each Fund.
INVESTMENT ADVISER
SCMI, 787 Seventh Avenue, New York, New York 10019, serves as
investment adviser to each Portfolio under an investment advisory agreement
between Schroder Core and SCMI. SCMI is a wholly owned U.S. subsidiary of
Schroders U.S. Holdings Inc., the wholly owned U.S. holding company subsidiary
of Schroders plc. Schroders plc is the holding company parent of a large
worldwide group of banks and financial service companies (referred to as the
"Schroder Group"), with associated companies and branch and representative
offices in eighteen countries. The Schroder Group specializes in providing
investment management services, with funds under management of approximately
$175 billion as of June 30, 1998.
Under the advisory agreements, SCMI is responsible for managing the
investment program for each Fund or Portfolio. In this regard, it is SCMI's
responsibility to make decisions relating to the portfolio investments and to
place purchase and sale orders regarding such investments with brokers or
dealers it selects. SCMI also furnishes Schroder Core Board and the Trust Board
with periodic reports on the investment performance of the Portfolios and the
Funds.
Under the terms of the advisory agreements, SCMI is required to manage
the investment portfolios in accordance with applicable laws and regulations. In
making its investment decisions, SCMI does not use material inside information
that may be in its possession or in the possession of its affiliates.
Each Fund (other than U.S. Diversified Growth Fund and Micro Cap Fund)
currently invests all of its assets in a Portfolio. As long as a Fund remains
completely invested in a Portfolio (or any other investment company), SCMI is
not entitled to receive an investment advisory fee with respect to the Fund. A
Fund may
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<PAGE>
withdraw its investment from a Portfolio at any time if the Trust Board
determines that it is in the best interests of the Fund and its shareholders to
do so. Accordingly, the Trust has retained SCMI as investment adviser to manage
a Fund's assets in the event a Fund so withdraws its investment. The investment
advisory agreement between the Trust and SCMI with respect to the Funds is the
same in all material respects as the Investment Advisory Agreement with respect
to the Portfolios (except as to the parties, the fees and the circumstances
under which fees will be paid, and the jurisdiction whose laws govern the
agreement). During a time that a Fund did not have substantially all of its
assets invested in a Portfolio or another investment company, for providing
investment advisory services under the investment advisory agreement for the
Fund, SCMI would be entitled to receive advisory fees monthly at the following
annual rates (based on the assets of each Fund taken separately): SCHRODER
INTERNATIONAL FUND -- 0.50% of the first $100 million of the Fund's average
daily net assets, 0.40% of the next $150 million of average daily net assets and
0.35% of average daily net assets in excess of $250 million; SCHRODER EMERGING
MARKETS FUND -- 1.00% of the Fund's average daily net assets; SCHRODER
INTERNATIONAL SMALLER COMPANIES FUND -- 0.75% of the Fund's average daily net
assets; SCHRODER INTERNATIONAL BOND PORTFOLIO -- 0.50% of the Fund's average
daily net assets; and SCHRODER U.S. SMALLER COMPANIES FUND -- 0.50% of the first
$100 million of the Fund's average daily net assets, 0.40% of the next $150
million of average net assets and 0.35% of average daily net assets in excess of
$250 million.
Table 1 in APPENDIX B shows the dollar amount of the advisory fees
payable had certain waivers not been in place, together with the dollar amount
of investment advisory fees waived, and the dollar amount of net fees paid. The
percentage amounts of the advisory fees are set forth in the Prospectus. This
information is provided for the past three years (or such shorter terms as a
Fund has been operational).
Each Fund Advisory Agreement continues in effect provided such
continuance is approved annually: (1) by the holders of a majority of the
outstanding voting securities of the Funds or by the Board; and, in either case,
(2) by a majority of the Trustees who are not parties to the Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. Each Fund
Advisory Agreement may be terminated without penalty by vote of the Trustees or
the Fund's shareholders on 60 days' written notice to the investment adviser, or
by the investment adviser on 60 days' written notice to the Trust, and it
terminates automatically if assigned. Each Fund's Advisory Agreement also
provides that, with respect to the Funds, neither SCMI nor its personnel shall
be liable for any error of judgment or mistake of law or for any act or omission
in the performance of duties to either Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason of reckless
disregard of any obligations and duties under the Agreement.
Subject to the direction and control of SCMI. Schroder Investment
Management International, Ltd. ("SIMIL"), 31 Gresham Street, London, U.K. EC2V
7QA, an affiliate of SCMI, serves as subadviser to Schroder International
Smaller Companies Portfolio, pursuant to an Investment Subadvisory Agreement
among SCMI, SIMIL, and the Portfolio. SIMIL, a newly organized investment
advisory firm, is a wholly-owned subsidiary of Schroders plc, and as of June 30,
1998 had under management assets of approximately $42 billion. Under the
Subadvisory Agreement, SCMI pays SIMIL a monthly fee at the annual rate of 0.25%
of the Portfolio's average daily net assets.
Under the terms of the Investment Subadvisory agreement, SIMIL provides
investment subadvisory services to Schroder International Smaller Companies
Portfolio in accordance with applicable laws and regulations. In making its
investment decisions, SIMIL does not use material inside information that may be
in its possession or in the possession of its affiliates.
The Investment Subadvisory agreement continues in effect provided such
continuance is approved annually: (1) by the vote of a majority of the
outstanding voting securities of the Portfolio (as defined by the 1940 Act) or
by the Board and (2) by a majority of the Trustees who are not parties to the
agreement or "interested persons" (as defined in the 1940 Act) of any party to
the agreement. The investment sub-advisory agreement may be terminated without
penalty (i) by a vote of the Board or by a vote of a majority of the outstanding
voting interests of the Portfolio on 60 days' written notice to SIMIL; (ii) by
SCMI on 60 days' written notice to SIMIL; or (iii) by SIMIL on 60 days' written
notice to the Trust. The agreement shall terminate automatically if assigned.
The agreement also provides that, with respect to the Portfolio, neither SIMIL
nor its personnel shall be liable for any
26
<PAGE>
error of judgment or mistake of law or for any act or omission in the
performance of its or their duties to the Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of SIMIL's or
their duties or by reason of reckless disregard of its or their obligations and
duties under the agreement.
ADMINISTRATIVE SERVICES
On behalf of each Fund, the Trust has entered into an Administration
Agreement with Schroder Advisors, under which Schroder Advisors provides
management and administrative services necessary for the operation of each Fund,
including: (1) preparation of shareholder reports and communications; (2)
regulatory compliance, such as reports to and filings with the SEC and state
securities commissions; and (3) general supervision of the operation of each
Fund, including coordination of the services performed by each Fund's investment
adviser, transfer agent, custodian, independent accountants, legal counsel and
others. Schroder Advisors is a wholly owned subsidiary of SCMI and is a
registered broker-dealer organized to act as administrator and distributor of
mutual funds.
For providing administrative services Schroder Advisors is entitled to
receive from the Funds a fee, payable monthly, at the annual rate set out in the
Prospectus as to each Fund's average daily net assets. The Administration
Agreement is terminable with respect to each Fund without penalty, at any time,
by the Trust Board, upon 60 days' written notice to Schroder Advisors or by
Schroder Advisors upon 60 days' written notice to the Trust.
The Trust has entered into a Subadministration Agreement with FAdS.
Under its Agreement, FAdS assists Schroder Advisors with certain of its
responsibilities under the Administration Agreement, including shareholder
reporting and regulatory compliance. For providing its services, FAdS is
entitled to receive a monthly fee from each Fund at the annual rate set out in
the Prospectus as to the Fund's average daily net assets. The Subadministration
Agreement is terminable with respect to each Fund without penalty, at any time,
by the Trust Board, upon 60 days' written notice to FAdS or by FAdS upon 60
days' written notice to the Fund.
Schroder Advisors and FAdS provide similar services to the Portfolios
pursuant to administration and subadministration agreements between Schroder
Core and each of these entities, for which Schroder Advisors and FAdS are each
compensated at the annual rate set out in the Prospectus as to each Portfolio's
average daily net assets. The administration and subadministration agreements
with regard to the Portfolios are the same in all material respects as the
Funds' respective agreements (except as to the parties, the circumstances under
which the fees will be paid, and the fees payable thereunder).
The fees paid by the Funds and Portfolios to SCMI and Schroder Advisors
may equal the totals set forth in the Prospectus as to each Fund's average daily
net assets. Such fees as a whole are higher than advisory and management fees
charged to mutual funds which invest primarily in U.S. securities but not
necessarily higher than those charged to funds with investment objectives
similar to those of the Funds.
Table 2 in APPENDIX B shows the Administration Fees and
Subadministration Fees payable by each Fund had certain waivers not been in
place, together with the dollar amount of such fees waived and the dollar amount
of net fees paid by each Fund. This information is provided for the past three
years (or such shorter time as a Fund has been operational).
DISTRIBUTION OF FUND SHARES
Schroder Advisors, 787 Seventh Avenue, New York, New York 10019, serves
as Distributor of Fund shares under a Distribution Agreement. Schroder Advisors
is a wholly owned subsidiary of Schroders U.S. Holdings Inc., the parent company
of SCMI, and is a registered broker-dealer organized to act as administrator
and/or distributor of mutual funds.
Under the Distribution Agreement, Schroder Advisors has agreed to use
its best efforts to secure purchases of Fund shares in jurisdictions in which
such shares may be legally offered for sale. Schroder Advisors is not obligated
to sell any specific amount of Fund shares. Further, Schroder Advisors has
agreed in the Distribution
27
<PAGE>
Agreement to serve without compensation and to pay from its own resources all
costs and expenses incident to the sale and distribution of Fund shares
including expenses for printing and distributing prospectuses and other sales
materials to prospective investors, advertising expenses, and the salaries and
expenses of its employees or agents in connection with the distribution of Fund
shares.
Under a Distribution Plan (the "Plan"), which is of the type know as a
reimbursement plan adopted by the Trust with respect to Advisor Shares only, the
Trust may pay directly or may reimburse the investment adviser or a
broker-dealer registered under the Securities Exchange Act of 1934 (the "1934
Act") (the investment adviser or such registered broker-dealer, if so
designated, being a "Distributor" of the Fund's shares) monthly (subject to a
limit of 0.50% per annum of that Fund's average daily net assets) for: (1)
advertising expenses including advertising by radio, television, newspapers,
magazines, brochures, sales literature or direct mail; (2) costs of printing
prospectuses and other materials to be given or sent to prospective investors;
(3) expenses of sales employees or agents of the Distributor, including salary,
commissions, travel, and related expenses in connection with the distribution of
Fund shares; and (4) payments to broker-dealers (other than the Distributor) or
other organizations for services rendered in the distribution of the Fund's
shares, including payments in amounts based on the average daily value of Fund
shares owned by shareholders in respect of which the broker-dealer or
organization has a distributing relationship. The Trustees have not currently
authorized payments under the Plan, although payments by a Fund under the
Shareholder Service Plan, which will not exceed the annual rate of 0.25% of a
Fund's average daily net assets, will be deemed to have been made pursuant to
the Distribution Plan to the extent such payments may be considered to be
primarily intended to result in the sale of the Fund's Advisor Shares. Under the
Plan, the Funds are not liable for distribution expenditures of the Distributor
in any given year in excess of the maximum amount (0.50% per annum of the Fund's
average daily net assets) payable under the Plan in that year. Salary expenses
of sales staff responsible for marketing shares of the Fund may be allocated
among various series of the Trust that have adopted a Plan similar to that of
the Fund on the basis of average net assets; travel expenses are allocated among
the series of the Trust. The Trust Board has concluded that there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
Without shareholder approval, the Plan may not be amended to increase
materially the costs that any Fund may bear. Other material amendments to the
Plan must be approved by the Trust , and by the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any related
agreement (the "disinterested Trustees"), by vote cast in person at a meeting
called for the purpose of considering such amendments. The selection and
nomination of the Trustees of the Trust has been committed to the discretion of
the disinterested Trustees. The Plan has been approved, and is subject to annual
approval, by the Trust Board and by the disinterested Trustees, by vote cast in
person at a meeting called for the purpose of voting on the Plan. The Plan is
terminable with respect to a Fund at any time by a vote of a majority of the
disinterested Trustees or by vote of the holders of a majority of the shares of
the Fund. During the period ended May 31, 1998, no Fund accrued or paid any
dollars under the Plan.
SHAREHOLDER SERVICE PLAN AND SERVICE ORGANIZATIONS
Under the Shareholder Service Plan approved by the Trust for the Funds'
Advisor Shares, the Trust may also contract with banks, trust companies,
broker-dealers or other financial organizations ("Service Organizations") to
provide certain administrative services for shareholders of the Funds' Advisor
Shares. The Funds may pay fees (which may vary depending upon the services
provided) to Service Organizations in amounts up to an annual rate of 0.25% of
the daily net asset value of the Funds' Advisor Shares owned by shareholders
with whom the Service Organization has a servicing relationship. Services
provided by Service Organizations may include: (1) providing personnel and
facilities necessary to establish and maintain certain shareholder accounts and
records; (2) assisting in processing purchase, exchange and redemption
transactions; (3) arranging for the wiring of funds or transmitting and
receiving funds in connection with client orders to purchase or redeem shares;
(4) verifying and guaranteeing client signatures in connection with redemption
orders, transfers among, and changes in client-designated accounts; (5)
providing periodic statements of a client's account balances and, to the extent
practicable, integrating such information with other client transactions; (6)
furnishing periodic and annual statements and confirmations of all purchases and
redemptions of shares in a client's account; (7) transmitting proxy statements,
annual reports, and updating prospectuses and other communications from the Fund
to clients; and (8) such other services as the Fund
28
<PAGE>
or a client reasonably may request, to the extent permitted by applicable
statute, rule or regulation. Neither SCMI nor Schroder Advisors will be a
Service Organization or receive fees for servicing. The Funds have no intention
of making any such payments to Service Organizations with respect to accounts of
institutional investors and, in any event, would make no such payments until the
Trust Board specifically so authorizes.
Some Service Organizations may impose additional or different conditions
on their clients, such as requiring them to invest more than the minimum
investments specified by the Funds or charging a direct fee for servicing. If
imposed, these fees would be in addition to any amounts that might be paid to
the Service Organization by the Funds. Each Service Organization agrees to
transmit to its clients a schedule of any such fees. Shareholders using Service
Organizations are urged to consult them regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that banks may
not engage in the business of underwriting, selling or distributing securities.
There currently is no precedent prohibiting banks from performing administrative
and shareholder servicing functions as Service Organizations. However, judicial
or administrative decisions or interpretations of such laws, as well as changes
in either federal or state statutes or regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, could prevent a bank
service organization from continuing to perform all or a part of its servicing
activities. If a bank were prohibited from so acting, its shareholder clients
would be permitted to remain Fund shareholders, and alternative means for
continuing the servicing of such shareholders would be sought. In that event,
changes in the operation of a Fund might occur, and a shareholder serviced by
such a bank might no longer be able to avail itself of any services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these occurrences.
FUND ACCOUNTING
Forum Accounting Services, LLC ("Forum Accounting"), an affiliate of
Forum, performs fund accounting services for each Fund pursuant to an agreement
with the Trust. The Accounting Agreement is terminable with respect to each Fund
without penalty, at any time, by the Trust Board upon 60 days' written notice to
Forum Accounting or by Forum Accounting upon 60 days' written notice to the
Trust.
Under its agreement, Forum Accounting prepares and maintains the books
and records of each Fund that are required to be maintained under the 1940 Act,
calculates the net asset value per share of each Fund, calculates dividends and
capital-gain distributions, and prepares periodic reports to shareholders and
the SEC. For its services to each Fund, Forum Accounting is entitled to receive
from the Trust a fee of $36,000 per year plus $12,000 per year for each class of
each Fund above one. Forum Accounting is entitled to an additional $24,000 per
year with respect to global and international funds. In addition, Forum
Accounting also is entitled to an additional $12,000 per year with respect to
tax-free money market funds, funds with more than 25% of their total assets
invested in asset-backed securities, funds that have more than 100 security
positions, or funds that have a monthly portfolio turnover rate of 10% or
greater.
Forum Accounting is required to use its best judgment and efforts in
rendering fund accounting services and is not liable to the Trust for any action
or inaction in the absence of bad faith, willful misconduct or gross negligence.
Forum Accounting is not responsible or liable for any failure or delay in the
performance of its fund accounting obligations arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control. The
Trust has agreed to indemnify and hold harmless Forum Accounting and its
employees, agents, officers and directors against and from any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and all other expenses arising out of or in any way
related to Forum Accounting's actions taken or failures to act with respect to a
Fund or based, if applicable, upon information, instructions or requests with
respect to a Fund given or made to Forum Accounting by an officer of the Trust
duly authorized. This indemnification does not apply to Forum Accounting's
actions taken or failures to act in cases of Forum Accounting's own bad faith,
willful misconduct or gross negligence.
Table 3 in Appendix B shows the dollar amount of fees paid for accounting
services by the Funds and the Portfolios. This information is provided for the
past three years (or such shorter time a Fund has been operational).
29
<PAGE>
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for the Funds or the Portfolios and for SCMI's
other investment advisory clients are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved, and
a particular security may be bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner that, in
SCMI's opinion, is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients. Each Portfolio's portfolio transaction costs are borne pro rata
by its investors, including the Fund that invests in it.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions
involve the payment of negotiated brokerage commissions. Such commissions vary
among brokers. Also, a particular broker may charge different commissions
according to the difficulty and size of the transaction; for example,
transactions in foreign securities generally involve the payment of fixed
brokerage commissions, which are generally higher than those in the U.S. Since
most brokerage transactions for a Fund are placed with foreign broker-dealers,
certain portfolio transaction costs for a Fund may be higher than fees for
similar transactions executed on U.S. securities exchanges. However, SCMI seeks
to achieve the best net results in effecting its portfolio transactions. There
is generally less governmental supervision and regulation of foreign stock
exchanges and brokers than in the U.S. There is generally no stated commission
in the case of securities traded in the over-the-counter markets, but the price
paid usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid includes a disclosed, fixed commission or
discount retained by the underwriter or dealer.
Each Fund's Advisory Agreement and the Core Advisory Agreements
authorize and direct SCMI to place orders for the purchase and sale of a Fund's
or a Portfolio's investments with brokers or dealers it selects and to seek
"best execution" of such portfolio transactions. SCMI places all such orders for
the purchase and sale of portfolio securities and buys and sells securities
through a substantial number of brokers and dealers. In so doing, SCMI uses its
best efforts to obtain the most favorable price and execution available. A Fund
or a Portfolio may, however, pay higher than the lowest available commission
rates when SCMI believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction. In seeking the most favorable price and execution, SCMI considers
all factors it deems relevant (including price, transaction size, the nature of
the market for the security, the commission amount, the timing of the
transaction (taking into account market prices and trends), the reputation,
experience and financial stability of the broker-dealers involved, and the
quality of service rendered by the broker-dealers in other transactions).
Historically, investment advisers, including advisers of investment
companies and other institutional investors, have received research services
from broker-dealers that execute portfolio transactions for the advisers'
clients. Consistent with this practice, SCMI may receive research services from
broker-dealers with which it places portfolio transactions. These services,
which in some cases may also be purchased for cash, include such items as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to SCMI in advising various of
its clients (including a Fund or a Portfolio), although not all of these
services are necessarily useful and of value in managing a Fund or a Portfolio.
The investment advisory fee paid by a Fund or a Portfolio is not reduced because
SCMI and its affiliates receive such services.
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As permitted by Section 28(e) of the 1934 Act, SCMI may cause a Fund or
a Portfolio to pay a broker-dealer that provides SCMI with "brokerage and
research services" (as defined in the 1934 Act) an amount of disclosed
commission for effecting a securities transaction in excess of the commission
which another broker-dealer would have charged for effecting that transaction.
In addition, although it does not do so currently SCMI may allocate brokerage
transactions to broker-dealers who have entered into arrangements under which
the broker-dealer allocates a portion of the commissions paid by a Fund or a
Portfolio toward payment of Fund or Portfolio expenses, such as custodian fees.
Subject to the general policies of a Fund or a Portfolio regarding
allocation of portfolio brokerage as set forth above, the Core Board has
authorized SCMI to employ: (1) Schroder & Co. Inc., an affiliate of SCMI, to
effect securities transactions of a Fund or a Portfolio on the New York Stock
Exchange only; and (2) Schroder Securities Limited and its affiliates
(collectively, "Schroder Securities"), affiliates of SCMI, to effect securities
transactions of a Fund or a Portfolio on various foreign securities exchanges on
which Schroder Securities has trading privileges, provided certain other
conditions are satisfied as described below.
Payment of brokerage commissions to Schroder & Co. Inc. or Schroder
Securities for effecting such transactions is subject to Section 17(e) of the
1940 Act, which requires, among other things, that commissions for transactions
on a securities exchange paid by a registered investment company to a broker
that is an affiliated person of such investment company (or an affiliated person
of another person so affiliated) not exceed the usual and customary broker's
commissions for such transactions. It is the policy of each Fund and of each
Portfolio that commissions paid to Schroder & Co. Inc. or Schroder Securities
will, in SCMI's opinion, be: (1) at least as favorable as commissions
contemporaneously charged by Schroder & Co. Inc. or Schroder Securities, as the
case may be, on comparable transactions for their most favored unaffiliated
customers; and (2) at least as favorable as those which would be charged on
comparable transactions by other qualified brokers having comparable execution
capability. The Trust Board and Core Board, including a majority of the
respective non-interested Trustees, have each adopted procedures pursuant to
Rule 17e-1 under the 1940 Act to ensure that commissions paid to Schroder & Co.
Inc. or Schroder Securities by a Fund or a Portfolio satisfy the foregoing
standards. Such procedures are reviewed periodically by the applicable Board,
including a majority of the non-interested Trustees. Each Board also reviews all
transactions at least quarterly for compliance with such procedures.
It is further a policy of the Funds and the Portfolios that all such
transactions effected by Schroder & Co. Inc. on the New York Stock Exchange be
in accordance with Rule 11a2-2(T) promulgated under the 1934 Act, which requires
in substance that a member of such exchange not associated with Schroder & Co.
Inc. actually execute the transaction on the exchange floor or through the
exchange facilities. Thus, while Schroder & Co. Inc. will bear responsibility
for determining important elements of execution such as timing and order size,
another firm will actually execute the transaction.
Schroder & Co. Inc. pays a portion of the brokerage commissions it receives
from a Fund or a Portfolio to the brokers executing the transactions on the New
York Stock Exchange. In accordance with Rule 11a2-2(T), Schroder Core has
entered into an agreement with Schroder & Co. Inc. permitting it to retain a
portion of the brokerage commissions paid to it by a Fund or a Portfolio. Each
Board, including a majority of the non-interested Trustees, has approved this
agreement.
None of the Funds or the Portfolios has any understanding or arrangement to
direct any specific portion of its brokerage to Schroder & Co. Inc. or Schroder
Securities, and none will direct brokerage to Schroder & Co. Inc. or Schroder
Securities in recognition of research services.
From time to time, a Fund or a Portfolio may purchase securities of a
broker or dealer through which it regularly engages in securities transactions.
See Table 5 in Appendix B to this SAI for information regarding the payment
of brokerage commissions.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
The net asset value per share of each class of a Fund is determined as
of the close of trading on the New York Stock Exchange each day that the
Exchange is open. Any assets or liabilities initially expressed in terms of
non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the afternoon of
valuation. The Exchange's most recent holiday schedule (which is subject to
change) states that it will close on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Board has established procedures for the valuation of a Fund's
securities: (1) equity securities listed or traded on the New York or American
Stock Exchange or other domestic or foreign stock exchange are valued at their
latest sale prices on such exchange that day prior to the time when assets are
valued; in the absence of sales that day, such securities are valued at the
mid-market prices (in cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by the Portfolio's investment adviser); (2) unlisted equity securities
for which over-the-counter market quotations are readily available are valued at
the latest available mid-market prices prior to the time of valuation; (3)
securities (including restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures; (4) debt
securities having a maturity in excess of 60 days are valued at the mid-market
prices determined by a portfolio pricing service or obtained from active market
makers on the basis of reasonable inquiry; and (5) short-term debt securities
(having a remaining maturity of 60 days or less) are valued at cost, adjusted
for amortization of premiums and accretion of discount.
When an option is written, an amount equal to the premium received is
recorded in the books as an asset, and an equivalent deferred credit is recorded
as a liability. The deferred credit is adjusted ("marked-to-market") to reflect
the current market value of the option. Options are valued at their mid-market
prices in the case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the average of the last bid price as obtained
from two or more dealers unless there is only one dealer, in which case that
dealer's price is used. Futures contracts and related options are stated at
market value.
REDEMPTIONS IN-KIND
In the event that payment for redeemed shares is made wholly or partly
in portfolio securities, shareholders may incur brokerage costs in converting
the securities to cash. An in-kind distribution of portfolio securities is
generally less liquid than cash. The shareholder may have difficulty finding a
buyer for portfolio securities received in payment for redeemed shares.
Portfolio securities may decline in value between the time of receipt by the
shareholder and conversion to cash. A redemption in-kind of portfolio securities
could result in a less diversified portfolio of investments for a Fund and could
affect adversely the liquidity of its investment portfolio.
TAXATION
Under the Internal Revenue Code of 1986, as amended (the "Code"), each
Fund and each other series established from time to time by the Trust Board is
treated as a separate taxpayer for federal income tax purposes with the result
that: (1) each such series must meet separately the income and distribution
requirements for qualification as a regulated investment company; and (2) the
amounts of investment income and capital gain earned are determined on a
series-by-series (rather than on a Trust-wide) basis.
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code each year so long as such qualification is in the best
interests of its shareholders. To do so, each Fund intends to distribute to
shareholders at least 90% of its "investment company taxable income" as defined
in the Code (which includes, among other items, dividends, interest and the
excess of any net short-term capital gain over net long-term capital loss), and
to meet certain diversification of assets, source of income, and other
requirements of the Code. By so doing, each Fund will not be subject to federal
income tax on its investment company taxable income and "net
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capital gain" (the excess of net long-term capital gain over net short-term
capital loss) distributed to shareholders. If a Fund does not meet all of these
Code requirements, it will be taxed as an ordinary corporation, and its
distributions will be taxable to shareholders as ordinary income.
Amounts not distributed on a timely basis (in accordance with a
calendar year distribution requirement) are subject to a 4% nondeductible excise
tax. To prevent this, each Fund must distribute for each calendar year an amount
equal to the sum of: (1) at least 98% of its ordinary income (excluding any
capital gain or loss) for the calendar year; (2) at least 98% of the excess of
its capital gain over capital loss realized during the one-year period ending
October 31 of such year; and (3) all such ordinary income and capital gain for
previous years that were not distributed during such years. A distribution will
be treated as paid during the calendar year if it is declared by a Fund in
October, November or December of the year with a record date in such month and
paid by the Fund during January of the following year. Such distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
Distributions of investment company taxable income (including net
realized short-term capital gain) are taxable to shareholders as ordinary
income. Generally, it is not expected that such distributions will be eligible
for the dividends received deduction available to corporations.
Distributions of net long-term capital gain are taxable to shareholders
as long-term capital gain, regardless of the length of time Fund shares have
been held by a shareholder and are not eligible for the dividends received
deduction. Such distributions will qualify for the new reduced rates for capital
gains on assets held for more than 18 months to the extent they represent gains
on the sale of such assets. A loss realized by a shareholder on the sale of Fund
shares held for six months or less with respect to which capital-gain
distributions have been paid will, to the extent of such capital-gain
distributions, be treated as long-term capital loss. Further, a loss realized on
a disposition will be disallowed to the extent the shares disposed of are
replaced (whether by reinvestment or distribution or otherwise) within a period
of 61 days beginning 30 days before and ending 30 days after the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.
All distributions to shareholders are taxable whether reinvested in
additional shares or received in cash. Shareholders that reinvest distributions
will have for federal income tax purposes a cost basis in each share received
equal to the net asset value of a share of a Fund on the reinvestment date.
Shareholders will be notified annually as to the federal tax status of
distributions.
Distributions by a Fund reduce the net asset value of that Fund's
shares. If a distribution reduces the net asset value below a shareholder's cost
basis, such distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution, which will be returned to the investor
in the form of a taxable distribution.
Upon redemption or sale of shares, a shareholder will realize a taxable
gain or loss, which will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands. Such gain or loss generally will be
long-term or short-term depending upon the shareholder's holding period for the
shares, and generally will qualify for the new reduced rates for capital gains
if the shares have been held for more than 18 months.
Ordinary income dividends paid to Fund shareholders who are nonresident
aliens are subject to a 30% U.S. withholding tax under existing provisions of
the Code applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Nonresident shareholders are urged to consult their own tax advisors concerning
the applicability of the U.S. withholding tax.
Dividends and interest received (and, in certain circumstances,
realized capital gain) by a Fund may give rise to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
U.S. may reduce or eliminate such taxes. If more than 50% in value of a Fund's
total assets at the close of its taxable year consists of stock or securities of
foreign corporations, that Fund will be eligible, and ordinarily expects,
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to file an election with the Internal Revenue Service ("IRS") pursuant to which
shareholders of the Fund will be required to include their proportionate share
of such withholding taxes in their U.S. income tax returns as gross income;
treat such proportionate share as taxes paid by them; and, subject to certain
limitations, deduct such proportionate share in computing their taxable incomes
or, alternatively use them as foreign tax credits against their U.S. income
taxes. No deductions for foreign taxes, however, may be claimed by noncorporate
shareholders who do not itemize deductions. Each Fund will report annually to
its shareholders the amount per share of such withholding taxes.
Due to investment laws in certain emerging market countries, it is
anticipated that a Fund's investments in equity securities in such countries
will consist primarily of shares of investment companies (or similar investment
entities) organized under foreign law or of ownership interests in special
accounts, trusts or partnerships. If a Fund purchases shares of an investment
company (or similar investment entity) organized under foreign law, that Fund
will be treated as owning shares in a passive foreign investment company
("PFIC") for U.S. federal income tax purposes. A Fund may be subject to U.S.
federal income tax, and an additional tax in the nature of interest, on a
portion of distributions from such company and on gain from the disposition of
such shares (collectively referred to as "excess distributions"), even if such
excess distributions are paid by that Fund as a dividend to its shareholders.
Each Fund may make an election with respect to a PFIC in which it owns
shares to mark such shares to the market annually or to treat the PFIC as a
"qualified electing fund" that will allow it to avoid the taxes on excess
distributions. However, such election may cause a Fund to recognize income in a
particular year in excess of the distributions received from such PFICs.
If a Fund engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to-market, straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. Each Fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interests of the
Fund.
Certain of a Fund's hedging activities (including its transactions, if
any, in foreign currencies or foreign currency-denominated instruments) are
likely to produce a difference between its book income and its taxable income.
If a Fund's book income exceeds its taxable income, the distribution (if any) of
such excess will be treated as: (1) a dividend to the extent of the Fund's
remaining earnings and profits (including earnings and profits arising from
tax-exempt income); (2) thereafter as a return of capital to the extent of the
recipient's basis in the shares; and (3) thereafter as gain from the sale or
exchange of a capital asset. If a Fund's book income is less than its taxable
income, the Fund could be required to make distributions exceeding book income
to qualify as a regulated investment company that is accorded special tax
treatment.
In general, gain from "foreign currencies" and from foreign currency
options, foreign currency futures contracts and forward foreign exchange
contracts relating to investments in stock, securities or foreign currencies
will be qualifying income for purposes of determining whether a Fund qualifies
as a regulated investment company. It is currently unclear, however, who will be
treated as the issuer of a foreign currency instrument or how foreign currency
options, futures contracts or forward foreign currency contracts will be valued
for purposes of the regulated investment company diversification requirements
applicable to each Fund.
A Fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency options,
futures contracts and forward contracts (and similar instruments) may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
Certain Fund investments, including assets "marked to the market" for
federal income tax purposes and debt obligations issued or purchased at a
discount, will create taxable income in excess of the cash they generate. In
such cases, a Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the
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cash necessary to distribute as dividends to its shareholders all of its income
and gains and therefore to eliminate any tax liability at the Fund level.
Pursuant to the 1997 Act, new "constructive sale" provisions apply to
activities by a Fund which lock-in gain on an "appreciated financial position."
Generally, a "position" is defined to include stock, a debt instrument, or
partnership interest, or an interest in any of the foregoing, including through
a short sale, a swap contract, or a future or forward contract. Under the 1997
Act, the entry into a short sale, a swap contract or a future or forward
contract relating to an appreciated direct position in any stock or debt
instrument, or the acquisition of stock or debt instrument at a time when a Fund
occupies an offsetting (short) appreciated position in the stock or debt
instrument, is treated as a "constructive sale" that gives rise to the immediate
recognition of gain (but not loss). The application of these new provisions may
cause a Fund to recognize taxable income from these offsetting transactions in
excess of the cash generated by such activities.
The Trust is required to report to the IRS all distributions and gross
proceeds from the redemption of Fund shares (except in the case of certain
exempt shareholders). All such distributions and proceeds generally will be
subject to the withholding of federal income tax at a rate of 31% ("backup
withholding") in the case of non-exempt shareholders if: (1) the shareholder
fails to furnish the Trust with and to certify the shareholder's correct
taxpayer identification number or social security number; (2) the IRS notifies
the Trust that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect; or (3)
when required to do so, the shareholder fails to certify that it is not subject
to backup withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amount required to be withheld. Any amounts
withheld may be credited against the shareholder's federal income tax liability.
Investors may wish to consult their tax advisors about the applicability of the
"backup withholding" provisions.
The IRS recently revised its regulations affecting the application to
foreign investors of the "back-up withholding" and withholding tax rules
described above. The new regulations will generally be effective for payments
made on or after January 1, 1999 (although transition rules will apply). In some
circumstances, the new rules will increase the certification and filing
requirements imposed on foreign investors in order to qualify for exemption from
the 31% back-up withholding tax and for reduced withholding tax rates under
income tax treaties. Foreign investors in each Fund should consult their tax
advisors with respect to the potential application of these new regulations.
The income tax and estate tax consequences to a non-U.S. shareholder
entitled to claim the benefits of an applicable tax treaty may be different from
those described herein. Non-U.S. shareholders may be required to provide
appropriate documentation to establish their entitlement to the benefits of such
a treaty.
Non-U.S. shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in shares of
a Fund.
The foregoing discussion relates only to federal income tax law as
applicable to U.S. persons (I.E., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by a Fund also
may be subject to foreign, state and local taxes, and their treatment under
foreign, state and local income tax laws may differ from the federal income tax
treatment. Shareholders should consult their tax advisors with respect to
particular questions of federal, foreign, state and local taxation.
OTHER INFORMATION
FUND STRUCTURE
CLASSES OF SHARES. Each Fund except Schroder Micro Cap Fund has two
classes of shares, Investor Shares and Advisor Shares. Advisor Shares are
offered by a separate prospectus to individual investors, in most cases through
service organizations. Advisor Shares incur more expenses but have lower
investment minimums than Investor Shares. Except for certain class differences,
each share of each class represents an undivided, proportionate
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interest in the Fund. Each share of the Fund is entitled to participate equally
in dividends and other distributions and the proceeds of any liquidation of the
Fund except that, due to the differing expenses borne by the two classes, the
amount of dividends and other distributions differs between the classes.
Information about the other class of shares is available from the Trust by
calling Schroder Advisors at 1-800-730-2932.
THE PORTFOLIOS. Each of the Funds (except Schroder U.S. Diversified
Growth Fund and Schroder Micro Cap Fund) seeks to achieve its investment
objective by investing all of its investable assets in a Portfolio that has the
same investment objective and substantially similar policies as those of the
Fund. Accordingly, the Portfolio directly acquires its own securities, and the
Fund acquires an indirect interest in those securities. Schroder International
Bond Portfolio is a separate series of Schroder Capital Funds II, a business
trust organized under the laws of the state of Delaware in December, 1996
("Schroder Core II"). Each other Portfolio in which a Fund invests is a separate
series of Schroder Core, a business trust organized under the laws of the State
of Delaware in September 1995. Schroder Core is registered under the 1940 Act as
an open-end, management investment company and currently has eight separate
series. Schroder Core II is similarly registered and currently has one series.
The assets of each Portfolio belong only to, and the liabilities of each
Portfolio are borne solely by, that Portfolio and no other portfolio of Schroder
Core or Schroder Core II.
Each Fund's investment in a Portfolio is in the form of a
non-transferable beneficial interest. The Portfolio may permit other investment
companies or other qualified investors to invest in it. All other investors in
the Portfolio will invest on the same terms and conditions as the Fund and will
pay a proportionate share of the Portfolio's expenses.
A Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in a Portfolio is entitled to vote in
proportion to its relative beneficial interest in the Portfolio. On most issues
subject to a vote of investors, as permitted under the 1940 Act and other
applicable law, the Board may solicit proxies from the Fund's shareholders and
vote the Fund's interest in a Portfolio based upon the vote of its shareholders
or the Board may determine to vote the Fund's interests in a Portfolio in the
same proportion as the vote of all other interestholders in the Portfolio. If
there are other investors in the Portfolio, there can be no assurance that any
issue that receives a majority of the votes cast by Fund shareholders would
receive a majority of votes cast by all investors in the Portfolio; indeed, if
other investors hold a majority interest in the Portfolio, they could have
voting control of the Portfolio.
The Portfolios do not sell their shares directly to members of the
general public. Another investor in a 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 offering price as a Fund and could have
different fees and expenses than the Fund. Therefore, Fund shareholders may have
different returns than shareholders in another investment company that invests
exclusively in a Portfolio. There is currently no such other investment company
that offers its shares to members of the general public. Information regarding
any such funds in the future is available from Schroder Capital Funds (the
"Core") or Schroder Core II by calling Forum Shareholder Services, LLC at
1-800-730-2932.
Under federal securities law, any person or entity that signs a
registration statement may be liable for a misstatement or omission of a
material fact in the registration statement. Schroder Core, Schroder Core II,
their trustees and certain of their officers are required to sign the
registration statement and amendments thereto of the Trust and may be required
to sign the registration statements of certain other investors in a Portfolio.
In addition, under federal securities law, Schroder Core or Schroder Core II may
be liable for misstatements or omissions of a material fact in any proxy
soliciting material of a publicly offered investor in Schroder Core or Schroder
Core II, including a Fund. Each investor in a Portfolio, including the Trust,
has agreed to indemnify Schroder Core or Schroder Core II and its Trustees and
officers ("Schroder Core Indemnitees") against certain claims.
Indemnified claims are those brought against Schroder Core Indemnitees
based on a misstatement or omission of a material fact in the investor's
registration statement or proxy materials. No indemnification need be made,
however, if such alleged misstatement or omission relates to information about
Schroder Core and was supplied to the investor by Schroder Core or Schroder Core
II. Similarly, Schroder Core or Schroder Core II will indemnify each investor in
a Portfolio, including the Fund, for any claims brought against the investor
with respect
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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 or Schroder Core II that is supplied to the
investor by Schroder Core or Schroder Core II. In addition, each registered
investment company investor in the Portfolio will indemnify each Schroder Core
Indemnitee against any claim based on a misstatement or omission of a material
fact relating to information about a series of the registered investment company
that did not invest in the Schroder Core or Schroder Core II. The purpose of
these cross-indemnity provisions is principally to limit the liability of
Schroder Core or 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 or Schroder Core II, its
liability is similarly limited to information about and supplied by it.
CERTAIN RISKS OF INVESTING IN THE PORTFOLIOS. A Fund's investment in a
Portfolio may be affected by the actions of other large investors in the
Portfolio, if any. For example, if a Portfolio had a large investor other than
the Fund that redeemed its interest in the Portfolio, the Portfolio's remaining
investors (including the Fund) might, as a result, experience higher pro rata
operating expenses, thereby producing lower returns.
A Fund may withdraw its entire investment from a Portfolio at any time,
if the Trust Board determines that it is in the best interests of the Fund and
its shareholders to do so. A Fund might withdraw, for example, if there were
other investors in the Portfolio with power to, and who did by a vote of the
shareholders of all investors (including the Fund), change the investment
objective or policies of the Portfolio in a manner not acceptable to the Trust
Board. A withdrawal could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) by the Portfolio. That
distribution could result in a less diversified portfolio of investments for the
Fund and could affect adversely the liquidity of the Fund's portfolio. If the
Fund decided to convert those securities to cash, it would likely incur
brokerage fees or other transaction costs. If the Fund withdrew its investment
from the Portfolio, the Trust Board would consider appropriate alternatives,
including the management of the Fund's assets in accordance with its investment
objective and policies by SCMI or the investment of all of the Fund's investable
assets in another pooled investment entity having substantially the same
investment objective as the Fund. The inability of the Fund to find a suitable
replacement investment, if the Board decided not to permit SCMI to manage the
Fund's assets, could have a significant impact on shareholders of the Fund.
Each investor in the Portfolio, including the Fund, may be liable for
all obligations of the Portfolio. The risk to an investor in the Portfolio of
incurring financial loss on account of such liability, however, is limited to
circumstances in which the Portfolio is unable to meet its obligations, the
occurrence of which SCMI considers to be quite remote. Upon liquidation of the
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
ORGANIZATION OF THE TRUST
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 is
registered as an open-end management investment company under the 1940 Act.
Delaware law provides that shareholders shall be entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. Securities regulators of some states, however, have
indicated that they and the courts in their state may decline to apply Delaware
law on this point. To guard against this risk, the Trust Instrument contains an
express disclaimer of shareholder liability for the debts, liabilities,
obligations, and expenses of the Trust. The Trust Instrument provides for
indemnification out of each series' property of any shareholder or former
shareholder held personally liable for the obligations of the series. The Trust
Instrument also provides that each series shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the series and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which Delaware law does not apply (or no contractual limitation
of liability was in effect) and the series is unable to meet its obligations.
Schroder believes that, in view of the above, there is no risk of personal
liability to shareholders.
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CAPITALIZATION AND VOTING
The Trust has authorized an unlimited number of shares of beneficial
interest. The Trust Board may, without shareholder approval, divide the
authorized shares into an unlimited number of separate series (such as the
Funds) and may divide series into classes of shares, and the costs of doing so
may be borne by a series or a class or the Trust in accordance with the Trust
Instrument. The Trust currently consists of nine series. Each series offers two
classes of shares, Investor Shares and Advisor Shares except for Schroder Micro
Cap Fund, which has authorized only Investor Shares..
When issued for the consideration described in the relevant Prospectus
or under the dividend reinvestment plan, shares are fully paid, nonassessable,
and have no preferences as to conversion, exchange, dividends, retirement or
other features. Shares have no preemptive rights and have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Trustees can elect 100% of the Trustees if they choose to do so.
Each shareholder of record is entitled to one vote for each full share held (and
a fractional vote for each fractional share held).
The Trust does not hold annual meetings of shareholders. The matters
considered at an annual meeting typically include the reelection of Trustees,
approval of an investment advisory agreement, and the ratification of the
selection of independent accountants. These matters are not submitted to
shareholders unless a meeting of shareholders is held for some other reason,
such as those indicated below. Each Trustee serves until death, resignation or
removal. Vacancies are filled by the remaining Trustees, subject to the
provisions of the 1940 Act requiring a meeting of shareholders for election of
Trustees to fill vacancies. Similarly, the selection of independent accountants
and renewal of investment advisory agreements for future years is performed
annually by the Trust Board. Future shareholder meetings will be held to elect
Trustees if required by the 1940 Act, to obtain shareholder approval of changes
in fundamental investment policies, to obtain shareholder approval of material
changes in investment advisory agreements, to select new independent accountants
if the employment of the Trust's independent accountants has been terminated,
and to seek any other shareholder approval required under the 1940 Act. The
Trust Board has the power to call a meeting of shareholders at any time when it
believes it is necessary or appropriate.
In addition to the foregoing rights, the Trust Instrument provides that
holders of at least two-thirds of the outstanding shares of the Trust may remove
any person serving as a Trustee at any meeting of the shareholders.
PERFORMANCE INFORMATION
Performance quotations of the average annual total return and
cumulative total return of a Fund is provided in advertisements or reports to
shareholders or prospective investors.
Quotations of average annual total return are expressed in terms of the
average annual compounded rate of return of a hypothetical investment in a fund
or class over periods of 1, 5 and 10 years (or since commencement of operations
if any of these periods are not available), calculated pursuant to the following
formula:
P (1+T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years, and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the period). All
total return figures reflect the deduction of fund and any class expenses (net
of any reimbursed expenses) on an annual basis and generally assume that all
dividends and distributions, when paid, are reinvested in shares of the same
class.
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Quotations of cumulative total return reflect only the performance of a
hypothetical investment in a fund or a class during the particular time period
shown. Cumulative total returns vary based on changes in market conditions and
the level of a fund's and any applicable class's expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.
In communications to current or prospective shareholders, performance
figures such as cumulative total return, also may be compared with the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indexes that may assume reinvestment of dividends but generally do not
reflect deductions for administrative and management costs.
Investors who purchase and redeem shares through a customer account
maintained at a financial institution or a Service Organization may be charged
one or more of the following types of fees as agreed upon by the financial
institution or Service Organization and the investor, with respect to the
customer services provided: (1) account fees (a fixed amount per month or per
year); (2) transaction fees (a fixed amount per transaction processed); (3)
compensating balance requirements (a minimum dollar amount a customer must
maintain in order to obtain the services offered); or (4) account maintenance
fees (a periodic charge based upon a percentage of the assets in the account or
of the dividends paid on these assets). Such fees have the effect of reducing
the average annual or cumulative total returns for those investors.
For information regarding performance data as for the relevant period
for each of the Funds, see Appendix A.
PRINCIPAL SHAREHOLDERS
For information regarding Principal Shareholders of each Fund, see
Table 4 in APPENDIX B.
CUSTODIAN
The Chase Manhattan Bank, through its Global Custody Division located
in London, England, acts as custodian of the Funds' and the Portfolios' assets
but plays no role in making decisions as to the purchase or sale of portfolio
securities for the Funds or the Portfolios. Pursuant to rules adopted under the
1940 Act, a Portfolio may maintain its foreign securities and cash in the
custody of certain eligible foreign banks and securities depositories. Selection
of these foreign custodial institutions is made currently by the Core Trust
Board following a consideration of a number of factors, including (but not
limited to) the reliability and financial stability of the institution; the
ability of the institution to perform capably custodial services for the
Portfolio; the reputation of the institution in its national market; the
political and economic stability of the country in which the institution is
located; and further risks of potential nationalization or expropriation of
Portfolio assets.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Forum Shareholder Services, LLC, Two Portland Square, Portland, Maine
04101, acts as the Funds' transfer agent and dividend disbursing agent.
LEGAL COUNSEL
Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624,
serves as counsel to the Trust.
INDEPENDENT ACCOUNTANT
PricewaterhouseCoopers LLP serves as independent accountants for the
Trust. PricewaterhouseCoopers LLP provides audit services and consultation in
connection with review of U.S. SEC filings. Their address is One Post Office
Square, Boston, Massachusetts 02109.
39
<PAGE>
YEAR 2000 DISCLOSURE
The Funds receive services from the investment advisors, administrators,
distributor, transfer agent and custodian which rely on the smooth functioning
of their respective systems and the systems of others to perform those services.
It is generally recognized that certain systems in use today may not perform
their intended functions adequately after the Year 1999 because of the inability
of the software to distinguish the year 2000 from the year 1900. Schroder
Advisors is taking steps that it believes are reasonably designed to address
this potential "Year 2000" problem and to obtain satisfactory assurances that
comparable steps are being taken by each of the Funds' other major service
providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Funds from this problem.
REGISTRATION STATEMENT
This SAI and each Prospectus do not contain all the information
included in the Trust's registration statement filed with the SEC under the
Securities Act of 1933 with respect to the securities offered hereby, certain
portions of which have been omitted pursuant to the rules and regulations of the
SEC. The registration statement, including the exhibits filed therewith, may be
examined at the office of the SEC in Washington, D.C.
Statements contained herein and in each Prospectus as to the contents
of any contract or other documents referred to are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The fiscal year end of Schroder International Fund, Schroder International
Smaller Companies Fund, and Schroder U.S. Diversified Growth Fund is October 31.
The fiscal year end of Schroder International Bond Fund is December 31. The
fiscal year end of Schroder Emerging Markets Fund, Schroder U.S. Smaller
Companies Fund, and Schroder Micro Cap Fund is May 31.
Financial statements for each Fund's semi-annual period and fiscal year
will be distributed to shareholders of record. The Board in the future may
change the fiscal year end of a Fund.
The following financial statements are incorporated by reference into
this SAI:
Audited financial statements for the fiscal year ended May 31, 1998
including Schedule of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, Financial
Highlights, Notes to Financial Statements and Report of Independent
Accountants for Schroder Emerging Markets Fund, Schroder U.S. Smaller
Companies Fund, and Schroder Micro Cap Fund (and including the audited
financial statements of the Portfolio in which each Fund invests, where
applicable) (Annual Reports filed via EDGAR on August 7, 1998, August
11, 1998 and August 7, 1998, accession numbers 0001004402-98-000434,
0000889812-98-001913, and 0001004402-98-00435, respectively).
Unaudited financial statements for the period ended April 30, 1998
including Schedule of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, Financial
Highlights, Notes to Financial Statements for Schroder International
Smaller Companies Fund, Schroder International Fund and Schroder U.S.
Diversified Growth Fund (and including the unaudited financial
statements of the Portfolio in which each Fund invests, where
applicable) (Semi-Annual Reports filed via EDGAR on June 30, 1998,
accession numbers 0000889812-98-001656, 0000889812-98-001655, and
0000889812-98-001654, respectively).
Unaudited financial statements for the period ended June 30, 1998
including Schedule of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, Financial
40
<PAGE>
Highlights, Notes to Financial Statements for Schroder International
Bond Fund (and for Schroder International Bond Portfolio) (Semi-Annual
Report filed via EDGAR on September 8, 1998, accession number
0001004402-98-000484).
Audited financial statements for the fiscal year ended October 31, 1997
including Schedule of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, Financial
Highlights, Notes to Financial Statements and Report of Independent
Accountants for Schroder International Fund, Schroder International
Smaller Companies Fund and Schroder U.S. Diversified Growth Fund (and
including the audited financial statements of the Portfolio in which
each Fund invests, where applicable) (Annual Reports filed via EDGAR on
January 6, 1998 and January 9, 1998, accession numbers
0000889812-98-000006, 000889812-98-000005, 000889812-98-000004 and
0001004402-98-000018, respectively).
41
<PAGE>
APPENDIX A
PERFORMANCE INFORMATION
The average annual return of each of Schroder International Fund,
Schroder International Smaller Companies Fund, and Schroder U.S. Diversified
Growth Fund for the semi-annual period ended April 30, 1998 is shown below. The
average annual return for Schroder International Bond Fund for the semi-annual
period ended June 30, 1998, is shown below. The average annual return for
Schroder Emerging Markets Fund, Schroder U.S. Smaller Companies Fund and
Schroder Micro Cap Fund for the fiscal year ended May 31, 1998 is shown below.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR SINCE
ONE THREE YEAR ONE THREE FIVE TEN INCEPTION
MONTHS MONTHS TO DATE YEAR YEARS YEARS YEARS ANNUALIZED
------ ------ ------- ---- ----- ----- ----- -----------
SCHRODER INTERNATIONAL
FUND
Investor Shares 1.98% 12.41% 16.83% 17.59% 13.23% 13.35% 9.50% 12.69%
Advisor Shares 1.98% 12.34% 16.33% N/A N/A N/A N/A 13.69%
SCHRODER EMERGING MARKETS
FUND
Investor Shares (13/66)% (10.85)% (10.55)% N/A N/A N/A N/A
SCHRODER INTERNATIONAL
SMALLER COMPANIES FUND
Investor Shares 5.09% 17.29% 26.37% 15.02% N/A N/A N/A N/A
SCHRODER INTERNATIONAL
BOND FUND
Investor Shares (1.60)% (1.40)% (1.70)% N/A N/A N/A N/A N/A
SCHRODER U.S. DIVERSIFIED
GROWTH FUND
Investor Shares 0.48% 14.79% 12.50% 34.09% 25.59% 17.99% 16.36% 11.75%
SCHRODER U.S. SMALLER
COMPANIES FUND
Investor Shares (5.14)% 0.89% 5.50% 21.63% 28.70% N/A N/A 24.23%
Advisor Shares (5.15)% 0.82% 5.44% 21.50% N/A N/A N/A 23.24%
SCHRODER MICRO CAP FUND
Investor Shares (0.63)% 19.93% 34.91% N/A N/A N/A N/A N/A
- --------------------------- - ----------- ----------- ---------- ----------- ----------- ---------- ----------- -------------
</TABLE>
As of May 31, 1998, there were no outstanding Advisor Shares of any Fund other
than Schroder International Fund and Schroder U.S. Smaller Companies Fund.
A-1
<PAGE>
APPENDIX B
MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
Fees are paid at the Portfolio level where the Fund invests in a Portfolio. If
the Fund invests in other than in a Portfolio, the expense is paid by the Fund.
<TABLE>
<S> <C> <C> <C>
GROSS FEE FEE WAIVED NET FEE PAID
--------- ---------- ------------
SCHRODER INTERNATIONAL FUND
Year Ended October 31, 1997 $891,659 $47,444 $844,215
Year Ended October 31, 1996 $978,697 $51,971 $926,726
Year Ended October 31, 1995 $893,082 $ 0 $893,082
SCHRODER INTERNATIONAL SMALLER
COMPANIES FUND
Year Ended October 31, 1997 $60,033 $60,033 $ 0
SCHRODER U.S. DIVERSIFIED GROWTH FUND
Year Ended October 31, 1997 $118,887 $28,422 $ 90,465
Year Ended October 31, 1996 $139,483 $ 4,355 $135,128
Year Ended October 31, 1995 $140,988 $ 0 $140,988
SCHRODER INTERNATIONAL BOND FUND(1)
Period Ended December 31, 1997 $53,529 $53,529 $ 0
SCHRODER EMERGING MARKETS FUND
Year Ended May 31, 1998 $ 22 $ 15 $ 7
SCHRODER U.S. SMALLER COMPANIES FUND
Year Ended May 31, 1998
Investor Shares $243,031 $ 0 $243,031
Advisor Shares $ 11,697 $ 0 $ 11,697
Period Ended May 31, 1997 $ 59,916 $10,038 $ 49,878
Year Ended October 31, 1996 $ 76,373 $16,090 $ 60,283
SCHRODER MICRO CAP FUND
Year Ended May 31, 1998 $26,896 $26,896 $ 0
Period Ended November 30, 1997 $ 3,733 $ 3,733 $ 0
</TABLE>
- ----------------------------------------- - ----------------- -- ---------------
(1) For the first full year International Bond Portfolio has been in
operation.
B-1
<PAGE>
TABLE 2 - ADMINISTRATION FEES
(Includes the Fund's Proportion of the Portfolio's Expenses where Applicable)
A. ADMINISTRATION FEES PAID TO SCHRODER FUND ADVISORS, INC.
<TABLE>
<S> <C> <C> <C>
NET FEE
GROSS FEE FEE WAIVED PAID
--------- ---------- ----
SCHRODER INTERNATIONAL FUND
Year Ended October 31, 1997 $463,353 $ 97,253 $366,100
Year Ended October 31, 1996 $761,036 $ 61,259 $699,777
Year Ended October 31, 1995 $446,541 $ 0 $446,541
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
Year Ended October 31, 1997 $ 18,234 $ 17,657 $ 577
SCHRODER U.S. DIVERSIFIED GROWTH FUND
Year Ended October 31, 1997 $ 0 $ 0 $ 0
Year Ended October 31, 1996 $ 0 $ 0 $ 0
Year Ended october 31, 1995 $ 0 $ 0 $ 0
SCHRODER INTERNATIONAL BOND FUND
Period Ended December 31, 1997 $ 10,706 $ 10,706 $ 0
SCHRODER EMERGING MARKETS FUND
Year Ended May 31, 1998 $ 5 $ 0 $ 5
SCHRODER U.S. SMALLER COMPANIES FUND
Year Ended May 31, 1998
Investor Shares $101,204 $ 0 $101,204
Advisor Shares $ 4,871 $ 0 $ 4,871
Period Ended May 31, 1997 $ 25,060 $ 25,060 $ 0
Year Ended October 31, 1996 $ 41,063 $ 26,850 $ 14,213
SCHRODER MICRO CAP FUND
Year Ended May 31, 1998 $5,379 $5,379 $ 0
Period Ended November 30, 1997 $ 747 $ 747 $ 0
</TABLE>
B-2
<PAGE>
B. SUBADMINSTRATION FEES PAID TO FORUM ADMINISTRATIVE SERVICES, LLC
<TABLE>
<S> <C> <C> <C>
NET FEE
GROSS FEE FEE WAIVED PAID
--------- ---------- ----
SCHRODER INTERNATIONAL FUND
Year Ended October 31, 1997 $229,792 $ 0 $229,792
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
Year Ended October 31, 1997 $ 10,018 $ 0 $ 10,018
SCHRODER U.S. DIVERSIFIED GROWTH FUND
Year Ended October 31, 1997 $ 15,853 $ 0 $ 15,853
SCHRODER INTERNATIONAL BOND FUND
Period Ended December 31, 1997 $ 25,000 $ 25,000 $ 0
SCHRODER EMERGING MARKETS FUND
Year Ended May 31, 1998 $ 2,742 $ 2,742 $ 4
SCHRODER U.S. SMALLER COMPANIES FUND
Year Ended May 31, 1998
Investor Shares $ 60,740 $ 0 $ 60,740
Advisor Shares $ 2,923 $ 0 $ 2,923
Period Ended May 31, 1997 $ 15,007 $ 0 $ 15,007
SCHRODER MICRO CAP FUND
Year Ended May 31, 1998 $15,685 $13,533 $ 2,152
Period Ended November 30, 1997 $ 299 $ 0 $ 299
</TABLE>
B-3
<PAGE>
TABLE 3 - FUND ACCOUNTING FEES
(Includes the Fund's Share of the Portfolio's Expense, where applicable)
<TABLE>
<S> <C> <C> <C>
GROSS FEE FEE WAIVED NET FEE PAID
--------- ---------- ------------
SCHRODER INTERNATIONAL FUND
Year Ended October 31, 1997 $83,959 $ 0 $83,959
Year Ended October 31, 1996 $86,000 $ 0 $86,000
Year Ended October 31, 1995 $72,000 $ 0 $72,000
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
Year Ended October 31, 1997 $71,200 $ 0 $71,200
SCHRODER U.S. DIVERSIFIED GROWTH FUND
Year Ended October 31, 1997 $36,000 $ 0 $36,000
Year Ended October 31, 1996 $36,000 $ 0 $36,000
Year Ended October 31, 1995 $38,000 $ 0 $38,000
SCHRODER INTERNATIONAL BOND FUND(1)
Period Ended December 31, 1997 $62,000 $24,000 $38,000
SCHRODER EMERGING MARKETS FUND
Year Ended May 31, 1998 $ 1,306 $ 0 $ 1,306
SCHRODER U.S. SMALLER COMPANIES FUND
Year Ended May 31, 1998
Investor Shares $18,378 $ 0 $18,378
Advisor Shares $ 801 $ 0 $18,378
Period Ended May 31, 1997 $12,955 $ 0 $12,955
Year Ended October 31, 1996 $37,972 $ 0 $37,972
SCHRODER MICRO CAP FUND
Year Ended May 31, 1998 $27,645 $ 0 $27,645
Period Ended November 30, 1997 $ 4,645 $ 0 $ 4,645
</TABLE>
- -----------------------------------------------------
(1) For the first full year Schroder International Bond Portfolio has been
in operation.
B-4
<PAGE>
TABLE 4 - HOLDERS OF 5% OR MORE OF OUTSTANDING SHARES
As of August 31, 1998, the shareholders listed below owned more than 5% of a
Fund as noted. Shareholders owning 25% or more of the shares of a Fund or of the
Trust as a whole may be deemed to be controlling persons. By reason of their
substantial holdings of shares, these persons may be able to require the Trust
to hold a shareholder meeting to vote on certain issues and may be able to
determine the outcome of any shareholder vote. As noted, certain of these
shareholders are known to the Trust to hold their shares of record only and have
no beneficial interest, including the right to vote, in the shares.
<TABLE>
<S> <C> <C> <C>
NUMBER OF NUMBER OF % OF SHARES
INVESTOR ADVISOR OF FUND
SHARES SHARES CLASS OWNED
------ ------ -----------
SCHRODER INTERNATIONAL FUND
Mac & Co.
Mellon Bank NA
PO Box 3198
Pittsburgh PA 15230-3198 928,314.855 11.51
Mac & Co.
Mellon Bank NA
PO Box 3198
Pittsburgh PA 15230-3198 916,961.447 11.37
Union College Pooled Endowment Funds
PO Box 3199 Church Street Station
New York NY 10008 828,387.036 10.28
Lutheran Church
Missouri Synod Foundation
1333 5 Kirkwood Road
St. Louis MO 63122 661,134.137 8.20
Norwest Bank Minnesota NA, Trustee
PO Box 1450 NW 8477
Minneapolis MN 55480-8477 548,281.576 6.80
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C> <C> <C>
NUMBER OF NUMBER OF % OF SHARES
INVESTOR ADVISOR OF FUND
SHARES SHARES CLASS OWNED
------ ------ -----------
SCHRODER INTERNATIONAL FUND (CONTINUED)
Northern Trust Company TEE for
Norwest Foundation
c/o Mutual Fund Processing
P.O. Box 92956
Chicago, IL 60675-2956 526,318.089 6.52
Miter & Co
c/o Marshall & Ilsley Trust Company
PO Box 2977
Milwaukee WI 53202-2977 492,436.243 6.10
Forum Administrative Services, LLC
ATTN Corporate Accounting
Two Portland Square
Portland, ME 04101 5.429 100
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
Schroder Investment Management
Client Account
33 Gutter Lane
London EC2V 8AS
United Kingdom 300,000.00 67.47
Hudson-Webber Foundation
333 West Fort Street, Suite 1310
Detroit, MI 48226 105,675.441 23.77
Charles Schwab & Co. Inc.
Special Customer Account
Attn: Mutual Funds
101 Montgomery Street
San Francisco CA 94104 38,667.365 8.70
SCHRODER U.S. DIVERSIFIED GROWTH FUND
Wendel & Co.
c/o The Bank of New York
Mutual Fund Reorg. Dept.
PO Box 1066
Wall Street Station
New York NY 10268 151,693.424 9.27
Security Nominees Incorporated
1 State Street
New York NY 10017 113,383.988 6.93
B-6
<PAGE>
Citibank F.S.B. as Trustee
for Natwest Crawley
1410 N. Westshore Blvd. 102,810.356 6.29
Tampa FL 33607
Fox & Co.
PO Box 976
New York NY 10268 95,661.743 5.85
Wendel & Co.
c/o The Bank of New York
EBT Mutual Fund Section
PO Box 1066
Wall Street Station
New York NY 10268 85,776.999 5.24
SCHRODER INTERNATIONAL BOND FUND
Charles Schwab & Co. Inc.
101 Montgomery Street
San Francisco CA 94104 6,001.655 100.00
SCHRODER EMERGING MARKETS FUND
Charles Schwab & Co. Inc.
Special Cust Account FBO
101 Montgomery Street
San Francisco CA 94104 57,726.027 96.30
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C> <C> <C>
NUMBER OF NUMBER OF % OF SHARES
INVESTOR ADVISOR OF FUND
SHARES SHARES CLASS OWNED
------ ------ -----------
SCHRODER U.S. SMALLER COMPANIES FUND
First American Trust Co TTEE
FBO Managed Omnibus Reinvestment
421 North main Street 1,018,447.865 21.98
BALSA & Co.
c/o Chase Manhattan Bank
PO Box 1768
Grand Central Station
New York, NY 10163-1768 641,387.856 13.85
FTC & Co.
PO Box 173736
Denver CO 80217-3736 489,639.244 10.57
Charles Schwab & Co Inc.
101 Montgomery Street
San Francisco CA 94104 397,465.194 8.58
Schroder Nominees Limited
120 Cheapside
London EC2V 6DS
United Kingdom 286,178.869 6.18
Donaldson Lufkin & Jenrette
Securities Corporation
Jersey City NJ 07303 257,155.682 85.89
National Investor Services Corp.
55 Water Street
New York NY 10041 32,010.861 10.69
SCHRODER MICRO CAP FUND
Schroders Incorporated
787 Seventh Avenue
New York NY 10019 144,036.581 32.00
Boston Financial Data Services
FBO Schroder International Omnibus A/C
116,942.359 25.98
Schroder Capital Management International Inc.
ATTN: Fergal Cassidy
787 7th Avenue, 34th Floor
New York, NY 10019 60.044.763 13.34
B-8
<PAGE>
Charles Schwab & Co. Inc.
101 Montgomery Street
San Francisco CA 94104 38,431.528 8.54
Ira Unschuld
150 East 56th Street
New York NY 10022 36318.370 8.07
</TABLE>
B-9
<PAGE>
TABLE 5- BROKERAGE COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
each Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
With respect to each Fund that invests in a Portfolio, the amounts represent
aggregate brokerage commissions paid by the Portfolio.
<TABLE>
<S> <C> <C> <C> <C>
PERCENTAGE
OF COMMISSION
TRANSACTIONS
PERCENTAGE OF EXECUTED
COMMISSIONS COMMISSIONS THROUGH
AGGREGATE PAID TO PAID TO SCHRODER &
COMMISSIONS SCHRODER & SCHRODER & CO. INC.
PAID CO. INC. CO. INC. ---------
---- -------- -------
SCHRODER INTERNATIONAL FUND
Year Ended October 31, 1997 $421,129 $4,716 0.99% 1.11%
Year Ended October 31, 1996 $756,181 0 0 0
Year Ended October 31, 1995 $584,429 0 0 0
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND
Year Ended October 31, 1997 $ 37,223 0 0 0
SCHRODER U.S. DIVERSIFIED GROWTH FUND
Year Ended October 31, 1997 $ 20,510 0 0 0
Year Ended October 31, 1996
Year Ended October 31, 1995
SCHRODER INTERNATIONAL BOND FUND(1)
Period Ended December 31, 1997 $ 297 0 0 0
SCHRODER EMERGING MARKETS FUND
Year Ended May 31, 1998 $ 92,368 0 0 0
SCHRODER U.S. SMALLER COMPANIES FUND
Year Ended May 31, 1998 $491,278 0 0 0
Period Ended May 31, 1997 $167,043 0 0 0
Year Ended October 31, 1996 $137,589 0 0 0
SCHRODER MICRO CAP FUND
Year Ended May 31, 1998 $ 11,185 0 0 0
Period Ended November 30, 1997 $ 2,966 0 0 0
</TABLE>
During the last three fiscal years certain Funds paid brokerage commissions to
Schroder & Co. Inc., an affiliate of SCMI. The tables above indicate the Funds
that paid commissions to Schroder & Co. Inc., the aggregate amounts of
commissions paid, the percentage of aggregate brokerage commissions paid to
Schroder & Co. Inc. and the percentage of the aggregate dollar amount of
transactions involving payment of commissions that were effected through
Schroder & Co. Inc.
- ----------------------------------------------------
(1) Based solely on the first full year of the Portfolio.
B-10